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Annual Report 2010

Plain-text annual report

Craneware plc Annual Report for the year ended 30 June 2010 integrity solutions that Craneware plc (AIM: CRW.L) is recognised as the leader in automated revenue improve US healthcare providers' financial performance. Revenue Integrity is an approach to revenue management focused on achieving optimal legitimate reimbursement, operational efficiency and compliance with government regulations. Craneware Software- as-a-Service (SaaS) solutions support the transformation of provider organisations' revenue integrity processes. There are three major families of Craneware solutions: Revenue Cycle, Strategic Pricing and Supply Management. in May 1999, Craneware chargemaster management introduced the solution Founded first for US automated hospitals and health systems in October that year. By the end of 2000, more than 20 customers were signed and implemented, establishing the strong growth pattern that continues today. Craneware's solutions now help more than 1,000 healthcare providers – ranging from small community hospitals to large healthcare networks. In September 2007, Craneware listed on the AIM market of the London Stock Exchange. Today, Craneware employs more than 140 staff and is headquartered in Scotland, with offices in the US. At a time when it is more critical than ever for healthcare providers to improve reimbursement and operational efficiency whilst reducing compliance risk, Craneware solutions deliver results, efficiently helping customers establish a solid foundation for financial performance improvement. Contents 1 Financial and Operational Highlights 2 The Foundations for Continued Growth… 3 Craneware Innovation 4 Craneware Revenue Integrity Solutions™ 6 Chairman's Statement 7 Operational Review 10 Board of Directors 11 Directors' Report 14 Corporate Governance Report 17 Remuneration Committee Report 20 Independent Auditors' Report 21 Consolidated Statement of Comprehensive Income 22 Statements of Changes in Equity 23 Consolidated Balance Sheet 24 Company Balance Sheet 25 Statements of Cash Flows 26 Notes to the Financial Statements 45 Contact Craneware / Directors, Secretary and Advisors Financial Highlights ƒƒ Recordƒlevelsƒofƒcontractedƒsalesƒinƒtheƒyearƒtotalingƒ$58.1mƒ(2009:ƒ$43.2m),ƒƒ 34%ƒupƒonƒtheƒpreviousƒyear,ƒcontributingƒto: 49%ƒincreaseƒinƒfutureƒrevenuesƒunderƒcontractƒtoƒ$89.8mƒ(2009:ƒ$60.1m)ƒ 23%ƒincreaseƒinƒrevenuesƒtoƒ$28.4mƒ(2009:ƒ$23.0m) ƒƒ EBITDA*ƒincreasedƒ31%ƒtoƒ$7.6mƒ(2009:ƒ$5.8m) ƒƒ Profitƒbeforeƒtaxationƒincreasedƒbyƒ24%ƒtoƒ$7.3mƒ(2009:ƒ$5.9m) ƒƒ Cashƒpositionƒincreasedƒ13%ƒtoƒ$29.4mƒ(2009:ƒ$26.1m),ƒ afterƒpayingƒdividendsƒofƒ$3.0mƒinƒtheƒyearƒ(2009:ƒ$1.9m) ƒƒ BasicƒEPSƒincreasedƒtoƒ$0.22ƒ(2009:ƒ$0.18)ƒandƒdilutedƒtoƒ$0.21ƒ(2009:ƒ$0.17) ƒƒ Finalƒdividendƒproposedƒofƒ3.3pƒ(4.94ƒcents)ƒperƒshare,ƒgivingƒaƒtotalƒdividendƒforƒtheƒ yearƒofƒ8.0pƒ(11.99ƒcents)ƒperƒshareƒ(2009:ƒ4.7pƒ(7.43ƒcents)ƒperƒshare) * EBITDA refers to earnings before interest, tax, depreciation, amortisation and share based payments Operational Highlights ƒƒ Launchƒandƒfirstƒsalesƒofƒfifthƒproduct,ƒSuppliesƒChargeLink®ƒ ƒƒ Significantƒinvestmentƒinƒsalesƒandƒmarketingƒcapacityƒduringƒtheƒyear.ƒƒ ƒƒ Strengthenedƒmarketƒpositionƒthroughƒsigningƒinƒtheƒyearƒofƒtwoƒsignificantƒ partnershipsƒwithƒPremierƒHealthcareƒAllianceƒandƒMcKessonƒCorporation.ƒ ƒƒ Signingƒofƒseveralƒmajorƒmulti-siteƒcontracts,ƒincludingƒwithƒIntermountainƒHealthcare,ƒ describedƒbyƒPresidentƒObamaƒandƒotherƒU.S.ƒleadersƒasƒƒ"aƒmodelƒforƒtheƒrestƒofƒtheƒ nation". Quick Facts — Financial 34% increase in contracted sales in the year to record $58.1m 49% increase in future revenues under contract increase in revenues to $28.4m increase in EBITDA* to $7.6m 23% 31% 24% 13% increase in cash to $29.4m increase in profit before tax to $7.3m Key Performance Indicators IPO 2005 2006 2007 Future revenue under contract Contracts signed in the year Revenue recognised in the period 2008 2009 2010 Compound Annualised Growth* 29% 35% 22% *from 30 June 2005 $70m $60m $50m $40m $30m $20m $10m Craneware plc Annual Report 2010 1 The Foundations for Continued Growth… Healthcare Reform The US Healthcare industry is undergoing significant transformation that presents further opportunities for Craneware. On March 23, 2010 the Affordable Care Act became US law, ushering in an era of Healthcare Reform with the following key objectives: ƒƒ control costs with improved quality ƒƒ increase the number of Americans with insurance coverage ƒƒ improve healthcare efficiencies and consistency, and ƒƒ increase the emphasis on the compliance and accountability of healthcare organisation Growing Complexity of Challenges Facing US Hospitals Lower reimbursements from the US Medicaid and Medicare programs (scheduled to begin in 2011) and growing risk exposure due to increased regulatory compliance requirements and enforcement initiatives make it critically important that healthcare organisations capture all the reimbursement owed to them, ensure visibility into what they spend on supplies, and ensure that they price, charge, and code effectively and defensibly. Craneware’s innovative software solutions help them efficiently achieve all of these critical and increasingly strenuous demands. Increased Patient Numbers The number of Americans with insurance coverage is expected to significantly increase patient volumes, amplifying hospitals’ needs for Craneware’s automated solutions that help accurately price, charge and code for patient care services and supplies. In this environment it will be even more vital that hospitals ensure they are capturing all of the revenue to which they are entitled. Automated solutions like those provided by Craneware are central to hospitals’ financial performance success in today’s climate of reform. Yet, of the more than 5,815 US hospitals, less than half have an automated chargemaster management solution today. Consolidation Driving Requirement for Uniform Processes As the industry trend toward consolidation continues and US hospitals deal with integration pressures, the need for new operational efficiencies like those provided by Craneware solutions is of paramount importance to achieve the objectives of Healthcare Reform. Craneware Revenue Integrity Solutions put more efficient processes in place whilst embedding the hospital culture with a better, more accurate and accountable way of doing business. Increased Compliance Risk Compliance requirements are constantly changing in the US and will become even more complex in the future. On a weekly basis, hospitals receive changes to rules and regulations directly related to their charges. Managing the volume and complexity of regulations is an increasing problem that requires consistent controls within a fluid environment. Craneware plc Annual Report 2010 2 Client Engagement Driving Innovation The cornerstone of Craneware’s strong repeat business is our client loyalty model and we take great pride in the fact that our first client remains a client today. Through Craneware User Group Meetings, Client Advisory Council and online client community, clients are engaged in a collaborative network among all sizes and types of hospitals and health systems, where they share best practices and discuss industry developments. Craneware’s new products are born from these forums, meaning that as our new tools are introduced they exactly address the demands of healthcare organisations. Our most recently launched solution, Supplies ChargeLink® is an example of this industry led innovation. Many hospital CFOs say they are now looking for new efficiencies in their supply chain to help them control costs and offset the scheduled reimbursement cuts from Medicare and Medicaid. Craneware’s Supplies ChargeLink® provides them previously unattainable visibility into the supply chain and the supply item revenue stream. This helps hospitals achieve sustainable improvements in supply chain financial performance. Committed to Sustainable Improvements in Healthcare Financial Performance In this climate of change, healthcare organisations need strong strategic partners to help them increase operational efficiencies, improve financial performance and reduce compliance risks. Craneware is committed to continuing to build on its eleven year history of successfully partnering and providing US healthcare with innovative solutions that achieve sustainable improvements in financial performance. Outdated reference information and manual processes inevitably lead to errors and inaccurate reimbursement. Given the complicated regulations governing the industry, opportunities exist for interpreting rules and regulations differently, thereby increasing financial and compliance risks. To stay abreast of these changing compliance requirements, automation like that provided by Craneware is crucial. Yet, today most US hospitals lack an effective means of monitoring ever-changing Medicare and Medicaid regulations to ensure both ongoing compliance and proper reimbursement. Penalties for non-compliance range from loss of payment for services rendered, to stiff fines and even imprisonment. The Affordable Care Act includes a series of provisions to fight non-compliance. Non-compliance is considered fraud even if committed in error. The new rules strengthen and expand CMS’ fraud prevention efforts. A Center for Program Integrity has been created at CMS that is focused on identifying and stopping fraud. There is also now a significant increase in the number of auditors charged with recovering funds paid to hospitals through Medicare and Medicaid programs. A recovery audit contractor (RAC) is paid a contingency fee by CMS that can range from 9% to 12.50% of overpayments and underpayments successfully collected from hospitals' Medicare and Medicaid reimbursement. Craneware Revenue Integrity Solutions help hospitals keep track of constantly changing regulations, while ensuring an adequate internal audit trail to defend revenues received. Our software automates access to the most current regulatory guidelines, while facilitating effective communication between clinical and financial staff to support accurate decision-making. With a sustainable revenue integrity program we’ve achieved a goal of sustained positive financial performance, which allowed us to contribute over $200 million in charity care during 2009. — Todd Craghead, vice president of revenue cycle at Intermountain Healthcare, recognised as “model for the rest of the nation” by U.S. President Obama. Quick Fact — US Health Spending… Even against a backdrop of cost control and a focus on efficiencies, the US health spending is still expected to comprise 17.6 % of the US economy, or $2.5 trillion in 2010. This is a jump from 16.6 % in 2008 according to the US Centres for Medicare & Medicaid Services (CMS) who also predict that the health share of the economy will increase steadily until 2018. Craneware plc Annual Report 2010 Craneware Innovation Craneware introduced the industry's original automated chargemaster management solution more than ten years ago. Today, Craneware's automated Revenue Integrity Solutions™ have grown to include three product families: Strategic Pricing, Revenue Cycle and Supply Management. Craneware SaaS solutions provide a level of visibility that allows provider organisations to identify the root causes of their revenue leakage and more accurately price, charge and code for services and supplies related to patient care. Craneware innovation is market-driven, meaning we look to the market in order to identify opportunities where automation can help provider organisations improve financial performance. Then, we work with our customers to bring solutions to the industry that meet actual needs. Through Craneware User Groups, Client Advisory Council, and the online client community, customers participate in a collaborative network, where they share best practices while enhancing existing and influencing new products and services. This network is a resource for ongoing dialogue. Customers are so passionate about their business process improvements and results achieved using Craneware solutions that they regularly appear alongside Craneware experts at industry trade shows and events. Craneware continues to invest in innovating new solutions for customers. The most recent solution announced to help hospitals address revenue leakage is Supplies ChargeLink®. According to a 2009 Healthcare Financial Management Association member survey, the majority of US hospitals believe they are compensated for less than half of their reimbursable supplies. This new product supports revenue integrity by linking providers' supply and financial systems so that they can see where they're not charging for supplies that they should charge for. Industry experts estimate that, on average, US hospital systems are wasting $4 million annually in excess supplies costs due to the lack of business intelligence within their supply chains. Over the next few years, as providers focus on increasing revenue, reducing costs and regulatory compliance, experts predict that the importance of solid business intelligence and the demand for powerful analytic tools will grow in healthcare. Supplies ChargeLink provides the unmatched supply chain visibility that hospitals need to optimise their supplies management. Hospitals must focus on financial performance and process improvements to thrive in the atmosphere of healthcare reform. One of the nine strategies for success most commonly identified by healthcare financial executives who responded to HFMA's April 2009 Healthcare Financial Pulse survey was, “engaging staff in financial performance improvement”. This is exactly what Craneware's software aims to achieve. Craneware software engages and empowers financial staff with the tools and streamlined workflow processes needed for improved financial performance. In addition, clinical staffs are engaged through the LiteView, Workflow, and Best Practice features of Chargemaster Toolkit, as well as Bill Analyzer process analysis that specifically facilitates effective collaboration between clinical and financial staff. Craneware SaaS automation empowers healthcare financial managers with unmatched visibility into their business, flagged exceptions to industry best practices requiring attention, ability to perform “what-if” pricing analysis, dashboards, both standardised and self-service reporting and analytics, and more. Supplies Data Flow – The Ideal Model Procurement Inventory Clinical Processing Hospital Accounting Billing Reimbursement Wholesale Distributor Manufacturer Materials Management Patient Chargemaster Billing System Payer Payment Data Elements Manufacturer Details Purchased Quantity Purchased Unit of Measure (UOM) Purchase Price Description Units Used Description Billing UOM Billing Quantity Service Code CPT® Code Revenue Code Billed Quantity Billed Price Payment Details Craneware plc Annual Report 2010 3 Craneware Revenue Integrity Solutions™ Quick Facts — The Technology Revenue Cycle Solutions [cont'd.] Strategic Pricing Solutions [cont'd.] Chargemaster Corporate Standardisation Services Professional Services project management to fast track corporate chargemaster standardisation. Comparative Pricing Modules Comparison modules for benchmarking a facility's current prices against those of similar organisations based on information derived from Medicare. Fee Schedule Modules Fee schedule applications for viewing and comparing a facility's current pricing against published state and national rates. Pricing Policy Analysis Module Analysis modules that establish the accurate price for medications based on actual acquisition costs and proposed reimbursement in accordance with established mark-up formulas. Supply Management Solutions Pharmacy ChargeLink® Pharmacy supply application for improving charge capture, pricing and cost management, establishing and maintaining a connection between a hospital’s pharmaceutical purchases and its chargemaster. Pharmacy ChargeLink® Implementation Professional Services that ensure an efficient return on investment from Pharmacy ChargeLink and implement best practices for ongoing use, which includes an expert review of 12 months of pharmacy purchase history and chargemaster data for reimbursable medications, reporting and training. Supplies ChargeLink® Supplies software solution for optimising reimbursement by establishing and maintaining a connection between a hospital's supply purchase history and its chargemaster, helping to ensure accurate pricing, coding and billing of chargeable supplies. Supplies ChargeLink® Implementation Professional Services to ensure an efficient return on investment from Supplies ChargeLink and implement best practices for ongoing use including data review, reporting and training. Craneware solutions are based on an annuity subscription model. Craneware products employ a mix of traditional client/server Windows applications and hosted ASP technologies to provide a comprehensive enterprise solution for healthcare financial performance management. Customer data is always kept secure within healthcare facilities' own networks, compliant with US Health Insurance Portability and Accountability Act (HIPAA) regulations related to sensitive patient information. Only registered users can access Craneware's extensive knowledge base and regulatory products through available hospital-based browsers with Internet access. This allows Craneware's software to be rolled out to a number of staff within a facility, permitting different prescribed levels of interaction with minimal impact to resource-strained IS teams and busy users. Craneware's Revenue Integrity Solutions are divided into three product families with Decision Dashboard® spanning across all three families. Revenue Cycle Solutions Chargemaster Toolkit® Chargemaster Corporate Toolkit® Chargemaster Toolkit® - CAH Toolset for capturing legitimate reimbursement by automating chargemaster management processes, customisable for organisations from small community hospitals to large healthcare networks. Bill Analyzer Software for improving charge capture processes by identifying lost revenue and categorising areas of risk, resulting in cleaner, more compliant, claims and for retrospectively identifying trends and correcting issues within an organisation's charge capture process that lead to lost revenue. Charge Capture Performance Improvement Services Professional Services based on analytic review of Bill Analyzer data that identifies areas of highest financial risk, evaluates root causes of missing charges, and provides an action plan and customised process to improve charge capture that avoids additional staff resources and implements an expedited learning curve