| Tue 24 Nov 2009, 8:00 | | UCS - UCS Group Limited - Reviewed Results For The Year Ended 30 September 2009 |
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UCS
UCS
UCS - UCS Group Limited - Reviewed Results For The Year Ended 30 September 2009
UCS GROUP LIMITED
Incorporated in the Republic of South Africa
Reg No. 1993/002253/06
ISIN ZAE00016150
JSE code: UCS
("UCS" or "the Company" or "the Group")
REVIEWED RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2009
- +22% Revenue
- +19% Annuity Revenue
- +10% Normalised EBITDA
- +44% Cash Generated From Operations
CEO of UCS Group Limited ("UCS Group"), John Bright, said: "Local and
international market conditions remained very challenging during the past year,
especially for businesses such as UCS with a large exposure to the non-food
retail sector which was hard hit by the decrease in consumer spending. In spite
of this, the results demonstrate the strength of the Group`s focus on the
generation of predictable cash flows through consistent annuity revenue streams.
Looking ahead, UCS remains well-placed, strategically and operationally, to
continue to weather sustained difficult market conditions and we look forward
with cautious optimism to gradual improvements in trading conditions across our
targeted international markets during 2010."
CONDENSED CONSOLIDATED INCOME STATEMENT
for the year ended 30 September 2009
Reviewed Restated
2009 2008
R`000 R`000 % change
Total Revenue 1 498 787 1 225 743 22,3
CONTINUING OPERATIONS
Revenue 1 247 616 965 618 29,2
Profit from operations before
interest, amortisation,
depreciation, impairments,
foreign exchange differences
and research and development 161 464 157 095 2,8
expenditure
?Amortisation of intangible (28 295) (17 869) 58,3
assets
?Depreciation of property, plant
and equipment
(including rental equipment) (40 948) (34 352) 19,2
?Impairment of intangible assets (8 027) - 100,0
including goodwill
?Foreign exchange differences (11 564) (386) 2 895,9
?Research and development (7 278) (9 102) (20,0)
expenditure
Profit before net finance charges 65 352 95 386 (31,5)
and taxation
Net finance charges (18 263) (10 979) 66,3
Finance charges (23 125) (15 682) 47,5
Investment revenues 4 862 4 703 3,4
Profit before taxation 47 089 84 407 (44,2)
Taxation (32 216) (9 779) 229,4
Current (33 316) (28 758) 15,8
Deferred 1 100 18 979 (94,2)
Profit for the year from 14 873 74 628 (80,1)
continuing operations
Discontinued operations
Profit for the year from 25 698 32 793 (21,6)
discontinued operations
Profit for the year 40 571 107 421 (62,2)
Attributable to:
Owners of the Company 27 446 95 809 (71,4)
Non-controlling interest 13 125 11 612 13,0
40 571 107 421 (62,2)
Earnings per share (cents per
share)
From continuing and discontinued
operations
Basic (cents) 9,5 33,3 (71,5)
Diluted (cents) 9,3 32,2 (71,1)
From continuing operations
Basic (cents) 2,5 24,5 (89,8)
Diluted (cents) 2,5 23,6 (89,4)
Dividends paid per share (cents) 9,0 9,0 0,0
Net asset value per share (cents) 165,0 165,3 (0,2)
Ordinary shares in issue net of 284 391 289 676 (1,8)
treasury shares held (`000)
Weighted average number of 290 147 287 560 0,9
ordinary shares in issue (`000)
Diluted weighted average number 295 717 297 913 (0,7)
of ordinary shares (`000)
Additional information
Headline earnings per share
(cents per share)
From continuing and discontinued
operations
Basic (cents) 11,4 31,9 (64,3)
Diluted (cents) 11,2 30,8 (63,6)
From continuing operations
Basic (cents) 5,0 23,0 (78,3)
Diluted (cents) 4,9 22,2 (77,9)
CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
for the year ended 30 September 2009
Reviewed Restated
2009 2008
R`000 R`000 % change
Profit for the year 40 571 107 421 (62,2)
Other comprehensive income for
the year after taxation:
Exchange differences on 1 272 173 635,3
translating foreign operations
Other comprehensive income for 1 272 173 635,3
the year after taxation
Total comprehensive income for 41 843 107 594 (61,1)
the year
Total comprehensive income
attributable to:
Owners of the Company 28 718 95 982 (70,1)
Non-controlling interest 13 125 11 612 13,0
41 843 107 594 (61,1)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 30 September 2009
