RS2 Software plc - Interim Results Review

RS2 Software plc published its interim results to 30 June 2008 following a Board of Directors’ meeting held on 12 August.

The key highlights are:
• Revenue of €5.3 million (+92%);
• EBITDA climbs to €3.1 million with a 57.7% margin;
• Profit for the period up 133.7% to €2.6 million;
• Shareholders’ funds of €13.2 million.

RS2 generated total revenue of €5.3 million during the first half of 2008 representing a 92% increase when compared to the same period last year, mainly as a result of 3 new Comprehensive Package Agreements and a surge in license fees.  During the period to June 2008, the Directors reported that the Company concluded three Comprehensive Package Agreements (CPA) with existing clients. Revenue from enhanced services (which includes CPAs) increased by 17.9% during the first half of the year to €2.1 million. These Agreements are usually for a 5-year period, providing clients with licenses, maintenance and a specified level of services against an annual predetermined fee thus ensuring a constant stream of revenue to the Company.  The strongest increase in turnover was generated from licence fees which surged to €2.7 million from only €0.5 million in the first half of 2007. RS2 concluded the sale of two new licenses in the first half of the year – one of €600,000 with Transworks LLC of New York and the other relating to the licence element incorporated in one of the Comprehensive Package Agreements. Apart from these two licenses, other license sales were made during the first six months for additional modules to existing clients including the BankWORKS Web contract in the Middle East.

During the recent Initial Public Offering, the Company’s Directors’ had forecast total revenue of €8.15 million during 2008. The actual first half results account for over 65% of total forecasted revenues.

Cost of sales increased to €2.05 million resulting in a gross profit of €3.3 million, 156% higher than the comparative period (June 2007: €1.3 million). Administrative expenses rose by 13.6% to €0.39 million while capitalised development costs (representing the capitalised expenditure on the development of the Company’s software solution BankWORKS) decreased by 35.1% to €45,651. This resulted in earnings before interest, tax, depreciation and amortisation (EBITDA) of €3.1 million; 124% higher than the figure for the first six months of 2007. The EBITDA margin surged to 57.7% compared to 49.2% in the first half of 2007 and well ahead of the Directors’ estimates of 48.9% for the full year. After accounting for depreciation & amortisation totalling €367,671 (2007: €363,030), the Company recorded an operating profit of €2.7 million representing a 168.5% rise over the same period last year. This corresponds to an operating profit margin of 61.6% (June 2007: 46.2%).

RS2 Software plc registered a 167.1% increase in its pre-tax profits to €2.6 million.  The Group recognised a tax expense of €0.27 million while in the first half of 2007 it provided for a tax credit of €26,351. As a result, profit after tax for the period under review is €2.4 million signifying a 133.7% increase when compared to the same period in 2007.

Total assets as at 30 June 2008 amounted to €16.1 million, 57% higher than the level as at 31 December 2007 mainly on a sharp rise in cash following the issue of 5 million new shares at €0.80 each during the May 2008 IPO. Shareholders’ funds increased significantly to €13.2 million. Based on the number of shares in issue as at 30 June 2008 amounting to 37,500,000 shares, the net asset value per share amounts to €0.352.

The Company registered significantly higher profitability ratios.  The annualised return on equity increased to 35.7% (2007: 24.6%) whilst the annualised return on assets progressed to 32.5% (2007: 19.1%).

Although the Directors state that the Company’s performance during the second half is not anticipated to match that of the first half since the sale of licenses materialised earlier in the year than anticipated, the Directors noted that they are very confident that the full-year forecast will be met.  At the time of the Initial Public Offering, the Directors had estimated a profit after tax of €3 million, placing the equity on a forward P/E of 9.6 times.

The main purpose of the increased share capital during the IPO was to set up a number of regional offices in order to strengthen its marketing activities and support services. The increased growth during the first half of 2008 is purely organic coming from the Company’s present structure. The setting up of regional offices in Jordan, Scandinavia and the US should provide further opportunities for growth in the years ahead.