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UCS GROUP LIMITED
20TH FLOOR, 209 SMIT STREET
BRAAMFONTEIN, JOHANNESBURG
www.ucs.co.za
UCS 2
010 A
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UA
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2010 ANNUAL REPORT
INVESTMENTS DIVISION
RETAIL SOLUTIONS DIVISION
SOFTWARE DIVISION
UCS SOLUTIONS CEB Maintenance Africa
UCS TECHNOLOGYSERVICES
GAAP Point-of-Sale
ULTISALES Retail Software
CSC
INNERVATIONValue Added Services
UCS DYNAMICS Software Solutions
UCS MOBILITI
4LIFEProgram
ACCSYS FERNRIDGEConsulting
UKSUniversal Knowledge Software
wiWALLET Mobile Payments
V&A RISKVolume and Affi nity Risk Managemnt
ARGILITY AQUITEC CQUENTIALSolutions
ANNUAL REPORT 2010 1
UCS is a leading provider of a range of customised and packaged IT solutions to the retail sector in domestic and international markets.
It also adds value through the development and sale of payment products, corporate loyalty programmes and mobile payment solutions.
CONTENTS
2 Financial highlights
3 Five-year financial review
4 Group overview
8 Chairman’s report
10 Board of Directors
12 Chief Executive Officer’s report
16 Retail solutions division report
18 Investments division report
20 Software division report
22 Chief Financial Officer’s report
25 Corporate governance statement
28 Corporate social investment
29 Report of the Audit and Risk Committee
30 Value added statement
31 Analysis of key ratios
33 Group annual financial statements
100 Shareholding analysis
101 Notice of Annual General Meeting
2 UCS ANNUAL REPORT 2010
2010
R’000
2009
R’000 % Change
GROUP INCOME STATEMENT*
REVENUE 1 321 070 1 232 019 7,2
PROFIT FROM OPERATIONSbefore finance charges, investment revenues, amortisation, depreciation, foreign exchange
differences, impairments and research and developments expenditure 201 654 170 758 18,1
Depreciation and amortisation (71 822) (69 126) 3,9
Foreign exchange differences (8 221) (10 605) (22,5)
Impairment of intangible assets (including goodwill) – (8 027) 100,0
Profit related to Enterprise Solutions division disposed of in the prior year 12 443 – 100,0
Profit on disposal of equity interest in subsidiary company 176 – 100,0
Research and development expenditure (14 801) (7 278) 103,4
PROFIT BEFORE FINANCE CHARGES AND INVESTMENT REVENUES 119 429 75 722 57,7
Net finance charges and investment revenues (4 670) (18 045) (74,1)
PROFIT BEFORE TAXATION 114 759 57 677 99,0
Taxation (43 048) (32 216) 33,6
PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS 71 711 25 461 181,7
(LOSS) PROFIT FOR THE YEAR FROM DISCONTINUED OPERATIONS (22 104) 15 110 (246,3)
PROFIT FOR THE YEAR 49 607 40 571 22,3
Attributable to:
Owners of the Company 39 642 27 446 44,4
Non-controlling interest 9 965 13 125 (24,1)
ORDINARY SHARE PERFORMANCEEarnings per share (cents) 21,7 6,2 250,0
Headline earnings per share (cents) 17,7 8,6 105,8
Weighted average number of ordinary shares in issue (’000) 284 653 290 147 (1,9)
Ordinary shares in issue (’000) 285 356 284 391 0,3
Net asset value per share (cents) 170,3 165,0 3,2
Share price (cents) 190 170 11,8
* The income statement results shown above include continuing operations only.
+7% Revenue +22% Normalised PBIT
+14% Normalised EBITDA +106% Headline earnings per share
FINANCIAL HIGHLIGHTS
FIVE-YEAR FINANCIAL REVIEW for the year ended 30 September 2010
2010
R’000
2009
R’000
2008
R’000
2007
R’000
2006
R’000
GROUP INCOME STATEMENT*Revenue 1 340 375 1 498 787 1 225 743 1 070 539 793 367
Profit before finance charges and investment revenues 97 145 106 745 138 008 185 840 100 341
Net finance charges and investment revenues (4 490) (16 893) (9 100) (1 318) (5 154)
Profit before taxation 92 655 89 852 128 908 184 522 95 187
Taxation (43 048) (49 281) (21 487) (17 916) (5 371)
Profit for the year 49 607 40 571 107 421 166 606 89 816
Attributable to:
Owners of the Company 39 642 27 446 95 809 153 254 83 458
Non-controlling interest 9 965 13 125 11 612 13 352 6 358
Ordinary shares in issue (’000) 285 356 284 391 289 676 283 841 249 108
Earnings per share (cents) 13,9 9,5 33,3 57,4 34,3
Headline earnings per share (cents) 16,2 11,4 31,9 34,7 21,6
Dividends per share (cents) 9,0 9,0 9,0 8,0 6,0
Share price (cents) 190 170 230 436 230
* The income statement results shown above include continuing as well as discontinued operations.
2010 2009 2008 2007 2006
R’000 R’000 R’000 R’000 R’000
GROUP BALANCE SHEETAssets
Non-current assets
Property, plant and equipment (including rental equipment) 86 413 89 775 64 869 72 754 52 502
Intangible assets 156 817 79 479 118 027 65 775 122 037
Goodwill 238 615 237 974 311 660 250 522 135 849
Investments and loans receivable 41 888 9 989 22 362 7 028 7 264
Finance lease receivables 6 645 3 422 4 397 – –
Deferred taxation assets 32 936 36 141 48 500 34 654 25 895
Current assets
Inventories 47 249 47 660 42 565 28 034 23 148
Trade and other receivables 179 463 181 962 223 847 197 963 148 783
Finance lease receivables 3 998 2 723 5 276 – –
Current taxation receivable 7 246 3 203 4 226 762 1 070
Cash and bank balances 131 885 177 764 142 655 144 823 96 832
Assets classified as held for sale – 109 222 11 616 – –
Total assets 933 155 979 314 1 000 000 802 315 613 380
Equity and liabilities
Equity attributable to owners of the Company 486 103 469 302 478 927 387 402 300 996
Non-controlling interest 27 709 28 337 27 662 23 367 38 448
Non-current liabilities
Borrowings 88 227 104 530 139 017 55 277 57 325
Deferred taxation liabilities 15 356 9 572 18 317 10 129 12 469
Deferred revenue 11 000 22 000 – – 7 048
Current liabilities
Trade and other payables 230 144 215 742 222 711 205 980 158 813
Borrowings 50 670 75 008 76 541 93 543 23 896
Current taxation payable 6 390 2 317 25 045 19 209 5 072
Deferred revenue 17 556 17 297 11 780 7 408 9 313
Liabilities directly associated with assets classified
as held for sale – 35 209 – – –
Total equity and liabilities 933 155 979 314 1 000 000 802 315 613 380
FINANCIAL HIGHLIGHTS 3
4 UCS ANNUAL REPORT 2010
UCS Solutions (Proprietary) Limited (‘UCS Solutions’) is a leading business and IT solutions provider to clients in the retail and consumer goods industries. The company harnesses its industry knowledge to help clients achieve better business performance, offering end-to-end consulting, business systems outsourcing and technology services across the full range of IT operations. UCS Solutions has 414 employees.
CEB Maintenance Africa (Proprietary) Limited (‘CEB’) specialises in ‘man-in-van’ IT services for large-scale retail operators and has an enviable list of blue chip retail customers. CEB has 608 employees.
Cquential Solutions (Proprietary) Limited (‘Cquential’) commenced business in 2005 when it initiated the development of its technologically leading edge Warehouse Management System (‘WMS’), which is deployed as a hosted web application. The web-based WMS makes it possible for clients to have stock control and visibility across their entire organisation and further extends control and visibility into the inbound and outbound portions of the supply chain. Cquential offers a full suite of services, from hosting and support to training, solution implementation and consulting. The business has 14 employees.
UCS Technology Services (Proprietary) Limited renders services relating to the ‘in-store’ point-of-sale providing software on behalf of third party software vendors as well as solutions and services required to install, operate and support point-of-sale information technology elements. UCS Technology Services has 413 employees.
Aquitec is a premier provider of supply chain solutions to retailers and distributors. Aquitec, the original pioneer of warehouse management systems in 1969, provides solutions which encompass procurement, forecasting, warehouse management and voice direction. Aquitec has operations in Bagshot, UK and Chicago, USA and has 32 employees.
Argility (Proprietary) Limited (‘Argility’) is an innovative international software solutions company that provides merchandising and point-of-sale solutions to world class retailers. Argility designs, develops, sells, integrates, supports and maintains both customised as well as packaged retail software. Following the acquisition of Argility Limited, UCS Software and UCS Software Manufacturing were merged under the Argility brand to create an enlarged software business with 247 employees.
Software Division
56%100%100%
AN OVERVIEW OF THE UCS GROUP
Retail Solutions Division
100% 100% 100%
51% 100% 51%
Investments Division
70%100% 100%
GROUP OVERVIEW 5
51%
76% 51%
100% 70% 80%
6 UCS ANNUAL REPORT 2010
4Life Program (Proprietary) Limited is a multi-vendor lifestage reward and loyalty programme connecting individuals who are experiencing similar life stages and events with relevant advice, products and services, benefits and rewards.
Accsys (Proprietary) Limited (‘Accsys’) markets and supports one of South Africa’s most comprehensive suites of integrated personnel and human resource management solutions. High level training, professional consultancy and technical support back industry leading software applications, including Accsys Payroll Manager, Accsys Time Manager and Accsys HR. Accsys has 124 employees.
Fernridge Consulting (Proprietary) Limited (‘Fernridge’) assists retailers with the identification of new opportunities for stores, consultancy on rationalisation, relocation, market share, competitor analysis, customer analysis, site evaluations and viability studies for new developments. The company has 13 employees.
GAAP Point-of-Sale (Proprietary) Limited (‘GAAP’) specialises in the provision of point-of-sale and back office solutions in the sit-down and ‘quick service’ restaurant sector of the South African hospitality industry. The company dominates its market sector in KwaZulu-Natal and is increasing its market share rapidly in the rest of the country. The company has 131 employees.
Ultisales Retail Software (Proprietary) Limited specialises in marketing and distributing ‘off the shelf’ point-of-sale and retail management software for small to medium sized retailers in the Tier 3 and 4 sectors. The Ultisales product is taken to market and supported by an extensive network of value added resellers. Ultisales Retail Software has 8 employees.
The business known as CSC is an authorised VeriFone International Partner for VeriFone payment systems into sub-Saharan Africa and has sale and distribution rights for such terminals into the territory. In addition to supplying the payment devices, CSC develops and licenses its own intellectual property software, fulfils the associated field services and maintains the devices. Having supplied in excess of 180 000 devices to the financial, retail, petroleum and hospitality sectors, CSC is considered to be a market leader in this field. CSC has 159 employees.
AN OVERVIEW OF THE UCS GROUP
Retail Solutions Division
100% 100% 100%
Investments Division
70%100% 100%
51% 100% 51%
Software Division
56%100%100%
Universal Knowledge Software (Proprietary) Limited (‘UKS’) is a leading supplier of integrated library management systems and associated technical and support services to the library industry of South Africa and neighbouring states. The company holds the Southern African distribution rights for a leading international library software product called SIRSI. The company has 18 employees.
Innervation Value Added Services (Proprietary) Limited (‘Innervation’) focuses on the provision of networking, hosting and switching services, through the Destiny Switch, including the management of the Innervation VAS products and VAS partners and the provision of solution architecture and integration consulting services.
This company also specialises in corporate strategic loyalty programme consulting and following the investment in the Radical Business Unit in the 2010 financial year, provides the technology platform for loyalty and CRM management. Innervation has 39 employees.
UCS Dynamics Software Solutions (Proprietary) Limited is a Microsoft Gold Certifi ed Partner that specialises in providing integrated business solutions using the Microsoft Dynamics™ ERP suite of applications. Services include analysis, design, customisation, implementation, training and support. This business has 28 employees.
UCSMobiliti focuses on Enterprise mobility solutions for the retail industry. UCSMobiliti concentrates on mobilising business processes in the retail in-store environment, using a web-based mobile portal developed by its strategic partner Tlantic.
GROUP OVERVIEW 7
100% 70%
76% 51%
Volume and Affinity Risk Management (Proprietary) Limited (‘V&A Risk’) is the provider of insurance products and administration and management leveraging brand affinity. This business has 3 employees.
WiWallet Mobile Payments (Proprietary) Limited offer mobile payment technology, including a mobile payment platform and mobile payment application enabling users to pay for products using their mobile devices. WiWallet has 6 employees.
51%
80%
8 UCS ANNUAL REPORT 2010
The awarding of the FIFA World Cup to our beloved country was accompanied by prophecies of doom and gloom from many a quarter and it was heartwarming and with pride that us South Africans dispelled many of these naysayers and put on what can only be described as a superb and World Class success.
Duncan Coles CHAIRMAN
technological and operational areas and the Cordys interaction is yet
another indication of the Group’s flexibility in adapting its product to
meet market requirements.
As has been the case over many years, the Group is ever mindful of
having the appropriately skilled staff employed in their relevant areas
of competence and this past year was no exception.
Both organisational and management changes took place that we firmly
believe will result in streamlined processes. International software
agreements signed by UCS during this past year will enable our local
offerings to be considerably strengthened and be even more attractive
to our customers and should induce prospects to signing business
contracts with the Group.
UCS enters 2011 with the knowledge that we have taken the internal
actions required to take advantage of retail and other market sectors
that are showing positive signs of recovery. We are well positioned
through our broad offerings to increase our presence in markets where
we are already entrenched and take advantage of new opportunities as
they arise.
We have talented, strong management teams who with a skilled
employee base have the required depth of expertise required to
continue to produce high quality products for our markets.
We look forward to a much improved 2011.
A material event which arose during the finalisation of this report
was the receipt by the Group of a firm intention from the Business
Connexion Group Limited (‘BCG’) for the purchase of five identified
subsidiary companies (‘Disposal Entities’) from UCS. This was
announced to the market on the 15th of December on acceptance of
the firm intention by the UCS board. The transaction represents an
equity swap where, on execution, UCS will be the single largest
shareholder in BCG with 25% plus 1 share.
The sale of the Disposal Entities to BCG represents an opportunity for
UCS to execute against its stated strategy of separating its service
businesses from its software businesses, and in the process unlocking
value for the shareholders of UCS.
By placing the service businesses into BCG there will be opportunities
for such businesses to leverage the BCG group’s critical mass,
strategic African continental positioning, stronger BBBEE rating and
well positioned data centre and cloud computing platforms.
UCS shareholders have the opportunity to remain invested in these
assets through the BCG shares to be allotted and issued in settlement
of the guaranteed purchase consideration. UCS Group will be required
to change its name and will continue to operate as an investment
holding company for selected assets including Software and Value
Added Services.
THANKS
My thanks go to my colleagues on the board, both executive and non-
executive, as well as executive and senior management of all the UCS
Group companies. To all UCS employees who have worked under
difficult circumstances to ensure that the company continues to
serve its clients with the high-end quality solutions they require for
their businesses, I express my sincere thanks and appreciation.
The national pride and patriotism was only too evident to see and we
sent the many visitors to our country away with a new and enlightened
perspective of our country. UCS, too, felt the financial positives
engendered by this event, albeit in a small way compared to other
companies, but the lasting spirit and teamwork is something that we
will treasure and remember forever. This teamwork approach has
always been the backbone of our Group and remains intact and even
more embedded in our culture.
I can clearly recall making note in our last year’s report of the
challenging conditions the Group was facing going into this
financial year and this proved to be accurate in the early months of
the financial year.
Few of us, I believe, could have forecast just how strong the Rand
would perform over the past twelve months and this had consequences
for our Group both good and bad.
Similarly, the substantial decrease in the prime overdraft rate, although
anticipated to an extent, has also contributed to a decrease in the
Group’s borrowings. These two factors are likely to remain as features
in all our lives over the coming future.
As I have stated in many of our past Annual reports, UCS’s fortunes
are aligned to some degree to the prosperity of the retail sector of
the economy.
Any downturn in the South African economy tends to lead to consumers
changing their buying patterns which in turn impacts, among others,
on the fast moving consumer goods sector which relies on the
discretionary spending of consumers. This also has an impact on the
fortunes of the major retailers who either curtail or increase their IT
spend accordingly and, as UCS is a fairly dominant force in some
sectors, it does have consequences for the profitability of some Group
companies. Although throughout the early part of the 2010 financial
year we witnessed a slow uptake of new systems and applications by
our major clients and prospects, we have been encouraged by recent
signs of renewed levels of interest and enquiry by many of South
Africa’s major household name Retailers.
Despite the difficulties presented by the economy, UCS performed
credibly during the year. As in the past, management continued to
focus on generating ongoing annuity income wherever possible rather
than pursuing large once-off projects. By their very nature these once-
off projects require major commitments in terms of staff with high
levels of expertise and take many hours to complete. This, in turn,
reduces the number of skilled staff available for projects which could
be generated to create steady revenue streams for UCS.
As a consequence of this focus on annuity income, the Group was able
to increase turnover and trading margins whilst revenue growth was
mainly achieved through organic growth. Strategic acquisitions, which
have always formed a part of UCS’s strategy in a competitive marketplace,
made a minor contribution to revenues.
New software sales were lower than we had hoped for but we are
optimistic that our exposure and venture with the much acclaimed
Cordys platform will translate to an improvement in these revenues
going forward. Undoubtedly, one of the strengths of the Group over the
past 10 years has been its ability to respond swiftly and effectively to
changes within the IT services sector which tend to be in both the
CHAIRMAN’S REPORT
CHAIRMAN’S REPORT 9
10 UCS ANNUAL REPORT 2010
From left to right
BOARD OF DIRECTORS
Duncan Coles (62) MCSSA
CHAIRMAN
Together with John Bright, Duncan is a principal
founder of UCS. He started his career in computing
in 1967 and entered the computer bureau field in
1970 at Management Computer Services (Proprietary)
Limited where he was employed as a software developer/
systems analyst and later promoted to the position of
General Manager. In 1975, following the merger of the
MCS and NCR computer bureaus he became an
assistant to John Bright where his responsibilities
were concentrated mainly on software development
and software developer’s management. Post the
establishment of UCS and the subsequent buy-out of
the computer bureau from NCR in 1978, Duncan’s
major responsibilities have been in respect of the day-
to-day management of the computer operations and
production control areas within Argility (Proprietary)
Limited where, in addition, he plays an executive role
and is responsible for the Software Services Ceres
division. Duncan has served as an executive Director
on the board since the listing of the UCS Group in 1998
and is currently the Group Chairman.
John Bright (63)
CHIEF EXECUTIVE OFFICER
Together with Duncan Coles, John is a principal
founder of UCS. His original background was as a
software developer and systems analyst. He worked
in the computer bureau division of NCR from 1968
to 1978 when he left to start Universal Computer
Services (Proprietary) Limited. John now provides
strategic direction to the Group as Chief Executive
Officer of UCS Group Limited.
Vani Chetty (40) †
A leading competition lawyer in her field who advises
local and foreign corporations on competition issues.
Vani obtained her undergraduate BA Law (1990) and
LLB (1992) degrees in South Africa and then completed
a Masters Degree in Law at Georgetown University in
Washington DC in 1996.
Joseph Claassen (51) †
MEMBER, REMUNERATION COMMITTEE
Following his Matric in 1976, Joseph obtained
qualifications in telecommunications and in
management. Joseph’s role is to provide inputs on
empowerment and employment equity issues as well
as insights into the telecommunications industry.
He has over 20 years experience in the tele-
communications and signal distributor sector. He
currently serves as Vice-Chairman of the SA Canada
Chamber of Business. He also served the Black
Management Forum in various capacities, e.g.
Chairman of the Johannesburg Chapter from 1997 to
2001, BMF Gauteng Regional Manager and alternate
non-executive director of BMF Investment Company.
Josephine Fortuin (30) CA(SA)
CHIEF FINANCIAL OFFICER
Josie graduated from UNISA with a B. Compt degree
in 2002 and completed her articles with Watermark
Auditors in the same year. She completed her CTA in
2003 and passed the FQE in 2004. Josie joined the
UCS Group in March 2004 and was appointed Group
Financial Manager in March 2005 and has since
worked alongside Dean Sparrow in this role during
which time the Group has experienced material
growth. Josie was intricately involved in the creation
and unbundling of Argility Limited and on its coming
into existence in September 2007, was appointed
CFO of this business. In April 2009, Josie was
appointed Chief Financial Officer of UCS Group
Limited, and nominated to be on the UCS Board
of Directors.
Adv Richard Goodman (53)
SC BA LLB LLM †
MEMBER, AUDIT COMMITTEE
An eminent practising advocate of the Cape Bar and
of the High Court of South Africa. A graduate of
the University of Stellenbosch (BA Law, 1978 and
LLB, 1980), Mr Goodman went on to study at the
University of Cambridge where he completed his LLM
in 1982.
BOARD OF DIRECTORS 11
Bryan Hattingh (54) †
MEMBER, REMUNERATION COMMITTEE
Bryan is the CEO of Cycan, a company which enables
individual leaders and organizations to be more
effective, agile and accomplished. He operates in a
number of capacities, from entrepreneur, executive
coach, head hunter and professional speaker to
business development executive. He provides thought
leadership and consulting services to organisations,
ranging from incubator SMMEs to large listed
corporates.
Neil Michelson (52) CA(SA)
COMMERCIAL DIRECTOR
Neil completed his Bachelor of Accountancy in 1983,
and wrote and passed the Board exam in 1984. He
ran numerous small enterprises and consulted from
1985 – 1988 when he joined Spartan Computers in
1988 as Financial Director until 1995 when he sold
the business as Managing Director. Neil joined the
UCS Group Board in 1998 as Financial Director. After
numerous acquisitions, the Group identified the need
for splitting the role of Group FD and Group COO and
Neil was appointed as Group Chief Operating Officer
in 2002. Up to September 2007 Neil also fulfilled
the role of Chief Executive Officer of UCS Software
(Proprietary) Limited.
Peter Terblanche (66) †
CHAIRMAN, REMUNERATION COMMITTEE
MEMBER, AUDIT COMMITTEE
Peter has 44 years experience in the IT software and
services industry and was one of the pioneers of the
software value added services market. He has been
a non-executive director of UCS Group Limited since
2001 and is Chairman of the Remuneration Committee
and a member of the Audit Committee.
Mntungwa Morojele (51)
MBA CA (Lesotho)
CHAIRMAN, AUDIT COMMITTEE
Mntungwa was appointed to the board as an
independent non-executive director on 31 August
2005 and he is the Chairman of the UCS Group Audit
Committee. He holds a Master of Science degree
from Georgetown University, Washington DC, USA, is
a chartered accountant and has a Master of Business
Administration from University of Cape Town’s
Graduate School of Business. He is a member of the
Institute of Directors of South Africa, and served as a
Council member of that Institute for four years (2004
– 2008). He has been a member of the board of the
Spur Corporation since May 2010, and sits on its
Audit and Remuneration Committees.
Dean Sparrow (35) CA(SA)
DEPUTY CHIEF EXECUTIVE OFFICER
Dean qualified as a Chartered Accountant and
completed his articles at Deloitte & Touche in 1999.
After a three month secondment to New York, he was
appointed as a manager in the firm’s assurance and
advisory services division where he also carried out
certain corporate finance assignments. He joined the
UCS Group as Group Financial Manager in April
2002 and was appointed as Chief Financial Officer
in August 2002. The announcement of Dean’s
appointment as Deputy Chief Executive Officer was
made in December 2008 and came into effect
April 2009.
† Non-executive director
12 UCS ANNUAL REPORT 2010
UCS Group is an investment holding company for IT businesses with a primary focus on Software, Solutions and Services for selected markets.
John Bright CHIEF EXECUTIVE OFFICER
CHIEF EXECUTIVE OFFICER’S REPORT 13
OVERVIEW
The results for the 2010 financial year reflected the gradual
improvement taking place in market and trading conditions. It is
envisaged that the steady increase in economic activity will continue
into calendar 2011, hopefully indicating an end to the conditions
which prevailed across all of UCS’s activities during the global
economic downturn that characterised the 2008 and 2009 trading
years. It is heartening to see that the automotive sector, regarded as
an indicator of economic activity in South Africa, is experiencing
improved results.
Overall, the results for the year refl ected a gradual improvement in market and trading conditions for the Group. This occurred despite the strengthening of the Rand, which had a negative impact on the consolidation of the Group’s international operations as well as its domestic revenues associated with the sale of imported products.
Revenue growth for the year was 7,2% (organic 7,0%) whilst EBITDA
grew by 14,3%, reflecting a trading margin of 14,1% (2009 13,3%).
UCS reacted to the difficult trading conditions being experienced by
continuing the process of re-assessing its strategy and making
adjustments that management believed would set the company on a
growth path that could be sustained through 2011 and beyond.
FOCUS ON ANNUITY INCOME
Key actions taken included a critical review of our core businesses and
divisions. Disposals were undertaken to make revenue flows more
predictable, whilst other opportunities were measured on their ability
to generate ongoing annuity income for the Group.
These actions, together with a strong management focus on cost
containment, contributed positively to the improved earnings recorded
during the financial year.
One of the major decisions taken during the management business
review process was the disposal of the Group’s interest in UCS Solutions
Incorporated (‘UCS Solutions Inc.’) in Philadelphia, USA. This change
took effect on 31 August 2010, through entering into a management
buy-out agreement.
The decision was taken after much consideration was given to the
potential of UCS Solutions Inc. to change and evolve from a business
concerned only with projects into a strong, ongoing outsourced
application hosting and support relationship.
After examining this question, management took the decision to rather
reposition the Group’s interests in the USA market through a channel
partner relationship with UCS Solutions Inc. rather than have a direct
interest in the company.
This outcome was achieved by entering into a management buy-out
and implementing a reseller and a resource sharing arrangement. This
had the effect of further reducing the Groups exposure to the high-cost
overhead structures associated with non-predictable revenue streams.
In accordance with IFRS reporting standards, the results of this
disposed investment are accounted for as a discontinued operation.
Comparative figures have been restated accordingly.
The acquisition of Argility Limited was finalised in May 2010. During
the ensuing internal restructuring undertaken to consolidate the
Group’s ownership, management and development within the enlarged
Argility entity, the Group created a third reporting division.
The ‘Software Division’ includes the Aquitec operations previously
reported on under the Retail Solutions Division and the Cquential
business. The comparative year has been restated for current year
classifications.
SOFTWARE BUSINESS RESTRUCTURE AND CORDYS DEVELOPMENT
The Group has made sound progress in the consolidation of the
ownership, management, development and commercial exploitation
of the Group’s other retail software assets within an enlarged
Argility business.
The cost and efficiency benefits of this consolidation exercise are
expected to flow through in the medium-term with the elimination of
duplicate research and development expenditure across different
products. The main benefits are expected to materialise in the next
generation platforms, which will be expedited through the consolidation
of talent and IP resources.
The collaboration agreement entered into between the Group and Cordys in the Netherlands during February 2010, required a significant investment in educating and training the Group’s software engineering and support teams, so that they could acquire the competencies and expertise required for the Cordys software product range.
The Argility business is now well placed to incorporate the Cordys
technologies within the next generation product offerings. These will
come to the market when they are piloted in the furniture retail sector
by April 2011.
CHIEF EXECUTIVE OFFICER’S REPORT
14 UCS ANNUAL REPORT 2010
ACQUISITIONS
WiWallet Mobile Payments (Proprietary Limited)
In respect of the loan facility entered into with WiWallet Mobile
Payments (Proprietary) Limited (‘wiWallet’), UCS exercised its rights in
terms of the option agreement whereby the agreed total start-up facility
of R1,76 million was converted into 40% in wiWallet, taking its total
equity ownership to 50% with effect from 27 October 2009.
In August 2010, UCS acquired a further 1% for a consideration of
R1,2 million resulting in a 51% equity ownership in wiWallet.
Lifeworld Group (Proprietary) Limited
With effect from 30 November 2009, UCS entered into a Sale of Shares
Agreement whereby it increased its 51% interest in the Lifeworld
Group (Proprietary) Limited (‘Lifeworld’) to 100%, for a nominal
consideration. The company subsequently changed its name to
Innervation Value Added Services (Proprietary) Limited.
With effect from 1 December 2009, Lifeworld acquired the going
concern business referred to as the Radical Business Unit from
Dynamic Visual Technologies (Gauteng) (Proprietary) Limited for a total
cash consideration of R1,5 million, net of working capital requirements.
Volume and Affinity Risk Management (Proprietary) Limited
On 9 April 2010, UCS entered into a Sale of Shares Agreement for the
acquisition of 51% of the issued share capital of Volume and Affinity
Risk Management (Proprietary) Limited for a purchase consideration
of R1 million, with a further potential upside payment limited to a
maximum of R5 million.
Cquential Solutions (Proprietary) Limited
Effective 30 April 2010, UCS entered into a Sale of Shares and Claims
Agreement with the Industrial Development Corporation of South
Africa Limited (‘IDC’) to acquire 49% of the issued share capital of
Cquential Solutions (Proprietary) Limited (‘Cquential’) and all claims
which the IDC may have against Cquential, for a purchase consideration
of R12 million with a further potential upside payment capped at
R10 million.
UCS further entered into a Sale of Shares Agreement with the remaining
shareholders of Cquential, predominantly management, to acquire
a further 7% equity interest in Cquential for a nominal purchase
consideration of R28. In addition, UCS committed itself to provide
working capital funding limited to a maximum of R15 million.
Argility (Proprietary) Limited
On 15 March 2010, UCS announced it had formally submitted to the
Argility Limited (‘Argility’) board of directors a notice of its firm intention
to make an offer to the Argility shareholders to acquire the issued
ordinary share capital in Argility held by them. This was to be achieved
by way of a scheme of arrangement in terms of Section 311 of the
Companies Act No 61 of 1973, as amended (‘Companies Act’).
Following approval by more than 90% of the UCS shareholders, who
were entitled to vote at the UCS general meeting held on 12 April 2010,
and the 100% approval of the scheme by Argility shareholders present
or represented by proxy at the general meeting held on 11 May 2010,
the court granted an order sanctioning the scheme in terms of Section
311 of the Companies Act on 18 May 2010.
Accordingly, with effect from 1 June 2010, UCS acquired the entire
issued share capital of Argility, which shares were acquired in terms of
the scheme, for a cash purchase consideration of R1,55 per Argility
share being R44,2 million in aggregate.
DISPOSALS
UCS Solutions Incorporated
With effect from 31 August 2010, Universal Computer Software UK
(‘UCS UK’), a wholly owned subsidiary of UCS Group, disposed of its
entire 92,5% equity interest in UCS Solutions Inc to the management
shareholders who held the remaining 7,5% for a nominal consideration
of $1.
UCS Dynamics Software Solutions (Proprietary) Limited
With effect from 30 September 2010, UCS disposed of 30% equity
interest to the management members of UCS Dynamics Software
Solutions (Proprietary) Limited for a consideration of R2,25 million
reducing UCS Group’s interest in UCS Dynamics to 70%.
TSS Managed Services (Proprietary) Limited
Prior to the 2009 financial year end, UCS Solutions Holdings
(Proprietary) Limited concluded a Share Purchase and Repurchase
Agreement with Tactical Software Systems (Proprietary) Limited and
TSS Managed Services (Proprietary) Limited (‘TSSMS’) whereby
UCS Solutions Holdings agreed to dispose of its entire 60%
shareholding in TSSMS by way of the repurchase and the share sale,
in one composite transaction.
The total potential transaction consideration (inclusive of a potential
upside capped at a maximum further R45 million) could be R125 million
(excluding interest and dividends). The transaction was approved by
shareholders at a general meeting held on 3 November 2009 which
represented the final suspensive condition to concluding the transaction.
PROSPECTS
The outlook for the domestic retail market is favourable, with retail
business confidence improving and consumer spending forecast to
show another year of positive growth in 2011, albeit possibly at a
slower rate than in 2010.
Internationally, the outlook is highly variable and dependant on
particular markets.
European retail sales are expected to show very marginal growth,
which will come under further pressure due to various austerity
measures in place.
The US retail market is also forecast to be sluggish, due to continuing
consumer caution and a shift to higher saving patterns. Further
consolidation in the retail sector is likely.
The BRIC countries are forecast to continue recovering strongly but
there are significant challenges in accessing the retail sectors in India
and China.
