| Tue 6 Nov 2001, 0:00 | | Ucs Group Limited - Financial Results For The Year |
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UCS Group Limited
Share code: UCS
ISIN : ZAE000016150
UCS maintains focus on future growth
UCS Group Limited has emerged from a difficult trading year with a set
ofresults described by group managing director John Bright as "acceptable,
but short of management?s expectations".
Focussed primarily on the provision of IT solutions and associated services
into large scale retail enterprises, the group had to contend with economic
conditions that seriously affected consumer spending patterns and placed
enormous pressure on chain store organisations.
"The extremely challenging business environment faced by all customers in
our major markets, together with the continued effects of the pre-
millennium buying spree, placed enormous pressure on margins. Almost
without exception, retailers were forced to implement dramatic cost saving
exercises. Many of the larger retailers cut back on store openings and
several had no option but to close a number of outlets," says Bright.
"Viewed against this backdrop, the group?s results for the period are
considered to be acceptable, albeit short of our expectations" he says.
While revenues increased by 31 percent to R177-million and operating profit
(before R&D, depreciation, ammortisation and interest) grew almost 15
percent to R46-million, profit before interest and tax fell marginally to
R25,4-million (R26,0-million in 2000). A sharp decline of 44 percent in
interest received and investment income to R9,3-million (R16,4-million in
2000), was the major reason for a 13 percent reduction in attributable
earnings to R28,2-million (R32,4-million).
Earnings per share were 11.4 percent lower at 10.5 cents while headline
earnings per share at 11.3 cents fell by 9.8 percent on the previous year
(12.6 cents).
Describing the year as one of mixed fortunes, Bright says the
disappointment at not attaining financial objectives was offset by the
achievement of several other significant milestones.
"The group made good progress towards a stated strategic objective to
increase its footprint in chosen retail markets.
"Through the successful establishment of a business partner agreement in
the United Kingdom, we are optimistic of signing our first deals in this
market during the new financial year for Universal?s flagship Java platform
large-scale retail solution.
"Through another international distribution agreement, the group?s recently
acquired CCS Software subsidiary concluded its first sale and successful
installation of its point-of-sale hospitality solution in the UK. The same
distribution partner will launch CCS solutions into Australasian markets
within the next few months," he says.
"Recent heavy falls of the Rand against all major currencies should enhance
both the competitiveness as well as the profitability of our offerings in
international markets," he adds.
On the local front, the Universal subsidiary countered an otherwise
disappointing year by increasing the number of supported in-store systems
to over 3 700. A further 600 stores are scheduled for implementation in the
first half of the new financial year.
"This growth represents a strong base for increasing annuity revenue," says
Bright.
The group?s footprint in the retail pharmacy market, through the CKS
subsidiary, is set to grow from 600 to more than 900 sites by the end of
March next year.
Bright points out that the group?s commitment to the future is unwavering.
"We continued to invest heavily in highly-talented and motivated staff,
research and development (R&D) and in infrastructure to support sustainable
growth. R&D expenditure, for example, increased by 59 percent to R11,8-
million (R7,4-million in 2000)," he says.
In line with group policy, all R&D costs as well as business development
costs associated with off-shore market expansion were fully expensed as
incurred.
The group?s balance sheet remains strong with cash reserves of R88,2-
million (R99,5-million in 2000). The reduction in cash reserves was
attributed largely to the acquisition of CCS and to the group?s share buy-
back programme.
Bright is confident that UCS, through its continued investment in people,
training and R&D, is well positioned to take advantage of opportunities in
its chosen markets.
"We are committed to aggressive growth of earnings, over time, through the
creation of sustainable monthly and annual revenue streams. This includes
hard currency earnings from our proprietary application software solutions.
"Unfortunately global events triggered by the terrorist atrocities in the
United Sates, make it extremely difficult to deal with the future with any
real confidence. However, taking into account current market conditions,
there are positive indications of potentially good growth in headline
earnings per share in the coming year. This forecast will be updated at the
time of our interim results in April next year," Bright says.
No dividend has been declared.
NOTE TO EDITORS:
UCS Group managing director John Bright and group financial director Neil
Michelson will present the results via a live streaming on the group's
website
at www.ucs.co.za at 16h00 on Tuesday, 6 November. Please pre-submit
questions to management at southgro@icon.co.za. Alternatively, questions
can be posed live during the webcast.
