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UCS
UCS
UCS - UCS Group Limited - Reviewed results for the six months ended
31 March 2009
UCS Group Limited
(Incorporated in the Republic of South Africa)
Reg No: 1993/002253/06
ISIN: ZAE00016150
JSE code: UCS
("the Group" or "UCS Group")
Reviewed results
for the six months ended 31 March 2009
* Revenue growth of 27.6% to R725m (2008: R568m) - 11% organic
* Annuity revenue up 12.3%
* Normalised earnings before interest tax depreciation and amortisation
("EBITDA") up 6.5% - margin at 13.1% (2008: 15.7%)
* Diluted headline earnings per share down 60.2% to 5.1 cents (2008: 12.8 cents)
* Interim dividend declared maintained at 4 cents per share
John Bright, CEO commented: "Trading conditions for the six months to 31 March
2009 continued to be difficult for UCS Group. Certain international projects
were cancelled or postponed.
The non-food retail sector, which is a focus of the Group, remained under
intense pressure due to weak consumer spend locally and internationally.
Our domestic software business performed well with its customer base continuing
to rely on our core transaction processing platforms. The CSC acquisition made a
strong maiden contribution.
The Group`s cash generation remained strong with cash generated from operating
activities up 69% to R94 million.
As in the past, we expect the second half of the financial year to be
considerably stronger than the first half as most retail system implementations
and enhancements are scheduled during the middle months of the year.
Consequently, we`ve maintained our dividend per share.
Our strong and growing annuity revenue base positions the Group well to navigate
the current volatile market conditions and maintain our growth momentum."
Enquiries
UCS Group
John Bright, CEO
Dean Sparrow, Deputy CEO
Josie Fortuin, CFO
College Hill 011 447 3030
Johannes van Niekerk 082 921 9110
Hayley Crane 082 815 1821
Conference call with management
You are invited to join a conference call with UCS Group management at 10.30
today (19 May 2009) to discuss the results and prospects. Dial 011 535 3600 and
ask to join the UCS call.
Condensed income statement
for the period ended 31 March 2009
Reviewed Reviewed % change Audited
6 months 6 months 12
31/3/2009 31/3/2008 months
R`000 R`000 30/9/2008
R`000
REVENUE 724 882 567 888 27,6 1 225 743
PROFIT FROM
OPERATIONS BEFORE
INTEREST,
DEPRECIATION,
AMORTISATION
AND RESEARCH AND 95 487 104 464 (8,6) 212 060
DEVELOPMENT
?Amortisation of (20 622) (12 669) 62,8 (36 510)
intangible assets
?Depreciation of (20 821) (18 908) 10,1 (28 439)
property, plant and
equipment (including
rental equipment)
?Impairment of (15 398) - -
intangible assets
including goodwill
?Research and (4 098) (3 701) 10,7 (9 102)
development
expenditure
PROFIT BEFORE 34 548 69 186 (50,1) 138 009
FINANCE CHARGES AND
INVESTMENT REVENUES
Net interest paid (9 279) (3 702) 150,6 (9 100)
Finance charges (13 406) (7 438) 80,2 (16 431)
Investment revenues 4 127 3 736 10,5 7 331
PROFIT BEFORE 25 269 65 484 (61,4) 128 909
TAXATION
Taxation (20 234) (18 861) 7,3 (21 488)
PROFIT FOR THE 5 035 46 623 (89,2) 107 421
PERIOD
Attributable to:
Equity holders of 279 42 032 (99,3) 95 809
the parent
Minority interest 4 756 4 591 3,6 11 612
5 035 46 623 (89,2) 107 421
Earnings per share
(cents)
?Basic 0,1 14,7 (99,3) 33,3
?Diluted 0,1 14,1 (99,3) 32,2
Dividends paid per 5,0 5,0 0,0 9,0
share (cents)
Net asset value per 161,1 150,3 7,2 165,3
