Craneware Regulatory News (CRW)

Craneware plc

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

Final Results

6 September 2016 - Craneware plc (AIM: CRW.L), the market leader in Value Cycle solutions for the US healthcare market, announces its results for the year ended 30 June 2016.

Financial Highlights (US dollars)

1. Adjusted EBITDA refers to earnings before acquisition and share related transaction costs, interest, tax, depreciation, amortisation and share based payments.

Operational Highlights (Finals)

Keith Neilson, CEO of Craneware plc commented, "Craneware is in a stronger position than ever and we are passionate about the opportunity ahead. The double digit growth in our reported revenue and adjusted EBITDA are only beginning to reflect the record levels of sales which began three years ago. Importantly, the investment we are making in our product suite mean our market opportunity is now several times larger than it was when we joined AIM in 2007.

"The market continues to evolve as we anticipated. US healthcare providers are seeking the solutions to address the challenges the new value based re-imbursement environment brings to them. We believe the investment we are making to expand the products in our Value Cycle suite addresses these challenges and we are now recognised beyond our original niche within the revenue cycle as a more strategic provider within a hospital's financial operations and their value cycle.

"We are confident that the ongoing investment we are making, combined with our continuing sales successes, mean we are well positioned to deliver continued future growth as well as increasing stakeholder value."

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About Craneware

Craneware enables healthcare providers to improve margins and enhance patient outcomes so they can continue to provide quality outcomes for all.

Craneware is the leader in automated value cycle solutions that help US provider organisations discover, convert and optimise assets to achieve best clinical outcomes and financial performance. Founded in 1999, Craneware has headquarters in Edinburgh, Scotland with offices in Atlanta, Boston and Phoenix employing over 200 staff. Craneware's market-driven, SaaS solutions normalise disparate data sets, bringing in up-to-date regulatory and financial compliance data to deliver value at the points where clinical and operational data transform into financial transactions, creating actionable insights that enable informed tactical and strategic decisions. To learn more, visit craneware.com and thevaluecycle.com.

Chairman's statement

The Board is pleased to confirm the Group's third consecutive year of record sales performance and a return to double digit growth in revenue and adjusted EBITDA.

With an impressive 63% growth in new sales to $58.6m (FY15: $35.9m), the total value of contracts signed in the year increased to $82.3m (FY15: $72.9m). Underlying this the average new contract length was maintained at 5 years, renewal rates remained high (well above 100% by dollar value) and customer retention continued to be significantly higher than the industry norm. This has been a truly successful sales year for the Group.

The Group's revenue recognition policy retains focus on long term sustainable growth and mitigates against year on year fluctuations in the total value of contracts signed. Therefore, the vast majority of the revenue from these sales has not been recognised in the year to 30 June 2016, and will instead benefit future years.

We are now seeing the impact of this continued period of record sales levels flow through into our reported figures. Revenue increased 11% to $49.8m (FY15: $44.8m) and adjusted EBITDA, increased by 10% to $15.9m (FY15: $14.4m). Cash generation was strong, resulting in cash reserves of $48.8m (FY15: $41.8m) after payment of $6m dividend to shareholders.

Craneware's solutions span the breadth of the US healthcare provider landscape, from the smaller rural hospitals to multi-hospital groups. Sales across all strata were strong in the year and it was particularly pleasing to see two significant sales successes into two large hospital groups. These $7.5m and $8m contracts demonstrate the value and importance these groups attribute to the Craneware software solutions in assisting them to protect their operating margins while delivering improved outcomes for all.

The US healthcare market continues to evolve as predicted towards value-based care. The Group's strategy is to expand its offerings, providing deeper insight into a broad range of a hospital's operations, analysing and managing data from across the organisation. Our solutions will enable providers to improve margins and enhance patient outcomes so the hospitals can provide quality care to their communities. To achieve this, we will continue to utilise a combination of in-house development expertise, partnerships and targeted acquisitions to expand our offering.

We have made good progress towards delivering this vision in the year, with two new areas of product development in the pipeline. The first to be launched will be Trisus Patient Payment Module, our gateway product within our newly formed Patient Engagement product family. This will be launched this calendar year and joins the first product launched on our new cloud-based platform, Trisus. The product will ultimately combine the mobile platform brought into the Group last year via the acquisition of Kestros with the technology from the reseller agreement with VestaCare announced this year.

