ANNUAL REPORT Orc Software

Transcription

1 Box 7742 Kungsgatan 36, 5th floor SE Stockholm Sweden Phone: Fax: Orc Software GRAPHIC DESIGN AND PRODUCTION WILDECO PHOTOGRAPY JOHAN OLSSON TRANSLATION OPEN COMMUNICATIONS PRINTING AND REPRO BILLES TRYCKERI AB 2010 ANNUAL REPORT

2 ORC SOFTWARE IS THE GLOBAL FINANCIAL INDUSTRY S LEADING PROVIDER OF SOLUTIONS FOR ADVANCED TRADING AND LOW LATENCY CONNECTIVITY. ORC PROVIDES THE TOOLS NECESSARY TO MAKE THE BEST FINANCIAL TRADING DECISIONS. ORC S CUSTOMERS INCLUDE LEADING BANKS, TRADING AND MARKET- MAKING FIRMS, EXCHANGES, BROKERAGE HOUSES, INSTITUTIONAL INVEST ORS AND HEDGE FUNDS. ORC ALSO OFFERS HIGH QUALITY CUSTOMER SUPPORT FROM ITS OFFICES IN EUROPE, THE AMERICAS AND ASIA PACIFIC THE ANNUALIZED VALUE OF EXISTING CUSTOMER CON TRACTS (ACV) ROSE BY 1% TO SEK 652 M (645) + 25% REVENUE OF SEK 705 M OPERATING INCOME OF SEK 207 M 250 EMPLOYEES OFFICES WORLDWIDE DIRECTORS REPORT 05 CONSOLIDATED INCOME STATEMENT AND BALANCE SHEET 07 CONSOLI- DATED CHANGES IN EQUITY 08 CASH FLOW STATEMENT 09 PARENT COMPANY INCOME STATEMENT AND BALANCE SHEET 11 PARENT COMPANY CHANGES IN EQUITY 12 MULTI-YEAR OVERVIEW 14 NOTES TO THE FINANCIAL STATEMENTS 29 AUDIT REPORT 30 GLOSSARY AND DEFINITIONS 31THE SHARE 33 BOARD OF DIRECTORS AND MANAGEMENT 35 SHAREHOLDER INFORMATION 36 ADDRESSES

3 FINANCIAL YEAR 2009

4 DIRECTORS REPORT The Board of Directors and the CEO of Orc Software AB (publ), corporate identity number , domiciled in Stockholm, Sweden, hereby submit the accounts for the financial year 2009 for the Parent Company and the Group. About Orc Orc is the leading global provider of powerful solutions for the world-wide financial industry. The company conducts development, sales and support through its own personnel in all major financial centers. Orc has 12 offices across Europe, the Americas and Asia Pacific. Orc is listed on NASDAQ OMX Stockholm. Outlook for 2010 The growing trend toward automated trading will remain one of the key drivers for Orc in The majority of industry analysts expect the long-term trend toward an increased use of derivatives to continue in the coming years, which is also significant for Orc. Added to this is an increased focus on connectivity, partly in connection with ongoing replacement and upgrading of trading platforms among the international exchanges and partly due to a growing interest in DMA solutions. Among the customer segments, it is interesting to note that the banks once again accounted for a rising share of sales at the end of 2009, which is a trend Orc expects to continue throughout The decision to transfer development and sales of CameronFIX solutions in to a separate unit in the Orc Group is expected to boost sales during the year. Orc sees major opportunities to broaden and further enhance its offering, and will therefore invest in recruitment of mainly developers but also new staff in the sales and support organizations. However, these steps will be taken with a certain degree of caution in order to avoid significantly damaging the Group s profitability. Resources used in development of new products and similar will be capitalized, leading to a higher level of capitalized development costs than in One key concern for 2010 is the level of contract reductions and cancellations (churn). Orc s assessment is that it will not increase further and will start to decline, although it is difficult to determine when this will happen and at what pace. However, given Orc s current customer mix with a higher share of trading firms than previously, it is unlikely that churn will fall to historically low levels. Another difficult to predict factor with a significant impact on Orc consists of movements primarily in the US dollar and euro rates against the Swedish krona. In its overall assessment of the outlook for ACV (Annulized Contract Value), revenue and income in 2010, Orc has used the exchange rates in force at the end of 2009 and assumed that these will remain unchanged during the year. Assuming that exchange rates will remain unchanged from the start of the year and that churn will drop to a more historically normal level, Orc expects ACV, revenue and income to increase in 2010 compared to Market 2009 presented challenges in the form of sizeable contract reductions in a still turbulent market and weakening of the US dollar and the euro. Market makers in particular have suffered from weaker profitability and are being forced to make cost savings that are inhibiting their willingness to invest. At the same time, Orc has added a number of new customers, often specialized players that are actively utilizing the foremost technology as a means to move aggressively and win market shares. Orc noted particularly positive sales growth among trading firms at the start of the year, while it was the banks that returned at the end of the year. Orc has also experienced the importance of having a business that is well diversified geographically, between customer segments and across multiple solutions. It is mainly the demand for Orc Trader and Orc Liquidator that dominate. Orc is also noting sustained strong demand for connectivity solutions, mainly in the DMA area and as a result of replacement and upgrading of trading platforms among the marketplaces. CameronTec Orc has transferred the technology and some 20 employees working with CameronFIX and related solutions to a separate unit within the Orc Group under the name CameronTec. The aim is to increase the focus on the CameronFIX technology through more targeted development and sales and thereby create added value for the customers. These operations will remain part of the Orc Group, which will continue to exploit the synergies between the different technology segments. Net revenue Net revenue for the full year 2009 was SEK 704.9m (564.2), equal to an increase of 25 % compared to the previous year. Operating expenses Operating expenses in 2009 rose by SEK 26.5m, or 6 % compared to the previous year and amounted to SEK 497.4m (470.9). The increase consists entirely of foreign exchange differences. For the full year 2009 foreign exchange differences amounted to SEK 13.2m (21.5). Earnings Operating profit for 2009 was SEK 207.5m (93.3) and operating margin was 29 % (17). Net financial items decreased by SEK 1.5m and net income for the period increased by SEK 85.7m, from SEK 64.7m to SEK 150.4m. The year-on-year increase in earnings is attributable to an increase in net revenue of SEK 140.7m. BREAKDOWN OF REVENUE IN 2009 OTHER REVENUE 1% UPFRONT LICENSES AND TRANSACTION-RELATED REVENUES 3% ANNUALIZED VALUE OF EXISTING CUSTOMER CONTRACTS (ACV) IN 2009 SEK M RECURRING REVENUE 96% Q1 Q2 Q3 Q4 ACV ADJUSTED 1 ORC 09

