Final Results

Universe Group PLC

("Universe" or the "Group")

Preliminary results for the year ended 31 December 2010

Universe Group PLC (AIM: UNG.L) the AIM listed retail and loyalty systems group today announces its audited preliminary results for the year ended 31 December 2010.

Highlights

·; Revenue down 10.1% to £11.29 million (2009: £12.56 million)

·; Gross margin percentage increased to 40.5% (2009: 37.4%) driven by improved sales mix and cost reductions

·; Profit before tax from continuing operations of £0.27 million (2009: profit of £0.15 million)**

·; Operating profit from continuing operations up 8% to £0.58 million (2009: £0.54 million)*

·; EBITDA from continuing operations down 1.7% to £1.86 million (2009: £1.89 million)*

·; Statutory retained loss of £0.90 million (2009: loss of £0.50 million) after loss on discontinued operations

* After exceptional costs of £0.23 million, mainly comprising restructuring costs (2009: After exceptional costs of £0.46 million mainly comprising restructuring costs).

** After exceptional costs of £0.23 million, mainly comprising restructuring costs (2009: After exceptional costs of £0.56 million mainly comprising restructuring costs).

Unless specified otherwise, all references to adjusted operating profit and adjusted profit before tax throughout this announcement exclude the exceptional costs disclosed in * above.

John Scholes, Chairman of Universe, commented: 

"Profitability from the continuing businesses has held up despite the fall in turnover, as cost control measures have enabled us to grow our profit before taxation by 73% year on year. Investment in business and product development has continued throughout 2010 in order to position Universe for success as business confidence recovers.

There are signs that the current year will benefit from an improved market environment. This year will also see the launch of our new payments and loyalty terminal, providing an upgrade path for our existing customers and the potential to attract business from the wider retail market.

Considerable interest in the new product range has already been received from a number of potential customers. Conversion of this interest into firm orders is the critical factor in enabling Universe to return to turnover growth and, consequently, to benefit from its reduced cost base."

For further information:

Chairman's Report

Introduction

The continuing economic difficulties again made 2010 a year when few, if any, new initiatives were launched by our customers. Nonetheless, improved demand in the core markets for Petrol Forecourt Services ("PFS") increased the turnover of our largest division during the year. This was counterbalanced by specific contractual effects in both Universe Data Systems ("UDS") and in Contract Electronic Manufacturing ("CEM"), resulting in an overall turnover reduction of 10.1% to £11.29 million (2009: £12.56 million).

Despite this reduction, gross profit fell by only 2.5% to £4.57 million (2009: £4.69 million) as a combination of the sales mix improvement strategy and the cost cutting measures effected in earlier years improved the underlying profitability of the Group. Operating profit from continuing operations after exceptional items grew by 8% to £0.58 million (2009: £0.54 million).

As previously announced, the JetSet operating subsidiary was divested in July 2010. After a promising start to its first year of trading in 2008, the economic crisis of that year prevented the division from reaching profitability. In an increasingly competitive market, further development of the business was not possible. JetSet has been treated as a discontinued activity in these results, and in the comparative information provided within this statement.

Results

The reduction in turnover was disappointing and does not reflect the business development efforts being made across the divisions. Turnover in PFS grew by 4% following higher demand from existing customers, and segment profitability grew by 27% reflecting an improved sales mix and improved contractual terms. This segment remains the core of the Group and we continue to expand our service offering to existing customers, and to introduce new customers to our existing products.

Turnover in UDS was impacted by the end of first year premium pricing from an existing contract. This was partially compensated for by a strong pipeline of work for extra developments, a trend that looks likely to continue into 2011. However there was an inevitable reduction in the gross margin achieved by UDS and consequently a significant reduction in the segmental result to £0.35 million (2009: £0.96 million). Whilst the Group has continued to invest in business development activities in this division, major new contracts have yet to come through.

CEM suffered the loss of a long running repairs contract which resulted in restructuring of the workforce and financial results that show a significant reduction in segmental profitability with the loss increasing to £0.26 million (2009: loss of £0.10 million). CEM continues to make a valuable contribution to the profitability of the PFS division and to the fixed overheads of the Group. The division has started to show significant progress in winning new customers resulting in turnover from the electronics manufacturing part of the division increasing by 55% in the second half of 2010. This growth trend is anticipated to continue into 2011.

With an improvement in the sales mix and improved operational efficiency, overall gross margin increased to 40.5% (2009: 37.4%), reducing the impact of the turnover decline. Operating profit before exceptional items fell to £0.8 million (2009: £1.0 million), a modest reduction given the £1.3 million decline in turnover, much of which was at especially high margin. 2010 saw limited restructuring costs, which were significant in 2009, and consequently operating profit after exceptional items showed a modest improvement.

