| Tue 23 Nov 2004, 17:10 | | Results for the year ended 30 September 2004 |
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UCS - Audited financial results for the year ended 30 September 2004
UCS Group Limited
Incorporated in the Republic of South Africa
Reg no 1993/02253/06
ISIN: ZAE000016150
JSE Share code: UCS
Audited financial results for the year ended 30 September 2004
+60% Annuity revenue
+59% Revenue
+54% EBITDA
+45% Cash generated from operations
+21% Headline earnings per share and earnings per share
Income statement for the year ended 30 September 2004
Restated*
2004 2003 %
R`000 R`000 change
Revenue 486 292 306 218 58,8
Profit from operations before interest,
depreciation, research and development
and exceptional items 81 298 65 391 24,3
Research and development expenditure (20 907) (24 239) (13,8)
Depreciation and amortisation (35 106) (20 461) 71,6
Provision for deficit on defined benefit
fund terminated - (1 910) (100,0)
Profit before investment income
and interest 25 285 18 781 34,6
Investment income excluding interest
Received 9 152 9 927 (7,8)
Interest received 4 315 5 668 (23,8)
Interest paid (11 354) (10 469) 8,5
Profit before taxation 27 398 23 907 14,6
Taxation (2 257) (4 380) (48,5)
Profit after taxation 25 141 19 527 28,8
Minority shareholder`s portion of
subsidiary earnings (510) (294) 73,5
Net profit for the period 24 631 19 233 28,1
Earnings per share (cents) 10,4 8,6 20,9
Adjusted for:
Amortisation of goodwill 1,5 0,6
Provision for deficit on defined benefit
fund terminated - 0,6
Headline earnings per share (cents) 11,9 9,8* 21,4
Diluted earnings per share (cents) 9,3 7,3 27,4
Dividends per share (cents) 4,3 3,8 13,2
Net asset value per share (cents) 82,7 77,5 6,7
Ordinary shares in issue (excluding
shares held in treasury) (`000) 239 453 221 973 7,9
Weighted average ordinary shares in
issue (`000) 237 909 223 366 6,5
Balance sheet at 30 September 2004
Restated
2004 2003
R`000 R`000
ASSETS
Non-current assets 182 098 163 860
Property, plant and equipment 42 494 53 570
Intangible assets 117 586 90 305
Investments and loans receivable 5 635 7 784
Deferred taxation 16 383 12 201
Current assets 137 797 148 561
Inventory 6 816 5 325
Trade and other receivables 79 474 66 257
Cash and cash equivalents 51 015 73 908
Taxation 492 3 071
Total assets 319 895 312 421
EQUITY AND LIABILITIES
Capital and reserves
Shareholder`s interest 198 109 171 944
Minority interest 810 352
Non-current liabilities 25 050 33 914
Long and medium-term loans 2 625 3 800
Revenue received in advance 22 425 30 114
Current liabilities 95 926 106 211
Trade and other payables 62 069 49 802
Provisions 17 609 19 727
Current portion of long-term loans 2 735 24 238
Revenue received in advance 12 341 10 190
Taxation 1 172 2 254
Total equity and liabilities 319 895 312 421
Statement of changes in equity for the year ended 30 September 2004
Preference Distri-
Share share Share butable
capital capital premium reserves Total
R`000 R`000 R`000 R`000 R`000
Balance at 30 September 2003
as previously reported 1 110 - 50 256 120 573 171 939
Prior year adjustment for staff
share trust consolidation 5 5
Restated balance at
30 September 2003 1 110 - 50 256 120 578 171 944
Ordinary shares issued
at a premium 87 10 401 10 488
Preference shares issued
at a premium 40(1) 1 269(1) 1 309
Share issue expenses (50) (50)
Net profit for the year 24 631 24 631
Dividend paid (10 213) (10 213)
Balance at
30 September 2004 1 197 40 61 876 134 996 198 109
(1) The Company intends making an application to the court in terms of section
97 of the Companies Act to convert authorised medium-risk preference shares to
authorised high-risk preference shares.
