UCS reports decline in income

By Iain Scott for UCS Group

Johannesburg, 10 May 2001

UCS Group has reported a 2.1% decline in its interim operating income, largely due to challenging trading conditions and conservative accounting.

Thanks mainly to acquisitions, the software solutions and outsourcing group achieved a 24.8% increase in turnover to R78.85 million for the six months to 31 March 2001, compared with R63.16 million for the same period last year.

Operating income slipped to R19.56 million (1999: R19.98 million) before interest, depreciation and research and development.

MD John Bright says the costs of developing the customised solutions for new business (the overall store base for the group is set to more than double within the next 12 months) have been fully expensed during the six months under review, while the revenue will be taken into account only once the store systems are implemented.

"Although this may be considered as an extremely conservative method of accounting for development costs, it is consistent with reporting in previous periods," he says.

"It also falls in line with our annuity revenue business model that helps protect the company from significant reductions in profitability during difficult trading periods.

The turnover mix of the Computerkit Systems acquisition has also been a factor in the tightening of margins, Bright adds.

Research and development expenditure amounted to R4.8 million in the period, compared with R3.4 million previously.

Attributable earnings fell 27.3% to R13.25 million (R18.24 million), with headline earnings declining 25.7% to 5.2c (7c) a share.

"The bulk of this decline arose from the reduction of finance and investment income earning of R6.48 million (R10.82 million)," says Bright. This was due to lower interest rates, surplus funds being invested in tax-free instruments and a reduction in investment income.

"All of the group`s subsidiaries are expected to show improved results and to trade profitably for the second half of the year."

Bright adds that the group can still achieve an overall growth in full-year headline earnings per share over the previous year, provided the scheduled implementations take place on time.

The UCS share closed unchanged at 75c on the JSE yesterday.