Universe Group plc (LON:UNG), a leading developer and supplier of retail management solutions, payment and loyalty systems, has announced today its audited results for the year ended 31st December 2020.
Highlights
· Total revenues £19.75 million (2019: £22.44 million) – decrease reflecting COVID down-turn in customers’ fuel retailing activities with recovery expected in 2021
· Gross profit margin at 43.5% (2019: 51.8%) – reflecting the change in product mix
· Adjusted EBITDA £1.94 million (2019: £3.89 million)
· Loss for the year £0.62 million (2019 restated: loss of £1.03 million)
· Diluted loss per share 0.24p (2019 restated: 0.40p)
· Net debt at year end £4.69 million (31 December 2019: net cash £0.37 million) resulting from investment in inventories, £4.82 million at 31 December 2020 (31 December 2019: £1.13 million)
· Renewed material loyalty customer, a major international oil and gas group, in Europe-wide 5-year deal post period end
· Maintained service levels during pandemic to ensure clients kept trading in the vital food and fuel retailing sectors
· Extended payments offering and won new payment clients in the year
· Won material payments contract renewal with substantial grocery retailer, currently in pilot
· Completed the integration of Dublin-based Celtech, a class-leading developer of cloud-based retail and wholesale management solutions, acquired in April 2019
Andrew Blazye, Executive Chairman of Universe Group, commented:
“As 2020 unfolded, the Group took all necessary steps to sustain its customers, employees and operations, in what was a very unpredictable environment. I am pleased to say that we closed the year with a business which, by delivering commendable financial results, has proven its value to the marketplace in the toughest of times.
“By winning new, multi-year contracts with key payment clients and being awarded a major contract extension for a loyalty customer, it is clear our proposition remains compelling and full of potential.
“During the pandemic, we saw a delay in the rollout of a payments project for a substantial grocery customer, which is now in pilot, and the slowdown of some early-stage engagement in our latest generation of retail management solutions.
“However, we believe this slowdown will reverse as the UK recovers from the pandemic restrictions and convenience retailers regain their management bandwidth to install more advanced, insightful software that our latest offerings provide.
“Through high customer service levels and new multi-year contract wins, current management has successfully navigated a very difficult year and so has laid the foundations for a promising future. We look forward to a fuller update on strategy and outlook, led by our new CEO and CFO, at the forthcoming AGM.”
CHAIRMAN’S STATEMENT
Introduction
I am pleased to announce our results for the year ended 31 December 2020.
As the financial year started, the coronavirus pandemic accelerated into the first of three lockdowns. The executive team worked with the Department of Business, Innovation and Strategy to establish our status as an Essential Service Provider (“ESP”), due to our material market share of the UK’s convenience and fuel forecourt estates. This enabled the Company to continue to deploy its fleet of engineers and keep its call centre running 24/7, even while most employees were working from home.
We also needed some staff working at our Southampton site, managing spares and supplying engineers with the equipment required to keep our customers up and running. It is testimony to the resilience and hard work of the whole business that our core service metrics remained high during the ongoing coronavirus crisis.
Like many companies, our business started the year with several objectives, which had to be revisited and re-planned as the pandemic unfolded. As we closed the year, we managed to deliver revenue for the second half which was in line with that of the first. A key payments contract planned for the second half is now expected to roll out in mid-2021 and the revenues recognised in 2021. The project is now making good progress and is currently in the live customer pilot phase.
We closed some valuable new business in the first half, which rolled out in the second part of year, including the addition of a new payment services client. We also completed the integration of the Company’s acquisition of Celtech, advancing the Group’s retail management solutions portfolio considerably and improving the breadth and depth of our proposition.
The Company has maintained the development programme for our core products and invested in our service capabilities, which have been adapted to work throughout the pandemic. The Group is ready for the return of a more normal working environment as and when it comes about.
