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UCS
UCS
UCS - UCS Group Limited - Audited results for the year ended 30 September 2010
UCS Group Limited
Incorporated in the
Republic of South Africa
Reg No. 1993/002253/06
ISIN ZAE000016150
JSE Share Code UCS
("UCS" or "the Group")
Audited results for the year ended 30 September 2010
+7% revenue
+14% normalised EBITDA
+22% normalised PBIT
+42% headline earnings per share
+120% working capital improvement
John Bright, CEO of UCS Group, commented: "Our drive to streamline the Group and
reduce its exposure to large scale once-off project work has ensured a
respectable performance which was supported by a gradual improvement in market
and trading conditions.
Whilst a significant amount of effort will be dedicated to ensure that the costs
and efficiency benefits of the enlarged software division continue to
materialise following the acquisition of Argility, we are also looking forward
to rolling out our next generation product offerings built on the Cordys
business operations platform in the coming months. Likewise, we are excited
about the potential of our Value Added Services business which we continue to
grow.
Looking ahead, the retail market conditions continue to stabilise and we are
optimistic that based on the current visibility UCS will generate good growth,
top and bottom line, in the year ahead."
Condensed consolidated income statement
For the year ended 30 September 2010
Audited Restated
2010 2009
R`000 R`000 % change
CONTINUING OPERATIONS
Revenue 1 321 070 1 232 019 7,2
Profit from operations 201 654 170 758 18,1
before interest,
amortisation, depreciation,
foreign exchange
differences, impairments
and research and
development expenditure
Amortisation of intangible (26 611) (28 295) (6,0)
assets
Depreciation of property, (45 211) (40 831) 10,7
plant & equipment
(including rental
equipment)
Foreign exchange (8 221) (10 605) (22,5)
differences
Impairment of intangible - (8 027) 100,0
assets (including goodwill)
Profit related to 12 443 - 100,0
Enterprise Solutions
division disposed of in the
prior year
Profit on disposal of 176 - 100,0
equity interest in a
subsidiary company
Research and development (14 801) (7 278) 103,4
expenditure
Profit before net finance 119 429 75 722 57,7
charges and taxation
Net finance charges (4 670) (18 045) (74,1)
Finance charges (13 835) (22 907) (39,6)
Investment revenues 9 165 4 862 88,5
Profit before taxation 114 759 57 677 99,0
Taxation (43 048) (32 216) 33,6
Current (42 811) (33 316) 28,5
Deferred (237) 1 100 (121,5)
Profit for the year from 71 711 25 461 181,7
continuing operations
DISCONTINUED OPERATIONS
(Loss) Profit for the year (22 104) 15 110 (246,3)
from discontinued
operations
Profit for the year 49 607 40 571 22,3
Attributable to:
Owners of the Company 39 642 27 446 44,4
Non-controlling interest 9 965 13 125 (24,1)
49 607 40 571 22,3
Earnings per share (cents)
From continuing and
discontinued operations
Basic 13,9 9,5 46,3
Diluted 13,7 9,3 47,3
From continuing operations
Basic 21,7 6,2 250,0
Diluted 21,3 6,1 249,2
Dividends paid per share 9,0 9,0 0,0
(cents)
Net asset value per share 170,3 165,0 3,2
(cents)
Ordinary shares in issue
net of treasury
Shares held (`000) 285 356 284 391 0,3
Weighted average number of
ordinary
Shares in issue (`000) 284 653 290 147 (1,9)
Diluted weighted average
number
Of ordinary shares (`000) 289 731 295 717 (2,0)
Additional information
Headline earnings per share
(cents)
From continuing and
discontinued operations
Basic 16,2 11,4 42,1
Diluted 16,0 11,2 42,9
From continuing operations
Basic 17,7 8,6 105,8
Diluted 17,4 8,5 104,7
Condensed consolidated statement of other comprehensive income
For the year ended 30 September 2010
Audited Restated
2010 2009
R`000 R`000 % change
Profit for the year 49 607 40 571 22,3
Other comprehensive income
for the year after
taxation:
Exchange differences on 4 881 1 272 283,7
translation of foreign
operations
Other comprehensive income
for the year
after taxation 4 881 1 272 283,7
