RS2 Software Plc

Report Publication Announcement • Apr 13, 2012

RS2 Software p.l.c. COMPANY ANNOUNCEMENT

The following is a company announcement issued by RS2 Software p.l.c. pursuant to the Malta Financial Services Listing Authority Rules – Chapter 5.

Quote

At the meeting held on 13 April 2012, the Board of Directors of RS2 Software p.l.c. approved the financial statements for the financial year ended 31 December 2011. The Board resolved that these financial statements be submitted for the approval of the shareholders at the forthcoming Annual General Meeting which is scheduled for Tuesday, 12 June 2012.

Shareholders appearing on the shareholders' register as at the close of business on Friday, 11 May 2012 will receive notice of the Annual General Meeting, together with the Annual Report and Financial Statements for the financial year ended 31 December 2011. The preliminary statement of results that is attached herewith was extracted from the financial statements that were audited by KPMG.

In view of the investments contemplated by the Company, the Board resolved that it was not recommending a distribution of a dividend, so as to utilise funds to expand the business of the Company, particularly the transaction processing and managed services.

The Board further resolved to recommend for approval at the Annual General Meeting, a bonus share issue of one (1) share for every fifteen (15) shares held which will be allotted to shareholders on the Company's share register as at close of business on Friday, 11 May 2012. The bonus issue will be funded by capitalising €500,000 from the share premium reserve of the Company. Application will be made for the necessary authorisation concerning the listing of the shares on the Malta Stock Exchange.

The Board further resolved to recommend for approval at the Annual General Meeting, an increase of its Authorised Share Capital from €8,000,000 divided into 40,000,000 Ordinary Shares of a nominal value of €0.20 each to €10,000,000 divided into 50,000,000 Ordinary Shares of a nominal value of €0.20 each.

Pursuant to the Malta Stock Exchange Bye-Laws, the shareholders' register as at close of business on Friday, 11 May 2012 will include trades undertaken up to and including Tuesday, 8 May 2012.

Unquote

Dr Ivan Gatt Company Secretary

Statements of Financial Position

As at 31 December 2011

	The Group		The Company
	2011	2010	2011	2010
Note	€	€	€	€
Assets
Property, plant and equipment 12	5,178,973	4,211,118	4,983,899	3,976,788
Intangible assets 13	8,908,374	6,268,561	7,463,711	4,869,633
Deferred tax assets 14	1,059,920	1,141,316	1,059,920	1,141,316
Investments in subsidiaries 15	-	-	905,542	905,542
Other investment 16	218,978	218,978	218,978	218,978
Loan receivable from other
related parties 17	815,533	381,252	815,533	381,252
Total non-current assets	16,181,778	12,221,225	15,447,583	11,493,509
Trade and other receivables 17 Loans and receivables from related	2,803,935	2,647,728	2,787,678	2,552,370
parties 17	542,024	713,451	1,388,857	1,369,862
Prepayments	128,374	109,706	125,104	96,868
Accrued income 18	2,178,731	2,029,598	2,178,731	2,029,598
Other Investments 16	1,027,900	2,808,978	1,027,900	2,808,978
Cash at bank and in hand 19	1,666,195	1,851,808	1,628,216	1,805,150
Total current assets	8,347,159	10,161,269	9,136,486	10,662,826
Total assets	24,528,937	22,382,494	24,584,069	22,156,335

18

The Notes on pages xx to xx are an integral part of these financial statements

Statements of Financial Position

As at 31 December 2011

	The Group		The Company
	2011	2010	2011	2010
	Note €	€	€	€
Equity
Share capital	20 7,500,000	7,500,000	7,500,000	7,500,000
Reserves	20 3,767,055	3,852,410	3,722,115	3,827,345
Retained earnings	20 5,430,753	4,131,473	5,591,127	4,266,156
Total equity attributable to
equity holders of the Company	16,697,808	15,483,883	16,813,242	15,593,501
Non-controlling interest	76,878	224,394	-	-
Total equity	16,774,686	15,708,277	16,813,242	15,593,501
Liabilities
Bank borrowings	22 4,328,002	1,973,229	4,328,002	1,973,229
Derivatives	22 151,137	-	151,137	-
Total non-current liabilities	4,479,139	1,973,229	4,479,139	1,973,229
Bank borrowings	22 926,875	264,887	926,875	264,887
Finance lease obligations	23 -	75,299	-	-
Trade and other payables	24 1,165,810	2,267,961	976,612	2,227,798
Accruals Deferred income	25 226,683 25 955,744	1,229,517 863,324	432,457 955,744	1,233,596 863,324
Total current liabilities	3,275,112	4,700,988	3,291,688	4,589,605
Total liabilities	7,754,251	6,674,217	7,770,827	6,562,834
Total equity and liabilities	24,528,937	22,382,494	24,584,069	22,156,335

