Final Results
Craneware plc
("Craneware" or the "Company" or the "Group")
Final Results
Strong sales and operational performance with continuing adoption of the Trisus platform
21 September 2021 - 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 2021.
Financial Highlights (US dollars)
· Revenue growth of 6% to $75.6m (FY20: $71.5m)
· Three Year Total Visible Revenue3 (including Sentry contribution from 13th July 2021 onwards) of $471.2m (FY20 same 3 year period: $196.2m)
· Adjusted EBITDA1 increased 8% to $27.1m (FY20: $25.2m)
· Profit before tax $13.2m (FY20: $19.3m) reflecting exceptional costs associated with acquisition funding
· Basic adjusted EPS2 increased 6% to 69.0 cents (FY20: 65.4 cents) and adjusted diluted EPS increased to 68.1 cents (FY20: 64.4 cents)
· Basic EPS 48.1cents (FY20: 62.8 cents) and diluted EPS 47.5cents (FY20: 61.9 cents)
· Strong operating cash conversion3. at 99% of Adjusted EBITDA (FY20: 92%)
· Cash at year-end of $235.6m (FY20: $47.9m) after raising $187.3m (net) via a share placing and prior to completion of Sentry acquisition
· Proposed final dividend increase to 15.5p per share (21.47 cents) (FY20: 15.0p, 18.45 cents) giving a total dividend for the year of 27.5p per share (38.10 cents) (FY20: 26.5p, 32.60 cents) up 4%
1. Adjusted EBITDA refers to earnings before interest, tax, depreciation, amortisation, exceptional items and share based payments
2. Adjusted Earnings per share (EPS) calculations allow for the tax adjusted acquisition costs and share related transactions together with amortisation on acquired intangible assets
3 Refer to the Financial Review section of the Strategic Report for further details
Operational Highlights
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Total Sales4 for the year increased 19% to $78.1m (FY20: $65.4m) |
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New Sales5 for the year increased 40% to $42.4m (FY20: $30.4m) |
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Sales of Trisus Enterprise Value Platform products represented 17% of New Sales in the year (FY20: 14%) |
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Acceleration of migration of customers to the Trisus platform, with the Trisus user base increasing to over 900 customers (FY20: 200 customers) |
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Continued investment in R&D and innovation to capitalise on growing market opportunity |
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The acquisition of Sentry Data Systems, Inc. was completed following the year end, significantly expanding Craneware's scale, offering and opportunity |
4. Total Sales refers to the total value of contracts signed in the year, consisting of New Sales and Renewals
5. New Sales refers to the total value of contracts with new customers or new products to existing customers at some time in their underlying contract
Outlook
· Continued sales momentum across the now enlarged Group
· Integration of Sentry proceeding faster than original expectations
· Long-term transition to value-based care provides ongoing basis for growth
· Confident in return to double digit organic growth in future years
Keith Neilson, CEO of Craneware plc commented ,
"Our team delivered a positive performance in the year, against the ongoing backdrop of the pandemic, supporting our customers through an incredibly challenging period while continuing to execute on our strategy. We experienced continued sales momentum and strong adoption of our Trisus cloud based platform, paving the way for accelerated future growth.
"The successful completion of the acquisition of Sentry Data Systems following the end of the year marks a transformational point in our journey, considerably expanding our customer base, data sets, product offering and market presence. Together, we will offer healthcare organisations innovative new ways to measurably improved operational and financial performance to generate sustainable margins that they can re-invest to provide better care for those underserved communities.
"With a strong balance sheet, high levels of recurring revenues, high customer retention rates and visible revenue in the next three years of $471.2m, we have a strong financial foundation from which to accelerate growth and to fulfil our potential, thereby increasing future shareholder value.
"We have enjoyed early sales momentum across the now enlarged Group and with our expanded opportunity we look to the future with considerable excitement and confidence as we work with the Sentry team to transform the business of US healthcare."
For further information, please contact:
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Craneware plc |
+44 (0)131 550 3100 |
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Keith Neilson, CEO |
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Craig Preston, CFO |
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Alma (Financial PR) |
+44 (0)20 3405 0205 |
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Caroline Forde, Hilary Buchanan, Robyn Fisher, Joe Pederzolli |
craneware@almapr.co.uk |
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Peel Hunt (NOMAD and Joint Broker) |
+44 (0)20 7418 8900 |
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Dan Webster, George Sellar, Andrew Clark |
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Investec Bank PLC (Joint Broker) |
+44 (0)20 7597 5970 |
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Patrick Robb, Henry Reast, Sebastian Lawrence |
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Berenberg (Joint Broker ) |
+44 (0)20 3207 7800 |
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Mark Whitmore, Jack Botros, Alix Mecklenburg-Solodkoff |
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About Craneware
Craneware (AIM: CRW.L), the leader in automated value cycle solutions, collaborates with U.S. healthcare providers to plan, execute and monitor financial and operational performance so they can continue to drive better outcomes for the communities they serve. Craneware's Trisus platform combines revenue integrity, cost management and decision enablement into a single SaaS-based platform. Our flagship solution, Chargemaster Toolkit®, continually earns KLAS recognition in the Revenue Cycle - Chargemaster Management category and is part of our value cycle management suite, which includes charge capture, strategic pricing, 340B compliance, claims analytics, patient engagement, revenue recovery and retention, and cost and margin intelligence solutions.
Learn more at craneware.com.
Chairman's Statement
In a year still defined by the wider context of a global pandemic, our purpose has been brought into sharp focus. As we reflect on our mission, I am proud of the impact Craneware has made in helping our US healthcare customers improve operational efficiency and margins so that they can continue to invest in providing quality care for their communities.
Our contribution and continued success are made possible through the efforts of our dedicated and talented employees who work to push Craneware closer towards the long-term ambition of being the pre-eminent company in improving US healthcare. Our teams and customers have shown great fortitude and adaptability in a complex and challenging pandemic environment, and on behalf of the Board I would like to extend our admiration and gratitude.
The Group has made strategic strides in the year through positive sales momentum, targeted innovation and at the same time sustained customer retention rates above 90%, all underpinning the foundation for a return to double-digit organic growth in future years. Continued new product releases drove strong adoption of Trisus, the Group's cloud-based Financial and Operational performance platform, from both new and existing customers. As a result, New Sales increased 40% to over $42.4m (FY20: $30.4m) with approximately 50% of Craneware customers now using one or more of the platform's products. The growing sales momentum translated into an increase in total recognised revenue of 6% to $75.6m, (FY20: $71.5m), with Adjusted EBITDA growing 8% to $27.1m (FY20: $25.2m).
Following the year end, the Group completed the acquisition of US-based Sentry Data Systems, Inc. ("Sentry"), enhancing the Group's pharmacy offering and cementing Craneware's position as a leading provider of Value Cycle solutions to the US healthcare market. This has provided an immediate step change in scale to operations and expanded our coverage of the US Healthcare market with Craneware now serving approximately 40% of all US hospitals and more than 10,000 clinics and pharmacies. In Sentry we identified a business aligned to our vision and the combined data sets from both companies will deliver far-reaching actionable insights for better operational and strategic decisions such that our customers can spend dollars far more productively on keeping people well.
The Group's cash reserves remain healthy, delivering an operating cash conversion rate of 99%, ahead of the prior year's of 92%. We maintained a strong balance sheet, with cash of $235.6m at 30 June 2021, including the net funds of $187.3m received from the equity raise in anticipation of the acquisition of Sentry (FY20: $47.9m).
A continuing focus is our commitment to social responsibility and community engagement. Craneware has and continues to develop many initiatives that contribute to our credentials in these areas. I am particularly proud of the work of Craneware Cares and the Craneware Cares Foundation which is driven by our employees. Even though our staff were mostly working from home through this year, they still managed to help a total of 41 different charities across the UK and US, including our eight Spotlight Charities.
Our opportunity to effect real change is clear and our ability to execute has been considerably enhanced. Following a year of heightened pressure, our US hospital customers are more motivated than ever to implement strategic and long-term planning and our Trisus platform is specifically designed to help them achieve this. The high visibility we have over future revenues combined with our robust financial position gives us the ability to plan and execute our long-term strategy to serve the best needs of our customers. We enter the new year with a strong pipeline, supporting the Board's confidence in the Group's continued growth and our ability to increase stakeholder value.
Strategic Report
We are pleased to deliver this set of financial results in the year, with the growth in customer numbers, New Sales and Trisus Sales being strong indicators of the successes being achieved across all three of our growth pillars, building the foundations for accelerated growth. Through our Trisus platform we are at the vanguard of change in healthcare, a force which continues to gather momentum. Our strong New Sales growth demonstrates the relevance of our offering and we are increasingly confident in achieving our long-term vision of becoming the pre-eminent company in improving US healthcare.