leading to a sustainable process for ongoing financial improvement Physician Revenue Toolkit® / Physician Management Toolkit Software for managing a physician group's charges, codes, RVUs, fee schedules and related information – also includes Online Reference Toolkit® for physician billing and, optionally, can track key financial and operational drivers through data trending with the addition of Decision Dashboard®. Online Reference Toolkit® Web-based tool for reducing risk by providing access to reference and regulatory resources. Decision Dashboard® Software providing decision makers with actionable financial information by monitoring key performance indicators. Interface Scripting Module Software for ensuring items are billed accurately by automatically uploading chargemaster changes to the patient billing system. Chargemaster Maintenance Process Assessment, Design and Implementation Professional Services that define and implement best-practices, decision-making and maintenance protocols, which engage key stakeholders in a well controlled, defensible chargemaster management process including custom setup of the Chargemaster Toolkit Request and Workflow modules. Chargemaster Quality Review and Education Professional Services that optimize the chargemaster maintenance process via Craneware's Chargemaster Toolkit, establishing best practices and leadership process and improvement training. Craneware plc Annual Report 2010 4 Strategic Pricing Solutions Patient Charge Estimator™ Software that supports defensible and transparent pricing, and simplifies providing estimates for inpatient and outpatient services. Patient Charge Estimator™ Implementation Professional Services to maximise immediate return on investment and establish an effective business process for ongoing use of the tool. Includes: policy, procedure and process design to improve upfront collections, and to achieve quick and accurate estimates. The service also includes documented evaluations and recommendations, templates for patient estimate letters, scripts for staff, onsite training, and software setup and implementation. Peer Reviewed by HFMA Healthcare Financial Management Association (HFMA) performs an annual independent industry evaluation. Craneware has achieved Peer Review status for Craneware's Chargemaster Toolkit®, Chargemaster Corporate Toolkit®, Bill Analyzer, Online Reference Toolkit® and Interface Scripting Module. To achieve this status, HFMA interviewed Craneware clients and determined that Craneware solutions continue to meet the stringent peer review programme standards and provide value. No.1 in KLAS for 4 consecutive years Chargemaster Toolkit® is ranked No. 1 in the Revenue Cycle- Chargemaster Management market category in the “Top 20 Best in KLAS Awards” published in December 2009, 2008, 2007 and 2006. Craneware plc Annual Report 2010 5 Chairman's Statement “Cranewareƒhasƒenjoyedƒanotherƒ excellentƒyear,ƒdeliveringƒrecordƒ salesƒandƒdevelopingƒtheƒ foundationsƒforƒcontinuedƒƒ success.” George Elliot, Chairman Craneware has enjoyed another excellent year, delivering record sales and developing the foundations for continued success. With contracted sales growth of 34%, recorded revenues and profits have both grown by over 20%. Importantly we now have over $89m of contracted revenue, an increase of 48%, to be recognised in future years, providing us with excellent visibility for several years ahead. The planned investment in the infrastructure of the business continues to increase its scalability and our market position has been significantly strengthened through several key alliances with some of the world’s largest healthcare organisations. While uncertainty prevails regarding the final form of U.S. healthcare reforms, what is certain is that healthcare organisations are seeking ways to increase efficiencies whilst still providing high levels of patient care. This is at the heart of the Craneware offering and I believe our best of breed products and our commitment to supporting our customers in meeting the increasing pressures being placed upon them, is the foundation of our success. This has been a record sales year for Craneware, however the Board believes that the full effect of healthcare reforms and the U.S. Stimulus package is yet to flow through and will have a greater impact in future years, presenting some significant new growth opportunities for the Company. For instance, tools previously developed specifically for current hospital customers who own physician practices are seeing increased demand from the wider market as a result of an anticipated trend of hospitals moving back into the ownership of physician practices. Craneware’s network in the U.S. healthcare market has been considerably strengthened during the year, with two of the largest organisations in the market, McKesson and Premier, formalising partnerships with us. Not only does this provide us with an enhanced route to market, but is also a compelling endorsement of Craneware’s valuable position at the heart of our marketplace. We have invested significantly in our direct sales teams during the year, bringing on board additional product and client managers across the U.S. We have also opened a new office in Atlanta on 1st July, giving us a presence at the hub of the U.S. healthcare industry. We are confident that we are currently well resourced and have the means to achieve significant scale in the years ahead, both organically and through acquisition. We have been pleased with the initial response to our newly launched Supplies ChargeLink and are on course to launch our sixth product, Value-based Pricing Analyzer, at the end of the calendar year. We have a strong portfolio of both established and new products and are pleased to have seen the average number of products per customer increase during the year from 1.4 to 1.6. The strength of our customer base, the quality of our products and the developments taking place in U.S. healthcare gives the Board confidence that we have many years of growth ahead. I would like to thank all the Craneware team, partners and particularly customers for their continued support. George Elliott, Chairman 3 September 2010 Craneware plc Annual Report 2010 6 Operational Review “…strongƒsalesƒperformanceƒduringƒ theƒyearƒdeliveringƒaƒrecordƒ$58.1mƒ ofƒcontractedƒsalesƒandƒhaveƒeveryƒ reasonƒtoƒbelieveƒweƒcanƒimproveƒ onƒthisƒinƒtheƒyearsƒahead.” Keith Neilson, CEO and co-founder “…aƒfurtherƒyearƒofƒstrengthenedƒ financialƒperformance…providesƒ Cranewareƒwithƒvisibilityƒoverƒƒ $89.8mƒofƒfutureƒrevenueƒ underƒcontract.” Craig Preston, CFO This has been an extremely positive year for Craneware. We have invested considerable efforts in developing the scalability of the business and expanding our position in the marketplace. Throughout the year we have maintained our market focus and believe both our ability to mitigate risk and drive through efficiencies continues to earn loyalty from our expanding customer base. We are confident therefore that we are in an extremely strong position in terms of products and customers and our focus in the year ahead will be on continued improvement seeking operational excellence. We are delighted to have signed several significant deals during the year with some of the U.S.’s leading hospital systems including Intermountain Healthcare, which has been described by President Obama and other U.S. leaders as a model for the rest of the nation. We view our interaction with each customer as a long-term partnership and this year we have increased the level of training and support we offer to all our customers in order to ensure they receive high levels of value and return on investment from our products. We believe this customer focus is vital for our continued success and is an area in which we will continue to invest. The investment in our sales and marketing capabilities and U.S. infrastructure over the year has been transformational, preparing us for the next stage of development. With these first steps now complete we are now in a position to build on our current partnership agreements, seek further alliances and enhance our go-to-market strategy through selective acquisitions. The Market President Obama’s healthcare reforms mean that by 2014 it is estimated approximately 40 million U.S. citizens who are currently uninsured will become eligible for healthcare assistance through the state and federal Medicare and Medicaid programmes. While the final form of the legislation is yet to be decided, what is clear is that hospitals will be required to provide healthcare facilities and services to an increasing number of patients, at a lower level of reimbursement per individual. Efficiency and return on investment, two of the main business drivers behind Craneware’s product families, are now therefore areas of paramount importance to management teams when making their buying decisions. $25.8 billion of funds within the American Recovery and Reinvestment Act announced in February 2009 were allocated to the U.S. healthcare industry. However the rules by which healthcare organisations can apply for the funds are only now coming into effect. Capital expenditure by hospitals in general during the year therefore remained at a low level, impacted by the global economic conditions. The effect of this constrained expenditure on Craneware has been minimised as our software generally sits within operational budgets, however it may well O p e r a t i o n a l R e v i e w C h a i r m a n ' s S t a t e m e n t 7 - 9 6 D i r e c t o r s ' R e p o r t B o a r d o f D i r e c t o r s 1 1 - 1 3 1 0 C o r p o r a t e G o v e r n a n c e R e p o r t R e m u n e r a t i o n C o m m i t t e e R e p o r t 1 7 - 1 9 1 4 - 1 6 P r i m a r y A u d i t o r s R e p o r t F i n a n c i a l S t a t e m e n t s 2 1 - 2 5 2 0 N o t e s t o t h e F i n a n c i a l S t a t e m e n t s 2 6 - 4 2 prove that as more funds flow into hospitals we will see a general upswing in the market and direct benefits to our partners such as McKesson. The introduction of Revenue Audit Contractors as of 1st January 2010 has generated some movement in our market place, but as previously stated we believe the real impetus from this will come in 2011 and 2012. Another encouraging development during the year, a result of the healthcare reforms, has been some early evidence of a reversal of a previous trend, which saw hospitals moving away from the ownership of physician practices. The apparent shift in this trend could mean a reopening of a significant additional marketplace which Craneware would be well positioned to service through its physician based products which were developed for the large hospital owned physician practices and have been kept current for the installed customer base that despite previous wider market trends, retained their physician groups. It is evident that the U.S. healthcare market is only at the very first stages of reform. Regardless of the various options that the reform may take, the Board believes Craneware is well-placed to meet the growing needs of its customers and become the technology vendor of choice to deliver revenue integrity to healthcare organisations. Sales and Marketing As planned, this year saw the continued accelerated investment into our sales and marketing capabilities. We have added new sales distribution staff, including client sales managers, assistant sales managers and additional telephone support. Our new office opened in Atlanta just following the close of the year, on 1st July and will be home to our training facilities. This is a focal centre for our U.S. operations, positioning us in the heart of the U.S. healthcare industry. We have now substantially completed the restructuring of our sales team, which has increased by 37% since the start of the year. We have been pleased by a strong sales performance during the year delivering a record $58.1m of contracted sales (an increase of 34% on FY09: $43.2m) and have every reason to believe we can improve on this in the years ahead. The average length of new contracts has stabilised as predicted at approximately 5 years. We believe the opportunity for further cross-sales from our enlarged product set to be significant. With less than 40% of our current hospital base having more than two products we expect to see this momentum maintained in the coming years as we continue with our cross-sell marketing initiatives. Internally Craneware is targeting a revenue split of no more than 50% from any one product by the start of FY14 (1 July 2013) and is confident that it is achieving the correct additional balance of non- chargemaster sales to achieve this. Craneware plc Annual Report 2010 7 reaffirming our number one position in the industry and our focus on customer commitment. We were particularly pleased to see that 97% of respondents highlighted Craneware as being part of their long- term strategy. For customers coming to the end of their multi-year contracts, renewal rates remain in line with the high levels achieved in previous years. Channel Partners We have made considerable progress in the year in strengthening our partnerships; these enhance our go to market strategy and provide a strong endorsement of Craneware’s central position in the U.S. Healthcare IT market. At the start of the financial year we signed a third party agreement with McKesson the world’s largest healthcare services company, to integrate Craneware’s Chargemaster Toolkit® software with McKesson’s next generation hospital information system (HIS), Horizon Enterprise Revenue Management™ as part of their ongoing legacy system replacement and upgrading programme. By integrating the two solutions, McKesson and Craneware are delivering a synchronised approach to achieving revenue integrity, which aids hospitals in improving their financial performance. Early sales through the partnership have all been delivered to plan, with a healthy pipeline for the future. Beyond the Horizon system we have developed, and are in the process of developing further, direct interfaces to the main McKesson legacy systems (Star, HealthQuest & the Series range), meaning current customers of McKesson will be able to easily implement integrated Craneware products in the future. In April 2010 we were pleased to announce the expansion of our relationship with the Premier healthcare alliance. The new deal between Craneware and Premier is a five-year reseller agreement, with a minimum value of $15 million. Premier has begun marketing our solutions to its 2,300 not-for-profit hospital alliance members and we have been pleased by the strong commitment shown by both parties in creating a successful partnership. All the initial deliverables under the agreement have been successfully completed and we are actively seeking opportunities for further expansion of the agreement going forward. Partnerships are an important part of the future development of Craneware and we will continue to invest time and resource into expanding this area. Financial Review The financial results represent a further year of strengthened financial performance. Craneware has delivered another record sales year increasing the total value of contracts signed (our sales) during the year by 34% to $58.1m (2009: $43.2m), whilst continuing to invest for further future success. Craneware recognises revenue 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 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. Operational Review [Cont'd.] Product Development Craneware continues to invest in product development to further its position as the vendor of choice for solutions which sit in and around the point where clinical data turns into financial data. This year saw the successful launch of Supplies ChargeLink, a new product in our Supply Management family. Early sales have met management’s expectations and are in line with the early successes of the other products we have launched post-IPO. We believe the potential market for this product to be significant, with more than half of US hospitals believing they are not fully reimbursed for their supplies and over three-quarters having no automated process to attempt to do so. We have been pleased with the initial market response to the product following its launch in December 2009. We intend for new product momentum to continue through the remainder of 2010, with the launch of our sixth product, Value-based Pricing Analyzer which is part of the Strategic Pricing family, planned for Q4 of the current calendar year. Again, we believe the market opportunity for this product to be significant. Replacing consultants and manual processes, Value-based Pricing Analyzer helps hospitals more effectively, accurately and sustainably manage their pricing strategies for drugs and supplies, optimising their financial performance while making strategic decisions in both a transparent and defensible manner. Customers can use Value-based Pricing Analyzer to balance the reimbursement, cost and market considerations that drive pricing. The tool allows hospitals to create multiple pricing scenarios detailed down to the service level, or aggregated to the facility or care network as a whole. The product is anticipated to start contributing towards revenue by the end of calendar 2010. Customers Well over 1,000 hospital facilities across 48 States utilise one or more of our software products. We continue to sign up a broad range of customers in terms of size from small community hospitals to some of the largest healthcare networks such as Intermountain Healthcare and North Shore-LIJ. In response to customer feedback we introduced a training and certification programme in our products during the year and our user groups now carry official CPE (Continuing Professional Education) certification. We also extended our online classroom tools to include branded certification in the usage and implementation of our software and the environment that it goes into, with the first accreditation certificates awarded to customers who have successfully completed courses. We were delighted that during the year not only was our core product, Chargemaster Toolkit® once again awarded the number one position in its category by the prestigious U.S. industry research house KLAS, but we succeeded in increasing our scores year on year, Craneware plc Annual Report 2010 8 Figureƒ1.