Ucs Presentation To Small Cap It Analsyst


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  • Ucs Presentation To Small Cap It Analsyst

    1. 1. UCS Group Limited The Retail IT Specialists Small Cap IT Analysts Presentation Dean Sparrow – CFO UCS Group 17 October 2006
    2. 2. Agenda <ul><ul><li>Overview </li></ul></ul><ul><ul><li>Solutions & Services </li></ul></ul><ul><ul><li>Software </li></ul></ul><ul><ul><li>Group analysis - SWOT - Local growth - Cross selling </li></ul></ul><ul><ul><li>BEE strategy </li></ul></ul><ul><ul><li>Investment case </li></ul></ul><ul><ul><li>Outlook </li></ul></ul><ul><ul><li>Questions </li></ul></ul>
    3. 3. The UCS Group (‘UCS’) UCS provides the widest range of IT software, solutions and services to the retail and consumer goods markets in Southern Africa. The Group is well positioned for further growth locally and internationally through a number of defined initiatives.
    4. 4. UCS Group - Structure 74.9% Solutions & Services Division Software Division 100% 100% 100% 66% 100% 61% 50.1% UCS Group UCS Software CKS GAAP UCS Software Manufacturing UCS Solutions Holdings Accsys UKS Fernridge
    5. 5. Our Footprint <ul><ul><li>More than 95% of SA’s top retailers deal with UCS </li></ul></ul><ul><ul><li>Our software is used in more than 15 000 stores country wide </li></ul></ul><ul><ul><li>Our systems serve more than 20 million South African consumers per month </li></ul></ul><ul><ul><li>We’ve got 1000 technicians in our man-in-van support service nationwide </li></ul></ul>
    6. 6. Key: POS – Point of Sale SBO – Store Back Office IM- Inventory Management MO – Merchandise Optimization Merch – Merchandising Systems DW – Data Warehouse WMS – Warehouse Management Systems OM – Order Management Source AMR, Gartner Retail spend analysis <ul><li>Note: </li></ul><ul><li>UCS Software largely focused on POS, SBO and OM </li></ul><ul><li>UCS Solutions largely focused on remainder </li></ul><ul><li>Further analysis included later </li></ul>
    7. 7. Financial History Strong cash generation >20%p/a for past 3 years Focus on efficiency/ profitability Material growth and annuity EBITDA HEPS EBITDA % Revenue
    8. 8. Segmental Contribution (interims 2006)
    9. 9. Our Track Record <ul><ul><li>18 acquisitions made to date, most recently: </li></ul></ul><ul><ul><ul><li>2006 – TSS (TSSMS, Quartet, TSSBS) </li></ul></ul></ul><ul><ul><ul><li>2005 – CEB Maintenance </li></ul></ul></ul><ul><ul><li>TSS acquisition concluded through UCS Solution Holdings equity issue and TSS also subscribed for 2.8m (R5m) UCS Group shares for cash </li></ul></ul><ul><ul><li>Acquisitions largely funded by cash resources. Acquisition payments to date R178.8m plus 22.1m UCS shares </li></ul></ul><ul><ul><li>Executed to consolidate our position and re-engineered for annuity revenue streams </li></ul></ul><ul><ul><li>Acquisitions have contributed to growth at a time of favorable valuations to build market dominance </li></ul></ul><ul><ul><li>Have assembled an unrivalled product and service platform to drive meaningful cross-selling and optimisation of existing client relationships across the Group </li></ul></ul><ul><ul><li>Note : Currently there are 249 million shares in issue from an original 273 million on listing. </li></ul></ul>
    10. 10. UCS Solutions and Services Division
    11. 11. UCS Solutions & Services Division H1 FY 2006 <ul><li>CEB included for full period (man-in-van maintenance) </li></ul><ul><li>All businesses traded well </li></ul><ul><li>BEE deal announced between TSS and UCS Solutions Holdings </li></ul><ul><li>Well represented across Tier 1 retail </li></ul>Composition Business and IT solutions provider for retail & supply chain Integrated Human Resources solutions Library software solutions Retail sales optimisation services * Including CEB Maintenance, TSS Managed Services & Quadrant Consulting *
    12. 12. Market Segmentation – UCS Solutions Wholesale FMCG Retail Fuel Furniture General Merchandise CPG 42% 16% 7% 20% 7% 8%
    13. 13. Customers – Solutions and Services