Group revenues at £19.75 million (2019: £22.44 million) were down 12.0% reflecting a COVID down-turn in customers’ fuel retailing activities, with recovery expected in 2021. The change in revenue mix in the business, with a reduction in consultancy and software license revenue, resulted in our gross margin decreasing to 43.5% (2019: 51.8%).
Adjusted earnings before interest, taxes, depreciation, amortisation, administration expenses resulting from acquisition costs and share-based payments ‘Adjusted EBITDA’ (see note 3) reduced by 50.1% to £1.94m (2019: £3.89 million). In line with revenue, Group administrative costs were down by 11.7% to £8.68 million (2019: £9.83 million).
Operating losses totaled £0.41 million (2019: profit of £1.43 million before impairment of development costs of £2.75m) which resulted from the impact of both lower revenues and gross profit margin, partially offset by the reduction in administrative costs.
Cash and cash equivalents less bank borrowings ended the year in a net debt position of £4.69 million (31 December 2019: net cash £0.37 million) due primarily to an increase in year-end inventories of £3.68m to £4.82 million (31 December 2019: £1.13 million) required to service a material contract win, the fulfilment of which has been delayed into 2021.
Overview
Despite difficult trading conditions, the Group remains on track to deliver a substantial contract to replace the outdoor payment terminals for a key grocery customer, as part of a project that is scheduled to finish in mid-2021.
During the year, we also closed a material new contract for our payments business. Our latest Gempay payments device was selected as a preferred solution across the network of a large fuel retailer in the UK. This is a 5-year contract won following a competitive tender process and is for multiple payment operations, including the provision of payment switching, merchant services and a Private Wide Area Network solution. This contract also sees the introduction of Point-to-Point-Encryption across the terminal estate, greatly increasing transaction security and reducing the cost of Payment Card Industry (“PCI”) compliance for retailers.
In the area of loyalty, the Group also secured a significant 5-year extension to a contract with a major international oil group for the provision of real-time loyalty services across their European forecourt estate, in a deal signed in April 2021.
Staff
Through the year, the Group employed an average of 213 people (2019: 241) in the UK, and a further 20 people (2019: 22) in Ireland. As stated above, our position as an ESP, has meant that we have continued to run the business as normally as possible, and for that we are hugely grateful for the adaptability and fortitude of our employees. During the year, a number of employees were furloughed and sadly we had to reduce the size of the team by a small number in the second half. For all staff, whether working at home, in our offices or on the road supporting on-site equipment, their work has been exemplary.
Board
Post the period end we announced that Jeremy Lewis, Chief Executive Officer, had decided to leave the Group to pursue other opportunities outside of the public markets. I am very grateful to Jeremy for his excellent leadership and steering us through the difficult trading conditions caused by the pandemic in 2020.
On 12 March 2021 we announced that Neil Radley would be joining the Group as our new Chief Executive Officer from 1 May 2021. Neil brings tremendous strategic, M&A and finance experience from a range of positions across our markets, particularly the highly regulated and technically complex payments space.
On 23 April 2021 we announced the appointment of Adrian Wilding as Chief Financial Officer and Graham Bird as a Non-Executive Director. Adrian Wilding is an experienced CFO with experience in B2B and B2C financial services, with experience of working in both listed and private equity-led businesses. Adrian has worked with the Company on a consultancy basis in recent weeks and will formally join the board on 1 May 2021. Carmel Warren, previously interim CFO, leaves with the board’s thanks for her contribution as interim CFO.
Graham Bird is a chartered accountant, having qualified with Deloitte, and has over twenty years’ experience in corporate finance and public markets. He is currently the Chief Financial Officer of Escape Hunt plc, the largest international operator of escape rooms, which is quoted on AIM. From 2015 to 2019, he served as a Managing Director at Gresham House plc, where, in addition to supporting the growth of Gresham House plc, he was responsible for establishing and managing the successful strategic equity business unit which focuses on both quoted and unquoted equity investments using the principles and practices of private equity.
COVID-19 update
The health and safety of our staff and customers remains our priority and we continue to extend our sympathies to all those in our business community who have lost loved ones as a result of the pandemic.