share (cents)
Ordinary shares in 292 080 289 722 0,8 289 676
issue net of
treasury shares held
(`000)
Weighted average 290 734 285 022 2,0 287 560
number of ordinary
shares in issue
(`000)
Diluted number of 296 067 297 228 (0,4) 297 913
ordinary shares
(`000)
Headline earnings
per share (cents)
?Basic 5,2 13,3 (60,9) 31,9
?Diluted 5,1 12,8 (60,2) 30,8
Condensed balance sheet
at 31 March 2009
Reviewed Reviewed Audited
31/3/2009 31/3/2008 30/9/2008
R`000 R`000 R`000
ASSETS
NON-CURRENT ASSETS 574 197 482 632 569 815
Property, plant and equipment 97 312 83 365 64 869
(including rental equipment)
Intangible assets 103 129 85 842 118 027
Goodwill 314 321 271 489 311 660
Investments and loans 14 162 11 446 22 362
receivable
Finance lease receivables 3 219 - 4 397
Deferred tax assets 42 054 30 490 48 500
CURRENT ASSETS 426 811 401 432 430 185
Inventories 56 154 33 270 42 565
Trade and other receivables 249 888 211 575 223 847
Finance lease receivables 3 025 - 5 276
Current taxation receivable 1 901 234 4 226
Non-current assets held for - - 11 616
sale
Cash and cash equivalents 115 843 156 353 142 655
TOTAL ASSETS 1 001 008 884 064 1 000 000
EQUITY AND LIABILITIES
CAPITAL AND RESERVES 501 446 463 990 506 589
Equity attributable to equity 470 611 435 438 478 927
holders of the parent
Minority interest 30 835 28 552 27 662
NON-CURRENT LIABILITIES 148 561 118 659 157 334
Long-term loans 132 556 109 965 139 017
Deferred tax liabilities 16 005 8 694 18 317
CURRENT LIABILITIES 351 001 301 415 336 077
Trade and other payables and 252 654 196 199 222 711
provisions
Current portion of long-term 76 393 62 896 76 541
loans
Revenue received in advance 15 527 23 329 11 780
Current taxation payable 6 427 18 991 25 045
TOTAL EQUITY AND LIABILITIES 1 001 008 884 064 1 000 000
Condensed statement of changes in equity
for the period ended 31 March 2009
Ordinary Preference Treasury
share share Share share
capital capital premium reserve
R`000 R`000 R`000 R`000
Balance at 1 October 1 410 18 25 002 -
2007
Exchange differences
arising on
translation of
foreign entities
Net income
recognised directly
in equity
Profit for the
period
Total recognised
income and expenses
for the period
Ordinary shares 23 7 841
issued at a premium
net of share issue
costs
Fair value 3 798
adjustments for
equity instruments
issued or to be
issued
Preference shares 8 (8)
converted to
ordinary shares
Net decrease in 7 7 026
treasury shares held
Increase in share-
based payment
reserve
Dividends paid
Minority increase in
share of equity in
subsidiary
Balance at 31 March 1 448 10 43 667 -
2008
Exchange differences
arising on
translation of
foreign entities
Net income
recognised directly
in equity
Profit for the
period
Total recognised
income and expenses
for the period
Ordinary shares 4 745
issued at a premium
net of share issue
costs
Transfer to treasury 467 (467)
share reserve
Net decrease in (4) (1 624)
treasury shares held
Fair value (1 004)
adjustments to
treasury share
reserve
Increase in share-
based payment
reserve
Dividends paid
Minority acquired
share of equity in
subsidiaries
Balance at 1 October 1 448 10 43 255 (1 471)
2008
Exchange differences
arising on
translation of
foreign entities
Net income
recognised directly
in equity
Profit for the
period
Total recognised
income and expenses
for the period
Ordinary shares 1 134
issued at a premium
net of share issue
costs
Preference shares 10 (10)
converted to
ordinary shares
Preference shares - (13)
