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UCS Group Limited
The Retail IT Specialists
Small Cap IT Analysts Presentation
Dean Sparrow – CFO UCS Group
17 October 2006
Agenda
Overview
Solutions & Services
Software
Group analysis- SWOT- Local growth - Cross selling
BEE strategy
Investment case
Outlook
Questions
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.
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.
UCS Group - Structure
74.9%
Solutions &Services Division
SoftwareDivision
100%
100%
100%
66%
100%
61%
50.1%
UCS GroupUCS Group
UCS SoftwareUCS Software
CKSCKS
GAAPGAAP
UCS Software
Manufacturing
UCS Software
Manufacturing
UCS Solutions
Holdings
UCS Solutions
Holdings
AccsysAccsys
UKSUKS
FernridgeFernridge
Our Footprint
More than 95% of SA’s top retailers deal with UCS
Our software is used in more than 15 000 stores country
wide
Our systems serve more than 20 million South African
consumers per month
We’ve got 1000 technicians in our man-in-van support
service nationwide
POS32%
SBO15%
IM20%
MO4%
DW4%
Merch9%
WMS7% OM
5%
Planning4%
Key:POS – Point of Sale SBO – Store Back OfficeIM- Inventory ManagementMO – Merchandise OptimizationMerch – Merchandising SystemsDW – Data WarehouseWMS – Warehouse Management SystemsOM – Order Management
Source AMR, Gartner
Retail spend analysis
Note: • UCS Software largely focused on POS, SBO and OM• UCS Solutions largely focused on remainder• Further analysis included later
Financial HistoryEBITDA Strong
cashgeneration
HEPS >20%p/afor past3 years
EBITDA % Focus onefficiency/
profitability
Revenue Materialgrowth and
annuity
Segmental Contribution (interims 2006)
Revenue (% )
Solutions & Services Software
Our Track Record18 acquisitions made to date, most recently:
• 2006 – TSS (TSSMS, Quartet, TSSBS)• 2005 – CEB Maintenance
TSS acquisition concluded through UCS Solution Holdings equity issue and TSS also subscribed for 2.8m (R5m) UCS Group shares for cash
Acquisitions largely funded by cash resources. Acquisition payments to date R178.8m plus 22.1m UCS shares
Executed to consolidate our position and re-engineered for annuity revenue streams
Acquisitions have contributed to growth at a time of favorable valuations to build market dominance
Have assembled an unrivalled product and service platform to drive meaningful cross-selling and optimisation of existing client relationships across the Group
Note: Currently there are 249 million shares in issue from an original 273 million on listing.
UCS Solutions and Services Division
UCS Solutions & Services Division
H1 FY 2006
• CEB included for full period (man-in-van maintenance)
• All businesses traded well
• BEE deal announced between TSS and UCS Solutions Holdings
• Well represented across Tier 1 retail
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
*
Market Segmentation – UCS Solutions
Wholesale
FMCG Retail
Fuel
Furniture
General Merchandise
CPG
42%
16%
7%
20%
7%
8%
Customers – Solutions and Services
Market Sizing and Growth ProspectsThe 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
External spend is projected to grow at 13% over the next 3 years according to BMI
Continued trend towards partial or full outsourcing in this market in line with international trends which will further expand the market opportunity
Several tier 1 retailers now looking at and/or implementing leading package software applications and exploring selective outsourcing relationships
Key partnerships – SAP, JDA, IBM and Microsoft - reinforcing UCS Solutions’ ‘go to market’ approach in both applications and infrastructure services
Telecoms deregulation opening up opportunities for network services
UCS Software Division
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
• Annuity revenue grew by 18.1% to R100.9m
• Annuity revenue 68.5% of cash overheads
• CKS success in Building Supplies sector compensates for tough trading conditions in Pharmacy sector
• Research and Development expenditure focused on new product
• UCSSM launches Assemble-to-Order Software Manufacturing service
Market Segmentation - Software
28%
12%
9%5% 3%
10%
2%4%
22%
5%
Furniture
Clothing
Speciality & General Retail
Fuel
Local Channel
MBSQSR
Pharmacy & HardwareFMCG
Fine Dining
Software division industry segmentation 2005 – our market opportunity
Customers – Software
Furniture
Hospitality and Quick Service Restaurants
Apparel Food & Conv Speciality
Software Division: Business Strategy and Competitive Advantages
Strong industry vertical and geographical focus
Develop in Rands and own the IP for all our retail software
Synchronising product roadmaps and ‘converging’ competitive products into single product over time
Implementation & support services wrapped around UCS software
Aimed at all tiers of the Retail market (Direct & Indirect)
UCSSM capability positioned for large scale international solutions (attractive A20 ‘assemble to order’ offering)
Growth Strategy 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
Integration of the 6 merged Software units largely completed in September 05 – currently delivering and will continue to deliver sustainable margin improvements
UCS Software Industry verticals 2006 2003 2000 1997
• Furniture Furniture Furniture Furniture• Apparel Apparel Apparel • Pharmacy Pharmacy• QSR QSR• FMCG FMCG• Speciality Speciality• Forecourt Retail• Mass Discounters• Home Improvement
Growth Strategy cont.