Following our growth in FY21 and the subsequent acquisition of Sentry Data Systems, Inc., approximately 40% of US hospitals are now Craneware customers, alongside more than 10,000 clinics and retail pharmacies. Our enlarged scale and capabilities have considerably strengthened our ability to achieve our mission: to profoundly impact healthcare by improving our customers' operational efficiency and margins so they can continue to invest in providing quality care for their communities. This mission guides our strategy and actions, ensuring that everything we do has a positive impact on our customers' performance.
With over 900 US hospitals now interacting with our Trisus platform, contributing many millions of individual anonymised data points daily, it is an increasingly powerful source of insight into the ways in which hospital management teams can improve their financial and operational performance. Our Trisus platform and applications combine revenue integrity, cost management and decision enablement into a single cloud-based platform. The platform makes the raw data taken from multiple disparate systems useable for analysis, resolves communication gaps between departments, remedies operational inefficiencies and helps to manage and maintain our customers' competitive advantage while preserving margin. In turn, the mitigated risks, efficiencies and returns on investment being delivered by our applications will provide the confidence and continuity for our customers to invest in the delivery of quality care to their communities.
The positive progress in the year has been achieved against the ongoing backdrop of COVID-19. Whilst as a business we continue to be relatively insulated from the direct impacts of the pandemic, our customers are on the front-line, managing a constantly evolving and complex situation. Supporting them and their phenomenal work has been, and will continue to be our top priority. Never has the need for accurate financial data, insight and analytics been more important, and we will continue to do all we can to ensure our customers have the tools they need to maintain the financial health of their organisations and support them in their long-term strategic ambitions.
Market - the move to value-based care continues at pace
Managing the impact of the COVID-19 pandemic has clearly been the top priority for all healthcare-related organisations over the past 18 months and will continue to be so. While elective procedures have increased across the majority of US States, they are yet to get back to pre-pandemic levels. However, industry reports suggest that hospital operating margins have been largely protected through this time.
Operationally, healthcare providers have had to adjust to new methods of healthcare delivery, while ensuring their financial operations have the flexibility and agility to charge for those services appropriately, highlighting the importance of usable financial and operational data. Healthcare providers' requirements for greater insight into cost of care, associated margins and the value being derived is as high, if not higher, than ever. Against that backdrop, the US healthcare market continues to transition from a fee-for-service reimbursement model, towards value-based care, aiming to redress the current imbalance in US healthcare between spend and outcomes. Under value-based care, healthcare providers, including hospitals and physicians, are paid based on patient health outcomes. A hospital's ability to remain financially secure in a value-based care system is dependent on the collection of granular data and the use of insightful analytics to understand the opportunity to deliver better value. This presents a large, growing opportunity for the Group given Craneware's specialism in helping hospitals better understand and manage revenue and cost through data-driven solutions.
Our customers continue to take steps to create further resilience across their financial operations. We are committed to partnering with them by providing the platform, regulatory information and data to enable them to do so. We believe that both the Group and our customer base are strongly placed to deal with the future impacts of the pandemic and for our products to be part of the solution in terms of helping hospital preparedness.
Both Republicans and Democrats have previously expressed their desire for healthcare reform and the industry widely anticipates that reform will remain a key agenda point moving forward, with the drive to derive greater value from healthcare sitting at its heart. Recent government initiatives have seen a robust defence of existing healthcare legislation. In addition, the new administration in the White House has recently expressed the desire to see an increase in investment into healthcare, both from Private Equity and the community, which we anticipate will in turn boost operational investments by healthcare providers.
While other platforms have been designed to address the clinical side of a hospital, from a competitive positioning perspective, we have created the market's only platform addressing the breadth of the value cycle, aiming to solve inefficiencies and waste across both operational, administrative and financial functions of a hospital. Through the acquisition of Sentry, we have created considerable distance between us and other point solution vendors, in terms of depth of data, breadth of offering, size of customer base and scale of operations, increasing our ability to address what is a growing and sustainable, long-term addressable market.
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 data aggregation and intelligence platform which will allow us to migrate our existing products to the cloud, leverage our data assets to expand our offering, integrate third party solutions to the platform and benefit from the scalability of cloud-technology.
Our software solutions sit at the heart of our customers' operations, tapping into the aggregated anonymised data held within Trisus to provide greater insight and control to their financial operations and thereby optimise their financial performance.
Three Growth Pillars
Our growth strategy has three fundamental growth pillars:
1. The transition of our customers to cloud-based versions of our existing on-premise solutions, to act as a gateway to the benefits and additional applications on the Trisus platform.
By the end of June 2021, over 900 customers, approximately half of our customer base, were utilising one or more of the Trisus applications, with almost the entirety of the remainder connecting to the platform via the Trisus Bridge - the first step for significant migration to the platform from within our user base. This is another positive step forward, from the 500 reported at the half year stage and 200 at the end of June 2020, evidence that both our existing customer base and the wider healthcare provider market have responded positively to the technological evolution of the Craneware solution set.
The full Trisus Chargemaster solution, the re-platformed version of our Chargemaster Toolkit, is on course to be available by the end of calendar 2021. All existing Chargemaster Toolkit customers are now on a hybrid version, with their data synchronised to the Trisus platform, and using a single Trisus sign on, meaning migration to the full cloud version and all its additional functionality will take minutes once launched.
We are commencing the migration of customers to Trisus Chargemaster in phases, with migration of early adopters now complete. Customer feedback has been extremely positive, identifying clear additional benefits that the platform is delivering, including ease of migration, use and deployment throughout large scale implementations. We are on track to have all customers migrated to the platform by the end of calendar 2022.
All customers who have signed new contracts for Chargemaster Toolkit in recent periods have an understood migration plan to Trisus Chargemaster and recognise this as an easy entry to the Trisus platform.
We have also commenced the migration of early adopter customers to Trisus Pharmacy Financial Management (TRxFM), a new product, which in phase one, will sit alongside our on-premise Pharmacy ChargeLink. and the range of pharmacy products will subsequently be expanded to include all Pharmacy ChargeLink functionality in a new suite of applications. Pharmacy ChargeLink customers are currently being offered the opportunity to extend their products with the addition of the cloud based TRxFM, which is a precursor to further applications in the Trisus Pharmacy suite, the complete replacement for the on-premise solution. This will continue to be developed in a modular fashion, allowing customers to select which mix of applications best suits their needs as they become available. It is anticipated that the cloud-based replacements for Pharmacy Chargelink (PCL) will be available Q4 FY22.
All of the acquired customers of Sentry are serviced utilising the Oracle cloud architecture.
We are continuing to develop the additional functionality of all our cloud offerings as we move towards general release.
2. To continue to enhance the capabilities of the platform through the addition of new technology layers and applications, developed through internal R&D, selective M&A and Third-Party Partnerships.
During the first half of the year we announced the availability of Trisus Pricing Transparency ("TPT") to all US healthcare providers. This no cost Trisus solution was developed to enable organisations not only to meet CMS Pricing Transparency Final Rule requirements (which came into effect in January 2021) but ensure that organisational pricing data is most accurately represented for patients on an ongoing basis allowing individuals to "shop" for their healthcare needs.
Adoption of the module has continued in the second half with an acceleration of the migration of existing customers to the Trisus platform alongside take-up by new users. This provides a clear pathway for wider Trisus application uptake in the future by these new customers and the significant majority of the 900 Trisus users are now on paid for modules.
Through the growth of our Trisus customer base, and the interaction of their data with the Trisus platform, we have in excess of 120m individual anonymised patient encounters recorded on the platform, an increase of more than 30% over the course of the year. The greater number of data points, the more powerful the analytics and insights that can be provided to help hospitals in their financial decision-making. These encounters include one fifth of all emergency room visits in the US during the last year and almost one quarter of all hospital admissions.
We will continue to invest in expanding the capabilities of the platform, developing additional applications and tools, to provide further benefits to our customers. Following the acquisition of Sentry post year end, the focus is on the integration of Sentry data onto the platform, adding more contextual data which will in turn drive the development of more applications and increase the attractiveness of the platform and provide further reasons for a healthcare provider to join. We are pleased to confirm that the level of sales of Trisus applications exceeds 60% of the amount of capitalised R&D spent on the platform and Trisus applications development to date, already underwriting the majority of the investment made.
M&A
While organic growth remains a priority, we continue to evaluate the market 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:
1. the addition of data sets;
2. the extension of the customer base;
3. the expansion of expertise; and
4. the addition of applications suitable for the US hospital market.
