Interim Results

Craneware plc 26 February 2008 Craneware plc ('Craneware' or the 'Company') INTERIM RESULTS 26 February 2008 - Craneware plc, (AIM: CRW) a leader in revenue cycle management software solutions for the US healthcare market, is pleased to announce interim results for the half year ended 31 December 2007. Highlights - Revenues increased by 24% to $8.7m (H107: $7.0m) - Profit before share based payments, depreciation and amortisation increased 21% to $2.0m (H107: $1.68m) - Basic EPS of $0.064 (H107: $0.026) - Successful Placing and IPO on AIM in September 2007 raising £5.4 million prior to expenses to fund continued expansion into the US healthcare market - 96 new hospitals added in the half, bringing total number to 878 - Flagship product, Chargemaster Toolkit(R), was also once again named top in its class by the prestigious industry research house KLAS in the US - Launch of Patient Charge EstimatorTM and Pharmacy ChargeLinkTM Keith Neilson, CEO of Craneware commented, 'We are very pleased with the performance of the Company having successfully executed on our plan and positioned ourselves well for future growth. We have attained, and maintained, a number one position in the market, significantly grown our customer base and delivered new products into the market. These are being well received and the broadening of the product range coupled with our improved sales execution means we are expanding our footprint within each customer and across the market as a whole. Recent legislative changes have and will continue to work in our favour. Our pipeline is strong and we are therefore confident of a successful outcome for the year.' For further information, please contact: Craneware plc KBC Peel Hunt ICIS +44 (0)1506 407 666 +44 (0)20 7418 8900 +44 (0)20 7651 8688 Keith Neilson, CEO Oliver Scott Tom Moriarty Sandy McDougall, CFO Deon Veldtman Caroline Evans-Jones About Craneware Founded in 1999, Craneware has headquarters in Livingston, Scotland, with offices in Florida, Arizona and Kansas, employing approximately 100 staff. The Company's flagship product, Chargemaster Toolkit(R), assists US healthcare providers in reducing billing errors, ensuring the timely and accurate submission of claims and managing compliance risk. More information about Craneware plc and its services can be found on-line at the Company's corporate website, www.craneware.com Chairman's Statement I am delighted to be able to report that Craneware has delivered according to its plan at the time of IPO in September last year. The transformation into a public company has served to strengthen our position within the market. The increase in customer numbers during the period is of course especially encouraging, with Craneware's software now in operation in 878 hospitals across 48 states. This spread illustrates the significant market presence of the Company, and is a testament to the quality of our Chargemaster Toolkit(R) which is a market leading product in the US healthcare industry. The potential for further growth continues to be significant with legislative changes and fiscal pressures on hospitals meaning that billing procedures in the healthcare industry are facing more scrutiny than ever. These market drivers combined with strong H1 figures, in particular the 50% increase in new business wins, means that Craneware is on track for a successful year and we expect to see this momentum continue into 2009 and beyond. The Board would like to take this opportunity to thank our teams in Scotland and the US for their continued hard work and dedication, without which our evolution into a successful public company would not have been possible. George Elliott, Chairman 26th February 2008 CEO Review In these interim results, our first since our successful IPO last year, we are pleased to report that we have made significant headway in all areas of the business. As planned we have expanded our customer base, grown our market share and recently launched new products to support future growth. The Market Legislative changes and fiscal pressures on healthcare costs continue to be the key drivers of growth in our target market of US hospitals. Most recently, Medicaid and Medicare have announced new measures requiring every US state to have a Recovery Audit Contractor (RAC) in place by 1st of January 2010 who will have powers to audit hospital claims back to the 1st October 2007 looking for errors. Given the logistical problems inherent in attempting to comply with such regulations in a timely and accurate manner Craneware's software solutions are becoming an increasingly compelling proposition for the greater than 50% of US hospitals that still do not have a technology based solution to this issue. We therefore expect this legislation to continue to drive growth at a steady rate through 2010 and beyond. Sales and Marketing The sales and marketing function of the business has performed very well in the period with the end result being a like for like increase of 50% in contract wins over the comparable period last year. This is in terms of both dollar value and number of new hospitals under contract. Over the last three years, our Marketing Group has been working closely with our customers on many projects for future product development. The culmination of two of those projects has seen the recent introduction of two new product families to the Craneware brand. Ahead of schedule, the first two products of these families were launched at the end of H1. We continue to sell to the same demographic in the market and whilst the absolute number of hospitals is stable across the US, there are many which still do not have a technology solution and in those that do we are well positioned to increase the level of penetration in each hospital given our broadening capabilities and product range. The pricing environment continues to be