Reviewed Audited
2009 2008
R`000 R`000 % change
Cash flow from operating 168 118 121 648 38,2
activities
Cash generated from operations 233 457 199 350 17,1
before working capital changes
Working capital changes 8 503 (31 521) 127,0
Cash generated from operations 241 960 167 829 44,2
Net finance cost (15 282) (8 567) 78,4
Taxation paid (58 560) (37 614) 55,7
Cash flows from investing (66 616) (162 794) (59,1)
activities
Cash flows from financing (66 393) 38 978 (270,3)
activities
Cash and cash equivalents
-?Net increase(decrease) 35 109 (2 168)
-?At beginning of the year 142 655 144 823
-?At end of the year 177 764 142 655 24,6
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 30 September 2009
Reviewed Audited
2009 2008
R`000 R`000
ASSETS
Non-current assets 456 780 569 815
Property, plant and equipment (including 89 775 64 869
rental equipment)
Intangible assets 79 479 118 027
Goodwill 237 974 311 660
Investments and loans receivable 9 989 22 362
Deferred taxation assets 36 141 48 500
Finance lease receivables 3 422 4 397
Current assets 413 312 418 569
Inventories 47 660 42 565
Trade and other receivables 181 962 223 847
Finance lease receivables 2 723 5 276
Current taxation assets 3 203 4 226
Cash and bank balances 177 764 142 655
Assets classified as held for sale 109 222 11 616
Total assets 979 314 1 000 000
EQUITY AND LIABILITIES
Capital and reserves 497 639 506 589
Issued capital 31 763 44 713
Reserves 17 322 15 487
Retained earnings 420 217 418 727
Equity attributable to owners of the Company 469 302 478 927
Non-controlling interest 28 337 27 662
Non-current liabilities 136 102 157 334
Borrowings 104 530 139 017
Deferred taxation liabilities 9 572 18 317
Deferred revenue 22 000 -
Current liabilities 310 364 336 077
Trade and other payables 215 742 222 711
Borrowings 75 008 76 541
Current taxation liabilities 2 317 25 045
Deferred revenue 17 297 11 780
Liabilities directly associated with assets 35 209 -
classified as held for sale
Total equity and liabilities 979 314 1 000 000
CONDENSED SEGMENTAL ANALYSIS
for the year ended 30 September 2009
Reviewed Restated
2009 2008
R`000 R`000 % change
Revenue and results from
continuing operations by
reportable segment:
Revenue 1 247 616 965 618 29,2
Retail Solutions 913 448 792 043 15,3
Investments 331 659 171 075 93,9
Corporate 2 509 2 500 0,4
Profit from operations before
interest, amortisation,
depreciation, impairments and
foreign exchange differences
differences (EBITDA) 154 186 147 993 4,2
Retail Solutions 94 246 101 868 (7,5)
Investments 69 590 51 222 35,9
Corporate and consolidation (9 650) (5 097) 89,3
adjustments
Normalised adjustments - 8 184 (100,0)
applicable to EBITDA and profit
before interest and taxation
Normalised EBITDA 154 186 139 809 10,3
Retail Solutions 94 246 93 684 0,6
Investments 69 590 51 222 35,9
Corporate and consolidation (9 650) (5 097) 89,3
adjustments
Normalised profit before 84 943 87 588 (3,0)
interest and taxation
Retail Solutions 49 856 56 347 (11,5)
Investments 46 093 37 540 22,8
Corporate and consolidation (11 006) (6 299) 74,7
adjustments
Depreciation and amortisation 69 243 52 221 32,6
Retail Solutions 44 390 37 337 18,9
Investments 23 497 13 682 71,7
Corporate and consolidation 1 356 1 202 12,8
adjustments
Research and development 7 278 9 102 (20,0)
expenditure
Retail Solutions 1 054 1 108 (4,9)
Investments 6 224 7 994 (22,1)
Assets 979 314 1 000 000 (2,1)
Retail Solutions 527 813 569 002 (7,2)
Investments 275 767 256 868 7,4
Corporate and consolidation 66 512 32 251 106,2
adjustments
Assets classified as held for 109 222 141 879 (23,0)
sale
Note: Comparative figures have been reclassified, where necessary, in accordance
with current year classifications. In the current year, UCS Business Support
Services was re-classified from an operating segment to the Corporate segment.
Normalisation adjustments relate to the foreign exchange differences incurred on
foreign currency translation adjustments on foreign balances and loan accounts.
Comparative year normalisation adjustments relate to negative goodwill and
foreign loan adjustments realised on the acquisition of Aquitec.