repurchased
Net decrease in 2 724 (726)
treasury shares held
Fair value 759
adjustments to
treasury share
reserve
Increase in share-
based payment
reserve
Dividends paid
Minoritiy share of
equity in subsidiary
acquired
Foreign currency
translation
differences
Balance at 31 March 1 461 - 44 100 (1 438)
2009
Foreign Attribu-
table
Share- currency to equity
based Transla- Accumu- holders
payment tion lated of the
reserve reserve profit parent
R`000 R`000 R`000 R`000
Balance at 1 12 339 (241) 348 874 387 402
October 2007
Exchange (1 314) (1 314)
differences
arising on
translation of
foreign entities
Net income (1 314) (1 314)
recognised
directly in equity
Profit for the 42 032 42 032
period
Total recognised (1 314) 42 032 40 718
income and
expenses for the
period
Ordinary shares 7 864
issued at a
premium net of
share issue costs
Fair value 3 798
adjustments for
equity instruments
issued or to be
issued
Preference shares -
converted to
ordinary shares
Net decrease in 7 033
treasury shares
held
Increase in share- 2 967 2 967
based payment
reserve
Dividends paid (14 344) (14 344)
Minority increase
in share of equity
in subsidiary
Balance at 31 15 306 (1 555) 376 562 435 438
March 2008
Exchange 1 487 1 487
differences
arising on
translation of
foreign entities
Net income 1 487 1 487
recognised
directly in equity
Profit for the 53 777 53 777
period
Total recognised 1 487 53 777 55 264
income and
expenses for the
period
Ordinary shares 749
issued at a
premium net of
share issue costs
Transfer to -
treasury share
reserve
Net decrease in (1 628)
treasury shares
held
Fair value (1 004)
adjustments to
treasury share
reserve
Increase in share- 1 720 1 720
based payment
reserve
Dividends paid (11 612) (11 612)
Minority acquired -
share of equity in
subsidiaries
Balance at 1 17 026 (68) 418 727 478 927
October 2008
Exchange 3 710 3 710
differences
arising on
translation of
foreign entities
Net income 3 710 3 710
recognised
directly in equity
Profit for the 279 279
period
Total recognised 3 710 279 3 989
income and
expenses for the
period
Ordinary shares 135
issued at a
premium net of
share issue costs
Preference shares -
converted to
ordinary shares
Preference shares (13)
repurchased
Net decrease in -
treasury shares
held
Fair value 759
adjustments to
treasury share
reserve
Increase in share- 1 381 1 381
based payment
reserve
Dividends paid (14 567) (14 567)
Minoritiy share of -
equity in
subsidiary
acquired
Foreign currency
translation
differences
Balance at 31 18 407 3 642 404 439 470 611
March 2009
Minority Total
interest equity
R`000 R`000
Balance at 1 October 2007 23 367 410 769
Exchange differences arising on (1 314)
translation of foreign entities
Net income recognised directly in equity (1 314)
Profit for the period 4 591 46 623
Total recognised income and expenses for 4 591 45 309
the period
Ordinary shares issued at a premium net 7 864
of share issue costs
Fair value adjustments for equity 3 798
instruments issued or to be issued
Preference shares converted to ordinary -
shares
Net decrease in treasury shares held 7 033
Increase in share-based payment reserve 2 967
Dividends paid (1 796) (16 140)
Minority increase in share of equity in 2 390 2 390
subsidiary
Balance at 31 March 2008 28 552 463 990
Exchange differences arising on 1 487
translation of foreign entities
Net income recognised directly in equity 1 487
Profit for the period 7 021 60 798
Total recognised income and expenses for 7 021 62 285
the period