supportive and we are pleased to report that our market driven price increases have been accepted. Given our success in sales and marketing we believe we are continuing to outsell our competition and increase our market share. Product Development The main focus in the period with regards to product development was the launch of two major new product lines as part of the next generation of Craneware's range of software. In November, we launched Patient Charge EstimatorTM, which enables hospitals to efficiently and accurately provide prospective patients with estimates of procedural charges. Hospitals are then able to use this information to obtain prepayments thereby reducing their bad debt provisions from those patients. In January, just post the close of the half, we launched Pharmacy ChargeLinkTM enabling hospitals to improve the buying, billing and reimbursement of pharmacy items. The first stage of the integration of these products into our marketing strategy is underway, and will be completed by the end of 2008. These products are taking the Company into parallel areas giving us the opportunity to tackle new areas within our market. Further improvements in functionality across the product range have also boosted our position in the market and we were delighted that during the period our flagship product, Chargemaster Toolkit(R), was also once again named top in its class by the prestigious industry research house KLAS in the US. We have carried out additional improvements to our software to aid integration, particularly in enabling our software to 'talk to' a number of other software products commonly in use across multiple hospital departments. This has broadened the appeal of our offering and we have also white-labelled some of our products during the period. We continue to investigate other ways in which to integrate our software with third party products. Channel Partners We continue to pursue the development of our third party channels to market and have made significant progress in the period. Amerinet continues to deliver leads and sales and we saw our first sales coming through our partner Premier during the period. Since the period end, we also saw our first sale come through Cerner Corporation, a leading US supplier of healthcare IT systems. We will continue to explore opportunities with regards to additional partnerships. Management Change and Appointments Whilst there have been no major structural changes to our business we were very pleased in the half to announce the promotion of James Wilson to President of Craneware, Inc. our US subsidiary. Financial Review On 13th September 2007, the Group raised £5.4 million (prior to expenses of £1.6m) through a placing by KBC Peel Hunt of 4,247,830 new Ordinary Shares at the Placing Price of 128p per share. The funds raised via the Placing have been utilised to strengthen the balance sheet in order to facilitate continued product development and future strategic acquisitions. As reported in our H1 Trading Update on 11th January 2008, we increased new sales bookings and hospital wins by approximately 50% over the comparable period last year, whilst launching two new product families ahead of plan and expectations. We continue to be satisfied that the level of renewals continues to exceed 90% for hospitals whose multi-year contracts expired during the first half of the year. With an annuity revenue recognition model, the highly predictable and favourable effect of higher new business levels has allowed us to accelerate our investment in promoting and further developing our customer support and sales infrastructure for PCE and PCL. As regards revenue visibility, the Group had $32.9m of future revenue under contract at 30th June 2007. New business and renewal activity in H108 added $12.9m, whilst $8.7m revenue was recognised through the Income Statement during the period. This has increased future revenue under contract to $37.1m at 31st December 2007, of which $10.2m is shown as deferred revenue with the balance of $26.9m to be invoiced in future periods. Of the future revenue under contract as at 31st December 2007, the Directors consider that $17.7m will be recognised during FY08 with a further $12.4m and $7.7m respectively to be recognised in FY09 and FY10. In addition, assuming all contracts renew with no cancellations, $0.2m revenues will be recognised from renewal activity during H208, with a further $3.5m and $7.9m respectively in FY09 and FY10 relating to contracts due for renewal from H208 to the end of FY10. Following the change in pricing model in 2005 the long term element of deferred revenues continues to reduce as such contracts mature. The overall level of deferred revenue has increased from $9.5m to $10.2m over H108 following new business wins, impacting favourably upon working capital and cash generated from operations. Under IFRS 2 'Share-Based Payments' the Group's earnings have now reflected most of the charge in FY07 and H108 relating to share options which existed at IPO. The lower tax charge, and related reduction in tax payable, reflects the tax deductions originating from the exercise of such options during H1. R&D expenditure on PCE and PCL continues to be capitalised during H1 with amortisation starting in H2 following initial sales of these new products. Trade and other payables are relatively constant throughout the period from H107 through FY07 to H108, when the timing effect of Corporation Tax payments are adjusted. The Group continues to hold the IPO proceeds in GBP to meet expected UK costs over the period to June 2009. Nevertheless GBP cash balances require to be re-valued each month-end and this has resulted in a charge of $129,000 during H1 as the US dollar strengthened to 1.985 at 31st December from 2.028 at IPO on 13th September. The natural hedge position will cause this to unwind by the end