ORC SOFTWARE IN BRIEF

Transcription

1 ORC SOFTWARE ANNUAL REPORT 2004

2

3 1 CONTENTS 2 Orc Software in brief 3 History 4 A word from the CEO 6 Business concept, objectives and strategy 8 Market 10 Competitors 12 Products 18 Alliances 19 Quality 19 Environment 20 Employees 22 Risks 24 Directors report 34 Income statement 35 Balance sheet 36 Shareholders equity 37 Cash flow statement 38 Notes 50 Audit report 51 Economic overview 57 Definitions 58 The Orc share 60 Corporate governance 63 Information for shareholders 64 Glossary 65 Addresses

4 2 Orc Software in brief ORC SOFTWARE IN BRIEF Orc Software provides technology for advanced market making, trading and brokerage. The technology is used for trading on exchanges and other financial markets throughout the world. Today, Orc Software s clients are able to trade on more than 90 markets and the company continues to increase its offering of market connections at a fast pace. Clients include international investment banks, trading firms, brokerage houses, Internet brokers, institutional investors and hedge funds. The software offered by Orc Software contains a wide range of functionality. Some of the most central functions include the sophisticated capabilities to analyze prices for derivatives instruments, automatic trading and risk management in real-time for hedging clients positions. The software makes it possible to trade a wide range of instruments including cash and derivatives on equities, fixed income, currencies and commodities. Orc Software invests considerable resources in product development in order to ensure that its products are always leading edge and meeting the requirements of the most demanding users. In recent years the product portfolio has also been expanded with new products for both the most advanced users and users with more basic requirements. Orc Software is a global company with clients in 21 countries and local offices in Chicago, Frankfurt, Hong Kong, London, Milan, Moscow, New York, Stockholm, St Petersburg, Sydney, Tokyo, Toronto, Vienna and Zurich. Since 2002 Orc Software also has a distribution agreement with Reuters. The company was founded in 1987 and has been listed on Stockholmsbörsen since In 2004 revenue equaled SEK 247 million and the operating income amounted to SEK 29 million. Orc Software is a financially very solid company, a key consideration for clients choosing a technology partner. Orc Software licenses its software to clients. Quarterly license fees are related to the number of users and the number of market connections and include new versions and support. In the last few years Orc Software has complemented this license model with other revenue models.

5 ORC SOFTWARE S HISTORY History Company founded by Board member and previous Chief Executive Officer Nils Nilsson, who today works with business development within the company, and Board member Ulrika Hagdahl. The first version of the Orc System is developed Orc Software s proprietary market making activities on the Swedish derivatives exchange cease and focus shifts towards the development and sale of the Orc System First version of Orc Trader launched Orc Software begins its international expansion outside the Nordic countries and acquires its first clients in Switzerland and the UK First clients in Germany, Hong Kong and Italy Orc Software and OMX form a strategic alliance whereby OMX acquires 53 percent of Orc Software. First clients in Australia and Japan Offices opened in London, Milan and Sydney. First clients in the Netherlands and the US Offices opened in Frankfurt, Moscow and New York. Orc Software is listed on Stockholmsbörsen Offices opened in Hong Kong, St Petersburg and Zurich. The Orc ExNet service is launched. First clients in Canada, France and South Korea Distribution agreement signed with Reuters. Offices opened in Tokyo, Toronto and Vienna. First clients in Austria Orc Liquidator, Orc Broker, Orc Futures and Orc Online are launched. Office opened in Chicago. First clients in Belgium Orc Software appoints a new Chief Executive Officer, Jonas Lindström. Promyzer, a mobile application is launched. First clients in Iceland and Singapore.

6 4 A word from the CEO A WORD FROM THE CEO DEAR SHAREHOLDERS, It is a great pleasure for me to address the shareholders of Orc Software for the first time. On December 1, I took over the position of Chief Executive Officer when Nils Nilsson handed over the reins. It is with great enthusiasm that I look forward to taking Orc Software into the future towards new challenges, but also towards new successes. Orc Software is a unique company in many ways. The culture is characterized by continuous curiosity and creativity in combination with a strong desire to always be at the forefront and to develop the latest technology. Ambition is high and motivation is great. These conditions are necessary in a market that never sleeps. The company is built upon competent employees, who over the years have developed Orc Software into the company that it is today a world-class leading edge company. Orc Software is leading the market in the development of the most advanced technology for securities trading. We also have a market leading position with respect to the number of market connections that we offer. THE FINANCIAL MAP IS BEING REDRAWN Electronic trading is taking over more and more at the expense of traditional floor trading. The development of electronic trading is inescapable and favors Orc Software. Banks, brokerage firms, hedge funds as well as exchanges need to invest in new technology or upgrade older technology. Choosing a supplier has become more of a strategic decision, which has resulted in longer sales cycles, a trend that is expected to continue. Today, Orc Software offers access to more than 90 markets, and the effort to increase the number of market connections and link up even more participants continues at an undiminished rate. In 2004 Singapore and Iceland were added to our list of client countries. We are proud to announce that we now have operations in 12 countries and clients in 21 countries. The map of the financial markets is being redrawn. The boundaries are becoming more flexible and markets are becoming more global. Structural transformations result in the arrival of new participants, while at the same time, others are exiting. We are also seeing new ownership structures for exchanges. In addition, we note that our technology is in demand by new participants, for example hedge funds. Given this new picture, Orc Software must continue focusing on adjusting the technology to meet the new demands and finding ways to broaden the use of our technology. Tougher competition has also been seen on the product side with certain banks and brokerage firms developing their own systems, instead of purchasing complete solutions such as the Orc System. This is a development that we are fully aware of and we continue to customize our system based on clients needs. For many years Orc Software has worked to broaden its product range and the work that has been started to modularize the Orc System is an excellent example of how we are handling this competitive situation. Due to efficiency requirements many clients also aim to reduce the number of suppliers. By broadening its product portfolio in order to deliver more complete trading solutions Orc Software is successfully meeting this competition. FOCUS ON PROFITABILITY During the last two years Orc Software has made significant investments in developing the product offering as well as strengthening the support and sales functions. We have invested in building up our organization around the world in order to get closer to our customers. The cost basis for the company has therefore increased at the expense of margins. These investments have resulted in new products reaching several markets. The more traditional products have also been upgraded and further developed. Towards the year-end we were delighted to see that Orc Liquidator is now selling well. This product meets a demand for a specialized segment requiring very advanced technology. Two Nordic clients signed agreements for Orc Liquidator in the fourth quarter. An additional contract was signed on the European market at the end of December. The investment strategy during the past few years has been successful and has resulted in increased interest in our solutions across all markets. A strengthened sales organization has also contributed to increased new sales, especially during the later part of We are now more efficient and are able to present our offering more clearly. Sales in Asia-Pacific represented the largest percentage increase, followed by Sweden. In addition, the number of clients increased in North America, especially in Chicago. But even though new sales were strong during the end of 2004, it is too early to draw any concrete conclusions for the future. Efforts to make the sales, support and product development units more efficient will therefore continue during The objective is to be even more effective at managing our client relationships and to increase sales with both current and new clients.

7 A word from the CEO 5 Going forward the focus is to increase profitability. The profit development for 2004 was not satisfactory. For the most part this was due to the expansion of the organization, the weakening of the US dollar, cancellations of client agreements and cutbacks by certain clients. Altogether this had a dampening effect on the increased new sales during the year. Our advantageous US dollar hedges matured successively during the year. At the beginning of the year we had a dollar rate equal to SEK 9.99 at the end of the year the rate was SEK 6.77 a drop of 32 percent. ELECTRONIC TRADING IS THE FUTURE I look upon the future with confidence. We see an increased activity on all our markets and derivatives trading volumes are increasing strongly. There is much activity, especially in the US, in conjunction with the expansion of electronic trading. The transition from floor trading to electronic trading entails, among other things, great changes in how securities are traded, which increases the need for advanced technology. In addition, the trend clearly indicates that participants want to be able to automatically trade several asset classes on several markets, which results in an increased demand for the products that Orc Software has extensive experience in developing. There are only a few companies in this dynamic industry that can display the collective experience and competence that we have at Orc Software. For many years we have been leading the way in a market that previously did not exist. Now we will continue our efforts to renew, refine and improve and I look forward to being a part of and creating the Orc Software of the future. Stockholm, February 18, Jonas Lindström Chief Executive Officer Orc Software

8 6 Business concept, objectives and strategy BUSINESS CONCEPT OBJECTIVES Orc Software s business concept is to develop and distribute technology for real-time pricing, trading, risk management and market access in electronic financial and commodities markets. Orc Software s overall objective is to be the leading global supplier of technology for electronic trading in the financial and commodities markets. The Orc Technology shall constitute the core technology in the client s business operations, as well as be the first choice for third party developers, consultants and business partners. Orc Software shall also provide service and support of the highest quality.

9 STRATEGY Business concept, objectives and strategy 7 CONTINUED FOCUS ON LEADING EDGE TECHNOLOGY Since the end of the 1980 s Orc Software has delivered leading edge technology for trading on electronic markets. The company s strategy is to continue to invest a significant part of revenues into the development of the Orc Technology. Product development takes place in close cooperation with Orc Software s clients, which provides Orc Software with an extensive insight and in-depth understanding of the development of the market and the clients needs. Improved and expanded functionality is launched on a regular basis, which continuously increases the value of the clients investment in Orc Software s technology. Orc Software works on a continual basis to improve the performance of applications and market connections so that clients are able to execute orders as fast as possible, even for extremely large order volumes. Orc Software s calculation engine is one of the fastest on the market and can manage over theoretical calculations per second. the Orc Technology, to a greater degree, becomes a central part of the clients total technical infrastructure. FIRST-CLASS SERVICE Orc Software is known for its first-class service and support. The company s technology is a business critical part of the clients operations, which makes support on a local level an important component in Orc Software s offering. Through the global support organization, clients have access to support 24-hours a day as well as to specialist competence for more complex issues. Basic support is an integrated part of Orc Software s offering and is included in the license fees. Orc Software s support and account management personnel has a close working relationship with the clients. An important task, in addition to managing everyday assignments, is to find solutions to clients requirements whilst providing Orc Software s development department with information about the market s demands. GLOBAL SALES Orc Software markets and sells the Orc System globally. Sales take place via the company s global office network, whose local The market s demands for compatibility between different systems are steadily increasing. The Orc System is being developed with open interfaces, which facilitates integration and customization according to the users specific needs. Furthermore, Orc Software is investing significant resources in modularizing the technology in order to give clients increased possibilities to choose different components in the Orc System. INCREASED ADVANTAGES WITH THE ORC TECHNOLOGY Orc Software s strategy is to broaden the applicability of the Orc Technology for newly emerging areas within electronic trading. By adapting the technology for new areas Orc Software is able to offer clients a more complete solution. Knowing that the Orc System is constantly being developed in order to meet clients new requirements also makes the system a more reliable choice. Orc Software is also working to stimulate and actively support clients internal IT departments, third-party developers and IT consulting companies to build solutions and products based on the Orc Technology. Thus, value increases for the clients while competence is complemented by global specialists. A local presence is important since an understanding of market-specific conditions is often a decisive part of the sales process. Orc Software also aims to establish distribution cooperation with strong partners in order to broaden and make the distribution of Orc Software s products more efficient. Orc Software constantly monitors the development on the world s financial markets in order to be prepared to act quickly when new business opportunities arise. Geographical prioritization is mostly determined by technology shifts, the market s potential, character and maturity. COMPETENCE DEVELOPMENT The Orc System s advanced functionality provides good opportunities for developing the competence of Orc Software s employees. The combination of highly educated and extensively experienced employees with individually adapted training opportunities, results in an internal exchange of knowledge and the development of a high level of specialist competence by the employees.

10 8 Market ELECTRONIC TRADING INCREASES Orc Software develops software for electronic trading on financial markets. The software is used for order entry, pricing, analysis and risk management of various types of securities. Clients mainly consist of investment banks, brokerage firms, hedge funds and institutional investors. In the market, commercially offered systems compete with in-house developed, client specific solutions. In addition, many exchanges offer simple exchange specific software for order entry. TRENDS The market demands fast and efficient order execution with direct access to many different market places. In addition, reliability and stability are of major importance. Participants in the financial markets invest in comprehensive solutions of trading technology that provide the ability to use the same technical platform on a broader scale. As clients search for new revenue sources the desire to invest in even more sophisticated functionality increases. In 2004 interest increased in the ability to manage and trade several asset classes as well as to automate trading strategies, and this is expected to continue to increase. Below is a description of a number of basic trends which indicate that market growth will continue in the upcoming years. Increased demand for market access An increasing proportion of trading in financial instruments is taking place cross borders. One contributing factor is that participants, to an ever-increasing extent, tend to focus their analysis on cross border industries instead of national stock markets. Being able to trade on several markets and in various currencies increases the opportunities for so-called arbitrage trades. This development has led to increased demand for market access, which has also opened up the opportunity for new trading strategies and the possibility of offering end-clients new types of products. It also increases the requirements for the ability to manage risk on a global basis. Electronic trading The market for trading with financial instruments is constantly developing and more and more market places around the world are switching exclusively to electronic trading. In the US, the trend is especially strong. At the beginning of 2004, 9 percent of the Eurodollar, one of the world s most traded interest rate contracts, was traded electronically on the Chicago Mercantile Exchange. At the end of the year, 75 percent of the contracts were traded electronically. This creates an enormous pressure

11 Market 9 for exchanges with traditional floor trading, such as the New York Stock Exchange, the Chicago Board of Trade and the Chicago Mercantile Exchange, to offer fully electronic exchanges. An increase in electronic trading also means an increased interest in more advanced functionality as well as the companies offering this functionality. Increased automatization Automatization of transaction management provides clients with the possibility of making business processes more efficient. Solutions with open interfaces that enable integration with other applications are especially in demand. For example, order entry by institutional clients may be integrated with the broker s system and thereby take place automatically. For the institutional client this means availability of direct market access and applications that support more advanced trading. Systems that automatically monitor and execute orders are also in demand. These systems create the opportunity to devote more time to analysis and strategy planning while reducing the risk for mistakes. Automatic trading allows clients to manage significantly more orders in less time compared to floor trading. With the assistance of these automated solutions, smaller participants are also able to compete by acting fast, globally and in a cost efficient manner. For example, with the help of advanced technology, hedge funds are now able to challenge larger traditional participants. New types of market places The exchanges have been greatly affected by the globalization of the financial markets during the past few years. Today, exchanges are competing to an ever-increasing degree with alternative trading networks and trading forms. These trading forms allow for trading directly between different banks and brokerage houses without transactions taking place on a formal exchange. Furthermore, competition is also increasing between the traditional exchanges. This is, among other things, reflected in a number of exchanges offering similar contracts and products, which in turn creates a demand for trading these products on several exchanges simultaneously. OPPORTUNITIES AND THREATS Orc Software works in a constantly evolving market, which brings both opportunities and threats. Opportunities Globalization increases demand for market access and risk management. A greater portion of all trading takes place electronically. More and more business processes are being automated. Alternative market places demand new technical solutions. Threats The competition in the market is increasing and there is a risk that Orc Software may not be able to hold its position. The technology is developing rapidly. There is a risk that Orc Software will not be able to adapt the Orc System at the required pace. An economic downturn and decreased client profitability result in a restraint on the clients IT investments, which affects Orc Software negatively.

12 10 Competition DIFFERENT COMPETITORS IN DIFFERENT SEGMENTS These users trade on their own account and need a fast and flexible software that is easily adaptable to their trading strategies. Orc Software believes that there are only a few companies that can offer a product with the same possibilities for client customization of trading strategies for automated trading as Orc Software. Furthermore, Orc Software can offer high performance direct market connections. One competitor is British Apama, which, however, lacks direct market connections. The greatest competition for Orc Software in this segment comes from in-house systems developed by the financial participants themselves. PROPRIETARY TRADING This client segment includes users who, as in the segment described above, also trade for the firm s own account. They have high demands for functionality, speed and reliability. This group is catered to by many of Orc Software s competitors, such as British Ffastfill, Patsystems and EasyScreen, German RTS, US Trading Technologies and FlexTrade, French Murex and Swiss Actant. In-house developed systems also offer important competition in this segment. Orc Software s competition can be described on the basis of three client segments: automated proprietary trading, proprietary trading and brokerage. Many of Orc Software s competitors only offer products for certain client groups, which contribute to a fragmented competitor situation. When considering the instruments that are traded, and the geographical markets that competitors act in, the picture of the competition is split even further. For example, Orc Software offers trading in cash and derivatives on equities, fixed income, currencies and commodities, while several of Orc Software s competitors primarily focus on derivatives trading, such as the British companies Patsystems and EasyScreen, US Trading Technologies and Swiss Actant. Another important competitive advantage for Orc Software is the number of markets that clients are able to trade on. Only French GL TRADE can measure up to Orc Software s offering of market connections. Furthermore, Orc Software has an exceptional position regarding financial stability that makes Orc Software a reliable and long-term partner. AUTOMATED PROPRIETARY TRADING The client segment for automated proprietary trading includes the most advanced users at investment banks and trading firms. BROKERAGE Brokers manage large order flows from the firms clients and require fast execution for clients accounts as well as good control over the status of each client s portfolio. The largest competitors in this segment are French GL Trade, British Royalblue and Swedish Front Capital Systems. DESCRIPTION OF COMPETITORS Below is a brief description of Orc Software s competitors. ACTANT develops software for market makers. The company was founded in 1998 and is privately owned. The head office is located in Zug (Switzerland) and the company has offices in Amsterdam, Chicago, Frankfurt, London and New York. APAMA supplies software that enables the formation and automatic execution of trading strategies. The company was founded in 1999 and is privately owned. The head office is in Cambridge and the company also has offices in London and New York. EASYSCREEN sells software for trading on derivatives exchanges. The company was founded in 1998 and has offices in Lon-

13 Competition 11 don, Chicago, New York and Sydney. The company is listed on the London Stock Exchange. During the period April to September 2004, the company had sales of GBP 1.2 million with a net income after tax of GBP -1.6 million. FFASTFILL offers software for derivatives trading. The company was founded in 1999 and is listed on the London Stock Exchange. The head office is in London and other offices are located in Chicago and Prague. During the year, Ffastfill acquired the US competitor Future Dynamics in order to broaden its offering for the middle and back office. Sales amounted to GBP 1.9 million during April-September 2004 with a loss after tax of GBP -1.6 million. FLEXTRADE SYSTEMS offers a trading system with predefined trading strategies and risk management. FlexTrade was founded in 1996 and is privately owned. The head office is in New York and the company also has offices in London. FRONT CAPITAL SYSTEMS sells systems for trading and risk management for several asset classes. The company was founded in 1987 and is a subsidiary of SunGard Data Systems which is listed on the New York Stock Exchange. Front Capital Systems head office is in Stockholm and the company has representation in Chicago, Frankfurt, Hong Kong, Johannesburg, London, Los Angeles, New York, Singapore, Sydney, Tokyo and Zurich. GL TRADE sells trading systems and like Orc Software has one of the market s broadest offerings of market connections. The company was formed in 1987 and has offices in Paris, Amsterdam, Brussels, Chicago, Frankfurt, Geneva, Hong Kong, Johannesburg, Lisbon, London, Madrid, Milan, New York, Seoul, Singapore, Stockholm, Sydney, Tokyo, Toronto and Zurich. GL Trade is listed on Euronext. During 2004 the company had sales of EUR 150 million. MUREX sells software and services for equities, derivatives, currencies, fixed income and commodities, especially within valuation and risk management. The company, which is privately owned, has offices in Paris, Beirut, Dublin, New York, Singapore, Sydney and Tokyo. PATSYSTEMS supplies software for derivatives trading. The company was founded in 1994 and has offices in London, Chicago, New York, Singapore, Sydney and Tokyo. Patsystems is listed on the London Stock Exchange. During 2004, the company had sales of GBP 11.8 million with a net income after tax of GBP -2.0 million. ROYALBLUE sells software for global trading. The company was founded in 1997 and is listed on London Stock Exchange. Royalblue has offices in Hong Kong, London, New York, Paris, Surrey (UK) and Tokyo. During 2004, the company had sales of GBP 60 million with a net income after tax of GBP 7.6 million. RTS REALTIME SYSTEMS GROUP develops software for exchange trading within several asset classes. The company was founded in 1992 and has offices in Frankfurt, Amsterdam, Chicago, London, New York, Paris, Stockholm and Sydney. The company is privately owned. TRADING TECHNOLOGIES focuses on software for derivatives trading. The company was founded in 1994 and has offices in Chicago, Frankfurt, London, New York and Sydney. The company is privately owned.

