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| Subject: It also wrote down the balance of the carrying valuePrepayment Cards Ltd28 February 2002 | |
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Author: ERG reacquired 10% of the shares in PCL reversing a 9mprofit |
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Date Posted: 08:38:06 01/16/03 Thu http://www.dialinfolink.com.au/articles/bf/0c00b4bf.asp ERG shares plunge following first half profit warning INVESTORS wiped $98m off the market value of smart card company ERG Wednesday after it warned it would post a first half net loss of around $175m to $195m. The stock dived 28.4% or 11.5 cents to close at 29 cents, its lowest level since mid 1998. More than 40 million ERG shares changed hands, making it the heaviest traded stock on the Australian Stock Exchange Wednesday. The Perth-based company flagged the first half loss after completing a review of the carrying value of its assets, particularly its investments in unlisted companies that have licences in ERG's technology. Despite being confident that these investments would generate substantial returns and cash flow in the future, ERG said it was difficult to measure the future returns precisely. "Accordingly a reduction in their carrying value has been made," it said. It also wrote down the balance of the carrying value in Prepayment Cards Ltd (PCL) to zero. During the half year, ERG reacquired 10% of the shares in PCL, reversing a $9m profit previously booked on the sale. As a result of these changes, ERG said it was likely to make one off adjustments in the range of $140-$160m. Consistent with this policy, ERG said it would not include in its revenues or profits in the half year licensing fees it had received in the form of shares in unlisted companies. It valued these kinds of transactions at around $55m. ERG said the end result would be a half year loss in the range of $175m to $195m. ERG booked a $16.13m net profit for the six months to December 31, 2000. Analysts said ERG had responded to market pressure, which demanded the company produce cleaner, more transparent accounts. "There has always been criticism about transparency in their accounts," Paterson Ord Minnett industrial analyst Robert Gee said. "No one has really understood or got to the bottom of how much they have pushed into the balance sheet from these license fees/income or whatever you want to call it." Gee said ERG's move for greater transparency would prove beneficial in the longer term. "Particularly since they just raised that $100m in November and they have the cash coming in from a number of contracts, their balance sheet is in a good position." He called on ERG to follow up the announcement by providing the market with additional information when its first half results are released on March 11. "They have to follow it up and make sure that when they report their interim (result) everyone can see it is clean and they give a bit more information on where the money is coming from," he said. "As long as they do that I think people will reassess it in time." But he warned shareholders not to expect a quick recovery in the share price. "It wouldn't surprise me if they trade at around these levels or even a touch lower in the next month or two," Gee said. 28 February 2002 [ Next Thread | Previous Thread | Next Message | Previous Message ] |