Craneware Regulatory News (CRW)

Craneware plc

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

Final Results

10 September 2013 - Craneware plc (AIM: CRW.L), the market leader in automated revenue integrity solutions for the US healthcare market, announces its results for the year ended 30 June 2013.

Financial Highlights (US dollars)

· Revenue increased 1% to $41.5m (2012: $41.1m)

· Adjusted EBITDA1 increased 4% to $12.4m (2012: $11.9m)

· Adjusted profit before taxation increased 4% to $11.2m (2012: $10.8m)

· Profit before tax decreased 5% to $10.6m (2012: $11.2m)

· Basic adjusted EPS increased 4% to 32.9 cents (2012: 31.6 cents), basic EPS decreased 7% to 30.7 cents (2012: 33.0 cents)

· Cash at year end $30.3m (2012: $28.8m) after returning $4.7m to shareholders by way of dividends

· Proposed final dividend of 6.3p (9.6 cents) per share giving total dividend for the year of 11.5p (17.4 cents) (2012: 10.5p /15.9 cents per share)

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

Operational Highlights

· Underlying growth in sales to individual hospitals and small hospital groups

· Exited the year with significantly higher sales run rate than at the start

· Renewal rates over 100% of dollar value

· Products achieved top rankings within their divisions of the KLAS industry awards

· Hospitals continue to face growing financial and administrative pressure including increased audit activity and significant backlogs in the appeal process 

· Key appointments increase bandwidth of senior management team

Keith Neilson, CEO of Craneware commented: "Overall Group revenue reported in the year was marginally ahead of that of last year, masking the steady growth through the year in sales to individual hospitals, which was very encouraging and a reflection of the more stable trading environment. The strengthening of sales activity has continued and trading in the first few months of the new financial year has been healthy. With a product suite that addresses many of the fundamental financial issues besetting healthcare providers in the US, an invigorated sales team and a more stable trading environment, we are confident Craneware has the platform to deliver increased shareholder value in the years ahead."

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About Craneware

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

Chairman's Statement

This has been a year of consolidation for Craneware, in which we have taken advantage of changes within the industry to recruit high calibre individuals into the business, improve our sales process and further develop our products to help ensure the revenue integrity of our customers.

Overall Group revenue reported in the year was marginally ahead of that of last year, masking the steady growth through the year in sales to individual hospitals, which was very encouraging and a reflection of the more stable trading environment. The Group remained very profitable, with adjusted EBITDA increasing by 4% to $12.4m and adjusted EPS increasing 4% to 32.9 cents. Craneware continues to benefit from strong operational cash flow, closing the year with a cash balance of $30.3m (30 June 2012: $28.8m). The confidence the Board has in the business means we are pleased to recommend an increased final dividend of 6.3p (9.6 cents) per share giving a total dividend for the year of 11.5p (17.4 cents) (2012: 10.5p (15.9 cents) per share).

Despite strong growth in the small and medium tier of the market, Craneware did not achieve a significant sale to the larger end of the healthcare market in the year under review via either large hospital groups or other routes to market, such as contracts with IT businesses or consultancies. Although these opportunities remain significant prospects for the Group, they are, because of their nature, inherently difficult to forecast. We believe that in the current market environment of consolidation in the healthcare industry, a modified approach is required to secure these types of deals and we have just completed the first stage of the restructuring of our organisation to work with these prospects more effectively. We are confident that our market leading products and proven customer successes mean we are well positioned to secure this business once revenue integrity moves up their corporate agenda.

I am pleased to report that trading in the current year has begun well, in line with management's forecasts. With an underlying base of annuity revenue, renewal rates of over 100% by dollar value and a quarter of all US healthcare providers as customers, Craneware has a strong foundation for success. Our products consistently outperform our competitors' solutions, delivering transparent and highly measurable cost savings and efficiencies to our customers. With a high proportion of the market still relying on manual processes and an ever increasing level of auditing pressure on hospitals, the Board is confident of Craneware's ability to grow its revenues and profits.

I would like to take this opportunity to thank our staff for their commitment and enthusiasm and our shareholders for the support they have demonstrated this year.

George Elliott

Chairman

9 September 2013

Operational Review

Introduction

As predicted, during the year under review we have seen the US healthcare market continue to evolve. Our focus over the year has been to ensure Craneware has the right people, products and strategy to succeed in this developing market. With the leading products in the market, $12.4m of EBITDA profit secured in the year and $30.3m of cash at the year end, the Company is in a very strong position.

