G. ALAN HUTTON - STAR DATA SYSTEMS INC (STY.TO)
CEO Interview - published 06/12/2000

DOCUMENT # KAE616

G. ALAN HUTTON is President and Chief Executive Officer of Star Data
Systems Inc. Mr. Hutton has been associated with Star Data since 1991.
He was instrumental in its major refinancing and has been a member of
Star Data's Board of Directors since 1992. He was appointed President
and CEO in March 1996. In 1994, as a nominee of Start Data, he was
appointed Chairman and CEO of Multipath Business Systems, recently
acquired by Star Data. Mr. Hutton currently serves on the Board of
Directors for Star Data Systems Inc., FundSERV Inc., and Virtual
Corporation. He has held a variety of progressive management positions
in the information technology industry with TIL Systems, Amdahl,
Multiple Access and IBM. He is an experienced solutions-oriented
executive with proven respect for shareholders, customers and employees.

Sector: internet services

TWST: Give us a brief overview of Star Data.

Mr. Hutton: Star Data is the leading supplier of online, real-time
financial and transaction processing services to Canada's investment
community. The company was founded in 1985 and has seen tremendous
growth since then. It was initially focused entirely on the market
information business. Delivering timely and accurate quotes for North
American equities to Canadian investment dealers was the focus. It grew
quickly through competitive wins and acquisitions. In 1992 there was a
need for refinancing, and I got involved through a group that made a $10
million equity investment. This repositioned the company to move into a
period of diversification as well as continued growth. I joined the
Board in 1992 and helped in the first four years with three
acquisitions. The first was a company called Linian, which was in the
institutional portfolio management and accounting business. The second
was a company called Baycom, which was in the mutual funds/shareholder
record-keeping business, and the third was a company called Multipath,
which was in the real-time brokerage accounting business. The company
became a TSE ' Toronto Stock Exchange ' listed company in the spring of
1995, and in March of 1996, I was asked by the Board to become President
and CEO of Star Data. The principal reason for that executive change was
the need for additional focus on product renewal and operational
infrastructure improvements. The Canadian securities industry was
becoming more bank owned and more risk averse from an operational point
of view. Business continuity assurance was needed for both the
information services and the accounting services. To further grow we
needed to reinforce the foundation. That has been the primary focus for
the last several years. We sold off two businesses during that period: a
third-party administration business in the mutual fund area and a
network switching business in the mutual fund/financial planning area.
They were sold to let us focus more directly on market information and
application service provisioning to financial institutions, brokerage
firms, investment management companies and mutual fund issuers. Those
are the target audiences of our current service offerings. We are now an
$80 million-per-year business from a revenue perspective. We'll enjoy
about $20 million in cash flow this year, and we expect about $5 million
in profit. Our fiscal year-end is May 31, and in April we announced our
results for the third quarter. It was our fourth profitable quarter in a
row and the fifth improved quarterly performance. We had a small loss in
the third quarter of fiscal 1999 and a $0.05 a share profit in the
fourth quarter. The first three quarters of this year have been $0.06,
$0.07 and $0.08 per share, respectively. We have successfully
repositioned Star Data for continued revenue and profit growth. We are
very focused on the securities side of the wealth management industry in
Canada with a portfolio of real-time information and transaction
processing services, and we believe that Star Data has an enormous
amount of growth potential in the evolving world of the financial
services industry.

TWST: Where do you see those elements of growth? Is it new products and
services for the current clients or is there a universe of untapped
clientele out there to attend to?

Mr. Hutton: About two-thirds of the growth is coming from our current
base and about one-third from new customers. That is a very satisfactory
mix. The securities industry has been booming these last several
quarters. Not only are the absolute volumes increasing, but the
participation at the retail investor level has substantially increased.
That has generated significant additional volumes for us on both sides
of our business. A major change that we have seen in the past year has
been the move of the financial services industry towards self-service of
the investor. This industry is Internet-enabling the market and
accounting information to deliver electronically to their clients, the
investors. Communication, like confirmation or portfolio reporting, can
be provided to the investor on an electronic rather than a paper basis.
This is an important shift in the securities industry. In many ways, it
follows the shift that we saw in the banking industry 10 or 15 years
ago. Teller-based services moved into automated banking machines, then
on to PCs, then on to the Internet. There are numerous studies of the
impact of those changes on banking. In general terms, their operating
cost per transaction came down at least an order of magnitude. Costs
were reduced by more than 90%, so a transaction that was $10 now costs
less than $1 to complete. The banks have also been able to increase the
choice and accessibility of service for the customers. That is identical
to the objective of our clients in the securities industry. They are
looking for electronic tools that improve the level of service to their
investors while, at the same time, taking cost and risk out of the
business. The volume and the volatility in today's market have put
significant pressure on the industry to be mindful of its
responsibilities for minimizing risk to its firm and to its investors.
We are working with the industry to help shorten the settlement cycle.
It was five days, it's now three and it's scheduled to come to a one-day
settlement cycle in the spring of 2002. Some of our clients are working
with us to have systems available that facilitate settlement at the time
of trade. This takes considerable risk and cost out of the transaction
as well as provides improved service to the client. It is a very
desirable combination. We see great opportunities to meet these changing
needs.

TWST: Over the next 12 to 24 months, when you look at growth, what role
might mergers and acquisitions play within the competitive landscape?
Or, what technology or relationships might integrate with what you're
doing?

