Hi Pessimist the writedowns are non cah entries 55
Posted by: Pessimist Jun 12 2002 9:05:31:233AM Reply to post #2501 by bonkers Go to Post # Previous Respond Message List Next
Hi bonkers. My problem with shorting is where the short-selling itself is what makes the price go down, but thinking on it further, maybe it doesn't matter. Even if the price wouldn't have gone down anyway, if you sell enough shares the price will fall. On the other hand, it will go back up when the short-sellers buy them later, so I guess the net effect is zero, all things being equal.
About the $31 million, I thought ERG decided to treat a bunch of other investments in the same way as the auditors treated that $31 million, and that those similar writedowns were the bulk of the $200 million loss. This suggests that they have abandoned the idea of changing the auditors' minds. Still, the value is there, and should be reflected in the share price somehow eventually.
Hi Pessimist writedowns non cash 55 + 23 million ----------------------------------------------- ERG LIMITED 2002-02-28 ASX-SIGNAL-G
HOMEX - Perth
+++++++++++++++++++++++++ CORPORATEFILE.COM.AU
ERG Group Limited yesterday announced its loss for the half-year to December 2001 will range from $175 million to $195 million. The loss will include asset write-downs in the range of $140 million to $160 million. Are you now valuing at zero the licences represented by unlisted shares within ERG's balance sheet?
CEO PETER FOGARTY
Yes. But it's important to recognise we've made a provision for the diminution in value, the value hasn't necessarily been written off forever. As the companies, such as Triumphant Launch, PCL, card.etc and ECard, mature their business plans, their value will be more apparent.
Some of the companies are more advanced in their business plans than others and some have reasonable cash reserves. ECard, for instance, has $23 million in the bank. We've been consistent by writing them all down to zero. There shouldn't be any confusion.
I'd like to also make clear that the write downs are non cash accounting entries.
CORPORATEFILE.COM.AU
Why zero?
CEO PETER FOGARTY
In this decision, we've strictly followed the principles detailed by our auditors last year. They had question marks over the value of card.etc in Germany even though the company has cash in the bank and powerful shareholders. We're adopting the policy across the board. It seems illogical to us to not include some investments and yet carry other identical type investments in our accounts.
In our opinion, none of the entities are worthless. That obviously appears contradictory given we're writing values down to zero but that's our interpretation of the accounting rules.
Consistent with that decision, we've also decided not to book licence fee revenue of $55 million received in the form of shares in unlisted companies in the December 2001 half year. With the write-downs, the decision not to recognise the income has obviously pushed us into a loss.
We've got to be focussed on running the business and not be distracted by accounting policy. We've been criticised for having accounts that are hard to follow. They'll now be clearer. Longer term, this decision will be seen to have been in shareholders' best interests. Given the negative market reaction, which we expected, some shareholders will have difficulty accepting that today. Hard decisions are usually best. We'll rebuild from here.
The write down is consistent with our plan to give greater clarity to the investment community. In the half year report we hope to demonstrate that our accounts and the presentation of them is significantly clearer than in the past.
CORPORATEFILE.COM.AU
If you continue this policy of not booking licence fee income as revenue when received in the form of shares, is it inevitable ERG will record losses until recurring revenues exceed costs?
CEO PETER FOGARTY
No it's not. Our profitability is not simply reliant on the infrastructure part of the business generating recurring revenue. It is certainly an important and growing part of our business, however we continue to win and deliver major transit ticketing systems throughout the world. We see no reason why our historical rate of success in this area will not continue. We have detailed our five core earnings streams in our 2001 annual review and they remain accurate.
CORPORATEFILE.COM.AU
Why are you continuing to take equity in unlisted companies if you're not prepared to book a value on the equity received?
CEO PETER FOGARTY
We've always assessed the merits of an equity stake versus a cash payment on a case-by-case basis and that will remain our approach. But, the licencing of our technology and receipt of equity in the licencee companies is, in our view, the best way to maximise shareholder value. If we were to demand a cash payment up front for each licence we'd have no future interest in the business. The upside would be lost. Not surprisingly, as the technology supplier, our partners also want us to be involved.
CORPORATEFILE.COM.AU
How long can you survive without a fresh equity injection given the likelihood of future losses?
CEO PETER FOGARTY
We have no intention of going back to the market for fresh equity. We've just completed a rights issue raising $104 million and those funds will assist us in the funding of the acquisition of Proton World. Our expectations regarding cash inflow haven't changed. We've made several comments to the market and indicated cash inflow of about $200 million this year. In the half-year to December, it was around $120 million. Our 4B, to be lodged with the ASX on 11 March will report a healthy cash position.
We expect to fund our growth by returning capital from our major infrastructure projects or realising a return on the investments we have made in those projects.
CORPORATEFILE.COM.AU
Can you give any guidance on the likely loss in the six months to June?
CEO PETER FOGARTY
No. We've always had a policy of not giving forecasts on profitability. The timing of projects is not always in our control and timing has a significant impact. The Sydney project delay is an obvious example.
CORPORATEFILE.COM.AU
What will be the crucialfactors in determining outcomes in future periods?
CEO PETER FOGARTY
There are a number of factors. Completing the acquisition of Proton World is an important transaction as it ensures we have control of the two most powerful smart card technologies in the world. The acquisition brings in Visa and Amex and major banks as shareholders and will advance the flow of recurring revenue.
Another important event will be the final sign-off of the Sydney contract. We also expect a decision on the Brisbane tender and a finalisation and settlement of the Melbourne claim. All are important milestones in securing a strong position on the eastern coast of Australia.
We also have several contracts pending. I think it's fair to say that there's about three or four to be decided in various parts of the world over the next month or so.
In addition, we've got a number of large ventures with some powerful strategic partners. All are focused on utilising the multi-application smart card, not just the transit aspects. They're not tender related, they're negotiations, and we hope to get one or more concluded in the Ameri
ERG Price at posting:
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