We are pleased to report that we saw a general strengthening of trading conditions through the year, as the disruption caused by the introduction of Electronic Healthcare Incentive payments in 2011/12 continued to dissipate. This resulted in a steady increase in sales through the year to individual hospitals and smaller groups, and we exited the year with a significantly higher sales run rate than at the start.

What also became apparent through the course of the year was the decreasing predictability around sales to larger hospital groups and other significant routes to market. The consolidation taking place at the larger end of the market both disrupted our discussions in this area and made them more complex. For the first time since our IPO in 2007, we did not achieve our historical run rate of one or two larger deals, which has impacted our reported results.

It is encouraging to note that whilst renewal rates may fluctuate between periods, renewal rates for the whole year ending the 30 June 2013 were above our benchmark of 100% of dollar value. It is evident that, once in place, Craneware's revenue integrity solutions are considered vital for ensuring the financial strength of a hospital.

We continued to invest in the development and enhancement of our product suite in the year, and our products continue to lead the revenue integrity industry, once again holding their top rankings within their divisions in the KLAS industry awards.

US Healthcare Market

As the shape of healthcare reform in the US starts to solidify, following the Supreme Court's ruling on 6 December 2012 which upheld the Affordable Healthcare Act as constitutional, there was an increase in the year in consolidation among the hospital groups. 45% of the market is now part of a large Integrated Delivery Network, rather than 41% in the prior year. These hospital groups have been formed to achieve efficiencies through scale and we believe will seek corporate-wide software solutions to improve the efficiencies and financial strength of their group hospitals, an area in which Craneware is particularly competitive.

This consolidation has continued against a background of increasing scrutiny of the smallest rural hospitals in the Critical Access Hospital (CAH) Market as the federal government continues to look at budget deficit reduction plans. Since 1997 these hospitals have had a protected status receiving 101% of cost from the state and federal government to ensure financial viability and provide healthcare in remote rural communities. Management believe that the proposed stricter enforcement of the current qualifying criteria for these hospitals has refocused their need for Revenue Integrity solutions. With their higher level of financial constraints and lower staff levels, Craneware will address their unique needs with our new hybrid technology and services solutions.

Medicare's Recovery Auditors continue to step up the volume of activity that identifies and recovers overpayments made to US Hospitals by the Medicare program. The American Hospital Association (AHA) reported a dramatic increase in Recovery Audit activity in the 2nd quarter of 2013, up 47% compared to the 4th quarter of 2012. 40% of claims reviewed were denied and total overpayments identified by Recovery Auditors now exceed $2.2 billion. To make matters worse for hospitals, the Center for Medicare and Medicaid (CMS) recently initiated a pilot in 11 States that allow Recovery Auditors to perform pre-payment audits in addition to the program's traditional three year retrospective audit. Prepayment audits deny payment before the claim is adjudicated and force hospitals to enter Medicare's five level appeal process if they want to be paid for services already provided.

The AHA report indicates an increasing number of denied claims are now appealed (40%, although the Craneware average is higher still at 51%) compared to prior years (29%) resulting in significant backlogs in the appeal process. For example, the Administrative Law Judge level (3rd level of appeal) states a hearing must be held within 90 days of a request for hearing, however the average time is now reported as 321 days. The AHA reports that three-quarters of all appeals are delayed in the appeal process which at the present can take up to two years to close. On a national level, 70% of all cases appealed are overturned in favour of the hospital. Craneware average is 88%, which results in a 63% improvement for customers using Craneware solutions in successfully appealed denials against the national average.

A recent report from the Office of the Inspector General recommended further steps be implemented by CMS to increase the level of evaluation of hospitals in the area of fraud.

The current trends therefore reveal increased audit activity, increased appeal activity, significant backlogs in the appeal process but the findings clearly show a preponderance of rulings in favour of hospitals. The administrative and financial burdens for hospitals are great but CMS is not showing any signs of reducing its audit practices.

Strategy

Our vision is to be the partner healthcare providers rely on to improve and sustain strong financial performance through revenue integrity.