We are also particularly excited to announce the launch of Craneware Healthcare Intelligence, a new Group company. The company has been created to develop and market cost analytics software to the US healthcare industry. Initial product is expected to be launched towards the end of Craneware's 2017 financial year. This is expected to be a significant new market opportunity for Craneware and will be a key area of investment for the Company moving forward.

The Board continues to be alert to potential acquisitions. Strict criteria will be applied to targets to ensure they both deliver against the product roadmap while being accretive to the financial strength of the Group.

As we enter our tenth year since the Company IPO in 2007, I continue to be impressed by the enthusiasm and commitment shown by our employees across Scotland and the US. Their passion for service to our customers and the healthcare industry is a key element of our success and I would like to take this opportunity to thank them for all their hard work during the year.

I would like to express particular gratitude to Gordon Craig, who has decided after 16 years to retire as CTO and take on a salaried advisory role within the Company. Gordon has been responsible for product development during his tenure and hands that on at this appropriate time. We have seen significant progress made on the Trisus platform, with the roll out of the first components of the platform taking place in the next twelve months. Gordon's replacement will join the Company on 12 September, from his role as a VP (and Fellow) of R&D at a Fortune 10 Healthcare company. He brings relevant experience of migrating highly scalable enterprise applications to the cloud that are HIPAA compliant and process large volumes of healthcare data.

Neil Heywood who has been a non-executive director throughout the last 14 years has decided not to stand for re-election at the forthcoming AGM. I would like to take this opportunity to thank both Neil and Gordon, on behalf of the Board, for all their service and support to the Group and wish them well in their future endeavours.

The excellent sales performances over the last three years, the clear strategy for growth and the strong financial position of Company provide the Board with confidence in the success of Craneware in the year ahead.

George Elliott

Chairman5 September 2016

Strategic Report:

Operational Review

We have enjoyed another strong year, delivering significant operational and financial progress against our long term strategic objectives.

The US healthcare landscape continues to evolve. New regulations, increasing requirement for reliable data analytics, emerging medical techniques and technologies, are all contributing to a major shift in the operational needs of US healthcare providers. However, the one thing that appears unchanged is the need for quality patient outcomes. At Craneware, we deliver solutions that help healthcare providers maintain their financial health so they can concentrate on what matters most: providing the best possible outcomes for all.

Three consecutive years of record sales, we believe, have only scratched the surface of our long term potential. We have entered the next phase of growth for Craneware, in which we are expanding our product suite, whilst supporting our customers as they meet the challenges value-based care brings.

Market and Strategy

Overview

While the need to address the healthcare requirements of an ageing population grows more urgent, the growing cost of US healthcare is unsustainable. Hospital operating margins continue to be under pressure and there is still significant waste and inefficiency in the system.

We are approaching an era where, it is expected, greater than 50% of all US healthcare payments will have a value-based component. These major changes in reimbursement and care delivery models have made understanding and reducing the cost of care, while improving patient outcomes, mission-critical for every healthcare provider in the US.

While hospital leadership teams are focusing on controlling costs and increasing levels of care, consumers are facing ever increasing out-of-pocket costs as the healthcare model shifts a significant proportion of the payment responsibility to the patient, via high deductible plans.

These factors and the challenges they bring to US healthcare providers drive two major areas of focus in the comings years - a high growth market for cost analytics and performance platforms as well as solutions to manage our customers' challenges with the growing levels of direct engagement they have with consumers.

Delivering the Value Cycle

The Value Cycle is the process and culture by which healthcare providers pursue quality patient outcomes and optimal financial performance, through the management of clinical, operational and financial assets.

Without this data, and the insight into that data, to enable action, healthcare systems cannot protect their margins and provide quality outcomes for all.

Craneware's Value Cycle solutions support our customers in this new world of value based reimbursement. Our solutions monitor the points in their system where clinical and operational data transform into financial transactions, delivering value in the discovery, conversion and optimisation of these assets.

Our Strategy

Our strategy is to continue to build on our established market-leading position in revenue cycle solutions, expanding our product suite coverage of the Value Cycle. By expanding our offerings in the cost management area of hospital operations and combining this with data from the revenue cycle we will provide a unique insight into the management and analysis of clinical and operational data.

