Craneware Regulatory News (CRW)

Craneware plc

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

Final Results

30 August 2011 - 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 2011.

Financial Highlights (US dollars)

§ Continued strong revenue and profit growth:

o Revenue increased 34% to $38.1m (2010: $28.4m)

o Adjusted EBITDA1 increased 32% to $10.1m (2010: $7.6m)

o Adjusted profit before taxation increased 27% to $9.3m (2010: $7.3m)

o Profit before tax increased 19% to $8.7m (2010: $7.3m)

o Basic adjusted EPS increased 17% to 25.6 cents (2010: 21.8 cents)

o Basic EPS increased 6% to 23.1 cents (2010: 21.8 cents)

§ Positive operational cash flow of $10.1m (2010: $8.9m)

§ Cash at year end $24.2m (2010: $29.4m) following $9m payment to acquire ClaimTrust in February 2011

§ Proposed final dividend of 4.8p (7.7 cents) per share giving total dividend for the year of 8.8p (14.2 cents) per share (2010: 8p (12 cents) per share)

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

Operational Highlights

§ Significantly increased market share; approx. 1,500 US hospitals now use Craneware software

§ Integration of ClaimTrust as Craneware InSight, Inc. proceeding ahead of plan

§ Leading indicator, the acceleration of the Recovery Audit Contractor programme, now taking place and expected to increase demand in future years

Keith Neilson, CEO of Craneware commented:

"This has been another year of strong growth for Craneware both in operational and financial terms, highlighting the strength of our product offering and business model.

"The financial challenges presented by today's economy and healthcare reform mean it has never been more important for hospitals to increase efficiency and protect revenue in order to meet their objectives of providing increased levels of care to a growing hospital population. We believe our suite of software combined with our industry expertise uniquely positions us to help hospitals protect themselves against this changing market landscape, automating regulatory updates, increasing accuracy of pricing, charging and coding for procedures, supplies and pharmaceuticals and helping to manage the increasing number of government led audits.

"Consequently with the market drivers, such as the Recovery Audit Contractor programme, expected to increase in the year ahead, the robust nature of our business model which provides for strong cash generation and high levels of future revenue visibility, together with our strong pipeline, we look to the future with confidence."

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About Craneware

Founded in 1999, Craneware has headquarters in Edinburgh, Scotland with offices in Atlanta, Boston, Nashville and Scottsdale 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 and stoptheleakage.com

Chairman's Statement

Craneware has continued to deliver against the backdrop of an evolving marketplace. We have launched four new products during the year, one of which we have developed organically, while three came via the acquisition of ClaimTrust. We now count nearly 1,500 hospitals as our customers with some of the largest hospital groups in the US amongst our growing band of software users. Through our increased marketing efforts and continued commitment to customer service, our reputation in the healthcare market as thought leaders in the area of 'revenue integrity' has moved forward significantly in the year.

With approximately 25% of hospitals in the US now using one or more of Craneware's nine core products, the Company is an established part of the fabric of the US healthcare industry. While the US economy has been under much scrutiny in recent months and the debate about healthcare reform continues, what is unavoidable is that US healthcare facilities are being asked to provide a higher level of patient care, to a greater number of people, at a lower cost per patient. There is therefore a compelling case for the implementation of software such as ours to efficiently protect the revenue to which these healthcare facilities are entitled.

Following the acquisition of ClaimTrust in February, we have been extremely encouraged by the response from our customers to the newly launched Craneware InSight products in our "Audit Revenue and Recovery" product family. The first sales of InSight products into our existing customer base have taken place and we have built a strong list of prospects. The expertise in the area of audits and appeals brought to us by the ClaimTrust team has already proven to be a valuable addition to the Group. We continue to assess opportunities for similar acquisitions.

We see the increasing level of fines levied on hospitals from the Recovery Audit Contractor (RAC) programme, as a leading indicator of hospital demand for our unique solution set. In addition, we expect other factors such as the anticipated McKesson re-engagement in sales of their Horizon software, into which our Revenue Cycle Management tools have been integrated, to help drive forward customer decision making in the coming year.