14 12 Products THE ORC SYSTEM The Orc System contains advanced functionality for trading and brokerage, allowing order execution, pricing, automatic trading and risk management on electronic markets covering cash and derivatives on equities, fixed income, currencies and commodities. The Orc System s broad suite of products, easy integration with other systems and direct access to a vast number of markets around the world, present a base that is well suited for building and scaling the business for both buy and sell side participants on the financial markets. EXTENSIVE MARKET ACCESS Today the Orc System offers direct market access globally to more than 90 electronic markets, and Orc Software continues to expand this offering as new electronic markets emerge. The extensive market coverage ensures that Orc Software s customers have access to the markets that they want to trade on both locally and globally. Regardless of where they are based in the world, it is very probable that the Orc System will offer connections to customers local markets as well as cover existing and future needs for market access in other countries. designed specifically for futures trading, enabling execution of complex strategies with minimal input. Automated execution of trading strategies In order to accommodate Orc Software s customers requirements for the ability to program their own trading strategies in pace with changing market conditions, Orc Software has developed Orc Liquidator a product with extreme performance. With Orc Liquidator trading strategies can quickly be created as market conditions change and completely new strategies can be deployed as new opportunities appear. Using Orc Liquidator enables trading houses to define their own strategies as well as the parameters driving them, providing the maneuverability of a larger in-house development team, but without the associated cost and lead times. Market making For market making, Orc Trader offers volatility management and automatic quoting of most major instruments in the global financial market place. Orc Software s customers can trade on these markets either through membership or through non-membership connections via Orc ExNet, which is a trading network service offering trading capabilities via brokerage partners. Customers can use the Orc ExNet service as a complement to their regular market connections in order to take advantage of arbitrage and trading opportunities on several markets without the need for membership on all the markets they access. In addition, the Orc System can also be connected to leading market data vendors for receiving extensive price feeds and contributing data. TRADING AND MARKET MAKING Depending on the requirements and the products traded, the Orc System offers different alternatives for proprietary trading. Orc Trader has been Orc Software s flagship trading product for over ten years and is used by professional traders, market makers and risk managers worldwide. For users looking for even more powerful performance and a way to fully control the programming and execution of their trading strategies, Orc Software offers Orc Liquidator. Additionally there is Orc Futures, which is Automatic hedging functions ensure limited risk exposure for the market maker. This, combined with the automatic quoting functionality, enables trading and risk management of a large number of securities on several markets simultaneously. Having quoting obligations fulfilled automatically also frees time for analysis and other activities. Deploying Orc Liquidator provides Orc Software s customers with the foundation to build its own custom-designed market making system. Risk management The Orc System offers extensive support for risk management. The risk management and position keeping functionality enables Orc Software s customers to constantly keep track of risk and profits/losses in real-time. BROKERAGE Within the brokerage segment Orc Software primarily offers Orc Broker, Orc Online and Orc ExNet.

15 Products 13 The Orc Broker is primarily used by brokers to quickly and efficiently execute their customers orders. This Orc front-end facilitates fast access to customer and market data. It includes support for a vast number of order types, including baskets, VWAP, volume orders and other types of care orders that provide effective tracking and management of orders. Using Orc Broker provides brokers with an aggregated view of their customers transactions and orders, allowing them to quickly provide their customers with status reports. For the broker s institutional and retail clients To meet the sophisticated trading needs of such versatile investors as hedge funds and institutions, brokers are able to offer their clients the use of Orc front-ends which provide these clients with the advanced technology required for pricing and execution of complex products. Additionally, the global market access provided by the Orc System enables brokers to deliver best execution for their clients for cross border trades. Using the Orc System for brokerage also enables brokers to offer their clients the Orc Online application. Orc Online is an to consider - presenting brokers with a very cost efficient way of increasing the number of customers. INTEGRATION Orc Software s open interfaces allow both customers and thirdparty developers to integrate their technology with the Orc System. The open interfaces make it easy for users to connect their existing position keeping or back-office systems with the Orc System, enabling them to automate their business processes as well as manage orders originating from external applications. The Orc System can also serve as a technology platform around which a customer can build complementary systems. TECHNICAL INFRASTRUCTURE The Orc server system provides access to electronic markets and stores information about instruments, positions, orders and transactions. The Orc server processes are designed to automatically identify and take advantage of available machine resources, in order to optimize scalability. They run on the most robust operating systems available, Sun Solaris. Sun Microsystems range of servers advanced electronic information and trading system which connects to the Orc System, via the Internet, for direct market access and position keeping. Orc Online can also be white labeled, allowing brokerage firms to use their own branding and in-house or third party data such as news, analysis, quotes and web links. Using Orc ExNet to expand brokerage business Brokers can reach new customers and markets through Orc ExNet. This trading network service from Orc Software allows brokers to offer their clients direct access to exchanges all over the world without the need for exchange membership as well as additional services such as market data feeds and automatic downloading of data. It also enables order routing of any security supported by the Orc System. Orc ExNet is an out-of-the-box solution with a very short timeto-market. Through standard functionality in the Orc System, a connection to Orc ExNet users can be quickly established. There are no cumbersome network connectivity or integration aspects are used for first-class performance, scalability and availability for the critical central data used by the system. The client applications are supported by Windows and Mac OS X operating systems. The Orc Online application is available for Windows. Trading Proprietary traders trade on their own account. Market making Market makers have the obligation to quote buy and sell prices on an ongoing basis for the financial instruments that they are managing. Brokerage Brokers trade on behalf of their clients: the institutional and private investors.

16 14 Products MARKET CONNECTIONS February 2005 Europe Amsterdam Switch Austria Stock and Options Exchange CATS Copenhagen Stock Exchange EUREX EuroMTS Switch ÖTOB CATS-OS CSE EUREX MTS Euronext North America Euronext.liffe Euwax Iceland Stock Exchange Irish Stock Exchange LIFFE CONNECT Euwax ICEX ISE XETRA AMEX Archipelago Boston Options Exchange Bourse de Montréal BRUT Chicago Board of Trade Chicago Board Options Exchange BOX BdM e-cbot CBOE Italian Derivatives Market Italian Stock Exchange Italian Stock Exchange London Stock Exchange London Stock Exchange London Stock Exchange London Stock Exchange Madrid Stock Exchange IDEM MTA SeDeX SEAQ SETS SETS DTS RSP Chicago Futures Exchange Chicago Mercantile Exchange Eurex US INET (Instinet) International Securities Exchange Nasdaq Nasdaq Liffe Markets New York Stock Exchange OneChicago Philadelphia Stock Exchange Toronto Stock Exchange Toronto Stock Exchange Venture CFE CME ISE NQLX PHLX TSX TSX Vent Mercado Español de Futuros y Opciones Mercato Telematico delle Obligazioni Nordic Growth Market OMX OMX OMX (Stockholmsbörsen) Oslo Stock Exchange Quotrix Riga Stock Exchange Swiss Exchange Tallinn Stock Exchange TLX MEFF NCW NGM SOM HEX OSE RSE SWX TSE TLX virt-x Warsaw Stock Exchange WSE Xetra XETRA Xetra Vienna WBAG

17 Products 15 Asia-Pacific Australian Stock Exchange Hong Kong Exchanges ASX SEHK, HKFE JASDAQ Korea Stock Exchange KSE Korea Stock Exchange ITS KOSDAQ Osaka Securities Exchange Singapore Exchange OSE SGX Other Sydney Futures Exchange Taiwan Futures Exchange Taiwan Stock Exchange SFE TAIFEX TSEC Nord Pool SEB TSI Tokyo International Financial Futures Exchange TIFFE Data vendors Tokyo Stock Exchange TSE BridgeFeed Global HyperFeed North America Reuters Global Key to connections Orc Orc ExNet Orc & Orc ExNet Equity Cash Equity Derivatives Fixed Income Power Foreign Exchange

18 16 Products THE ORC PRODUCT RANGE ORC LIQUIDATOR Orc Liquidator is developed for users who desire full control over the programming and execution of their trading strategies. The product has been developed to ensure extreme performance. Users of Orc Liquidator can define both the strategy as well as the parameters that drive it, providing the flexibility of an inhouse development team, but without the associated costs and lead times. The trading edge comes from being able to quickly adapt trading strategies as market conditions change as well as quicky deploy completely new strategies as new opportunities appear in the market place. ORC TRADER The Orc Trader front-end is developed for professional traders and risk managers. The application meets the high requirements set by international traders to be able to handle extreme trading volumes, fast execution and comprehensive risk management. Orc Trader is highly flexible and can in many respects be customized and automated according to the requirements of the user. ORC FUTURES The Orc Futures application, specially designed for futures traders, enables execution of complex strategies with minimal input. Using fast one-click order entry, a trader can quickly enter and exit a market. The automatic trading function in Orc Futures allows for single contracts as well as combinations to be automatically traded in one or multiple markets, which together with the bait order functionality offers a significant edge for traders active in arbitrage or inter-product spread strategies. ORC EXNET Orc ExNet the trading network service provided by Orc Software offers buy-side users such as advanced trading desks and hedge funds as well as sell-side brokers direct access to exchanges all over the world without the need for exchange membership. For brokers this service is a cost efficient way to attract new buy-side customers. ORC ONLINE Orc Online is designed for institutional and retail clients of banks and brokers. The application is an advanced electronic information and trading system, offering clients direct market access over the Internet. Orc Online offers real-time prices, news, charting functionality and a portfolio module, as well as fully integrated order entry functionality based on the Orc Technology. Orc Online can easily be white labeled, allowing the bank and broker to offer their own application to their clients, including tailor made web links and logotypes. Customers usage of the Orc front-ends Orc Orc Orc Orc Orc Customer group Liquidator Trader Futures Broker Online Traders and market makers Risk managers Brokerage houses Institutional investors Private investors ORC BROKER Orc Broker is specially designed for sales traders, sales and brokers. The application is an excellent tool for handling the brokers customer transactions, and provides, amongst other things, price information, order management, analysis of completed transactions and information on buyers and sellers. Orc Broker includes support for a number of order types such as VWAP, volume orders and has the capacity to handle large order volumes while trading on several markets simultaneously.

19 Products 17 Proprietary trading Orc Liquidator Orc Trader Brokerage Orc Broker Institutional investors Orc Trader Private investors Orc Online Eurex Euronext.liffe Orc Technology Orc ExNet London Stock Exchange Euronext Swiss Exchange virt-x Xetra An example of the Orc System set-up on a client site The Orc System can support the trading needs for both brokerage and proprietary trading. As illustrated, some of the client s proprietary traders use Orc Liquidator to define their own strategies for trading futures and options on for example the indices Euro Stoxx and DAX, and on all components of the index. The client s other proprietary traders use Orc Trader. With Orc Broker the sales broker can offer customers access to trading on the stock markets Euronext, London Stock Exchange, Swiss Exchange, virt-x and Xetra and the derivatives markets Euronext.liffe and Eurex. The broker s institutional customers can for example use Orc Trader and the retail investors Orc Online. The customer site has membership connections to Eurex, Euronext.liffe, Swiss Exchange and Xetra. Alongside the membership connections, Orc ExNet is used to provide additional access to Euronext, London Stock Exchange and virt-x without the need for exchange membership.

20 18 Alliances ALLIANCES Orc Software has formed several strategic alliances with the aim of both widening the distribution of the company s products and providing end-clients with cost-effective trading solutions based on the Orc System s order management and trading capabilities. REUTERS Through the alliance with Reuters, the global information company, Orc Software has access to an additional global distribution and marketing channel. For Reuters the alliance means that they can offer brokers and other sell-side firms the combined strength of their own core offering, which includes market data, news and risk management, together with the robust order management and execution of the Orc System. Reuters markets Orc Software s products under the brand name Reuters Order Management for Exchange Execution (ROMEX). Their offering includes standardized components that facilitate integration with widely used middle-office and settlement systems. The cooperation with AtomPro strengthens Orc Software s position within the Euronext region. With Orc Software s multi-market connectivity, AtomPro clients can access global markets using the expertise of AtomPro. Orc Software and AtomPro together represent an exceptional knowledge base to further expand the know-how in advanced trading, and especially the mathematical skills needed to trade in electronic markets. PROMYZER Promyzer allows access to market data and financial news via a mobile phone. When the Promyzer application is linked to a broker or bank, it can also access the users own portfolio as well as trade in real-time on more than 90 exchanges worldwide via the Orc System. This is a white labeled product that can be integrated with the trading systems of brokers, professional traders, asset managers and banks. Promyzer is a venture between Orc Software and Trustlink, where Orc Software owns 59 percent in Promyzer. E2E INFOTECH E2E infotech provides products and services to customers of Orc Software who want to integrate the Orc System with their existing business processes. E2E offers customized add-ons to the Orc System and has developed a portfolio of standardized components for integration with the Orc System. These are costefficient alternatives to many of the adaptations currently managed by the clients themselves. Orc Software owns 34 percent in E2E infotech. INFRONT Orc Software has global distribution rights for Infront s information and trading system, The Online Trader, and markets the product under the name Orc Online. Infront is a Norwegian software development company that provides streamed information and trading solutions over the Internet. Orc Software owns 10 percent in Infront. ATOMPRO AtomPro creates powerful decision support tools for professional traders by combining mathematical know-how, business knowledge and market experience. The company is a leading provider of advanced mathematical trading engines and software for the Dutch liquidity providers.

21 THE IMPOR- TANCE OF QUALITY Quality and Environment 19 Clients place ever-higher requirements on the quality of a trading system. A shutdown in operations can imply lost revenue of significant amounts for clients. Orc Software invests considerable resources in quality assurance. By maintaining high quality, internal resources can be focused on further development instead of correcting problems. Testing and quality assurance are becoming even more important as the technical complexity of the Orc System increases. Orc Software has a specific department for quality assurance, which has overall responsibility for the quality of the delivered product. Before releasing a new version of the software, a series of internal tests are performed. These include automated regression tests, manual regression tests and verification as well as the testing of new functionality. Once these internal tests are passed, the software is released for external testing at a few pilot client sites. After final approval, the new version is released to other clients. During 2004 a number of quality improving measures were implemented. Among other things, a complete version of all software is now created each night and the scope and frequency of the automated tests have been increased. Previously the complete version was not created until the end of the development phase. By creating complete versions on a regular basis and increasing the scope of the automated tests potential problems are captured earlier in the release cycle. Orc Software has a close working relationship with clients. It is often the client who is the initiator behind new functions and improvements to the system. The company uses a call handling system in order to provide good client service, and easily spread information within support and development. The system provides information about problems that occur, gives support in priority situations, and functions as an information database. SMALL EFFECT ON THE ENVIRON- MENT Orc Software develops and markets standardized software with digital production and distribution, which from an environmental point of view implies no significant negative effects on the environment in terms of emissions from the company into the air, water or land. Orc Software s impact on the environment is primarily related to energy consumption in the company s offices and transportation of personnel, which mostly takes place by air due to Orc Software s global coverage. Orc Software s business operations do not impose any particular environmental risks, apart from those mentioned above, and it is the company s view that there does not subsequently exist any risk of significant future costs related to correcting environmental damage. The Group is not involved in any environmental litigation.

22 20 Employees FREEDOM AND RESPONSIBI- LITY CREATE STIMULATING ENVIRON- MENTS Daniele Moressa, Sales, Milan, 3 years with the company. I m primarily involved in new sales on the Italian market. I also manage the Reuters relationship on the Italian level. I like the challenges in my job to convince customers that we offer what they are really looking for. As an employee at Orc Software, you feel that you contribute to the growth of the company. Part of this, I think, is due to the management. They are very open-minded and you can share your ideas with everyone. For example, I was introduced to the CEO of the company and freely chatted with him on my first visit to the office in Stockholm, something that was not very usual in my previous working experiences! Molly McMahon, Trading Software Specialist, Chicago, 1 year with the company. As a Trading Software Specialist, my job is to handle the incoming support issues our customers have, whether they are functional, technical, or exchange-related. Because our software is specialized, it only follows that our support has to be specialized. We spend a lot of time with each customer, understanding the way they trade and how they can use our software in the most efficient manner. Our customers demand only the best, and they consistently raise the bar at which everyone performs. Erik Heimdahl, Senior Software Developer, Stockholm, 12 years with the company. I work with the core system, which means that I am involved in the specification, design and implementation of central components in the Orc System. I have a lot of freedom in my work, but at the same time this is combined with a great responsibility; there are no free rides. I also appreciate the close contact with clients. Since the Orc System is a very business critical product you get quick feedback. If you were to do something that wasn t quite right you will quickly know about it. Guido Eugen, Business Analyst, Orc ExNet, Hong Kong, 1 year with the company. I am responsible for selling the Orc ExNet offering in the Asia- Pacific region. In this job I speak on a daily basis to people in many different countries, organizations and cultures, which I find very stimulating. As a new employee at Orc Software, you have to take responsibility from day one. This is quite challenging but at the same time very rewarding. The segment of clients that we service includes some of the most demanding traders in the market. They know what they want and ask you very specific questions. Hence the learning curve at Orc is extremely steep. The quality of individuals at Orc is truly unsurpassed. Everyone contributes to making great products and a great place to work. Each of my colleagues carries a tremendous amount of responsibility, and from such responsibility comes a passionate investment in the success of the product. Oksana Cucha, Software Developer, Moscow, 4 years with the company. I develop and maintain the market connections to Euronext, Meff, Warsaw Stock Exchange and Budapest Stock Exchange. Since I also develop the software layer needed by the client to access the servers, I have a lot of contact with support staff and developers from the exchanges. I find it very stimulating to work as a programmer at Orc Software and I appreciate my colleagues. We have a lot of fun and spend time together also after working hours.