With the current sustained demand for local shopping, the convenience stores sector is one that has shown resilience to the pandemic, with some increases in both footfall and basket size. However, the pressure of operational demands and on their management capacity, has delayed some retailers’ ability to implement an upgrade of their retail systems. Consequently, some projects for our ab-initio retail management solution have been delayed into 2021, despite much positive commercial engagement and proof of concept work.
During the second and third lockdowns, our role as a designated ESP required us to ensure that our stock of spares, fleet of vans and staff of engineers were available 24/7 for our customers. Directed and supported by our call centre staff, almost all of whom were working from home, we maintained our service levels.
As previously stated, in some instances our engineers had to temporarily postpone the processing of ad hoc hardware and software upgrades, as well as new installations that are not deemed to be critical in nature. While some of our scheduled upgrades still went ahead, any postponed work will be rescheduled to when restrictions are reduced enough for them to safely resume.
It should be noted that we do not expect any material customer losses. We continue to run the Company on a prudent basis with robust cash conservation measures in place, using the furlough programme as much as we deemed appropriate. During such a period of exceptional trading challenges, we are proud of the way the Group has adapted its processes and working practices.
Summary and outlook
As 2020 unfolded, the Group took all necessary steps to sustain its customers, employees and operations, in what was a very unpredictable environment. I am pleased to say that we closed the year with a business which, by delivering commendable financial results, has proven its value to the marketplace in the toughest of times.
By winning new, multi-year contracts with key payment clients and being awarded a major contract extension for a loyalty customer, it is clear our proposition remains compelling and full of potential.
During the pandemic, we saw a delay in the rollout of a payments project for a substantial grocery customer, which is now in pilot, and the slowdown of some early-stage engagement in our latest generation of retail management solutions.
However, we believe this slowdown will reverse as the UK recovers from the pandemic restrictions and convenience retailers regain their management bandwidth to install more advanced, insightful software that our latest offerings provide.
Through high customer service levels and new multi-year contract wins, current management has successfully navigated a very difficult year and so has laid the foundations for a promising future. We look forward to providing a fuller update on strategy and outlook, as led by Neil and Adrian, at the forthcoming AGM.
Andrew Blazye
Executive Chairman
29 April 2021
Extracts from the Strategic Report
Principle activity
Product focus on real-time Retail Management Solutions (“RMS”)
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 cloud-based, single database, architecture allows a head office user to see transactions on any 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 fuel 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:
• Data services: Our payments switch and associated services, which accept, process, store and transmit credit card information are accredited at the highest level of the PCI standards.
• Software licences and hardware: This income stream comes from the sale of products, such as RMS. 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.
• Consultancy and software maintenance: Our software development teams provide product development, consultancy services and product support to customers, with the teams focused respectively on products and hosted solutions. 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 for our customer base.
• 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.
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 2020, the Board did not consider it appropriate to make any strategic acquisitions.
Business and product development
Retail management solutions
The Group’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 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.
Payments
The Group provides payment processing services via its Gemini Payment Services (“GPS”) platform, delivered as a highly resilient, scalable platform, backed by a 24/7 service capability. The GPS offering has been enhanced for the forecourt market to create own unique IP. The Group now process over £110 million of transactions each week, with transaction volumes around 150 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.
Customer engagement
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 five European countries. In addition, the retail management solution 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.
Summary
This year has been an exceptionally challenging one, profoundly affected as it was by the global pandemic. Despite this, the Group reacted swiftly and soon found a new way of working to accommodate both customers and staff. The resultant market uncertainty did slow down some customer decision making and so led to some project delays.
However, a major payment project won in the year is now underway in pilot and moreover, the Group recently signed a 5-year contract renewal for its loyalty services. Furthermore, new payment customers were signed and launched in the year.
The financial results achieved indicate a successful negotiation of a difficult year and the above-mentioned contract signings bode well for the future prosperity of the Group.
Jeremy Lewis
Chief Executive Officer
29 April 2021