ƒ “…visibilityƒoverƒ$89.8mƒofƒ futureƒrevenue…” Operational Review This model has delivered the benefit of significant yet steady revenue growth during the year, whilst further building the already sizeable revenues under contract which will be recognised in future years. This highly predictable future revenue stream allows us to invest in the future of our business whilst delivering year on year increases in our operating margins. As a result of this recognition model, against our 34% increase in total contracts signed during the year, we have increased our reported revenues by 23% to $28.4m (2009: $23.0m), the balance of these sales increasing our future revenues under contract (Figure 1.). This now provides Craneware with visibility over $89.8m of future revenue (representing over 3 times current year reported revenues and an increase of 49% or $29.7m over fiscal 2009). Of this future revenue under contract we have already invoiced $13.9m which is recorded as deferred income in the balance sheet, the remaining $75.9m to be invoiced in subsequent years. Of this $89.8m of future revenue, the Directors consider that $25.7m will be recognised during FY11 with a further $19.7m and $15.4m respectively to be recognised in FY12 and FY13. In addition, assuming as has happened in the year, the total monetary value of renewed contracts is at least equal to the total monetary value of contracts that were due to renew, $2.7m revenues will be recognised from renewal activity during FY11, with a further $7.6m and $11.9m respectively in FY12 and FY13 relating to contracts due for renewal from 1 July 2010 through these years. We have continued our planned investment during the year, increasing our sales and marketing spend by 16% to $7.1m (2009: $6.1m) and product development by 28% to $3.8m after capitalising $0.5m of costs relating to new products (2009: $3.0m after capitalising $0.6m of costs relating to new products). Through these investments and the full year effect of our investment in product management and marketing made in the prior year, net operating expenses have risen to $18.8m (2009: $16.3m). However, as a proportion of revenues, net operating expenses have reduced to 66% from 71% in FY09. In regards to customers coming to the end of their multi-year contracts, the Company’s renewal rate remains within the high levels achieved in previous years. This combined with increased upsell and cross selling to the renewing hospital base, has resulted in the total monetary value of the current year renewals increasing by 115% as compared to the original annuity revenue value to the Company. As a result of all these factors, earnings before interest, taxation, share based payments, depreciation, and amortisation (“EBITDA”) has increased 31% to $7.6m (2009: $5.8m) and the associated EBITDA margin has increased to 26.8% (2009: 25.3%). 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 second successive year we have collected more than 100% of our EBITDA as operating cash. This has resulted in the Group’s cash balance increasing to $29.4m (2009: $26.1m) despite, during the year, having paid over $2.0m in taxation and returning $3.0m to our shareholders by way of dividend payments. The Group maintains a strong balance sheet position, not only through our significant cash balance but with rigorous controls over working capital. At 30 June 2010 we have seen an increase in our net trade receivables balance increasing to $7.1m from $4.0m in the prior year. This has been the result of the increase in sales during the year and some significant invoice milestones having been reached on a number of the large contracts we have previously announced. This increase in trade receivables has resulted in an expected corresponding increase in our deferred income balance. As at the balance sheet date, $5.4m of the trade receivables balance was not yet due, and since the balance sheet date we have collected $4.1m of the total balance. With the reporting currency (and cash reserves) of the Company being in US Dollars, and approximately one third of the cost base being based in the UK relating primarily to our UK employees (and therefore denominated in Sterling), 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 $1.5821 as compared to $1.6142 in the prior year. Dividend Basic and diluted earnings per share were $0.22 (FY09: $0.18) and $0.21 (FY09: $0.17) respectively and the Board recommends a final dividend of 3.3p (4.94 cents) per share giving a total dividend for the year of 8.0p (11.99 cents) per share (2009: 4.7p (7.43 cents) per share). Subject to confirmation at the Annual General Meeting, the final dividend will be paid on 8 December 2010 to shareholders on the register as at 12 November 2010. The final dividend of 3.3p 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 12 November 2010. The exact amount to be paid will be calculated by reference to the exchange rate to be announced on 12 November 2010. The final dividend referred to above in US dollars of 4.94 cents is given as an example only using the Balance Sheet date exchange rate of $1.4961/£1 and may differ from that finally announced. M&A The Board has evaluated a number of M&A opportunities throughout the course of the year but to date has not concluded on an opportunity that would have been sufficiently accretive to merit investment. We continue to have a healthy pipeline of new opportunities which we are evaluating. Outlook Whilst this has been a record year for sales, perhaps more significant has been the investment we have made in the business over the year. We have increased our sales team, expanded our network of alliances and enhanced our product set and customer offering. The U.S. healthcare industry is starting to debate the early effects of the reforms which were outlined in January 2010 and will gradually be introduced over the next eight years, meaning the drivers for growth in coming years could be yet higher than those which we have experienced this year. Our focus on the mitigation of risk for our customers, and the delivery of financial and operational efficiencies means we are extremely well positioned to benefit from the unprecedented changes we expect to see in healthcare in the U.S., no matter the final form of healthcare reform. These factors, plus the $89.8m of revenues we currently have under contract for future years gives us high levels of confidence in our success in the years ahead. With industry leading product sets and an enviable customer base our focus now will be on achieving operational excellence and providing the next generation of solutions to help with the challenges of healthcare reform that face our customers. Keith Neilson, Chief Executive Officer Craig Preston, Chief Financial Officer 3 September 2010 O p e r a t i o n a l R e v i e w C h a i r m a n ' s S t a t e m e n t 7 - 9 6 D i r e c t o r s ' R e p o r t B o a r d o f D i r e c t o r s 1 1 - 1 3 1 0 C o r p o r a t e G o v e r n a n c e R e p o r t R e m u n e r a t i o n C o m m i t t e e R e p o r t 1 7 - 1 9 1 4 - 1 6 P r i m a r y A u d i t o r s R e p o r t F i n a n c i a l S t a t e m e n t s 2 1 - 2 5 2 0 N o t e s t o t h e F i n a n c i a l S t a t e m e n t s 2 6 - 4 2 EBITDA ($m) Basic EPS ($/share) 2007 2008 2009 2010 2007 2008 2009 2010 Craneware plc Annual Report 2010 9 Board of Directors The Directors of the Company and their responsibilities within the Group are set out below: George R Elliott, 57 — Non-Executive Chairman :: Appointed 10 August 2007 George is non-executive Chairman of EasyDate plc (EZD), Corsair Memory Inc, and Scotcloth Ltd. He is also a non-executive Director of Summit Corporation plc (SUMM) and Oxonica plc. From 2000-2007 George was Chief Financial Officer of Wolfson Microelectronics plc (WLF), a leading global provider of high performance mixed-signal semiconductors to the consumer electronics market. Previously, he was Business Development Director at McQueen International Ltd (now Sykes), where he was responsible for strategic sales and marketing. George, formerly a partner of Grant Thornton, is a member of the Institute of Chartered Accountants of Scotland and has a degree in Accountancy and Finance from Heriot-Watt University. Keith Neilson, 41 — Chief Executive Officer :: Co-founder Keith co-founded Craneware in 1999 and has served as its CEO ever since. Under Keith’s guidance, Craneware became recognised as the pioneer in revenue integrity management and a leading provider of superior products and professional services. Keith’s direction has helped Craneware to win multiple prestigious awards in such areas as international achievement, business growth strategy and innovation. Keith was named The Entrepreneurial Exchange’s “Emerging Entrepreneur of the Year 2003” and was a finalist in the 2004 World Young Business Achiever Award, winning the Award of Excellence in the Business Strategy category. He received the U.K. Software & Technology Entrepreneur of the Year Award from Ernst & Young in 2008 and was the Insider Elite Young Business Leader of the Year in 2009. Prior to launching Craneware, Keith worked primarily in international management, where he handled sales, marketing and technical consulting for companies with operations around the world. He studied Physics at Heriot-Watt University, Edinburgh, receiving a bachelor’s degree in 1991. Craig T Preston, 39 — Chief Financial Officer :: Appointed 15 September 2008 Craig was appointed to the Board on 15 September 2008, just as the company was entering its second year as a publicly traded corporation on the London Stock Exchange. As CFO, he directs Craneware’s financial operations in both the United Kingdom and United States. Craig has significant experience in senior financial roles with other private and public technology companies, including those with a multi-national presence. Prior to Craneware, he was group director of finance and company secretary at Intec Telecom Systems plc. Earlier, he served as corporate development manager at London Bridge Software plc. During his time there, he also held the role of CFO for Phoenix International, a previously NASDAQ-traded software company, following its acquisition by London Bridge. Earlier in his career, Craig worked for Deloitte in both the United Kingdom and United States. Craig has a degree in Accounting and Financial Management from the University of Sheffield. He is also a member of the Institute of Chartered Accountants in England and Wales. Neil P Heywood, 48 — Non-Executive Director :: Appointed 31 January 2002 Neil is Managing Director of Matrix Trading Systems and Chairman of Codeplay Software. Prior to Matrix, Neil was co-founder and CEO of Quadstone from 1995 to 2001. Quadstone won numerous awards for its software and was named best "Small Start-up" of the year at the Financial Times/BVCA awards in 1999. It was acquired by Portrait Software in 2006. Quadstone was a buy-out from the Edinburgh Parallel Computing Centre, a department at the University of Edinburgh, which Neil managed. Prior to EPCC, Neil was a co-founder and later Commercial Director of 3L, a software firm specialising in software for parallel computers. 3L was bought by Spectrum Signal Processing, Inc. Neil received his B.Sc. in Computer Science from the University of Edinburgh in 1984. Ron F Verni, 62 — Non-Executive Director :: Appointed 1 May 2009 Ron is currently a director of ILumen, Inc., and on the Board of Advisors of Company.com, CEO Ventures, and the Robinson College of Business. Before that he was President & CEO of Sage Software, Inc, and a member of the Board of Directors of the Sage Group plc. Under his leadership, the company grew from less than $160 million in revenue to over $1 billion, from under 1,000 employees to over 5,000, and from 1 million business customers to over 2.5 million. Ron also engineered over 20 acquisitions and oversaw their successful integration into the company. Prior to Sage Software, Ron was President and CEO of Peachtree Software, Inc., a leading pioneer in business management solutions for small to medium size businesses. Ron also was a Vice President of Marketing with Automatic Data Processing, President and CEO of NEBS Software, Inc., and the founder and CEO of ASTEC Software. Craneware plc Annual Report 2010 10 Directors' Report The Directors present herewith their report and the audited financial statements for the year ended 30 June 2010. Principal Activities The Group's principal activity continues to be the development, licensing and post contract support of computer software for the US healthcare industry. Company Registration The Company is registered in Scotland as a public limited company with number SC196231. Business Review ƒ» Market Position and Products Craneware continues to be a leading provider of solutions that improve financial performance for US hospitals and healthcare organisations. Full details of the Company’s market position and products are given in the Operational Review. The Directors are satisfied with the performance of the Company and Group for the year and expect this growth, as set out below, to continue in future years. The Company opened a new office in Atlanta, Georgia, just following the close of the year on 1st July. It will be home to our training facilities, and replaces our offices in Kansas. In addition to Atlanta, the Company retains its head office in Florida and its office in Arizona. ƒ» Financial Highlights With the value of total contracts signed in the year increasing 34% to $58.1m (2009: $43.2m), the Group has increased revenues by 23.5% to $28.4m; operating profits from $5.4m to $7.1m and future revenue under contract of $89.8m (as at 30 June 2010). Cash reserves increased to $29.4m (2009: $26.1m) after paying $2.0m in taxation and $3.0m in dividends to shareholders during the year. ƒ» Operational Highlights & Future Developments The Group continues to grow strongly with a positive outlook going forward as outlined in the Chairman’s Statement and the Operational Review. ƒ» Corporate Social Responsibility and Environmental Policy The Group is committed to maintaining a high level of social responsibility. It is the Group’s policy to support and encourage environmentally sound business operations, with aspects and impact on the environment being considered at Board level. Recognising that the impact over operations have minimal direct environmental impact, the Group aims to ensure that: ƒƒ it meets all statutory obligations; ƒƒ where sensible and practical, it encourages working practices, such as teleconferencing, teleworking and electronic information exchange that reduce environmental impact; and ƒƒ re-cycles waste products wherever possible, encouraging use of environmentally friendly materials, and disposing safely of any non-recyclable materials. Where the Directors’ Report (including the performance highlights), Chairman’s Statement and Operational Review contain forward looking statements, these are made by the Directors in good faith based on the information available to them at the time of their approval of this report. Consequently, such statements should be treated with caution due to their inherent uncertainties, including both economic and business risk factors, underlying such forward looking statements or information. Principal Risks and Uncertainties and Key Performance Indicators (KPIs) The Directors consider that the US healthcare software market is likely to continue to provide growth opportunities for the Company’s existing products and development pipeline. In addition, with a continued high contract renewal rate, the Company’s predominantly annuity-based pricing models and revenue recognition approach gives a high degree of revenue visibility and earnings growth predictability. With approximately one third of its cost denominated in Sterling, the Company continually assesses the most appropriate approach to managing its currency exposure in line with an overall goal of achieving predictable earnings growth. Nevertheless the market is not immune to the macro- economic climate and, with the increasing focus and requirements of the proposed Healthcare reform, the Group expects the market to continue to be very competitive. The Group therefore aims to remain at the forefront of product innovation and delivery, through a combination of in-house development whilst assessing specific acquisition opportunities. This requires the recruitment, retention, and reward of skilled staff, alongside responsiveness to changes, and the opportunities that result, as they arise. The principal financial risks are detailed in Note 3 to the financial statements. The Directors consider that the following operating and financial KPIs remain critical to an understanding of the development, performance, and position of the business: Value of contracts written in the year Revenue Earnings before interest, taxation, depreciation, amortisation and share based payments Cash and receivables less payables Deferredƒincome Furtherƒcontractualƒentitlements Future revenue under contract 2006 $m's 15.1 13.2 3.7 10.5 9.5 17.8 27.3 2007 $m's 20.7 15.1 3.8 11.4 9.5 23.4 32.9 2008 $m's 25.9 18.7 4.5 24.1 10.3 29.6 39.9 2009 $m's 43.2 23.0 5.8 27.5 11.1 49.0 60.1 2010 $m's 58.1 28.4 7.6 32.7 13.9 75.9 89.8 O p e r a t i o n a l R e v i e w C h a i r m a n ' s S t a t e m e n t 7 - 9 6 D i r e c t o r s ' R e p o r t B o a r d o f D i r e c t o r s 1 1 - 1 3 1 0 C o r p o r a t e G o v e r n a n c e R e p o r t R e m u n e r a t i o n C o m m i t t e e R e p o r t 1 7 - 1 9 1 4 - 1 6 P r i m a r y A u d i t o r s R e p o r t F i n a n c i a l S t a t e m e n t s 2 1 - 2 5 2 0 N o t e s t o t h e F i n a n c i a l S t a t e m e n t s 2 6 - 4 2 Craneware plc Annual Report 2010 11 Directors' Report [Cont'd.] Dividends During the year the Company paid an interim dividend of 4.7p (7.05 cents). The Directors are recommending the payment of a final dividend of 3.3p (4.94 cents) per share giving a total dividend of 8.0p (11.99 cents) per share based on the results for 2010 (2009: 4.7p (7.43 cents)). Subject to approval at the Annual General Meeting, the final dividend will be paid on 8 December to shareholders on the register as at 12 November 2010. The level of dividend proposed for the year is intended to deliver a dividend yield the Directors believe is appropriate for a Company of this size and nature. In future years the Directors intend to continue with a progressive dividend policy based on the Group’s retained annual earnings. The level of distributions will be subject to the Group’s working capital requirements and the ongoing needs of the business. Dividends/Share (pence) *Subject to approval at AGM Going Concern The Directors, having made suitable enquiries and analysis of the accounts, consider that the Group has adequate resources to continue in business for the foreseeable future and that it is therefore appropriate to adopt the going concern basis in preparing these financial statements. Research and Development activities The Group continues its development programme of software products for the US healthcare industry which includes research and development of new complimentary products and the enhancements to the Group’s existing portfolio of market leading products. The Directors regard investment in development activities as a prerequisite for success in the medium and long term future. During the year development expenditure amounted to $3.8 (2009: $3.0m) net of expenditure capitalised of $0.5m (2009: $0.6m). 