CHIEF EXECUTIVE OFFICER’S REPORT continued
CHIEF EXECUTIVE OFFICER’S REPORT 15
A similar focus will be applied to certain VAS businesses to achieve
monthly profitability in 2011, although the risk profile is very different
to that of the Software Division’s, with downside risk that is relatively
limited when compared to upside potential.
Overall, whilst retail market conditions look promising to neutral, it must
be emphasised that trading conditions can change very rapidly. In
addition, currency fluctuations make planning very challenging.
Based on current visibility, budgets and business plans, management
is cautiously optimistic that the UCS Group will generate good growth
in all main criteria of sales, earnings and cash flows for the year to
September 2011.
APPRECIATION
I would like to express my gratitude and thanks to all our staff for their
loyalty and commitment to going the extra mile in the line of duty, to our
customers for allowing us the privilege of doing business with them, and
also our suppliers for the products and services that they provide us.
Finally, my gratitude goes to my management colleagues and the Board
of Directors for their valued support, wisdom and guidance.
The Group’s core solutions and services businesses are all well placed, both strategically and operationally, well managed by experienced teams and have the solid foundations for further growth in the year ahead.
The management team’s major and immediate focus will be on getting
the new enlarged and consolidated Argility software business to achieve
monthly profitability during the new financial year.
This will be achieved whilst achieving aggressive delivery targets for
new product releases built on the Cordys business operations platform.
In addition, the start-up Cquential SaaS business is wholly based on
annuity revenue models and is currently planned to achieve monthly
profitability by the third quarter of 2011.
16 UCS ANNUAL REPORT 2010
HEADING
The decision to reposition the division was aimed at signifi cantly reducing the division’s exposure to major once-off projects. This strategic change was accompanied by a focus on applying resources to the growth and extension of annuity-based services to provide a smoother source of sustainable income to the division.
Neil Michelson COMMERCIAL DIRECTOR
FINANCIAL HIGHLIGHTS
REVENUE UP 11%
TO R766 MILLION (2009: R691 MILLION)
NORMALISED EBITDA UP 43%
TO R92,7 MILLION (2009: R64,7 MILLION)
REFLECTING A 12,1% MARGIN (2009: 9,4%)
NORMALISED PBIT UP 113% TO R61 MILLION
(2009: R28,6 MILLION) REFLECTING A 8,0%
PBIT MARGIN (2009: 41,1%)
RETAIL SOLUTIONS DIVISION REPORT
RETAIL SOLUTIONS DIVISION REPORT 17
OVERVIEW
During the year under review, the Retail Solutions Division enjoyed
good revenue and margin growth, benefitting primarily from organic
growth achieved through ongoing strong relationships with existing
customers, as the market, still somewhat limited because of the
prevailing economic climate, presented limited opportunities to win
new customers.
Organic growth was supported by a strategic operational decision
taken in 2009 to reposition the division for annuity based services.
OPERATIONAL REVIEW
The division is in the process of closing out two onerous projects. The
process should see the projects completed early in the 2011 financial
year, following which the division will reap the benefits of these projects
evolving into their annuity income phase, the ongoing support and
maintenance relationship.
The delay in project delivery has had a direct impact on margins as
more costs are incurred to deliver, there is a deferral in the trigger for
annuity revenues and resources are tied up and not available for
reallocation to new revenue generating projects. Given the fact that
these projects are likely to be delivered in early 2011, the division is
positioned to show an improvement in margins and profitability.
BENEFITS
The lessons learned, although costly, have resulted in several benefits.
The division’s contracts have been critically examined and re-structured.
Now more conservative, the contracts also limit and manage the risks
associated with these projects more effectively, particularly during
critical stages of a project, where risk exposure normally increases.
On the plus side, all but one of the projects that were undertaken have
been converted into long-term service relationships that will benefit the
company and shareholders. Typically, these relationships based on the
solutions provided, continue for between seven and ten years before
upgrades are considered. The incumbent service provider, because of
their long associations with the company concerned, is then usually
favourably considered when replacement solutions are required. Long
term returns can therefore be very meaningful.
The implementation of the decision to concentrate on the development
of annuity projects also saw a fundamental repositioning of UCS
Solutions in the United States of America through the disposal of its
stake in UCS Solutions Inc. (‘UCS Inc’) to management.
This change resulted in the restructuring of the relationship between
UCS Solutions and UCS Inc. UCS Inc. is now a licensed reseller that is
positioned to sell the ‘Ready to Retail’ template in the North American
markets. Simultaneously, UCS entered into a formal resource sharing
relationship that will be beneficial to the operations of both companies.
DEVELOPING PRODUCTS AND MARKETS
During the year, the division continued to make significant investments
in developing an integrated SAP (Ai0) interface. This will enable UCS
to provide tailored solutions to the building suppliers and pharmacy
markets. These investments in the development of the solution have
resulted in new customers from both market sectors. The division is
also well positioned to add further SAP (Ai0) integrated solutions
to other retail markets, particularly the fuel, cellular and furniture
industries. We believe that the division has the depth of skills required
to integrate in-store solutions with centralised ERP’s. This will continue
to be a key long-term focus area in developing new services and
growing the division’s market share in various economic sectors.
The HCL-Axon strategic partnership continued to add value to the
division. The first ‘earn out’ from HCL-Axon took place during the year
and a further material final payment is expected during the coming
financial year. It is expected that the mutually beneficial relationship
will continue well into the future.
UCS continues to be well positioned to provide all the ongoing services
associated with post implementation projects in the Tier One retail sector
and also offers attractive solutions for the retail sector, particularly those
in developing and emerging economies. This is especially the case on
the African continent.
The UCS Group currently has software applications in eight African
countries, and the the Retail Solutions Division added four more
strategic African partnerships during the year.
With the African continent enjoying economic growth and proving
increasingly attractive to international investors, it can be expected that
this prosperity will filter down to consumers, many of whom will enjoy
increased levels of discretionary spending power. This, in turn, will
benefit retailers and provide new opportunities in Africa for the division.
ISO 2000 CERTIFICATION
Quality and consistency of business processes are essential ingredients
in the development of a relationship of trust with suppliers and
customers. It was therefore a matter of pride that the Infrastructure
Division within UCS Solutions achieved their ISO 2000 certification.
Besides offering benefits within the company, the certification offers
significant benefits when providing infrastructure hosting services for
Tier One retailers. As the certification confirms that mature and formal
processes are in place, it offers customers ‘peace of mind’ through the
knowledge that their operation critical investments are being made
with an outsourcing partner that embraces world class standards.
LOOKING AHEAD
During the final quarter of the financial year there was a notable increase
in the number of projects initiated by customers and entrusted to the
companies that comprise the division.
The pipeline for future projects also began to improve as customers
began considering the revival of projects that had previously been
identified and planned, but had been postponed due to prevailing tough
economic conditions.
We will continue to drive additional value and services within the
competitive retail sector to ensure that the growth in revenues
outperforms those of our competitors.
We are confident that 2011 will be profitable for the division and that
turnover and margins will continue to increase in a market that is
returning to its former strength.
18 UCS ANNUAL REPORT 2010
The Investments Division has shown reasonable growth on an aggregated basis realising attractive EBITDA margins whilst continuing to invest behind the exciting value added services initiative.
FINANCIAL HIGHLIGHTS
REVENUE UP 11%
TO R372 MILLION (2009: R335 MILLION)
NORMALISED EBITDA UP 13%
TO R90,7 MILLION (2009: R80,2 MILLION)
REFLECTING A 24,4% MARGIN (2009: 24,2%)
NORMALISED PBIT UP 9,5% TO R65,4 MILLION
(2009: R59,7 MILLION) REFLECTING A 17,6%
PBIT MARGIN (2009: 17,8%)
Dean Sparrow DEPUTY CHIEF EXECUTIVE OFFICER
INVESTMENTS DIVISION REPORT
INVESTMENTS DIVISION REPORT 19
BUSINESS UNITS WITHIN THE INVESTMENTS DIVISION
The Investments Division comprises business units that are categorised
into one of the following three groupings; the retail software assets, the
value added services assets or other investments. This is consistent
with the 2009 financial year.
The retail software assets, however, no longer include UCS Software
Manufacturing. This change occurred following the acquisition of
Argility Limited, the creation of the enlarged software business and the
set-up of the stand-alone Software Division. Only GAAP Point-of-Sale
and Ultisales Retail Software remain within this category.
The value added services assets consist of Destiny e-Commerce, which
following the move of the Destiny Switch business into Innervation
Value Added Services (formerly Lifeworld) at the end of the financial
year, now only houses the going concern business of CSC. The other
businesses in this category include WiWallet, Volume and Affinity Risk
Management and 4Life.
WiWallet, the mobile application and transaction interchange, is a
business that was funded by UCS from December 2007 through a
convertible loan and a 10% initial equity position. During the current
financial year, the decision was taken to convert the loan funding into
a further 40% equity ownership in the business, which was then
subsequently increased by a further 1%, bringing the total equity
owned by the Group up to 51%.
The remaining assets within the Investments Division then fall into the
category, other investments, and include Accsys, Universal Knowledge
Software, UCS Dynamics, Fernridge and UCS Mobiliti.
STRATEGIC REVIEW
Within this division, and subsequent to the creation of the enlarged
software business, which is now reported under the separate Software
Division, the key strategic domestic growth focus is the appropriate
positioning and execution of the value added services initiative.
The value added services initiative
The Group has continued to invest in the extension of its service and
product lines. Good progress has been achieved, particularly in regard
to building of our Value Added Service (VAS) offerings for the retail
value chain in the South African market.
A number of small but strategic acquisitions were concluded during
the year under review with the purpose of building the offering further,
as well as appropriately positioning the go-to-market vehicle for the
VAS initiative.
These acquisitions, referred to in the CEO’s review in this report,
included the purchase of the remaining 49% interest in Lifeworld.
The name of this company was then changed to Innervation Value
Added Services.
Innervation acquired the going concern business of The Radical
Business Unit from DVT for the benefit of owning the member
management and treasury application for loyalty programmes. A 51%
interest was acquired in Volume and Affinity Risk Management
introducing financial services/insurance products for retail to be promoted
at point-of-sale.
The VAS unit’s vision is to offer customers a choice of value added
products facilitated through a single platform. This will allow them to
achieve accelerated and sustainable business growth by delivering
innovative, consumer focused solutions across all channels that
enable our clients to continue to acquire, manage, retain and grow
profitable customers.
This will be achieved by providing thought leadership and technical
services that will deliver transactions and value added services
across multiple channels through a single, well supported and
integrated platform.
We will assist our clients to improve efficiencies and increase traffic
and transactions through the use of a broader range of products
and services.
The ultimate intention is to increase our clients’ profitability and improve
customer loyalty by providing convenience and value to their customers.
Operational highlights
GAAP Point-of-Sale was the growth performer of the division during the
year under review. It increased revenue by 35% on the prior year,
driven largely as a result of the activity generated within the hospitality
sector in the run-up to the FIFA world cup.
Ultisales Retail Software was able to successfully launch Argility’s new
product, Ultisales version 5, to the tier 3 and tier 4 retail market which
provides the South African and sub-Saharan African resellers an
exciting new product roadmap.
CSC, the secure payment terminal business, saw the number of devices
sourced and supplied during 2010 increase by 14%. This growth was,
however, negatively affected in terms of actual revenue realised as a
result of the strengthening in the Rand/Dollar exchange rate.
Accsys, the HR, payroll and time and attendance business, saw revenue
growth of almost 12% with a substantial improvement in margins
and associated profitability given the favourable mix in revenue growth
weighted towards the sale of new generation proprietary software.
The combined VAS initiative (excluding CSC) ended the year having
largely completed the appropriate positioning of its technology
enablement capability. The other investments performed satisfactorily
during the year.
Prospects
CSC, which represents the major portion of the investments division, in
terms of revenue generation and profit contribution is poised for a sound
2011 financial year due to a strong order book and robust pipeline.
The balance of VAS is expected to start contributing meaningfully in
the new financial year, as some tier one retail clients have already
indicated that they will be utilising the proposed integrated value
added services platform for the facilitation of various value added
services in-store.
WiWallet has seen significant interest and strategic partnership
approaches, which bodes well for the achievement of its current
business plan. This business is expected to breakeven on a per month
basis by the end of the 2011 financial year.
Given the above, the Division is expected to show better revenue
growth and EBITDA generation in the new financial year.
20 UCS ANNUAL REPORT 2010
HEADINGSOFTWARE DIVISION REPORT
John Bright CHIEF EXECUTIVE OFFICER
FINANCIAL HIGHLIGHTS
TURNOVER DOWN 10,7%
TO R181,6 MILLION (2009: R203,3 MILLION)
EBITDA DOWN 37,9%
TO R17,5 MILLION (2009: R28,3 MILLION)
PBIT DOWN 78,6%
TO R3,7 MILLION (2009: R17 MILLION)
THE CORDYS PARTNERSHIP
More than 500 ‘man days’ were invested in training staff on Cordys products. This involved staff
drawn from all parts of the business who participated in 10 ‘boot camps’ that were held in
major centres in South Africa and the UK.
Extensive market research was undertaken through a special ‘customer interview project’, which
was instigated to ascertain market needs and identify key opportunities for Cordys collaboration.
A ‘think tank’ of commercial product managers was arranged to assist with the development of a
product strategy and provide a guide for further software investments.
SOFTWARE DIVISION REPORT 21
A TIME OF CHANGE
During the year, the Software Division underwent extensive
organisational and management changes. These changes, contributed
to higher costs, but, more significantly, because of the management
commitment required, diverted focus from core operations. This partly
resulted in reductions in turnover and profitability by the division
during the year.
Whilst annuity revenues experienced modest growth, the impact was
felt on new software sales which were significantly lower across all
product lines.
These negative developments are, however, of a temporary nature
which will be overcome by the business advantages that will be
experienced in future by combining all the software assets of the UCS
Group into a single entity. The most significant benefit will be a
streamlined approach to managing the division and its products, which
will deliver commercial benefits.
SIGNIFICANT TRANSACTIONS
As part of the strategic re-positioning several transactions were
concluded. These will play a major part in the consolidation process
and undoubtedly contribute to a more efficient operation.
The major acquisition was that of Argility, which was selected as the
entity on which the formation of the new, enlarged software business
would be based.
This transaction made a R3 million negative contribution to PBIT.
Turnover was negatively impacted on by the conversion of outsourced
development contracts between the Software Division and Argility,
which have now become internal service contracts. Additional
amortisation of R3,2 million was applied as a result of Argility’s intangible
assets brought back on balance sheet through the acquisition.
Cquential was acquired in April 2010. This resulted in a negative
contribution of R2,5 million to PBIT. Additional amortisation of
R2,7 million was realised as a consequence of Cquential’s intangible
assets acquired.
In February 2010, the Software Division entered into a software
agreement with Cordys. In terms of the agreement, the Cordys software
may be embedded in Argility’s products and sold internationally under
licence. This represents a significant transaction for the Division that
creates worldwide opportunity for its product lines.
OPERATIONAL HIGHLIGHTS
Although the year was dominated by activity which will reposition
the Software Division as a competitive, focused software entity in the
future, several significant milestones were achieved. These were:
BUSINESS REORGANISATION
More than 250 staff members were impacted on by the business
reorganisation process. All now operate within a new entity driven by
new management structures, a focused operating model and KPI’s.
Non-software based services were separated from UCS Software.
A new entity to house these services, together with the services of
CKS, namely UCS Technology Services, was created for this purpose.
STRATEGIC REVIEW
The core focus of the Software Division in 2011 will be to become cash
flow positive by the end of the financial year.
Specific strategies are already in place to rationalise operational
expenditure and achieve sales growth both through traditional
channels and through the launch of the Retail Operations Platform
(‘ROP’), a new product line.
The ROP underwent an incubation phase lasting several months. The
product, which will be formally introduced at the National Retail
Federation in New York in January 2011, is a significant development
for UCS.
The new product line leverages the strong market position of the
Cordys Business Operations Platform (‘BOP’) and extends it with retail
specific content from the Software Division.
A roadmap for the first release of ROP in March 2011 will be
announced at the National Retail Federation. This will be complemented
by further ROP releases featuring additional content and capabilities
throughout the remainder of 2011.
PROSPECTS
The increasing rate of adoption of Service Oriented Architecture (‘SOA’)
in enterprise systems is recognised throughout IT analyst circles
across the world. This phenomenon was an integral part of the
Software Division’s decision to re-factor its retail IP and take it to the
market as a ROP.
Argility has a ‘lighthouse’ customer in South Africa using the Cordys
product in a live operation, and has several other prospects presently
being evaluated.
Collaboration has commenced with the Value Added Services (‘VAS’)
division to deliver consumer transacting on mobile phones which has
met with positive market response.
The World Wide Chain Stores (‘WWCS’) product, which is currently
owned and operated by Aquitec UK, will be assimilated into the
Software Division by April 2011. Plans are in place to introduce
Cordys technology into WWCS specifically in the area of business
optimisation through activity monitoring.
Cquential offers ‘Software as a service’ (‘SaaS’) for warehouse
management. This is a uniquely competitive commercial model that is
gaining traction in the market and will become cash generative when
it has reached a critical mass of customers.
22 UCS ANNUAL REPORT 2010
HEADING
Following the acquisition of Argility Limited fi nalised in May 2010 and the ensuing internal restructuring to consolidate the Group’s ownership, management and development within an enlarged Argility, the Group has created a third reporting division named the ‘Software Division’.
Josephine Fortuin CHIEF FINANCIAL OFFICER
CHIEF FINANCIAL OFFICER’S REPORT 23
Prior year income statement figures have been restated to exclude the
earnings result of the disposed operation of UCS Solutions Incorporated
(‘UCS Solutions Inc.’), the SAP All-in-One practice in which Universal
Computer Software UK Limited (‘UCS UK’), a wholly owned subsidiary
of UCS Group Limited (‘UCS Group’ or the ‘Group’) disposed of its
92,5% equity interest to the remaining management shareholders,
effective 31 August 2010. On this basis and in accordance with IFRS,
the results of UCS Solutions Inc. are disclosed, net of tax, as ‘profit
from discontinued operations’ in the statement of comprehensive
income for the current and comparable period.
Revenues from continuing operations were up 7,2% to R1,3 billion (2009: R1,2 billion). Revenue growth is mainly organic, with less than 0,2% attributable to acquisitions. Annuity revenues showed growth of 5% to R726 million (2009: R691 million) representing 55% (2009: 55,4%) of total revenues.
Normalised profit from operations before interest, depreciation,
amortisation, impairments and foreign exchange differences (EBITDA)
increased by 14,3% to R186,9 million (2009: R163,5 million)
reflecting a margin of 14,1% (2009: 13,3%). UCS Solutions
(Proprietary) Limited (‘UCS Solutions’), an indirectly held wholly
owned subsidiary company of UCS Group, earned a net R12,4 million
upside payment on the achievement of the first year’s revenue target
for the annual period ended 31 July 2010 applicable to the disposal of
the Enterprise Solutions division (‘ES division’) of UCS Solutions to
HCL-Axon (Proprietary) Limited in the prior year.
Together with the foreign exchange losses, which are mainly unrealised
on the translation of foreign loan accounts with subsidiary companies,
totalling R8,2 million (2009: R10,6 million), the upside profit related
to the ES division have been excluded from normalised EBITDA
and PBIT. Normalisation adjustments in the prior year relate to the
impairment of intangible assets and goodwill of R8 million and foreign
exchange losses.
Normalised PBIT increased by 21,9% to R115 million (2009: R94,4 million)
reflecting a margin of 8,7% of revenues versus a comparable 7,7% in
the previous year.
Finance charges, net of interest and investment revenues, decreased
by 74,1% to R4,7 million (2009: R18 million). The substantial decrease
is due to the Group’s reducing interest bearing debt as well as the
R3 million dividend earned on the preference shares issued to UCS
Solutions Holdings (Proprietary) Limited, a wholly owned subsidiary of
UCS Group, as part consideration for the entire 60% equity interest
in TSS Managed Services (Proprietary) Limited (‘TSSMS’), disposed
of effective 1 October 2009.
Taxation charges (including capital gains tax, STC and withholding
taxes) increased by 33,6% to R43 million (2009: R32,2 million)
comprising normal taxation of R42,8 million (2009: R33,3 million) and
deferred tax of R0,2 million (2009: credit R1,1 million), representing
an effective tax rate of 37,5% (2009: 55,9%) for the year. Excluding
losses included in profit before tax for which no tax benefit has been
accrued as well as other once-off related tax charges, the normalised
effective tax rate is calculated at 29% (2008: 30,1%).
The current year loss from discontinued operations relates entirely to
the operating and disposal result of UCS Solutions Inc whilst the prior
year profit from discontinued operations, restated for the operating
result of UCS Solutions Inc, includes the after tax income of DiverseIT,
the ES division and TSSMS.
Profit attributable to UCS shareholders of R39,6 million, after minority
interest, represents an increase of 44,4% from the comparable
prior period.
Earnings per share, including discontinued operations in the current
and prior years, increased by 46,3% to 13,9 cents (2009: 9,5 cents).
The difference between earnings per share and headline earnings per
share relates mainly to the aforementioned upside payment associated
with the ES division, net of taxation effects, equating to 3,8 cents and
the impairment and equity losses recognised associated with the
disposals effective in the year equating to 6,2 cents. Headline
earnings per share increased 42,1% to 16,2 cents (2009: 11,4 cents).
In the current year the capital expenditure of R49,4 million, largely
driven by infrastructure and hardware related investments backed by
customer utilisation and contracted requirements, is congruent with
the annual depreciation for the year of R45,2 million as well as
disposals of R7,9 million.
The increase in goodwill of R11,2 million, associated with the
acquisitions detailed below, was offset by the goodwill associated with
UCS Solutions Inc. written off on disposal of R10,4 million.
The substantial increase in intangible assets, after amortisation of
R26,6 million, relates predominantly to computer software and
associated capitalised development costs acquired on the acquisition
of Argility Limited and Cquential Solutions of R81 million as well as to
approved capital expenditure of R24 million, of which R8,4 million
relates to development costs capitalised.
The increase in investments and loans receivable is attributable to
redeemable preference shares in Tachcal Software Systems
(Proprietary) Limited of R30 million, on which a dividend is earned
annually, for the period the shares are in issue, based on pre-
determined annual performance thresholds.
Total borrowings decreased by 22,6% from R180 million to
R139 million of which R110 million (2009: R141 million) represents
external financial institution debt contributing to the 25% improvement
in the Group’s debt/equity ratio from 36% to 27%.
Excluding receivables held for sale in the prior year, trade receivables
decreased by 5% due to improved collections supported by the
improvement in debtors’ days from 52,2 days to 49,9 days.
CHIEF FINANCIAL OFFICER’S REPORT
24 UCS ANNUAL REPORT 2010
Cash generated from operations, which includes discontinued
operations, is down 26,1% to R172,4 million (2009: R233,5 million).
Excluding the contribution of discontinued operations in the prior year
for comparative purposes, as well as the cash effect of an upfront three
year licence deal of R33 million included in cash generated from
operations in the previous year, of which one third is included in
EBITDA in the current year, cash generated from operations would be
2,3% improved on the previous year.
A net R32,5 million was realised by the Group in the year on the
disposal of TSSMS while R73,3 million was invested in capital
expenditure for the same period. R49,4 million was applied to funding
acquisitions of which Argility Limited comprised R44,2 million.
The Group applied R110 million (2009: R66,4 million) to financing
activities reducing bank borrowings as well as settling vendor
obligations of R21,7 million following the achievement of warranted
profit targets.
The staff complement at the end of September 2010 was 2 315
(2009: 2 270 – restated to exclude TSSMS and UCS Solutions Inc).
CHIEF FINANCIAL OFFICER’S REPORT continued
Board constitution
The Board operates a unitary board, consisting of five executive and
six non-executive directors, five of which are independent.
The roles of Chairman and Chief Executive Officer are occupied by
different directors.
The Board Chairman is an executive director.
The non-executive directors bring a diversity of experience, insight and
expertise on independent judgement on issues of strategy, performance
and standards of conduct. The Board believes it has sufficient
skills and experience to balance conformance to governance and
entrepreneurial performance.
Company Secretary
The Company Secretary provides guidance to the Board as a whole
and to individual directors, in the discharge of their responsibilities.
The Board believes that the Company Secretary is empowered to fulfill
his duties and is satisfied that he discharges his responsibilities in a
meaningful and complete manner.
Access to information
Directors have full and unrestricted access to all relevant company
information.
Non-executive directors enjoy unrestricted access to executive
management and meet with them to discuss company affairs on a
frequent basis.
All directors have unrestricted access to independent professional
advice at the Company’s expense.
Conflicts of interest
The directors declare possible conflicts of interest, recuse themselves
from further discussion or voting on the matter, and ensure that such
declarations are recorded in the minutes. There were no material
conflicts of interest declared during the year under review.
Succession planning
The Board participates in the succession planning for key senior
executive positions.
The directors periodically discuss succession planning and are
comfortable that in the event of executive and senior management
transition, plans are in place to ensure a smooth transition.
Directors’ appointments
Directors are appointed and re-appointed, on a three-year cycle
rotational basis by shareholders. Ms Chetty and Messrs Coles,
Goodman and Michelson retire by rotation, but offer themselves for
re-election.
Other directorships
The Board believes that other directorships held by directors do not
affect their ability to fully discharge their responsibilities as directors of
UCS Group Limited.
Board meetings
The Board met four times during the year under review. All directors
are encouraged to attend each meeting and gatherings where their
presence is required.
UCS Group Limited (‘UCS’) complies in all material respects with the
principles and spirit of the Code of Corporate Practices and Conduct
contained within the King Report on Corporate Governance for South
Africa 2009 (‘King Report 2009’). Variations from compliance are
outlined below.
The Board is committed to applying and enforcing appropriate
corporate governance principles, policies and practices within each of
the Group’s operations. Ultimately, the Board is the focal point of the
Group’s corporate governance system, and is accountable and
responsible for ensuring compliance with the King Report 2009.
The Group is in the process of reviewing the requirements set out in
the King Code of Governance for South Africa, 2009 (the King III
Report) and will measure itself against these principles. Existing
governance practices are being reviewed to ensure responsible
qualitative or alternative compliance that is in the Group’s best
interests. In its approach, the Board will remain mindful of its
responsibility to and of the interdependency and interaction between
the triple ‘Ps’ (People, Planet and Profits) as the foundation for
sustainable value creation, ensuring an entrepreneurial culture that
identifies and operates within acceptable risk levels at the same time
progressing transformation at all levels.
THE GROUP’S TARGETS
The Group seeks to add value by addressing the needs of our customers,
employees and stakeholders, acknowledging our responsibility to society
at large, while growing and ensuring profitability of our business.
The vision of UCS is to become an international leader in the provision
of Software, Solutions and Services for the retail value chain.
The Board, committees, executives and employees of UCS are devoted
to achieving the highest standards in corporate governance, corporate
responsibility, risk management and social responsibility.
The Board of Directors is responsible to the Company’s shareholders
for the oversight and implementation of governance, in the conduct
of business.
THE CONSTITUTION AND OPERATION
OF THE BOARD OF DIRECTORS
The Board:
is accountable and responsible for the performance and affairs of
the Company;
has adopted a charter outlining its responsibilities;
takes responsibility for guiding and monitoring compliance with all
applicable laws, regulations and codes of business practice;
delegates responsibilities for compliance on an operational basis to
senior management and maintains oversight thereof;
has defined levels of materiality for the business;
has delegated relevant matters to the executive directors and senior
management based on detailed authority levels;
believes it has full and effective control over the Company and
oversight of management activities.
CORPORATE GOVERNANCE STATEMENT 25
CORPORATE GOVERNANCE STATEMENT
26 UCS ANNUAL REPORT 2010
Other duties of the Audit Committee include the following:
Nominating the external auditor for appointment as auditor of the
Company;
Verifying the independence of any proposed appointee as
auditor, before the appointment becomes final;
Approval of the audit fees;
Specifying the nature and extent of non-audit services;
Pre-approval of contracts for non-audit services;
Dealing with concerns or complaints relating to the following:
accounting policies
internal audit
the audit or content of Annual Financial Statements
internal financial controls
Evaluating the effectiveness of risk management, controls and
governance processes;
Evaluating the competence of the Chief Financial Officer
Remuneration Committee
Messrs P Terblanche (Chairman), JR Claassen and BP Hattingh are
members of the Remuneration Committee which considers the
conditions of employment and remuneration packages for UCS’s key
executive management and non-executive directors.
Risk Management and Internal Control
The Board is responsible and accountable for risk management and
internal control.
Executive management, under the Board’s oversight, assumes
responsibility for the integration of risk practices into operational
activities.
The Board is satisfied that management is attuned to both the negative
and positive aspects of business risk. The Board believes it has
adequate information to facilitate a balanced assessment and the
management of significant risks through effective internal control
systems.
The Group maintains systems of internal control over financial
reporting and the safeguarding of assets against unauthorised use,
acquisition or disposal. PricewaterhouseCoopers Inc. (‘PWC’) were
assigned the responsibility for the Group’s internal audit function for
the financial year under review and reports functionally to the Audit
and Risk Committee and administratively to the Chief Financial Officer.
The Audit Committee approves audit plans for UCS and its subsidiaries
annually. Follow-up audits are conducted in areas where major
weaknesses are identified.
In the current year, in accordance with the recommendations contained
in Chapter 7 of the King III Code on Corporate Governance, PWC
performed a review of the internal financial controls of the major
subsidiary companies of the Group. A written assessment on the
adequacy of internal financial controls was issued to the Audit and
Risk Committee whereby PWC confirmed that the controls that
were tested, were operating with sufficient effectiveness to provide
reasonable, but not absolute assurance, that the control objectives
were achieved for the period under review.
Details of Board meeting attendance for the year under review are as
follows:
Board
Audit & Risk
Committee
Remuneration
Committee
Attended/
held
Attended/
held
Attended/
held
Executive directors:
Mr JD Bright 4/4
Mr DF Coles 4/4
Ms JP Fortuin 4/4
Mr NA Michelson 4/4
Mr DC Sparrow 4/4
Non-executive directors:
Mr J Claassen 4/4 2/2
Ms V Chetty 4/4
Mr RG Goodman 4/4 5/5
Mr BP Hattingh 4/4 2/2
Mr MPR Morojele 4/4 5/5
Mr P Terblanche 3/4 5/5 2/2
Board Committees
The Board has two Board Committees, namely the Audit and Risk
Committee and the Remuneration Committee, which cover defined
responsibilities. The Chairman of the Audit and Risk Committee is
Mr MPR Morojele, an independent non-executive director. The Chairman
of the Remuneration Committee is Mr P Terblanche, an independent
non-executive director.
Both Committees operate in accordance with terms of reference
approved by the Board and report to the full Board.
The Board is satisfied that its Committees have fulfilled their responsibilities
as set out in their respective terms of reference for the year under review.
Professional Advice
The Board and its Committees have unimpeded access to independent
outside professional advice.
Audit and Risk Committee
Messrs MPR Morojele, RG Goodman and P Terblanche are members
of the Audit and Risk Committee and are financially literate. All the
members attended the five meetings held during the financial year
under review.
In line with the requirements of section 269A of the Companies Act, as
amended by the Corporate Laws Amendment Act 2006, the Audit and
Risk Committee confirms the following:
The duties of the Audit Committee include the need to prepare a
report for the Annual Financial Statements on:
how the audit committee carries out its functions;
whether or not the auditor is independent;
its findings with regard to:
the Annual Financial Statements
accounting practices utilised in the preparation of the Annual
Financial Statements
internal financial control
the going concern nature of the Company
CORPORATE GOVERNANCE STATEMENT continued
CORPORATE GOVERNANCE STATEMENT 27
ACCOUNTING AND AUDITING
The Audit and Risk Committee plays an active role in deliberations
relating to the appointment of, and non-audit services provided by, the
external auditors.
The Board is aware of its responsibility pertaining to the preparation
and contents of the Annual Financial Statements.
The external auditors enjoy unrestricted access to the Audit and Risk
Committee, the Chairman of the Audit and Risk Committee and the
Chairman of the Board.
DISCLOSURE PRACTICES
The directors are responsible for the preparation of the Company’s
Annual Financial Statements. The directors believe that the Annual
Financial Statements fairly present the state of affairs of UCS and its
subsidiaries as at the end of the financial year.
In terms of the JSE Limited Listings Requirements, compliance with
International Financial Reporting Standards (IFRS) is required for
financial years beginning on or after 1 January 2005. Accordingly the
Annual Financial Statements have been prepared in accordance with
and are compliant to IFRS.
