11 Apr 2018 07:00
11 April 2018
AIM: UNG.L
Universe Group plc
("Universe", the "Group" or the "Company")
FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2017
Universe Group plc (AIM: UNG.L), a leading developer and supplier of point of sale, payment and loyalty systems, is pleased to announce its audited results for the year ended 31 December 2017.
Highlights
· Results in line with Trading Update given in November 2017
· Total revenues of £19.62 million (2016: £19.71 million)
· Gross profit margin steady at 47.6%
· Adjusted EBITDA £2.77 million before £0.4 million of exceptional costs (2016: £3.77 million)
· Operating profit £0.88 million (2016: £2.04 million)
· Profit after tax £0.63 million (2016: £1.83 million)
· Statutory diluted earnings per share 0.26p (2016: 0.76p)
· Net cash at year end £1.86 million (31 December 2016: £2.11 million)
· Revenues were affected by the delay of a small number of high value contracts
· Investment made in development teams and enlarging sales teams ahead of major next generation product launches
Andrew Blazye, Non-Executive Chairman of Universe, commented:
"Universe continued to move forward during 2017 with the production and roll out of our next generation EPOS solution and latest payment terminal, Gempay 3. As reported earlier in the year however, the Group's financial performance in 2017 was affected by delays in a small number of customer deployments. Our cost base was also intentionally increased as we invested in further technical development activity and sales personnel to assist with our new product launches.
We successfully completed EPOS implementations with major customers, including 70 installations for leading petrol forecourt operator, Rontec. Gempay 3 was launched on time in October 2017 and to date there have been over 1,500 implementations, cementing Gempay's position as the UK's leading forecourt payment terminal.
We have had a solid start to 2018 with a two-year contract extension with a large food retailer client as well as the prospect of new business from a major international forecourt operator with whom we have not traded before. Our pipeline remains solid and supports our budgeted turnover, with the exception of the significant uncertainty regarding our contract with Conviviality, which represents approximately £2 million of our pipeline revenue for the current financial year.
Opportunities continue to materialise with existing customers for our next generation EPOS, payment, and loyalty solutions reflecting the strong and loyal relationships we have, and the strength of our products. The take-up of next generation products and feed-back from customers bodes well for the future".
For further information:
Universe Group plc Andrew Blazye, Non-Executive Chairman Jeremy Lewis, Chief Executive Officer Daryl Paton, Chief Financial Officer
| T: +44 2380 689 510 |
finnCap Stuart Andrews (corporate finance) Richard Chambers (corporate broking)
| T: +44 2072 200 500
|
IFC Advisory | T: +44 2039 346 630 |
Tim Metcalfe Heather Armstrong
|
|
CHAIRMAN'S STATEMENT
Introduction
Universe continued to advance as a business during 2017, with the production and roll out of our next generation electronic point of sale ("EPOS") solution and payment terminal, Gempay 3. As reported earlier in the year however, the Group's financial performance was affected by delays in a small number of customer deployments. Our cost base was also intentionally increased as we invested in further technical development activity and sales personnel to assist with our new product launches.
In a busy year, the Group made several changes to the board of directors, with our Chief Financial Officer, Bob Smeeton, leaving the business in August 2017 and being replaced by Daryl Paton. Billy Tank, who had been on medical leave since January 2017, also left the business in November 2017. Daryl comes with a wealth of experience in both public markets and M&A, making him an ideal candidate to help drive further value for shareholders.
In September 2017, Robert Goddard stepped down from his position as Non-Executive Chairman and Director, a position he had held for six years, during which he was central to guiding the Group through a period of turnaround and transition. On the same day, I was appointed to this role and am enjoying the opportunities involved in taking the Company to the next level. We wish to thank Robert, Bob and Billy for their contributions and commitment to Universe.
During the year, we also made a number of management changes within our trading entity, HTEC Limited, creating an executive board with clear roles and responsibilities reporting to a newly appointed divisional Managing Director.
The deployment delays left revenues only marginally down year-on-year at £19.62 million (2016: £19.71 million). Profit before tax, excluding £0.40 million of cost associated with the retiring and appointment of senior management, was £1.18 million. Reported profit before tax was £0.78 million (2016: £2.01 million). During the year, the Group continued to increase its investment in technical research and development, with spend up £0.35 million to £2.94 million, representing 15.0% of revenues, as well as investment in the strengthening of the sales and product management teams. These were the major contributors to the increase in costs in the year, but will drive and support growth in the future.
