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UCS - Annual Results for the year ended 30 September 2005 - Press Announcement
UCS GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1993/002253/06)
JSE code: UCS
ISIN: ZAE000016150
("UCS" or "the company")
Annual Results for the year ended 30 September 2005
- Revenues up 12.6% to R517m (2004: R459m) - organic growth 10.3%
- Annuity revenues up 21.4% to R307m (2004: R253m)
- EBITDA up 24.4% to R75.0m (2004: R60.3m)
- HEPS up 21.9% to 14.5c (2004: 11.9c)
- Cash generated from operations per share up 23.7% to 31.3c (2004: 25.3c)
- Full year dividend declaration per share up 16.3% to 5c (2004: 4.3c)
- UCS Software Manufacturing completed start up phase, received CMMI
certification, commercialisation process in progress
- UCS Software efficiency initiatives starting to deliver improved margins
- UCS Solutions turnaround completed, customer base expanded
John Bright, CEO, commented:
"We are pleased with our results. Good progress has been made in improving
efficiencies throughout the Group, though the uncertainty in the pharmacy
industry has negatively impacted our margins this year. The Group is well
placed to continue or even exceed the headline earnings growth trend established
over the last three years."
22 November 2005
Enquiries:
UCS Group Limited 011 712 1300
John Bright, CEO 082 900 4793
Neil Michelson, COO 082 554 4682
Dean Sparrow, CFO 082 494 6803
College Hill 011 447 3030
Johannes van Niekerk 082 921 9110
Fred Cornet 083 307 8286
Ucs Group Limited - Audited Financial Results For The Year Ended 30 September
2005
UCS Group Limited
Incorporated in the Republic of South Africa
Reg no 1993/002253/06
ISIN ZAE000016150
Share code UCS
AUDITED FINANCIAL RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2005
Annuity revenues
+21,4%
EBITDA
+24,4%
HEPS
+21,9%
Cash generated from operations
+24,8%
Full year dividend declaration
+16,3%
INCOME STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER 2005
Restated
2005 2004
R"000 R"000 % change
Gross billings 542 375 486 292 11,5
Revenue - note 2 516 722 459 120 12,6
Profit from
operations
before interest,
depreciation
and amortisation
and research and
development
expenditure 94 229 81 251 16,0
Research and
development
expenditure (19 185) (20 907) (8,2)
Depreciation and
amortisation (35 621) (35 106) 1,5
Profit before
investment
income and
interest 39 423 25 238 56,2
Investment
income excluding
interest
received 8 700 8 700 -
Interest
received 1 704 4 767 (64,3)
Interest paid (11 417) (11 354) 0,6
Profit before
taxation 38 410 27 351 40,4
Taxation (2 839) (2 127) 33,5
Profit after
taxation 35 571 25 224 41,0
Minority
shareholders
portion of
subsidiary
earnings (821) (510) 61,0
Net profit for
the year 34 750 24 714 40,6
Earnings per
share (cents) 14,5 10,4 39,4
Adjusted for:
Amortisation of
goodwill - 1,5
Headline
earnings per
share (cents) 14,5 11,9 21,9
Diluted earnings
per share
(cents) 13,2 9,3 41,9
Dividends per
share (cents) 4,3 4,3 -
Net asset value
per share
(cents) 92,4 82,8 11,6
Ordinary shares
in issue ("000) 241 857 239 453 1,0
Weighted average
of ordinary
shares in issue
("000) 239 975 237 909 0,5
BALANCE SHEET AT 30 SEPTEMBER 2005
Restated
2005 2004
R"000 R"000
ASSETS
Non-current assets 217 887 182 281
Property, plant and
equipment 58 423 42 494
Intangible assets 133 079 117 585
Investments and loans
receivable 6 926 5 635
Deferred taxation 19 459 16 567
Current assets 134 478 137 797
Inventory 9 196 6 816
Trade and other
receivables 83 297 79 474
Cash and cash
