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UPDATE: ERoad 1H loss in line with forecast

UPDATE: ERoad 1H loss in line with forecast, Oregon market may be bigger than first thought

(Updated with chief executive comment throughout)

By Suze Metherell

Nov. 25 (BusinessDesk) - ERoad says the Oregon market, where the logistics and fleet management software and hardware developer sees rapid revenue growth in the coming two years, may be as much as 50 percent bigger than first thought and the company is on track to meet its prospectus full-year forecasts after reporting a first-half loss.

The Auckland-based company widened its first-half loss $1.9 million in the six months ended Sept. 30, from a loss of $448,264 a year earlier, reflecting the cost of its August listing on the NZX, it said in a statement. Earnings before interest, tax, depreciation, amortisation and costs of listing surged 172 percent to $2.3 million while sales jumped 82 percent to $7.9 million, reflecting sales in its new Oregon market and year-on-year growth in New Zealand.

As vehicles become more fuel efficient, there is a shift towards user-pays for road building and repairs from the traditional excise fuel tax, in the US and across the globe, something ERoad's technology is looking to cash in on.

ERoad is raising its expectation on the size of the Oregon market, where it launched in April on the invitation of the state government to become the only provider of electronic weight mileage in North America. The state is the first to move to the Weight Mile Tax, where heavy vehicles pay per distance travelled, with 306,000 already registered, and is looking to introduce light vehicle mileage tax as part of the shift away from fuel tax.

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"We're guessing it is most probably 30 percent larger, and that's sort of 30 to 50 percent," chief executive Steven Newman told BusinessDesk. "It's early days for us to come up with an exact number so its fair to say it is bigger because of the type of fleets we're now talking to. Originally we thought that these large vehicles fleets, which need to register for Weight Mile Tax which were over 26,000 pounds, were primarily that type of vehicle.

"What we are now seeing is that those fleets also have a good number trucks under 26,000 pounds and the underlying requirement for the customer is that they want to have one solution across all their vehicles," Newman said.

Founded in 2000, ERoad says it was the first company to provide a nationwide GPS-based road user charge system in 2009. It first turned a profit of $2.9 million in the year ended March 31, 2014, on $10 million in sales. In its July prospectus it forecast revenue to rise to $19 million in 2015, and to $34 million in 2016, but expected to post a loss of $1 million in 2015, due to $2 million in listing costs, before returning to profit of $5.5 million in 2016.

"Overall we expect our full year results to be in line with prospective forecast information based on strong sales in New Zealand balancing lumpy sales in Australia, with Oregon on track with expectations," Newman said. "Our results for the half year are very pleasing and demonstrate continued strong demand for our products and services in our important New Zealand market, acceptance of our products and services internationally, and we continue to build momentum in these markets."

Across the Tasman, the government has indexed the fuel tax excise against inflation, a move which ERoad is watching closely as it may lead to further debate about how roads are paid for. Australia's Federal government skirted opposition in the Senate to implement the rise, and has 12 months for Parliament to validate the move, or will have to return collected tax to the petrol companies.

"In Australia they have big registration tax and compared to other countries in the world quite a small fuel tax so they're now increasing the fuel tax," Newman said “Then the next step on from that, to get true user pay in terms of damage of the road, you go to a road user charging. We see as they go to a fuel tax as a bigger component of how they fund their roads, there is eventually an opportunity for fuel tax refunds, but that is still at an exploratory stage. It's an area for us to consider."

The company debuted on the bourse in August, raising $40 million in new capital to fund international growth, selling 15.3 million shares at $3 apiece. Existing owners sold 2 million shares, or $6 million worth, into the initial public offer, to keep a 75 percent stake in the company. At Sept. 30 the company had cash and cash equivalents of $40.6 million, up from $6.8 million a year earlier.

Shares of ERoad rose 1 percent to $4.23, and have gained 40 percent since listing in August, having touched a record of $4.28 earlier this month. The board didn't declare a dividend.

In October, the Commonwealth Bank of Australia took a substantial shareholding in ERoad, two months after the logistics and fleet management company floated on the NZX, holding a 5.19 percent stake worth $9.54 million, according to a substantial holding notice lodged with the NZX. Earlier this month, the company got a 'please explain' by NZX regulation after the stock market regulator and operator queried the stock's 58 cent gain to trade at $4.25 on Nov. 6 from $3.67 on Oct. 29.

Newman said the gain was a "dynamic of the equity market" and the company was highly sensitive to following regulation, given its trusted relationship with governments via its tax collection.

"You've seen what we have disclosed at half-year, and clearly we're at a miss as to what has generated the increase in the share price, so there's no startling information that came out in the half-year," Newman said. "We don't know who those shareholders were, but clearly they like our story."

(BusinessDesk)

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