RS2 plc - Interim Results
On 30 August 2018, RS2 Software plc published its condensed interim financial statements for the six-month period ended 30 June 2018. In this respect, it is important to highlight that the H1 2018 financial results are not directly comparable to the same period last year as the initial implementation of the accounting rule IFRS 15 necessitated the need for RS2 to reverse an amount of €5.6 million in revenue already accounted for up to 31 December 2017 in relation to a Term Licence contract with an option to convert to perpetuity. Such reversal was recorded out of the opening retained earnings as at 1 January 2018, to be later accounted for upon the exercise or expiry of the option. RS2 also explained that it received official notification from its client of the intention to exercise the option during the period under review, thus triggering the release of such additional €5.6 million in revenues in the income statement for the period ended 30 June 2018. In relation to the same contract, RS2 also recognised an additional €1 million in revenue related to the perpetuity option. This would have otherwise been accounted for during 2019 had it not been for the implementation IFRS 15.
Performance Overview
During the first six months of 2018, RS2 generated €15.6 million in revenues. However, after eliminating the effect of IFRS 15, on an adjusted basis, revenues contracted by 15% to €9 million compared to €10.6 million in the first half of 2017. In this respect, RS2 explained the reduction in revenues (on a like-with-like basis) reflects delays in the provision of certain services which is expected to be compensated for in the second half of the year.
On the expenditure side, total costs (net of other income) increased by 3.6% to €8.23 million compared to €7.94 million in H1 2017. RS2 noted that during 2018 it continued to increase its staff compliment and invest in infrastructure capabilities and marketing initiatives (especially in the US) to meet the increasing client demands for services and support. Moreover, the company advised that the increase in costs is expected to be significantly higher in the second half of the year in comparison to the first six months.
The company reported a marginal net finance income compared to net finance costs of €0.13 million in H1 2017.
Overall, pre-tax profits stood at €7.37 million. After accounting for a tax charge of €2.76 million (H1 2017: €1.08 million) and a loss of €0.21 million related to minority interests, the net profit attributable to the owners of the company amounted to €4.81 million (H1 2017: €1.51 million).
The Statement of Financial Position as at 30 June 2018, compared to the corresponding figures as at 31 December 2017, shows that total assets remained virtually unchanged at €29.6 million whilst total liabilities grew by 21.6% to €10.8 million. The increase in liabilities reflects higher amounts of contract liabilities (+€1.5 million), current tax payables (+€0.79 million) and accruals (+€0.55 million). As a result, the company’s equity base contracted by 9.3% to €18.8 million.
Outlook
In their commentary, the Directors explained that during 2018 RS2 continued with its business strategy of implementing more clients into its managed services business. In fact, based on service agreements ranging between three to five years with the option of extension, the company managed to successfully implement, and is in the course of implementing, additional clients on its managed services platform.
RS2 has also rolled out services for the following clients through its managed services subsidiaries:
- In Portugal for Finanfarma;
- In Europe, in partnership with another entity, RS2 is targeting to launch the Global Processing Services for the travel industry by the end of this year depending on concluding the required certifications;
- In the US, where RS2 has successfully finalised the certification in order to roll out its services in October for its clients in the US market; and
- In Canada, where another managed services client is completed and rolling out its service in September.
Furthermore, by the end of the year, the Group will be rolling out services to the following clients:
- In Columbia for one of the largest retail operators;
- In Argentina, where it continued to expand the services to one of the largest global acquirers;
- In Malaysia, for one of the major payment providers across six countries in Asia Pacific; and
- In New Zealand, where the Group commenced the implementation of one of the largest financial institutions in the country.
Furthermore, the Group commenced a licence implementation for a new client in Israel and targets to conclude this by end of this year.
In addition to the above, RS2 explained that it is also:
- in extensive discussions with Tier-1 banks and e-wallet providers in Asia Pacific and the US to roll out Global Acquiring services to their merchants;
- partnering with a smart terminal supplier to deliver acquiring/payment services to merchants around the globe targeting 11 countries in Asia Pacific; and
- engaged in a potential project to provide Payment Services for merchants using digital assets on a Blockchain technology.