We continue to have extremely high levels of revenue visibility due to the multiyear nature of our contracts and our annuity revenue recognition policy. At the end of the year under report Craneware had visibility of over $105m of revenue for the next three years, having increased from $83m at 30 June 2010.

I would like to take this opportunity to once again welcome the Craneware InSight team and customers into Craneware and thank all our customers, people and partners for their ongoing support.

The expansion of our market share, our strong financial position and excellent sales pipeline provide the Board with a great deal of confidence in our ability to continue to execute on our growth strategy.

George Elliott

Chairman

29 August 2011

Operational Review

Introduction

This year has seen the business deliver our largest organic increase in both revenues and EBITDA to date with revenues growing organically by 25% and adjusted EBITDA growing by 32%. The ClaimTrust acquisition resulted in an overall revenue growth rate of 34%. Importantly, the business generated a high level of cash from operating activities in the period, reaching $10m (a 100% conversion of adjusted EBITDA), a fourfold increase since IPO. This strong set of results continues to demonstrate the success of the Craneware strategy in building out its unique product suite, ensuring Craneware's market leading position as the strength of the business model delivers growth into the long term.

Although sales to channel partners and large hospital systems have not been at previous levels, we believe that this is a factor of timing and not a long term or general market trend. The results this year have been achieved despite this timing issue and the significant strength of current pipeline opportunities compared to historical norms gives us confidence that the growth opportunities for Craneware remain strong. We continue to outperform our competition in the majority of customer opportunities and believe that as the RAC audit programme gathers pace so will the pressures on hospitals to move towards automated systems in order to manage these audits and protect revenue. Our acquisition of ClaimTrust in particular means we believe we are well positioned to assist our clients in this ever more pressing area.

Our focus in the year ahead will be on the cross sale of our increased product set to our extended customer base, the integration of further ClaimTrust products into our offering and the continued winning of market share. As we entered the current financial year we had visibility of $105m in revenue for the next three years and over $24m in cash.

Integration of ClaimTrust

We were delighted to have completed the acquisition of ClaimTrust on 17 February 2011. This is the first acquisition for Craneware and one which the Board believes to be strategically valuable, bringing new areas of expertise into the Group, adding a new product family and increasing our market share with the addition of over 250 hospitals. All of ClaimTrust's products are applicable to the Craneware customer base and target audience providing for a significantly expanded market opportunity.

The first 90 day integration plan of ClaimTrust as Craneware InSight Inc, has now been successfully completed. Both sales teams have been crossed trained in the products and the management teams aligned. In terms of marketing, the products have been given a common branding and messaging under Craneware InSight and we have established the foundation for new customers for the InSight products to join on Craneware's traditional Annuity Software as a Service revenue model. We are pleased to report that the uptake of products by the Craneware customer base has been positive thus far, securing our first customer, the Kingman Regional Medical Center, in June 2011 and have made further sales since then supporting our belief that the future for the products is extremely promising.

Market Developments

The US healthcare market continues to be impacted by the introduction of new legislation and increased regulation as the Government seeks to reduce the burden of healthcare on the state whilst making healthcare available to a larger percentage of the population. Cuts to Medicaid state budgets, the means-tested programme for certain individuals and families with low incomes and resources, have been as high as 20% across the US. Meanwhile the number of people enrolling in the Medicaid programme continues to increase by an additional 1% along with a 1.1% increase in the uninsured for every 1% increase in the national unemployment rate. These factors mean a growing number of hospitals are seeking technology based solutions to help improve accuracy of billing and reduce regulatory burdens, thereby protecting their slim profit margins.

Two specific factors which have moved forward during the year have been the introduction of the finalised RAC programme and the movement in healthcare IT coding towards the use of ICD-10 (as explained below).

RAC Programme

The Recovery Audit Contractors are tasked with detecting and correcting past improper payments to hospitals, whether these are overpayments which need to be recouped, or underpayments which need to be reimbursed. Following a demonstration pilot of the RAC programme in five states (California, Florida, New York, Massachusetts and South Carolina) from 2004 to 2007, US Congress authorised the nationwide expansion of the initiative through the Tax Relief and Health Care Act of 2006, which regulated that it be rolled out nationwide by January 1, 2010.

