Cinnober seeks takeover of Boat to reverse profit decline

Cinnober is planning to reverse a steep decline in profitability by using its proposed takeover of a European trade reporting service as a platform to supply more trading tools to cost-conscious banks.

The Swedish company wants to use its potential takeover of Boat as the cornerstone for more outsourced trading operations from banks.

Last month Cinnober approached Markit, the UK financial data and technology provider, about taking full control of Boat. Cinnober has provided the core technology for Boat and also fully managed the service since its inception in 2007, but only developed the services it was mandated to provide.

"This is something we're committed to," Veronica Augustsson, chief executive, told the Financial Times.

It is part of a plan to reduce reliance on supplying trading, clearing and surveillance systems for exchanges worldwide. Cinnober has garnered work from exchanges in recent years including Brazil's BM&F Bovespa, CME Group and the London Metal Exchange. It also recently signed an agreement with the Johannesburg Stock Exchange.

For the nine months to March 31, Cinnober reported a drop in net sales from SKr216.5m to SKr204.7m while operating profits have narrowed from SKr17m to SKr400,000 as margins have shrunk to near zero, from 7.8 per cent in the same period a year ago.

Some of the decline is due to a change in the way it charges customers for its software. However, Cinnober has also acknowledged that its order intake this year has been "too weak" and the company has been working on measures to improve its profitability in recent months.

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"The bank segment is bigger than the exchange one," Ms Augustsson said. "What we've seen over the last couple of years is that banks haven't done much more internal development. The quality of systems for an exchange is higher than most banks' internal systems."

If Cinnober took over Boat, customers could continue with their mandatory trade reporting without having to change providers. Markit announced plans to wind down Boat in November just as Bats Chi-X Europe, one of Europe's largest share trading exchanges, announced its own rival service. That has become the main venue for European trade reporting, with a market share of about 60 per cent.

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