ERG Announces $15.9 Million Profit for Half-Year Results

ERG Group, a world leader in smart card automated fare collection, today 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.

(PRWEB) March 1, 2005 -- ERG Group, a world leader in smart card automated fare collection, today 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 18% to $116.5 million, with the commencement of the successful delivery of several major contracted projects.

ERGs 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 our overhead and the cost of delivery in our projects. With our improving 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."

The summarised status of the key Large Project division projects is as follow:

•    The Sydney project delivered the first contract milestone in July, with the issuance of 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 revenue ready milestone in the last quarter of this business year when the first transport operator will begin full rollout;

•    In Sweden, the VT Gothenburg contract is preparing to enter into the second phase of implementation. Factory acceptance testing is in completion;

•    A review of the schedule for Stockholm is underway to ensure the project is delivered in accordance with customer dependencies and requirements;

•    The Washington D.C. project, which completed delivery of the Customer Service Centre ahead of schedule in June 2004, is expected to implement fund clearing and settlement using ERGs MASS technology in the second half of 2005.

•    The ITSO (Interoperable smart card standard) based Manchester project is currently undergoing revisions to address limitations identified with the ITSO standard. It is anticipated that an enhancement of a current ERG UK system will be implemented to resolve the limitations and allow the project to become operational in mid 2006.

•    The Large Project 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. The contract is a 9 year supply and operate project with an approximate value of $115m. It is anticipated that work will commence in May 2005.

The Small Projects division achieved successes in winning new business in several projects in Europe, including Clermont-Ferrand and Dept Gironde in France.

The OpCo division continued to achieve strong results contributing $10m EBITDA in divisional performance. Several maintenance contracts have been renewed, and ERG has been successful in obtaining a new maintenance contract for Sydney State Rail.

The ERG Board of Directors continues to place a high priority on ERG acquiring high margin projects which fit within The Groups core strategy, and which will generate positive cash flow in future years. The Group is finalising contracts in New Zealand and Oslo, and is actively involved in follow up activities on tenders lodged for projects in Melbourne, Dublin, Gautrain, 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 new attractive tenders are projected over the course of the next six to twelve months.

Some Highlights

•    Operating revenues increased by 18% to $116.5 million with progress on the delivery of Sydney, Seattle, San Francisco Phase 2, Stockholm, and Washington DC.

•    EBITDA excluding significant items was a profit of $13.5 million compared with a loss of $5.6 million for the previous corresponding period.

•    Interest, depreciation and amortisation charges collectively reduced by $3.6 million from the previous corresponding period to $8.8 million.

•    A net profit of $21.1 million resulted from the early settlement of the deferred liabilities to the vendors of the PWI transaction and one-off provisions of $6.7 million, to complete outstanding complex projects.

•    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 bonds.

•    The OpCo division continues to provide predictable, high quality earnings exceeding $10m divisional contribution margin to the end of December.

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, and $6.7 million provision for various project losses and delays to close off outstanding complex projects such as VT Gothenburg, Ventura and Sormland.

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 bonds. In addition, ERG had secured an additional $25 million working capital facility with the Ingot Group to September 2005, reducing to $15 million to 28 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 in the previous corresponding period. The net outflow reflects the continuing build phase of projects, particularly Sydney, where work has commenced while customer payments under the terms of the contract are still to be received.

Investing activities produced a net cash outflow of $32.0 million, primarily from the $67 million right issue after the repayment of borrowings of $15.5 million and the deferred liabilities to the PWI vendors with a payment of $16.0 million settlement.

Balance Sheet

At 30 December 2004, net assets increased to $219.6 million compared to $144.2 million as at 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 Groups 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.

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