Total comprehensive income 54 488 41 843 30,2
for the year
Total comprehensive income
attributable to:
Owners of the Company 44 523 28 718 55,0
Non-controlling interest 9 965 13 125 (24,1)
54 488 41 843 30,2
Condensed consolidated statement of financial position
At 30 September 2010
Audited Audited
2010 2009
R`000 R`000
ASSETS
Non-current assets 563 314 456 780
Property, plant & equipment 86 413 89 775
(including rental equipment)
Intangible assets 156 817 79 479
Goodwill 238 615 237 974
Investments and loans receivable 41 888 9 989
Finance lease receivables 6 645 3 422
Deferred taxation assets 32 936 36 141
Current assets 369 841 413 312
Inventories 47 249 47 660
Trade and other receivables 179 463 181 962
Finance lease receivables 3 998 2 723
Current taxation assets 7 246 3 203
Cash and cash equivalents 131 885 177 764
Assets classified as held for sale - 109 222
Total assets 933 155 979 314
EQUITY AND LIABILITIES
Capital and reserves 513 812 497 639
Issued capital 33 453 31 763
Reserves 18 356 17 322
Retained earnings 434 294 420 217
Equity attributable to owners of the 486 103 469 302
Company
Non-controlling interest 27 709 28 337
Non-current liabilities 114 583 136 102
Borrowings 88 227 104 530
Deferred taxation liabilities 15 356 9 572
Deferred revenue 11 000 22 000
Current liabilities 304 760 310 364
Trade and other payables 230 144 215 742
Borrowings 50 670 75 008
Current taxation liabilities 6 390 2 317
Deferred revenue 17 556 17 297
Liabilities directly associated with - 35 209
assets classified as held for sale
Total equity and liabilities 933 155 979 314
Condensed segmental analysis
For the year ended 30 September 2010
Audited Restated
2010 2009
R`000 R`000 % change
Revenue and results from
continuing operations by
reportable segment
Revenue 1 321 070 1 232 019 7,2
Retail Solutions 765 871 691 138 10,8
Software 181 589 203 281 (10,7)
Investments 371 885 335 091 11,0
Corporate 1 725 2 509 (31,2)
Profit from operations 186 853 163 480 14,3
before interest,
amortisation,
depreciation,foreign
exchange differences and
impairments ("EBITDA")
Retail Solutions 92 715 64 666 43,4
Software 17 544 28 273 (37,9)
Investments 90 654 80 191 13,0
Corporate and (14 060) (9 650) 45,7
consolidation adjustments
Profit before net finance
charges, disposal profits,
impairments,
foreign exchange 115 031 94 354 21,9
differences and taxation
Retail Solutions 61 009 28 643 113,0
Software 3 651 17 036 (78,6)
Investments 65 348 59 681 9,5
Corporate and (14 977) (11 006) 36,1
consolidation adjustments
Depreciation and 71 822 69 126 3,9
amortization
Retail Solutions 31 706 36 023 (12,0)
Software 13 893 11 237 23,6
Investments 25 306 20 510 23,4
Corporate and 917 1 356 (32,4)
consolidation adjustments
Note: Comparative figures are reclassified, where necessary, in accordance
with current year classifications.
Condensed consolidated statement of cash flows
For the year ended 30 September 2010
Audited Audited
2010 2009
R`000 R`000 % change
Cash flows from operating 142 324 168 118 (15,3)
activities
Cash generated from
operations
before working capital 172 425 233 457 (26,1)
changes
Working capital changes 18 716 8 503 120,1
Cash generated from 191 141 241 960 (21,0)
operations
Net finance cost (6 036) (15 282) (60,5)
Taxation paid (42 781) (58 560) (27,0)
Cash flows from investing (78 173) (66 616) 17,3
activities
Cash flows from financing (110 030) (66 393) 65,7
activities
Cash and cash equivalents
- Net (decrease) increase (45 879) 35 109
- At beginning of the 177 764 142 655
period
- At end of the period 131 885 177 764 (25,8)
Notes to the condensed financial information
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 ("IFRS")and its
interpretations adopted by the International Accounting Standards Board ("IASB")
in issue and effective for the Group at 30 September 2010 and AC500 Standards
issued by the accounting practice board and its successor. The accounting
policies are consistent with those applied in the financial statements for the
year ended 30 September 2009, except as noted below.