EBITDA before exceptional items from the continuing operations was £1.86 million, 1.7% less than that achieved in 2009.

Cash generated from the continuing operations remained strong at £1.6 million (2009: £2.0 million). Debt repayments and debt service costs totalling £1.46 million were made and, in addition, £0.47 million of invoice discounting was repaid. Debt repayments are scheduled to fall in 2011 but will remain significant in the context of a Group trying to develop its products and explore new market opportunities.

Annual General Meeting

The share price of the Group has for a number of years been below the nominal value of the Group's shares, and this is a significant factor in preventing the Group from raising equity finance. As such the 5% authority for the issue of new share capital granted by shareholders at the 2010 AGM will go unused this year. To remove this artificial and unnecessary cap on fund raising at the 2011 AGM the Directors will be proposing the resolutions necessary to enable the nominal value of the Group's shares to be reduced to 1 pence.

Dividend

The level of debt repayments and the need to invest in products and business development limits the funds available to commence dividend payments. We will continue to review the position regarding future dividend payments as the Group progresses.

Outlook and Prospects

Profitability from the continuing businesses has held up despite the fall in turnover, as cost control measures have enabled the Group to grow its profit before taxation by 73% year on year. Investment in business and product development has continued throughout 2010 in order to position the Group for success as business confidence recovers.

Whilst this recovery was not seen in 2010, there are signs that the current year will benefit from an improved market environment. This year will also see the launch of our new payments and loyalty terminal, providing an upgrade path for our existing customers and the potential to attract business from the wider retail market.

Considerable interest in the new product range has already been received from a number of potential customers. Conversion of this interest into firm orders is the critical factor in enabling the Group to return to turnover growth and, consequently, to benefit from its reduced cost base.

John Scholes

Chairman

31 March 2011

Chief Executive's Report

In a year when HTEC, the Group's principal subsidiary celebrated its 30th year in business, trading continued in similar tough conditions to the prior year. HTEC again concentrated on improving profitability, cash flow and pursuing recurring revenue streams, as growth opportunities continued to be affected by capital expenditure freezes, especially in the Group's traditional markets serving oil companies and petrol retailers. The availability of growth capital at economic cost proved to be a significant restricting factor on HTEC's development aspirations. The Board's actions continue to improve profitability and cash flow and will ensure that full advantage can be taken in any future economic upturn.

The Group provides mission critical services to two of the UK's supermarket groups and four of the major oil companies, both in the UK and Europe. Currently the data centre handles £8 billion of transactions per year and has loyalty schemes with up to 14 million members operating in a real time environment.

Financial Performance Review and Key Performance Indicators

The disappointing fall in turnover reflected two particular non-recurring events: Contract Electronic Manufacturing saw a 41% reduction in turnover due to a long term contract ending and Universe Data Services revenue fell by 24%, being impacted by the elimination of premium rate first year pricing from a major contract. Set against this, there was growth in the Petrol Forecourt Systems division of 4%, reversing the prior year's downward trend. Despite the reduction in turnover, gross margins grew to 40.5% (2009: 37.4%), restricting the reduction in gross profit to 2.5%, at £4,573,000 (2009: £4,692,000).

Although costs remain tightly controlled, administrative expenses showed a 2% increase due to increased investment in business development expenditure. Operating profit before exceptional items fell to £808,000 (2009: £991,000) and with a reduction in exceptional items, profit before tax increased by 73% to £267,000 (2009: £154,000).

A £1,241,000 loss was recorded against discontinued activities causing the Group to record an overall loss for the year of £900,000 (2009: loss of £503,000). The loss from discontinued activities mainly related to the disposal of the JetSet business and included £462,000 of goodwill impairment, trading losses of £433,000 and a loss on disposal of £207,000.

The financial crisis which began in 2008 continued to seriously affect the viability of the JetSet business. The market became increasingly competitive as capital expenditure was cut back and asset finance to support machine placement was difficult to obtain and unreasonably expensive. It was not possible to install enough machines to get into profit and reluctantly the decision was taken to realise a sale and to remove a business risk. While a substantial loss was booked on the sale, the transaction removed liabilities of £625,000 from the balance sheet and allowed the Group to concentrate on more attractive data centre business.

The Group's challenge of transitioning to a focused software solutions provider for payment processing and loyalty is now clearer. While levels of cost remain under review at all times, the main foreseeable restructuring costs have now been incurred and Universe looks forward to a period of growth.

Strong EBITDA performance in the prior year was all but repeated in 2010, with £1,857,000 generated (2009: £1,889,000) demonstrating that progress continues to be made in improving operational cash generation. I firmly believe that this is not currently reflected in the share price and with falling debt, Universe and its shareholders are in a position to benefit from any economic upturn.