Historically, gross margin has included the cost of research and development, however, as is customary with most other software companies, this has now been included in administrative expenses. Following the reclassification, gross profit margin is consistent with the prior year at 47.6% (2016: 48.0%). Statutory diluted earnings per share was 0.26p (2016: 0.76p).
Net cash remained strong, ending the year at £1.86 million (31 December 2016: £2.11 million).
Overview
The two priorities for 2017 continued to be product development and the deployment readiness of our next generation EPOS offering, together with the completion, launch and roll out of our next generation payment terminal, Gempay 3.
Whilst there is now significant uncertainty in the EPOS deployment to Conviviality, we successfully completed implementations with other customers, including 70 installations for leading petrol forecourt operator, Rontec.
Gempay 3 was launched on time in October 2017 and to date there have been over 1,500 implementations, cementing Gempay's position as the UK's leading forecourt payment terminal.
Under the trusted brand HTEC, the Group has supported customers for more than 30 years, with a combination of EPOS, payment and loyalty solutions. We continue to look for opportunities to broaden our product portfolio under a build, buy or collaborate strategy.
During the year, we installed our first self-check-out, featuring FingoPay, an innovative payment device allowing customers to pay by registering payment cards to finger vein records. In March 2018, a partnership agreement was signed with NetPay Merchant Services Limited which compliments and broadens our existing payment services offering, allowing us to be the single payment counterparty for our retailers. Universe continues to look for value creating acquisition opportunities to expand and broaden the business.
Staff
2017 was an extremely busy year for Universe and could not have been achieved without the creativity, determination and dedication of our people and for this we thank them.
Summary and outlook
Universe continued to move forward during 2017 with the production and roll out of our next generation EPOS solution and latest payment terminal, Gempay 3. As reported earlier in the year however, the Group's financial performance in 2017 was affected by delays in a small number of customer deployments. Our cost base was also intentionally increased as we invested in further technical development activity and sales personnel to assist with our new product launches.
We successfully completed EPOS implementations with major customers, including 70 installations for leading petrol forecourt operator, Rontec. Gempay 3 was launched on time in October 2017 and to date there have been over 1,500 implementations, cementing Gempay's position as the UK's leading forecourt payment terminal.
We have had a solid start to 2018 with a two-year contract extension with a large food retailer client as well as the prospect of new business from a major international forecourt operator with whom we have not traded before. Our pipeline remains solid and supports our budgeted turnover, with the exception of the significant uncertainty regarding our contract with Conviviality, which represents approximately £2 million of our pipeline revenue for the current financial year.
Opportunities continue to materialise with existing customers for our next generation EPOS, payment, and loyalty solutions reflecting the strong and loyal relationships we have, and the strength of our products. The take-up of next generation products and feed-back from customers bodes well for the future.
Andrew Blazye
Non-Executive Chairman
10 April 2018
Extracts from the Strategic Report
Principal activity
The Group designs, develops and supports point-of-sale, payment and loyalty solutions and systems for the UK petrol forecourt and convenience store markets. These can be provided as a comprehensive, fully-managed offering or as discrete products, according to customer needs.
The Group's activities generate four distinct revenue streams from:
· Software licences and hardware: this income stream comes from the sale of products, such as our point-of-sale and back office systems. The enlargement of our existing customer base brings new revenues but also typically adds additional, recurring revenues from support contracts. In addition to securing new customers, there are regular opportunities to refresh the products on existing customer estates.
· Service and installations: the sale of our software and hardware products typically leads to an additional, recurring revenue stream through the provision of support services, and customer installations. We provide industry‑leading customer service levels, with 24-hour helpdesk support, a nationwide field service and a specialised repair and refurbishment team, all of which help to promote close, long term customer relationships.
· Data services: our data centres, which accept, process, store and transmit credit card information are accredited at the highest level of the Payment Card Industry ("PCI") standards. Our data centres also maintain and support hosted solutions for our cloud‑based products covering management information, loyalty and as an agent for payment processing. They deliver high uptime and excellent transaction processing speeds to a growing customer base.
