Security company feels the pinch

Security company feels the pinch


One of the rising stars in Australia's trusted services sector, KeyTrust, is being forced to review its future following a change of heart by its largest investor. KeyTrust is advising 45 staffers in Melbourne, Canberra and Sydney to stay alert for job offers from other quarters.

"We are telling them to make sure they are in a position to accommodate change," said managing director Charles Greatrex.

KeyTrust is reviewing all employee positions and is urging staff not to close off any outside options before the review is complete.

Hit by recent losses, KeyTrust's largest investor, US company Entrust Technologies, has reversed course on expansionary plans for this region.

Last September Entrust took up 18 per cent of KeyTrust and expressed its intent to broaden its ownership to 100 per cent in the longer run.

That intent as well as ongoing funding for the Australian operation appear to have been scuttled by the effects on Entrust of the contracting technology sector.

Greatrex said he is re-negotiating the agreement with Entrust to clear the way for other possible investors to come on board.

Funds from Entrust helped maintain an expansion program more aggressive than KeyTrust's underlying cash flow currently can support.

Among the items being scaled back is a $3 million Canberra security centre whose first stage was due to become operational this month.

The centre is open but its facilities will not be as ambitious as earlier planned, Greatrex said.

Another casualty will be the $2.3 million payment due from Entrust to retain its option of moving to 100 per cent ownership.

Greatrex described KeyTrust as " a very small burden" on Entrust's bottom line with operational contributions amounting to "a couple of $100,000 every so often."

However Entrust was "clearly wanting to respond to market concerns about current losses and that has overshadowed their enthusiasm about us drawing on them for cash and using us as a vehicle for their expansion in this region."

Entrust is scheduled to make an announcement about its new focus next week, Greatrex said.

"The short term challenge we have right now is that Entrust is looking straight ahead and on their screens, we appear to the right and down low."

Depending on what it decides, KeyTrust is hoping a modified agreement opening the door for new investors will be in place before the end of June.

That's when the company will be free to start making the rounds of venture capital fund managers.

"At the moment, we are dusting off business plans and updating figures," said Greatrex.

He likened the PKI sector to the electrical utility industry in that large upfront capital funding is required to guarantee future cash flows.

KeyTrust will need at least $1 million to complete accreditation under the Federal Government's Gatekeeper program for PKI players. Ideally, it would like a $5 million investment which would take it through to strong profitability, according to Greatrex .

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