In evaluating acquisition opportunities, the Board implements a strong valuation discipline seeking to maintain its prudent approach to preserving balance sheet strength and efficiency for the long-term. Targets that are profitable with recurring revenue models that provide earnings accretion within the first 12 months of ownership are prioritised.
3. To grow our customer footprint, through increasing the attractiveness of our offering and acquiring non-overlapping customers, which in turn provides further cross-sale opportunities.
We are pleased with the sales activity during the year, which saw New Sales >40% ahead of the prior year. 26% of these New Sales were to net new customers. Expansion Sales to existing customers represented 74%, demonstrating Craneware's ability to continue to cross sell further solutions. All sales have been driven by mitigation of risk, efficiency of operations and compelling ROIs for our customers.
Sales of Trisus products represented 17% of New Sales in the year (FY20: 14%) representing a steadily increasing proportion of sales in addition to the take up from our customers of the Trisus Pricing Transparency product. We also saw our first Trisus renewals in the year.
Customer retention has always been strong, and we continued to see our customer retention rate remain high in the period above 90%.
Acquisition of Sentry Data Systems, Inc.
Sentry Data Systems, Inc. is a leader in pharmacy procurement, compliance and utilisation management. The successful conclusion of the acquisition following the end of the year marks a transformational point in our journey, considerably expanding our customer base, data sets, product offering and market presence.
The acquisition enhances our focus on pharmacy operations within healthcare providers, the largest cost area for US hospitals outside the workforce, and extends the reach of our Pharmacy Chargelink product family within retail and contract specialty pharmacies. Sentry's 147 million unique longitudinal patient records collected over a 17 year period will enhance the power of our Trisus platform and we also envisage significant cross-selling opportunities will be provided by the complementary nature of Sentry's product suite and customer base.
Having known the business and management team for over a decade we are delighted they are now part of our organisation, with a shared vision and purpose. Together, we will offer healthcare organisations innovative new ways to measurably impact operational and financial performance and generate sustainable margins that can be re-invested in providing better care for underserved communities.
Following the acquisition, the Group now serves approximately40 percent of U.S. hospitals and more than 10,000 clinics and retail pharmacies across all the major pharmacy brands as well as local community pharmacies and clinics.
The quality and breadth of the combined data sets from both companies increases our ability to provide far-reaching actionable insights for better operational and strategic decisions, enabling further efficiencies in provider performance so our customers can focus on serving their communities and healthcare missions. The data will be integrated into the Trisus platform to help identify new areas of product development to support our customers. Sentry applications currently reside in modern web architecture environments and no technical integration is required, just the front end of the applications will be harmonised to create the same look and feel.
We anticipate benefits of this increased scale to be seen in greater operational efficiencies across areas such as office space and future product development and provides for a considerably enlarged sales and marketing team. Integration of the Sentry team into our organisation is progressing well, with the various teams now working through their first 100 day integration plans. We have begun the analysis to identify cross-sale opportunities, with these programmes expected to launch in H2 FY22. The successful integration of Sentry will be a key focus for the year ahead.
Our People and Community
As part of our commitment to social responsibility and community engagement, Craneware has continued to develop a number of programs and opportunities to positively impact the community around us. A number of years ago, we formed 'Craneware Cares', an employee committee that is aimed at raising awareness and funds for charity. Craneware Cares and its foundation are integral to our business - 'better outcomes for all' is not just a tag line, it is how we approach our Social agenda.
The focus for 2021 was to help the charities who had been hit by a shortfall in donations as a result of the COVID-19 pandemic. Craneware Cares helped over 40 charities across the UK and the US, not only by making cash donations, but also by providing housing supplies, school supplies, care bags for children in the foster system, holiday gifts and even chocolate easter eggs to The Spartans CFA. Some of the charities we supported include one of our US Spotlight Charities, Guardian Angels Suitcases 4 Kids where we exceeded our goal and sponsored 24 children in need, the MS Therapy Centre by raising funds to allow them to purchase essential physiotherapy equipment so they could continue helping their community, and one of our UK Spotlight Charities, CERT UK, a 100% volunteer-run organisation that takes care of people affected by crisis, emergencies created by natural disasters, to name only a few. The fund-raising activities of Craneware Cares supplement the Volunteer Time Off program where Craneware employees take paid leave to support projects and charities in their communities.
With the addition of Sentry's solutions we are now directly involved in the 340B Program, assisting eligible healthcare organisations with regulatory compliance and pharmacy procurement and utilisation that goes with this program, thereby enabling them to generate cost savings which go directly to the provision of more care for the underserved in their communities.
Financial Review
In a year that has been dominated by the ongoing global pandemic, we are proud of the progress that Craneware has made, whilst, at all times, focusing on delivering to our customers. Our customers are on the front line in dealing with the pandemic and supporting them has been, and will continue to be, our top priority. The role Craneware continues to play, allowing our customers to improve operational efficiency and margins so that they can continue to invest in providing quality care for their communities, has never been more important.
Through this year, the strength of the Craneware business model, it's long term visible revenue, our strong balance sheet and sensible cost management whilst investing for the future have served us well. This has allowed us to continue our development of new products, further building out the depth of the Trisus platform across the Value Cycle, continue our sales momentum delivering a further increase in New Sales in the year, and see a return to growth in key financial metrics for the year. Further, post year end, through the acquisition of Sentry, we have seen a transformational change in the Group's scale and operations.
During the year ended 30 June 2021, we saw significant growth in the Total Contract Value of New Sales of 40% to $42.4m (FY20: $30.4m) which combined with the total value of renewals signed in the year saw a 19% increase in the Total Value of all contracts written to $78.1m (FY20: $65.4m). As a result of our business model, "sales" and "revenue" have very different meanings and are not interchangeable. With only a small proportion of the revenue resulting from the sales made in the year impacting on the current year's reported revenue, the vast majority is recognised in future years, providing further long-term visibility over future revenues, supporting our future growth.
As a result, we are reporting a 6% growth in our Revenue to $75.6m (FY20: $71.5m) which has contributed to an 8% increase in Adjusted EBITDA in the period, growing to $27.1m (FY20: $25.2m).
Acquisition of Sentry Data Systems, Inc.
On 7 June 2021 the Board announced the proposed acquisition of SDS Holdco, Inc., the ultimate holding company of Sentry Data Systems, Inc.. The acquisition was completed on 12 July 2021. The headline consideration for the acquisition of Sentry (on a cash free / debt free basis) was $400m, subject to benchmark level of working capital and other expected adjustments. The consideration for the acquisition was satisfied by the payment of $312.5m (as adjusted) in cash and $87.5m by the issuance of 2,507,348 new ordinary shares in Craneware plc on 14 July 2021.
The cash consideration was funded from a combination of the Group's existing cash resources, a new secured loan of $120m and the $187.3m net proceeds of the share placing which completed in June 2021.
The acquisition marks the next stage of Craneware's growth journey, as the enlarged Group now serves approximately 40 percent of U.S. hospitals and more than 10,000 clinics and retail pharmacies. The increased scale that Sentry brings will deliver greater operational efficiencies across all areas of the Group, including considerably strengthened sales and product development teams.
With the completion of this acquisition after the year end Sentry has not contributed to these results. Also, with the proximity to the publication of these accounts, we have yet to complete the associated acquisition accounting. However, where applicable and meaningful to the KPI's presented we have included details of Sentry's expected contribution.
Associated share placing completed (June 2021)
To partly fund the acquisition of Sentry, in June 2021, the Company completed a share placing which resulted in the allotment of 6,192,652 new Ordinary Shares at an issue price of £22.00 ($31.05) per share, representing approximately 23.1% of the issued share capital prior to the placing.
The Placing was conducted through an accelerated bookbuild process and was effected by way of a cash box structure. This structure was necessary as the Company was required, by the vendors, to reduce the execution risk of the acquisition (recognising the normal risk profile of an expected US purchaser) and, without such certainty, we would likely have been unable to participate in the acquisition process. Whilst the Placing was not carried out on a fully pre-emptive basis, we consulted with our major shareholders prior to the Placing and working with our advisors, respected the principles of pre-emption through the allocation process.
Underlying Business Model
The new contracts we sign with our customers provide a licence for the customer to access specified products throughout their licence period. The underlying licence period of these New Sales are expected to be, on average, four years. At the end of an existing licence period, or at a mutually agreed earlier date, we look to renew these contracts with our customers.