In the current period, the Group has complied with the requirements of the
revised IFRS 3: Business Combinations and IAS27 : Separate annual financial
statements which was issued in January 2008 and is effective for reporting
periods beginning on or after 1 July 2009.
The adoption of the interpretations as issued by the International Financial
Reporting Interpretations Committee, which are effective for the current period,
has not led to any changes in the Group`s accounting policies.
The 2009 income statement has been restated to account for the Group`s disposal
of UCS Solutions Inc. under the provisions of IFRS 5 : Non-Current Assets Held
for Sale and Discontinued Operations. The change has not impacted the 30
September 2008 statement of financial position and thus has not been re-
presented.
Audited Audited
2010 2009
R`000 R`000 % change
2 Reconciliation of
earnings to headline
earnings
Earnings attributable 39 642 27 446 44,4
to owners of the
Company
Adjusted for (net of
taxation and non-
controlling
interest):
Goodwill impairments
- continuing - 6 179
operations
- discontinued 10 402 19 649
operations
Intangible asset - 1 330
impairments
Profit on disposal of (10 701) (26 007)
division
Loss on disposal of 7 155 4 930
equity in
subsidiaries
Profit on disposal of (249) (384)
property, plant &
equipment
Basic headline 46 249 33 143 39,5
earnings
Audited Restated
2010 2009
R`000 R`000 % change
3 Reconciliation of
earnings to headline
earnings - continuing
operations
Earnings attributable 61 746 17 914 244,7
to owners of the
Company
Adjusted for (net of
taxation and non-
controlling
interest):
Goodwill impairments - 6 179
Intangible asset - 1 330
impairments
Profit on disposal of (10 701) -
division
Profit on disposal of (312) -
equity in
subsidiaries
Profit on disposal of (249) (384)
property, plant &
equipment
Basic headline 50 484 25 039 101,6
earnings
Continuing Discontinued
operations operations
R`000 R`000 Total
4 Reconciliation of
discontinued
operations
2010
Revenue 1 321 070 19 305 1 340 375
Normalised EBITDA 186 853 (4 848) 182 005
Profit (loss) for the 71 711 (22 104) 49 607
year
2009 (Restated)
Revenue 1 232 019 266 768 1 498 787
Normalised EBITDA 163 480 32 263 195 743
Profit for the year 25 461 15 110 40 571
Audited Audited
2010 2009
R`000 R`000 % change
5 Borrowings
Interest bearing 129 139 173 202 (25,4)
borrowings
Non-interest bearing 9 758 6 336 54,0
borrowings
138 897 179 538 (22,6)
6 Commitments
Capital 82 730 65 906 25,5
Operating leases 102 262 99 894 2,4
Audited Restated
2010 2009
R`000 R`000 % change
Capital expenditure
7
Tangible assets 50 135 73 877 (32,1)
Intangible assets 104 952 13 786 661,3
155 087 87 663 76,9
8 Operating lease
charges
Premises 38 095 32 135 18,5
Office equipment 1 552 1 262 23,0
Vehicles 1 125 922 22,0
40 772 34 319 18,8
9 Audit report
The auditors, Deloitte & Touche, have issued their opinion
on the Group financial statements for the year ended
30 September 2010.
The audit was conducted in accordance with International
Standards On Auditing. They have issued an unmodified
audit opinion. A copy of their report is available for
inspection at the Company`s registered office.
