Universe Group plc (LON:UNG), a leading developer and supplier of retail management solutions, payment and loyalty systems, today announced its audited results for the year ended 31 December 2019.
· Results in line with Trading Update given on 28 April 2020
· Total revenues up 12.8% to £22.44 million (2018: £19.89 million)
· Gross profit margin at 51.8% (2018: 48.2%)
· Adjusted EBITDA up 46.5% to £3.89 million (2018: £2.65 million) on IFRS16 basis
· Non-cash, exceptional R&D charge of £2.75 million (2018: Nil) resulting from product roadmap re-alignment following acquisition of Celtech in April 2019
· Adjusted profit before tax (before exceptionals) up 72.3% at £1.53 million (2018: £0.89 million)
· Statutory diluted losses per share 0.58p (2018: earnings per share 0.33p)
· Net bank cash at year end up 53.1% to £2.94 million (31 December 2018: £1.92 million)
· Won two multi-million-pound contracts from major existing clients and in trials with two substantial new customers
· Acquired Dublin based Celtech, a class-leading developer of cloud-based retail and wholesale management solutions, for £5.23 million in April 2019
· Well positioned to negotiate current market conditions given existing cash resources, smooth migration of business operations, all customers are retailers of daily essentials and good visibility on Q1 revenues, recurring income and material order book
Andrew Blazye, Non-Executive Chairman of Universe, commented:
“At the start of 2019 we had three primary aims. We wanted to ensure we had the best possible product offering in the market, to win new business and to deliver a year of solid growth. We achieved all of these objectives.
“Following its acquisition, we have now completed the integration of the Celtech business. This puts us in a very strong position within the retail management solution space for some time into the future. In addition, the trust of our customers has rewarded us with a number of large, strategic contract wins, some of which were commenced in 2019 and others planned for 2020 and beyond.
“Notwithstanding the considerable challenges posed by COVID-19, we are heartened to know that, as we move through 2020, we start with sound financial resources and that our customers are all retailers of essential supplies. We already have a revenue pipeline for this year that indicates completed revenues of £5.2 million in Q1, with further revenues of £16.8 million visible through existing recurring and repeatable revenue contracts and the order book.
“We are alive to the risks and uncertainties in the market, but we have built a robust business over the past few years and look forward with cautious optimism.”
I am pleased to announce our results for the year ended 31 December 2019.
At the start of 2019 we had three primary aims. We wanted to ensure we had the best possible product offering in the market, to win new business and to deliver a year of solid growth. We achieved all of these objectives and subsequently total revenues for the Group for the year grew both organically and through acquisition by a total of 12.8%.
On 3 April 2019, we acquired Camden Technology Investments Limited and its subsidiaries, trading as Celtech (“Celtech”). Celtech is a class-leading developer of cloud-based retail and wholesale management solutions (“RMS”) and now allows the Group to offer the very latest in such technologies to existing and new customers. This capability extends the Group’s product offering into the wholesaling sector and new markets, such as Ireland. In summary, Celtech enables significantly increased access to new customers, market segments and geographies.
Universe acquired Celtech for a cash consideration of £4.11 million and the issue of 22,842,785 new shares in Universe at the prevailing mid-market price of 4.90 pence per share, representing 8.95% of the issued share capital of the Company, as enlarged by the issue of those shares. The acquisition was funded out of existing cash resources, based on a new, 4-year £3.50 million term loan and a new, 3-year, £1.50 million revolving credit facility with HSBC. Our results for the period include the post-acquisition trading activity of Celtech. At year end, £1.50 million of bank facilities remained undrawn and available to the Group.
Group revenues grew 12.8% to £22.44 million (2018: £19.89 million). This included £1.30 million of post-acquisition revenues from Celtech, meaning organic revenues grew 6.3% in the year. The change in revenue mix in the organic business, along with the contribution in revenues from Celtech, resulted in our gross margin increasing to 51.8% (2018: 48.2%).
Adjusted earnings before interest, taxes, depreciation, amortisation, administration expenses resulting from acquisition costs and share-based payments ‘Adjusted EBITDA’ (see note 2) was up 46.5% to £3.89 million (2018: £2.65 million). Excluding the impact of IFRS 16, Adjusted EBITDA was up 12.5% to £2.98 million (2018: £2.65 million).