The existing contracts within Sentry are similar in their nature albeit are for a slightly shorter duration. In addition to the licence fees, Sentry can also provide a number of transactional services to customers, throughout the life of their underlying contracts. These transactional services, whilst highly dependable, will see some variation period to period dependent on volume of transactions.
Under the Group's business model, we recognise software licence revenue and any minimum payments due from our 'other long term' contracts evenly over the life of the underlying contract term. Transactional services are recognised as we provide the service and we are contractually able to invoice the customer.
By renewing the 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 are adding to this recurring revenue.
In addition to the licence revenues recognised in any year, we also expect revenue to be recognised from providing services to our customers. These services are typically separately identifiable from any associated licence and as such, revenue is recognised as we deliver the service to the customer, usually on a percentage of completion basis. However, the nature and scope of these engagements will vary depending on both our customers' needs and which of our solutions they have contracted for. As a result, the period over which we deliver the services and consequently recognise the associated revenue will vary.
Sales, Revenue and Revenue Visibility
Total Sales, can be broken down into the total value of contracts with new customers or new products to existing customers at some time in their underlying contract ("New Sales") and the total value of contracts of customers renewing their existing products at the end of their current contract terms ("Renewals").
The table below shows the total value of contracts signed in the relevant years, split between New Sales and Renewals and how these sales have translated into reported revenue in the corresponding year.
Year ended 30 June | 2017 | 2018 | 2019 | 2020 | 2021 |
| $m | $m | $m | $m | $m |
Reported Revenue | 57.8 | 67.1 | 71.4 | 71.5 | 75.6 |
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New Sales | 35.4 | 71.3 | 33.3 | 30.4 | 42.4 |
Renewals* | 18.6 | 27.3 | 29.8 | 35.0 | 35.7 |
Total Contract Value (TCV) | 54.0 | 98.6 | 63.1 | 65.4 | 78.1 |
* As the Group signs new customer contracts for between three to nine years, the number and value of customers' contracts coming to the end of their term ("renewal") will vary year on year. This variation, along with whether customers auto-renew on a one-year basis or renegotiate their contracts for up to a further nine years, will impact the total sales value of renewals in that year
As the majority of the revenue resulting from sales in any one year is recognised over future years, the results in any individual year do not fully reflect this valuable 'asset' that is contracted, but not yet recognised. As such, the Group presents its "Revenue Visibility". This KPI identifies revenues which we reasonably expect to recognise, over the next three-year period, based on sales that have already occurred.
With the acquisition of Sentry, the visible revenue derived from the existing contracts has been included over the three-year period to 30 June 2024. However, as the acquisition only completed on 12th July, visible revenue is only included from this date forward (i.e. FY22 includes Sentry visible revenues from 13th July 2021 to 30 June 2022).
The Three-Year Revenue Visibility KPI is a forward looking KPI and therefore will always include some judgement, especially in regards to transactional revenues. To help assess this, we separately identify different categories of revenue to better reflect the nature of these recurring revenues. This Three-Year Visible Revenue metric includes:
· future revenue under contract
· revenue generated from renewals (calculated at 100% dollar value renewal); and
· other recurring revenue, including transactional revenues
Future revenue under contract is, as the title suggests, subject to an underlying contract and therefore when invoiced, we reasonably expect to recognise in the respective future years. Renewal revenues relate to the contracts that are coming to the end of their original contract term and will require their contracts to be renegotiated and renewed for the revenue to be recognised. To appropriately represent the quantum of revenue within this category we present the total of revenue subject to renewal (i.e. 100% of dollar value). The final category 'other recurring revenue' is revenue that we would expect to recur in the future but is monthly or transactional in its nature. Here, we estimate based on past performance a level of revenue we would reasonably expect to recognise associated to the service provided. No growth from new sales is assumed to occur when making these estimates.
The Group's total visible revenue for the three years ended 30 June 2022, 2023 and 2024, including visible revenue from Sentry from the date of its acquisition, identifies $471.2m of revenue (FY20 same 3 year period: $196.2m) which we reasonably expect to benefit the Group in this next three-year period. This visible revenue breaks down as follows:
· future revenue under contract contributing $270.5m of which $130.3m is expected to be recognised in FY22, $86.3m in FY23 and $53.9m in FY24
· revenue generated from renewals contributing $160.6m; being $13.8m in FY22, $57.0m in FY23 and $89.8m in FY24
· other revenue identified as recurring in nature of $13.1m in FY22 and $13.5m in FY23 and FY24
These future revenues, with customers continuing to renew their contracts with us, expand beyond the three-year time horizon we report on, creating a dependable base of recurring revenue. This recurring revenue provides the foundation for future financial growth as well as giving increased certainty to the Board when making the annual assessment for the Viability Statement.
Gross Margins
Our gross profit margin is calculated after taking account of the incremental costs we incur to obtain the underlying contracts, including sales commission contract costs which are charged in line with the associated revenue recognition. The gross profit for FY21 was $70.2m (FY20: $67.0m) representing a gross margin percentage of 93% (FY20: 94%).
Operating Expenses
The increase in net operating expenses (to Adjusted EBITDA) to $43.1m (FY20: $41.8m) reflects continued investment in our Research & Development spend combined with prudent cost control across the rest of the business.
We have remained highly cash generative and as a result we have continued to use our cash reserves (after returning funds to shareholders via dividends) to invest in our future. Product innovation and enhancement continue to be core to this future and our ability to achieve our potential. As such, alongside our acquisition activities in the year, we have continued to invest significant resource in R&D as we build out the Trisus platform and its portfolio of products. As a result of this investment, the total cost of development in the year was $24.7m (FY20: $21.6m), a 14% increase which is reflective of the opportunities in the market for our products. We continue to capitalise only the costs that relate to projects that bring future economic benefit to the Group. As a result, the total amount capitalised in the year reduced from 43% of total R&D spend in FY20 to 41% in the current year, being $10.1m (FY20: $9.3m).
The amounts we capitalise represent the cash reserves we have utilised in the year, to invest in our future. This is an efficient and cost-effective way to further build out our Value Cycle strategy. We expect to see both the levels of development expense and capitalisation to continue at the same proportion of revenue in future years as we progress with building out this solution set. As specific products are made available to relevant customers, the associated amounts capitalised are charged to the Group's income statement over their estimated useful economic life, thereby correctly matching costs and the resulting revenues.
Net Impairment charge on financial and contract assets
This relates to the movement in the provision for the impairment of trade receivables in the year (or 'bad debts'), being $495,000 (FY20: $529,000). The nature of the market the Group serves and the SaaS based business model limit the Group's exposure in this regard, but are required to be shown separately on the face of the Consolidated Statement of Comprehensive Income.
Adjusted EBITDA and Profit before taxation
To supplement the financial measures defined under IFRS the Group presents certain non-GAAP (alternative) performance measures. 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 use these adjusted measures in its operational and financial decision-making as it excludes certain one-off items, allowing focus on what the Group regards as a more reliable indicator of the underlying operating performance.
Adjusted earnings represent operating profits excluding costs incurred as a result of acquisition and share related activities (if applicable in the year), share related costs including IFRS 2 share-based payments charge, interest, depreciation and amortisation ("Adjusted EBITDA").
In the year total costs of $6.5m have been identified as exceptional. These include the costs associated with the acquisition of Sentry and its associated share placing as well as the costs associated with the aborted share placing in connection with a different acquisition target in August 2020. As such these costs were adjusted from earnings in presenting Adjusted EBITDA in the year. No costs were identified as exceptional in the prior year.
Adjusted EBITDA has grown in the year to $27.1m (FY20: $25.2m) an increase of 8%. This reflects an Adjusted EBITDA margin of 36% (FY20: 35%). This is consistent with the Group's continued approach to making investments in line with the revenue growth and prudent cost management.
Primarily as a result of the costs detailed above as exceptional and an increase in the IFRS 2 share-based payment charge, profit before taxation reported in the year has reduced to $13.2m (FY20: $19.3m). The increase in the share-based payment charge included charges from Long-Term Incentive Grants made during the period, an adjustment to retention rates and an increased accrual for estimated employer National Insurance contributions on the unexercised options granted under the 2007 Share Option Plan.
Taxation
The Group generates profits in both the UK and the US. The overall levels are determined by both the proportion of sales in the year and the level of professional services income recognised. The Group's effective tax rate remains dependent on the applicable tax rates in these respective jurisdictions.
In the current year the effective tax rate has been positively affected by the finalisation of R&D tax relief claims in respect to the prior two years of $1.6m (FY20: $0.3m) and the R&D tax relief provision for the current year of $0.7m (FY20: $0.5m). In addition, as a result of UK Corporation tax rates increasing to 25% from 1 April 2023, closing UK deferred tax assets and liabilities were revalued which has reduced the current year tax charge by $0.5m (FY20: $nil) in accordance with the now enacted rate.
