Orc first half dogged by Neonet losses

Source: Orc Software

The two technology segments Orc and CameronTec continued to develop favorably. The annualized contract value (ACV) rose by SEK 19m compared to the first quarter and operating margin for these two segments was 29% for the second quarter and 28% for the first half of the year.

Brokerage services in Neonet, like the industry as a whole, showed negative development during the quarter despite several new customers. Operating profit was SEK -12m for the second quarter and SEK -16m for the first half of the year.

· The annualized contract value (ACV) at the end of Q2 2011 was SEK 667.5m (750.6), a decrease of SEK 83.1m, or 11%, compared to Q2 2010. · The transaction net was SEK 18.6m (31.7) and the transaction margin was 35% (35) for Q2 2011.

April - June 2011

· Operating revenue of SEK 230.2m (282.7)

· Revenue growth of -19% · Operating income of SEK 32.9m (8.9*)

· Operating margin of 14% (3*)

· Income after tax of SEK 24.5m (5.2*)

· Basic earnings per share of SEK 1.04 (0.22*)

January - June 2011

· Operating revenue of SEK 477.9m (453.0)

· Revenue growth of 5%

· Operating income of SEK 62.4m (36.1*)

· Operating margin of 13% (8*)

· Income after tax of SEK 45.5m (24.1*)

· Basic earnings per share of SEK 1.94 (1.25*)

The Neonet Group is consolidated as of April 1, 2010. The actual transaction date was April 7.

* The comparative figures have been restated. See under "Accounting policies, IFRS 3 Business Combinations" on page 6 in the full report.

CEO Thomas Bill comments: Both Orc and CameronTec reported strong sales in all regions during the quarter and several important contracts were signed. The largest deal of the quarter was with a Nordic customer where a combination of Orc and Neonet technology was delivered. Other key contracts were signed with Orc's first market making customer in France, with a brokerage firm in Asia for continued expansion of DMA solutions and additional contracts with local Japanese customers. Latin America is expected to become an increasingly important market for Orc and significant deals were closed with customers in both Brazil and Mexico during the quarter. Furthermore, several of the largest contracts were managed services solutions. CameronTec was particularly successful in the APAC region during the quarter, and for example signed a major contract with a global bank in Australia. It is also positive that the churn decreased compared to the previous quarter.

The brokerage industry is struggling at the moment, which is illustrated not least by the major changes that have taken place among Nordic brokerage firms in recent months. Neonet has also been negatively affected by declining volumes and more aggressive competition. Although we have succeeded in winning new customers, sales have continued to fall and led to an increased loss for the period. We are taking this situation very seriously and the management is working with several different activities to address these problems.

The key factors for the second half of 2011 are the level of churn for Orc and development of the trading volume for Neonet. Both of these factors are highly dependent on whether uncertainty continues in the global financial markets and how profitability develops among the customers.

All units in Orc Group are continuing to work on development of new solutions, expansion into both new segments and new geographical markets, frequent and constructive contacts with new and existing customers and careful control of costs.

Given the current exchange rates and low transaction volumes in Neonet, it remains uncertain whether the target of a minimum operating margin of 20% in a weak market can be reached already in 2012.

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