CONDENSED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 September 2009
Equity-
settled
Ordinary Preference Treasury employee
share share Share share benefits
capital capital premium reserve reserve
R`000 R`000 R`000 R`000 R`000
Balance at 1 1 410 18 25 002 - 12 339
October 2007
Profit for the
year
Other
comprehensive
income for the
year
Total - - - - -
comprehensive
income for the
year
Payment of
dividends
Ordinary shares 27 12 384
issued at a
premium net of
share issue
costs
Preference 8 (8)
shares converted
to ordinary
shares
Transfer to 467 (467)
treasury share
reserve
Net decrease in 3 5 402
treasury shares
Fair value (1 004)
adjustments on
treasury shares
held
Increase in 4 687
equity-settled
employee
benefits reserve
Non-controlling
interests
arising on
increase in
interest in
subsidiary
Non-controlling
interest arising
on acquisition
of subsidiary
Balance at 30 1 448 10 43 255 (1 471) 17 026
September 2008
Profit for the
year
Other
comprehensive
income for the
year
Total - - - - -
comprehensive
income for the
year
Payment of
dividends
Ordinary shares 3 339
issued at a
premium net of
share issue
costs
Ordinary shares (24) (8 684)
re-purchased and
cancelled
Preference 9 (9)
shares converted
to ordinary
shares
Preference (1) (13)
shares
repurchased
Net increase in (14) (4 556) (457)
treasury shares
Increase in 1 672
equity-settled
employee
benefits reserve
Decrease in non-
controlling
interest on
disposal of
subsidiary
Decrease in non-
controlling
interest on
increase of
interest in
subsidiary
Balance at 30 1 422 - 30 341 (1 928) 18 698
September 2009
Foreign Change in
currency subsidiary
translation shareholding Retained
reserve reserve earnings
R`000 R`000 R`000
Balance at 1 October 2007 (241) - 348 874
Profit for the year 95 809
Other comprehensive income 173
for the year
Total comprehensive income 173 - 95 809
for the year
Payment of dividends (25 956)
Ordinary shares issued at a
premium net of share issue
costs
Preference shares converted
to ordinary shares
Transfer to treasury share
reserve
Net decrease in treasury
shares
Fair value adjustments on
treasury shares held
Increase in equity-settled
employee benefits reserve
Non-controlling interest
arising on increase in
interest in subsidiary
Non-controlling interest
arising on acquisition of
subsidiary
Balance at 30 September 2008 (68) - 418 727
Profit for the year 27 446
Other comprehensive income 1 272
for the year
Total comprehensive income 1 272 - 27 446
for the year
Payment of dividends (25 956)
Ordinary shares issued at a
premium net of share issue
costs
Ordinary shares re-purchased
and cancelled
Preference shares converted
to ordinary shares
Preference shares
repurchased
Net increase in treasury
shares
Increase in equity-settled
employee benefits reserve
Decrease in non-controlling
interest on disposal of
subsidiary
Decrease in non-controlling (652)
interest on increase of
interest in subsidiary
Balance at 30 September 2009 1 204 (652) 420 217
Attributable
to owners Non-
of the Controlling Total
Company Interest equity
R`000 R`000 R`000
Balance at 1 October 2007 387 402 23 367 410 769
Profit for the year 95 809 11 612 107 421
Other comprehensive income 173 173
for the year
Total comprehensive income 95 982 11 612 107 594
for the year
Payment of dividends (25 956) (12 426) (38 382)
Ordinary shares issued at a 12 411 12 411
premium net of share issue
costs
Preference shares converted - -
to ordinary shares
Transfer to treasury share - -
reserve
Net decrease in treasury 5 405 5 405
shares
Fair value adjustments on (1 004) (1 004)
treasury shares held
Increase in equity-settled 4 687 4 687
employee benefits reserve
Non-controlling interest - 2 390 2 390
arising on increase in
interest in subsidiary
Non-controlling interest - 2 719 2 719
arising on acquisition of
subsidiary
Balance at 30 September 478 927 27 662 506 589
2008
Profit for the year 27 446 13 125 40 571
Other comprehensive income 1 272 1 272
for the year
Total comprehensive income 28 718 13 125 41 843
for the year
Payment of dividends (25 956) (3 882) (29 838)
Ordinary shares issued at a 342 342
premium net of share issue
costs
Ordinary shares re- (8 708) (8 708)
purchased and cancelled
Preference shares converted - -
to ordinary shares
Preference shares (14) (14)
repurchased
Net increase in treasury (5 027) (5 027)
shares
Increase in equity settled 1 672 1 672
employee benefits reserve
Decrease in non-controlling - (6 392) (6 392)
interest on disposal of
subsidiary
Decrease in non-controlling (652) (2 176) (2 828)
interest on increase of
interest in subsidiary
Balance at 30 September 469 302 28 337 497 639
2009
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 Listings Requirements of the JSE
Limited. The abridged report has been prepared using accounting
policies that comply with International Financial Reporting
Standards ("IFRS"). 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 Group manages its operations after the early
adoption of IFRS 8, Operating Segments. The restated 2008
results are as a consequence of certain disposals of major
lines of business by the Group through the application of IFRS
5, Non-Current Assets Held For Sale and Discontinued
Operations. In the current year, the Group adopted IAS 1
(2007), Presentation of Financial Statements, which has
introduced terminology changes (including revised titles for
the financial statements) and changes in the format and content
of the financial statements. The adoption of the
interpretations as issued by the International Financial
Reporting Interpretations Committee, which are effective for
the current year, has not led to any changes in the Group`s
accounting policies.
