Shares in Baltimore Technologies were hit by a wave of selling yesterday after announcing first-quarter losses well ahead of market forecasts, despite introducing a far more rigorous cost-cutting plan than expected.
The shares, which traded as high as £15 sterling (€24.3) last year at the peak of the dot.com hysteria, fell more than 20 per cent yesterday and closed on 66-1/4p. Turnover in the shares was huge, with more than 30 million shares - six times the daily average - changing hands.
Baltimore's cost-cutting plan is aimed at generating savings of between £30 million and £35 million and will see 250 jobs go worldwide from the group's 1,400-strong workforce. The Irish operations are being reduced by 20 per cent with 50 redundancies from Baltimore's 250-strong workforce. Among those to go is Mr Paddy Holohan, Baltimore's vice-president of marketing, who is leaving to pursue "other personal interests".
Baltimore's first-quarter sales of £23.7 million were in line with expectations, but losses in the period were more than £17 million - well ahead of the £10 million losses pencilled in by some analysts ahead of the results.
There was also surprise that Baltimore's cash level at the end of the quarter was no more than £83.6 million as some analysts had expected some cost savings to have been put in place in the period to reduce the group's "cash burn" rate. Baltimore spent over £22 million of its cash reserves in the first quarter and would be in danger of running out of money by the end of the year if that cash burn rate had continued.
One of the most disturbing aspects of the first-quarter results was the fall in Baltimore's gross margins from 72 per cent in fourth-quarter 2000 to 61 per cent. ABN Amro analyst Ms Jemma Houlihan said this reflected both the lost first-quarter contracts and also the shift in the business towards "hosting" its e-security products for smaller customers for a monthly fee. The rest of the business would be reorganised into three product areas - authentication, access control and content management.
Ms Houlihan warned that at its current rate of spending, Baltimore's cash at the end of the year would be no more than £10 million. Analysts had expected to see cost cuts of at least £20 million, so there was some satisfaction that the company is taking a more rigorous approach to its costs with plans to take out up to £35 million. Most of the job cuts will remove duplication as a result of recent acquisitions, particularly last year's acquisition of the British group Content Technologies. "80 per cent of our cost base is head count-related, so we are confident of managing our cost base going forward," said chief financial officer, Mr Paul Sanders.
In a presentation yesterday, Baltimore chief executive Mr Fran Rooney emphasised the group's strategy to expand from its current concentration on "large ticket" deals involving financial institutions and Government agencies to a subscription/rental model focused on small and mediumsized businesses.
But analysts said they expected further negative news in the current quarter. Analysts at Credit Suisse First Boston (CSFB) said the assumptions made to drive Baltimore into profitability were very aggressive and put its full-year revenue forecast of £118 million and share price target of 68p under review. CSFB said it expected a further decline in Baltimore's revenue in the current quarter and warned that the company would remain stretched until the end of the year.
Mr Marco Pabst of UBS Warburg questioned the management's confidence in modest revenue growth. "I think it will not be the best quarter and the company will remain relatively stretched until the end of the year."
Merrion Stockbrokers' analyst Mr John Coolican said Baltimore's move towards subscription-based PKI was "too little too late. There's nothing to provide optimism. We expected to see more visibility and more firm details on the cost-cutting. In the current climate, investors want to see visibility in both earnings and costs and we have neither."