The Board will continue to monitor revenue change, operating profit, cash generation and customer satisfaction as key performance indicators. Service excellence has become an essential element in customer relationships with demands for improved service level agreement ('SLA') targets being widespread. Overall SLAs for 2010 were an excellent 97% (2009: 94%), well above contractual requirements.

Petrol Forecourt Systems (PFS)

The PFS business segment produced £2,087,000 (2009: £1,644,000) of segmental profit and remains the Group's largest and most profitable segment, with a return to turnover growth of 4%, after a prior year decline. This is a good performance in a depressed market segment. Recurring contract business is in excess of 70% of turnover.

The core solutions of the PFS business relate to the supply of point of sale (POS) payment systems and 'wet stock' management reporting.

HTEC has occupied a prominent position in the UK forecourt managed services market for a number of years and its systems currently run the petrol forecourts of two major supermarket chains. Over 33% of all UK forecourts have HTEC equipment integrated on-site, much of which is under long term contract. Development of the software continues, in order to improve functionality for the growing convenience store market, and to allow easier integration with other third party products.

HTEC has a wide range of end-to-end approvals to handle bank and fuel payment cards and will continue to be a market leader for this type of payment processing. HTEC's payment terminals are recognised as amongst the most secure within the industry, meeting the challenges posed constantly from card fraud criminals. Investment in the next generation payment terminal, which will begin roll out in 2011, has been carefully controlled to give a rapid payback to the Group.

New outdoor payment terminal (OPT) roll outs were affected, as capital expenditure plans were put on hold. Two prestigious contracts did roll out in 2010, a multilane system at Europe's biggest commercial vehicle filling station, based at Lymm in Cheshire and a prestigious fully unmanned site in Ireland. Our OPT technology is now opening up new markets related to airfields, marinas, commercial truck stops as well as unmanned stations.

Universe Data Systems (UDS)

The UDS division has been affected by the lack of available development capital and this has prevented the division from building on the success of the global real time loyalty system for a major oil company, which was launched in early 2009. Initial transaction revenues from that system were contractually at a premium first year rate, which has now significantly reduced. Consequently, the segmental reporting breakdown shows a fall in revenue of 24% for the year, to £2,351,000 (2009: £3,086,000), which in turn caused segmental profit to fall to £350,000 (2009: £959,000). The global recession has obviously influenced transaction volumes and slowed the geographic spread of the system.

Progress has been made during the year to establish UDS outside the petrol and oil industry. Partnerships and alliances with market specialists are continuing to introduce exciting new opportunities as UDS is positioned as a data handling platform in the extended loyalty and customer relationship management ('CRM') space, alongside payments processing.

Development funding has been an issue for this segment and in particular, two major projects are being undertaken, albeit in a restricted manner. A range of payment terminal applications is being developed on a best of breed, third party platform and the first product, GemPoints, was launched in December attracting considerable interest. Further products in the range are scheduled for release in 2011 and will form the basis of a push into wider markets. This development has been funded from internal resources. The second project, updating our Electronic Funds Transfer payments platform, requires finance from new investment to ensure speedy delivery and launch. The target is to release the new service in Q3 of 2011. This service is aimed at a large and growing market where our existing customer base and expertise will add to the new service proposal.

Contract Electronic Manufacturing (CEM)

The historic core business of HTEC, CEM, has over a number of years, played an important role in the success of the Petrol Forecourt Services division, whilst at the same time seeing a contraction in its own third party customer base. The ending of a significant third party service contract reduced turnover further, to £1,215,000 (2009: £2,056,000) and consequently increased the segmental loss to £258,000 (2009: loss of £97,000). However, the division continues to make a positive contribution to fixed overheads, and investment in sales promotion has seen a dramatic increase in the order book in the second half of 2010, signalling a welcome upturn for 2011. A number of new long term customers have been added and an improvement in results is anticipated in 2011.

Balance Sheet, Cash Flow, Banking Facilities and Going Concern

During 2010, the priority has been to continue to generate cash and to improve the debt repayment profile of the Group's borrowings. By the year end, net borrowings (debt less cash) had been reduced to £2.0 million (2009: £2.5 million), and net current liabilities had reduced by £710,000, to £790,000 (2009: £1,500,000). The repayment profile of the bank debt has improved significantly with capital repayments in the next year now reduced to £207,000 (2010: £760,000). Debt repayment (including finance leases) will remain a burden on the Group's cash flow in 2011, with scheduled capital repayments due of £509,000, but this debt repayment burden is falling and becoming increasingly manageable.

