RS2 plc - Interim Results
On 17 August 2021, RS2 Software plc published its condensed interim financial statements for the six-month period ended 30 June 2021.
Performance Overview
During the first six months of 2021, revenues surged by almost 70% to €18.3 million (H1 2020: €10.8 million) on the back of the considerable increase in business across all business segments. Revenues related to the sale of licences grew by 49.1% to €8.8 million whilst income from ‘Processing Solutions’ doubled to €8.65 million. Meanwhile, sales from RS2’s newest business segment – ‘Merchant Solutions’ – also increased substantially to €0.9 million compared to €0.62 million in H1 2020. In terms of geographical performance, Europe and North America remained the largest revenue contributors of the Group. In Europe, revenues increased by just over 20% to €8.54 million mostly due to the growth in both ‘Licensing Solutions’ and ‘Processing Solutions’. On the other hand, sales generated in North America climbed to €8.17 million compared to €2.85 million in the corresponding period in 2020, reflecting the Group’s expansion and increased market presence especially in the US.
On the expenditure side, net operating costs increased by 13.3% to €15.6 million (H1 2020: €13.7 million) mostly due to the higher level of cost of sales, administrative expenses, and provisions which amounted to €0.95 million (H1 2020: €0.05 million). In this respect, RS2 noted that during the second quarter of the year, it was informed of a claim entered into by one of its customers in relation to an incident in production. In order to take a prudent approach, and despite the early stages of the dispute, RS2 took a provision of 50% of this claim.
Excluding depreciation and amortisation charges, EBITDA amounted to €3.88 million (translating into an EBITDA margin of 21.2%) compared to the negative EBITDA of almost €2 million recorded in H1 2020. Similarly, RS2 posted an operating profit of €2.78 million during the period under review compared to the operating loss of €2.9 million in the first half of 2020.
Net finance costs dropped markedly to below €0.01 million as the Group reduced its bank borrowings markedly following the issuance of almost 9 million new preference shares, part of the proceeds of which were used for the repayment of most of RS2’s bank borrowings.
Overall, the Group posted a pre-tax profit of €2.77 million compared to a pre-tax loss of €3.06 million in H1 2020. After accounting for a tax charge of €1.54 million and a net profit of €0.13 million related to minority interests (namely the operations of RS2 Software Inc. in the US), the net profit for the period under review amounted to €1.09 million (H1 2020: net loss of €2.3 million).
The Statement of Financial Position as at 30 June 2021, compared to the corresponding figures as at 31 December 2020, shows that total assets grew by 22.5% to €46.7 million as the drop in trade and other receivables was outweighed by the higher values of cash balances (+€4.96 million to €11.8 million), accrued income and contract costs, intangible assets and goodwill, and property, plant and equipment. In contrast, total liabilities contracted by 25.5% to €23.1 million mostly due to decline in bank borrowings to just over €2 million (31 December 2020: €9.7 million). As a result, shareholders’ funds more than doubled to €28.3 million (31 December 2020: €11.7 million) also reflecting the inclusion of the new preference shares as part of the Group’s equity base.
Outlook
In their commentary, the Directors of RS2 explained that after obtaining the EMI licence from BaFin (which is the Federal Financial Supervisory Authority in Germany) in May 2021, the Group can now manage merchant funding, provide acquiring services and issue payment instruments. The EMI licence will result in a substantial change in the revenue model of RS2, from dependence on one-time licence fees to ongoing and recurring revenue based on the number and value of transactions processed. The Group is targeting to begin offering its services in this regard as from 2022.
Looking ahead, RS2 will continue strengthening its sales capabilities and drive investments into infrastructure in order to sustain its growth trajectory. This will especially be the case in the US where the Group is achieving significant revenue growth albeit at a slower pace than previously anticipated. Nonetheless, RS2 reiterated that it will continue to see substantial growth over the coming years as the payment industry’s stability will continue to play an invaluable role in rebooting the global economy.
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