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| Subject: Re: Subsequent to preliminary intangible increased 38,022,191--offset non current liability Proton. | |
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Author: anonymous |
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Date Posted: 17:31:55 10/19/02 Sat In reply to: anonymous 's message, "Subsequent to preliminary intangible increased 38,022,191--offset non current liability Proton." on 17:21:06 10/19/02 Sat Subsequent to the preliminary report which was given earlier and then reported in the audit period 30/6/2001 to the 30/6/2002 given to the ASX on the 1/10/2002 intangible assets were increased by 38,022,191 with a corresponding decrease in deferred consideration payable so that net assets remained the same. (ie the balance of the amount owing for Proton was turned into a non current liability--from a contingent liability (contingent due and payable within a year---non current--greater than a year) What has basically happened here is the Group has taken the loss for Proton--without in the period June 30th 2001 to June 30th 2002----taking all the revenue--this will be reflected intstead in the next accounts for period June 30th 2002 to June 30th 2003. The balance of the monies owing for Proton can then be offset against it. ------------------------------------------------------- Legal closure of the Proton acquisition had not occurred by the 26/6/2002---in operating profit report-3.7 mill released on the 12/9/2002 reflecting the period 31/6/2001 to 30/6/2002 The group had amortised the goodwill relating to the acquisition they did not however legally close the acquisition. At the next profit report in March Net Asset backing will rise--for it will include the assets of Proton--whereas in the prior period it did not. Previous points made by others are the revenue also being brought forward and then matched off in the accounts. (Accelerated amortisation made quicker by the making of the contingent liablity due and payable within 12 months for Proton--to a non current consideration for purchase. Revenue of 18.3 million British Pounds will be reflected in the Groups accounts-Erg and related company's represented 39.4% of this revenue---yet before the legal closure--the Group owned 10% NB deducting 10% off (The Group owned 10% of it before they purchased the remainder---just as a note--I don't think though you need to subtract 10% for it states the entity did not get the whole of 18.3 million pounds--there it is if you do.52.25131 is reflected in the next financial period--additional as stated to a rise in net asset backing--for Proton goes from an associated entity to a controlled entity (ie fully owned by the group and as such it's assets have a bearing on ERG's NTA. http://www.oanda.com/convert/classic FXConverter - 164 Currency Converter Results Monday, October 14, 2002 16.47 British Pound = 47.02618 Australian Dollar 16.47 Australian Dollar (AUD) = 5.76830 British Pound (GBP) Median price = 2.85315 / 2.85526 (bid/ask) Estimated price based on daily US dollar rates. FXConverter - 164 Currency Converter Results Monday, October 14, 2002 18.3 British Pound = 52.25131 Australian Dollar 18.3 Australian Dollar (AUD) = 6.40922 British Pound (GBP) Median price = 2.85315 / 2.85526 (bid/ask) Estimated price based on daily US dollar rates. http://www.erg.com.au/invst_relations/prospectus/prospectus_for_lodgement.pdf ---------------------------------------------------------------------- PWI was formed in 1998 and its current shareholders are Banksys (60%), Amex (10%), Interpay (10%), Visa (10%) and ERG Card Systems Ltd (10%). Following completion of the acquisition ERG will own 100% of PWI. -------------------------------------------------------------------- 4.1.8 PWI Financial Information The financial performance of PWI to date has been based largely on licence fees from the licensing of its core technology to customers globally. --------------------------------------------------------------------- Over the past 12 to 18 months those customers have provided PWI with specific details of the functionality and products they require. As a result, PWI set out to develop Proton Prisma and the Proton Conquesta range of products. These products will only become available to the market at the end of this year and the beginning of next year. ------------------------------------------------------------------- At that time PWI will move from a basic technology developer to a commercial organisation capable of exploiting its technology and providing a range of services to its customer base. Many of the licences taken up will only see cards issued for the first time in 2002. ------------------------------------------------------------------ Based upon its own estimates and estimates provided by the existing licensees, PWI expects to see the number of cards issued globally incorporating its technology grow from 36 million today to over 100 million within two to three years. That card base should generate increasing revenue for PWI.ERG LIMITED ABN 23 009 112 725 ------------------------------------------------------------------ The research component of PWIs business will progressively move to development and support of its customer base on a fee-for-service basis.PWI Profit and Loss Statement ( 000) 6 months to 12 months to 19 months to 30 June 2001 31 Dec 2000 31 Dec 1999(Unaudited) (Audited) (Audited)Revenues 4,935 18,278 30,816Operating charges (13,487) (24,327) (31,049) Operating profit (loss) (8,552) (6,049) (233)Financial income 57 464 896Financial charges including interest (234) (767) Profit (loss) on ordinary activitiesbefore tax (8,495) (5,819) (104) In the financial year ended 31 December 2000, PWI's total revenue was 18.3m. PWI shareholders (including ERG) and related companies represented 7.2m or 39.4% of this revenue, and royalties and card fees made up 6.7% of thisrevenue. In the past 12 months, PWI has