19

The Notes on pages xx to xx are an integral part of these financial statements

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Statements of Changes in Equity

For the year ended 31 December 2011

THE GROUP

	Attributable to equity holders of the Company
	Share capital €	Share premium €	Translation reserve €	Fair value reserve €	Statutory reserve €	Share option reserve €	Retained earnings €	Total €	Non controlling interest €	Total equity
Balance at 1 January 2010	7,500,000	2,792,734	(65,601)	41,209	86,668	-	2,967,675	13,322,685	436,443	13,759,128
Comprehensive income for the year Profit or loss	-	-	-	-	-	-	2,861,431	2,861,431	(248,095)	2,613,336
Other comprehensive income Foreign currency translation differences	-	-	90,666	-	-	-	-	90,666	36,046	126,712
Net changes in fair value of available-for-sale financial assets Net change in fair value of	-	-	-	37,814	-	-	-	37,814	-	37,814
available-for-sale financial assets transferred to profit or loss	-	-	-	(3,713)	-	-	-	(3,713)	-	(3,713)
Total other comprehensive income for the year	-	-	90,666	34,101	-	-	-	124,767	36,046	160,813
Total comprehensive income for the year	-	-	90,666	34,101	-	-	2,861,431	2,986,198 (212,049)		2,774,149
Transactions with owners recorded directly in equity Dividend to equity holders	-	-	-	-	-	-	(825,000)	(825,000)	-	(825,000)
Transfer to retained earnings: Unrealised gains	-	-	-	-	872,633	-	(872,633)	-	-	-
Balance at 31 December 2010	7,500,000	2,792,734	25,065	75,310	959,301	-	4,131,473	15,483,883	224,394	15,708,277

-

Balance at 1 January 2011	7,500,000	2,792,734	25,065	75,310	959,301	-	4,131,473	15,483,883	224,394	15,708,277
Comprehensive income for the
year
Profit or loss	-	-	-	-	-	-	2,412,620	2,412,620	(136,408)	2,276,212
Other comprehensive income
Foreign currency translation
differences	-	-	19,875	-	-	-	-	19,875	(11,108)	8,767
Net changes in fair value of
available-for-sale financial assets	-	-	-	11,042	-	-	-	11,042	-	11,042
Net change in fair value of available-
for-sale financial assets transferred to profit or loss	-	-	-	(58,452)	-	-	-	(58,452)	-	(58,452)
Total other comprehensive income
for the year	-	-		19,875 (47,410)	-	-	-	(27,535)	(11,108)	(38,643)
Total comprehensive income for
the year	-	-		19,875 (47,410)	-	-	2,412,620	2,385,085 (147,516)		2,237,569
Transactions with owners
recorded directly in equity
Dividend to equity holders	-	-	-	-	-	-	(1,200,000)	(1,200,000)	-	(1,200,000)
Transfer from retained earnings:
Unrealised gains	-	-	-	-	(86,660)	28,840	86,660	28,840	-	28,840
Balance at 31 December 2011	7,500,000	2,792,734	44,940	27,900	872,641	28,840	5,430,753	16,697,808	76,878	16,774,686