of FY09. Outlook We are very pleased with the performance of the Company having successfully executed on our plan and positioned ourselves well for future growth. We have attained, and maintained, a number one position in the market, significantly grown our customer base and delivered new products into the market. These are being well received and the broadening of the product range coupled with our improved sales execution means we are expanding our footprint within each customer and across the market as a whole. Recent legislative changes have and will continue to work in our favour. Our pipeline is strong and we are therefore confident of a successful outcome for the year. Keith Neilson, Chief Executive Officer 26th February 2008 Craneware PLC Interim Results FY08 Consolidated Income Statement H1 2008 H1 2007 FY 2007 $'000 $'000 $'000 Revenue 8,693 7,026 15,111 Cost of sales (587) (362) (808) Gross profit 8,106 6,664 14,303 Net operating expenses (6,796) (6,122) (12,906) Operating profit 1,310 542 1,397 Analysed as: Profit before share based payments, depreciation and Amortisation 2,034 1,680 3,796 Share based payments (606) (1,052) (2,191) Depreciation of plant and equipment (90) (62) (152) Amortisation of intangible assets (28) (24) (56) Finance income 310 224 446 Profit before taxation 1,620 766 1,843 Tax charge (150) (261) (627) Profit for the year 1,470 505 1,216 Earnings per share for profit attributable to equity holders of the Company during the Half Year - Basic ($ per share) 0.064 0.026 0.061 - Diluted ($ per share) 0.06 0.023 0.054 Craneware PLC Interim Results FY08 Consolidated balance sheet as at 31 December 2007 H1 2008 HI 2007 FY 2007 $'000 $'000 $'000 ASSETS Non-Current Assets Plant and equipment 435 492 487 Intangible assets 719 271 434 Deferred Tax 300 450 810 Trade and other receivables 75 - 75 1,529 1,213 1,806 Current Assets Inventory - 88 8 Trade and other receivables * 4,804 3,513 4,016 Cash and cash equivalents 18,923 10,184 9,664 23,727 13,785 13,688 Total Assets 25,256 14,998 15,494 EQUITY AND LIABILITIES Non-Current Liabilities Deferred income 561 1,609 903 561 1,609 903 Current Liabilities Deferred income 9,663 7,516 8,579 Trade and other payables 1,333 2,837 2,261 10,996 10,353 10,840 Total Liabilities 11,557 11,962 11,743 Equity Called up share capital 505 1 1 Share premium account 9,261 1,823 1,823 Other reserves 3,014 1,338 2,477 Retained earnings 919 (126) (550) Total Equity 13,699 3,036 3,751 Total Equity and Liabilities 25,256 14,998 15,494 * includes $374k corporation tax receivable in current period Craneware PLC Interim Results FY08 Consolidated cashflow statement for the six months ended 31 December 2007 Notes H1 2008 HI 2007 FY 2007 $'000 $'000 $'000 Cash flows from operating activities Cash generated from operations 3 2,205 450 2,626 Interest received 310 224 446 Tax (paid) / refunded (777) - (1,638) Net cash from operating activities 1,738 674 1,434 Cash flows from investing activities Purchase of plant and equipment (58) (419) (504) Capitalised intangible assets (312) (238) (433) Net cash used in investing activities (370) (657) (937) Cash flows from financing activities Dividends paid to company shareholders (1,000) Gross proceeds from the Placing 10,503 - - Less costs for the Placing (2,612) - - Net cash used in financing activities 7,891 - (1,000) Net (decrease) / increase in cash and cash equivalents 9,259 17 (503) Cash and cash equivalents at the start of the year 9,664 10,167 10,167 Cash and cash equivalents at the end of the year 18,923 10,184 9,664 Craneware PLC Interim Results FY08 Notes to the Financial Statements 1 Earnings per Share (a) Basic H1 2008 H1 2007 FY 2007 Profit attributable to equity holders of the Company ($'000) 1,470 505 1,216 Weighted average number of ordinary shares in issue (thousands) 22,870 19,799 19,799 Basic earnings per share ($ per share) 0.064 0.026 0.061 (b) Diluted H1 2008 H1 2007 FY 2007 Profit attributable to equity holders of the Company ($'000) 1,470 505 1,216 Weighted average number of ordinary shares in issue (thousands) 22,870 19,799 19,799 Adjustments for: - share options (thousands) 1,637 2,524 2,719 Weighted average number of ordinary shares for 24,507 22,323 22,518 diluted earnings per share (thousands) Diluted earnings per share ($ per share) 0.060 0.023 0.054 2 Called up share capital H1 2008 H1/FY 2007 Number $'000 Number $'000 Allotted called-up and fully paid Equity share capital Ordinary shares of 1p each 24,963,850 505 50,500 1 Ordinary A shares of 1p each - - 13,093 - Authorised Equity share capital Ordinary shares of 1p each 50,000,000 1,014 9,980,361 165 Ordinary A shares of 1p each - - 19,639 - Incentive shares of 0.1p each - - 5,087 - 3 Cash flow generated from operating activities Reconciliation of profit before tax to net cash inflow from operating activities Group H1 2008 H1 2007 FY 2007 $'000 $'000 $'000 Profit before tax 1,620 766 1,843 Finance income (310) (224) (446) Depreciation on plant and equipment 90 62 152 Amortisation on intangible assets 28 24 56 Share based payments 606 1,052 2,191 Movements in working capital: Decrease / (increase) in inventory 8 (69) 11 (Increase) / decrease in trade and other (414) (478) (1,056) receivables (Decrease) / increase in trade and other payables 577 (683) (125) Cash generated from operations 2,205 450 2,626 4. Basis of Preparation The interim financial statements are unaudited and do not constitute statutory accounts as defined in S240 of the Companies Act 1985. These statements have been prepared applying accounting policies that were applied in the preparation of the Group's consolidated accounts for the year ended 30th June 2007. Those accounts, with an unqualified audit report, have been delivered to the Registrar of Companies. 