5 Cash flow, capital expenditure and financial position Cash flow for the full year 2009 was SEK 215.2m ( 30.0). The difference in cash flow compared to the previous year is due to improved earnings and the reduced amount of capital tied up in trade receivables. Cash flow from investing activities of SEK 11.6m ( 31.6) was made up of SEK 4.3m ( 15.5) in capitalized development costs. The equity/assets ratio at December 31, 2009, was 60 % (54). Personnel Orc s employees are organized in four different categories: DEVELOPMENT AND PRODUCT MANAGEMENT The development staff designs and implements new products and features. Product managers are responsible for analyzing market and customer needs and deciding what to develop. SALES AND MARKETING Sales are conducted from Orc s 12 offices worldwide according to the marketing strategy drawn up for each region and sub-market. SERVICES AND SUPPORT Employees in this category work closely with customers in implementation, education/training and support and are represented at all Orc s offices. FINANCE & ACCOUNTING, ADMINISTRATION AND OTHER GROUP-WIDE FUNCTIONS These employees are mainly concentrated in Stockholm. At December 31, 2009, Orc had 250 employees (277). Environment ENVIRONMENTAL GOALS In its operations, Orc shall take responsibility for the company s environmental impact. Environmental effects shall be taken into account in all decisions and the company shall continuously strive to reduce its environmental impact. Furthermore, the company shall provide transparent and correct environmental information. ENVIRONMENTAL IMPACT Orc s business is based on a standardized software solution for which all production takes place digitally. Orc has also chosen to use a fully electronic delivery process, which means that there are no packages or paper-based documents. The greatest environmental impact factors are energy consumption in the company s offices and passenger air travel. Development costs Orc s total development costs in 2009 amounted to SEK 85.9m (96.3), which is equal to 12 % (17) of system revenues. Of these costs, SEK 4.3m (15.5) has been capitalized. Parent Company Since virtually all Orc s customer contracts are with the Parent Company, the vast majority of Group revenue and all major balance sheet items are held by the Parent Company. Thus, the notes on the consolidated balance sheet and income statement are also applicable to the Parent Company in all essential respects. All related-party transactions are carried out on market-based terms. Significant risks and uncertainties Through its operations, Orc is exposed to certain risks that can impact earnings to a greater or lesser extent. Below is a brief description of the most significant risks and how they are managed. The company operates in a fast-growing industry and a highly volatile market where the ability to predict market needs, and adapt its technical solutions to these, is a critical success factor. In view of this, Orc has a dedicated unit for analysis of market trends to ensure that the company s products remain at the cutting edge and always meet customer needs and requirements. Due to the nature of its business, Orc is dependent on the ability to attract and retain skilled employees. The company is committed to being an attractive employer that offers a good working environment and competitive employment conditions. The company s business is wholly dependent on an efficient IT structure, particularly for the development team and the capacity to deliver software to customers. Consequently, IT security is a top priority that is managed through a variety of methods, including multiple servers with redundant data in various locations around the world, security backups of various types and fast response times for service providers. Orc has net exposure to the US dollar and the euro due to extensive customer billing in these currencies, while the bulk of expenses are denominated in Swedish kronor. However, the business model, based on subscription software licensing with long contract terms and cancellation periods, ensures relatively ample time to adjust the cost mass in the event of a dramatic decline in Orc s billing currencies. EQUITY/ASSETS RATIO % REVENUE OPERATING INCOME AND MARGIN SEK M 750 SEK M % OPERATING INCOME MARGIN ORC 09 2