2007 2008 2009 2010 Directors The Directors of the Company are listed on page 10. The Directors have the power to manage the business of the Company, subject to the provisions of the Companies Act, the Memorandum and Articles of Association of the Company, and to any directions given by special resolution, including the Company’s power to purchase its own shares. The Company’s Articles of Association may only be amended by a special resolution of the Company’s shareholders. During the year the Company’s Articles of Association were amended, via a special resolution approved at the Company’s Annual General Meeting, to bring them into line with the provisions of the Companies Act 2006. Details of the Directors service contracts and their respective notice terms are detailed in the Remuneration Committee Report on page 18. Authorised and Issued Share Capital The Company’s authorised share capital at the balance sheet date was 50,000,000 ordinary shares of 1p each of which 25,365,850 were issued and fully paid up. During the year, options were exercised pursuant to the Company’s share option schemes, resulting in the allotment of 68,100 new ordinary shares. No further new ordinary shares have been allotted under these schemes since the end of the financial year to the date of this report. Directors and their interests The interests of the Directors who held office at 30 June 2010 and up to the date of this report, were as follows:- G R Elliot N P Heywood K Neilson 2010 15,650 127,926 3,398,044 3,541,620 2009 15,650 145,272 3,887,800 4,048,722 Director's interests in share options are detailed in the Remuneration Committee Report on page 19. Substantial shareholders As at the 1 September 2010, the Company had been notified of the following beneficial interests in 3% or more of the issued share capital pursuant to section 793 of the Companies Act 2006: No. of Ordinary £0.01 Shares % of issued share capital 3,398,044 13.40 K Neilson Standard Life Investments 3,202,589 12.63 W G Craig 3,149,626 12.42 Blackrock Investment Management 2,520,427 9.94 Fidelity Investments 2,446,410 9.64 Artemis Investment Management 1,391,105 5.48 Aegon Asset Management 1,385,769 Axa Investment Managers 1,370,000 F&C Asset Management 857,143 5.46 5.40 3.38 Liontrust Asset Management 792,792 3.13 The total number of shares as at 30 June 2010 and 1 September 2010 was 25,365,850. Indemnity of Directors and Officers Under the Company’s Articles of Association and subject to the provisions of the Companies Act, the Company may and has indemnified all Directors or other officers against liability incurred by him in the execution or discharge of his duties or exercise of his powers, including but not limited to any liability for the costs of legal proceedings where judgement is given in their favour. In addition, the Company has purchased and maintains appropriate insurance cover against legal action brought against Directors and officers. Craneware plc Annual Report 2010 12 Auditors and Disclosure of Information to Auditors Each Director, as at the date of this report, has confirmed that insofar as they are aware there is no relevant audit information (that is, information needed by the Company’s auditors in connection with preparing their report) of which the Company’s auditors are unaware, and they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. A resolution to reappoint PricewaterhouseCoopers LLP as auditors will be proposed at the annual general meeting. Approved by the Board of Directors and signed on behalf of the Board by: Craig Preston Company Secretary 3 September 2010 Directors' Report Employee Involvement The general policy of the Group is to welcome employee involvement as far as it is reasonably practicable. Employees are kept informed by meeting, regular updates and web page postings. In addition the Group’s UK and US senior management teams meet regularly to review performance against the Group’s strategic aims and development roadmaps. Policy on payment of Payables It is the Group’s normal practice to make payments to suppliers in accordance with agreed terms and conditions, generally within 30 days, provided that the supplier has performed in accordance with the relevant terms and conditions. Trade payables at 30 June 2010 represented, on average 25 days purchases (2009: 26 days) for the Group and 26 days purchases (2009: 30 days) for the Company. Charitable and Political Contributions The Group made charitable contributions of $5,401 during the year relating to corporate participation in the Highland 100 charitable bike riding events (2009: $4,820). Neither the Company nor its subsidiary made any donation for political purposes in fiscal years 2010 or 2009. Employment of Disabled Persons Applications for employment by disabled persons are always fully considered, bearing in mind the respective aptitudes and abilities of the applicant concerned. In the event of members of staff becoming disabled every effort is made to ensure that their employment with the Group continues and the appropriate training is arranged. It is the policy of the Company that the training, career development and promotion of a disabled person should, as far as possible, be identical to that of a person who does not suffer from a disability. Annual General Meeting The resolutions to be proposed at the AGM, together with explanatory notes, appear in a separate Notice of Annual General Meeting which is sent to all Shareholders. The proxy card for registered shareholders is distributed along with the notice. Statement of Directors' Responsibilities The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group and Parent Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. In preparing these financial statements, the Directors have also elected to comply with IFRSs, issued by the International Accounting Standards Board (IASB). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing these financial statements, the Directors are required to: ƒƒ select suitable accounting policies and then apply them consistently; ƒƒ make judgements and accounting estimates that are reasonable and prudent; and ƒƒ state whether applicable IFRSs as adopted by the European Union and IFRSs issued by IASB have been followed, subject to any material departures disclosed and explained in the financial statements The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and the group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. O p e r a t i o n a l R e v i e w C h a i r m a n ' s S t a t e m e n t 7 - 9 6 D i r e c t o r s ' R e p o r t B o a r d o f D i r e c t o r s 1 1 - 1 3 1 0 C o r p o r a t e G o v e r n a n c e R e p o r t R e m u n e r a t i o n C o m m i t t e e R e p o r t 1 7 - 1 9 1 4 - 1 6 P r i m a r y A u d i t o r s R e p o r t F i n a n c i a l S t a t e m e n t s 2 1 - 2 5 2 0 N o t e s t o t h e F i n a n c i a l S t a t e m e n t s 2 6 - 4 2 Craneware plc Annual Report 2010 13 Craneware plc Annual Report 2010 13 Corporate Governance Report The Board of Directors ("the Board") acknowledge the importance of the Principles set out in The Combined Code on Corporate Governance as applicable under the Listing Rules of the UK Listing Authority (the “Code”). Although the Code is not compulsory for AIM listed companies, the Board has applied its principles as far as practicable for a public Company of its size in this Report and the Remuneration Committee Report beginning on page 17: The Board The Code requires the Company to have an effective Board whose role is to develop strategy and provide leadership to the Company as a whole, as well as ensuring a framework of controls exist which allow for the identification, assessment and management of risk, ultimately taking collective responsibility for the success of the Company. Through the leadership of the Chairman, the Board sets the Company’s strategic goals, ensuring obligations to shareholders are met. There is a formal schedule of matters reserved for the Board for decision, which include approval of Group strategy, annual budgets and business plans, acquisitions, disposals, business development, annual reports, interim statements, and any significant financing and capital expenditure plans. The Board meets regularly, usually monthly, to discuss and agree on the various matters brought before it, including the trading results. The Company has a highly committed and experienced Board, which is supported by a senior management team, with the qualification and experience necessary for the running of the Group. In addition, there is regular communication between Executive and Non-Executive Directors, where appropriate, to update the Non-Executive Directors on matters requiring attention prior to the next Board meeting. The Non-Executive Directors will meet at least annually without Executive Directors being present and further meet annually without the Chairman present. Through these and the measures outlined below, the Board believes it has met its requirements in this area. Role of the Chairman and Chief Executive Officer The Code requires that there should be a clear division of responsibilities between the running of the Board and the executive responsible for running the company’s business, so as to ensure that no one person has unrestricted powers of decision. The Board has met this requirement by establishing clearly defined and well understood roles for George Elliott as Chairman of the Company, and Keith Neilson as Chief Executive Officer. The Chairman is responsible for the leadership of the Board, ensuring its effectiveness and setting its agenda. Once strategic and financial objectives have been agreed by the Board, it is the Chief Executive Officers responsibility to ensure they are delivered upon. To facilitate Craneware plc Annual Report 2010 14 this, the Chief Executive Officer chairs the Group’s Operations board which additionally comprises the Chief Financial Officer and the Senior Management Team. The day-to-day operation of the Group’s business is managed by this board, subject to clearly defined authority limits. The Chairman, in conjunction with the Company Secretary, agrees Board agendas and ensures the Board are supplied with information that is timely, accurate and clear on all aspects of the Company’s business, thereby enabling the Board to fulfil its duties. The Chairman, George Elliott, holds other directorships, as detailed in his biography on page 10. The Board has considered the time commitment required by his other roles and has concluded they do not detract from his chairmanship of the Company. Composition of and Appointments to the Board The Code requires that there should be a balance of Executive and Non-Executive Directors and when appointing new Directors to the Board there should be a formal, rigorous and transparent procedure. The Board comprises a Non-Executive Chairman, Chief Executive Officer, Chief Financial Officer and two independent Non-Executive Directors. Short Biographies of the Directors are given on page 10. All Non-Executive Directors serving at the year-end are considered to be independent. Non-Executive Directors are paid a bonus, capped at 10% of their current year salary and fees; however the Board does not consider this to affect their independence. The Board is satisfied with this balance between Executive and Non-Executive Directors. The Board considers that its composition is appropriate in view of the size and requirements of the Group’s business and the need to maintain a practical balance between Executive and Non-Executive Directors. Each member of the Board brings different experience and skills to the Board and its various committees. The Board composition is kept under review as this mix of skills and business experience is a major contribution to the proper functioning of the Board, helping to ensure matters are fully debated and that no individual or group dominates the Board decision- making process. When a new appointment to the Board is to be made, consideration is given to the particular skills, knowledge and experience that a potential new member could add to the existing Board composition. A formal process is then undertaken, usually involving external recruitment agencies, with appropriate consideration being given, in regards to Executive appointments, to internal and external candidates. Before undertaking the appointment of a Non-Executive Director, the Chairman establishes that the prospective Director can give the time and commitment necessary to fulfil their duties, in terms of availability both to prepare for and attend meetings and to discuss matters at other times. Information and development A further principle of the Code is that information of a sufficient quality is supplied to the Board in a timely manner. The Chairman is responsible for ensuring that all the Directors continually update their skills, their knowledge and familiarity with the Group in order to fulfil their role on the Board and the Board’s Committees. Updates dealing with changes in legislation and regulation relevant to the Group’s business are provided to the Board by the Company Secretary/Chief Financial Officer and through the Board Committees. All Directors have access to the advice and services of the Company Secretary, who is responsible to the Board for ensuring that Board procedures are properly complied with and that discussions and decisions are appropriately minuted. Directors may seek independent professional advice at the Company’s expense in furtherance of their duties as Directors. Training in matters relevant to their role on the Board is available to all Board Directors. New Directors are provided with an induction in order to introduce them to the operations and management of the business. Performance Evaluation The Code requires the Board to undertake a formal and rigorous evaluation of its own performance annually and that of its Committees and individual Directors. During the year, a formal evaluation was conducted by means of a detailed questionnaire which was completed by each Director. The results of this process were collated by the Chairman and were presented to the Board as a whole. Based on this evaluation, the Board has taken steps to implement certain agreed upon suggestions, but overall has concluded that its performance in the past year had been satisfactory. Re-election Under the Code, Directors should offer themselves for re-election at regular intervals and under the Company’s Articles of Association, at every Annual General Meeting, at least one-third of the Directors who are subject to retirement by rotation, are required to retire and may be proposed for re-election. In addition, any Director who was last appointed or re-appointed three years or more prior to the AGM is required to retire from office and may be proposed for re-election. Such a retirement will count in obtaining the number required to retire at the AGM. New Directors, who were not appointed at the previous AGM, automatically retire at their first AGM and, if eligible, can seek re-appointment. As such, George Elliott and Craig Preston will retire from office at the Company’s forthcoming AGM and stand for re-appointment. Corporate Governance Report Board Committees The Board has established three Committees to deal with specific aspects of the Group’s affairs: Audit, Remuneration and Nomination Committees. The terms of reference of these Committees are available on request from the Company. The Committees now review their terms of reference and their effectiveness annually and, if necessary, recommend any changes to the Board. The minutes of the Committee meetings are available to all Directors and oral updates are given at Board meetings. Attendance at Board and Committee meetings Attendances of Directors at Board and Committee meetings convened in the year, along with the number of meetings that they were invited to attend, are set out below: s n o i t a n m o N i n o i t a r e n u m e R e e t t i m m o C e e t t i m m o C t i d u A e e t t i m m o C 1 - - 2 - - 0/1 1/1 1/1 2/2 2/2 2/2 3 - - 3/3 3/3 2/3 d r a o B 10 10/10 10/10 8/10 10/10 10/10 No. Meetings in year Executive Directors K Neilson C T Preston Non Executive Directors G R Elliot N P Heywood R Verni The Audit Committee The Audit Committee’s role is to assist the Board with the discharge of its responsibilities in relation to internal and external audits and controls. The Audit Committee will normally meet at least three times a year. The Audit Committee is chaired by Neil Heywood and its other members are George Elliott and Ron Verni. The Chief Financial Officer, Chief Executive Officer and other senior management attend meetings by invitation and the Committee also meets the external auditors without management present. George Elliott, as a member of the Audit Committee has recent and relevant financial experience. During the year the Audit Committee, operating under its terms of reference, discharged its responsibilities, including reviewing and monitoring: ƒƒ interim and annual reports, information including consideration of the appropriateness of accounting policies and material assumptions and estimates adopted by management; ƒƒ developments in accounting and reporting requirements; ƒƒ external auditors' plan for the year-end audit of the Company and its subsidiaries; ƒƒ the Committee's effectiveness; ƒƒ the Risks and Controls Report covering the systems of internal control and their effectiveness, reporting and making new recommendations to the Board on the results of the review and receiving regular updates on key risk areas of financial control; ƒƒ the requirements or otherwise for an internal audit function; ƒƒ the performance and independence of the external auditors concluding in a recommendation to the Board on the reappointment of the auditors by shareholders at the Annual General Meeting. The auditors provide annually a letter to the Committee confirming their independence and stating the methods they employ to safeguard their independence; ƒƒ the audit and non-audit fees charged by the external auditors; and ƒƒ the formal engagement terms entered into with the external auditors. During the year, the Committee reviewed the arrangements in place for internal audit and concluded, due to the current size and complexity of the Company, that a formal internal audit function was not required. Under its terms of reference the Audit Committee is responsible for monitoring the independence, objectivity and performance of