RS2 Software plc - Full-Year Results

On 13 April, RS2 Software plc published its 2011 full-year results revealing a 17.2% increase in revenue to a record €8.8 million mainly due to the rise in licence fees during the year following growth in the customer base and additional licensing requirements of existing clients. The growth in business activity inevitably led to a 6% increase in cost of sales to €4.8 million. This increase mainly relates to higher employee costs and subcontracting expenses to increase the Group’s capacity in line with the additional demand for its services during the period under review. Nonetheless, the growth in revenue outweighed the increased costs of sales leading to an improved gross profit margin of just below 45% (2010: 39.2%).

RS2 Software also incurred a 48.3% rise in administrative expenses to €1.4 million which were partly offset by reductions in marketing and promotional expenses to €346,813 in 2011 from €462,612 in 2010.  Furthermore, capitalised development costs increased by 15.5% to €361,410 reflecting the Company’s commitment to maintain its BANKWORKS solution up-to-date with industry requirements and technological advances. After accounting for other income (€101,605) and other expenses (€261,909), RS2’s operating profit amounted to €2.37 million, representing a 51.4% rise over the previous year’s figure. This improvement was also reflected in a higher operating profit margin of 26.9% compared to 20.8% in the previous year.

Similar to previous years, interest income outweighed interest expenses leading to net interest income of €7,713. During 2011, RS2 raised over €3 million in bank borrowings to mainly finance the acquisition from a third party of the rights to promote, market and sell BANKWORKS in Scandinavia. The consideration mainly related to the full settlement of all outstanding commissions payable to the third party. Following this acquisition, the Directors explained that RS2 will benefit from a reduction in commission payable from 2012 as the Group now holds the exclusive rights to market its BANKWORKS software worldwide.

Pre-tax profit jumped by 46.8% to €2.4 million whilst net profit dropped by 15.7% to €2.4 million after accounting for a tax charge of €101,666 in contrast to the €993,692 tax credit recognised in 2010. The Directors explained that the tax charge does not represent a cash payment but is only the result of accounting rules. Moreover, RS2 noted that it still has an outstanding balance of €2.6 million of unutilised tax credits which will be used to relieve future income tax payable. This balance will continue to increase in future years as the Group undertakes further investment in its BANKWORKS software as well as its new premises in Mosta.

In the preliminary statement, the Directors also provided an update on developments at the US subsidiary, Transworks. It was revealed that the US subsidiary has now managed to secure sponsorship by a prominent bank in the United States which will enable Transworks to start offering its processing services to new clients as from the second half of 2012.

Despite the improved profitability, the Directors decided not to recommend a final dividend in order to preserve the Company’s cash balances in view of the planned additional investment in the new premises in Malta. The Directors explained that the first phase of the new head office (housing the core development centre, project management team and finance, administration and marketing departments) is well underway with the administrative wing already in use while the rest of the project is expected to be completed by the third quarter of 2012. Furthermore, the Company is already planning the second stage of this development which will provide the necessary infrastructure for RS2 Software to start offering new services worldwide, namely transaction processing and managed services.

The Directors proposed a 1 for 15 bonus share issue, funded through the capitalisation of €500,000 from the share premium reserve, to all shareholders as at close of trading on Tuesday 8 May. The bonus issue will be presented to shareholders for approval at the next Annual General Meeting (scheduled to be held on 12 June) along with other resolutions including a proposed increased in the Company’s authorised share capital from the current 40,000,000 shares of a nominal value of €0.20 per share to 50,000,000 shares of a nominal value of €0.20 per share.

Download a copy of the RS2 Software plc 2011 Preliminary Results