Condensed consolidated statement of changes in equity for the year ended 30
September 2010
Ordinary Preference Share Treasury
share share premium share
capital capital reserve
R`000 R`000 R`000 R`000
Balance at 1 October 1 448 10 43 255 (1 471)
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)
repurchased and
cancelled
Preference shares 9 (9)
converted to ordinary
shares
Preference shares (1) (13)
repurchased
Net increase in (14) (4 556) (457)
treasury shares
Increase in 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)
September 2009
Profit for the year
Other comprehensive
income for the year
Total comprehensive - - - -
income for the year
Payment of dividends
Fair value 938
adjustments on
treasury shares held
Net decrease in 5 1 685 (2 401)
treasury shares held
Increase in equity-
settled employee
benefits reserve
Increase in non-
controlling interest
on acquisition of
interest
In subsidiary
Increase in non-
controlling interest
on decrease of
interest
in subsidiaries
Decrease in non-
controlling interest
on disposal of
subsidiary
Decrease in non-
controlling interest
on increase
of interest in
subsidiary
Balance at 30 1 427 - 32 026 (3 391)
September 2010
Equity- Foreign Change in Retained
settled currency subsidiary earnings
employee trans- share-
benefit lation holding
reserve reserve reserve
R`000 R`000 R`000 R`000
Balance at 1 17 026 (68) - 418 727
October 2008
Profit for the 27 446
year
Other 1 272
comprehensive
income for the
year
Total - 1 272 - 27 446
comprehensive
income for the
year
Payment of (25 956)
dividends
Ordinary shares
issued at a
premium net of
share issue costs
Ordinary shares
repurchased and
cancelled
Preference shares
converted to
ordinary shares
Preference shares
repurchased
Net increase in
treasury shares
Increase in equity- 1 672
settled employee
benefits reserve
Decrease in non-
controlling
interest on
disposal of
subsidiary
Decrease in non-
controlling
interest on
increase of
interest
In subsidiary (652)
Balance at 30 18 698 1 204 (652) 420 217
September 2009
Profit for the 39 642
year
Other 4 881
comprehensive
income for the
year
Total - 4 881 - 39 642
comprehensive
income for the
year
Payment of (25 565)
dividends
Fair value
adjustments on
treasury shares
held
Net decrease in
treasury shares
held
Increase in equity- 418
settled employee
benefits reserve
Increase in non-
controlling
interest on
acquisition of
interest
in subsidiary
Increase in non-
controlling
interest on
decrease of
interest
in subsidiaries (984)
Decrease in non- 652
controlling
interest on
disposal of
subsidiary
Decrease in non-
controlling
interest on
increase
of interest in (2 470)
subsidiary
Balance at 30 19 116 6 085 (3 454) 434 294
September 2010
Attributable Non- Total
to owners of controlling equity
the Company interest
R`000 R`000 R`000
Balance at 1 October 478 927 27 662 506 589
2008
Profit for the year 27 446 13 125 40 571
Other comprehensive 1 272 1 272
income for the year
Total comprehensive 28 718 13 125 41 843
income for the year
Payment of dividends (25 956) (3 882) (29 838)
Ordinary shares issued 342 342
at a premium net of
share issue costs
Ordinary shares (8 708) (8 708)
repurchased 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- 1 672 1 672
settled employee
benefits reserve
Decrease in non- - (6 392) (6 392)
controlling interest on
disposal of subsidiary
Decrease in non-
controlling interest on
increase of interest
in subsidiary (652) (2 176) (2 828)
Balance at 30 September 469 302 28 337 497 639
2009
Profit for the year 39 642 9 965 49 607
Other comprehensive 4 881 4 881
income for the year
Total comprehensive 44 523 9 965 54 488
income for the year
Payment of dividends (25 565) (7 598) (33 163)
Fair value adjustments 938 938
on treasury shares held
Net decrease in treasury (711) (711)
shares held
Increase in equity- 418 418
settled employee
benefits reserve
Increase in non-
controlling interest on
acquisition of interest
in subsidiary - 6 404 6 404
Increase in non-
controlling interest on
decrease of interest
in subsidiaries (984) 3 234 2 250
Decrease in non- 652 (14 506) (13 854)
controlling interest on
disposal of subsidiary
Decrease in non-
controlling interest on
increase
of interest in (2 470) 1 873 (597)
subsidiary
Balance at 30 September 486 103 27 709 513 812
2010
COMPANY INFORMATION
Company Secretary
Corporate Governance CC PO Box 31266
Registered office Braamfontein
20th Floor, 209 Smit Street 2017
Braamfontein 2001
Transfer secretaries
Link Market Services PO Box 4844
South Africa (Pty) Ltd Johannesburg
11 Diagonal Street 2000
Johannesburg 2001
Sponsor
Barnard Jacobs Mellet Corporate
Finance (Proprietary) Limited
Ground Floor, Illovo Corner
24 Fricker Road
Illovo 2196
www.ucs.co.za
COMMENTARY
UCS Group is an investment holding company for IT businesses with a primary
focus on Software, Solutions and Services for selected markets.