the external auditors, and for making a recommendation to the Board regarding the appointment of external auditors on an annual basis. The Group’s external auditors, PricewaterhouseCoopers LLP, were first appointed as external auditor of the Company for the year ended 30 June 2003. The Audit Committee has also implemented procedures relating to the provision of non-audit services by the Company auditors, which include requiring non-audit work and any related fees over and above a de-minimis level to be approved in advance by the Chairman of the Audit Committee. The Remuneration Committee The Remuneration Committee was chaired by Ron Verni and its other members are George Elliott and Neil Heywood. It is usual for Keith Neilson, as Chief Executive Officer, to be invited to attend meetings except where matters under review by the Committee relate to him. The Committee has responsibility for making recommendations to the Board on the remuneration packages of the Executive Directors, and monitor the level and structure of remuneration for senior management, this includes: ƒƒ making recommendations to the Board on the Company's policy on Directors' and senior staff remuneration, and to oversee long term incentive plans (including share option schemes); ƒƒ ensuring remuneration is both appropriate to the level of responsibility and adequate to attract and/or retain Directors and staff of the calibre required by the Company; and ƒƒ ensuring that remuneration is in line with current industry practice. The Nomination Committee The Nomination Committee is chaired by Neil Heywood and its other members are George Elliott and Ron Verni. The role of the Nomination Committee is to assist the Board in determining the composition and make-up of the Board. It is also responsible for periodically reviewing the Board’s structure and identifying potential candidates to be appointed as Directors, as the need may arise. Internal Control The Directors, who are responsible for the Group’s system of internal control, have established systems to ensure that an appropriate and reasonable level of oversight and control is provided. The systems are reviewed for effectiveness annually by the Audit Committee and the Board. The Group’s systems of internal control are designed to help the Company meet its business objectives by appropriately managing, rather than eliminating, the risks to those objectives. The controls can only provide reasonable, not absolute, assurance against material misstatement or loss. Executive Directors and senior management meet to review both the risks facing the business and the controls established to minimise those risks and their effectiveness in operation on an ongoing basis. The aim of these reviews is to provide reasonable assurance that material risks and problems are identified and appropriate action taken at an early stage. The Board confirms that procedures to identify, evaluate and manage the significant risks faced by the Group have been in place throughout the year and up to the date of approval of the Annual Report. Financial Control The annual financial plan is reviewed and approved by the Board. Financial results with comparisons to plan and forecast results are reported on at least a quarterly basis to the Board together with a report on operational achievements, objectives and issues encountered. The quarterly reports are supplemented by interim monthly financial information. Forecasts are updated quarterly in the light of market developments and the underlying performance and expectations. Significant variances from plan are discussed at Board meetings and actions set in place to address them. Approval levels for authorisation of expenditure are at set levels and cascaded through the management structure with any expenditure in excess of pre- defined levels requiring approval from the Executive Directors and selected senior managers. O p e r a t i o n a l R e v i e w C h a i r m a n ' s S t a t e m e n t 7 - 9 6 D i r e c t o r s ' R e p o r t B o a r d o f D i r e c t o r s 1 1 - 1 3 1 0 C o r p o r a t e G o v e r n a n c e R e p o r t R e m u n e r a t i o n C o m m i t t e e R e p o r t 1 7 - 1 9 1 4 - 1 6 P r i m a r y A u d i t o r s R e p o r t F i n a n c i a l S t a t e m e n t s 2 1 - 2 5 2 0 N o t e s t o t h e F i n a n c i a l S t a t e m e n t s 2 6 - 4 2 Craneware plc Annual Report 2010 15 AIM Rule Compliance Report Craneware plc is quoted on AIM and as a result the Company has complied with AIM Rule 31 which requires the following: ƒƒ Have in place sufficient procedures, resources and controls to enable its compliance with the AIM Rules; ƒƒ Seek advice from its Nominated Advisor (“Nomad”) regarding its compliance with the AIM Rules whenever appropriate and take that advice into account; ƒƒ Provide the Company's Nomad with any information it reasonably requests in order for the Nomad to carry out its responsibilities under the AIM Rules for Nominated Advisors, including any proposed changes to the Board and provision of draft notifications in advance; ƒƒ Ensure that each of the Company's Directors accepts full responsibility, collectively and individually, for compliance with the AIM Rules; and ƒƒ Ensure that each Director discloses without delay all information which the Company needs in order to comply with AIM Rule 17 (Disclosure of Miscellaneous Information) insofar as that information is known to the director or could with reasonable diligence be ascertained by the director. Approved by the Board of Directors and signed on behalf of the Board by: Craig Preston Company Secretary 3 September 2010 Corporate Governance Report [Cont'd.] Quality of Personnel and Employee Involvement The Group is committed to attracting and retaining the highest calibre of personnel. It strives to do this through, amongst other things, the application of high standards in recruitment. The Group is aware of the importance of good communication in relationships with its staff. The Group follows a policy of encouraging training and regular meetings between management and staff in order to provide a common awareness on the part of the staff of the financial and economic circumstances affecting the Company’s performance. A number of employees participate in the growth of the business through the ownership of share options with all employees participating in the Group bonus scheme. Commitment to Continuous Improvement Measures continue to be taken to review and embed internal controls and risk management procedures into the business processes of the organisation and to deal with areas of improvement which come to the management’s and the Board’s attention. Metrics and quality objectives continue to be actively implemented and monitored as part of a continual improvement programme. Business Ethics The Board recognises that the Company is accountable to its shareholders and, at the same time, seeks to take into account the interests of all its stakeholders including customers, suppliers and subcontractors, employees, as well as the local community, and the environment in which it operates. The Group maintains core values of Honesty, Integrity, Hard Work, Service and Quality and actively promotes these values in all activities undertaken on behalf of the Group. Customers The Group treats all its customers with the utmost respect and seeks to be honest and fair in all relationships with them. The Group provides its customers with products and levels of customer service of outstanding quality. Suppliers and Subcontractors Relationships with suppliers and subcontractors are based on mutual respect, and the Group seeks to be honest and fair in its relationships with suppliers and subcontractors, and to honour the terms and conditions of its agreements in place with such suppliers and subcontractors. The Group does not believe that the giving or accepting of bribes is acceptable business conduct. Employees The Group recognises the value of its employees and that the success of the Group is due to their efforts. The Group respects the dignity and rights of all its employees. The Group provides clean, healthy and safe working conditions. An inclusive working environment and a culture of openness are maintained by the regular dissemination of information. The Group endeavours to provide equal opportunities for all employees and facilitates the development of employees’ skill sets. A fair remuneration policy is adopted throughout the Group. The Group does not tolerate any sexual, physical or mental harassment of its employees. The Group operates an equal opportunities policy and specifically prohibits discrimination on grounds of colour, ethnic origin, gender, age, religion, political or other opinion, disability or sexual orientation. The Group does not employ underage staff. Community The Group seeks to be a good corporate citizen respecting the laws of the countries in which it operates and adhering to best social practice where feasible. It aims to be sensitive to the local community’s cultural social and economic needs. Environment The Group recognises that the nature of its business has inherently limited impact on the environment. However, every effort is made to ensure the environmental impact of the Group’s operational practices is kept to a minimum, including strict adherence to all statutory requirements. To this end, a policy of minimising and recycling waste and conserving energy is pursued wherever it is viable to do so. Relations with Shareholders The Chief Executive Officer and Chief Finance Officer have, where appropriate, had regular dialogue with shareholders and analysts to discuss strategic and other issues including the Company’s financial results. The Company engages in full and open communication with both institutional and private investors and responds promptly to all queries received. In conjunction with the Company’s brokers and other financial advisers all relevant news is distributed in a timely fashion through appropriate channels to ensure shareholders are able to access material information on the Company’s progress. The Company’s website has a section for investors which contains all publicly available financial information and news on the Company. Going Concern The Directors, having made suitable enquiries and analysis of the accounts, consider that the Group has adequate resources to continue in business for the foreseeable future and that it is therefore appropriate to adopt the going concern basis in preparing financial statements. Craneware plc Annual Report 2010 16 Remuneration Committee Report This report sets out Craneware plc’s remuneration and benefits for the financial year under review. A resolution to approve the report will be proposed at the Annual General Meeting of the Company at which the financial statements will be presented for approval. Remuneration Committee The Company has a Remuneration Committee (“the Committee”) in accordance with the recommendations of the Combined Code. The members of the Committee are Ron Verni (Chairman), Neil Heywood and George Elliott. None of the Committee has any personal financial interests, other than as shareholders, in matters directly decided by this Committee, nor are there any conflicts of interests arising from cross directorships or day to day involvement in the running of the business. The Company’s Chief Executive Officer often attends meetings, at the invitation of the Committee, to advise on operational aspects of implementing existing and proposed policies. The Company Secretary acts as secretary to the Committee. Under the Committee chairman’s direction, the Chief Executive Officer and the Company Secretary have responsibility for ensuring the Committee has the information relevant to its deliberations. In formulating its policies, the Committee has access, as required, to professional advice from outside the Company and to publicly available reports and statistics. The remuneration of the non-executive Directors is determined by the Board as a whole within limits set out in the Articles of Association. Policy Executive remuneration packages are designed to attract, motivate and retain Directors of the calibre necessary to achieve the Group’s growth objectives and to reward them for enhancing shareholder value. The main elements of the remuneration package for Executive Directors and senior management are: ƒƒ Basic annual salary and benefits in kind; ƒƒ Annual performance related bonus; ƒƒ Pension entitlement; and, ƒƒ Share Option awards. The Company’s policy is that a substantial proportion of the remuneration of Executive Directors should be performance related. None of the Executive Directors hold any outside appointments. Directors remuneration In assessing all aspects of the package provided, the Committee compares packages offered by similar AIM listed companies. The Committee has designed the overall Director’s remuneration packages to ensure both the short and long term objectives of the Company are met and potentially exceeded and also that the Directors are incentivised to maximise return to the Company’s shareholders. The remuneration package comprises: (i) Basic Salary and pension entitlement This is normally reviewed annually, usually in September, or when an individual’s position or responsibilities change and is normally paid as a fixed cash sum monthly. In regards to pension entitlement, the Company pays a fixed sum to a personal pension plan on behalf of the Chief Executive Officer. (ii) Annual Performance Related Bonus Under the annual performance related bonus plan Executive Directors are eligible to earn a cash bonus payment based on targets that are set by the Committee. In determining these targets, the Committee’s objective is to set targets that reflect challenging financial performance in the current year, but also provide for the future growth of the Company, measures adopted relate to profitability, first year value and total contract value of new sales in the year. (iii) Share options The Company operates the Craneware Employees’ Share Option Plan 2007 (“Share Option Plan”) from which, and at the discretion of the Committee, Executive Directors and other employees (including senior management) may be awarded share options under this scheme. During the year, the Executive Directors were awarded share options under this scheme, details of which are shown in the table on page 19. These options are subject to performance criteria based on long term shareholder returns. O p e r a t i o n a l R e v i e w C h a i r m a n ' s S t a t e m e n t 7 - 9 6 D i r e c t o r s ' R e p o r t B o a r d o f D i r e c t o r s 1 1 - 1 3 1 0 C o r p o r a t e G o v e r n a n c e R e p o r t R e m u n e r a t i o n C o m m i t t e e R e p o r t 1 7 - 1 9 1 4 - 1 6 P r i m a r y A u d i t o r s R e p o r t F i n a n c i a l S t a t e m e n t s 2 1 - 2 5 2 0 N o t e s t o t h e F i n a n c i a l S t a t e m e n t s 2 6 - 4 2 Craneware plc Annual Report 2010 17 Remuneration Committee Report [Cont'd.] Service Contracts The Executive Directors and the Non-Executive Directors are employed under individual employment arrangements or letters of appointment where appropriate. Details of these service contracts are set out below. George Elliott was appointed Chairman for an initial term of three years commencing 10 August 2007, during the year the Board extended the term of his contract for a further three years. Executives KƒNeilson CƒTƒPreston Non-Executives GƒRƒElliott NƒPƒHeywood RƒVerni Contract Date Unexpired Term Normal Notice Period Founder 15ƒSeptemberƒ2008 Rolling Rolling 10ƒAugustƒ2007 11ƒJanuaryƒ2002ƒ 1ƒMayƒ2009 2ƒyearsƒƒ11ƒmonths Rollingƒ Rolling *3ƒmonths *3ƒmonths 1ƒmonth 1ƒmonth 1ƒmonth * The notice terms for Keith Neilson and Craig Preston are normally three months, however in the event of a change of control, these notice periods are automatically extended to twelve months. Directors' Interests The Directors' interests in the ordinary shares of the Company are set out in the Directors' Report on page 12. Directors' Emoluments For Directors who held office during the course of the year, emoluments for the year ending 30 June 2010 were as follows: Salary/Fees ($) Benefits ($) Bonus ($) Pension ($) 2010 Total ($) 2009 Total ($) Executives KƒNeilson CƒTƒPreston Non-Executives GƒRƒElliott NƒPƒHeywood RƒVerni Total 245,681 217,203 92,550 47,984 45,149 697 600 149,610 149,610 7,910 ƒ-ƒƒƒ 403,898 367,413 327,821 *274,586 ƒ-ƒƒƒ ƒ-ƒƒƒ ƒ-ƒƒƒ 7,855 4,219 4,480 ƒ-ƒƒƒ ƒ-ƒƒƒ ƒ-ƒƒƒ 100,405 52,203 49,629 973,548 87,772 42,292 **6,667 739,138 648,567 1,297 315,774 7,910 • Aggregate emoluments disclosed above do not include any amounts for the value of options to acquire ordinary shares in the Company held by the Directors. • Benefits represent payments for health insurance. • Accrued bonuses are included in the above and were approved by the Remuneration Committee. • With the exception of R Verni, all Directors are paid in UK Sterling; the amounts above are translated at the relevant average exchange rate for period being reported. *Appointed to the Board on 15 September 2008 ** Appointed to the Board on 1 May 2009 Craneware plc Annual Report 2010 18 Remuneration Committee Report Directors' interests in share options Directors' share options as at 30th June 2010 were, in respect of Directors who held office during the course of the year: Exercise Price (cents) Exercise Price (pence) Issue Date Held At 30/06/09 Granted During Year Exercised During Year Lapsed During Year Held At 30/06/10 K Neilson Ordinaryƒshares (“initialƒoptions”) Ordinaryƒshares C T Preston Ordinaryƒshares Ordinaryƒshares 1.991 534.0 365.0 534.0 1.0 Sep-07 20,000 - 335.0 Dec-09 - 42,870 208.0 335.0 Sep-08 Dec-09 72,115 - - 37,649 - - - - - - - - 20,000 42,870 72,115 37,649 Employee share options as at 30th June 2010 were: Exercise Price (cents) Exercise Price (pence) Issue Date Ordinaryƒshares 0.007 0.0033 May-06 Held At 30/06/09 18,000 1.0 Sep-07 910,300 Granted During Year - - - - - - - - 44,285 89,784 50,100 40,600 14,424 30,000 0.0033 187.0 211.0 212.0 343.0 335.0 Sep-07 May-08 Oct-08 Jan-09 Oct-09 Dec-09 Ordinaryƒshares (“initialƒoptions”) Ordinaryƒshares Ordinaryƒshares Ordinaryƒshares Ordinaryƒshares Ordinaryƒshares Ordinaryƒshares 1.991 0.007 369.0 355.3 310.0 542.0 534.0 On behalf of the Remuneration Committee: Ron Verni Chairman of the Remuneration Committee 3 September 2010 Exercised During Year (18,000) Lapsed During Year Held At 30/06/10 - - - (1,200) 909,100 (50,100) - - - - - - - - - 40,600 14,424 (30,000) - - - 44,285 89,784 Craneware plc Annual Report 2010 19 O p e r a t i o n a l R e v i e w C h a i r m a n ' s S t a t e m e n t 7 - 9 6 D i r e c t o r s ' R e p o r t B o a r d o f D i r e c t o r s 1 1 - 1 3 1 0 C o r p o r a t e G o v e r n a n c e R e p o r t R e m u