    14. 14. Market Sizing and Growth Prospects <ul><ul><li>The market size for the services we deliver is estimated to be R3.6bn on external services and a further R3.6bn on internal services for the retail, wholesale and consumer goods manufacturing industries – we estimate to have between 9% & 10% of the external spend market post the acquisition of CEB </li></ul></ul><ul><ul><li>External spend is projected to grow at 13% over the next 3 years according to BMI </li></ul></ul><ul><ul><li>Continued trend towards partial or full outsourcing in this market in line with international trends which will further expand the market opportunity </li></ul></ul><ul><ul><li>Several tier 1 retailers now looking at and/or implementing leading package software applications and exploring selective outsourcing relationships </li></ul></ul><ul><ul><li>Key partnerships – SAP, JDA, IBM and Microsoft - reinforcing UCS Solutions’ ‘go to market’ approach in both applications and infrastructure services </li></ul></ul><ul><ul><li>Telecoms deregulation opening up opportunities for network services </li></ul></ul>
    15. 15. UCS Software Division
    16. 16. UCS Software Division Composition H1 FY 2006 Custom and packaged retail software services & solutions Restaurant software solutions Pharmacy and hardware-store software solutions Domain-specialised, outsourced product development <ul><li>Annuity revenue grew by 18.1% to R100.9m </li></ul><ul><li>Annuity revenue 68.5% of cash overheads </li></ul><ul><li>CKS success in Building Supplies sector compensates for tough trading conditions in Pharmacy sector </li></ul><ul><li>Research and Development expenditure focused on new product </li></ul><ul><li>UCSSM launches Assemble-to-Order </li></ul><ul><li>Software Manufacturing service </li></ul>
    17. 17. Market Segmentation - Software 28% 12% 9% 5% 3% 10% 2% 4% 22% 5% Software division industry segmentation 2005 – our market opportunity Furniture Clothing Speciality & General Retail Fuel Local Channel MBS QSR Pharmacy & Hardware FMCG Fine Dining
    18. 18. Customers – Software Hospitality and Quick Service Restaurants Furniture Apparel Food & Conv Speciality
    19. 19. Software Division: Business Strategy and Competitive Advantages <ul><ul><li>Strong industry vertical and geographical focus </li></ul></ul><ul><ul><li>Develop in Rands and own the IP for all our retail software </li></ul></ul><ul><ul><li>Synchronising product roadmaps and ‘converging’ competitive products into single product over time </li></ul></ul><ul><ul><li>Implementation & support services wrapped around UCS software </li></ul></ul><ul><ul><li>Aimed at all tiers of the Retail market (Direct & Indirect) </li></ul></ul><ul><ul><li>UCSSM capability positioned for large scale international solutions (attractive A20 ‘assemble to order’ offering) </li></ul></ul>
    20. 20. G rowth Strategy <ul><ul><li>UCS Software being positioned to become a ‘pure’ software services business (no application software product R & D) and to become a significant channel partner to the ‘pure’ software business </li></ul></ul><ul><ul><li>Integration of the 6 merged Software units largely completed in September 05 – currently delivering and will continue to deliver sustainable margin improvements </li></ul></ul><ul><ul><li>UCS Software Industry verticals </li></ul></ul><ul><ul><ul><li>2006 2003 2000 1997 </li></ul></ul></ul><ul><ul><ul><li>Furniture Furniture Furniture Furniture </li></ul></ul></ul><ul><ul><ul><li>Apparel Apparel Apparel </li></ul></ul></ul><ul><ul><ul><li>Pharmacy Pharmacy </li></ul></ul></ul><ul><ul><ul><li>QSR QSR </li></ul></ul></ul><ul><ul><ul><li>FMCG FMCG </li></ul></ul></ul><ul><ul><ul><li>Speciality Speciality </li></ul></ul></ul><ul><ul><ul><li>Forecourt Retail </li></ul></ul></ul><ul><ul><ul><li>Mass Discounters </li></ul></ul></ul><ul><ul><ul><li>Home Improvement </li></ul></ul></ul>
    21. 21. G rowth Strategy cont. <ul><ul><li>Geographies </li></ul></ul><ul><ul><ul><li>2006 2003 2000 1997 </li></ul></ul></ul><ul><ul><ul><li>RSA RSA RSA RSA </li></ul></ul></ul><ul><ul><ul><li>Southern Africa Southern Africa Southern Africa </li></ul></ul></ul><ul><ul><ul><li>Dubai Dubai </li></ul></ul></ul><ul><ul><ul><li>UK </li></ul></ul></ul><ul><ul><ul><li>Saudi Arabia </li></ul></ul></ul><ul><ul><li>International expansion key to enabling high growth rates </li></ul></ul><ul><ul><li>Channel partners established in UK and Middle East region </li></ul></ul>