The results for the year reflect a gradual improvement in the challenging market
and trading conditions experienced in the previous financial year. Certain
historical disposals aimed at making the Group`s businesses more predictable led
to a reduction in the Group`s exposure to large-scale projects of a once-off
nature. These factors, together with strong management focus on cost
containment, contributed positively to improved earnings for the period.
With effect from 31 August 2010, the Group also disposed of its interest in UCS
Solutions Incorporated ("UCS Solutions Inc") in Philadelphia to the management
team. This business did not demonstrate the potential to evolve from a pure
project focused operation into a strong ongoing outsourced application hosting
and support relationship. We therefore, decided to reposition our interests in
the USA market through a channel partner relationship versus a direct interest.
This was achieved through entering into a management buyout and implementing a
reseller arrangement and a resource sharing arrangement. This has the effect of
further reducing the Groups exposure to high-cost overhead structures associated
with non-predictable revenue streams.
In accordance with IFRS reporting standards, the results of this disposed
investment are accounted as discontinued operations and comparative figures have
been restated accordingly.
Following the acquisition of Argility Limited finalised in May 2010 and the
ensuing internal restructuring to consolidate the Group`s ownership, management
and development within an enlarged Argility, the Group has created a third
reporting division named the `Software Division` which also includes the
Aquitec operations and Cquential, which were previously reported under the
Retail Solutions Division. The comparative year has been restated for current
year classifications.
Overall, the results for the year reflect a gradual improvement in market and
trading conditions for the Group, although the strengthening of the Rand had a
negative impact on the consolidation of the Group`s international operations as
well as its domestic revenues associated with the sale of imported products.
Revenue growth for the year was 7,2% (organic 7,0%) whilst EBITDA grew by 14,3%,
reflecting a trading margin of 14,1% (2009 13,3%).
DIVISIONAL REVIEW
Retail Solutions Division
The core Retail Solutions Division reported a strong performance, with a 10,8%
growth in revenue converting to a 43,4% improvement in EBITDA excluding the
effect of the disposed UCS Solutions Inc operation. The Division secured a
further 4 strategic partnerships in Africa and UCS products are now installed in
8 African countries. The projects pipeline as well as projects delivered showed
good improvement in the last quarter of the 2010 financial year.
Software Division
The newly constituted Software Division reported almost opposite results, with a
10,7% decline in revenues converting to a 37,9% decline in EBITDA following the
acquisition of the start-up Cquential Software as a service (SaaS) business from
May and the acquisition of the Argility business from June.
Since then, the Group has made good progress in the consolidation of the
ownership, management, development and commercial exploitation of the Group`s
other retail software assets within an enlarged Argility business. The cost and
efficiency benefits of this consolidation exercise are expected to flow in the
medium term through the elimination of duplicate R&D expenditure across
different products, with the main benefits expected to materialise in the next
generation platforms which will be expedited through this consolidation of
talent and IP resources.
The collaboration agreement entered into between the Group and Cordys in the
Netherlands during February has required a significant investment in education
and training of the software engineering and support teams to build competence
and expertise in the Cordys software product range. The Argility business is now
well set to incorporate the Cordys technologies within the next generation
product offerings which are planned to be piloted in the furniture retail sector
by April 2011.
Investments Division
The investments division reported another set of solid results for the year,
with revenues up by 11% and EBITDA up by 13%. These results were achieved during
a period when the Group continued to invest in the extension of its service and
product lines into the domestic retail market with good progress achieved in
building of the Value Added Service ("VAS")initiative.
During the year, the Group exercised its right to increase its 10% stake in
wiWallet Mobile Payments to a 51% stake. Further, the Group acquired the Radical
Business Unit from Dynamic Visual Technologies to ensure ownership of the
software for treasury management for retail loyalty systems and then acquired a
51% stake Volume & Affinity Risk Management, a business providing insurance
products for resale through retail channels. These acquisitions, although
relatively small in terms of cost and size, are strategic in nature and greatly
increase the potential scope of the Group`s future VAS offerings to the retail
sector.