As such the current year effective tax rate is 2% (FY20: 13%).
EPS
Regarding EPS, the Group again presents an Alternative Performance Measure of Adjusted EPS, to provide consistency to other listed companies and take account of certain one-off events. Both Basic and Diluted Adjusted EPS are calculated excluding costs incurred as a result of acquisition and share related activities, being $5.6m (tax adjusted) in the year (FY20: $nil) and in the prior year amortisation of acquired intangibles of $0.7m.
Adjusted EPS has seen the benefit of the increased levels of Adjusted EBITDA combined with the effective tax rate reported above, partially offset by an increase in both the amortisation and share based payment charges, and as such has increased 6% to $0.690 (FY20: $0.654) and adjusted diluted EPS has increased to $0.681 (FY20: $0.644).
Basic EPS in the period reduced to $0.481 (FY20: $0.628) and Diluted EPS reduced to $0.475 (FY20: $0.619) primarily as a result of the exceptional items noted above.
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 cash flow statement). We achieved strong Operating Cash Conversion of 99% in the year (FY20: 92%).
As a result, we are able to continue to invest in our future and return funds to our shareholders via dividends, returning $9.7m in the current year (FY20: $9.1m).
As detailed above, to fund the acquisition of Sentry $187.3m (net) was raised via a share placing in June. As the acquisition did not complete until post year end, these amounts were held as cash reserves of the Group. As a result, cash reserves at the year-end were $235.6m (FY20: $47.9m) of which $48.3m represents operating cash reserves.
Also, as part of the funding for the acquisition of Sentry, the Group entered into a Debt Facility with Silicon Valley Bank to provide up to a further $140m of secured funding. As the acquisition did not complete until after that year end, no draw down on this facility had taken place and as such any arrangement and other related fees prepaid are recorded in Trade and Other receivables.
Balance sheet
The Group maintains a strong balance sheet. Intangible assets have increased by $6.3m to $43.1m (FY20: $36.8m) primarily as a result of capitalised development costs in the year net of the amortisation charged. The level of trade and other receivables has decreased in comparison to the prior year. This is a result of the factors identified in the prior year that impacted our cash collections now having returned to a more normal position.
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 total visible revenue we describe above and reflected through our three-year visible revenue metric.
Deferred income, accrued income and the prepayment of sales commissions all arise as a result of our Annuity SaaS business model described above and we will always expect them to be part of our balance sheet. They arise where the cash profile of our contracts does not exactly match how revenue and related expenses are recognised in the Statement of Comprehensive Income. Overall, levels of deferred income are significantly more than any accrued income and the prepayment of sales commissions, we therefore remain cash flow positive in regards to how we account for our contracts.
Currency
The functional currency for the Group, and cash reserves, is US dollars. Whilst the majority of our cost base is US-located and therefore US dollar denominated, we have approximately one quarter of the cost base situated in the UK, relating primarily to our UK employees which is therefore denominated in Sterling. As a result, we continue to closely monitor the Sterling to US dollar exchange rate, and where appropriate consider hedging strategies. The average exchange rate throughout the year being $1.3466 as compared to $1.2598 in the prior year.
Audit Tender
During the year the Audit Committee conducted an audit tender process for the Group's External Audit. As part of this process a number of audit firms were invited to tender. Details of the process followed and the selection criteria are provided in the Corporate Governance Report contained in the full Financial Statements. As a result of this process the Board has approved PricewaterhouseCoopers LLP for recommendation to shareholders, for re-appointment as auditors, at the Company's Annual General Meeting to be held in November 2021.
Dividend
In proposing a final dividend, the Board has carefully considered a number of factors including the prevailing macroeconomic effects of the COVID-19 pandemic, the Group's trading performance, our current and future cash generation especially in light of the Sentry acquisition and our continued desire to recognise the support our shareholders provide. After carefully weighing up these factors, the Board proposes a final dividend of 15.5p (21.47 cents) per share giving a total dividend for the year of 27.5p (38.10 cents) per share (FY20: 26.5p (32.60 cents) per share), an increase of 4%. Subject to approval at the Annual General Meeting, the final dividend will be paid on 21 December 2021 to shareholders on the register as at 26 November 2021, with a corresponding ex-Dividend date of 19 November 2021.
Outlook
The successful completion of the acquisition of Sentry Data Systems following the end of the year marks a transformational point in our journey, considerably expanding our customer base, data sets, product offering and market presence. Together, we will offer healthcare organisations innovative new ways to measurably improve operational and financial performance to generate sustainable margins that they can re-invest to provide better care for those underserved communities.
With a strong balance sheet, high levels of recurring revenues, high customer retention rates and visible revenue in the next three years of $471.2m, we have a strong financial foundation from which to accelerate growth and investment to fulfil our potential, thereby increasing future shareholder value.
We have enjoyed early sales momentum across the now enlarged Group and with our expanded opportunity we look to the future with considerable excitement and confidence as we work with the Sentry team to transform the business of US healthcare.
Keith Neilson | Craig Preston |
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2021
|
| Total | Total |
|
| 2021 | 2020 |
| Notes | $'000 | $'000 |
Continuing operations: |
|
|
|
Revenue | 3 | 75,578 | 71,492 |
Cost of sales |
| (5,373) | (4,518) |
Gross profit |
| 70,205 | 66,974 |
Other income |
| 37 | 9 |
Operating expenses | 4 | (56,507) | (47,248) |
Net impairment charge on financial and contract assets | 9 | (495) | (529) |
Operating profit |
| 13,240 | 19,206 |
|
|
|
|
Analysed as: |
|
|
|
|
|
|
|
Adjusted EBITDA1 |
| 27,111 | 25,189 |
Share based payments |
| (2,141) | (1,318) |
Depreciation of property, plant and equipment |
| (1,403) | (1,489) |
Exceptional Costs2 | 12 | (6,487) | - |
Amortisation of intangible assets |
| (3,840) | (3,176) |
|
|
|
|
Finance income |
| 1 | 192 |
Finance expense |
| (76) | (94) |
Profit before taxation |
| 13,165 | 19,304 |
Tax on profit on ordinary activities | 5 | (260) | (2,468) |
Profit for the year attributable to owners of the parent |
| 12,905 | 16,836 |
Other comprehensive (expense)/ income |
|
|
|
Items that may be reclassified subsequently to profit or loss |
|
|
|
Currency translation reserve movement |
| (126) | 26 |
Total items that may be reclassified subsequently to profit or loss |
| (126) | 26 |
Total comprehensive income attributable to owners of the parent |
| 12,779 | 16,862 |
|
|
|
|
1. Adjusted EBITDA is defined as operating profit before interest, tax, depreciation, amortisation, exceptional items and share based payments.
2. Exceptional items relate to legal and professional fees associated with an aborted potential acquisition and a successful acquisition post year end and its associated share placing.
