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Universe Group Plc

Universe Group H1 revenues of £9.8 million with visible H2 revenues of £12.5 million

Universe Group plc (LON:UNG), a leading developer and supplier of retail management solutions, payment and loyalty systems, has announced its unaudited interim results for the six months ended 30 June 2020.

Highlights

·      Revenues in line with comparative period at £9.77 million (H1 2019: £9.92 million)

·     Adjusted EBITDA of £0.37 million (H1 2019: £1.39 million) – largely attributable to impact of COVID-19 on sales mix

·      Operating loss £0.65 million (H1 2019: profit £0.28 million)

·      Loss per share 0.33 pence (H1 2019: earnings per share 0.07 pence)

·      Net cash inflow from operations £0.10 million (H1 2019: £2.13 million)

·      Net bank cash at 30 June 2020 £1.63 million (31 December 2019: £2.94 million)

·      Undrawn bank facilities at 30 June 2020 £1.50 million (31 December 2019: £1.50 million)

·     Business is traditionally H2 weighted. COVID-19 began to effect trading from Q2; however, our customers are all retailers of daily essentials giving reasonable visibility to year end

·      New business won in payment processing as well as a major payment device contract

·     Visible H2 revenues of £12.5 million through existing recurring and repeatable revenue contracts and the order book

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

“We are pleased to see our first half revenues hold up despite the effects of COVID-19. Much work was done in the first quarter to allow the business to continue to operate effectively under the new restrictions whilst still allowing our field engineers to be able to service our clients. I am very grateful to all our staff for the resilience they have shown.

“Despite difficult market conditions, we have won further significant business with several major clients in the payment processing space, as well as a major payment device contract. Our recent launch of the latest version of our RMS platform, ab-initio, has met with encouraging market response and bodes well for future revenues.

“We remain, as in the past, a second half weighted business, dependent on a small number of high value projects. Following completed revenues of £9.8 million in the first half, there are further revenues of £12.5 million visible through existing recurring and repeatable revenue contracts and the order book to year end.

“We are very conscious of the need to fully execute the order book over the rest of the year, however, together with a sound balance sheet showing net cash and undrawn banking facilities, we remain cautiously optimistic for 2020 and beyond.”

CHAIRMAN’S STATEMENT

Financial Results

We report below the Company’s results for the six months ended 30 June 2020.

Profit & Loss

Following a strong Q1 and a COVID-19 impacted Q2, revenues for the first half finished in line with the comparative half at £9.77 million (H1 2019: £9.92 million).

Historically the Group’s revenues have been heavily weighted towards the second half of the year. This remains our expectation for the current year with the position exaggerated by the impact of COVID-19.

The impact of COVID-19 has been largely felt in the areas of business involving site visits and installations as well as consultancy projects. Software licences and hardware revenues were down 24.1% to £0.90 million (H1 2019: £1.20 million) and service and installations were down 4.1% to £3.47 million (H1 2019: £3.62 million). In addition to this, consultancy and licence maintenance revenues were down 9.7% to £2.24 million (H1 2019: £2.48 million). Recurring and higher-margin data services revenues, representing maintenance and support for hosted solutions of cloud and datacentre based products, increased 19.9% to £3.15 million (H1 2019: £2.63m), and is expected to sustain at similar levels going forward.

This change in revenue mix resulted in gross profit margin reducing to 50.1% (H1 2019: 56.0%). Both service and installations and consultancy and licence maintenance revenue streams have a staff cost of sale associated with them which could not be turned off as quickly as the COVID-19 impact on the revenues.

Adjusted administrative expenses, which excludes the cost of the acquisition of Celtech, the amortisation of acquired intangibles, and the impact of share-based payments rose 5.0% to £5.36 million (H1 2019: £5.10 million). The increase was due to the inclusion of a full six months of expense for Camden Technologies, whereas H1 2019 included only three months following the acquisition in April 2019.

Earnings before interest, taxes, share-based payments, depreciation, amortisation, acquisition costs expensed and excluding depreciation on right-of-use assets (‘adjusted EBITDA excluding depreciation on right-of-use assets’) was £0.37 million (H1 2019: £1.39 million). The drop in gross profit, referred to above, accounted for £0.66 million of this fall, with the balance coming from the inclusion of a full six months of Celtech expense as opposed to three months in the comparative period.

