Announcement Of Financial Results For Year Ended 30 June 2005ERG...

Announcement Of Financial Results For Year Ended 30 June 2005
ERG today announced that it was making progress in the delivery of its business model of generating consistent, recurrent revenue streams from the supply and operation of integrated fare collection systems during this past financial year.
Key features of its results released today for the 12 months ending 30 June 2005 include:
• A 10.6% growth in sales revenue to $227.5 million and a 3.4% increase in revenue from operating activities to $272.6 million;
• Operating EBITDA of $11.0 million, up from a loss of $4.3 million;
• Operating EBITDA from its Operating Companies Division of $26.0 million, an increase of approximately 144% from the previous financial year; and
• A net loss after significant items attributable to members of ERG of $11.1 million, a significant improvement on the net loss of $52.7 million recorded in the previous financial year.
Comparisons are against the previous financial year ending 30 June 2004.
In announcing the result ERG’s Chief Executive Officer, Dr. Allan Sullivan said
“ERG has continued to improve its financial results which is evident from our significantly improved EBITDA and our reduced net loss for the year. Although the divisional results for the year were mixed it is pleasing to report that the Small Projects Division as well as the Operating Companies (Service & Maintenance) Division – the areas in which the Group strategically differentiates itself - performed very well and exceeded internal expectations. However, the continuing aim and challenge of management is to improve the delivery of the major contracts. Procedural improvements have been made in this area over the last 12 months.”
Highlights from operations during the year include:
Operating Companies Division
The Operating Companies Division provides services and management in relation to installed Automated Fare Collection Systems. It delivered excellent results for the year. In summary:
• Divisional revenue grew 12.6% to $116.8 million while divisional EBITDA increased
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approximately 144% to $26.0 million.
• The early operational stages of contracts in Sydney, San Francisco and Washington DC continued to build and the division’s results were enhanced by positive results in established businesses in Melbourne, Hong Kong and Singapore.
• The division secured a new agreement in Sydney to maintain existing rail-based ticketing equipment – supplied by others - in the lead up to the full transition to the Company’s smartcard based system and equipment expected to commence in calendar 2007.
• The year’s activities in Washington DC exceeded volume projections by 200%. Despite the unexpected volume, the Company and its partner, Northrop Grumman managed the activities to the customer’s demanding service standards.
• The Company, together with its controlled entity OneLink Transit Systems Pty Ltd (“OneLink”) entered into a new agreement with its Melbourne customer to support the transition between OneLink’s existing AFC system and a new system to be supplied by an external consortium, Kamco. The agreement has secured a framework for continued strong profitability for both ERG and Onelink during the transition period. In addition as announced by the Victorian State Government ERG will participate in the Kamco consortium by managing the installation and maintenance of fare collection equipment under a new 12-year agreement.
• Delays in the settlement of the transfer of the Company’s operating company activities in Rome to the local municipality provided some short-term benefits to the Company. However, these activities are now scheduled to be transferred in full to the municipality by the end of September 2005 at which time the Company’s activities will be focused on software support and maintenance.
Large Projects Division
The Large Projects Division contracts to supply and install customised Automated Fare Collection (“AFC”) systems to large transit agencies throughout the world, often involving multiple transit modes and operators.
• Divisional revenue increased 17.8% to $72.7 million whilst divisional EBITDA was $0.7 million following a revision of the costs to complete projects. Despite these cost increases there was progress toward timely delivery of all major projects during the year:
• The Sydney AFC Project achieved an important milestone in January with the successful introduction of 250,000 student smart cards for public buses. The next important step in the Sydney project - integration and interface testing - is now scheduled to start in late 2005. The Company is finalising negotiations with its customer in Sydney to change the sequence of project delivery and currently expects that the project will still be delivered on schedule in the first half of the 2007 calendar year.
• The San Francisco AFC Project has passed further customer witness tests which is an important preliminary step in the rollout of the system. The next operational milestone –
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where smartcards will be accepted by two transport operators – is now scheduled for the end of the 2005 calendar year.