· Consultancy and software maintenance: two software development teams provide product development, consultancy services and product support to customers, with the teams focused respectively on products and hosted solutions.
Across each of these revenue streams, innovation and high levels of customer care are central to the Group's success.
Organisational overview
The Group's business is directed by the Board and managed by the Executive Directors, led by Chief Executive, Jeremy Lewis. A Senior Management Team, comprising the Chief Executive, the Chief Financial Officer, the HTEC Limited Managing Director and Senior Executives, is responsible for Sales, Operations, Human Resources, Development and Data Centres. There are two Non-Executive Directors.
The main operating entity is HTEC Limited.
Strategy and business plan
We intend to increase shareholder value by being the leading solutions partner to retailers in our chosen verticals, supplying customers with our market-leading, innovative systems for point-of-sale, payment and loyalty operations. These systems are real-time, mission-critical and data rich, and our customers rely on us to keep them trading at all times. Accordingly, effective and efficient support, from our data centre teams, field force and helpdesk professionals, remains a core part of what we do.
Opportunities to acquire new businesses are reviewed on a regular basis, in particular where they may assist in extending our penetration within addressable markets, adding complementary technology or broadening our geographic reach. During 2017, the Board considered several significant opportunities in detail but chose not to further progress them since they did not meet our value delivery criteria.
Business and product development
2017 was a continuation of 2016 in terms of the preparation of our next generation products for deployment to fuel and convenience customers. Pilots continued to run throughout the year and significant roll-outs were completed, including the successful implementation of our next generation point of sale product Europa, back office product Callisto and head office product Jupiter, in 70 sites for the major fuel retailer, Rontec. Whilst we have successfully installed our next generation EPOS solution across many sites now, we experienced delays in one case. During the year, we also increased our sales, marketing and product management efforts so that we are well placed to increase penetration into our core sectors of petrol forecourts and convenience stores.
As well as the development of our next generation EPOS solution, we also completed and launched on time, our third-generation payment solution, Gempay 3, which was launched in the second half of 2017 and we have now completed over 1,500 installations.
In addition to our core products and as part of our strategic ambition to be a one-stop-shop for fuel and convenience retailers, we continued to work on and market several add-on products, which will be used to enhance our core EPOS offering. These include:
· Iocaste, a cloud‑hosted content management system that provides central control of store‑based media screens and allows reactive advertising by the retailer;
· self-checkout solutions from the market‑leading suppliers. These are fully integrated with our point-of-sale systems and provide retailers with greater flexibility in the way they serve their customers; and
· tobacco‑dispensing units linked to our point-of-sale system. These will greatly facilitate the sale of tobacco following the new plain packaging legislation, that came into effect in 2017.
Financial review
Profit and loss
Revenues for the year were marginally down to £19.62 million (2016: £19.71 million). Revenues were impacted by implementation delays, in a single large customer, resulting in revenues from software licences and hardware being down 20.6% to £3.70 million (2016: £4.66 million). This drop was mitigated by a robust performance in service and installations which were up 9.4% to £7.90 million (2016: £7.22 million) following the installation of over 1,500 Gempay 3 terminals in the second half of the year and revenues from consultancy and licence maintenance, which includes development and loyalty platform revenues up 4.0% to £3.99 million (2016: £3.84 million). Data services revenues, which include revenues from our hosted EPOS and payment platforms were flat at £4.04 million (£4.00 million).
Historically, our gross margin has included the cost of research and development. Research and development is not however dependent on revenues and therefore not a true cost of sale. As a result, and as is customary with most other software companies, this expense has now been included in administrative expenses. Following this reclassification, gross profit margin is consistent with the prior year at 47.6% (2016: 48.0%). Included in gross margin is £2.56 million of third party EPOS specific hardware, representing 13.0% of revenues (2016: £2.78 million representing 14.1% of revenues).
Administrative expenses (which now include the expensed cost of research and development) were up £1.04 million in the year to £8.46 million (2016: £7.42 million). £0.40 million of the increase related to exceptional costs associated with senior management changes and £0.35 million due to the increase in expensed research and development at £2.94 million representing 15.0% of revenues (2016: £2.59 million representing 13.1% of revenues). During the year, the Group also continued to invest in its sales, marketing and product management teams to capitalise on the investment in our new EPOS product suite.