n e r a t i o n C o m m i t t e e R e p o r t 1 7 - 1 9 1 4 - 1 6 P r i m a r y A u d i t o r s R e p o r t F i n a n c i a l S t a t e m e n t s 2 1 - 2 5 2 0 N o t e s t o t h e F i n a n c i a l S t a t e m e n t s 2 6 - 4 2 Independent Auditors' Report to the members of Craneware plc We have audited the Group and Parent Company financial statements (the ‘‘financial statements’’) of Craneware plc for the year ended 30 June 2010 which comprise the Consolidated Statement of Comprehensive Income, the Group and Company Statement of Changes in Equity, the Consolidated and Company Balance Sheets, the Group and Company Statements of Cash Flows and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006. Respective responsibilities of Directors and auditors As explained more fully in the Directors’ Responsibilities Statement set out on page 13, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s and parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. Opinion on financial statements In our opinion: ƒƒ the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 30 June 2010 and of the Group’s profit and Group’s and the Parent Company’s Cash Flows for the year then ended; ƒƒ the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; ƒƒ the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and ƒƒ the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matters prescribed by the Companies Act 2006 In our opinion the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: ƒƒ adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or ƒƒ the Parent Company financial statements are not in agreement with the accounting records and returns; or ƒƒ certain disclosures of Directors' remuneration specified by law are not made; or ƒƒ we have not received all the information and explanations we require for our audit Mark Hoskyns-Abrahall Senior Statutory Auditor for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Edinburgh 3 September 2010 Craneware plc Annual Report 2010 20 Consolidated Statement of Comprehensive Income for the year ended 30 June 2010 Revenue Costƒofƒsales Gross profit Netƒoperatingƒexpenses Operating profit Analysed as: Profitƒbeforeƒshare-basedƒpayments,ƒdepreciationƒandƒamortisation Share-basedƒpayments Depreciationƒofƒplantƒandƒequipment Amortisationƒofƒintangibleƒassets Financeƒincome Profit before taxation Taxƒchargeƒonƒprofitƒonƒordinaryƒactivites Profit for the year The results relate to continuing operations. The accompanying notes are an integral part of these financial statements. Earnings per share for the year attributable to equity holders -ƒBasicƒ($ƒperƒshare) -ƒDilutedƒ($ƒperƒshare) Notes 2010 $'000 2009 $'000 4 5 6 8 9 10 28,397 (2,553) 25,844 22,993 (1,381) 21,612 (18,781) (16,262) 7,063 5,350 7,622 (114) (192) (253) 195 7,258 (1,733) 5,525 5,812 (82) (204) (176) 520 5,870 (1,422) 4,448 Notes 12a 12b 2010 0.218 0.210 2009 0.177 0.170 O p e r a t i o n a l R e v i e w C h a i r m a n ' s S t a t e m e n t 7 - 9 6 D i r e c t o r s ' R e p o r t B o a r d o f D i r e c t o r s 1 1 - 1 3 1 0 C o r p o r a t e G o v e r n a n c e R e p o r t R e m u n e r a t i o n C o m m i t t e e R e p o r t 1 7 - 1 9 1 4 - 1 6 A u d i t o r s R e p o r t P r i m a r y F i n a n c i a l S t a t e m e n t s 2 1 - 2 5 2 0 N o t e s t o t h e F i n a n c i a l S t a t e m e n t s 2 6 - 4 2 Craneware plc Annual Report 2010 21 Statements of Changes in Equity for the year ended 30 June 2010 Notes Share Capital $'000 Share Premium Account $'000 Other Reserves $'000 Retained Earnings $'000 Group Atƒ1ƒJulyƒ2008 Share-basedƒpayments Losses Optionsƒexercised Retainedƒprofitƒforƒtheƒyear Dividends Atƒ30ƒJuneƒ2009 Share-basedƒpayments Optionsƒexercised Retainedƒprofitƒforƒtheƒyear Dividends At 30 June 2010 Company Atƒ1ƒJulyƒ2008 Share-basedƒpayments Optionsƒexercised Retainedƒprofitƒforƒtheƒyear Dividends Atƒ30ƒJuneƒ2009 Share-basedƒpayments Optionsƒexercised Retainedƒprofitƒforƒtheƒyear Dividends At 30 June 2010 509 9,253 ƒ-ƒ ƒ-ƒ 3 ƒ-ƒ ƒ-ƒ ƒ-ƒ ƒ-ƒ (3) ƒ-ƒ ƒ-ƒ 512 9,250 ƒ-ƒ ƒ-ƒ ƒ-ƒ - ƒ-ƒ ƒ-ƒ ƒ-ƒ ƒ-ƒ 3,041 82 ƒ-ƒ ƒ-ƒ ƒ-ƒ ƒ-ƒ 3,123 114 ƒ-ƒ ƒ-ƒ ƒ-ƒ Total $'000 16,099 293 (248) 3,296 211 (248) ƒ-ƒ ƒ-ƒ 4,448 4,448 (1,917) 5,790 730 ƒ-ƒ (1,917) 18,675 844 - 5,525 5,525 (2,992) (2,992) 512 9,250 3,237 9,053 22,052 509 9,253 ƒ-ƒ 3 ƒ-ƒ ƒ-ƒ ƒ-ƒ (3) ƒ-ƒ ƒ-ƒ 512 9,250 ƒ-ƒ ƒ-ƒ ƒ-ƒ ƒ-ƒ ƒ-ƒ ƒ-ƒ ƒ-ƒ ƒ-ƒ 2,195 31 ƒ-ƒ ƒ-ƒ ƒ-ƒ 2,226 52 ƒ-ƒ ƒ-ƒ ƒ-ƒ 2,191 14,148 38 ƒ-ƒ 69 ƒ-ƒ 4,117 4,117 (1,917) (1,917) 4,429 16,417 131 ƒ-ƒ 183 - 4,877 4,877 (2,992) (2,992) 512 9,250 2,278 6,445 18,485 11 11 11 11 The accompanying notes are an integral part of these financial statements. Other reserves relate to share-based payments and are detailed in Note 1 and these reserves are not available for distribution. Craneware plc Annual Report 2010 22 Consolidated Balance Sheet as at 30 June 2010 ASSETS Non-Current Assets Plantƒandƒequipment Intangibleƒassets Deferredƒtax Tradeƒandƒotherƒreceivables Current Assets Tradeƒandƒotherƒreceivables Cashƒandƒcashƒequivalents Total Assets EQUITY & LIABILITIES Non-Current Liabilities Deferredƒincome Current Liabilities Deferredƒincome Tradeƒandƒotherƒpayables Total Liabilities Equity Calledƒupƒshareƒcapital Shareƒpremiumƒaccount Otherƒreserves Retainedƒearnings Total Equity Total Equity and Liabilities Notes 2010 $'000 2009 $'000 13 14 17 16 16 20 281 1,474 1,521 - 345 1,206 718 25 3,276 2,294 8,596 29,442 38,038 41,314 5,187 26,169 31,356 33,650 218 218 124 124 13,660 10,964 21 5,384 3,887 19,044 14,851 19,262 14,975 18 512 9,250 3,237 9,053 512 9,250 3,123 5,790 22,052 18,675 41,314 33,650 The accompanying notes are an integral part of these financial statements. The financial statements on pages 21 to 42 were approved and authorised for issue by the board of Directors on 3 September 2010 and signed on its behalf by: Keith Neilson Director Craig Preston Director and Company Secretary O p e r a t i o n a l R e v i e w C h a i r m a n ' s S t a t e m e n t 7 - 9 6 D i r e c t o r s ' R e p o r t B o a r d o f D i r e c t o r s 1 1 - 1 3 1 0 C o r p o r a t e G o v e r n a n c e R e p o r t R e m u n e r a t i o n C o m m i t t e e R e p o r t 1 7 - 1 9 1 4 - 1 6 A u d i t o r s R e p o r t P r i m a r y F i n a n c i a l S t a t e m e n t s 2 1 - 2 5 2 0 N o t e s t o t h e F i n a n c i a l S t a t e m e n t s 2 6 - 4 2 Craneware plc Annual Report 2010 23 Company Balance Sheet as at 30 June 2010 ASSETS Non-Current Assets Investmentƒinƒsubsidiaryƒundertaking Plantƒandƒequipment Intangibleƒassets DeferredƒTax Tradeƒandƒotherƒreceivables Current Assets Tradeƒandƒotherƒreceivables Cashƒandƒcashƒequivalents Total Assets EQUITY & LIABILITIES Non-Current Liabilities Deferredƒincome Current Liabilities Deferredƒincome Tradeƒandƒotherƒpayables Total Liabilities Equity Calledƒupƒshareƒcapital Shareƒpremiumƒaccount Otherƒreserves Retainedƒearnings Total Equity Total Equity and Liabilities Notes 2010 $'000 2009 $'000 15 13 14 17 16 16 20 21 18 - 159 1,467 284 - - 250 1,198 157 25 1,910 1,630 7,670 28,213 35,883 37,793 4,584 23,959 28,543 30,173 218 218 124 124 13,660 5,430 19,090 19,308 512 9,250 2,278 6,445 18,485 37,793 10,964 2,668 13,632 13,756 512 9,250 2,226 4,429 16,417 30,173 The accompanying notes are an integral part of these financial statements. The financial statements on pages 21 to 42 were approved and authorised for issue by the board of Directors on 3 September 2010 and signed on its behalf by: Keith Neilson Director Craig Preston Director and Company Secretary Craneware plc Annual Report 2010 24 Statements of Cash Flows for the year ended 30 June 2010 Cash Flows from operating activities ƒCashƒgeneratedƒfromƒoperations ƒInterestƒreceived ƒTaxƒpaidƒ ƒNetƒcashƒfromƒoperatingƒactivities Cash Flows from investing activities ƒPurchaseƒofƒplantƒandƒequipment ƒCapitalisedƒintangibleƒassets ƒNetƒcashƒusedƒinƒinvestingƒactivities Cash Flows from financing activities ƒDividendsƒpaidƒtoƒcompanyƒshareholders ƒNetƒcashƒ(used)ƒinƒfinancingƒactivities Notes 19 Group Company 2010 $'000 2009 $'000 2010 $'000 2009 $'000 8,906 195 (2,188) 6,913 (127) (521) (648) 7,378 520 (202) 7,696 (134) (588) (722) 8,572 195 (966) 7,801 (37) (518) (555) 6,145 520 (464) 6,201 (78) (583) (661) 11 (2,992) (1,917) (2,992) (1,917) (2,992) (1,917) (2,992) (1,917) Net increase in cash and cash equivalents ƒCashƒandƒcashƒequivalentsƒatƒtheƒstartƒofƒtheƒyear 3,273 5,057 4,254 3,623 26,169 21,112 23,959 20,336 Cash and cash equivalents at the end of the year 29,442 26,169 28,213 23,959 The accompanying notes are an integral part of these financial statements. O p e r a t i o n a l R e v i e w C h a i r m a n ' s S t a t e m e n t 7 - 9 6 D i r e c t o r s ' R e p o r t B o a r d o f D i r e c t o r s 1 1 - 1 3 1 0 C o r p o r a t e G o v e r n a n c e R e p o r t R e m u n e r a t i o n C o m m i t t e e R e p o r t 1 7 - 1 9 1 4 - 1 6 A u d i t o r s R e p o r t P r i m a r y F i n a n c i a l S t a t e m e n t s 2 1 - 2 5 2 0 N o t e s t o t h e F i n a n c i a l S t a t e m e n t s 2 6 - 4 2 Craneware plc Annual Report 2010 25 Notes to the Financial Statements General Information Craneware plc (the Company) is a public limited company incorporated 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 45 of the annual report. 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 financial statements have been prepared under the historic cost convention. A summary of the more important accounting policies is 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 applicable. 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 undertaking are referred to in this report as the Group. ƒƒ1 ƒƒPrincipal accounting policies ƒ 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 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 $1.4961/£1 (2009: $1.6452/£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. New Standards, amendments and interpretations effective in the year IFRS 1, ‘First time adoption of IFRS’ and IAS 27, ‘Consolidated and separate financial statements’ (effective 1 July 2009*), an amendment to allow first-time adopters to use a deemed cost of either fair value or the carrying amount under previous accounting practice to measure initial cost of investment in subsidiaries, jointly controlled entities and associates in the separate financial statements. There is no impact on the Group financial statements of this amendment. IFRS 2, ‘Share-based payments’ (effective 1 January 2009*), amendment relating to vesting conditions and cancellations. The amendment provides additional clarification that only service and performance conditions are vesting conditions and therefore all other features are required to be included in the grant date fair value. There is no impact on the Group financial statements of this amendment. IFRS 3, ‘Business combinations’ and the consequential revisions to IAS 27, ‘Consolidated and separate financial statements’ (both effective 1 July 2009*), set out a comprehensive set of revisions on applying the acquisition method. However, there is no impact on the Group financial statements although any future acquisition costs will now be required to be expensed. IFRS 7, ‘Financial instruments: Disclosure’ (effective 1 January 2009*), an amendment requiring enhanced disclosures in respect of fair value measurement and reinforces existing principles about liquidity risk. In particular, the amendment requires that a maturity analysis of financial assets held for managing liquidity risk be given if it better serves the users of the financial statements. There is no material impact on the Group financial statements. IFRS 8, ‘Operating segments’ (effective 1 January 2009*), replaces IAS 14, ‘Segment reporting’. The new standard requires a ‘managed approach’, under which segment information is presented on the same basis as that used for internal reporting purposes. There is no impact on the Group financial statements at this time although this will be continually assessed by management as reportable operating segments will be subject to change based on amendments to internal reporting. IAS 1, ‘Presentation of financial statements’ (effective 1 January 2009*). a revision of the standard that prohibits the presentation of items of income and expense in the statement of recognised gains and losses. It requires entities to adopt either one performance statement (the statement of comprehensive income) or two statements (income statement in addition to the former). Owner changes in equity are show in a statement of changes in equity. The Group financial statements have reflected these requirements and there is no material impact on either results or presentation. IAS 23, ‘Borrowing costs’ (effective 1 January 2009*), is amended to remove the option to immediately expense borrowing costs that are directly attributable to a qualifying asset. This amendment does not have any impact on the financial statements as the Group has no borrowings. IAS 32, ‘Financial instruments: Presentation’ and IAS 1, ‘Presentation of financial statements on putable financial instruments and obligations arising on liquidation’ (effective 1 January 2009*). These amendments have no impact on the Group financial statements. IAS 39, ‘Financial instruments: Recognition and measurement’ (effective 1 July 2009*), to clarify two hedge accounting issues: inflation in a financial hedged item and one-sided risk in a hedged item. There no impact on the Group financial statements regarding this amendment. IFRIC 15, ‘Agreements for construction of real estates’ (effective 1 January 2009*), provides additional clarity in applying either ‘Revenue’ or ‘Construction contracts’ to specific contracts. This interpretation has no impact on the Group financial statements. IFRIC 17, ‘Distributions on non-cash assets to owners’ (effective 1 July 2009*), a clarification of recognition, measurement and disclosure. The interpretation has no impact on the Group financial statements. IFRIC 18, ‘Transfers of assets from customers’ (effective 1 July 2009*), a clarification of the accounting arrangements where an item of property, plant and equipment which is provided by the customer is used to provide an ongoing service. This interpretation has no impact on the Group financial statements. Craneware plc Annual Report 2010 26 Notes to the Financial Statements New Standards, amendments and interpretations not yet effective IFRS 2, ‘Share-based payments’ (effective 1 January 2010*), amendment relating to group cash-settled share based payment transactions. IFRS 9, ‘Financial instruments’ (effective 1 January 2013*). IFRS 9 is a work in progress and will eventually replace IAS 39 ‘Financial Instruments: Recognition and Measurement’ in its entirety. IAS 24, ‘Related party disclosures’ (effective 1 January 2011*), revision to simplify the definition of a related party and a partial exception for related party transactions with government-related entities. IAS 32, ‘Financial instruments: Presentation’ (effective 1 February 2010*) amendment relating to classification of rights issues. IFRIC 19, ‘Extinguishing financial liabilities with equity instruments’ (effective 1 July 2010*) a clarification of the requirements of IFRS when an entity renegotiates the terms of a financial liability with its creditors and the creditors accept the entities shares or equity instruments as full or partial settlement. Amendments resulting from the IASB’s annual improvement project. The Directors anticipate that the future adoption of these standards, amendments and interpretations (where relevant to the Group and subject to their endorsement by the EU) will have no material financial impact on the financial statements of the Group. None of the above standards, amendments or interpretations have been adopted early. *Effective for accounting periods starting on or after this date. Basis of consolidation The consolidated statement of comprehensive income and balance sheet include the accounts of the Parent Company and its subsidiary. Intra Group revenue and profits are eliminated on consolidation and all sales and profit figures relate to external transactions only. As permitted by Section 408(4) of the Companies Act 2006, the statement of comprehensive income of the Parent Company is not presented. Revenue Recognition The Group follows the principles of IAS 18, “Revenue Recognition”, in determining appropriate revenue recognition policies. In principle revenue is recognised to the extent that it is probable that the economic benefits associated with the transaction will flow into the Group. Revenue comprises the value of software license sales, professional services (included installation), support services and distribution agreements. Revenue is recognised when (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the sales price has been fixed and determinable; and (iv) collectability is reasonably assured. For software arrangements with multiple elements, revenue is recognised dependent on whether vendor- specific objective evidence (“VSOE”) of fair value exists for each of the elements. VSOE is determined by reference to sales to external customers made on a stand-alone basis. Where there is no VSOE revenue is recognised rateably over the full term of each contract. Revenue from standard license products which are not modified to meet the specific requirements of each customer is recognised when the risks and rewards of ownership of the product are transferred to the customer, which generally is over the period of the underlying contract. Revenue from professional services, including consulting, is recognised as the applicable services are provided, and from consulting engagements when all obligations under the consulting agreement have been fulfilled. Software and distribution agreement with third parties are recognised in accordance with the underlying contractual agreements. Where separate services are delivered, revenue is recognised on delivery of the service. The excess of amounts invoiced and future invoicing over revenue recognised is included in Deferred Income. If the amount of revenue recognised exceeds the amounts invoiced the excess amount is included within accounts receivable. Plant and Equipment All equipment and fixtures are stated at historical cost less depreciation. Depreciation is provided to write off the cost less estimated residual values of tangible fixed assets over their expected useful lives. It is calculated at the following rates: Computer equipment — 33% straight line Tenants improvements — 20% straight line — 25% straight line Office furniture Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains and losses on disposal of assets are included in operating profit. Repairs and maintenance are charged to the statement of comprehensive income during the financial year in which they are incurred. The cost of major renovations is included in the carrying amount of the assets when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Acquired Intangible Assets Computer software and licensed to-use technology are capitalised at cost and amortised on a straight- line basis over a prudent estimate of the time that the Group is expected to benefit from them, which is typically three to five years. Intangible Assets – Research and Development Expenditure Expenditure associated with developing and maintaining the Group's software products are recognised as incurred. Where, however, new product development projects are technically feasible, production and sale is intended, a market exists, expenditure can be measured reliably, and sufficient resources are available to complete such projects, development expenditure is capitalised until initial commercialisation of the product, and thereafter amortised on a straight-line basis over its estimated useful life. Staff costs and specific third party costs involved with the development of the software are included within amounts capitalised. Impairment Tests The Group considers whether there is any indication that non-current assets are impaired on an annual basis. If there is such an indication, the Group carries out an impairment test by measuring the assets' recoverable amount, which is the higher of the assets' fair value less costs to sell and their value in use. If the recoverable amount is less than the carrying amount an impairment loss is recognised. O p e r a t i o n a l R e v i e w C h a i r m a n ' s S t a t e m e n t 7 - 9 6 D i r e c t o r s ' R e p o r t B o a r d o f D i r e c t o r s 1 1 - 1 3 1 0 C o r p o r a t e G o v e r n a n c e R e p o r t R e m u n e r a t i o n C o m m i t t e e R e p o r t 1 7 - 1 9 1 4 - 1 6 A u d i t o r s R e p o r t P r i m a r y F i n a n c i a l S t a t e m e n t s 2 1 - 2 5 2 0 N o t e s t o t h e F i n a n c i a l S t a t e m e n t s 2 6 - 4 2 Craneware plc Annual Report 2010 27 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. Employee Benefits The Group operates a defined contribution Stakeholder Pension Scheme as described in Section 3 of Welfare Reform and Pensions Act 1999. Private medical insurance is also offered to every employee. Amounts payable in respect to these benefits are charged to the Statement of Comprehensive Income as they fall due. 