Half Yearly Report

RNS Number : 5592T

Universe Group PLC

30 September 2010

 

 

UNIVERSE GROUP PLC

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

 

INTERIM RESULTS FOR THE 6 MONTHS ENDED 30 JUNE 2010

 

Universe (UNG.L), the AIM-listed retail and loyalty systems provider, announces its unaudited interim results for the six months to 30 June 2010.

 

 

Highlights

·; Adjusted operating profit of £398,000 (2009: £498,000) on reduced revenues of £5.7 million (2009: £6.4 million) (1)

·; Gross margin increased to 39% (2009: 35%) (1)

·; Profit before taxation of £76,000 (2009: £94,000) (1)

·; Impairment of goodwill of £462,000 in JetSet recognised

·; Disposal of JetSet completed after the half year end

·; Loss per share 0.51p (2009: loss of 0.15p)

·; Earnings per share from continuing activities 0.07p (2009: 0.08p)

·; Borrowings reduced by £671,000 to £2.9 million from £3.6 million at the year end

 

(1) Jet Set Wash Systems Limited was sold on 23 July 2010, subsequent to the half year end and has been treated as a discontinued activity in this announcement. All comparative figures have been restated to exclude the results of JetSet.

 

 

John Scholes, Chairman of Universe, commented:

"Reporting a fall in turnover for the period is not reflective of the business development efforts being made in all our segments. Maintaining profitability during this period has been a significant achievement and has allowed our investment in business and product development to continue. The Board remains confident that the strategies for growth being adopted will bring new business to the Group in the near future."

 

 

Paul Cooper, Chief Executive of Universe, commented:

"While we continue to operate in a tough trading environment, I am pleased to report that our strategy of moving towards a higher margin software and managed services business, combined with a programme of cost realignment, has maintained profitability and enabled a significant reduction in Group debt."

 

For Further Information:
Universe Group plc Paul Cooper, Chief Executive Officer Bob Smeeton, Chief Financial Officer	023 8068 9510
Arbuthnot Securities Limited Tom Griffiths   Tavistock Communications Andrew Dunn	020 7012 2000     020 7920 3150

 

CHAIRMAN'S STATEMENT

 

The disposal of the JetSet operating subsidiary has been the most significant event since the annual report. The sale completed on 23 July 2010, and JetSet has been treated as a discontinued activity in these results to 30 June 2010, and in the comparative information provided within this statement.

 

On this basis, we have seen an 11% reduction in turnover to £5.7 million from £6.4 million compared to the same period last year, as a result of both contractual and economic factors.

 

The core business, Petrol Forecourt Services reported unchanged turnover compared to the same period last year, at £3.8 million (2009: £3.8 million) reflecting ongoing weak demand in the industry. However, the cost saving measures implemented last year, together with an improved mix of business, helped to improve the segmental result to £1.2 million from £0.9 million in the comparative period last year.

 

Contractual factors impacted turnover in Universe Data Systems, as the main customer contract provides for reduced transaction fees after the initial year of operation. As a result, divisional turnover slipped from £1.6 million in the comparable period last year to £1.2 million in the reporting period. This inevitably affected the profitability of this segment, dropping from £0.4 million to £0.1 million. There are encouraging prospects for significant new customers for our data services. However, the length of the sales cycle in the current economic environment means that our continuing investment in business development has yet to yield significant new business.

 

Our Contract Electronic Manufacturing business saw a decline in turnover, from £1 million to £0.7 million, but managed to maintain its gross profit of £0.1 million by improving gross margin to 11% from 8%. While the cessation of a repair contract will impact turnover going forward, cost savings have been made to limit the impact on profitability. We are seeing a sharp increase in demand for our capabilities in electronics manufacturing, and several new customers have placed orders that are likely to lead to recurring business. The impact of this has been diluted by weak demand from existing customers, but there has been a significant strengthening of prospects for this segment over the last few months.

