Final Results

17 April 2019

AIM: UNG.L

Universe Group plc

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

FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2018

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 2018.

Highlights

· Results in line with Trading Update given in September 2018

· Total revenues of £19.89 million (2017: £19.62 million)

· Gross profit margin steady at 48.2% (2017: 47.6%)

· Adjusted EBITDA £2.65 million (2017: £2.37 million)

· Operating profit £0.91 million (2017: £0.88 million)

· Profit after tax £0.80 million (2017: £0.63 million)

· Statutory diluted earnings per share 0.33p (2017: 0.26p)

· Net cash at year end £1.92 million (31 December 2017: £1.86 million)

· Gempay 3 installed base now 2,930 devices

· New customer wins for payment processing services e.g. Euro Garages

· Launched partnerships with P97 and Ubamarket in the fields of mobile and in-car marketing and payment solutions and in-store scan-and-go applications

· Absorbed impact and still grew revenues following the well-known demise of customer, Conviviality Plc, and the loss of a planned £2.0 million point of sale installation

· Post year-end on 3 April 2019, acquired Dublin based Camden Technology Investments Limited trading as Celtech, a class-leading developer of cloud-based retail and wholesale management solutions, for £4.96 million

Andrew Blazye, Non-Executive Chairman of Universe, commented:

"We have had another profitable year, with continued successful implementation of our current product range. As an example, our new payment terminal Gempay 3, now has an installed base of 2,930 terminals.

It was also a year of new customer acquisitions. For example, the success of the Gempay 3 payment terminal and our payment processing services in the UK resulted in Universe winning Euro Garages as a new customer. This roll out, involving over 370 forecourts in the UK, is near completion. In total this customer now has 540 Gempay 3 terminals installed and payment transaction volumes in excess of 3 million per month passing through our payment switch. Euro Garages has a well-deserved, global reputation for innovation and we are delighted to be making a contribution to their success.

During the year, we have secured important contract extensions from existing customers, won new customers and completed a number of strategic partnerships. The Group remains profitable and cash generative, with a high level of recurring revenues and strong cash reserves. We continue to invest in the business with key hires and significant product innovation, which will have clear benefits over the longer term.

Supported by the strategic acquisition of Celtech and our new partnerships, we are confident the Group is well positioned for significant growth in 2019 and beyond."

For further information:

CHAIRMAN'S STATEMENT

Introduction

I am pleased to announce our results for the year ended 31 December 2018.

We have had another profitable year, with continued successful implementation of our current product range. As an example, our new payment terminal Gempay 3, now has an installed base of 2,930 terminals.

It was also a year of new customer acquisitions. For example, the success of the Gempay 3 payment terminal and our payment processing services in the UK resulted in Universe winning Euro Garages as a new customer. This roll out, involving over 370 forecourts in the UK, is near completion. In total this customer now has 540 Gempay 3 terminals installed and payment transaction volumes in excess of 3 million per month passing through our payment switch. Euro Garages has a well-deserved, global reputation for innovation and we are delighted to be making a contribution to their success. 

Unfortunately, the Group was negatively impacted at the start of 2018 with the well-known demise of our customer, Conviviality Plc and the loss of the planned £2 million point of sale installation with them. We worked hard to absorb the negative effects of this unexpected event and are pleased with the modest growth in Group revenues in the year despite this.

The Group achieved revenues of £19.89 million (2017: £19.62 million) following stronger performances in both our service and installations division and our consultancy and licence division. Gross margin was marginally up to 48.2% (2017: 47.6%) and profit before tax was marginally up to £0.84 million (2017: £0.78 million). Statutory diluted earnings per share was up 26.9% to 0.33p (2017: 0.26p).

Net cash remained strong, ending the year at £1.92 million (2017: £1.86 million).

Overview

Universe has always worked with a "build, buy or collaborate" strategy. During the year we were pleased to announce an important strategic partnership with P97 Networks Inc ("P97"), a leader in cloud-based mobile commerce, in-vehicle payments and digital marketing solutions, as an extension to our existing payment product range. Universe will now also offer P97's mobile commerce platform, helping consumers pay-at-pump on mobiles and retailers increase basket size and purchase frequency through targeted digital offers and secure mobile commerce.

In October 2018, Universe also launched its in-store scan- and- go app in partnership with Ubamarket. The Group has integrated this new functionality into its EPOS solutions, to offer an end-to-end shopping experience which is now accessible for the convenience store market.

During the year, we also strengthened our management team with the appointment of an experienced Chief Technology Officer as well as a new Sales and Marketing Director.

Following the year end, and of particular note, on 3 April 2019, the Company acquired Camden Technology Investments Limited and its subsidiaries, each trading as Celtech, for a total consideration of £4.96 million.

Celtech is a class-leading developer of cloud-based retail and wholesale management solutions ("RMS"). This acquisition will allow the Company to offer the very latest in RMS technologies to existing and new customers and extends the Group's product offering into wholesaling and new geographies such as Ireland. Celtech develops and sells its RMS, called "ab-initio", to wholesale and retail customers in the UK and Ireland with customers including Bestway, One Stop and various co-ops across the UK. The deal was funded out of the Group's existing cash resources and £5.00 million of new banking facilities from HSBC.