equivalents 41 106 51 015
Taxation 879 492
Total assets 352 365 320 078
EQUITY AND LIABILITIES
Capital and reserves
Shareholder"s interest 223 627 198 061
Minority interest 1 394 810
Non-current 25 050
liabilities 24 639
Long- and medium-term
loans 9 902 2 625
Revenue received in
advance 14 737 22 425
Current liabilities 102 705 96 157
Trade and other
payables 68 878 62 300
Provisions 18 652 17 609
Current portion of
long-term loans 4 915 2 735
Revenue received in
advance 8 784 12 341
Taxation 1 476 1 172
Total equity and
liabilities 352 365 320 078
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 SEPTEMBER 2005
Foreign
Prefer- currency
ence trans- Distri-
Share share Share lation butable
capital capital premium reserve reserves Total
R"000 R"000 R"000 R"000 R"000 R"000
Balance at
30
September
2004 -
as
previously
reported 1 197 40 61 876 - 134 996 198 109
Prior year
adjustment
(note 1) (48) (48)
1 197 40 61 876 - 134 948 198 061
Ordinary
shares
issued
at a
premium 8 995 1 003
Preference
shares
converted
to
ordinary
shares 4 (4) -
Preference
shares
repurchased (1) (40) (41)
Net profit
for the
year 34 750 34 750
Dividend
paid (10 351) (10 351)
Exchange
differences
arising on
translation
of
foreign
entity 205 205
Balance at
30 1 209 35 62 831 205 159 347 223 627
September
2005
CASH FLOW STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER 2005
Restated
2005 2004
R"000 R"000 % change
Cash flow from
operating
activities 47 097 40 485 16,3
Cash generated
from operations 75 167 60 209 24,8
Working capital
changes (10 471) (6 681)
Cash generated
from operating
activities 64 696 53 528 20,9
Investment
income and net
finance cost (1 013) 2 113
Dividend paid (10 588) (10 213)
Taxation (5 998) (4 943)
Cash applied to
investing
activities (67 425) (45 016) 49,8
Cash received
from/(applied
to) financing
activities 10 419 (18 361)
Cash and cash
equivalents
- Net decrease (9 909) (22 892)
- At beginning
of the year 51 015 73 907
- At end of year 41 106 51 015 (19,4)
SEGMENTAL INFORMATION FOR THE YEAR ENDED 30 SEPTEMBER 2005
Restated*
2005 2004
R"000 R"000 % change
Revenue 516 722 459 120 12,6
Software
Division 289 930 264 201 9,7
Solutions &
Services
Division 226 792 194 919 16,4
Profit from
operations
before interest
and
depreciation and
amortisation 75 044 60 344 24,4
Software
Division 34 671 39 319 (11,8)
Solutions &
Services
Division 44 468 29 496 50,8
Corporate and
eliminations (4 095) (8 471)
Profit from
operations
before interest
and taxation 39 423 25 238 56,2
Software
Division 17 256 20 109 (14,2)
Solutions &
Services
Division 26 911 14 063 91,4
Corporate and (4 744) (8 934)
eliminations
Depreciation and
amortisation 35 621 35 106 1,5
Software
Division 17 416 19 211 (9,3)
Solutions &
Services
Division 17 556 15 432 13,8
Corporate and
eliminations 649 463
Research and
development 19 185 20 907 (8,2)
Software
Division 15 019 15 558 (3,5)
Solutions &
Services
Division 4 166 5 349 (22,1)
* Comparative figures are reclassified, where necessary, in accordance with
current year classifications
Commentary
UCS Group has come a long way since listing in 1998, with revenues then of less
than R50 million and just over 200 employees. Since then our revenues have grown
by a compound rate of 34,5% to advance past the R500 million mark to R517
million this year. We now provide employment to over 1 600 people (following the
CEB acquisition).
Good progress has been made in improving efficiencies and margins through active
participation in our acquired businesses and merging certain units under the UCS
brand.