The expansion will be achieved through a combination of extensions to the current product set, internal product development, partnerships with other technology providers and targeted acquisitions.

Craneware's Product Roadmap, Trisus Enterprise Value Platform

We continue to invest in our current solutions set, however, alongside this investment we have a roadmap to move all these solutions to a new cloud-based platform, the Trisus Enterprise Value Suite. Trisus will combine revenue integrity, cost management and decision enablement functionality in a versatile, customisable solution that fully delivers on Craneware's primary purpose to help healthcare systems improve margins and enhance patient outcomes. Development of the Trisus platform continues with a release of the first elements of the platform scheduled to take place later this year and throughout calendar 2017.

In addition to our current solution set, we continue to expand our coverage of the Value Cycle. Our initial area of focus for this expansion has been within the area of patient access and engagement - addressing the growing consumerisation within healthcare.

Patient Access and Engagement: Trisus Patient Payment Module

Development of Trisus Patient Payment Module, a new fourth gateway product, operating within the patient access and engagement area, has progressed well in the year and is on track for launch before the end of this calendar year.

The ultimate offering will combine the automated payment technologies and services (VestaPay) provided by VestaCare, the exclusive value added reseller agreement signed in January 2016, with Craneware's medical necessity and price estimation products as well as Craneware's mobile patient engagement platform, which has been developed following the acquisition of Kestros. Together these will form this enhanced Patient Engagement solution.

The past five years have seen an explosion of high-deductible health plans and an increasing out-of-pocket burden for patients. In many hospitals, patient payments represents a fast-growing proportion of their revenue, yet is the most difficult and expensive portion to collect with a high reputational risk associated with pursuing delinquent individuals. After decades of primarily relying on financial transactions with health plans, Medicare and Medicaid, hospital revenue cycle and patient access teams are often ill-equipped to manage effective patient-friendly point-of-service collections. For the patient, who is often underinsured, it can be mentally and financially overwhelming to receive expensive and confusing medical bills after being discharged.

Trisus Patient Payment Module is a solution designed to increase patient billing satisfaction while also improving point-of-service collection rates.

The solution will be launched by the end of this calendar year. We will receive an annual license fee from customers with an additional revenue share element based on improved collection rates.

New Group company: Craneware Healthcare Intelligence

In the second half of FY16, Craneware formed a new Group company, Craneware Healthcare Intelligence, to develop and market cost analytics software to the US healthcare industry. Cost analytics are a vital component within the emerging Value Cycle solutions market. The understanding of costs, combined with correct reimbursement will enable our customers to better understand their margin and in turn drive better patient outcomes. We believe this area of the Value Cycle represents a market opportunity several times larger than that of our existing product portfolio.

Having assessed various acquisition and partnering options, we concluded that developing our own solution is the best way to ensure we have a world class product to take to our customer base.

We have appointed one of the pre-eminent experts in the field of Cost Analytics in the US as Senior Vice President, Healthcare Analytics, who will lead this new development. With 16 years' experience working with a major US hospital network, developing and deploying ground-breaking cost analytics solutions, we believe our new head of this project gives us a significant head start in delivering this new solution. We are in the process of building a complete development and delivery team and expect to see initial product within calendar 2017.

Acquisitions

The Board continues to assess opportunities to complement the Group's organic growth strategy and increase speed to market for new products through acquisition. The Board adheres to a rigorous set of criteria to analyse acquisition opportunities, including quality of earnings and product offering. The $50 million funding facility provided by the Bank of Scotland announced previously combined with our own cash resources, provides the Company with the firepower to carry out strategic acquisitions if and when these criteria are met.

Sales and Marketing

Within our record sales performance, the Group delivered good levels of sales to all segments of the US healthcare market, demonstrating continued sales momentum and the benefits of a supportive market environment. Going forward the sales pipeline continues to be at record highs with opportunities across all strata of hospitals.

The average length of new hospital contracts continues to be in-line with our historical norms of approximately five years. Where Craneware enters into new product contracts with its existing customers, contracts are occasionally made co-terminus with the customer's existing contracts, and as such, the average length of these contracts remains greater than three years, in-line with our expectations.