Earnings per share for the year attributable to equity holders
| Notes | 2021 | 2020 |
Basic ($ per share) | 7 | 0.481 | 0.628 |
*Adjusted Basic ($ per share) | 7 | 0.690 | 0.654 |
|
|
|
|
Diluted ($ per share) | 7 | 0.475 | 0.619 |
*Adjusted Diluted ($ per share) | 7 | 0.681 | 0.644 |
* 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 2021
|
| Share | Capital |
|
|
|
|
| Share | Premium | Redemption | Merger | Other | Retained | Total |
| Capital | Account | Reserve | Reserve | Reserves | Earnings | Equity |
| $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 |
At 1 July 2019 | 535 | 20,022 | 9 | - | 3,549 | 36,790 | 60,905 |
Total comprehensive income - profit for the year | - | - |
- |
- | - | 16,836 | 16,836 |
Total other comprehensive income | - | - | - | - | - | 26 | 26 |
Transactions with owners: |
|
|
|
|
|
|
|
Purchase of own shares through EBT | - | - |
- |
- | - | (1,255) | (1,255) |
Share-based payments | - | - | - | - | 1,176 | (890) | 286 |
Impact of share options exercised/lapsed | 1 | 1,075 | - |
- | (577) | 175 | 674 |
Dividends (Note 6) | - | - | - | - | - | (9,077) | (9,077) |
At 30 June 2020 | 536 | 21,097 | 9 | - | 4,148 | 42,605 | 68,395 |
Total comprehensive income - profit for the year | - | - | - |
- | - | 12,905 | 12,905 |
Total other comprehensive expense | - | - |
- |
- | - | (126) | (126) |
Transactions with owners: |
|
|
|
|
|
|
|
Share-based payments | - | - | - | - | 1,332 | - | 1,332 |
Share placing | 88 | - | - | 186,933 | - | - | 187,081 |
Purchase of own shares through EBT | - | - | - | - | - | (422) | (422) |
Deferred tax taken directly to equity | - | - | - | - | - | 1,212 | 1,212 |
Impact of share options and awards exercised/lapsed | - | - | - |
- | (752) | 354 | (398) |
Dividends (Note 6) | - | - | - | - | - | (9,700) | (9,700) |
At 30 June 2021 | 624 | 21,097 | 9 | 186,993 | 4,728 | 46,828 | 260,279 |
Consolidated Balance Sheet as at 30 June 2021
| Notes | 2021 | 2020 |
|
| $'000 | $'000 |
ASSETS |
|
|
|
Non-Current Assets |
|
|
|
Property, plant and equipment |
| 2,552 | 3,798 |
Intangible assets | 8 | 43,110 | 36,783 |
Trade and other receivables | 9 | 5,427 | 3,915 |
Deferred tax |
| 5,459 | 2,408 |
|
| 56,548 | 46,904 |
|
|
|
|
Current Assets |
|
|
|
Trade and other receivables | 9 | 19,435 | 21,003 |
Cash and cash equivalents |
| 235,617 | 47,851 |
|
| 255,052 | 68,854 |
|
|
|
|
Total Assets |
| 311,600 | 115,758 |
|
|
|
|
EQUITY AND LIABILITIES |
|
|
|
|
|
|
|
Non-Current Liabilities |
|
|
|
Lease liability > 1 year |
| 1,148 | 2,017 |
Other provisions |
| 764 | - |
|
| 1,912 | 2,017 |
|
|
|
|
Current Liabilities |
|
|
|
Deferred income |
| 33,670 | 37,155 |
Current tax liabilities |
| - | 797 |
Trade and other payables |
| 15,739 | 7,394 |
|
| 49,409 | 45,346 |
|
|
|
|
Total Liabilities |
| 51,321 | 47,363 |
|
|
|
|
Equity |
|
|
|
Share capital | 10 | 624 | 536 |
Share premium account |
| 21,097 | 21,097 |
Capital redemption reserve |
| 9 | 9 |
Merger reserve |
| 186,993 | - |
Other reserves |
| 4,728 | 4,148 |
Retained earnings |
| 46,828 | 42,605 |
Total Equity |
| 260,279 | 68,395 |
|
|
|
|
Total Equity and Liabilities |
| 311,600 | 115,758 |
Statement of Cash Flows for the year ended 30 June 2021
| Notes | 2021 | 2020 |
|
| $'000 | $'000 |
|
|
|
|
Cash flows from operating activities |
|
|
|
Cash generated from operations | 11 | 26,711 | 23,134 |
Tax paid |
| (3,174) | (2,668) |
Net cash from operating activities |
| 23,537 | 20,670 |
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
Purchase of property, plant and equipment |
| (159) | (187) |
Capitalised intangible assets |
| (10,167) | (9,522) |
Interest received |
| 1 | 204 |
Net cash used in investing activities |
| (10,325) | (9,505) |
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
Dividends paid to company shareholders | 6 | (9,700) | (9,077) |
Shares issued for cash | 10 | 187,244 | - |
Proceeds from issuance of shares | 10 | 88 | 614 |
Loan arrangement fees |
| (1,692) | - |
Purchase of own shares from EBT |
| (422) | (1,255) |
Payment of lease liabilities |
| (964) | (1,003) |
Net cash used in financing activities |
| 174,554 | (10,721) |
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
| 187,766 | 240 |
|
|
|
|
Cash and cash equivalents at the start of the year |
| 47,851 | 47,611 |
|
|
|
|
Cash and cash equivalents at the end of the year |
| 235,617 | 47,851 |
Shares issued for cash includes net proceeds of $187,331,713 related to the share placing in June 2021 (see note 10), being gross proceeds of $192,282,712 less transaction costs of $4,950,999.
Notes to the Financial Statements
General Information
Craneware plc (the Company) is a public limited company incorporated and domiciled in Scotland. The Company has a primary listing on the AIM stock exchange. The principal activity of the Company continues to be the development, licensing and ongoing support of computer software for the US healthcare industry.
Basis of preparation
The financial statements are prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 (International Financial Reporting Standards ("IFRS")) and the applicable legal requirements of the Companies Act 2006.
The Group and Company financial statements have been prepared under the historic cost convention and prepared on a going concern basis. The applicable accounting policies are set out below, together with an explanation of where changes have been made to previous policies on the adoption of new accounting standards in the year, if relevant.
The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting year. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates.
The Company and its subsidiary undertakings are referred to in this report as the Group.
1. 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 $1.3466/£1 (2020: $1.2598/£1). Monetary assets and liabilities expressed in foreign currencies are translated into US dollars at rates of exchange ruling at the Balance Sheet date $1.3853/£1 (2020: $1.2302/£1). Exchange gains or losses arising upon subsequent settlement of the transactions and from translation at the Balance Sheet date, are included within the related category of expense where separately identifiable, or administrative expenses.
Revenue 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;
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.
Revenue from Software Licenses
Revenue from both on premises and Trisus software licenced products is recognised from the point at which the customer gains control and the right to use our software. The following key judgements have been made in relation to revenue recognition of software license:
• This is right of use software due to the integral updates provided on a regular basis to keep the software relevant and, as a result, the licenced software revenue will be recognised over time rather than at a point in time;
• The software license together with installation, regular updates and access to support services form a single performance obligation;
• The transaction price is allocated to each distinct one year license period with annual increases being recognised in the year they apply;
• 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.
Should any contracts contain non-standard clauses, revenue recognition will be in accordance with the underlying contractual terms which will normally result in recognition of revenue being deferred until all material obligations are satisfied. The Group does not have any contracts where a financing component exists within the contract.
The excess of amounts invoiced over revenue recognised are included in deferred income. If the amount of revenue recognised exceeds the amount invoiced the excess is included within accrued income.
Contract assets include sales commissions and prepaid royalties. Contract liabilities include unpaid sales commissions on contracts sold and deferred income relating to license fees billed in advance and recognised over time.
Exceptional items
The Group defines exceptional items as transactions (including costs incurred by the Group) which relate to material non-recurring events. These are disclosed separately where it is considered it provides additional useful information to the users of the financial statements.
Intangible Assets
(a) Goodwill
Goodwill arising on consolidation represents the excess of the cost of acquisition over the fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition. Goodwill is recognised as a non-current asset in accordance with IFRS 3 and is not amortised.
After initial recognition, goodwill is stated at cost less any accumulated impairment losses. It tested at least annually for impairment. Any impairment loss is recognised in the Consolidated Statement of Comprehensive Income.
Goodwill is allocated to cash generating units for the purpose of impairment testing. The allocation is made to those cash-generating units that are expected to benefit from the business combination in which the goodwill arose.
(b) Proprietary software
Proprietary software acquired in a business combination is recognised at fair value at the acquisition date. Proprietary software has a finite life and is carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the associated costs over their estimated useful lives of five years.
(c) Contractual customer relationships
Contractual customer relationships acquired in a business combination are recognised at fair value at the acquisition date. The contractual customer relationships have a finite useful economic life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method over the expected life of the customer relationship which has been assessed as up to ten years.
(d) Research and Development expenditure
Expenditure associated with developing and maintaining the Group's software products is recognised as incurred.
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.
Staff costs and specific third party costs involved with the development of the software are included within amounts capitalised.
(e) Computer software
Costs associated with acquiring computer software and licenced to-use technology are capitalised as incurred. They are amortised on a straight-line basis over their useful economic life which is typically three to five years.
Impairment of non-financial assets
At each reporting date the Group considers the carrying amount of its tangible and intangible assets including goodwill to determine whether there is any indication that those assets have suffered an impairment loss. If there is such an indication, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any) through determining the value in use of the cash generating unit that the asset relates to.
Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs.
If the recoverable amount of an asset is estimated to be less than its carrying amount, the impairment loss is recognised as an expense.
Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset. A reversal of an impairment loss is recognised as income immediately. Impairment losses relating to goodwill are not reversed.
Taxation
The charge for taxation is based on the profit for the period as adjusted for items which are non-assessable or disallowable. It is calculated using taxation rates that have been enacted or substantively enacted by the Balance Sheet date.