Cash flow statement for the year ended 30 September 2004
Restated*
2004 2003 %
R`000 R`000 change
Cash flow from operating activities 40 485 40 088 1,0
Cash generated from operations 60 209 41 479 45,2
Working capital changes (6 681) 9 869
Cash generated from operating activities 53 528 51 348
Investment income and net finance cost 2 113 5 126
Dividend paid (10 213) (8 419)
Taxation (4 943) (7 967)
Cash (applied to)/from investing
activities (45 017) 11 851 (479,9)
Cash applied to financing activities (18 361) (41 131) (55,4)
Cash and cash equivalents
- Net (decrease)/increase (22 893) 10 808
- At beginning of the year 73 908 63 100
- At end of the year 51 015 73 908 (30,9)
Commentary
The year to end September 2004 marked the first full reporting period in which
the Group undertook a number of proactive projects aimed at consolidating
certain of its investments into larger, more specifically focused business
entities based on unification under the UCS brand.
It is against this background that the financial results for the year to
September 2004 reflect continued and pleasing strong growth in turnover and
market share.
Total revenues grew strongly by 59 percent to R486 million, with annuity
revenues up 60 percent to R280 million. Due to delays in certain large customer
projects, organic growth was limited to only three percent, with the balance (56
percent) of the growth attributable to current and prior year acquisitions.
Annuity revenues, a cornerstone of the Group`s business philosophy, improved
from 57 to 58 percent of total turnover. Operating income (before interest,
research and development, depreciation, amortisation and exceptionals) grew by
24 percent to R81 million. Earnings per share were up by 21 percent to 10,4
cents while headline earnings per share were also up 21 percent to 11,9 cents.
The quality of these earnings is highlighted by the 45 percent growth in cash
generated from operations.
During the year, substantial repayments of short-term debt from the Affinity
Logic acquisition were made. The balance sheet reflects this with a reduction in
loans owing from R28 million to R5 million - down to less than three percent of
equity.
The cash position reduced by R23 million to R51 million as the Group applied R45
million to investing activities and R18 million to financing activities. The
enlarged business also required additional working capital which management will
continue to pay close attention to going forward.
The current ratio of 1.44:1 (2003 1.4:1) is still below the Group`s minimum
policy target of 1.5:1 and this will continue to receive attention in the year
ahead.
Consolidation
During the year the Group merged four of its six retail software businesses into
a single trading entity, UCS Software (Pty) Ltd. This project also created a
state-of-the-art retail application software manufacturing facility that is
housed under UCS Software Manufacturing (Pty) Ltd. This new facility is based on
strict adherence to exacting international standards and is designed to position
UCS to succeed in the highly competitive export market. The Group also acquired
the going concern business of Branch Software (Pty) Ltd directly into the newly
merged UCS Software operation with effect from June 2004.
Affinity Logic (Pty) Ltd, acquired in September 2003, was re-branded as UCS
Solutions (Pty) Ltd and has, under an effective and professional management
team, achieved core profitability.
Trading environment
The continuation of challenging trading conditions, together with delays in
certain large customer projects, hampered organic growth efforts and kept
trading margins under pressure.
For the fourth successive year prices for IT products and services were governed
by a buyer`s market with intense competition for the limited new business
available. However, as reported last year, the same challenging conditions apply
to all players in the market and the Group`s historical and fundamental
commitment to the generation of sustainable annuity revenue streams enabled it
to grow its market share and revenue.
On the international front the Group opened an office in the United Kingdom
(London). Although the sales pipeline in the UK looks promising, deal-flow,
particularly for UCS`s packaged offerings through dealers, was below
expectations. On a more positive note, the Group concluded a distribution
agreement for retail software with a significant IT company headquartered in
Saudi Arabia that is strongly positioned in the retail sector. It is planned
that this partner will develop a significant channel for UCS products throughout
the Middle East.
All costs associated with international business development continue to be
expensed as incurred.
Acquisitions during the year
Effective 1 June 2004 the going concern business of Branch Software (Pty) Ltd
was acquired by UCS Software (Pty) Ltd for R8,5 million in cash with the final
R0,5 million of the purchase price outstanding and to be settled on 30 May 2005.
Branch Software focuses primarily on the forecourt and convenience store market
and provides a solution that runs on the Microsoft operating system.