    22. 22. UCS Group
    23. 23. SWOT analysis <ul><li>Strengths </li></ul><ul><ul><li>Footprint in RSA </li></ul></ul><ul><ul><li>Quality of reference base </li></ul></ul><ul><ul><li># of ‘Verticals’ </li></ul></ul><ul><ul><li>Proprietary IP </li></ul></ul><ul><ul><li>Modern technologies </li></ul></ul><ul><ul><li>Annuity revenue model </li></ul></ul><ul><ul><li>Rand based costs </li></ul></ul><ul><ul><li>English speaking </li></ul></ul><ul><li>Weaknesses </li></ul><ul><ul><li>No international footprint </li></ul></ul><ul><ul><li>RSA / Africa based </li></ul></ul><ul><ul><li>Limited BEE opportunities </li></ul></ul><ul><ul><li>Share price / market cap. </li></ul></ul><ul><li>Opportunities </li></ul><ul><ul><li>Cross selling products/services </li></ul></ul><ul><ul><li>UK market first </li></ul></ul><ul><ul><li>Other international markets </li></ul></ul><ul><ul><li>New ‘verticals’ </li></ul></ul><ul><ul><li>New ‘product line’ R & D </li></ul></ul><ul><ul><li>International alliances / partnerships </li></ul></ul><ul><ul><li>‘ Certified’ ERP interfaces </li></ul></ul><ul><li>Threats </li></ul><ul><ul><li>Microsoft </li></ul></ul><ul><ul><li>Other competitors </li></ul></ul><ul><ul><li>Technology changes </li></ul></ul><ul><ul><li>RSA skills shortage & staff retention </li></ul></ul>
    24. 24. Local growth opportunities <ul><ul><li>Our Fernridge consulting business recently (August 2006) conducted a survey of an industry vertical within the retail market in Gauteng to reflect the market share that UCS Software in particular has in this industry vertical. </li></ul></ul><ul><ul><li>We have mandated Fernridge to conduct a broader survey nationally. </li></ul></ul><ul><ul><li>Over the following 5 slides it will become evident that the local growth opportunities remain attractive. </li></ul></ul><ul><ul><li>We have the potential to significantly increase our store footprint in SA over the medium term. </li></ul></ul><ul><ul><li>Our service stack is sufficiently broad across the Group to achieve this. </li></ul></ul><ul><ul><li>We wish to optimise our existing relationships through cross-selling opportunities between our Software and Solutions & Services divisions </li></ul></ul><ul><ul><li>Ultimately we want to be a 1 Stop shop for all IT software, solutions and services to the retail sector. </li></ul></ul>
    25. 25. Demo Physical location of a specific retailer’s outlets in Gauteng 38 Outlets
    26. 26. Demo UCS has a market share of 39% among this specific retailers outlets in Gauteng. These ones are UCS clients 15 Outlets
    27. 27. Demo Physical location of all national FMCG retail outlets in Gauteng 794 Outlets
    28. 28. Demo UCS has a market share of 34% among national FMCG retail in Gauteng. These ones are UCS clients 273 Outlets
    29. 29. Demo Kempton Park UCS has 13 clients UCS has a market share of 43% among national food retailers in Kempton Park Average monthly spent on POS in this area / industry = R13,427 Kempton Park available POS market for UCS = R228,259 / month Physical location of all national FMCG retail outlets in Kempton Park 30 Outlets
    30. 30. Cross-selling opportunities An illustration of different products & services available in the two divisions <ul><li>Software </li></ul><ul><ul><li>large scale customised and package POS proprietary software </li></ul></ul><ul><ul><li>Products specific to retail verticals </li></ul></ul><ul><ul><li>Products for both Microsoft and Linux platforms </li></ul></ul><ul><ul><li>CMMi Certified facility positioned for outsourced product development (OPD) or Assemble to Order (A20) opportunities – “In-store” focus </li></ul></ul><ul><ul><li>Implementation, maintenance, support and roadmap services </li></ul></ul><ul><ul><li>Product specific and retail related training services </li></ul></ul><ul><ul><li>3 rd line technical support </li></ul></ul><ul><li>Solutions and Services </li></ul><ul><ul><li>Tailored 3 rd party software and Consulting solutions for better business performance </li></ul></ul><ul><ul><li>Design, implementation and operation of leading applications, including UCS Software, SAP and JDA </li></ul></ul><ul><ul><li>Broad portfolio of leveraged, managed infrastructure including POS and desktop services (Significantly positioned with CEB & now enhanced with TSSMS) </li></ul></ul><ul><ul><li>Professional IT service management capabilities underpinned by a 24 x 7 contact centre (1st and 2nd line support) </li></ul></ul><ul><ul><li>Retail store location and optimisation services </li></ul></ul>
