South African software company ready for the Worst Or the Best

Mergers, Acquisitions and Financial Results

Software developer UCS is working with two budgets for the coming year: one for business as usual and one housing contingency plans on how to react if the economic turmoil inflicts greater damage than expected.

UCS has already lost a couple of contracts because customers are cutting back on spending, and that might well continue, said CEO John Bright. UCS develops software for the retail industry, and retailers have had a tough time as consumers come under financial pressure.

"The main pain we took was in the first half of the year, where a consulting business which had grown rapidly over the last three years suddenly dried up," Bright said. "We had a look at the business model and tried to reduce fixed overheads. It had a better second half but didn't make up the leeway. The contingency plan was drawn up after examining where the business may be most at risk," Bright said. Nothing too radical was expected.

Despite tough trading conditions, the group showed respectable growth for the year to September 30, with revenue of R1.2bn, up 14.5% from R1bn a year ago. A dividend of 5c a share was declared.

But net profit fell 35% from R166m to R107m and headline earnings per share dipped from 34,7c to 31,9c. Bright said the dip was largely caused by changes in structure last year when UCS spun off a division and gained a once-off profit.

Headline earnings per share were also down because of increased tax expenses and because 7-million new shares were issued for acquisitions and for employee incentives.

Progress was made on developing a value-added services unit by acquiring 51% of 4Life Program for R1.5m and 70% of Computer Software Consultants. Internationally, it acquired Aquitec to give its software division a footprint in the UK and the US, since it can use its lower South African development costs to create international retail solutions.

The global financial crisis had an extremely negative influence on its sales, but a senior executive had been appointed to grow its international retail software offerings. The group also started a new business in Philadelphia to target the mid-tier US market, and the division has won its first order.

Most of its trading units achieved results in line with expectations, although some missed their targets due to the poor external market conditions.

Its software division grew its revenue 26.1% to R475m, but its solutions business suffered as some large retail consulting projects were postponed or cancelled, pushing its earnings down from R126m to R120m.

Bright said those results were acceptable, with the software division showing solid revenue growth and achieving an improvement in its profit margins.

More than 80% of the group's turnover comes from selling its own products and services rather than selling third party products, and more than 60% of its turnover is monthly and annual annuity revenue, creating predictable cash flows at a time when new sales may be scarce.

Business Day