6 Orc has historically had few bad debt losses. Due to the business model in which customers gain access to the software through key codes, non-paying customers can be easily denied access to the company s products. The current uncertainty in the international financial markets and the global economic recession are associated with a risk for additional reductions and lower sales of new customer contracts and increased credit losses. Another significant risk factor to be taken into account is the risk for reduced liquidity in the international derivatives markets, which would most likely have a negative impact on Orc s customers and consequently also affect reductions, sales and credit risk. Guidelines for remuneration to senior executives The Board of Directors has drawn up proposed guidelines for determining the level of remuneration and other terms of employment of senior executives. Orc observes both global remuneration practices and the norm in the respective senior executive s homeland. The Board shall have the right to deviate from the guidelines adopted by the Annual General Meeting in individual cases when there is special reason to do so. The proposed guidelines correspond to those that were proposed by the Board for 2009 and, after approval by the AGM, were applied during the year. Detailed information about remuneration to senior executives is provided in Note 7, page 20. The basic principles for the remuneration structure in 2010 are: To align the long-term interests and objectives of the employees with those of the shareholders. To ensure a market-based and competitive level of compensation that enables the company to attract and retain employees. To offer an individualized salary based on each employee s performance, work duties, expertise, experience and position. Orc s remuneration and benefits to senior executives consist of: basic salary, annual variable salary, pension consisting of premiums equal to % of basic salary, health insurance, medical insurance, parking benefits and the opportunity to participate in Orc s long-term incentive programs according to the detailed terms of such programs. Termination benefits may not exceed 12 months and only senior executives are entitled to receive such benefits. The variable salary component can be based on development for the entire company or that part of the company in which the executive is employed. This development refers to the attainment of predetermined targets. Such targets are determined by the Board and can be related to the financial results or the company s sales performance. The maximum amount if annual variable salary is between % of basic salary (except in the case of senior executives with direct sales responsibility, for which there is no ceiling). In addition, compensation may be paid as part of long-term incentive plans adopted in Annual General Meetings of Orc Software AB.* The salaries of leading executives are reviewed and revised yearly, with respect to salary growth in the market, the employee s performance, changed responsibilities and the company s development. Capital structure The Orc share is traded on NASDAQ OMX Stockholm under the ticker symbol ORC. Each share in Orc entitles the holder to one vote at the Annual General Meeting and grants equal rights to participate in the company s assets and income. Orc s share capital at year-end 2009 amounted to SEK 1,530,818 and was divided between 15,308,182 shares. At December 31, 2009, a further 105,950 shares were not yet registered with the Swedish Companies Registration Office and were therefore not included in the total share capital at year-end, but in Other contributed capital. There were an additional 40,000 shares, attributable to used options under program 1 (2006/2009) that were neither registered with the Swedish Companies Resistration Office nor recognized in Orc s equity at December 31, At December 31, 2009, Orc had 452,000 outstanding options registered to employees. The options have a maximum potential dilutive effect of 3 % on the number of shares and votes in the company. The new share issue in connection with the 2008/2010 option program could increase the share capital by a maximum of SEK 30,000 and 300,000 shares in The new share issue in connection with the 2009/2011 option program could increase the share capital by a maximum of SEK 15,200 and 152,000 shares in At December 31, 2009, the options had no dilutive effect on earnings per share. Orc held no shares in treasury at year-end At December 31, 2009, there were no agreements between shareholders limiting the right to transfer shares. Appropriation of earnings Orc Software AB (publ) FUNDS AT THE DISPOSAL OF THE ANNUAL GENERAL MEETING: SEK Share premium reserve 57,468,367 Retained earnings 63,731,307 Income for the year 147,443,910 Total 268,643,584 THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER PROPOSE THAT THESE FUNDS BE ALLOCATED AS FOLLOWS: SEK A shareholder dividend of SEK 10 per share, totaling 153,081,820 To be carried forward to new account 115,561,764 Total 268,643,584 Proposed dividend The Board of Directors proposes an annual dividend of SEK 10 per share (4), equal to a total distribution of SEK 153,081,820 (60,809,128) for The Board of Directors has issued the following statement of motivation regarding the proposed dividend in accordance with Chapter 18, Section 4, of the Swedish Companies Act (2005:551): The proposed dividend to the shareholders will reduce the Parent Company s equity/assets ratio from 53 % to 41 % and the Group s equity/assets ratio from 60 % to 49 %. In light of the sustained profitability of operations in the Parent Company and the Group, this equity/assets ratio is deemed adequate. It is likewise deemed that liquidity in the Parent Company and the Group can be maintained at an adequate level. In assessing the proposed dividend, the Board has considered Orc s business model in which sales are invoiced quarterly in advance and the outlook for the Parent Company s and the Group s development in The Board of Directors assessment is that the proposed dividend will not hinder the company, or other companies in the Group, from fulfilling long-term obligations or from making requisite investments. The proposed dividend can therefore be justified with respect to the provisions in the Swedish Companies Act, Chapter 17, Section 3, Paragraphs 2-3 (the cautionary rule). The proposed record date for payment of dividends is April 19, Provided that the dividend is approved by the Annual General Meeting, dividends are expected to be disbursed by Euroclear Sweden AB (formerly VPC AB) on April 22, Merger with Neonet AB On January 25, 2010, the boards of Orc Software AB and Neonet AB issued a statement proposing to shareholders the merger of the two companies to form a global player in technology and services for advanced trading with financial instruments. This will happen by Orc making a public offer to the Neonet shareholders. Orc has technology for trading in derivatives and connectivity and Neonet has solutions and technology services for share trading. For more information, see Note 31. * In 2010, this amount for the Group as a whole can reach a maximum of SEK 2.5m, based on the 2008 long-term incentive program. 3 ORC 09