GOING CONCERN
The Board believe that UCS will continue to be a going concern in the
foreseeable future, based on past performance, existing forecasts and
current cash resources.
AUDITORS
During the financial year under review, Deloitte & Touche acted as the
external auditors of the Company and has reported that the Annual
Financial Statements fairly present the financial position of the Company
and of the Group as at 30 September 2010.
The Board is satisfied that the Annual Financial Statements fairly present
the financial position of UCS as at 30 September 2010 and the profit
and loss and cash flows for the financial year ended 30 September 2010.
The audit report is presented on page 35 of this Report.
The Annual Financial Statements were approved by the Board on
23 November 2010.
The Board believes that in the financial year under review and up to
the date of approval of the Annual Report and Financial Statements,
UCS operated an adequate system of internal control to identify and
manage operational and financial risks. The system of internal control
is risk based, designed and regularly reviewed and tested to sufficiently
manage the Company risks that have a significant impact on the
business. The Board believes that the system of internal control
provides reasonable, but not absolute, assurance of the effectiveness
and efficacy of controls throughout the business.
SUSTAINABILITY
UCS has, during the year under review, placed an increased emphasis
on the non-financial value drivers of business, including, but not
restricted to, stakeholders such as shareholders, customers, employees
and government agencies. The focus includes socio-economic issues
such as community and individual development, employment equity
and occupational health and safety.
UCS will strive to behave and report to its stakeholders in a manner
that reflects how it practices its values in conformity with defined
principles in all activities.
The directors, who appreciate that these matters require on-going
development and flexibility, have, at the date of this report, concluded:
Health and Safety
While the business of Group companies does not pose a substantial
occupational health and safety risk, management ensures that
appropriate steps are taken to ensure safety in its buildings and
compliance with the occupational health and safety requirements.
Environment
While the nature of the business of the Group companies does
not result in environmental degradation, management constantly
monitors the effect of its business on the environment.
Social
The Group embraces the role it can play as a catalyst for change
within the markets its serves and supports a number of social
investment programs through the utilization of the skills and
resources available within the Group. A further report of the CSI
and enterprise development initiatives of the Group is presented on
page 28 of the Report.
Economic
UCS seeks to provide its clients with solutions in the information
technology field which will result in their having a lead over their
competitors.
Ethics
The Group recognises the vested interest of all stakeholders in the
manner in which its various businesses are conducted and is
committed to ethical behaviour at all levels of the Group. The Group
will initiate a project to formalize a code across the Group which
articulates the Group’s commitment to its stakeholders, comprising
its shareholders, customers, suppliers and broader community, as
well as policies and guidelines regarding the personal conduct of
management, officials and other employees.
28 UCS ANNUAL REPORT 2010
THE PROGRAMME
Training at Zwelethu consists of point-of-sale, customer service and
call-centre courses. Of the courses, the point-of-sale material is
accredited with the necessary SETA and is presently undergoing the
process to be registered as a learnership. Steady progress is being
made with accrediting the call centre course with the Service SETA and
also registering it as a learnership. Once these steps have been
accomplished, the students will be able to benefit from material that
is relevant and competitive and also offers substantial incentive to
potential employers.
LESEDI SCHOOL
At the Lesedi School, Ms Laaka and four educators who assist 85
learners, have been working diligently after normal hours throughout
the year, preparing to write examinations in 11 school subjects.
Students writing examinations at the end of calendar 2010 are all
enrolled for the ABET (Adult Basic Education and Training) qualification
of the Department of Higher Education. The qualification covers four
levels, which are all offered by Lesedi. Learners attaining the ABET 4
qualification qualify for admission at Colleges for further education
and training.
Computer skills are offered through a computer school under the
auspices of Lesedi at campuses in Fontainebleau and Zandspruit.
Here students undertake comprehensive courses that have a duration
of six months and are presented in fully equipped computer training
centres. These centres feature state-of-the-art hardware and the latest
available software applications. A total of 86 students underwent
training during the 2010 calendar year.
SUCCESSES
The success of programmes offered at the various UCS supported
training facilities can be measured through the fact that of recent
graduates, 59 out of the 62 call centre agents trained were employed
by the JD Group. A further 85 students are currently busy with Adult
Basic Education and Training at the Lesedi School.
OVERVIEW
UCS, as a supplier of value added services to the retail industry,
recognises that it has a role to play in the prosperity of the sector.
Added to this role is an acknowledgement that because of our activities
and expertise, we have the knowledge to create opportunities for those
who, through no fault of their own, are not able to secure places for
themselves in the retail sector.
We therefore focus our corporate social investment programme on
creating ongoing opportunities for people to assimilate the technical
skills needed to operate within a retail environment.
We believe that by assisting with the creation of skilled ‘jobholders’ we
are making an effective contribution not only to society, but also to the
sector to which we owe our business success.
OBJECTIVES
The primary focus of the UCS corporate social investment programme
lies in training and skills development.
This occurs in the Zwelethu and Lesedi areas to the north of
Johannesburg and involves material that has been specifically
developed to train and improve the skills of young, unemployed
students. The beneficiaries of the programme are young people who
have been identified as having the potential to develop, but lack the
necessary financial means to obtain a formal education.
The training is made possible through a financial partnership involving
UCS, as sponsor and project owner, working in association with Equip,
a course development, SETA contact and training provider, and Homo
Novus, a company that is involved with the recruitment, placement
and also overall management of the programme. All partners play key
roles ensuring that the support and logistics required for the successful
implementation of the programme are maintained.
All training is undertaken in the knowledge that to be effective, the
services provided must be comparable to similar services supplied by
training service providers operating in the private sector.
CORPORATE SOCIAL INVESTMENT
REPORT OF THE AUDIT AND RISK COMMITTEE 29
4. FREQUENCY OF MEETINGS
The Audit and Risk Committee met on five occasions during the
financial year under review. Provision is made for additional meetings
to be held as and when necessary.
5. PERSONS ‘IN ATTENDANCE’ AND ‘BY INVITATION’
The internal and external auditors, in their capacity as auditors to
the Group, attended and reported to all meetings of the Audit and
Risk Committee.
The Chief Financial Officer and relevant senior managers attended
Audit and Risk Committee meetings on a ‘by invitation’ basis.
6. ALL MEETINGS INCLUDE A CONFIDENTIAL SESSION
Audit and Risk Committee meetings include a confidential session
between committee members and the internal and external
auditors.
Executive directors and senior managers are not present during
the confidential session.
7. INDEPENDENCE OF AUDIT
During the year under review the Audit and Risk Committee
reviewed reports by the external auditor and, after conducting its
own review, confirmed the independence of the Auditor.
8. EXPERTISE AND EXPERIENCE OF THE CHIEF FINANCIAL OFFICER
As required by JSE Listing Requirement 3.84(h), the Audit
Committee has satisfied itself that the Chief Financial Officer has
appropriate expertise and experience.
1. INTRODUCTION
The Audit and Risk Committee has pleasure in submitting
this report, as required by sections 269A and 270A of the
Companies Act.
2. FUNCTIONS OF THE AUDIT AND RISK COMMITTEE
The functions of the Audit and Risk Committee include:
2.1 Review of the interim and year-end financial statements,
culminating with a recommendation to the Board.
2.2 Review of the external audit reports, after audit of the interim
and year-end financial statements.
2.3 Review of the internal audit and risk management reports,
with, when relevant, recommendations being made to
the Board.
2.4 In the course of its review, the Committee:
takes appropriate steps to ensure that Annual Financial
Statements are prepared in accordance with International
Financial Reporting Standards (‘IFRS’);
considers and, when appropriate, makes recommendations
on internal financial controls and the going concern
assumption analysis;
verifies the independence of the external auditor and of
any nominee for appointment as external auditor;
authorises the audit fees in respect of both the interim
and year end audits;
specifies guidelines and authorises contract conditions for
the award of non-audit services to the external auditors;
evaluates the effectiveness of risk management, controls
and the governance processes;
deals with concerns or complaints relating to the following:
Accounting policies
Internal audit
The audit or content of Annual Financial Statements
Internal financial controls
considers reports on sustainability issues;
has initiated information technology risk management
procedures.
3. MEMBERS OF THE AUDIT AND RISK COMMITTEE
3.1 The membership of the Audit and Risk Committee currently
consists of three independent non-executive directors,
Messrs MPR Morojele (Chairman), RG Goodman and
P Terblanche;
3.2 The members of the Audit and Risk Committee have at all
times acted in an independent manner.
REPORT OF THE AUDIT AND RISK COMMITTEE
30 UCS ANNUAL REPORT 2010
2010 2009
R’000 % R’000 %
Revenue 1 340 375 1 498 787
Cost of goods overheads and other expenses 491 260 572 960
Value added 849 115 925 827
Income from investments 9 165 6 855
Wealth created 858 280 100,0 932 682 100,0
Distribution of wealth
Employees
Salaries, wages and benefits 689 851 80,4 749 873 80,4
Providers of capital
Finance charges 13 835 1,6 23 748 2,5
Government
Taxation 42 811 5,0 41 764 4,5
Re-invested in Group activities 111 783 13,0 117 297 12,6
Deferred taxation 237 0,0 7 517 0,8
Depreciation and amortisation 71 904 8,4 82 334 8,8
Net profit for the year attributable to owners of the Company 39 642 4,6 27 446 2,9
Wealth distributed 858 280 100,0 932 682 100,0
* The value added statement includes amounts relating to continuing as well as discontinued operations.
VALUE ADDED STATEMENT for the year ended 30 September 2010
ANALYSIS OF KEY RATIOS 31
2010 2009 2008 2007 2006
Ordinary share performance
Weighted average number of shares in issue (’000) 284 653 290 147 287 560 267 098 243 134
Earnings per share (cents) 13,9 9,5 33,3 57,4 34,3
Headline earnings per share (cents) 16,2 11,4 31,9 34,7 21,6
Net asset value per share (cents) 170,3 165,0 165,3 136,5 120,8
Cash flow from operations per share (cents) 60,6 80,5 69,3 66,9 49,5
Dividends per share (cents)
Interim declared and paid 4,0 4,0 4,0 4,0 3,0
Final declared 5,0 5,0 5,0 5,0 4,0
Dividend cover 1,5 1,1 3,7 6,4 4,9
Profitability and asset management
Operating profit to revenue (%) 14,7 15,5 17,3 25,3 21,5
Return on total equity (%) 9,0 6,6 18,1 22,6 15,5
Asset turnover ratio (times) 1,8 2,0 1,8 2,0 2,1
Trade and other receivables days 49,9 52,2 60,4 55,6 53,4
Inventory turnover (times) 71,6 50,9 69,4 55,7 46,1
Current ratio (times) 1,2 1,3 1,2 1,1 1,4
Employees
Number of employees at year end 2 315 2 677 2 590 2 249 2 044
Revenue per employee (R’000) 579,0 559,9 473,3 476,0 388,1
Operating profit per employee (R’000) 85,2 86,6 81,9 120,3 83,6
* The key ratios are calculated using results from continuing as well as discontinued operations unless otherwise stated in the definitions below.
DEFINITIONS
The summary set out below incorporates definitions of terms used in this analysis of key ratios:
Net asset value per share
Equity attributable to equity holders of the Company divided by the number of shares at year end
Cash flow from operating activities per share
Cash generated from operations before working capital changes divided by the weighted average number of ordinary shares in issue
Return on total equity
The percentage of headline earnings to total equity
Asset turnover ratio
The current year’s revenue divided by the average operating assets
Operating assets
Total assets less investments, loans receivable, bank balances, current taxation receivable and deferred taxation
Trade and other receivables days
The average trade and other receivables divided by current year’s continuing operations revenue multiplied by 365
Inventory turnover
The average inventory divided by the current year’s cost of sales multiplied by 365
Current ratio
The ratio of current assets to current liabilities, excluding assets and liabilities classified as held for sale
Operating profit
The profit before finance charges, investment revenues, depreciation, amortisation, goodwill and intangible asset impairments and research and
development expenditure
Dividend cover
Earnings per share divided by dividends per share
ANALYSIS OF KEY RATIOS for the year ended 30 September 2010
32 UCS ANNUAL REPORT 2010
FINANCIAL STATEMENTS 33
34 Directors’ responsibility and approval
34 Certificate of the company secretary
35 Independent auditor’s report
36 Directors’ report
38 Income statements
38 Statements of other comprehensive income
39 Statements of financial position
40 Statements of changes in equity
44 Statements of cash flows
45 Notes to the annual financial statements
98 Schedule of interests in subsidiary companies
Overall, the results for the year refl ect a
gradual improvement in market and trading
conditions experienced by the Group in the
previous fi nancial year.
UCS reacted to the diffi cult trading
conditions being experienced by continuing
the process of re-assessing its strategy
and making adjustments that management
believed would set the company on a growth
path that could be sustained through 2011
and beyond.
CONTENTS
GROUP ANNUAL FINANCIAL STATEMENTS
34 UCS ANNUAL REPORT 2010
The directors acknowledge responsibility for the preparation of the annual financial statements which, in their opinion, fairly present the results and
cash flows for the financial year and the state of affairs of UCS Group Limited and its subsidiaries at the end of the financial year.
The annual financial statements have been prepared in accordance with International Financial Reporting Standards, in the manner required by
the South African Companies Act (No. 61 of 1973), as amended, and the disclosure requirements of the Listings Requirements of the JSE Limited.
The Group’s independent external auditors, Deloitte and Touche, have audited the annual financial statements and their unmodified report appears
on page 35.
The directors are of the opinion, based on the information and explanations given by management, that the system of internal control provide
reasonable assurance that the financial records may be relied on for the preparation of the annual financial statements and for maintaining
accountability for assets and liabilities.
The consolidated annual financial statements set out on pages 36 to 99, which have been prepared on the going concern basis, were approved by
the board of directors on 23 November 2010 and were signed on its behalf by:
DF Coles JD Bright
CERTIFICATE OF THE COMPANY SECRETARY
We declare that, to the best of our knowledge, the Company has lodged with the Registrar of Companies all such returns as are required of a public
company in terms of the South African Companies Act (No. 61 of 1973) and that all such returns are true, correct and up-to-date.
Corporate Governance CC
Chartered Secretaries
23 November 2010
DIRECTORS’ RESPONSIBILITY AND APPROVAL
FINANCIAL STATEMENTS 35
We have audited the Company and Group annual financial statements of UCS Group Limited, which comprise the directors’ report, the statement
of financial position and the consolidated statement of financial position as at 30 September 2010, the income statement and consolidated income
statement, the statement of other comprehensive income and consolidated statement of other comprehensive income, the statement of changes in
equity and the consolidated statement of changes in equity and the statement of cash flows and the consolidated statement of cash flows for the
year then ended, a summary of significant accounting policies and other explanatory notes, as set out on pages 36 to 99.
DIRECTORS’ RESPONSIBILITY FOR THE ANNUAL FINANCIAL STATEMENTS
The Company’s directors are responsible for the preparation and fair presentation of these annual financial statements in accordance with
International Financial Reporting Standards and in the manner required by the Companies Act of South Africa. This responsibility includes:
designing, implementing and maintaining internal control relevant to the preparation and fair presentation of annual financial statements that are
free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting
estimates that are reasonable in the circumstances.
AUDITOR’S RESPONSIBILITY
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International
Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures
selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether
due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation
of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting principles used and
the reasonableness of accounting estimates made by the directors, as well as evaluating the overall financial statement presentation.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OPINION
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company and of the Group as
at 30 September 2010 and of their financial performance and their cash flows for the year then ended in accordance with International Financial
Reporting Standards and in the manner required by the Companies Act of South Africa.
DELOITTE & TOUCHE
Registered Auditors
Per BL Escott
Partner
23 November 2010
Deloitte & Touche
Deloitte Place
The Woodlands
20 Woodlands Drive
Woodmead
2199
National Executive: GG Gelink Chief Executive, AE Swiegers Chief Operating Officer, GM Pinnock Audit, DL Kennedy Tax, Legal and Financial
Advisory, L Geeringh Consulting, L Bam Corporate Finance, CR Beukman Finance, TJ Brown Clients & Markets, NT Mtoba Chairman of the Board,
CR Qually Deputy Chairman of the Board.
A full list of partners and directors is available on request.
INDEPENDENT AUDITOR’S REPORT to the members of UCS Group Limited
36 UCS ANNUAL REPORT 2010
SHARE INCENTIVE SCHEMES
The Company has three incentive schemes which enable employees
of the Company and its subsidiaries to have the opportunity of
acquiring an interest in the equity of the Company, thereby providing
such employees with further incentive to advance the Group’s interests
and to promote an identity of purpose between the employees and the
shareholders of the Company.
1. The UCS Group Limited Staff Share Trust Share Option
Scheme (Market priced share option scheme)
No new share options were granted under this scheme in the current
year (2009: 800 000). In total, 9 854 075 (2009: 12 046 325)
options were in issue which had not been exercised at the year end.
The terms relating to this Scheme are detailed in note 22 to the
annual financial Statements.
2. UCS Group Limited Staff Share Scheme II (Preference
share scheme)
This scheme was established during October 2000. The terms
relating to this scheme are detailed in note 22 to the annual
financial Statements.
3. Management Incentive Scheme (Zero Cost Incentive Scheme)
890 548 (2009: 364 500) new share options were granted under this
scheme during the year. In total 2 791 869 (2009: 2 462 958)
options were in issue at the year end. The terms relating to this
scheme are detailed in note 22 to the annual financial Statements.
DIVIDENDS
A final dividend of 5 cents (2009: 5 cents) per share in respect
of the year ended 30 September 2009 totalling R14 421 133
(2009: R14 636 955) was declared on 20 November 2009 and paid
on 8 February 2010.
An interim dividend of 4 cents (2009: 4 cents) per share totalling
R11 536 906 (2009: R11 536 906) was declared on 14 May 2010
and paid on 16 August 2010.
SECRETARY
Corporate Governance CC
Chartered Secretaries
Business address: Postal address:
28th Floor PO Box 31266
209 Smit Street Braamfontein
Braamfontein 2001 2017
DIRECTORATE
The names of the directors of the Company in office at the year end
are set out on page 10. In accordance with the Company’s Articles
of Association Ms V Chetty and Messrs DF Coles, RG Goodman,
NA Michelson retire by rotation, but being eligible, offer themselves for
re-election.
The aggregate interest of the directors in the issued share capital of the
company is set out in note 4.2.
The directors have pleasure in submitting their report together with the
annual financial statements of the Company and of the Group for the
year ended 30 September 2010.
NATURE OF THE BUSINESS
UCS Group Limited is an investment holding company, listed on the
JSE Limited, which has invested in a group of information technology
businesses focused on the provision of software solutions and services
for the retail value chain.
FINANCIAL PERFORMANCE
Group net profit for the year ended 30 September 2010 after allocating
minority shareholders their interest in the Group was R39,642 million
(2009: R27,446 million) supporting headline earnings per ordinary
share of 16,2 cents (2009: 11,4 cents) based on the weighted average
number of shares as set out in note 9 to the annual financial
statements and calculated in accordance with Circular 3/2009 issued
by SAICA in August 2009.
Full details of the financial position and results of the Company and
its subsidiaries are set out in the accompanying annual financial
statements.
SHARE CAPITAL
Ordinary shares
There were no ordinary shares allotted during the year (2009: 2 419 500
at a premium of R0,339 million).
The circumstances of the prior year allotments were as follows:
1. 564 000 ordinary shares – Share options exercised by employees
of the Group in terms of an offer by the staff share trust.
2. 1 855 500 ordinary shares – These shares were allotted pursuant
to the rules of the UCS Group Limited Staff Share Scheme II
whereby a portion of the preference shares convert into ordinary
shares for certain employees as a result of the achievement of
predefined headline earnings per share targets.
Preference shares
In the prior year, 1 855 500 preference shares were converted to
ordinary shares at par and 79 500 preference shares were redeemed
at their issue price of 16,36 cents.
The authorised and issued capital is detailed in note 21 to the financial
statements.
TANGIBLE AND INTANGIBLE ASSETS
Capital expenditure incurred during the year, including the acquisition
of subsidiaries, was made up as follows:
2010
R’000
2009
R’000
Tangible assets (note 10.2) 50 135 73 877
Intangible assets (note 11.2) 104 952 13 786
Goodwill (note 12) 12 004 30 325
167 091 117 988
There have been no major changes in the nature of the above assets
during the period nor any changes in the policy relating to their use.
DIRECTORS’ REPORT
FINANCIAL STATEMENTS 37
disposed of its entire 92,5% equity interest in UCS Solutions
Incorporated to the management shareholders who held the
remaining 7,5% for a nominal consideration of $1.
2. Effective 30 September 2010, UCS disposed of 30% equity interest
to the management members of UCS Dynamics Software Solutions
(Proprietary) Limited for a consideration of R2,250 million, reducing
the Group’s interest in UCS Dynamics to 70%.
3. Prior to the 2009 financial year end, UCS Solutions Holdings
(Proprietary) Limited concluded a Share Purchase and Repurchase
Agreement with Tactical Software Systems (Proprietary) Limited
and TSS Managed Services (Proprietary) Limited (‘TSSMS’) whereby
UCS Solutions Holdings agreed to dispose of its entire 60%
shareholding in TSSMS by way of the repurchase and the share
sale, in one composite transaction. The total potential transaction
consideration (inclusive of a potential upside capped at a
maximum further R45 million) could be R125 million (excluding
interest and dividends). The transaction was approved by
shareholders at a general meeting held on 3 November 2009
which represented the final suspensive condition to concluding
the transaction.
SUBSIDIARIES
Details of all subsidiaries, are set out on pages 98 and 99 of the annual
financial Statements.
Interest of the holding company in aggregate profits/losses
The holding company’s interest in the aggregate profits after taxation of
the subsidiaries amounted to R109,626 million (2009: R77,777 million)
and losses amounted to R61,165 million (2009: R42,746 million).
SUBSIDIARIES UNDER WARRANTIES
Volume and Affinity Risk Management (Proprietary) Limited
(‘V&A Risk’)
In accordance with the Sale of Shares Agreement entered into with the
vendors of V&A Risk, additional amounts are payable to the vendors of
V&A Risk to the extent the V&A Risk business achieves or exceeds
certain growth profit targets.
MAJOR SHAREHOLDERS
Besides the directors’ holdings (direct and indirect), the directors have
not been informed of any shareholdings other than those detailed,
which are in excess of 5% of the issued share capital of the Company
at 30 September 2010.
Shareholder
Number of
shares
% of
issued capital
Rand Merchant Bank 33 858 006 11,74
Oasis Funds 30 892 569 10,71
Tactial Software Systems
(Proprietary) Limited 27 011 196 9,37
POST STATEMENT OF FINANCIAL POSITION EVENTS
Dividend
The final dividend for the year of 5 cents (2009: 5 cents) per share was
declared on 19 November 2010.
CONTINGENT LIABILITIES
Other than the contingent liabilities disclosed in note 37, the directors
are not aware of any other material contingent liabilities at the time of
approving this report.
ACQUISITIONS
The following acquisitions were concluded by UCS during the period
under review:
1. In respect of the loan facility entered into with wiWallet Mobile
Payments (Proprietary) Limited (‘wiWallet’), UCS exercised its
rights in terms of the option agreement whereby the agreed total
start up facility of R1,76 million was converted into 40% equity
interest in wiWallet, taking its total equity ownership to 50% with
effect from 27 October 2009. In August 2010, UCS acquired a
further 1% for a consideration of R1,2 million resulting in a
51% equity ownership in wiWallet.
2. With effect from 30 November 2009, UCS entered into a Sale of
Shares Agreement whereby it increased its 51% interest in
Lifeworld Group (Proprietary) Limited (‘Lifeworld’) to 100%, for a
nominal consideration. The company subsequently changed its
name to Innervation Value Added Services (Proprietary) Limited.
3. With effect from 1 December 2009, Lifeworld acquired the going
concern business referred to as the Radical Business Unit from
Dynamic Visual Technologies (Gauteng) (Proprietary) Limited for
a total cash consideration of R1,5 million, net of working capital
requirements.
4. On 9 April 2010, UCS entered into a Sale of Shares Agreement for
the acquisition of 51% of the issued share capital of Volume and
Affinity Risk Management (Proprietary) Limited for a purchase
consideration of R1 million, with a further potential upside
payment limited to a maximum of R5 million.
5. Effective 30 April 2010, UCS entered into a Sale of Shares and
Claims Agreement with the Industrial Development Corporation of
South Africa Limited (‘IDC’) to acquire 49% of the issued share
capital of Cquential Solutions (Proprietary) Limited (‘Cquential’)
and all claims which the IDC may have against Cquential for a
purchase consideration of R12 million with a further potential
upside payment limited to a maximum of R10 million. UCS further
entered into a Sale of Shares Agreement with the remaining
shareholders of Cquential being predominantly management, to
acquire a further 7% equity interest in Cquential for a nominal
purchase consideration of R28. In addition, UCS would provide
working capital funding limited to a maximum of R15 million.
6. On 15 March 2010, UCS announced it had formally submitted to
the Argility Limited (‘Argility’) board of directors a notice of its firm
intention to make an offer to the Argility shareholders to acquire
the issued ordinary share capital in Argility held by them by
way of a scheme of arrangement in terms of Section 311 of the
Companies Act No 61 of 1973, as amended (‘Companies Act’).
Following approval by in excess of 90% of the UCS shareholders
who were entitled to vote at the UCS general meeting held on
12 April 2010 and the 100% approval of the scheme by Argility
shareholders present or represented by proxy at the general
meeting held on 11 May 2010, the court granted an order
sanctioning the scheme in terms of Section 311 of the Companies
Act on 18 May 2010. Accordingly with effect from 1 June 2010,
UCS acquired the entire issued share capital of Argility, which
shares were acquired in terms of the scheme, for a cash purchase
consideration of R1,55 per Argility share being R44,2 million in
the aggregate.
