Tighter regulation weighs on TechFinancials’ earnings in H1 2018

The first half of 2018 was pretty challenging for TechFinancials Inc (LON:TECH), which has earlier today posted its Unaudited Interim Report for the six months ended June 30, 2018.

Tighter regulation continued to impact the Group’s traditional business throughout markets across the world, including Asia. As previously announced in February 2018, the company made the decision to close OptionFair and to return the licence to Cyprus Securities and Exchange Commission (CySEC), which means that it no longer has a presence in any European markets.

With regards to the TechFinancials’ B2C joint venture in the Asia Pacific region, DragonFinancials, this business also registered a sharp decline in both revenue and profit, primarily due to the tightening of regulations. Net profit from DragonFinancials, in which TechFinancials holds a 51% stake, decreased by 87% to US$ 0.27 million. No dividends were paid by DragonFinancials to TechFinancials for the period.

The Group’s turnover in the first six months of 2018 decreased to US$ 3.78 million compared to US$ 6.97m million in the equivalent period a year earlier. Revenues in the core software licensing business on a standalone basis decreased by 70% to US$ 1.07 million from US$ 3.58 million, mainly due to the stricter regulation in the industry that continued to reduce trading volumes, and the termination of customers’ agreements and a reduction in the license services provided to DragonFinancials. The trading platform revenues decreased by 59% to US$1.56 million from US$ 3.77 million in the first half of 2017.

Gross profit fell 46% to US$ 2.63 million from US$ 4.87 million in the first half of 2017, predominantly due to the reduced revenues of the group. The gross margin in the period remained at 70% thanks to the high margin contribution from the blockchain trading activity, which compensated for the decreasing margin of the core software licensing business.

The operating loss for the period was US$ 0.85 million (H1 2017: profit of US$ 0.56m); the decrease in the profit is due to revenues reducing quicker than expenses, where the administrative overheads expenses were partly higher, whilst other operating expenses decreased in line with the decrease in revenues compared to the first half of 2017.

On the brighter side, the new blockchain trading technology segment generated revenues of approximately US$ 1.3 million .

The Group recognized a one-off item of financial income of US$ 9.49 million arising from the fair value of the option it holds to acquire an additional 90% in Cedex. This resulted in a profit before taxation of US$ 8.52 million (H1 2017: US$ 0.28m) and a profit after taxation of US$ 8.49 million (H1 2017: US $0.22m).

The profit after taxation for the period attributable to Shareholders of the Company was US$ 8.36 million (H1 2017: loss of US$ 0.79m).

The EBITDA loss attributable to the Shareholders of the Company was US$ 0.73 million, compared to a loss of US$ 0.17 million a year earlier.

The company did not provide any update on how (and whether) its fortunes have changed since its shares started trading on the NEX Growth Market in August this year. The company reiterated back then that the listing of its Ordinary Shares on NEX is entirely complementary to its AIM listing and it plans to remain trading on AIM following Admission.