While the RACs identified and recouped $92.3m of corrections from hospitals in its first 12 months of the programme to September 2010, this has increased significantly to $592.5m in the subsequent 9 month period*, placing a huge burden on hospitals. These increasing amounts being levied on hospitals are creating a major stimulus for hospital purchasing decisions for software such as Craneware InSight's Audit and the Board believes are a leading indicator of further Craneware product family sales.

*CMS - Centers for Medicare & Medicaid Services, June 2011

Craneware InSight Audit

Recovery Audit Contractors can request a maximum of 500 records per 45 days from any individual healthcare provider over a 3-year look back period. The volume of record requests and denials initially overwhelmed healthcare providers, and still proves to be a burden.

The InSight Audit product organises, manages and reports on all audit requests, responses and appeal activities for all audit types. It stores the relevant information and documents the steps taken to appeal denials, whilst also identifying trends and areas of exposure. InSight Audit manages (1) the patient record, (2) the RAC audit workflow, and (3) reports on areas of risk.

InSight Audit can also be used to manage the RAC appeal process, from the initial decision to appeal through to successful resolution of the appeal; aiding hospitals recoup cash and reduce the financial cost of doing so. The five levels of this process take between 2 to 3 years to complete for each individual RAC denial; costing in resources, tracking and reporting an estimated $2,000 to appeal per record, if no technology solution has been implemented. Therefore with RACs able to request up to 500 records every 45 days, this can easily escalate to a significant cost.

ClaimTrust, having been based in the RAC demonstration catchment area in 2007, prior to the Government's full roll-out of the initiative, gained early insight into what was needed in terms of product development; Craneware InSight appealed and won 84% of RAC Medicare denials on behalf of its customers, when nationally only 8% of denials were appealed and won*.

* The Medicare Recovery Audit Contractor (RAC) Program: Update to the Evaluation of the 3-year Demonstration June 2010, CMS

HIPAA 5010 & ICD-10

ICD-10 is a new, more detailed diagnosis and procedure code set and logic. The goal of the introduction of this new coding is to improve patient care, enhance claims processing, and improve data collection. Due to the increased number of codes, the change in the number of characters per code, and increased code specificity, this transition will require significant planning, training, software/system upgrades/replacements, as well as other necessary investments. The HIPAA transaction standard 5010 is a transaction format that allows for the additional field length and addition of non-numeric characters to support ICD-10. All hospitals are required to have moved to the use of 5010 by January 2012 with ICD-10 coming into effect from 1 October 2013. Craneware anticipates that the introduction of this coding will require hospitals to reassess their current IT and data collection systems, effectively mandating investment in this area. If physicians and hospitals are not ready for these changes, they risk claim rejections and interrupted cash flow. All of Craneware's software is already ICD-10 compatible.

Sales and Marketing

Due to the expansion of our customer base in the year, we have chosen to align our sales teams into three geographical regions, with each region headed up by an experienced Regional Vice President. We continue to build our separate Sales Support and Marketing Teams in our Atlanta office. Each team will have a mix of experience and skill sets, this combined with the closer geographical alignment will, we believe, better place us to meet the requirements of our current and future customers. We anticipate further investment into these teams, in line with our revenue growth, as we look to meet the market opportunity.

Following the acquisition of ClaimTrust in February this year, we added over 250 hospitals to Craneware, many of these hospitals having only one of the now nine 'core' products. As a result of this larger customer base, our average product attachment rate per customer is now 1.5 products as compared to 1.7 prior to the acquisition. This represents an increased cross sell opportunity of now 7.5 products per customer as we have broadened the product solutions we can offer to meet our customers' needs.

At the half year period we advised that we were trialing a system of 'auto renewals' in order to enable our sales people to focus more on the sales of new products. However, having now assessed this change of structure over some months, we do not believe that this system generated the benefits anticipated for either our customers or Craneware. As a result, we have therefore reverted to our traditional active multi-year renewal policy, commissioning the sales teams accordingly. This serves to provide a greater level of revenue visibility for future years, whilst retaining the administrative safeguard of the auto-renewal language in our standard contract.