Ordinary shares issued at a premium net 749
of share issue costs
Transfer to treasury share reserve -
Net decrease in treasury shares held (1 628)
Fair value adjustments to treasury share (1 004)
reserve
Increase in share-based payment reserve 1 720
Dividends paid (10 630) (22 242)
Minority acquired share of equity in 2 719 2 719
subsidiaries
Balance at 1 October 2008 27 662 506 589
Exchange differences arising on 3 710
translation of foreign entities
Net income recognised directly in equity 3 710
Profit for the period 4 756 5 035
Total recognised income and expenses for 4 756 8 745
the period
Ordinary shares issued at a premium net 135
of share issue costs
Preference shares converted to ordinary -
shares
Preference shares repurchased (13)
Net decrease in treasury shares held -
Fair value adjustments to treasury share 759
reserve
Increase in share-based payment reserve 1 381
Dividends paid (1 590) (16 157)
Minority share of equity in subsidiary 11 11
acquired
Foreign currency translation differences (4) (4)
Balance at 31 March 2009 30 835 501 446
Condensed cash flow statement
for the period ended 31 March 2009
Reviewed Reviewed % Audited
6 months 6 months change 12 months
31/3/2009 31/3/2008 30/9/2008
R`000 R`000 R`000
CASH FLOW FROM 32 327 19 929 62,2 82 358
OPERATING ACTIVITIES
Cash generated from 97 521 92 923 4,9 199 350
operations
Working capital changes (3 457) (37 133) 90,7 (31 521)
Cash generated from 94 064 55 790 68,6 167 829
operating activities
Investment revenues and (13 141) (3 718) 253,4 (8 567)
net finance charges
Dividends paid (16 158) (16 140) 0,1 (39 290)
Taxation paid (32 438) (16 003) 102,7 (37 614)
Cash applied to (49 525) (60 197) (17,7) (162 794)
investing activities
Cash (utilised
in)/received from
financing activities (9 614) 51 798 (118,6) 78 268
Cash and cash
equivalents
- Net (26 812) 11 530 (2 168)
(decrease)/increase
- At beginning of the 142 655 144 823 144 823
period
- At end of the period 115 843 156 353 (25,9) 142 655
Condensed segmental analysis
for the period ended 31 March 2009
Reviewed Reviewed Audited
6 months 6 months 12 months
31/3/2009 31/3/2008 % 30/9/2008
R`000 R`000 change R`000
REVENUE 724 882 567 888 27,6 1 225 743
Retail Solutions 381 483 333 371 14,4 718 234
Infrastructure 166 035 141 404 17,4 292 139
Investments 176 114 91 863 91,7 212 870
Corporate 1 250 1 250 0,0 2 500
NORMALISED - PROFIT
FROM OPERATIONS
AFTER RESEARCH AND
DEVELOPMENT BUT
BEFORE INTEREST,
DEPRECIATION,
AMORTISATION AND
FOREIGN EXCHANGE
GAINS AND/OR LOSSES 95 059 89 244 6,5 195 160
(EBITDA)
Retail Solutions 40 338 39 198 2,9 82 988
Infrastructure 26 310 28 448 (7,5) 55 794
Investments 29 749 24 883 19,6 60 934
Corporate (1 338) (3 285) (59,3) (4 556)
NORMALISED - PROFIT
BEFORE INTEREST
AND TAXATION EXCLUDING
INTANGIBLE
ASSET IMPAIRMENTS 53 616 57 667 (7,0) 130 211
(PBIT)
Retail Solutions 19 266 23 299 (17,3) 48 222
Infrastructure 19 554 21 771 (10,2) 42 601
Investments 16 804 16 430 2,3 45 146
Corporate (2 008) (3 833) (47,6) (5 758)
DEPRECIATION AND 41 443 31 577 31,2 64 949
AMORTISATION
Retail Solutions 21 072 15 899 32,5 34 766
Infrastructure 6 756 6 677 1,2 13 193
Investments 12 945 8 453 53,1 15 788
Corporate 670 548 22,3 1 202
RESEARCH AND 4 098 3 701 10,7 9 102
DEVELOPMENT EXPENDITURE
Retail Solutions - 1 217 (100,0) 1 108
Infrastructure - - -
Investments 4 098 2 484 65,0 7 994
Note: Comparative figures are reclassified, where necessary, in
accordance with current year classifications.
