Software continues to drive up the top-line

H1 resulted in another relapse in profitability, mainly related to the current transition phase. We actually believe that it is a matter of time before investments bear fruit at the bottom-line. The software division continued to show its potential, while the traditional activities slowed down.

Key H1 financial highlights

  • Revenue down by -6.3% to €9,131m
  • Gross profit came in at €5,752m, leading to a gross margin of 60.9% (+190bp yoy)
  • EBITDA decreased by 22% to €1,525m, as a result of lower gross profit, as well as higher personnel and start-up (software) costs
  • Profit before tax amounted to €542m (-18% yoy)
  • Net profit up by +35% to €438m

The figures confirm, once again, that the group’s decision to become a software provider was the right thing to do. The H1 sales growth was only attributable to the Software division (+11.7% yoy to €1,477m), offsetting by the traditional segments which were more challenging.

The terminals business finished the half year with a decrease in absolute figures. The division’s revenues were down by 13% to €3,517m, a substantial drop which follows already poor results in FY18. The reasons remain the same: a smaller number of contracts signed and an unfavourable product mix with cheaper terminals. Unfortunately for Keyware, these headwinds are likely to persist. It reflects the decreasing numbers of traditional retailers as they have been threaten by the growing numbers of online competitors.

For the first time, the authorisations division bore the cost of the terminal’s underperformance. The division saw lower commissions and a decreasing number of contracts that generate authorisation income. The segment’s sales were down by 5.5% to €4,137m.

While these traditional activities continue to be the company’s bread and butter, the development in software is a major step into further diversification from terminals. The division’s performance in H1 was actually mainly pushed up by EasyOrder. Keep in mind that this investment, as well as S-Token and Split, are at the beginning of the product life cycle, with significant potential for the coming years. However, the impact on the bottom-line remains uncertain in the short term, but being present in this type of market is today a necessity.

No major impact on our expectations for the moment, but we will keep a close eye on the software activities. We are confident that the investment to become a fintech specialist will continue to inflate the top-line. A return to profitability is expected in the medium term.

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