Deferred taxation is computed using the liability method. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities. They are measured using enacted rates and laws that will be in effect when the differences are expected to reverse. Deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction that at the time of the transaction does not affect accounting or taxable profit or loss. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will arise against which the temporary differences will be utilised.
Deferred tax is provided on temporary differences arising on investments in subsidiaries except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets and liabilities arising in the same tax jurisdiction are offset.
In the UK and the US, the Group is entitled to a tax deduction for amounts treated as compensation on exercise of certain employee share options and on the vesting of conditional share awards under each jurisdiction's tax rules. As explained under "Share-based payments", a compensation expense is recorded in the Group's Statement of Comprehensive Income over the period from the grant date to the vesting date of the relevant options and conditional share awards. As there is a temporary difference between the accounting and tax bases a deferred tax asset is recorded. The deferred tax asset arising is calculated by comparing the estimated amount of tax deduction to be obtained in the future (based on the Company's share price at the Balance Sheet date) with the cumulative amount of the compensation expense recorded in the Statement of Comprehensive Income. If the amount of estimated future tax deduction exceeds the cumulative amount of the remuneration expense at the statutory rate, the excess is recorded directly in equity against retained earnings.
Share-based payments
The Group grants share options and / or conditional share awards to certain employees. In accordance with IFRS 2, "Share-Based Payments", equity-settled share-based payments are measured at fair value at the date of grant. Fair value is measured using the Black-Scholes pricing model or the Monte Carlo pricing model, as appropriately amended, taking into account the terms and conditions of the share-based awards.
The fair value determined at the date of grant of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the number of shares that will eventually vest. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At the end of each reporting period, the entity revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the Statement of Comprehensive Income, with a corresponding adjustment to equity.
When the options are exercised and are satisfied by new issued shares, the proceeds received net of any directly attributable transaction costs are credited to share capital and share premium.
The share-based payments charge is included in 'operating expenses' with a corresponding increase in 'Other reserves'.
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 5 to 10 years.
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 applicability 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 United States of America. Consequently, the Board has determined that Group supplies only one geographical market place and as such revenue is presented in line with management information without the need for additional segmental analysis. All of the Group assets are located in the United States of America with the exception of the Parent Company's, the net assets of which are disclosed separately on the Company Balance Sheet and are located in the United Kingdom.
| 2021 | 2020 |
| $'000 | $'000 |
Software licencing | 61,115 | 59,390 |
Professional services | 14,463 | 12,102 |
Total revenue | 75,578 | 71,492 |
Contract assets
The Group has recognised the following assets related to contracts with customers:
| 2021 | 2020 |
| $'000 | $'000 |
Prepaid commissions and royalties < 1 year | 2,483 | 2,565 |
Prepaid commissions and royalties > 1 year | 3,735 | 3,915 |
Total contract assets | 6,218 | 6,480 |
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 2020 were $2.6m.
Contract liabilities
The following table shows the total contract liabilities at 30 June 2021 from software license and professional service contracts:
| 2021 | 2020 |
| $'000 | $'000 |
Software licencing | 29,245 | 30,329 |
Professional services | 4,425 | 6,916 |
Total contract liabilities | 4,425 | 37,155 |
Contract liabilities are included within deferred income in the Balance Sheet.
Revenue of $37.1m was recognised during the year in relation to contract liabilities as of 30 June 2020.
The following table shows the aggregate transaction price allocated to performance obligations that are partially or fully unsatisfied at 30 June 2021 from software license and professional service contracts.
| Total unsatisfied | Expected recognition | |||
| performance obligations | < 1 year | 1 to 2years | 2 to 3 years | > 3 years |
Revenue expected to be recognised | $'000 | $'000 | $'000 | $'000 | $'000 |
At 30 June 2021 |
|
|
|
|
|
- Software | 155,617 | 57,862 | 43,485 | 28,282 | 25,988 |
- Professional services | 11,513 | 6,475 | 2,419 | 1,306 | 1,313 |
Total at 30 June 2021 | 167,130 | 64,337 | 45,904 | 29,588 | 27,301 |
|
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|
|
At 30 June 2020 |
|
|
|
|
|
- Software | 151,383 | 53,944 | 44,028 | 29,756 | 23,655 |
- Professional services | 15,131 | 8,730 | 3,413 | 2,103 | 885 |
Total at 30 June 2020 | 166,514 | 62,674 | 47,441 | 31,859 | 24,540 |
Revenue of $62.7m was recognised during the year in relation to unsatisfied performance obligations as of 30 June 2020.
The majority of these performance obligations are unbilled at the Balance Sheet date and therefore not reflected in these accounts.
4. Operating expenses
Operating expenses are comprised of the following: |
|
|
| 2021 | 2020 |
| $'000 | $'000 |
Sales and marketing expenses | 6,620 | 7,207 |
Client servicing | 12,615 | 12,330 |
Research and development | 14,549 | 12,266 |
Administrative expenses | 9,300 | 9,980 |
Share-based payments | 2,141 | 1,318 |
Depreciation of property, plant and equipment | 1,403 | 1,489 |
Amortisation of intangible assets | 3,840 | 3,176 |
Exceptional costs* | 6,487 | - |
Exchange (gain) | 47 | 11 |
Operating expenses | 57,002 | 47,777 |
* Exceptional items relate to legal and professional fees associated with an aborted potential acquisition of $283,000 and a successful acquisition post year end and its associated share placing of $6,204,000.
Included in operating expenses is the net impairment charge for the year of $495,000.
5. Tax on profit on ordinary activities
| 2021 | 2020 |
| $'000 | $'000 |
Profit on ordinary activities before tax | 13,165 | 19,304 |
Current tax |
|
|
Corporation tax on profits of the year | 3,772 | 2,806 |
Adjustments for prior years | (1,673) | (446) |
Total current tax charge | 2,099 | 2,360 |
Deferred tax |
|
|
Deferred tax for current year | (1,656) | 108 |
Adjustments for prior years | 122 | - |
Change in UK tax rate | (305) | - |
Total deferred tax charge | (1,839) | 108 |
Tax on profit on ordinary activities | 260 | 2,468 |
The difference between the current tax charge on ordinary activities for the year, reported in the consolidated Statement of Comprehensive Income, and the current tax charge that would result from applying a relevant standard rate of tax to the profit on ordinary activities before tax, is explained as follows: | ||
|
|
|
Profit on ordinary activities at the UK tax rate 19% (2020: 19%) | 2,501 | 3,666 |
Effects of: |
|
|
Adjustment for prior years | (1,551) | (635) |
Change in tax rate on opening deferred tax balance | (305) | - |
Change in tax rate on closing deferred tax balance | (227) | - |
Additional US taxes on profits 25% (2020: 25%) | 116 | 700 |
R & D tax credit | (712) | (490) |
Expenses not deductible for tax purposes | 703 | 181 |
Spot rate remeasurement | 12 | - |
Deduction on share plan charges | (258) | (793) |
Other | (19) | (230) |
Total tax charge | 260 | 2,468 |
On 31 March 2021, the UK Government announced an increase in the rate of corporation tax to 25% from 1 April 2023. The change in rate was substantively enacted on 24 May 2021 and therefore the closing UK deferred tax assets and liabilities have been recognised in accordance with the rate enacted.
6. Dividends
The dividends paid during the year were as follows:-
| 2021 | 2020 |
| $'000 | $'000 |
Final dividend, re 30 June 2020 - 19.80 cents (15 pence)/share | 5,329 | 5,311 |
Interim dividend, re 30 June 2020 - 16,68 cents (12 pence)/share | 4,371 | 3,766 |
Total dividends paid to Company shareholders in the year | 9,700 | 9,077 |
Prior year:
Final dividend 19.05 cents (15 pence)/share
Interim dividend 15.1 cents (11.5 pence)/share
The proposed final dividend 21.47 cents (15.5 pence), as noted in the Financial Review section of the Strategic Report, for the year ended 30 June 2021 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
| 2021 | 2020 |
| No. of Shares | No. of Shares |
| 000s | 000s |
Weighted average number of Ordinary Shares for the purpose of basic earnings per share | 26,811 | 26,796 |
Effect of dilutive potential Ordinary Shares: share options and LTIPs | 374 | 404 |
Weighted average number of Ordinary Shares for the purpose of diluted earnings per share | 27,185 | 27,200 |
The Group has one category of dilutive potential Ordinary shares, being those granted to Directors and employees under the share option schemes.
Shares held by the Employee Benefit Trust are excluded from the weighted average number of Ordinary shares for the purposes of basic earnings per share.
