Record growth in fourth-quarter revenue at Baltimore

Baltimore Technologies, the Internet security products company whose share price has shown spectacular growth following key acquisitions and on hopes of it securing a place in the FTSE 100 index, has reported record revenue growth for the fourth quarter of 1999. But the developing firm, which is still investing heavily in research and development and sales and marketing, has yet to move into profit.

Results were better than expected but the shares, which had already risen ahead of the results and touched £148 on the day, closed down £15.88 sterling at £111.50. On Nasdaq the shares fell heavily and closed down $28.251/2 at $191.621/2.

Merrill Lynch said it had cut its rating on the company from a buy to a "near-term" accumulate.

Total revenue in the fourth quarter rose by 11 per cent on the previous three months to £7.1 million sterling (€11.38 million). But the more significant revenue from software licences for the quarter, at £4.1 million sterling, was 54 per cent ahead of the previous quarter.

This higher margin revenue boosted gross profit margins, which improved to 74 per cent from 66 per cent in the previous quarter and 58 per cent for the first half.

Chief executive, Mr Fran Rooney, expects strong revenue growth to continue as demand for its security products and services increases in line with the growth in e-commerce and mobile commerce activities.

The company, which is expected to be included in the FTSE 100 index from next month, is assessing a number of acquisition opportunities aimed at building scale by increasing its customer and geographic base and in new technology, he said.

Pre-tax losses for 1999 were up 75 per cent to £31.4 million (€50.31 million), after an £11.9 million charge for amortisation of goodwill and intangibles. Accumulated losses at the end of 1999 were £36.8 million. At 102.7p, the loss per share was up 69 per cent. Analysts expect Baltimore to return profits by the end of 2001.

Baltimore's 1999 operating loss was 87 per cent higher at £33.3 million. Administrative expenses rose to £48 million from £10.4 million and included research and development expenditure of £7.2 million and investment in sales and marketing of £20.7 million. Acquisitions accounted for £9.9 million of the operating loss.

Demand was increasing for its public key infrastructure (PKI) security systems and other technology products and services, and Baltimore was in a strong position to capitalise on the growing e-business security market, Mr Rooney said.

Revenue from software licences in 1999 was five times stronger at £9 million and accounted for just under 40 per cent of the annual revenue. This revenue increased strongly through the year from £500,000 in the first quarter or 11 per cent of total quarter revenue to £4.1 million or 58 per cent of final quarter revenue.

With the $150 million Cyber Trust acquisition due to be completed within a month, the company was looking for suitable acquisitions, Mr Rooney said. While there was nothing specific to report, Mr Rooney said that its next acquisition could be substantial.

With shareholders' funds of £148 million and negligible debt, the group is in a strong position to fund a significant acquisition. Baltimore now has 480 employees, up from 337 at the end of 1998, and 22 offices worldwide compared with 13 previously.