Preliminary Results

13 April 2015

AIM: UNG

Universe Group plc

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

Final results for the year ended 31 December 2014

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 2014.

Highlights

· Year of continuing strong progress

· Revenue up 31% to £20.75m (2013: £15.87m)

· Operating profit up 28% to £1.73m (2013: £1.35m)

· Statutory profit before tax up 46% to £1.75m (2013: £1.20m)

· Underlying EPS* up 18% to 0.71p (2013: 0.60p)

· Statutory EPS down 2% to 0.65p (2013: 0.66p)

· Cash generated by operations up 43% to £2.96m (2013: £2.07m)

* Underlying EPS calculated before taxation and before the impact of a release of a provision for contingent consideration (see note 4)

Robert Goddard, Chairman of Universe, commented:

"We are delighted with these results. They show both strong revenue and profit growth, reflecting 16% organic growth and the benefits of 2013's acquisitions. Under our new CEO, who joined Universe in 2013, the Group has increased its rate of product innovation, raised its service levels and successfully managed the roll-out of a series of technically complex projects for key customers. We look forward to 2015 and beyond with confidence."

For further information:

Chairman's Statement

Introduction

Results for the year show the very encouraging progress we are making as we continue to develop the Group by strengthening and extending its product offering and broadening its customer base. Sales have increased by 31% to £20.75m and operating profit rose by 28% to £1.73m. These pleasing results reflect both the benefits of the two acquisitions we made in 2013 and strong organic growth of 16% in the core business. 

The Group continues to generate high levels of recurring income, from hosted data services and maintenance contracts, as well as strong cash flows. The balance sheet remains robust, with cash at the year-end of £2.06m

Looking ahead we expect to see continuing progress and remain focused on product development. We will also be aiming at further penetration of the convenience store market, as well as the continuing expansion of our products into adjacent retail markets. 

Overview

As expected, the second half of the year was significantly stronger than the first as we fulfilled a number of major orders, which had been won in the first half from both new and existing customers. Second half sales of £11.97m were up by 36% over the first half and by 29% on the same period in 2013.

Key installations included the roll-out of our point of sale system, back office solutions and card payments processing service ("GPS") across 228 sites that had been newly acquired by Motor Fuel Group ("MFG"), an existing customer. MFG is the UK's second largest independent petrol retailer and this large scale roll-out was part of a major contract expansion. We delivered the latest versions of our products, including the enhanced GPS service, which processes in real time all payments received from customers whether by debit, credit or fuel cards. MFG is now the second major customer for GPS.

In the second half, we also completed the roll-out of our fuel card acceptance platform for Valero. Valero trades in the UK under the Texaco brand with over 650 sites and is the largest branded dealer network in the UK. The solution is based on our GemPAY terminal and is supported by our terminal management system, which provides remote diagnostics and terminal configurations, so enabling maximum 'up-time' for terminals. 

To support its price match and points card, 'Match & More', we developed a bespoke loyalty platform for Morrisons, the UK supermarket chain. This new platform was rolled out across all Morrison's outlets under a new contract and reflects Universe's long standing relationship with them as a trusted technology supplier.

We secured a major new customer win with MRH (GB) Limited, the largest independent petrol retailer in the UK with nearly 400 filling stations representing some 5% of the UK market. Our contract is for the supply of our GemPAY card acceptance platform across all MRH's petrol forecourts in the UK, supported by our terminal management system. We are also providing full maintenance and support. 

In addition to these installations, we completed significant software developments for a number of our major customers during the year. These encompassed the full range of our core competences, covering loyalty, payments and management information systems. Our successful delivery has been well received by our customers.

The integration of the two acquisitions in 2013, Indigo Retail Holdings Limited ("Indigo") and Retail Service Team Limited ("RST"), was successfully completed in the year. Indigo has extended our presence in the fast growing convenience store and general retail markets, while RST complements our installation and maintenance services. More recently, post period end, we were pleased to announce the purchase of retail software supplier, Spedinorcon Limited ("Spedi"). This business will complement our activities in the convenience store market. 

