SOMEONE is finally profiting from the promise of the transport ticketing provider ERG - unfortunately it is not its long-suffering investors.
Nearly a year ago shareholders of ERG - now called Videlli - gave away the guts of the company that promised so much and delivered so little for them.
The company won projects to integrate public transport ticketing systems in Sydney, Melbourne and as far afield as Rome, Beijing and San Francisco. But it never managed to reconcile its skinny balance sheet with the level of funding needed to undertake projects worth hundreds of millions of dollars. When projects were delayed, ERG was left holding costs it could not afford.
When the NSW Government cancelled ERG's integrated ticketing project last year - leaving the company with an $89 million loss on the project - it proved to be the death knell.
The latest financial reports deliver a damning verdict on the faith, and fortune, showered on the one-time dotcom darling.
Accumulated losses over the years have now reached $732 million, with the year to June 30 contributing another $20.4 million to the total. Most of last year's loss was attributed to a $13.3 million write-down on the sale of the business.
But the canny, and litigious, investor who now owns the company's operating business, Duncan Saville, has fared markedly better.
His company, VIX ERG, reported a net profit of $23.1 million for the year to June 30, on revenues of $102 million. Not bad given it only acquired the business in March.
The flush of financial health was largely provided by a $18.2 million gain on acquisition of the ERG business below book value, as well as a $14.8 million profit from the sale of some ERG assets within months of it acquiring the business.
This included a ticketing project in Seattle, which went live in April, and San Francisco's BART (Bay Area Rapid Transit) system, which went live with its ticketing project in June.
Earlier this year the company also disposed of the maintenance contract for NSW Railcorp's ticketing systems at a profit.
In its report, VIX ERG said the transactions ''strengthen the group's financial position and allow for the further enhancement of existing business and development of areas which the group is keen to focus on''.
It may sound like investors in the company formerly know as ERG were sold a pup, but the truth is there wasn't much choice in the end.
When the decision was made to dispose of ERG's operating business, the company was at its lowest ebb and facing certain collapse if not for the continued support of Mr Saville. He was owed $115 million, but effectively forgave the debt in return for ERG's ongoing business.
ERG, now known as Videlli Ltd, retains a residual interest in its former business and the potential proceeds from a $200 million lawsuit against the NSW Government for cancelling the much-delayed integrated ticketing contract last year.
As ever, the company survives on Mr Saville's charity. Videlli has an asset deficiency of $8million and a $7.6 million loan facility with another of his companies is its sole means of funding for its litigation effort against the NSW Government. The $5.4 million still undrawn from the facility exceeds the ''current estimate of litigation costs'', Videlli says.
It means there are no assets to plunder if the State Government wins its $90 million case against Videlli for failing to deliver the ticketing project.
But the clever deal which delivered ERG's business to Mr Saville was also used to deliver his company a harsh blow.
VIX ERG was contracted to install and maintain Melbourne's integrated ticketing system, Myki, as part of the Kamco consortium, in a deal reputedly worth $90 million.
The company was dumped in July this year for failing to fulfil its contractual obligations.
A Kamco spokesman, John Fergusson, confirmed to BusinessDay that it was the transfer of ERG's business from Videlli to VIX ERG that gave it the trigger to dump its former business partner.
''They had an obligation under the contract to notify us of the change of control,'' he said.
True to form, VIZ ERG retaliated with a lawsuit in the NSW Supreme Court, seeking the $90 million it claims under the contract.
Videlli's annual meeting, its first since de-listing in June, will be held late this month. But the chairman, Colin Henson, told BusinessDay that its 15,000 investors should not expect any fresh update on the legal proceedings against the Government, as it is before the courts.
The only item of business on the meeting's agenda is the re-election of Mr Saville to its board. The result is not in too much doubt because he is also the company's largest shareholder.
It also means Mr Saville potentially receives the lion's share if the litigation against the Government does succeed.
ERG Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
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