Ends
For further information contact:
Neil Michelson
Group financial director
UCS Group Limited
Tel: (011) 712-1462
Cell: 082 554-4682
e-Mail: nam@ucs.co.za
Visit: www.ucs.co.za
Issued on behalf of UCS by:
GBS Marketing
Tel: + 27 11 781-2126
Fax: + 27 11 781-2182
Contact: Brian Streak
e-Mail: brians@gbs.co.za
Visit: www.gbs.co.za
UCS Group Limited
Audited Financial results
for the year ended 30 September 2001
Turnover + 30.9%
Annuity revenue + 33.3%
Net asset value per share + 17.8%
Headline earnings per share - 9.8%
Comments
Business and operational review
The year to September 2001 was one of varied fortunes for the Group.
Significant progress was made towards the strategic goal of increasing our
footprint in chosen retail markets in a period of difficult local and
international trading conditions.
On the international front good progress was made in establishing a sales
channel in the United Kingdom for the Group?s core application software
solutions. We are optimistic that through our sales and services partner we
should sign our first deals in this market during the new financial year.
In the local retail market, conditions were particularly challenging for
the Universal business that provides solutions to large-scale retail
enterprises, with new store openings cut back and some customers even
closing stores. The CKS business, concentrated on the retail pharmacy
market, achieved its budgets (and profit warranties) and continues to
increase its market share. The CCS acquisition made a positive contribution
to Group operating income for the year and has good future potential.
In the HR and payroll market, Accsys reported acceptable results in spite
of having a challenging year following restructuring.
In our other markets, the EasiRun business produced solid results for the
year, despite major repositioning to make up for the dramatic decline in
demand for its traditional Cobol products. Universal Knowledge Systems
(formerly ULS) achieved operating profit comparable to that of the previous
year.
Acquisition
Effective 1 March 2001, a wholly owned subsidiary of the Group, CCS Software
(Pty) Ltd (formerly Introdel SA (Pty) Ltd), acquired the business of CCS
Software Corporate (Pty) Ltd for R10-million in cash. As part of the
acquisition, the Group sold a 49 percent equity interest therein to the
vendors.
The Group also provided the business with a further R5-million in working
capital. This acquisition is expected to make meaningful contributions to
future Group profits.
Financial review
The Group?s financial results for the period are acceptable, albeit short
of expectations. Turnover increased by 31 percent to R177-million while
operating income (before research and development, depreciation,
amortisation and interest) grew by 15 percent to almost R46-million. This
margin contracted from 29.6 percent in 2000 to 25.9 percent in 2001 largely
due to the change in revenue mix from recent acquisitions.
Our focus on building annuity revenues for the future has not wavered and
good progress was recorded. In addition, we have continued to invest
heavily in staffing, research and development (R&D) and infrastructure
spending to support sustainable growth. As in previous years and in line
with our accounting policies, R&D costs were fully expensed as incurred.
Profit before interest and taxation declined marginally to R25,4-million
(2000 R26,0-million). However, net interest income and dividends received
from investments declined sharply by 44 percent to R9,3-million (2000 R16,4-
million) due to various factors, which included the fall in interest rates
versus the previous period, relatively smaller cash balances and a greater
emphasis on investments in tax-efficient instruments.
This significant drop in interest and investment income was the major cause
of the decline of some 13 percent in attributable earnings for the year -
from R32,4-million in 2000 to R28,2-million in 2001. Consequently, earnings
per share were 11.4 percent lower at 10.53 cents (2000 11.89 cents) and
headline earnings per share declined by 9.8 percent to 11.32 cents (2000
12.55 cents).
Prospects
The Group remains committed to aggressive growth of earnings per share,
over time, through the creation of sustainable repetitive monthly and
annual revenue streams. This includes creating international markets with
hard currency earnings.
Detailed budgets and business plans have been drawn up and approved for
each of the operating subsidiaries. These plans, which take into account
current market conditions, indicate potential good growth in headline
earnings per share. This forecast will be updated at the time of our interim
results announcement April 2002.
The events triggered by the terrorist atrocities in the United States,
however, make it extremely difficult to predict what the possible
consequential impacts might be on our operations and our prospects,
particularly in the international markets, in the year ahead.
The primary reason for the Group listing its shares on the JSE in 1998 was
to provide an incentive and retention scheme for its key staff through the
creation of the UCS Group Staff Share Trust. Since then, the Group share
price has fluctuated widely and, at the date of this report, appears to
have settled at a level where the objectives of the staff share trust are
not met. The directors have requested management to investigate various
options that could improve the Group?s ability to retain and attract key
human resources.
Accounting Policy
The financial results for the year ended 30 September 2000 have been
restated in line with changes in accounting practice for deferred taxation
and leave pay. A provision for leave pay of R2.9-million was charged to
opening retained earnings at 30 September 2000. As a result, a deferred tax
asset of R1-million arising from this leave pay provision was raised at 30
September 2000.