DISPOSALS
The following disposals were concluded by UCS in the year under
review:
1. With effect from 31 August 2010, Universal Computer Software
UK (‘UCS UK’), a wholly owned subsidiary of UCS Group Limited,
38 UCS ANNUAL REPORT 2010
Group Company
Notes2010
R’000
Restated2009
R’0002010
R’0002009
R’000
CONTINUING OPERATIONS
REVENUE 2 1 321 070 1 232 019 24 629 19 429
PROFIT (LOSS) FROM OPERATIONSbefore finance charges, investment revenues, amortisation,
depreciation, foreign exchange differences, impairments
and research and development expenditure 201 654 170 758 (9 983) (6 950)
Amortisation of intangible assets 3.2 (26 611) (28 295) (290) (289)
Depreciation of property, plant and equipment (including rental equipment) 3.6 (45 211) (40 831) (320) (313)
Foreign exchange differences 3.9 (8 221) (10 605) (5 244) (10 964)
Impairment of intangible assets (including goodwill) 3.10 – (8 027) – –
Impairment of investments in subsidiaries 3.11 – – (45 618) (35 021)
Profit related to the Enterprise Solutions division disposed of in the prior year 12 443 – – –
Profit on disposal of equity interest in subsidiary company 176 – 39 – Research and development expenditure (14 801) (7 278) – –
PROFIT (LOSS) BEFORE FINANCE CHARGESAND INVESTMENT REVENUES 3 119 429 75 722 (61 416) (53 537) Finance charges 5 (13 835) (22 907) (3 133) (4 732) Investment revenues 6 9 165 4 862 41 357 28 160
PROFIT (LOSS) BEFORE TAXATION 114 759 57 677 (23 192) (30 109) Taxation 7 (43 048) (32 216) (1 617) 353
PROFIT (LOSS) FOR THE YEAR FROM CONTINUING OPERATIONS 71 711 25 461 (24 809) (29 756)
DISCONTINUED OPERATIONS
(LOSS) PROFIT FOR THE YEAR FROM DISCONTINUED OPERATIONS 8 (22 104) 15 110 – –
PROFIT (LOSS) FOR THE YEAR 49 607 40 571 (24 809) (29 756)
TOTAL PROFIT ATTRIBUTABLE TO: Owners of the Company 39 642 27 446 Non-controlling interest 9 965 13 125
49 607 40 571
EARNINGS PER SHARE (cents)From continuing and discontinued operations Basic 9 13,9 9,5 Diluted 9 13,7 9,3From continuing operations Basic 9 21,7 6,2 Diluted 9 21,3 6,1
STATEMENTS OF OTHER COMPREHENSIVE INCOME for the year ended 30 September 2010
Group Company
2010R’000
Restated2009
R’0002010
R’0002009
R’000
PROFIT (LOSS) FOR THE YEAR 49 607 40 571 (24 809) (29 756)
OTHER COMPREHENSIVE INCOME FOR THE YEAR AFTER TAXATION: Exchange differences on translating foreign operations 4 881 1 272 – –
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 54 488 41 843 (24 809) (29 756)
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO: Owners of the Company 44 523 28 718 Non-controlling interest 9 965 13 125
54 488 41 843
INCOME STATEMENTS for the year ended 30 September 2010
FINANCIAL STATEMENTS 39
Group Company
Notes
2010
R’000
2009
R’000
2010
R’000
2009
R’000
ASSETS
Non-current assets
Property, plant and equipment (including rental equipment) 10 86 413 89 775 241 490
Intangible assets 11 156 817 79 479 113 403
Goodwill 12 238 615 237 974 – –
Investments in subsidiaries 13 – – 248 506 228 464
Investments 14 35 000 6 024 65 000 65 930
Loans receivable 15 6 888 3 965 2 252 2 613
Finance lease receivables 16 6 645 3 422 – –
Deferred taxation assets 17 32 936 36 141 5 067 5 067
563 314 456 780 321 179 302 967
Current assets
Inventories 18 47 249 47 660 – –
Trade and other receivables 19 179 463 181 962 9 515 2 239
Finance lease receivables 16 3 998 2 723 – –
Current taxation receivable 7 246 3 203 234 234
Cash and bank balances 131 885 177 764 25 517 42 649
369 841 413 312 35 266 45 122
Assets classified as held for sale 20 – 109 222 – –
Total assets 933 155 979 314 356 445 348 089
EQUITY AND LIABILITIES
Capital and reserves
Issued share capital 21 1 427 1 422 1 442 1 442
Share premium 32 026 30 341 228 228
Treasury share reserve (3 391) (1 928) – –
Equity-settled employee benefit reserve 19 116 18 698 1 556 1 449
Foreign currency translation reserve 6 085 1 204 – –
Change in subsidiary shareholding reserve (3 454) (652) – –
Retained earnings 434 294 420 217 132 507 183 274
Equity attributable to owners of the Company 486 103 469 302 135 733 186 393
Non-controlling interest 27 709 28 337 – –
Total equity 513 812 497 639 135 733 186 393
Non-current liabilities
Borrowings 23 88 227 104 530 13 779 –
Staff share trust 24 – – 2 515 1 875
Deferred taxation liabilities 17 15 356 9 572 – –
Deferred revenue 11 000 22 000 – –
114 583 136 102 16 294 1 875
Current liabilities
Trade and other payables 25 223 676 204 138 10 544 7 541
Provisions 26 6 468 11 604 – –
Borrowings 23 50 670 75 008 3 927 5 886
Loans from subsidiaries 27 – – 189 947 146 394
Current taxation payable 6 390 2 317 – –
Deferred revenue 17 556 17 297 – –
304 760 310 364 204 418 159 821
Liabilities directly associated with assets classified
as held for sale 20 – 35 209 – –
Total equity and liabilities 933 155 979 314 356 445 348 089
STATEMENTS OF FINANCIAL POSITION as at 30 September 2010
40 UCS ANNUAL REPORT 2010
Ordinary
share
capital
Preference
share
capital
Share
premium
Treasury
share
reserve
R’000 R’000 R’000 R’000
GROUP
Balance at 1 October 2008 1 448 10 43 255 (1 471)
Profit for the year – – – –
Other comprehensive income for the year – – – –
Total comprehensive income for the year – – – –
Payment of dividends – – – –
Ordinary shares issued at a premium net of share issue costs 3 – 339 –
Ordinary shares repurchased and cancelled (24) – (8 684) –
Preference shares converted to ordinary shares 9 (9) – –
Preference shares repurchased – (1) (13) –
Net increase in treasury shares (14) – (4 556) (457)
Increase in equity-settled employee benefit reserve – – – –
Decrease in non-controlling interest on disposal of subsidiary – – – –
Decrease in non-controlling interest on increase of interest
in subsidiary – – – –
Balance at 30 September 2009 1 422 – 30 341 (1 928)
Profit for the year – – – –
Other comprehensive income for the year – – – –
Total comprehensive income for the year – – – –
Payment of dividends – – – –
Fair value adjustments on treasury shares held – – – 938
Net decrease in treasury shares held 5 – 1 685 (2 401)
Increase in equity-settled employee benefit reserve – – – –
Increase in non-controlling interest on acquisition of interest
in subsidiary – – – –
Increase in non-controlling interest on decrease of interest
in subsidiaries – – – –
Decrease in non-controlling interest on disposal of subsidiary – – – –
Decrease in non-controlling interest on increase of interest
in subsidiary – – – –
Balance at 30 September 2010 1 427 – 32 026 (3 391)
STATEMENTS OF CHANGES IN EQUITY for the year ended 30 September 2010
FINANCIAL STATEMENTS 41
Equity-settled
employee
benefit
reserve
Foreign
currency
translation
reserve
Change in
subsidiary
shareholding
reserve
Retained
earnings
Attributable
to owners of
the Company
Non-
controlling
interest
Total
equity
R’000 R’000 R’000 R’000 R’000 R’000 R’000
17 026 (68) – 418 727 478 927 27 662 506 589
– – – 27 446 27 446 13 125 40 571
– 1 272 – – 1 272 – 1 272
– 1 272 – 27 446 28 718 13 125 41 843
– – – (25 956) (25 956) (3 882) (29 838)
– – – – 342 – 342
– – – – (8 708) – (8 708)
– – – – – – –
– – – – (14) – (14)
– – – – (5 027) – (5 027)
1 672 – – – 1 672 – 1 672
– – – – – (6 392) (6 392)
– – (652) – (652) (2 176) (2 828)
18 698 1 204 (652) 420 217 469 302 28 337 497 639
– – – 39 642 39 642 9 965 49 607
– 4 881 – – 4 881 – 4 881
– 4 881 – 39 642 44 523 9 965 54 488
– – – (25 565) (25 565) (7 598) (33 163)
– – – – 938 – 938
– – – – (711) – (711)
418 – – – 418 – 418
– – – – – 6 404 6 404
– – (984) – (984) 3 234 2 250
– – 652 – 652 (14 506) (13 854)
– – (2 470) – (2 470) 1 873 (597)
19 116 6 085 (3 454) 434 294 486 103 27 709 513 812
42 UCS ANNUAL REPORT 2010
Ordinary
share
capital
Preference
share
capital
Share
premium
R’000 R’000 R’000
COMPANY
Balance at 1 October 2008 1 454 10 8 586
Profit for the year – – –
Other comprehensive income for the year – – –
Total comprehensive income for the year – – –
Payment of dividends – – –
Ordinary shares issued at a premium net of share issue costs 3 – 339
Ordinary shares repurchased and cancelled (24) – (8 684)
Preference shares converted into ordinary shares 9 (9) –
Preference shares repurchased – (1) (13)
Increase in equity-settled employee benefit reserve – – –
Balance at 30 September 2009 1 442 – 228
Profit for the year – – –
Other comprehensive income for the year – – –
Total comprehensive income for the year – – –
Payment of dividends – – –
Increase in equity-settled employee benefit reserve
Balance at 30 September 2010 1 442 – 228
STATEMENTS OF CHANGES IN EQUITY for the year ended 30 September 2010 continued
FINANCIAL STATEMENTS 43
Equity-settled
employee
benefit
reserve
Retained
earnings
Total
equity
R’000 R’000 R’000
1 259 239 204 250 513
– (29 756) (29 756)
– – –
– (29 756) (29 756)
– (26 174) (26 174)
– – 342
– – (8 708)
– – –
– – (14)
190 – 190
1 449 183 274 186 393
– (24 809) (24 809)
– – –
– (24 809) (24 809)
– (25 958) (25 958)
107 – 107
1 556 132 507 135 733
44 UCS ANNUAL REPORT 2010
STATEMENTS OF CASH FLOWS for the year ended 30 September 2010
Group Company
Notes
2010
R’000
2009
R’000
2010
R’000
2009
R’000
CASH FLOWS FROM OPERATING ACTIVITIES 142 324 168 118 17 850 6 349
Cash generated from (utilised by) operations
before working capital changes 28 172 425 233 457 (15 052) (18 967)
Working capital changes 29 18 716 8 503 (4 273) 3 377
Cash generated from (utilised by) operations 191 141 241 960 (19 325) (15 590)
Finance charges 5 (12 192) (21 746) (2 565) (4 682)
Investment revenues 6 6 156 6 464 41 357 27 769
Taxation paid 30 (42 781) (58 560) (1 617) (1 148)
CASH FLOWS FROM INVESTING ACTIVITIES (78 173) (66 616) (52 778) 3 923
Acquisition of property, plant and equipment (including
rental equipment) 31 (49 352) (73 392) (73) (175)
Acquisition of intangible assets 32 (23 950) (13 786) – (4)
Acquisition of subsidiaries 33.1 (1 659) (2 605) (53 080) –
Acquisition of subsidiaries 33.2 (43 348) – – –
Acquisition of division (1 500) – – –
Loans repaid (advanced) 2 100 (11 359) – (668)
Proceeds on disposal of property, plant and equipment
(including rental equipment) 11 874 6 592 – –
Proceeds on disposal of intangible assets 52 15 – –
Proceeds on disposal of investment – – 375 –
Proceeds on disposal of a subsidiary net of transaction costs 34 30 841 480 – 4 770
Proceeds on redemption of Darrenfield Investments
(Proprietary) Limited preference shares 65 000 – 65 000 –
Investment in Acacia U2 Investments (Proprietary) Limited
preference shares (65 000) – (65 000) –
Transaction costs capitalised to goodwill – (27) –
Finance lease receivable repaid 5 363 3 528 –
Acquisition of treasury shares – (4 745) – –
Proceeds on disposal of division by a subsidiary company
net of transaction costs – 58 948 – –
Loans advanced to Argility Limited (pre-acquisition) (8 594)
Cash and cash equivalents classified as held for sale 20 – (30 265) – –
CASH FLOWS FROM FINANCING ACTIVITIES (110 030) (66 393) 17 796 27 161
Payments of dividends (33 164) (29 838) (25 958) (26 174)
Proceeds of shares allotted at a premium net of share
issue costs – 342 – 342
Preference shares repurchased – (13) – (13)
Treasury shares utilised for share options exercised 325 – – –
Loans repaid to Quarryfield Investments (Proprietary) Limited (60 000) – (60 000) –
Loans raised from Acacia International Limited, South African
branch 60 000 – 60 000 –
Loans (repaid) raised (77 191) (36 884) 43 754 53 006
Cash and cash equivalents
– Net (decrease) increase (45 879) 35 109 (17 132) 37 433
– At beginning of year 177 764 142 655 42 649 5 216
At end of year 131 885 177 764 25 517 42 649
FINANCIAL STATEMENTS 45
1 ACCOUNTING POLICIES
1.1 Basis of preparation
The annual financial statements have been prepared in
accordance with International Financial Reporting Standards
(‘IFRS’) and are prepared under the historical cost convention
as modified by the fair value valuation of certain financial
instruments and assets and liabilities acquired in a business
combination in terms of IFRS 3 Business Combinations.
The annual financial statements are prepared using the
accounting policies set out below and are in accordance with
the applicable International Financial Reporting Standards.
The annual financial statements have classified the results of the
operations that have been disposed of, as well as operations that
are held for sale, as discontinued operations. This has resulted
in the income statement presenting the results from these
operations separately as discontinued operations for the current
year as well as the restatement of the prior year comparatives.
The 2009 income statement has been restated to account for
the Group’s disposal of UCS Solutions Inc. under the provisions
of IFRS 5: Non-Current Assets Held for Sale and Discontinued
Operations. The change has not impacted the 30 September
2008 Statement of financial position and has thus not been
re-presented.
At the date of authorisation of these annual financial statements,
the following Standards and Interpretations were in issue but
not yet effective:
IFRS 1 – First-time Adoption of International Financial
Reporting Standards – Limited Exemption from Comparative
IFRS 7 Disclosures for First Time Adopters
IFRS 1 – First-time Adoption of International Financial
Reporting Standards – Amendments resulting from
May 2010 Annual Improvements to IFRS’s
IFRS 2 (AC 139) – Share Based Payments
IFRS 3 (AC 140) – Business Combinations
IFRS 5 (AC 142) – Non-current Assets Held for Sale and
Discontinued Operations
IFRS 7 – Financial Instruments
IFRS 8 (AC 145) – Operating Segments
IFRS 9 – Financial Instruments
IAS 1 (AC 101) – Presentation of Financial Statements
IAS 17 (AC 114) – Leases
IAS 24 – Related Party Disclosures
IAS 27 (AC 132) – Consolidated and Separate Financial
Statements
IAS 32 – Financial Instruments: Presentation
IAS 34 – Interim Financial Reporting
IAS 36 – Impairment of assets
IAS 39 (AC 133) – Financial Instruments: Recognition
and Measurement – Amendments for eligible hedged items
IFRIC 14 – The limit on a defined benefit asset, minimum
funding requirements and their interaction
IFRIC 19 – Extinguising Financial Liabilities with Equity
Instruments
On 22 May 2008, the International Accounting Standards Board
(IASB) issued its latest Standard, titled Improvements to
International Financial Reporting Standards 2008. The Standard
included 35 amendments to various Standards.
The following is a list of standards that have been amended but
are not yet effective.
IFRS 1 (AC 138) – First-time Adoption of International
Financial Reporting Standards
IAS 1 (AC 101) – Presentation of Financial Statements
IAS 16 (AC 123) – Property, Plant and Equipment
IAS 19 (AC 116) – Employee Benefits
IAS 20 (AC 134) – Accounting for Government Grants and
Disclosure of Government Assistance
IAS 27 (AC 132) – Consolidated and Separate Financial
Statements
IAS 28 (AC 110) – Investments in Associates
IAS 29 (AC 124) – Financial Reporting in Hyperinflationary
Economies
IAS 31 (AC 119) – Interests in Joint Ventures
IAS 32 (AC 125) – Financial Instruments: Presentation
IAS 36 (AC 128) – Impairment of Assets
IAS 38 (AC 129) – Intangible Assets
IAS 39 (AC 133) – Financial Instruments: Recognition and
Measurement
IAS 40 (AC 135) – Investment Property
Management have assessed the impact of the newly issued
Standards that are not yet effective. The impact of these
new Standards, together with the amendments to original
Standards are not considered to be material. These new
Standards and amendments to original Standards will be
adopted on their respective effective dates.
1.2 Basis of consolidation
The consolidated annual financial statements incorporate the
annual financial statements of the company and entities controlled
by the company. Control is achieved where the company has the
power to govern the financial and operating policies of an investee
entity so as to obtain benefits from its activities.
The results of subsidiaries acquired or disposed of during the
year are included in the consolidated income statement from
the effective date of acquisition or up to the effective date of
disposal, as appropriate. All intra-group transactions, balances,
income and expenses are eliminated on consolidation.
Non-controlling interests in the net assets (excluding goodwill)
of consolidated subsidiaries are identified separately from the
Group’s equity therein. Non-controlling interests consist of the
amount of those interests at the date of the original business
combination (see below) and the non-controlling’s share of
changes in equity since the date of the combination. Losses
applicable to the non-controlling interest in excess of the non-
controlling’s interest in the subsidiary’s equity are allocated
against the interests of the Group except to the extent that the
non-controlling has a binding obligation and is able to make an
additional investment to cover the losses.
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 September 2010
46 UCS ANNUAL REPORT 2010
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 September 2010 continued
1 ACCOUNTING POLICIES continued
Acquisitions of subsidiaries and businesses are accounted
for using the purchase method. The cost of the business
combination is measured as the aggregate of the fair values (at
the date of exchange) of assets given, liabilities incurred
or assumed, and equity instruments issued by the Group
in exchange for control of the acquiree, plus any costs directly
attributable to the business combination. The acquiree’s
identifiable assets, liabilities and contingent liabilities that
meet the conditions for recognition under IFRS 3 Business
Combinations are recognised at their fair values at the acquisition
date, except for non-current assets (or disposal groups) that are
classified as held for sale in accordance with IFRS 5 Non-
current Assets Held for Sale and Discontinued Operations, which
are recognised and measured at fair value less costs to sell.
1.3 Business combinations
Goodwill arising on acquisition is recognised as an asset and
initially measured at cost, being the excess of the cost of the
business combination over the Group’s interest in the net fair
value of the identifiable assets, liabilities and contingent
liabilities recognised. If, after reassessment, the Group’s interest
in the net fair value of the acquiree’s identifiable assets,
liabilities and contingent liabilities exceeds the cost of the
business combination, the excess is recognised immediately in
profit or loss.
The interest of non-controlling shareholders in the acquiree is
initially measured at the non-controlling shareholder’s proportion
of the net fair value of the assets, liabilities and contingent
liabilities recognised.
1.4 Property, Plant and Equipment
Property, plant and equipment is stated at cost to the Group less
accumulated depreciation and accumulated impairment losses.
Subsequent expenditure is included in the asset’s carrying
amount or recognised as a separate asset, as appropriate, only
when it is probable that future economic benefits associated
with the asset will flow to the Group and the cost of the item can
be measured reliably.
Depreciation is calculated on cost using the straight-line method
over the estimated useful lives of the assets to estimated
residual values, as follows:
Computer equipment 3 years
Improvements to leased premises Remaining period
of the lease
Furniture, fixtures and fittings 6 years
Motor vehicles 5 years
Office equipment 5 years
Rental equipment 3 years
The assets’ residual values, useful lives and depreciation
method are reviewed and adjusted, if appropriate, at each
financial year end. Gains and losses on disposals are determined
by comparing the disposal proceeds with the carrying amount
and are included in the income statement.
1.5 Goodwill
Goodwill arising on the acquisition of a subsidiary or a jointly
controlled entity represents the excess of the cost of acquisition
over the Group’s interest in the net fair value of the identifiable
assets, liabilities and contingent liabilities of the subsidiary or
jointly controlled entity recognised at the date of acquisition.
Goodwill is initially recognised as an asset at cost and is
subsequently measured at cost less any accumulated
impairment losses.
For the purpose of impairment testing, goodwill is allocated to
each of the Group’s cash-generating units expected to benefit
from the synergies of the combination. Cash-generating units to
which goodwill has been allocated are tested for impairment
annually, or more frequently when there is an indication that the
unit may be impaired. If the recoverable amount of the cash-
generating unit is less than the carrying amount of the unit, the
impairment loss is allocated first to reduce the carrying amount
of any goodwill allocated to the unit and then to the other assets
of the unit pro-rata on the basis of the carrying amount of each
asset in the unit. An impairment loss recognised for goodwill is
not reversed in a subsequent period.
On disposal of a subsidiary or a jointly controlled entity, the
attributable amount of goodwill is included in the determination
of the profit or loss on disposal.
1.6 Intangible assets
Intangible assets acquired separately
Intangible assets acquired separately are reported at cost less
accumulated amortisation and accumulated impairment losses.
Amortisation is charged on a straight-line basis over the
estimated useful lives. The estimated useful life and amortisation
method are reviewed at the end of each annual reporting period,
with the effect of any changes in estimate being accounted for
on a prospective basis.
Internally generated intangible assets – research and
development expenditure
Expenditure on research activities is recognised as an expense
in the period in which it is incurred.
An internally-generated intangible asset arising from
development (or from the development phase of an internal
project) is recognised if, and only if, all of the following have
been demonstrated:
the technical feasibility of completing the intangible asset so
that it will be available for use or sale;
the intention to complete the intangible asset and use or
sell it;
the ability to use or sell the intangible asset;
how the intangible asset will generate probable future
economic benefits;
the availability of adequate technical, financial and other
resources to complete the development and to use or sell the
intangible asset; and
the ability to measure reliably the expenditure attributable to
the intangible asset during its development.
The amount initially recognised for internally-generated
intangible assets is the sum of the expenditure incurred from
the date when the intangible asset first meets the recognition
FINANCIAL STATEMENTS 47
criteria listed above. Where no internally-generated intangible
asset can be recognised, development expenditure is charged
to profit or loss in the period in which it is incurred.
Subsequent to initial recognition, internally-generated intangible
assets are reported at cost less accumulated amortisation and
accumulated impairment losses, on the same basis as intangible
assets acquired separately.
Capitalised development costs that have finite useful lives are
amortised from the date the product is available for use. The
product is amortised on a straight-line basis over the period of
its expected benefit, not exceeding five years, from when the
product is released to the market.
Set-up costs
Costs relating to the establishment and certification of the software
factory are written off over 5 years from date of certification.
Software
Purchased software and the direct costs associated with
the customisation and installation thereof are capitalised.
Expenditure on internally-developed software is capitalised if it
meets the criteria for capitalising development expenditure.
Other software development expenditure is charged to the
income statement when incurred.
The useful life of software is assessed at least annually at the
financial year end and is assessed to have a finite useful life and
is amortised on a straight-line basis over the period of its
expected benefit, not exceeding 6 years.
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination are
identified and recognised separately from goodwill where they
satisfy the definition of an intangible asset and their fair values
can be measured reliably. The cost of such intangible assets is
their fair value at the acquisition date.
Subsequent to initial recognition, intangible assets acquired in
a business combination are reported at cost less accumulated
amortisation and accumulated impairment losses, on the same
basis as intangible assets acquired separately.
1.7 Impairment of tangible and intangible assets
excluding goodwill
At each Statement of financial position date, the Group reviews
the carrying amounts of its tangible and intangible assets to
determine whether there is any indication that those assets have
suffered an impairment loss. If any such indication exists,
the recoverable amount of the asset is estimated in order to
determine the extent of the impairment loss (if any). Where it is
not possible to estimate the recoverable amount of an individual
asset, the Group estimates the recoverable amount of the cash-
generating unit to which the asset belongs. Where a reasonable
and consistent basis of allocation can be identified, corporate
assets are also allocated to individual cash-generating units, or
otherwise they are allocated to the smallest group of cash-
generating units for which a reasonable and consistent allocation
basis can be identified.
Intangible assets with indefinite useful lives and intangible
assets not yet available for use are tested for impairment
annually and whenever there is an indication that the asset may
be impaired.
Recoverable amount is the higher of fair value less costs to sell
and value in use. In assessing value in use, the estimated future
cash flows are discounted to their present value using a post-
taxation discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit)
is estimated to be less than its carrying amount, the carrying
amount of the asset (cash-generating unit) is reduced to
its recoverable amount. An impairment loss is recognised
immediately in profit or loss, unless the relevant asset is carried
at a revalued amount, in which case the impairment loss is
treated as a revaluation decrease.
1.8 Financial Instruments
Financial instruments include all financial assets, financial
liabilities and equity instruments, including derivative instruments.
Financial assets and financial liabilities, in respect of financial
instruments, are recognised on the Company’s Statement of
financial position when the Company becomes party to the
contractual provisions of the instrument.
Fair value methods and assumptions
The fair value of financial assets and financial liabilities are
determined as follows:
The fair value of financial instruments with standard terms
and conditions and traded in active, liquid and organised
financial markets are determined with reference to the
applicable quoted market prices.
The fair values of derivative instruments are determined using
quoted prices or where such prices are not available,
discounted cash flow methods using the applicable yield
curve for the duration of the instruments for non-optional
derivatives and option pricing models for optional derivatives.
These amounts reflect the approximate values of the net
derivative position at the Statement of financial position date.
The quoted market prices used for interest rate derivatives is
at the effective yield basis, while the quoted market prices
used for foreign exchange derivatives is at the mid or mid
forward rate.
The fair value of financial instruments, excluding derivative
instruments, not traded in active, liquid and organised financial
markets is determined using a variety of methods and
assumptions that are based on market conditions and risks
existing at the Statement of financial position date, including
independent appraisals and discounted cash flow methods.
The fair value of trade and other receivables, cash and cash
equivalents and trade and other payables approximate their
carrying amounts due to the short-term maturities of these items.
Effective interest rate method
The effective interest rate method is a method of calculating the
amortised cost of financial assets and financial liabilities and
of allocating interest income and interest expense over the
relevant period. The effective interest rate is the rate that
discounts estimated future cash receipts and future cash
payments through the expected life of the financial asset and
financial liability, or where appropriate a shorter period, to the
net carrying amount of the financial asset or financial liability.
48 UCS ANNUAL REPORT 2010
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 September 2010 continued
1 ACCOUNTING POLICIES continued
1.8 Financial instruments continued
Amortised cost
Amortised cost is the amount at which the financial asset and
financial liability is measured at initial recognition less principal
repayments, cumulative amortisation and accumulated
impairment losses. The cumulative amortisation of any
difference between the initial amount and the maturity amount
of the financial asset and financial liability is calculated by using
the effective interest rate method and recognised in profit or
loss as interest income or interest expense over the period of the
investment or debt.
Financial assets
Financial assets are classified into the following categories:
financial assets at fair value through profit or loss, held-to-
maturity investments, available-for-sale financial assets and
loans and receivables. The classification depends on the nature
and purpose of the financial assets and is determined at the
time of initial recognition.
The Group’s principal financial assets are loans and receivables
and cash and cash equivalents.
Trade receivables
Trade and other receivables and other loans are stated at
original investment less principal payments, amortisations and
accumulated impairment losses. Receivables originated by the
Group by providing goods or services directly to the customer
are carried at original invoice amount less provision for doubtful
debts. A provision for doubtful debts is established when there
is objective evidence that the company has incurred a loss and
will not be able to collect all amounts due according to the
original terms of the receivables. The amount of the provision
is the difference between the carrying amount and the
recoverable amount.
The provision for doubtful debts covers losses where there is
objective evidence that the company incurred a loss at the
Statement of financial position date. These incurred loss events
have been estimated based upon historical patterns of losses in
each component, the credit ratings allocated to the customers
and reflecting the current economic climate in which the
borrowers operate. When a receivable is uncollectible, it is
written off to the income statement. Subsequent recoveries are
credited to the income statement.
Cash and cash equivalents
Cash and cash equivalents are measured at fair value based,
where appropriate, at the relevant exchange rate at the
Statement of financial position date. Cash and cash equivalents
comprise cash on hand, demand deposits and other short-term
highly liquid investments that are readily convertible to a known
amount of cash and are subject to an insignificant risk of
changes in value.
Initial recognition and measurement
Financial assets are recognised and derecognised on trade-date,
where the purchase or sale of the financial asset is under a
contract whose terms require delivery of the instrument within
the timeframe established by the market concerned.
All financial assets are initially measured at fair value, including
transaction costs except for those financial assets classified as
at fair value through profit or loss which are initially measured
at fair value, excluding transaction costs.
The fair value of a financial instrument on initial recognition is
normally the transaction price unless the fair value is evident
from observable market data.
Subsequent to initial measurement, these instruments are
measured as set out below:
Loans and receivables and cash equivalents that have fixed
or determinable payments that are not quoted in an active
market are classified as loans and receivables.
Loans and receivables are subsequently measured at amortised
cost using the effective interest rate method less any
impairment loss. Interest income is recognised in profit or loss
by applying the effective interest rate, except for short-term
trade receivables where the recognition of interest would be
immaterial. Trade receivables are carried at original invoice
amount less any impairment loss.
The accounting policy for cash and cash equivalents is dealt
with under cash and cash equivalents set out below.
Financial liabilities
Financial liabilities are classified into the following categories:
financial liabilities at fair value through profit or loss;
financial liabilities held at amortised cost; and
financial guarantee contract liabilities.
The classification depends on the nature and purpose of
the financial liabilities and is determined at the time of
initial recognition.
The Group’s principal financial liabilities are interest bearing
borrowings, provisions, bank borrowings and other short-
term debt.
Interest bearing borrowings
Interest bearing borrowings are originally recognised at fair value,
net of transaction costs incurred. Interest bearing borrowings
are subsequently stated at amortised cost, namely original
borrowings less principal payments and amortisations. Any
differences between proceeds and the redemption value are
recognised in the income statement over the period of the debt
using the effective interest rate method.
Interest bearing borrowings is classified as current liabilities unless
the Group has an unconditional right to defer settlement of the
liability for at least twelve months after the Statement of financial
position date.
Trade and other payables
Trade and other payables are stated at original cost less
principal payments.
Provisions
Provisions are recognised when there is a present, legal or
constructive obligation resulting from past events, for which it is
probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable
estimate of the amount of the obligation can be made.
FINANCIAL STATEMENTS 49
A past event is deemed to give rise to a present obligation if,
taking into account the available evidence, it is more likely than
not that a present obligation exists at the Statement of financial
position date.
The amount recognised as a provision, is the best estimate
of the expenditure required to settle the present obligation at
the Statement of financial position date, taking into account
risks and uncertainties surrounding the provision. Long-term
provisions are discounted to net present value.
Bank borrowings and other short-term debt
The accounting policy for bank borrowings and other short-term
debt is dealt with under cash and cash equivalents.
Initial recognition and measurement
All financial liabilities are initially measured at fair value,
including transaction costs except for those financial liabilities
classified as at fair value through profit or loss, which are initially
measured at fair value, excluding transaction costs.
The fair value of a financial instrument on initial recognition is
normally the transaction price unless the fair value is evident
from observable market data.
Subsequent to initial measurement, these instruments are
measured as set out below:
Interest bearing borrowings, non-interest bearing borrowings,
bank borrowings and other short-term debt are subsequently
measured at amortised cost using the effective interest rate
method. Interest expense is recognised in profit or loss by
applying the Statement of financial position rate.
Interest bearing borrowings and non-interest bearing
borrowings are classified as current liabilities unless there
is an unconditional right to defer settlement of the liability
for at least twelve months after the Statement of financial
position date.
Trade and other payables are carried at original invoice amount.
Dividends payable are stated at amounts declared.
A contract that contains an obligation to purchase its own equity
instrument for cash or another financial asset gives rise to a
financial liability and is accounted for at the present value of
the redemption amount. On initial recognition its fair value is
reclassified directly from equity. Subsequent changes in the
liability are included in profit and loss. On expiry or exercise of
the option the carrying value of the liability is reclassified directly
to equity.
Equity instruments
An equity instrument is any contract that evidences a residual
interest in the assets of the company after deducting all of its
liabilities. The Group’s principal equity instrument is stated
capital, which is recorded at proceeds received, net of any
direct issue costs.
De-recognition
Financial assets (or a portion thereof) are de-recognised when
the rights to the cash flows expire or when the Group transfers
substantially all the risks and rewards related to the financial
asset or when the entity loses control of the financial asset. On
de-recognition, the difference between the carrying amount of
the financial asset and proceeds receivable and any prior
adjustment to reflect fair value that had been reported in equity
is included in the income statement.
Financial liabilities (or a portion thereof) are de-recognised
when the obligation specified in the contract is discharged,
cancelled or expired. On de-recognition, the difference between
the carrying amount of the financial liability, including related
non-amortised costs and amounts paid for it is included in profit
or loss.
Offset
Where a legally enforceable right of offset exists for recognised
financial assets and financial liabilities and there is an intention
to settle the liability and realise the asset simultaneously, or to
settle on a net basis, all related financial effects are offset.
1.9 Inventories
Inventories are measured at the lower of cost and net realisable
value. Net realisable value is the estimated selling price in
the ordinary course of business less the estimated costs of
completion and the estimated costs necessary to make the sale.
The cost of inventories comprises of all costs of purchase, costs
of conversion and other costs incurred in bringing the inventories
to their present location and condition. The cost of work-in-
progress comprises direct labour, other direct costs and related
production overheads. Cost is calculated either using the first-in
first-out method or the weighted average method.
When inventories are sold, the carrying amount of those
inventories is recognised as an expense in the period in which
the related revenue is recognised. The amount of any write-
down of inventories to net realisable value and all losses of
inventories are recognised as an expense in the period the
write-down or loss occurs. The amount of any reversal of any
write-down of inventories, arising from an increase in net
realisable value, is recognised as a reduction in the amount of
inventories recognised as an expense in the period in which the
reversal occurs.
1.10 Leasing
Leases are classified as finance leases whenever the terms
of the lease transfer substantially all the risks and rewards
of ownership to the lessee. All other leases are classified as
operating leases.
The Group as lessor
Amounts due from lessees under finance leases are recorded
as receivables at the amount of the Group’s net investment in
the leases. Finance lease income is allocated to accounting
periods so as to reflect a constant periodic rate of return on the
Group’s net investment outstanding in respect of the leases.
Rental income from operating leases is recognised on a straight-
line basis over the term of the relevant lease. Initial direct 1
50 UCS ANNUAL REPORT 2010
1 ACCOUNTING POLICIES continued
1.10 Leasing continued
costs incurred in negotiating and arranging an operating lease
are added to the carrying amount of the leased asset and
recognised on a straight-line basis over the lease term.
The Group as lessee
Assets held under finance leases are initially recognised as
assets of the Group at their fair value at the inception of the
lease or, if lower, at the present value of the minimum lease
payments. The corresponding liability to the lessor is included
in the Statement of financial position as a finance lease
obligation. Lease payments are apportioned between finance
charges and reduction of the lease obligation so as to achieve a
constant rate of interest on the remaining balance of the liability.
Finance charges are charged directly to profit or loss, unless
they are directly attributable to qualifying assets, in which case
they are capitalised in accordance with the Group’s general
policy on borrowing costs. Contingent rentals are recognised as
expenses in the periods in which they are incurred.
Operating lease payments are recognised as an expense on a
straight-line basis over the lease term, except where another
systematic basis is more representative of the time pattern in
which economic benefits from the leased asset are consumed.
Contingent rentals arising under operating leases are recognised
as an expense in the period in which they are incurred.
In the event that lease incentives are received to enter into
operating leases, such incentives are recognised as a liability.
The aggregate benefit of incentives is recognised as a reduction
of rental expense on a straight-line basis, except where another
systematic basis is more representative of the time pattern in
which economic benefits from the leased asset are consumed.
1.11 Taxation
Income taxation expense represents the sum of the taxation
currently payable and deferred taxation.
Current taxation
Current taxation for current and prior periods is, to the extent
unpaid, recognised as a liability. If the amount already paid in
respect of current and prior periods exceeds the amount due for
those periods, the excess is recognised as an asset.
Deferred taxation
Deferred taxation is provided for using the balance sheet liability
method, on all temporary differences between the carrying
values of assets and liabilities for accounting purposes and the
amounts used for taxation purposes. The provision for deferred
taxation is calculated using enacted or substantively enacted
taxation rates at the Statement of financial position date that are
expected to apply when the asset is realised or liability settled.
A deferred taxation asset is recognised to the extent that it is
probable that future taxable profits will be available against
which the deferred taxation asset can be realised.
Deferred taxation liabilities are recognised for all taxable
temporary differences arising on investments in subsidiaries,
associates and interests in joint ventures, except where the
Group is able to control the reversal of the temporary difference
and it is probable that the temporary difference will not reverse
in the foreseeable future.
The carrying amount of deferred taxation assets is reviewed at
each Statement of financial position date and is reduced to the
extent that it is no longer probable that sufficient taxable profits
will be available to allow all or part of the asset to be recovered.
The provision for deferred taxation assets and liabilities reflects
the taxation consequences that would follow from the expected
recovery or settlement of the carrying amount of its assets and
liabilities. Such assets and liabilities are not recognised if the
temporary difference arises from:
non-taxation deductible goodwill;
the initial recognition (other than in a business combination)
of an asset or liability to the extent that neither accounting nor
taxable profit is affected on acquisition.
Deferred taxation assets and liabilities are offset when there is a
legally enforceable right to set-off current taxation assets against
current taxation liabilities and they relate to income taxes levied
by the same taxation authority and the Group intends to settle
its current taxation assets and liabilities on a net basis.
Secondary Tax on Companies (‘STC’)
STC is recognised as part of the current taxation charge in the
income statement when the related dividend is declared.
1.12 Foreign currencies
Items included in the annual financial statements of the Group’s
entities are measured using the currency of the primary
economic environment in which the entity operates (‘the
functional currency’). The consolidated annual financial
statements are presented in Rands, which is the Company’s
functional and presentation currency.
A foreign currency transaction is recorded, on initial recognition
in Rand, by applying to the foreign currency amount, the spot
exchange rate between the functional currency and the foreign
currency at the date of the transaction.
At each Statement of financial position date:
foreign currency monetary items are translated using the
closing rate;
non-monetary items that are measured in terms of historical
cost in a foreign currency are translated using the exchange
rate at the date of the transaction; and
non-monetary items that are measured at fair value in a
foreign currency are translated using the exchange rates at
the date when the fair value was determined.