    31. 31. BEE Strategy <ul><ul><li>Fine-tuning of strategy taking place based on recently released final Code of Good Practice (DTI) </li></ul></ul><ul><ul><li>Will incorporate new ‘trust’ for existing and future staff </li></ul></ul><ul><ul><li>Due to the diversity of businesses in the Group, UCS’s strategy is to implement BEE deals at operating subsidiary level </li></ul></ul><ul><ul><li>Roll-up into Group, if required by new BEE ‘partners’ </li></ul></ul><ul><ul><li>BEE deal done with UKS Subsidiary </li></ul></ul><ul><ul><li>TSS transaction concluded for UCS Solutions Holdings providing BEE equity position for UCS Solutions and CEB </li></ul></ul><ul><ul><li>Actively pursuing opportunities for the remainder of Group companies </li></ul></ul>
    32. 32. Overview of TSS BEE transaction UCS Group UCS Solutions Holdings TSS 100% black owned 74.9% 25.1% 40% 60% 100% 100% 100% UCS Solutions Quadrant Consulting CEB Maintenance TSS Managed Services <ul><li>TSS Business Services </li></ul><ul><li>Quartet </li></ul>
    33. 33. TSS transaction important factors <ul><ul><li>Creates a material BEE player in IT services industry , with turnover of >R550m annualised (for UCS Solutions Holdings) </li></ul></ul><ul><ul><li>Strategic alignment between </li></ul></ul><ul><ul><ul><li>Business Solutions division and TSS Business Services/Quartet (>150 SAP consultants) </li></ul></ul></ul><ul><ul><ul><li>TSS MS and CEB Maintenance </li></ul></ul></ul><ul><ul><li>Anticipate new market opportunities as a consequence </li></ul></ul><ul><ul><li>Entered into a three year management agreement regarding TSS MS </li></ul></ul><ul><ul><li>Transaction became effective from 1 July 2006 </li></ul></ul><ul><ul><li>Pro-forma financial effects reflect transaction as earnings enhancing </li></ul></ul>
    34. 34. The Investment Case <ul><ul><li>Worldwide trend against homegrown software and in-house services (evident in SA too) </li></ul></ul><ul><ul><li>Secured strong local market position </li></ul></ul><ul><ul><ul><li>Consolidated a large part of the software market </li></ul></ul></ul><ul><ul><ul><li>Strong annuity base of blue chip clients </li></ul></ul></ul><ul><ul><ul><li>Ability to leverage current relationships & cross sell products and services </li></ul></ul></ul><ul><ul><ul><li>Significant growth potential in local market </li></ul></ul></ul><ul><ul><li>Strong organic growth and cash flow generation </li></ul></ul><ul><ul><li>Ongoing margin improvement in base business </li></ul></ul><ul><ul><li>Positioned for the international opportunities </li></ul></ul><ul><ul><ul><li>Product distribution channels in UK & Middle East </li></ul></ul></ul><ul><ul><ul><li>UCSSM delivery capability </li></ul></ul></ul>
    35. 35. Outlook <ul><ul><li>Exciting growth platform </li></ul></ul><ul><ul><ul><li>Software </li></ul></ul></ul><ul><ul><ul><ul><li>UCSSM - CMMi certification - A 2 O capabilities - international opportunities </li></ul></ul></ul></ul><ul><ul><ul><ul><li>ActiveRetail - Converged packaged software range </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Building international channels to market </li></ul></ul></ul></ul><ul><ul><ul><li>Solutions & Services </li></ul></ul></ul><ul><ul><ul><ul><li>Critical mass established </li></ul></ul></ul></ul><ul><ul><ul><ul><li>BEE position secured </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Infrastructure and SAP consulting strengthened </li></ul></ul></ul></ul>
    36. 36. Forward Looking Statement Various remarks that we may have made about future expectations, plans and prospects for the company constitute forward-looking statements Actual results may differ materially from those indicated by these forward looking statements as a result of various important factors
    37. 37. Questions
    38. 38. Enquiries UCS Group 011 712 1300 Dean Sparrow, CFO 082 494 6803 [email_address] College Hill 011 447 3030 Johannes van Niekerk 082 921 9110 [email_address]