| Mon 24 Nov 2003, 17:19 | | results for the year ended 30 September 2003 |
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UCS - Audited financial results for the year ended 30 September 2003
UCS Group Limited
Incorporated in the Republic of South Africa
Registration number 1993/002253/06
JSE Share code: UCS
ISIN: ZAE000016150
Audited financial results for the year ended 30 September 2003
Income statement
for the year ended 30 September 2003
2003 2002 %
R"000 R"000 change
Revenue 306218 216271 41.6
Profit from operations before interest,
depreciation, research and development
and exceptional items 66191 47283 40
Research and development expenditure -24239 -16826 44.1
Depreciation and amortisation -20462 -12936 58.2
Impairment of loan to staff share trust -1204 -8115 -85.2
Provision for deficit on defined benefit fund
to be terminated -1910 0 100
Profit before investment income and interest 18376 9406 95.4
Investment income excluding interest received 9927 13056 -24
Interest received 4739 2946 60.9
Interest paid -9036 -8370 8
Profit before taxation 24006 17038 40.9
Taxation -4381 -599 631.4
Profit after taxation 19625 16439 19.4
Minority shareholders portion of subsidiary
(earnings) loss -293 132 -322
Net profit for the period 19332 16571 16.7
Earnings per share (cents) 8.7 6.6 31.8
Adjusted for: (net of taxation)
Amortisation of intangible assets 2.8 1.4
Impairment of loan to staff share trust 0.5 2.3
Provision for deficit on pension fund
to be terminated 0.6 0
(Gain) loss on disposal of property, plant
and equipment -0.1 0
Headline earnings per share as previously
calculated (cents) 12.5 10.3 21.4
Adjustment required in terms of
circular 7/2002 issued by SAICA
Amortisation of intangible assets
(excl goodwill) -2.2 -1.2
Headline earnings per share in terms of
circular 7/2002 10.3 9.1 13.2
Diluted earnings per share (cents) 7.3 6.5 12.3
Dividends per share (cents) 3.8 1.8 111.1
Net asset value per share (cents) 77.5 72.3 7.2
Ordinary shares in issue
(excl shares held in treasury) ("000) 221973 240093 -7.5
Weighted average of ordinary shares
in issue ("000) 223366 251478 -11.2
Balance sheet
At 30 September 2003
2003 2002
R"000 R"000
ASSETS
Non current assets 165651 98884
Property, plant and equipment 53570 19357
Intangible assets 90305 47294
Investments and loans receivable 9575 24108
Deferred taxation 12201 8125
Current assets 146729 107804
Inventory 5325 4711
Trade and other receivables 64426 37450
Cash and cash equivalents 73907 63081
Taxation 3071 2562
Total assets 312380 206688
EQUITY AND LIABILITIES
Capital and reserves
Shareholder"s interest 171940 173670
Minority interest 352 0
Non current liabilities 33913 3713
Long and medium term loans 3799 3713
Revenue received in advance 30114 0
Current liabilities 106175 29305
Trade and other payables 49766 21783
Provisions 19727 5037
Current portion of long term loans 24238 16
Revenue received in advance 10190 1748
Taxation 2254 721
Total equity and liabilities 312380 206688
Statement of changes in equity
for the year ended 30 September 2003
Share Preference Share Distri- Total
capital share premium butable
capital reserves
R"000 R"000 R"000 R"000 R"000
Balance at 30 Sep 2002 1201 20 62685 114753 178659
Change in accounting
policy(refer to note 1) -4989 -4989
Restated balance at 30 Sep 1201 20 62685 109764 173670
2002
Shares bought back -145 -17131 -17276
and cancelled
Shares issued at a premium 54 6407 6461
Preference shares redeemed -20 -1600 -1620
Share issue expenses -104 -104
Dividend paid -8523 -8523
Net profit for the year 19332 19332
Balance at 30 Sep 2003 1110 0 50257 120573 171940
Cashflow statement
for the year ended 30 September 2003
2003 2002
R"000 R"000 %
Cash flow from operating activities 40395 24862 62.5
Cash generated from operations 41260 30675 34.5
Working capital changes 9995 718
Cash generated from operating activities 51255 31393
Investment income and net finance cost 5630 7631
Dividend paid -8523 -4478
Taxation -7967 -9684
Cash from (applied to) investing activities 11510 -36647 131.4
Cash applied to financing activities -41079 -13330 208.2
Cash and cash equivalents
- Net decrease 10826 -25115
- At beginning of the year 63081 88196
- At end of year 73907 63081 17.2
Notes to the financial statements
Accounting policy
The financial statements have been prepared on the
historical cost basis. Accounting policies used in
preparing these financial statements comply with
South African Statements of Generally Accepted
Accounting Practice and are consistent with the
accounting policies applied in the previous year
with the exception of revenue recognition in
certain subsidiary companies.
