SUPPLIER OF ENTERPRISE RISK MANAGEMENT SOLUTIONS

Algorithmics has made a strategic commitment to becoming the supplier of the world's most widely used enterprise risk management solutions.

Founded in 1989 and based in Toronto, Canada, Algorithmics is a recognized leader in enterprise risk management. The organization employs over 740 professionals. In order to directly serve its clients, Algorithmics has 18 offices worldwide.

OPERATING HIGHLIGHTS

(in € Millions)	Fiscal 2006 (pro forma)	Fiscal 2007	Change
Sales	99.4 (1)	105.1 (2)	+5.7%
Operating Result	-33.9	-33.9
Number of Employees		742

REVENUE

BY GEOGRAPHIC AREA

SIGNIFICANT EVENTS

Throughout fiscal 2007, Algorithmics continued to realize the strategic benefits of its 2005 acquisition by Fitch Group and the subsequent investment in product development, service capabilities and extension of geographic reach. These investments delivered benefits in the shape of increased customer numbers, successful entry into new market segments (such as the supply of managed services to asset managers and the first customers using Algorithmics for liability modeling and management in insurance), and the development of a strong position for continued growth in core target markets.

The market for risk management continued to grow overall. While regulation is advancing the market-place, additional factors are contributing to growth. Financial markets firms in emerging market economies such as Brazil, Russia, India, China, and the Gulf region are becoming more competitive and are paying greater attention to regulatory frameworks such as Basel II. The ever-increasing complexity of financial products is also contributing to growth, along with additional players in the market such as asset managers and hedge funds who recognize that proper risk management can not only reduce their risk but also add to their ability to grow their business.

Algorithmics has further extended its customer base. The company added over 22 new customers in fiscal 2007 with the total now over 390 located in more than 30 countries, including at least 72 of the world's 100 largest financial institutions. This large customer base, the revenue received from product support and maintenance services, and other opportunities arising from increased sales provide the company with a strong underlying revenue base. All solutions saw an increase in customer numbers, together with strong renewal of licensing of incremental usage rights by existing customers and accompanying services revenue.

Algorithmics has also gained new customers in an environment where banks apply highly competitive selection systems. In the major markets of Europe and North America, there has been continued strength of interest in most Algorithmic solutions, resulting in major new wins from leading banks and asset managers. Existing customers continue to extend the use of Algorithmics solutions in their businesses, with software license renewals and extensions, and continued use of our services contributing to revenue growth. In new markets, such as Russia, China, Turkey and the Gulf, the company is establishing itself as a leader that beats other global competitors for contracts with leading financial institutions.

In fiscal 2007, Algorithmics again received recognition for its achievements, from the industry as well as government. The 2006 Risk Awards presented by the highly regarded industry journal Risk Magazine (announced at the end of the year) recognized Algorithmics as being first in the marketplace in market risk systems, regulatory and economic capital calculations, and key risk indicators. Chartis, a prominent industry analyst, declared Algorithmics to have the world's most complete Credit Risk Management Solutions. Another acknowledged industry journal, Operational Risk and Compliance, recognized Algorithmics as best for Regulatory and Economic Capital Modeling. The company, in partnership with the University of Toronto, has also been recognized by the Canadian Federal Government, Department of Natural Sciences and Engineering, with a Synergy Award for Innovation which recognizes partnerships in research and development between universities and industry. This prestigious award honors outstanding achievements resulting from university and industry collaboration.

BUSINESS AND FINANCIAL REVIEW

In the following discussion, all comparatives are with pro forma results for the twelve months ended September 30, 2006.

Algorithmics has started and completed numerous initiatives to strengthen and broaden the portfolio of solutions:

• Standard Edition solutions
For a range of solutions, Algorithmics can now offer customers a quicker implementation approach that involves minimal customization. This suits many clients whose requirements are consistent within the industry and who do not have the need for high degrees of customization.

• Collateral management
With volumes of collateral agreements increasing constantly, organizations are looking to consolidate the management of these agreements for multiple business lines on to a common platform. The re-architecture of Algorithmics' collateral solution meets this need among both high volume global leaders and smaller institutions.

• Operational risk management
The Algo OpVantage software product Algo OpVar was also reengineered and now is available to customers in either a customizable implementation, or as a standard edition. The standard edition has been implemented successfully in a number of regional institutions.

