Final results for the year ended 31 December 2013

Universe Group plc

("Universe", the "Group" or the "Company")

Final results for the year ended 31 December 2013

Universe Group plc (AIM: UNG.L), a leading developer and supplier of point of sale, payment and loyalty systems, is pleased to announce today its audited results for the year ended 31 December 2013.

Highlights

· Strong growth in revenue and profits

· Two strategic acquisitions in the year successfully completed

· Sales up 34% to £15.87m (2012: £11.85m)

· Underlying sales up 19% before benefit of acquisitions

· Operating profit up 10% to £1.35m (2012: £1.23m)

· PBT on continuing operations up 19% to £1.20m (2012: £1.01m)

· Adjusted EBITDA up 16% to £2.50m (2012: £2.15m)

· Statutory retained profit of £1.33m (2012: £0.82m)

· Basic EPS up 14% to 0.66p (2012: 0.58p)

· Cash invested in new products and acquisitions £1.82 million (2012: £0.92 million)

Robert Goddard, Chairman of Universe, commented:

"Double-digit growth in sales, operating profit and profit before tax arose from a pleasing combination of organic growth, acquisitions and a high level of project work.

Our customers are investing in their businesses and continuing to develop the programmes that we manage for them. The confidence that they have shown in HTEC, in turn gives us confidence in the further profitable growth of the Group."

Yet again, our thanks our due to are staff for their determination, loyalty and innovation."

For further information:

Chairman's Statement

Introduction

I am pleased to present the results for 2013, a year that has seen significant developments within the Group, including two acquisitions, a new Chief Executive Officer and another strong trading performance.

Highlights

A double digit growth in sales, operating profit and profit before tax has been the result of a combination of organic growth, acquisitions and a high level of project work. Our customers are investing in their businesses and are continuing to develop the programmes we manage for them.

The acquisitions of Indigo Retail Holdings Limited ('Indigo') and the trade of Retail Service Team Limited ('RST') provided access for the Group to new products and markets, and expanded its customer base; something that has been an aspiration for some years. The Indigo acquisition broadened our capabilities in our existing markets and extended our reach into both existing markets and the expanding convenience store market, where we were less well established. The RST acquisition expanded our footprint into general retail and provides opportunities for improving margins in the servicing part of our business.

The appointment of Jeremy Lewis as our new Chief Executive marks a significant milestone in the Group's development, as we move from rebuilding and enhancing capability, to a phase of exploiting the strong foundations now in place. Innovation will continue, as we build on our product portfolio and integrate new technologies.

2013 was intended to be a transformational year involving the acquisition and development of new products. This proved to be the case. A particular success was the market acceptance of our GemPAY payment terminal and this has secured long-term service revenues on forecourts that we have served for many years.

Staff

The dedication and skill of our staff has been central to the successes in 2013. They have continued to deliver high quality products and customer service. The acquisitions have brought new colleagues into the Group, all of whom have contributed significantly. We would like to extend our thanks to all staff for their hard work and efforts during the year. It is recognised and much appreciated. 

Outlook

During the year, the Group has invested substantially in new products and upgrading existing ones. At the same time it has delivered high volumes of project work to its existing customers. The large scale deployment of GemPAY was a significant success and further adoption is expected in 2014. Our challenge will be to keep delivering on the current projects and at the same time introduce our expanded offering to our newly‑expanded customer base.

The acquisitions of Indigo and RST have brought new skills, products and opportunities to the Group. Integration of Indigo is complete and the process of integrating RST is underway. We will continue to review opportunities for further acquisitions. 

The high level of project work in 2013 may not be repeated in 2014. However, with a full year of trading from the acquisitions, we still expect to see growth in turnover and further strengthening of the business.

Significant change is still underway in the petrol and convenience store markets. This presents both an opportunity and a challenge, but with our range of customers, market-leading products and stronger teams, we believe we are well placed to benefit from the changes.

Robert Goddard, Chairman

4 April 2014

Extracts from the Strategic Report

Principal activity

The Group provides point of sale, payment and loyalty solutions primarily into the UK petrol forecourt market and with an increasing presence in convenience store and general retail. The Group's model is to implement fully-managed payment or loyalty solutions, together with highly responsive ongoing support.

Organisational overview

The Group's business is directed by the Board and managed by the Executive Directors, led by the Chief Executive. There is a small senior management team comprising the Chief Executive, Chief Financial Officer and senior executives covering Sales and Marketing, Operations, Projects and Development.

The main operating entity is HTEC Limited and during the year two acquisitions were added to the Group. Indigo was acquired in May 2013 and shortly after fully integrated into operations. In November a new operating subsidiary, HTEC Retail Services Limited ('HRS') was created and absorbed the trade of RST. HRS and its employees will be a key part of the Group's project and service delivery operations.

Financial Results

Profit and loss

Sales from the underlying HTEC business for the year to 31 December 2013 increased by 19% to £14.08m (2012: £11.85m). The two acquisitions added a further £1.79m to that and helped push the Group's sales for the second half to £9.28m, 41% ahead of the first half. The main reasons for the increase is the continuing high levels of project work from existing customers, and the successful deployment of our GemPAY payment terminal. In all over 800 terminals were deployed in 2013 and we have confirmed orders for a further 1,000 in 2014.

Mix of business and pressure on service margins contributed to a decline in the gross profit margin, down to 35% from 37% in the prior year. Gross profit was up 26% to £5.48m (2012: £4.37m). Administrative expenses increased to £4.14m (2012: £3.14m) as planned investments in sales and marketing were made and enhanced by the sales teams from the acquisitions.

