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UCS
UCS
UCS - UCS Group Limited - Interim Report for the six months ended 31 March 2007
UCS GROUP LIMITED
Reg no 1993/002253/06
Share code: UCS
ISIN: ZAE000016150
INTERIM REPORT FOR THE SIX MONTHS ENDED 31 MARCH 2007
Key features
Turnover growth 44% to R511 million
EBITDA growth 74% to R92 million
Cash generated from operations up 71% to R86 million
HEPS growth 77% to 14.5 cents
Dividend declared up 33% to 4 cents per share
John Bright, CEO of UCS Group commented: "We are very pleased with this
excellent set of results. All businesses have performed broadly in line with
expectation. The establishment of our separate and independent software product
business Product Co is continuing apace as addressed in a separate announcement
today. We are optimistic that we`ll continue to deliver strong growth in cash
earnings for the full year to September 2007."
Enquiries
UCS Group 011 712 1249
John Bright, CEO 082 900 4793
Dean Sparrow, CFO 082 494 6803
College Hill 011 447 3030
Johannes van Niekerk 082 921 9110
Frederic Cornet 083 307 8286
Condensed consolidated income statement
for the period ended 31 March 2007
Reviewed Reviewed Audited
6 months 6 months 12 months
31/3/2007 31/3/2006 30/9/2006
R`000 R`000 % change R`000
Revenue 510 529 355 596 43,6 793 367
Profit from operations before
interest,
depreciation, amortisation and
research and development 106 883 63 023 69,6 166 605
Depreciation of property,
plant and
equipment (including rental (17 882) (17 199) 4,0 (27 518)
equipment)
Amortisation of intangible (13 332) (3 708) 259,5 (19 874)
assets
Research and development (14 886) (10 209) 45,8 (18 872)
expenditure
Profit before net interest paid 60 783 31 907 90,5 100 341
and taxation
Net interest paid (2 123) (3 285) (35,4) (5 154)
Interest paid (3 811) (3 813) (0,1) (9 647)
Investment revenues 1 688 528 219,7 4 493
Profit before taxation 58 660 28 622 104,9 95 187
Taxation (8 269) (6 729) 22,9 (5 371)
Profit for the period 50 391 21 893 130,2 89 816
Attributable to:
Equity holders` of the parent 42 383 21 074 101,1 83 458
Minority interest 8 008 819 877,8 6 358
50 391 21 893 130,2 89 816
Earnings per share (cents)
Basic 17,1 8,7 96,6 34,3
Diluted 16,0 8,0 100,0 32,3
Dividends paid per share 4,0 3,0 33,3 6,0
(cents)
Net asset value per share 159,3 97,8 62,9 120,8
(cents)
Ordinary shares in issue (`000) 277 254 244 939 13,2 249 108
Weighted average of ordinary
shares
in issue (`000) 248 112 242 192 2,4 243 134
Diluted number of ordinary 264 877 263 102 0,7 258 373
shares (`000)
Headline earnings per share
(cents)
Basic 14,5 8,2 76,8 23,4
Diluted 13,6 7,5 81,3 22,0
Condensed consolidated balance sheet
at 31 March 2007
Reviewed Reviewed Audited
31/3/2007 31/3/2006 30/9/2006
R`000 R`000 R`000
ASSETS
Non-current assets 456 890 252 792 343 547
Property, plant and equipment 59 237 50 354 52 502
(including rental equipment)
Intangible assets 116 115 80 474 122 037
Goodwill 246 965 97 338 135 849
Investments and loans 7 888 7 674 7 264
receivable
Deferred tax assets 26 685 16 952 25 895
Current assets 295 677 172 583 269 833
Inventory 27 063 19 991 23 148
Trade and other receivables 167 238 116 313 148 783
Taxation 1 018 683 1 070
Cash and cash equivalents 100 358 35 596 96 832
Total assets 752 567 425 375 613 380
EQUITY AND LIABILITIES
Capital and reserves 460 048 241 782 339 444
Equity attributable to equity 441 649 239 622 300 996
holders` of the parent
Minority interest 18 399 2 160 38 448
Non-current liabilities 52 214 42 442 76 842
Long and medium term loans 39 196 31 550 57 325
Revenue in advance 3 204 10 892 7 048
Deferred tax liabilities 9 814 - 12 469
Current liabilities 240 305 141 151 197 094
Trade and other payables 164 182 103 654 158 813
Current portion of long term 58 097 24 306 23 896
loans
Revenue in advance 8 881 10 149 9 313
Taxation 9 145 3 042 5 072
Total equity and liabilities 752 567 425 375 613 380
Condensed consolidated statement of changes in equity
for the period ended 31 March 2007
Share Foreign
Ordinary Preference based currency
Share share Share payments translation
capital capital premium reserve reserve
R`000 R`000 R`000 R`000 R`000