• Asset Management and Hedge Fund industries
Algorithmics is successfully addressing the needs of large institutions in this segment and is gaining ground with many smaller companies that have significant risk and compliance requirements, but are too small or lack the IT or operational infrastructure to support an in-house implementation. Algorithmics launched Algo Risk Service as a managed service just over a year ago to address the needs of this market.

• Insurance
Needing to strengthen their risk management practices following the financial market turbulence of 2002 and 2003 and move into compliance with the requirements of Solvency II in Europe, insurance firms represent a key growth opportunity for Algorithmics. Algorithmics' solution provides the capability to bring both assets and liabilities together into one framework and is a key differentiator for insurance clients.

• RAP CD
Algorithmics continues to provide the core components of RAP CD, a strategic Fitch Ratings initiative for the growing synthetic CDO market.

• Data and Content services
Algorithmics' data and content services have seen significant market success and subscriber growth in the year. For example, FIRST is a database of external risk loss events that enables banks, insurance providers, pension funds, hedge funds, and asset managers to proactively manage operational risk. Algorithmics' solution is the industry's only research tool that puts real-life case studies within an operational risk framework.

• Algo Credit Advisory practice
As part of an overall solution, the Credit Advisory practice continues to expand globally, and has engaged in a number of successfully completed customer projects.

Algorithmics generated revenues of $139.4 million for the twelve months ended September 30, 2007 (including $3.9 million in intra-group transactions), representing a 14.0% increase from the previous period's revenues of $122.3 million. After translation into euros, its contribution to consolidated revenue came to €105.1 million versus €99.4 million in the previous period, an increase of 5.7% on a reported basis and 14.1% like-for-like.

The recurring operating loss for the twelve-month periods ended September 30, 2007 and 2006 was $45.0 million and $41.7 million respectively. This loss, which was expected, was due to the significant level of investments made during the year. The loss also includes amortization charges of $22.7 million for fiscal 2007, mainly related to the annual non-cash amortization of intellectual property balances associated with the initial acquisition by Fitch Group in 2005.

MARKET SHARE AND COMPETITION

Market Share
Due to the depth and breadth of the risk management and compliance space in which Algorithmics operates, there is no pertinent market size or market share information available.

Competition
Algorithmics' largest competitors in the risk management area are the firms that decide to develop, build, implement and manage enterprise risk management software internally. As far as external competitors are concerned, Algorithmics' most noteworthy competitors in most solution areas include large enterprise solution providers with risk management offerings complementing their broader offerings, as well as specialist firms in each vertical solution.

FISCAL 2008 OUTLOOK

The general risk management market outlook is positive for vendors who can successfully meet the increasingly complex requirements of enterprise risk management.

For the coming year, Algorithmics has identified a number of key drivers in the market, and in its business:

• More countries are implementing Basel II and spending by financial institutions continues on this regulation. Those countries that started early with Pillar I Basel II are now shifting towards Pillar II, which emphasizes sound risk management. Solvency II is being developed for the insurance industry as a framework that is comparable to Basel II. Risk based regulations are also increasingly being implemented in the asset management sector.

• The adoption of ‘risk aware' business applications that support growth-oriented business strategies is gaining recognition in providing business advantages and is seen to assist with achieving competitive advantage. Risk-reward is becoming more pervasive with banks, and is becoming increasingly relevant for other financial services participants such as asset managers and hedge funds.

• Recent events in financial markets underscore the importance of risk management and have increased awareness of the benefits. This may lead to increased demand for risk management solutions, but is also likely to be balanced by decreased spending by financial organizations as they make adjustments based on a reduction in earnings.

In response to these market drivers and its strategy to match investments to demand, Algorithmics will continue to focus on investing for growth in fiscal 2008, gaining revenue momentum from recent product development and developing a robust and sustainable services business.

Algorithmics has a large and widely spread geographic customer base. The company will continue to work closely with third parties in emerging markets to enhance its ability to deliver projects and reduce the operating cost base.

As the market leader in many categories of risk management and with a broad portfolio of solutions across more market segments than any other, Algorithmics is well positioned to grow the business and invest in and deliver the complex, reliable enterprise solutions increasingly demanded by prospective customers.

Web site: www.algorithmics.com