Profit for year
| 2021 | 2020 |
| $000's | $'000s |
Profit for the year attributable to equity holders of the parent | 12,905 | 16,836 |
Aborted share placing costs (tax adjusted) | 386 | - |
Acquisition and associated share placing costs (tax adjusted) | 5,210 | - |
Amortisation of acquired intangibles | - | 688 |
Adjusted profit for the year attributable to equity holders of the parent | 18,501 | 17,524 |
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
| 2021 | 2020 |
| cents | cents |
Basic EPS | 48.1 | 62.8 |
Diluted EPS | 47.5 | 61.9 |
Adjusted basic EPS | 69.0 | 65.4 |
Adjusted diluted EPS | 68.1 | 64.4 |
8. Intangible assets
Goodwill and Other Intangible assets
| Goodwill | Customer | Proprietary | Development | Computer |
|
|
| Relationships | Software | Costs | Software | Total |
| $'000 | $'000 | $'000 | $'000 | $'000 | $'000 |
Cost |
|
|
|
|
|
|
At 1 July 2020 | 11,438 | 2,964 | 3,043 | 32,877 | 2,104 | 52,426 |
Additions | - | - | - | 10,099 | 68 | 10,167 |
Disposals | - | - | - | - | (1,168) | (1,168) |
At 30 June 2021 | 11,438 | 2,964 | 3,043 | 42,976 | 1,004 | 61,425 |
|
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|
|
Accumulated amortisation and impairment |
|
|
|
|
|
|
At 1 July 2020 | 250 | 2,964 | 3,043 | 7,794 | 1,592 | 15,643 |
Charge for the year | - | - | - | 3,530 | 310 | 3,840 |
Amortisation on disposal | - | - | - | - | (1,168) | (1,168) |
At 30 June 2021 | 250 | 2,964 | 3,043 | 11,324 | 734 | 18,315 |
Net Book Value at 30 June 2021 | 11,118 | - | - | 31,652 | 270 | 43,110 |
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Cost |
|
|
|
|
|
|
At 1 July 2019 | 11,438 | 2,964 | 3,043 | 23,539 | 1,910 | 42,904 |
Additions | - | - | - | 9,328 | 194 | 9,522 |
At 30 June 2020 | 11,438 | 2,964 | 3,043 | 32,877 | 2,104 | 52,426 |
|
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|
|
|
|
|
Accumulated amortisation and impairment |
|
|
|
|
|
|
At 1 July 2019 | 250 | 2,701 | 2,618 | 5,698 | 1,200 | 12,467 |
Charge for the year | - | 263 | 425 | 2,096 | 392 | 3,176 |
At 30 June 2020 | 250 | 2,964 | 3,043 | 7,794 | 1,592 | 15,643 |
Net Book Value at 30 June 2020 | 11,188 | - | - | 25,083 | 512 | 36,783 |
In accordance with the Group's accounting policy, the carrying values of Goodwill and other intangible assets are reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. Goodwill arose on the acquisition of Craneware InSight, Inc.
The carrying values are assessed for impairment purposes by calculating the value in use of the core Craneware business cash generating unit. This is the lowest level of which there are separately identifiable cash flows to assess the Goodwill acquired as part of the Craneware InSight, Inc purchase.
The key assumptions in assessing value in use are the pre-tax discount rate applied of 13.5% (2020: 14.9%), future growth rate of revenue and the operating margin. After the initial term of 5 years, the Group applied a growth rate in perpetuity of 2% (2020: 2%). These take into consideration the customer base and expected revenue commitments from it, anticipated additional sales to both existing and new customers and market trends currently seen and those expected in the future.
The Group has assessed events and circumstances in the year and the assets and liabilities of the business cash-generating unit; this assessment has confirmed that no significant events or circumstances occurred in the year and that the assets and liabilities showed no significant change from last year.
After review of future forecasts, the Group confirmed the growth forecast for the next five years showed that the recoverable amount would continue to exceed the carrying value. There are no reasonable possible changes in assumptions that would result in an impairment. Certain disclosures, including sensitivities, relating to goodwill have not been made, given the significant headroom on impairment testing.
9. Trade and other receivables
| 2021 | 2020 |
|
|
|
| $'000 | $'000 |
Trade receivables | 16,450 | 18,171 |
Less: provision for impairment of trade receivables | (2,270) | (1,775) |
Net trade receivables | 14,180 | 16,396 |
Other receivables | 302 | 172 |
Current tax receivable | 278 | - |
Prepayments and accrued income | 4,090 | 2,055 |
Deferred Contract Costs | 6,012 | 6,295 |
| 24,862 | 24,918 |
Less non-current receivables: |
|
|
Prepaid loan arrangement fees | (1,692) | - |
Deferred Contract Costs | (3,735) | (3,915) |
Current portion | 19,435 | 21,003 |
10. Share capital
| 2021 | 2020 | ||
| Number | $'000 | Number | $'000 |
Equity share capital |
|
|
|
|
Ordinary shares of 1p each | 50,000,000 | 1,014 | 50,000,000 | 1,014 |
Allotted called-up and fully paid
| 2021 | 2021 | ||
| Number | $'000 | Number | $'000 |
Equity share capital |
|
|
|
|
Ordinary shares of 1p each |
|
|
|
|
At 1 July | 26,826,539 | 536 | 26,698,984 | 535 |
Share placing | 6,192,652 | 88 | - | - |
Allotted and issued in the year on exercise of employee share options | - | - | 127,555 | 1 |
At 30 June | 33,019,191 | 624 | 26,826,539 | 536 |
Shares issued during the year
In June 2021, the Company completed a placing of 6,192,652 new Ordinary Shares at an issue price of £22.00 ($31.05) per share, representing approximately 23.1% of the issued share capital prior to the placing. The new Ordinary Shares rank pari passu in all respects with the existing Ordinary Shares of the Company, including the right to receive all dividends and other distributions declared, made or paid after the date of issue, including the final dividend declared in respect of the year ended 30 June 2021. The placing raised proceeds of approximately £132,549,237 ($187,080,731) net of transaction costs. The placing was effected by way of a cash box structure, the resulting transactions satisfied all of the required conditions under section 612 of the Companies Act 2006 to obtain merger relief and therefore the excess of the net proceeds over the nominal value of the shares issued, of £132,487,307 ($186,993,326), has been credited to a merger reserve rather than to the share premium account. The purpose of the share placing was to obtain net proceeds to part fund the acquisition of SDS Holdco, Inc., the ultimate holding company of Sentry Data Systems, Inc. (Note 25 contains further details of this acquisition which completed in July 2021). This merger reserve is not considered to be distributable as a consequence of the net proceeds of the placing being for a specific acquisition.
The Company has granted share options and conditional share awards in respect of its Ordinary Shares and details of these are contained in Note 8. During the year ended 30 June 2021 no Ordinary Shares (2020: 127,555 Ordinary Shares) were issued on the exercise of share options by employees.
11. Cash flow generated from operating activities
Reconciliation of profit before taxation to net cash inflow from operating activities | ||
|
|
|
| 2021 | 2020 |
| $'000 | $'000 |
Profit before tax | 13,165 | 19,304 |
Finance income | (1) | (192) |
Finance expense | 76 | 94 |
Depreciation on property, plant and equipment | 1,403 | 1,489 |
Amortisation and Impairment on intangible assets | 3,840 | 3,176 |
Share-based payments | 2,141 | 1,318 |
FX on non cash items | (136) | - |
Movements in working capital: |
|
|
Decrease/ (increase) in trade and other receivables | 2,026 | (1,183) |
Increase / (decrease) in trade and other payables | 4,197 | (872) |
Cash generated from operations | 26,711 | 23,134 |
12. Subsequent events
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 pharmacy procurement, compliance and utilisation, management based in Florida, USA. The reasons for the purchase and expected synergies have been described in the Strategic Report and in the initial announcement on 7 June 2021.
The aggregate consideration for the acquisition of Sentry on a cash free/ debt free basis was $400m 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 consideration for the acquisition was satisfied by $312.5m (as adjusted) in cash and $87.5m by the issuance of 2,507,348 new ordinary shares in Craneware plc on 14 July 2021. The cash consideration was funded from the Group's existing cash resources, $120m from a new $140m debt facility and $187.3m net proceeds from a share placing completed in June 2021.
The new debt facility comprises a term and revolving facilities agreement and 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 of the assets of the Company and specified assets of the Group. Arrangement fees paid in advance in relation to the new debt facility prior to the year end are included within Trade and Other receivables > 1 year on the Balance Sheet as per Note 16.
Due to the proximity of the acquisition to the publication of these accounts, the Group has not yet completed the acquisition accounting. Therefore not all required IFRS 3 Business Combination disclosures have been included.
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