7 STATEMENT OF ASSURANCE The Board of Directors and Chief Executive Officer hereby give their assurance that the consolidated accounts and annual accounts have been prepared in accordance with International Financial Reporting Standard as endorsed by the EU and in accordance with generally accepted accounting standards, and give a true and fair view of the financial position and results of operations of the Parent Company and the Group, and that the directors report for the Group and the Parent Company gives a true and fair view of the business activities, financial position and results of operations of the Group and the Parent Company describes the significant risks and uncertainties to which the Parent Company and the Group companies are exposed. Stockholm, March 1, 2010 MARKUS GERDIEN Chairman of the Board KATARINA BONDE PATRIK ENBLAD LARS GRANLÖF EVA REDHE RIDDERSTAD CARL ROSVALL THOMAS BILL Chief Executive Officer ORC 09 4

8 CONSOLIDATED income statement January 1 December 31 SEK THOUSANDS Note OPERATING REVENUE 4 System revenue 696, ,136 Other revenue 8,543 12,054 Total revenue 704, ,190 OPERATING EXPENSES 5 Cost of goods sold 39,091 36,917 External expenses Costs for premises 29,845 32,013 Telecom expenses 9,499 9,819 Other external expenses 9 97, ,875 Personnel costs 7, , ,965 Work performed by the company for its own use and capitalized 4,302 15,492 Depreciation, amortization and impairment losses 8 21,199 25,333 Foreign exchange differences 10, 11 13,249 21,500 Operating expenses 497, ,930 Operating income 4, 11, ,454 93,260 FINANCIAL ITEMS 12 Financial income 1,132 3,134 Financial expenses Net financial items ,359 Income after financial items 208,326 95,619 Income tax expense 14 57,957 30,943 Income for the year 150,369 64,676 Translation differences of intangible assets 9,992 Other translation differences 1,501 1,256 Other comprehensive income 11 1,501 8,736 Comprehensive income for the year 151,870 55,940 Income for the year attributable to minority interests Income for the period attributable to shareholders of the Parent Company 150,369 64,676 Comprehensive income for the year attributable to minority interests Comprehensive income for the period attributable to shareholders of the Parent Company 151,870 55,940 Basic earnings per share, SEK Diluted earnings per share, SEK Number of shares outstanding at year-end, thousands 24 15,308 15,202 Average number of shares outstanding during the year, thousands 24 15,203 15,202 5 ORC 09

9 CONSOLIDATED balance sheet December 31 SEK THOUSANDS Note ASSETS Non-current assets Intangible assets 16 Capitalized development costs 34,712 32,773 Goodwill 167, ,539 Other intangible assets 56,177 64,027 Tangible assets 17 Equipment 27,410 33,453 Financial assets 18, 19 2,006 2,160 Deferred tax assets 14 7,808 15,517 Total non-current assets 295, ,469 Current assets Current receivables Trade receivables 18, , ,290 Prepaid tax 14 5,867 10,210 Derivatives 10, Other current assets 18, 23 14,480 17,513 Short-term investments 18, 30 26,929 Cash and cash equivalents 18, ,953 76,859 Total current assets 459, ,781 TOTAL ASSETS 755, ,250 EQUITY AND LIABILITIES 11, 22, 24 Equity Share capital 1,531 1,520 Other contributed capital 155,258 * 127,979 Reserves 14,730 10,066 Retained earnings 308, ,396 Total equity 450, ,829 Non-current liabilities Deferred tax liability 14 52,087 47,051 Other deferred liabilities 1,242 Total non-current liabilities 53,329 47,051 Current liabilities Trade payables 18, 25 14,108 16,643 Tax liabilities 14 17,994 10,276 Derivatives 10, 18 Other current liabilities 18, , ,451 Total current liabilities 251, ,370 TOTAL EQUITY AND LIABILITIES 755, ,250 Pledged assets None None Contingent liabilities None None *Includes unregistered shares of SEK 10.6 thousand. ORC 09 6

10 CONSOLIDATED statement of changes in equity January 1 December Attributable to shareholders of the Parent Company SEK THOUSANDS Share capital Other contributed capital Reserves Retained earnings Total Opening balance at January 1, , ,979 10, , ,829 Comprehensive income for the year attributable to shareholders of the Parent Company 150, ,369 Other comprehensive income 4,664 6,165 1,501 Comprehensive income for the year attributable to shareholders of the Parent Company 4, , ,870 Dividend for ,809 60,809 New share issue* 11 26,258 26,269 Change due to employee options 1,021 1,021 Closing balance at December 31, , ,258 14, , ,180 * Attributable to employees use of options. Of the SEK 26,258 thousand in Other contributed capital SEK 10,6 thousand refers to unregistered share capital. Net income and expenses for the period, i.e. calculated as the sum of income and expenses recognized through profit/loss and directly in equity, amounted to SEK 151.9m at December 31, Of this amount, SEK 151.9m is attributable to shareholders of the Parent Company Attributable to shareholders of the Parent Company SEK THOUSANDS Share capital Other contributed capital Reserves Retained earnings Total Opening balance at January 1, , , , ,727 Comprehensive income for the year attributable to shareholders of the Parent Company 64,676 64,676 Other comprehensive income 10,001 1,265 8,736 Comprehensive income for the year attributable to shareholders of the Parent Company 10,001 65,941 55,940 Dividend for ,809 60,809 Change due to returned shares Change due to employee options 1,061 1,061 Closing balance at December 31, , ,979 10, , ,829 Net income and expenses for the period, i.e. calculated as the sum of income and expenses recognized through profit/loss and directly in equity, amounted to SEK 55.9m at December 31, Of this amount, SEK 55.9m is attributable to equity holders of the Parent Company. 7 ORC 09