Our ab-initio platform now forms the centre piece of our RMS offering and allows the Group to focus R&D investment on a single new technology product from this point onwards. Previously capitalised amounts of £2.75 million spent on other products have now been written off as a non-cash, exceptional R&D charge in the year. After these adjustments, the company reported a loss before tax of £1.59 million (2018: profit £0.84 million). Statutory diluted losses per share were 0.58 pence (2018: earnings per share 0.33 pence).
Cash and cash equivalents less borrowings, excluding the impact of IFRS 16 (to allow a meaningful “like for like” comparison), remained strong, ending the year at £2.94 million (2018: £1.92 million).
It has been an exciting year for the Group, as we have materially enhanced the potency and extended the range of our products, won several multi-million-pound contracts from existing clients and attracted major new customers. The acquisition of Celtech and its RMS platform ab-initio, significantly accelerates the Group’s RMS roadmap, gives us a best-in-class product and a hugely improved customer opportunity in the wider wholesaler marketplace. Since the acquisition in April, we have been demonstrating ab-initio to existing and new customers of the Group, with very favourable reactions. Celtech employs 22 people in Dublin who, along with our development team in the UK, have spent the post-acquisition period building additional fuel capabilities into the platform in order to sell further into the forecourt marketplace.
It was encouraging to see the Group winning a significant multi-million-pound deal to replace the outdoor payment terminals for a long-standing food retail customer, a project that started late in 2019 and is due for completion no later than early 2021. Further, we completed the first year of another multi-million-pound project with another large food retailer to assist with their ongoing compliance with payment regulation, under a contract that lasts for the next 3 years. Both projects highlight the importance of the Group’s understanding of these high-profile customers’ operations and the confidence they have in the Group.
After having won business from Euro Garages (one of the world’s largest operators of forecourts), as a new payment service customer at the start of the year, our payment business made further good progress with several new customers trialling our payment processing product. We expect to convert at least one of these into a material contract by Q3 of this year. The Group also won further contracts upgrading our instore payment terminals to the latest generation Gempay 3 devices.
Looking at our customer engagement business, our loyalty platform now supports customers in six European countries. We expect further roll outs of this offering into new territories from 2021 onwards. In addition to this, ab-initio comes with its own in-built loyalty capability, which is already used by several of our recently acquired Co-operative food retail customers.
Through the year, the Group employed an average of 241 people (2018: 242) in the UK, and a further 22 people in Ireland through the acquisition of Celtech. The Group is proud of its workforce and the contribution they have made to the business through the year and would like to thank them for their hard work and dedication, particularly given the challenges presented by the current COVID-19 virus pandemic.
Like all businesses, we are closely monitoring the situation regarding COVID-19. Our deepest sympathy is with the people who have been directly affected by the pandemic virus and our priority remains the health, safety and well-being of our staff and customers.
We are continually assessing the impact of COVID-19 on trading in the current year in terms of both profits and cash. Having benefitted from a good performance in 2019, we started the year with £6.4 million of gross cash, alongside undrawn bank facilities of a further £1.5 million. This was followed by solid Q1 2020 trading which was in line with budget.
As we have entered a more restrictive stage of the COVID-19 pandemic, we continue to focus our resources on ensuring that we help keep the country running. It is important to note that all our customers are retailers of vital supplies, being food, drink and/or fuel. We have no exposure to retailers of any other goods. We are proud of the way our people have transitioned to many, very different, working environments and we issue regular updates both externally to customers and internally to employees, setting out the actions we are taking in relation to the crisis.
It is encouraging that the Group has a revenue pipeline for this year that indicates already completed revenues of £5.2 million in Q1, with further revenues of £16.8 million visible through existing recurring and repeatable revenue contracts and the order book. In the current context, the Group are mindful that the final value, terms and timing of delivery of the order book, remain subject to ongoing discussions.
Nevertheless, because of the current market disruptions, the Group is prudently assuming that some non-critical work planned for customers in this financial year will be delayed by them until the crisis passes, quite possibly for a period lasting into next year. As noted above, it is difficult to estimate these possible delays until there is greater clarity regarding the duration of public lockdowns. New sales to new retail customers are also unlikely until the situation improves, but equally, material customer losses are not expected. In that light, cash conservation measures to protect the business, including the furloughing of some staff, have been put in place.
