Roundup of H1 earnings

Article #711 by Edward Rizzo - Published Weekly

At the beginning of last month, I published an article providing an overview of the financial results published by a number of companies at the start of the interim reporting season.

I had explained that the 2021 interim reporting season in Malta is a very important time in the financial calendar of the capital market since it will enable investors and financial analysts to assess the extent of any recovery being seen by certain companies and sectors following the sharp downturn in some industries last year due to the pandemic.

The interim reporting season started in the final days of July and came to an end on 31 August. During the past two weeks, a number of companies published their interim financial statements.

RS2 Software plc is the company that undoubtedly registered the sharpest growth in revenue during the first half of 2021. The interim financial statements show that RS2’s revenue surged by almost 70% during the first six months of 2021 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. 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 (H1 2020: operating loss of €2.9 million) and a pre-tax profit of €2.77 million compared to a pre-tax loss of €3.06 million in H1 2020.

Earlier this year, RS2 had published financial projections until 2023 as part of the prospectus issued in connection with the issuance of preference shares in February 2021. The interim results must be seen in the context of the substantial increase in revenue being anticipated by RS2 in the near term with revenue expected to rise to €42.5 million in 2021 and to continue to grow sharply to €68.4 million in 2022 and €102 million in 2023.

International Hotel Investments plc announced that revenues during the first half of 2021 declined by 33% to €34.6 million and EBITDA improved to negative €0.83 million compared to a negative figure of €2.13 million in the first half of 2020. IHI reported a pre-tax loss of €30.2 million compared to a pre-tax loss of €36.7 million in the first half of 2020. In a separate announcement also on 31 August, IHI noted that it submitted an application to the Malta Financial Services Authority requesting admissibility to listing of unsecured bonds redeemable in 2031. Subject to regulatory approval, part of the proceeds from the new bonds will be used to redeem the existing €20 million 5.8% unsecured bonds which are due to mature on 21 December 2021.

Meanwhile, last Friday IHI also announced that Corinthia Hotels Limited (which is a 100% subsidiary of IHI) and Dubai-based developer Meydan agreed a settlement to exit from their respective positions of hotel operator and investor on a luxury beachfront hotel and residential project in the Jumeirah Beach Residence area of Dubai following the project being taken over by new owners. IHI however also noted that it will shortly be announcing new hotel and mixed-use development projects in the Gulf region.

The prospectus that will be published in due course should regulatory approval be obtained for the proposed bond issue ought to provide important information to the market on the group’s expected performance during the second half of the year and other strategic initiatives being contemplated. Investors and financial analysts should also compare the latest forecasts to those provided in the Financial Analysis Summary dated 25 June 2021 when IHI had projected that total revenues during 2021 are expected to amount to €116.8 million with EBITDA at €11 million. IHI projected that it will incur a net loss of €37.1 million compared to the net loss of €75.6 million recorded in 2020.

MIDI plc reported that it generated a substantial increase in revenue in H1 2021 to €6.63 million mainly due to the sale of two apartments for €5.4 million. In addition, income from the ‘Property and Rental Management’ segment increased by 12.2% to just under €1.2 million in view of the lower amount of rent concessions to tenants compared to the corresponding period in 2020. MIDI reported a pre-tax profit of €1.63 million compared to a pre-tax loss of €0.88 million in the previous corresponding period. MIDI’s stakeholders eagerly await the outcome from the planning authorities regarding the two remaining projects, namely the Q3 development within the Tigné Point peninsula and the Manoel Island development.

MedservRegis plc published its interim results showing that revenues generated by Regis amounted to just over €6 million. The income statement however excluded the revenue of €12.7 million from the operations in the Mediterranean rim countries as well as the Middle East (reflecting the business of Medserv plc prior to the merger with Regis Holdings Ltd) given that the share-for-share exchange with Regis took place very close to the reporting date of 30 June 2021. Moreover, on a ‘combined’ basis, Medserv and Regis recorded an adjusted EBITDA of €2.9 million when excluding certain extraordinary impairment charges. In their commentary, the Directors explained that demand for energy increased in 2021 reflecting the improved economic outlook. Some of the largest energy projects scheduled for the coming five years are in the Middle East, Sub-Saharan Africa, Mediterranean rim countries and the Guyana/Suriname basin where MedservRegis is strategically positioned to service these projects both from a geographical perspective but, more importantly, from a quality service offering. Despite the current headwinds in the industry, MedservRegis explained that it is poised for growth and the driver for this is the significant economic development of the countries in which the Group operates in.

Following the conclusion of the interim reporting season for those companies with a December year-end (in fact Trident Estates plc and Simonds Farsons Cisk plc will be issuing their half-year financial report by the end of September), all companies should take on the initiative to publish an announcement before the end of the year to provide key highlights and trends during the third quarter of the year. While some companies have done so in the past, in my view this investor relations effort takes on added importance in current circumstances as investors continue to grapple with heightened uncertainty due to the ongoing impact of COVID-19 as well as Malta’s greylisting by the Financial Actions Task Force.

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Rizzo, Farrugia & Co. (Stockbrokers) Ltd, “RFC”, is a member of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This report has been prepared in accordance with legal requirements. It has not been disclosed to the company/s herein mentioned before its publication. It is based on public information only and is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The author and other relevant persons may not trade in the securities to which this report relates (other than executing unsolicited client orders) until such time as the recipients of this report have had a reasonable opportunity to act thereon.

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