Notes to the financial statements
1 BASIS OF PREPARATION
This abridged report complies with International Accounting
Standard 34 - Interim Financial Reporting as well as with
Schedule 4 of the South African Companies Act and the
disclosure requirements of the JSE Limited`s Listings
Requirements. The abridged report has been prepared using
accounting policies that comply with International Financial
Reporting Standards. The accounting policies are consistent
with those applied in the financial statements for the year
ended 30 September 2008 except for the presentation of
segmental information which has been classified according to
the manner in which the Company manages its operations.
Reviewed Reviewed Audited
6 months 6 months 12 months
31/3/2009 31/3/2008 30/9/2008
cents cents % cents
change
2 RECONCILIATION OF
EARNINGS TO HEADLINE
EARNINGS
Earnings attributable 279 42 032 (99,3) 95 809
to equity holders of
the parent
Preference share (10) (17)
entitlement
Basic earnings 279 42 022 (99,3) 95 792
Adjusted for:
Goodwill impairments 13 550 - -
Intangible asset 1 330 - -
impairments
Negative goodwill - (3 316) (3 316)
realised
Profit on sale of - (664) (664)
interest in a
subsidiary
Profit on disposal of (85) (227) (195)
property, plant and
equipment (including
rental equipment)
Basic headline 15 074 37 815 (60,1) 91 617
earnings
R`000 R`000 R`000
3 COMMITMENTS
Capital 23 347 12 174 36 012
Operating leases 130 848 52 825 55 433
BORROWINGS
4
Interest bearing 197 817 163 387 204 102
borrowings
Non-interest bearing 11 132 9 474 11 456
borrowings
208 949 172 861 215 558
5 CAPITAL EXPENDITURE
Tangible assets 42 454 31 182 52 091
Intangible assets 8 711 25 789 80 460
51 165 56 971 132 551
6 OPERATING LEASE
CHARGES
Premises 16 649 13 447 26 677
Office equipment 547 31 1 274
Vehicles 370 577 -
17 566 14 055 27 951
7 REVIEW REPORT
These results have been reviewed by Deloitte & Touche and
their unmodified review report is available for inspection
at the registered office of the Group.
COMMENTARY
UCS Group Limited is an investment holding company for IT businesses
with a primary focus on software, solutions and services for selected
markets. The Group has achieved a leadership position in its domestic retail
market and is currently expanding certain of its retail offerings and services
into selected international markets. More than 75% of the permanent staff of
over 2 600 people are employed in servicing the retail client base.
Trading conditions during the six month period to 31 March 2009 continued to
be challenging for UCS Group. In particular, the non-food retail sector which
is a significant portion of the Group`s focus remained under intense pressure
due to weak consumer spend locally and internationally.
With the continuation of the global economic crisis, contracts were postponed
or cancelled in some of our main international expansion areas, being the USA,
UK and certain Middle East markets.
Locally, sales activity in the government sector experienced relative inertia
in the period leading to the April general elections.
Against this background, the trading results for the six months ended 31 March
2009 clearly demonstrate the resilience of the Group`s cash flows emanating
largely from its ongoing commitment to its annuity revenue model. For the
period, the Group recorded a 27,6% increase in turnover (11% organic) and a
6,5% increase in normalised profits before interest, taxation, depreciation,
amortisation, foreign currency translations and impairments.
This performance was below our expectations for the period largely due to
the postponement or cancellation of certain international projects as
mentioned above.
OPERATIONAL REVIEW
This set of results is the first to be presented in-line with the new
structure comprising three divisions. The restructuring was undertaken to
reduce internal competition in the retail market, improve external
competitiveness, improve customer service and operational effectiveness
whilst maximising margins and returns.