2 Reconciliation of earnings to
headline earnings
Reviewed Restated
2009 2008 % change
Earnings attributable to equity 27 446 95 809 (71,4)
holders of the Company
Preference share entitlement - (17)
Basic earnings 27 446 95 792 (71,3)
Adjusted for (net of taxation
and non-controlling interest):
goodwill impairments - 6 179 -
continuing operations
goodwill impairments - 19 649 -
discontinued operations
impairment of intangible assets 1 330 -
profit on disposal of division (26 007) -
negative goodwill realised - (3 316)
profit on disposal of equity in 4 930 (664)
subsidiary
profit on disposal of property, (384) (195)
plant and equipment
Basic headline earnings 33 143 91 617 (63,8)
3 Reconciliation of earnings to
headline earnings - continuing
operations
Earnings attributable to equity 7 326 70 458 (89,6)
holders of the Company
Preference share entitlement - (17)
Basic earnings 7 326 70 441 (89,6)
Adjusted for (net of taxation
and non-controlling interest):
goodwill impairments - 6 179 -
continuing operations
impairment of intangible assets 1 330 -
negative goodwill realised - (3 316)
profit on disposal of equity in - (664)
subsidiary
profit on disposal of property, (384) (190)
plant and equipment
Basic headline earnings 14 451 66 271 (78,2)
4 Reconciliation of discontinued
operations
Continuin Discontin
g ued
Operation Operation Total
s s
R`000 R`000 R`000
2009
Revenue 1 247 616 251 171 1 498
787
Normalised EBITDA 154 186 41 557 195 743
Profit for the year 14 873 25 698 40 571
2008
Revenue 965 618 260 125 1 225
743
Normalised EBITDA 139 809 55 351 195 160
Profit for the year 74 628 32 793 107 421
Reviewed Audited
2009 2008
R`000 R`000
5 Commitments
Capital 65 906 36 012
Operating leases 99 894 55 433
6 Borrowings
Interest bearing borrowings 173 202 204 102
Non-interest bearing borrowings 6 336 11 456
179 538 215 558 (16,7)
7 Capital expenditure
Tangible assets 74 228 52 091
Intangible assets 14 224 80 460
88 452 132 551 (33,3)
8 Operating lease charges
Premises 32 438 26 677
Office equipment 1 262 1 274
Vehicles 922 -
34 622 27 951 23,9
9 Review Opinion
These results have been reviewed by the independent external
auditors, Deloitte & Touche, and their unmodified review
opinion is available for inspection at the Company`s registered
office. The review was performed in accordance with
International Standards on Review Engagements 2410, Review of
Interim Financial Information, performed by the independent
auditor of the entity.
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
PO Box 4844, Johannesburg 2000
COMMENTARY
Group Profile
UCS is an investment holding company for Information Technology ("IT")
businesses with a primary focus on providing software, solutions and services
for the retail value chain. The Group has achieved a leadership position in the
retail market sector in South Africa and is investing in expansion into selected
international markets.
Currently, over 75% of UCS`s revenues are derived from the provision of its own
software, solutions & services, rather than the sale of 3rd party products.
Overview
As indicated in our interim results announcement for the six month period to 31
March 2009, trading conditions continued to be challenging for UCS in the second
half of the year. In particular, the non-food retail sector, which represents a
significant portion of the Group`s focus, remained under intense pressure due to
weak consumer spend locally and internationally.