The 2005 year was one of consolidation and positioning for the future. Six
previously competitive retail software businesses have been successfully
integrated into a single trading entity, UCS Software. The UCS Solutions
business has continued to strengthen its position as the leading provider of IT
solutions and services to the retail sector in South Africa. All of the other
business units in the Group also traded profitably, with most having met or
exceeded their objectives.
International
Progress on the international front for our software products has been mixed,
with good growth recorded in the Middle East markets but less than expected
penetration in the UK market. Our measured investment has yet to translate into
meaningful levels of sales in the UK. We are reviewing our product and marketing
strategy for this market. The UK is our most accessible developed market and
represents a natural `gateway" to the rest of the EU as well as other major
markets. As such it is an essential component of our ambition to diversify our
revenue base internationally. All costs associated with international market
development continue to be expensed as incurred.
Financial Overview
Revenue figures for the Group have been restated historically to eliminate `pass
through" billings for recoveries of items paid on behalf of certain customers.
On this basis, gross billings grew by 11,5% to R542 million (2004: R486 million)
whilst revenues were up 12,6% to R517 million (2004: R459 million). Pure organic
revenue growth (adjusted for prior year acquisitions) came in at 10,3%. Annuity
revenues (also restated to eliminate `pass through" billings) showed solid
growth of 21,4% to R307 million (2004: R253 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 59,4% (2004: 55,1%) of our total revenues.
Operating income before interest, research and development, depreciation and
amortisation grew by 16% to R94 million (2004: R81 million). Excluding the
impact of goodwill write-offs from last year, some progress was made in margin
improvements, with PBIT coming in at 7,6% of revenues versus a comparable 6,3%
in the previous year. EBITDA improved from 13,1% to 14,5% of revenue.
Headline earnings per share were up by 21,9% to 14,5 cents (2004: 11,9 cents)
while earnings per share were up 39,4% also to 14,5 cents (2004: 10,4 cents).
The higher growth in earnings per share is attributable to the change in
accounting treatment of goodwill write-offs in terms of the revised AC140
(IFRS3). Notwithstanding this, the quality of the earnings growth is illustrated
by the 23,7% increase in cash generated from operations per share to 31,3 cents
(2004: 25,3 cents).
The Group continues to invest heavily in its future with a 49,8% increase in
cash applied to investing activities (2005: R67,4 million 2004: R45,0 million).
The increase was largely attributable to the refresh of the central hardware
infrastructure at UCS Solutions and the roll-out of the satellite network. This
resulted in a reduction of R9,9 million in the net cash position to R41,1
million at the end of the year, whilst debt increased by R9,5 million to R14,8
million or 6,6% of equity.
As a result of these investment activities, the current ratio of 1.3 (2004: 1.4)
is still below the Group"s minimum policy target of 1.5 and this will be a
management priority in the coming year. Net asset value per share increased by
11,6% from 82,8 cents to 92,4 cents and tangible net asset value per share
showed a similar improvement (2005: 37,4 cents 2004: 33,6 cents).
During the year, the Group issued 2 404 450 ordinary shares, which included 1
629 450 ordinary shares issued and listed to honour options exercised by certain
of the beneficiaries of the UCS Group Limited Staff Share Trust Scheme I.
In July 2005, following a successful application to the court in terms of
Section 97 of the Companies Act, the first 10%, 775 000 of the compulsory
convertible par value redeemable preference shares that were issued in November
2003, in terms of the rules of the UCS Group Limited Share Scheme II, were
converted into ordinary shares and listed.
No shares were bought back by the Group during the 2005 financial year. The
board has the authority to buy back up to 20 percent of the shares in issue,
representing 47 925 467 shares. Total net buy-backs to date amount to 30 412 839
shares.
Operational Overview
Software division
Phase 1 of the software merger has been completed and the drive-
for-efficiency project is starting to contribute to margin improvement. In
addition, a number of large-scale customer projects have been successfully
delivered in the year and this will contribute positively to annuity revenues
into 2006.