Geographies
2006 2003 2000 1997
• RSA RSA RSA RSA
• Southern Africa Southern Africa Southern Africa
• Dubai Dubai
• UK
• Saudi Arabia
International expansion key to enabling high growth rates
Channel partners established in UK and Middle East region
UCS Group
SWOT analysisStrengths
Footprint in RSA
Quality of reference base
# of ‘Verticals’
Proprietary IP
Modern technologies
Annuity revenue model
Rand based costs
English speaking
Weaknesses
No international footprint
RSA / Africa based
Limited BEE opportunities
Share price / market cap.
Opportunities
Cross selling products/services
UK market first
Other international markets
New ‘verticals’
New ‘product line’ R & D
International alliances / partnerships
‘Certified’ ERP interfaces
Threats
Microsoft
Other competitors
Technology changes
RSA skills shortage & staff retention
Local growth opportunitiesOur 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.
We have mandated Fernridge to conduct a broader survey nationally.
Over the following 5 slides it will become evident that the local growth opportunities remain attractive.
We have the potential to significantly increase our store footprint in SA over the medium term.
Our service stack is sufficiently broad across the Group to achieve this.
We wish to optimise our existing relationships through cross-selling opportunities between our Software and Solutions & Services divisions
Ultimately we want to be a 1 Stop shop for all IT software, solutions and services to the retail sector.
DemoDemo
Physical location of a specific retailer’s outlets
in Gauteng
38 Outlets
DemoDemo
These ones are UCS clients
15 Outlets
UCS has a market share of 39% among this specific
retailers outlets in Gauteng.
DemoDemo
Physical location of all national FMCG retail outlets in Gauteng
794 Outlets
DemoDemo
These ones are UCS clients
273 Outlets
UCS has a market share of 34% among national FMCG
retail in Gauteng.
DemoDemo
Kempton Park
Physical location of all national FMCG retail
outlets in Kempton Park
30 Outlets
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
Cross-selling opportunitiesAn illustration of different products & services available in the two divisions
Software large scale customised and package
POS proprietary software
Products specific to retail verticals
Products for both Microsoft and Linux platforms
CMMi Certified facility positioned for outsourced product development (OPD) or Assemble to Order (A20) opportunities – “In-store” focus
Implementation, maintenance, support and roadmap services
Product specific and retail related training services
3rd line technical support
Solutions and Services Tailored 3rd party software and
Consulting solutions for better business performance
Design, implementation and operation of leading applications, including UCS Software, SAP and JDA
Broad portfolio of leveraged, managed infrastructure including POS and desktop services (Significantly positioned with CEB & now enhanced with TSSMS)
Professional IT service management capabilities underpinned by a 24 x 7 contact centre (1st and 2nd line support)
Retail store location and optimisation services
BEE StrategyFine-tuning of strategy taking place based on recently released final Code of Good Practice (DTI)
Will incorporate new ‘trust’ for existing and future staff
Due to the diversity of businesses in the Group, UCS’s strategy is to implement BEE deals at operating subsidiary level
Roll-up into Group, if required by new BEE ‘partners’
BEE deal done with UKS Subsidiary
TSS transaction concluded for UCS Solutions Holdings providing BEE equity position for UCS Solutions and CEB
Actively pursuing opportunities for the remainder of Group companies
Overview of TSS BEE transaction
UCS Group UCS Solutions Holdings
TSS100% black owned
74.9% 25.1%
40%60%100%100%100%
UCS Solutions Quadrant Consulting
CEB Maintenance TSS Managed Services
• TSS Business Services• Quartet
TSS transaction important factors
Creates a material BEE player in IT services industry, with turnover of >R550m annualised (for UCS Solutions Holdings)
Strategic alignment between • Business Solutions division and TSS Business Services/Quartet (>150
SAP consultants)• TSS MS and CEB Maintenance
Anticipate new market opportunities as a consequence
Entered into a three year management agreement regarding TSS MS
Transaction became effective from 1 July 2006
Pro-forma financial effects reflect transaction as earnings enhancing
The Investment CaseWorldwide trend against homegrown software and in-house services (evident in SA too)
Secured strong local market position• Consolidated a large part of the software market
• Strong annuity base of blue chip clients
• Ability to leverage current relationships & cross sell products and services
• Significant growth potential in local market
Strong organic growth and cash flow generation
Ongoing margin improvement in base business
Positioned for the international opportunities• Product distribution channels in UK & Middle East
• UCSSM delivery capability
Outlook
Exciting growth platform• Software
- UCSSM - CMMi certification - A2O capabilities - international
opportunities
- ActiveRetail - Converged packaged software range
- Building international channels to market
• Solutions & Services- Critical mass established
- BEE position secured
- Infrastructure and SAP consulting strengthened
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
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
Forward Looking Statement
QuestionsQuestions
UCS Group 011 712 1300Dean Sparrow, CFO 082 494 6803 [email protected]
College Hill 011 447 3030Johannes van Niekerk 082 921 9110 [email protected]
UCS Group 011 712 1300Dean Sparrow, CFO 082 494 6803 [email protected]
College Hill 011 447 3030Johannes van Niekerk 082 921 9110 [email protected]
EnquiriesEnquiries