 

The overall impact of cost savings, improved efficiency and better product mix has been to improve the gross profit margin to 39% from 35% in the comparative period last year. Investment in the business development teams has increased administrative expenses by 4% over the same period last year, although this is largely due to the redeployment of staff into business development roles. Overall headcount has continued to fall reflecting the fluctuating needs of the business.

 

We have reported an operating profit of £0.2 million (2009: £0.2 million), which reflects well on the Group's ability to maintain profitability despite a contraction in revenues. After finance costs, the profit for the period from continuing activities was £0.1 million, unchanged from the comparative period (2009: £0.1 million).

 

The establishment of JetSet in 2008 brought early success in winning contracts. However, the banking crisis in autumn 2008 and the consequent withdrawal of asset backed funding lines prohibited JetSet from achieving its break even level of trading. The disposal of JetSet was necessitated by its continuing operational losses and diminished prospects for growth in an increasingly difficult market place. Proceeds of £300,000 were received in July and used to reduce bank debt. A deferred consideration of £80,000 is due in July 2011. An impairment of the £462,000 of goodwill associated with this business has been reflected in the profit statement.

 

In the 6 months ended 30 June 2010, we continued to make progress in reducing the Group's bank debt. Term loan repayments of £0.3 million were made, and overall debt was reduced from £3.6 million at 31 December 2009 to £2.9 million at the reporting date. This improvement included a £0.4 million reduction in invoice discounting. Cash balances reduced significantly from £1.1 million at 31 December 2009 to £0.1 million reflecting the pattern of our annual cash flows and the reduction in invoice discounting.

 

Reporting a fall in turnover for the period is not reflective of the business development efforts being made in all our segments. Maintaining profitability during this period has been a significant achievement and has allowed the investment in business and product development to continue. The Board remains confident that the strategies for growth being adopted will bring new business to the Group in the near future.

 

 

 

 John Scholes

Chairman

30 September 2010

 

  

CHIEF EXECUTIVE'S BUSINESS REVIEW

 

While we continue to operate in a tough trading environment, I am pleased to report that our strategy of moving towards a higher margin software and managed services business, combined with a programme of cost realignment, has maintained profitability and enabled a significant reduction in Group debt. The 2009 recession continues to halt top line growth but we are very well placed to exploit the upturn as it arrives. We continue to form partnerships to widen the appeal of our business to our excellent blue chip customer base. In particular, later this year we are launching a new range of payment and loyalty devices based on market leading Gemalto terminals.

 

Universe Group now reports in three business segments: Petrol Forecourt Services (PFS), Universe Data Systems (UDS) and Contract Electronics Manufacturing (CEM) with JetSet being shown as a discontinued business following its sale in July 2010.

 

The Group is an acknowledged leader in the supply of petrol forecourt technology including payment and loyalty systems and it continues to pursue its strategy of becoming an end to end solutions provider. The Company designs, builds, tests and operates mission critical retail systems through its own PCI DSS certified data centre. Our robust applications based on open systems technologies allow customers an easy integration route to their other business systems. Our clients include major UK supermarket groups, convenience store brand leaders and global oil companies. Systems include chip and pin payment terminals, unmanned outdoor payment terminals, on line loyalty systems, forecourt point of sale systems and wet stock analysis/replenishment software.

 

PFS sales in the first half were flat at £3.8 million (2009: £3.8 million) and mainly reflect the managed service element of the business as new projects have been shelved by our customers, as a result of general economic uncertainty. Gross margins improved to 45% (2009: 38%) reflecting a better sales mix and operational efficiencies. New business opportunities are mainly coming from the commercial fuel card processing market, an area in which we are acknowledged leaders. Some of the major oil companies continue to move away from "downstream" retailing creating a churn in ownership of sites.

 

UDS revenues were down by 26% to £1.2 million (2009: £1.6 million) reflecting lower transaction rates on our largest scheme in the second full year of that contract. Gross margins fell to 38% (2009: 45%) reflecting the reduced transaction rates. The successful roll out of this system is a benchmark for expansion in international markets and although sales cycles are long, systems such as these are expected to play a major part in future growth and profitability.