During the year we have seen our dollar value of renewals in the year drop below our historical norms of over 100%. This was exacerbated by the reduced number of hospitals due to renew and two large hospital groups who, having given an indication they would renew their original product sets in the period, subsequently entered into discussions regarding the purchase of additional products, leading to an extended period of negotiation. It is important to note that both these large hospital groups are under contract. In the period since the year end we have seen a return to our historical norms of at least 100%.

Internally Craneware continues to target a revenue split of no more than 50% from any one product by the start of FY14 (1 July 2013) and we remain confident that we are achieving the correct additional balance of non-Chargemaster sales to achieve this, whilst continuing to add to our Chargemaster customer base.

The average length of new customer contracts continues to be stable at approximately five years. Where we enter into new product contracts with our existing customers, these contracts are typically made co-terminus with the customer's existing contracts, and as such the average length of these contracts is three years, in line with our expectations. Annualised new facility value dipped slightly as a result of the new customer mix in the year, it is anticipated this will stabilise or increase in future years.

We continue to actively engage with some of the largest multi-hospital groups in the US and have several potential new deals in the pipeline. Due to the size of these groups these types of contracts naturally take longer to close but we are confident we will continue to see success in this area, as we continue to grow our market share.

In addition to our internal sales teams, Craneware continues to partner with numerous industry-leading hospital information systems, patient accounting systems and GPOs. These alliances both extend Craneware's market reach and the range of solutions we offer clients. Sales from the McKesson partnership, whereby Craneware's Revenue Cycle Management software is integrated into McKesson's healthcare IT platform, Horizon, have been slower this year than anticipated as McKesson delayed the roll-out of its new platform. However, there are strong indications that they intend to move forward from January 2012 which should benefit Craneware. We continue to further develop our GPO partnerships with Premier and Amerinet.

Product Development

Product development continues to sit at the heart of Craneware's success as we build our portfolio of products sitting in and around the point where clinical data turns into financial data. This year saw the successful launch and first sale of our second product within our Strategic Pricing family, Value-based Pricing Analyzer, helping hospitals more effectively, accurately and sustainably manage their pricing strategies for services, drugs and supplies, optimising their financial performance while making strategic decisions in both a transparent and defensible manner.

New Product Family - Audit Revenue and Recovery

Since February our focus has been on the integration of the first three of the ClaimTrust products into our core offering under the newly developed "Audit and Revenue Recovery" product family. These products are InSight Audit™, InSight Payment Variance Analyzer™ and InSight Denials™. Each of these three products has the potential to be used by customers alongside any of the current Craneware product suite to help manage and protect against the increasing number of audits being carried out under the Medicare Recovery RAC programme introduced as part of healthcare reform. We therefore believe the potential for these products to be significant as the RAC programme gathers pace in 2012 and 2013.

Our focus this year will be on the integration of the remaining 3 ClaimTrust products, fully integrating them within the product suite and into Craneware branding and finding new innovative ways of leveraging the strengths of the combined data sets of the two companies.

Customers

Approximately 1,500 hospital facilities across all States in the US utilise one or more of our software products, representing nearly a quarter of all US hospital facilities. We continue to win market share and believe our reputation for customer support and product innovation, combined with our strong industry partnerships mean we will continue to do so in the year ahead.

Our customer base continues to cover a broad range of facilities, from small community hospitals to some of the largest healthcare networks such as Intermountain Healthcare, Cleveland Clinic and many of the other faith based charity hospital networks. We were delighted to begin working this year with Shriners Hospitals for Children®, a national 20 hospital group headquartered in Florida representing our largest children's hospital customer to date.

During the year our core product, Chargemaster Toolkit® was awarded the number one position in its category by the prestigious U.S. industry research house KLAS for the fifth consecutive year, demonstrating Craneware's commitment to continually enhancing our software to meet current conditions and delivering unparalleled customer service and support to healthcare facilities across the country.