UCS Software Manufacturing (UCSSM) obtained its Capability Maturity Model
Integration ("CMMI") level 3 certification in September 2005. The UCSSM
component-based product line development philosophy is considered to represent
the only retail domain-specific software development environment of its type in
the world. This coveted certification level, which has only been attained by 144
companies globally, allows UCSSM to ensure high reliability and predictability
in delivering world-class mission-critical retail software to our customers.
UCSSM will be officially `open for business" early in the new year. The
successful `commercialisation" of this unit is expected to have significant
bottom-line benefits for the Group in the medium term as it changes from a `cost
centre" into a productive, revenue-generating business.
Revenue in the software division increased by 9,7%. The PBIT margin came in at
6% (2004: 7,6%).
Solutions and Services division
This division has extended its footprint of customers in the retail and consumer
goods market sector. UCS Solutions, amongst a number of other successes, secured
a significant SAP implementation contract with Pick "n Pay. The division has
seen a 16,4% increase in revenue over the year while the PBIT margin improved to
12% (2004: 7%).
Black Economic Empowerment
The strategy of the Group is to structure BEE equity deals at operating
subsidiary level, with the focus on synergies and value add at that level.
During the year, we concluded a transaction in our UKS subsidiary where a
consortium of staff acquired 38% of the equity in this business, with the BEE
component amounting to an effective 30% stake.
In UCS Solutions we have invited proposals from selected interested parties. We
are optimistic that we will succeed in achieving a transaction that meets our
strategic objectives in the coming months.
We have not yet succeeded in identifying acquisition or merger opportunities
with the right level of synergies for UCS Software.
The recently published Codes of Good Practice from the DTI contain sections that
are not yet complete. Once the final version is promulgated, it is expected to
have an effect on the current draft of the ICT Charter. It is therefore possible
that UCS will need to refine its BEE strategy accordingly.
CEB Maintenance Acquisition
The acquisition of CEB Maintenance was announced in July 2005 and became
effective on 1 October 2005. CEB has been in operation since 1987 and is South
Africa"s largest specialist point-of-sale maintainer. The business has revenues
of approximately R130 million, has a staff complement in excess of 530 and
depots and branches throughout South Africa, Botswana and Namibia. The
acquisition cost, which was based on warranted profits, amounts to R48 million
of which R24 million was paid on 1 October 2005. It was financed by a medium-
term debt facility provided by Nedbank Limited at two points below the prime
rate of lending.
The remaining R24 million due to the vendors is currently represented (post
balance sheet) by a vendor loan. R12 million will be required to be settled
within 7 days of receipt of a profit certificate supporting the achievement of
warranted profits at the end of year 1 and a further R12 million will be
required to be settled at the end of year 2 based on the receipt of year 2"s
profit certificate.
To the extent that actual profits exceed warranted profits by more than R1
million for year 1 and year 2, or both periods in aggregate, the purchase
consideration will be increased in accordance with an agreed methodology, but
limited to a maximum aggregate purchase consideration of R60 million.
Contingent Liability
UCS Solutions (Pty) Limited reached an agreement with SARS regarding the re-
assessment of the company"s 1999, 2000 and 2001 tax years. As a result, the
contingent liability disclosed in the results announcement and Annual Report for
the year ended 30 September 2004 has been resolved with no direct cash cost to
the Group.
Dividend policy
The directors have decided to maintain a policy to pay dividends twice a year.
Dividend cover may vary dependant on the Group"s projected cash requirements.
This policy will be reviewed regularly to ensure effective capital management.
Research and development
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 R19,2 million (2003: R20,9 million), a decrease of 8,2%. This
decrease was largely attributable to the continued phasing out of certain older,
legacy products and the efficiencies gained by merging certain product R&D in
our software manufacturing facility. R&D expenditure going forward is expected
to increase as more resource is applied to the products intended for
international markets.