5. Segmental Information The Directors consider that the Group operates in one business segment, being the creation of software sold entirely to the US Healthcare Industry, and that there are therefore no additional segmental discolsures to be made in these financial statements. The interim report was approved by the Board of Directors on 22nd February 2008. Significant Accounting Policies The significant accounting policies adopted in the preparation of these statements are set out below. 6. Reporting Currency The Directors consider that as the Group's revenues are primarily denominated in US dollars the principal functional currency is the US dollar. The Group's financial statements are therefore prepared in US dollars. 7. Currency Translation Transactions denominated in foreign currencies are translated into US dollars at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities expressed in foreign currencies are translated into US dollars at rates of exchange ruling at the balance sheet date. 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 in general and administrative expenses. 8. Revenue Recognition The Group follows the principles of IAS 18, 'Revenue Recognition', in determining appropriate revenue recognition policies. In principle revenue is recognised to the extent that it is probable that the economic benefits associated with the transaction will flow into the Group. Revenue comprises the value of software license sales, installation, training, maintenance and support services, and consulting engagements. Revenue is recognised when (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the sales price has been fixed and determinable; and (iv) collectability is reasonably assured. For software arrangements with multiple elements, revenue is recognised dependent on whether vendor-specific objective evidence ('VSOE') of fair value exists for each of the elements. VSOE is determined by reference to sales to external customers made on a stand-alone basis. Where there is no VSOE revenue is recognised rateably over the full term of each contract. Revenue from standard license products which are not modified to meet the specific requirements of each customer is recognised when the risks and rewards of ownership of the product are transferred to the customer. from consulting engagements when all obligations under the consulting agreement have been fulfilled. Revenue from installation and training is recognised as services are provided, and Software sub licensed to third parties is recognised in accordance with the underlying contractual agreements. Where separate services are delivered, revenue is recognised on delivery of the service. All other revenue is recognised rateably over the term of the sub licence agreement. The excess of amounts invoiced and future invoicing over revenue recognised, is included in deferred revenue. If the amount of revenue recognised exceeds the amounts invoiced the excess amount is included within accounts receivable. 9. Intangible Assets - Research and Development Expenditure Expenditure associated with developing and maintaining the Group's software products are recognised as incurred. Where, however, new product development projects are technically feasible, production and sale is intended, a market exists, expenditure can be measured reliably, and sufficient resources are available to complete such projects, development expenditure is capitalised until initial commercialisation of the product, and thereafter amortised on a straight-line basis over its estimated useful life. Staff costs and specific third party costs involved with the development of the software are included within amounts capitalised. The Group considers whether there is any indication that capitalised development expenditure may be impaired on an annual basis. If there is such an indication, the Group carries out an impairment test by measuring the assets' recoverable amount, which is the higher of the assets' fair value less costs to sell and their value in use. If the recoverable amount is less than the carrying amount, an impairment loss is recognised. 10. Cash Cash and cash equivalents include cash in hand, deposits held with banks and short term highly liquid investments. For the purpose of the cash flow statement, cash and cash equivalents comprise of cash on hand, deposits held with banks and short term high liquid investments. 11. Share-Based Payments and Taxation Implications The Group issues equity-settled share-based payments to certain employees. In accordance with IFRS 2, 'Share-Based Payments' equity-settled share-based payments are measured at fair value at the date of grant. Fair value is measured by use of the Black-Scholes pricing model as amended to cater for share options in issue where vesting is based on future valuation performance conditions. 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. The share-based payments charge is shown separately on the income statement and is also included in 'Other reserves'. In the UK and the US, the Group is entitled to a tax deduction for amounts treated as compensation on exercise of certain employee share options under each jurisdiction's tax rules. As explained under 'Share-based payments', a compensation expense is recorded in the Group's income statement over the period from the grant date to the vesting date of the relevant options. As there is a temporary difference between the accounting and tax bases a deferred tax asset is recorded. The deferred tax asset arising is calculated by comparing the estimated amount of tax deduction to be obtained in the future (based on the Company's share price at the balance sheet date) with the cumulative amount of the compensation expense recorded in the income statement. 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. This information is provided by RNS The company news service from the London Stock Exchange

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