In addition, the continuing global economic crisis resulted in contracts being
postponed or cancelled in some of our main international expansion areas, namely
the USA, UK and certain Middle East markets.
Against this back-drop, the trading results for the full year clearly
demonstrate the strength of the Group`s focus on the generation of predictable
cash flows through consistent annuity revenue streams.
Overall, Group turnover grew by 22,3% to almost R1,5 billion (2008: R1,2
billion) while turnover from continuing operations grew by 29,2% to R1,25
billion (2008: R966 million). Profit from operations before interest,
amortization, depreciation, impairments and foreign exchange differences
("EBITDA") from continuing operations grew by 10,3% to R154 million
(2008: R140 million) reflecting the contribution from the recent CSC
acquisition. This acquisition, effective from September 2008, has performed in
line with expectations although it is worth noting that the major portion of its
revenues comes from the sale of imported hardware products and therefore has a
lower annuity revenue and margin expectation than the units that sell or service
UCS owned software products.
Strategy
The Group has achieved a leadership position in its domestic retail market and
is now driving a number of initiatives to reinforce its core strategy and market
positioning, including:
- To focus its core activities within the retail market value chain
- To extend its service and product offerings with complementary businesses
where the market opportunity exists
- To drive the internationalisation of its business to ensure that the Group
is well positioned when conditions in Europe, the US and Middle East normalise
- To continue to invest in building its intellectual property ("IP") assets
through a consolidated Research and Development process
- To seek, wherever possible, to augment the annuity base of its revenues to
provide sustainable cash generation and quality of earnings
In support of this strategy, the Group has, during the year, announced the
disposal of certain business units which were either not aligned with its market
focus or were profiled with a higher once-off revenue mix rather than with
predictable cash generation through annuity revenue streams. These businesses
were DiverseIT (Proprietary) Limited ("DiverseIT"), Enterprise Solutions
division of UCS Solutions (Proprietary) Limited ("ES Division") and TSS Managed
Services (Proprietary) Limited ("TSSMS"). The results of these disposed
investments are accounted for as Discontinued Operations and comparative figures
have been restated.
The Group has continued to invest in the extension of its service and product
lines with good progress being achieved, in particular in the building of our
Value Added Service ("VAS") offerings. CSC represents a significant investment
in the strategic make up of the VAS business that we are building for the
domestic retail market.
Despite the volatile trading conditions created by the global economic crisis,
UCS has continued to invest in its internationalisation drive to ensure that the
Group is adequately positioned to handle improved levels of international orders
when conditions in the UK, USA and Middle East markets normalise. These
investments relate to building channel relationships as well as direct sales
pipelines for UCS Software Manufacturing (Proprietary) Limited ("UCSSM") in the
UK, USA and Middle East regions. The Group has continued to invest in its
Aquitec business in the UK and Chicago which provides software and services for
large-scale warehouses and distribution centres as well as in UCS Solutions
Incorporated, operating in Philadelphia which provides SAP All-in-One ("AiO")
solutions for the retail value chain.
In line with its consistent focus on investing in its IP assets, the Group has
reviewed its investment in the innovative UCSSM business and although this unit
has not yet achieved the level of international orders originally planned, we
are confident that it is well placed to benefit from any improvement in trading
conditions in its chosen international markets.
At the same time, the Group reviewed its overall strategy for the software/IP
that it owns and has decided to consolidate the ownership, management,
development and commercial exploitation of these assets within an enlarged UCSSM
business. The cost benefits of the consolidation exercise are expected to flow
in the medium term through elimination of duplicate research and development
expenditure across different products and then through the deployment of our
next generation platforms which will be expedited through the consolidation of
talent and IP resources.
Financial Review
Prior year income statement figures have been restated to exclude the earnings
results of the disposed operations of DiverseIT and the ES Division, as well as
the proposed disposal of TSSMS, which disposal was approved by UCS shareholders
at a general meeting held on 3 November 2009. On this basis and in accordance
with IFRS, the operating results of the aforementioned operations are included,
net of taxation, as `profit from discontinued operations` in the Income
Statement for the current and comparable period.
Gross billings, inclusive of discontinued operations as defined above, grew by
22,3% to R1.5 billion (2008: R1.2 billion) whilst revenues from continuing
operations were up 29,2% to R1,25 billion (2008: R966 million). Pure organic
revenue growth (adjusted for disposed operations) came in at 8,9% and excludes
the first eleven month contribution of CSC, accounted for in the Group results
in the prior year from 1 September 2008, as well as the five months contribution
from the Aquitec operations in the UK and US included in the Group`s results
from 1 March last year.
