ERG 0.00% 2.0¢ eneco refresh ltd

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    At its Annual General Meeting today, the Directors of the ERG Limited (ERG) said they would soon seek approval to restructure the Company's capital. The proposed capital restructure, if approved by noteholders
    and shareholders, will transform ERG's balance sheet, giving it additional cash, a healthy net asset position and largely eliminating debt.

    Directors advised shareholders that the capital restructure was imperative to the Group's ability to extend its recent string of successes in winning urban transit ticketing contracts around the world.

    The proposed capital restructure involves:

    1. Conversion of $13.2 million of unlisted convertible notes to five-year unlisted convertible notes, with a ten per cent coupon payable in ordinary shares or cash, convertible at 95% of market at the time of conversion.

    2. Conversion of all listed interest bearing notes to ordinary shares at a $0.15 conversion price.

    3. Following this conversion there will be a 1 for 8 renounceable, redeemable rights issue of convertible preference shares with a ten per cent coupon payable in ordinary shares or cash at $0.15 per share. The rights issue, which seeks to raise up to $50 million, will
    be partially underwritten by the major noteholder, and Babcock & Brown. Each additional security subscribed to will also include a free five-year option to subscribe for a new ordinary share at $0.20.

    4. A subsequent 10 for 1 ordinary share consolidation.

    The proposal will be put to meetings of noteholders and shareholders by early February 2003. Importantly, the major noteholders, Special Utilities Investment Trust and associates and Australian Ethical, representing more than 50 per cent of the listed notes have given in
    principle support for the proposed reconstruction and, together with Babcock & Brown, have given in principle commitments to underwrite at least $25 million of the rights issue.

    ERG Chairman, Mr Sandy Murdoch, said the Company had been looking at its capital structure for some time and the resulting proposal would address several important issues simultaneously.

    "Through the proposed restructure, ERG can eliminate future liabilities of $250 million and around $18 million per year in interest payments to noteholders; raise up to $50 million cash; and give the Group a substantially debt free balance sheet," Mr Murdoch said.

    "The longer-term benefits of this restructure far outweigh its immediate dilutionary impact for existing shareholders, especially in light of the dramatically changed market conditions that we now must
    deal with following the world changing events of the past 14 months," he said.

    Most urban transit ticketing system contracts require the posting of very large bid and performance bonds by tenderers. Following September 11 and the large corporate collapses in the US, it has become far more cost efficient to self-fund these bonds rather than
    pay the prohibitive premiums now being asked by insurers.

    "Largely self-funding these bonds requires a more robust balance sheet than the Group has now, especially in the light of the reluctance of banks and financial institutions to increase their exposure to the technology sector at this time," Mr Murdoch said.

    "It is important we move to restructure our capital now," Mr Murdoch said.

    ERG CEO, Mr Peter Fogarty, said the Group expects to win five to ten new public transit ticketing tenders over the next twelve months which would deliver strong recurrent revenues over many years.

    "Recent contract wins and our reference sites show we have the only fully capable technology for large-scale public transit ticketing projects and are very competitive," Mr Fogarty said.

    "It would be bitterly disappointing to see us miss out on new opportunities due to an under-powered balance sheet.

    "We have received in principle support for the plan from the Group's largest convertible noteholders, Special Utilities Investment Trust and associated companies (SUIT), as well as Australian Ethical.
    Together they hold approximately 52% of the notes.

    "Apart from the financial benefits of converting the notes to equity, ERG would benefit from having SUIT, a global utility and infrastructure group, become a substantial shareholder," Mr Fogarty said.

    In addition to his comments about the importance of the capital restructure, Mr Fogarty said despite the disappointing financial result for 2002 ERG had made substantial progress on a number of fronts including:

    * Underlying revenue growth of 25% per cent (excluding revenue from the telecoms business which was sold in [when]) and 173% percent growth in recurring revenues.

    * Significantly reduced costs with $30 million in annualised savings achieved with the cost reduction program largely complete.

    * Repayment of more than $60 million bank debt in the last nine months.

    * Building a series of progressive tender and contract commencements that will help insulate the Company from the impact of inevitable delays in public sector decision making processes in any one project.

    * Disposal of non-core and un der performing assets such as our holdings in Downer EDI and ECard, allowing the re-deployment of capital to the core business.

    "Not surprisingly however, given the continued project delays, our financial results for the first four months of this year are tracking below budget but due to our focus on cost reduction and cash flow management, the net cash outflow from operating activities was kept
    to less than $500,000 negative for this period," Mr Fogarty said.

    "Provided shareholders and noteholders approve the capital restructure, the Company will have the capacity to secure a growing portfolio of large scale transit ticketing contracts producing long-term income stream," Mr Fogarty said.

    "With this in place and finalisation of ten to twelve new contracts imminent, ERG will be well placed to move to sustainable profitability in the medium term," Mr Fogarty said.

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