ERD
28/09/2015 10:18
FORECAST
PRICE SENSITIVE
REL: 1018 HRS EROAD Limited
FORECAST: ERD: EROAD signals lower FY16 results & accelerated US expansion
28 September 2015
EROAD Limited Market Update
EROAD signals lower FY16 results from accelerated US expansion
Lower US sales in the short term and higher costs from more aggressive US
expansion
The board of directors of EROAD has determined that following a decision to
accelerate investment in the US to expand more quickly into states beyond
Oregon, reorganise its sales teams, and to bring forward the launch of new
services for the International Fuel Tax Agreement (IFTA) and Electronic Hours
of Service (HOS) markets, EROAD is unlikely to meet its FY16 forecast.
Chairman Michael Bushby said that, as communicated at the company's AGM in
August, the board considered these moves to be the right strategic decision
to grow long term shareholder value, and now had a clearer view of the impact
on sales in Oregon for FY16.
The business has completed a reforecast of the US business to provide clearer
guidance for the current year.
Mr Bushby said that market reception to EROAD's products and services in the
US remained very positive.
Chief executive Steven Newman said the company was continuing to refine its
US sales model, and had accepted slower Oregon WMT sales in the short term to
establish sales teams in neighbouring states sooner than anticipated. Nearly
half of EROAD's sales staff are now expected to be located outside Oregon by
March 2016.
"Each new state has its own regulatory complexities that sales teams need to
understand in order to develop their sales approach. Equipping and training
sales teams in new states takes time, which has taken some sales resource
away from Oregon WMT sales in the short term, but this is the right thing to
do for the longer term," he said.
"We estimate our expansion into the three neighbouring states of Idaho,
Washington and California provides us with access to an additional 500,000
trucks registered for Oregon WMT, IFTA or HOS," said Mr Newman.
The reforecast is only for the US business. The New Zealand / Australia
business is performing in line with forecast to date for the FY16 year.
A summary of the US reforecast, and its implications for the EROAD FY16
result, is as follows:
o As at 30 August 2015, EROAD's Total Contracted Units were 30,372 compared
to an expectation of 30,717, a shortfall for the year-to-date of 345 Units or
1%.
o Total Contracted Units for the US, by 31 March 2016, are expected to be
between 6,000 and 6,500 compared to a forecast of 12,440 Units.
o Total Contracted Units for EROAD, by 31 March 2016, are expected to be
between 39,000 and 40,000, or around 10% behind forecast.
o Costs in the US will be higher than forecast because of a more rapid
expansion beyond Oregon, including investment in staff, training, marketing,
and premises, as well as investment in general management and nationwide
indirect sales capability. Around half the forecast additional US costs of
$1.9m result from changes in the USD exchange rate.
o For 31 March, 2016, with the US reforecast factored into overall results,
EROAD reforecasts Revenue of $26.5 million and NPBT of $0.5 million compared
to forecasts advised to the NZX on 28 May 2015, of Revenue of $28.6 million
and NPBT of $5.3 million.
Acceleration of investment beyond Oregon market
Mr Newman said that IFTA and HOS services were each significant
opportunities, providing the logic for investing and expanding to support
these services now, as well as refining the way EROAD sold Oregon WMT
services.
Mr Newman said that the company would work hard to bring its new sales
structure up to speed to meet sales targets as quickly as possible, but the
investment and expansion would have an impact on sales and costs.
Technical regulations for Electronic Logging Devices (ELDs) that must be
installed in 4.5 million trucks across the US by October 2017 to meet Hours
of Service (HOS) requirements are expected in October 2015. Having
accelerated some R&D, EROAD is now well-placed to be among the first approved
ELD providers in the US.
"We are already meeting clients in these new states that wish to use our
products to meet their HOS obligations," said Mr Newman.
IFTA applies to 2.9 million trucks across North America. EROAD now offers
IFTA services in four states and, with continued investment and indirect
sales, is expecting to offer IFTA services covering a number of additional US
states by March 2016.
Ends
Contact: Steven Newman, Chief Executive Officer on +64 9 9274713. For more
information about EROAD visit our website www.eroad.com
End CA:00270837 For:ERD Type:FORECAST Time:2015-09-28 10:18:10