Foreign exchange gains and losses resulting from the translation
and settlement of monetary assets and liabilities are charged to
the income statement except for exchange differences arising
on non-monetary items where the changes in fair values are
recognised directly in equity.
Foreign subsidiaries
The results and financial position of a foreign operation (none
of which has the currency of a hyperinflationary economy) are
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 September 2010 continued
FINANCIAL STATEMENTS 51
translated into the functional currency using the following
procedures:
assets and liabilities are translated at the closing rate at the
date of that Statement of financial position;
income and expenses are translated at the average exchange
rates for the period unless exchange rates fluctuate
significantly; and
all resulting exchange differences are classified as equity and
transferred to the Group’s translation reserve. Such translation
differences are recognised as income or expense in the
period in which the operation is disposed of.
Goodwill and fair value adjustments arising on the acquisition of
a foreign operation are treated as assets and liabilities of the
foreign operation and translated at the closing rate.
1.13 Employee benefits
Short-term employee benefits
Remuneration to employees is charged to the income statement.
Provision is made for accumulated leave, incentive bonuses
and other short-term employee benefits.
Retirement benefits
Payments to defined contribution retirement benefit plans are
charged as an expense as they fall due.
1.14 Revenue recognition
Revenue is measured at the fair value of the consideration
received or receivable and represents amounts receivable for
goods and services provided in the normal course of business,
net of discounts and sales related taxes.
Revenue is recognised when the following criteria are met:
Revenue from the sale of products
Revenue from the sale of products is recognised when
significant risks and rewards have passed.
Revenue arising from the rendering of services
Revenue arising from the rendering of services, which includes
computer processing services, software development charges,
licence fees, installation and maintenance charges and training,
is recognised on the accrual basis in accordance with the
substance of the agreement.
Revenue from fixed price contracts for software development is
recognised using the percentage-of-completion (‘POC’) method.
Under the POC method, revenue is generally recognised based
on the services performed to date as a percentage of the total
services to be performed.
If circumstances arise that may change the original estimates
of revenues, costs or extent of progress toward completion,
estimates are revised. These estimates may result in increases
or decreases in estimated revenues or costs and are reflected in
income in the period in which the circumstances that give rise
to the revision become known to management.
Finance income
Interest is recognised when it accrues to the Group on a time
proportion basis, taking account of the principal outstanding
and the effective yield of the asset.
Investment income
Cash dividends and the full cash equivalent of capitalisation
share awards received, where applicable, are recognised when
the right to receive payment or transfer is established.
1.15 Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it is
probable that the Group will be required to settle the obligation
and a reliable estimate can be made of the amount of the
obligation.
The amount recognised as a provision is the best estimate of the
consideration required to settle the present obligation at the
Statement of financial position date, taking into account the
risks and uncertainties surrounding the obligation. Where a
provision is measured using the cash flows estimated to settle
the present obligation, its carrying amount is the present value
of those cash flows.
When some or all of the economic benefits required to settle
a provision are expected to be recovered from a third party,
the receivable is recognised as an asset if it is virtually certain
that reimbursement will be received and the amount of the
receivable can be measured reliably.
Onerous contracts
Present obligations arising under onerous contracts are
recognised and measured as a provision. An onerous contract
is considered to exist where the Group has a contract under
which the unavoidable costs of meeting the obligations under
the contract exceed the economic benefits expected to be
received under it.
Restructurings
A restructuring provision is recognised when the Group has
developed a detailed formal plan for the restructuring and has
raised a valid expectation in those affected that it will carry out
the restructuring by starting to implement the plan or announcing
its main features to those affected by it. The measurement of a
restructuring provision includes only the direct expenditures
arising from the restructuring, which are those amounts that are
both necessarily entailed by the restructuring and not associated
with the ongoing activities of the entity.
Warranties
Provisions for warranty costs are recognised at the date of sale
of the relevant products, at the directors’ best estimate of the
expenditure required to settle the Group’s obligation.
1.16 Segmental information
The principal segments of the Group have been identified on
a primary basis by the nature of operations into three major
areas namely:
1. Retail Solutions
2. Software
3. Investments
52 UCS ANNUAL REPORT 2010
For cash-settled employee benefit payments, a liability equal to
the portion of the goods or services received is recognised at the
current fair value determined at each Statement of financial
position date.
1.18 Assets classified as held for sale
Non-current assets and disposal groups are classified as held
for sale if their carrying amount will be recovered through a sale
transaction rather than through continuing use. This condition
is regarded as met only when the sale is highly probable and the
asset (or disposal group) is available for immediate sale in its
present condition. Management must be committed to the
sale which should be expected to qualify for recognition as a
completed sale within one year from the date of classification.
When the Group is committed to a disposal plan involving loss of
control of a subsidiary, or is committed to disposal of a division, all
the assets and liabilities relating to that subsidiary or division are
classified as held for sale if the criteria described above are met.
This policy is applied regardless of whether the Group will retain a
non-controlling interest in its former subsidiary after the disposal.
Non-current assets and disposal groups classified as held for
sale are measured at the lower of carrying amount and fair value
less costs to sell.
1.19 Comparative figures
When an accounting policy is altered comparative figures are
restated, if required, by the applicable accounting statement
and where material. Details of these restatements have been
included in the relevant notes to the annual financial statements.
Comparative figures have been restated in the income
statement and segment report as a result of the classification
of discontinued operations.
1 ACCOUNTING POLICIES continued
1.16 Segmental information continued
All segment revenue and expenses are directly attributable to
the segments. Segment assets include all operating assets used
by a segment. Segment liabilities include all operating liabilities.
These assets and liabilities are all directly attributable to
the segments.
1.17 Equity-settled Employee benefits
Equity-settled employee benefit payments to employees and
others providing similar services are measured at the fair
value of the equity instrument at the grant date. Fair value
is measured by using a binomial model. The expected life
used in the model has been adjusted, based on management’s
best estimate, for the effects of non-transferability, exercise
restrictions and behavioural considerations. Further details on
how the fair value of equity-settled employee benefit transactions
has been determined can be found in note 23.
The fair value determined at the grant date of the equity-settled
employee benefit payments is expensed on a straight-line basis
over the vesting period, based on the Group’s estimate of shares
that will eventually vest.
The above policy is applied to all equity-settled employee benefit
payments that were granted after 7 November 2002 that vested
after 1 January 2005. No amount has been recognised in the
annual financial statements in respect of the other equity-
settled employee benefit payments.
Equity-settled employee benefit payment transactions with other
parties are measured at the fair value of the goods and services
received, except where the fair value cannot be estimated
reliably, in which case they are measured at the fair value of the
equity instruments granted, measured at the date the entity
obtains the goods or the counterparty renders the service.
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 September 2010 continued
FINANCIAL STATEMENTS 53
Group Company
2010
R’000
Restated
2009
R’000
2010
R’000
2009
R’000
2 REVENUE
2.1 Revenue comprises sales of hardware, software, processing services,
implementation and support services, development charges, licence
fees, installation and maintenance charges, training charges and
commission received, exclusive of Value Added Taxation.
2.2 A summarised analysis of the Group’s revenue for the year from
continuing operations is as follows:
Turnover
Own software revenue 160 263 118 085 – –
OEM third party product revenue 341 132 301 402 – –
Services and other 819 163 810 032 – –
1 320 558 1 229 519 – –
Administration fees 512 2 500 24 629 19 429
1 321 070 1 232 019 24 629 19 429
Revenue classified as discontinued operations (note 8) 19 305 266 768 – –
1 340 375 1 498 787 24 629 19 429
3 PROFIT (LOSS) BEFORE FINANCE CHARGES
AND INVESTMENT REVENUES
is stated after taking into account the following items:
After crediting
3.1 Gain on disposal of property, plant and equipment
(including rental equipment) 546 579 – –
After charging
3.2 Amortisation of intangible assets:
Brands 348 348 – –
Computer software 17 815 13 227 290 289
Customer relationships 6 083 8 554 – –
Development costs 2 697 1 728 – –
Intellectual property 101 123 – –
Set-up costs (1 445) 2 309 – –
Trademarks 1 012 2 006 – –
26 611 28 295 290 289
3.3 Auditors’ remuneration:
Current year fee 4 025 3 341 465 450
Other services 155 925 1 124
4 180 4 266 466 574
3.4 Consulting fees 27 794 21 971 1 106 1 559
3.5 Cost of sales 241 491 231 562 – –
3.6 Depreciation of property, plant and equipment
(including rental equipment)
Owned
Computer equipment 13 253 13 250 228 240
Furniture, fixtures and fittings 2 227 2 130 16 12
Improvements to leased premises 2 678 2 695 49 35
Motor vehicles 849 965 – –
Office equipment 2 389 1 466 27 26
Rental equipment 13 072 9 030 – –
34 468 29 536 320 313
Leased
Computer equipment 10 108 10 924 – –
Motor vehicles 635 371 – –
45 211 40 831 320 313
54 UCS ANNUAL REPORT 2010
Group Company
2010
R’000
Restated
2009
R’000
2010
R’000
2009
R’000
3 PROFIT (LOSS) BEFORE FINANCE CHARGES
AND INVESTMENT REVENUES
is stated after taking into account the following items:
3.7 Employee costs 673 761 610 303 22 477 16 623
3.8 Equity-settled employee benefit expense 2 656 3 910 623 530
3.9 Foreign exchange differences
Unrealised 6 479 10 476 5 244 10 964
Realised 1 742 129 – –
8 221 10 605 5 244 10 964
3.10 Impairment of intangible assets (including goodwill)
Impairment of goodwill – 6 179 – –
Impairment of intangible assets – 1 848 – –
– 8 027 – –
3.11 Impairment of investments in subsidiaries – – 45 618 35 021
3.12 Loss on disposal of property, plant and equipment
(including rental equipment) 166 – – –
3.13 Operating expenditure excluding cost of sales and employee costs 229 622 196 204 17 418 21 087
3.14 Operating lease charges
Premises 38 095 32 135 360 298
Office equipment 1 552 1 262 – –
Motor vehicles 1 125 922 – –
40 772 34 319 360 298
3.15 Transaction costs
Costs relating to the Group’s corporate activity have been expensed
in accordance with the revised IFRS 3 requirements applicable in
the current year. Transaction costs were capitalised to the cost of
the investments in the prior year. 1 655 – 1 655 –
3.16 Number of employees 2 315 2 677* 13 14
* Includes prior year disposal group of TSS Managed Services (Proprietary) Limited, 398.
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 September 2010 continued
FINANCIAL STATEMENTS 55
Group Company
2010
R’000
2009
R’000
2010
R’000
2009
R’000
4 DIRECTORS’ REMUNERATION AND INTERESTS
4.1 Directors’ remuneration
The directors’ remuneration for the year ended 30 September 2010
was as follows:
Non-executive directors
Services as directors 964 899 964 899
Executive directors
Salaries, bonuses and medical aid 9 218 6 556 9 218 6 556
Allowances 311 269 311 269
Pension 591 527 591 527
10 120 7 352 10 120 7 352
Total directors’ remuneration 11 084 8 251 11 084 8 251
Salary
R’000
Incentive
bonus
R’000
Long-term
incentive
bonus
R’000
Allowances
R’000
Pension
R’000
Total
2010
R’000
Total
2009
R’000
Executive directors – 2010
JD Bright 1 433 403 – – 127 1 963 1 582
DF Coles 748 396 – 111 97 1 352 1 557
JP Fortuin 998 229 350 18 67 1 662 500
NA Michelson 1 778 371 350 91 171 2 761 2 050
DC Sparrow 1 469 342 350 91 130 2 382 1 663
6 426 1 741 1 050 311 592 10 120 7 352
Salary
R’000
Incentive
bonus
R’000
Long-term
incentive
bonus
R’000
Allowances
R’000
Pension
R’000
Total
2009
R’000
Total
2008
R’000
Executive directors – 2009
JD Bright 1 362 100 – – 120 1 582 1 667
DF Coles 986 383 – 92 96 1 557 1 287
JP Fortuin* 461 – – 9 30 500 –
NA Michelson 1 711 100 – 78 161 2 050 2 341
DC Sparrow 1 353 100 – 90 120 1 663 1 667
5 873 683 – 269 527 7 352 6 962
* Ms Fortuin was appointed as an executive director effective from 31 March 2009. Accordingly, Ms Fortuin’s remuneration has been included as from 1 April 2009.
Group
2010
R’000
2009
R’000
Non-executive directors – Fees
V Chetty 120 86
JR Claassen 112 101
RG Goodman 176 188
BP Hattingh 112 101
MPR Morojele 242 230
P Terblanche 202 193
964 899
56 UCS ANNUAL REPORT 2010
4 DIRECTORS’ REMUNERATION AND INTERESTS continued
4.2 Directors’ interest in share capital
4.2.1 The aggregate interests of the directors in the issued ordinary share capital of the Company are:
Number of shares (’000)
2010
Number of shares (’000)
2009
Direct Indirect Total Direct Indirect Total
Non-executive directors
V Chetty 59 – 59 59 – 59
JR Claassen 50 – 50 50 – 50
RG Goodman 80 – 80 80 – 80
BP Hattingh – 75 75 – 75 75
189 75 264 189 75 264
Executive directors
JD Bright 6 991 38 960 45 951 6 537 46 426 52 963
DF Coles 4 945 29 770 34 715 4 945 29 770 34 715
JP Fortuin 103 900 1 003 80 – 80
NA Michelson – 5 184 5 184 – 4 684 4 684
DC Sparrow 500 3 176 3 676 500 1 676 2 176
12 539 77 990 90 529 12 062 82 556 94 618
Total 12 728 78 065 90 793 12 251 82 631 94 882
4.2.2 Future entitlements under share option schemes are:
Grant date
of options
Strike price
(cents)
Total
2010
’000
Total
2009
’000
2010
Market priced options
JR Claassen 27-Feb-04 109 50 50
RG Goodman 27-Feb-04 109 25 25
BP Hattingh 27-Feb-04 109 25 25
P Terblanche 27-Feb-04 109 100 100
JP Fortuin 18-Nov-05 134 200 200
MPR Morojele 18-Nov-05 134 100 100
V Chetty 31-Aug-07 451 100 100
600 600
Zero cost options
JP Fortuin 28-Aug-08 – 69 83
JP Fortuin 21-Nov-08 – 124 124
193 207
793 807
The market priced options are exercisable in tranches of 25% per anum commencing on the anniversary of the grant date. Options are
cumulative in respect of options not taken up to any anniversary and may be exercised at any time, up to the 10th anniversary of the grant
date, at which time, any options not exercised will lapse.
The zero cost option incentive shares are exercisable within 90 days of the respective vesting dates, after which time, the option lapses.
The share options vest at staggered intervals into ordinary shares over a period of 5 years from the date of issue in tranches of 10%, 15%,
20%, 25% and 30%.
4.3 Directors’ interest in contracts
The directors have declared at the approval date of this report that they are not materially interested in any transaction of significance with
the Company or any of its subsidiaries.
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 September 2010 continued
FINANCIAL STATEMENTS 57
Group Company
2010
R’000
Restated
2009
R’000
2010
R’000
2009
R’000
5 FINANCE CHARGESInterest on bank overdrafts, loans and finance lease obligations 13 835 22 907 765 1 298
Interest on Group company loans – – 2 368 3 434
Total finance charges 13 835 22 907 3 133 4 732
External finance charges classified as discontinued operations (note 8) – 841 – –
Less: Non-cash finance charges 1 643 2 002 568 50
Finance charges for statements of cash flows 12 192 21 746 2 565 4 682
Group Company
2010
R’000
Restated
2009
R’000
2010
R’000
2009
R’000
6 INVESTMENT REVENUESInterest from bank deposits and loans receivable 6 156 4 862 1 186 487
Interest from Group company loans – – 6 586 6 375
Dividends received from unlisted equity investment
– subsidiaries – – 26 226 12 598
– other* 3 009 – 7 359 8 700
Total investment revenues 9 165 4 862 41 357 28 160
External investment revenues classified as discontinued operations
(note 8) – 1 993 – –
Less: Non-cash investment revenues 3 009 391 – 391
Investment revenues for statements of cash flows 6 156 6 464 41 357 27 769
* Preference share receipts of R4,4 million (2009: R8,7 million) have been applied to the Group interest expense related to loans, with a set-off entitlement, as detailed in note 14 to the financial statements.
Group Company
2010
R’000
Restated
2009
R’000
2010
R’000
2009
R’000
7 TAXATION
7.1 Normal taxation
Current year taxation
– Current 39 421 30 359 – –
– Deferred 1 562 (3 679) – (1 501)
Prior year (over) under provision
– Current (1 412) 127 – –
– Deferred (1 325) 2 579 – –
Secondary Taxation on Companies 4 285 2 030 1 617 1 148
Withholding taxation 517 800 – –
43 048 32 216 1 617 (353)
Taxation classified as discontinued operations (note 8) – 17 065 – –
Current taxation – 8 448 – –
Deferred taxation – 8 617 – –
43 048 49 281 1 617 (353)
58 UCS ANNUAL REPORT 2010
Group Company
2010
%
Restated
2009
%
2010
%
2009
%
7 TAXATION continued
7.2 Reconciliation of the rate of taxation
Normal rate of taxation 28,0 28,0 28,0 28,0
Adjusted for:
Capital gains taxation 5,0 – – –
Deferred taxation not raised on current year estimated taxation loss
(local and foreign) 6,5 6,0 2,8 –
Exempt income and disallowable expenses (10,2) 8,7 (30,8) (23,0)
Foreign taxation rate differences 0,2 1,1 – –
Prior period under provision 0,2 0,2 – –
Reversal of deferred taxation on prior year assessed loss 2,5 1,7 – –
Secondary Taxation on Companies 3,7 3,5 7,0 (3,8)
Utilisation of assessed losses and/or raising of assessed losses
previously not recognised 1,1 5,3 – –
Withholding taxation 0,5 1,4 – –
Effective rate of taxation 37,5 55,9 7,0 1,2
Group
2010
R’000
2009
R’000
7.3 Estimated taxation losses in subsidiaries available for set off against future taxable income 144 692 62 485
Taxation losses on which deferred taxation assets have been raised 41 638 46 913
103 054 15 572
Deferred taxation assets have not been raised on estimated taxation losses to the extent that management have assessed that the estimated
taxation losses will not be utilised in the foreseeable future. Accordingly, deferred taxation assets of R 28,9 million (2009: R4,4 million) have
not been raised at the year end.
8 DISCONTINUED OPERATION
8.1 Disposal of UCS Solutions Incorporated
With effect from 31 August 2010, Universal Computer Software UK (‘UCS UK’), a wholly owned subsidiary of UCS Group Limited, disposed
of its entire 92,5% equity interest in UCS Solutions Incorporated to the management shareholders, who held the remaining 7,5%, for a
nominal consideration of $1.
The disposal followed a UCS Group decision to reposition its interest in the US market through a channel partner relationship versus a
direct interest.
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 September 2010 continued
FINANCIAL STATEMENTS 59
8 DISCONTINUED OPERATION continued
8.2 Analysis of profit for the year from discontinued operation
The results of the discontinued operation included in the statement of comprehensive income are set out below. The comparative profit and
cash flows from discontinued operation have been restated to include those operations classified as discontinued in the current period.
Group
2010
R’000
Restated
2009
R’000
REVENUE 19 305 266 768
(LOSS) PROFIT FROM OPERATIONSbefore finance charges, investment revenues, amortisation,
depreciation, foreign exchange differences, impairments
and research and development expenditure (4 516) 60 005
Amortisation of intangible assets – 10 142
Depreciation of property, plant and equipment (including rental equipment) 82 3 066
Foreign exchange differences (183) –
Impairment of intangible assets (including goodwill) 10 402 15 774
Impairment of loan owing to Universal Computer Software UK Limited 20 575 –
Profit on disposal of subsidiary 13 108 –
(LOSS) PROFIT BEFORE FINANCE CHARGES AND INVESTMENT REVENUES (22 284) 31 023
Finance charges – (841)
Investment revenues 180 1 993
(LOSS) PROFIT BEFORE TAXATION (22 104) 32 175
Taxation – (17 065)
(LOSS) PROFIT FOR THE YEAR FROM DISCONTINUED OPERATION (22 104) 15 110
(Loss) profit for the year from discontinued operation includes the following directly related
to the disposal:
Impairment loss (30 977) (15 774)
Profit (loss) on disposal of subsidiary 13 108 (4 559)
Profit on sale of division by a subsidiary company – 33 263
(Loss) profit before taxation (17 869) 12 930
Taxation – (11 499)
(Loss) profit directly related to disposals (17 869) 1 431
Cash flows from discontinued operation
Net cash flows from operating activities (5 493) 7 816
Net cash flows from investing activities (43) (9 211)
Net cash flows from financing activities 6 954 16 247
Net cash flows 1 418 14 852
9 EARNINGS PER SHARE Earnings per share is based on earnings attributable to equity holders of the Company
and the weighted average number of shares in issue during the year.
Basic and headline earnings
Profit for the year attributable to owners of the Company 39 642 27 446
Comprising:
Basic earnings – continuing operations 61 746 17 914
Basic earnings – discontinued operation (22 104) 9 532
9.1 Basic earnings per share (cents)
Weighted average number of ordinary shares for the purposes of basic earnings per share (’000) 284 653 290 147
Basic earnings per share – continuing operations 21,7 6,2
Basic earnings per share – discontinued operation (7,8) 3,3
Total basic earnings per share 13,9 9,5
60 UCS ANNUAL REPORT 2010
Group
2010
R’000
Restated
2009
R’000
9 EARNINGS PER SHARE continued
9.2 Diluted earnings per share (cents)
The weighted average number of ordinary shares for the purposes of diluted earnings per share
reconciles to the weighted average number of ordinary shares used in the calculation of basic
earnings per share as follows:
Weighted average number of ordinary shares used in the calculation of basic earnings per share
(’000) 284 653 290 147
Shares deemed to be issued for no consideration in respect of:
– Employee share options (’000) 5 078 5 570
Diluted weighted average number of shares in issue (’000) 289 731 295 717
Diluted earnings per share – continuing operations 21,3 6,1
Diluted earnings per share – discontinued operation (7,6) 3,2
Total diluted earnings per share 13,7 9,3
9.3 Headline earnings per share (cents)
Reconciliation of basic earnings to headline earnings
Basic earnings 39 642 27 446
Adjusted for (net of taxation and non-controlling interest):
– impairment of goodwill – 6 179
– impairment classified as discontinued operation 10 402 19 649
– impairment of intangible assets – 1 330
– profit on disposal of division by a subsidiary company (10 701) (26 007)
– loss on disposal of subsidiary 7 155 4 930
– profit on disposal of property, plant and equipment (including rental equipment) (249) (384)
Basic headline earnings 46 249 33 143
Reconciliation of basic earnings to headline earnings – continuing operations
Basic earnings 61 746 17 914
Adjusted for (net of taxation and non-controlling interest):
– impairment of goodwill – 6 179
– impairment of intangible assets – 1 330
– profit on disposal of division by a subsidiary company (10 701) –
– profit on disposal of subsidiary (312) –
– profit on disposal of property, plant and equipment (including rental equipment) (249) (384)
Basic headline earnings – continuing operations 50 484 25 039
Reconciliation of basic earnings to headline earnings – discontinued operations
Basic earnings (22 104) 9 532
Adjusted for (net of taxation and non-controlling interest):
– impairment classified as discontinued operations 10 402 19 649
– profit on disposal of division by a subsidiary company – (26 007)
– loss on disposal of subsidiary 7 467 4 930
Basic headline earnings – discontinued operations (4 235) 8 104
Weighted average number of ordinary shares for the purposes of headline earnings per share (’000) 284 653 290 147
Basic headline earnings per share – continuing operations 17,7 8,6
Basic headline earnings per share – discontinued operation (1,5) 2,8
Total basic headline earnings per share 16,2 11,4
9.4 Diluted headline earnings per share (cents)
Diluted weighted average number of ordinary shares for the purposes of diluted headline earnings
per share (’000) 289 731 295 717
Diluted headline earnings per share – continuing operations 17,4 8,5
Diluted headline earnings per share – discontinued operation (1,4) 2,7
Total diluted headline earnings per share 16,0 11,2
9.5 Actual number of ordinary shares in issue at the year end (’000) 285 356 284 391
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 September 2010 continued
FINANCIAL STATEMENTS 61
Cost
R’000
Accumulated
depreciation
R’000
Carrying
value
R’000
10 PROPERTY, PLANT AND EQUIPMENT (INCLUDING RENTAL EQUIPMENT)
10.1 Group – 2010
Owned
Computer equipment 126 618 99 598 27 020
Furniture, fixtures and fittings 19 739 13 827 5 912
Improvements to leased premises 15 068 8 659 6 409
Motor vehicles 3 887 2 666 1 221
Office equipment 9 169 8 111 1 058
Rental equipment 69 434 40 526 28 908
Total owned 243 915 173 387 70 528
Leased
Computer equipment 37 028 22 830 14 198
Motor vehicles 3 474 1 787 1 687
Total leased 40 502 24 617 15 885
284 417 198 004 86 413
Group – 2009
Owned
Computer equipment 118 822 90 240 28 582
Furniture, fixtures and fittings 18 712 11 825 6 887
Improvements to leased premises 15 255 7 825 7 430
Motor vehicles 4 109 2 461 1 648
Office equipment 7 971 6 469 1 502
Rental equipment 50 386 28 696 21 690
Total owned 215 255 147 516 67 739
Leased
Computer equipment 39 420 19 745 19 675
Motor vehicles 3 625 1 264 2 361
Total leased 43 045 21 009 22 036
258 300 168 525 89 775
Company – 2010
Owned
Computer equipment 798 713 85
Furniture, fixtures and fittings 70 33 37
Improvements to leased premises 193 118 75
Office equipment 172 128 44
1 233 992 241
Company – 2009
Owned
Computer equipment 753 463 290
Furniture, fixtures and fittings 61 17 44
Improvements to leased premises 194 70 124
Office equipment 133 101 32
1 141 651 490
62 UCS ANNUAL REPORT 2010
10 PROPERTY, PLANT AND EQUIPMENT (INCLUDING RENTAL EQUIPMENT) continued
10.2 Movement summaryCarrying
value
beginning
of year
Acquisition
through
business
combinations
Disposal
through
sale of
subsidiary
Transfers
and
re-allocations
R’000 R’000 R’000 R’000
Group – 2010
Owned
Computer equipment 28 582 353 (154) (293)
Furniture, fixtures and fittings 6 887 225 (85) –
Improvements to leased premises 7 430 – – (245)
Motor vehicles 1 648 – – 39
Office equipment 1 502 12 – 538
Rental equipment 21 690 – – –
Total owned 67 739 590 (239) 39
Leased
Computer equipment 19 675 193 – –
Motor vehicles 2 361 – – (39)
Total leased 22 036 193 – (39)
89 775 783 (239) –
Leased motor vehicles and computer equipment with a net book value of R10,7 million (2009: R22,0 million) are encumbered as detailed
in note 23.2.
Carrying
value
beginning
of year
Acquisition
through
business
combinations
Disposal
through
sale of
subsidiary/
division
Assets
classified as
held for sale
R’000 R’000 R’000 R’000
Group – 2009
Owned
Computer equipment 29 122 296 (1 605) (1 489)
Furniture, fixtures and fittings 6 819 189 (94) –
Improvements to leased premises 6 273 – – (2 056)
Motor vehicles 2 348 – (514) –
Office equipment 606 – (537) (3 248)
Rental equipment 2 235 – (36) –
Total owned 47 403 485 (2 786) (6 793)
Leased
Computer equipment 16 565 – – –
Motor vehicles 901 – – (955)
Total leased 17 466 – – (955)
64 869 485 (2 786) (7 748)
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 September 2010 continued
FINANCIAL STATEMENTS 63
Additions Disposals
Depreciation
related to
disposals Depreciation
Foreign
exchange
differences
Carrying value
end of year
R’000 R’000 R’000 R’000 R’000 R’000
13 247 (1 366) (60) (13 253) (36) 27 020
1 210 (69) (22) (2 227) (7) 5 912
1 902 – – (2 678) – 6 409
610 (227) – (849) – 1 221
1 473 (78) – (2 389) – 1 058
26 472 (6 182) – (13 072) – 28 908
44 914 (7 922) (82) (34 468) (43) 70 528
4 438 – – (10 108) – 14 198
– – – (635) – 1 687
4 438 – – (10 743) – 15 885
49 352 (7 922) (82) (45 211) (43) 86 413
Transfer
from
held for sale Additions Disposals
Depreciation
of assets
classified as
held for sale
Restated
Depreciation
Restated
Foreign
exchange
differences
Carrying
value
end of year
R’000 R’000 R’000 R’000 R’000 R’000 R’000
– 20 717 (3 639) (1 482) (13 250) (88) 28 582
– 2 262 (63) (41) (2 130) (55) 6 887
– 6 252 (26) (318) (2 695) – 7 430
– 1 229 (167) (283) (965) – 1 648
– 7 060 – (913) (1 466) – 1 502
11 616 18 989 (2 055) (29) (9 030) – 21 690
11 616 56 509 (5 950) (3 066) (29 536) (143) 67 739
– 14 034 – – (10 924) – 19 675
– 2 849 (63) – (371) – 2 361
– 16 883 (63) – (11 295) – 22 036
11 616 73 392 (6 013) (3 066) (40 831) (143) 89 775
64 UCS ANNUAL REPORT 2010
10 PROPERTY, PLANT AND EQUIPMENT (INCLUDING RENTAL EQUIPMENT) continued
10.2 Movement summary continued
Carrying
value
beginning
of year Additions Disposals Depreciation
Carrying
value
end of year
R’000 R’000 R’000 R’000 R’000
Company – 2010
Owned
Computer equipment 290 25 (2) (228) 85
Furniture, fixtures and fittings 44 9 – (16) 37
Improvements to leased premises 124 – – (49) 75
Office equipment 32 39 – (27) 44
490 73 (2) (320) 241
Company – 2009
Owned
Computer equipment 433 97 – (240) 290
Furniture, fixtures and fittings 41 15 – (12) 44
Improvements to leased premises 96 63 – (35) 124
Office equipment 58 – – (26) 32
628 175 – (313) 490
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 September 2010 continued
FINANCIAL STATEMENTS 65
11 INTANGIBLE ASSETS
Cost
Accumulated
amortisation
Carrying
value
R’000 R’000 R’000
11.1 Group – 2010
Brands 4 683 1 723 2 960
Computer software 216 992 129 159 87 833
Customer relationships 48 001 23 632 24 369
Development costs 38 040 13 096 24 944
Intellectal property 13 926 7 003 6 923
Set-up costs 11 543 7 791 3 752
Trademarks 18 072 12 036 6 036
351 257 194 440 156 817
Group – 2009
Brands 4 683 1 375 3 308
Computer software 80 387 46 733 33 654
Customer relationships 48 179 17 727 30 452
Development costs 9 391 3 312 6 079
Intellectual property 10 193 6 903 3 290
Set-up costs 11 543 9 236 2 307
Trademarks 22 387 21 998 389
186 763 107 284 79 479
Company – 2010
Computer software 852 739 113
Trademarks 250 250 –
1 102 989 113
Company – 2009
Computer software 3 456 3 053 403
Trademarks 250 250 –
3 706 3 303 403
66 UCS ANNUAL REPORT 2010
11 INTANGIBLE ASSETS continued
11.2 Movement summary
Carrying
value
beginning
of year
Acquisition
through
business
combinations Additions Disposals
R’000 R’000 R’000 R’000
Group – 2010
Brands 3 308 – – –
Computer software 33 654 57 915 14 854 (52)
Customer relationships 30 452 – – –
Development costs 6 079 13 426 8 364 –
Intellectual property 3 290 3 002 732 –
Set-up costs 2 307 – – –
Trademarks 389 6 659 – –
79 479 81 002 23 950 (52)
Carrying
value
beginning
of year
Disposal
through
sale of
subsidiary/
division
Assets
classified as
held for sale Additions
R’000 R’000 R’000 R’000
Group – 2009
Brands 5 144 – (873) –
Computer software 42 494 (4 404) (263) 12 224
Customer relationships 53 125 – (3 338) –
Development costs 6 840 – – 1 562
Intellectual property 3 413 – – –
Set-up costs 4 616 – – –
Trademarks 2 395 – – –
118 027 (4 404) (4 474) 13 786
Carrying
value
beginning
of year Additions Amortisation
Carrying
value
end of year
R’000 R’000 R’000 R’000
Company – 2010
Computer software 403 – (290) 113
Company – 2009
Computer software 688 4 (289) 403
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 September 2010 continued
FINANCIAL STATEMENTS 67
Amortisation
Foreign
exchange
differences
Carrying
value
end of year
R’000 R’000 R’000
(348) – 2 960
(17 815) (723) 87 833
(6 083) – 24 369
(2 697) (228) 24 944
(101) – 6 923
1 445 – 3 752
(1 012) – 6 036
(26 611) (951) 156 817
Disposals
R’000
Transfers
and
re-allocations Amortisation
Amortisation
of assets
classified as
held for sale Impairment
Foreign
exchange
differences
Carrying
value
end of year
R’000 R’000 R’000 R’000 R’000 R’000
– – (348) (615) – – 3 308
(15) 345 (13 227) (476) – (3 024) 33 654
– – (8 554) (8 801) (1 848) (132) 30 452
– (345) (1 728) (250) – – 6 079
– – (123) – – – 3 290
– – (2 309) – – – 2 307
– – (2 006) – – – 389
(15) – (28 295) (10 142) (1 848) (3 156) 79 479
68 UCS ANNUAL REPORT 2010
Group
2010
R’000
2009
R’000
12 GOODWILLBalance at beginning of year 237 974 311 660
Acquisitions of subsidiaries (note 33.1) 4 833 13 140
Acquisitions of subsidiaries (note 33.2) 6 396 –
Acquisition of division 775 –
Additional payments to vendors in terms of profit warranty achievements – 4 820
Deferred purchase price on profit warranty achievements – 12 365
Impairment associated with disposed subsidiary (10 402) (7 371)
Impairment of goodwill (note 3.11) – (6 179)
Goodwill associated with disposed subsidiary – (12 247)
Goodwill associated with disposed division – (20 937)
Net effect of foreign exchange differences (961) (7 251)
Goodwill related to disposal group – (50 026)
– Impairment of disposal group classified as held for sale – (8 403)
– Assets classified as held for sale (note 20) – (41 623)
238 615 237 974
The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill may be impaired.