 

Although CEM still showed a small segmental loss it continues to make a positive contribution to fixed costs. In-house needs for petrol forecourt equipment can be supplied more cost effectively from own manufacture than via subcontract. Turnover from third parties fell to £0.7 million (2009: £1 million), and gross profit remained constant at £0.1 million due to cost re-alignment and an improvement in gross profit margin. As the economy improves we have seen a significant increase in the demand for our products and services and we expect CEM to show a much stronger performance in 2011.

 

JetSet

 

The decision to sell JetSet was made due to a combination of factors which had damaged the business and which were preventing its growth. The economic downturn, a serious lack of asset finance availability and increasingly aggressive selling tactics from dominant competitors meant that continuing with this business simply carried too much risk for the Group.

 

Discontinued losses for the first half were £0.7 million (2009: £0.3 million) including a goodwill write off of £0.5 million.

 

Financial Review

 

Group revenues were down by 11% to £5.7 million (2009: £6.4 million). UDS saw a disappointing fall in revenues from existing customers, as new tariffs took hold, with no new customers coming on stream in H1. The prospects for the future however look promising as the effects of the recession start to unwind. Managed services revenues from PFS remain stable. Cost realignment together with a better margin business mix has continued the trend begun in the second half of 2008 of returning to operating profit and cash generation. An operating profit before exceptional items of £0.4 million (2009: £0.5 million) has been achieved despite the 11% revenue dip. Restructuring costs of £0.2 million (2009: £0.3 million) are largely as a result of the continued move from manufacturing to software services and are finally showing a downturn from the previously high levels. Gross margin increased to 39% (2009: 35%) as a result of a better business mix and improved operational efficiency with margin increases from PFS and CEM as the main contributors.

 

Outlook

 

Cash flow remains positive allowing cash generated from operating activities to repay £0.7 million of net debt. The business still has aggressive debt repayment requirements and is being held back in its development by those requirements. However, the sale of JetSet has reduced further the debt liability and the repayment schedule going into 2011 is significantly less than in recent years. This will allow for better business growth.

 

The second half of 2010 will see the launch of our new payment terminal and this allows us to enter both existing and new markets with a state of the art payment platform. The same terminal will also form the basis for new low end loyalty schemes. Trials have already begun with these units and are progressing well. The current order book and pipeline of opportunities provide us with a good base for the remainder of the year.

 

 

Paul Cooper

Chief Executive Officer

30 September 2010

 

Universe Group plc

 

Condensed Statement of Comprehensive Income (unaudited)

for the 6 months ended 30th June 2010

 

 

	Six months  ended 30th  June 2010  £'000		Six months  ended 30th  June 2009  £'000		Year ended  31st   December  2009  £'000
Continuing operations
Revenue	5,650		6,361		12,560
Cost of sales	(3,431)		(4,117)		(7,868)
Gross profit	2,219		2,244		4,692
Administrative expenses excluding non-recurring items	(1,821)		(1,746)		(3,701)
Non-recurring items	(176)		(280)		(456)
Administrative expenses	(1,997)		(2,026)		(4,157)
Operating profit	222		218		535
Operating profit is analysed as:
Operating profit before non-recurring items	398		498		991
Non-recurring items	(176)		(280)		(456)
	222		218		535
Finance costs	(146)		(124)		(381)
Profit before taxation	76		94		154
Taxation	-		-		99
Profit for the period from continuing activities	76		94		253
Discontinued operations Loss from discontinued activities	(665)		(268)		(753)
Loss for the year attributable to equity shareholders	(589)		(174)		(500)
Loss per share	Pence		Pence		pence
Basic and diluted (see note 6)	(0.51)		(0.15)		(0.44)
Condensed Consolidated Statement of Changes in Equity (unaudited)
At start of period	13,536		14,039		14,039
Loss for the period attributable to equity shareholders	(589)		(174)		(500)
Translation difference	(2)		1		(3)
At end of period	12,945		13,866		13,536

Universe Group plc

 