Earnings before interest, taxes, share-based payments, depreciation and amortisation ('adjusted EBITDA') was £2.77 million (2016: £3.77 million), adjusting in particular for the exceptional charges of £0.40 million relating to senior management changes. Operating profit reduced to £0.88 million (2016: £2.04 million).
Net finance expense was £0.10 million (2016: £0.03 million). This is up on the prior year, benefiting from a £0.08 million credit arising from the release of an over-provision of contingent consideration payable as a result of the acquisition of Indigo Retail Holdings Limited in 2013.
The underlying tax charge for the period was £0.15 million (2016: £0.18 million) resulting from a £0.09 million credit relating to a prior period being offset by a £0.24 million charge linked to a movement in the deferred tax balance. No corporation tax is payable for the 2017 trading performance. Earnings per share for the year were 0.27p (2016: 0.79p).
Cash flow and financing
Adjusted EBITDA (see note 3) decreased to £2.77 million (2016: £3.77 million).
Working capital requirements reduced the net cash inflow from operations to £1.61 million (2016: £2.36 million), as sales were somewhat concentrated in the final two months of the year.
Investment in capitalised product development increased significantly in 2017 to £1.42 million (2016: £0.99 million). A large proportion of this was spent on our next generation EPOS solutions, including the point of sale, back office and head office products, as well as integration to self-check outs, payment devices and payment and loyalty platforms and other third-party retail devices. We continued to develop the Iocaste content management system and this product is now in pilot with a number of customers.
The net cash inflow from operating activities helped to fund product development; a £0.35 million investment in fixed assets (2016: £0.40 million); £0.06 million covering the final balance of deferred and contingent consideration on the two recent acquisitions (2016: £0.35 million) and £0.31 million of finance lease capital repayments (2016: £0.59 million).
Cash on the balance sheet at the year-end stood at £2.89 million (2016: £3.41 million) and after deducting debt of £1.03 million (31 December 2016: £1.29 million), net cash at the year-end was £1.86 million (31 December 2016: £2.11 million).
Summary
We are always very aware that the systems we provide to our clients are mission critical and geared to helping them improve service and profitability. 2017 was a year of investment and new product releases which have been well received and we look to capitalise on this work in 2018.
Jeremy Lewis
Chief Executive Officer
10 April 2018
Consolidated Statement of Total Comprehensive Income
For the year ended 31 December 2017
|
2017 £'000 |
2016 £'000 |
|
|
|
Continuing operations |
|
|
Revenue | 19,622 | 19,712 |
Cost of sales | (10,291) | (10,252) |
|
|
|
Gross profit | 9,331 | 9,460 |
Administrative expenses | (8,455) | (7,418) |
|
|
|
Operating profit | 876 | 2,042 |
Finance income | 11 | 99 |
Finance expense | (108) | (131) |
|
|
|
Profit before taxation | 779 | 2,010 |
Taxation |
(145) |
(175) |
|
|
|
Profit and total comprehensive income for the year |
634 |
1,835 |
|
|
|
Earnings per ordinary share |
|
|
Basic earnings per share | 0.27p | 0.79p |
|
|
|
Diluted earnings per share | 0.26p | 0.76p |
|
|
|
Consolidated Statement of Changes in Equity
For the year ended 31 December 2017
| Share capital £'000 | Capital redemption reserve £'000 | Share premium £'000 | Merger reserve on acquisition £'000 | Translation reserve £'000 | Profit and loss £'000 | Total equity £'000 |
|
|
|
|
|
|
|
|
At 1 January 2016 | 2,313 | 4,588 | 13,062 | 2,269 | (225) | (1,467) | 20,540 |
Profit and total comprehensive income for the year | - | - | - | - | - | 1,835 | 1,835 |
