Zergo Holdings Plc, the Basingstoke, UK-based information security product vendor, has announced a 27% growth in revenues for the year to 30 April 1998. Revenues rose to 13.2m pounds from 10.4m pounds on the back of a 125% growth in Zergo’s order book to 7.4m pounds at the year end. Operating profits fell to 520,000 pounds from 820,000 pounds and pre-tax profits from 621,000 pounds to 297,000, reflecting the company’s increased investment in product development and sales and marketing. R&D expenditure rose to 1.1m pounds from 595,000 pounds as Zergo accelerated its move to offer customers standard off-the-shelf products rather than bespoke systems. Sales and marketing costs rose to 1.8m pounds from 1.1m pounds. Last week, Zergo said it plans to move up from the Alternative Investment Market to a full listing on the London Stock Exchange and to raise at least 15m pounds in a placing with institutional investors. The move is designed to raise Zergo’s international profile and help it establish a strong acquisition position. The new money will be used for marketing and expansion as well as to pay off debts and redeem preference shares. Ingrid von Hentschel, IT analyst at Zergo’s broker Beeson Gregory, says she does not expect the company to be profitable in the current year because of its need to invest heavily to establish a global presence. Further acquisitions are likely following Zergo’s 6m pound purchase of Security Domain, an Australian cryptography company, in March 1998. Security Domain brought with it a subsidiary in San Mateo, California which will form the basis for Zergo’s entrance into the US market. Zergo has also since entered into the Cantego joint venture to provide security for WorldCom Inc’s customers. Zergo’s valuation for its placing will rest on its sales potential, not on its bottom line, von Hentschel stresses. Zergo has already assembled an impressive client list, including the UK Ministry of Defense, BP, Shell, Visa, Mastercard, international banking payment system SWIFT, all the UK inter-bank clearing systems, and the Bank of England. In April 1998, Zergo won a contract to provide firewalls and encryption for the UK government’s new Secure Intranet. Last week, the Australian Taxation Office announced that it would use Zergo’s encryption and public key software to provide security for Epack, its new internet-based tax lodgement product. This will allow Australian tax payers to digitally sign and encrypt their tax returns before transmitting them to the tax office over the internet. Von Hentschel estimates that around 60% of Zergo’s revenues come from the UK and that Zergo has a third of the $50m UK cryptographic security market. Following the Security Domain acquisition, the Asia Pacific market generates 20% of Zergo’s overall sales. According to market research publisher Datamonitor, the worldwide public key infrastructure market is set to grow from $115m this year to $1.9bn in 2001, while the overall cryptographic security market will grow from $500m to $3.5bn during the same period. Founded in 1988 by computer security expert Professor Henry Beker, Zergo has seen its share price soar from 97.5p at its AIM flotation in September 1995 to 360p on 16 June 1998.
