RS2 plc - Interim Directors’ Statement

On 22 January 2021, RS2 Software plc provided an update on the Group’s performance in 2020 and the expectations for the 2021 financial year. In this respect, RS2 explained that despite the world economic crisis and the challenges brought about by the COVID-19 pandemic, 2020 was a successful year for the Group as it managed to secure significant revenue contracts and transition a number of strategic clients across various regions in Asia-Pacific (“APAC”), North America, Europe and Latin America (“LATAM”) from implementation phase to live processing. The Group’s response to the pandemic was based on an agile management culture leveraged by a technology-based culture and preparedness to seamlessly switch over to home productivity with minimal disruption and no impact or interruption to business. Moreover, RS2 remained sufficiently liquid with a view of meeting all obligations as and when they fall due and continue with the implementation of its strategy.

RS2 noted that the payments market remains one of the brightest spots in the financial services industry as it represents substantial opportunities. Nonetheless, the industry has its own challenges arising from the unprecedented wave of consolidation with intensive merger and acquisition (“M&A”) activities, increased competition especially due to new entrants that significantly change the dynamics in the industry, as well as through regulatory initiatives that generate significant complexity including the likes of the Payment Services Directive II (“PSD2”) which is an EU directive designed to produce safer and more innovative payments services. As a result of these trends, payment companies began to invest heavily in their infrastructure to take a more active role in the digitalisation of the whole customer journey, by offering omnichannel solutions and venturing beyond their traditional role. These factors, combined with favourable economics, mean that the real breakthrough for the industry is yet to come. It is expected that the payment market will increasingly accelerate over the next decade and those companies which have the right strategy, executed by a strong management team, together with sufficient funding, will benefit from these trends.

Forecasts published by leading research institutes show that the pandemic should accelerate the digital transformation into augmented use of card payments and growth in non-cash payments. Although payment systems have proved to be resilient and reliable (as they have been in earlier crises), any projections on industry performance rest on assumptions surrounding overall economic activity. The COVID-19 pandemic can indeed be an accelerator for card payments globally with the right triggers in place from governments, retailers, and consumers.

In this context, during 2020, RS2 executed strategic milestones to increase its customer base and diversify its global business across various regions:

• In LATAM, the Group continued to expand its customer base and rolled out its omnichannel acquiring services to new clients in Brazil where, in 2021, RS2 expects to process just over 200 million transactions. Elsewhere, in Argentina, RS2 has enabled its services to one of its existing customers in the region to start its merchant acquiring whilst in Columbia, together with its Partner MOVII, the Group went live with e-commerce acquiring and will kick-off POS acquiring in Q3 2021.
• In North America, the Group concluded major processing outsourcing agreements with various payment providers such as ‘Independent Sales Organisations’ (“ISOs”) and ‘Payment Facilitators’ (“PayFacs”). In addition, RS2 signed one of the largest banks in the United States on a hybrid licensing and processing model. This will take revenue generation for the Group to a new level as this client has recently concluded its initial implementation.
• In APAC, the Group added other major outsourcing clients across various countries including Singapore, whilst in Indonesia, RS2 will be providing outsourcing services to a financial institution for issuing and acquiring. These clients will increase RS2’s APAC customer base, adding to its current customers in New Zealand, Philippines and Vietnam.

RS2 also explained that through its recent investments in quality relationships with new premium clients, the Group experienced an increase in the volume of transactions processed on its platform during 2020 when compared to the prior year. This growth is expected to progress further with the gradual increase from RS2’s current clients as well as the on-boarding of new clients. Furthermore, in 2020, the Group continued to invest in human resources to support the framework of its new acquiring business line in conjunction with the process undertaken to obtain the financial licence through BaFin which is the German financial regulator.

Overall, RS2 continues to concentrate on implementing and delivering its strategy around its main business pillars of growing and expanding the managed services business, ramping up the US expansion, and building its own direct acquiring business. The Group reasonably expects to experience growth in consolidated results for 2021, notwithstanding the current economic challenges resulting primarily from the COVID-19 pandemic. By the end of 2021, RS2 aims to have achieved important developmental milestones in key business areas pursued as it continues to enhance its platform globally with a view of on-boarding more businesses which target large financial institutions, ‘Independent Software Vendors’ (“ISVs”), PayFacs, and merchants from various industries globally. This is done by providing issuing and acquiring processing services throughout Europe, Middle East, North America, Latin America and Asia Pacific, covering various industries while reducing the cost of the BankWORKS® platform (RS2’s internally developed software solution) infrastructure. The success of the Group is empowered through the uniqueness of BankWORKS® which offers one single platform deployed on the cloud covering all payment channels and which allows its customers to transact globally through one single Application Programming Interface (“API”).

In conclusion, RS2 referred to the recent changes in its ‘Memorandum of Association’ whereby the Group increased its authorised ordinary share capital from 200 million ordinary shares to 240 million ordinary shares and also created a new class of 60 million preference shares. The increase in the authorised share capital would provide the Group with the capacity and flexibility needed to further increase its issued share capital in the near future to react in a timely manner to opportunities and be able to bring on board strategic investors which will enhance shareholder value, if and as needed. The increase in the ordinary share capital and the creation of the new preference shares was done in order to enable the planned growth, including, any necessary enhancement of the Group’s BankWORKS® platform, further investment in North America and in the new acquiring business line, expanding the sales force to the various lines of businesses, as well as selected M&A activities. Whilst the Group recognises the prevailing volatile economic environment and the risk of unforeseen events that could impact it, RS2 looks towards 2021 with optimism as it expects to reap the benefits on the investments it has made in prior years and show markable top-line growth and improved profitability in the years to come.