RS2 plc - Interim Results

On 28 August, RS2 Software plc published its interim results covering the first six months of 2014.

Performance Overview

During the period under review, the RS2 Group reported a 20.2% drop in revenue to €7.8 million. However, it is important to highlight the fact that €5.5 million out of the €9.7 million turnover figure for the comparable six months ended 30 June 2013 was accounted for with respect to the initial recognition of the licence sale to Barclays Bank plc of GBP8.5 million. Meanwhile, the revenue figure for the period under review predominantly relates to service and maintenance fees. Therefore, excluding the €5.5 million figure from the 2013 financials, RS2’s revenue during the period under review increased by 83.4%. The turnover figure during the period under review also includes €0.58 million in income generated from the recently set-up subsidiary, RS2 Smart Processing Limited, representing a 113.7% increase over the previous comparable period. It also noteworthy to highlight that the processing subsidiary in the first six months of this year has already generated 57.9% of the total turnover generated in the whole of 2013 although the subsidiary is still in a loss-making position.

Given the growing business activity and pipeline of the Group, RS2’s cost of sales also increased by 12.2% to €3.9 million largely reflecting the expansion of the Group’s employee base to meet the demand of current and future business.

As explained above, the different accounting treatment of licence sales also led to a 38.1% decline in gross profit to €3.9 million and the gross profit margin retreated to 49.9% from 64.4% in the previous comparable period.

Administrative expenses also increased by 22.6% to €0.96 million also reflecting the growing business activity of the Group. Meanwhile, marketing and promotional expenses dropped by 25.5% to €0.22 million. Capitalised development costs, reflecting the Group’s continual maintenance and upgrading of the BANKWORKS platform, increased by 23% to €0.17 million. After accounting for €0.17 million in net other income, the Group reported an operating profit of just over €3 million. This is 43.2% below the previous comparable figure for the reasons explained above.

Net interest expenses amounted to €0.08 million compared to a marginal expense in the first six months of 2013 given a lower incidence of interest income. Nonetheless, interest costs dropped by 6% to €0.11 million as the Group continued to reduced its debt balances.

Overall, the RS2 Group reported a pre-tax profit of €2.96 million compared to €5.35 million in the first six months of 2013 with the latter comprising significant licence fees as opposed to service and maintenance fess during the period under review.

The Group reported a €0.74 million tax charge in respect of the profits generated during the period under review. In this regard, the Directors noted that the majority of its investments tax credits have been utilised to offset profits generated in previous years.

After accounting for minority interest of €0.02 million (reflecting the share of loss of US subsidiary Transworks LLC attributable to third party shareholders), the Group’s net profit amounted to €2.2 million representing a 39.7% drop from the previous comparable period for the reasons explained above.

The Statement of Financial Position shows a 5.2% increase in total assets to €31.9 million since 31 December 2013 largely due to the increase in accrued income and trade receivables which in turn reflect the rising levels of business activity. The 19.6% increase in the Group’s cash balance since the 2013 financial year end to €4.4 million also contributed to the aforementioned increase in total assets. Similarly, compared to the 2013 year-end figures, total liabilities increased by 4% to €9.3 million as the increases in trade payables and deferred income offset the further €0.4 million reduction in total debt to €3.8 million. In this respect, the Directors explained that the Group has also managed to secure additional banking facilities in order to continue financing the Group’s expansion plans. However, these new facilities were not used by the end of the period under review.

Shareholders’ funds also improved by 5.7% to €22.6 million largely reflecting the profit registered during the period under review.

Dividend

The Directors did not declare an interim dividend given the further substantial investment required in the Group’s infrastructure and business development.

Outlook

In conclusion, the Directors noted that they maintain a positive outlook for the remainder of 2014. 

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RS2 Software plc – Interim Financial Statements covering the six months ended 30 June 2014.