We were delighted to secure two significant contract wins within the year. The first contract announced in January 2016 is expected to deliver $7.5m revenue over the initial five year term. The new customer is a growing hospital operator and consolidator that manages in excess of 50 hospitals across multiple US states primarily in non-urban communities. Chargemaster Corporate Toolkit® will be used by the group to establish and manage corporate standardisation across its entire portfolio of owned and managed facilities. This will enable system-wide reporting efficiencies and the timely submission of accurate claims whilst managing billing compliance risk.

The second contract, secured at the end of the year, is with another of the US' largest multi-hospital groups. Commencing in 2017, the contract is expected to deliver revenue greater than $8m during the next five years, as the hospital network rolls out multiple Craneware core value cycle solutions, led by Chargemaster Toolkit, Pharmacy ChargeLink and Supplies ChargeLink.

With these significant contract wins bringing new hospital systems to the Group, the sales mix saw a higher percentage of sales to new customers in the year, however overall the levels of sales between new customers and existing customers (both mid-contract and at renewal time) is well balanced. All new hospital sales provide opportunities for further product sales in the future.

Awards

Chargemaster Toolkit® was named Category Leader in the "Revenue Cycle - Chargemaster Management" market category for the tenth consecutive year in the annual "2015/2016 Best in KLAS Awards: Software & Services." KLAS's annual "Best in KLAS" report provides unique insight gathered from thousands of healthcare organisations across the US. The report includes client satisfaction scores and benchmark performance metrics.

Strategic Report:

Financial Review

In our 6 July trading statement we were pleased to report our third year of record sales levels. Equally pleasing was the confirmation of our return to double digit growth rates for both Revenue and adjusted EBITDA. This translates to Revenues reported for the financial year under review of $49.8m (FY15: $44.8m) which has resulted in an adjusted EBITDA of $15.9m (FY15: $14.4m).

Our Annuity SaaS business model (which is described in detail below) is designed to deliver long term sustainable growth. Whilst this means the vast majority of any current year's sales success is not reflected in that year's income statement, it does mean the majority of the growth in revenues we are currently reporting is reflective of prior year's sales successes, with the sales success of the current year being available to further benefit future years. In our revenue visibility KPI detailed below, we already have visibility over $51.3m of potential revenue for FY17 prior to any further new product sales being made.

The total value of contracts written during the year increased by 13% to $82.3m (FY15: $72.9m). However, this growth under-represents the true sales success in the period. Contracts written for new product sales actually increased 63% to $58.6m (FY15: $35.9m). The overall growth rate reported was moderated by the lower number of customers that were coming to the end of their multi-year contracts and therefore fewer were due to renew in the year. Whilst this did impact the Sales KPI, it does mean we have more customers under contract enjoying the benefits our solutions can bring.

Our average contract for a new hospital customer continues to be five years, with contracts for customers renewing and buying additional products part way through an existing contract both averaging over three years, continuing to be in line with our historical norms.

The sales success of the prior financial years saw a significant proportion of our customer base renew on multiyear contracts. As a result, fewer customers were due to renew in the financial year under review which whilst not impacting revenue did impact both the total value of renewal contracts signed, as detailed above, and the renewal rate by dollar value metric. The upcoming financial year will have a similar number of customers due to renew.

Renewal rates by dollar value is a financial metric which specifically ties to the three-year visible revenue detailed below. This metric measures 'last annual value' of all customers due to renew in the current year and compares it to actual value these customers renew at (in total), including upsell and cross-sell. This metric at 122% is above our expected norms of 85-115% however with fewer customers being due to renew in the current year, we do not believe this represents a change to our future expected range. Variations in our dollar value renewal rates are driven by the timing of individual renewals, additional product sales and contract negotiation or cancellation.

Business Model

The Group recognises the vast majority of revenue under its 'Annuity SaaS' revenue recognition model. This business model has been consistently applied throughout the period under review. The strategy behind this business model is to ensure the long-term growth and stability of the Group. The annuity SaaS business model adopted by the Group delivers a 'smoothing' of any sales fluctuations and focusing on growth over the long-term. As a result the majority of the revenue resulting from all sales will be recognised over future periods, adding to the Group's long term visibility of revenue under contract - as stated in all our trading and contract win announcements.