23 Employees 21 NEW RECRUITMENT During the year Orc Software continued to grow and recruited 31 new employees. The increase mostly took place within sales and account management/support. The number of employees increased in several of Orc Software s offices; the largest increase was in the US, Hong Kong and Russia. In total, the number of employees amounted to 172 (141) persons at the end of Recruitment has primarily taken place through advertisement on the company s website and via contacts. Turnover among key personnel remained low. Number of employees per region Dec 31, Employees in figures Total number of employees at year-end Average number of employees Percentage of women employees Percentage of male employees Added value per employee, SEK million Average age Percentage of employees with a minimum of 3 years education at university level % Sweden 23% Russia 20% Rest of Europe 9% North America 8% Asia-Pacifi c 23 MANAGEMENT CHANGES During the year Orc Software made changes to the management group. Jonas Lindström took over as the new Chief Executive Officer for Orc Software on December 1, The resigning Chief Executive Officer, Nils Nilsson, will focus on business development in his new role within Orc Software. The new Executive Vice President and Chief Technology Officer, Joakim Johansson has taken over from Jonas Hansbo, who is now the Head of Algorithmic Trading. Number of employees per function Dec 31, 2004 INCENTIVE PROGRAMS Orc Software s employees have on several occasions been offered the opportunity to purchase call options in Orc Software in order to increase the employees participation in the company. The company currently has one active option program and one program that expired in March No new program has been offered to employees in More information about the option programs are available in the Directors report on page 32. Orc Software s employees, including the Group management, have the possibility of receiving a bonus in accordance with the company s bonus program. The bonus program for 2004 is based partly on a direct revenue-related bonus and partly on a bonus that is paid out if the Group s revenue growth and operating income exceed the targets set by the Board. The bonus for 2004 encompasses only sales related bonuses, including social security expenses, of SEK 1.0 (2.3) million. No commission or bonus was paid to the Chief Executive Officer or Executive Vice Presidents. In addition to bonuses the company s employees may also receive sales commission. The Board of Directors remuneration committee prepares the bonus programs. 42% Product development 27% Account management/support 17% Sales 14% Company-wide functions Number of employees and total revenue per employee Number SEKm Number of employees Total revenue per employee

24 22 Risks EXTERNAL AND INTERNAL RISK FACTORS over time. There are no guarantees that such faults, which could have negative consequences for Orc Software s clients and thus damage the company s reputation as well as having a negative effect on the growth in revenue and income, will not occur. Orc Software s standard license and support contracts contain a limitation of the Group s liability for damages. DEPENDENCE ON KEY EMPLOYEES The future development of Orc Software depends to a certain degree on retaining key people with specific skills and long experience in the organization. The loss of key people could imply that Orc Software s operations be affected negatively. Orc Software offers considerable responsibility and challenging tasks. There also exist incentive schemes that motivate personnel to become engaged in the long-term development of the company. Orc Software has so far had low staff turnover amongst its key employees. RECRUITMENT OF COMPETENT PERSONNEL There is a shortage of the cutting edge expertise that the company is looking for in certain countries where Orc Software Orc Software s business is exposed to a number of risks, both external and internal. The risk factors that may have the greatest significance for Orc Software s future development are set out below, in no particular order of importance. TECHNOLOGICAL DEVELOPMENT The market for pricing, trading and risk management software in different electronic market places is characterized by rapid technological development. Should Orc Software be unable to adapt existing products or develop new products that reply to technological development in time, or to meet clients needs in a competitive way, the company s operations could be influenced negatively. In order to ensure that Orc Software maintains its frontline position concerning technological development, the company invests considerable resources in ongoing development of the Orc System. It is the company s ambition to continue to invest considerable resources in product development in the future. NEW PRODUCTS Orc Software intends to continue updating the Orc System and to launch new products. It is not unusual for new, complex hightech products to have certain initial faults, which are corrected operates, which in the longer run could affect the company s operations. But due to Orc Software s presence in a number of countries, the company also has the possibility, to a certain extent, of steering development work towards those countries where the availability of labor is currently good. In order to facilitate the recruitment of developers, Orc Software has for several years had development offices in Moscow and St Petersburg since the availability of the type of development skills that Orc Software demands is good in Russia. POLITICAL RISK The absolute majority of the countries in which Orc Software conducts business are considered very politically secure. In some markets, for example Russia, the political risk is higher. Currently however, Orc Software does not see any threat towards the company s continued business in these markets. However, this does not indicate that such a situation will not arise in the future. COMPETITION The market for software for trading on electronic exchanges is fragmented and exposed to competition. It is possible that competition will increase in the future. Orc Software currently

25 Risks 23 believes that the company is ahead of many of its competitors, particularly when it comes to experience, product range, number of market connections, as well as the very advanced technical level of the products. Further Orc Software s financial stability also places the company in a special position in comparison with many of its competitors. An investment in a trading system is long-term, and the client is dependent upon the supplier continuously developing the system. INTELLECTUAL PROPERTY The products marketed by Orc Software consist mainly of software that has been developed within the company over a long period of time. Orc Software believes that the company s proprietary products do not infringe the rights of any third party and the company relies on the copyright protection afforded by Swedish and international legislation. However, it cannot be ruled out that a third party may claim that the company s products or services infringe the intellectual property of others. Such claims could result in Orc Software having to invest significant resources in legal proceedings and/or possible damages. Furthermore, others may attempt to improperly exploit Orc Software s technology or to develop products that wholly or in part infringe the Group s intellectual property. It is not certain whether the Group s insurance would cover costs associated with attempts to intervene against such infringements. LIABILITY Orc Software s products deal with extensive and complex transactions that often involve significant amounts. Clients are located in many different parts of the world, including the US. Although Orc Software attempts to limit the Group s liability for damages in its license and support agreements in various ways, it cannot be ruled out that clients or others may bring claims for compensation for losses or damage that are claimed to have arisen as a result of faults or shortcomings in Orc Software s products or services. Any such claims could result in Orc Software having to utilize significant amounts of its resources for legal proceedings and/or potential damages. It is not certain whether the Group s insurance would cover the costs specified above. Orc Software is not currently the subject of any litigation. For Financial risk management, see page 31.

26 24 Directors report DIRECTORS REPORT The Board of Directors and the Chief Executive Officer of Orc Software AB (publ), corporate identity number and domicile Stockholm, hereby submit the accounts for the financial year 2004 for the Parent company and the Group. ABOUT ORC SOFTWARE Orc Software develops and distributes technology for advanced market making, trading and brokerage on electronic financial and commodities markets. The company s overall objective is to be the market leading global supplier of the technology upon which electronic trading in financial markets as well as commodities markets is based. As of December 31, 2004, the Group consisted of the Parent company, Orc Software AB, and the subsidiaries: Orc Software Pty Ltd. (Sydney) Orc Software s.r.l. (Milan) Orc Software Ltd. (London) Orc Software GmbH (Frankfurt) Orc Software GmbH (Vienna) Orc Software GmbH (Zurich) Orc Software Inc. (New York) Orc Software HK Ltd. (Hong Kong) Orc Software KK. (Tokyo) Orc Software Inc. (Toronto) Orc Software Iberia s.l. (Madrid) Orc Software East AB (Moscow and St Petersburg) Orc ExNet Transaction Services AB (Stockholm) Orc Education AB (Stockholm) Orc Tradelab Robotic Trading AB (Stockholm) Dancharia Research & Trade East AB (Stockholm) Promyzer AB (Stockholm) In Orc Software s.r.l., the Parent company owns 95 percent and the chairman 5 percent of the shares. In Orc Software HK Ltd. and Orc Software GmbH (Zurich) the Parent company holds 99 percent and 95 percent respectively and two other companies in the Group the remaining parts. The ownership of Orc Software s.r.l., Orc Software HK Ltd. and Orc Software GmbH (Zurich) is governed by local regulations. As Orc Software controls the remaining shares in these companies, they are consolidated in full in the consolidated accounts. In Orc ExNet Transaction Services AB, the Parent company owns 72 percent and the three founders of Orc ExNet hold the remaining part. In Promyzer AB, the Parent company owns 59 percent and the remaining 41 percent is owned by Trustlink Holding AB. In Orc Education AB, the Parent company owns 51 percent. The remaining part of Orc Education is owned by Swedish Trading Institute AB. All the other subsidiaries are 100-percent owned by the Parent company. Orc Software also owns 34 percent of E2E infotech Limited. The remaining shares are owned by TradingLab who owns 34 percent and the founders of E2E infotech who own 32 percent. Orc Software owns 10 percent of Game Federation Svenska AB. Furthermore Orc Software owns 10 percent of Infront AS. THE YEAR 2004 During the year Orc Software increased new sales, especially in the last quarter. Despite these sales, earnings development is not satisfactory. To a certain extent this is due to clients own cutbacks, cancellations of client agreements and the weakening US dollar. Furthermore, investments in development, sales and distribution have not contributed to earnings as quickly as the company had expected. As a result the company will be increasing its focus on profitability. MARKETS In the Nordic region investment interest increased in the fourth quarter and two Nordic clients signed agreements for Orc Liquidator. These two agreements had financial effects in the fourth quarter of Following a long period of cost cuts, Nordic participants have started hiring again, which from Orc Software s perspective means possibilities for more sales. Additionally, interest in trading on the Baltic markets has increased. The rest of Europe developed well and another Liquidator agreement was signed at the end of December The financial effect from this agreement will be accounted for in conjunction with delivery in the first quarter of For efficiency reasons many clients aim to reduce the number of suppliers. Since Orc Software has broadened its product portfolio in order to supply full-coverage trading solutions, the company is well positioned among its competitors. There is still a lot of activity in the US due to the increasingly prevalent electronic trading. The transition from manual to electronic trading has led to, among other things, extensive changes in the way securities trading is conducted, which has increased the need for new technology. The ability to trade several asset classes automatically has become more important, even for small participants. The volumes for derivatives trading have also increased significantly due to the widespread electronic trad-

27 Directors report 25 ing. These changes have contributed to Orc Software receiving several new clients, mainly in Chicago, during the fourth quarter. Canadian participants trading has become increasingly global, which has resulted in a growing interest for market connections and automatic trading functionality. In Asia, sales in Hong Kong in particular have continued to develop well. Interest in trading on the Japanese and Taiwanese markets continues to increase especially from participants outside of these countries. Several smaller participants have left the Australian market during the year due to low volatility and tough competition, which has, to a certain extent, affected Orc Software. There is an increased focus on advanced automatic trading in several of Orc Software s markets, which has been confirmed by a positive sales development for Orc Liquidator. The competition from systems developed in-house has increased. Certain clients wish to keep the flexibility and control offered by an internally developed solution. In order to meet this demand Orc Software has both developed Orc Liquidator and begun to modularize the Orc System in order to provide clients with an increased choice regarding which components they wish to buy. Orc Software s strong position in regard to the number of offered market connections provides a significant competitive advantage. Furthermore it has become more important to be able to meet the demand for technology that enables trading in different asset classes, an area in which Orc Software has extensive experience. Another trend is an increase in demand from institutional and private investors for more advanced trading technology. In many cases, the requirements from these participants are similar to the demands from larger investment banks and brokerage firms. FUTURE OUTLOOK Orc Software s investments in sales and distribution in previous quarters have now begun to show results in terms of increased new sales. In addition, the company is seeing a general increase in activity on most of the company s markets. This means that the company sees a solid foundation for continued positive development of new sales. The effect on total revenue, however, is expected to be small due to received cancellations and cutbacks. SIGNIFICANT EVENTS DURING THE PERIOD Changes in management Jonas Lindström was appointed the new Chief Executive Officer of Orc Software and started on December 1, Jonas Lindström was most recently Chief Executive Officer of Front Capital Systems. Nils Nilsson, Orc Software s previous Chief Executive Officer, is now working with business development and is a member of the company s Board of Directors. Furthermore, Joakim Johansson, previously Head of Development, has been appointed as the new Executive Vice President and Chief Technology Officer. Reuters alliance Reuters markets Orc Software products under the trademark Reuters Order Management for Exchange Execution (ROMEX). During the fourth quarter several clients signed contracts for ROMEX. In November, Reuters launched the product in Spain and agreements were signed with local participants on the Spanish exchanges SIBE and MEFF. A number of clients have chosen to sign agreements for ROMEX in conjunction with the conversion to Euronext.liffe s technology for the derivatives exchange in Amsterdam. In Germany and Switzerland a number of local brokerage houses and banks have signed contracts and plan to start using the application in the beginning of The timing of the launch of ROMEX in a managed solution will be reassessed pending completion of a new Reuters technical center. Therefore, resources for ROMEX in 2005 will focus on the marketing of REBS (Reuters Equity Brokerage Suite). REBS combines the price discovery, global news and analytics benefits of Reuters 3000 Xtra, the exchange connectivity and trading benefits of the deployed version of ROMEX and order routing capabilities of RORE (Reuters Order Routing for Equities). RORE will also shortly be connected to Orc ExNet. Orc ExNet In the fourth quarter Orc ExNet established collaboration with Interactive Brokers for market access to leading derivatives exchanges in the US. Additionally, collaboration was established with AOT Stockbroking for market access to the Australian Stock Exchange. Earlier in 2004 Orc ExNet signed an agreement with Crédit Agricole Cheuvreux and E*TRADE Securities. In total, Orc ExNet now works together with more than ten

28 26 Directors report brokerage firms, which provide Orc Software s clients with several alternatives for trading in Asia, Australia, Europe and North America without exchange membership. Market connections As of December 31, 2004, Orc Software had direct market connections to 83 exchanges. During 2004 connections to the following markets were established: Archipelago, US CATS-OS, Germany Chicago Futures Exchange, US Eurex US, US Euronext.liffe, Netherlands KSE Cash, South Korea KSE ITS, South Korea London Stock Exchange, SETS DTS, UK London Stock Exchange, SEAQ, UK Mercado Telematico delle Obligazioni, MOT, Italy Nord Pool, Nordic region Madrid Stock Exchange, Spain Singapore Exchange, Singapore Warsaw Stock Exchange, Poland As of December 31, 2004, via its cooperation partners, Orc ExNet offers 49 non-membership market connections in Asia, Australia, Europe and North America. Hun Research In order to educate a new generation of traders in advanced automated technology and to ensure that Orc Software today and in the future is able to provide by far the best technology for automated trading, Orc Software has entered into a cooperation with Singapore-based Hun Research. Hun Research provides technology and administrative assistance to smaller trading firms in return for a share of the firms trading income. Hun Research provides Orc Software with valuable information regarding the demands facing the markets worldwide and is an important part of the development of Orc Software s technology. Share repurchase During the fourth quarter Orc Software repurchased of its own shares. In total Orc Software has acquired Orc shares for SEK 30 million in accordance with the authorization from the Annual General Meetings in 2003 and Repurchased shares equal 3.5 percent of the total number of outstanding shares of Excluding Orc Software s holding, the number of shares equals The par value of the repurchased shares amounted to SEK The aim with the repurchase authorization is to provide the Board of Directors with the possibility to create further value for the company s shareholders by being able to change the company s capital structure. Product development During the year a number of changes took place within the research and development department. Joakim Johansson was appointed new Executive Vice President and Chief Technology Officer. Furthermore, the research and development department was divided into four areas; core technology, front-end product development, algorithmic trading and quality assurance. During the year Orc Software continued to focus significant development resources on Orc Liquidator. The next version of Orc Liquidator will be released in the first half of Orc Trader, Orc Futures and Orc Broker have also been further developed during 2004, especially with regards to functionality for automatic trading and basket trading. Significant resources have Total revenue, expenses and operating income SEKm Total revenue Operating expenses Operating income

29 Directors report 27 Revenue per geographic market % Sweden 7% Rest of Nordic 45% Rest of Europe 11% Asia-Pacifi c 10% North America been invested into simplifying the management of order flow, a simpler and quicker order entry and a general improvement in user-friendliness. The entire Orc System has been adapted so that the system may also be offered as a hosted solution. A part of Orc Software s development resources has focused on modularizing and increasing the flexibility of the product offering. A total of 14 new market connections were completed during the year. In addition, maintenance, updates and performance optimization on a number of current market connections took place. Within the framework of Orc Software s investment in North American markets, development on several North American market connections has begun. These are expected to be finished during the latter part of REVENUE 1 Full year 2004 The Group s revenue decreased during 2004 by 1 percent to SEK 247 (249 in the corresponding period 2003) million. Excluding work performed by the company for its own use and capitalized, revenue increased by 4 percent. Systems revenue increased by 1 percent, equivalent to SEK 2 million, to SEK 226 (224) million and amounted to 91 (90) percent of total revenue. Using an unchanged dollar exchange rate, systems revenue would have increased by approximately SEK 11 million. The increase is primarily due to a good inflow of new clients. Initial revenue for Orc Liquidator and other systems revenue of a one-off nature amounted to a total of approximately 9 percent of systems revenue for The revenue model for Orc Liquidator contains an initial payment that varies depending on the scope of the installation, application and the size of the continuous license fees. As the product becomes more established the business model for Orc Liquidator will most likely be more similar to the traditional revenue model. Other operating revenue increased by 62 percent to SEK 21 (13) million and primarily represents hardware sales as well as professional services. The remaining revenue is related to development work performed by the company for its own use and capitalized, which decreased considerably from SEK 12.0 to 0.9 million. Orc ExNet s total sales increased during 2004 compared to the previous year. The number of clients increased significantly and current clients have invested in increased network capacity. The average client s trading activity has, however, decreased compared to the previous year, which has had a negative effect on Orc ExNet s transaction revenue. During 2004, revenue from clients located outside Sweden represented 73 (75) percent of total revenue. At the end of December 2004, Orc Software had clients in a total of 20 (19) countries. Revenue per geographic market SEK million Change Sweden % Rest of the Nordic countries % Rest of Europe % Asia-Pacific % North America % Work performed by the company for its own use and capitalized % Total % Sales to Asia-Pacific accounted for the largest percentage increase, followed by Sweden. The increase in these markets is primarily due to revenues from Orc Liquidator and sales to new clients. Sales in the rest of Europe increased somewhat while in North America and the rest of the Nordic region, sales decreased. The traditional sales in North America developed favorably, the decreased share for North America is due to high Liquidator revenues during 2003 and the weakening US dollar. The number of client sites 2 amounted to 170 (154) at the end of Average revenue per client site 3 amounted during the year to SEK 1.4 (1.4) million. Among the Group s largest clients are several of the world s largest investment banks. The Group s five largest clients represented 1 Revenue and operating margin for are calculated after taking into account an increase in revenue of SEK 0.9 (12.0) million for 2004 subsequent to the capitalization of development expenditure, in accordance with the Swedish Financial Accounting Standards Council s recommendation no.15 (RR15). 2 The number of client sites includes the sites that as of year-end pay a license fee. 3 Calculated as the total systems revenue divided by the average number of client sites for the period.

