erg - going down!, page-7

Investors put heat on ERG over delays

CATHY BOLT



Public transport ticketing group ERG is facing fresh scrutiny over the progress it is making to overhaul the business amid signs of more delays in some contracts.

A loss of personnel at the Balcatta-based company has also caused ripples in the market, including the recent departure of chief financial officer Yew Sang Kwa, and the resignation of two directors in the past two months, former chairman Tony Shepherd and former ANZ chief operations officer David Boyles.

In a report on the company, Patersons Securities analyst Robert Gee said it was clear ERG remained under pressure with a number of projects around the world appearing to be delayed or behind schedule.

The delays included renegotiation of delivery times on a $320 million project to build, operate and maintain a common smart-card system for Sydney's rail, bus and ferry network.

Mr Gee said an intended trial in the inner west of the Sydney project, on which ERG had 140 people deployed, had been delayed from next month until the end of the year and the timetable for the project was being renegotiated, although no financial penalties were anticipated.

A contract in Lazio, Italy, on which work was expected to start last month, had also apparently been delayed because of another change in the ruling political party. Revenues previously expected this year would be pushed out until 2005-06. Another project in Seattle had been delayed by the customer.

Mr Gee said his report was based on a discussion with ERG's managing director, Allan Sullivan, who was unable to be contacted for comment.

"ERG remains totally focused on delivering contracts on time and within budget, however, it appears to be an uphill battle at the present time," Mr Gee said.

Mr Sullivan has been wary of publicity since he replaced ERG founder Peter Fogarty early last year and set out to improve the poor project delivery which contributed to the company losing hundreds of millions of dollars in recent years.

Mr Fogarty resigned for health reasons after an accident on his Millbrook vineyard but the market had also lost patience with his inability to match his energetic promotion of ERG's prospects with significant cash flow or profits. The $15.9 million profit it reported for the six months to December 31 was its first in four years.

Patersons now expects that to be dragged back to $15.4 million for the full year because of an anticipated $500,000 loss in the second half.

It cut its revenue forecasts for 2005-06 from $275 million to $227 million and downgraded the stock from a speculative buy to a hold.

ERG's once high-flying shares slipped 1¢ on Friday to 25¢, bringing the drop over the past three weeks to 3.5¢. They are down to a third of their level when Mr Sullivan was appointed to oversee its restructuring but remain above the 20¢ at which it made a $67 million rights issue last August to shore up its working capital and balance sheet.

They have fallen from 43¢ in mid-March when it was not selected as one of two final bidders for a $500 million smart-card system for Melbourne.