In the prior year the Group recognised impairments totalling R22,0 million, of which R15,8 million related to disposed operations and the
balance associated with local and foreign operations experiencing adverse trading conditions.
The recoverable amounts of the cash-generating units (‘CGU’) are determined from value in use calculations using the relevant weighted
average cost of capital for the CGU. The key assumptions for the value in use are those regarding the discount rates, inflation rates, growth
rates, expected changes to selling prices and direct costs during the period.
Management estimates discount rates using the post-taxation rates that reflect current market assessments of the time value of money and
the risks specific to the CGU.
The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management and extrapolates cash
flows using these financial projections. A terminal value is calculated based on an estimated growth rate ranging between 4% and 6%.
The rate used to discount the CGU’s forecast cash flows approximates the current Group’s weighted average cost of capital ranging between
12,56% and 16,31%. Sensitivity analysis were performed with varying discount rates applied up to 18,39%. No further indications of
impairment were identified.
Company
2010
R’000
2009
R’000
13 INVESTMENTS IN SUBSIDIARIESShares at cost 203 303 147 083
Indebtedness by subsidiary companies 125 842 116 402
Less: Impairment of investments in subsidiaries 80 639 35 021
248 506 228 464
Details of subsidiaries are reflected on pages 98 and 99.
The loans due by subsidiary companies have no fixed terms of repayment and Group company management have no intention at statement
of financial position date to recall loans due by subsidiary companies. Loans amounting to R86,1 million (2009: R65,3 million) bear interest
at varying rates ranging between 9% and 9,5% (2009: 6,8% and 15,5%). The remaining loans are interest free.
At the financial year end, the company assessed the recoverability of its investments and loans receivable from subsidiary companies and has,
as a consequence, recognised an impairment loss totalling R45,6 million (2009: R35,0 million) associated with certain subsidiary companies.
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 September 2010 continued
FINANCIAL STATEMENTS 69
Group Company
2010
R’000
2009
R’000
2010
R’000
2009
R’000
14 INVESTMENTS
Unlisted investments
Unlisted investments comprise:
– 6 500 (2009: Nil) Variable rate cumulative redeemable preference
shares in Acacia U2 Investments (Proprietary) Limited 65 000 – 65 000 –
– Less: Loans payable to Acacia International Limited,
South African branch (60 000) – – –
– 650 13,38% Redeemable cumulative participating preference
shares in Darrenfield Investments (Proprietary) Limited – 65 000 – 65 000
Less: Loans payable to Quarryfield Investments (Proprietary) Limited – (60 000) – –
– 600 (2009: Nil) Redeemable preference shares in Tactical Software
Systems (Proprietary) Limited, held by UCS Solutions Holdings
(Proprietary) Limited 30 000 – – –
– 430 042 Ordinary shares in Argility Limited – 457 – 363
– 10% of the issued share capital of wiWallet Mobile Payments
(Proprietary) Limited – 567 – 567
35 000 6 024 65 000 65 930
Directors’ valuation of unlisted investments 35 000 6 024 65 000 65 930
14.1 In respect of the redeemable cumulative preference shares in Acacia U2 Investments (Proprietary) Limited, the coupon rate is linked to the
6 month Johannesburg Inter-bank borrowing rate (‘JIBAR’).
These redeemable cumulative preference shares have been pledged as security for loans granted by Acacia International Limited, South
African branch.
The loans from Acacia International Limited, South African branch bear interest at the 6 month JIBAR which is compounded semi-annually
in arrears and is payable six-monthly.
The capital amount of the loans is repayable no later than 1 October 2020. The loans are unsecured in the subsidiary companies but have
been guaranteed by the Company.
As security for the performance of Acacia U2 Investments (Proprietary) Limited, Acacia International Limited, South African branch, has
re-ceded to the company all rights, title and interest to the loans granted to the subsidiaries.
The Company has entered into a Put Option Agreement with ABSA Bank Limited to place any preference shares issued to the company in
Acacia U2 Investments (Proprietary) Limited to ABSA Bank Limited for R10 000 per share.
14.2 The redeemable cumulative participating preference shares in Darrenfield Investments (Proprietary) Limited were redeemed in accordance
with its terms on 31 March 2010. On the same date, the capital amount of the loans from Quarryfield Investments (Proprietary) Limited
were repaid. The terms related to the preference shares in Darrenfield Investments (Proprietary) Limited and the loans from Quarryfield
Investments (Proprietary) Limited are fully disclosed in the 2009 annual financial statements.
14.3 In respect of the redeemable preference shares in Tactical Software Systems (Proprietary) Limited, the coupon rate is linked to the after
taxation average prime overdraft rate and which dividend shall be calculated daily, on the basis of a 365 day year, based on the achievement
of the pre-determined annual performance thresholds by TSS Managed Services (Proprietary) Limited (‘TSSMS’), payable on 30 September
of each year the preference shares are in issue.
The preference shares are redeemable in cash on the achievement of pre-defined performance thresholds by TSSMS in 2012 and 2013,
in equal tranches of 300 preference shares at their subscription price of R15 million for each tranche respectively.
600 of a total 900 preference shares issued to UCS Solutions Holdings (Proprietary) Limited (‘UCS Solutions Holdings’) have been
recognised in UCS Solutions Holdings Statement of financial position following management’s assessment of the likely achievement of the
performance thresholds in respect of the final 300 preference share tranche.
70 UCS ANNUAL REPORT 2010
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 September 2010 continued
Group Company
2010
R’000
2009
R’000
2010
R’000
2009
R’000
15 LOANS RECEIVABLENon-controlling shareholders’ loans 5 279 2 100 2 250 –
wiWallet Mobile Payments (Proprietary) Limited – 2 613 – 2 613
Zwelethu Recruitments Solutions Close Corporation 1 409 952 2 –
Staff loan scheme 200 400 – –
6 888 6 065 2 252 2 613
Less: Current portion shown under trade and other receivables – 2 100 – –
6 888 3 965 2 252 2 613
Assets classified as held for sale (note 20) – 302 – –
6 888 4 267 2 252 2 613
The loans receivable comprise:
15.1 The non-controlling shareholders’ loans consist of the following:
– The R2,1 million owing by the non-controlling interest shareholder of Destiny Electronic Commerce (Proprietary) Limited in the prior year
was repayable by way of a dividend distribution taking cognisance of the loan covenants imposed by the providers of the acquisition
finance. The loan has been settled in full in November 2009.
– R2,3 million are loans to UCS Dynamics Software Solutions (Proprietary) Limited non-controlling shareholders. These loans are
unsecured, have no fixed repayment terms and bears interest at the rate of prime less 2%.
– R3 million is owing by Cquential Solutions (Proprietary) Limited’s non-controlling shareholders. These loans are unsecured, have no fixed
terms of repayment and bears interest at the rate of prime.
15.2 The loan to wiWallet Mobile Payments (Proprietary) Limited (‘wiWallet’) in the prior year was convertible into equity of wiWallet. In October
2009, UCS exercised its rights in terms of the loan facility agreement and acquired 40% equity interest in wiWallet.
15.3 The loan to Zwelethu Recruitments Solutions Close Corporation represents the Group’s contribution to the Enterprise Development Initiatives
supported by the UCS Group. The loans are unsecured, non-interest bearing and have no fixed date of repayment.
15.4 The staff loan scheme receivables are unsecured, non-interest bearing and have no fixed date of repayment.
16 FINANCE LEASE RECEIVABLES The Group enters into finance lease arrangements with customers for certain of its computer equipment. The average term of finance leases
entered into is between three and five years.
Group Company
2010
R’000
2009
R’000
2010
R’000
2009
R’000
Due within one year 4 201 3 334 – –
Due within two to five years inclusive 8 444 3 721 – –
12 645 7 055 – –
Less: Unearned finance income 2 002 910 – –
Present value of minimum lease payments receivable 10 643 6 145 – –
Included in the financial statements as:
Non-current finance lease receivables 6 645 3 422 – –
Current finance lease receivables 3 998 2 723 – –
10 643 6 145 – –
Finance lease receivables are secured over computer equipment with a carrying value of R7,7 million (2009: R4,8 million). The interest
rate inherent in the leases is fixed at the contract date for the entire lease term. The average effective interest rate contracted is approximately
10,5% per annum (2009: 11,5%) linked to the prime rate of interest from time to time.
FINANCIAL STATEMENTS 71
Group Company
2010
R’000
2009
R’000
2010
R’000
2009
R’000
17 DEFERRED TAXATIONThe movement in deferred taxation is reconciled as follows:
Balance at beginning of year 26 569 30 183 5 067 3 566
Assets classified as held for sale (note 20) – (1 271) – –
Foreign exchange differences – 39 – –
Income statement (charge) credit (237) 1 100 – 1 501
Income statement charge classified as discontinued operations
(note 7.1) – (8 617) – –
Liabilities directly associated with assets classified as held for sale
(note 20) – 5 053 – –
Net taxable temporary differences arising on business combinations
(note 33.1) (8 752) 82 – –
Balance at end of year 17 580 26 569 5 067 5 067
Comprising:
– Allowances on intangible assets (394) (408) – –
– Capital allowances (369) (250) – –
– Deferred development and set-up costs capitalised (3 070) (968) – –
– Deferred revenue 13 978 16 117 – –
– Estimated taxation losses 14 214 12 158 4 114 4 114
– Equity-settled employee benefit expense (461) (1 075) (141) (141)
– Finance leases (650) (1 176) – –
– Intangible assets arising on business combinations (17 277) (11 663) – –
– Prepayments (723) (619) (38) (38)
– Provisions 12 332 14 453 1 132 1 132
17 580 26 569 5 067 5 067
Certain deferred taxation assets and liabilities have been offset in
accordance with the Group’s accounting policy. The following is the
analysis of the deferred taxation balances (after offset) for balance
sheet purposes:
Deferred taxation assets 32 936 36 141 5 067 5 067
Deferred taxation liabilities (15 356) (9 572) – –
17 580 26 569 5 067 5 067
18 INVENTORIESConsumables 2 266 2 773 – –
Merchandise for resale 48 955 48 292 – –
Work in progress 93 84 – –
51 314 51 149 – –
Less: Provision for obselescence 4 065 3 489 – –
47 249 47 660 – –
Assets classified as held for sale (note 20) – 697 – –
47 249 48 357 – –
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 September 2010 continued
72 UCS ANNUAL REPORT 2010
Group Company
2010
R’000
2009
R’000
2010
R’000
2009
R’000
19 TRADE AND OTHER RECEIVABLESTrade accounts receivable 162 699 173 791 5 686 1 716
Provision for doubtful debts (3 097) (5 866) – –
159 602 167 925 5 686 1 716
Prepayments 8 866 3 839 795 494
Dividend receivable 3 009 – 3 009 29
Other receivables including staff loans and deposits 7 986 8 098 25 –
Current loans receivable – 2 100 – –
179 463 181 962 9 515 2 239
Assets classified as held for sale (note 20) – 22 842 – –
179 463 204 804 9 515 2 239
The trade receivables of CEB Maintenance Africa (Proprietary) Limited, Destiny Electronic Commerce (Proprietary) Limited and Argility
(Proprietary) Limited have been ceded to Nedbank Limited to secure the acquisition finance for CEB Maintenance Africa (Proprietary)
Limited, Computer Software Consultants (Proprietary) Limited and overdraft facility at UCS Group Limited respectively.
The trade receivables of UCS Technology Services (Proprietary) Limited have been ceded in favour of Nedbank Limited to secure the loan
facility drawn by UCS Software Manufacturing (Proprietary) Limited. Refer note 23.3 and 39.4.
20 ASSETS CLASSIFIED AS HELD FOR SALE In the prior year, TSS Managed Services (Proprietary) Limited had been disclosed as a disposal group and as such the assets and liabilities
associated with this business were classified as held for sale. As at the current financial year end, there were no disposal groups.
Group
2010
R’000
2009
R’000
Assets classified as held for sale
Property, plant and equipment (including rental equipment) – 7 748
Intangible assets – 4 474
Goodwill – 41 623
Loans receivable – 302
Deferred taxation asset – 1 271
Inventories – 697
Trade and other receivables – 22 842
Cash and bank balances – 30 265
– 109 222
Liabilities directly associated with assets classified as held for sale
Borrowings – 10 310
Deferred taxation liability – 5 053
Trade and other payables – 14 937
Current taxation payable – 4 909
– 35 209
FINANCIAL STATEMENTS 73
Group Company
2010
R’000
2009
R’000
2010
R’000
2009
R’000
21 SHARE CAPITAL
21.1 Authorised
480 000 000 ordinary shares of 0,5c each 2 400 2 400 2 400 2 400
20 000 000 redeemable compulsory convertible preference shares
of 0,5c each 100 100 100 100
800 000 A class shares 4 4 4 4
1 200 000 B class shares 6 6 6 6
1 600 000 C class shares 8 8 8 8
2 000 000 D class shares 10 10 10 10
2 400 000 E class shares 12 12 12 12
1 600 000 F class shares 8 8 8 8
2 400 000 G class shares 12 12 12 12
3 200 000 H class shares 16 16 16 16
2 000 000 I class shares 10 10 10 10
2 800 000 J class shares 14 14 14 14
Total authorised share capital 2 500 2 500 2 500 2 500
Issued
288 422 658 (2009: 288 422 658) ordinary shares of 0,5c each
net of 3 066 939 (2009: 4 031 996) treasury shares held by
subsidiary companies 1 427 1 422 1 442 1 442
Total issued share capital 1 427 1 422 1 442 1 442
21.2 Rights and limitations attaching to the redeemable preference shares (incentive shares):
A total of 13 324 500 (2009: 13 324 500) incentive shares remain unissued for the benefit of the UCS Group Limited Share Scheme II.
The incentive shares have limited rights relative to the ordinary shares.
The incentive shares are not listed on the JSE Limited.
Holders of the incentive shares have the right to receive a dividend equal to 10% of any dividend declared and paid to ordinary shareholders.
21.3 Detailed conditions and rights relating to the various classes of the compulsory convertible redeemable preference shares may be inspected
at the Company’s registered office.
21.4 The unissued shares are under the control of the directors until the forthcoming annual general meeting with a limitation that the directors
are authorised to allot and issue a maximum of 10% of the Company’s issued share capital in any one financial year.
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 September 2010 continued
74 UCS ANNUAL REPORT 2010
22 EQUITY-SETTLED EMPLOYEE BENEFITS
22.1 Market priced share option scheme
The UCS Group Limited Share Option Scheme allows certain employees the option to acquire shares in UCS Group Limited over a ten year
period, with the options vesting in tranches of 25% from the grant date. If the options remain unexercised after a period of ten years from
the date of grant, the options expire. Should a scheme member cease to be an employee of the Group, any unexercised options are
forfeited. The exercise price of the options is determined in accordance with the rules of the scheme, being the five day weighted average
value per ordinary share immediately preceding the granting of the option.
These options are settled by means of the issue of shares by UCS Group Limited. Such equity-settled employee benefit payments are
measured at fair value at the date of the grant. The fair value determined at the grant date of the equity-settled employee benefit payment
is charged as employee costs on a straight-line basis over the period that the employees become unconditionally entitled to the options,
based on management’s estimate of the shares that will vest and adjusted for the effect of non market-based vesting conditions.
The fair value is measured using a stochastic model, based on the standard ‘binomial’ options pricing model (which is mathematically
consistent with the Black-Scholes-Merton model) but allows for the particular features of employee share options to be modelled realistically.
The model used for valuing the employee share option arrangements requires a number of assumptions to be made as inputs. The
assumptions are management’s best estimate of future experience over the expected option term.
The inputs into the model were unchanged for both 2010 and 2009 and are as follows:
Weighted average share price (cents) 428
Weighted average exercise price (cents) 414
Expected volatility 39,26% – 40,92%
Expected life 3 – 5 years
Risk free rate 7,73% – 8,51%
Expected dividend yield 2,41% – 3,17%
Expected volatility was determined by calculating the historical volatility of the Company’s share price over the number of previous years’
corresponding with the option lifetime. The expected life used in the model has been adjusted, based on management’s best estimate, for
the effects of non-transferability, exercise restrictions and behavioural considerations.
The share option employee benefit payment valuation was performed by independent experts for all periods.
Details of the share options during the year are as follows:
2010 2009
Number
of share
options
Weighted
exercise
price
Number
of share
options
Weighted
exercise
price
(’000) (cents) (’000) (cents)
Group
Outstanding at beginning of the year 12 046 151,1 13 236 148,3
Granted during the year – _ 800 187,0
Forfeited during the year (1 657) 197,0 (1 076) 188,1
Exercised during the year (535) 60,7 (914) 99,0
Outstanding at end of the year 9 854 148,27 12 046 151,1
The weighted average share price at the date of exercise of share options exercised during the year approximates the weighted average
share price of 182 cents per share (2009: 169 cents). The options outstanding at the end of the year have a weighted average remaining
contractual life of 4,6 years (2009: 5,8 years).
2010 2009
Number
of share
options
Weighted
exercise
price
Number
of share
options
Weighted
exercise
price
(’000) (cents) (’000) (cents)
Company
Outstanding at beginning of the year 1 200 123,3 700 168,6
Transfer (to)/from subsidiary company (500) 60,0 500 60,0
Outstanding at end of the year 700 168,6 1 200 123,3
The options outstanding at the end of the year have a weighted average remaining contractual life of 4,7 years (2009: 4,8 years).
FINANCIAL STATEMENTS 75
22 SHARE-BASED PAYMENTS continued
22.2 Zero Cost Incentive Scheme
The Zero Cost Incentive Scheme, which was established in November 2008, is structured to acquire existing shares in the market for the
benefit of eligible employees, including directors and senior executives in the business of UCS. The equity acquired by the scheme will vest
with beneficiaries on a basis to be determined by the UCS Group board or its nominated committee from time to time and which will initially
be over a period of five years from the date of issue in tranches of 10%, 15%, 20%, 25% and 30%. The Zero Cost Option Incentive Shares
are exercisable within 90 days of the respective vesting dates after which time the options lapse. Should a scheme member cease to be an
employee of the Group, any unexercised options are forfeited and the incentive shares placed in an unallocated pool for the benefit of other
potential eligible employees.
The award price of options under this scheme is zero and may, at the election of the UCS Group board or its nominated committee, be
based on such performance criteria as the committee may determine from time to time.
The zero priced options are settled by means of the issue of shares by UCS equity. Such equity-settled employee benefit payments are
measured at fair value at the date of the grant. The fair value determined at the grant date of the equity-settled employee benefit payment
is charged as employee costs over the period that the employees become unconditionally entitled to the options, based on management’s
estimate of the shares that will vest and adjusted for the effect of non market-based vesting conditions.
In the 2008 financial year, 3 556 865 market priced options were converted to zero cost options. 1 379 790 zero cost options were awarded
in accordance with the conversion. On the date of the conversion, a valuation was performed on these options. The incremental increase
in the fair value of these options will be expensed in terms of IFRS 2 – Share-based Payments, over the new period of the vesting conditions
as set out in the zero cost option scheme, whereas the original value of the options converted as valued in accordance with the market
priced option scheme, will continue to be expensed over the original vesting period in terms of the market priced option scheme.
The fair value is measured using a stochastic model, based on the standard ‘binomial’ options pricing model (which is mathematically
consistent with the Black-Scholes-Merton model) but allows for the particular features of employee share options to be modelled realistically.
The model used for valuing the employee share option arrangements requires a number of assumptions to be made as inputs. The
assumptions are management’s best estimate of future experience over the expected option term.
The inputs applied for the calculation of the value of the converted options at date of transfer are as follows:
Weighted average share price (cents) 214
Expected volatility 34,54% – 40,22%
Expected life 1 – 5 years
Risk free rate 8,99% – 9,53%
Expected dividend yield 2,31%
As a result of the valuation of the converted options, an amount of R4,1 million, representing the incremental increase of the fair value of
the options will be expensed over the vesting period of five years in terms of the Zero Cost Option Scheme.
The inputs applied to the zero cost model for new grants under the scheme for 2009 and 2010 are as follows:
2010 2009
Weighted average share price (cents) 196 195
Expected volatility 41,30% – 49,34% 38,53% – 42,78%
Expected life 2 – 6 years 1 – 5 years
Risk free rate 7,16% – 8,21% 7,67% – 8,23%
Expected dividend yield 4,97% 2,54%
Expected volatility was determined by calculating the historical volatility of the Company’s share price over the number of previous years’
corresponding with the option lifetime. The expected life used in the model has been adjusted, based on management’s best estimate, for
the effects of non-transferability, exercise restrictions and behavioural considerations.
The share option employee benefit valuation was performed by independent experts for all periods.
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 September 2010 continued
76 UCS ANNUAL REPORT 2010
22 SHARE-BASED PAYMENTS continued
2010 2009
Number
of share
options
Weighted
exercise
price
Number
of share
options
Weighted
exercise
price
(’000) (cents) (’000) (cents)
Group
Outstanding at beginning of the year 2 463 – 2 662 –
Granted during the year 891 – 365 –
Forfeited during the year (169) – (257) –
Exercised during the year (393) – (307) –
Outstanding at end of the year 2 792 – 2 463 –
The weighted average share price at the date of exercise of share options exercised during the year approximates the weighted average
share price of 184 cents (2009: 169 cents) per share.
The Group recognised a total expense of R2,7 million (2009: R3,9 million) relating to equity-settled employee benefit payment transactions
during the year.
2010 2009
Number
of share
options
Weighted
exercise
price
Number
of share
options
Weighted
exercise
price
(’000) (cents) (’000) (cents)
Company
Outstanding at beginning of the year 713 – 403 –
Granted during the year 125 – 365 –
Exercised during the year (83) – (55) –
Outstanding at end of the year 755 – 713 –
The weighted average share price at the date of exercise of share options exercised during the year approximates a weighted average share
price for the year of 169 cents per share.
The company recognised a total expense of R0,6 million (2009: R0,5 million) relating to equity-settled employee benefit payment transactions
during the year.
Equity-settled preference share scheme
The UCS Group Limited Staff Share Scheme II was established during October 2000 and gives certain employees an opportunity to
purchase incentive shares which, provided the requisite achievement of predefined headline earnings per share targets are achieved, would
automatically and compulsorily convert, at staggered intervals, into fully paid ordinary shares.
There are no incentive shares in issue and eligible for conversion into ordinary shares. Nil (2009: 79 500) shares were redeemed during
the year. There were no preference share incentive grants during the current and prior years.
FINANCIAL STATEMENTS 77
Group Company
2010
R’000
2009
R’000
2010
R’000
2009
R’000
23 BORROWINGSLoans from shareholders of subsidiaries 6 779 5 573 17 706 –
Loans secured by motor vehicles and computer and office equipment 27 395 31 111 – –
Loans secured by cession of debtors 79 799 114 092 – –
Purchase obligations relating to business acquisitions 18 685 20 625 – –
Interest bearing loan 1 750 5 886 – 5 886
Share incentive obligation 4 489 2 251 – –
138 897 179 538 17 706 5 886
Less: Current portion shown under current liabilities (50 670) (75 008) (3 927) (5 886)
88 227 104 530 13 779 –
Liabilities directly associated with assets classified as held for sale
(note 20) – 10 310 – –
88 227 114 840 13 779 –
23.1 The loans from shareholders of subsidiaries are unsecured and an amount of R1,5 million (2009: R1,5 million) bears interest at the prime
overdraft rate while the balance of the loans are interest free.
23.2 The loans secured by motor vehicles, computer equipment and office equipment comprise the following:
Medium-term loans secured by computer equipment bear interest at varying rates between 10% and 13,25% with varying repayment
terms. The loans are payable in monthly instalments over the next 4 years.
Medium-term loans secured by motor vehicles which amounted to R0,9 million in the prior year relate to TSS Managed Services
(Proprietary) Limited (‘TSSMS’) and were reclassified to liabilities directly associated with assets classified as held for sale.
Medium-term loans secured by computer equipment bear interest at varying rates between 10% and 15,65% with varying repayment
terms. The loans are payable in quarterly installments over the next 4 years. In the prior year R3,0 million relating to TSSMS had been
reclassified to liabilities directly associated with assets classified as held for sale (note 20).
23.3 The loans secured by cession of debtors comprise medium-term loan facilities with Nedbank Limited and comprise the following:
Acquisition finance raised to fund the purchase price obligations relating to the acquisition of the going concern business of CEB
Maintenance Africa (Proprietary) Limited (‘CEB’). The loans, which relate to the first, second and third and final payment due to the
previous vendors of CEB bear interest at 7,5% respectively and the last installments are payable in November 2010, November 2011
and January 2013 respectively.
Acquisition finance raised to fund the purchase price obligation relating to the acquisition of the going concern business of Computer
Software Consultants. The loan, which contributes to the initial purchase price paid on implementation of the transaction, bears interest
at 7,5% and is repayable in monthly installments of R1,1 million. The final installment in respect of the five-year loan is payable on
1 September 2013.
Medium-term loan raised in UCS Software Manufacturing (Proprietary) Limited referred to in note 23.5. The loan is repayable over five
years in monthly installments of R1 million and currently bears interest at 7,5%.
23.4 Purchase obligations relating to business acquisitions relate to the deferred consideration on the acquisition of Cquential Solutions
(Proprietary) Limited and are carried at amortised cost bearing interest at the Group’s after taxation cost of debt. The balance in the prior
year which relates to the deferred consideration associated with TSS Managed Services (Proprietary) Limited was classified as held for sale
and was fully repaid in the current year.
23.5 The interest bearing loan in the current year is owing to IBM Global finance and relates to finance obtained for the acquisition of software. The
loans are unsecured, bear interest at variable rates between 14,4% and 17,1% and is repayable quarterly in advance over the next two years.
23.6 The interest bearing loan in the prior year related to the loan agreement with Argility (Proprietary) Limited. The loan eliminates on
consolidation following the acquisition by UCS Group Limited of the entire issued share capital of Argility (Proprietary) Limited in June 2010.
Group Company
2010
R’000
2009
R’000
2010
R’000
2009
R’000
Interest and non-interest bearing borrowings
Interest bearing borrowings 129 139 173 202 17 706 5 886
Non-interest bearing borrowings 9 758 6 336 – –
138 897 179 538 17 706 5 886
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 September 2010 continued
78 UCS ANNUAL REPORT 2010
Company
2010
R’000
2009
R’000
24 STAFF SHARE TRUSTThe UCS Group Limited Staff Share Trust 2 515 1 875
These loans are unsecured, non-interest bearing and have no fixed terms for repayment. Management
will not call these loans for repayment within 12 months
Group Company
2010
R’000
2009
R’000
2010
R’000
2009
R’000
25 TRADE AND OTHER PAYABLESTrade payables 66 856 55 249 548 461
Advance billings 32 053 26 365 – –
Sundry payables and accruals 124 767 122 524 9 996 7 080
223 676 204 138 10 544 7 541
Liabilities directly associated with assets classified as held for sale
(note 20) – 14 937 – –
223 676 219 075 10 544 7 541
Provision
for legal
claims
Provision
for
contractual
commitments
Other
provisions
Total
provisions
R’000 R’000 R’000 R’000
26 PROVISIONS
Group – 2010
Balance beginning of year 1 000 8 795 1 809 11 604
Amounts utilised – (16 128) (620) (16 748)
Amounts provided 160 12 793 20 12 973
Amounts released – (1 400) – (1 400)
Acquisition of subsidiaries (note 33.2) – – 39 39
Balance end of year 1 160 4 060 1 248 6 468
Group – 2009
Balance beginning of year 1 000 7 605 1 117 9 722
Amounts utilised – (10 104) (54) (10 158)
Amounts provided – 15 124 746 15 870
Amounts released – (4 882) – (4 882)
Disposal of division by subsidiary company – 1 052 – 1 052
Balance end of year 1 000 8 795 1 809 11 604
The provision for legal claims relates to a potential claim presented in 2008 in respect of a contractual relationship in place at a subsidiary
company level. Although the outcome of the claim has not been concluded, management have made provision for a potential settlement
in respect thereof. A contingent liability in respect of the potential claim is disclosed in note 37.
The provisions for contractual commitments relate to certain customer contracts where the estimated cost to deliver on the contractual
obligations exceeded the contracted contribution.
Other provisions relate largely to estimated programmers commission payable to employees at the discretion of management based on
productivity incentives.
FINANCIAL STATEMENTS 79
Company
2010 2009
R’000 R’000
27 LOANS FROM SUBSIDIARIESAccsys (Proprietary) Limited 936 21 523
Computerkit Holdings (Proprietary) Limited – 1 357
Destiny Electronic Commerce (Proprietary) Limited 10 397 10 013
Fernridge Consulting (Proprietary) Limited 2 578 2 137
GAAP Point of Sale (Proprietary) Limited 27 –
Universal Knowledge Software (Proprietary) Limited 3 140 10 147
UCS Dynamics Software Solutions (Proprietary) Limited 2 969 –
UCS Software (Proprietary) Limited 36 519 55 644
UCS Solutions (Proprietary) Limited 63 701 45 573
UCS Solutions Holdings (Proprietary) Limited 33 327 –
UCS Technology Services (Proprietary) Limited 36 353 –
189 947 146 394
Loans from subsidiaries are unsecured and balances totalling R56,5 million (2009: R89,5 million) bear interest at the call account rate from
time to time. No date has been specified for the repayment of these loans.