30 28 Directors report a total of 15 percent of revenue during No individual client represented more than 4 percent of revenue. Quarterly revenue and operating expenses Fourth quarter 2004 The Group s revenue was unchanged in the fourth quarter of 2004 and amounted to SEK 62 (62) million. Compared to the previous quarter revenue increased by 7 percent. SEKm 70 Systems revenue increased by 3 percent compared to the previous quarter. A total of three Liquidator sales were completed in the fourth quarter, of which two affected the quarter financially. Systems revenue increased by approximately 8 percent compared to the previous quarter using an unchanged dollar exchange rate. Other operating revenue increased during the same period by 54 percent and amounted to SEK 6.4 million. Work performed by the company for its own use and capitalized was largely unchanged Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q During the fourth quarter 12 new client sites were added in the US, Italy, UK, Australia and Hong Kong. The number of lost client sites equaled 7 and consisted mostly of a number of sites in Australia and the UK. The number of client sites in these two countries had a net decrease of 1. During the period Orc Software received cancellations regarding 4 client sites, which will impact the number of client sites during the upcoming quarters. Total revenue Operating expenses Breakdown of operating expenses 2004 Orc ExNet s revenues increased somewhat compared to the previous quarter due to an increase in network revenues from new clients EARNINGS Full year 2004 Operating income decreased by 61 percent to SEK 29 (74) million, representing an operating margin of 11.9 (29.9) percent. Fourth quarter 2004 Operating income for the fourth quarter 2004 decreased and amounted to SEK 0.8 (16) million, representing an operating margin of 1.3 (24.9) percent. Compared to the previous quarter operating income decreased by SEK 3.3 million. The decreased income was mainly due to several expenditures of one-off nature such as severance pay, costs in conjunction with recruitment of a new Chief Executive Officer, costs for % Personnel costs 17% Other external expenses 8% Cost of premises 8% Depreciation and amortization 53 6% Purchase cost of goods sold 4% Consulting fees 4% Telecom expenses

31 Directors report 29 certain external consultants and bad debt losses. In total these costs amounted to approximately SEK 5 million. Furthermore, the increase in sales for this quarter contributed to increased expenditure related to sales commission. Sales commission is based on the annual value of newly signed contracts, which is why the company s commission costs increase in a strong sales quarter. OPERATING EXPENSES 4 Operating expenses increased during 2004 by 25 percent to SEK 218 (175) million. Approximately 26 percent of the cost increase is related to higher purchase cost of goods sold and increased amortizations of capitalized development expenses. Orc Software s venture into mobile trading, Promyzer, as well as increased marketing and sales overhead amounted to 24 percent of the increase in costs. The remaining part is primarily related to increased personnel costs. In comparison to the previous quarter operating expenses increased by 14 percent. The weakening of the US dollar has provided certain support on the cost side. Personnel costs increased during 2004 by 24 percent to SEK 115 (93) million. During the same period the average number of employees increased by 15 percent. One of the contributing factors to the increase in personnel costs is recruitment in conjunction with a continued strengthening of the sales and development organizations. In comparison to the third quarter, personnel costs increased by 15 percent for the fourth quarter. Higher sales commissions arising from a positive sales development in the fourth quarter as well as severance pay and other personnel costs of one-off nature explain approximately 75 percent of the increase in costs. Since Orc Software has recruited employees in the fourth quarter, fixed salary costs will increase somewhat in the first quarter of The variable salary costs will depend on the continued sales development. The purchase cost of goods sold increased by SEK 6.5 million and amounted to SEK 12.2 (5.7) million, primarily due to increased hardware sales and consultancy fees. In relation to the third quarter these costs were largely unchanged. Cost of premises was largely unchanged during 2004 compared to Cost of premises during the fourth quarter was unchanged compared to the previous quarter. 4 Due to Orc Software s working methods, whereby there is a considerable overlap between sales and support work and sales and development work, Orc Software reports its results according to the principles for an income statement presented by type of cost. Telecom expenses increased by 25 percent during 2004 and amounted to SEK 9.4 (7.5) million. The increase is primarily a result of more market connections and thus increased costs for connecting to exchanges in order to develop and maintain these connections. The cost in comparison to the previous quarter was unchanged. Consulting fees, related to product development, decreased somewhat compared to the previous year and amounted to SEK 7.6 (7.8) million. Compared with the previous quarter these costs decreased marginally. Other external expenses increased by 27 percent to SEK 38 (30) million during The increase is primarily due to the increase in travel costs, an increase in the use of external consultants (not related to product development) and more marketing activities compared to the previous year. In relation to the previous quarter Other external expenses increased by 40 percent from SEK 8.6 to SEK 12.0 million. The increase is explained by costs for external consultants in a project for expanding functionality within the broker segment, assumed and expensed bad debt losses and increased marketing activities. Depreciation and amortization increased by 38 percent and amounted to SEK 18 (13) million. This is due to the completion of the development project in St Petersburg and that amortization of this intangible asset thereby began during the fourth quarter In comparison to the previous quarter depreciation and amortization was unchanged. DEVELOPMENT EXPENSES Orc Software constantly invests considerable resources in product development of new and existing applications. The main part of development expenses consists of salaries. At the end of the year, 72 (61) people worked with product development in London, Moscow, St Petersburg, Stockholm, Sydney and Toronto. Other product development expenses include computer equipment and premises for product developers, as well as external consultants. During 2004 work performed by the company for its own use and capitalized amounted to SEK 0.9 (12.0) million. Amortization of the accumulated capitalized development expenditure during 2004 amounted to SEK 9.7 (3.9) million. The total development expenditure increased by 5 percent for 2004 and amounted to approximately 25 (25) percent of

32 30 Directors report revenue, adjusted for work performed by the company for its own use and capitalized. In absolute terms the development expenses increased mostly due to an increase in internal development resources. The development expenses are expected to represent a significant part of operating expenses also in the future. NET FINANCIAL INCOME Net financial income decreased to SEK 2.8 (5.6) million as a result of a decrease in liquid funds, lower interest rates as well as write-downs of fixed financial assets. The Group s liquid funds amounted to SEK 186 million, of which SEK 137 (216) million consisted of short-term investments. Income after financial items decreased by 60 percent to SEK 32 (80) million. TAXES The tax rate for 2004 amounted to 34 (30) percent. The higher tax rate is due to an unaccounted tax receivable, related to a loss carried forward in a subsidiary. Income after tax decreased by 59 percent to SEK 23 (56) million. Operating and working capital OPERATING CAPITAL AND WORKING CAPITAL COMMITMENT Orc Software s operating capital amounted to SEK -9 (-8) million at the end of The Group did not have any interest bearing debt for the period. The working capital decreased by SEK 1 million to SEK -31 (-30) million. The principal reason behind the negative working capital commitment is the large item of accrued expenses and prepaid income that for the most part consists of license fees, which are invoiced quarterly in advance. ASSET TURNOVER RATIO The balance sheet total decreased during 2004 by 12 percent to SEK 312 (354) million and the asset turnover ratio amounted to 1.1 (1.0). EQUITY/ASSETS RATIO AND EARNING CAPACITY The equity/assets ratio amounted at the end of 2004 to 63 (69) percent. During 2004 return on capital employed amounted to 15 (33) percent, and return on equity to 11 (23) percent. CASH FLOW AND INVESTMENTS The Group s cash flow before changes in working capital and investments equaled SEK 32 (59) million in The decreased cash flow was primarily a result of a decrease in operating income, which to a certain degree was countered by lower income taxes paid SEKm Working capital Operating capital The Group s investments amounted to SEK 30 (22) million during To further strengthen Orc Software s expertise within the area for automated and advanced proprietary trading Orc Software has contributed to the financing of Hun Research with an amount equaling SEK 20 million, which has been accounted for as a long-term financial receivable. Other investments mainly concern investments in computer and office equipment equaling SEK 8.3 million. The Group s cash flow after investments amounted to SEK 3.1 (34) million during Cash flow from financing activities amounted to SEK -68 (-56) million, which corresponds to the repurchase of own shares of

33 Directors report 31 SEK 19 (11.2) million and the payment of dividends equaling SEK 50 (45) million. The Group s liquid funds decreased during 2004 from SEK 252 million to SEK 186 million. FINANCIAL RISK MANAGEMENT Foreign exchange risks i) Transaction exposure The majority of Orc Software s invoicing to clients in the Nordic countries takes place in Swedish kronor. Clients outside the Nordic countries are invoiced primarily in US dollars and Euros, although invoicing is also done in Australian and Canadian dollars, Danish and Norwegian kronor, Swiss francs, as well as to some extent in British pounds. The Group has significant exposure in US dollars and Euros, for which revenue exceeds expenses, as well as in British pounds where expenses exceed revenue since the invoicing for UK clients is primarily denominated in US dollars. The Group s exposed net inflow amounted to approximately SEK 70 million in 2004, allocated as set out in the table below. Inflow 2004 SEK million Outflow 2004 SEK million USD 44 GBP -22 EUR 15 JPY -8 AUD 9 CHF -4 DKK 2 HKD -3 CAD 0 Total 70 Total -37 Foreign exchange hedging affected earnings on an operating level by SEK 11.4 (13.7) million. In accordance with the Group s policy, significant net exposure in each respective currency is hedged for the coming 3-12 months, with a certain possibility of deviation in special cases. As of December 31, 2004, future flows equivalent to SEK 36 (94) million had been hedged, consisting of USD 4.0 (6.0) million hedged against the Swedish krona at an average forward rate of 6.77 (9.99) and EUR 1.0 (3.7) million hedged against the Swedish krona at an average forward rate of 8.95 (9.30). The total average remaining duration is approximately 3 (3) and 3 (3) months respectively. At financial year-end, non-realized foreign exchange gains amounted to SEK 0.1 (7.5) million, valued at the SEK/USD exchange rate of 6.61 (7.28) and the SEK/EUR rate of 9.01 (9.09). ii) Balance sheet exposure Significant exposure in foreign currencies is hedged in accordance with Orc Software s policy. Liquidity management As to liquidity risk and credit risk, investments may only take place in instruments that have high liquidity and credit value. This implies that Swedish issuers must be ranked K1 as per Standard & Poor s ratings and that non-swedish issuers must be ranked A-1 and P-1 as per Standard & Poor s and Moody s ratings. The Group s short-term investments, which at year-end amounted to a nominal value of SEK 138 (218) million, consisted of Swedish commercial papers with K1 credit ratings and bank time deposits. Credit risks In general, Orc Software s clients, who among others consist of investment banks, banks and brokerage houses, represent a capital-strong segment with a consequently low risk for bad debt losses. The Group s bad debt losses are negligible due to the fact that clients, on a quarterly or even longer basis, pay in advance and that Orc Software works actively to inform its clients of the importance of paying on time. During 2004 bad debt losses amounted to less than 1 percent of the business s costs. Sensitivity analysis The sensitivity analysis below describes the full-year effect on the Group s operating income due to a change in a number of factors. Effect on operating income Factor Change for full year 2004, SEK million License price +/ 5% +/-11.3 Salary costs +/ 5% -/+5.4 Development expenses +/ 5% -/+3.2 SEK/USD +/ 5% +/ SEK/GBP +/ 5% -/ SEK/EUR +/ 5% +/ Without taking into consideration existing hedging contracts.

34 32 Directors report EMPLOYEES During 2004 the number of employees increased from 141 to 172, an increase of 22 percent. The increase mostly took place within sales and account management/support. The number of employees increased in several of Orc Software s offices, the greatest increase was in the US, Hong Kong and Russia. The total number of employees increased during the fourth quarter by 7. The average number of employees during 2004 was 157 (137). The number of female employees at year-end equaled 30 (24) and the number of male employees equaled 142 (117). The average age of the employees is 32 (31) years. INCENTIVE SCHEME Orc Software s employees including the Group management have during 2004 had the possibility of receiving a bonus directly related to sales, and a bonus that is paid if the Group s revenue growth and operating income significantly exceed the internally set goals. Income for 2004 encompasses only sales related bonuses, including social security expenses, of SEK 1.0 (2.3) million. The Board of Directors remuneration committee prepares the incentive program. OPTION PROGRAMS On a number of occasions all of Orc Software s employees have been offered to purchase call options in Orc Software. One option program issued by Carnegie expired March 1, The exercise price equaled SEK 210 per option, which was higher than the share price at expiration. In total, 39 employees had purchased a total of call options for SEK 19 per option. The options were purchased at a price calculated by the issuer Carnegie. Additionally, all employees in the Group have been granted the opportunity to purchase call options issued by Hagströmer & Qviberg FK at market price. A total of 71 employees purchased a total of call options from Hagströmer & Qviberg. The exercise price for the call option has been set at SEK 80 and the expiration date is March 1, The option premium amounted to SEK per option. Third parties have issued the options in their own profit interest and therefore at a market price, which means that each employee has taken the full risk for the options. The options may be traded on an unofficial market with Hagströmer & Qviberg who set prices each day, just as Carnegie did for previous option programs. All options will be cash-settled by the issuer and the option program will therefore not result in any dilution and will not affect Orc Software s earnings. Orc Software will not have any administrative costs for the program. PROPOSED DIVIDEND The Board of Directors has resolved to recommend a dividend of SEK 1.50 (3.40) per share for 2004, representing a total of SEK 22 (50) million and 92 (89) percent of net income. The proposed record day for dividends is Monday, April 25, If the Annual General Meeting votes in favor of the proposal, the expected payment date for the dividends is Thursday, April 28, The dividends are paid through VPC AB. TRANSACTIONS WITH AFFILIATED COMPANIES Orc Software has during the year purchased development services from E2E infotech Limited, in which Orc Software owns 34 percent, for SEK 3.5 million. During the year Orc Software had foreign exchange hedges with OMX Treasury AB as counterpart, of which the last hedging contract expired in August Furthermore, Orc Software s subsidiary Promyzer leases a server room from OMX Technology AB. The cost amounted to SEK 169 thousand for Nils Nilsson, the previous Chief Executive Officer for Orc Software, currently works with business development for the company and serves on the Board of Directors. Nils Nilsson is also a partner and chairman of the Board for Russian Real Estate Investment Company AB, which in turn owns the property that houses Orc Software s office in St Petersburg as of December The cost of the premises amounted to SEK 19 thousand for The annual value of the leasing contract amounts to SEK 793 thousand, which is the market price. THE PARENT COMPANY The Parent company s revenue increased during 2004 by 3 percent to SEK 238 (230) million. Income after financial items decreased and amounted to SEK 29 (74) million. Liquid funds amounted at the end of the year to SEK 157 (228) million, of which SEK 132 (211) million consisted of short-term investments. THE BOARD S WORK DURING THE YEAR In 2004 Orc Software s Board held 11 (9) meetings and on average 6.7 of the total of 7 Board members were present. At each meeting during the year the Board addressed standard topics such as investments, market development, the company s financial position and other significant issues regarding the company. In addition, issues regarding the annual report, interim reports, the budget, recruitment of a new Chief Executive Officer and comprehensive matters regarding strategy and world analysis were reviewed. The Group s Chief Executive Officer presents strategy-related matters and the Group s Chief Operating Officer addresses economic and financial issues. On a yearly basis the Board adopts rules of procedure that are to be used as a control instrument for the work of the Board. The rules of procedure primarily define the Board s tasks, the agenda for the Board meeting following the Annual General Meeting and other Board meetings, financial reporting to the Board, preparations of the tasks of the Board, rules for the minutes of the Board meeting and quorum. Audit committee The Board has chosen not to establish a separate audit committee. The entire Board will handle control issues addressed to the Board. The company s auditor participates both in a planning meeting and a meeting for reviewing the year-end closing at which time the observations made in the audit of Orc Software s internal controls and financial statements are reviewed. Remuneration committee The Board s remuneration committee consists of Magnus Böcker and Åke Dovärn, the Head of Human Resources is a reporting member. The remuneration committee prepares and discusses proposals regarding incentive programs, benefits and salaries, including sales commissions and bonuses, for the company s employees in general and for the Group management. The Board makes final decisions thereafter. Nominating committee In accordance with the authorization from the Annual General Meeting in April 2004, Orc Software s chairman Magnus Böcker, in conjunction with the third quarter report, has appointed a nominating committee. The nominating committee consists of Magnus Böcker (OMX), Ulrika Hagdahl (Cancale Förvaltning), Björn Lind (SEB) and Olof Neiglick (Nordea). The committee is responsible for presenting a proposal for the members of Orc Software s Board of Directors and the Board s remuneration. ADOPTION OF IFRS 2005 As of January 1, 2005 Orc Software will follow IFRS. The consequences of the adoption of IFRS are described in note 2.

35 Directors report 33 DISTRIBUTION OF EARNINGS The Group The Group s non-restricted reserves amount to SEK 88 million after the year s earnings of SEK 23 million. No provisions for restricted reserves are required. Orc Software AB (publ) ASSURANCE As far as the Board and Chief Executive Officer are aware, the annual accounts are prepared in accordance with the Swedish generally accepted accounting principles for listed companies. The information provided represents the actual state of the company and nothing of material nature has been withheld that could affect the picture of the company that has been created in the annual accounts. Earnings brought forward from the previous year Income for the year Total SEK SEK SEK The Board of Directors and the Chief Executive Officer propose that these funds be distributed as follows: To the shareholders, a dividend of SEK 1.50 per share To be carried forward Total SEK SEK SEK Stockholm, February 23, Jonas Lindström Chief Executive Officer Magnus Böcker Yngve Andersson Åke Dovärn Ulrika Hagdahl Chairman of the Board Per E. Larsson Nils Nilsson Stig Vilhelmson Business development Our audit has been submitted February 23, Ernst & Young AB Björn Fernström Authorised Public Accountant

36 34 Income statement INCOME STATEMENT Group Parent company SEK thousands Note OPERATING REVENUE 3, 5 Systems revenue Work performed by the company for its own use and capitalized Other operating revenue Total revenue OPERATING EXPENSES 3, 4, 5 Purchase cost of goods sold External expenses Cost of premises Telecom expenses Consulting fees Other external expenses Personnel costs Depreciation and amortization Total expenses Operating income 3, 9, FINANCIAL ITEMS Income from participation in associated companies Financial income Financial expenses Net financial income Income after financial items Year-end appropriations Tax on net income for the year Minority s part of the income for the year Net income for the year 3, Earnings per share 6, SEK Number of shares at the end of year, reduced by Orc Software s repurchase of own shares, thousands Average number of shares during the year, reduced by Orc Software s repurchase of own shares, thousands Orc Software does not have any outstanding convertible loans or warrants.