Simultaneously with the acquisition of the Branch Software business, the rights
to a device known as the forecourt service controller (FSC) was acquired from a
Branch Software (Pty) Ltd sister company, Figment Design Laboratories (Pty) Ltd.
The acquisition of this intellectual property for R2 million was split into
three equal cash payments with the final payment of R666 667 outstanding and due
on 30 May 2005.
Prospects
Although it was forecast that the extremely challenging and turbulent IT market
conditions experienced over the past four years would improve during 2004, there
was little evidence of this. It is also significant to note that while the South
African retail sector, the Group`s primary target market, is currently extremely
buoyant and experiencing phenomenal growth, the `boom` is taking place in what
can be generally described as a deflationary environment. Under these
circumstances many retailers have concentrated more on cost containment than on
technology-driven business improvements based on new IT investments.
The Group`s focus on the generation of sustainable annuity streams means that
overhead structures grow in advance of new business billings and delays on
installations have a short-term negative impact on margins. The delays with
certain large customer projects experienced recently means that these roll-outs
will now only get under way after the peak retail trading season in December. It
is therefore expected that the Group will experience a relatively challenging
start to the year ahead with a stronger performance anticipated for the second
six-month period to September 2005.
Given these scenarios, management has again adopted a conservative view for
prospects in the year to September 2005, although the current order books
provide a strong indication that the Group should produce acceptable growth for
the full year.
The benefits of the software business consolidation strategy should begin to
bear fruit this year in terms of improving margins, although it must be re-
iterated that the first half of the year is expected to be very challenging in
this regard.
Dividend declaration
Notice is hereby given that the board of directors has declared a final dividend
of 2,3 cents per ordinary share in respect of the year ended 30 September 2004.
The dividend will be paid on Monday, 7 February 2005.
To comply with the procedures of STRATE, the last day to trade in the shares for
the purpose of entitlement to the final dividend is Friday, 28 January 2005. The
shares will commence trading ex dividend on Monday, 31 January 2005 and the
record date will be Friday, 4 February 2005.
Share certificates may not be dematerialised or rematerialised between Monday,
31 January 2005 and Friday, 4 February 2005 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)
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 the consolidation of the UCS Group Limited Staff Share Trust.
1 Contingent tax liability
In the results announcement and the annual report for the financial year ended
30 September 2003 it was disclosed that there was a potential contingent
liability in respect of tax that was reassessed for the UCS Solutions (Pty) Ltd
(formerly Affinity Logic (Pty) Ltd) 1999, 2000 and 2001 financial years. A
further update on this issue was included in the Group`s interim results
announcement published 6 May 2004 where it was disclosed that the objection had
been rejected and that documentation had been submitted to progress to an
alternate dispute resolution (ADR) process. To date this issue remains
unresolved and the potential contingent liability for UCS Solutions amounts to
R20,1 million.
2 Staff Share Trust*
In line with the recommendations by the JSE Securities Exchange South Africa to
consolidate the employee share incentive scheme, the current year net profit
increased by R0,3 million as a result of an increase in net interest received.
The prior year comparative period has been restated with a net decrease in
headline earnings of R1,2 million due to the cancellation of interest on the
loan accounts to beneficiaries of the trust.
The actual and weighted average number of shares in issue for the comparative
periods remained unchanged after consolidation of the trust. As a result of
these amendments, the headline earnings per share has been restated for the 12
months ended 30 September 2003 from 10,3 to 9,8 cents.
* Change in accounting policy
Board of directors
Richard Goodman, SC (Chairman)*, John Bright (Chief Executive Officer), Joseph
Claasen*, Duncan Coles, Rebecca Eliot*+, Patrick Fitzgerald, Bryan Hattingh*, EB
(Bert) Levenstein*, Neil Michelson (Chief Operating Officer), Dean Sparrow
(Chief Financial Officer), Peter Terblanche*
* Non-executive +British
Company secretary
Duncan Coles
Registered office Transfer secretaries
20th Floor Ultra Registrars (Pty) Limited
209 Smit Street 11 Diagonal Street
Braamfontein Johannesburg
2001 2001
PO Box 31266 PO Box 4844
Braamfontein Johannesburg
2017 2000
www.ucs.co.za
Date: 23/11/2004 05:00:18 PM
Produced by the JSE SENS Department
