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| Subject: Seattle like Sydney outsourced Seattle worth U.S. 70 million/customer acquires. | |
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Date Posted: 05:43:58 10/13/02 Sun http://www.stockhouse.com.au/bullboards/viewmessage.asp?no=4291791%20&tableid=2 ----------------------------------------------------------- USA Regional Fare Collection Contract 10/29/01 ERG LIMITED 2001-10-29 ASX-SIGNAL-G HOMEX - Perth +++++++++++++++++++++++++ Attached please find a media release confirming that ERG has been awarded the exclusive contractor status for the Seattle transit project. Under the terms of the proposed contract the customer pays for the transit infrastructure as it is delivered and ERG has already paid for the back office system in San Fr ancisco. The Company also wishes to advise the market on the status of its cash inflows, based on projections provided at the time of the full-year result. As part of the full-year presentation, which was copied to the ASX, the Company forecast a base inflow of $180 million of cash collections during the 2002 financial year with possible payments reaching $265 million. To date the Company has received over $75 million of that amount, with further project receipts anticipated during the next 30 days. C Barrett-Lennard COMPANY SECRETARY MEDIA RELEASE The ERG Group announced today that the Association of Transit Authorities in Seattle and the Central Puget Sound area of Washington State has decided to pursue negotiations exclusively with ERG with a view to concluding a contract worth approximately US$70 million (A$145 million) to install and operate a regional smart card fare collection system. ERG is to provide a "seamless" smart card fare collection system initially to five, with an option to expand to seven, public transport agencies responsible for the region's 2,000 buses and the commuter rail network and ferry systems. The project will use ERG's highly successful MASS (multi-application smart card solution) technology to manage the integrated fare collection system. The contract being negotiated with ERG also includes the provision of card management and settlement services for ten years. The seven public transport agencies deliver services to approximately 3.1 million residents in the four-county Central Puget Sound Region of Washington State, providing 130 million passenger trips per year and collecting more than US$160 million in annual passenger revenue. Additional functions such as toll collection, banking and electronic purse can be added to the smart card at a later stage. The contract is expected to be signed in early 2002, with the first phase of imp lementation commencing in 2003. Once the system is fully implemented, it is anticipated that between 500,000 and 1 million smart cards will be issued. ERG's Chief Executive, Mr Peter Fogarty, said that ERG is very pleased to have reached this point in the procurement process for this major US contract. "This is an important milestone for us because it provides further proof that ERG's smart card technology has worldwide recognition as being the best in its field. "This pr oject in Seattle will enable us to leverage our existing San Francisco service bureau, which we set up to support our smart card fare collection project in the Bay Area. The central service bureau we have established in San Francisco will become the first in the world to process transactions for multiple cities. "The addition of the Central Puget Sound project to our San Francisco and Ventura County (Los Angeles) projects will augment ERG's growing presence in the US market. " Services to be provided by ERG over the ten year operating contract include maintenance, cardholder support (call centre), card procurement and distribution, clearing house services, financial management, network management and revalue network support services. Cardholders will have a variety of means to purchase and load value on their cards, including both agency and third party retail outlets (such as convenience stores), by mail or over the telephone, at ticket vendin g machines and through the Internet. The convenience of "Autopay" will also be provided, whereby cards can be automatically revalued through a pre-authorised charge to a credit card or bank account, without any need for the cardholder to visit a revenue location. BACKGROUND INFORMATION ERG Group ERG Group is a world leader in the development and supply of integrated fare management and software systems for the transit industry and technologically advanced smart card system s and services. In 2000/2001, ERG's revenue totalled A$299.9 million. ERG has achieved a compound annual sales growth rate of 32 per cent for the past ten years and has established market leadership for its integrated multi-application smart card management technology. ERG is an Australian-based company listed on the Australian Stock Exchange and is ranked in the Standard & Poor's-Australian Stock Exchange Top 100 index. THE PARTICIPATING TRANSPORT AGENCIES Community Transi t, Everett Transit, King County Metro, Pierce Transit, and Sound Transit with Kitsap Transit and Washington State Ferries having the option to join later. ------------------------------------------------------------------------------------------------- http://stocknessmonster.com/news-item?S=ERG&E=ASX&N=222869 ERG LIMITED 2002-09-12 ASX-SIGNAL-G HOMEX - Perth +++++++++++++++++++++++++ IMPROVED SECOND HALF RESULT FOR ERG The Directors of ERG Group today announced an improvement in the second half performance on the back of better than expected cost savings achieved in the half and second half trading in the supply and installation segment. The Group recorded full-year revenue of $301.6 million (an increase of 1% on the prior year) and a loss of $243.9 million, which included $165.3 million in one-off write-downs and provisions, $38.2 million in depreciation and amortisation, and $22.1 million in interest costs. HIGHLIGHTS OF THE RESULTS * revenue on a normalised basis (removing the telecoms revenue from the 2001 year - as the business was sold in 2001 - and non-trading revenue) grew by more than 25% from $223.0 million to $280.3 million; * recurring revenue from infrastructure (long-term fare collection and smart card projects) jumped 173% from $51.3 million to $140.0 million; * excluding the one-off write-downs, EBITDA for the second half was positive $2.3 million compared with a loss of $17.0 million in the first half; * cash flow from operations improved in the second half due primarily to a reduction in employee costs of $21.1 million; * major projects generating recurring revenue, ie Melbourne and Rome, are now EBITDA and cash flow positive; * total R&D costs dropped from $42.3 million in 2001 to $23.2 million in 2002; and * operating costs have been slashed by over $30 million on an annualised basis. Tough market conditions, significant delays in contract awards by customers and the impact of September 11 on the insurance and bonding market all impacted the Group's performance in the full-year. These delays impacted revenue in the full-year by more than $40 million and led to the high level of staff cuts across the Group. Furthermore, costs associated with the major Rome infrastructure project were incurred and the commencement of the Lazio phase of the project was delayed, resulting in reduced revenue. Directors elected not to declare a dividend, compared to a 1 cent unfranked dividend in 2001. A summary explanation of the result is included as Attachment 1. REDUCTION OF OPERATING COSTS Major structural changes were implemented in the second half as part of an aggressive cost reduction program. The Group's focus remains on cash flow generation, with expected ongoing annual savings of $30 million resulting from cost cutting initiatives. Since the half-year, management's priority has been on: * achieving aggressive cost cutting targets; * rationalising the Proton business acquired in March 2002 and integrating it with ERG's business; * reducing the cash outflow from the business; and * restructuring the Group's finance and strengthening the balance sheet. All of these objectives have been achieved or are ongoing. ONE-OFF CHARGES The Group made provisions, write-downs and accelerated depreciation totalling $165.3 million for the year ($155.4 million in the first half and $9.9 million in the second half). The Directors are hopeful that the write-downs are not permanent reductions in value but represent a conservative approach to carrying values. The provisions are substantially due to the accounting treatment of equity historically received in exchange for the license of ERG's technology. Although the Directors are confident of the business plans of each of these entities, they believe it is difficult to precisely measure the future returns these investments will generate. Accordingly, provisions were raised against these investments and other amounts related to these entities. The breakdown of these items is included as Attachment 2. GROUP FUNDING The Group has focused considerable attention on restructuring its financing and balance sheet to ensure all new projects can be supported. ERG has extended its relationship with the ANZ Bank which has provided facilities for Melbourne and terms for funding of the Sydney project. In addition, funding arrangements have been put in place and others are being negotiated with major banks, and a major infrastructure group. The total of these arrangements is over $100 million. This is in addition to the existing $60 million facility for Melbourne. The unlisted convertible notes, due in October 2002, will be converted under the terms of agreements reached with the holders of 100% of those notes, resulting in payments by the Group being reduced from $22.8 million to an estimated $5-10 million. Shares held by the Group in Downer EDI have been sold over the past two months generating approximately $16 million. The proceeds were used to pay out the Commonwealth Bank. The Directors are confident the Group has ample funding available to meet all its commitments and growth prospects. PROJECT UPDATE The maturing status of major projects is reflected in the nature of revenues reported for the year. The infrastructure or recurring revenue grew 173% to a level comparable with that of system supply and installation. This growth trend is expected to continue in future years driver primarily by the large city projects for which ERG holds long-term outsourcing contracts. The status of the Group's major projects is as follows: * The Singapore system - one of the world's most advanced - is fully operational and a great success, processing more than 1.5 million transactions per day. The customer has entered a three-year maintenance contract with ERG. * Rome is now EBITDA and cash flow positive, despite continued delays in the