-

The Notes on pages xx to xx are an integral part of these financial statements

Statements of Changes in Equity

For the year ended 31 December 2011

THE COMPANY

	Share capital €	Share premium €	Fair value reserve €	Statutory reserve €	Share option reserve €	Retained earnings €	Total €
Balance at 1 January 2010	7,500,000	2,792,734	41,209	86,668	-	3,044,912	13,465,523
Comprehensive income for the year Profit or loss	-	-	-	-	-	2,918,877	2,918,877
Other comprehensive income Net changes in fair value of available-for- sale financial assets Net changes in fair value of available-for-	-	-	37,814	-	-	-	37,814
sale financial assets transferred to profit or loss	-	-	(3,713)	-	-	-	(3,713)
Total other comprehensive income for the year	-	-	34,101	-	-	-	34,101
Total comprehensive income for the year	-	-	34,101	-	-	2,918,877	2,952,978
Transactions with owners recorded directly in equity Dividend to equity holders	-	-	-	-	-	(825,000)	(825,000)
Transfer to retained earnings: Unrealised gains	-	-	-	872,633	-	(872,633)	-
Balance at 31 December 2010	7,500,000	2,792,734	75,310	959,301	-	4,266,156	15,593,501
Balance at 1 January 2011	7,500,000	2,792,734	- 75,310	959,301	-	4,266,156	15,593,501
Comprehensive income for the year Profit or loss	-	-	-	-	-	2,438,311	2,438,311

Other comprehensive income
Net changes in fair value of available-for-
sale financial assets	-	-	11,042	-	-	-	11,042
Net changes in fair value of available-for-
sale financial assets transferred to profit
or loss	-	-	(58,452)	-	-	-	(58,452)
Total other comprehensive income for the
year	-	-	(47,410)	-	-	-	(47,410)
Total comprehensive income for the year	-	-	(47,410)	-	-	2,438,311	2,390,901
Transactions with owners recorded directly in equity
Dividend to equity holders	-	-	-	-	-	(1,200,000)	(1,200,000)
Transfer from retained earnings:
Unrealised gains	-	-	-	(86,660)	28,840	86,660	28,840
Balance at 31 December 2011	7,500,000	2,792,734	27,900	872,641	28,840	5,591,127	16,813,242

The Notes on pages xx to xx are an integral part of these financial statements

Statements of Comprehensive Income

For the year ended 31 December 2011

	The Group		The Company
	2011	2010	2011	2010
Note	€	€	€	€
Continuing Operations
Revenue 7	8,805,776	7,513,017	8,805,776	7,491,761
Cost of Sales	(4,844,649)	(4,569,680)	(4,897,475)	(4,423,207)
Gross profit	3,961,127	2,943,337	3,908,301	3,068,554
Other income 8	101,605	66,388	94,307	61,275
Marketing and promotional expenses	(346,813)	(462,612)	(403,633)	(458,740)
Administrative expenses	(1,445,255)	(974,701)	(1,190,882)	(827,390)
Capitalised development costs 13	361,410	312,981	361,410	312,981
Other expenses 8	(261,909)	(320,246)	(251,133)	(308,633)
Results from operating activities	2,370,165	1,565,147	2,518,370	1,848,047
Finance income 10	173,770	74,720	183,731	84,595
Finance expenses 10	(166,057)	(20,223)	(162,245)	(7,482)
Net finance income	7,713	54,497	21,486	77,113
Profit before income tax	2,377,878	1,619,644	2,539,856	1,925,160
Income tax (expense)/credit 11	(101,666)	993,692	(101,545)	993,717
Profit for the year 8	2,276,212	2,613,336	2,438,311	2,918,877
Other comprehensive income
Foreign currency translation
differences on foreign operations	8,767	126,712	-	-
Net change in fair value of available-for-sale financial assets	(47,410)	34,101	(47,410)	34,101
Total comprehensive income	2,237,569	2,774,149	2,390,901	2,952,978
Profit attributable to:
Owners of the Company	2,412,620	2,861,431	2,438,311	2,918,877
Non-controlling interest Profit for the year	(136,408) 2,276,212	(248,095) 2,613,336	- 2,438,311	- 2,918,877
	-	-	-	-
Total comprehensive income attributable to:
Owners of the Company	2,385,085	2,986,198	2,390,901	2,952,978
Non-controlling interest	(147,516)	(212,049)	-	-
Total comprehensive income for
the year	2,237,569	2,774,149	2,390,901	2,952,978
Earnings per share	- € 0.064	- € 0.076	- € 0.065	- € 0.078

