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SEPTEMBER 04, 2002
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Date Posted: 25/01/03 2:14:36am
Smart cardplay but ERG at risk
Mark Westfield, Insider
SEPTEMBER 04, 2002
THE stock has long slipped from the radar screens of investors large and small, but ticketing and smart card systems contractor ERG continues to stir passions, particularly among those punters who have been horribly burned by the collapse of its share price over the last 12 months.
Shareholders can only wonder whether or not the plunge is terminal. In particular, the NRMA motoring organisation - which is losing an estimated $19 million on its exposure to ERG - will be desperate for a revival. NRMA picked up 10 million shares for between $2.05 and $2.30 a share early last year at a time when ERG managing director Peter Fogarty was a substantial seller of stock. The shares closed down 1c yesterday at 22.5c. J.B.Were rates ERG a "sell".
Next Tuesday, ERG and Fogarty face their moment of truth.
Having moved the results date on a pretext from last Monday to next Tuesday (when it can be guaranteed to be swamped by September 11 anniversary coverage) Fogarty must unveil his 2002 earnings, or more likely a big loss after the $199 million writedown in the first half.
ERG is hanging by the thread of an expected $500 million contract to supply a smart card fare payment system for NSW's trains, buses and ferries. Shareholders will be anxious to hear a lot more about this contract next Tuesday.
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At least ERG says the week's delay will enable the company to release audited results.
Its auditor, PricewaterhouseCoopers, declined to comment yesterday on market talk that the relationship between the company and auditor was rocky.
PWC stuck to its guns over the treatment of a claimed "profit" from the sale of technology to a German affiliate CARD.etc. ERG was forced to lop $21 million off its result for the 2001 year.
The company wasn't returning calls yesterday.
ERG also proved to be a revolving door for its finance directors since the last result, having gone through three in 12 months.
All importantly for the company, it was awarded "preferred tenderer" for the NSW fare collection contract last September, but the work was held up by a legal challenge from rival bidder Cubic Transportation Systems.
In July, Justice Adams threw the challenge out of court, clearing the way for ERG, but there has been deathly silence since.
A NSW Transport Department spokesman said the contract was still being negotiated.
Despite the appeal, ERG and the state government have had 12 months to settle the terms.
The media focused entirely on the last three pages of Justice Adams' 163-page judgment, in which he dismissed Cubic's claim and awarded costs, being highly critical of Cubic in the process.
The judge also cast a few aspersions on ERG, and shone some light on the tendering process.
In view of ERG's bungled implementation and management of Melbourne's rail and tram ticketing system, NSW bureaucrats were insistent that ERG demonstrate it could provide a workable smart card system for NSW. Melbourne's train operator Connex lost about $50 million last year in unpaid fares and the city's commuters were being forced to evade fares because an estimated 40 per cent of ticketing machines weren't working at any one time.
Fogarty's response was to blame Melbourne commuters, claiming they had a culture of fare evasion and vandalism.
NSW also wanted evidence, according to the judgment, that ERG was financially sound enough to be able to deliver the system, and ensure it was working.
Justice Adams also questioned Fogarty's credibility: "The information supplied by Mr Fogarty considered as a whole appears to be at odds in a number of respects with the information that had been supplied from Mr Wildermuth and Mr Meiman (two outside consultants retained to assess ERG systems in Singapore and San Francisco similar to the type mooted for Sydney)."
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