We will continue to invest in our product offering in 2015, as the focus moves to completion of refreshed point of sale and back office solutions and the migration of our loyalty platform onto an updated and enhanced technology base. We also plan to expand our product range to include related new products, designed in conjunction with customers, to help them process payments more effectively and securely. 

Staff

We concluded a number of large projects over a short period in Autumn 2014 and our staff responded with commitment and enthusiasm, thereby helping to enhance the Group's reputation with customers as we enter 2015. For this and many other successes over the year, we would like to thank everyone for their hard work, effort and creativity.

Summary and outlook

The Group has continued to make significant investments in products and services over the year and at the same time has delivered a large number of complex roll-outs; especially in the second half.

With the acquisitions of 2013 now fully integrated and the new and refreshed product ranges coming to market, we expect to see another year of growth and further strengthening of the business.

Significant flux remains in the petrol and convenience store markets. This creates opportunities for us which we intend to take advantage of. Our work in 2014 combined with our broad customer base, market leading products and focussed management team, will help to ensure that we are well placed to continue the Group's development in the year ahead. 

Robert Goddard

Chairman

10 April 2015

Extracts from the Strategic Report

Principal activity

The Group designs, develops and supports point of sale, payment and on-line loyalty solutions and systems for the UK petrol forecourt and convenience store markets. These solutions can be provided as a comprehensive fully managed offering or as discrete products to complement a wider customer solution.

Universe's solutions are delivered via the Cloud into high volume, real-time, mission critical transaction processing environments. We consider that product innovation and the highest levels of customer care are critical.

Organisational overview

The Group's business is directed by the Board and managed by the Executive Directors, led by Chief Executive Jeremy Lewis. There is a senior management team comprising the Chief Executive, the Chief Financial Officer and Senior Executives who cover Sales and Marketing, Operations, Human Resources, Development, and Data Centres.

The main operating entity is HTEC Limited and the two acquisitions made in 2013 have now been fully integrated into that company.

Strategy and business plan

We will continue to invest in our products and services to ensure that they meet the current and future needs of our customers. They are designed to meet the exacting standards of the international payment markets as well as our customers' own high expectations. In addition, we are continuing with our various development projects in the areas of data analytics, media screens, mobile loyalty and payments.

As retailers, our customers rely on us to keep them trading and to move swiftly should there ever be systems issues. Accordingly, our data centre teams, field force and helpdesk professionals remain crucial to what we do.

Our approach has driven growth in 2014 and we expect it to continue to underpin further performance this year and beyond. Upselling new and refreshed products into our expanding customer base will form a key part of our continuing growth. While we are targeting growth in the petrol forecourt and convenience store market, we have further market verticals under review.

During the year we reviewed a number of further acquisition opportunities but chose not to pursue them. However, we were pleased to complete the recent acquisition of Spedi which fulfilled our acquisition criteria and we will consider additional complementary opportunities. 

Business and Product Development

The need for business and product development is constant and 2014 was a particularly busy year in this regard. It is pleasing that that all our major product developments over the last two years have been well-received by our customers, and we will continue to develop our products through 2015 and beyond.

Examples of new products sold in 2014 include our new outdoor payment terminal, a major new loyalty scheme for Morrisons and GPS, our payment service. We expect further sales of our enhanced product set in 2015 and 2016, as well as new products such as media screens.

Financial review

Sales for the year to 31 December 2014 increased by 31% to £20.75m (2013: £15.87m). This reflected like-for-like sales growth of 16% in the core HTEC business to £16.41m (2013: £14.08m) as well as the first full year's contribution from the two 2013 acquisitions.

Growth in sales comes as a direct result of the product development programme that we have been investing in over the last three years. 2014 saw the continued expansion of the installed base of the GemPAY payment terminal estate and the first large scale roll-out of the new outdoor payment terminal. Together, these successes not only boosted trading revenues but will also help maintain high recurring revenue.

