Strong revenue growth, but profitability still impacted by the transition phase
Strong revenue growth, but profitability still impacted by the transition phaseEARNINGS/SALES RELEASES
Currently in a transition year, the group has reported growing H1 revenue but profit, although positive, was lower than in H1 17. Keyware’s revenue was pushed by the Authorisations division, which is still performing well, and the Software division, which has started to show its potential.
FACT
Keyware reported +8.1% yoy revenue growth to €9,742k (+€732k yoy). The Terminal division’s revenue decreased by 12% yoy, from €4,588k in H1 17 to €4,039k in H1 18. This was offset by the main revenue contributor, the Authorisations division, which reported €4,381k revenue (+6% yoy). The Software division showed the most impressive revenue growth (+1,512% yoy) to €1,322k, which is explained by the integration of Magellan that was not yet consolidated in H1 17.
The gross margin significantly reduced compared to the previous year (-11bp yoy), with a 58% decrease in profit before taxes (€660k). This was explained by the lower financial results (€-69k) and more by the lower operating profit (-74.4% yoy) to €294k. The integration of Magellan in the H1 18 figures has pushed down the results, due to additional staff costs and services and higher depreciation and amortisation costs.
ANALYSIS
A decreasing Terminal division offset by a growing Authorisations activity
The Terminal division has followed the 2017 decreasing trend and will continue further. The competition remains strong and e-commerce developments directly impact the number of terminal sales. This rising penetration of internet and mobile payments has lowered the number of POS terminals in circulation.
While the number of terminals is going down, the number of transactions on these terminals continues growing. This explains the revenue growth in the Authorisations division. The significant number of non-cash transactions and the democratisation of contactless payments largely contribute to this trend.
Strong development of the Software division
The transition phase from a hardware supplier to a software developer is going well, with the progressive integration of Magellan (H2 17) and EasyOrder (H1 18). Although the results have been affected by higher costs linked to these two recent acquisitions, we expect that this will be largely compensated by the software sales growth in the following years. This division currently represents a niche market with significant growth potential that will be a lever to boost profitability.
IMPACT
We have slightly increased our expectations for FY 18 and the following years, as the consolidation of Magellan and EasyOrder will inflate our top-line expectations. We believe that, despite start-up costs negatively impacting the group in the short term, the transition phase will not take long and Keyware should be able to improve its profitability.
Keyware Technologies NV. Keyware Technologies NV is a Belgium-based independent network service provider that offers electronic payment solutions. It is engaged in the: personalization, programming, installation, maintenance, rental and sale of fixed, portable and mobile payment terminals; implementation of payment transactions using Visa, MasterCard, Maestro, Amex, V-Pay, and JCB, among others; payment services for electronic-commerce and mobile-commerce; solutions for loyalty cards, as well as development and management of its payment transaction platform. The Company operates in two segments: Payment Terminals, engaged in the rental of terminals, the sale of payment terminals, installation of payment terminals, revenues related helpdesk and revenues relating to on-site interventions, as well as Payment Authorization, engaged in income related payment transactions and authorization services, transaction management for third parties, as well as loyalty processing and analysis services, among others.
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