Mr. Hutton: I'll answer that question, if I may, from several
perspectives. On the information services side of our business, our
flagship product is called StarQuote which provides real-time stock
quotes and news feeds. There has been a great deal of consolidation
already in our industry, and we don't see further integration likely in
the next couple of years. We do see continued competition and our
services will continue to require significant development through a
close working relationship with our clients to make sure that we're
evolving our product to meet their needs. We've been very successful in
growing market share and in fending off competition. We currently own
70% of the market share within the Investment Dealer Association member
firms here in Canada. We haven't had a competitive loss in more than
five years, and we had a major competitive win last year. There is a
high level of loyalty in our market information business, and any change
has been in our favor. This is very satisfactory. Alliances, such as the
one recently concluded with Classwave in the wireless arena, provide us
with growth opportunities through the provisioning of new offerings to a
substantial segment of the market. On the transaction processing side of
the business, there is very aggressive competition. To protect and grow
this business, we are doing a major retooling. Historically, the
services have been provided using batch legacy systems. We are building
a replacement object-based C++ application that runs on the Oracle
relational database, and we see great promise for it as the industry
moves to shorter settlement cycles and self service. Our recently
announced alliance with Belzberg address the issue of information
routing to North American exchanges, thus enabling us to substantially
reduce the time to market for our STP offering. The securities industry
needs real-time, straight-through transaction processing, and we are
committed to delivering it.

TWST: Is cash or capital a limitation as you look at these opportunities
today?

Mr. Hutton: Thankfully, no. Our cash flow will be about $20 million this
year. The majority of our infrastructure capital intensive improvements
are behind us. They occurred in the last three years. We completed the
upgrade to our work environment as we integrated the staff from the
companies that we acquired into new facilities. We built two completely
redundant 24/7 data centers that are linked together with high-speed
communication lines, and we installed a wide area Internet protocol
network to our approximately 1,200 customer locations. We are working
with the best of breed suppliers: Cisco, Amdahl, IBM, Sun Microsystems
and Oracle. It's a continuous process, but the major projects are behind
us. Our focus is now on our software applications. We have moved the
majority of our current investment program into that arena. We expect
about $8-$12 million will be invested in software retooling in each of
the next two or three years. We have more than adequate cash flow to
support that.

TWST: At this point, how could the investment community better
understand Star Data? What are the misperceptions you encounter?

Mr. Hutton: We are a small cap company, with market cap under $100
million (Canadian). That limits the interest by institutions who tend to
like minimum-sized investments with a fairly high level of liquidity. So
we're challenged somewhat by our size as a public company. We are also
incorrectly seen as a legacy operation. Because we've been in business
since 1985, we're not seen as an e-business business, even though we're
very much supporting our clients in their e-business initiatives. We are
a lead supplier in helping our clients have an electronic relationship
with their clients, the investors. So, although we're not in the
business-to-consumer world, we're very much in the support of business-
to-consumer space. Our services get re-branded as they pass through our
clients, the financial institutions, on the way to their clients, the
investors. There is a perception that we are yesterday's type of
organization when, in fact, we're very much Internet-enabled, and we've
got content both from a market perspective and from an accounting client
perspective that is critical to any successful e-commerce initiative.

TWST: What's the vision? When you look long term, what do you see as the
ultimate enterprise for Star Data?

Mr. Hutton: Our vision is to be the preferred supplier of superior real-
time wealth management solutions. We see great promise as the clients
move to a self-service model in the securities industry. There's a great
deal of application improvement that has to occur so that the book of
record for the client is as current and as accessible in the securities
industry as it is in the banking industry. When I go to a bank in person
or electronically, I can see exactly the same information that the
branch manager or the credit officers can see. I'm on a level playing
field with the bank employees with the timeliness and accuracy of
information in my bank accounts. In the securities industry to a large
degree, the investor is at the mercy of the advisor, who is, in turn,
subordinate to his back office. There is an information hierarchy that
doesn't really favor the investor because of the three-day settlement
cycles, the next-day reconciliation processes, and too often the amount
of paper between the firm and the client. This is all changing. It has
to change. It's the only way to get cost out, the only way to get
service up. We are very well positioned to level the playing field. We
understand real-time processing extremely well because our quote
business is a real-time business. We are familiar with the need for
systems that operate continuously, networks that have sub-second
delivery response, and users who are very much online as opposed to
waiting for batch reports or files that are not time-sensitive. We see
huge opportunity to go with the industry as it gets transformed into a
direct-to-consumer self-service model.

TWST: What's the summary statement for an investor? What are the
strengths and highlights that you feel compel an investor today to buy
in?

Mr. Hutton: We've got a very strong track record of improved financial
performance during the recent years, both revenue and profitability.
We've got the necessary cash flow to fund expansion. We've got a very
loyal client base, and we have a business plan that will deliver
services that encourages our customers to reach out to their customers
electronically to our mutual benefit. In addition, we see great
opportunity in the years to come for continued expansion and increased
revenues.

TWST: Thank you.

G. ALAN HUTTON
 President & CEO
 Star Data Systems Inc.
 30 Wellington St. West
 Suite 300
 P.O. Box 283
 Commerce Court South Postal Station
 Toronto, Ontario
 Canada M5L 1G1
 (416) 363-7827
 (905) 479-6204 - FAX

Each Executive who is the featured subject of a TWST Interview is
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Interview with G. Alan Hutton, President & CEO of Star Data Systems
Inc., is accompanied by an Investors Brief containing corporate
information.

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