Orc holds out for CDI takeover offer as business leaks red ink

Source: Orc Software

The drop in revenue for technology operations during 2011 compared to the prior year is mainly explained by the Swedish krona's strengthening against the US dollar and the euro. Neonet is a disappointment, above all due to shrinking market volumes.

· The annualized contract value (ACV) at year-end 2011 was SEK 656.5m (686.4), a decrease of SEK 29.9m, or 4.4%, compared to year-end 2010. In Q4 2011, ACV fell by SEK 25.0m.
· The transaction net in 2011 was SEK 76.1m (85.2) and the transaction margin was 36% (37). In Q4 2011 the transaction net was SEK 14.5m (30.1) and the transaction margin was 36% (39).
· On December 19, 2011, Cidron Delfi Intressenter AB made a public tender offer to the shareholders in Orc Group AB in exchange for cash consideration of SEK 86 per share. The Board of Orc unanimously recommended that Orc's shareholders accept the offer. The acceptance period for the offer expires on January 27, 2012.
· Due to the public tender offer from Cidron Delfi Intressenter AB, the Board has decided to postpone the proposal of a dividend for 2011.
· In Q4 2011, Orc Group reviewed the value of intangible assets and recognized an impairment loss of SEK 165.0m on intangible assets attributable to transaction operations in Neonet.

October - December 2011

· Operating revenue of SEK 218.0m (268.1)
· Revenue growth of -19%
· Operating income, including impairment losses of SEK 165.0m, of -152.9m (19.2*)
· Operating margin of -70% (7*)
· Income after tax of SEK -161.9m (17.9*)
· Basic earnings per share of SEK -6.89 (0.80*)

January - December 2011

· Operating revenue of SEK 923.1m (976.7)
· Revenue growth of -5%
· Operating income, including impairment losses of SEK 165.0m, of SEK -73.9m (71.5*)
· Operating margin of -8% (7*)
· Income after tax of SEK -103.5m (41.8*)
· Basic earnings per share of SEK -4.40 (1.97*)

The Neonet Group is consolidated as of April 1, 2010. The actual transaction date was April 7, 2010.
*The comparative figures have been restated. See section "Accounting policies, IFRS 3 Business Combinations", in the full report.

CEO Thomas Bill comments:
"The technology operations - Orc and CameronTec - weathered the ongoing turbulence in the global financial markets comparatively well during 2011 and both business areas have expanded their market shares. The combination of our competitive solutions and strong market positions have enabled the technology business to fare relatively well when a number of banks and brokers experienced a continued sharp drop in revenue and were forced to downsize their operations. On the whole, churn in 2011 was on par with 2010.

The annualized contract value - ACV - showed weaker development in Q4 than in the third quarter of the year. This is mainly explained by a soft market in Europe and especially the Nordic region.

The acquisition of Neonet in the spring of 2010 has been a disappointment. Development in our transaction services business has deviated significantly from our calculations, mainly due to lower volumes. As a result, in Q4 2011 we chose to recognize an impairment loss of SEK 165m on intangible assets.

However, the current unrest in the global financial markets is also creating opportunities. More and more participants in the financial market are finding it difficult to carry the costs for IT development on their own, and this also applies to customers of Orc Group's execution services business area Neonet. The launch of Execution Service Provider (ESP), a unique combination of execution services and technology solutions, is creating new opportunities for banks and brokers to improve their customer offerings at the same time that the service results in significant cost savings. The first ESP contracts were signed in Q4 2011.

Another positive factor is that we will soon be launching several new and improved products and services that are nearing the end of the development phase. However, it is still uncertain whether the goal to achieve a minimum operating margin of 20% in a weak market can be reached already in 2012.

All in all, Orc Group is well positioned in a market that is undergoing dramatic changes. In Q4 2011 we identified potential savings and in view of the earnings trend, particularly in Neonet, we will intensify our efforts to enhance efficiency in the year ahead."

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