Condensed Consolidated Balance Sheet (unaudited)

as at 30th June 2010

 

 

	30th June   2010  £'000		30th June  2009  £'000		31st  December  2009  £'000
Fixed assets
Goodwill	12,150		12,612		12,612
Development costs	917		991		1,007
Property, plant and equipment	2,796		2,854		2,805
	15,863		16,457		16,424
Current assets
Inventories	1,385		1,654		1,269
Trade and other receivables	2,184		2,555		3,060
Cash and cash equivalents	118		516		1,145
	3,687		4,725		5,474
Total assets	19,550		21,182		21,898
Current liabilities
Trade and other payables	(3,340)		(4,419)		(4,421)
Tax liabilities	(330)		(318)		(335)
Short term borrowings	(1,461)		(1,747)		(2,218)
	(5,131)		(6,484)		(6,974)
Non current liabilities
Medium term borrowings	(1,474)		(832)		(1,388)
Total liabilities	(6,605)		(7,316)		(8,362)
Net assets	12,945		13,866		13,536
Equity
Share capital	5,735		5,735		5,735
Equity reserve	110		110		110
Share premium account	10,753		10,753		10,753
Other reserves	3,503		3,503		3,503
Translation reserve	(221)		(215)		(219)
Profit and loss account	(6,935)		(6,020)		(6,346)
Total equity	12,945		13,866		13,536

Universe Group plc

 

Condensed Consolidated Cash Flow Statement (unaudited)

for the six months ended 30th June 2010

 

 

	Six months  ended 30th  June 2010  £'000		Six months  ended 30th  June 2009  £'000		Year ended  31st  December  2009  £'000
Cash flows from operating activities
Operating profit from continuing activities	222		218		535
Operating loss from discontinued activities	(620)		(239)		(685)
Depreciation and amortisation	618		534		1,081
Impairments	462		-		20
	682		513		951
Movement in working capital:
(Increase)/decrease in inventories	(116)		(7)		379
Decrease/(increase) in receivables	876		506		(52)
(Decrease)/increase in payables	(1,086)		415		414
Interest paid	(191)		(153)		(429)
Tax received	-		-		148
Net cash inflow from operating activities	165		1,274		1,411
Cash flows from investing activities
Purchase of tangible fixed assets	(357)		(83)		(380)
Purchase of intangible fixed assets	(162)		(90)		(327)
Net cash outflow from investing activities	(519)		(173)		(707)
Cash flow from financing activities
Repayment of obligations under finance leases	(214)		(272)		(437)
Repayment of borrowings	(719)		(566)		(765)
New loans raised	262		183		1,573
Net cash (outflow)/inflow from financing	(671)		(655)		371
(Decrease)/increase in cash and cash equivalents	(1,025)		446		1,075
Cash and cash equivalents at beginning of period	1,145		70		70
Exchange differences	(2)		-		-
Cash and cash equivalents at end of period	118		516		1,145

Universe Group plc

 

Notes to Condensed Consolidated financial statements for six months ended 30th June 2010

 

1 The annual financial statements of the company for the year ended 31st December 2009 were prepared in accordance with International Financial Reporting Standards (IFRSs). The condensed set of financial statements has been prepared using accounting policies consistent with International Financial Reporting Standards. The same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Group's latest annual audited financial statements. While the financial figures included in this interim report have been computed in accordance with IFRSs applicable to interim periods, this interim report does not contain sufficient information to constitute an interim financial report as that term is defined in IAS 34.

 

2 The financial information for the year ended 31st December 2009 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors' report on those accounts was not qualified and did not contain statements under section 498 (2) or (3) of the Companies Act 2006.

 

3 Losses from non-recurring items in the six months ended 30th June 2009 and 2010 and the year ended 31 December 2009 were in respect of reorganisation costs.

 

4 The directors believe the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook. The Group's forecasts and projections, taking account of reasonably possible changes in trading conditions show that the Group should be able to operate within the level of its facilities. After making enquiries the directors have a reasonable expectation that the group will have adequate resources to continue in operational existence for the foreseeable future. Accordingly they continue to adopt the going concern basis in preparing the interim condensed financial statements.