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 Incorporated into a 92,5% equity interest in
the Philadelphia based SAP AiO practice which also contributed to acquisitive
growth albeit to a lesser extent.
Annuity revenues for continuing operations showed solid growth of 19,2% to
R690,7 million (2008: Restated R579,6 million). This growth in annuity revenues
continues to be a focus area for management and it is pleasing to note that
annuity revenues accounted for 55,4% (2008: 60%) of our total revenues.
EBITDA increased by 4,2% to R154,2 million (2008: Restated R148,0 million).
Excluding the effect of the once-off income realised on the Aquitec acquisition
in the prior year, EBITDA increased by 10,3% to R154,2 million (2008: Restated
R139,8 million) reflecting a margin of 12,4% (2008: 14,5%).
Significant foreign exchange losses were incurred during the year mainly on the
translation of foreign loan accounts with subsidiary companies totalling some
R11,6 million (2008: R0,4 million). Accordingly these unrealised foreign
exchange losses have been excluded from normalised EBITDA and Profit before
interest and taxation ("PBIT").
The depreciation and amortisation cost, excluding goodwill and intangible asset
impairments, increased by 32,6% to R69,2 million (2008: Restated R52,2 million)
largely as a result of the amortisation of intangible assets acquired in CSC and
Aquitec.
Normalised PBIT declined by 3,0% to R84,9 million
(2008: Restated R87,6 million) reflecting a margin of 6,8% of revenues versus a
comparable 9,1% in the previous year.
Finance charges net of interest and investment revenues increased by 66,3% to
R18,3 million (2008: Restated R11 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.
The increase in non-cash depreciation and amortisation and impairment charges as
well as increase in net finance charges and unrealised foreign exchange losses
contributed to an overall decrease of 44,2% in net income before tax to R47,1
million (2008: Restated R84,4 million).
Taxation charges (including Capital Gains Tax, Secondary Taxation on Companies
and withholding taxes) increased by 229,4% to R32,2 million (2008: Restated R9,8
million) comprising normal taxation of R33,3 million (2008: Restated R28,8
million) and deferred tax credits of R1,1 million (2008: Restated R19 million),
representing a 68,4% (2008: Restated 11,5%) effective tax rate for the year. In
the prior year, the Group realised a once off deferred tax credit of R13,4
million on estimated assessed losses in Destiny e-Commerce which contributed to
the substantial increase in taxation year-on-year. Excluding impairment charges
included in profit before tax and other once off related tax charges the
normalised effective tax rate is calculated at 30,1% (2008: Restated 28%).
Profit from discontinued operations, which includes the after tax income of
DiverseIT, the ES Division and TSSMS, decreased by 21,6% to R25,7 million (2008:
R32,8 million). Revenue from discontinued operations of R251,2 million (2008:
R260,1 million) achieved EBITDA of R41,6 million (2008: R55,4 million).
The difference between earnings per share, which reduced 71,5% to 9,5 cents
(2008: 33,3 cents) and headline earnings per share relates mainly to impairment
losses recognised in the year equating to 9,4 cents partly offset by the profit
realised on the ES Division disposal of 7,3 cents. Headline earnings per share
is down 64,3% to 11,4 cents (2008: 31,9 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
and foreign exchange differences, reduced by 44,4% to 14,3 cents from 25,6
cents.
The net increase in the property, plant and equipment included in the Group`s
balance sheet, after depreciation of R43,9 million (inclusive of depreciation
associated with discontinued operations) is largely attributable to the
reclassification of R11,6 million rental stock equipment from assets held for
sale. The balance of the increase in capital expenditure, totalling R73,4
million, is largely driven by infrastructure and hardware related investments
backed by customer utilisation and contracted requirements. R7,7 million
property, plant and equipment associated with TSSMS was re-classified as assets
classified as held for sale.
Goodwill decreased substantially as a consequence of the disposal transactions
implemented during the year related to DiverseIT and the ES Division, totalling
R33,1 million while goodwill related to TSSMS of R50 million has been
reclassified as assets classified as held for sale. Goodwill was increased in
the year on exercising the equity rights in UCS Solutions Incorporated at the
end of February 2009.
Capital expenditure related to development costs capitalised, computer software
and software development tools totalled R14,2 million while amortisation and
impairment of R40,3 million (including depreciation associated with discontinued
operations), together with intangible assets classified as assets from
discontinued operation held for sale of R4,5 million, accounts largely for the
net decrease in intangible assets to R79,5 million.