Balance at 1 October 1 209 35 62 831 6 059 205
2005
Exchange differences 39
arising on translation
of foreign operations
Net income recognised 39
directly in equity
Net profit for the
period
Total recognised 39
income and expenses
for the period
Ordinary shares issued 10 1 209
at a premium
Preference shares 6 (6)
converted to ordinary
shares
Preference shares (2) (57)
repurchased
Increase in share 731
based payments reserve
Dividend paid
Minority acquired
share of equity in
subsidiary
Balance at 31 March 1 225 27 63 983 6 790 244
2006
Exchange differences (584)
arising on translation
of foreign operations
Net income recognised (584)
directly in equity
Net profit for the
period
Total recognised (584)
income and expenses
for the period
Ordinary shares issued 21 5 850
at a premium
Preference shares (2) (66)
repurchased
Increase in share 1 303
based payments reserve
Dividend paid
Minority acquired
share of equity in
subsidiary
Balance at 30 1 246 25 69 767 8 093 (340)
September 2006
Exchange differences 36
arising on translation
of foreign operations
Net income recognised 36
directly in equity
Net profit for the
period
Total recognised 36
income and expenses
for the period
Ordinary shares issued 134 106 116
at a premium
Preference shares 6 (6)
converted to ordinary
shares
Preference shares (1) (35)
repurchased
Increase in share 2 318
based payments reserve
Dividend paid
Share issue expenses (206)
applied to share
premium
Minority share of
equity in subsidiaries
at acquisition
Acquisition of equity
in subsidiary from
minorities
Balance at 31 March 1 386 18 175 642 10 411 (304)
2007
Attributable
to equity
Accumulated holders of Minority Total
profit the parent interest equity
R`000 R`000 R`000 R`000
Balance at 1 October 153 614 223 953 1 394 225 347
2005
Exchange differences 39 39
arising on translation
of foreign operations
Net income recognised 39 39
directly in equity
Net profit for the 21 074 21 074 819 21 893
period
Total recognised 21 074 21 113 819 21 932
income and expenses
for the period
Ordinary shares issued 1 219 - 1 219
at a premium
Preference shares - -
converted to ordinary
shares
Preference shares (59) (59)
repurchased
Increase in share 731 731
based payments reserve
Dividend paid (7 335) (7 335) (154) (7 489)
Minority acquired 101 101
share of equity in
subsidiary
Balance at 31 March 167 353 239 622 2 160 241 782
2006
Exchange differences (584) (584)
arising on translation
of foreign operations
Net income recognised (584) (584)
directly in equity
Net profit for the 62 384 62 384 5 539 67 923
period
Total recognised 62 384 61 800 5 539 67 339
income and expenses
for the period
Ordinary shares issued 5 871 - 5 871
at a premium
Preference shares (68) (68)
repurchased
Increase in share 1 303 156 1 459
based payments reserve
Dividend paid (7 532) (7 532) (1 718) (9 250)
Minority acquired 32 311 32 311
share of equity in
subsidiary
Balance at 30 222 205 300 996 38 448 339 444
September 2006
Exchange differences 36 36
arising on translation
of foreign operations
Net income recognised 36 36
directly in equity
Net profit for the 42 383 42 383 8 008 50 391
period
Total recognised 42 383 42 419 8 008 50 427
income and expenses
for the period
Ordinary shares issued 106 250 - 106 250
at a premium
Preference shares - -
converted to ordinary
shares
Preference shares (36) (36)
repurchased
Increase in share 2 318 2 318
based payments reserve
Dividend paid (10 092) (10 092) (2 609) (12 701)
Share issue expenses (206) (206)
applied to share
premium
Minority share of - 2 984 2 984
equity in subsidiaries
at acquisition
Acquisition of equity - (28 432) (28 432)
in subsidiary from
minorities
Balance at 31 March 254 496 441 649 18 399 460 048
2007
Condensed consolidated cash flow statement
for the period ended 31 March 2007
Reviewed Reviewed Audited
6 months 6 months 12 months
31/3/2007 31/3/2006 30/9/2006
R`000 R`000 % change R`000
Cash flow from 37 772 19 334 95,4 86 982
operating activities
Cash generated from 85 686 50 269 70,5 120 330
operations
Working capital changes (23 502) (15 643) (1 121)
Cash generated from 62 184 34 626 79,6 119 209
operating activities
Investment income and (1 227) (2 215) (2 756)