11 CASH FLOW STATEMENT January 1 December 31 Group Parent Company SEK THOUSANDS Note OPERATING ACTIVITIES Operating income 207,454 93, ,214 53,453 Adjustments for non-cash items Depreciation, amortization and impairment losses 8 21,199 25,333 9,012 10,214 Other adjustments for non-cash items 29 19,581 53,199 26,568 33,592 Financial items ,359 62, Income tax paid 14 37,269 60,982 11,201 34,808 Cash flow from operating activities before changes in working capital 211, , ,008 63,339 CHANGES IN WORKING CAPITAL Change in trade receivables 32,234 47,516 27,873 78,598 Change in operating assets 8,557 2,950 18,859 9,166 Change in trade payables 2,628 1,601 2,646 1,373 Change in operating liabilities 11,375 1,921 61,354 90,554 Total change in working capital 49,538 50,786 54,986 4,163 Cash flow from operating activities 261,375 62, ,022 67,502 INVESTING ACTIVITIES Purchase of intangible assets 16 4,877 15, ,492 Purchase of tangible assets 17 7,380 17,433 3,687 7,002 Divestment of operations Investments in operations* , Changes in financial assets Cash flow from investing activities 11,610 31,567 10,012 21,584 FINANCING ACTIVITIES Dividends 24 60,809 60,809 60,809 60,809 New share issue 26,269 26,269 Group contributions rendered Cash flow from financing activities 34,540 60,809 34,540 60,809 Change in cash and cash equivalents 215,225 29, ,470 14,891 Cash and cash equivalents at beginning of year , ,933 63,303 78,194 Translation/foreign exchange difference in cash and cash equivalents 30 4,060 7,848 Cash and cash equivalents at end of year , , ,773 63,303 *The positive amount in 2008 refers to a gain on the sale of treasury shares that were returned in connection with final settlement of the acquisition of Cameron Systems. ORC 09 8

12 PARENT COMPANY income statement January 1 December 31 SEK THOUSANDS Note OPERATING REVENUE 4, 6 System revenue 694, ,492 Other revenue 21,124 9,931 Work performed by the company for its own use and capitalized 4,302 15,492 Total revenue 719, ,915 OPERATING EXPENSES 6 Cost of goods sold 38,445 36,403 External expenses Costs for premises 11,381 11,017 Telecom expenses 2,276 2,713 Other external expenses 9 334, ,873 Personnel costs 7 110, ,427 Depreciation, amortization and impairment losses 8 9,012 10,214 Foreign exchange differences 11,753 19,185 Operating expenses 517, ,462 Operating income ,214 53,453 FINANCIAL ITEMS 12 Financial income 63,423 1,726 Financial expenses 34, Net financial items 29, Income after financial items 231,458 54,341 Appropriations 13 39,289 7,947 Income tax expense 14 44,725 17,732 Income for the year 147,444 44,556 9 ORC 09

13 PARENT COMPANY balance sheet December 31 SEK THOUSANDS Note ASSETS Non-current assets Intangible assets 16 Capitalized development costs 34,741 32,773 Tangible assets 17 Equipment 14,648 17,041 Financial assets 19 Shares in Group companies , ,997 Other financial assets Deferred tax assets Total non-current assets 338, ,230 Current assets Current receivables Trade receivables 125, ,701 Receivables from Group companies 34,082 7,833 Prepaid tax 14 11,512 Derivatives 980 Other current assets 23 9,119 15,530 Short-term investments 30 14,750 Cash and cash equivalents ,773 48,553 Total current assets 421, ,859 TOTAL ASSETS 759, ,089 EQUITY AND LIABILITIES 22, 24 Equity Restricted equity Share capital 1,531 1,520 Unregistered paid share capital 10 Capital reserves 37,437 37,437 Non-restricted equity Share premium reserve 57,468 31,220 Retained earnings 63,732 70,992 Income for the year 147,444 44,556 Total equity 307, ,725 Untaxed reserves 129,003 89,714 Provisions Deferred tax liabilities 14 1,383 2,106 Total provisions 1,383 2,106 Current liabilities Trade payables 25 11,938 14,584 Liabilities to group companies 88, ,550 Tax liabilities 14 22,555 Derivatives Other current liabilities , ,410 Total current liabilities 321, ,544 TOTAL EQUITY AND LIABILITIES 759, ,089 Pledged assets None None Contingent liabilities None None ORC 09 10

14 PARENT COMPANY statement of changes in equity January 1 December Unregistered SEK THOUSANDS Share capital share capital Capital reserves Non-restricted equity Total Opening balance at January 1, ,520 37, , ,725 Dividend for ,809 60,809 New share issue* 11 13,121 13,132 Unregistered paid equity 10 13,127 13,137 Group contributions rendered 8,993 8,993 Income for the year 147, ,444 Closing balance at December 31, , , , ,622 *Attributable to employees use of subscription options Unregistered SEK THOUSANDS Share capital share capital Capital reserves Non-restricted equity Total Opening balance at January 1, ,520 37, , ,152 Dividend for ,809 60,809 Transfer of treasury shares Group contributions rendered 6,084 6,084 Income for the year 44,556 44,556 Closing balance at December 31, ,520 37, , , ORC 09