Our strategy is to provide software solutions that help customers at the points in their system where clinical and operational data transform into financial transactions. Our solutions automate data normalization, combining disparate data sets while maintaining the localised context. This produces valuable, actionable information and creates organisation-wide visibility and accountability.

Our solutions enable our customers to optimise reimbursement; increase operational efficiency; minimise compliance risk; and manage audits.

Craneware's software is predominantly sold directly by the Company to hospitals. Its customer base comprises 12% critical access hospitals, 36% independent community hospitals and 52% IDN hospitals (hospitals which form part of a larger "integrated delivery network" of healthcare providers), demonstrating the Company's historical success at selling into all parts of the market.

Over the past year, it has become apparent that there is an increased opportunity for sales of Craneware's solutions to organisations at the larger end of the scale, whether they are large hospital groups, formed through market consolidation, or large IT businesses or consultancies. However, sales to these larger organisations are naturally more complex and therefore harder to forecast.

The Board has taken the decision to implement changes across the business; augmenting domain knowledge at the PLC Board level with at least one new non-executive director sourced directly from the hospital market, also creating two senior management positions, and aligning operations to the expanded opportunities at the larger end of our stated six other routes to market: IDN's & Large Hospital Systems, Business Process Outsourcers/Consultants (BPO), Hardware Vendors, Software Vendors, Group Purchasing Organisations (GPO's) and Content Acquirers. This enables Craneware to more effectively deal with the challenges and opportunities facing the organisation today and those that management believe the Group will face in the future.

The first new senior management position is that of Chief Marketing Officer (CMO), which brings together Marketing, Product Management and Corporate Development. This will enhance the capabilities of the Group, as we seek to increase the awareness of Craneware and its solutions with all the levels of senior management within the teams of these larger organisations and identify further corporate development opportunities for Craneware.

As our business increases in size, revenue related to services is also expected to grow, in proportion with the whole. We have created the new position of Executive Vice President Revenue Integrity Operations, (EVP RIO) to concentrate efforts in this area. This role has been created to combine our strengths in Customer Support, Professional Services and Healthcare Consulting in a new department that will be responsible for meeting all our customers' Revenue Integrity needs. Healthcare consulting will join the award winning Customer Support team and our Professional Services team. These teams will provide consulting services that use our products on behalf of customers in addition to the work done by Professional Services that enables our customers to get the most out of using our software themselves.

M&A

The sales challenges that have been seen by Craneware and others throughout the last few years within the healthcare market due to the previous uncertainty of the political and legislative landscape have weakened many Healthcare IT companies to the point that strong and financially stable companies like Craneware can take advantage of depressed valuations to complete M&A activity. This combined with the settling of health reforms makes M&A activity an attractive means for Craneware to expand either market reach or the product portfolio. The Board is therefore alert to M&A opportunities.

Sales and Marketing

The levels of corporate activity in our market enabled us to increase our recruitment activity in the year, securing many high calibre people at various positions throughout the Company, particularly within the sales team including a new Executive Vice President of Sales.

We have been pleased with the initial indications of success for the sales team in the year, with a steady increase throughout the year of activity and contracts signed at each point in the sales pipeline and across all three sales regions. Sales momentum as we exited the year is significantly up on where we started the year with the sales team focused on delivery and having the right tools to do so.

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

The sales mix remained fairly constant through the period, resulting in no change to the overall product attachment rate, which remained steady at approximately 1.6 products per customer. For FY14 the sales teams have been specifically incentivised to complete cross product sales.

As the RAC programme continues to expand we have seen a particularly strong period for our InSight Audit solution for the management of the audit process and the associated Appeals processing service. The strength of InSight Audit's performance in the year reinforces management's view that it is a Gateway Product and is reflective of hospitals positively responding to defending themselves against RAC denials and Craneware's ability to support them in this effort.

Product Development

Product development continues to be focused on enhancements to functionality of current products and the integration of those products in new innovative combinations. The direction of the product set moves consistently with the long-term strategic positioning of Craneware as the revenue integrity partner of choice. Integration, both within the solution set itself, and externally with the Healthcare Information Systems, has also been a focus, particularly with the EPIC patient accounting system to ensure that all Craneware customers currently in the midst of the replacement of their system are fully supported and provided with the monetary protections and safe guards that only Craneware can provide.