Under our model we recognise software licence revenue and any minimum payments due from our 'other route to market' contracts evenly over the life of the underlying signed contracts. As we sign new hospital contracts over an average life of five years, we will see the revenue from any new sales over this underlying contract term.

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

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

Sales, Revenue and Revenue Visibility

Under our model 'revenue' and 'sales' have different meanings and are not interchangeable. This can be demonstrated by reviewing the last five years' sales levels and comparing these to the reported revenue numbers. In the table below we show our total contracts signed in the relevant years between sales of new products (to both new and existing hospital clients) and clients who are renewing their contracts at the end of their terms, our total sales and compare this total to the revenue reported.

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

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

As the majority of the revenue resulting from all sales will be recognised over future periods, the financial statements do not, anywhere, record the valuable 'asset' this contracted, but not yet recognised, revenue represents to the Group. As such, at every reporting period, the Group presents it's "Revenue Visibility". This KPI identifies revenues which we reasonably expect to recognise over the next three year period, without any further new product sales. This "Three Year Visible Revenue" metric includes:

As we are signing multi-year contracts with our customers and at the end of these contracts we are, on average, renewing these customers at 100% of dollar value, the Group is consistently building an underlying annuity base of revenue that increases with each new sale.

The Three Year Revenue Visibility KPI is a forward looking KPI and therefore will always include some judgement. To help assess this, we separately identify different categories of revenue to better reflect any inherent future risk in recognising these revenues. Future revenue under contract, is, as the title suggests, subject to an underlying contract and therefore once invoiced will be recognised in the respective years (subject to future collection risk that exists with all revenue). Renewal revenues are contracts coming to the end of their original contract term (e.g. five years) and will require their contracts to be renegotiated and renewed for the revenue to be recognised. As this category of revenue is assumed to renew at 100% of dollar value, we consistently monitor and publish this KPI (at each reporting period) to ensure the reasonableness of this assumption. 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 and as such there is increased potential for this revenue not to be recognised in future years, when compared to the other categories.

The Group's total visible revenue for the three years as at 30 June 2016 (i.e. visible revenue for FY17, FY18 and FY19) identifies $149.1m of revenue which we reasonably expect to benefit the Group in this next three year period. This visible revenue breaks down as follows:

Gross Margins

We expect the gross profit margin to be between 90 - 95%, the gross profit for the year was $46.8m (FY15: $42.4m) which represents a gross margin percentage of 93.9% which is towards the top of our historical range and therefore reflects the correct matching of incremental costs incurred as a result of sales with the associated revenue being recorded.

Earnings

The Group presents an adjusted earnings figure as a supplement to the IFRS based earnings figures. The Group uses this adjusted measure in our operational and financial decision making as it excludes certain one-off items, so as to focus on what the Group regards as a more reliable indicator of the underlying operating performance. We believe the use of this measure is consistent with other similar companies and is frequently used by analysts, investors and other interested parties.

Adjusted earnings represent operating profits excluding costs incurred as a result of acquisition and share related activities, share related costs including IFRS 2 share based payments charge, depreciation, amortisation and in the current year excludes the 'other income' arising out of the conclusion of the contingent consideration arising from the prior year Kestros acquisition ("Adjusted EBITDA").

Adjusted EBITDA has grown in the year to $15.9m (FY15: $14.4m) an increase of 10%. This reflects an Adjusted EBITDA margin of 31.8% (FY15: 32.0%). This is consistent with the Group's measured approach to continuing to make investments in line with the revenue growth occurring, whilst continually managing to ensure the efficiency of the investments we make.

Operating Expenses

The increase in net operating expenses (to Adjusted EBITDA) reflects our policy of investing in line with revenue growth increasing over 10% to $30.9m (FY15: $28.0m). We are now seeing the benefits of our previous investments, in both management bandwidth and the Sales and Marketing areas, through our record sales levels. The resulting revenue increases allowed us to expand our investment with the focus in the past year being in Client Servicing and Development.

We firmly believe "we win when our client wins" so ensuring we continue to provide the highest level of customer support whether during the initial implementation or later as the customers use our software during the life cycle of their contract, is paramount to the Group. We continually rank top in category in the KLAS scores for our customer support and through appropriate and targeted investment we aim to continue this focus on our customers.