Issue of share capital | 3 | - | - | - | - | - | 3 |
Share based payments | - | - | - | - | - | 116 | 116 |
| ________ | ________ | ________ | __________ | _________ | _____ | _______ |
At 31 December 2016 | 2,316 | 4,588 | 13,062 | 2,269 | (225) | 484 | 22,494 |
|
|
|
|
|
|
|
|
At 1 January 2017 | 2,316 | 4,588 | 13,062 | 2,269 | (225) | 484 | 22,494 |
Profit and total comprehensive income for the year | - | - | - | - | - | 634 | 634 |
Issue of share capital | 6 | - | - | - | - | - | 6 |
Share based payments | - | - | - | - | - | 27 | 27 |
|
|
|
|
|
|
|
|
At 31 December 2017 | 2,322 | 4,588 | 13,062 | 2,269 | (225) | 1,145 | 23,161 |
|
|
|
|
|
|
|
|
Consolidated Balance Sheet
As at 31 December 2017
| 2017 £'000 | 2016 £'000 |
Non-current assets |
|
|
Goodwill and other intangible assets | 13,912 | 13,947 |
Development costs | 3,447 | 2,745 |
Property, plant and equipment | 2,074 | 2,384 |
|
|
|
| 19,433 | 19,076 |
|
|
|
Current assets |
|
|
Inventories | 1,409 | 1,084 |
Trade and other receivables | 5,554 | 5,151 |
Cash and cash equivalents | 2,885 | 3,408 |
|
|
|
| 9,848 | 9,643 |
|
|
|
Total assets | 29,281 | 28,719 |
|
|
|
Current liabilities |
|
|
Trade and other payables | (4,560) | (4,448) |
Current tax liabilities | - | (136) |
Borrowings | (652) | (686) |
Contingent consideration | - | (55) |
|
|
|
| (5,212) | (5,325) |
|
|
|
Non-current liabilities |
|
|
Borrowings | (377) | (608) |
Deferred tax | (531) | (292) |
|
|
|
| (908) | (900) |
|
|
|
Total liabilities | (6,120) | (6,225) |
|
|
|
Net assets | 23,161 | 22,494 |
|
|
|
Equity |
|
|
Share capital | 2,322 | 2,316 |
Capital redemption reserve | 4,588 | 4,588 |
Share premium | 13,062 | 13,062 |
Merger reserve | 2,269 | 2,269 |
Translation reserve | (225) | (225) |
Profit and loss account | 1,145 | 484 |
|
|
|
Total equity | 23,161 | 22,494 |
|
|
|
Consolidated Cash Flow Statement
For the year ended 31 December 2017
| 2017 £'000 | 2016 £'000 | |
Cash flows from operating activities: |
|
| |
|
|
| |
Profit before tax | 779 | 2,010 | |
Depreciation and amortisation | 1,463 | 1,613 | |
Share based payments | 27 | 116 | |
Net finance expense | 97 | 32 | |
|
|
| |
| 2,366 | 3,771 | |
Movement in working capital: |
|
| |
Increase in inventories | (325) | (203) | |
Increase in receivables | (407) | (855) | |
Increase in payables | 116 | 3 | |
Interest paid | (97) | (102) | |
Tax paid | (42) | (259) | |
|
|
| |
Net cash inflow from operating activities | 1,611 | 2,355 | |
|
|
| |
|
|
| |
Cash flows from investing activities: |
|
| |
|
|
| |
Deferred and contingent consideration arising on the acquisition of subsidiary undertakings |
(55) |
(345) | |
Purchase of property, plant & equipment | (352) | (400) | |
Expenditure on product development | (1,417) | (993) | |
|
|
| |
Net cash outflow from investing activities | (1,824) | (1,738) | |
|
|
| |
|
|
| |
Cash flow from financing activities: |
|
| |
Proceeds from issue of shares | 6 | 3 | |
Repayments of obligations under finance leases | (316) | (592) | |
|
|
| |
Net cash outflow from financing | (310) | (589) | |
|
|
| |
|
|
| |
(Decrease)/increase in cash and cash equivalents | (523) | 28 | |
Cash and cash equivalents at beginning of year | 3,408 | 3,380 | |
|
|
| |
Cash and cash equivalents at end of year | 2,885 | 3,408 | |
|
|
| |
Notes
1. General Information
The financial information set out in this document does not constitute the Company's statutory accounts for 2016 or 2017. Statutory accounts for the years ended 31 December 2016 and 31 December 2017 have been reported on by the Independent Auditors. The Independent Auditors' Reports on the Annual Report and Financial Statements for each of 2016 and 2017 were unmodified, did not draw attention to any matters by way of emphasis and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.