Lazio area joining the system. The Group has significant compensation claims lodged in respect to these delays which are outside the Group's control. Refinancing of the Rome project has been deferred due to these delays. * Melbourne is EBITDA and cash flow positive and the revised contract arrangements are due to be finalised this month. Further payments of approximately $20 million are due from the customer in September. ERG will receive an additional $3 million per annum for management of the system. Overall performance of the system has improved significantly with improved cooperation between both the operators and Government lowering the impact of vandalism on the system. * San Francisco Phase 1 has been extremely successful. Phase 1 is continuing with the large operator, MUNI, extending the system to its entire rail network during Phase 1. A decision to move to Phase 2 is due before year-end. * TKE - a new contract in Hong Kong - was delivered ahead of time and with better profit than budgeted. DEPRECIATION AND AMORTISATION Depreciation and amortisation increased from $17.1 million in 2001 to $38.2 million in 2002. The increase reflects the first full year of depreciation of the infrastructure owned by the Group in the Rome project, amortisation of the Proton goodwill and amortisation of the Group's investment in the MASS (multi-application smart card solution) technology. REVIEW OF OPERATING SEGMENTS * Supply and installation. Revenue of $140.4 million was recorded for the supply and installation of automated fare collection (AFC) systems throughout the world. Before one-off items, an operating profit of $3.7 million was recorded. Revenue was the previous year figure of $171.7 million. The reduction in revenue was caused by the delay in commencement of certain major projects which are now due to commence in the current financial year. * Infrastructure and cards business. The infrastructure segment of the business represents the source of long-term recurringrevenue for the Group derived primarily from the outsourced operation of AFC systems once installed. Revenue from these sources increased significantly to $140.0 million up from $51.3 million in the previous year. Currently the Melbourne and Rome projects are the largest individual contributors to this segment; however their accounting profitability is impacted by the sizeable depreciation charges against the large-scale capital equipment infrastructure cost. It should be noted however, both projects are currently EBITDA and cash flow positive. Future infrastructure projects, such as Sydney, will not follow this format as the AFC system will be owned and paid for by the customer. Accordingly the operating phase of these projects will not be burdened with depreciation charges for the infrastructure. * R&D and Corporate support. This segment of the business provides the technology, financing and administrative support to the two operational segments outlined above. With the Group's technology at a level of maturity where standardised modules can be successfully deployed in cities throughout the world, the necessary level of R&D activities can be reduced significantly. Total expenditure on R&D in the current year was $23.2 million compared with $42.3 million in the 2001 financial year. OUTLOOK * The Group is hopeful that signing of contracts in Sydney and Seattle will be finalised during the coming months. Finalisation of these contracts has been delayed by as much as 2-3 years. Both are supply and long-term operating contracts. In both cases the Infrastructure equipment is being acquired by the customer and its operation outsourced to ERG. ERG is the preferred proponent in both cases. Project financing is being arranged for Sydney and all other projects are forecast to be cash flow positive. San Francisco is expected to move to Phase 2 by the end of the year. The total value of these new projects is expected to exceed $750 million. The Group is involved in large tenders in Canada, the Netherlands, Sweden and the United States (Maryland, Virginia and Washington DC). Decisions are expected during the current financial year. * Today we have also announced that we have been awarded an important new contact in Las Vegas, which further strengthens our business in the United States. The contract has been awarded by the large Canadian group, Bombardier Inc, with whom we will bid for the Montreal project. The new contract is initially worth US$6 million. * Due to delays experienced in the finalisation of the contracts in Sydney, Seattle and elsewhere, the operating revenue from supply contracts will build towards the end of the current half-year. Revenue in the second half is expected to be stronger than the first half as the major projects ramp up. Overall revenue should grow in 2003 with a much stronger growth in 2004. * Depreciation and amortisation, mainly arising from the major infrastructure investments, will continue to run at approximately $35 million (before amortisation of the Proton World goodwill of $11 million each year). * EBITDA and operating cash flow is budgeted to improve in 2003 as the cost cutting initiated in the second half of 2002 has full impact and new projects commence. Profitability at the EBITDA level in the 2003 year will be, to a large extent, dependent upon both the timing of signing and commencement of new projects. MORE TO FOLLOW [ Next Thread | Previous Thread | Next Message | Previous Message ] |