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Universe Group Plc

Universe Group plc organic and acquisition driven growth through H1

Universe Group plc (LON: UNG), a leading developer and supplier of point of sale, payment and loyalty systems, has today announced its unaudited interim results for the six months to 30 June 2019.

Highlights

· Revenues up 7.3% to £9.92 million (H1 2018: £9.25 million)

· Adjusted EBITDA £1.39 million (H1 2018: £0.98 million)

· Operating profit £0.28 million (H1 2018: £0.17 million)

· Earnings per share 0.07 pence (H1 2018: 0.06 pence)

· Net cash inflow from operations £1.70 million (H1 2018: £1.98 million)

· Acquisition on 3 April 2019 of Celtech is a class-leading developer of cloud-based retail and wholesale management solutions (“RMS”) for £4.96 million. Celtech develops and sells its RMS, called “ab-initio”, to wholesale and retail customers in the UK and Ireland. The deal was funded out of the Group’s existing cash resources and £5.00 million of new banking facilities from HSBC

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

“We are encouraged to see that revenues across the Group’s activities for the first half show both organic and acquisition driven growth on the same period last year. We have secured further important contracts with two existing major clients and we are pleased with the progress made in integrating Celtech into the wider Group. We are already starting to benefit from the acquisition synergies.

Our payment and loyalty operations continue to perform well and we are positioning the newly acquired ab-initio platform at the forefront of our expanded RMS offering. We continue to be cash generative under-pinned by material recurring revenues.

We are, as previously stated, also a second half weighted business, dependent on a small number of high value projects. However, we are confident that, with the investments we have made into the business, we are well positioned for growth in 2019 and beyond.”

CHAIRMAN’S STATEMENT

Financial Results

We report below the Company’s results for the six months ended 30 June 2019.

Introduction

On 3 April 2019 the Company acquired 95% of the issued share capital of Camden Technology Investments Limited and its subsidiaries, each trading as Celtech (“Celtech”), for an initial cash consideration of €4.48 million and the issue of 22,842,785 new shares in Universe representing 8.95% of the issued share capital of the Company as enlarged by the issue of these shares.

The acquisition was funded out of existing cash resources and a new 4-year, £3.50 million term loan and a new 3-year, £1.50 million revolving credit facility with HSBC.

The results for the period include the post-acquisition trading activity of the acquired businesses.

Profit & Loss

Revenues for the first half were up 7.3% to £9.92 million (H1 2018: £9.25 million). This reflected like-for-like growth of 2.5% in the core HTEC business to £9.48 million (2018: £9.25 million) and the 3-month, post-acquisition contribution from the Celtech acquisition.

Whilst revenues are up on the comparative figures for 2018 and profits broadly in line, as in the prior year, results for the full year are again expected to be heavily weighted towards the second half.

The increase in revenue has come mainly from data services, up 28.9% to £2.63 million (H1 2018: £2.04 million) and consultancy and licence maintenance, up 26.1% to £2.48 million (H1 2018: £1.96 million). The data service increase is mainly due to a customer’s ongoing, large, managed service security project and the consultancy and licence maintenance increase is largely due to the inclusion of the post-acquisition results of Celtech.

This improved revenue performance resulted in gross profits increasing to £5.55 million (H1 2018: £4.34 million) and an improved gross margin to 56.0% (H1 2018: 46.9%) due to the change in sales mix towards higher margin data services and consultancy and licence maintenance.

Administrative expenses rose 26.2% to £5.27 million (H1 2018: £4.17 million). This reflected a like-for-like increase of 13.5% or £0.57 million in the core HTEC business. Of this, £0.06 million related to the adoption of IFRS 16, £0.14 million was a net increase in depreciation and amortisation and £0.15 million was Celtech acquisition expenses. The underlying increase in the HTEC business was therefore 5.3% which largely relates to an increase in expensed research and development. Expensed research and development for the period was £2.14 million (H1 2018: £1.69 million).

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 £1.39 million (H1 2018: £0.98 million).

Operating profit was £0.28 million (H1 2018: £0.17 million).

Net finance expense was £0.10 million (H1 2018: £0.04 million) and included 3 months of interest on the £3.50 million HSBC 4-year term loan as well as notional interest on the right-of-use assets (see note 10).

The underlying tax charge for the period was £0.00 million (H1 2018: credit £0.00 million).

Earnings per share for the period were 0.07 pence (H1 2018: 0.06 pence).

Balance sheet and cash flow

The balance sheet at 30 June 2019 remains strong. Like for like net current assets (excluding the impact of IFRS 16, Leases) were £4.21 million (31 December 2018: £4.90 million) and like for like non-current liabilities (excluding the impact of IFRS 16, Leases) were £3.07 million (31 December 2018: £0.94 million). Both net current assets and non-current liabilities now include the assets and liabilities of Celtech and the remainder of the HSBC £3.50 million term loan.

Cash flow from operating activities in the half year was £1.70 million (H1 2018: £1.98 million) with the cash generated largely reinvested into the business as product development, capital expenditure or debt repayment. The net cash outlay (cash paid less cash in the acquired business) for Celtech was £2.88 million. Cash balances at 30 June 2019 were £3.38 million compared to £2.72 million at 31 December 2018.

Investment in the core business continued with capitalised development costs of £0.58 million (H1 2018: £0.82 million) focused on our next generation of retail systems.

Capital expenditure in the period was £0.22 million (H1 2018: £0.23 million).

Net debt (excluding debt associated with right-of-use assets, IFRS 16 and capitalised loan fees) at 30 June 2019 was £0.31 million (31 December 2018: net cash £1.92 million).

Outlook

We are encouraged to see that revenues across the Group’s activities for the first half show both organic and acquisition driven growth on the same period last year. We have secured further important contracts with two existing major clients and we are pleased with the progress made in integrating Celtech into the wider Group. We are already starting to benefit from the acquisition synergies.

Our payment and loyalty operations continue to perform well and we are positioning the newly acquired ab-initio platform at the forefront of our expanded RMS offering. We continue to be cash generative under-pinned by material recurring revenues.

We are, as previously stated, also a second half weighted business, dependent on a small number of high value projects. However, we are confident that, with the investments we have made into the business, we are well positioned for growth in 2019 and beyond.

Andrew Blazye

Non-Executive Chairman

25 September 2019

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