net finance cost
Dividend paid (12 701) (7 489) (16 739)
Taxation paid (10 484) (5 588) (12 732)
Cash applied to (19 392) (45 956) (57,8) (65 334)
investing activities
Cash (utilised in)
received from
financing activities (14 854) 21 112 (170,4) 34 078
Cash and cash
equivalents
- Net increase 3 526 (5 510) 55 726
(decrease)
- At beginning of the 96 832 41 106 41 106
year
- At end of period 100 358 35 596 181,9 96 832
Condensed consolidated segmental analysis
for the period ended 31 March 2007
Reviewed Reviewed Audited
6 months 6 months 12 months
31/3/2007 31/3/2006 30/9/2006
R`000 R`000 % change R`000
Revenue 510 529 355 596 43,6 793 367
Software 185 321 163 418 13,4 327 752
Solutions & Services 325 208 192 178 69,2 465 615
Profit from operations
after research &
development but before
net interest paid,
depreciation and 91 997 52 814 74,2 147 733
amortisation (EBITDA)
Software 29 828 19 810 50,6 47 554
Solutions & Services 66 004 35 414 86,4 81 516
Corporate and (3 835) (2 410) 59,1 18 663
eliminations
Profit from operations
before net
interest paid and 60 783 31 907 90,5 100 341
taxation
Software 16 978 8 680 95,6 25 348
Solutions & Services 47 948 26 205 83,0 57 212
Corporate and (4 143) (2 978) 39,1 17 781
eliminations
Amortisation and 31 214 20 907 49,3 47 392
depreciation
Software 12 849 11 130 15,4 22 206
Solutions & Services 18 057 9 209 96,1 24 305
Corporate and 308 568 (45,8) 881
eliminations
Research and 14 886 10 209 45,8 18 872
development
Software 13 091 8 352 56,7 15 069
Solutions & Services 1 795 1 857 (3,3) 3 803
Notes to the financial statements
1. Basis of preparation
These interim results are prepared using accounting policies that
comply with International Financial Reporting Standards and are
presented in accordance with IAS34 (Interim Financial Reporting), the
listing requirements of the JSE Limited and Schedule 4 of the South
African Companies Act, 1973.
All accounting policies are consistent with those applied for the
year ended 30 September 2006.
2. Reconciliation of earnings per share to headline earnings per share
Reviewed Reviewed Audited
6 months 6 months 12 months
31/3/2007 31/3/2006 % 30/9/2006
cents cents change cents
Basic earnings per share 17,1 8,7 96,6 34,3
Adjusted for:
goodwill adjustment - - 1,8
permanent dimunition in
proceeds
from sale of business - 0,3 0,3
profit on sale of - (0,7) (0,9)
interest in business
profit on dilution of - - (11,7)
interest in business
profit on sale of
network
infrastructure division (2,4) -
profit on disposal of
property
plant & equipment (0,2) (0,1) (0,4)
Basic headline earnings 14,5 8,2 76,8 23,4
per share
3. Borrowings
R`000 R`000 R`000
Interest bearing 59 691 54 293 79 439
borrowings
Non-interest bearing 37 602 1 563 1 783
borrowings
97 293 55 856 81 222
Commentary
UCS Group delivered satisfactory organic growth and continuing margin
improvement in the 6 months under review. This was supported by contributions
from acquisitions concluded in the second half of the 2006 financial year,
leading to strong growth in operating cash generation.
The Software division increased revenue by 13,4% to R185 million from pure
organic growth and EBITDA increased by 50,6% to R30 million to outperform its
budgeted target on both the top and bottom line.
The improved EBITDA margin contribution from 12,1% to 16,1% in this division
provides a good base for further growth, with the UCS Software Manufacturing
("UCSSM") unit still in its early phase of `commercial` operations and the
establishment of our "product co" venture (as disclosed in a separate
announcement today) at an advanced stage.
UCSSM experienced strong initial market acceptance for its unique assemble-to-
order (A20) offering for enterprise-scale retailers and is currently jointly
engaged with NYSE listed software company Satyam Computer Services (Satyam) in
setting up a dedicated A2O practice with the appropriate technical skills-
profile in India.
In addition, the operational integration of Satyam within the UCSSM partner
program gained momentum with joint sales and marketing initiatives about to
launch within the Middle East, Asia Pacific, China and Indian markets.