Product innovation and enhancement continues to be core to the Group's future. The Operating Review provides significant detail of our current ongoing development programs, including the Trisus platform and the portfolio of products that will be part of this platform, the new gateway product development in the Patient Access and Engagement arena and the launch of Craneware Healthcare Intelligence.  

As we undertake these initiatives and consider the market opportunities these present, the Group has decided to accelerate investment in these areas whilst maintaining our current product offerings and ensuring they remain market leading. This has resulted in an increase in the cost of Development related to our current products and therefore charged in the period to $7.7m (FY15: $7.0m), a 10% increase and therefore in line with our revenue growth. In addition, we have made further investments to accelerate the development of the new product offerings. As these products have yet to be made available to our customers, the associated incremental costs have been capitalised, this has resulted in $2.0m (FY15: $0.8m) of capitalised development spend in the year. We expect to see both the levels of development expense and capitalisation continue the current trends as we continue to build out the solution set that supports the Value Cycle.

Cash and Bank Facilities

We measure the quality of our earnings through our ability to convert them into operating cash. During the year we have seen continued high levels of cash conversion, achieving over 100% conversion of our adjusted EBITDA into operating cash. When comparing to the prior year, the comparative should be adjusted for the one-time amount of $4m of accrued revenue relating to a partner contract clearing the Group's balance sheet. After adjusting for this amount the levels of cash generated are consistent.

The success of our very high levels of cash conversion (over 100% of Adjusted EBITDA) has enabled us to grow our cash reserves to $48.8m (FY15: $41.8m). These cash levels are after paying $2.3m in taxation (FY15: $2.5m) and returning $6.0m (FY15: $5.4m) to our shareholders by way of dividends.

We retain a significant level of cash reserves and balance sheet strength to fund acquisitions as suitable opportunities arise. To supplement these reserves, the Group announced in our interim report that we had secured a funding facility from the Bank of Scotland of up to $50m. Whilst no draw down of this facility occurred in the year, the Group continues to investigate strategic opportunities for further its growth strategy.

Balance Sheet

The Group maintains a strong balance sheet position with rigorous controls over working capital.

The level of trade and other receivables has increased in comparison to the prior year. This is a result of the significant level of sales made in the second half of the year and the associated increase in accounts receivable. The corresponding increase in Deferred income and our continued cash collection rates confirm this increase is solely a result of the increased sales levels.

As we continue to deliver record levels of sales so the amounts we pay out relating to sales commissions continue to increase. Total sales commissions are based on the total value of the contract sold, however for income statement purposes, only a small proportion of revenue from the contract value is recognised in the year, as a result we charge an equivalent percentage of the sales commission, thereby properly matching revenue and incremental expense. The resulting prepayment has increased, as expected, in the year from $3.2m to $6.0m (resulting from the growth in new product sales). However, as we only pay the sales commission upon receipt of the first annual payment from the customer, we remain cash flow positive from any new sale.

Deferred income levels reflect the amounts of the revenue under contract that we have invoiced and/or been paid for in the year, 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 recorded in the income statement. Overall levels of deferred income are significantly more than accrued income and the prepayment of sales commissions, confirming we remain cash flow positive in regards to how we recognise revenue from our contracts.

Conclusion of the Contingent Consideration arising from the Kestros Limited Acquisition

On 28 August 2014, Craneware acquired the entire share capital of Kestros Limited (now trading as Craneware Health) for a maximum consideration of $2.14m (£1.25m) subject to the achievement of certain revenue milestones. The contingent consideration element has now been assessed and as a result the income statement in the year records other income of $1.0m (FY15: $Nil). Concurrently the Group has assessed the original goodwill and associated intellectual property intangible assets and has reduced the carrying value of these accordingly. This impairment of $1.0m is included in the amortisation charge for intangible assets charged in the year.

Both amounts are recorded as 'adjustments' in calculating Adjusted EBITDA and due to their relative amounts have no effect on Operating Profit or EPS reported in the year.

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 do have approximately one quarter of the cost base based in the UK relating primarily to our UK employees (and therefore denominated in Sterling). As a result, we continue to closely monitor the Sterling to US dollar exchange rate, and where appropriate consider hedging strategies. During the year, we have seen some benefit of exchange rate movements, with the average exchange rate throughout the year being $1.4837 as compared to $1.5750 in the prior year. This benefit has allowed us to release further investment whilst maintaining profit margins.