We are working closely with the Petrol Retailers Association, the Association of Convenience Stores and the UK Government through the Department for Business, Energy and Industrial Strategy. In mid-March we were designated an “essential service provider” by the Government. Accordingly, we have aligned our focus with the changing needs of our customers and the overall national infrastructure, given our responsibility to assist in keeping the highest priority retail sites functioning.
Regarding support in the marketplace, we have been successful in maintaining material service levels for customers. In doing this, we have managed to reduce personal contact with the general public, in order to protect our customers’ staff, consumers in store and our field engineers. These measures are enabling our field engineers to attend any sites that may have significant operational issues, on an ongoing basis. As part of this, the engineers have temporarily postponed the processing of ad hoc hardware and software upgrades, as well as new installations that are not deemed to be critical in nature, although some of our scheduled major upgrades will still go ahead. All postponed work will be rescheduled when restrictions lift sufficiently.
Our software development teams in Southampton and Dublin, our distributed sales and marketing teams and all our support staff continue to work well from home despite some of the pressures that can bring. Operationally, whilst no one wishes this situation to continue any longer than necessary, we have adapted well to the new way of working so far. We are proud of the way our people have transitioned to many very different working environments.
Summary and outlook
At the start of 2019 we had three primary aims. We wanted to ensure we had the best possible product offering in the market, to win new business and to deliver a year of solid growth. We achieved all these objectives.
Following its acquisition, we have now completed the integration of the Celtech business. This puts us in a very strong position within the retail management solution space for some time into the future. In addition, the trust of our customers has rewarded us with a number of large, strategic contract wins, some of which were commenced in 2019 and others planned for 2020 and beyond.
Notwithstanding the considerable challenges posed by COVID-19 as referred to above, we are heartened to know that, as we move through 2020, we start with sound financial resources and that our customers are all retailers of essential supplies. We already have a revenue pipeline for this year that indicates completed revenues of £5.2 million in Q1, with further revenues of £16.8 million visible through existing recurring and repeatable revenue contracts and the order book.
We are alive to the risks and uncertainties in the market, but we have built a robust business over the past few years and look forward with cautious optimism.
20 May 2020
Extracts from the Strategic Report
Product focus on real-time retail management solutions
The Group specialises in comprehensive, real-time, mission-critical solutions including RMS, card payment terminals and services, customer engagement, forecourt site controllers, outdoor payment terminals, automatic-number-plate-recognition and handheld devices.
The Group’s unique single cloud-based database architecture allows a head office user to see transactions on site as they happen in real-time. This also ensures integrity of master data and allows full control over all aspects of retail operations.
Key target markets are convenience and forecourt retailers
The Group targets businesses in retail, predominantly convenience stores, wholesalers and forecourts. The Group designs, develops and supports RMS, payment and loyalty systems for the UK and Ireland petrol forecourt and convenience 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 RMS. 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.
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 RMS, 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, professional and timely support from our data centre teams, field engineering force and helpdesk professionals continue to remain a core part of what we do.
Opportunities to acquire new businesses are reviewed on a regular basis, where they assist in extending penetration within addressable markets, add complementary technology or broaden geographic reach. During 2019, the Board considered several significant opportunities in detail and as a result, acquired Celtech.
Business and product development
Retail management solutions
In accordance with our ‘build, buy or collaborate’ product strategy, in 2019 the Group acquired Celtech, for £5.23 million. Celtech develops and sells its RMS called ab-initio, to wholesale and retail customers in the UK and Ireland. Approximately 20,000 users log into ab-initio every day to manage their retail and wholesale businesses.
Celtech’s ab-initio platform is a class-leading, cloud-based RMS 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 the Group’s larger customers and broadens the Group’s customer base in the UK and Ireland with additional high-profile retailers such as Bestway and several Co-ops.
In addition to this, the Group continued its development of its own next generation back office solution for single sites, Callisto, as a complementary product.
The Group provides payment processing services via its Gemini Payment Services (“GPS”) platform, delivered as a highly resilient, scalable platform, backed by Htec’s 24/7 service capability. Our GPS offering has been enhanced for the forecourt market by Htec to create our own unique IP. We now process over £131 million of transactions each week, with transaction volumes around 200 million per year.