• The Washington DC AFC Project has exceeded expectations and has met or bettered all operational targets to date. End-to-end system testing has recently been successfully completed.
• The Seattle AFC Project is progressing satisfactorily and in line with the delivery timetable agreed with the Seattle customer.
• The Gothenburg AFC Project has achieved conditional sign-off of the first phase of the project. A full phase one rollout is now scheduled for September 2005.
• In April of this year, the Company announced an agreement with CoTral on the restructuring of the Lazio contract subject to ratification by the Board of CoTral. As a result of a change in local governments in the Rome/Lazio region in the first half of calendar 2005, the agreement was not ratified. It is now expected that the CoTral contract will be amended to be a supply-only contract with negotiations expected to be progressed during the remainder of the 2005 calendar year.
Small Projects Division
The Small Projects Division provides more standardised Automated Fare Collection Systems for smaller transit agencies and single transit operators. The division recorded a fall of 5.6% in sales revenue to $38.0 million whilst divisional EBITDA fell to $8.6 million as a result of the reduced sales, restructuring of the Brussels based development centre and new market development costs.
The division has converted all existing product and device applications onto a Linux operating system and developed new, standardised, lower cost hardware for the emerging east and north Asian markets. During the financial year the Small Projects Division achieved success in winning new business in several projects in Europe, including Clermont-Ferrand and Gironde in France and has successfully deployed a new standardised single modal system in the Oslo II project. New business was also won in New Zealand.
Significant Items
Significant items totalled a net negative result of $0.3 million including:
• The discounted early settlement of liabilities of $52.5 million due to the vendors of the PWI transaction resulted in a net gain of $21.1 million after the provision for an increase in the deferred consideration after revaluation;
• A $5.4 million gain on the sale of a Company owned building;
• A loss of $9.9 million, mostly attributable to a write off of assets and receivables, in relation to the proposed transfer of the Company’s Rome operating company activities to the Company’s customer in Rome;
• Provisions of $6.6 million for various project losses and expenses in closing off outstanding complex projects;
• Provisions of $6.0 million against certain balances related to associate entities; and
• A provision for further restructuring of $2.2 million.
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Cash
At 30 June 2005 the Group had total cash reserves of $44.2 million comprised of $11.8 million cash at bank and $32.4 million committed as security for performance guarantees. In addition the Company had undrawn loan facilities of $15 million.
Cash flow from operating activities was a net outflow of $44.4 million compared to $29.1 million net outflow in the previous corresponding period. The net outflow reflects the continuing investment phase of projects, particularly Sydney, where work has continued while customer payments under the terms of the contract will be received progressively. Net cash flow also suffered as a result of delays in major projects including Sydney and San Francisco.
Balance Sheet
At 30 June 2005, net assets stood at $193.1 million compared with $144.2 million at 30 June 2004. This increase was attributable to the $67 million rights issue completed by the Company in August 2004 offset by the reported net loss after tax of $11.1 million and net exchange rate differences on translation of foreign subsidiaries accounts.
The Company’s working capital requirement has continued to grow during the year caused by delays in the delivery of major project milestones, together with the timing differences between receipts and payments inherent in the development phase of projects. At 30 June 2005 current and non-current receivables, including accrued sales revenue, stood at more than $184 million. Realisation of these receivables will happen progressively in line with project completion.
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BACKGROUND INFORMATION
ERG Group
The ERG Group is a world leader in the development and supply of integrated fare management and software systems for the transit industry, and for its smart card systems and services. The Group has installed systems in major cities throughout the world including Hong Kong, Melbourne, Rome, San Francisco and Singapore with installations in progress in Gothenburg, Seattle, Stockholm, Sydney and Washington DC. ERG has delivered systems that support more than 20 million smart cards in circulation and handle approximately 5 billion transactions per annum. ERG is an Australian-based company, listed on the Australian Stock Exchange and employs 900 people in 11 countries.