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| Subject: $25m loan bails out ERG===February 28, 2004 | |
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Author: February 28, 2004 |
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Date Posted: Tuesday, March 09, 07:42:12am In reply to: Cards not so smart for ERG: new boss 's message, "Re: Noteholders have tickets to ride" on Tuesday, March 09, 07:39:47am $25m loan bails out ERG By Ian Porter February 28, 2004 Print this article Email to a friend The new controlling shareholder of fare collection company ERG had to make an emergency loan to the company in January after another round of asset write-downs blighted the December-half results. The $36.2 million of charges put ERG in breach of its banking covenants and threatened its status as a going concern. They came after two disastrous years in which ERG has declared total losses of $442 million and reduced the balance sheet to a net worth of $153 million, little more than half the 2001 peak of $273 million. Major shareholder Duncan Saville, whose Ingot group engineered ERG's $250 million recapitalisation last year and emerged with a 27 per cent stake, was forced to make a new $25 million loan account available to keep ERG's "going concern" status. The new write-downs shocked even war-weary ERG shareholders, many of whom have hung in through years of persistently weak performances and the dilutive recapitalisation. Some abandoned ship yesterday and quit their shares, pushing down the price 10¢ to $1.01. ERG was selling at $1.51 as recently as November. advertisement advertisement The charges sent the company sinking to a loss of $43.2 million, which was, nevertheless, a big improvement on the loss of $125 million reported a year earlier. Operating revenue edged up from $97.5 million to $99.5 million. Costs continued to drop, falling a further 16 per cent in the half-year, despite $7.8 million of one-offs that included a payout to former chief executive Peter Fogarty of "less than $2 million". The write-downs were made at the insistence of new managing director Allan Sullivan, who started work only on January 7, after the reporting period closed. "Based on my initial assessment of the business, the board has accepted that we take write-downs and provisions totalling $36.2 million in the current half," he said yesterday. At a briefing in Melbourne, Dr Sullivan indicated that directors had considered even greater cuts in asset values. "It is a value call as to whether we do more or not do more. The decisions we have taken now are correct and conservative. I think that is the sensible thing to do." In a frank admission to a meeting of analysts and shareholders, Dr Sullivan admitted last night that ERG had a poor record on delivering its ticketing projects to customers. "We are world class in bidding for contracts, but our project management is weak. We have a bad reputation for delivering. Some customers are pleased but, generally, we have a bad reputation." Dr Sullivan said the weak balance sheet was hurting ERG in its efforts to win contracts, as it was unable to put up the required bonds customers wanted as a guarantee against non-delivery. He said the company was talking to the Export Finance and Insurance Corporation about further aid in this area. EFIC advanced $25.6 million last year to underwrite bonds for the Seattle and Stockholm contracts. "If (rivals) know we are conservative in bonding, then they encourage the customers to ask for big bonds. It is a neat way of putting us on the defensive. EFIC has said, as soon as they see the balance sheet having the necessary level of equity and the cash we need, they will provide funding. We hope to do it this year." The reporter owns ERG shares. [ Next Thread | Previous Thread | Next Message | Previous Message ] |