The Group also offers integrated payment solutions for pay-at-pump, instore payment terminals and direct point of sale integration as well as forecourt specific capabilities for unattended sites and next-gen mobile payment. The Group offers these payment services while maintaining the highest level of payment accreditations, being PCI-DSS Tier 1 and has been certified since 2008.
The Group provides and host the points engine and associated services that underpins one of the world’s largest oil company’s consumer loyalty schemes across six European countries processing around 120 million transactions per year. In addition, the retail management solution we acquired through Celtech, ab-initio, includes a sophisticated retail loyalty module addressing both the convenience and fuel markets and today powers the loyalty operations of certain Co-ops.
Profit and loss
Group revenues grew 12.8% to £22.44 million (2018: £19.89 million). This included £1.30 million of post-acquisition revenues from Celtech meaning organic revenues grew 6.3% in the year.
Breaking revenues out into the relevant categories, the revenue growth was supported by a strong performance in data services, up 43.7% organically to £5.92 million (2018: £4.12 million) and including Celtech, up 54.0% to £6.34 million. The organic growth came largely off the back of the payment compliance project we completed in the year. In addition to this, consultancy and licence maintenance revenues were up 16.4% organically to £4.60 million (2018: £3.95 million) and including Celtech, up 38.3% to £5.46 million. The organic growth came largely from an increase in project work for a number of oil companies.
The growth in these two areas offset drops in our software licences and hardware business down 21.5% to £2.86 million (2018: £3.64 million) and services and installations down 5.0% to £7.78 million (2018: £8.18 million) due to the lack of any significant asset refreshes and corresponding installation revenues such as the Gempay 3 rollout largely completed in 2018.
The change in revenue mix in the organic business along with the contribution in revenues from Celtech resulted in gross margin increasing to 51.8% (2018: 48.2%) with a significant reduction in the third-party hardware cost of sale to £2.12 million (2018: £2.60 million).
Adjusted administrative expenses, which excludes the cost of the acquisition of Celtech, £0.16 million, the impairment of organic capitalised development costs as a result of the acquisition of Celtech, £2.75 million, the amortisation of acquired intangibles, £0.24 million and the impact of share based payments, were £9.83 million, of this £1.38 million were associated with the acquired business, Celtech. Underlying organic administrative expenses were therefore down 2.1% to £8.45 million (2018: £8.63 million). Statutory reported administrative expenses, before adjustments, were £12.93 million (2018: £8.68 million).
Adjusted earnings before interest, taxes, depreciation, amortisation, administration expenses resulting from acquisition costs and share-based payments ‘Adjusted EBITDA’ (see note 3) was up 46.5% to £3.89 million (2018: £2.65 million). Excluding the impact of IFRS 16, Adjusted EBITDA was up 12.5% to £2.98 million (2018: £2.65 million).
Profit before tax, before the exceptional write downs associated with the acquisition of Celtech referenced above totalling £3.11 million, finished up 72.3% on the prior year at £1.53 million (2018: £0.89 million). After the £3.11 million of adjustments, the company reported a loss before tax of £1.59 million (2018: profit before tax £0.84 million).
The tax credit for the period was £0.12 million (2018: £0.03 million charge) resulting from a £0.22 million research and development tax credit relating to a prior period being offset by a £0.10 million charge linked to a movement in the deferred tax balance. No corporation tax is payable for the 2019 trading performance.
Statutory diluted losses per share were 0.58 pence (2018: earnings per share 0.33 pence).
Net cash, excluding the impact of IFRS 16, remained strong, ending the year at £2.94 million (2018: £1.92 million). This was after the purchase of Celtech for a net cash consideration of £2.86 million, borrowings outstanding associated with the acquisition of £2.86 million and a £3.94 million reduction in working capital to a £1.34 million liability (2018: £2.60 million asset).
Non-current assets were up £5.65 million to £25.67m (2018: £20.02 million) largely due to:
– Goodwill and intangible assets associated with the acquisition of Celtech £4.51 million.
– A reduction in capitalised development of £1.43 million now at £2.65 million (2018: £4.08 million) being the net of amounts capitalised in the year of £1.92 million (2018: £1.61 million), an impairment of our capitalised EPOS development costs following the acquisition of Celtech of £2.75 million and amounts amortised in the year of £0.63 million (2018: £0.98 million).