5 The half year results were neither audited nor reviewed by the auditors. The interim financial information has been prepared on the basis of accounting policies set out in the Group's statutory accounts for the year ended 31st December 2009.

 

6 Earnings per share is calculated by reference to the results and the weighted average of 114,704,539 shares in issue during the period. The number of shares in issue at 30th June 2010 was 114,704,539.

 

 

	6 months  ended 30th  June 2010  p		6 months  ended 30th  June 2009  p		Year ended 31st December 2009 p
Basic and Diluted Earnings Per Share
Earnings per share from continuing activities	0.07		0.08		0.22
Loss per share from discontinued activities	(0.58)		(0.23)		(0.66)
Loss per share attributable to ordinary shareholders	(0.51)		(0.15)		(0.44)

 

 

 

7 Segment information

 

6 months ended 30th June 2010

 

	UDS  £'000	CEM   £'000	PFS  £'000	Total  £'000
Revenue	1,188	697	3,765	5,650
Gross profit	450	78	1,691	2,219
Segment expenses	(378)	(181)	(526)	(1,085)
Segmental result	72	(103)	1,165	1,134
Unallocated central and corporate costs				(736)
Operating profit before non-recurring items				398
Non-recurring items				(176)
Finance costs				(146)
Taxation				-
Profit for the period from continuing activities				76

 

 

 

 

6 months ended 30th June 2009

 

	UDS  £'000	CEM   £'000	PFS  £'000	Total  £'000
Revenue	1,605	983	3,773	6,361
Gross profit	717	77	1,450	2,244
Segment expenses	(270)	(244)	(515)	(1,029)
Segmental result	447	(167)	935	1,215
Unallocated central and corporate costs				(717)
Operating profit before non-recurring items				498
Non-recurring items				(280)
Finance costs				(124)
Taxation				-
Profit for the period from continuing activities				94

 

 

 

 

Year ended 31st December 2009

 

	UDS  £'000	CEM   £'000	PFS  £'000	Total  £'000
Revenue	3,086	2,056	7,418	12,560
Gross profit	1,650	278	2,764	4,692
Segment expenses	(691)	(375)	(1,120)	(2,186)
Segmental result	959	(97)	1,644	2,506
Unallocated central and corporate costs				(1,515)
Operating profit before non-recurring items				991
Non-recurring items - operating expenses				(456)
Finance costs				(381)
Taxation				99
Profit for the period from continuing activities				253

 

 

 

8 Subsequent Events and Discontinued Activities

 

On 23rd July 2010 the Group sold its interest in JetSet Wash Systems Limited for a total consideration of £380,000, with £80,000 of that consideration deferred until 2011. The incoming funds of £300,000 were immediately used to repay bank debt, and so reduce scheduled debt repayments for the rest of 2010 and early 2011. In addition to the loss for the year to date and impairment of goodwill reflected in the results for the 6 months ended 30th June 2010 a loss on disposal of approximately £200,000 will be recognised in the Group's annual accounts.

 

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

 

The results of discontinued activities, comprising the Jet Set business unit, included within the Consolidated Statement of Comprehensive Income were as follows;

 

	Six months  ended 30th  June 2010  £'000		Six months  ended 30th  June 2009  £'000		Year ended  31st December  2009  £'000
Revenue	1,020		988		1,933
Cost of sales and administrative expenses	(1,174)		(1,141)		(2,174)
Loss before exceptional items	(154)		(153)		(241)
Exceptional items - reorganisation costs	(4)		(86)		(444)
Exceptional items - impairment of goodwill	(462)		-		-
Finance charges	(45)		(29)		(68)
Loss from discontinued activities	(665)		(268)		(753)

 

 

 

 

9 Copies of the interim report will be available from the Company's head and registered office: Southampton International Park, George Curl Way, Southampton, SO18 2RX, and on the Company's website, www.universeplc.com.

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