Total borrowings decreased by 16,7% from R216 million to R180 million of which
R141 million (2008: R168 million) represents external financial institution
debt. Despite the repayment of the Argility Limited loan by some R9,9 million,
non-bank debt increased as a consequence of the deferred purchase consideration
associated with the acquisition of CSC brought on balance sheet, disclosed as
contingent in the prior year.
Including receivables held for sale in the current year, receivables decreased
by 8,5% due to improved collections supported by the improvement in debtors days
from 60,4 days to 52,2 days. The 12% increase in inventories to R47,7 million is
largely attributable to CSC`s growth in inventories. The improvement in trade
receivables resulted in a significant unlock of working capital investment for
the year.
Despite the challenging market conditions, cash generated from operations
totalling R233,5 million (2008: R199,4 million) illustrates the performance of
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 year.
R63,7 million was realised by the Group on the DiverseIT and ES Division
disposals executed during the year while R87,7 million was invested in capital
expenditure for the same period. The Group applied R66,4 million to financing
activities reducing borrowings by 16,7%.
Staff complement at the end of September 2009 was 2 677 (2008: 2 590).
Divisional Review
Following the disposal of TSSMS effective 1 October 2009 the Group has decided
to include CEB Maintenance into the Retail Solutions Division and therefore no
longer disclose a separate Infrastructure Division
Retail Solutions Division
The Retail Solutions Division delivered a mixed performance over the past year.
Whilst most units performed well the division`s overall results were negatively
impacted by losses in its one-off project implementations and by costs incurred
in starting up the SAP operations in the USA.
Overall this division recorded a 15,3% growth in revenue to R913,4 million
(2008: R792 million), a 0,6% increase in normalised EBITDA to R94.2 million
(2008: R93,7 million) representing 10,3% of revenues (2008: 11,8%) and a 11,5%
decline in normalised PBIT to R49,9 million (2008: R56,3 million) reflecting a
5.5% PBIT margin (2008: 7,1%)
Investments Division
The Investments Division grew largely this year as a consequence of the
acquisition of CSC which became effective in September 2008. This acquisitive
growth essentially offset the negative performance of UCSSM which was
significantly impacted by the delays and postponement of various projects.
In total this division recorded growth of 93,9% in revenue to R331,7 million
(2008: R171,1 million). Normalised EBITDA grew by 35,9% to R69,6 million
(2008:R51,2 million) reflecting a declining margin to 21,0% (2008: 29,9%).
Normalised PBIT was up 22,8% to R46,1 million (2008:R37,5 million) reflecting a
13,9% PBIT margin (2008: 21,9%)
Acquisitions and Disposals
In respect of the loan facility entered into with UCS Solutions Incorporated,
UCS UK could convert the agreed total start-up facility of US $1,4 million into
equity of UCS Solutions Incorporated by no later than 28 February 2009.
Accordingly, UCS UK Limited exercised its rights in terms of the option
agreement and acquired 92,5% in UCS Solutions Incorporated which was then
included in the Group results with effect from 1 March 2009.
With effect from 1 July 2009, the 51% interest held in DiverseIT was disposed of
back to the management shareholders ("MBI Team") who held the remaining 49%. The
purchase consideration comprised the return by the MBI Team of 4 837 944 UCS
shares (which represented a specific repurchase and accordingly required
shareholder approval), the return of 241 897 Argility shares at R1-50 and R5
million in cash. Following UCS shareholder approval of the specific share
repurchase at a general meeting held on 24 June 2009, the deal was fully
concluded on 30 June 2009 with the fulfilment of the final condition precedent.
With effect from 1 August 2009, UCS Solutions (Proprietary) Limited, a wholly
owned subsidiary of UCS Solutions Holdings (Proprietary) Limited which in turn
is wholly owned by UCS Group Limited, disposed of its Enterprise Solutions
division as a going concern to HCL Axon (Proprietary) Limited for a total
potential purchase consideration of R125,3 million. R57,1 million, which was net
of working capital funding requirements, was paid upfront on fulfilment of the
suspensive conditions while the balance is payable on the ES Divisions
achievement of the pre-defined revenue targets.
Prior to the financial year end, UCS Solutions Holdings (Proprietary) Limited
concluded a Share Purchase and Repurchase Agreement with Tactical Software
Systems (Proprietary) Limited and TSSMS whereby UCS Solutions Holdings agreed to
dispose of its entire 60% shareholding in TSSMS by way of the TSS Managed
Services repurchase and the share sale, in one composite transaction. The total
potential transaction consideration (inclusive of a potential upside capped at a
maximum further R45 million) could be R125 million (excluding interest and
dividends). The transaction was approved by shareholders at a general meeting
held on 3 November 2009 which represented the final suspensive condition to
rendering the transaction unconditional.