Taxation

The Group generates profits in both the UK and the US, the overall levels of which are determined by both the level 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 seen the benefit of a reducing UK corporation tax rate and as such the current year effective tax rate is 24% (FY15: 25%). Effective tax rates in any one year will reflect the relative tax rates in the UK and the US, the ratio of underlying professional services to software licence revenues and the overall level of sales increase.

EPS

In the year adjusted EPS has increased to $0.429 (FY15: $0.378) and adjusted diluted EPS has increased to $0.423 (FY15: $0.375). The increase in EPS is driven by the increased levels of EBITDA combined with the overall reduced effective tax rate detailed above.

Dividend

The Board recommends a final dividend of 9.0p (12.1 cents) per share giving a total dividend for the year of 16.5p (22.0 cents) per share (FY15: 14.0p (22 cents) per share). Subject to confirmation at the Annual General Meeting, the final dividend will be paid on 8 December 2016 to shareholders on the register as at 11 November 2016, with a corresponding ex-Dividend date of 10 November 2016.

The final dividend of 9p per share is capable of being paid in US dollars subject to a shareholder having registered to receive their dividend in US dollars under the Company's Dividend Currency Election, or who register to do so by the close of business on 11 November 2016. The exact amount to be paid will be calculated by reference to the exchange rate to be announced on 11 November 2016. The final dividend referred to above in US dollars of 12.1 cents is given as an example only using the Balance Sheet date exchange rate of $1.3397/£1 and may differ from that finally announced.

Outlook

The IPO of Craneware on AIM in 2007 provided us with access to capital in order to build a business capable of delivering on the significant opportunity we could see approaching within the US healthcare industry. We have achieved the targets we set the business since that time, delivering significant revenue and profit growth, cash generation and other factors such as expanding our solution suite to better address the challenges faced by our customers.

Craneware is in a stronger position than ever and we are passionate about the opportunity ahead. The double digit growth in our reported revenue and adjusted EBITDA are only beginning to reflect the record levels of sales which began three years ago. Importantly, the investment we are making in our product suite mean our market opportunity is now several times larger than it was when we joined AIM in 2007.

The market continues to evolve as we anticipated. US healthcare providers are seeking the solutions to address the challenges the new value based re-imbursement environment brings to them. We believe the investment we are making to expand the products in our Value Cycle suite addresses these challenges and we are now recognised beyond our original niche within the revenue cycle as a more strategic provider within a hospital's financial operations and their value cycle.

We are confident that the ongoing investment we are making, combined with our continuing sales successes, mean we are well positioned to deliver continued future growth as well as increasing stakeholder value.

Keith Neilson Craig Preston

Chief Executive Officer Chief Financial Officer

5 September 2016 5 September 2016

Consolidated Statement of Comprehensive Income

For the year ended 30 June 2016

1. Adjusted EBITDA is defined as operating profit before acquisition costs, share based payments, depreciation, contingent consideration, amortization, impairment and share related transactions.

Earnings per share for the year attributable to equity holders

* Adjusted Earnings per share calculations allow for the tax adjusted acquisition costs and share related transactions together with amortisation on acquired intangible assets to better understand the underlying performance and a better comparison with previous years.

Statement of Changes in Equity for the year ended 30 June 2016

Consolidated Balance Sheet as at 30 June 2016

Statement of Cash Flows for the year ended 30 June 2016

Notes to the Financial Statements

General Information

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

Basis of Preparation

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

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

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

1. Selected principal accounting policies

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

Reporting currency

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

Currency translation

Transactions denominated in foreign currencies are translated into US dollars at the rate of exchange ruling at the date of the transaction. The average exchange rate during the course of the year was $1.4837/£1 (2015: $1.5750/£1). Monetary assets and liabilities expressed in foreign currencies are translated into US dollars at rates of exchange ruling at the Balance Sheet date $1.3397/£1 (2015 : $1.5717/£1). Exchange gains or losses arising upon subsequent settlement of the transactions and from translation at the Balance Sheet date, are included within the related category of expense where separately identifiable, or administrative expenses.

