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DATE 28 February 2005
CONTACT Dr Allan Sullivan, Chief Executive Officer
PHONE 08 9273 1100
FAX 08 9273 1208
EMAIL [email protected]
ERG Announces $15.9 Million Profit for Half-Year
ERG Group, a world leader in smart card automated fare collection, has reported a net profit
after tax of $15.9 million for the six months ended 31 December 2004. This result compares
very favourably with the previous corresponding period, which showed a net loss after tax of
$43.0 million.
Operating revenue for the period improved by 17% 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.”
Large Projects Division
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 (Interoperable 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.
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• 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.
Small Projects Division
This 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.
OpCo Division
The OpCo Division, which manages outsourced transit agency back office systems, related services
and maintenance, continued to achieve strong results. Several maintenance contracts have been
renewed, and ERG has been successful in obtaining a new maintenance contract for Sydney State
Rail.
The OpCo Division now accounts for almost 50% of ERG revenues.
New Business
ERG continues to place a high priority on acquiring higher margin projects which fit within ERG’s core
strategy, and which will generate positive cash flow in future years. ERG is finalising contracts in New
Zealand and Oslo, and is actively involved in follow up activities on tenders lodged for projects in
Melbourne, Dublin, Johannesburg, Dubai, Toulon and various other cities in Europe. ERG is also
pursuing major automated fare collection opportunities in several key cities in North America and Asia,
where several attractive new tenders are projected over the course of the next six to twelve months.
Highlights
• A significant net profit of $15.9 million has been recorded.
• Operating revenues increased by 17% to $116.5 million with progress on the delivery of Sydney,
Seattle, San Francisco Phase 2, Stockholm, and Washington DC (operating revenues exclude
other and significant items).
• EBITDA excluding significant items was a profit of $10.8 million compared with a loss of $5.7 million
for the previous corresponding period.
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ERG Announces $15.9 Million Profit for Half-Year
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• Interest, depreciation and amortisation charges collectively reduced by $3.6 million from the
previous corresponding period to $8.8 million.
• Total cash reserves stood at $45.8 million including $13.2 million of cash at bank and $32.6 million
on deposit as security for performance guarantees.
• The OpCo Division continues to provide a predictable, high quality earnings stream.
Significant Items
Significant items included a positive contribution of $14.5 million for the six months ended 31 December
2004 derived from two separate transactions as follows:
• The discounted early settlement of liabilities of $52.5 million due to the vendors of the PWI
transaction resulted in a net profit of $21.1 million after the provision for an increase in the deferred
consideration after revaluation;
• $6.7 million provision for various project losses and delays to close off outstanding complex
projects.
Cash
At 31 December 2004, the Group had total cash reserves of $45.8 million comprised of $13.2 million
cash at bank and $32.6 million committed as security for performance guarantees. In addition, ERG
had secured an additional $25 million working capital facility to September 2005, reducing to $15 million
to February 2006 as the Group expects to receive significant cash inflows with the delivery of its major
projects.
Cash flow from operating activities was a net outflow of $30.9 million compared to $15.5 million net
outflow in the previous corresponding period. The net outflow reflects the continuing investment phase
of projects, particularly Sydney, where work has commenced while customer payments under the terms
of the contract will be received progressively.
Investing activities produced a net cash inflow of $33.8 million, primarily from the $67 million rights
issue and after the net repayment of borrowings of $15.5 million and the settlement of deferred liabilities
to the PWI vendors by payment of $16.0 million.
Subsequent to the end of the half-year period ERG announced the sale of its Balcatta office building to
Becton Industrial Property Trust for $14.7 million. ERG will lease the building back under a ten-year
lease contract. A profit on the sale of the property was made which amounts to approximately $5.6
million and will be recognised in the current financial year. 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.
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Balance Sheet
At 31 December 2004, net assets increased to $222.4 million compared to $144.2 million as at 30 June
2004. As a result of the completion of the rights issue, the ERG Group settled some of the deferred
liabilities, which resulted from the PWI transaction, and repaid some of the Group’s interest bearing
liabilities. At 31 December 2004 the interest bearing debt to equity ratio reduced to 18%. Of the $39.2
million in interest bearing liabilities, $25.4 million is repayable in December 2007 / January 2008, with
the balance repayable based on a percentage of the financial results of the Group.
-ENDBACKGROUND
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, 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.
More information on ERG can be obtained at www.erggroup.com
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Attachment 1 – Summary Result Explanation
The Group’s financial results are summarised as follows:
Six months to
31 December 04
A$000
Six months to
31 December 03
A$000
Operating revenue
Large Projects 42,319 29,376
Small Projects 17,429 17,800
Operating Companies 56,754 52,330
Corporate and Financing 7
116,509 99,506
Others 1,605 748
Total Revenue * 118,114 100,254
Expenses
Cost of sale of investment (433)
Other expenses (106,929) (105,137)
Share of Associates losses (813)
Total Expenses (107,362) (105,950)
EBITDA excluding significant items 10,752 (5,696)
Depreciation (2,702) (4,777)
Amortisation (5,722) (6,476)
Total depreciation and amortisation (8,424) (11,253)
EBIT excluding significant items 2,328 (16,949)
Interest net (400) (1,197)
Tax (180) (167)
Net Profit after tax, before significant items 1,748 (18,313)
Significant items 14,537 (25,222)
Net Profit after tax, before OEI 16,285 (43,535)
Outside equity interests (394) 505
Net profit after tax and OEI 15,891 (43,030)
* Operating revenue excludes significant items and interest income.