FINANCIAL REVIEW
Prior year income statement figures have been restated to exclude the earnings
result of the disposed operation of UCS Solutions Inc, the SAP All-in-One
practice in which Universal Computer Software UK Limited ("UCS UK"), a wholly
owned subsidiary of UCS Group Limited ("UCS Group" or the "Group") disposed of
its 92,5% equity interest to the remaining management shareholders, effective 31
August 2010. On this basis and in accordance with IFRS, the results of UCS
Solutions Inc are dislosed, net of tax, as `profit from discontinued operations`
in the statement of comprehensive income for the current and comparable period.
Revenues from continuing operations were up 7,2% to R1,3 billion (2009: R1,2
billion). Revenue growth is mainly organic with less than 0,2% attributable to
acquisitions. Annuity revenues showed growth of 5% to R726 million (2009:R691
million) representing 55% (2009: 55,4%) of total revenues.
Normalised profit from operations before interest, depreciation, amortisation,
impairments and foreign exchange differences (EBITDA) increased by 14,3% to
R186,9 million (2009:R163,5 million) reflecting a margin of 14,1% (2009: 13,3%).
UCS Solutions (Proprietary) Limited ("UCS Solutions"), an indirectly held wholly
owned subsidiary company of UCS Group, earned a net R12,4 million upside payment
on the achievement of the first year`s revenue target for the annual period
ended 31 July 2010 applicable to the disposal of the Enterprise Solutions
division ("ES division") of UCS Solutions to HCL Axon (Proprietary) Limited in
the prior year.
Together with the foreign exchange losses, which are mainly unrealised on the
translation of foreign loan accounts with subsidiary companies, totalling R8,2
million (2009: R10,6 million), the upside profit related to the ES division have
been excluded from normalised EBITDA and PBIT. Normalisation adjustments in the
prior year relate to the impairment of intangible assets and goodwill of R8
million and foreign exchange losses.
Normalised PBIT increased by 21,9% to R115 million (2009: R94,4 million)
reflecting a margin of 8,7% of revenues versus a comparable 7,7% in the previous
year.
Finance charges, net of interest and investment revenues, decreased by 74,1% to
R4,7 million (2009: R18 million). The substantial decrease is due to the Group`s
reducing interest bearing debt as well as the R3 million dividend earned on the
preference shares issued to UCS Solutions Holdings (Proprietary) Limited, a
wholly owned subsidiary of UCS Group, as part consideration for the entire 60%
equity interest in TSS Managed Services (Proprietary) Limited ("TSSMS",)
disposed of effective 1 October 2009.
Taxation charges (including capital gains tax, STC and withholding taxes)
increased by 33,6% to R43 million (2009: R32,2 million) comprising normal
taxation of R42,8 million (2009: R33,3 million) and deferred tax of R0,2 million
(2009: credit R1,1 million), representing an effective tax rate of 37,5% (2009:
55,9%) for the year. Excluding losses included in profit before tax for which no
tax benefit has been accrued as well as other once-off related tax charges the
normalised effective tax rate is calculated at 29% (2008: 30,1%).
The current year loss from discontinued operations relates entirely to the
operating and disposal result of UCS Solutions Inc whilst the prior year profit
from discontinued operations, restated for the operating result of UCS Solutions
Inc, includes the after tax income of DiverseIT, the ES division and TSSMS.
Profit attributable to UCS shareholders of R39,6 million, after minority
interest, represents an increase of 44,4% from the comparable prior period.
Earnings per share, including discontinued operations in the current and prior
years`, increased by 46,3% to 13,9 cents (2009: 9,5 cents). The difference
between earnings per share and headline earnings per share relates mainly to the
aforementioned upside payment associated with the ES division, net of taxation
effects, equating to 3,8 cents and the impairment and equity losses recognised
associated with the disposals effective in the year equating to 6,2 cents.
Headline earnings per share increased 42,1% to 16,2 cents (2009: 11,4 cents).