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. The share-based payments charge is included in net operating expenses and is also included in ‘Other reserves'. Dividends Dividends are recorded in the accounts in the year in which they are approved by the shareholders. Interim dividends are recognised as a distribution when paid. Notes to the Financial Statements [Cont'd.] 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. Investments in subsidiary The investment in subsidiary is stated at cost less any provision for impairment. Operating leases The costs of operating leases are charged on a straight line basis over the duration of the leases in arriving at operating profit. Financial assets The Group classifies its financial assets in the following categories: (i) at fair value through profit and loss, (ii) loans and receivables and (iii) available for sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. At each balance sheet date included in the financial information, the Group held only items classified as loans and receivables. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. Loans and receivables are classified as ‘trade and other receivables' in the balance sheet. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairments. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 90 days overdue) are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of the estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the statement of comprehensive income within ‘net operating expenses’. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against net operating expenses in the statement of comprehensive income. Financial liabilities The only financial liability held by the Group at each balance sheet date included in the financial information is trade payables. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. Craneware plc Annual Report 2010 28 Notes to the Financial Statements ƒ2ƒƒCritical accounting estimates ƒ and judgements The preparation of financial statements in accordance with generally accepted accounting principles 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:- ƒƒ 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. ƒƒ 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. ƒƒ Capitalisation of development expenditure:- the Group capitalises development costs provided the conditions have been met. Consequently the Directors require to continually assess the commercial potential of each product in development and its useful life following launch. ƒƒ 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. ƒƒ 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. ƒ3ƒƒFinancial risk management ƒ Financial risk factors The Group's activities expose it to a variety of financial risks: market risk (primarily currency risk and cash flow interest rate risk), credit risk and liquidity risk. Risk management is carried out under policies approved by the Board of Directors. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk and credit risk. (a)ƒMarketƒrisk (i) Foreign exchange risk Foreign exchange risk arises when commercial transactions or recognised assets or liabilities are denominated in a currency that is not the entity’s functional currency. The Group operates primarily in the US however a significant proportion of costs are incurred in Sterling. Management are therefore required to continually assess the Group’s foreign exchange risk against the Group’s functional currency, and whether any form of hedge should be entered into. The Group’s policy has not been to enter into hedging arrangements, although the Board continues to assess the appropriateness of this approach. The Directors believe that a 10% change in the value of Sterling relative to the Dollar would impact pre-tax profits by approximately $675,000 as a result of foreign exchange gains/losses on Sterling denominated transactions and the translation of Sterling denominated current liabilities. (ii) Cash flow and interest rate risk The Group has no significant interest-bearing assets or liabilities, other than cash held on deposit at variable rates. The Directors believe that a 25 basis point move in interest rates would, with all variables held constant, alter post-tax profit for the year in the region of $60,000 higher/lower respectively. (b)ƒCreditƒrisk Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents and trade receivables. In order to minimise the Group's exposure to risk, all cash deposits are placed with reputable banks and financial institutions. The Group's exposure to trade receivables is reduced due to contractual terms which require installation, training, annual licensing and support fees, to be invoiced annually in advance. (c)ƒLiquidityƒrisk Management review the liquidity position of the Group to ensure that sufficient cash is available to meet the underlying needs of the Group as they fall due for payment. The table below analyses the Group's financial liabilities which will be settled on a net basis into relevant maturity grouping based on the remaining period from the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. There is no difference between the undiscounted liabilities and the amounts shown in Note 21 as the Group's financial liabilities are all short term in nature. Capital risk management The Group is cash generative and trading is funded internally. As a result, management do not consider capital risk to be significant for the Group. Contracts are normally billed annually in advance. Assuming timely receivables collection, the Group will have favourable movements from working capital by generating cash ahead of revenue recognition. Consequently funds are retained in the business to finance future growth, either organically or by acquisition. ƒ4ƒƒRevenue ƒ The Chief Operating Decision Maker has been identified as the Board of Directors. The Group revenue is derived entirely from the sale, supply, installation and ongoing support of software products to hospitals within the United States of America. Consequently the Board have 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. Atƒ30ƒJuneƒ2009 Less than 1 year $'000 Between 1 & 2 years $'000 Between 2 & 5 years $'000 TradeƒPayables At 30 June 2010 Trade Payables 551 588 ƒ-ƒƒƒ - ƒ-ƒƒƒ - Over 5 years $'000 ƒ-ƒƒƒ - Total $'000 551 588 Craneware plc Annual Report 2010 29 O p e r a t i o n a l R e v i e w C h a i r m a n ' s S t a t e m e n t 7 - 9 6 D i r e c t o r s ' R e p o r t B o a r d o f D i r e c t o r s 1 1 - 1 3 1 0 C o r p o r a t e G o v e r n a n c e R e p o r t R e m u n e r a t i o n C o m m i t t e e R e p o r t 1 7 - 1 9 1 4 - 1 6 A u d i t o r s R e p o r t P r i m a r y F i n a n c i a l S t a t e m e n t s 2 1 - 2 5 2 0 N o t e s t o t h e F i n a n c i a l S t a t e m e n t s 2 6 - 4 2 Notes to the Financial Statements [Cont'd.] ƒ5ƒƒNet operating expenses ƒ Net operating expenses are comprised of the following:- Salesƒandƒmarketingƒexpenses ClientƒServicing Researchƒandƒdevelopment Administrativeƒexpenses Share-basedƒpayments Depreciationƒofƒplantƒandƒequipment Amortisationƒofƒintangibleƒassets Exchangeƒ(gain)/loss Net operating expenses ƒ6ƒƒOperating profit ƒ The following items have been included in arriving at operating profit:- Staffƒcosts Depreciationƒofƒplantƒandƒequipment Amortisationƒofƒintangibleƒassets Impairmentƒofƒtradeƒreceivables Purchasedƒlicencesƒexpensed Operatingƒleaseƒrentsƒforƒpremises Notes 7 Services provided by the Group's auditor During the year the Group obtained the following services from the Group's auditors as detailed below:- Statutoryƒauditƒ-ƒGroup Taxƒcomplianceƒandƒotherƒtaxƒservices Employeeƒincentiveƒadvice Otherƒassuranceƒservices ƒ7ƒƒStaff costs ƒ The average number of persons employed by the Group during the year, excluding Non-Executive Directors, is analysed below:- Salesƒandƒdistribution ClientƒServicing Researchƒandƒdevelopment Administration Employment costs of all employees excluding Non-Executive Directors:- Wagesƒandƒsalaries Socialƒsecurityƒcosts Postƒemploymentƒbenefits Share-basedƒpaymentsƒ Total direct costs of employment Highestƒpaidƒdirector:- Salaryƒandƒshort-termƒemployeeƒbenefits Postƒemploymentƒbenefits Share-basedƒpayments 2010 $'000 7,102 4,037 3,785 3,314 114 192 253 (16) 2009 $'000 6,110 4,017 2,960 2,662 82 204 176 51 18,781 16,262 2010 $'000 12,196 192 253 202 957 263 2010 $'000 64 54 3 3 124 2010 Number 33 41 39 18 131 2010 $'000 10,952 1,114 16 114 12,196 396 8 6 410 2009 $'000 10,247 204 176 247 233 232 2009 $'000 60 59 ƒ- 4 123 2009 Number 26 40 35 16 117 2009 $'000 9,211 929 25 82 10,247 320 8 3 331 Director’s emoluments are detailed in the Remuneration Committee Report on page 18 and key management compensation is given in the Related Party Transaction note on page 42. Retirement benefits are accruing to one of the Executive Directors under a defined contribution scheme (2009: 1). Craneware plc Annual Report 2010 30 Notes to the Financial Statements ƒ8ƒƒShare-based payments ƒ The Group has an equity-settled share-based payment scheme, whereby options over shares in Craneware plc can be granted to employees and Directors. A charge is shown in the Statement of Comprehensive Income $113,589 (2009: $81,847) as detailed in Note 7. Options issued under the 2006 Share Options Plan over Ordinary shares and Incentive shares were granted at par and have been adjusted to reflect the 299 for 1 share split. Options over Ordinary shares vested on admission to AIM on 13 September 2007 and became fully exercisable on that date, whilst options over Incentive shares lapsed at this event. Outstanding options lapse upon leaving employment or if not exercised within 10 years from the date of grant. Directors and employees interests in share options are set out in the Remuneration Committee Report on page 19. The market value of share options exercised during the year ranged from $5.34 (£3.56) to $5.93 (£4.11). The market value at 30 June 2010 was $5.98 (£4.00). Under the 2007 Share Options Plan, options over a maximum of 1,400,000 ordinary shares (“initial options”) were granted on 14 September 2007 shortly after admission to AIM with an exercise price of $0.02 (£0.01) per share. These options are subject to performance targets, will not normally vest until 1 October 2010, and will lapse upon leaving employment or 30 April 2011. Other options over ordinary shares under the 2007 Share Options Plan may be granted with an exercise price no less than the market value of the Ordinary shares on the date of grant, and in the case of the Directors of the Company will be granted subject to sufficiently stretching performance targets. These options will be subject to time based vesting and will not normally be exercisable before the third anniversary of grant. Such options will lapse on the tenth anniversary of grant. The fair value of options granted was estimated on the date of grant using the Black-Scholes option pricing model as appropriately adjusted. The Company estimates the number of options likely to vest by reference to the Group’s staff retention rate, and expenses the fair value over the relevant vesting period. A sufficiently long trading history of the Companies own share price, dating from IPO to date of grant, results in an actual volatility calculation for all grants from December 2010. Prior to this date volatility had to be estimated by reference to similar companies whose shares are traded on a recognised stock exchange. The assumptions for each option grant were as follows: Date of Grant 22-Dec-09 14-Oct-09 05-Jan-09 21-Oct-08 08-Sep-08 02-May-08 14-Sep-07 13-Sep-07 Options over Ordinary shares Shareƒpriceƒatƒdateƒofƒgrant $5.34 $5.42 $3.10 $3.55 $3.65 Shareƒpriceƒatƒdateƒofƒgrant £3.35 £3.43 £2.12 £2.11 £2.08 Vestingƒperiodƒ(years) Expectedƒvolatility Riskƒfreeƒrate Dividendƒyield Exerciseƒprice Exerciseƒprice Numberƒofƒemployees Sharesƒunderƒoption Fairƒvalueƒperƒoption $3.69 £1.87 3.00 40% $2.60 £1.28 3.04 40% $2.60 £1.28 0.00 40% 3.00 23% 3.00 40% 3.00 40% 3.00 40% 3.00 40% 1.96% 1.86% 2.10% 3.82% 4.41% 5.00% 5.75% 5.75% 1.50% 1.4% 1.5% 1.5% 1.5% $5.34 $5.42 $3.10 $3.55 $3.65 £3.35 £3.43 £2.12 £2.11 £2.08 1% $3.69 £1.87 1% 1% $0.02 0.007¢ £0.01 0.0033p 10 1 1 1 1 1 84 1 170,303 44,285 30,000 14,424 72,115 40,600 1,400,000 50,100 $1.34 $1.37 $0.85 $1.01 $1.67 $1.11 $0.95 $2.60 Craneware plc Annual Report 2010 31 O p e r a t i o n a l R e v i e w C h a i r m a n ' s S t a t e m e n t 7 - 9 6 D i r e c t o r s ' R e p o r t B o a r d o f D i r e c t o r s 1 1 - 1 3 1 0 C o r p o r a t e G o v e r n a n c e R e p o r t R e m u n e r a t i o n C o m m i t t e e R e p o r t 1 7 - 1 9 1 4 - 1 6 A u d i t o r s R e p o r t P r i m a r y F i n a n c i a l S t a t e m e n t s 2 1 - 2 5 2 0 N o t e s t o t h e F i n a n c i a l S t a t e m e n t s 2 6 - 4 2 Notes to the Financial Statements [Cont'd.] ƒ8ƒƒShare-based payments (continued) ƒ The following options have been granted over Ordinary shares: 2006 Share Option Plan:- Ordinary share options (0.0033p exercise price) Outstandingƒatƒ1ƒJuly Granted Forfeited Exercised Outstanding at 30 June 2007 Share Option Plan:- Initial options of ordinary shares (£0.01 exercise price) Outstandingƒatƒ1ƒJuly Granted Forfeited Exercised Outstanding at 30 June Ordinary share options (£1.87 exercise price) Outstandingƒatƒ1ƒJuly Granted Forfeited Outstanding at 30 June Ordinary share options (£2.08 exercise price) Outstandingƒatƒ1ƒJuly Granted Forfeited Outstanding at 30 June Ordinary share options (£2.11 exercise price) Outstandingƒatƒ1ƒJuly Granted Forfeited Outstanding at 30 June Ordinary share options (£2.12 exercise price) Outstandingƒatƒ1ƒJuly Granted Forfeited Outstanding at 30 June Ordinary share options (£3.43 exercise price) Outstandingƒatƒ1ƒJuly Granted Forfeited Outstanding at 30 June Ordinary share options (£3.35 exercise price) Outstandingƒatƒ1ƒJuly Granted Forfeited Outstanding at 30 June Craneware plc Annual Report 2010 32 2010 Options Number 2009 Options Number 68,100 255,900 - - (68,100) - ƒ- ƒ- (187,800) 68,100 930,300 1,158,800 - (1,200) - 929,100 40,600 - - 40,600 72,115 - - 72,115 14,424 - - 14,424 30,000 - (30,000) - - 44,285 - 44,285 - 170,303 - 170,303 ƒ- (228,500) - 930,300 40,600 ƒ- ƒ- 40,600 ƒ- 72,115 ƒ- 72,115 ƒ- 14,424 ƒ- 14,424 ƒ- 30,000 ƒ- 30,000 ƒ- ƒ- ƒ- ƒ- ƒ- ƒ- ƒ- ƒ- Notes to the Financial Statements ƒ9ƒƒFinance Income ƒ Depositƒinterestƒreceivable Otherƒinterestƒreceivable Total interest receivable ƒƒ10ƒƒTax on profit on ordinary activities ƒ Profitƒonƒordinaryƒactivitiesƒbeforeƒtaxƒ Current tax Corporationƒtaxƒonƒprofitsƒofƒtheƒperiod Foreignƒexchangeƒonƒtaxationƒinƒtheƒyear Adjustmentsƒforƒpriorƒyears Totalƒcurrentƒtaxƒcharge Deferred tax Originationƒ&ƒreversalƒofƒtimingƒdifferences Adjustmentsƒforƒpriorƒperiods Totalƒdeferredƒtaxƒ(credit)/charge Tax on profit on ordinary activities 2010 $'000 195 - 195 2010 $'000 7,258 2,005 58 (257) 1,806 (73) - (73) 1,733 2009 $'000 472 48 520 2009 $'000 5,870 1,620 24 (543) 1,101 122 199 321 1,422 Theƒdifferenceƒbetweenƒtheƒcurrentƒtaxƒchargeƒonƒordinaryƒactivitiesƒforƒtheƒyear,ƒreportedƒinƒtheƒconsolidatedƒstatementƒofƒ comprehensiveƒincome,ƒandƒtheƒcurrentƒtaxƒchargeƒthatƒwouldƒresultƒfromƒapplyingƒaƒrelevantƒstandardƒrateƒofƒtaxƒtoƒtheƒprofitƒonƒ ordinaryƒactivitiesƒbeforeƒtax,ƒisƒexplainedƒasƒfollows:ƒ ProfitƒonƒordinaryƒactivitiesƒatƒtheƒUKƒtaxƒrateƒ28%ƒ(2009:ƒ28%) Effectsƒof Adjustmentƒinƒrespectƒofƒpriorƒyears 2,032 1,644 ƒ Currentƒtax Deferredƒtax ƒ Stateƒtax AdditionalƒUSƒtaxƒonƒprofitƒ34%ƒ(2009:ƒ34%) Foreignƒexchange Expensesƒnotƒdeductibleƒforƒtaxƒpurposes Taxƒdeductionƒonƒshareƒplanƒcharges Total tax charge ƒƒ11ƒƒDividends ƒ The dividends paid during the year were as follows:- Finalƒdividend,ƒreƒ30ƒJuneƒ2009ƒ–ƒ4.76ƒcentsƒ(2.9ƒpence)/share Interimƒdividend,ƒreƒ30ƒJuneƒ2010ƒ–ƒ7.05ƒcentsƒ(4.7ƒpence)/share Total dividends paid to company shareholders in the year (257) - 49 59 (33) (1) (116) 1,733 2010 $'000 1,220 1,772 2,992 (543) 199 43 51 24 17 (13) 1,422 2009 $'000 1,172 745 1,917 TheƒproposedƒfinalƒdividendƒisƒsubjectƒtoƒapprovalƒbyƒtheƒshareholdersƒatƒtheƒAnnualƒGeneralƒMeetingƒandƒhasƒnotƒbeenƒincludedƒasƒaƒ liabilityƒinƒtheseƒaccounts.