Changes in the mix of business moved gross margin down to 31% (2013: 35%). In particular, there was the large scale roll-out of outdoor payment terminals, which are inherently lower margin than other hardware based products. There was also the effect of some low margin contracts taken on as part of the RST acquisition. We have terminated these and fully integrated RST into HTEC. As a result, we expect to see better margins from sales of services in the coming year.

The integration of RST was completed in summer and contributed to the recovery of our margin to 33% in the second half of the year, from a first half figure of 29%.

Operating profit for the year increased by 28% to £1.73m from £1.35m in 2013. Net finance income of £0.03m was recorded (2013: cost of £0.15m). This comprises £0.19m of finance costs and £0.22m of finance income, being a release of over-provided contingent consideration arising on the Indigo acquisition.

Profit after tax rose by 6% to £1.41m (2013: £1.33m). Profitable trading in recent years meant that the last of the tax losses brought forward were utilised with a resulting tax charge of £0.35m in 2014 compared with a credit in 2013 of £0.13m.

Underlying earnings per share, calculated before the release of contingent consideration and any taxation charge or credit, grew by 18% to 0.71 pence (2013: 0.60 pence). Basic earnings per share decreased to 0.65 pence from 0.66 pence in 2013, reflecting the increased tax charge.

Cashflow and financing

Adjusted EBITDA rose by 39% to £3.47m (2013: £2.50m). This supported a 43% increase in net cash inflow from operating activities to £2.96m (2013: £2.07m).

Continued investment in our products in 2014 saw £1.15m spent on further development of the product portfolio. These included the migration of our loyalty platform to new operating systems and completion of our new point-to-point encryption technology; something that will be a valuable feature of our payment services offering.

Cash inflow for the year was £1.09m, substantially increasing cash at 31 December 2014 to £2.06m (2013: £0.98m)

Summary

The past two years have seen very robust growth in the Group's revenues and profits. This was powered by focussed product innovation and careful attention to customer service. We have now successfully expanded from our historically strong presence in petrol forecourts into the larger market of convenience stores. Further market verticals are now also under review and we are considering opportunities for geographic expansion. With new products gaining acceptance from our expanded customer base, we are confident that the pleasing progress that has been made so far can be continued.

Jeremy Lewis

Chief Executive Officer

10 April 2015

Consolidated Statement of Total Comprehensive Income

For the year ended 31 December 2014

Consolidated Statement of Changes in Equity

For the year ended 31 December 2014

Consolidated Balance Sheet

As at 31 December 2014

Consolidated Cash Flow Statement

For the year ended 31 December 2014

Notes

1. General Information

The financial information set out in this document does not constitute the Company's statutory accounts for 2013 or 2014. Statutory accounts for the years ended 31 December 2013 and 31 December 2014 have been reported on by the Independent Auditors. The Independent Auditors' Reports on the Annual Report and Financial Statements for each of 2013 and 2014 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 2013 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2014 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 2013. The principal accounting policies adopted are unchanged from those used in the preparation of the statutory accounts for the period ended 31 December 2013.

2. Operating Profit and adjusted EBITDA

3. Segment information

The Group 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, diluted and underlying earnings per share is based on the following data:

At the year end the Group had in issue 220,281,758 ordinary shares of 1p each (2013: 211,530,626 ordinary shares of 1p each)

5. Material non-cash transactions

During the year the Group entered into £687,000 (2013: £842,000) of finance leases for plant and equipment.

During the year the Group settled £400,000 of deferred consideration arising on the acquisition of Indigo Retail Holdings Limited in 2013 by issuing ordinary shares in the Company.

These transactions are not reflected in the cash flow statement.

6. Report and Accounts

Copies of the Annual Report and Accounts will be sent to shareholders in May 2015 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.

7. Annual General Meeting

The Company's Annual General Meeting is scheduled for 23 June 2015, notice of which will be sent to shareholders next month.