37 BALANCE SHEET Balance sheet 35 Group Parent company SEK thousands Note Dec 31, 2004 Dec 31, 2003 Dec 31, 2004 Dec 31, 2003 ASSETS 3 Fixed assets Intangible assets 16 Capitalized development expenditure Goodwill Other intangible fixed assets Tangible assets 15, 17 Equipment Financial assets 18, 19 Shares in Group companies Shares in associated companies Other long-term financial fixed assets Total fixed assets Current assets Current receivables 20 Accounts receivable Receivables, Group companies Prepaid tax Other receivables Prepaid expenses and accrued income Short-term investments Cash and bank balances 25, Total current assets TOTAL ASSETS SHAREHOLDERS EQUITY AND LIABILITIES 9, 22 Shareholders equity Restricted equity Share capital Restricted reserves Non-restricted equity Non-restricted reserves Net income for the year Total shareholders equity Minority interest Untaxed reserves Provisions Deferred tax liability Total provisions Current liabilities 3 Accounts payable Liabilities, Group companies Tax liabilities Other liabilities Accrued expenses and prepaid income Total current liabilities TOTAL SHAREHOLDERS EQUITY AND LIABILITIES Pledged assets None None None None Contingent liabilities None None None None 7 This item pertains to Orc ExNet.

38 36 Shareholders equity SHAREHOLD- ERS EQUITY Group Share Restricted Non-restricted SEK thousands capital reserves equity Total Opening balance January 1, Dividend for Share repurchase The effect on shareholders equity due to the acquisition of the remaining portion of associated company Reduction of share premium reserve, unregistered Adjustments between restricted and non-restricted shareholders equity Translation difference etc Net income for the year Closing balance December 31, Dividend for Share repurchase Sale of associated company Adjustments between restricted and non-restricted shareholders equity Translation difference etc Net income for the year Closing balance December 31,

39 CASH FLOW STATEMENT Cash flow statement 37 Group Parent company SEK thousands Note OPERATING ACTIVITIES Operating income Adjustment for items not included in cash flow Depreciation and amortization Other adjustments for items not included in cash flow Financial items Income tax paid Cash flow from operating activities before changes in working capital CHANGES IN WORKING CAPITAL Changes in accounts receivable Changes in operating assets Changes in accounts payable Changes in operating liabilities Total changes in working capital Cash flow from operating activities INVESTMENT ACTIVITIES Investments in intangible fixed assets Investments in tangible fixed assets Investments in subsidiaries 18, Changes in financial fixed assets Cash flow from investment activities FINANCING ACTIVITIES Share repurchase Group contribution paid Dividend Cash flow from financing activities Change in liquid funds Opening liquid funds Translation difference/exchange differences in liquid funds Closing liquid funds

40 38 Notes NOTES NOTE 1. ACCOUNTING PRINCIPLES General accounting principles The annual report and accounts have been prepared in accordance with the Swedish Companies Act and the recommendations and opinions of the Swedish Financial Accounting Standards Council currently in force. During 2004 new recommendations regarding remuneration to employees came into effect. According to the recommendation, programs for remuneration following discontinued employment shall either be classified as a defined contribution plan or as a defined benefit plan. Currently Orc Software has only defined contribution plans and shall therefore continue to expense fees for pensions and other commitments. This principle is in total agreement with the previous financial reports. As a result of Orc Software s working methods, in which there is a high degree of overlapping between sales and support efforts as well as sales and development work, Orc Software s income is accounted for according to the principles for income statements classified according to type of cost. Principles of consolidation The consolidated accounts consist of the Parent company and those companies which the Parent company controls, as well as associated companies in which the Parent company has a significant influence. The subsidiaries are consolidated in accordance with the acquisition method. Consequently the book value for shares in subsidiaries is eliminated in the first instance against restricted equity in each subsidiary and thereafter against non-restricted equity. Only the portion of the subsidiary s non-restricted equity that is allowed to be transferred to the Parent company without a required write-down of the holding is included in the Group s non-restricted equity. The Group s income statement includes companies acquired during the year valued with consideration taken only to the holding period. Associated companies Associated companies include companies in which Orc Software is considered to have a significant influence. The accounting of associated companies is carried out according to the equity method. The results from associated companies are included in the consolidated income statement with the Parent company s share of equity and are reported under Financial items. The value of associated companies is reported as a separate item on the balance sheet. See note 11, 18 and 19. The value changes with the Parent company s share of each respective company s profit or loss after tax, reduced by any dividends received and other adjustments. Non-distributed income in associated companies is reported as part of restricted reserves in the Group s equity. Minority interest The minority s part of the income after tax is reported as the Minority s part of the income for the year in the income statement and as Minority interest in the balance sheet. The minority interest includes the minority s share of possible untaxed reserves for the portion that these represent equity. Goodwill Goodwill is reported at acquisition value less accumulated amortizations and contingent write-downs. Goodwill represents the portion of the acquisition cost exceeding the actual value on the acquisition day identified by the net assets of the acquired company. According to current practice goodwill is written down linearly during the utility period, which is assumed to be a maximum of 60 months. See note 16. The value of goodwill is reviewed, however, on a continuous basis with regard to contingent write-downs due to events or changes in conditions that indicate a possibility that the value will not be recovered. Translation of financial statements of foreign subsidiaries The current method has been used for the translation of the financial statements of foreign subsidiaries, which means that the respective balance sheets are converted into Swedish kronor at the rate on the balance sheet date, except for shareholders equity, which is translated at the historical price, while entries on the income statement are translated using an average foreign exchange rate for the year. The differences arising due to the translations do not impact the income statement, but instead are booked directly to shareholders equity. Valuation principles Assets, provisions and liabilities have been valued at acquisition value if not specified otherwise. Product development expenses According to the basic principle, expenses for further development of existing market connections and applications as well as research are expensed on a continuous basis. Expenses for the development of new products should, however, be capitalized based on the principles accounted for below. Expenses for development of new products are reported as intangible assets when they meet the following criteria: - the asset will most likely lead to future financial advantages for the Group, - the acquisition value may be calculated in a reliable way,

41 Notes 39 - the company aims to complete the asset and - the company has technical, financial and other resources for completing the development, utilizing or selling the asset. Significant documents for verifying completed capitalization may be business plans, budgets, results and the company s view of future results. The acquisition value for accrued intangible assets is the sum of the expenses arising at the time the intangible asset met the criteria stated above up until the asset is completed and can be put into production. The accrued intangible assets are written off linearly during the utility period as they are completed. Accrued intangible assets are accounted for at acquisition value with deductions for accumulated amortizations as well as any write-downs. A necessary write-down is determined when events or changes in conditions indicate that the value might not be recovered. These intangible assets are stated as Capitalized development expenditure and have an estimated utility period of 36 months. Work during the accounting year on assets brought forward as intangible fixed assets are taken up as revenue under Work performed by the company for its own use and capitalized, on the income statement. The main part of the entry is personnel costs, cost of premises and external expenses for consulting services. The expense entries have not been reduced for the work regarding capitalized assets, instead the expense is met by the revenue entry. Thus the revenue entry under Work performed by the company for its own use and capitalized does not have an effect on income. During the accounting year the Group s total expenses for development amounted to SEK 63 million of which SEK 0.9 million were capitalized. See note 4 and 16. Other intangible fixed assets The entry Other intangible fixed assets entirely refers to Orc ExNet. This entry is valued at acquisition value with deductions for accumulated amortizations and any write-downs. Any necessary write-downs are determined when events or change in conditions indicate that the value might not be recovered. See note 16. Other intangible fixed assets are written off linearly during the utility period, which is estimated to 60 months. Tangible fixed assets Tangible fixed assets are valued at their acquisition value less accumulated depreciation and contingent write-downs. The need for a possible write-down is determined when events or other conditions indicate that the value might not be recovered. Linear depreciation is used during the asset s utility period according to the following: Servers Other computer and IT equipment Other equipment 60 months 36 months 60 months Capitalized improvement expenses for leased premises are depreciated during the duration of the leasing agreement. Orc Software determines at each year-end if there are any indications that an asset has decreased in value. If this is the case the asset s recovery value is calculated and the asset is written-down to the recovery value. See note 17. Accounts receivable and other receivables Accounts receivable are entered at the invoiced value with deductions for any loss risk. An estimate of doubtful receivables is made when it is no longer probable that the receivable will be paid in full. Doubtful receivables are written-down when the loss is certain. See note 20. Receivables and payables in foreign currencies Receivables and payables in foreign currencies are valued using the rate on the balance sheet date. Receivables and payables in foreign currencies that are hedged are valued at spot rates plus/minus the accrued forward premium. The accrued forward premium is reported with exchange rate differences in the Operating income. Forward contracts related to future invoicing do not correspond to accounts receivable or accounts payable in the year-end accounts. Any unrealized exchange rate difference on the closing day for these contracts is not included in the results, although the amount is specified in note 10 and in the Directors report. Short-term investments and cash and bank balances Returns on short-term investments as well as on cash and deposits in the bank are entered as financial income in the Group s income statement under Financial items.

42 40 Notes Leasing Leasing may be classified as either financial or operational leasing. Financial leasing exists when the significant financial risks and advantages connected to the ownership of an asset are transferred from the lessor to the lessee. All other cases refer to operational leasing. In the case of operational leasing the leasing fee is entered as an expense during the leasing period starting from the point of utilization. Orc Software only has operational leasing obligations regarding the leasing agreements for premises and leasing of hardware for clients. See note 15. Leasing revenue for leased hardware is accrued and recognized as revenue during the life of the agreement. Costs related to the leasing revenue are entered as they are realized. Depreciation takes place according to the same principle as for the Group s other assets in the same class. Leasing contracts mainly follow the client agreement terms and are invoiced quarterly in advance. Revenue recognition Revenue is reported in the income statement when it is probable that the company will receive future financial advantages and that these advantages can be calculated in a reliable way. The Group s revenue consist of systems revenue, work performed by the company for its own use and capitalized, hardware sales, consulting revenue and other revenue. Systems revenue Sales of software program licenses The Group s accounted net revenue primarily pertains to software program licenses. Invoicing takes place quarterly in advance and revenues are allocated over the quarter pertaining to the invoice. Sales of Orc Liquidator An initial payment is received upon a sale of Orc Liquidator. This payment is booked as revenue when delivery of the product is complete. Transaction-based revenue A portion of the revenues for Orc ExNet are transaction-based. These revenues are allocated to the quarter in which the transaction took place. Work performed by the company for its own use and capitalized The entry is defined under accounting principles under the heading Product development expenses. Hardware sales The revenue is accounted for when the significant risks and advantages connected to the user right of the product have been transferred to the buyer and when the revenue amount can be calculated in a reliable way. Consulting revenue The designated time frame for these consulting services is normally short and the revenue is accounted for after the assignment is completed. For certain assignments Orc Software follows the principle of percentage of completion, referred to as contract assignment on Stockholmsbörsen s general guide for the accounting of revenue in technology companies. According to this principle, revenue and expenses for an assignment are accounted for in relation to the assignment s degree of completion on the balance sheet day. The following conditions should be met: - the income can be calculated in a reliable way, - it is probable that the contractor will receive the financial advantages that are connected to the service assignment, - the degree of completion may be calculated in a reliable way and - the expenses incurred and the remaining expenses for the completion of the service assignment can be calculated in a reliable way. Criteria that may indicate a classification as contract assignment are as follows: - system software is not sold without services, - the agreement contains milestones and payments conditioned on the client s acceptance at the various stages, - services included in the agreement can not be purchased from other suppliers, - the system software is marketed as specifically tailored to the client rather than a standard product and - the services mainly represent all the work completed prior to installation. The degree of completion is calculated based on an estimate of how much work remains before the assignment is completed in relation to the total estimated time and the starting point stated in the project plan. When the project is completed the client begins to pay monthly license fees and this revenue is accounted for in the same way as other sales of software program licenses. Internal sales All invoicing of software system licenses takes place centrally from the Parent company and the subsidiaries receive compensation according to the cost plus method, which stipulates that the subsidiaries sales take place at cost plus a reasonable mark-up. See note 5. Cash flow statement Cash flow statements have been prepared in accordance with the indirect method. This means that the net result of payments received and made in the ongoing operations has been calculated by adjusting the net income for the year by the year s change in operating receivables and operating liabilities. Income tax The tax cost in the consolidated income statement consists of paid tax and deferred tax. The deferred tax arises through a temporary difference between the taxable values in the companies and the accountable values in the Group. The deferred tax primarily arises from year-end appropriations in the Swedish companies. See note 14. NOTE 2. ADOPTION OF IFRS 2005 As of 2005 all listed companies in the EU shall prepare Consolidated Financial Statements according to International Financial Reporting Standards (IFRS). The Swedish Financial Accounting Standards Council s recommendations are to a large extent in accordance with the current IAS/IFRS, thus Orc Software s consolidated accounts are for the most part already in compliance with the new regulations. The new regulations are applicable as of January 1, 2005 and the comparative year 2004 shall be restated. The adoption procedures are available in IFRS 1, First-time Adoption of International Financial Reporting Standards, which assumes that all standards shall be applied retroactively. However, a number of mandatory and voluntary exceptions from the main regulations are stated. Orc Software will use the voluntary exceptions that are applicable to the Group. For Orc Software the most important consequences of the transition relate to the accounting of minority interests and financial instruments. Financial instruments are covered in IAS 39 and are applicable as of 2005, in accordance with the adoption procedures figures will not be restated for Below is a summary of the consequences for the net income for 2004, the Group s shareholders equity, the most important changes in the accounting principles and comments on the most important changes. The effects of the transition to IFRS that are accounted for are preliminary and based on current standards, which may change up until December 31, 2005.

43 Notes 41 Income effect, SEK thousands Note Net income for 2004 according to current accounting principles Adjusted for minority s part of income for 2004 A Reversal of goodwill amortization B 96 Net income for 2004 according to IFRS (prelim.) Earnings per share for 2004 according to current accounting principles, SEK 1.60 Earnings per share for 2004 according to IFRS (prelim.), SEK A 1.61 Effect on shareholders equity, SEK thousands Shareholders equity on December 31, 2003 according to current principles Adjusted for minority interests A Shareholders equity on January 1, 2004 according to IFRS (prelim.) Shareholders equity on December 31, 2004 according to current principles Adjustment of opening balance January 1, 2004, see above A Adjusted for minority s part of income for 2004 A Reversal of goodwill amortization B 96 Shareholders equity on December 31, 2004 according to IFRS (prelim.) Effect of the introduction of IAS 39 on January 1, 2005 C Shareholders equity on January 1, 2005 according to IFRS (prelim.) A According to IAS 27, Consolidated Financial Statements, the minority s part of the income for the period shall not be accounted for in the income statement. The equity related to the minority interest is part of the Group s stated shareholders equity but shall be stated separately. The portion of net income for the period related to the minority interest shall be stated in connection with the income statement. The calculation for earnings per share shall also continue to take into account the minority s part of net income for the period. The minority interests of shareholders equity as of January 1, 2004 amount to SEK thousand. Minority s part of net income for 2004 amounts to SEK thousand. B Amortization of goodwill is not allowed according to IFRS 3, Business Combinations. Instead the stated value shall be tested at least once a year or more frequently if circumstances exist that indicate a decline in value. The goodwill post is entirely related to Orc ExNet. The entire amortization for 2004 equaling SEK 96 thousand has been restated and no write-downs have been made. C Effect on shareholders equity on January 1, 2005 according to IAS 39, SEK thousands Embedded derivatives client contract Embedded derivatives supplier contract 23 Foreign exchange contracts valued at fair market value 75 Effect on shareholders equity on January 1, 2005 according to IFRS (prelim.) IAS 39, Financial Instruments recognition and measurement, requires that financial assets and liabilities be classified in different categories that shall be accounted and valued in accordance with the principles applicable to each category. The majority of Orc Software s financial assets and liabilities are classified in a category that is to be valued at the accrued acquisition value. The nature of these types of assets and liabilities is such that the difference between the accrued acquisition value and the acquisition value is zero. Therefore, the transition does not lead to any change in comparison with previous standards. Orc Software s short-term investments are classified in the category Held-to-maturity and will be valued at accrued acquisition value. This does not affect the income or shareholders equity compared to previous accounting standards. All foreign exchange forwards will be accounted for at fair market value directly in the income statement. This differs from current accounting standards in which only the portion of the income from foreign exchange hedging equivalent to a holding in the balance sheet affects income. Client and supplier contracts in a third-party currency contain embedded derivatives. Orc Software has a number of contracts in third-party currencies and the calculation of the value of these embedded derivatives does not have an insignificant effect on equity. IAS 32, Financial Instruments disclosure and presentation, to a certain extent requires increased reporting requirements but is not expected to have any impact on shareholders equity. The balance sheet shall account for derivatives assets and liabilities separately and in accordance with gross accounting. This means that the fair market value of completed foreign exchange forward transactions will be gross accounted as a derivatives asset or liability. The same procedure is applicable for embedded derivatives in client and supplier contracts. The Group s accounting for cash flow will most likely be affected due to the appellation and classification of liquid funds, depending on the duration of the investment, for which IAS 7 differs somewhat compared to current practice. NOTE 3. REPORTING PER SEGMENT According to the Swedish Financial Accounting Standards Council s recommendation number 25, Reporting per segment business segments and geographical areas, the company shall provide information about the businesses various segments, lines of business and geographical areas. Orc Software s risks and opportunities are mainly influenced by the company being operational within different geographical areas based on the location of clients. This determines the primary segment division of the geographical areas. Orc Software s products and services are of similar character, aimed at similar client groups, distributed in a similar manner and have a similar production process. In this way the business consists of only one operating structure and information regarding the classification of the operating structure is therefore not provided. The local operations mainly consist of sales and support efforts and in certain cases development. Functions such as Group management, legal, human resources, accounting and administration, marketing, development, etc. are located centrally and are considered joint Group resources. This means that a great part of the Group s expenses cannot be attributed to a specific geographical area in a reliable way and they therefore remain unallocated. All internal Group transactions are of such nature that they may not be assigned to any segment. The Group s assets primarily consist of liquid funds which for the most part are related to the Parent company. Only the portion of liquid funds used in the operational business for each segment has been divided. Long-term stock positions that do not consist of holdings in subsidiaries or associated companies shall be classified as Available-forsale and shall be assigned fair market value. The stated value as of December 31, 2004 is considered to equal fair market value.

