ERoad cuts earnings guidance for second year, shares drop 9.6%

ERoad [NZX: ERD], the electronic road user charges and transport services company, said it's unlikely to meet its financial forecasts in 2016, the second straight year it would miss the target, after acceleration of its US expansion hurt short-term sales and added costs. The shares dropped 9.6%.

The Auckland-based company expects net profit of $500,000 for the year ending March 31, 2016, compared to the $5.3 million outlined in May, and projects revenue of $26.5 million, $2.1 million less than forecast.

Chairman Michael Busby said the board has determined that the forecast was unlikely to be met after a decision to expand more quickly into states beyond Oregon including Idaho, Washington and California, reorganise its sales teams, and to bring forward the launch of new services for the International Fuel Tax Agreement and Electronic Hours of Service market.

These moves were the right strategic direction to build long-term shareholder value but the board now had a clearer picture on the sales impact for this financial year, he said.

ERoad is trying to cash in on a shift toward user-pays for road building and repairs from the traditional excise tax in the US and the $40 million raised in its 2014 initial public offering was used to enter the North American market last year. The company's shares dropped 32c to $3, the same level they were sold at in its August IPO.

Chief executive Steve Newman said refining the US sales model had meant slower Oregon sales in the short term while sales teams were set up in neighbouring states sooner than expected. Nearly half of ERoad's sales staff are now expected to be located outside Oregon by March next year.

"Equipping and training sales teams in new states takes time, which has taken some sales resource away from Oregon weight-mile tax sales in the short term but this is the right thing to do for the longer term," he said.

ERoad expects the number of contracted units in the US to be between 6000 and 6500 by March 31, 2016, below an earlier forecast for 12,440 units.

As a result, total contracted units for ERoad by the end of the financial year are expected to be 10% behind forecast, at between 39,000 and 40,000. The company's total contracted units were 30,372 as at August 31, about 1% below the expected 30,717.

Costs in the US will also be $1.9 million higher than forecast because of the expansion and unfavourable exchange rate differences.

In May, ERoad reported an annual loss of $1.3 million on revenue of $17.6 million, which was below its prospectus forecast for $19 million in sales.

(BusinessDesk)

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