Group Company
2010
R’000
2009
R’000
2010
R’000
2009
R’000
28 CASH GENERATED FROM (UTILISED BY) OPERATIONS
BEFORE WORKING CAPITAL CHANGES
Continuing and discontinued operations
Profit before taxation 92 655 89 852 (23 192) (30 109)
Adjustments for:
Decrease in provisions (7 367) – – –
Deferred revenue (11 000) 33 000 – –
Depreciation and amortisation 71 904 82 334 610 602
Dividend received (3 009) – – –
Equity-settled employee benefit expense 2 656 3 910 107 272
Fair value adjustments 1 327 – (12) –
Finance charges 13 835 23 748 3 133 4 732
Impairment classified as discontinued operations 30 977 15 774 – –
Impairment of goodwill – 6 179 – –
Impairment of intangible assets – 1 848 – –
Impairment of investment in subsidiaries – – 45 618 35 021
Investment revenues (6 156) (6 855) (41 357) (28 160)
Loss (profit) on disposal of subsidiary – 4 559 39 (1 325)
Net loss on disposal of property, plant and equipment
(including rental equipment) and intangible assets (3 112) (579) 2 –
Net foreign exchange differences 5 944 12 950 – –
Profit on treasury shares utilised for allotment (1 738) – – –
Profit on sale of a division by a subsidiary company (14 491) (33 263) – –
172 425 233 457 (15 052) (18 967)
29 WORKING CAPITAL CHANGESIncrease in inventories (165) (8 841) – –
Decrease (increase) in trade and other receivables 4 819 14 165 (7 276) (1 279)
Increase in trade and other payables 14 062 3 179 3 003 4 656
18 716 8 503 (4 273) 3 377
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 September 2010 continued
80 UCS ANNUAL REPORT 2010
Group Company
2010
R’000
2009
R’000
2010
R’000
2009
R’000
30 TAXATION PAIDAmount prepaid (unpaid) at beginning of year 886 (20 819) 234 234
Liability directly associated with assets held for sale (note 20) – 4 909 – –
Taxation charge for the year (42 811) (41 764) (1 617) (1 148)
Amount prepaid at end of year (856) (886) (234) (234)
Taxation paid (42 781) (58 560) (1 617) (1 148)
31 ACQUISITION OF PROPERTY, PLANT AND EQUIPMENT
(INCLUDING RENTAL EQUIPMENT)Computer equipment 13 600 21 013 25 97
Furniture, fixtures and fittings 1 435 2 451 9 15
Improvements to leased premises 1 902 6 252 – 63
Motor vehicles 610 1 229 – –
Office equipment 1 485 7 060 39 –
Rental equipment 26 472 18 989 – –
Leased computer equipment 4 631 14 034 – –
Leased motor vehicles – 2 849 – –
50 135 73 877 73 175
Less: shown under acquisition of subsidiaries (note 33.1) 658 485 – –
Less: shown under acquisition of subsidiaries (note 33.2) 99 – – –
Less: acquisition of division 26 – – –
49 352 73 392 73 175
32 ACQUISITION OF INTANGIBLE ASSETSComputer Software 72 769 12 224 – 4
Development costs 21 790 1 562 – –
Intellectual property 3 734 – – –
Trademarks 6 659 – – –
104 952 13 786 – 4
Less: shown under acquisition of subsidiaries (note 33.1) 34 288 – – –
Less: shown under acquisition of subsidiaries (note 33.2) 45 814 – – –
Less: acquisition of division 900 – – –
23 950 13 786 – 4
FINANCIAL STATEMENTS 81
33 ACQUISITION OF SUBSIDIARIES
33.1 The following acquisitions were concluded during the year:
1. In respect of the loan facility entered into with WiWallet Mobile Payments (Proprietary) Limited (‘wiWallet’), UCS exercised its rights in
terms of the option agreement whereby the agreed total start up facility of R1,76 million was converted into 40% equity interest in
wiWallet, taking its total equity ownership to 50% with effect from 27 October 2009. In August 2010, UCS acquired a further 1% for a
consideration of R1,2 million resulting in a 51% equity ownership in wiWallet.
2. With effect from 30 November 2009 UCS entered into a Sale of Shares Agreement whereby it increased its 51% interest in Lifeworld
Group (Proprietary) Limited (‘Lifeworld’) to 100% for a nominal consideration. The company subsequently changed its name to
Innervation Value Added Services (Proprietary) Limited.
3. With effect from 1 December 2009, Lifeworld acquired the going concern business referred to as the Radical Business Unit from
Dynamic Visual Technologies (Gauteng) (Proprietary) Limited for a total cash consideration of R1,5 million, net of working capital
requirements.
4. On 9 April 2010, UCS entered into a Sale of Shares Agreement for the acquisition of 51% of the issued share capital of Volume and
Affinity Risk Management (Proprietary) Limited for a purchase consideration of R1 million with a further potential upside payment limited
to a maximum of R5 million.
5. Effective 30 April 2010, UCS entered into a Sale of Shares and Claims Agreement with the Industrial Development Corporation of South
Africa Limited (‘IDC’) to acquire 49% of the issued share capital of Cquential Solutions (Proprietary) Limited (‘Cquential’) and all claims
which the IDC may have against Cquential for a purchase consideration of R12 million with a further potential upside payment capped
at R10 million. UCS further entered into a Sale of Shares Agreement with the remaining shareholders of Cquential being predominantly
management, to acquire a further 7% equity interest in Cquential for a nominal purchase consideration of R28. In addition, UCS will
provide working capital funding limited to a maximum of R15 million.
The net assets (including goodwill) acquired as a result of these transactions are as follows:
Acquiree’s
carrying
values at
acquisition
Fair value
adjustments Fair value
R’000 R’000 R’000
Property, plant and equipment (including rental equipment) 658 – 658
Intangible assets 3 001 31 287 34 288
Loans receivable 2 911 – 2 911
Deferred taxation asset 2 067 (2 067) –
Trade and other receivables 580 – 580
Cash and bank balances 547 – 547
Borrowings (14 346) – (14 346)
Deferred taxation liability – (8 752) (8 752)
Trade and other payables (1 060) – (1 060)
Net asset value acquired (5 642) 20 468 14 826
Non-controlling interest’s share in net asset value (6 404)
Change in subsidiary shareholding reserve arising on acquisition 597
Goodwill arising on acquisition 4 833
Total purchase consideration 13 852
Made up as follows:
– Cash consideration paid 2 206
– Deferred loan payment 8 117
– Investment consideration paid in prior years converted to subsidiary 569
– Loan funding convertible into equity of wiWallet Mobile Payments (Proprietary) Limited
– advanced in prior year 1 520
– advanced in current year 1 440
13 852
Total cash consideration made up as follows:
Cash consideration paid 2 206
Less: Cash and cash equivalents acquired (547)
1 659
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 September 2010 continued
82 UCS ANNUAL REPORT 2010
33 ACQUISITION OF SUBSIDIARIES continued
33.2 The following acquisition was concluded during the year:
1. On 15 March 2010, UCS announced it had formally submitted to the Argility Limited (‘Argility’) board of directors a notice of its firm
intention to make an offer to the Argility shareholders to acquire the issued ordinary share capital in Argility held by them by way of a
scheme of arrangement in terms of Section 311 of the Companies Act No 61 of 1973, as amended (‘Companies Act’). Following approval
by in excess of 90% of the UCS shareholders who were entitled to vote at the UCS general meeting held on 12 April 2010 and the 100%
approval of the scheme by Argility shareholders present or represented by proxy at the general meeting held on 11 May 2010, the court
granted an order sanctioning the scheme in terms of Section 311 of the Companies Act on 18 May 2010. Accordingly with effect from
1 June 2010, UCS acquired the entire issued share capital of Argility, which shares were acquired in terms of the scheme, for a cash
purchase consideration of R1,55 per Argility share being R44,2 million in the aggregate.
The net assets (including goodwill) acquired as a result of the transaction is as follows:
Acquiree’s
carrying
values at
acquisition
Fair value
adjustments Fair value
R’000 R’000 R’000
Property, plant and equipment (including rental equipment) 99 – 99
Intangible assets 45 814 – 45 814
Loans receivable (8 334) – (8 334)
Trade and other receivables 4 571 – 4 571
Cash and bank balances 108 – 108
Trade and other payables (4 388) – (4 388)
Provisions (39) – (39)
Net asset value acquired 37 831 – 37 831
Goodwill arising on acquisition 6 396
Total purchase consideration 44 227
Made up as follows:
– Cash consideration paid 44 227
44 227
Total cash consideration made up as follows:
Cash consideration paid 44 227
Less: Proceeds on Argility Limited shares held pre-acquisition (771)
Less: Cash and cash equivalents acquired (108)
43 348
FINANCIAL STATEMENTS 83
34 DISPOSAL OF SUBSIDIARIES
34.1 TSS Managed Services (Proprietary) Limited
Prior to the 2009 financial year end, UCS Solutions Holdings (Proprietary) Limited (‘UCS Solutions Holdings’) concluded a Share Purchase
and Repurchase Agreement with Tactical Software Systems (Proprietary) Limited and TSS Managed Services (Proprietary) Limited
(‘TSSMS’) whereby UCS Solutions Holdings agreed to dispose of its entire 60% shareholding in TSSMS by way of the repurchase and the
share sale, in one composite transaction. The total potential transaction consideration (inclusive of a potential upside capped at a maximum
further R45 million) could be R125 million (excluding interest and dividends). The transaction was approved by shareholders at a
general meeting held on 3 November 2009 which represented the final suspensive condition to concluding the transaction.
34.2 UCS Solutions Incorporated
With effect from 31 August 2010, Universal Computer Software UK Limited (‘UCS UK’), a wholly owned subsidiary of UCS Group Limited,
disposed of its entire 92,5% equity interest in UCS Solutions Incorporated to the management shareholders who held the remaining 7,5%
for a nominal consideration of $1.
The net assets disposed of as a result of the transactions are as follows:
Group
2010
R’000
Property, plant and equipment (including rental equipment) 239
Trade and other receivables 6 516
Cash and bank balances 1 659
Assets classified as held for sale (note 20) 109 222
Trade and other payables (20 564)
Liabilities directly associated with assets classified as held for sale (note 20) (35 209)
Net asset value disposed 61 863
Change in subsidiary shareholding reserve disposed 652
Non-controlling interest’s share in net asset value (14 506)
Total disposal consideration 48 009
Less: Consideration received (32 500)
Investment acquired (30 000)
Profit on disposal of subsidiary (14 491)
Total cash consideration is made up as follows:
Cash consideration received 32 500
Less: Cash and bank balances disposed (1 659)
30 841
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 September 2010 continued
84 UCS ANNUAL REPORT 2010
35 COMMITMENTS Group
2010 2009
R’000 R’000
35.1 Operating lease commitments – Property
Due within one year 34 004 29 887
Due within two to five years 66 105 67 753
100 109 97 640
35.2 Operating lease commitments – Equipment
Due within one year 291 366
Due within two to five years 25 295
316 661
35.3 Operating lease commitments – Motor vehicles
Due within one year 924 740
Due within two to five years 913 853
1 837 1 593
Total operating lease commitments 102 262 99 894
35.4 Capital commitments
Commitments in respect of capital expenditure approved by the directors of a subsidiary
– not yet contracted for 79 576 49 827
– contracted for 3 154 16 079
82 730 65 906
Capital commitments amounting to R63,8 million (2009: R51,8 million) are expected to be financed from internal cash resources while the
balance of R18,9 million (2009: R14,1 million) are expected to be financed with external financiers.
36 FINANCIAL RISK MANAGEMENT
Overview
The Group’s activities expose it to a variety of risks, including the effect of foreign currency exchange rates and interest rates. The Group’s
overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects
on the financial performance of the Group. Group companies use derivative financial instruments such as foreign exchange contracts to
hedge certain expected exposures.
The Group has exposure to the following risks from its use of financial instruments:
– credit risk;
– liquidity risk; and
– market risk.
This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for
measuring and managing risk and the Group’s management of capital. Further quantitative disclosures are included throughout these
financial statements.
The board of directors has overall responsibility for the establishment and oversight of the Group’s risk managements framework.
The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits
and controls and to monitor adherence thereto. Risk management policies and systems are reviewed regularly to reflect changes in market
conditions and the Groups activities. The Group, through its training in management standards and procedures, aims to develop a
disciplined and constructive control environment in which all employees understand their roles and obligations.
The Group’s internal audit function, outsourced in the current and prior year to PricewaterhouseCoopers, undertakes both regular and
ad-hoc reviews of risk management controls and procedures, the results of which are reported to the Group Audit and Risk Committee.
FINANCIAL STATEMENTS 85
36 FINANCIAL RISK MANAGEMENT continued
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual
obligations and arises principally from the Group’s receivables from customers.
Trade and other receivables
The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the Group’s
customer base, including the default risk of the industry and country in which customers operate, has less of an influence on credit risk.
Group companies have established credit policies aligned with best practice recommendations, under which new customers are analysed
individually for creditworthiness before the respective company’s standard payment and delivery terms and conditions are offered. Customers
that fail to meet benchmark creditworthiness may contract with the company only on cash before delivery basis.
In monitoring customer credit risk, customers are grouped according to their credit characteristics, including whether they are an individual
or legal entity, geographic location, ageing profile, maturity and existence of previous financial difficulties. Collateral is not obtained, however,
whilst deeds of suretyship are obtained in certain circumstances.
Goods are sold subject to retention title clauses found in sales agreements signed with certain customers, so that in the event of non-payment,
the company has the right to claim restitution of the goods.
The Group establishes an allowance for impairment that represents its estimate of anticipated losses in respect of trade and other receivables.
This allowance represents a potential specific loss relating to individual specific exposures.
Liquidity risk
Liquidity risk is the risk that the company will not be able to meet its financial obligations as they fall due. The Group’s approach to managing
liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due, under both normal and stressed
conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
Typically the Group ensures that it has sufficient cash available, as well as lines of credit, to meet expected operational expenses, including
the servicing of financial obligations. The Group endeavours to mitigate the potential negative impacts of extreme circumstances that cannot
reasonably be predicted, such as major catastrophes like business interruption and public liability.
As far as possible these risks are mitigated through short-term insurance policies, however the costs associated with such cover are
critically evaluated.
The Group’s liquidity requirements are assessed on an ongoing basis as part of the Group’s treasury function. No significant risk exists as
the Group operates within its estimated optimal capital structure with a conservative interest cover ratio and operations generate positive
cash flows on an aggregated basis.
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, will affect the Group’s income or the
value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within
acceptable parameters, while optimising the return on risk.
Where material exposures linked to offshore procurement of goods or services exist, the Group enters into forward exchange contracts with
approved institutions in order to manage its market risks.
The Group is exposed to currency risk on sales and purchases that are denominated in a currency other than the respective functional
currencies of the Group, being South African Rand. The currency in which these transactions primarily are denominated are United States
Dollar and British Pound.
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 September 2010 continued
86 UCS ANNUAL REPORT 2010
36 FINANCIAL RISK MANAGEMENT continued
Capital management
The capital structure of the Group consists of debt, which includes interest-bearing borrowings and obligations due under finance leases
disclosed (note 23), cash and cash equivalents and equity attributable to equity holders of the Group which comprises issued share capital
and premium, disclosed under note 21, and accumulated profits.
The Group’s capital management objective is to achieve an optimal weighted average cost of capital while continuing to safeguard the
Group’s ability to meet its liquidity requirements (including its commitments in respect of capital expenditure), repay borrowings as they fall
due and continue as a going concern.
The policy of the Group is to achieve sufficient gearing so as to have an optimal weighted average cost of capital while also ensuring that
at all times its creditworthiness is considered to be at least investment grade.
The Group has entered into a number of debt facilities that dictate certain requirements in respect of capital management. These covenants
are a key consideration when the capital management strategies of the Group are evaluated.
These covenants include cash to debt service covers and maximum net debt/asset net worth ratios.
The Group has complied with these requirements in the current and prior year.
Group
2010 2009
R’000 R’000
Financial assets comprise:
Non-current assets
Investments 35 000 6 024
Loans receivable 6 888 3 965
Finance lease receivables 6 645 3 422
Total non-current assets 48 533 13 411
Current assets
Trade and other receivables* 179 148 181 751
Finance lease receivables 3 998 2 723
Cash and bank balances 131 885 177 764
Total current assets 315 031 362 238
Total financial assets 363 564 375 649
* Statutory VAT receivables totalling R0,3 million (2009: R0,2 million) have been excluded from trade and other receivables for financial asset classification purposes.
Categories of financial assets
Trade accounts receivable are categorised according to the market segments in which Group operates. The market segments are defined as
retail, government institutions, financial services and other. Trade accounts receivables which cannot be defined as either retail, government
or financial services are included in the ‘other’ category along with the balance of financial assets.
FINANCIAL STATEMENTS 87
36 FINANCIAL RISK MANAGEMENT continued
Loans and
receivables
FVTPL#/
Held for
trading
Other
financial
assets Total Fair value
R’000 R’000 R’000 R’000 R’000
Financial assets
2010
Retail 147 589 – – 147 589 147 589
Government Institutions 8 723 – – 8 723 8 723
Financial Services 15 062 – – 15 062 15 062
Other 157 190 – 35 000 192 190 192 190
328 564 – 35 000 363 564 363 564
2009
Retail 137 577 – – 137 577 137 577
Government Institutions 2 960 – – 2 960 2 960
Financial Services 9 501 – – 9 501 9 501
Other 219 587 457 5 567 225 611 225 611
369 625 457 5 567 375 649 375 649
# Fair value through profit and loss (‘FVTPL’).
Group
Total Fair value
R’000 R’000
Financial liabilities
2010
Borrowings* 134 408 134 408
Trade and other payables** 213 794 213 794
Deferred revenue 28 556 28 556
376 758 376 758
2009
Borrowings* 177 287 177 287
Trade and other payables** 189 767 189 767
Deferred revenue 39 297 39 297
406 351 406 351
* Share incentive obligation of R4,5 million (2009: R2,3 million) is excluded from borrowings as disclosed in the balance sheet for financial liability classification purposes.
** Statutory VAT payables totalling R9,9 million (2009: R14,3 million) have been excluded from trade and other payables as disclosed in the balance sheet for financial liability classification purposes.
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 September 2010 continued
88 UCS ANNUAL REPORT 2010
36 FINANCIAL RISK MANAGEMENT continued
36.1 Exposure to credit risk
The maximum exposure to credit risk at the reporting date was:
Group
2010 2009
R’000 R’000
Trade and other receivables (net of provision for doubtful debts) 179 148 181 751
Provision for doubtful debts 3 097 5 866
182 245 187 617
Investments 35 000 6 024
Loans receivable 6 888 3 965
Finance lease receivables 10 643 6 145
Cash and bank balances 131 885 177 764
366 661 381 515
Neither
past due
nor impaired
Re-
negotiated Past due Impaired Total
R’000 R’000 R’000 R’000 R’000
2010
Retail 124 806 – 22 783 2 560 150 149
Government Institutions 6 018 – 2 705 210 8 933
Financial Services 14 470 59 533 62 15 124
Other 189 394 336 2 460 265 192 455
334 688 395 28 481 3 097 366 661
2009
Retail 110 796 11 600 15 181 5 061 142 638
Government Institutions 2 927 – 33 1 2 961
Financial Services 8 631 250 620 289 9 790
Other 221 884 – 3 727 515 226 126
344 238 11 850 19 561 5 866 381 515
Group
2010 2009
R’000 R’000
Trade receivables
Trade receivables 162 699 173 791
Provision for doubtful debts (3 097) (5 866)
Net trade receivables 159 602 167 925
Provision for doubtful debts movement
Balance at beginning of year 5 866 7 443
Impairment losses recognised 958 4 742
Impairment losses released (781) (16)
Balances written off (2 945) (3 372)
Foreign exchange differences (1) (4)
Balances disposed through business combinations – (2 927)
Balance at end of year 3 097 5 866
FINANCIAL STATEMENTS 89
36 FINANCIAL RISK MANAGEMENT continued
0 – 30
days
30 – 90
days
90 – 365
days
365 days
onwards Total
R’000 R’000 R’000 R’000 R’000
2010
Aged trade receivables
Retail 107 709 18 271 4 960 3 390 134 330
Government Institutions 5 594 527 2 392 210 8 723
Financial Services 5 514 578 95 20 6 207
Other 7 142 4 164 1 870 263 13 439
125 959 23 540 9 317 3 883 162 699
2010
Aged provision for doubtful debts
Retail 478 – 2 048 34 2 560
Government Institutions – – – 210 210
Financial Services – – 62 – 62
Other 14 – – 251 265
492 – 2 110 495 3 097
2009
Aged trade receivables
Retail 102 107 23 004 7 070 4 312 136 493
Government Institutions 1 195 1 732 34 – 2 961
Financial Services 7 817 1 258 774 – 9 849
Other 17 711 3 582 2 935 260 24 488
128 830 29 576 10 813 4 572 173 791
2009
Aged provision for doubtful debts
Retail 154 323 1 494 3 090 5 061
Government Institutions – 1 – – 1
Financial Services (46) 120 215 – 289
Other – – 205 310 515
108 444 1 914 3 400 5 866
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 September 2010 continued
90 UCS ANNUAL REPORT 2010
36 FINANCIAL RISK MANAGEMENT continued
36.2 Exposure to currency risk
The carrying amount of the Group’s foreign currency denominated financial assets and liabilities at Statement of financial position date
is as follows:
South
African
Rand
United
States
Dollar
British
Pound Other Total
(Rand) (Rand) (Rand) (Rand) (Rand)
2010
Financial assets
Retail 137 621 1 402 8 566 – 147 589
Government Institutions 8 723 – – – 8 723
Financial Services 14 781 281 – – 15 062
Other 155 868 511 35 811 – 192 190
316 993 2 194 44 377 – 363 564
2009
Financial assets
Retail 128 447 6 619 2 511 – 137 577
Government Institutions 2 640 – – 320 2 960
Financial Services 8 711 373 – 417 9 501
Other 163 196 6 293 55 737 385 225 611
302 994 13 285 58 248 1 122 375 649
2010
Financial liabilities
Borrowings 134 408 – – – 134 408
Trade and other payables 84 413 7 393 121 988 – 213 794
Deferred revenue 25 007 1 378 2 171 – 28 556
243 828 8 771 124 159 – 376 758
2009
Financial liabilities
Borrowings 177 287 – – – 177 287
Trade and other payables 59 885 22 070 107 812 – 189 767
Deferred revenue 34 857 1 399 3 041 – 39 297
272 029 23 469 110 853 – 406 351
The following significant exchange rates were applied during the year:
Average rate Closing rate
2010 2009 2010 2009
United States Dollar 7,47 9,05 6,99 7,44
British Pound 11,65 13,94 11,10 11,99
FINANCIAL STATEMENTS 91
36 FINANCIAL RISK MANAGEMENT continued
Foreign currency sensitivity
The United States Dollar and British Pound are the primary currencies to which the Group is exposed. The following table indicates
the Group’s sensitivity at year end assuming a 10% strengthening of the Rand against the United States Dollar and British Pound at
30 September 2010 on financial instruments excluding forward foreign exchange contracts. The rates of sensitivity represent management’s
assessment of the possible change in reporting foreign currency rates as at the financial year end date and is not intended to represent a
management forecast. The analysis assumes that all other variables, in particular interest rates, remain constant and is applied against the
gross Statement of financial position exposure.
United States British
Dollar Pound
R’000 R’000
2010
Profit 658 7 978
Financial Assets 1 974 39 938
Financial Liabilities 9 648 136 576
2009
Profit 1 019 5 260
Financial Assets 11 956 52 424
Financial Liabilities 25 817 121 938
A 10% weakening of the South African Rand against the above currencies at 30 September 2010 would have had the equal but opposite
effect to the amounts shown above, on the basis that all other variables remain constant.
Forward foreign exchange contracts
Although the Group operates in a global business environment, less than 5% (2009: 5%) of financial assets and financial liabilities as at
the financial year end comprise foreign denominated financial assets and liabilities. When appropriate and practical, through the use of
financial instruments which typically comprise forward exchange contracts, the exposure to foreign currency risk is managed.
Maturing
within
12 months
Average
foreign
exchange
rates Fair value
purchases purchases purchases
R’000 R’000 R’000
2010
US Dollar 565 7,71 534
2009
US Dollar 2 443 7,82 2 443
Foreign currency sensitivity
The following table indicates the Group’s sensitivity of the outstanding forward exchange contracts at balance sheet date assuming a 10%
strengthening of the South African Rand against the United States Dollar which is the primary currency in which the Group has entered
into forward foreign exchange contracts. The rates of sensitivity represent management’s assessment of the possible change in reporting
foreign currency exchange rates. The analysis assumes that all other variables, in particular interest rates, remain constant and is applied
against the gross balance sheet exposure.
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 September 2010 continued
92 UCS ANNUAL REPORT 2010
36 FINANCIAL RISK MANAGEMENT continued
United States
Dollar
R’000
2010
Loss (56)
Derivative financial assets 508
2009
Loss (244)
Derivative financial assets 2 198
A 10% weakening of the South African Rand against the United States Dollar at 30 September 2010 would have had the equal but opposite
effect on the above forward foreign currency contract to the amount shown above, on the basis that all other variables remain constant.
36.3 Interest rate risk
The carrying amount of the Group’s financial assets and liabilities at balance sheet date that are subject to interest rate risk is as follows:
Floating
interest
rate
Non-interest
bearing Total
R’000 R’000 R’000
2010
Financial assets
Retail 10 643 136 946 147 589
Government Institutions – 8 723 8 723
Financial Services – 15 062 15 062
Other 131 885 60 305 192 190
142 528 221 036 363 564
2009
Financial assets
Retail 6 145 131 432 137 577
Government Institutions – 2 960 2 960
Financial Services – 9 501 9 501
Other 186 009 39 602 225 611
192 154 183 495 375 649
2010
Financial liabilities
Borrowings 129 139 5 269 134 408
Trade and other payables – 213 794 213 794
Deferred revenue – 28 556 28 556
129 139 247 619 376 758
2009
Financial liabilities
Borrowings 173 202 4 085 177 287
Trade and other payables – 189 767 189 767
Deferred revenue – 39 297 39 297
173 202 233 149 406 351
The Group has no fixed interest rate borrowings in the current and prior year.
The Group is sensitive to the movements in the South African interest rates which are the primary interest rates to which the Group is
exposed. The rates of sensitivity represent an assessment of the possible change in interest rates and is not intended to represent a
management forecast. If the South African interest rate decreased by 100 basis points (2009: 200 basis points) at year end, then income
for the year would have increased by R0,2 million (2009: R3,6 million).
FINANCIAL STATEMENTS 93
36 FINANCIAL RISK MANAGEMENT continued
36.4 Liquidity risk
The following are contractual maturities of financial liabilities, including interest payments and excluding the impact of netting agreements.
0 – 1 years 2 – 5 years Thereafter
R’000 R’000 R’000
2010
Non-derivative financial liabilities
Borrowings – 84 127 –
Current portion of borrowings 55 988 – –
Trade and other payables 213 794 – –
Deferred revenue 17 556 11 000 –
287 338 95 127 –
2009
Non-derivative financial liabilities
Borrowings – 104 902 –
Current portion of borrowings 87 605 – –
Trade and other payables 189 768 – –
Deferred revenue 17 297 22 000 –
294 670 126 902 –
Group
2010 2009
R’000 R’000
Gearing ratio
Total debt 138 897 179 538
Less: Cash and bank balances (131 885) (177 764)
Net debt 7 012 1 774
Total equity 513 812 497 639
Net debt to equity ratio 1,4% 0,4%
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 September 2010 continued
94 UCS ANNUAL REPORT 2010
37 CONTINGENT LIABILITIES
37.1 A claim for repudiation of contract and damages has been presented to a subsidiary company. As disclosed in note 26, a provision of
R1,1 million is carried at the financial year end which represents management’s assessment of the likely settlement of the dispute which
may differ to the final settlement consideration to be concluded by the parties.
37.2 In accordance with the Sale of Shares Agreement entered into with the vendors Volume and Affinity Risk Management (Proprietary) Limited
(‘V&A Risk’), additional amounts are payable to the vendors of V&A Risk to the extent that the business achieves or exceeds certain growth
profit targets. Potential upside payments limited to a maximum of R5 million have not been provided for as at the financial year end.
38 GUARANTEES
38.1 Guarantees amounting to R2,7 million (2009: R2,5 million) for the rental of premises by subsidiary companies have been issued by the
bankers of those subsidiaries in favour of their landlords.
38.2 In respect of the acquisition finance raised from Nedbank Limited for the purchase consideration for the going concern business of CEB
Maintenance Africa (Proprietary) Limited (‘CEB’), UCS Group Limited (‘UCS’) has provided a limited suretyship of R46 million while UCS
Solutions Holdings (Proprietary) Limited has provided limited suretyship of R52 million including a cession of loan funds and an unrestricted
cession of all present and future debtors in CEB Maintenance Africa (Proprietary) Limited in favour of Nedbank Limited.
38.3 Nedbank Limited has made available an overdraft facility of R20 million to UCS. Argility (Proprietary) Limited (‘Argility’), a wholly owned
subsidiary of UCS, has ceded its present and future trade debtors and provided a suretyship limited to the amount outstanding from time
to time, with a maximum of R20 million, in favour of the bankers.
38.4 In respect of the medium-term loan facility raised with Nedbank Limited, UCS as well as wholly owned subsidiary companies, UCS Business
Support Services (Proprietary) Limited (‘UCS BSS’), UCS Solutions Holdings (Proprietary) Limited (‘UCS Solutions Holdings’), Accsys
(Proprietary) Limited (‘Accsys’), Argility and UCS Technology Services (Proprietary) Limited (‘UCS TS’) have provided a limited suretyship
of R50 million in favour of Nedbank Limited. In addition, Argility has ceded all present and future trade debtors in favour of Nedbank Limited.
38.5 In respect of the acquisition finance raised from Nedbank Limited for the purchase consideration for the going concern business of
Computer Software Consultants (‘CSC’), UCS as well as wholly owned subsidiary companies, UCS TS, UCS BSS, UCS Solutions Holdings,
Accsys and Argility have provided limited suretyships of R53 million including a cession of all present and future debtors in CSC in favour
of the bankers.
38.6 In respect of sale and leaseback transactions entered into with Merchant West Asset Finance (Proprietary) Limited, UCS has provided a
limited suretyship of R14,7 million (2009: R9 million) in favour of the financier.
38.7 In respect of a finance lease transactions concluded with IBM South Africa (Proprietary) Limited by UCS Solutions (Proprietary) Limited,
UCS has provided a limited suretyship of R2,45 million (2009: R1,6 million) in favour of the financier.
FINANCIAL STATEMENTS 95
39 RELATED PARTY TRANSACTIONS The holding company and subsidiaries are considered to be related parties. Various sale and purchase transactions, under terms that are
no less favourable than those arranged with third parties on an arm’s length basis, were entered into between group companies. These
transactions have been eliminated on consolidation and are not disclosed in this note.
Details of transactions between the Group and other related parties are disclosed below.
Compensation of key management personnel
The remuneration of directors and other key management (defined as the UCS Group Executives and Chief Executive Officers of material
subsidiary companies) were as follows:
2010
R’000
2009
R’000
Short-term benefits 24 062 20 623
The remuneration of the twelve (2009: eleven) directors and key executives is determined by the remuneration committee having regard
to the performance of individuals, market trends and promotions, where applicable.
Other related party transactions
39.1 Group companies entered into consulting arrangements with a company associated with Mr BP Hattingh, a non-executive director of the
Company, for executive placements and human capital cultural surveys. A total of R0,5 million (2009: R0,2 million) was paid for these
services which are considered to be at arm’s length taking cognisance of market related circumstances.
39.2 UCS Software (Proprietary) Limited (‘UCS Software’), a wholly owned subsidiary of UCS, earned commission on the sale of Argility’s software
products, prior to the UCS acquisition of Argility in June 2010. The total resellers’ commission earned amounts to R1,1 million for the period
to June 2010 (2009: R4,7 million for the year). In addition, in the prior year, UCS Software, contracted for training and development services
from Argility totalling R0,6 million.
39.3 UCS Software Manufacturing (Proprietary) Limited (‘UCSSM’), a wholly owned subsidiary of UCS, provided outsourced product development
and associated services to Argility in terms of the Outsourced Product Development (‘OPD’) agreement concluded in August 2007 and
amended in October 2008.
In accordance with the OPD agreement between the parties, UCSSM earned a royalty fee on all licences sold by Argility for the product
lines defined. Total fees paid to UCSSM in respect of development services to June 2010 prior to the UCS acquisition of Argility, including
royalty fees amounts to R6,1 million (2009: R11,1 million).
39.4 UCS has received R0,5 million (2009: R2,4 million) from Argility for the provision of outsourced financial management services to Argility
during the period to June 2010 prior to the UCS acquisition of Argility.
39.5 UCS Business Support Services (Proprietary) Limited, a subsidiary company of UCS, received R0,3 million (2009: R0,1 million) from Argility
for finance and administration services provided to Argility during the period to June 2010 prior to the UCS acquisition of Argility.
39.6 Ultisales Retail Software (Proprietary) Limited (‘Ultisales’) earned commission on the sale of Argility software products. The total reseller
commission earned during the period, prior to the UCS acquisition of Argility, amounts to R1,9 million (2009: R1,3 million).
39.7 In the prior year, Ultisales provided services to Comprehensive Retail Software (Proprietary) Limited, a company associated with a former
director of Ultisales, Mr S Fisher, to the value of R0,2 million. An amount of R0,2 million was owing to Ultisales at the 2009 financial
year end.
39.8 In the prior year, Ultisales has provided to and received services from BlackGinger 239 (Proprietary) Limited, a company associated with
a former director of Ultisales, Mr S Fisher. Services provided amounted to R0,1 million and services received amounted to R0,2 million.
NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 30 September 2010 continued
96 UCS ANNUAL REPORT 2010
39 RELATED PARTY TRANSACTIONS continued
39.9 Certain properties used by UCS Technology Services (Proprietary) Limited (‘UCS Technology’) are leased from Kings Enterprises Close
Corporation, 216 Cape Road Close Corporation, Clear Mandate Properties Close Corporation and Fastrack Trading Close Corporation.
Certain employees in UCS Technology own an interest in all of the above mentioned corporations. Total lease rentals to the corporations for
the year amounts to R2,8 million (2009: R3,5 million).
39.10 CEB Maintenance Africa (Proprietary) Limited (‘CEB’) leases its Johannesburg head office premises from Oberhurst Properties (Proprietary)
Limited in which a director of CEB, Desmond Poulter has a direct interest. The total lease rentals paid to Oberhurst Properties for the year
amounts to R2,4 million (2009: R2,2 million).
39.11 GAAP Point of Sale (Proprietary) Limited (‘GAAP’) leases its Johannesburg offices from Robfair Investments 354 Close Corporation. Jean-
Paul D’abbadie, a director of GAAP as well as certain employees of GAAP own an interest in the Corporation. The total lease rentals paid
to Robfair Investments 354 Close Corporation for the year amounts to R0,7 million (2009: R0,5 million).
39.12 GAAP entered into consulting arrangements with a company associated with Mr Phillip D’abbadie, a director of GAAP, for taxation and
accounting advisory and consulting services. A total of R0,6 million (2009: 0,5 million) was paid for these services which are considered to
be at arm’s length taking cognisance of market related circumstances.
39.13 UCS Solutions entered into sales transactions with Argility to the value of R0,1 million during the period to June 2010 prior to the UCS
acquisition of Argility (2009: R0,2 million).
39.14 UCS Solutions received services from Tactical Software Systems (Proprietary) Limited (‘TSS’) to the value of R0,7 million (2009: R0,9 million)
during the financial year.
39.15 Group companies have donated funds and advanced loans to Zwelethu Recruitments Solutions Close Corporation in terms of the Group’s
corporate social investment and enterprise development responsibilities. Funds advanced during the year and owing to UCS Group
companies amount to R1,4 million (2009: R1,0 million) at the financial year end.
39.16 UCS Mobiliti received services from Auto ID Marketing & Consulting CC, a Corporation represented by a director of UCS Mobiliti, Mr Carlos
Ferraz, amounting to R1 million during the year.
40 CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
Critical judgements in applying the entity’s accounting policies
In the process of applying the Group’s accounting policies, which are described in note 1, management has not made any critical
judgements that have a significant effect on the amounts recognised in the financial statements (apart from those involving estimations,
which are dealt with below).
Key sources of estimation uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant
risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.
Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been
allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash generating unit
and a suitable discount rate in order to calculate the present value of the future cash flows. The carrying amount of goodwill at the balance
sheet date was R239 million (2009: R238 million). In the current year, no impairment of goodwill and intangible assets were recognised
(2009: R8 million)
Useful lives and residual values of tangible and intangible assets
The estimates of useful lives of tangible and intangible assets as translated into depreciation and amortisation rates are detailed in the
Group’s accounting policies, described in note 1 of the financial statements. These rates and residual values of the assets are reviewed
annually taking cognisance of the forecast commercial and economic realities and through benchmarking of accounting treatments in the
industry.
Valuation of equity-settled employee benefit payments
Management classifies its employee benefit payment schemes as equity-settled schemes based on the assessment of its role and that of
the employee scheme members. In applying its judgement, management consulted with expert advisors to value the equity-settled
employee benefit schemes using appropriate models that comply with IFRS 2: Share Based Payment. The model and inputs applied are
more fully described in note 22 to the financial statements. These include estimated option exercise behaviour as well as anticipated
forfeiture rates.
Capitalisation of development costs
Development costs are capitalised according to the Group’s accounting policy detailed in note 1 to the financial statements.
FINANCIAL STATEMENTS 97
Group
2010
Restated
2009
R’000 R’000
41 SEGMENTAL INFORMATION FROM CONTINUING OPERATIONS
Business segment
Revenue 1 321 070 1 232 019
Retail Solutions 765 871 691 138
Software 181 589 203 281
Investments 371 885 335 091
Corporate 1 725 2 509
Profit from operations before interest, amortisation, depreciation, impairments
and foreign exchange differences (‘EBITDA’) 186 853 163 480
Retail Solutions 92 715 64 666
Software 17 544 28 273
Investments 90 654 80 191
Corporate and consolidation adjustments (14 060) (9 650)
Normalised profit before interest and taxation 115 031 94 354
Retail Solutions 61 009 28 643
Software 3 651 17 036
Investments 65 348 59 681
Corporate and consolidation adjustments (14 977) (11 006)
Depreciation and amortisation 71 822 69 126
Retail Solutions 31 706 36 023
Software 13 893 11 237
Investments 25 306 20 510
Corporate and consolidation adjustments 917 1 356
Research and development expenditure 14 801 7 278
Retail Solutions 3 802 –
Software 1 931 1 054
Investments 9 068 6 224
Assets 933 155 979 314
Retail Solutions 481 076 484 305
Investments 233 358 273 025
Software 177 346 49 063
Corporate and consolidation adjustments 41 375 58 097
Asset classified as held for sale – relating to prior year disposals – 109 222
Asset classified as held for sale – relating to current year disposal – 5 602
Liabilities 419 343 481 675
Retail Solutions 169 462 197 268
Investments 154 930 230 452
Software 76 639 8 278
Corporate and consolidation adjustments 18 312 8 207
Liabilities directly associated with assets classified as held for sale – relating to prior year disposals – 35 209
Liabilities directly associated with assets classified as held for sale – relating to current year disposal – 2 261
The geographical spread of the Group’s business operations does not warrant a secondary report by region.
Note: Comparative figures have been reclassified, where necessary, in accordance with current year classifications. In the current year, following the acquisition of Argility (Proprietary) Limited, businesses comprising the Software Division were reclassified from the Retail Solutions Division into the Software Division together with Argility (Proprietary) Limited.
98 UCS ANNUAL REPORT 2010
SCHEDULE OF INTERESTS IN SUBSIDIARY COMPANIES for the year ended 30 September 2010
Issued
share
capital Effective holding Shares at cost
2010 2010 2009 2010 2009
R % % R’000 R’000
DIRECT HOLDINGS4Life Program (Proprietary) Limited 100 51 51 1 398 1 398
Accsys (Proprietary) Limited 100 100 100 1 1
Argility (Proprietary) Limited 283 840 100 – 44 228 –
Computerkit Holdings (Proprietary) Limited 1 000 100 100 18 606 18 606
Cquential Solutions (Proprietary) Limited 392 56 – 8 116 –
UCS Dynamics Software Solutions (Proprietary) Limited 100 70 100 * *
Fernridge Consulting (Proprietary) Limited 1 000 51 51 1 172 1 172
GAAP Point-of-Sale (Proprietary) Limited 100 61 61 * *
Innervation Value Added Services (Proprietary) Limited
(Previously Lifeworld Group (Proprietary) Limited) 100 100 51 1 646 1 646
UCS Brands (Proprietary) Limited 1 100 100 * *
Ultisales Retail Software (Proprietary) Limited 200 100 100 760 760
Universal Knowledge Software (Proprietary) Limited 100 76 76 793 793
UCS Software (Proprietary) Limited 300 100 100 1 200 1 200
UCS Business Support Services (Proprietary) Limited 100 100 100 7 800 7 800
Zethel Property and Investments (Proprietary) Limited
(‘UCS Mobiliti’) 100 80 – * –
UCS Software Manufacturing (Proprietary) Limited 100 100 100 * *
UCS Solutions Holdings (Proprietary) Limited 133 746 100 100 113 055 113 707
UCS Technology Services (Proprietary) Limited 100 100 100 * *
Universal Computer Software UK Limited 100 100 100 * *
V&A Risk Management (Proprietary) Limited 100 51 – 1 000 –
WiWallet Mobile Payments (Proprietary) Limited 409 51 – 3 528 –
203 303 147 083
Amounts due by subsidiary companies 125 842 116 402
4Life Program (Proprietary) Limited 950 950
Argility (Proprietary) Limited 5 450 –
CEB Maintenance Africa (Proprietary) Limited 580 580
Cquential Solutions (Proprietary) Limited 15 421 –
GAAP Point-of-Sale (Proprietary) Limited – 6 958
Innervation Value Added Services (Proprietary) Limited
(Previously Lifeworld Group (Proprietary) Limited) 366 4 074
UCS Brands (Proprietary) Limited 8 390 8 599
UCS Business Support Services (Proprietary) Limited 3 835 1 811
Zethel Property and Investments (Proprietary) Limited (‘UCS Mobiliti’) 1 159 –
UCS Software Manufacturing (Proprietary) Limited 800 33 136
UCS Technology Services (Proprietary) Limited 8 104 –
Ultisales Retail Software (Proprietary) Limited 62 1 965
Universal Computer Software UK Limited 77 933 58 329
WiWallet Mobile Payments (Proprietary) Limited 2 792 –
Less: Impairment of investments and amounts due by subsidiary companies 80 639 35 021
248 506 228 464
* Less than R100.
2010 2009
R’000 R’000
Aggregate investment revenues from subsidiaries comprise the following:
Interest received 6 586 6 375
Dividends received 26 226 12 598
32 812 18 973
FINANCIAL STATEMENTS 99
INDIRECT HOLDINGS
Incorporated in South Africa – 100% held by UCS Group Limited wholly owned subsidiaries
Affinity Logic Management Services (Proprietary) Limited
CEB Maintenance Africa (Proprietary) Limited
Easirun Software II (Proprietary) Limited
Quadrant Consulting (Proprietary) Limited
UCS Solutions (Proprietary) Limited
Incorporated in South Africa – 70% held by UCS Group Limited wholly owned subsidiaries
Destiny Electronic Commerce (Proprietary) Limited
Incorporated in UK – 100% held by UCS Group Limited wholly owned subsidiary company
Aquitec UK Limited
Argility UK Limited
100 UCS ANNUAL REPORT 2010
Number
of
shareholders %
Number
of
shares %
ANALYSIS OF SHAREHOLDING
Range
1 – 10 0000 682 62,34 2 549 559 0,88
10 001 – 100 000 263 24,04 9 419 064 3,27
100 001 – 500 000 82 7,50 20 387 740 7,07
500 001 – 1 000 000 22 2,01 14 661 346 5,08
1 000 001 and more 45 4,11 241 404 949 83,70
Total 1 094 100,00 288 422 658 100,00
DISTRIBUTION OF SHAREHOLDERSBanks 7 0,64 35 806 453 12,41
Close Corporations 29 2,65 712 250 0,25
Directors 15 1,37 80 123 649 27,78
Individuals 834 76,23 33 144 036 11,49
Investment companies 3 0,27 41 473 189 14,38
Mutual funds 50 4,57 53 998 324 18,72
Nominees and trusts 72 6,58 24 434 187 8,47
Other corporate bodies 28 2,56 2 586 466 0,90
Pension funds 25 2,29 2 917 309 1,01
Private companies 26 2,38 6 973 232 2,42
Share trust/company 5 0,46 6 253 563 2,17
Total 1 094 100,00 288 422 658 100,00
SHAREHOLDER SPREADNon-public 21 1,92 120 235 218 41,69
Directors 15 1,38 80 123 649 27,78
Company 2 0,18 3 484 095 1,21
10% + 1 0,09 33 858 006 11,74
Staff share trust 3 0,27 2 769 468 0,96
Public 1 073 98,08 168 187 440 58,31
Total 1 094 100,00 288 422 658 100,00
BENEFICIAL SHAREHOLDERS OWNING 5% OR MOREJD Bright 45 950 976 15,93
DF Coles 34 715 000 12,04
Rand Merchant Bank 33 858 006 11,74
Oasis Funds 30 892 569 10,71
Tactical Software Systems (Proprietary) Limited 27 011 196 9,37
SHAREHOLDER ANALYSIS for the year ended 30 September 2010
NOTICE OF ANNUAL GENERAL MEETING 101
Notice is hereby given that the Annual General Meeting of members of
UCS Group Limited will be held on the 20th floor, 209 Smit Street,
Braamfontein, Johannesburg on Friday, 28 January 2011 at 10h00 for
the purposes of considering and, if deemed fit, passing with or without
modification, the resolutions set out below:
1. ORDINARY RESOLUTION NUMBER ONE:
(AUDITOR’S REPORT)
To resolve that the Auditor’s Report be taken as read.
2. ORDINARY RESOLUTION NUMBER TWO:
(ADOPTION OF ANNUAL FINANCIAL STATEMENTS)
To consider the Annual Financial Statements of the Company
and the Group for the financial year ended 30 September 2010,
together with the reports of the directors and auditors.
3. ORDINARY RESOLUTION NUMBER THREE:
(RE-ELECTION OF MS V CHETTY)
To re-appoint Ms V Chetty, who retires by rotation but, being
eligible, offers herself for re-appointment.
4. ORDINARY RESOLUTION NUMBER FOUR:
(RE-ELECTION OF MR DF COLES)
To re-appoint Mr DF Coles, who retires by rotation but, being
eligible, offers himself for re-appointment.
5. ORDINARY RESOLUTION NUMBER FIVE:
(RE-ELECTION OF MR RG GOODMAN)
To re-appoint Mr RG Goodman, who retires by rotation but,
being eligible, offers himself for re-appointment.
6. ORDINARY RESOLUTION NUMBER SIX:
(RE-ELECTION OF MR NA MICHELSON)
To re-appoint Mr NA Michelson, who retires by rotation but,
being eligible, offers himself for re-appointment.
Summarised curriculum vitae of the directors who offer
themselves for re-appointment are as follows:
Ms V Chetty
A leading competition lawyer in her field who advises local and
foreign corporations on competition issues. Vani obtained her
undergraduate BA law (1990) and LLB (1992) degrees in
South Africa and then completed a Masters Degree in Law at
Georgetown University in Washington DC in 1996.
Mr DF Coles
Together with John Bright, Duncan is a principal founder of
UCS. He started his career in computing in 1967 and entered
the computer bureau field in 1970 at Management Computer
Services (Proprietary) Limited where he was employed as a
software developer/systems analyst and later promoted to the
position of General Manager. In 1975, following the merger of
the MCS and NCR computer bureaus he became an assistant
to John Bright where his responsibilities were concentrated
mainly on software development and software developer’s
management. Post the establishment of UCS and the
subsequent buy-out of the computer bureau from NCR in 1978,
Duncan’s major responsibilities have been in respect of the day-
to-day management of the computer operations and production
control areas within Argility (Proprietary) Limited where, in
addition, he plays an executive role and is responsible for the
Software Services Ceres division. Duncan has served as an
executive Director on the board since the listing of the UCS
Group in 1998 and is currently the Group Chairman.
Mr RG Goodman
An eminent practising advocate of the Cape Bar and of the High
Court of South Africa. A graduate of the University of Stellenbosch
(BA Law, 1978 and LLB, 1980), Mr Goodman went on to study
at the University of Cambridge where he completed his LLM
in 1982.
Mr NA Michelson
Neil completed his Bachelor of Accountancy in 1983, and wrote
and passed the Board exam in 1984. He ran numerous small
enterprises and consulted from 1985 – 1988 when he joined
Spartan Computers in 1988 as Financial Director until 1995
when he sold the business as Managing Director. Neil joined the
UCS Group Board in 1998 as Financial Director (‘FD’). After
numerous acquisitions, the Group identified the need for
splitting the role of Group FD and Group Chief Operating Officer
(‘COO’) and Neil was appointed as Group COO in 2002. Up to
September 2007 Neil also fulfilled the role of Chief Executive
Officer of UCS Software (Proprietary) Limited.
7. ORDINARY RESOLUTION NUMBER SEVEN:
(REMUNERATION OF NON-EXECUTIVE DIRECTORS)
To fix the remuneration for the non-executive directors, with
retrospective effect from 1 October 2010, as follows:
Chairman
(Rands)
Other
directors/
members
(Rands)
Board and Strategy meetings:
Attendance fee 33 920 25 440
Audit Committee:
Attendance fee 25 440 16 960
Remuneration Committee:
Attendance fee 21 200 8 480
8. ORDINARY RESOLUTION NUMBER EIGHT
(RE-APPOINTMENT OF AUDITORS)
The Audit and Risk Committee having been satisfied as to their
independence to re-appoint Deloitte & Touche as the auditors of
the Company.
Audit Fees
In terms of section 270A of the Companies Act, the Audit
Committee is responsible for determining the audit fees and the
auditors’ terms of appointment.
9. ORDINARY RESOLUTION NUMBER NINE
(PLACING THE UNISSUED SHARES UNDER THE CONTROL OF
DIRECTORS)
To resolve that, subject to the provisions of the Companies Act,
1973 (Act 61 of 1973), as amended, the Articles of Association
of the Company and the Listings Requirements of the JSE
Limited, the authority given to the directors to allot and issue, at
their discretion, the unissued share capital of the Company for
such purposes as they may determine, be extended until the
Company’s next Annual General Meeting provided that such
authority be limited to the allotment and issue, in any one
financial year, of 15% (fifteen percent) of the Company’s issued
share capital at the time that this authority is given.
NOTICE OF ANNUAL GENERAL MEETING for the year ended 30 September 2010
102 UCS ANNUAL REPORT 2010
10. ORDINARY RESOLUTION NUMBER TEN
(CASH ISSUE)
To resolve that, subject to the provisions of the Companies Act
1973 (Act 61 of 1973), as amended, the Articles of Association
and the Listings Requirements of JSE Limited, the directors of
the Company be and they are hereby authorised, by way of a
general authority, to issue all or any of the authorised but
unissued shares in the capital of the Company for cash, as and
when they in their discretion deem fit.
The Listings Requirements of JSE Limited currently provide:
that this authority shall be valid until the next annual general
meeting of the Company, provided it shall not extend beyond
15 (fifteen) months from the date that this authority is given;
that a paid press announcement giving full details, including
the impact on net asset value and earnings per share, will be
published at the time of any issue of shares representing, on
a cumulative basis within one year, 5% (five percent) or more
of the number of the Company’s shares in issue prior to any
such issue;
that issues in the aggregate in any one year shall not exceed
15% (fifteen percent) of the number of shares in the
Company’s issued share capital;
that, in determining the price at which an issue of shares may
be made in terms of this authority, the maximum discount
permitted will be 10% (ten percent) of the weighted average
traded price determined over the 30 (thirty) business days
prior to the date that the price of the issue is determined or
agreed by the directors;
that the securities be of a class already in issue;
that any such issue will only be made to public members, as
defined by JSE Limited.
11. ORDINARY RESOLUTION NUMBER ELEVEN:
(AUTHORITY TO MAKE GENERAL PAYMENT TO
SECURITY HOLDERS)
To resolve that, as contemplated in section 90 of the Companies
Act, the board of directors of the Company shall be entitled
to pay an amount by way of a general payment from the
Company’s share capital or share premium, subject to the
provisions of the Companies Act, the JSE Listings Requirements
and the following limitations:
that this authority shall not extend beyond 15 (fifteen) months
from the date of this meeting or the date of the next Annual
General Meeting, whichever is the earlier date;
may not exceed 20% (twenty percent) of the Company’s
current issued share capital, including reserves but excluding
minority interests and revaluations of assets and intangible
assets that are not supported by a valuation by an independent
expert acceptable to the JSE prepared within the last
6 (six) months, in any one financial year, measured as at the
beginning of such financial year; and
that any general payment be made pro rata to all shareholders.
The Company’s directors undertake that they will not implement
the proposed general payment, unless the following conditions
are met:
the Company and the Group are able to repay their debts in
the ordinary course of business for a period of 12 (twelve)
months following the date of the general payment;
the assets of the Company and the Group, fairly valued
according to International Financial Reporting Standards
and on a basis consistent with the last financial year of the
Company, will be in excess of the liabilities of the Company
and the Group for a period of 12 (twelve) months after the
date of the general payment;
the Company and the Group have adequate share capital
and reserves for ordinary business purposes for a period of
12 (twelve) months after the date of the general payment;
the working capital of the Company and the Group will be
adequate for ordinary business purposes for a period of
12 (twelve) months after the date of the general payment;
upon entering the market to proceed with the general payment
the Company’s Sponsor has confirmed the adequacy of the
Company’s and the Group’s working capital for the purposes
of undertaking a general payment, in writing to the JSE;
the directors of the Company intend to utilise the authority in
terms of this Ordinary Resolution Number 11 in order to make
payment to shareholders, in lieu of dividend, by way of a
general payment from the Company’s share capital or share
premium; and
announcements will be published on SENS and in the press
setting out the financial effects of the general payment prior
to such payment being effected and complying with Section
11.31 and Schedule 24 of the JSE Listings Requirements.
12. SPECIAL RESOLUTION NUMBER ONE:
(AUTHORITY TO PURCHASE SECURITIES)
To resolve that, as a general approval contemplated in sections
85 to 89 of the Act, the acquisitions by the Company, and/or any
subsidiary of the Company, from time to time of the issued
ordinary shares of the Company, upon such terms and conditions
and in such amounts as the directors of the Company may from
time to time determine, but subject to the Articles of Association
of the Company, the provisions of the Act and the JSE Listings
Requirements, when applicable, and provided that:
the acquisitions of ordinary shares in the aggregate in any one
financial year do not exceed 20% (twenty per cent) of the
Company’s issued ordinary share capital from the date of the
grant of this general authority;
the general repurchase of securities will be effected through
the order book operated by the JSE trading system and done
without any prior understanding or arrangement between the
Company and the counter party (reported trades are prohibited);
this general authority shall only be valid until the Company’s
next Annual General Meeting, provided that it shall not extend
beyond 15 (fifteen) months from the date of passing of this
special resolution.
NOTICE OF ANNUAL GENERAL MEETING for the year ended 30 September 2010 continued
NOTICE OF ANNUAL GENERAL MEETING 103
In terms of the Listings Requirements of JSE Limited, the
following disclosures are required with reference to the general
authorities to repurchase the Company’s shares and to make
general payment as set out in special resolution one and
ordinary resolution eleven respectively, some of which are set
out elsewhere in the Annual Report of which this notice forms
part (‘this Annual Report’):
Details of Directors and Management – refer page 10 and 11.
Major shareholders – refer page 100.
Directors’ Interest in the Company’s securities – refer page 56.
Share capital – refer page 73.
Statement of Board’s intention
The directors of the Company have no specific intention to
effect the provisions of special resolution number one but will
however continually review the Company’s position, having
regard to the prevailing circumstances and market conditions in
considering whether to effect provisions of special resolution
number one.
Reason and effect
The reason for and effect of special resolution one is to
authorise the Company and/or a subsidiary Company by way of
a general authority to acquire its own issued shares on such
terms, conditions and in such amounts as determined from
time to time by the directors of the Company subject to the
limitations set out above.
PLEASE NOTE:
A. Ordinary resolution number 10 requires approval by a majority
of 75% (seventy five percent) of the votes cast by members
present or represented at the Annual General Meeting.
B. A member entitled to attend and vote is entitled to appoint a
proxy to attend, speak and vote in his stead, and such proxy
need not also be a member of the Company.
C. Forms of proxy should be lodged with the Company at its
registered office or with Link Registrars, 11 Diagonal Street,
Johannesburg, not less than 48 hours before the time appointed
for the holding of the Annual General Meeting.
By order of the Board
Corporate Governance Cc
Chartered Secretaries
Company Secretary to UCS Group Limited
21 December 2010
general repurchases may not be made at a price greater than
10% (ten percent) above the weighted average of the market
value for the securities for the 5 (five) business days
immediately preceding the date on which the transaction is
effected. The JSE should be consulted for a ruling if the
applicant’s securities have not traded in such 5 (five) day
business day period;
at any point in time, a Company may only appoint one agent
to effect any repurchases on the Company’s behalf;
after such repurchase the Company will still comply with the
JSE Listings Requirements concerning shareholder spread
requirements;
the Company or its subsidiary may not repurchase securities
during a prohibited period as defined in the JSE Listings
Requirements unless they have in place a repurchase
programme where the dates and quantities of securities to be
traded during the relevant period are fixed (not subject to any
variation) and full details of the programme have been
disclosed in an announcement over SENS prior to the
commencement of the prohibited period; and
when the Company has cumulatively repurchased 3% (three
percent) of the initial number of the relevant class of securities,
and for each 3% (three percent) aggregate of the initial
number of that class acquired thereafter, an announcement
will be made.
The directors undertake that they will not effect a general
repurchase of shares and/or make a general payment as
contemplated above unless the following can be met:
the Company and the Group are in a position to repay their
debt in the ordinary course of business for a period of
12 (twelve) months after the date of the general repurchase.
the assets of the Company and the Group, being fairly valued
in accordance with International Financial Reporting Standards,
are in excess of the liabilities of the Company and the Group
for a period of 12 (twelve) months after the date of the
general repurchase.
the share capital and reserves of the Company and the Group
are adequate for the next 12 (twelve) months following the
date of the general repurchase.
the available working capital of the Company and the Group
will be adequate for ordinary business purposes for a period
of 12 (twelve) months after the date of the general repurchase;
the share capital and reserves of the Company and the Group
are adequate for the next 12 (twelve) months following the
date of the general repurchase.
the available working capital of the Company and the Group
will be adequate for ordinary business purposes for a
period of 12 (twelve) months after the date of the general
repurchase; and
before entering the market to proceed with the general
repurchase, the Company’s Sponsor has confirmed the
adequacy of the Company’s and the Group’s working capital
in writing to the JSE.
104 UCS ANNUAL REPORT 2010
CORPORATE INFORMATION
Registered office:
20th floor, 209 Smit Street, Braamfontein, Johannesburg.
Directors:
DF Coles (Chairman), JD Bright (CEO), JR Claassen (Non-executive),
V Chetty (Non-executive), JP Fortuin (Executive), RG Goodman (Non-executive),
BP Hattingh (Non-executive), NA Michelson (Executive), MPR Morojele (Non-executive),
DC Sparrow (Executive), P Terblanche (Non-executive)
Auditors:
Deloitte & Touche
Deloitte Place
The Woodlands
20 Woodlands Drive
Woodmead
2199
Sponsor:
Barnard Jacobs Mellet Corporate Finance (Proprietary) Limited
Ground floor, 24 Fricker Road
Illovo Corner
Illovo
PO Box 62200
Marshalltown
2107
Company Secretary:
Corporate Governance CC
Chartered Secretaries:
6 Dale Lace Glades
Eastwood Street
Randpark Ridge
PO Box 279
Randpark Ridge
2156
Bankers:
Nedbank Limited
Form oF proxy
UCS GROUP LIMITEDRegistration number 1993/002253/06(‘UCS’ or ‘the Company’)ISIN: ZAE 00016150Share code: UCS
For the use of members who hold certificated shares and members who have dematerialised their shares in ‘own name’ registrations.
For the Annual General Meeting to be held on Friday, 28 January 2011 at 10h00.
I/We
of
being a member/members of UCS and entitled to votes, do hereby appoint
or, failing him/her
or, failing him/her
The Chairman of the meeting as my/our proxy to act for me/us on me/us at the Annual General Meeting of the company to be held on Friday, 28 January 2011 at 10h00, and at any adjournment thereof, in the Boardroom, 20th floor, 209 Smit Street, Braamfontein, Johannesburg, and to vote for me/us on my/our behalf in respect of the undermentioned resolutions in accordance with the following instructions (see note 2).
Number of votes (one vote per share)
For Against Abstain
1. Ordinary Resolution Number One: (Auditor’s Report)
2. Ordinary Resolution Number Two: (Adoption of Annual Financial Statements)
3. Ordinary Resolution Number Three:(Re-election of Director: MS V CHETTY)
4. Ordinary Resolution Number Four:(Re-election of Director: MR DF COLES)
5. Ordinary Resolution Number Five:(Re-election of Director: MR RG GOODMAN)
6. Ordinary Resolution Number Six: (Re-election of Director: MR NA MICHELSON)
7. Ordinary Resolution Number Seven:(Remuneration of Non-Executive Directors)
8. Ordinary Resolution Number Eight:(Re-appointment of Auditors)
9. Ordinary Resolution Number Nine:(Placing the unissued shares under the control of directors)
10. Ordinary Resolution Number Ten:(Cash Issue)
11. Ordinary Resolution Number Eleven:(Authority to make general payment to security holders.)
12. Special Resolution Number One:(Authority to purchase securities)
Signed at on 2011
Signature Assisted by me
(where applicable – see note 7)
A member qualified to attend and vote at the meeting is entitled to appoint a person to attend, speak and vote in his stead. A proxyholder need not be a member of the Company.
UCS ANNUAL REPORT 2010
Form oF proxy notes
members holding certificated shares or dematerialised shares registered in their own name.
1. Only members who hold certificated shares and members who have dematerialised their shares in ‘own name’ registrations may make use of this proxy form.
2. Each such ordinary member is entitled to appoint one or more proxyholders (none of whom needs to be a member of the Company) to attend, speak and, on a poll, vote in place of that member at the general meeting, by inserting the name of a proxy or the names of two alternate proxies of the ordinary member’s choice in the space provided, with or without deleting ‘the chairman of the meeting’. The person whose name stands first on the form of proxy and who is present at the meeting will be entitled to act as proxy to the exclusion of those whose names follow.
3. A member’s instructions to the proxyholder must be indicated by the insertion of the relevant number of votes exercisable by that member in the appropriate box/es provided. Failure to comply with the above will be deemed to authorise the chairman of the meeting, if he is the authorised proxyholder, to vote in favour of the resolutions at the general meeting, or any other proxy to vote or to abstain from voting at the general meeting, as he deems fit, in respect of all the member’s votes.
4. A member or his or her proxy is not obliged to vote in respect of all the shares held or represented, but the total number of votes for or against the resolutions in respect of which any abstention is recorded may not exceed the total number of votes to which the ordinary member or his proxy is entitled.
5. Any power of attorney and any instrument appointing a proxy or other authority (if any) under which it is signed, or a notarially certified copy of such power of attorney shall be deposited at the office of the transfer secretaries not less than 48 (forty eight) hours (excluding Saturday, Sundays and public holidays) before the time appointed for holding the meeting.
6. The completion and lodging of this form of proxy will not preclude the relevant member from attending the meeting and speaking and voting in person thereat to the exclusion of any proxyholder appointed.
7. Where there are joint holders of ordinary shares any one holder may sign the proxy form. The vote of only one holder in order of seniority (determined by sequence of names on the company register) will be accepted, whether in person or by proxy, to the exclusion of the vote(s) of other joint holders.
8. Members should lodge or post their completed proxy forms to Link Market Services (Pty) Limited, 11 Diagonal Street, Johannesburg (PO Box 4844, Johannesburg, 2000) by not later than 48 hours before the meeting. Proxies not deposited timeously shall be treated as invalid.
members holding dematerialised shares
9. Members who have dematerialised their shares through a Central Securities Depository Participant (CSDP) or broker (except those members who have elected to dematerialise their shares in ‘own name’ registrations) and all beneficial members holding their shares (dematerialised or certificated) through a nominee should provide such CSDP, broker or nominee with their voting instructions in sufficient time to allow them to advise the transfer secretaries of the company of their voting instructions before the closing time set out in note 8 above.
10. All such members wishing to attend the meeting in person may do so only by requesting their CSDP, broker or nominee to issue the member with a letter of representation in terms of the custody agreement. Such letter of representation must also be lodged with the transfer secretaries before the closing time set out in note 8 above.
UCS ANNUAL REPORT 2010
INVESTMENTS DIVISION
RETAIL SOLUTIONS DIVISION
SOFTWARE DIVISION
UCS SOLUTIONS CEB Maintenance Africa
UCS TECHNOLOGYSERVICES
GAAP Point-of-Sale
ULTISALES Retail Software
CSC
INNERVATIONValue Added Services
UCS DYNAMICS Software Solutions
UCS MOBILITI
4LIFEProgram
ACCSYS FERNRIDGEConsulting
UKSUniversal Knowledge Software
wiWALLET Mobile Payments
V&A RISKVolume and Affi nity Risk Managemnt
ARGILITY AQUITEC CQUENTIALSolutions
UCS GROUP LIMITED
20TH FLOOR, 209 SMIT STREET
BRAAMFONTEIN, JOHANNESBURG
www.ucs.co.za
UCS 2
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2010 ANNUAL REPORT