RS2 plc - Full-Year Results

On 29 April 2019, RS2 Software plc published its Annual Report & Financial Statements for the year ended 31 December 2018.

Performance Overview

During 2018, RS2 generated revenues of €25 million, representing a near 44% increase over the previous corresponding period. In this respect, the company explained that its international growth strategy is delivering results as RS2 expanded its presence in various regions, namely Latin America, the Asia-Pacific, Europe and North America. Furthermore, revenues were boosted by the reversal of €5.6 million from the equity reserves of the company following the implementation of new rules related to the IFRS15 Accounting Standard which, in this case, impacted the recognition of a term licence contract with an option to convert to perpetuity. In fact, licence fees surged to €9.72 million (representing almost 39% of total revenues) compared to €2.9 million in 2017. Solid growth was also registered in maintenance fees which soared by 47.2% to €2.85 million (2017: €1.94 million) whilst service fees increased by 1.5% to €11.5 million (2017: €11.3 million). On the other hand, revenues from comprehensive packages slipped by 6% to €0.74 million (2017: €0.78 million) whilst other income (including movements in foreign exchange activities) dropped to €0.07 million from €0.12 million in 2017.

On the expenditure side, total costs increased by 19.4% to €18.6 million (2017: €15.6 million) as the company continued to invest heavily in its administrative functions, secure high-talent HR and strengthen its infrastructural capabilities particularly in North America and the Philippines. Moreover, RS2 dedicated additional resources to marketing in a bid to increase the probability of securing new significant managed services businesses in the US, the Asia-Pacific and Europe. On the other hand, RS2 posted a €0.12 million reversal of impairment charges related to the recovery of previous trade receivables.

Excluding depreciation and amortisation charges, EBITDA climbed to €7.85 million compared to €2.9 million in 2017. Meanwhile, the financial performance of RS2 was also positively impacted by the reduction in net finance costs as these amounted to just €0.04 million compared to €0.39 million in the previous comparable period as the company paid-off more than half of its total borrowings which amounted to €1.86 million as at the end of 2017.

Overall, RS2 reported a pre-tax profit of €6.56 million compared to €1.23 million in 2017. After taking into account a tax charge of €3.32 million (2017: €0.61 million) and a loss of €1 million pertaining to minority interests, the net profit attributable to the shareholders of the company amounted to €4.25 million compared to €0.79 million in 2017. This translates into a return on average equity of 21.4% compared to 3.7% in the financial year ended 31 December 2017.

The Statement of Financial Position shows a contraction of 5.5% in total assets to €28 million largely driven by reductions in the amount of trade and other receivables and cash balances. Conversely, total liabilities increased by nearly 21% to €10.8 million mostly reflecting higher amounts of employee benefits and trade and other payables. As a result, shareholders’ funds contracted by just under 12% to €18.6 million.

Bonus Issue

In view of the investments contemplated by the company, the Board of Directors of RS2 resolved not to recommend the distribution of a cash dividend so as to utilise the funds to further expand the company’s business. On the other hand, the Directors are recommending for approval at the Annual General Meeting scheduled to be held on Tuesday 18 June 2019, a bonus issue of one new ordinary share for each eight ordinary shares held. Shareholders as at close of trading on Wednesday 15 May 2019 will be entitled to receive the new bonus shares. The bonus shares are expected to be admitted to listing on Wednesday 19 June 2019 whilst trading in the new bonus shares is expected to commence on Thursday 20 June 2019.

Outlook

In the 2018 Annual Report, both the Chairman as well as the CEO of RS2 explained that in 2018, the company continued to build up its managed services arm, expand its client base and service offerings as well as increase its presence in targeted geographic regions. Such achievements reflect the flexibility, performance, modularity and the deployment of RS2’s single platform globally which is being recognised by large acquirers in the market wishing to service their merchants worldwide using RS2 as their global partner.

Especially in the US, RS2 is gaining additional market awareness among top banks, acquirers, payment service providers (“PSPs”), independent sales organisations (“ISOs”) and independent software vendors (“ISVs”). In fact, RS2’s CEO Mr El Haj explained that the company has now built a notable potential client pipeline whilst existing clients are processing more volumes, consolidating their business and expanding into other territories through RS2’s platform. Moreover, RS2 is currently in contract negotiation with four customers to be boarded this year and is in very advanced stages of negotiations with another 5 potential customers. Mr El Haj also noted that RS2’s new clients are expected to contribute to substantial volumes of transactions in the years ahead which, together with existing contracts, are anticipated to exceed one billion by 2021.

In addition, RS2 has today positioned itself well in the market to unveil a new business pillar, namely the acquiring of direct merchants, in order to leverage its network and be able to offer a truly global acquiring service. In this respect, RS2’s CEO explained that this new line of business has the potential of generating significant additional revenue streams for the company and also place RS2 at the forefront of the fintech sector where new technologies are emerging. RS2 is also in the process of establishing its own financial institution license in Germany in order to manage the funding and settlement of its clients and be able to enter the issuing services directly by providing both virtual and pre-paid cards to local and multi-national merchants in 2020-2021. Meanwhile, RS2 is also preparing to launch services with its Alliance partner for the travel industry during Q3 2019, starting in Europe and following up in Latin America.

Download

RS2 Software plc – Annual Report & Financial Statements for the year ended 31 December 2018.