focused on the development of its new technology. PWI incurred losses prior to 30 June 2001 as a result of: the benefits of these new technology developments not flowing through PWIs accounts (these benefits are not expected to flow through until June 2002); and PWIs policy of expensing all R&D costs as incurred. PWIs transition from a predominantly R&D focused company to a commercially driven organisation is evidenced by the new agreements PWI has entered into, or is expecting to enter into, with its shareholders, as set out in Section 7.4.PWI Statement of Financial Position ------------------------------------------------------------------------- ---------------------------------------------------------------------- The half year results are a reflection of major events which have taken place within the telecommunications environment. The recent short-term market destabilisation in the US has resulted in deferred spending in the telecommunications sector globally. As an example, our valued customer in the US market, El Paso Global Networks ('EPGN'), has deferred the purchase of software licence upgrades valued at $6 million until later in the 2002 year, which if it proceeds will be a positive result for the 2003 financial year. ---------------------------------------------------------------------- N.E. Renton "Understanding The Stock Exchange Chapter 823 page 157. ---------------------------------------------------------------------- 1) Where less than 20% of another company is owned, then the shareholding is treated as an investment and credit is taken only for the dividends actually received or receivable. ---------------------------------------------------------------------- 2) If between 20 and 50 percent is owned then "equity accounting" can be used, meaning that credit can be taken for all the profits, less the proportion belonging to the outside minority shareholders. (if any) ---------------------------------------------------------------------- 3) If more than 50% is owned, then the company becomes a subsidiary and this latter principle again applies: credit is taken for all the profits, less the proportion belonging to the outside minority shareholders. (if any) ---------------------------------------------------------------------- http://www.xrefer.com/entry/163281 ---------------------------------------------------------------------- equity accounting --------------------------------------------------------------------- The practice of showing in a company's accounts a share of the undistributed profits of another company in which it holds a share of the equity (usually a share of between 20% and 50%). The share of profit shown by the equity-holding company is usually equal to its share of the equity in the other company. Although none of the profit may actually be paid over, the company has a right to this share of the undistributed profit. ------------------------------------------------------------ http://stocknessmonster.com/news-item?S=ERG&E=ASX&N=213133 ----------------------------------------------------------- ERG LIMITED 19/3/2002 HOMEX - Perth +++++++++++++++++++++++++ ERG today announced the successful closing of the acquisition of Belgian-based high security, payment and identity smart card company, Proton World. The acquisition positions the ERG Group to offer high security, payment and identity capability to complement its market leading position in automated fare collection, The transaction sees American Express, Visa, Banksys and Interpay Nederland become shareholders in ERG, Collectively the four companies will hold approximately 75.5 million shares, representing 8.1% of ERG's outstanding capital. The holdings are subject to restrictions on trading for two to three years. As part of the acquisition, American Express, Banksys and Interpay Nederland agreed to enter into five to seven year service level agreements that are expected to generate revenue in excess of $200 million over that time. Integration of the operations of the two companies has been under way for some time in anticipation of the legal closure of the acquisition. The companies have been evaluating their two Belgian sites, R&D processes and resources required. The annual savings foreshadowed in the prospectus, of $8-$12 million for R&D and $1-$3 million for administrative costs, are on target. ERG Chief Executive, Mr Peter Fogarty said: "We are focused on building our levels of recurring revenue and the long-term contracts to be entered into as part of this transaction are a significant addition on that front. "Our existing customers are increasingly looking for multifunction capability in their smart cards. Closing this transaction gives ERG control of two of the most powerful technologies in the industry.' Full details of the acquisition were discussed in ERG's rights issue prospectus dated 31 October 2001. The prospectus is available on ERG's website at the following location: www.erggroup.com/invstrelations/prospectus/index.htm BACKGROUND INFORMATION PROTON WORLD Proton World is a Belgian-based company that develops multi-application, high-security, payment and identity smart card systems and applications based on its own proprietary intellectual property - Proton technology. Proton technology is a scalable technology that is targeted at both large enterprise multi- issuer schemes and small closed environments and has been sold to licensees in 24 countries around the world. Over 35 million Proton-based smart cards are in circulation worldwide on a network of over 300,000 terminals. A detailed discussion of Proton World is contained in the rights issue prospectus available on ERG's website at the location noted above. ------------------------------------------------------------ http://stocknessmonster.com/news-item?S=ERG&E=ASX&N=222869 ------------------------------------------------------------ ERG LIMITED 12/9/2002 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 ] |