1. Change in accounting policy
Certain subsidiaries within the Group differed in
their recognition of revenue in comparison to the
Group"s policy. A change in accounting policy in the
relevant subsidiaries has been adopted
retrospectively and comparative figures
have been restated.
The effects of this change are as follows: 2003 2002
R"000 R"000
Increase (decrease) in revenue 893 -2476
Decrease in cost of sales 144 51
(Increase) decrease in tax charge -311 877
Increase (decrease) in net profit 726 -1548
The cumulative decrease in opening Group retained
earnings at 30 September 2001 amounts to R3.4-million
as a result of the change in the accounting policy
2. Contingent tax liability
Affinity Logic (Proprietary) Limited a wholly owned
subsidiary company of Affinity Logic Holdings
(Proprietary) Limited has been re-assessed on the 1999
to 2001 tax years. At present a contingent liability
of R 15,027,061 exits in terms of this re-assessment.
The company has lodged an objection against this
re-assessment and is awaiting a reply.
COMMENTS
Overview
The year to September 2003 was both challenging and rewarding for the Group.
Financial results for the period with regard to overall revenue growth and the
increase in annuity revenue are considered to be good, with earnings per share
performance at an acceptable level. Solid progress in executing against the
Group"s strategic objectives was also achieved.
As expected, the continuation of harsh trading conditions hampered organic
growth and kept trading margins under pressure. For the third successive year
prices for IT products and services were governed by a buyer"s market, with
intense competition for the limited business available.
The historic commitment by the Group to the generation of sustainable annuity
revenue streams has enabled it to aggressively grow its market share while
certain other players have had to focus on survival. These circumstances enabled
the Group to continue its progress in growing its footprint in Southern Africa
through strategic acquisitions at realistic prices.
On the international front the Group"s award-winning Active Retail product,
marketed through distributors in various regions, made good progress. This
included a large installation of 160 stores in Dubai and the first sale and
installation in Vietnam. In the United Kingdom, the Group secured its first
order for the Java-based retail solutions with the deployment of some 160
clothing outlets scheduled for the second half of our new financial year. All
costs associated with international business development continue to be expensed
as incurred.
Overview of financial results
Revenues grew by 42 percent to R306-million, with organic growth at 12 percent
and the balance through current and prior year acquisitions. Annuity revenues
grew by 40 percent to R175-million, representing 57 percent of total turnover.
Operating income (before interest, research and development, depreciation,
amortisation and exceptional items) grew by 40 percent to R66-million. Earnings
per share were up by 32 percent to 8.7 cents while headline earnings per share
were up 13 percent to 10.3 cents. The quality of these earnings is highlighted
by the 35% growth in cash generated from operations.
Following the predominantly cash-based acquisition of Affinity Logic with effect
from September 2003, the balance sheet for the first time reflects material
borrowings of some R26-million, representing 15% of equity. Although our cash
position has improved by R21-million since the interim stage, to close at R74-
million, we have acquired some R24-million in short-term debt, which will be
repaid at the end of Q1 in 2004. Our current ratio of 1.4:1 is below our minimum
target of 1.5:1 and we will pay close attention to this going forward. Net asset
value per share increased by 7 percent from 72.3c to 77.5c, while tangible net
asset value per share decreased sharply from 52.6c to 36.8c, mainly due to the
goodwill involved in the Affinity Logic acquisition.
During the year, the Group purchased and cancelled 28.888m shares of which
25.155m were acquired through the specific repurchase from the UCS Group Limited
Staff Share Trust. The specific repurchase was authorised by the special
resolution passed at the general meeting of shareholders on 26 March 2003. On 14
February 2003 the 26,529m shares held by Universal Computer Services (Pty) Ltd,
a 100% held subsidiary company in the Group, were transferred to UCS Group and
cancelled. Thus the Group at present holds no treasury shares. The board has
authority to buy back up to 20 percent of the shares in issue, representing a
further 44,285,288 shares.
The Group"s ongoing commitment to research and development continues to provide
a strong and differentiated platform for future growth. R&D spend for the year
amounted to over R24-million (2002 - R17-million), an increase of over 41%. All
R&D costs continue to be expensed as incurred.
Acquisitions during the year
During the year the Group successfully concluded two strategic acquisitions with
both designed to broaden and enhance service capabilities.
The Affinity Logic acquisition, the largest acquisition yet undertaken by the
Group, provides significant critical mass as a platform on which to base an
increased range of services to all software customers.