Focus on Gateway products

Within three of our four product families, we have identified "Gateway" solutions, being a product or service that can form a bridgehead into a customer, allowing further products to be sold at a later date. These three products are Pharmacy ChargeLink (Supplies Management Family), Chargemaster Toolkit (Revenue Cycle Family) and Insight Audit (Audit and Revenue Recovery Family). A fourth gateway product is being developed from innovative new product combinations in our Access Management and Strategic Pricing family.

During the year we have begun the development of a set of hybrid solutions, which combine services with some of our core products to enable them to be implemented at smaller hospitals that do not have their own internal revenue integrity teams. We expect these solutions to be released during the course of the year. These solutions are particularly suited to the 1,329 Critical Access Hospitals as their status continues to be reviewed and complement the Appeals services work that sits alongside our Insight Audit Product in our Revenue Integrity Operations team.

Financial Review

The results we are reporting are in line with the guidance given in our trading statement of 26 June 2013. The backdrop to these results has been a year of consolidation, both within Craneware and within the larger US Healthcare market.

We have built on the investments made in prior years, the initial indications of success of which have been our sales to individual hospitals and small hospital groups. In addition we have continued to increase the bandwidth of our senior management team, at the Operations Board and at the PLC Board where we are close to announcing at least one non-executive director who will add significant market experience.

As expected the US Healthcare market continues to evolve. The ever increasing financial pressures on US hospitals have led to a number of hospitals consolidating to achieve efficiencies, through both scale and sharing best practice. Reducing re-imbursement rates, increasing self pay reliance and the year on year growth of RAC denials all combine to continually add pressure to the financial margins of US hospitals.

However, despite the many successes we have seen in the current year, the financial results reported have been significantly impacted by this consolidation in the US Healthcare market. This consolidation has resulted in delays to our sales negotiations with these larger hospital groups and other routes to market. As a result of these delays, for the first time since coming to the public market in 2007, this year's financial results did not benefit from any revenue contribution from new sales to this segment of our market.

Through the combination of these various factors, we are reporting revenue of $41.5m (FY12: $41.1m) and adjusted EBITDA of $12.4m (FY12: 11.9m).

Business Model

The Group's business model and its underlying revenue recognition policies remain consistent with prior years. The Group continues to recognise revenue primarily under its annuity Software-as-a-Service (SaaS) revenue recognition policies with these revenues accounting for between 75% to 80% of all revenue recognised in any one year. Under this model we recognise software licence revenue and any minimum payments due from our 'other route to market' contracts evenly over the life of the underlying signed contracts.

As we sign new customers, we normally expect to deliver a professional services engagement. This relates to implementation of the software as well as training the hospital staff in its use. As part of this process we provide further assistance to the hospital to develop its processes, assisting in the delivery of best practice, whilst ensuring the software is utilised to its maximum potential. Within any individual contract we would expect these services to account for 12% to 20% of the total contract value (dependent on the product and needs of the individual hospital). However of total Group revenue in any one year we would expect services revenues to account for between 10% to 20% of revenue. This revenue is typically recognised as the service is delivered, usually on a percentage of completion basis.

Our third revenue model is a result of the ClaimTrust, Inc. acquisition in 2011. For revenue recognition purposes it is effectively the same recognition as the normal annuity SaaS model described above. It is recurring in its nature, however, it is not signed under long term non-breakable contracts and is invoiced monthly in arrears rather than annual in advance, therefore we believe it does not include the inherent advantages of the Craneware annuity SaaS revenue model. This revenue currently accounts for less than 10% of total revenues in any one year and as contracts for both new and existing customers of the InSight product range are being signed under the annuity SaaS model, we would expect the proportion of revenue derived from this model to reduce over time.

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

Revenue

We are reporting revenue for the year of $41.5m (2012: $41.1m). Underlying this marginal growth in revenue we have seen an increase in our direct sales to individual and smaller groups of hospitals, and the sales momentum as we exited the year continues to build. However these successes are masked by the Group being unable to conclude any large sales in the year to either large hospital groups or our other routes to market. As described earlier in this report, due to the ongoing consolidation in our marketplace these deals, whilst increasing in size, have also increased in complexity and as a result determining when these deals will close and therefore contribute to revenue, is difficult to forecast.

