RS2 Software plc - Interim Results

On 28 August, RS2 Software plc published the half-year results covering the first six months of 2012. During the first half, RS2’s revenue dropped 24.6% to €3.57 million given that, during 2011, the more significant licence agreements were concluded in the first half of the year. The Directors noted that the timing of the conclusion of new licence agreements may influence, positively or negatively, the performance of the Group in any given period. Moreover, the Directors revealed that RS2 is currently in an advanced stage of negotiations for the sale of more licences in Europe, North America and Latin America, which are expected to be concluded by the end of the year.

Although cost of sales declined by 3.4% to €2.49 million, the larger decline in revenue led to a 49.8% drop in gross profit to €1.09 million. Similarly, the gross profit margin dropped to 30.4% compared to 45.7% in the first half of 2011 reflecting the higher margins on licence sales.

Marketing expenses increased by 51.5% to €0.26 million reflecting the increased activities relating to the promotion of RS2’s BANKWORKS brand. Similarly, administrative expenses also rose by 16.2% to €0.57 million following additional costs to invest in and retain staff as well as increases in expenses related to the new premises in Mosta, including depreciation.

The financials also reveal €0.17 million in capitalised development costs confirming the Group’s commitment to continue investing in the BANKWORKS platform. The income statement also included other net income of €111,388 compared to other net expenses of €138,591 reported for the six months ended 30 June 2011.

Net interest expenses amounted to €3,819 compared to the net interest income of €32,824 registered in the previous comparable period. The decline reflects the higher finance costs in line with the increase debt levels which RS2 is using to fund the development of the new premises in Mosta.

Overall, the pre-tax profit of RS2 for the period under review amounted  to €0.53 million representing a 66% drop from the previous year’s comparable figure. After accounting for a tax credit of €0.6 million (reflecting RS2’s commitment to invest in the business) and €64,919 in minority interest (relating to the 74% shareholding of the US subsidiary, Transworks LLC, not owned by RS2), the net profit figure for the period amounted to €1.2 million representing a 12.6% drop from the comparable figure of last year.

Dividend

Due to the further substantial investment in infrastructure and business development, the Directors did not declare an interim dividend.

New Subsidiary

During the period under review, RS2 continued with its efforts to set up a new subsidiary which will be offering managed services. The Directors explained that industry developments are creating an increased demand for managed services and RS2 is placed in a strong position to offer such services by making use of its BANKWORKS platform. This new service will diversify the Group’s revenue stream as well as introduce a regular income on a per-transaction basis as opposed to the one-time licence fees. This should smoothen the Group’s revenue and performance as a whole.

New Premises in Mosta

The half-year report revealed that the new Mosta premises are now fully operational with all resources in Malta operating from the new head office.

Outlook

Given the potential new licence agreements to be concluded in the second half, the Directors expect the performance of the second six months of 2012 to show an improvement on the results of the period under review. As such, the Directors believe that 2012 will once again prove to be a successful year for RS2.

Download a copy of the RS2 Software plc 2012 Half-Year Report