15 MULTI-YEAR OVERVIEW SEK MILLIONS * 2005* 2006* 2007* 2008 * 2009* OPERATING ACTIVITIES Operating revenue Operating expenses excluding depreciation. amortization, impairment losses and personnel costs Personnel costs Depreciation, amortization and impairment losses Operating income Net financial items Income after financial items Income tax expense Minority share in income for the year n/a n/a n/a n/a n/a n/a n/a n/a Income for the year Other comprehensive income n/a n/a n/a n/a n/a n/a n/a n/a n/a Comprehensive income for the year n/a n/a n/a n/a n/a n/a n/a n/a n/a Income for the year attributable to minority interests n/a n/a n/a n/a n/a n/a n/a Income for the year attributable to shareholders in the Parent Company n/a n/a n/a n/a n/a Comprehensive income for the year attributable to shareholders in the Parent Company n/a n/a n/a n/a n/a n/a n/a n/a n/a BALANCE SHEET Non-current assets Trade receivables Other receivables Cash and cash equivalents Total assets Equity Minority interests n/a n/a n/a n/a n/a n/a n/a n/a Deferred tax liabilities Current liabilities Total equity and liabilities * For the years , the accounts are presented in compliance with IFRS. The accounts for are presented according to the previously applied accounting principles. ORC 09 12

16 KEY RATIOS SEK MILLIONS UNLESS OTHERWISE SPECIFIED * ** 2009 MARGINS Operating margin, % Profit margin, % RETURN Return on capital employed, % Return on equity, % CAPITAL STRUCTURE Operating capital Capital employed Equity Interest-bearing net debt Capital turnover ratio, multiple Net debt/equity ratio, multiple Equity/assets ratio, % CASH FLOW AND LIQUIDITY Cash flow before investments Cash flow after investments Cash and cash equivalents Self-financing ratio, multiple * INVESTMENTS Investments in non-current assets EMPLOYEES Average number of employees Revenue per employee Value added per employee *The company s investments in 2005 were negative due to repayment of the loan to Hun Research, which has resulted in a negative self-financing ratio. **As of January 1, 2008, foreign exchange differences are recognized net within operating expenses. See Note 11. Restated from 2004 onward. CASH FLOW SEK MILLIONS Operating revenue Operating expenses excl. depreciation, amortization and impairment losses Income before depreciation, amortization and impairment losses Change in working capital Investments in non-current assets Cash flow before net financial items and tax ORC 09

17 NOTES NOTE PAGE 1 Company information 15 2 Basis of presentation 15 3 Accounting policies of the Parent Company 18 4 Segment reporting 19 5 Development costs 19 6 Related party transactions 19 7 Employees 20 8 Depreciation, amortization and impairment losses 21 9 Other external expenses Derivative assets and liabilities Foreign exchange differences Net financial items Appropriations Income tax expenses Leases Intangible assets Tangible assets Financial instruments Financial assets Shares in group companies Trade receivables Share-based payment Other current assets Equity Trade payables Other current liabilities Bank overdraft facilities Financial risk management and financial instruments Adjusted items in the cash flow statement Cash and cash equivalents Events after the balance sheet date 28