Retail Solutions division
The Retail Solutions division experienced a mixed performance over the
period. Services revenues were strong and in line with expectations whilst
project revenues were impacted by adverse market conditions. Good progress
was made with the restructuring and margin improvement continued in the
software business.
The international units are not currently profitable as a result of severe
market conditions experienced. Aquitec has seen the impact of the global
recession, particularly the negative impact on its` client base with the
likes of Woolworths UK closing down and many distribution centres being
rationalised by its international customers. UCS Solutions Incorporated
("UCS Solutions Inc."), in which we have elected to convert our loan funding
to a 92,5% equity position, is still in the process of building its pipeline
and it has been evident that some of the early successes of securing signed
orders have not progressed as expected in the project phase due to hesitations
from certain customers with regards to undertaking such projects in current
market conditions.
The division recorded revenue growth of 14,4% of which 10,1% is organic.
Excluding the effects of these acquisitions and excluding foreign exchange
and translation effects, EBITDA grew by 5,1% to R41,2 million where the
comparative period has been adjusted for the once-off profit realised on
loan account translation related to Aquitec.
Infrastructure division
Although this division is purely focused on the local market, the good
results achieved in the retail services were counterbalanced by a weaker
than expected level of government business.
New contracts within the public sector are at advanced stages of
transitioning with significant investment being made in overhead capacity
ahead of the new business growth. A number of projects within this division
were successfully delivered during the period and, whilst within the retail
services section tough price negotiations were encountered, all key
contracts were renewed.
Despite revenue growth of 17,4%, EBITDA for the division decreased by 7,5% to
R26,3 million (2008: R28,4 million) indicative of severe margin pressure
particularly in the government space where expenditure lagged ahead of the
general elections in April.
Investments division
With the exception of the CSC acquisition, slower than expected traction
was gained in respect of the Group`s value added services components with
Lifeworld and 4life in particular not being awarded a material contract that
was visible in the pipeline at the beginning of the financial year.
CSC has contributed positively over the period essentially offsetting the
negative results realised by the UCS Software Manufacturing unit. The CSC
business appears to be on track to exceed its profit warranty for the period
ending 30 April 2009 and the vendors should receive payment on the first
deferred portion of the purchase consideration amounting to R8 795 000.
UCS Software Manufacturing (Proprietary) Limited ("UCSSM")`s progress on the
international sales front was disappointing due to generally depressed
international market and the Satyam situation, which forced UCSSM to review
its international partner strategy.
All other units in this division performed in line with expectations on the
top line despite very challenging domestic market conditions.
The division recorded revenue growth of 91,7% to R176 million (4,6%
excluding CSC) while EBITDA grew by 19,6% including the positive contribution
from CSC.
FINANCIAL REVIEW
The Group`s revenues grew by 27,6% to R725 million (2008: R568 million), of
which 11,0% represents organic growth. The remaining 16,6% growth is
attributable to the inclusion of CSC for the full period as well as a
full six months contribution from the Aquitec operations in the UK and US
(2008: 1 month).
At the end of February 2009, UCS Group, through its wholly owned UK holding
company Universal Computer Software UK Limited ("UCS UK"), converted the loan
funding advanced to UCS Solutions Inc into a 92,5% equity interest in the
Philadelphia based SAP All-in-One practice which also contributed to
acquisitive growth albeit to a lesser extent.
Annuity revenues grew by 12,3% to R392 million (2008: R349 million),
representing 54% of total revenues (2008: 61%).
Profit from operations before interest, depreciation, amortisation and
foreign exchange differences decreased by 9,3% to R91,4 million (2008: R100,8
million). This movement reflects the margin pressures resulting from the delay
or cancellation of certain projects as well as the situation in the UK and US
impacting on sales progress by internationally focused operations.
Excluding the effect of the once off income realised on the Aquitec
cquisition in the prior year, EBITDA increased by 6,5% to R95,1 million (
2008: R89,2 million).