ƒ Craneware plc Annual Report 2010 33 O p e r a t i o n a l R e v i e w C h a i r m a n ' s S t a t e m e n t 7 - 9 6 D i r e c t o r s ' R e p o r t B o a r d o f D i r e c t o r s 1 1 - 1 3 1 0 C o r p o r a t e G o v e r n a n c e R e p o r t R e m u n e r a t i o n C o m m i t t e e R e p o r t 1 7 - 1 9 1 4 - 1 6 A u d i t o r s R e p o r t P r i m a r y F i n a n c i a l S t a t e m e n t s 2 1 - 2 5 2 0 N o t e s t o t h e F i n a n c i a l S t a t e m e n t s 2 6 - 4 2 Notes to the Financial Statements [Cont'd.] ƒƒ12ƒƒEarnings per share ƒ (a) Basic BasicƒearningsƒperƒshareƒisƒcalculatedƒbyƒdividingƒtheƒprofitƒattributableƒtoƒequityƒholdersƒofƒtheƒCompanyƒbyƒtheƒweightedƒaverageƒ numberƒofƒsharesƒinƒissueƒduringƒtheƒyear.ƒ ProfitƒattributableƒtoƒequityƒholdersƒofƒtheƒCompanyƒ($’000) Weightedƒaverageƒnumberƒofƒordinaryƒsharesƒinƒissueƒ(thousands) Basic earnings per share ($ per share) (b) Diluted 2010 5,525 25,315 0.218 2009 4,448 25,187 0.177 Forƒdilutedƒearningsƒperƒshare,ƒtheƒweightedƒaverageƒnumberƒofƒordinaryƒsharesƒcalculatedƒaboveƒisƒadjustedƒtoƒassumeƒconversionƒofƒallƒ dilutiveƒpotentialƒordinaryƒshares.ƒƒTheƒGroupƒhasƒoneƒcategoryƒofƒdilutiveƒpotentialƒordinaryƒshares,ƒbeingƒthoseƒshareƒoptionsƒgrantedƒ toƒDirectorsƒandƒemployeesƒunderƒtheƒshareƒoptionƒschemeƒ(Noteƒ8). ProfitƒattributableƒtoƒequityƒholdersƒofƒtheƒCompanyƒ($'000) Weightedƒaverageƒnumberƒofƒordinaryƒsharesƒinƒissueƒ('000) AdjustmentƒforƒShareƒoptionsƒ('000) Weightedƒaverageƒnumberƒofƒordinaryƒsharesƒforƒdiluted earningsƒperƒshareƒ('000) Diluted earnings per share ($ per share) 2010 5,525 25,315 1,005 26,320 0.210 2009 4,448 25,187 1,007 26,194 0.170 Craneware plc Annual Report 2010 34 Notes to the Financial Statements ƒƒ13ƒƒPlant and equipment ƒ Group Cost Atƒ1ƒJulyƒ2009 Additions Atƒ30ƒJuneƒ2010 Depreciation Atƒ1ƒJulyƒ2009 Chargeƒforƒyear Atƒ30ƒJuneƒ2010 Net book value at 30 June 2010 Cost Atƒ1ƒJulyƒ2008 Additions Atƒ30ƒJuneƒ2009 Depreciation Atƒ1ƒJulyƒ2008 Chargeƒforƒtheƒyear Atƒ30ƒJuneƒ2009 Netƒbookƒvalueƒatƒ30ƒJuneƒ2009 Company Cost Atƒ1ƒJulyƒ2009 Additions Atƒ30ƒJuneƒ2010 Depreciation Atƒ1ƒJulyƒ2009 Chargeƒforƒyear Atƒ30ƒJuneƒ2010 Net book value at 30 June 2010 Cost Atƒ1ƒJulyƒ2008 Additions Atƒ30ƒJuneƒ2009 Depreciation Atƒ1ƒJulyƒ2008 Chargeƒforƒyear Atƒ30ƒJuneƒ2009 Netƒbookƒvalueƒatƒ30ƒJuneƒ2009 Computer Equipment $'000 Office Furniture $'000 Tenants Improvements $'000 709 95 804 570 95 665 139 611 98 709 464 106 570 139 413 34 447 350 45 395 52 370 43 413 292 58 350 63 265 22 287 185 46 231 56 239 26 265 138 48 186 79 198 - 198 137 34 171 27 173 25 198 103 35 138 60 333 10 343 206 51 257 86 323 10 333 156 50 206 127 333 3 336 206 50 256 80 323 10 333 156 50 206 127 O p e r a t i o n a l R e v i e w C h a i r m a n ' s S t a t e m e n t 7 - 9 6 D i r e c t o r s ' R e p o r t B o a r d o f D i r e c t o r s 1 1 - 1 3 1 0 C o r p o r a t e G o v e r n a n c e R e p o r t R e m u n e r a t i o n C o m m i t t e e R e p o r t 1 7 - 1 9 1 4 - 1 6 A u d i t o r s R e p o r t P r i m a r y F i n a n c i a l S t a t e m e n t s 2 1 - 2 5 2 0 N o t e s t o t h e F i n a n c i a l S t a t e m e n t s 2 6 - 4 2 Total $'000 1,307 127 1,434 961 192 1,153 281 1173 134 1,307 758 204 962 345 944 37 981 693 129 822 159 866 78 944 551 143 694 250 Craneware plc Annual Report 2010 35 Notes to the Financial Statements [Cont'd.] ƒƒ14ƒƒIntangible assets ƒ ƒ Researchƒ&ƒDevelopment,ƒplusƒcomputerƒsoftware:- In Process R & D $'000 Group Computer Software $'000 Total $'000 In Process R & D $'000 Company Computer Software $'000 Cost Atƒ1ƒJulyƒ2009 Additions Atƒ30ƒJuneƒ2010 Amortisation Atƒ1ƒJulyƒ2009 Chargeƒforƒtheƒyear Atƒ30ƒJuneƒ2010 1,886 499 2,385 725 219 944 NBV at 30 June 2010 1,441 Cost Atƒ1ƒJulyƒ2008 Additions Atƒ30ƒJuneƒ2009 Amortisation Atƒ1ƒJulyƒ2008 Chargeƒforƒtheƒyear Atƒ30ƒJuneƒ2009 NBVƒatƒ30ƒJuneƒ2009 1,317 569 1,886 599 126 725 1,161 271 22 293 226 34 260 33 252 19 271 176 50 226 45 2,157 521 2,678 951 253 1,204 1,474 1,569 588 2,157 775 176 951 1,886 499 2,385 725 219 944 1,441 1,317 569 1,886 599 126 725 1,206 1,161 208 19 227 172 29 201 26 194 14 208 127 44 171 37 Total $'000 2,094 518 2,612 897 248 1,145 1,467 1,511 583 2,094 726 170 896 1,198 ƒƒ15ƒƒInvestment in subsidiary undertaking ƒ ƒ Theƒfollowingƒinformationƒrelatesƒtoƒtheƒsubsidiaryƒwhich,ƒinƒtheƒopinionƒofƒtheƒDirectors,ƒprincipallyƒaffectedƒtheƒprofitsƒorƒassetsƒofƒtheƒ Group:- NameƒofƒCompany ClassƒofƒSharesƒheld ProportionƒofƒNominalƒValueƒofƒIssuedƒ SharesƒheldƒbyƒCranewareƒplc CranewareƒInc. Ordinary 100% NatureƒofƒBusiness Salesƒ&ƒMarketing TheƒaboveƒCompanyƒisƒincorporatedƒinƒtheƒUnitedƒStatesƒofƒAmericaƒandƒCranewareƒplcƒholdƒ10,000ƒ(2009:ƒ10,000)ƒcommonƒsharesƒwithƒ aƒnominalƒvalueƒofƒ$0.01ƒeach.ƒTheƒresultsƒofƒtheƒSubsidiaryƒCompanyƒhaveƒbeenƒincludedƒinƒtheƒconsolidatedƒfinancialƒstatements. Craneware plc Annual Report 2010 36 Notes to the Financial Statements ƒƒ16ƒƒTrade and other receivables ƒ Tradeƒreceivables less:ƒprovisionƒforƒimpairmentƒofƒtradeƒreceivables Netƒtradeƒreceivables Otherƒreceivables Prepaymentsƒandƒaccruedƒincome Lessƒnon-currentƒtradeƒreceivables Current portion Group Company 2010 $'000 7,507 (445) 7,062 288 1,246 8,596 - 8,596 2009 $'000 4,371 (322) 4,049 84 1,079 5,212 (25) 5,187 2010 $'000 7,507 (445) 7,062 58 550 7,670 - 7,670 2009 $'000 4,371 (322) 4,049 34 526 4,609 (25) 4,584 Thereƒisƒnoƒmaterialƒdifferenceƒbetweenƒtheƒfairƒvalueƒofƒtradeƒandƒotherƒreceivablesƒandƒtheƒbookƒvalueƒstatedƒabove. Asƒatƒ30ƒJuneƒ2010,ƒtradeƒreceivablesƒofƒ$538,666ƒ(2009:ƒ$300,919)ƒwereƒpastƒdueƒandƒthereforeƒdeemedƒtoƒbeƒimpaired.ƒTheƒamountƒ ofƒtheƒprovisionƒagainstƒtheseƒreceivablesƒwasƒ$437,337ƒasƒofƒ30ƒJuneƒ2010ƒ(2009:ƒ$275,119).ƒTheƒindividuallyƒimpairedƒreceivablesƒ mainlyƒrelateƒtoƒcustomers’ƒfinancialƒdifficultiesƒandƒunresolvedƒdisputes.ƒItƒwasƒassessedƒaƒportionƒofƒtheƒreceivablesƒisƒexpectedƒtoƒbeƒ recovered. Theƒageingƒofƒtheseƒreceivablesƒisƒasƒfollows:- Lessƒthanƒ30ƒdaysƒpastƒdue 30ƒ–ƒ60ƒdaysƒpastƒdue 61ƒ–ƒ90ƒdaysƒpastƒdue 91+ƒdaysƒpastƒdue 2010 $'000 - 1 31 507 539 2009 $'000 26 - 16 259 301 O p e r a t i o n a l R e v i e w C h a i r m a n ' s S t a t e m e n t 7 - 9 6 D i r e c t o r s ' R e p o r t B o a r d o f D i r e c t o r s 1 1 - 1 3 1 0 C o r p o r a t e G o v e r n a n c e R e p o r t R e m u n e r a t i o n C o m m i t t e e R e p o r t 1 7 - 1 9 1 4 - 1 6 A u d i t o r s R e p o r t P r i m a r y F i n a n c i a l S t a t e m e n t s 2 1 - 2 5 2 0 N o t e s t o t h e F i n a n c i a l S t a t e m e n t s 2 6 - 4 2 Craneware plc Annual Report 2010 37 Notes to the Financial Statements [Cont'd.] ƒƒ16ƒƒTrade and other receivables (continued) ƒ Asƒatƒ30ƒJuneƒ2010,ƒtradeƒreceivablesƒofƒ$1,576,109ƒ(2009:ƒ$860,989)ƒwereƒpastƒdueƒbutƒnotƒimpaired.ƒTheseƒrelateƒtoƒaƒnumberƒofƒ customersƒforƒwhomƒthereƒisƒnoƒrecentƒhistoryƒofƒdefault.ƒ Theƒageingƒanalysisƒofƒtheseƒtradeƒreceivablesƒisƒasƒfollows:- Lessƒthanƒ30ƒdaysƒpastƒdue 31ƒ–ƒ60ƒdaysƒpastƒdue 61ƒ–ƒ90ƒdaysƒpastƒdue 91ƒ+ƒdaysƒpastƒdue 2010 $'000 731 467 119 259 1,576 2009 $'000 581 106 83 91 861 Asƒatƒ30ƒJuneƒ2010,ƒtradeƒreceivablesƒofƒ$5,384,874ƒ(2009:ƒ$3,162,080)ƒwereƒnotƒpastƒdueƒorƒimpaired,ƒandƒtheƒGroupƒdoesƒnotƒanticipateƒ collectionƒissues.ƒAƒfurtherƒ$7,500ƒ(2009:ƒ$46,861)ƒwasƒnotƒpastƒdueƒbutƒdeemedƒtoƒbeƒimpairedƒdueƒtoƒaƒclientƒinƒfinancialƒdifficulty. Movementƒonƒtheƒprovisionƒforƒimpairmentƒofƒtradeƒreceivablesƒisƒasƒfollows: Atƒ1ƒJuly Provisionƒforƒreceivablesƒimpairmentƒonƒrevenueƒrecognised Receivablesƒwrittenƒoffƒduringƒyearƒasƒuncollectable Unusedƒamountsƒreversed At 30 June 2010 $'000 322 269 (79) (67) 445 2009 $'000 196 305 (122) (57) 322 Theƒcreationƒandƒreleaseƒofƒprovisionƒforƒimpairedƒreceivablesƒhasƒbeenƒincludedƒinƒnetƒoperatingƒexpensesƒinƒtheƒincomeƒstatement.ƒ Amountsƒchargedƒtoƒtheƒallowanceƒaccountƒareƒgenerallyƒwrittenƒoffƒwhenƒthereƒisƒnoƒexpectationƒofƒrecoveringƒadditionalƒcash. Theƒotherƒclassesƒwithinƒtradeƒandƒotherƒreceivablesƒdoƒnotƒcontainƒimpairedƒassets. Theƒmaximumƒexposureƒtoƒcreditƒriskƒatƒtheƒreportingƒdateƒisƒtheƒfairƒvalueƒofƒeachƒclassƒofƒreceivableƒmentionedƒabove.ƒTheƒGroupƒ doesƒnotƒholdƒanyƒcollateralƒasƒsecurity. Craneware plc Annual Report 2010 38 Notes to the Financial Statements ƒƒ17ƒƒDeferred taxation ƒ ƒ Deferredƒtaxƒisƒcalculatedƒinƒfullƒonƒtheƒtemporaryƒdifferencesƒunderƒtheƒliabilityƒmethodƒusingƒaƒrateƒofƒtaxƒofƒ28%ƒ(2009:ƒ28%)ƒinƒtheƒUKƒ andƒ39%ƒ(2009:ƒ39%)ƒinƒtheƒUSƒincludingƒaƒprovisionƒforƒstateƒtaxes.ƒ Theƒmovementƒonƒtheƒdeferredƒtaxƒaccountƒisƒshownƒbelow:-ƒ Atƒ1ƒJulyƒ Creditƒ/(charge)ƒtoƒcomprehensiveƒincome Transferƒdirectƒtoƒequity At 30 June Group 2010 $'000 718 73 730 1,521 2009 $'000 1,075 (321) (36) 718 Company 2010 $'000 157 (4) 131 284 2009 $'000 281 (162) 38 157 Theƒmovementsƒinƒdeferredƒtaxƒassetsƒandƒliabilitiesƒduringƒtheƒyearƒareƒshownƒbelow.ƒƒDeferredƒtaxƒassetsƒandƒliabilitiesƒareƒonlyƒoffsetƒ whereƒthereƒisƒaƒlegallyƒenforceableƒrightƒofƒoffsetƒandƒthereƒisƒanƒintentionƒtoƒsettleƒtheƒbalancesƒnet.ƒƒTheƒnetƒdeferredƒtaxƒassetƒtoƒbeƒ recoveredƒfromƒ30ƒJuneƒ2010ƒwasƒ$1,520,735ƒ(2009:ƒ$718,361). Losses $'000 ƒ- ƒ- ƒ- - 479 (232) (247) ƒ- Share Options $'000 650 50 730 Group Total $'000 746 50 730 1,430 1,526 567 (128) 211 650 1,142 (360) (36) 746 Deferred tax assets - recognised Group Atƒ1ƒJulyƒ2009 Creditedƒtoƒcomprehensiveƒincome Creditedƒtoƒequity Total provided at 30 June 2010 Atƒ1ƒJulyƒ2008 Chargedƒtoƒcomprehensiveƒincome (Charged)/creditedƒtoƒequity Totalƒprovidedƒatƒ30ƒJuneƒ2009 Deferred tax liabilities - recognised Group Atƒ1ƒJulyƒ2009 Creditedƒtoƒcomprehensiveƒincome Total provided at 30 June 2010 Atƒ1ƒJulyƒ2008 Creditedƒtoƒcomprehensiveƒincome Totalƒprovidedƒatƒ30ƒJuneƒ2009 Accelerated accounting depreciation $'000 Short term timing differences $'000 7 ƒ- ƒ- 7 7 ƒ- ƒ- 7 Accelerated tax depreciation $'000 (28) 23 (5) (67) 39 (28) 89 ƒ- ƒ- 89 89 ƒ- ƒ- 89 Group Total $'000 (28) 23 (5) (67) 39 (28) O p e r a t i o n a l R e v i e w C h a i r m a n ' s S t a t e m e n t 7 - 9 6 D i r e c t o r s ' R e p o r t B o a r d o f D i r e c t o r s 1 1 - 1 3 1 0 C o r p o r a t e G o v e r n a n c e R e p o r t R e m u n e r a t i o n C o m m i t t e e R e p o r t 1 7 - 1 9 1 4 - 1 6 A u d i t o r s R e p o r t P r i m a r y F i n a n c i a l S t a t e m e n t s 2 1 - 2 5 2 0 N o t e s t o t h e F i n a n c i a l S t a t e m e n t s 2 6 - 4 2 Craneware plc Annual Report 2010 39 Notes to the Financial Statements [Cont'd.] ƒƒ17ƒƒDeferred taxation (continued) ƒ Deferred tax assets - recognised Company Atƒ1ƒJulyƒ2009 Chargedƒtoƒcomprehensiveƒincome Creditedƒtoƒequity Total provided at 30 June 2010 Atƒ1ƒJulyƒ2008 Chargedƒtoƒcomprehensiveƒincome Creditedƒtoƒequity Totalƒprovidedƒatƒ30ƒJuneƒ2009 Deferred tax liabilities - recognised Company Atƒ1ƒJulyƒ2009 Creditedƒtoƒcomprehensiveƒincome Total provided at 30 June 2010 Atƒ1ƒJulyƒ2008 Creditedƒtoƒcomprehensiveƒincome Totalƒprovidedƒatƒ30ƒJuneƒ2009 ƒƒ18ƒƒCalled up share capital ƒ Authorised Equityƒshareƒcapital Ordinaryƒsharesƒofƒ1pƒeach Allotted called-up and fully paid Equityƒshareƒcapital Ordinaryƒsharesƒofƒ1pƒeach Losses $'000 ƒ- ƒ- ƒ- - ƒ- ƒ- ƒ- ƒ- Share Options $'000 185 (27) 131 289 348 (201) 38 185 Company Total $'000 185 (27) 131 289 348 (201) 38 185 Accelerated accounting depreciation $'000 Short term timing differences $'000 ƒ- ƒ- ƒ- - ƒ- ƒ- ƒ- ƒ- ƒ- ƒ- ƒ- - ƒ- ƒ- ƒ- ƒ- Accelerated tax depreciation $'000 Company Total $'000 (28) 23 (5) (67) 39 (28) (28) 23 (5) (67) 39 (28) 2010 ƒƒƒƒ 2009 Number $'000 Number $'000 50,000,000 1,014 50,000,000 1,014 25,365,850 512 25,297,750 512 Theƒmovementƒinƒshareƒcapitalƒduringƒtheƒyearƒisƒrepresentedƒasƒfollows:- ƒƒ 68,100ƒOrdinaryƒShareƒoptionsƒwereƒexercisedƒinƒtheƒyear,ƒasƒdetailedƒinƒtheƒRemunerationƒCommitteeƒReportƒonƒpageƒ19. ƒƒ19ƒƒCash flow generated from operating activities ƒ Reconciliationƒofƒprofitƒbeforeƒtaxƒtoƒnetƒcashƒinflowƒfromƒoperatingƒactivities:- Profitƒbeforeƒtax Financeƒincome Depreciationƒonƒplantƒandƒequipment Amortisationƒonƒintangibleƒassets Share-basedƒpayments Movements in working capital: Increaseƒinƒtradeƒandƒotherƒreceivables Increaseƒinƒtradeƒandƒotherƒpayables Cash generated from operations Craneware plc Annual Report 2010 40 Group 2010 $'000 7,258 (195) 192 253 114 (3,385) 4,669 8,906 Company 2010 $'000 2009 $'000 6,280 (195) 129 248 52 (1,030) 3,088 8,572 5,012 (520) 143 170 32 (96) 1,404 6,145 2009 $'000 5,870 (520) 204 176 82 (452) 2,018 7,378 Notes to the Financial Statements ƒƒ20ƒƒCash and cash equivalents ƒ Cash at bank and in hand Theƒeffectiveƒratesƒonƒshortƒtermƒbankƒdepositsƒwereƒ0.73%ƒ(2009:ƒ2.23%). ƒƒ21ƒƒTrade and other payables - current ƒ ƒTradeƒpayables ƒAmountsƒowedƒtoƒgroupƒcompanies ƒSocialƒsecurityƒandƒPAYE ƒCorporationƒtax ƒAccruals Advanceƒreceipts Group Company 2010 $'000 2009 $'000 2010 $'000 2009 $'000 29,442 26,169 28,213 23,959 Group Company 2010 $'000 588 - 72 392 4,104 228 5,384 2009 $'000 551 ƒ-ƒ 120 775 2,303 138 3,887 2010 $'000 229 2,822 72 854 1,225 228 5,430 2009 $'000 133 791 120 421 1,065 138 2,668 AmountsƒowedƒtoƒGroupƒcompaniesƒareƒnonƒinterestƒbearingƒandƒhaveƒnoƒfixedƒrepaymentƒterms.ƒTradeƒpayablesƒareƒsettledƒinƒ accordanceƒwithƒthoseƒtermsƒandƒconditionsƒagreed,ƒgenerallyƒwithinƒ30ƒdays,ƒprovidedƒthatƒallƒtradingƒtermsƒandƒconditionsƒonƒ invoicesƒhaveƒbeenƒmet.ƒTheƒGroup’sƒaverageƒpaymentƒperiodƒatƒ30ƒJuneƒ2010ƒwasƒ25ƒdaysƒ(2009:ƒ26ƒdays). ƒƒ22ƒƒContingent liabilities and financial commitments ƒ (a) Capital commitments TheƒGroupƒhasƒnoƒcapitalƒcommitmentsƒatƒ30ƒJuneƒ2010ƒ(2009:ƒ$nil). (b) Lease commitments TheƒGroupƒleasesƒcertainƒlandƒandƒbuildings.ƒTheƒcommitmentsƒpayableƒbyƒtheƒGroupƒunderƒtheseƒleasesƒareƒasƒfollows:- Withinƒoneƒyear Betweenƒ2ƒandƒ5ƒyears Moreƒthanƒ5ƒyears 2010 $'000 198 647 276 1,121 2009 $'000 203 164 ƒ-ƒ 367 Theƒrentsƒpayableƒunderƒtheseƒleasesƒareƒsubjectƒtoƒrenegotiationƒatƒvariousƒintervalsƒspecifiedƒinƒtheƒleases.ƒƒ TheƒGroupƒpaysƒallƒinsurance,ƒmaintenanceƒandƒrepairsƒofƒtheseƒproperties. O p e r a t i o n a l R e v i e w C h a i r m a n ' s S t a t e m e n t 7 - 9 6 D i r e c t o r s ' R e p o r t B o a r d o f D i r e c t o r s 1 1 - 1 3 1 0 C o r p o r a t e G o v e r n a n c e R e p o r t R e m u n e r a t i o n C o m m i t t e e R e p o r t 1 7 - 1 9 1 4 - 1 6 A u d i t o r s R e p o r t P r i m a r y F i n a n c i a l S t a t e m e n t s 2 1 - 2 5 2 0 N o t e s t o t h e F i n a n c i a l S t a t e m e n t s 2 6 - 4 2 Craneware plc Annual Report 2010 41 Notes to the Financial Statements ƒƒ23ƒƒRelated party transactions ƒ DuringƒtheƒyearƒtheƒGroupƒhasƒtradedƒinƒitsƒnormalƒcourseƒofƒbusinessƒwithƒshareholders,ƒconsultancyƒbusinessesƒandƒitsƒwhollyƒownedƒ subsidiaryƒinƒwhichƒDirectors,ƒformerƒDirectorsƒandƒtheƒsubsidiaryƒhaveƒaƒmaterialƒinterestƒasƒfollows:-ƒ 2010 ƒƒƒƒƒƒƒƒƒƒƒƒ2009 Group Charged $ Outstanding at year end $ Fees for services provided as Non-Executive Directors Fees Salariesƒandƒshort-termƒemployeeƒbenefits 101,832 100,405 15,970 7,855 Charged $ 48,959 87,772 Outstanding at year end $ 6,788 ƒ-ƒƒƒ Executive Directors Salariesƒandƒshort-termƒemployeeƒbenefits 763,401 299,220 686,950 195,479 Postƒemploymentƒbenefits Share-basedƒpayments Other Key Management 7,910 30,590 - - 8,059 34,683 ƒ-ƒƒƒ ƒ-ƒƒƒ Salariesƒandƒshort-termƒemployeeƒbenefits 1,374,746 473,830 1,082,650 199,982 Postƒemploymentƒbenefits Share-basedƒpayments Company 7,910 26,388 Charged $ - - Outstanding at year end $ Fees for services provided as Non-Executive Directors Fees Salariesƒandƒshort-termƒemployeeƒbenefits 101,832 100,405 15,970 7,855 8,059 10,766 Charged $ 48,959 87,772 ƒ-ƒƒƒ ƒ-ƒƒƒ Outstanding at year end $ 6,788 ƒ-ƒƒƒ Executive Directors Salariesƒandƒshort-termƒemployeeƒbenefits 763,401 299,220 686,950 195,479 Postƒemploymentƒbenefits Share-basedƒpayments Other Key Management 7,910 30,590 - - 8,059 34,683 ƒ-ƒƒƒ ƒ-ƒƒƒ Salariesƒandƒshort-termƒemployeeƒbenefits 675,940 299,220 536,009 169,982 Postƒemploymentƒbenefits Share-basedƒpayments Amounts due to Craneware Inc. - subsidiary company Salesƒcommission Netƒoperatingƒexpenses Balanceƒ(Noteƒ21) 7,910 8,377 13,118,407 2,682,527 - - - - 8,059 3,064 10,452,304 1,876,245 ƒ-ƒ ƒ-ƒ ƒ-ƒ ƒ-ƒ - 2,822,295 - 791,411 KeyƒmanagementƒareƒconsideredƒtoƒbeƒtheƒDirectorsƒtogetherƒwithƒtheƒChiefƒOperatingƒOfficer,ƒChiefƒTechnologyƒOfficer,ƒtheƒHeadƒofƒ Marketing,ƒtheƒoutgoingƒPresidentƒofƒCranewareƒIncƒandƒtheƒincomingƒExecutiveƒViceƒPresidentƒofƒSalesƒ(appointedƒtoƒtheƒOperationsƒ Boardƒduringƒtheƒyear). ThereƒwereƒnoƒotherƒrelatedƒpartyƒtransactionsƒinƒtheƒyearƒwhichƒrequireƒdisclosureƒinƒaccordanceƒwithƒIASƒ24. ƒƒ24ƒƒUltimate controlling party ƒ TheƒDirectorsƒhaveƒdeemedƒthatƒthereƒareƒnoƒcontrollingƒpartiesƒofƒtheƒCompany.ƒ Craneware plc Annual Report 2010 42 Personal Notes O p e r a t i o n a l R e v i e w C h a i r m a n ' s S t a t e m e n t 7 - 9 6 D i r e c t o r s ' R e p o r t B o a r d o f D i r e c t o r s 1 1 - 1 3 1 0 C o r p o r a t e G o v e r n a n c e R e p o r t R e m u n e r a t i o n C o m m i t t e e R e p o r t 1 7 - 1 9 1 4 - 1 6 A u d i t o r s R e p o r t P r i m a r y F i n a n c i a l S t a t e m e n t s 2 1 - 2 5 2 0 N o t e s t o t h e F i n a n c i a l S t a t e m e n t s 2 6 - 4 2 Craneware plc Annual Report 2010 43 Personal Notes Craneware plc Annual Report 2010 44 Contact Craneware Directors, Secretary and Advisors Support & Information Directors and Officials Bankers Client training/support: +1ƒ888ƒ601ƒ4162ƒ support@craneware.comƒ training@craneware.com Sales: +1ƒ877ƒ624ƒ2792ƒ sales@craneware.com Careers: +44ƒ(0)1506ƒ407666ƒ careers@craneware.com General enquiries: +44ƒ(0)1506ƒ407666ƒ(UK)ƒ +1ƒ404ƒ364ƒ2032ƒ(USA)ƒ info@craneware.com Investor information: +44ƒ(0)ƒ207ƒ653ƒ9850ƒ ThreadneedleƒCommunicationsƒ UK Headquarters Craneware plc RosebankƒBusinessƒParkƒ KirktonƒCampusƒ Livingstonƒ EH54ƒ7EJƒ UnitedƒKingdom Fax:ƒ+44ƒ(0)1506ƒ407667ƒ USA Administrative Office Craneware, Inc. 3340ƒPeachtreeƒRoadƒNE,ƒSuiteƒ850ƒ Atlanta,ƒGAƒ30326ƒ USAƒ ƒ Fax:ƒ+1ƒ404ƒ364ƒ2033 Directors The Royal Bank of Scotland plc 36ƒSt.ƒAndrewƒSquareƒ Edinburghƒ EH2ƒ2YB Clydesdale Bank 20ƒWaterlooƒStreetƒ Glasgowƒ G2ƒ6DB Barclays Commercial Bank AuroraƒHouseƒ 120ƒBothwellƒStreetƒ Glasgowƒ G2ƒ7JT HSBC Bank plc 7ƒWestƒNileƒStreetƒ Glasgowƒ G1ƒ2RG Lloyds TSB HenryƒDuncanƒHouseƒ 120ƒGeorgeƒStreetƒ Edinburghƒ EH2ƒ4LH GƒRƒElliottƒ[Chairman,ƒnon-executive] KƒNeilsonƒ NƒPƒHeywoodƒ[non-executive] CƒTƒPrestonƒ RƒFƒVerniƒ[non-executive] Secretary and Registered Office C T Preston RosebankƒBusinessƒParkƒ KirktonƒCampusƒ Livingstonƒ EH54ƒ7EJƒ Brokers & Nominated Advisors KBC Peel Hunt Ltd 111ƒOldƒBroadƒStreetƒ Londonƒ EC2Nƒ1PHƒ Registrars Capita Registrars Ltd TheƒRegistryƒ 34ƒBeckenhamƒRoadƒ Beckenhamƒ Kentƒ BR3ƒ4TU Registered Auditors PricewaterhouseCoopers LLP ErskineƒHouseƒ 68-73ƒQueenƒStreetƒ Edinburghƒ EH2ƒ4NH Solicitors McGrigors LLP PrincesƒExchangeƒ 1ƒEarlƒGreyƒStreetƒ Edinburghƒ EH3ƒ9AQ Craneware plc Annual Report 2010 45 craneware.com marketing@craneware.com training@craneware.com sales@craneware.com support@craneware.com Craneware plc Rosebank Business Park Kirkton Campus Livingston EH54 7EJ, UK Tel: (+44) 01506 407 666 Fax: (+44) 01506 407 667 Company Registration No. SC196331 Craneware plc 

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