In the current year the capital expenditure of R49,4 million, largely driven by
infrastructure and hardware related investments backed by customer utilisation
and contracted requirements, is congruent with the annual depreciation for the
year of R45,2 million as well as disposals of R7,9 million.
The increase in goodwill of R11,2 million, associated with the acquisitions
detailed below, was offset by the goodwill associated with UCS Solutions Inc
written off on disposal of R10,4 million.
The substantial increase in intangible assets, after amortisation of R26,6
million, relates pre-dominantly to computer software and associated capitalised
development costs acquired on the acquisition of Argility Limited and Cquential
Solutions of R81 million as well as to approved capital expenditure of R24
million, of which R8,4 million relates to development costs capitalised.
The increase in investments and loans receivable is attributable to redeemable
preference shares in TSS of R30 million on which a dividend is earned annually,
for the period the shares are in issue, based on pre-determined annual
performance thresholds.
Total borrowings decreased by 22,6% from R180 million to R139 million of which
R110 million (2009: R141 million) represents external financial institution debt
contributing to the 25% improvement in the Group`s debt/equity ratio from 36% to
27%.
Excluding receivables held for sale in the prior year, trade receivables
decreased by 5% due to improved collections supported by the improvement in
debtors` days from 52,2 days to 49,9 days.
Cash generated from operations, which includes discontinued operations, is down
26,1% to R172,4 million (2009: R233,5 million). Excluding the contribution of
discontinued operations in the prior year for comparative purposes, as well as
the cash effect of an upfront three year licence deal of R33 million included in
cash generated from operations in the previous year, of which one third is
included in EBITDA in the current year, cash generated from operations would be
2,3% improved on the previous year.
A net R32,5 million was realised by the Group in the year on the disposal of
TSSMS while R73,3 million was invested in capital expenditure for the same
period. R49,4 million was applied to funding acquisitions of which Argility
Limited comprised R44,2 million.
The Group applied R110 million (2009: R66,4 million) to financing activities
reducing bank borrowings as well as settling vendor obligations of R21,7 million
following the achievement of warranted profit targets.
Staff complement at the end of September 2010 was 2 315 (2009: 2 270 - restated
to exclude TSSMS and UCS Solutions Inc).
AQUISITIONS
1. In respect of the loan facility entered into with WiWallet Mobile Payments
(Proprietary) Limited ("wiWallet"), UCS exercised its rights in terms of the
option agreement whereby the agreed total start-up facility of R1,76 million was
converted into 40% in wiWallet, taking its total equity ownership to 50% with
effect from 27 October 2009. In August 2010, UCS acquired a further 1% for a
consideration of R1,2 million resulting in a 51% equity ownership in wiWallet.
2. With effect from 30 November 2009, UCS entered into a Sale of Shares
Agreement whereby it increased its 51% interest in Lifeworld Group (Proprietary)
Limited ("Lifeworld") to 100%, for a nominal consideration. The company
subsequently changed its name to Innervation Value Added Services (Proprietary)
Limited.
3. With effect from 1 December 2009, Lifeworld acquired the going concern
business referred to as the Radical Business Unit from Dynamic Visual
Technologies (Gauteng) (Proprietary) Limited for a total cash consideration of
R1,5 million, net of working capital requirements.
4. On 9 April 2010, UCS entered into a Sale of Shares Agreement for the
acquisition of 51% of the issued share capital of Volume and Affinity Risk
Management (Proprietary) Limited for a purchase consideration of R1 million,
with a further potential upside payment limited to a maximum of R5 million.
5. Effective 30 April 2010, UCS entered into a Sale of Shares and Claims
Agreement with the Industrial Development Corporation of South Africa Limited
("IDC") to acquire 49% of the issued share capital of Cquential Solutions
(Proprietary) Limited ("Cquential") and all claims which the IDC may have
against Cquential, for a purchase consideration of R12 million with a further
potential upside payment capped at R10 million. UCS further entered into a Sale
of Shares Agreement with the remaining shareholders of Cquential being
predominantly management, to acquire a further 7% equity interest in Cquential
for a nominal purchase consideration of R28. In addition, UCS would provide
working capital funding limited to a maximum of R15 million.