The depreciation and amortisation cost, excluding goodwill and intangible
asset impairments, increased by 31.2% to R41,4 million (2008: R31,6 million)
largely as a result of the amortisation of intangible assets acquired in CSC
and Aquitec.
Due to the enduring adverse trading conditions experienced by certain business
units, both locally and internationally, the Group has impaired intangible
assets and goodwill totalling some R15,4 million. The single most significant
contributor to the impairment charge is related to the DiverseIT (Proprietary)
Limited ("DiverseIT") investment. The Group has decided to dispose of this
investment, refer post balance sheet section below.
Finance charges net of interest and investment revenues increased by 150,6%
to R9,3 million (2008: R3,7 million). This substantial increase arose as a
consequence of the bank debt brought on balance sheet as part of the CSC
acquisition funding in September 2008 as well as the impact of the R50 million
loan facility secured with Nedbank Limited in March 2008 to back-to-back the
loan obligation to Argility Limited.
These factors contributed to an overall decrease of 61,4% in net income
before tax to R25,3 million (2008: R65,5 million). Taxation charges increased
by 7,3% to R20,2 million (2008: R18,9 million) representing an 80,1% (2008:
28,8%) effective tax rate for the period. The normalised effective tax rate
is comparable with the statutory tax rate once the impairment losses and
other once-off tax adjustments are excluded.
Profit attributable to UCS shareholders of R0,3 million, after minority
interest, represents a decrease of 99,3% from the comparable prior period.
The difference between earnings per share, which fell 99,3% to 0,1 cents
(2008: 14,7 cents), and headline earnings per share relates to the impairment
loss recognised in the period. Accordingly headline earnings per share is
down 60,9% to 5,2 cents (2008 13,3 cents) while normalised headline earnings
per share, excluding the R4,9 million profit realised on the revaluation of
the loan account with Aquitec on acquisition in the prior period, fell by
55,2% to 5,2 cents from 11,6 cents.
The net growth in the property, plant and equipment included in the
Group`s balance sheet, after depreciation of R21 million, is due to the
reclassification of R11,6 million rental stock equipment from assets held
for sale and the balance capital expenditure totalling R41,9 million largely
driven by infrastructure and hardware related investments backed by customer
utilisation and contracted requirements. The rate of capital expenditure is
expected to reduce in the second half of the year.
The increase in goodwill of R16,2 million, after adjusting for impairments,
is largely attributable to the goodwill acquired on exercising the equity
rights in UCS Solutions Inc at the end of February 2009. The R7,6 million
growth in intangible assets after amortisation and impairment comprises R2,2
million development costs capitalised whilst the balance is made up of
investments in development tools worth R2,6 million and internal computer
software.
Since year end, total borrowings decreased from R216 million to R209 million
of which R165 million represents external financial institution debt. The
non-bank debt reduction relates to the repayment of the Argility Limited loan
of R2,5 million as well as the net reduction in the management fees due to the
outside shareholders of TSS Managed Services (Proprietary) Limited ("TSSMS")
in terms of the management fee agreement in place since the acquisition of
TSSMS in June 2006 and which expires in June 2009.
The 11.6% growth in receivables is aligned with revenue growth while debtors
days have improved from 56 days to 53 days. The increase in trade and other
payables has, to a large extent, offset the growth in inventories and trade
and other receivables and consequently working capital lock-up for the period
has been improved by 90.7% when compared with the same period in the prior
year.
Despite the challenging market conditions, cash generated from operations
totalling R97,5 million (2008: R92,9 million) is pleasing and correlates
closely with the EBITDA reported, illustrating the quality of earnings in
the Group. The improvement in working capital lock-up was largely offset by
the considerable increase in net finance charges and taxation payments in the
period. The ultimate decline in the bank balances was essentially due to the
investment in capital expenditure and the servicing of borrowings.