The Solutions & Services division increased revenue by 69,2% to R325 million.
CEB Maintenance continued to deliver strong results and has already (18 months
from the effective date of acquisition) exceeded its 24 month profit warranty on
the PBIT line. It now appears likely that the additional upside purchase
consideration (capped at a further R12 million) will become due and payable in
November 2007 and this has been provided for in full in this set of results. TSS
Managed Services ("TSS MS") appears on track to achieve or exceed its warranted
profit for the 12 month period ended 30 September 2007.
All other operating business units within the Solutions and Services division
traded well and largely achieved or exceeded budgeted targets.
FINANCIAL OVERVIEW
Total turnover grew by 44% to R511 million (2006: R356 million), with organic
growth of 15% and the remainder due to acquisitions. Annuity revenues grew by
19% to R280 million (2006: R235 million), representing 55% of total revenues
(2006: 66%). The Group is on track to record revenue, for the first time, in
excess of R1 billion for the financial year ending 30 September 2007.
R & D expenditure increased by 46% to R14,9 million compared to the first half
of last year but development costs capitalised in UCSSM reduced by 35% to R6,6
million (2006: R8,6 million) which results in a more normalised net 14% or R2,7
million increase in the combined R&D and development costs capitalised activity.
EBITDA is up 74% at R92 million (2006: R52,8 million) including the R8 million
profit realised on the sale by UCS Solutions of the network business to Internet
Solutions in November 2006. After excluding this once off profit, "normalised"
EBITDA is up 59% at R84 million which represents an improving EBITDA margin at
16,4% (2006: 14,9%) and supports the quality of the revenue growth realised and
the related earnings achieved.
Net Profit for the period under review increased by 130% to R50,4 million (2006:
R21,9 million).
After a 2,4% increase in the weighted average number of ordinary shares in issue
to 248,1 million (2006: 242,2 million), earnings per share grew by 97% to 17,1
cents (2006: 8,7 cents), whilst headline earnings per share grew by 77% to 14,5
cents (2006: 8,2 cents).
The substantial growth of R111,1 million in goodwill is due largely to the
acquisitions concluded in the period under review which have been disclosed
under the acquisitions paragraph below. The Tactical Software Systems
(Proprietary) Limited ("TSS") roll up transaction was the most significant
contributor to the growth in goodwill as it became effective on 1 March 2007
through the issue of UCS shares when the share price was R4,30 and after the
reduction of the minority interest on the Group balance sheet accounted for
R76,4 million of the increase. The increase in the Goodwill balance as a
consequence of the 3J Holdings and LifeWorld acquisitions was R19,5 million and
R1,1 million respectively whilst the provision in full of the likely upside
payment in November 2007 in terms of the CEB Maintenance agreement contributed
R12 million.
Cash flow from operating activities grew by 95% to R37,8 million 2006: R19,3
million) after working capital changes resulted in a net outflow of R23,5
million (2006: R15,6 million) largely as a result of the increase in accounts
receivable due to the growth in trading.
Cash applied in investing activities reduced by 58% to R19,4 million (2006:
R46,0 million) as a consequence of transactions concluded in the period under
review being predominantly equity settled but also as a result of a R12 million
cash inflow from the sale of the network business. There was a net cash outflow
in respect of financing activities of R14,9 million (2006: inflow R21,1 million)
largely due to the settlement of the first CEB deferred vendor payment of R12
million.
Headcount at the end of March 2006 was 2,265 (March 2006 1,712), a growth of
32,3% which relates mainly to the TSS MS and Quadrant Consulting acquisitions.
PROSPECTS
The performance in the first half of the 2007 financial year has provided the
Group with an excellent platform on which to deliver strong growth for the full
year.
All business units in the Group appear, at this stage, well positioned to
achieve or exceed their budget objectives for the full year. In addition, the
set-up and unbundling of Product Co, which is expected to be concluded in the
second half of 2007, should contribute positively to Group earnings going
forward and is also expected to result in a significant once-off gain arising on
the sale of the products and intellectual property into Product Co and
subsequent unbundling.
Contributions from acquisitive growth in the second half of 2007 are not
expected to be as significant as that achieved in the first half due to the fact
that the TSS MS and Quadrant acquisitions were effective from 1 July 2006 and
therefore contributed for the last three months of the 2006 financial year. This
will be partially offset by the initial contributions from the smaller Lifeworld
and 3J Holdings acquisitions recently announced.