22

The Notes on pages xx to xx are an integral part of these financial statements

Statements of Cash Flows

For the year ended 31 December 2011

The Notes on pages xx to xx are an integral part of these financial statements

	The Group		The Company
	2011	2010	2011	2010
Note	€	€	€	€
Cash flows from operating activities
Profit for the year	2,276,212	2,613,336	2,438,311	2,918,877
Adjustments for:
Depreciation 12	129,076	110,682	77,025	59,362
Amortisation of intangible assets 13	767,332	727,977	767,332	727,977
Capitalised development costs 13	(361,410)	(312,981)	(361,410)	(312,981)
(Realease in)/provision for impairment
loss on receivables	261,909	(166,476)	251,133	(166,476)
Bad debts written off	-	475,109	-	475,109
Interest payable	149,028	132,540	134,688	107,680
Interest receivable	(79,869)	(50,384)	(79,074)	(50,259)
Unwinding of discount on
accrued income 10	(9,635)	(24,607)	(9,635)	(24,607)
Unwinding of discount on
accrued expenses 10	2,409	6,152	2,409	6,152
Gain on sale of property plant and
equipment	(8,000)	-	(8,000)	-
Income tax 11	101,666	(993,692)	101,545	(993,717)
Provision for exchange fluctuations	(121,261)	(30,177)	(117,641)	(25,064)
Changes in fair value of interst rate swap 10	151,137	-	151,137	-
	3,258,594	2,487,479	3,347,820	2,722,053
Change in trade and other receivables	(257,400)	(621,794)	(206,263)	(539,931)
Change in trade and other payables	(1,941,270)	409,842	(1,944,967)	282,732
Change in parent company's balance	(435,909)	18,369	(435,909)	18,369
Cash generated from operating activities	624,015	2,293,896	760,681	2,483,223
Interest paid	(134,688)	(107,680)	(134,688)	(107,680)
Interest received	44,668	38,725	43,873	38,600
Income taxes paid	(20,171)	(7,470)	(20,149)	(7,445)
Net cash from operating activities	513,824	2,217,471	649,717	2,406,698
Cash flows from investing activities
Acquisition of property, plant and
equipment	(998,367)	(235,981)	(989,114)	(226,116)
Proceeds on sale of property plant and
equipment	8,000	-	8,000	-
Acquisition of intangible asset 13	(3,000,000)	-	(3,000,000)	-
Advances to parent company	(328,302)	(378,800)	(328,302)	(378,800)
Advances to subsidiaries	-	-	(194,449)	(306,929)
Advances to RS2 Employees Trust	-	(360,000)	-	(360,000)
Repayment of advances to parent
company	144,259	178,200	144,259	178,200
Repayment of advances to subsidiaries	-	-	9,899	66,692
Net cash used in investing activities	(4,174,410)	(796,581)	(4,349,707)	(1,026,953)

Statements of Cash Flows

For the year ended 31 December 2011

The Notes on pages xx to xx are an integral part of these financial statements

	The Group		The Company
	2011	2010	2011	2010
Note	€	€	€	€
Cash flows from financing activities
Dividends paid	(1,197,769)	(823,827)	(1,197,769)	(823,827)
Proceeds from bank borrowings	3,418,958	-	3,418,958	-
Repayments of bank borrowings	(497,214)	(467,504)	(497,214)	(467,504)
Repayments of finance lease	(75,326)	(105,453)	-	-
Net cash from/(used) in financing activities	1,648,649	(1,396,784)	1,723,975	(1,291,331)
Net (decrease)/increase in cash and
cash equivalents	(2,011,937)	24,106	(1,976,015)	88,414
Cash and cash equivalents at 1 January	3,619,599	3,573,229	3,572,941	3,470,551
Effect of fair value movements Effect of exchange rate fluctuations on	(13,172)	20,801	(13,172)	20,801
cash held	63,818	9,350	36,575	1,062
Movement in cash pledged as guarantee	(152)	(7,887)	(152)	(7,887)
Cash and cash equivalents at 31
December 19	1,658,156	3,619,599	1,620,177	3,572,941

Basis of Preparation

The consolidated and separate financial statements (the"financial statements") have been prepared and presented in accordance with International Financial Reporting Standards as adopted by the EU ("the applicable framework"). All references in these financial statements to IAS, IFRS or SIC/IFRIC interpretations refer to those adopted by the EU. These financial statements have also been drawn up in accordance with the provisions of the Companies Act, 1995 (Chapter 386, Laws of Malta), (the "Act") to the extent that such provisions do not conflict with the applicable framework.