44 42 Notes Group 2004 SEK thousands Europe North America Asia-Pacific Other Total Operating revenue for external clients Work performed by the company for its own use and capitalized Total Income per segment before joint Group expenses Unallocated costs Operating income Net financial income Income after financial items Tax on net income for the year Minority s part of the income Net income for the year Assets and liabilities Assets for the segment (Fixed assets and current assets excl. prepaid taxes) Unallocated current assets Total assets Liabilities for the segment (Short-term liabilities excl. tax liabilities) Unallocated short-term liabilities Total current liabilities Other segment information Investments in tangible assets Depreciation of tangible assets Group 2003 SEK thousands Europe North America Asia-Pacific Other Total Operating revenue for external clients Work performed by the company for its own use and capitalized Total Income per segment before joint Group expenses Unallocated costs Operating income Net financial income Income after financial items Tax on net income for the year Minority s part of the income Net income for the year Assets and liabilities Assets for the segment (Fixed assets and current assets excl. prepaid taxes) Unallocated current assets Total assets Liabilities for the segment (Short-term liabilities excl. tax liabilities) Unallocated short-term liabilities Total current liabilities Other segment information Investments in tangible assets Depreciation of tangible assets

45 Notes 43 NOTE 4. DEVELOPMENT EXPENSES Group SEK thousands The year s development work Amortization of development work Total development expenses NOTE 5. TRANSACTIONS WITH AFFILIA- TED COMPANIES Compensation to the chairman of the Board and Board members is accounted for in note 6. Purchases During 2004 Orc Software purchased development services for SEK (2 039) thousand from E2E infotech Limited, which Orc Software owns to 34 percent. Orc Software s subsidiary Promyzer leases a server room from OMX Technology AB. The cost amounted to SEK 169 (0) thousand for Nils Nilsson, the previous Chief Executive Officer of Orc Software, currently works with business development for the company and serves on the Board of Directors. Nils Nilsson is also a partner and chairman of the Board for Russian Real Estate Investment Company AB, which in turn owns the property that houses Orc Software s office in St Petersburg as of December The cost of the premises amounted to SEK 19 thousand for The annual value of the leasing contract amounts to SEK 793 thousand. Purchases and sales between the Parent company and other Group companies SEK (71 880) thousand of the Parent company s purchases for the year are from other Group companies. SEK (716) thousand of the Parent company s revenues for the year pertains to sales to other Group companies. Most of Orc Software s invoicing is administered by the Parent company. The subsidiaries invoice the Parent company an amount that is based on the subsidiaries actual costs plus a profit margin mark-up, according to the so-called cost plus method. Purchases related to the cost plus method amounted to SEK (67 749) thousand in the Parent company. Foreign exchange forward contracts In 2004 the company had foreign exchange hedges with OMX Treasury AB as the counterpart, of which the last contract expired in August NOTE 6. PERSONNEL Average number of employees Total, of which women Total, of which women Sweden of which the Parent company Australia Canada Germany Hong Kong Italy Russia UK US Other countries Total average number of employees Salaries, other remuneration and social costs Group Parent company SEK thousands Board members and management 5 864* 7 810* 3 972* 7 810* Other employees Total salaries and other remuneration Social costs of which pension costs 2 172** 2 393** 1 379** 1 412** Total social costs Total salaries, other remuneration and social costs *Of which variable salary of SEK 0 (200) thousand. **Of which the Chief Executive Officer and the company s Executive Vice Presidents SEK 296 (320) thousand. Incentive scheme Orc Software s employees including the Group management have during 2004 had the possibility of receiving a bonus directly related to sales, and a bonus that is paid if the Group s revenue growth and operating income significantly exceed the internally set goals. The bonus is based on a percentage of the company s revenue growth and profitability. Income for 2004 encompasses only sales related bonuses, including social security expenses, of SEK 1.0 (2.3) million. The Board of Directors remuneration committee prepares the program. Fee based pension The Group only has fee based pension plans. The pension expense is related to the cost that affects the year s income. Specification of remuneration to the Board The Annual General Meeting 2004 resolved that for the period until the next Annual General Meeting 2005 the compensation for the chairman of the Board shall amount to SEK 250 thousand and for each Board member to SEK 125 thousand, with the exception of Nils Nilsson, who is employed by the company. Compensation to the members of the Board, including social costs, has for 2004 been expensed to SEK 870 thousand consisting of: SEK 332 thousand for 2003 and SEK 538 thousand for 2004, of which SEK 250 thousand is attributable to the chairman of the Board and SEK 620 thousand to other Board members. In addition to regular Board remuneration from Orc Software AB Board member Åke Dovärn has received SEK 75 thousand for his work on the Board of Promyzer AB. Orc Software s Board of Directors consists of 6 men and 1 woman as of December 31, Specification of salaries and other remunerations for Group management Orc Software s Group management consists of the Chief Executive Officer and two Executive Vice Presidents. During 2004 Executive Vice President Jonas Hansbo changed position and was replaced by Joakim Johansson. Chief Executive Officer Nils Nilsson 8 resigned on December 1, 2004 and was replaced by Jonas Lindström. Salaries and other remuneration, excluding gross salary deductions, below represent the period that each person served as Chief Executive Officer and Executive Vice President and/or as a member of Group management. Average number of employees as stated in the note is rounded to the closest whole number. 8 The remuneration committee is currently negotiating the terms for Nils Nilsson s new position and the fi nal decision will be made by the Board.

46 44 Notes 2004 SEK thousands Salary Bonus Pension* Period CEO Jonas Lindström December 1-December 31, 2004 CEO Nils Nilsson January 1-November 30, 2004 EVP Lars Johansson January 1-December 31, 2004 EVP Jonas Hansbo January 1-August 22, 2004 EVP Joakim Johansson August 23-December 31, 2004 Total *Represents gross salary deductions for all persons except Jonas Lindström. As of December 31, 2004 Orc Software s Group management consists of 100 percent men SEK thousands Salary Bonus Pension* Period CEO Nils Nilsson January 1-December 31, EVP Lars Johansson Member of Group management January 1-December 31, 2003, EVP as of March 20, EVP Jonas Hansbo Member of Group management January 1-December 31, 2003, EVP as of September 1, EVP Ulf Sigfridsson EVP and member of Group management January 1-August 31, EVP Ulrika Hagdahl EVP and member of Group management January 1-March 31, Other Group management Per Andersson, member of Group management between February 1- August 31, 2003 and Anders Fogel, member of Group management from March 6-August 31, Total *Represents gross salary deductions for all persons. Employment conditions for Chief Executive Officer Jonas Lindström Jonas Lindström s employment is in effect until further notice, but up to a maximum of 67 years of age. Fixed monthly salary Fixed salary of SEK 250 thousand per month. Pension An undisputable premium based pension benefit, which amounts to 15 percent of fixed salary, is payable to the Chief Executive Officer. Pension deductions are in effect until further notice, but up to a maximum of 67 years of age. Variable salary Two-thirds of the Chief Executive Officer s variable salary represents a quantitative target, which has been set by the company s Board, and one-third represents a qualitative target that is discretionary. The total variable salary for 2005 may amount to no more than 50 percent of the annual fixed salary. Notice period, termination salary and severance pay A mutual notice period of 12 months is valid for Orc Software and the Chief Executive Officer. During the notice period the Chief Executive Officer will receive a remuneration corresponding to the fixed salary and other benefits (pension and insurance including health insurance). In the event of termination by the company, the Chief Executive Officer will receive a severance pay equal to 6 months fixed salary; deductions will be made for any salary received from a new employer. Until and including June 1, 2006 the Chief Executive Officer has a notice period of 6 months would the company s business objectives materially change. In this case the Chief Executive Officer has the right to a severance pay equal to 12 months salary. Deductions will be made for any salary from a new employer. Non-competition clause The Chief Executive Officer has a non-competition clause of 12 months. During this time the Chief Executive Officer will receive compensation from the company each month. The compensation should not exceed 60 percent of the fixed monthly salary at the time the employment is terminated. Deductions will be made for any salary from a new employer. The clause includes a penalty. Pensions and severance pay for Executive Vice Presidents The Executive Vice Presidents have the option for pension savings through gross salary deductions similar to other employees in Sweden. No other pension commitments exist for Executive Vice Presidents. The pension age is regulated in accordance with the Swedish Act on Employment Protection. A 6-month notice period applies in the event of notice of termination by either party. There is no additional severance pay. Option holding Lars Johansson and Joakim Johansson hold call options in Orc Software. The options are issued by a third party at fair market value and will not entail any costs for the company. Nils Nilsson and Ulrika Hagdahl have issued call options which have been sold to Jonas Lindström at fair market value. Other members of the Board do not hold options in Orc Software. Decision and preparation process The Board has a remuneration committee with representatives from the Board and a reporting representative from the company. The remuneration committee prepares and discusses proposals regarding incentive programs, benefits and salaries, including sales commissions and bonuses, for Orc Software s Chief Executive Officer, Group management and in general for other employees. In regard to remuneration for Executive Vice Presidents, the Chief Executive Officer issues a proposal to the remuneration committee, who then presents the proposal to the Board. In all cases the Board makes final decisions. Proposals regarding Board remuneration are proposed by the nominating committee and the Annual General Meeting makes the final decision. Sick leave in the Parent company The percentage of sick leave is reported according to the principle: total sick leave divided by ordinary working hours. Ordinary working hours consist of planned and scheduled working hours including vacation and leave of absence. Sick leave as a percentage of scheduled ordinary working hours per category * Men Women Employees -29 years of age Employees years of age Employees 50- years of age** Total sick leave *Refers to the period July 1- December 31, ** The number of employees in the category is fewer than 10 and is therefore not reported.

47 Notes 45 There are over 60 days of sick leave in the category for women and the percentage for sick leave is relatively high given that the number of people included in this category is low. Sick leave over 60 days as a percentage of total sick leave: 76.7 (65.4). NOTE 7. DEPRECIATION AND AMORTIZATION Group Parent company SEK thousands Amortization of other intangible fixed assets and goodwill Depreciation of tangible fixed assets Amortization concerning capitalized development expenditure Total depreciation and amortization NOTE 8. AUDIT FEES The following compensation has been paid to auditors and audit firms for the annual financial audit and other reviews according to the law as well as for advice and other assistance based on the observations of the review (Audit assignment). Compensation has also been paid for other independent advice (Other assignments), which for the most part consists of tax consultancy. Group Parent company SEK thousands Ernst & Young Audit assignment Other assignments Harmer Slater Audit assignment Graeme Green Audit assignment NOTE 9. FOREIGN EXCHANGE EFFECTS Foreign exchange differences contained in Operating income Group SEK thousands Relating to current operations Total foreign exchange differences contained in Operating income Foreign exchange differences contained in Financial items -566 Total foreign exchange differences that have affected income after financial items Foreign exchange differences contained in Shareholders equity Accumulated foreign exchange differences brought forward Translation differences for the year Total foreign exchange differences contained in Shareholders equity Foreign exchange rates (against SEK) Average rate Closing day rate January-December December USD EUR GBP DKK AUD CHF CAD HKD JPY NOTE 10. FINANCIAL RISK MANAGEMENT Given the nature of the business, the Group is exposed to risk in financial instruments such as liquid funds, short-term investments and foreign exchange forward contracts. The Group also has other financial instruments such as accounts receivable and accounts payable that arise in the ordinary course of business. Risks related to these instruments are mainly: -Foreign exchange risks related to cash flow in foreign currencies -Interest rate risks related to liquid funds and short-term investments -Credit risks related to financial activities Foreign exchange risk is the risk for a change in the value of a financial instrument due to changes in exchange rates. Orc Software s accounting is in Swedish kronor, but the Group has operations in countries throughout the world. This exposes the Group to foreign exchange risk since unfavorable changes in exchange rates may have a negative effect on income and capital. Interest rate risk is the risk for variation in the value of a financial instrument due to interest rate changes in the market. The interest rate risk is described in note 28. Credit risk measures the risk of a counterpart being unable to fulfill its obligations in a financial instrument transaction, thereby causing a loss to the other party. The Group s credit risk is described in note 20, which also provides information regarding substantial risk concentrations. Foreign exchange risks Transaction exposure The majority of Orc Software s invoicing to clients in the Nordic countries takes place in Swedish kronor. Clients outside the Nordic countries are invoiced primarily in US dollars and Euros, although invoicing is also done in Australian and Canadian dollars, Danish and Norwegian kronor, Swiss francs as well as to some extent in British pounds. The Group has significant exposure in US dollars and Euros, for which invoicing exceeds expenses, as well as in British pounds where expenses exceed revenue since the invoicing for UK clients is primarily denominated in US dollars. The Group s exposed net inflow amounted to approximately SEK 70 million in 2004, allocated as set out in the table below. Inflow 2004 SEK million Outflow 2004 SEK million USD 44 GBP -22 EUR 15 JPY -8 AUD 9 CHF -4 DKK 2 HKD -3 CAD 0 Total 70 Total -37 The effect of foreign exchange hedges on income at an operating level equals SEK 11.4 (13.7) million. In accordance with the Group s policy, significant net exposure in each respective currency is hedged for the coming 3-12 months, with a certain possibility of deviation in special cases. As of December 31, 2004, future flows equivalent to SEK 36 (94) million had been hedged, consisting of USD 4.0 (6.0) million hedged against the Swedish krona at an average forward rate of 6.77 (9.99) and EUR 1.0 (3.7) million hedged against the Swedish krona at an average forward rate of 8.95 (9.30). The total average remaining duration is approximately 3 (3) and 3 (3) months respectively. At financial year-end, unrealized foreign exchange gains amounted to SEK 0.1 (7.5) million, valued at the SEK/USD exchange rate of 6.61 (7.28) and the SEK/EUR rate of 9.01 (9.09). The hedged US dollar position of 4.0 (6.0) million US dollar has an actual value of SEK 27 (60) million as of December 31, The equivalent amount for Euro is 1.0 (3.7) million Euro, which is SEK 9 (34) million. Balance sheet exposure Significant balance sheet exposure in foreign exchange is hedged in accordance with Orc Software s policy.

48 46 Notes NOTE 11. PROFIT/LOSS FROM SHARES IN ASSOCIATED COMPANIES Group SEK thousands Share of result in associated companies Result from sale Total profit/loss from shares in associated companies NOTE 12. FINANCIAL INCOME Group Parent company SEK thousands Dividend Interest income Total financial income NOTE 13. YEAR-END APPROPRIATIONS Parent company SEK thousands Transfer to tax allocation fund Utilization of tax allocation fund Excess depreciation Total appropriations NOTE 14. TAX ON NET INCOME FOR THE YEAR The following components are included in the reported tax expense Group Parent company SEK thousands Actual tax cost Paid foreign taxes Adjustment for taxes from previous years Deferred tax expense - refers to tangible fixed assets other* Deferred tax revenue due to temporary differences Reported tax cost *Concerns in its entirety deferred tax on tax allocation fund in the Swedish companies. Reconciliation of actual tax expense Group Parent company SEK thousands Reported income before tax Tax according to weighted average tax rate Tax effect on expenses that are not tax deductible Tax effect on non-taxable income Tax effect on paid foreign tax Actual tax expense The Group s weighted average tax rate, based on each country s tax rate, is 28.9 (29.0) percent and for the Parent company 28.0 (28.0) percent and is calculated according to the Swedish Financial Accounting Standards Council s recommendation number 9 (RR 9). This implies that income before tax, in the above table, is calculated after taking into account year-end appropriations, but without taking into account the tax effects for non-deductible costs, non-taxable income and paid foreign tax. Deferred tax liability Group SEK thousands Deferred tax liability on untaxed reserves in Swedish companies Deferred tax receivable for loss carried forward -668 Deferred tax liability Tax liability Group Parent company SEK thousands Tax liability on the year s income Tax liability Tax receivable Group Parent company SEK thousands Deduction for paid tax Tax receivable on other temporary differences 840 Tax receivable A net tax liability of SEK thousand was reported for 2003 since prepaid tax could legally be set off against the tax liability. NOTE 15. LEASING CONTRACTS Leasing contracts of an operational character that have been entered into are summarized as follows: Premises SEK thousands Group Parent company Charges that fall due: year year year 2010 or later Total The difference between the total future leasing costs as of the closing date and their present value amounts to SEK 1.5 million, discounted at a 5-year risk-free SEK interest rate. Leased fixed assets Hardware to a total acquisition value of SEK 0.6 (0.6) million had been leased out as at December 31, 2004 to clients according to agreements with a duration of 1 year with possibility of extension. Book value amounted to SEK 0.3 (0.2) million. Contracted future leasing revenue amounted to SEK 0.2 (0.5) million. Orc Software has no financial leasing obligations. NOTE 16. INTANGIBLE FIXED ASSETS Capitalized development expenses Group Parent company SEK thousands Acquisition value brought forward Investments during the year Accumulated acquisition value carried forward Amortization brought forward Amortization for the year Accumulated amortization carried forward Net value carried forward Goodwill Group Parent company SEK thousands Acquisition value brought forward Goodwill acquired during the year 324 Accumulated acquisition value carried forward Amortization brought forward Amortization for the year Accumulated amortization carried forward Net value carried forward

49 Notes 47 Other intangible fixed assets Group Parent company SEK thousands Acquisition value brought forward Accumulated acquisition value carried forward Amortization carried forward Amortization for the year Accumulated amortization carried forward Net value carried forward NOTE 17. TANGIBLE FIXED ASSETS Equipment Group Parent company SEK thousands Acquisition value brought forward Investments during the year Disposals during the year Reclassification -630 Translation difference Accumulated acquisition value carried forward Accumulated depreciation brought forward Disposals during the year Depreciation for the year Reclassification 630 Translation difference 377 Accumulated depreciation carried forward Net value carried forward NOTE 18. FINANCIAL FIXED ASSETS Shares in Group companies Parent company SEK thousands Balance brought forward Acquisitions during the year Reclassification of associated company due to acquisition of an additional portion Sales during the year -105 Balance carried forward Shares in associated companies Group Parent company SEK thousands Acquisition value brought forward Acquisitions during the year Reclassification of associated company due to acquisition of an additional portion Sale* Share of profi t/loss in associated companies Deducted from the income part of associated companies** Reversal of previous year s loss*** 516 Accumulated acquisition value carried forward *The sale did not have an effect on the Group s shares in associated companies since the holding had been written-down to SEK 0 at Group level based on the equity method. **Associated companies in which additional shares have been acquired and thereby became subsidiaries. ***As of December 31, 2002 SEK -516 thousand of Shares in associated companies attributed to Orc Tradelab Robotic Trading AB. Other long-term financial fixed assets Group Parent company SEK thousands Acquisition value brought forward Acquisitions Investment in Hun Research* Write-down Change in paid leasing deposit Translation difference Accumulated acquisition value carried forward *Financing of Hun Research is accounted as a long-term financial receivable. The receivable amounts to USD 3 million and is entirely secured by a forward at an average exchange rate of SEK/USD The book value amounts to SEK thousand of which SEK 368 thousand represents a foreign exchange profit due to the foreign exchange forward. Repayments shall be made on a regular basis; however, the entire loan shall be repaid within a five-year period. Interest equal to 1 year LIBOR shall be paid annually. During 2004 interest equal to SEK 268 thousand was booked as revenue, which is equivalent to an interest rate of 2.54 percent. In order to ensure that Hun Research is able to fulfill its obligations regarding the receivable, Orc Software has the right to information about Hun Research s business and financial state. NOTE 19. SHARES IN GROUP COMPANIES AND ASSOCIATED COMPANIES Corporate Registered No of % of Book Group companies identity no office shares capital value Orc Software Pty Ltd Sydney Orc Software s.r.l Milan Orc Software Ltd London Orc Software GmbH hrb Frankfurt Orc Software GmbH FN Vienna Orc Software GmbH Ch Zurich Orc Software Inc. State of Delaware Orc Software KK Tokyo Orc Software HK Ltd Hong Kong Orc Software Inc Montreal Orc Software East AB Stockholm Dancharia Research & Trade East AB Stockholm Orc ExNet Transaction Services AB Stockholm Orc Tradelab Robotic Trading AB Stockholm Orc Education AB Stockholm Promyzer AB Stockholm Orc Iberia s.l. B Madrid Total, SEK thousands Corporate Registered No of % of Book value Book value Associated companies identity no office shares capital Parent company Group E2E infotech Limited London Total, SEK thousands In Orc Software s.r.l., the Parent company owns 95 percent and the chairman 5 percent of the shares. In Orc Software HK Ltd. and Orc Software GmbH (Zurich) the Parent company holds 99 percent and 95 percent respectively and two other companies in the Group the remaining parts. The ownership of Orc Software s.r.l., Orc Software HK Ltd. and Orc Software GmbH (Zurich) is governed by local regulations. As Orc Software controls the remaining shares in these companies, they are consolidated in full in the consolidated accounts. In Orc ExNet Transaction Services AB, the Parent company owns 72 percent and the three founders of Orc ExNet hold the remaining part. In Promyzer AB, the Parent company owns 59 percent and the remaining 41 percent is owned by Trustlink Holding AB. In Orc Education AB, the Parent company owns 51 percent. The remaining part of Orc Education is owned by Swedish Trading Institute AB. All the other subsidiaries are 100-percent owned by the Parent company.