The operating loss was £0.65 million (H1 2019: operating profit £0.28 million).

Net finance expense was £0.18 million (H1 2019: £0.10 million) and included six months of interest on the £3.50 million HSBC 4-year term loan as well as notional interest on the right-of-use assets, prior year included three months of loan interest.

The underlying tax charge for the period was £0.00 million (H1 2019: credit £0.00 million).

Loss per share for the period was 0.33 pence (H1 2019: earnings per share 0.07 pence). 

Balance sheet and cash flow

The balance sheet at 30 June 2020 remains strong. Like for like net current assets (excluding the impact of IFRS 16, Leases) were £2.44 million (31 December 2019: £4.21 million) and like for like non-current liabilities (excluding the impact of IFRS 16, Leases) were £2.63 million (31 December 2019: £3.07 million). Both net current assets and non-current liabilities include the remainder of the HSBC £3.50 million term loan.

Of note on the balance sheet, inventories were up from £1.13 million at 31 December 2019 to £5.10 million at 30 June 2020 following the receipt of equipment due to be installed across a single customers estate in the second half of the year.

Cash inflows from operating activities in the half year were £0.10 million (H1 2019: £2.13 million). This is lower than the prior period largely due to the reduction in profits for the period (£1.01 million) and an increase in working capital (£1.12 million).

Investment in the core business continued with capitalised development costs of £0.79 million (H1 2019: £0.58 million) focused on our next generation of retail systems.

Capital expenditure in the period was £0.18 million (H1 2019: £0.22 million).

Cash at 30 June 2020 was £4.09 million compared to £6.41 million at 31 December 2019.

Net cash (excluding debt associated with right-of-use assets, IFRS 16 and capitalised loan fees) at 30 June 2020 was £1.63 million (31 December 2019: £2.94 million).

Trading update

Whilst a number of the COVID-19 restrictions have now been lifted and many of our customers are able to return to a new normal, we continue to assess its impact on trading in the current year in the face of a changing level of restrictions on business. Existing customer relationships are robust, and whilst there are uncertainties on the speed at which deployments can be made in the face of changing societal restrictions, it is encouraging that the Group has a revenue pipeline for the second half of £12.5 million.

We started the year with £6.4 million of gross cash, alongside undrawn bank facilities of a further £1.5 million. At 30 June 2020 we had £4.1 million of gross cash, along with the £1.5 million undrawn bank facility.

During the lockdown we had 48 employees on furlough and at the time of writing all staff have returned from furlough. Whilst the government furlough scheme supported the Company through the lockdown period it ends in October and as a result, in August we sadly had to make 11 employees redundant in service areas where we had seen a reduction in customer activity, unlikely to pick-up in the near future.

Whilst COVID-19 has created significant commercial uncertainties it is encouraging that the Group has a revenue pipeline for this year that indicates already completed revenues of £9.8 million in H1, with further revenues of £12.5 million visible through existing recurring and repeatable revenue contracts and the order book. In the current context, the Group is mindful that the final value, terms and timing of delivery of the order book, remain subject to ongoing discussions.

Outlook

We are pleased to see our first half revenues hold up despite the effects of COVID-19. Much work was done in the first quarter to allow the business to continue to operate effectively under the new restrictions whilst still allowing our field engineers to be able to service our clients. I am very grateful to all our staff for the resilience they have shown.

Despite difficult market conditions, we have won further significant business with several major clients in the payment processing space, as well as a major payment device contract. Our recent launch of the latest version of our RMS platform, ab-initio, has met with encouraging market response and bodes well for future revenues.

We remain, as in the past, a second half weighted business, dependent on a small number of high value projects. We are also mindful of the potential impact of COVID-19 in the second half and the potential for changes in restrictions on our operations. This must however be tempered with the reassurance that comes from further revenues of £12.5 million visible through existing recurring and repeatable revenue contracts and the order book to year end to add to our performance for the first half.

We are very conscious of the need to fully execute the order book over the rest of the year, however, together with a sound balance sheet showing net cash and undrawn banking facilities, we remain cautiously optimistic for 2020 and beyond.

Andrew Blazye

Non-Executive Chairman

29 September 2020