In the prior year, two such deals did sign and contribute to new revenue for that year. One included a 'white-labelling fee' of $3.5m which, as all associated professional services were completed in the year, was fully recognised as revenue in the Financial Year 2012. This revenue was not repeated in the current year, and as a result our Professional Services (including white-labelling) recognised in the year has fallen from $7.1m (or 17% of Group revenue) in FY12 to $5.3m (or 13% of Group Revenue) in FY13 despite underlying professional services growing by 47%. As this white labelling revenue was not repeated, it has effectively been replaced with new software and services revenue in reporting total Group Revenue of $41.5m.

Whilst professional services revenue at 13% of Group revenue is still within our expected range of 10% to 20% of our revenue in any one year, we retain the capacity within our existing business model to expand this revenue stream contributing to future years' revenue growth.

Earnings

As a result of our 2011 acquisition of ClaimTrust, Inc., the Group introduced an 'Adjusted' earnings metrics to adjust for one-off acquisition costs. In the prior year this resulted in the one-off benefit of $0.95m relating to the release of the provision for contingent consideration being removed. In the current year, there have been no further benefits or charges of this nature; however this prior year adjustment still impacts the comparatives reported. We continue to believe the disclosure of these adjusted earnings metrics is consistent with other acquisitive companies and that it allows for a more accurate understanding of the underlying profit generated from operations and for a direct comparison year on year.

Adjusted earnings before interest, taxation, share based payments, depreciation and amortisation ("EBITDA") has grown marginally in the year to $12.4m (FY12: $11.9m) an increase of 4%. This reflects a stable Adjusted EBITDA margin of c29%. This is consistent with the Group's measured approach to the release of additional investment, continuing to make investments in line with the revenue growth occurring, whilst continually looking to ensure the efficiency of the investments we make.

Revenue Visibility and other KPI's

Through the business model we utilise, the additional new sales we make in any given year build on our annuity base of revenues. This annuity base of revenue allows us to better plan our investment strategy in advance, and whilst in any one year we will always rely on additional sales in the year to generate growth, we enter our next financial year with a significant percentage of that year's revenue targets already under contract. The Group illustrates this annuity base through its "Three Year Visible Revenue" metric. This metric includes:

· Future revenue under contract;

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

· InSight revenue identified as recurring in nature (subject to an estimated churn rate of 8% per year);

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

To better aid understanding, the three year visible revenue as at 30 June 2013 (i.e. visible revenue for FY2014, FY2015 and FY2016) is presented against the visible revenue for the same three year period as at 30 June 2012. This therefore demonstrates the growth in our annuity base of revenues, which translates to visible revenue for the next three years to 30 June 2016 of $109.5m from $105.5m at 30 June 2012. This breaks down as follows:

· InSight revenue identified as recurring in nature of $8.1m.

· Revenue generated from renewal activities contributing $40.8m; being $5.4m in FY14, $15.0m in FY15 and $20.4m in FY16.

· Future revenue under contract contributing $60.6m of which $30.4m is expected to be recognised in FY14, $17.7m in FY15 and $12.5m in FY16.

Average length of contracts signed with new customers in the period is in line with our historical normal average contract length of 5 years, this is following a dip in the prior year to 4 years. The product attachment rate, being the average number of our nine products that are in place across our entire customer base, has remained steady at 1.6 products. The remaining 7.4 reflects the significant cross sell opportunity that still exists for the Group.

Operating Expenses

With our measured investment strategy, our net operating expenses (before acquisition benefits/costs, share based payments, depreciation and amortisation) have remained stable at $27.0m (FY12: $27.6m). We continue to look to leverage the investments we have made in prior years, as well as make further targeted investment going forward, as we continue to increase sales levels and hospital customer numbers.

As innovation will continue to be core to the Group's future we continue to invest in Product Development spend which has remained at c$7m. We continue to capitalise very low levels of Development spend with $0.1m capitalised in the year (FY12: $0.3m).

Cash

We measure the quality of our earnings through our ability to convert them into operating cash. As in prior years, we have very high levels of cash conversion which has enabled us to grow our cash reserves to $30.3m (FY12: $28.8m). These cash levels are after paying $3.4m in taxation (FY12: $1.3m) and a further $4.7m (FY12: $4.1m) to our shareholders by way of dividends.