18 NOTES NOTE 1. COMPANY INFORMATION The consolidated accounts of Orc Software AB for the financial year 2009 have been prepared by the Board of Directors and the Chief Executive Officer. The annual report will be presented to the Annual General Meeting on April 14, 2010, for adoption. The Parent Company is a Swedish public limited company (publ) that is listed on NASDAQ OMX Stockholm and domiciled in Stockholm, Sweden. The Group s primary business activity is to provide the global financial sector with solutions for advanced trading and low latency connectivity. NOTE 2. BASIS OF PRESENTATION The consolidated accounts are based on historical acquisition values, with the exception of financial derivatives, available-for-sale financial investments and financial assets measured at fair value through profit/loss. These exceptions are reported at fair value. The consolidated financial accounts are presented in SEK and rounded off to the nearest thousands, if not otherwise specified. Compliance with norms and laws The consolidated financial statements are presented in accordance with International Financial Reporting Standards (IFRS), as adopted by EU, which is in compliance with Swedish law through the application of the Swedish Financial Reporting Board s recommendations RFR 1.2, Supplementary Rules for Consolidated Financial Statements, and RFR 2.2, Accounting for Legal Entities, in the Parent Company. As a consequence of Orc s working methods, where there is a high degree of overlap between sales and support activities and between sales and development activities, Orc presents profit/loss according to the principles for an income statement classified by cost type, which is consistent with the previously applied principles. Scope of consolidation The consolidated financial statements include the Parent Company and all subsidiaries in which the Parent Company directly or indirectly has a controlling influence, as well as associated companies in which the Parent Company has a significant influence. Subsidiaries are consolidated from the date the Parent Company assumed control until such control ceases. The subsidiaries financial statements have the same reporting period as the Parent Company, and financial statements are prepared by using the same accounting principles. Companies that are acquired during the year are included in the consolidated accounts from the date on which the controlling or significant influence passes to the Group until the date on which the influence ceases. All intra-group balances and transactions, including unrealized gains or losses arising from intra-group transactions, are eliminated in full on consolidation. In the consolidated accounts, current assets essentially consist of amounts that are expected to be recovered within 12 months from the closing date. An asset that is recovered more than 12 months from the closing date is classified as non-current. Current liabilities essentially consist of amounts that are expected to be settled within 12 months from the closing date. A liability that is settled more than 12 months from the closing date is classified as non-current. When the criteria for assets and liabilities are not met, these are derecognized from the balance sheet. Of the Group s distributable earnings, approximately 90 % is attributable to Swedish companies. Local dividend restrictions do not have any significant impact on the Group s dividend capacity. General accounting principles BUSINESS COMBINATIONS, IFRS 3 is applied for business combinations, whereby the fair values of identifiable assets and liabilities in the acquired operation are determined on the acquisition date. These fair values include shares in assets and liabilities attributable to any minority interests in the acquired operation. Identifiable assets and liabilities also include assets, liabilities and provisions including obligations and claims from external parties that are not recognized in the acquired operation s balance sheet. No provisions are made for the cost of planned restructuring activities following an acquisition. The difference between the cost of acquisition and the Group s share of identifiable net assets of the acquired operation is classified as goodwill and is recognized as an intangible asset in the balance sheet. GOODWILL In accordance with IFRS 3, Business Combinations, goodwill has an indefinite useful life and is therefore not amortized. Instead, goodwill is tested for impairment at least annually or more frequently if events or circumstances indicate a possible impairment. Impairment exists when the recoverable amount is lower than the carrying amount. The recoverable amount is the lower of net selling value or value in use. Impairment losses are recognized in the income statement. Goodwill is thus recognized at cost less accumulated impairment losses and represents the amount by which the fair value of purchase consideration given in connection with a business combination exceeds the fair value of the acquired operation s identifiable net assets on the acquisition date. IMPAIRMENT LOSSES When the Group assesses goodwill for impairment losses, value in use is determined on the basis of forecasted future cash flows from the cash generating units. The impairment test also includes the determination of a relevant discount rate for these cash flows, based on prevailing market conditions. ASSOCIATED COMPANIES Where applicable, associated companies are reported according to the equity method. The consolidated income statement reflects the Parent Company s share in profit/loss of associated companies, which is recognized in financial items. In the balance sheet, the value of the investment in associated companies is recognized as a separate item. This value changes with the Parent Company s share in the respective company s profit/loss after tax, less dividends received and other adjustments. Undistributed profits in associated companies are recognized in retained earnings in consolidated equity. When the value of the Group s investment in an associated company has been reduced to zero, additional losses and liabilities are recognized only if the Group has assumed a legal obligation to cover these losses. BUY-OUT OF MINORITY When Orc has acquired shares from minority shareholders, the company has considered this to be a transaction between shareholders. According to this method, no gains or losses arise in the consolidated income statement on the purchase or sale of shares where Orc has a controlling influence both before and after the transaction. Instead, the transaction is recognized directly in equity. TRANSLATION OF FOREIGN CURRENCIES The Group s financial accounts are presented in SEK, which is also the functional currency of the Parent Company. Subsidiaries use their respective country s local currency as the functional currency. Transactions in foreign currencies Transactions in foreign currencies are translated to the functional currency at the rate of exchange ruling on the transaction date. Receivables and liabilities in foreign currency are translated at the closing day rate of exchange. Financial statements of foreign subsidiaries The balance sheets of foreign subsidiaries are translated to SEK at the closing day rate of exchange and all items in the income statement are translated at the average rate during the year. Any translation differences thus arising are not recognized over the income statement but are taken directly to equity. Goodwill and other surplus values arising on the acquisition of foreign operations are treated as assets of this operation and are translated to SEK at the closing day rate of exchange. REVENUE RECOGNITION Revenue is recognized in the income statement when it is probable that the economic benefits associated with the transaction will flow to the Group and the amount of revenue can be measured reliably. The Group s revenue consists of system revenue and other revenue. System revenue Recurring revenue The Group s total revenue consists mainly of revenue from software licenses whereby the actual program is regarded as a service, with support and upgrading included in the licensing fee. A smaller portion of the recurring revenue is attributable to network rental. The majority of sales are invoiced quarterly in advance and revenue is recognized over the quarter to which the invoice refers. During 2009, this type of revenue comprised 96 % of all invoicing. 15 ORC 09

