RS2 Software plc - Interim Results

Wednesday, August 14th, 2013

On 13 August, RS2 Software plc published its interim financial statements covering the six months ended 30 June 2013.

Performance Overview

During the period under review, RS2 generated €9.7 million in revenue which is significantly higher than the €3.57 million registered in the first six months of 2012. The uplift in turnover was mainly due to the €5.5 million in income recognised with respect to the licence agreement with one of the leading banks in Europe as announced on 12 July. Although the terms of the agreement stipulate that the licensee has the right to terminate the agreement for convenience up to 30 August, the Directors believe that the probability of this event occurring is remote and highly improbable and therefore they expect the economic benefits associated with the transaction to flow to RS2. It is also noteworthy to highlight that the revenue figure also includes the first contribution of €0.38 million from the newly established subsidiary RS2 Smart Processing Limited as its first customer went live in April.

Cost of sales increased by 39.6% to €3.5 million reflecting the expansion in the workforce in view of the foreseeable growth in workflow with the addition of tier one banks to the Group’s client portfolio. Additionally, RS2 also incurred costs in relation to the new manages services subsidiary.

As a result, gross profit significantly increased to €6.3 million compared to €1.1 million in the first half of 2012.

Administrative expenses also increased by 35.9% to €0.8 million largely due to additional costs (including legal, advisory and depreciation) incurred in relation to the new premises in Mosta.

The capitalised development costs of €0.14 million (June 2012: €0.17 million) and marketing expenses amounting to €0.3 million (June 2012: €0.26 million) reflect the Group’s commitment to continue investing in its BANKWORKS platform.

Overall, the Group registered an operating profit of €5.3 million compared to just over €0.5 million in the first six months of 2012.  Excluding the depreciation and amortisation charge of €0.7 million, the Group’s earnings before interest, tax, depreciation and amortisation (EBITDA) of €6.1 million compared to €1.1 million in the first six months of 2012.

After accounting for a marginal net interest expense, the Group’s pre-tax profit amounted to a record €5.3 million compared to €0.53 million in the first half of the previous year.

The RS2 Group reported a tax charge of €1.7 million (June 2011: tax credit of €0.6 million). In the announcement, the Directors noted that the investment tax credits accumulated during the past years will be utilised in full during the period under review, giving rise to a potential tax liability for the year ending 31 December 2013.

After accounting for minority interests of €67,314 (reflecting the share of loss of US subsidiary Transworks LLC attributable to third party shareholders), the Group’s net profit amounts to €3.7 million compared to €1.2 million in the first six months of 2012. This translates into an earnings per share of €0.088 (June 2012: €0.0282). Nonetheless, this figure includes the €0.4 million loss attributable to the processing subsidiary which only started operations mid-way through the period under review.

The Balance Sheet shows total assets of €31.7 million which represent a 14.2% increase over the figures as at 31 December 2012. The increase largely reflects the €5.7 million increase in receivables in connection with the amount of €5.5 million recognised with respect to the licence agreement with one of the leading banks in Europe. Meanwhile, total liabilities grew by 15.2% during the same period to €9.9 million mainly due to the €1.3 million in deferred tax liability as the investment tax credits at the disposal of the Group were utilised in full. Total Equity also increased by 13.8% to €21.8 million mainly reflecting the profit registered during the period under review. This translates into a net asset value per share of €0.51 (Dec 2012: €0.45).

Dividend

In view of the substantial investment in infrastructure and business development, the Board of Directors resolved not to declare an interim dividend.

Outlook

Given the certification awarded by the Payment Card Industry (PCI) Council to RS2 Smart Processing Ltd, this subsidiary is well positioned to continue generating further business. Furthermore, the Group is also currently in negotiations for the sale of more licences and processing services.

The Board explained that the performance for the second half of the year is expected to remain positive and that 2013 will once again prove to be a successful year for RS2.

Download

RS2 Software plc – Interim Financial Statements covering the six months ended 30 June 2013.

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