Financial Review

The financial results for the current year represent another significant milestone in Craneware's evolution. Following the completion of the ClaimTrust acquisition on 17 February 2011, the results for the first time include a contribution, albeit four months, from our new subsidiary Craneware InSight Inc ("InSight"). The financial detail underlying this acquisition, the accounting treatments adopted and how we have adapted our reporting as a consequence is explained below.

Revenue

Revenues in the year have grown by 34% to $38.1m (2010: $28.4m) of which the original Craneware business pre the acquisition (the "Core" business) generated organic growth of 25% to $35.5m (2010: $28.4m) with InSight delivering revenues of $2.6m in the period since its acquisition. Of this total revenue $33.4m (2010: $24.7m) has been delivered from licence revenues generated through our customers' use of the software, the remainder $4.7m (2010: $3.7m) has been delivered from our Professional Services organisation through their work implementing the software and consulting services provided to hospitals in the Revenue Integrity area, primarily ensuring they generate the maximum value from our software solutions.

We continue to generate 100% of our revenue from software and associated professional services to hospitals in the US. Following the acquisition we have nine core products that are equally applicable to our hospital customer base and have cross trained our sales force to meet this opportunity. As such we still define our revenue as being derived from one market segment in the financial statements.

Earnings

As a result of the acquisition, the Group is now reporting an 'Adjusted' earnings before interest, taxation, share based payments, depreciation, and amortisation ("EBITDA"). This EBITDA is calculated in accordance with the prior years but also adjusts for the impact of the one-off costs related to the acquisition such as the legal and due diligence costs, which amounted to $516,796. Reporting an 'Adjusted' EBITDA is consistent with other acquisitive companies as it allows for a more accurate understanding of the underlying profit generated from operations and for a direct comparison year on year.

EBITDA for the year has grown to $10.1m (2010: $7.6m) an increase of 32% in the period. As expected, as a result of our increased investment and integration spend in InSight, all of the EBITDA growth is organic with InSight being EBITDA neutral in its contributing period.

Organic EBITDA margins have increased to 28.5% (2010: 26.8%). It was anticipated that the InSight business would dilute the Core margins for a period of time until sufficient operating leverage could be gained as a result of the acquisition. As a result, the overall Group margin for the year was 26.5%.

Revenue - Recognition and Visibility

Craneware Core business continues to recognise revenue primarily through its annuity revenue recognition model. This model sees software licence revenue recognised over the life of the contracts we sign (which during the year has remained stable for new customers at an average contract life of 5 years), with any associated professional services revenue recognised as we deliver the services. As a result of this revenue recognition model, the maximum value of an average contract that can be recognised as revenue in the current year is 20% plus the value of associated professional services that have been delivered. This leaves the remaining 80% of the licence revenue being contracted but not recognised until future reporting periods.

InSight has historically adopted a different revenue model, with monthly invoicing and recognition. Whilst this revenue is classed as 'recurring' it does not meet the strict criteria the Company has applied to call it 'contracted'. Over time it is our intention to migrate InSight to the core business model.

As a result of the combined business models, the Company has identified the "Three Year Visible Revenue" metric as the primary KPI to assess the medium term growth prospects. This metric includes:

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

·; Future revenue under contract;

·; Revenue generated from renewals (calculated at 100%).

During the year, the Three Year Visible Revenue has increased 26.5% from $83m to $105m. The breakdown of this total is as follows:

·; InSight contributed $16.5m.

·; Future revenue under contract contributed $62.6m of which $28.1m will be recognised in FY12, $20.1m in FY13 and $14.4m in FY14.

·; Revenue generated from renewal activities contributed $25.9m (i.e. customers coming to the end of their existing multi-year contracts) being $3.1m in FY12, $8.6m in FY13 and $14.2m in FY14.

