ferret's stock to watch: erg limited

Ferret's Stock to Watch: ERG LIMITED
08:35, Wednesday, 2 March 2005

SMART CARD COMPANY MAKES A BIGGER COMEBACK THAN LAZARUS

Sydney - Wednesday - March 2: (RWE)
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OVERVIEW
********

ERG Ltd has been through a couple of years where it temporarily
lost its way as a hot shot smart card automated fare collector that
could beat rivals out of Silicon Valley.

The WA company had to restructure last year and sell its
headquarters at Balcatta to a property trust for $14.7 million and then
lease it back.

It met a number of heavy debts and provided new working capital
for the company.

Ironically the property deal was completed late month just as
the company was prepared to tell the Australian Stock Exchange that it
had made a dramatic profit turnaround in the half year to December 31.

ERG, which bills itself as a world leader in the smart card
field, reported a net profit after tax of $15.9 million for the six
months ended 31 December 2004.

This compared favourably with the previous corresponding period,
which showed a net loss after tax of $43 million.

Operating revenue for the period improved by 17 per cent to
$116.5 million, with the successful commencement of delivery of several
major contracted projects.

ERG's chief executive officer, Dr Allan Sullivan said, "The
operational financial results have improved over the period, with cost
savings and progress on all major projects.

"Our focus is still on reducing overheads and the cost of
delivery of projects.

"With our improving operating results and financial performance,
we are now also looking forward to winning and securing new projects and
we are placing greater emphasis on this activity.

"The balance sheet restructure, with the rights issue, and the
reorganisation within the ERG Group, has provided us with the framework
to produce these improved financial results and we expect to continue to
build on this," Dr Sullivan declared.

SHARE PRICE MOVEMENTS
*********************

Shares of ERG yesterday rose 6.5c to 35.5c. Rolling high for the
year has been 58.51c and low 24.8c

Directors also disclosed the company made a $5.6 million profit
on the property sale which will be added into the results for the full
year.

They confirmed that the net proceeds will be used to meet
guarantee requirements for the lease and for general working capital
purposes.

The sale was in line with the directors' aims to improve balance
sheet management and release capital tied up in non-core assets.

The sale required the consent of the secured creditors of ERG,
as the property is part of the ERG security trust.

To compensate certain of the secured creditors for the reduction
in their level of security, ERG has agreed, subject to shareholder
approval, to re-price their secured convertible loans.

Approval will be sought for the issue at the next general
meeting of shareholders.

The new conversion price will be at a 15 per cent premium to a
five-day volume weighted average price of ERG shares and will be
calculated following the meeting.

The conversion price will apply to $14.7 million of the $25.4
million of existing convertible loans.

The summarised status of key projects within the Large Projects
Division is as follows:

* The Sydney project achieved an important contract milestone in
January, with the successful issuance of 250,000 student smart cards.
Full program rollout is expected to be completed in the first half of
2007.

* The TransLink project in San Francisco is scheduled to reach
its first operational milestone in the last quarter where smart cards
will be accepted by two transport operators.

* The Washington DC project, which completed delivery of the
Customer Service Centre ahead of schedule in June 2004, is expected to
implement fund clearing and settlement using ERG's MASS technology in
the second half of 2005.

* In Sweden, the VT Gothenburg contract is preparing to enter
into the second phase of implementation. Factory acceptance testing of
Phase I is nearly complete.

* The ITSO (Inter operable smart card standard) based Manchester
project is currently undergoing revisions as a consequence of
limitations with the ITSO standard. It is anticipated that ERG will
deliver a system in mid 2006.

* The Large Projects Division has also made significant progress
with negotiating the Cotral/Lazio project.

A formal contract between ERG and Cotral has been completed. The
contract now requires ratification by the Board of Cotral. It is
anticipated that work will commence in May 2005.

* A review of the schedule for Stockholm is underway to ensure
the project delivery timetable reflects revised customer requirements
and takes into account customer dependencies.

Thee small projects division, which provides a more standardised
product solution for smaller transit agencies and single transit
operators, reported strong results.

The first phase of the Oslo project is nearing completion and
phase two is to begin shortly utilising a more advanced product
platform.

The small projects division achieved success in winning new
business in several projects in Europe, including Clermont-Ferrand and
Gironde in France.

The OpCo division manages outsourced transit agency back office
systems, related services and maintenance.

This division continued to achieve strong results.

BACKGROUND
**********

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, Las Vegas,
Bordeaux 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 approximately 900 people in 11 countries.

The Group has two main businesses:

* ERG Transit Systems is a world leader in automated fare
collection products and systems for all modes of transport utilising all
types of ticket technology including paper, magnetic stripe and
contactless and dual interface (contact/contactless) smart cards.

The company specialises in providing and operating fully
integrated systems for transit operators, from backend processing to
depot computer software, to on-vehicle or on-station equipment

* ERG Card Systems provides smart card systems and solutions,
which can incorporate membership programs, loyalty schemes, security
access, biometric data and social security information, as well as
electronic purse functions including retail, public transport ticketing,
telephone, road tolling, vending and parking.

The company provides smart card system design, integration
expertise and project management services for all types of smart card
projects.

ENDS