RS2 Group registers pre-tax profits of €4.2 million

During 2014, RS2 continued to build on the momentum of the previous year and delivered another very positive performance.

Total revenue increased by just under 8% to €15.2m. Consistent with prior years the revenue is composed of licence fees for the use of BankWORKS, maintenance fees, service fees and processing fees.

In comparison with 2013, licence fees have decreased by 46%. This decrease is mainly attributable to the nature of the licence agreements entered into with our clients. During 2014 we managed to secure our largest contract to date, with a total value of €16.5m, of which licence fees amount to €12m and service fees amount to €4.5m.

Due to the nature of this agreement, being a term licence, the Group did not recognise the full licence fee during the year, with the remaining licence fee to be recognised over the coming years.

It is important to highlight that the recognition of licence fees which is dependent on the nature of the agreement as well as IFRS requirements may lead to variations in revenue and therefore in profit and profit margins.

The decrease in licence fees is more than made up for by an increase of 84% in service fees, across the group. In 2014 we also registered an increase of 26% in processing fees generated by our subsidiary RS2 Smart Processing. During the year, the subsidiary continued to attract new clients and prospects, with two new clients obtained during the year. Revenues from these new clients will start to be earned over 2015.

The pipeline is very healthy and we are currently in the process of negotiating further contracts.

Gross profit of the Group for the year stands at 45%, a reduction of 3% when compared to 2013. This is attributable to an increase on cost of sales mostly comprised of increases in salaries as we continue to boost our staff complement to meet the existing and anticipated demand of our clients.

The Group’s administrative expenses show an overall decrease of 8% when compared to 2013. There have been generic increases in administrative expenses commensurate with the increases in our operations, however these have been offset by a decrease in the notional cost of share options granted to our employees accounted for in 2013 and which was not repeated in 2014.

Other income is mainly composed of realised and unrealised exchange gains on balances receivable and payable, while other expenses are mostly composed of provisions for impairment of balances receivable and of obsolete assets.

Earnings before interest, tax, depreciation and amortisation (EBITDA) of the Group for 2014 amounts to €6.1m, which represents an increase of 7% over 2013.

In 2014, the Group had an income tax expense of €1.4m, which is made up of €1.3m in current tax charge and €0.1m in deferred tax charge, the latter being a non-cash item. 2014 is the first year in which the Group will be paying income tax in cash since it has made full use of the investment tax credits brought forward from prior years.

New investment tax credit on investment carried out during the year was accumulated, however this was also fully used up by the income tax payable, leaving a tax balance of €1.4m payable in cash.

The amount of income tax that would have been payable in the absence of such investment tax credit, would have been €1.9m. Nevertheless, we highlight that there is still a significant balance of profits that have been relieved from tax by way of investment tax credit in the past and which remain tax free in the hands of the shareholders when distributed as dividends.

The balance sheet remains strenghtened, with a total equity attributable to our shareholders of €23m, an increase of €1.4m over 2013. Cash generated from operations remains very strong with a cash balance of €4.5m at the end of the year.

Mario Schembri, Chairman of RS2 Software plc stated that “the Group has completed another successful year’s business. This bears witness to the management’s unrelenting efforts to offer the best possible solutions to our clients by further enhancing an already-proven product, BankWORKS, and a staff complement that has shown absolute dedication and professionalism in their approach to their work and to the needs of our clients.”

CEO Radi El Haj commented, “Our aim is to continue with our growth to achieve our ambitious goals by continued enhancement and the implementation of our strategy. As we grow, we want to be sure that our clients remain at the centermost position in our company.

"We will continue investing in our BankWORKS software and technology; it is used by our customers to process the business of more than 8 million merchants, and issued over 350 million cards.”