Staff compliment at the end of March 2009 was 2 669 (March 2008: 2 439), a
growth of 9,4%.
PROSPECTS
Whilst adverse conditions are likely to continue on the international front,
we are cautiously optimistic about our domestic prospects for the remainder
of the year based on currently committed projects.
As in the past, we expect the second half of the financial year to be
considerably stronger than the first half as most retail system implementations
and enhancements are scheduled during the middle months of the year.
Management will continue to actively monitor the Group`s operating
environments to enable quick responses to changing market dynamics and although
longer term visibility remains limited, our strong and growing annuity revenue
base positions the Group well to navigate the current volatile market
conditions and maintain our growth momentum.
ACQUISITIONS
In respect of the loan facility entered into with UCS Solutions Inc.,
UCS UK could convert the agreed total start-up facility of $1,4 million into
equity of UCS Solutions Inc by no later than 28 February 2009. Accordingly,
UCS UK exercised its rights in terms of the option agreement and acquired
92,5% in UCS Solutions Inc which was then included in the Group results with
effect from 1 March 2009.
POST BALANCE SHEET EVENT
With effect from 1 April 2009, but subject to shareholder approval of a
proposed specific share buyback and the JSE Limited ("JSE") approval of the
small related party transaction, the 51% equity investment in DiverseIT will
be disposed of back to the management shareholders ("MBI Team") who currently
hold the remaining 49%. The purchase consideration will be settled by the MBI
Team returning the original 4 837 944 UCS shares (hence the approval required
for the specific share buyback), the delivery of 241 897 Argility Limited
shares and finally the payment to UCS Group of a cash consideration of
R5 000 000. A further detailed announcement will be released on SENS and a
circular will be posted shortly to notify shareholders of the proposed general
meeting and will include the pro forma financial effects as well as the small
related party fair and reasonable opinion required.
The strategic fit envisaged for DiverseIT within UCS Group did not materialise
and has therefore been identified as a non-core investment. The interest
demonstrated by the MBI Team to purchase back the 51% of DiverseIT held by UCS
presented an ideal opportunity for UCS to dispose of the 51% interest through
an effective unwind of the original DiverseIT transaction.
CONTINGENT LIABILITY
Management is aware of the following contingent liabilities as at the interim
period end:
*In terms of the management agreement entered into with Tactical Software
Systems (Proprietary) Limited, there is a management incentive fee that is
payable annually for a 3 year period ending 30 June 2009. This incentive fee
equates to that which exceeds the predetermined warranted profits as agreed by
the parties. This fee has been provided for as could be determined with
reference to existing contracts.
*In accordance with the sale of business agreement entered into with the
vendors of CSC, additional amounts are payable to the vendors of CSC to the
extent the CSC business achieves or exceeds certain growth profit targets over
the next two years. The additional purchase price payments have been provided
for to the extent the profitability milestones have been deemed achievable.
In addition to the amounts provided for a maximum of R12,9 million could
become payable.
*A claim for repudiation of contract and damages against a subsidiary company,
as disclosed in the Group`s 2008 Annual Report. To date, the claim remains
unresolved.
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 2009. The dividend will be paid on Monday 13 July 2009.
To comply with the procedures of Strate, the last day to trade in the shares
for the purpose of entitlement to the final dividend is Friday 3 July 2009.
The shares will commence trading ex dividend on Monday 6 July 2009 and the
record date will be Friday 10 July 2009.
Share certificates may not be dematerialised or rematerialised between
Monday 6 July 2009 and Friday 10 July 2009, both days inclusive.
DF Coles JD Bright
(Chairman) (Chief Executive Officer)
19 May 2009
Company Secretary: Corporate Governance CC
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
Sponsor: Barnard Jacobs Mellet Corporate Finance (Pty) Ltd
PO Box 4844, Johannesburg 2000
There is more to UCS than meets the eye.
www.ucs.co.za
Date: 19/05/2009 07:30:24 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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