Operating Expenses

We have continued our planned investment during the year. In relation to the Core Business we have increased our Client Servicing spend by 19% to $4.8m (2010: $4.0m) and have made investments in our infrastructure to support our future growth (including new offices in Atlanta and an office move to Edinburgh) resulting in our G&A costs increasing by 15% to $3.8m from $3.3m). Where we have made investments in prior years, we have continued to grow in these areas, albeit at lower rates with sales and marketing spend increasing by 11% to $7.8m (2010: $7.1m) and product development by 16% to $4.4m after capitalising $0.2m of costs relating to new products (2010: $3.8m after capitalising $0.5m of costs relating to new products). These investments combined with the InSight cost base included since the acquisition date of $2.6m has resulted in net operating expenses (before acquisition costs, share based payment, depreciation and amortisation) of $23.4m (2010: $18.8m). This represents a growth in our operating costs of 24% as compared to a revenue growth of 34%.

Acquisition of ClaimTrust, Inc

On the 17 February 2011, the Company acquired the entire share capital of ClaimTrust Inc. for an initial consideration of $15m. This initial consideration was formed of $9m cash and $6m of new shares issued. The acquisition is subject to a further contingent consideration payment of up to a further $4.5m (payable in cash and shares) depending on financial over-performance in both revenue and EBITDA for the 12 months to 30 June 2012. The $6m of new shares issued by Craneware plc represents an additional 641,917 shares (of which 617,731 have been issued by 30 June 2011).

The acquisition was completed via a newly formed 100% owned subsidiary Craneware InSight Inc. Following the acquisition, the ClaimTrust business was consolidated into Craneware InSight Inc. In presenting these consolidated financial statements the financial results (including the balance sheet) of Craneware InSight have been included since the date of acquisition.

On consolidation, International Accounting Standards require the Company to estimate the fair value of the contingent consideration and separately identify intangible assets and their Fair Value. Taking these values into account along with the net assets acquired results in consolidated goodwill being recognised in the Consolidated Balance Sheet.

The Company (with the assistance of an external independent advisor) has estimated, based on industry standard modelling methodologies, the fair value of contingent consideration to be $0.95m. Intangible assets relating to the 'attributable value' of existing customers and proprietary software have been separately identified and have been recorded on consolidation with a fair value of $3.0m and $1.2m respectively. As a result, consolidated goodwill recorded on the balance sheet as a result of the acquisition is $12.3m.

Cash

We continue to measure the quality of these earnings through our ability to convert them into operating cash. We are pleased to report that for the third successive year we have collected at least 100% of our EBITDA as operating cash. This has resulted in the Group's cash balance being $24.2m (2010: $29.4m) despite paying out $9m in relation to the acquisition of ClaimTrust and returning $3.0m to our shareholders by way of dividend payments.

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 $1.5906 as compared to $1.5821 in the prior year.

Taxation

As expected, we have seen an increase in our expected rate of taxation this year to a more normalised level of 30.5% (2010: 23.9%). The Group's effective rate of taxation is dependent on the ratio of profits generated in the UK and overseas (which will change following the acquisition) and the applicable tax rates in the respective jurisdictions. In the two immediately preceding years, we have seen lower effective rates of taxation due primarily to agreeing enhanced Research and Development tax relief in respect of financial years 2002 to 2009.

EPS

As with EBITDA, the Group is now reporting an adjusted EPS figure. This adjusted EPS figure has also been adjusted for amounts relating to the acquisition i.e. $516,796 relating to one-off acquisition related expenses and $147,302 relating to the amortisation on acquired intangibles. Reporting an adjusted EPS figure and how this has been calculated, is again consistent with other acquisitive companies and allows for a more accurate direct comparison year on year.

Adjusted basic EPS has increased by 17% to $0.256 (2010: $0.218) and adjusted diluted EPS has increased by 20% to $0.253 (2010: $0.21). The growth rates for both these metrics has been affected by the higher tax effective rate detailed above and the increased number of shares in issue as a result of both the acquisition and share options exercised in the year.

Dividend

The Board recommends a final dividend of 4.8p (7.7 cents) per share giving a total dividend for the year of 8.8p (14.14 cents) per share (2010: 8.0p (11.99 cents) per share). Subject to confirmation at the Annual General Meeting, the final dividend will be paid on 9 December 2011 to shareholders on the register as at 11 November 2011, with a corresponding ex-Dividend date of 9 November 2011.