6. On 15 March 2010, UCS announced it had formally submitted to the Argility
(Proprietary) Limited ("Argility") board of directors a notice of its firm
intention to make an offer to the Argility shareholders to acquire the issued
ordinary share capital in Argility held by them by way of a scheme of
arrangement in terms of Section 311 of the Companies Act No 61 of 1973, as
amended ("Companies Act"). Following approval by in excess of 90% of the UCS
shareholders who were entitled to vote at the UCS general meeting held on 12
April 2010 and the 100% approval of the scheme by Argility shareholders present
or represented by proxy at the general meeting held on 11 May 2010, the court
granted an order sanctioning the scheme in terms of Section 311 of the Companies
Act on 18 May 2010. Accordingly with effect from 1 June 2010, UCS acquired the
entire issued share capital of Argility, which shares were acquired in terms of
the scheme, for a cash purchase consideration of R1,55 per Argility share being
R44,2 million in aggregate.
DISPOSALS
1. Prior to the 2009 financial year end, UCS Solutions Holdings (Proprietary)
Limited concluded a Share Purchase and Repurchase Agreement with Tactical
Software Systems (Proprietary) Limited and TSS Managed Services (Proprietary)
Limited ("TSSMS") whereby UCS Solutions Holdings agreed to dispose of its entire
60% shareholding in TSSMS by way of the 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 concluding the transaction.
2. With effect from 31 August 2010, Universal Computer Software UK ("UCS UK"), a
wholly owned subsidiary of UCS Group, disposed of its entire 92,5% equity
interest in UCS Solutions Inc to the management shareholders who held the
remaining 7,5% for a nominal consideration of $1.
3. Effective 30 September 2010, UCS disposed of 30% equity interest to the
management members of UCS Dynamics Software Solutions (Proprietary) Limited for
a consideration of R2 250 million reducing UCS Group`s interest in UCS Dynamics
to 70%.
CONTINGENT LIABILITY
As disclosed in the Group`s 2009 Annual Report, a claim for repudiation of
contract and damages against a subsidiary company remains unresolved.
PROSPECTS
The outlook for the domestic retail market is favourable, with retail business
confidence improving and consumer spending forecast to show another year of
positive growth in 2011, albeit at a possibly slower rate than in 2010.
Internationally, the outlook is highly variable and dependant on particular
markets. European retail sales are expected to show very marginal growth which
will be coming under further pressure due to various austerity measures. The US
retail market is also forecast to be sluggish, due to consumer cautiousness and
a shift to higher saving patterns whilst further retail consolidation is likely.
The BRIC countries are forecast to continue recovering strongly but there are
significant challenges in accessing the retail sectors in India and China.
The Group`s core solutions and services businesses are all well placed
(strategically and operationally), well managed and have good foundations for
further growth in the year ahead.
The management team`s biggest immediate focus will be on getting the new
enlarged, consolidated Argility software business to achieve monthly
profitability within this new financial year whilst achieving aggressive
delivery targets for new product releases built on the Cordys business
operations platform. In addition, the start-up Cquential SaaS business is wholly
based on annuity revenue models and is currently planned to achieve monthly
profitability by third quarter 2011.
A similar focus will be applied to certain VAS businesses to achieve monthly
profitability this year although the risk profile is very different to the
Software Division`s with downside risk relatively limited compared to upside
potential.
Overall, whilst retail market conditions look promising to neutral, trading
conditions can change very quickly as seen in recent times. In addition,
currency fluctuations make planning very challenging.
Based on current visibility, budgets and business plans management is cautiously
optimistic that UCS Group will generate good growth in all main criteria of
sales, earnings and cash flows for the year to September 2011.
The prospects information has not been reviewed and reported on by UCS Group`s
auditors.
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 2010. The dividend will be paid on Monday 14 February 2011.
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 4 February
2011. The shares will commence trading ex dividend on Monday 7 February 2011 and
the record date will be Friday 11 February 2011.
Share certificates may not be dematerialised or rematerialised between Monday 7
February 2011 and Friday 11 February 2011, both days inclusive.
DF Coles JD?Bright
(Chairman) (Chief Executive Officer)
23 November 2010
Date: 23/11/2010 07:39:23 Produced by the JSE SENS Department.
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