Statutory accounts for the year ended 31 December 2016 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2017 will be delivered to the Registrar in due course, and will be available from the Company's registered office at George Curl Way, Southampton International Park, Southampton, SO18 2RX and from the Company's website www.universeplc.com.
The financial information set out in these results has been prepared using the recognition and measurement principles of International Accounting Standards, International Financial Reporting Standards and Interpretations adopted for use in the European Union (collectively "Adopted IFRSs"). The accounting policies adopted in these results have been consistently applied to all the years presented and are consistent with the policies used in the preparation of the statutory accounts for the period ended 31 December 2016. The principal accounting policies adopted are unchanged from those used in the preparation of the statutory accounts for the period ended 31 December 2016.
2. Turnover analysis
| 2017 £'000 | 2016 £'000 |
|
|
|
Software licences and hardware | 3,696 | 4,657 |
Service and installations | 7,896 | 7,218 |
Data services | 4,039 | 3,998 |
Consultancy and software maintenance | 3,991 | 3,839 |
|
|
|
| 19,622 | 19,712 |
|
|
|
3. Operating Profit and adjusted EBITDA
| 2017 £'000 | 2016 £'000 |
|
|
|
Operating profit | 876 | 2,042 |
Add back: |
|
|
Depreciation | 713 | 870 |
Amortisation | 750 | 743 |
Share based payments | 27 | 116 |
Exceptional costs related to management changes | 402 | - |
|
|
|
Adjusted EBITDA | 2,768 | 3,771 |
|
|
|
4. Segment information
The Group has only one business segment, 'htec Solutions'. All material operations and assets are in the UK.
| Solutions 2017 £'000 | Corporate 2017 £'000 | Total 2017 £'000 |
|
|
|
|
Revenue - all external | 19,622 | - | 19,622 |
|
|
|
|
Gross profit | 9,331 | - | 9,331 |
Segment expenses | (8,120) | (335) | (8,455) |
|
|
|
|
Segment operating profit | 1,211 | (335) | 876 |
Unallocated items: |
|
|
|
Net finance expense |
|
| (97) |
Taxation |
|
| (145) |
|
|
|
|
Profit for the year |
|
| 634 |
|
|
|
|
| Solutions 2016 £'000 | Corporate 2016 £'000 | Total 2016 £'000 |
|
|
|
|
Revenue - all external | 19,712 | - | 19,712 |
|
|
|
|
Gross profit | 9,460 | - | 9,460 |
Segment expenses | (6,794) | (624) | (7,418) |
|
|
|
|
Segment operating profit | 2,666 | (624) | 2,042 |
Unallocated items: |
|
|
|
Net finance expense |
|
| (32) |
Taxation |
|
| (175) |
|
|
|
|
Profit for the year |
|
| 1,835 |
|
|
|
|
5. Earnings per share
The calculation of the basic and diluted earnings per share is based on the following data:
| 2017 £'000 | 2016 £'000 |
|
|
|
Profit for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the parent
|
634 |
1,835 |
|
|
|
| 2017 Number '000 | 2016 Number '000 |
Number of shares |
|
|
Weighted average number of ordinary shares for the purposes of basic earnings per share and operating profit per share | 231,860 | 231,348 |
|
|
|
Weighted average number of ordinary shares for the purposes of diluted earnings per share | 239,719 | 241,553 |
|
|
|
|
|
|
At the year end the Group had in issue 232,223,935 ordinary shares of 1p each (2016: 231,598,935 ordinary shares of 1p each).
6. Material non-cash transactions
During the year the Group entered into £381,000 (2016: £685,000) of finance leases for plant and equipment.
These transactions are not reflected in the cash flow statement.
7. Report and Accounts
Copies of the Annual Report and Accounts will be sent to shareholders in April 2018 and copies will also be available, free of charge, from the Company's registered office at George Curl Way, Southampton SO18 2RX and from the Company's website www.universeplc.com.
8. Annual General Meeting
The Company's Annual General Meeting is scheduled for 26 June 2018, notice of which will be sent to shareholders in May 2018.