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| Subject: Moving towards GAAP Proton---goodwill. | |
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Author: 26/11/01 |
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Date Posted: Thursday, January 23, 10:41:31pm ERG LIMITED 2001-11-26 ASX-SIGNAL-G ----------------------------------------------------------- ADDRESS BY THE CHAIRMAN - MR SANDY MURDOCH ----------------------------------------------------------- The 2001 financial year has been an extremely busy one for your Company. We have continued to make excellent progress towards achieving our Group's vision. ----------------------------------------------------------- We have recorded revenues of $299.9 million and a net profit after tax of $6.1 million. As you would be aware, the reduction in our revenue levels is largely due to the sale of the telecommunications and manufacturing businesses concluded in 2000. These sales have allowed the Group to focus on smart card related activities. Mr Slater will discuss the 2001 results in his address to you shortly. ----------------------------------------------------------- We have declared a dividend of 1 cent per share which will be paid on 30 November 2001. Bearing in mind our share split in November 2000, this dividend represents a 50% increase over last year. ----------------------------------------------------------- You will have recently received a Prospectus and other documentation related to our rights issue and acquisition of Proton World. This acquisition is natural extension of our smart card strategy and provides us with an immediate presence in the banking and financial services sector of the market. Proton World accelerates our goals to participate in the adoption of smart cards in markets beyond the transit sector. Mr Fogarty will explain in more detail, the strategy behind this acquisition in his address to you. ----------------------------------------------------------- As is often the case in this situation, the new ERG balance sheet will have an amount of goodwill attributed to the acquired company. ----------------------------------------------------------- Current Australian accounting standards require this amount to be amortised through the profit and loss statement. On a global stage, this treatment prejudices companies such as ours. Under US accounting standards, no such amortisation charge is required. US companies retain the goodwill on their balance sheet so long as the directors are satisfied as to the recoverable amount of the asset. Our auditors, PricewaterhouseCoopers, have made submissions to the standard setters on this point in an effort to align Australian standards with the US. We fully support their position on this matter. ------------------------------------------------------------ The acquisition of Proton World will be funded by the rights issue announced on 31 October 2001. The rights issue gives you the opportunity to purchase 3 new shares at 50 cents each for every 10 you held as at the record date of 15 November 2001. If you wish to take up your rights, you must do so by 11 December 2001. The rights are renounceable giving shareholders the option of selling their rights on the Australian Stock Exchange. The rights are currently trading under the code ERGR, and will continue to do so until 4 December. ------------------------------------------------------------ The past year has seen continued strong progress in our Automated Fare Collection (AFC) business. We have focused heavily on the implementation of systems in the major projects we have previously reported. New systems are now largely installed in Rome, San Francisco and Singapore, and all of these projects will have commenced operational use of our systems by early 2002. At an operational level, these projects have been our main focus over the year. They have required a significant cash investment which we expect to substantially recoup this financial year. Once operational, these projects will make a significant contribution to our ongoing recurring revenue. ----------------------------------------------------------- I am very pleased to report we have once again exceeded our own target for the rate of success in AFC tenders. We are working on finalising high profile contracts in Sydney by the end of the calendar year and in Seattle early next year. These tenders have been in progress for many years and our success underlines our standing in the transit industry. In addition, work has commenced on new projects in Bordeaux, Gothenburg and the Rhein-Ruhr region of Germany, reinforcing our strength in the European market. ------------------------------------------------------------ In February this year, we purchased Motorola's stake in the ERG Motorola Alliance for $46 million. As evidenced by our successful Seattle tender, our independence has not impeded our ability to be successful in the US. ERG is now free to work alone, or partner with other organisations depending on the individual requirements of a project. ------------------------------------------------------------ Despite this continued success, you will no doubt be aware that our share price has not performed well this year. We are conscious of the concerns of shareholders and are working hard to ensure the value of the Company is fully reflected in the share price. We acknowledge that we will have to clearly demonstrate sound cash flows and profitability for the market to re-rate our stock. ------------------------------------------------------------ We spend a significant amount of management time communicating with the finance markets and will continue to do so. We are well aware of analysts' views that forecasting the earnings of our Company is a difficult Practice. ----------------------------------------------------------- We continually face the difficult position of balancing the desires of analysts with protecting the competitive position of the Group. ----------------------------------------------------------- The margins we quote on tenders are commercially sensitive and we simply cannot afford to disclose such matters. ----------------------------------------------------------- None the less we have put significant effort into better communicating the structure and revenue streams of the Group in the 2001 Annual Review and the Prospectus for the rights issue. We have made a concerted effort to explain our present and future sources of income. ----------------------------------------------------------- I trust you have found these documents to be informative. ----------------------------------------------------------- In closing I would like to acknowledge the ongoing efforts of our Chief Executive, Mr Peter Fogarty, my fellow Board members and all employees that are often required to spend large amounts of time away from their families. ----------------------------------------------------------- I look forward to the challenges of the year ahead and the continued achievements of our goals. ----------------------------------------------------------- A S Murdoch CHAIRMAN ----------------------------------------------------------- [ Next Thread | Previous Thread | Next Message | Previous Message ] |