– The impact of IFRS 16 which amounted to £3.38 million (2018: Nil).
Current assets were up £2.86 million to £13.24 million (2018: £10.38 million) largely due to:
– An increase in cash of £3.69 million to £6.41 million (2018: £2.72 million).
– A reduction in trade and other receivables of £1.04 million to £5.25 million (2018: £6.29 million). Debtor days were down from 79 days to 45 days and the Group is comfortable it has provided adequately for any potential bad debt. The reduction in trade debtors is largely due to better collections at the year end.
Current liabilities were up £5.63 million to £11.11 million (2018: £5.48 million) largely due to:
– An increase in trade creditors of £1.30 million to £1.85 million (2018: £0.55 million). Sales in the last quarter of the year had a higher hardware cost of sale which was not paid until the beginning of 2020.
– An increase in other taxation of £0.29 million to £1.36 million (2018: £1.07 million) which is primarily due to higher sales in the year that attract VAT which was not due until early 2020.
– An increase in deferred revenue of £1.30 million to £3.34 million (2018: £2.04 million).
– £0.81 million of borrowings due within one year on the bank loan taken to fund the acquisition of Celtech (2018: Nil).
– £1.72 million increase in lease borrowings to £2.30 million (2018: £0.58 million) following the introduction of IFRS16.
Non-current liabilities were up £3.15 million to £4.09 million (2018: £0.94 million) largely due to:
– £2.05 million of borrowings due after one year on the bank loan taken to fund the acquisition of Celtech (2018: Nil).
– £0.66 million increase in lease borrowings to £0.88 million (2018: £0.22 million) following the introduction of IFRS16.
Cash flow and financing
The key drivers behind cash inflows from operations increasing 217.9% to £7.57 million (2018: £2.38 million) were as follows:
o £0.33 million (2018: £0.28 million) increase in EBITDA excluding the impact of IFRS16 to £2.98 million (2018: £2.65 million).
o £3.94 million decrease (2018: £0.27 million increase) in the working capital requirements to a liability of £1.34 million (2018: £2.60 million asset). See explanations for current asset and current liability movements described in the balance sheet section above.
o £0.35 million (2018: nil) of tax rebates including research and development credits received in both the UK and Ireland.
– Offset by:
o £0.16 million increase in interest paid in the period to £0.23 million (2018: £0.07 million), primarily due to interest on the loan associated with the acquisition of Celtech.
o £0.25 million of deal fees associated with the acquisition of Celtech.
The cash inflows from operating activities funded:
– The net cash outlay for the purchase of Celtech of £2.86 million.
– Investment in capitalised product development of £1.92 million (2018: £1.61 million). A significant proportion of this was spent on adding fuel functionality to our acquired retail management solution, ab-initio, as well as connectivity to our payment and loyalty solutions.
– Purchase of fixed assets, £0.29 million (2018: £0.07 million). This is primarily computer equipment required to run the operations.
– £1.76 million of lease capital repayments (2018: £0.80 million). The increase largely coming from the introduction of IFRS16.
Cash inflows from financing activities included:
– £0.12 million (2018: Nil) from the exercise of employee share options.
– £3.30 million (2018: Nil) from the drawdown of a four-year term loan from HSBC Bank plc.
Cash on the balance sheet at the year-end stood at £6.41 million (2018: £2.72 million). After deducting debt of £3.47 million (excluding the debt associated with IFRS 16) (2018: £0.80 million), net cash (cash and cash equivalents less borrowings) at the year-end was £2.94 million (2018: £1.92 million). Including the debt associated with IFRS16, net cash was £0.37 million (2018: £1.92 million).
The year has been a period of solid growth for the Group and included the strategic acquisition of Celtech which further strengthens and accelerates the offering to the target markets of convenience and forecourts. The Group’s extensive and complementary product range and the support provided to our customers has been rewarded with a number of significant contracts in the year that will flow through 2020 and beyond.
We are now focussed on navigating the demands of COVID-19 this year which brings considerable uncertainties but are comforted that we entered the year on a sound financial basis and have a high level of annually recurring revenues and strong order book. We look forward to further growth once more normalised markets return.
Chief Executive Officer
20 May 2020