Continuing operations were significantly cash generative in 2010, generating £1.6 million, slightly down from the previous year (2009: £2.0 million). £703,000 of bank borrowing was repaid in the year and a further £474,000 was effectively repaid within the invoice discounting facility.

The Group still does not generate sufficient surplus funds to complete its investment needs in a timely fashion and growth will be held back until this is addressed.

During the year, the Group was able to negotiate a removal of all banking covenants. Compliance with the loan terms now rests on the ability to repay loan instalments as they fall due. The Directors have prepared financial forecasts for the business covering the 12 months from the date of this report and are confident that the repayment schedule will be satisfied and that the Group will be able to operate within its current banking facilities. As a result, the Directors have continued to adopt the going concern basis in preparing the financial statements.

Outlook

The strategy of the Board remains to grow and transform the Group from lower margin product sale and manufacturing activities, to a payments and loyalty software services business with associated recurring revenue. Dealing with the burdensome debt structure and having limited funding for investment has been a challenge. It is essential that when the economy comes out of recession, we are able to exploit opportunities and have new products ready. The Board will seek appropriate new investment to achieve this.

2011 sees us enter a year where the cost structure has been significantly improved by the actions taken during the last three years. The Group is now better placed to deliver growth and profitability but still needs to complete its product development pipeline to ensure success. 2011 will see further debt reduction and a push into the wider retail sector with our new payment and terminal processing systems, where initial market testing has created significant interest.

The sales pipeline for UDS continues to grow and strategic partnerships within the loyalty/CRM field are still generating significant new opportunities. A characteristic of this business remains the long and unpredictable sales cycle times. The PFS business is maintaining its market leading position and is seeing growth opportunities from its major customers, which have been absent for the last two years. As the market leader, we will deliver innovative new payment solutions during 2011 to maintain and build on this position.

Paul Cooper

Chief Executive Officer

31 March 2011

Consolidated Statement of Total Comprehensive Income

For the year ended 31 December 2010

Consolidated Statement of Changes in Equity

For the year ended 31 December 2010

Consolidated Balance Sheet

As at 31 December 2010

Consolidated Cash Flow Statement

For the year ended 31 December 2010

Notes

1. General Information

Whilst the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. The group intends to publish full financial statements that comply with IFRS.

The preliminary announcement has been prepared on the basis of the accounting policies as stated in the financial statements for the year ended 31 December 2010.

The financial information contained in the preliminary announcement does not constitute the Group's statutory results for the year ended 31 December 2010 or 2009 but is derived from those accounts. The above figures for the year ended 31 December 2010 and 2009 are an abridged version of the Group's audited accounts. The auditors have reported on these accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis; and did not contain any statements required under either s237(2) or s237(3) of the Companies Act 1985 or s498(2) or s498(3) of the Companies Act 2006. The full annual report and accounts will be posted to shareholders and the Annual General Meeting is due to be held on 9 June 2011. The statutory accounts for 2010 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

This preliminary announcement was approved by the board on 31 March 2011 and is available on the Company's website, www.universeplc.com.

2. Operating Profit and EBITDA before exceptional items and discontinued activities

3. Segment information

The Group now has three business segments. All material operations are in the UK. The three trading divisions are: Universe Data Services, Contract Electronic Manufacturing and Petrol Forecourt Solutions. Further information is presented below on a divisional basis.

4. Exceptional items - Continuing operations

5. Loss per share from continuing operations

The calculation of the basic and diluted loss per share is based on the following data:

6. Discontinued activities

The loss from discontinued operations comprises losses arising from the following operations:

Details of these transactions are set out below:

Disposal of Jet Set Wash Systems Limited

On 23 July 2010 the Group sold its interest in Jet Set Wash Systems Limited for a total consideration of £380,000 with £80,000 of that consideration deferred until 2011 and subject to a net assets adjustment. The incoming funds (net of costs) of £275,000 were immediately used to repay bank debt.

The comparative income statements have been restated to reflect the composition of the discontinued activities at the latest balance sheet date.

The results of the JetSet business unit included within the Consolidated Statement of Total Comprehensive Income were as follows:

Disposal of Bellword SAS in 2006

The disposal of the Bellword SAS business in 2006 gave rise to contingent consideration of £50,000 falling due in 2010. Finalisation of the contingent consideration gave rise to a £14,000 cash inflow in 2010 and consequent loss on disposal of £36,000.

Closure of Prepaid Card Management Limited in 2010

The failure of this joint venture to secure significant sales orders led to a cessation of operations and provision against the investment of £58,000 incurred during the Company's inception in 2007.

7. Cash flows from operations

8. Report and Accounts

Copies of the Annual Report and Accounts will be sent to shareholders in May 2011 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.