Barring any unforeseen circumstances arising, the Group is therefore optimistic
that it will continue to deliver strong growth in earnings and cash flows for
the year to September 2007.
ACQUISITIONS
During the period under review UCS concluded the following acquisitions:
* The TSS (BEE) roll up transaction through which UCS acquired the 25,1% outside
shareholders interest in UCS Solutions Holdings (Proprietary) Limited from TSS
in return for the issue of 24,2 million UCS Shares. This transaction was
approved by shareholders at a general meeting held on 27 February 2007 and
became effective on 1 March 2007.
* The acquisition of 51% of 3J Holdings (Proprietary) Limited ("3J Holdings")
(now renamed DiverseIT (Proprietary) Limited) with effect from 1 March 2007 for
R12,2 million settled through the issue of UCS Shares as disclosed in an
announcement to the market on 27 March 2007 and which subsequently became
unconditional on receipt of the unconditional competition commission approval.
* The acquisition of a 51% interest in LifeWorld Relationship Management
(Proprietary) Limited ("LifeWorld") with effect from 1 March 2007 for R2
million. LifeWorld is a strategic loyalty programme consulting and management
business which provides a key component of the overall expertise Group
management envisage positioning in a value added services division for the
retail industry.
POST BALANCE SHEET EVENT
UCS has entered into a Memorandum of Understanding ("MoU") with Amabubesi
Investments (Proprietary) Limited ("The Amabubesi-Direng Consortium") subsequent
to the end of the period under review for the sale of 25,1% of Accsys
(Proprietary) Limited ("Accsys") with effect from 1 May 2007. Pending the
results of the due diligence, the purchase price has been agreed at R8,1 million
to be settled R4 million in cash upfront on the implementation date (envisaged
to be 31 May 2007) and the balance of R4,1 million by no later than 30 April
2012 with a requirement that interest at prime less 2% shall accrue on such
outstanding balance of the purchase price and shall be paid bi-annually. Profit
after tax targets ("Targets") have been set for a five year period post the
effective date to ensure that the transaction is at a minimum 10% per annum
earnings enhancing for UCS and to the extent that profits after tax equal to the
Targets, less 15% thereof, are not achieved then UCS will have a call option to
buy back a portion of the shares sold (calculated in accordance with a formula),
at the original purchase price per share. The Amabubesi-Direng Consortium are in
the process of finalising the due diligence investigation. The remaining
suspensive conditions to the transaction relate to respective board approvals of
UCS Group and Amabubesi-Direng Consortium, the finalisation and execution of a
definitive sale of shares agreement and an appropriate shareholder`s agreement
in respect of Accsys as well as the obtaining of any applicable regulatory
approvals.
CONTINGENT LIABILITY
In terms of the management agreement entered into with TSS, there exists a
management incentive fee that is payable annually for a three year period ending
30 June 2009. The contingent liability (incentive fee) equates to that portion
of the profits which exceeds the warranted profits.
DIVIDEND DECLARATION
Notice is hereby given that the board of directors has declared an interim
dividend of 4 cents per ordinary share in respect of the 6 months ended 31 March
2007. The dividend will be paid on Monday 9 July 2007.
To comply with the procedures of STRATE, the last day to trade in the shares for
the purpose of entitlement to the interim dividend is Friday 29 June 2007. The
shares will commence trading ex dividend on Monday 2 July 2007 and the record
date will be Friday 6 July 2007.
Share certificates may not be dematerialised or rematerialised between Monday 2
July 2007 and Friday 6 July 2007, both days inclusive.
REVIEW REPORT
These results have been reviewed by Deloitte & Touche and their unqualified
review report is available at the Group`s registered office.
For and on behalf of the Board
DF Coles JD Bright
(Chairman) (CEO)
11 May 2007
Company Secretary
Corporate Governance CC
UCS Group Limited
Incorporated in the Republic of South Africa
Reg No. 1993/002253/06
ISIN ZAE000016150
JSE code UCS
Registered office
20th Floor, 209 Smit Street,
Braamfontein 2001
PO Box 31266,
Braamfontein 2017
Transfer secretaries
Link Market Services
South Africa (Pty) Ltd
11 Diagonal Street,
Johannesburg 2001
PO Box 4844,
Johannesburg 2000
UCS is an IT business with a primary focus on Software, Solutions and Services
for selected markets. The Group is well positioned for further growth locally
and internationally through a number of defined initiatives.
www.ucs.co.za
Date: 15/05/2007 07:00:07 Produced by the JSE SENS Department.
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