In line with our market strategy, we are constantly looking for ways to leapfrog competitive service offerings by making financially prudent acquisitions. Beyond Celtech, which will bring an industry leading RMS capability, we would not preclude making further acquisitions, should these conform to our criteria and represent further opportunities to increase speed to value.

Staff

It was an extremely busy year for Universe and our progress could not have been achieved without the creativity, determination and dedication of our people. For this we thank them.

Summary and outlook

Although at the start of 2018 we had planned for a stronger financial performance, we are pleased with robust results in the circumstances, with financial improvements as against 2017, but importantly, also a significantly improved and positioned business as we go into the future.

During the year, we have secured important contract extensions from existing customers, won new customers and completed a number of strategic partnerships. The Group remains profitable and cash generative, with a high level of recurring revenues and strong cash reserves. We continue to invest in the business with key hires and significant product innovation, which will have clear benefits over the longer term.

Supported by the strategic acquisition of Celtech and our new partnerships, we are confident the Group is well positioned for significant growth in 2019 and beyond.

Andrew Blazye

Non-Executive Chairman

16 April 2019

Extracts from the Strategic Report

Principal activity

The Group designs, develops and supports point-of-sale, payment and loyalty systems for the UK and Ireland 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 Officer, the Chief Financial Officer, the Chief Technology Officer, the HTEC Limited Managing Director and other 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 2018, 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

In accordance with our "build, buy or collaborate" product strategy, 2018 was characterised by the continuation of development of our next generation products for deployment to fuel and convenience customers as well as a number of key partnerships formed and the acquisition of a retail management solution provider following the year end.

Our next generation EPOS solution has seen significant development in the year and the product is now ready for launch in the convenience sector following trials across several convenience stores in the UK. Gempay 3, which was launched in the second half of 2017, now operates successfully in 2,930 installations including over 540 with Euro Garages, a new customer for the Group won in the year.

Collaboration included partnerships with P97 Networks Inc, a leading cloud based mobile commerce, in-vehicle payments and digital marketing solution provider, which now complements our payment product range as well as a partnership with Ubamarket which operates an in-store scan-and-go app which the Group has integrated with our own EPOS solutions.

Following the year end, on 3 April 2019, the Group acquired Dublin based Camden Technology Investments Limited and its subsidiaries, each trading as Celtech, for £4.96 million.

Celtech develops and sells its retail management solution ("RMS"), called ab-initio, to wholesale and retail customers in the UK and Ireland. Approximately 14,000 users log into ab-initio every day to manage their retail and wholesale businesses. Customers include Bestway, One Stop and various co-ops across the UK. For the year ended 31 December 2018, it had unaudited revenues of £1.92 million and an unaudited loss after tax of £0.57 million, principally as a result of it undertaking a large amount of internal product and systems development (rather than focusing on fee earning work) that year. All development costs are written off as incurred. In 2017, the audited revenues were £3.33 million and audited profit after tax was £0.47 million. Unaudited net assets at 31 December 2018 were £0.75 million (2017: audited net assets of £1.32 million).

 Celtech's ab-initio software product is a class-leading, cloud-based RMS offering that gives large, multi-site operators a uniquely powerful modular suite operating in real-time and allowing them to control all aspects of their business with full reporting, insights and analytics. As such, it meets the needs of Universe's larger customers and broadens the Group's customer base in the UK and Ireland with additional high-profile retailers.

The initial consideration was €4.48 million payable in cash and the issue of 22,842,785 new shares in Universe Group plc. The issued shares are subject to a 12-month lock-in period. In addition, the remaining 5% of the target company's share capital is subject to a put and call option exercisable after 1 year at a cost of €0.32 million, to be satisfied in cash. The acquisition was funded out of existing cash resources and a new 4-year, £3.50 million term loan and a 3-year, £1.50 million revolving credit facility with HSBC.

In addition to pushing forward our build, buy or collaborate product strategy we also strengthened our management team with the appointment of an experienced Chief Technology Officer and a new Sales and Marketing Director.

Financial review

Profit and loss

Revenues for the year were up 1.4% to £19.89 million (2017: £19.62 million). Revenues were impacted by the loss of £2.0 million of budgeted revenues following the demise of one of our customers, Conviviality plc in the early part of the year however the Group was still able to grow revenues through new customer wins and a strong performance across other members of our customer base.

The loss of revenues with Conviviality was the main reason for software licences and hardware revenues being down 7.1% to £3.64 million (2017: £3.92 million) however this drop was covered by small improvements across service and installations, up 3.5% to £8.18 million (2017: £7.90 million), data services up 2.0% to £4.12 million (2017: £4.04 million) and consultancy, licence and maintenance up 4.8% to £3.95 million (2017: £3.77 million).