The acquisition of 100% of the equity of Affinity Logic Holdings (Pty) Ltd for a
total consideration of R41.7-million, effective 1 September 2003, was settled
through the issue of 10 768 000 UCS ordinary shares at 60 cents per share and
the payment of R35.2-million in cash. Affinity Logic"s core business is the
provision of consulting and outsourcing services for the delivery of computing
infrastructure and application solutions to the retail and consumer goods
manufacturing sector.
Effective 1 February 2003 the Group acquired 51% of the equity and shareholder
loan accounts in Fernridge Consulting (Pty) Ltd for R1-million. This purchase
price could be adjusted based on performance over the next two years with a
maximum additional payment of R1.5-million.
Fernridge Consulting provides sophisticated sales optimisation services using
aerial photography, spatial modelling techniques and high-level database
integration, predominantly in the retail environment.
Post balance sheet event
Effective 1 October 2003 the Group acquired the minority shareholders" interests
in CCS Software (Pty) Ltd and UCS Software (Pty) Ltd. The 37.24% minority
shareholding in CCS was acquired for R6-million settled through the issue of 8
524 954 shares at 60 cents per share and the payment of R 800 000 in cash. The
7% minority shareholder in UCS Software and the related shareholder loan account
was acquired for R1.2-million through the issue of 1 999 238 shares at 60 cents
per share. The ownership of 100% of both UCS Software as well as CCS Software
was the first stage in merging the retail software focused portion of the Group.
A final payment of R9.25-million was paid to the vendors of Computerkit Holdings
(Pty) Limited as the company achieved its profit warranty in terms of the
acquisition agreement for the year under review.
In addition to the purchase consideration for 100% of the equity of Affinity
Logic Holdings (Pty) Ltd and in terms of the authorisation obtained from
shareholders in the general meeting held on 19 September 2003, 5 000 000
ordinary shares were issued at 60 cents per share to certain previous as well as
current members of the Affinity Logic Holdings (Pty) Ltd management team on 6
October 2003. The cash supporting the subscription for these shares was,
however, received on 29 September 2003 and is included in the year-end cash
balance.
Prospects
The strengthening of the Rand against most major currencies over the past year
will make our export initiatives less profitable than previously projected.
However, we remain convinced that our products are competitively positioned in
our chosen international markets.
The extremely challenging IT market conditions experienced over the past three
years are expected to start improving during the coming year. In particular, the
prolonged effects of the pre-Y2K IT spending spree and subsequent post-Y2K IT
spending trough are expected to start easing. While this is evidenced in our
healthiest order book since 1999, it is not expected that IT spend will
`normalise" in our traditional markets for another year or two.
Given this scenario, management has again adopted a conservative view for new
sales prospects in the year to September 2004, although our current order books
and recent acquisition of Affinity Logic should ensure turnover growth in excess
of that achieved this year. The pressure on margins is forecast to continue and
we expect the first half of our new financial year to be very challenging in
this regard as our overhead structure increases in advance of the annuity
revenue streams contained in our order books.
Dividend declaration
Notice is hereby given that the board has declared a final dividend of 2.0 cents
per ordinary share in respect of the year ended 30 September 2003. The dividend
will be paid on 12 January 2004. To comply with the procedures of STRATE, the
last day to trade in the shares for the purpose of entitlement to the final
dividend is 2 January 2004. The shares will commence trading ex dividend on 5
January 2004 and the record date will be 9 January 2004.
Share certificates may not be dematerialised or rematerialised between 5 January
2004 and 9 January 2004, both days inclusive.
Audit report
These results have been audited by Kaplan & Kaplan and their unqualified audit
report is available for inspection at the Group"s registered office.
For and on behalf of the board
Adv RG Goodman, SC (Chairman)*
JD Bright (Chief Executive Officer)
UCS Group Limited
Incorporated in the Republic of South Africa
Reg No: 1993/02253/06
ISIN: ZAE0016150
Share Code: UCS
Board of directors
Richard Goodman, SC (Chairman)*, John Bright (Chief Executive Officer), Joseph
Claasen*, Duncan Coles, Rebecca Eliot*+, Patrick Fitzgerald, Bryan Hattingh*,
E.B. (Bert) Levenstein*, Neil Michelson (Chief Operating Officer), Dean Sparrow
(Chief Financial Officer), Peter Terblanche*.
* Non-executive + British
Company secretary
Verity Mary-Ann Broadrick
Registered office
20th Floor
209 Smit Street
Braamfontein 2001
PO Box 31266
Braamfontein
2017
Transfer secretaries
Computershare Limited
70 Marshall Street
Marshalltown
Johannesburg
2001
Date: 24/11/2003 05:10:09 PM Produced by the JSE SENS Department
