Mergers, Acquisitions and Financial Results

Software company UCS has issued solid results likely to please its new empowerment partner, which is buying into the business at a generous discount to its trading price.

Shares in UCS gained 5c to R2,10 after its results were issued yesterday, and the black partner, Tactical Software Systems, is buying some shares for 179c.

Tactical is folding some operations into UCS in exchange for a 25,1% stake in main subsidiary UCS Solutions.

The deal should generate further critical mass and give UCS the credentials to win more business, particularly in the government sector, where Tactical focuses, said CEO John Bright.

"It's taken us a long time to come to the party but I think it's been worth the wait," Bright said.

"We have almost exclusively focused on the retail market and Tactical is focused on government work."

The merger would give UCS about 150 engineers skilled in SAP software, which was necessary as UCS often ran up to 50 SAP projects at a time.

Results for the six months to March 31 showed revenue of R356m, up 43% from R249m a year ago. Net profit of R21,8m was up from R12,8m and headline earnings a share of 8,2c were up 52% from 5,4c. Current liabilities stand at R141m, and its R35,5m in cash will be dipped into for an interim dividend of 3c a share.

Bright said most of its units had achieved or exceeded their profit targets.

A major project for UCS has been a two-year investment to create a software manufacturing facility. That had hit the balance sheet again in this period, with depreciation and amortisation costs of R20,9m, but it should start to generate revenues for the first time this year, Bright said.

At the same time its research and development spending has dropped 6% as duplication was done away with.

"We have been working hard for a few years to get our software businesses in order by merging six entities into one and setting up a manufacturing facility.

"We have been through two years of investments and this is the first period where we hope to generate some revenue," he said.

All the intellectual property obtained through its acquisitions had been harnessed in the new facility to create a stock of ready-made software components. They would be used as core building blocks for specific software applications for customers, so that programs could be developed more quickly and cheaply.

Bright said he expected the factory to begin winning international business from retailers needing sophisticated functions that packaged software was unable to provide.

Business Day