Crimsonwing plc - Interim Results

Wednesday, November 30th, 2011

On 29 November, Crimsonwing plc published its half-yearly financial statements covering the six months ended 30 September 2011. During the period under review, the IT Group reported a 9.5% increase in revenue to €7.7 million – the highest revenue figure for the first half of its financial year.

The major contributor to this revenue growth was Crimsonwing Promentum in the Netherlands which reported a 24% rise in sales to €2.2 million despite business being postponed into the second half of the financial year in line with the launch of the latest Microsoft Dynamics AX software – AX 2012. The VDA business (which forms part of the Crimsonwing NL subsidiary) also reported a 40% increase in revenues to €973,197 following the setting up of a new e-Commerce business unit at this subsidiary. Similarly, Malta registered a 12% increase in revenue to €3.3 million but this was mainly due to the fact that the Malta office serviced some Dutch clients directly rather than through Crimsonwing BV which is not particularly active following the problems it encountered with its two previous Directors. In fact, Crimsonwing BV reported a significant drop in revenue from €494,026 during the six months ended 30 September 2010 to €67,695 during the period under review. The UK business also reported a 7.6% drop in revenues to €3.4 million but this subsidiary is expected to recover in the second half of the year as sales of several very large solutions are expected to be deployed by March 2012.

On the other hand, Crimsonwing’s financials were impacted by a 15.9% increase in direct costs to €3.5 million on the back of an additional €103,000 in costs related to increased software licence sales in Malta and a €136,000 increase in e-Commerce staffing costs at the UK business. The IT Group also incurred a €416,884 rise in administrative costs to €1.7 million following an increase in recruitment cost, and sales and marketing expenses. The Directors explained that the rise in administrative expenses should be viewed as an investment needed to prepare the business for new contracts in the second half of the year.

In response to these rising costs, the Group has taken action in order to curtail other cost items. In the Netherlands, primarily the VDA business, the Group is expected to benefit from €40,000 in cost savings per month during the second half of the year. These savings relate to a substantial reduction in rent after the Group managed to transfer an office wing to a new tenant as well as a reduction in the number of staff.

The higher increase in operating costs resulted in earnings before interest, tax, depreciation and amortisation (EBITDA) of €314,289 which represents a 42.1% drop from the previous comparable period. Nonetheless, the Directors pointed out that this result was in line with expectations and the internal budgets. Moreover, the EBITDA reported for the first six months of the current financial year is still higher than the EBITDA of €203,979 reported during the second six months of the previous financial year ended 31 March 2011.

The Crimsonwing Group also reported a 16.6% rise in depreciation and amortisation to €233,531 mainly reflecting the higher software depreciation and amortisation following the finalisation of some significant updates of the Group’s “Membership” solution.

After accounting for net finance costs of €42,486, Crimsonwing’s pre-tax profit for the period under review is €38,279 – significantly lower compared to the pre-tax profit of €293,272 reported in the comparable period last year. Crimsonwing incurred a tax expense of €55,276 which is sharply lower than the €145,238 incurred in the first six months of the previous financial year. After deducting this tax charge and the minority interest of €2,349 (relating to the third party shareholding in Crimsonwing Promentum), Crimsonwing’s loss for the six months ended 30 September 2011 amounted to €19,346 in contrast to the profit of €93,659 reported in the comparable six months ended 30 September 2010.

In conclusion the Directors stated that they are pleased with the first half performance and expect to achieve further improvements during the second half of the year following the investments made and the cost saving measures implemented during the period under review.

Download a copy of the Crimsonwing plc – September 2011 Half-Year Report

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