50 48 Notes NOTE 20. ACCOUNTS RECEIVABLE Since the Group s accounts receivable follows accepted payment conditions the value in the balance sheet agrees with the real value. The Group s five largest clients represented a total of 15 (18) percent of revenue during No individual client represented more than 4 percent of revenue. Credit risks In general, Orc Software s clients, who among others consist of investment banks, banks and brokerage firms, represent a capitalstrong segment with a consequently low risk for credit losses. The Group s credit losses were not material due to the fact that clients, on a quarterly or even longer basis, pay in advance and that Orc Software works actively to inform its clients of the importance of paying on time. During 2004 bad debt losses amounted to less than 1 percent of total operating costs. NOTE 21. PREPAID EXPENSES AND ACCRUED INCOME Group Parent company SEK thousands Accrued interest income Other accrued income Prepaid rent and insurance Other prepaid expenses Total prepaid expenses and accrued income NOTE 22. SHAREHOLDERS EQUITY Share capital The share capital amounts to SEK (1 485) thousand, which corresponds to (14 850) thousand ordinary shares with a nominal value of SEK 0.10 per share. The company has no potential ordinary shares. Orc Software s own shareholding During the fourth quarter Orc Software has repurchased of its own shares. In total Orc Software has purchased Orc shares for SEK 30 million, in accordance with the decision from the Annual General Meeting 2003 and Repurchased shares amount to 3.5 percent of the total number of outstanding shares of Excluding Orc Software s shareholding the number of shares equals The nominal value of the acquired shares is SEK The purpose of the repurchase authorization is to provide the Board with the opportunity to create additional value for the company s shareholders by adjusting the capital structure of the company. As of December 31, 2004, the real value of repurchased shares amounted to SEK thousand, based on the last price paid as of December 31, Restricted reserves Restricted reserves consist of a share premium reserve of SEK thousand, the equity portion of untaxed restricted reserves of SEK and other restricted reserves such as the reserve fund and translation differences, etc., of SEK thousand. Earnings per share Earnings per share amounted to SEK 1.60 (3.78). The average number of shares used to calculate earnings per share amounted to Orc Software has no outstanding convertible loans or warrants, thus earnings per share following dilution is not applicable. Proposed dividend The Board of Directors has resolved to recommend a dividend of SEK 1.50 (3.40) per share for 2004, representing a total of SEK (49 725) thousand and 92 (89) percent of net income. Specification of the Parent company s shareholders equity 2004 Parent company Non- Share Restricted restricted SEK thousands capital reserves equity Total Opening balance Jan. 1, Dividend for Repurchase of shares Group contribution Net income for the year Closing balance Dec. 31, Parent company Non- Share Restricted restricted SEK thousands capital reserves equity Total Opening balance Jan. 1, Dividend for Repurchase of shares Other adjustments Reduction of the share premium reserve, unregistered Net income for the year Closing balance Dec. 31, NOTE 23. ACCOUNTS PAYABLE The Group s accounts payable follows ordinary payment conditions and therefore the value in the balance sheet agrees with the real value. NOTE 24. ACCRUED EXPENSES AND DEFERRED INCOME Group Parent company SEK thousands Advance invoicing Accrued expenses, personnel related taxes Other accrued expenses Total accrued expenses and deferred income NOTE 25. OVERDRAFT FACILITIES Group Authorized overdraft facilities amounted to SEK 0 (0). Parent company Authorized overdraft facilities amounted to SEK 0 (0). NOTE 26. FINANCIAL ENTRIES IN CASH FLOW STATEMENT Group Parent company SEK thousands Interest deposits Interest disbursements Dividend Total financial entries in cash flow statement NOTE 27. ACQUISITION OF SUBSIDIARIES During the year an additional 16 percent of Orc Education AB was acquired. Thereby the affiliated company became a 51 percent owned subsidiary to Orc Software. During 2003 a further 50 percent of Orc Tradelab Robotic Trading AB was acquired, which made the company a fully owned subsidiary.

51 Notes 49 Below is the value of acquired assets and liabilities according to the acquisition analysis: Acquisitions SEK thousands Intangible fixed assets 324 Tangible fixed assets 44 Deferred tax receivable 668 Other current assets Liquid funds Short-term liabilities Minority interest in the acquired company -105 From other fixed financial assets -57 Total acquisition value Effect on the Group s liquid funds SEK thousands Total acquisition value Liquid funds in the acquired company Effect on the Group s liquid funds NOTE 28. LIQUID FUNDS Liquid funds consist of cash and bank balances as well as short-term investments as the short-term investments only are subject to insignificant risk for price fluctuations and may easily be converted into cash. Group Parent company SEK thousands Short-term investments Cash and bank balances Total liquid funds The Group s short-term investments consist of Swedish certificates with credit rating K1 according to Standard & Poor s rating scale as well as fixed-term investments in the bank. These investments have high credit value and liquidity and may easily be transferred to cash. Short-term investments are valued at acquisition value and interest is accrued during the life of the investment. The company receives ordinary interest on bank balances according to a variable interest rate. A downward change in the return curve by one percent would decrease the Group s interest income by SEK thousand. Foreign exchange differences in liquid funds pertain to foreign exchange differences on opening liquid funds. Specification of short-term investments 2004 Group SEK thousands Acquisition value Nominal value Actual value, Dec 31 Maturity date Interest rate, % Eltra A.M.B.A SCA Finans AB SCA Finans AB SCA Finans AB Bank time deposits, SEK Bank time deposits, USD Bank time deposits, EUR Bank time deposits, AUD AP Fastigheter AB (publ) Total NOTE 29. EVENTS AFTER ACCOUNTING YEAR-END Balance sheet and income statement will be adopted at the Annual General Meeting.

52 50 Audit report AUDIT REPORT TO THE GENERAL MEETING OF THE SHARE- HOLDERS OF ORC SOFTWARE AB Corporate identity number We have audited the annual accounts, the consolidated accounts, the accounting records and the administration of the Board of Directors and the Managing Director of Orc Software AB for the year These accounts and the administration of the company and the application of the Annual Accounts Act when preparing the annual accounts and the consolidated accounts are the responsibility of the Board of Directors and the Managing Director. Our responsibility is to express an opinion on the annual accounts, the consolidated accounts and the administration based on our audit. We conducted our audit in accordance with generally accepted auditing standards in Sweden. Those standards require that we plan and perform the audit to obtain reasonable assurance that the annual accounts and the consolidated accounts are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the accounts. An audit also includes assessing the accounting principles used and their application by the Board of Directors and the Managing Director and significant estimates made by the Board of Directors and the Managing Director, when preparing the annual accounts and consolidated accounts as well as evaluating the overall presentation of information in the annual accounts and the consolidated accounts. As a basis for our opinion concerning discharge from liability, we examined significant decisions, actions taken and circumstances of the company in order to be able to determine the liability, if any, to the company of any Board member or the Managing Director. We also examined whether any Board member or the Managing Director has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association. We believe that our audit provides a reasonable basis for our opinion set out below. The annual accounts and the consolidated accounts have been prepared in accordance with the Annual Accounts Act and, thereby, give a true and fair view of the company s and the Group s financial position and results of operations in accordance with generally accepted accounting principles in Sweden. The statutory administration report is consistent with the other parts of the annual accounts and the consolidated accounts. We recommend to the general meeting of shareholders that the income statements and balance sheets of the Parent company and the Group be adopted, that the profit of the Parent company be dealt with in accordance with the proposal in the administration report and that the members of the Board of Directors and the Managing Director be discharged from liability for the financial year. Stockholm February 23, 2005 Ernst & Young AB Björn Fernström Authorized Public Accountant

53 ECONOMIC OVERVIEW 9 Economic overview 51 REVENUE Orc Software s revenue consists for the most part of license fees. The remainder normally reflects hardware sales and professional services. As of January 1, 2002 Orc Software capitalizes certain development expenses according to the Swedish Financial Accounting Standards Council s recommendation number 15 (RR 15). The capitalized development expenses are accounted as a separate entry under operating revenue and represent an increase in revenue, for the most part during 2002 and 2003, compared to previous years. During the period revenue increased on average by 38 percent per year. For the most part the growth has been completely organic, except for the 1999 take over of the portion of OMX s distribution organization responsible for sales and support of the Orc System. Of the total increase in sales for 1999, the acquired distribution operations represented SEK 14.9 million and SEK 4.2 million for Previously Orc Software net invoiced OMX for the sales that took place through OMX s distribution business. Orc Software has a significant exposure in US dollars and Euros, which is hedged. Given that the US dollar exchange rate exceeded SEK 10 during 2002 Orc Software extended the time period for the foreign exchange hedges. This together with future revenues being lower than expected resulted in the foreign exchange hedges being effective for a longer period of time. Consequently, the foreign exchange hedges had a positive effect on Orc Software s revenues between OPERATING EXPENSES During , operating expenses amounted on average to 65 percent of sales. Personnel costs constitute the largest portion of operating expenses, followed by other external expenses and cost of premises. Personnel costs Personnel costs constitute the largest single operating expense and represented 53 percent of the total operating expenses in On average, personnel costs have increased by 45 percent per year during The number of employees increased during the measured period by an average of 41 percent per year. Consulting fees The consulting fees portion of operating expenses amounted during on average to 11 percent and relate to product development. Orc Software aims to primarily use internal development resources, which has resulted in a continuous decrease in consulting fees and during the past few years consulting fees equaled approximately 5 percent of expenses. Orc Software will however, continue to use consultants with special expertise for development of certain products or components. Cost of premises With the taking over of the distribution operations from OMX in 1999, cost of premises were also taken over concerning these sales offices, whereby the cost of premises portion of total operating expenses increased from approximately 6 percent to 12 percent. These costs have increased as Orc Software has established more offices. Today, Orc Software has a total of 14 offices and the cost of premises during 2004 amounted to 8 percent. Depreciation and amortization Depreciation and amortization amounted on average to approximately 8 percent of the Group s total operating expenses during the period As of 2000, the company depreciates certain types of computer equipment, such as servers, over 60 months instead of previously 36 months, which decreased the portion of operating expenses related to depreciations. During 2002 Orc Software began to amortize intangible assets in accordance with RR 15. During the later part of 2003 the development project in St Petersburg was completed, which is the primary reason that depreciation and amortization increased during In 2004 the share of depreciation and amortization of the Group s total operating expenses amounted to 8 percent. Product development expenses Orc Software allocates each year considerable resources to product development. The main part of product development expenses consists of salaries. The product development expenses in amounted to almost one third of total revenue. During 2000 to 2002, investment increased in development activities in Russia, and the company established the development office in St Petersburg. Expenses related to the development of new components for the Orc System taking place in 9 Consolidated accounts were not prepared for the years because the subsidiaries contained in the Group only had limited operations, and invoicing was almost entirely carried out via the Parent company. In order to obtain comparability with the consolidated accounts for other years, the consolidated income statements, balance sheets and cash fl ow statements are presented based on Orc Software AB s and its subsidiaries revised year-end accounts for the years This consequently implies that the subsidiaries have been consolidated in the accounts for these years. The consolidation has however only led to marginal changes when compared to the revised Parent company fi gures for the period.

54 52 Economic overview INCOME STATEMENT SEK million Operating revenue Operating expenses excluding depreciation, amortization and personnel costs Personnel costs Depreciation and amortization Operating income Financial items Income after financial items Tax on net income for the year Minority s part of the net income for the year Net income for the year Total revenue, expenses and operating income Net financial income and liquid funds SEKm SEKm SEKm Total revenue Operating expenses Operating income Liquid funds Net fi nancial income

55 Economic overview 53 St Petersburg were capitalized. As of 2002, Orc Software also capitalizes the part of the company s expenses that pertains to the development of new market connections. In 2004 expenses for product development amounted to 25 percent of the Group s revenue, excluding work performed by the company for its own use and capitalized. OPERATING INCOME Operating margins between 1998 and 1999 are not truly comparable as income and costs related to the distribution operations taken over from OMX in 1999 were previously invoiced as a net item. During a longer period Orc Software has shown very good profitability. Income during the past few years, however, has decreased as a result of a poorer market as well as investments in sales, marketing and a broader product offering, which have increased costs. FINANCIAL ITEMS Growth in the company has been financed with the help of Orc Software s business model in which invoices are issued quarterly in advance. As revenues have increased, excess liquid funds have also increased. This excess has primarily been invested in Swedish corporate bonds. During the years , the net financial income was positive. During , the net financial income was positive but decreased primarily due to lower liquidity and lower interest rates. TAX The average effective tax rate was 28 percent during the period In 1999, the tax rate was 31 percent due to the effect of a non-deductible reserve. The tax rate in 2000 was 23 percent. This low rate was amongst other things the result of the above reserve being dissolved. The effective tax rate has increased to approximately 30 percent in line with the company s expansion abroad through For 2004 the effective tax rate is 34 percent. The higher tax rate is due to an unaccounted tax receivable, related to a loss carried forward in a subsidiary. BALANCE SHEET Orc Software s balance sheet total amounted to SEK 312 million as of December 31, Prominent features of the balance sheet are the large amount of cash and the high non-interest bearing liabilities, which predominantly consist of accrued expenses and prepaid income due to Orc Software invoicing license fees quarterly in Accounts receivable in relation to revenue Balance sheet total, shareholders equity and equity/assets ratio % SEKm % Balance sheet total, of which Equity/assets ratio Shareholders equity

56 54 Economic overview BALANCE SHEET SEK million Fixed assets Accounts receivable Other receivables Liquid funds Total assets Shareholders equity Minority interest Provisions for deferred tax Current liabilities Shareholders equity and liabilities Investments Return on capital employed and return on equity SEKm % % Tangible assets Intangible assets Return on capital employed Return on equity Financial assets Investments/total revenue

57 Economic overview 55 advance. Orc Software has not had any interest-bearing debt since the company s inception in Cash has decreased during by SEK 66 million due to dividends and the repurchase of the company s own shares. Accounts receivable increased substantially between 1999 and This increase was mainly due to that Orc Software took over invoicing in its own name for the subsidiaries in the Ekonomisk UK, Italy and översikt Australia from OMX during the first half-year An equivalent increase has also taken place in current liabilities. In the beginning of 2001, accounts receivable increased again, due to among other things invoicing, to a greater degree than before, taking place per calendar quarter. Improvements in invoicing and collection procedures led to a decrease of accounts receivable as a percentage of revenue during the last years. FIXED ASSETS AND INVESTMENTS Orc Software s fixed assets consist predominantly of tangible assets such as computers and equipment as well as intangible assets such as capitalized expenses for development work. During intangible fixed assets increased due to the application of RR 15. The intangible fixed assets decreased in 2004, as the development project in St Petersburg was completed during the later part of 2003, at which time amortizations began. The increase in fixed assets during 2004 is related to increased financial fixed assets, which primarily consist of a long-term financial receivable. SHAREHOLDERS EQUITY During the period , shareholders equity increased faster than the total balance sheet, with a better equity/assets ratio as a result. The equity/assets ratio amounted during the period on average to 61 percent. In 2000, this ratio continued to increase and amounted to 72 percent, partially as a consequence of the new share issue carried out in conjunction with the stock exchange listing. Advance invoicing, and thereby current liabilities, increased during 2001 and 2002, which has somewhat lowered the equity/assets ratio. At the end of 2004 the equity/assets ratio equaled 63 percent. Working and operating capital Cash flow, investments, dividends, repurchase and liquid funds SEKm Working capital Operating capital Cash fl ow before investments New share issues Change in liquid funds Liquid funds Investments Dividends and repurchase

58 56 Economic overview CASH FLOW AND LIQUIDITY Orc Software s high cash flow during was due to both strong cash flow from the regular business as well as a decreased working capital, despite that the company during the period paid dividends of an average of 57 percent of the income after taxes for the year. During liquid funds decreased due to a significantly lower operating income, repurchase of shares and an average dividend of 70 percent of the income after tax for the year. At the end of 2004 liquid funds amounted to SEK 186 million. CASH FLOW SEK million Operating revenue Operating expenses excluding depreciation and amortization Income before depreciation and amortization Change in working capital Investments in fixed assets Cash flow before financial items and tax KEY RATIOS Amounts in SEK million unless otherwise stated Margins Operating margin, % Profit margin, % Profitability Return on capital employed, % Return on equity, % Capital structure Operating capital Capital employed Shareholders equity Interest-bearing net debt Asset turnover ratio, multiple Net debt/equity ratio, multiple Equity/assets ratio, % Cash flow and liquidity Cash flow before investments Cash flow after investments Liquid funds Degree of self-financing, multiple Investments Investments in fixed assets Personnel Average number of employees Revenue per employee* n.a. n.a. n.a Valued added per employee* n.a. n.a. n.a *Not applicable to years , since the employees of the distribution operations transferred from OMX are not included in the average number of employees for these years.

