Challenges remain in the payment activity, but the positioning in the software business should make Keyware an important player for the near future.
In line with the 9m results, Keyware closed FY19 with negative top- and bottom-line growth. The group continued to face troubles during its transition phase as becoming a fully-fledged software developer (from a purely terminal provider before) can only be done by increasing structural costs. There is no doubt, however, that this is still the best thing to do to offset the declining payment terminals’ activity.
Difficulties in the payment business remain
The decreasing number of traditional retailers, threatened by the growing number of online competitors, obviously led to a decrease in the number of payment terminals and transactions in this segment. In 2019, revenue in the Payment Terminals division declined by 2% to 7,010k. However, this was at a lower declining rate than previously (-15.2% in FY18) thanks to an increasing number of start-ups in new sectors, an increase in the number of customers in the higher market segment and Keywares competitive positioning.
While, in this challenging environment, the Authorisation division has continued to contribute to the group’s growth for many years, for the first time in 2019 this was no longer the case. Sharper pricing of the offer and the fact that the number of transactions within the start-up segments are even lower compared to those in traditional retail outlets drove down revenue by 13.7% to 8,317k.
Software to drive future growth
Nothing to worry about when it comes to Software’s FY19 revenue. Sales decreased by 1.4% to 2,789k but this amount is net, after intersegment revenue of 342k. The business continues to contribute more and more to the groups activity (15.4% of total groups sales, vs. 14.4% in FY18), in line with Keywares strategy.
Signs of EBITDA recovery
On the profitability side, the group reported 180k EBITDA, down by 5.7% vs. last year. Paradoxically, we see this as a positive sign, as it is clearly an improvement compared to the beginning of the software integration (-14.7% EBITDA growth in FY18). Softwares development continued to weigh (especially due to the expansion of the sales department), but to a lesser extent. Authorisationss lower growth of profit was another factor in the decrease.
Trade receivables weigh on cash
The recurring relative weakness of Keyware was its strong negative WCR variations (mostly due to the massive needs in trade & lease receivables). With a delay in the collection of some trade receivables, cash and cash equivalents amounted to 1,187k vs. 3,520k in FY18. A large proportion of the overdue receivables have been, however, collected after the balance sheet date.
We will integrate the FY19 results and revise our forecasts for the next three years. The Software division will continue to inflate our top-line expectations. During FY19, we expect EBITDA improvements. A return to profitability is expected in the medium term.