Eskom’s proposed tariff hikes, amounting to 45%/year for the next three years, will have an adverse effect on consumer spending. This will undermine a recovery by SA retailers, and will in turn harm UCS, which sells software and services to the retail sector.
This is the warning from UCS CEO John Bright. UCS on Wednesday said it had suffered a 63,6% decline in diluted headline earnings per share in the year to 30 September 2009, reflecting the impact of the recession on its clients.
However, the results could have been much worse if UCS hadn’t generated more than half its sales in the year from annuity (recurring) sources.
UCS says it optimistic that there will be a gradual improvement in the economy in 2010, but Bright says Eskom could undermine this.
“Severe increases in electricity costs have been proposed in SA over the next three years, which, if approved, will significantly reduce the capacity for discretionary spend among the vast majority of consumers.”
As a result, UCS says it has adopted a “relatively conservative budget” for new sales in the next year.
Despite the poor bottom-line performance in the 2009 financial year, UCS grew its revenue by a healthy 22,3% (29,2% for continuing operations) to R1,5bn.
However, the company says the non-food retail sector, which represents a significant portion of its focus, remained under intense pressure due to weak consumer spend locally and internationally.
“The continuing global economic crisis resulted in contracts being postponed or cancelled in some of our main international expansion areas, namely the US, the UK and certain Middle Eastern markets.”
The company was strongly cash generative. Operations generated R233,5m in cash. However, higher taxes and finance charges ate into the improved working capital position.
During the year, UCS disposed of a number of businesses it deemed were not core. They are TSS Managed Services, DiverseIT and the enterprise solutions division of UCS Solutions.
Meanwhile, Bright has confirmed he will retire in September 2012. Deputy CEO Dean Sparrow will likely replace him. — Duncan McLeod, TechCentral