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

Balance Sheet

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

Currency

The reporting currency for the Group (and cash reserves) is US Dollars. Whilst the majority of our cost base is US located and therefore US Dollar denominated, we do have approximately one quarter of the cost base based in the UK relating primarily to our UK employees (and therefore denominated in Sterling). As a result, we continue to closely monitor the Sterling to US Dollar exchange rate, and where appropriate consider hedging strategies. During the year, we have not seen a significant impact through exchange rate movements, with the average exchange rate throughout the year being $1.5685 as compared to $1.5840 in the prior year.

Taxation

The Group's effective tax rate remains dependent on the proportion of profits generated in the UK and the US and the applicable tax rates in the respective jurisdictions. As detailed above, the current year has seen levels of professional services revenues generated at the lower end of the 10% to 20% of revenue range we would normally anticipate in our business model. As all professional services are delivered in the US, the resulting lower levels of this revenue has reduced the levels of income subject to taxation in the US against our historical norms. This combined with the reducing tax rate in the UK and our continued ability to agree enhanced Research and Development tax relief has resulted in an effective tax rate of 21.8% (FY12: 20.6%). Effective tax rates will increase in future years if the ratio of underlying professional services to software license revenues increases.

EPS

As with EBITDA, the Group is reporting an Adjusted EPS figure, with the prior year's EPS figure having been adjusting for the $0.95m of contingent consideration provision released.

In the year adjusted EPS has increased to $0.329 (FY12: $0.316) and adjusted diluted EPS has increased to $0.328 (FY12: $0.315). The increase in EPS is driven by the levels of EBITDA and the continued lower than historically expected effective tax.

Dividend

The Board recommends a final dividend of 6.3p (9.6 cents) per share giving a total dividend for the year of 11.5p (17.4 cents) per share (2012: 10.5p (15.9 cents) per share). Subject to confirmation at the Annual General Meeting, the final dividend will be paid on 13th December 2013 to shareholders on the register as at 15th November 2013, with a corresponding ex-Dividend date of 13th November 2013.

The final dividend of 6.3p 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 15th November 2013. The exact amount to be paid will be calculated by reference to the exchange rate to be announced on 15th November 2013. The final dividend referred to above in US dollars of 9.6 cents is given as an example only using the Balance Sheet date exchange rate of $1.5167/£1 and may differ from that finally announced.

Outlook

The strengthening of sales activity has continued and trading in the first few months of the new financial year has been healthy. With a product suite that addresses many of the fundamental financial issues besetting healthcare providers in the US, an invigorated sales team and a more stable trading environment, we are confident Craneware has the platform to deliver increased shareholder value in the years ahead.

Consolidated Statement of Comprehensive Income

For the year ended 30 June 2013

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

Earnings per share for the year attributable to equity holders

*Adjusted Earnings per share calculations allow for the release of deferred consideration on the business (in the prior year) together with amortisation on acquired intangible assets to form a better comparison with previous years.

Statement of Changes in Equity for the year ended 30 June 2013

Consolidated Balance Sheet as at 30 June 2013

Statement of Cash Flows for the year ended 30 June 2013

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, IFRIC 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 $1.5685/£1 (2012 : $1.5840/£1). Monetary assets and liabilities expressed in foreign currencies are translated into US dollars at rates of exchange ruling at the Balance Sheet date $1.5167/£1 (2012 : $1.5685/£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 in general and 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.

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

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

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

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

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

Intangible Assets

(a) Goodwill

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

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

(b) Proprietary software

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

(c) Contractual customer relationships

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

(d) Research and Development expenditure

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

(e) Computer software

Costs associated with acquiring computer software and licensed to-use technology are capitalised as incurred. They are amortised on a straight-line basis over their useful economic life which is typically 3 to 5 years.

Impairment of non-financial assets

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

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

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

Taxation

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

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

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

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

Share-based payments

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

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

2. Critical accounting estimates and judgements

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

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

· Provision for impairment of trade receivables:- the Group assesses trade receivables for impairment which requires the Directors to estimate the likelihood of payment forfeiture by customers.

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

· Capitalisation of development expenditure:- the Group capitalises development costs provided the conditions laid out previously within the accounting policies note 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.

3. Revenue

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

4. Net 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 2013 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 acquisition of Craneware InSight Inc.

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

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

9. Called up share capital

Authorised

Allotted called-up and fully paid

· 16,872 Ordinary Share options were exercised in the year.

10. Cash flow generated from operating activities