Principal activities

The Group is principally engaged in the development, installation, implementation and marketing of computer software for financial institutions under the trademark of BANKWORKS and the processing of payment transactions with the use of BANKWORKS.

Review of Performance

The financial year ended 31 December 2011 has once again proved a successful year for RS2 Software. Total revenue for the year for the Company amounts to €8,805,776, an increase of 18% over the total revenue for the previous year. The increase in revenue is mostly attributable to increases in licence fees during year, a direct result of an increase in customer base and additional licensing required by our existing customers.

Cost of sales increased by 11% over 2010. This increase represents increase in employee costs and subcontracted expenses incurred to increase our capacity in order to meet the additional demands from our customers. Gross profit margin for the year stood at 44%, an improvement of 3% when compared to 2010.

We have maintained a consistent investment in our marketing strategies. We believe that maintaining the RS2 name visible throughout the industry and in different markets enables us to further promote our BANKWORKS solutions and continually increase market recognition. Investment in development in BANKWORKS increased by 15% during the year, which continues to reflect our commitment to maintaining our solutions at the front end of the industry requirements and technological advances.

Administrative expenses for the company have increased by 44% when compared to the previous year. Other income comprises gains on foreign currency exchange, and gain on disposal of tangible assets, while other expenses comprise provisions for impairments on trade receivables.

Profit before taxation for the Company increased by 32% from €1,925,160 in 2010 to €2,539,856 in 2011, while earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 28% from €2,635,384 in 2010 to €3,362,727 in 2011. Although the tax charge increased to €101,545 from a credit of €993,717 in 2010, resulting in a decrease of 16% in the net profit after tax, substantially this does not represent cash payments made by the company towards income tax but is the result of the application of accounting rules. The Company continues to enjoy investment tax credits which are calculated as a percentage of the investment undertaken by it during the year. These tax credits are available to reduce the income tax payable for the year, and any amount unutilised by the end of the year is carried forward to the next year. At 31 December 2011, the Company had a balance of €2,554,427 of unutilised investment tax credit which will be used to relieve future income tax payable. We expect that the company will continue to increase its balances of investment tax credit through further investments in development costs in the BANKWORKS software as well as the new premises in Malta.

On a consolidated basis, the Group reports profit before taxation of €2,377,878, an increase of 47% when compared to 2010. The Group's wholly owned subsidiary in the Philippines continued to assist the development team in Malta and provide support services to clients worldwide. The United States subsidiary, Transworks, continued in its efforts to engage new clients during the year. We are now happy to announce that Transworks has managed to secure sponsorship by a prominent bank in the United States which goes a long way in assuring that the subsidiary is in a position to start offering its services to new clients. RS2 is working very closely with Transworks with plans for the subsidiary to launch its processing services towards the second half of 2012.

Review of Performance (continued)

Results from operating activities for the Group represent a return of 14% on shareholder funds (2010: 10%). Net assets per share and earnings per share amount to €0.45 (2010: €0.42) and €0.064 (2010: €0.076) respectively.

During the year, the group acquired software rights comprising the ownership title and unrestricted right to explore and use in Scandinavia the BANKWORKS software system, source code, documentation and updates/upgrades thereof. Prior to the acquisition, such rights belonged to a related party, as a result of which the Group incurred substantial commission expense on all revenues derived from this region. As a consequence of the acquisition, the Group entered into an obligation to settle in full all outstanding commissions payable to the third party. This negatively affected the net cash flow generated from operating activities, however this represents a one-time lump-sum payment which will not recur in future. The cost of the commision that will be saved as a result of this investment will start to be realised with effect from 2012. With this acquisition moreover, the Group holds exclusive rights to market its BANKWORKS software on a worldwide basis, with no restrictions.

2011 was a busy year with the construction of the new premises in Malta. The administrative wing of the premises is already in use with full completion of the first phase of the project expected by the third quarter of 2012. The first phase will house the core development centre, project management team and finance, administration and marketing departments.

As previously announced, the Group's strategy for the coming years will be geared towards consolidating its core business and intensively spearheading its proposed transaction processing and managed services worldwide. Plans are already underway for a second phase of the new premises which will provide the infrastructure required to offer these services. To this end, the Group will be setting aside its cash reserve to finance the investment in the processing and managed services.