On 11 August, RS2 Software plc published its interim results covering the first six months of 2016.
During the period under review, the RS2 Group reported a 2.6% decrease in revenues to €11.2 million (H1 2015: €11.5 million). On the other hand, however, the Group’s cost base (which mainly comprises cost of sales, administrative expenses and marketing and promotional expenses) rose markedly during the period under review to an aggregate of €7.7 million from €5.1 million in the first half of 2015, reflecting the Group’s increased efforts at strengthening its staff compliment (to meet customers’ growing demands), widening its marketing activities (which is resulting in a very healthy sales pipeline for the Group) and expanding in new geographic markets (a new subsidiary in Manila, Philippines has been established which will provide development and support services and as well as serve as a development centre for the Group’s headquarters in Malta). In addition, during the first half of 2016 RS2 was negatively impacted by foreign exchange fluctuations, particularly by the Pound Sterling, resulting in a comparative decrease of €1.4 million compared to the June 2015 results.
Accordingly, the operating profit of the Group shrank by 44.4% to €3.6 million (H1 2015: €6.5 million). After taking into consideration net finance costs of €0.2 million (H1 2015: net finance income of €0.1 million), the pre-tax profit of RS2 amounted to €3.4 million against €6.6 million in the comparable period last year. Given the reduced profitability of the Group, the tax charge decreased substantially to just under €1.0 million (H1 2015: €1.8 million), leading to a net profit figure (attributable to shareholders) of €2.5 million when compared to €4.7 million for the first six months of 2015.
The Statement of Financial Position shows a 2.1% increase in total assets to €35.9 million since 31 December 2015 largely reflecting the notable increase in trade and other receivables (+88.9%) which outweighed the 31.8% decrease in the Group’s cash balance. Conversely, compared to the 2015 year-end figures, total liabilities advanced by 8.8% to €10.2 million on account of a higher current tax payable of €2.7 million (H2 2015: €1.4 million). As a result, total equity of the Group retracted by a marginal 0.4% to €25.7 million.
Recent and Prospective Developments
In their commentary, the Directors explained that the six-month results of the Group were in line with expectations and on track for the full year reflecting RS2’s new commitments and the timing of securing these agreements. In fact, in the first half of 2016, RS2 continued to develop its business, build geographic presence and secure agreements with new customers. The Directors reiterated that the business continues to be on a strong growth trajectory with a good pipeline of opportunities across markets and business lines. Particularly with regards to the managed services clients, revenue from these contracts is expected to be generated over the coming months and years.
In addition, RS2 continued to invest in the capabilities required for expansion and have absorbed the short-term impact of unexpected currency fluctuations. The Group’s subsidiaries and physical presence in the Philippines and the United States provide a strong foothold in the respective markets from where the Group is able to attract the right players, in terms of customers and as well as strategic partners. Over the past months, the Group has made significant headway in the United States. This has been a direct result of the strong network established with reputable market players and individuals as well as the visibility gained through participating in industry events.
The Group has reached an important milestone in the development of its business in the US by securing sponsorship for its managed services business, which is essential for its operations. The United States market is ripe with opportunities for the Group as BankWORKS offers a high level of flexibility and modularity, which is lacking in legacy systems currently in use today.
RS2 is also currently actively pursuing new opportunities with partners in India and Vietnam to offer both licensing and managed services solutions. These markets show significant potential for growth in the payment industry and the Group is well positioned to take advantage of this opportunity.
The Directors stated that RS2’s sales pipeline across the different regions and across the two business lines is very healthy and conducive to successfully implementing the Group’s expansion strategy.
It is also noteworthy to mention that during Q2 2016, RS2 reached another milestone where on testing the Company determined to be able to process over 62 million transactions in just over an hour by using the massively scalable technology services. This breaks last year’s best benchmark result so far of processing 40 million transactions per hour.
The Directors did not declare an interim dividend given the further substantial investment required in the Group’s infrastructure and business development.