19 CONT D, NOTE 2 Upfront licenses and transaction-related revenue For a limited number of software licenses, Orc instead receives an initial payment upon delivery, with a recurring annual support and maintenance fee. Revenue on the initial payment is recognized on the invoice date. Support and maintenance fees are recognized during the period in question and reported as recurring revenue. A smaller portion of the Group s revenue is transaction-related. This revenue is recognized in the quarter in which the transaction took place. During 2009, upfront licenses and transaction-related revenue comprised 3 % of total revenues. Other revenue Other revenue consist mainly of consulting fees, revenue from training and the sale of hardware. Revenue from consulting and training operations is recognized during the period in which the transaction takes place, while revenue from hardware sales is recognized when the significant risks and rewards of ownership of the product have been transferred to the buyer. During 2009, this type of revenue comprised 1% of total revenues. SALES COMMISSIONS Sales commission on new sales are based on the annual contract value. Payments are made quarterly in arrears. This means that the company pays and expenses the sales commissions immediately, while the related revenue is recognized over a periods of months from the date of sale. Commission levels are adjusted on an annual basis. LEASES The determination of whether a contract is, or contains, a lease is based on the substance of the contract. An assessment is made based on whether fulfillment of the arrangement is dependent on the use of a specific asset and whether the arrangement conveys a right to use the asset. Leases are classified as either finance or operating leases. A lease is classified as a finance lease if it transfers substantially all the risks and rewards incident to ownership to the lessee. All other leases are classified as operating leases. For operating leases, the lease payments are recognized in the income statement over the lease term according to the pattern of benefit. Orc only has operating lease commitments relating to leases for properties and equipment for these properties. SEGMENT REPORTING According to IFRS 8, Operating Segments, companies must provide information about their various operating segments. This information is based on how the company is managed and how information is presented for the chief operating decision maker. Orc s opportunities and risks are influenced mainly by the company s activity in different geographical areas based on where the customers are found, for which reason the primary basis for segmentation is geographical areas. Orc s products and services are of a similar nature, cater to a similar category of customers, are distributed in a similar manner and have a similar production process. Orc s operations are thus divided into geographic segments. The local operations consist mainly of sales and support activities, and in certain cases development. Functions such as Executive management, legal affairs, human resources, finance and accounting, administration, marketing, development, etc., are largely centralized and are considered to be joint Group resources. This means that a large share of the Group s expenses cannot be reliably attributed to any specific geographical area and therefore remain unallocated. All intra-group transactions are of such nature that they cannot be attributed to any segment. A segment-based allocation of the Group s assets and liabilities has not been carried out and is thus not included under key ratios either. As a result, Orc does not present such information under segment reporting either. COMPENSATION FOR TERMINATED EMPLOYMENT Payment compensation packages relating to the termination of employment are classified as being either defined contributions or preferential agreements. Orc s payments following termination are based on defined contributions. Defined contributions mean that the company s legal obligations are carried out when the pre-determined contribution is paid out to a separate legal entity. The employee is then responsible for the financial risk and the company has no legal obligation to pay further contributions if this legal entity does not have sufficient assets to pay all benefits. Fees are expensed when they are paid out. SHARE-BASED PAYMENT Orc has implemented three option programs for the benefit of its employees. The programs are divided into two sub-programs one for employees in Sweden and one for employees outside Sweden. Employees in Sweden are invited to acquire options at market price. Employees outside Sweden receive consideration-free options that may be exercised if the holder is still employed at the time of share subscription. When employees acquire options at fair value, this gives rise to no benefit and therefore no personnel cost in the income statement. The option premium paid for the options has increased the Group s cash and cash equivalents and equity by a corresponding amount. The options granted to employees free of consideration are regarded as a benefit and are expensed in the income statement on a straight-line basis over the vesting period. Orc s programs refers to equity-settled share-based payments, which means that the fair value of the option at the date of grant multiplied by the number of options granted is expensed over the vesting period of two years. A corresponding amount is recognized as an increase in equity. The number of options granted is reduced by the estimated rate of employee turnover. Any employment terminations and the estimated employee turnover rate are taken into account in every valuation, and any adjustments are recognized as an increase or decrease in personnel costs. However, no adjustment is made with respect to the fair value of the options. In accordance with UFR 7, IFRS 2 and Social Security Contributions for Listed Companies, estimated social security contributions are calculated. The percentage rate for social security contributions or similar in the country where the option holder resides is multiplied by the market value of options granted on the respective balance sheet date. After taking estimated employee turnover into account, a personnel cost is expensed. Consequently, in this calculation a change in the fair value of the option will lead to an adjustment in the recognized cost of social security contributions. INCOME TAX Income taxes in the consolidated income statement consist of current tax and deferred tax. Deferred tax is calculated on the basis of temporary differences between the tax base of an asset or liability in a company and its carrying amount in the Group. Deferred tax is primarily attributable to appropriations in the Swedish companies as well as the deferred tax liability in connection with the acquisition of Cameron Systems. EARNINGS PER SHARE According to IAS 33, Earnings per Share, both basic and diluted earnings per share must be stated. Diluted earnings per share are calculated after adjustment for the effects of dilutive options in the company. The dilutive effect arising from Orc s option programs, which is accounted for in accordance with IFRS 2, is calculated with respect to the value of future services to be delivered by the employees to the Group. INTANGIBLE ASSETS Utilization period for intangible assets The Group made an assessment of the utilization period relating to brands, customer relationships and technology in connection with the acquisition of Cameron Systems, which effects reported costs for amortization in the income statement as well as the valuation of assets in the balance sheet. Development costs The main principle is that research and development costs for existing products are expensed as incurred. Costs for the development of new products are capitalized as intangible assets when they meet the following criteria: it is probable that the future economic benefits attributable to the asset will flow to the Group, the cost of the asset can be measured reliably, the company has the intention and ability to complete the asset, the company has adequate technical, financial and other resources to complete development and to use or sell the asset, and the cost of completing the intangible asset can be measured reliably. Significant documents for verification of capitalizations can include business plans, budgets, actual outcomes and assessments of future outcomes. The cost of an internally generated intangible asset is the sum of the costs arising from the date on which the intangible asset first meets the criteria stated above until the asset is completed and ready for use. Internally generated intangible assets are amortized on a straight-line basis over the useful life of the asset, from the date on which the asset is ready for use. Internally generated intangible assets are stated at cost less accumulated amortization and impairment losses and are tested for impairment at least annually, or more frequently if events or circumstances indicate that the value may not be recoverable. These intangible assets are recognized within Capitalized development costs. ORC 09 16