The introduction of IFRS 15 "revenues from contracts with customers" for the year has had negligible impact on the Group's revenue recognition however the additional disclosure associated with IFRS 15 shows 18.3% (2017: 20.0%) of the Group's revenues came from the sale of hardware and software licences, 55.7% (2017: 53.5%) from contracted terms and the balance from assignments completed by both our service and consultancy teams.

Gross profit margin was marginally up on prior year at 48.2% (2016: 47.6%). Included in cost of sales is £2.60 million of third-party specific hardware, representing 13.1% of revenues (2017: £2.56 million representing 13.0% of revenues).

Administrative expenses were up £0.23 million in the year to £8.68 million (2017: £8.46 million). £0.56 million was due to the increase in expensed research and development at £3.49 million representing 17.5% of revenues (2017: £2.94 million representing 15.0% of revenues). The Company continued to invest heavily in the year primarily on its next generation EPOS solution but managed to make savings across the rest of its administrative cost base.

Earnings before interest, taxes, share based payments, depreciation and amortisation ('Adjusted EBITDA') is considered a key operational measurement and was £2.65 million (2017: £2.37 million). Profit before taxation ("PBT") was consistent with the prior year at £0.84 million (2017: £0.78 million) representing a PBT margin of 4.2% (2017: 4.0%).

The underlying tax charge for the period was £0.03 million (2017: £0.15 million) resulting from a £0.16 million credit relating to a prior period being offset by a £0.19 million charge linked to a movement in the deferred tax balance. No corporation tax is payable for the 2018 trading performance. Earnings per share for the year were up 29.6% to 0.35p (2017: 0.27p).

Balance sheet

Non-current assets were up £0.59 million to £20.02 million (2017: £19.43 million) largely due to capitalised development costs increasing £0.63 million to £4.08 million (2007: £3.45 million) being the net of amounts capitalised in the year £1.61 million (2017: £1.42 million) and amounts amortised in the year £0.98 million (2017: £0.72 million).

Current assets were up £0.53 million to £10.38 million (2017: £9.85 million) largely due to trade debtors increasing £0.73 million to £5.02 million (2017: £4.29 million). Whilst debtor days were up from 69 days to 79 days the Group is comfortable it has provided adequately for any potential bad debt.

Current liabilities were up £0.27 million to £5.48 million (2017: £5.21 million) largely due to a £0.12 million increase in deferred revenue to £2.04 million (2017: £1.92 million) and a £0.19 million increase in accruals to £1.15 million (2017: £0.96 million).

Non-current liabilities were £0.94 million (2017: £0.91 million) and include the non-current liability associated with finance leases on computer equipment £0.22 million (2017: £0.38 million) and deferred tax £0.72 million (2017: £0.53 million).

Cash flow and financing

The increase in EBITDA to £2.65 million (2017: £2.37 million), reduced by an increase in the working capital requirements of £0.27 million (2017: £0.76 million), resulted in a cash inflow from operations increasing 47.8% to £2.38 million (2017: £1.61 million).

Investment in capitalised product development increased 13.4% to £1.61 million (2017: £1.42 million). As in previous years, a significant 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-checkouts, payment devices and payment and loyalty platforms and other third-party retail devices.

The cash inflow from operating activities helped to fund product development; a £0.07 million investment in fixed assets (2017: £0.35 million) and £0.80 million of finance lease capital repayments (2017: £0.32 million).

Cash on the balance sheet at the year-end stood at £2.72 million (2017: £2.89 million) and after deducting debt of £0.80 million (2017: £1.03 million), net cash (cash and cash equivalents less borrowings) at the year-end was £1.92 million (2017: £1.86 million).

Summary

The year was another period of significant product development, new customer wins and key hires. This combined with partnering with a number of complementary product providers and the acquisition of the Celtech business leaves us with a strong product set for 2019 and beyond. We continue to focus on the petrol and convenience market and the Celtech acquisition and the cloud-based nature of its product, allows us to look for further opportunities outside the UK and Ireland.

Jeremy Lewis

Chief Executive Officer

16 April 2019

Consolidated Statement of Total Comprehensive Income

For the year ended 31 December 2018

Consolidated Statement of Changes in Equity

For the year ended 31 December 2018

Consolidated Balance Sheet

As at 31 December 2018

Consolidated Cash Flow Statement

For the year ended 31 December 2018

Notes

1. General Information

The financial information set out in this document does not constitute the Company's statutory accounts for 2017 or 2018. Statutory accounts for the years ended 31 December 2017 and 31 December 2018 have been reported on by the Independent Auditors. The Independent Auditors' Reports on the Annual Report and Financial Statements for each of 2017 and 2018 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 2017 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2018 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 2018. The principal accounting policies adopted are unchanged from those used in the preparation of the statutory accounts for the period ended 31 December 2017.

2. Turnover analysis

3. Operating Profit and adjusted EBITDA

4. Segment information

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

5. Earnings per share

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

At the year end the Group had in issue 232,348,935 ordinary shares of 1p each (2017: 232,223,935 ordinary shares of 1p each).

6. Material non-cash transactions

During the year the Group entered into £643,000 (2017: £51,000) 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 2019 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 25 June 2019, notice of which will be sent to shareholders in May 2019.