Last Modified: 20 November 2009

The Board of Directors ("the Board") acknowledge the importance of the Principles set out in The Combined Code on Corporate Governance issued by the Financial Reporting Council in June 2006. Although the Combined Code is not compulsory for AIM listed companies, the Board has applied the principles in this statement, together with the Remuneration Committee Report set out on page 18 as far as practicable for a public Company of its size, as follows:

Composition of the Board

The Company is managed by the Board of Directors, now comprising a non-executive chairman, chief executive officer, chief financial officer and two independent nonexecutive directors.

The composition of the Board changed during the year with the appointment of Craig Preston as the new Chief Financial Officer on 15th September 2008, taking over from A. McDougall who resigned from the same date. In addition, Ron Verni, was appointed as an independent non-executive director on 1 May 2009.

The Board is satisfied with the 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 and, when a new appointment 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. This mix of skills and business experience is a major contribution to the proper functioning of the Board, ensuring matters are debated and that no individual or group dominates the Board decisionmaking process.

Each of the executive directors is expected to act in accordance with ethical principles, including those of any professional body of which they are a member. The non-executive directors are a high-calibre and contribute wide-ranging business and financial experience to the Board’s decision making process.

The Chairman, George Elliott, holds other directorships, and 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.

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 under the retirement by rotation provisions in the Company's Articles of Association. 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 Keith Neilson, Neil Heywood and Ron Verni (being his first AGM since appointment) will retire from office at the Company's forthcoming AGM and stand for reappointment.

Since the year end, evaluation of the performance of the Board, its Committees and individual members has been conducted. The evaluation took the form of a questionnaire, discussions at formal Board meetings and informal meetings between the Chairman and individual members of the Board.

Functioning of the Board

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.

The Board's role includes the review of the Company's strategy, the consideration and approval of business plans, significant transactions, and the monitoring of operational and financial performance. This is achieved through quarterly reviews by the Board and supplemented by monthly financial reporting and forecast updates.

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. Due to the size of the Board during the year it has not been feasible for the Non-Executive Directors to meet without the Chairman being present.

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.

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 and interim statements, any significant financing and capital expenditure plans. The day-today operation of the Group’s business is delegated to management, subject to defined authority limits.

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.

Non-Executive Directors

On 1 May 2009 the Board appointed Ron Verni as an independent Non-Executive Director.

All Non-Executive Directors serving at the year-end are considered to be independent, as defined in Section A3.2 of the Code. They have been appointed for specified initial terms and provide the necessary balance to the Executive Directors as a result of their outside expertise.

In 2007, Neil Heywood received additional nonrecurring fees in respect of advisory services provided to the Company prior to its admission to AIM. Due to the nature of these services and the length of time the services were provided for, the Board has concluded the payment of these fees did not impair his independence.

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.

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 and Chief Executive Officer 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:

• interim and annual reports information including consideration of the appropriateness of accounting policies and material assumptions and estimates adopted by management;
• developments in accounting and reporting requirements;
• external auditors' plan for the year-end audit of the Company and its subsidiaries;
• the Committee’s effectiveness;
• 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;
• the requirements or otherwise for an internal audit function;
• 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;
• the audit and non-audit fees charged by the external auditors; and
• 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.

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 deminimis level to be approved in advance by the Chairman of the Audit Committee.

The Remuneration Committee

During the year, the Remuneration Committee was chaired by Neil Heywood (Ron Verni has taken over the chair of the Committee from the date of this report), and its other members are George Elliott and Ron Verni. 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:

• 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);
• 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
• 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.

Before recommending the appointment of a nonexecutive director, the Committee 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.

With regard to the appointment of Craig Preston as the Chief Financial Officer on 15 September 2008 and the appointment of Ron Verni on 1 May 2009, the Nomination Committee undertook an extensive search, supported by an external search firm, and considered both internal and external candidates for the role.

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:

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.

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. Most employees participate in the growth of the business through the ownership of share options and participation 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 institutional investors and analysts to discuss strategic and other issues and half-year 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.

The Company's Annual Report is circulated to all shareholders on record and other interested parties, and may also be requested from the Company's registered office. The Company also monitors the opinions of shareholders and the research published by market analysts insofar as this is practicable, and responds to concerns when appropriate. The Company reports half yearly on its performance, and gives presentations to institutional investors and analysts and holds one-to-one briefings with key shareholders. All shareholders have at least 21 clear days' notice of the Annual General Meeting (AGM), which is held at a convenient location with adequate facilities for the expected audience. The Directors and Committee Chairmen are available for questions at the 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 financial statements.

Statement by Directors on Compliance with the Provisions of the Combined Code

The Board considers that they have complied with the provisions of The Combined Code, as far as practicable and appropriate for a public Company of this size, in accordance with the recommendations on corporate governance of the Quoted Companies Alliance. The specific provisions of The Combined Code not yet adopted are A1.3, A3.3, A6.1, A7.2 and D1.1. It is the intention of the Group to develop its procedures in certain areas where it would be valuable to do so.

AIM Rule Compliance Report

Craneware plc is quoted on AIM and, as such under AIM Rule 31 the Company is required to:

• Have in place sufficient procedures, resources and controls to enable its compliance with the AIM Rules;
• Seek advice from its Nominated Advisor ("Nomad") regarding its compliance with the AIM Rules whenever appropriate and take that advice into account;
• 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;
• Ensure that each of the Company's Directors accepts full responsibility, collectively and individually, for compliance with the AIM Rules; and
• 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
4 September 2009