RS2 Software plc - Full-Year Results

Friday, April 29th, 2016

On 28 April, RS2 Software plc published its preliminary financial statements for the year ended 31 December 2015.

Performance Overview

During the year under review, RS2 registered a 27.5% increase in revenue to a record €19.4 million (2014: €15.2 million) largely reflecting the 43% increase in services fees as well as licences sold to new and existing clients. In 2015, revenue derived from service fees and licence fees amounted to 62% and 20% of total Group revenues respectively. Additionally, maintenance fees increased by 32% with new maintenance agreements commencing as implementations are completed. Furthermore, one of the Group’s clients terminated its comprehensive package agreement and shifted to a maintenance agreement. On the other hand, this action led to a 19% reduction in revenues generated from comprehensive packages.

In view of the higher level activity of the Group, cost of sales increased by 19.7% to €10.0 million largely reflecting increased wages as well as other services received by the Group during the year. This led to a gross profit figure of €9.39 million, representing a 37.1% increase over the previous year’s comparable figure. Given the larger increase in revenue than in cost of sales, the gross profit margin advanced by 3.38 percentage points to 48.3% (2014: 44.9%).

Administrative expenses also increased by 24.2% to €2.53 million (2014: €2.04 million), mainly reflecting the additional human resources cost, software licence fees, higher travelling expenses (as a direct result of the global expansion efforts), sales and marketing (+68%) as well as depreciation. The announcement also noted that the Group more than doubled its efforts on enhancements to the BankWORKS® platform which resulted in a 121% increase in capitalised development costs.

During 2015, RS2 was positively impacted by fluctuations in foreign currency movements. On the other hand, the Group recognised a €1.2 million net impairment losses on trade receivables relating to the default on receivables from two particular clients despite the Group’s various efforts to recover such balances. Nonetheless, the preliminary profit statement noted that the Group’s client base remains strong and diverse, and although the amount of the impairment loss is substantial, it has no bearing on the Group’s ability to meet payments when due, future operations and growth plans.

Overall, the RS2 Group registered a 42.9% increase in operating profit to €6.59 million (2014: €4.6 million). Excluding the depreciation and amortisation charge of €1.69 million (2014: €1.52 million), the Group’s earnings before interest, tax, depreciation and amortisation (EBITDA) amounted to €8.28 million, representing a 35.1% increase over the previous year’s comparable figure. Similarly, the EBITDA margin improved by 237 basis points to 42.6%. Eliminating the effect of the impairment loss, the EBITDA figure would have increased to €9.5 million.

Net finance costs decreased by 70.0% to just €0.13 million compared to €0.42 million in 2014 largely reflecting the 58.8% drop in finance costs given that the cost of amortisation of long-term receivables recognized in 2014 was not repeated this year. The amortization cost of receivables recognized in 2015 is being unwound over time whilst part of the figure is being netted off against the impairment loss described above.

Overall, the 2015 pre-tax profit of RS2 amounted surged by 54.2% to €6.46 million (2014: €4.19 million). After accounting for a tax charge of €1.61 million (2014: €1.41 million) and minority interest, the Group’s net profit amounted to €4.87 million compared to €2.88 million in the previous financial year. This translates into an earnings per share of €0.054 (2014: €0.032).

The Statement of Financial Position shows a 9.4% increase in total assets to €35.19 million mainly due to the 59.1% increase in the Group’s cash balance to €7.19 million as well as a 49% increase in accrued income to €7.2 million. Meanwhile, total liabilities only increased by 1.38% to €9.35 million (2014: €9.22 million). Accordingly, the Group’s total equity increased by 12.7% to €25.85 million (20141: €22.9 million) which translates into a net asset value per share of €0.287 (2014: €0.255). The post-tax return on average equity increased by 630 basis points to 18.8% (2014: 12.5%) and the post-tax return on average assets advanced by 524 basis points to 14.5% (2014: 9.2%).

Dividend

The Directors recommended a final net dividend of €0.0278 per share compared to the €0.0222 dividend per share paid out in respect of the 2014 financial year. Shareholders as at close of trading on Thursday 19 May will be entitled to receive this dividend on Thursday 30 June subject to shareholders’ approval at the upcoming Annual General Meeting scheduled to be held on Thursday 23 June.

Bonus Issue & Share Split

The Directors also recommended a bonus share issue of 1 new share for every 18 shares held which will be funded through the capitalisation of €0.5 million of reserves. Shareholders as at the close of trading on Thursday 19 May 2016 will be eligible to receive the bonus shares.

In addition, subject to obtaining all regulatory consents and authorisations, the Directors are proposing a 5 for 3 share split to be allotted proportionally to shareholders as at close of trading on Thursday 30 June. The Directors noted that the proposed share split is expected to improve the marketability and liquidity of the shares of the Company as a result of the increase in the number of shares in issue.

Download

RS2 Software plc – Preliminary profit statement for the year ended 31 December 2015.

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