Prospects
The UCS Software Manufacturing unit has completed its start-up phase and is
being positioned to take on external, revenue-generating projects. The merged
UCS Software business is beginning to reap the benefits of its drive-for-
efficiency and the UCS Solutions business has a healthy order book and is well
set for continued growth. The CEB Maintenance acquisition is expected to
contribute meaningfully to Group results in the future. The other smaller
businesses in the Group are all, without exception, positive in their outlook
and forecasting another year of real growth.
Given this scenario, management is optimistic that the earnings growth for the
year to September 2006 could exceed that achieved for the 2005 year.
The earnings for the first half of the 2006 financial year, which includes the
traditional South African holiday periods, are forecast to be less than that for
the second half of the 2005 financial year due to less billable time.
Dividend Declaration
Notice is hereby given that the board of directors has declared a final dividend
of 3 cents per ordinary share in respect of the year ended 30 September 2005.
The dividend will be paid on Monday, 13 February 2006.
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, 3 February 2006. The
shares will commence trading ex dividend on Monday, 6 February 2006 and the
record date will be Friday, 10 February 2006.
Share certificates may not be dematerialised or rematerialised between Monday, 6
February 2006 and Friday, 10 February 2006 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 (CEO)
Notes to the financial statements
1 Accounting Policy
The Group results are prepared in accordance with South African Statements of
Generally Accepted Accounting Practice. The financial results for the year ended
30 September 2005 have been prepared on a basis consistent with the prior year
annual financial statements, with the exception of the adoption of the revised
AC140: Business Combinations, and the implementation of circular 7/2005 issued
by SAICA, clarifying the interpretation of AC105: Leases.
As a result of the adoption of the revised statement on business combinations,
the Group no longer amortises goodwill, which is now subject to an annual
impairment review. Goodwill of R3,9 million was amortised in the prior year. The
revised statement is adopted prospectively and as a result there is no
adjustment to the prior year.
The revised interpretation of the accounting policy with respect to leases,
which requires minimum lease payments that are subject to fixed escalations to
be spread over the life of the lease instead of as incurred, has had the
following effect on the results of the Group:
Opening
retained
earnings
2005 2004 2004
R"000 R"000 R"000
Gross 951 47 185
Tax 152 130 54
Net
expense/(income) 799 (83) 131
2 Revenue
During the previous financial year, billings which represent the recovery of
direct costs incurred on behalf of certain customers and for which the Group has
earned no margin, were accounted for as revenue. In this respect the Group has
acted in an agency capacity and as a result the amounts reflected below have
been reallocated from revenue to cost of sales. These restatements and
reclassifications had no effect on net profit.
2005 2004
R"000 R"000
Revenue - as
previously disclosed 542 375 486 292
Restatement of direct
cost recoveries (25 653) (27 172)
Revenue - as restated 516 722 459 120
3 International Financial Reporting Standards (IFRS)
With effect from 1 October 2005, the Group will adopt IFRS and is currently
quantifying the impact of this change on future and prior years" results. The
effect of this transition will be disclosed in the interim results for the six
months to 31 March 2005 and the 2006 Annual Report.
22 November 2005
Board of directors
Richard Goodman, SC (Chairman)*, John Bright (CEO), Joseph Claassen*, Duncan
Coles, Rebecca Eliot*+, Bryan Hattingh*, Neil Michelson (COO), Mntungwa
Morojele*, Dean Sparrow (CFO), Peter Terblanche*.
*Non-executive +British
UCS Group Limited
Incorporated in the Republic of South Africa
Reg no 1993/002253/06
ISIN ZAE000016150
Share code UCS
Registered office
20th Floor 209 Smit Street
Braamfontein 2001
PO Box 31266
Braamfontein 2017
Transfer secretaries
Ultra Registrars (Pty) Limited
11 Diagonal Street
Johannesburg 2001
PO Box 4844
Johannesburg 2000
Company secretary
Duncan Coles
www.ucs.co.za
Date: 22/11/2005 07:00:25 AM Produced by the JSE SENS Department
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