The final dividend of 4.8p 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 2011. The exact amount to be paid will be calculated by reference to the exchange rate to be announced on 11 November 2011. The final dividend referred to above in US dollars of 7.7 cents is given as an example only using the Balance Sheet date exchange rate of $1.6055/£1 and may differ from that finally announced.

Outlook

This has been another year of strong growth for Craneware both in operational and financial terms, highlighting the strength of our product offering and business model.

The financial challenges presented by today's economy and healthcare reform mean it has never been more important for hospitals to increase efficiency and protect revenue in order to meet their objectives of providing increased levels of care to a growing hospital population. We believe our suite of software combined with our industry expertise uniquely positions us to help hospitals protect themselves against this changing market landscape, automating regulatory updates, increasing accuracy of pricing, charging and coding for procedures, supplies and pharmaceuticals and helping to manage the increasing number of government led audits.

Consequently with the market drivers, such as the Recovery Audit Contractor programme, expected to increase in the year ahead, the robust nature of our business model which provides for strong cash generation and high levels of future revenue visibility, together with our strong pipeline, we look to the future with confidence.

Consolidated Statement of Comprehensive Income

For the year ended 30 June 2011

*Adjusted EBITDA is defined as operating profit before acquisition costs, share based payments, depreciation and amortisation.

Earnings per share for the period attributable to equity holders

*Adjusted Earnings per share calculations allow for acquisition costs and amortisation on acquired intangible assets to form a better comparison with the previous year.

Statements of Changes in Equity for the year ended 30 June 2011

Consolidated Balance Sheet as at 30 June 2011

Statements of Cash Flows for the year ended 30 June 2011

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 address of its registered office and principal place of business is disclosed on page 10 of the financial statements. The principal activity of the Company is described in the directors' report.

Basis of preparation

The financial statements are prepared in accordance with International Financial Reporting Standards, as adopted by the European Union (IFRS), 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. 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. Monetary assets and liabilities expressed in foreign currencies are translated into US dollars at rates of exchange ruling at the balance sheet date $1.6055/£1 (2010 : $1.4961/£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.

Revenue from all professional services is recognised as the applicable services are provided. Where professional services engagements contain material obligation, 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 are recognised as incurred. Where, however, new product development projects are technically feasible, production and sale is intended, a market exists, expenditure can be measured reliably, and sufficient resources are available to complete such projects, development expenditure is capitalised until initial commercialisation of the product, and thereafter amortised on a straight-line basis over its estimated useful life. Staff costs and specific third party costs involved with the development of the software are included within amounts capitalised.

(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 it 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 and takes into account deferred taxation. 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" below, 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.

Cash and Cash Equivalents

Cash and cash equivalents include cash in hand, deposits held with banks and short term highly liquid investments. For the purpose of the statements of cash flows, cash and cash equivalents comprise of cash on hand, deposits held with banks and short term high liquid investments.

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 accountingestimates and judgements

The preparation of financial statements in accordance with international financial reporting standards 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:-

·; Investment in Subsidiary/Purchase Price Allocation:- the Group determines whether investments in subsidiaries and the related Intangible assets acquired are impaired at least on an annual basis and measures the recoverable amount of the investment whenever there is an indication that the investment may be impaired. This requires an estimation of the value in use of the applicable cash generating unit. Estimating the value in use requires the Group to make an estimate of the expected future cashflows from the subsidiary and also to choose a suitable discount rate in order to calculate the present value of those cashflows. Where there is an indication of impairment, management perform an impairment review to determine the level of provision required.

·; Calculation of goodwill and contingent consideration:- Goodwill is calculated based on estimated consideration payable to the former shareholders of the acquired subsidiary. This consideration includes a contingent element which is based on future estimated profits. This requires an initial assessment as to the probability of whether the full amount of the purchase consideration will be payable. These accounting estimates and judgements are based on assumptions that management and the Board of Directors believe are reasonable under the circumstances and are disclosed in more detail in note 8. The Group also make estimates and judgements concerning the future and the resulting estimates may, by definition, vary from the related actual results.