Operating profit for the year increased to £1.35m, up 10% on the prior year (2012: £1.23m). After reduced finance costs of £0.15m, which were 32% down on the prior year (2012: £0.22m), profit before tax on continuing operations showed a 19% increase year-on-year to £1.20m (2012: £1.01m).

The Group continues to benefit from tax losses brought forward and this helped profit after tax to rise to £1.33m (2012: £1.01m) due to the recognition of a £0.18m deferred tax asset.

Basic earnings per share improved to 0.66 pence from 0.58 pence in 2012.

Cashflow and financing

Adjusted EBITDA rose by 16% to £2.50m (2012: £2.15m). This supported net cash inflow from operating activities of £2.07m (2012: £2.08m).

The principal use of cash in 2013 was investment, both in existing products and in acquisitions. We spent £0.69m on acquisitions, with the balance of the Indigo purchase funded through deferred and contingent consideration payable over the next three years. The acquisitions increased the balance of goodwill and related intangible assets by £3.30m, on which annual amortisation of £0.23m will be charged, and contributed to the increase in our capitalised development costs, which rose by £0.63m.

In addition we invested a further £0.73m into our product portfolio, including further enhancements to our new outdoor payment terminal and EFT platforms, both of which are on pilot with one of our major customers. We refreshed the loyalty platform for another of our major customers, as they introduced this programme into more territories. This necessitated the upgrade of the associated computer hardware, contributing to the £0.54m increase in hardware fixed assets. The investment in fixed assets was funded by a mixture of cash and new finance leases.

Cash outflow for the year was £0.16m, leaving a year-end balance of £0.98m.

Strategy and Business Model

Universe is an innovative technology company delivering proprietary cloud based software into some of the world's leading companies. The technology is deployed in mission-critical applications in retail environments and so two of our main corporate principles are product innovation and excellent customer service.

We continue to invest in our existing products and services to ensure that they are best-in-class and constantly evolve to meet the stringent demands of the international payment markets; as well as our customers' own high expectations. At the same time, we remain alert to new payment and loyalty offerings such as improved data analytics, mobile payments/loyalty and e-receipts. Product development programs for these projects are in place.

All of our customers rely on us to keep them trading and so we are always conscious of the extreme importance of meeting their needs in an effective, efficient and timely manner. Our data centre teams, field force and helpdesk professionals remain at the heart of our offering as we look to build multi-year partnerships with our customers.

The above approach has driven growth in 2013 and will continue to underpin expected growth this year and beyond. Core drivers of this are the selling of the updated product and service sets into the existing customer base and expanding with those customers as they increase their estates. In addition, we look to take market share as well as reaching new vertical markets, particularly in the convenience store environment where the acquisition of Indigo and RST have provided additional market reach and strength.

In the year we examined a number of business opportunities overseas and we will continue to keep these under review. Given our size, any overseas expansion is likely to be with existing customers or with collaboration partners or both. From time to time we become aware of further acquisition opportunities. We look at these critically and pursue only those where the technology, pricing and time-to-market make them compelling.

Business and Product Development

Since 2012 we have been working towards our target of a fully refreshed product set. To a large extent that work is complete and it has been pleasing to see that all our major product developments have growing acceptance among our customers.

GemPAY has found wide acceptance, and an enhanced version, GemPAY2, has already been launched to further expand the reach of this technology. The new outdoor payment terminal is gaining acceptance and significant orders for it are expected this year. The new EFT platform is now on pilot with a major supermarket customer and is in the process of further enhancement to meet the requirements of other markets. There are a number of opportunities for this to be deployed during 2014. In addition, we now have plans to pilot our new data analytics and e-receipts products this year.

Summary

The rebuilding of the Group over the past few years has seen a refreshed product set and that has provided greater access to our chosen markets. The significant improvement in financial performance is testament to this. The recent acquisitions and new products are now giving us access to new customers, market verticals and geographies. We have a leading market position and best-in-class products so are well positioned to take advantage of further opportunities, whilst being ever mindful of the need to innovate and consistently meet customers' demand for high service levels.

Jeremy Lewis, Chief Executive Officer

4 April 2014

Consolidated Statement of Total Comprehensive Income

For the year ended 31 December 2013

Consolidated Statement of Changes in Equity

For the year ended 31 December 2013

Consolidated Balance Sheet

As at 31 December 2013

Consolidated Cash Flow Statement

For the year ended 31 December 2013

Notes

1. General Information

The financial information set out in this document does not constitute the Company's statutory accounts for 2012 or 2013. Statutory accounts for the years ended 31 December 2012 and 31 December 2013 have been reported on by the Independent Auditors. The Independent Auditors' Reports on the Annual Report and Financial Statements for each of 2012 and 2013 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 2012 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2013 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 preliminary 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 preliminary 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 2012. The principal accounting policies adopted are unchanged from those used in the preparation of the statutory accounts for the period ended 31 December 2012.

2. Operating Profit and EBITDA before exceptional items

3. Segment information

The Group now has only one business segment, 'HTEC Solutions'. All material operations and assets are in the UK. 

4. Earnings per share

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

At the year end the Group had in issue 211,530,626 ordinary shares of 1p each (2012: 187,530,626 ordinary shares of 1p each)

5. Cash flows from operations

Material non-cash transactions

During the year the Group entered into £842,000 (2012: £947,000) of finance leases for plant and equipment. These transactions are not reflected above.

6. Discontinued Activities

On 20 December 2012 the Group sold the trade and fixed assets of its Contract Electronic Manufacturing business for a total consideration of £65,000. The incoming funds (net of costs) of £52,000 were added to the Group's working capital.

7. Report and Accounts

Copies of the Annual Report and Accounts will be sent to shareholders in May 2014 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 24 June 2014, notice of which will be sent to shareholders next month.