Share buy-back
During the year Universal Computer Services (Pty) Ltd, a wholly owned
subsidiary of the Group, bought back a total of 9 444 800 shares at total
cost of R7 589 493. The board has authority to repurchase up to 20 percent
of the ordinary shares in issue representing a further 45 095 200 shares.
STRATE
Dematerialisation of the UCS shares commenced on 22 October 2001, with the
first day of electronic trading to be on 12 November 2001 for settlement on
19 November 2001.
Dividend policy
The directors have decided that it is still not prudent to declare
dividends at this stage. The board will continue to assess the Grpup's cash
requirements on a regular basis. The current cash resources are considered
to be in excess of requirements for normal operations and funding of organic
growth, but may still be required for further acquisitions or other
opportunities that meet the Group?s objectives.
For and behalf of the board
EB Levenstein (Chairman)
JD Bright (Managing Director)
Directors
EB Levenstein* (Chairman), JD Bright (Managing), JR Claassen*, DF Coles, Ms
RJ Eliot*, PS Fitzgerald, Adv RG Goodman*, BP Hattingh*, NA Michelson
(Financial), P Terblanche*.
*Non-executive
Registered office
UCS Group Limited
Incorporated in the Republic
of South Africa
Reg. No: 1993/002253/06
20(superscript: th) Floor
209 Smit Street
Braamfontein 2001
www.ucs.co.za
Transfer secretaries
Mercantile Securities Banking
7(superscript: th) Floor
11Diagonal Street
Johannesburg 2001
P.O.Box 62008
Marshalltown 2107
Income statement
2001 2000
R000 R000 % Change
Turnover 176573 134869 30.9%
Operating income before
interest, depreciation
, research and development 45756 39928 14.6%
Depreciation and amortisation 8632 6479 33.2%
Research and development 11773 7411 58.9%
Profit before interest
and taxation 25351 26038 - 2.6%
Net interest received
and investment income 9262 16414 -43.6%
Income before taxation 34613 42452 -18.5%
Taxation 6269 10035 -37.5%
Income after taxation 28344 32417 -12.6%
Minority Shareholders 174 0
Attributable earnings 28170 32417 -13.1%
Earnings per share (cents) 10.53 11.89 -11.4%
Headline earnings
per share (cents) 11.32 12.55 - 9.8%
Weighted average number
of ordinary shares
in issue (000) 267626 272700 - 1.9%
Ordinary shares in issue
net of treasury
shares (000) 263255 272700 -3.5%
Balance sheet
2001 2000
R000 R000
Non current assets
Tangible assets 17729 11946
Intangible assets 28166 24350
Investments and loans 29353 23073
Deferred taxation 1273 994
76521 60363
Current Assets
Inventory 3505 2698
Receivables 38148 30849
Cash resources 88196 99510
129849 133057
Total assets 206370 193420
Equity and Liabilities
Share capital and premium 80495 86489
Retained income 101113 72943
Shareholders' interests 181608 159432
Minority Interest 174 0
Non current liabilities
Loans payable 280 390
280 390
Current Liabilities
Payables 22654 26140
Taxation 1654 7458
24308 33598
Total equity and liabilities 206370 193420
Net asset value per share (cents) 68.9 58.5
Cash flow statement
2001 2000
R000 R000
Cash flow from operating activities 19256 32679
Cash generated from operations 33939 32485
Working capital changes (11592) (2549)
Cash generated from operating activities 22347 29936
Net interest received and investment income 9262 16414
Taxation paid (12353) (13671)
Cash flow from investing activities (24641) (15136)
Cash flow from (for) financing activities (5929) 362
Cash and cash equivalents
-net (decrease)/increase (11314) 17905
-at beginning of year 99510 81605
-at end of year 88196 99510
Statement of changes in equity
Ordinary Preference
share share Share Disributable
capital capital premium reserves Total
R000 R000 R000 R000 R000
Balance at 30
September 2000 1364 85 125 74 836 161 325
Change in accounting
policy (1 893) (1 893)
Leave pay (2 893) (2 893)
Deferred taxation 1 000 1 000
Balance at 30
September 2000
(Restated) 1 364 85 125 72 943 159 432
Redeemable
preference
shares issued 20 1 575 1 595
Treasury shares
purchased (47) (7 542) (7 589)
Attributable earnings
for the year 28 170 28 170
Balance at 30
September 2001 1 317 20 79 158 101 113 181 608