59 DEFINITIONS Definitions 57 MARGINS Operating margin: Operating income as a percentage of revenue. Profit margin: Net income for the year as a percentage of revenue. PROFITABILITY Return on capital employed: Operating income plus financial income as a percentage of average capital employed. Return on equity: Net income for the year as a percentage of average shareholders equity. CAPITAL STRUCTURE Operating capital: Total assets minus non-interest-bearing debt, including deferred tax liability and minority interest, as well as cash and bank balances, short-term investments and other interestbearing receivables. Working capital: Operating assets excluding accrued interest income and prepaid tax minus operating liabilities excluding tax liability. Capital employed: Total assets minus non-interest-bearing debt, including deferred tax liability. Average capital employed has been calculated as opening plus closing capital employed divided by two. CASH FLOW AND LIQUIDITY Liquid funds: Cash and bank balances and short-term investments. Cash flow before investments: Cash flow from operating activities. Cash flow after investments: Cash flow from operating activities minus investments in fixed assets. Degree of self-financing: Cash flow before investments divided by investments. INVESTMENTS Investments in fixed assets: Investments in fixed assets, after any disposals. PERSONNEL Average number of employees: Average number of employees for the year, based on headcounts at the beginning of the year and at the end of each quarter. Value added per employee: Operating income plus personnel costs divided by average number of employees. Shareholders equity: Shareholders equity at year-end. Average shareholders equity has been calculated as opening plus closing equity divided by two. Interest-bearing net debt: Interest-bearing debt minus liquid funds. Asset turnover ratio: Revenue divided by average capital employed. Net debt-equity ratio: Interest-bearing net debt divided by shareholders equity. Equity/assets ratio: Shareholders equity as a percentage of total assets.

60 58 The Orc share THE ORC SHARE ed for 76 (68) percent of the votes and capital. The number of institutional investors was 338 (458) and their holding was 90 (88) percent. There were 126 (177) foreign shareholders with 14 (20) percent of the votes and capital. SHARE REPURCHASE The Annual General Meeting 2003 and 2004 resolved to authorize the Board of Directors to decide on acquisitions and transfers of the company s own shares. During 2003 and 2004 Orc Software purchased a total of shares, which equals 3.5 percent of the shares issued. SHARE STRUCTURE Orc Software s share capital amounted to SEK at the end of 2004 divided between shares, with a nominal value of SEK Excluding Orc Software s repurchase of own shares, the number of shares amounts to Each share entitles the holder to one vote at the Annual General Meeting and provides equal rights to participate in the company s assets and income. As of December 31, 2004 there were no outstanding convertible loans or option rights. Orc Software s shares have been listed on the O-list of Stockholmsbörsen since October 19, The introductory price was SEK 120 per share. The shares are traded under the symbol ORC. PRICE TRENDS AND TURNOVER During 2004, Orc Software s share price decreased by 32 percent from SEK to SEK Stockholmsbörsen s All share index increased during the same period by 18 percent. The highest price paid for the Orc share during 2004 was SEK 94.50, noted on March 8, and the lowest price paid was SEK 52.50, noted on November 25. At the end of 2004, Orc Software s market capitalization amounted to SEK 828 (1 236) million, based on the last price paid. The number of Orc Software shares traded during 2004 was 8.9 (15.5) million which is equivalent to an annual turnover rate of 62 (105) percent compared to 134 (124) percent for Stockholmsbörsen as a whole and 82 (78) percent for the O-list. OWNERSHIP STRUCTURE The number of shareholders in Orc Software as of December 31, 2004 was (3 277). The ten largest shareholders account- Share price development and share turnover SEK Thousands DIVIDEND POLICY It is the Board of Directors intention to pay a dividend of approximately 50 percent of the income after tax to the shareholders, provided that a healthy capital structure is maintained. For 2004, a dividend of SEK 1.50 (3.40) per share is proposed. This is equivalent to 92 (89) percent of the income after tax. INSTITUTIONS THAT COVER THE ORC SHARE ABG Sundal Collier Cheuvreux Danske Bank D. Carnegie Enskilda Securities Hagströmer & Qviberg Kaupthing Bank Nordea Securities Redeye Skandiabanken Orc Software s 10 largest shareholders No of % of capital Shareholders shares and votes OMX Technology Cancale Förvaltning* SEB funds Robur funds Fidelity funds Hagströmer & Qviberg Fondkommission Carnegie Fond Nordea Bank Finland Nordea funds Svolder Other shareholders Total Source: VPC AB (The Swedish Securities Register Center), direct and nominee-registered shares as of December 30, As of December 31, 2004 Orc Software has purchased shares and the total number of shares, reduced by Orc Software s repurchase of own shares, amounted to *Ulrika Hagdahl and Nils Nilsson own Cancale Förvaltnings AB in equal shares Share turnover Orc share Stockholmsbörsen s All Share index

61 The Orc share 59 Shareholding structure No of shares No of shareholders No of % of capital shares and votes Total Source: VPC AB, direct and nominee-registered shares as of December 30, Per share data Earnings per share, SEK Dividend per share, SEK 1.50* 3.40 Equity per share, SEK Share price at the end of year, SEK Cash flow per share, SEK P/E-ratio Dividend yield, % Dividend payout ratio, % Share price/equity, % Average number of shares** Number of shares at year-end** *Proposed dividend. **Reduced by Orc Software s repurchase of own shares. Changes in the share capital Increase in share Increase in Share capital, Total no of Nominal value Year Transaction capital, SEK no of shares SEK shares of shares, SEK 1987 Company founded New share issue Share split 1000: Directed share issue* New share issue *New share issue on December 23, 1999 directed at OMX. DEFINITIONS FOR DATA PER SHARE Earnings per share: Net income for the year divided by average number of shares. Dividend per share: Dividend for the year divided by number of shares at year-end. Equity per share: Shareholders equity at year-end divided by the number of shares at year-end. Cash fl ow per share: Cash flow for the year divided by average number of shares. P/E-ratio: Share price divided by earnings per share. Dividend yield: Dividend for the year divided by market capitalization at year-end. Dividend payout ratio: Dividend for the year divided by net income for the year. Price/equity per share: Share price divided by equity per share. Average number of shares: Average number of shares after splits, bonus issues and new share issues. Ownership structure per category Ownership structure per country % Swedish institutions 10% Foreign institutions 10% Swedish private individuals Source: VPC AB, direct and nominee-registered stock as of December 30, The VPC statistics that are the basis of this table are based on the corporate identity number and the national registration number, which means that a person is registered as a Swedish private individual if he/she has a Swedish national registration number even if the person in question is domiciled outside Sweden. 86% Sweden 5% Luxembourg 3% Finland 3% US 2% UK 1% Other Source: VPC AB, direct and nominee-registered stock as of December 30, The VPC statistics that are the basis of this table are based on address data.

62 60 Corporate governance CORPORATE GOVERNANCE Several parties have an interest in the governance of Orc Software. The following is a description of these parties and how they influence the governance of the Group. SHAREHOLDERS Shareholders primarily exercise their control at the Annual General Meeting, which is the highest decision making authority in the company. At the Annual General Meeting the Board of Directors are appointed and at this time the shareholders also participate in decisions about other central issues. At the end of 2004 Orc Software had shareholders. The five largest shareholders are OMX, Cancale Förvaltning (owned equally by Nils Nilsson and Ulrika Hagdahl), SEB, Robur and Fidelity, whose aggregate holding equals 61 percent of the number of shares. Swedish institutions shareholding amounted to 80 percent at the end of 2004, foreign institutions owned 10 percent and Swedish private investors owned 10 percent. At the end of 2004 Orc Software s share capital amounted to SEK divided into shares with a par value of SEK Excluding Orc Software s own shareholding the number of shares amounts to Each one of these shares is entitled to one vote at the Annual General Meeting and has the same right to assets and profits in the company. For more information about share ownership see the Orc Share on page 58. THE BOARD OF DIRECTORS The Board primarily makes decisions about the Group s strategic focus, organizational issues and larger investments. Orc Software s Board consists of 7 members. The Annual General Meeting elects all members. The Board consists partly of representatives from the company s largest shareholders, OMX and Cancale Förvaltning and partly of independent Board members. The Chief Executive Officer has a reporting role on the Board. In 2004 Orc Software s Board held 11 (9) meetings and on average 6.7 of the total of 7 Board members were present. At each BOARD OF DIRECTORS Magnus Böcker Chairman of the Board of Directors. Stockholm. Born Business economist. Chairman of Orc Software AB since Member of the Board of Directors since Chief Executive Officer of OMX AB. Other Board duties: Member of the Board of Directors of Adirondack Trading Partner LLC. Active within the Board of Directors of a number of companies within the OMX Group. Shares held in Orc Software AB:. Call options held in Orc Software AB:. Yngve Andersson Stockholm. Born Business economist. Member of the Board of Directors of Orc Software AB since Consultant with Yan Konsult AB. Other Board duties: Chairman of the Board of Directors of Active Life Foundation and Netwise AB. Member of the Board of Directors of Casino Cosmopol AB, ICA Banken AB, Perific AB, Seamless AB, Swedish Athletic Association and Vidbynäs Golf AB. Shares held in Orc Software AB: via company, direct. Call options held in Orc Software AB:. Åke Dovärn Täby. Born Bachelor of Science. Member of the Board of Directors of Orc Software AB since Other Board duties: Chairman of the Board of Directors of Promyzer AB. Member of the Board of Directors of Focal Point AB. Shares held in Orc Software AB: Call options held in Orc Software AB:.

63 Corporate governance 61 meeting during the year the Board addressed standard topics such as investments, market development, the company s financial position and other significant issues regarding the company. In addition, issues regarding the annual report, interim reports, the budget, recruitment of a new Chief Executive Officer and comprehensive matters regarding strategy and world analysis were reviewed. The Group s Chief Executive Officer presents strategy-related matters and the Group s Chief Operating Officer addresses economic and financial issues. On a yearly basis the Board adopts rules of procedure that are to be used as a control instrument for the work of the Board. The rules of procedure primarily define the Board s tasks, the agenda for the Board meeting following the Annual General Meeting and other Board meetings, financial reporting to the Board, preparations of the tasks of the Board, rules for the minutes of the Board meeting and quorum. AUDIT COMMITTEE The Board has chosen not to establish a separate audit committee. The entire Board will handle control issues addressed to the Board. The company s auditor participates both in a planning meeting and a meeting for reviewing the year-end closing at which time the observations made in the audit of Orc Software s internal controls and financial statements are reviewed. REMUNERATION COMMITTEE The Board s remuneration committee consists of Magnus Böcker and Åke Dovärn and the Head of Human Resources as a reporting member. The remuneration committee prepares and discusses proposals regarding incentive programs, benefits and salaries, including sales commission and bonuses for the company s employees in general and for the Group management. The Board of Directors makes the final decisions. NOMINATING COMMITTEE In accordance with the authorization from the Annual General Meeting in April of 2004, Orc Software s chairman, Magnus Böcker, in conjunction with the third quarter report, has appointed Ulrika Hagdahl Lidingö. Born Master of Engineering. Member of the Board of Directors of Orc Software AB since Employed by Orc Software AB Other Board duties: Member of the Board of Directors of IFS AB and Protect Data AB. Shares held in Orc Software AB: via company which is jointly owned by Ulrika Hagdahl and Nils Nilsson. Call options held in Orc Software AB: Call options issued via company ( ). Per E Larsson Stockholm. Born Business economist. Member of the Board of Directors of Orc Software AB since Other Board duties: Chairman of the Board of Directors of Nilörngruppen AB and Outsourced Supply Management AB. Shares held in Orc Software AB: 500. Call options held in Orc Software AB:. Nils Nilsson Business development. Geneva. Born Business economist. Member of the Board of Directors and employed by Orc Software since Other Board duties: Chairman of the Board of Directors of Russian Real Estate Investment Company AB. Member of the Board of Directors of Promyzer AB. Shares held in Orc Software AB: via company which is jointly owned by Ulrika Hagdahl and Nils Nilsson. Call options held in Orc Software AB: Call options issued via company ( ). Stig Vilhelmson Stockholm. Born Master of Science, Economics and Business. Member of the Board of Directors of Orc Software AB since Head of Equities Trading, Carnegie Investment Bank AB. Shares held in Orc Software AB: Call options held in Orc Software AB:.

64 62 Corporate governance Orc Software s operational structure CEO Jonas Lindström EVP and CTO Joakim Johansson EVP and COO Lars Johansson LONDON MOSCOW STOCKHOLM ST PETERSBURG SYDNEY TORONTO CHICAGO FRANKFURT HONG KONG LONDON MILAN NEW YORK NORDIC SYDNEY TOKYO TORONTO VIENNA ZURICH Orc Software s operating structure consists of 14 offices in 12 countries. The picture above shows the location of Orc Software s development, sales and support offices as well as the division of responsibilities within the management group. From a functional perspective, the product development side, which Joakim Johansson is responsible for, is divided into core technology, front-end product development, algorithmic trading and quality assurance. The remainder of the organization is divided into the following functions: sales, account management and support, business support, marketing and communications, finance, legal and human resources. Lars Johansson is responsible for these areas. a nominating committee. The nominating committee consists of Magnus Böcker (OMX), Ulrika Hagdahl (Cancale Förvaltning), Björn Lind (SEB) and Olof Neiglick (Nordea). The committee is responsible for issuing a proposal regarding the members of Orc Software s Board of Directors and Directors compensation. MANAGEMENT During 2004 several changes took place in Orc Software s Group management. In December Jonas Lindström was appointed new Chief Executive Officer for Orc Software and in August Joakim Johansson was appointed Executive Vice President and Chief Technology Officer. As before, Lars Johansson, Executive Vice President and Chief Operating Officer, is also part of the Group management. The Group management is assisted by the Managing Directors, who handle sales and support in the respective countries, and the various department heads. AUDITOR At the Annual General Meeting on April 23, 2003, Ernst & Young AB with auditor in charge Björn Fernström, was elected for four years. A new auditor shall be elected at the Annual General Meeting in Björn Fernström, born in 1950, has been the auditor for Orc Software since Björn Fernström is also the auditor for OMX, which is Orc Software s largest owner. For information about the auditor fee see note 8. EXECUTIVE MANAGEMENT Jonas Lindström Chief Executive Offi cer Danderyd. Born Employed by Orc Software AB since December Shares held in Orc Software AB: Call options held in Orc Software AB: ( ). Joakim Johansson Executive Vice President and Chief Technology Offi cer. Lidingö. Born Employed by Orc Software AB since 1994, member of the Executive management since August Shares held in Orc Software AB: Call options held in Orc Software AB: ( ). Lars Johansson Executive Vice President and Chief Operating Offi cer. Stockholm. Born Master of Science, Economics and Business. Employed by Orc Software AB since Shares held in Orc Software AB: Call options held in Orc Software AB: ( ).

65 Information for shareholders INFORMATION FOR SHARE- HOLDERS 63 FORTHCOMING FINANCIAL EVENTS April 14, 2005 Interim report, first quarter April 20, 2005 Annual General Meeting July 14, 2005 Interim report, second quarter October 13, 2005 Interim report, third quarter FINANCIAL INFORMATION Can be ordered from: Orc Software, Investor Relations PO Box 7742, SE Stockholm, Sweden Telephone: Fax: [email protected] Immediately following public release, all financial information is published on INVESTOR CONTACT Susanne Holmlund, Investor Relations Telephone: [email protected] Nominee-registered shares To be entitled to participate in the Annual General Meeting, shareholders whose shares have been registered in the name of a nominee through the trust department of a bank or a securities firm must temporarily register their shares with VPC AB. Shareholders who wish to re-register their shares must notify their nominee before April 8, Dividend The Board of Directors proposes a dividend of SEK 1.50 per share. The proposed record date for the dividend is Monday April 25, Provided that the Annual General Meeting approves this proposal the dividend will be paid out through VPC AB on Thursday April 28, Nominating committee The nominating committee is responsible for issuing a proposal for the members of Orc Software s Board of Directors and Directors compensation. Members of the committee are Magnus Böcker (OMX), Ulrika Hagdahl (Cancale Förvaltning), Björn Lind (SEB) and Olof Neiglick (Nordea). ANNUAL GENERAL MEETING The Annual General Meeting will be held on Wednesday April 20, 2005 at 4 p.m. (CET) at Orc Software, Birger Jarlsgatan 32A, 5th floor, Stockholm, Sweden. Participation Shareholders wishing to participate in the Annual General Meeting must be recorded in the shareholders register maintained by VPC AB (the Swedish Securities Register Center) no later than Friday April 8, 2005 and must also register with the company at: Orc Software, Annual General Meeting PO Box 7742 SE Stockholm, Sweden or by telephone at , or by at [email protected] no later than Friday April 15, 2004 at 4 p.m. (CET) Address: [email protected] Orc Software, Nominating Committee PO Box 7742 SE Stockholm Sweden

66 64 Glossary GLOSSARY Arbitrage Trades that take advantage of incorrect pricing between different instruments or markets. Bait orders A bait order is used to activate another order in a certain combination. Basket trading An order that handles a number of stocks, i.e. a basket, as one separate order. Broker Brokers trade on behalf of their clients: the institutional and private investors. Combinations A combination of different options and/or futures by working with combinations the trader is able to optimize risk against potential returns based on his/her view on the market. Market maker Market makers have the obligation to quote buy and sell prices on an ongoing basis for the financial instruments that they are managing. Proprietary traders Proprietary traders trade on their own account. Structured products A structured product is often a combination of products from different asset classes. An equity-index bond is an example of a structured product that often guarantees the invested capital but offers a return equal to the equity market index. Volatility management Volatility is one of the most important factors for pricing a derivative. Orc Trader s volatility manager allows the market maker to price options regardless of the term and strike price in a correct way and quickly reacts to changes in volatility. Volume order Larger order. VWAP order VWAP stands for Volume Weighted Average Price. A VWAP order is traded at the volume weighted average price for the day. A Superlativ TM production Photo: Johan Ödmann. Print: Jernström Offset. Paper: Scandia /130gsm.

67 ADDRESSES Orc Software Chicago 70 West Madison Street, Suite 1400 Chicago, IL 60602, US Telephone Fax Orc Software Frankfurt Guiollettstrasse Frankfurt am Main, Germany Telephone Fax Orc Software Hong Kong 20/F, 8 Queen s Road Central, Hong Kong Telephone Fax Orc Software London 135 Cannon Street, 4th floor London EC4N 5BP, UK Telephone Fax Orc Software Milan Via Silvio Pellico Milan, Italy Telephone Fax Orc Software Moscow Ulitsa Koroviy Val 7, Building 1, Suite 138 Moscow , Russia Telephone Fax Orc Software New York 420 Lexington Avenue, Suite 2007 New York, NY 10170, US Telephone Fax [email protected] Orc Software Stockholm Birger Jarlsgatan 32A PO Box 7742 SE Stockholm, Sweden Telephone Fax Orc Software St Petersburg Nevsky prospekt 11, 4th floor St Petersburg , Russia Telephone Fax Orc Software Sydney Level Pitt Street Sydney 2000 NSW, Australia Telephone Fax Orc Software Tokyo Roppongi Ignoppor Building , Roppongi, Minato-ku Tokyo , Japan Telephone Fax Orc Software Toronto 65 Front St. E, Suite 300 Toronto, Ontario, M5E 1B5, Canada Telephone Fax Orc Software Vienna Tuchlauben 14/9 A-1010 Vienna, Austria Telephone Fax Orc Software Zurich Bolleystrasse 29 CH-8006 Zurich, Switzerland Telephone Fax

68