·; 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 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.

·; Share-based payments:-the Group requires to make a charge to reflect the value of share-based equity-settled payments in the period. At each grant of options and balance sheet date, the Directors are required to consider whether there has been a change in the fair value of share options due to factors including number of expected participants.

3 Net operating expenses

4 Tax on profit on ordinary activities

5 Dividends

The dividends paid during the year were as follows:-

The proposed final dividend for 30 June 2011 is subject to approval by the shareholders at the Annual General Meeting and has not been included as a liability in these accounts.

6 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.

Adjusted Basic earnings per share is calculated under the same method as shown above except that the profit attributable to equity holders of the Company is increased by $664,098 which represents the total acquisition costs expensed during the year and amortisation of acquired intangible assets. This gives rise to an adjusted basic earnings per share of $0.256 per share.

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 share options granted to directors and employees under the share option scheme.

Adjusted diluted earnings per share is calculated under the same method as shown above except that the profit attributable to equity holders of the Company is increased by $664,098 which represents the total acquisition costs expensed during the year and amortisation of acquired intangible assets. This gives rise to an adjusted diluted earnings per share of $0.253 per share.

7 Intangible assets

Goodwill and Other Intangible assets

The additions acquired in the year are all in respect of the 17 February 2011 acquisition of Craneware InSight Inc (see Note 8). Future anticipated payments arising from earn-outs are based on the Directors best estimates of these contingent obligations. The earn-out is dependent on the future performance of the relevant business and a continued assessment of the liability arising is performed at least twice yearly.

In accordance with the Group's accounting policy, the carrying values of goodwill and other intangibles assets are reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired.

For goodwill the recoverable amount of the applicable cash-generating unit, which relates to the acquisition in the period (see Note 8), has been determined on the basis of fair value less costs to sell, determined by the binding contract for the sale of the ClaimTrust Inc. business to Craneware plc, as enacted on 17 February 2011.

The consideration for the sale supports the valuation of goodwill, as does the proximity of the applicable impairment review date to this agreement.

 8 Acquisition of subsidiary: Craneware InSight Inc

On 17 February 2011, the Company acquired 100% of the issued share capital of ClaimTrust Inc. On the date of acquisition the assets and liabilities of ClaimTrust Inc. were merged into the newly created entity, Craneware InSight Inc. The total consideration for the acquisition along with the fair value of the identified assets and assumed liabilities is shown below:

The contingent consideration is subject to performance criteria, including revenue and profit targets, set for the next financial year and consequently the actual consideration is payable following the respective year end. The maximum potential deferred consideration payable is an additional $4.5m subject to meeting all the performance criteria. The acquisition costs, including all due diligence costs that related to the transaction amounted to $516,796 and these have been expensed as operating costs in compliance with IFRS 3 (revised).

Goodwill of $12,263,819 has been recognised on acquisition and is attributable to future customers, future software and the assembled workforce.

In the period following the acquisition, Craneware InSight Inc. contributed $2,612,624 to Group revenue and $3,016 to adjusted EBITDA* which has been included with the consolidated statement of comprehensive income for the year. Had Craneware InSight Inc. been consolidated from 1 July 2010, the consolidated statement of comprehensive income would show revenue of $42,958,489 and adjusted EBITDA* of $10,235,219.

The initial accounting for the business combination is incomplete as at 30 June 2011 and is based on provisional amounts. In particular, the directors are still to determine if there is a deferred tax asset in relation to 'net operating losses' carried forward from the acquired business that can be recognised.

*Adjusted EBITDA is defined as operating profit before acquisition costs, share based payments, depreciation and amortisation.

 9 Called up share capital

Authorised

 Allotted called-up and fully paid

·; 809,100 Ordinary Share options were exercised in the year.

·; 617,731 Ordinary Shares were issued at the balance sheet date as equity in respect of the consideration for the Craneware InSight Inc acquisition at price of $9.347 (£5.83).

10 Cash flow generated from operating activities

Reconciliation of profit before tax to net cash inflow from operating activities