Patsystems' second quarter trading update and board change
The Patsystems Board felt that, three months after the update provided at the 2004 AGM, it would be helpful to communicate with investors before the formal interim results for the first half of 2004. We expect to announce these results in about six weeks.
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New business
Since signing the contract in January 2004 for the National Commodity Exchange Limited (NCEL) of Pakistan, Patsystems has signed five further letters of intent or contracts. If all were contracted, their combined value in recurring revenue would be about £1 million per annum. Revenue for 2004 will also approach this figure, partly due to substantial bespoke development for one client.
The five letters/contracts comprise:
Facilities management contracts for trading systems, on which trades have already been processed, for two Japanese institutions: Okachi & Co Ltd and Mitsubushi Corporation. These are Patsystems’ first facilities management contracts.Two trading systems for US institutions ADM and VelocityOne major trading system for a global tier one bank
Exchange systems
On 28 May the Agricultural Futures Exchange of Thailand (AFET) successfully went live and began trading. The contract for NCEL (Pakistan), similar in scope to AFET, remains on track for completion this summer – a very fast deployment.
Outlook
For both new and potential business, an increasing proportion of our customers are from global tier one banks or other large financial institutions. This is a sector that Patsystems targeted some time ago, and for which the imminent introduction of our next generation TradeMark platform is a significant attraction.
The Board expects 2004 to show significant revenue growth over 2003, despite the effect of exchange rate movements. However, the move in the sterling/dollar exchange rate and the unknown timing of new contracts and installations means that it is too early to predict precisely overall revenue for 2004.
In addition to the five projects already mentioned, we have a healthy business pipeline for trading systems and exchange systems, and some potential projects involve significant additional development. Naturally, it is unrealistic to expect all projects in a business pipeline to become contracts, and therefore difficult to indicate revenue. If contracted, some of our projects would also involve bespoke development, which means additional costs. We will undertake bespoke work only when it is profitable and complements our core expertise and products.
Together, our new customers and prospects reinforce market expectations of revenue for Patsystems for 2005 and beyond. Both mid-term and long-term the outlook is encouraging.
TradeMark and other product developments
Phase one (FIX platform) of our new TradeMark platform is successfully operating in a beta test site (ie, a customer environment) and the Board has approved additional development expenditure (both in-house and subcontracted) on TradeMark in the second half of 2004. Additional development may also be undertaken in partnership with one or more customers.
Successive releases of TradeMark software will include front-ends tailored to specific user types. These are: Pro-Mark, for high-volume professionals; J-Broker, for brokers and sales desks; and J-Trader2, an enhanced version of the existing front-end. Beta test locations have been identified for the next TradeMark phases. Following the successful testing of all TradeMark phases, we will decide the timing of a gradual migration from the current platform to TradeMark. This is likely to last into 2006.
Patsystems has added foreign exchange to its trading platform through an agreement with an FX market maker. A number of similar extensions are in progress. This is an important first step towards a multi-asset platform and we expect TradeMark to increase our versatility as a service provider with a broad range of trading tools that span asset classes.
Board change
Patsystems is pleased to announce the appointment of Martin Thorneycroft as the new finance director, effective 5 July 2004. Martin replaces Richard Cooper, who is leaving Patsystems.
From 2000 to date, Martin was finance director of the Profile Media Group plc, where he played a major role in financial and managerial capacities during the Group's recovery from a difficult trading period.
From 1997 to 2000, Martin was finance director of McMullens & Sons Ltd, a regional brewer with an annual turnover of around £40 million. Aged 42, Martin has a B.Comm. degree from Birmingham University and qualified as a chartered accountant with Ernst and Young, where his experience included computer audit and a secondment in the USA.
In his two and a half years with Patsystems, Richard Cooper introduced financial systems that stabilised the business and then facilitated the commercial management of the Patsystems Group under the new management team. He also helped implement the 'Scheme of Arrangement' and repayment of cash to shareholders in 2003.
Commenting on the change, Kevin Ashby, CEO of Patsystems, says: "Richard joined Patsystems over two years ago with a mandate to help create a more stable and predictable business. We thank Richard for his contribution and wish him well. Having achieved an appropriate level of stability, Patsystems can now benefit from the broad commercial, financial and managerial skills that Martin Thorneycroft will bring to the role."