Broad Based Black Economic Empowerment ("BBBEE")
We continue to look for BBBEE opportunities at operating subsidiary level as
well as at Group level. Our target remains to get our UCS Group BBBEE
shareholding to over 25% within our strategy of combining increased BBBEE
ownership of UCS Group equity with growth opportunities for the Group.
71% of the Group`s South African based revenue make up is supported by a
subsidiary company with a level 4 or better Department of Trade and Industry
rating whilst the inclusion of subsidiary companies with a level 5 rating moves
the percentage of the Group`s South African revenue to greater than 85%.
Post Balance Sheet Events
Following the Group review of its overall strategy for the software / IP that it
owns referred to in the overview above, and the decision to consolidate the
ownership, management, development and commercial exploitation of these assets
within an enlarged UCSSM business, the Group also reviewed the possibility of
including the Argility product sets and business, unbundled from UCS in
September 2007, in the enlarged UCSSM business. The cost benefits and other
synergies of doing this are expected to be significant across both businesses.
Accordingly, shareholders are referred to the further cautionary announcement
which will be released during the course of today.
In respect of the loan facility entered into with wiWallet Mobile Payments
(Proprietary) Limited ("wiWallet"), UCS could convert the agreed total start-up
facility of R1.76 million into equity of wiWallet. Accordingly, UCS exercised
its rights in terms of the option agreement and acquired 40% in wiWallet taking
its total equity ownership to 50% with effect from 27 October 2009.
Contingent Liability
A claim for the repudiation of a contract and damages against a subsidiary
company, as disclosed in the Group`s 2008 Annual Report, remains unresolved.
Prospects
Domestically, consumer debt remains high and overall confidence remains low,
indicating that there is still a relatively long road ahead to full recovery in
most non-food or speciality retail verticals where discretionary spend in middle
to lower income groups is a major factor. In addition, severe increases in
electricity costs have been proposed in South Africa over the next 3 years
which, if approved, will significantly reduce the capacity for discretionary
spend amongst the vast majority of consumers. The Group has therefore adopted a
relatively conservative budget for new sales in this market over the next year.
In keeping with the Group`s strategic objectives, various opportunities to
reinforce our retail value chain focus are being explored including further
selective partnerships and potential disposals of noncore businesses. The
Group`s strong cash position and balance sheet also allows UCS to look for other
opportunities to extend its service and product offerings through selective
acquisitions locally and internationally.
We remain committed to executing the Group strategy and believe that
international recovery will come through in the medium term. Budgets have been
prepared accordingly with increased market development and sales activities
planned. Given the overall uncertainty, however, we are not anticipating that
these activities will generate significant levels of new sales in the short term
although we are encouraged by UCS Solutions Incorporated`s recent market wins
and by the fact that Aquitec has secured a number of customer commitments.
Globally, retailers will continue to modernise their applications platforms and
make investments to secure growth and improved profitability. UCS`s long term
commitment to building software, solutions and services capabilities that are
globally competitive will continue to bear fruit. This is exemplified by the
fact that HCL Axon as a global player have chosen to create a strategic
partnership with UCS that will contribute to future growth of annuity services
internationally.
Overall, UCS remains well-placed, strategically as well as operationally, to
continue to weather the sustained difficult market conditions experienced over
the past 18 months and look forward with cautious optimism to the gradual
improvements in trading conditions in our targeted international markets during
2010. The Group will however continue to operate on the basis that cash flows,
debt reduction and balance sheet strength remain important areas of management
focus.
Dividend Declaration
Notice is hereby given that the board of directors has declared a final dividend
of 5 cents per ordinary share in respect of the financial year ended 30
September 2009. The dividend will be paid on Monday 8 February 2010.
To comply with the procedures of Strate Limited, the last day to trade in the
shares for the purpose of entitlement to the final dividend is Friday 29 January
2010. The shares will commence trading ex dividend on Monday 1 February 2010 and
the record date will be Friday 5 February 2010.
Share certificates may not be dematerialised or rematerialised between
Monday 1 February 2010 and Friday 5 February 2010, both days inclusive.
DF Coles JD Bright
(Chairman) (Chief Executive Officer)
24 November 2009
Date: 24/11/2009 08:00:01 Produced by the JSE SENS Department.
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