Revenue recognition

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

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

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

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

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

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

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

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

Intangible Assets

(a) Goodwill

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

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

(b) Proprietary software

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

(c) Contractual customer relationships

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

(d) Research and Development expenditure

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

(e) Computer software

Impairment of non-financial assets

At each reporting date the Group considers the carrying amount of its tangible and intangible assets including goodwill to determine whether there is any indication that those assets have suffered an impairment loss. If there is such an indication, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any) through determining the value in use of the cash generating unit that the asset relates to. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs.

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

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

Taxation

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

Deferred taxation is computed using the liability method. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using enacted rates and laws that will be in effect when the differences are expected to reverse. The deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will arise against which the temporary differences will be utilised.

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

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

Share-based payments

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

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

2. Critical accounting estimates and judgements

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

· Contingent consideration: - the contingent consideration related to the acquisition of Kestros Limited is measured at fair value which requires judgement with regards to the likelihood of the subsidiary acquired meeting the revenue targets stipulated in the sales and purchase agreement. The balance was re-measured taking into account revenue achieved to date and the forecasted revenue up to the final day of the earn out period

· Impairment assessment: - the Group tests annually whether Goodwill has suffered any impairment and for other assets including acquired intangibles at any point where there are indications of impairment. This requires an estimation of the value in use of the applicable cash generating unit to which the Goodwill and other assets relate. Estimating the value in use requires the Group to make an estimate of the expected future cashflows from the specific cash generating unit using certain key assumptions including growth rates and a discount rate. Reasonable changes to these assumptions such as increasing the discount rate by 5% (18% to 23%) and decreasing the long term growth rate applied to revenues by 1% (2% to 1%) would still result in no impairment.

· 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.

· 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.

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

4. Operating expenses

5. Tax on profit on ordinary activities

6. Dividends

The dividends paid during the year were as follows:-

The proposed final dividend for 30 June 2016 is subject to approval by the shareholders at the Annual General Meeting and has not been included as a liability in these accounts.

7. Earnings per share

a) Basic

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

b) Diluted

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

8. Intangible assets

Goodwill and Other Intangible assets

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 acquisitions of Craneware InSight Inc and Craneware Health (Kestros Ltd) (although the Group recognised the impairment in the current year).

The carrying values are assessed for impairment purposes by calculating the value in use (net present value (NPV) of future cashflows) 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 goodwill impairment review assesses whether the carrying value of goodwill is supported by the NPV of the future cashflows based on management forecasts for five years and then using an assumed sliding scale annual growth rate which is trending down to give a long-term growth rate of 2% in the residual years of the assessed period. Management have made the judgement that this long-term growth rate does not exceed the long-term average growth rate for the industry and also estimated a pre-tax discount rate of 18%.

The carrying amount of the separately identifiable Craneware Health cash generating unit has been reduced to its recoverable amount through recognition of an impairment loss against goodwill and proprietary software. This loss has been included in operating expenses. The level of sales achieved in the period since the acquisition of Craneware Health and the sales forecasted in the future have been below what was previously forecasted. Refer to note 12 for further details.

Sensitivity analysis was performed using a combination of different annual growth rates and a range of different weighted average cost of capital rates. Management concluded that the tempered growth rates resulting in 2% during the residual period and the pre-tax discount rate of 18% were appropriate in view of all relevant factors and reasonable scenarios and that there is currently sufficient headroom over the carrying value of the assets in the acquired business that any reasonable change to key assumptions is not believed to result in impairment.

9. Trade and other receivables

10. Share capital

Allotted called-up and fully paid

11. Cash flow generated from operating activities

12. Acquisition of Subsidiary: Craneware Health

In the prior year, on 26th August 2014, the Company acquired 100% of the issued share capital of Kestros Ltd. The total consideration for the acquisition along with the fair value of the identified assets and assumed liabilities as acquired are shown below:

The value of the equity consideration was subject to revenue performance criteria through to 31 July 2016 with a potential cash repayment where stipulated revenue targets were not met. Due to the likelihood of revenue targets not being met a contingent consideration receivable is included in other receivables and disclosed in Note 9. An impairment charge has also been recognised against Goodwill (reduced by $250,000 to Nil) and a fair value reduction of $754,791 was made to the Proprietary Software.