RS2 p.l.c. — Interim / Quarterly Report 2016

Apr 18, 2017

COMPANY ANNOUNCEMENT

The following is a company announcement issued by RS2 Software p.l.c. ("the Company") pursuant to the Malta Financial Services Listing Authority Rules .

Quote

At the meeting held on Tuesday 18 April 2017, the Board of Directors of RS2 Software p.l.c. approved the financial statements for the financial year ended 31 December 2016. 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 20 June 2017.

Shareholders appearing on the shareholders' register as at the close of business on Friday 19 May 2017 will receive notice of the Annual General Meeting, together with the Annual Report and Financial Statements for the financial year ended 31 December 2016. The preliminary statement of results that is attached herewith was extracted from the financial statements that were audited by KPMG.

The Board of Directors resolved to recommend for approval at the Annual General Meeting, the payment of a final dividend of €0.01 per share amounting to €1,583,332. This dividend, if approved at the Annual General Meeting, will be paid on Thursday 22 June 2017 to shareholders who appear on the shareholders' register as at the close of business on Friday 19 May 2017.

In addition to the cash dividend, the Board of Directors further resolved to recommend for approval at the Annual General Meeting, a bonus share issue of one (1) share for every twelve (12) shares held by shareholders on the Company's share register as at close of business on Friday 19 May 2017. The bonus issue amounting to 13,194,432 shares will be funded by capitalising €791,666 from the Share Premium Reserve of the Company, subject to a relative increase in the company's authorised share capital and necessary regulatory approvals.

Pursuant to the Malta Stock Exchange Bye-Laws, the shareholders' register as at close of business on Friday 19 May 2017 will include trades undertaken up to and including Wednesday 17 May 2017.

Unquote

Dr. Ivan Gatt Company Secretary

18 April 2017

Statement of Financial Position

As at 31 December 2016

	THE GROUP
	2016	2015	1 January 2015
		Restated*	Restated*
Note	€	€	€
Assets
Property, plant and equipment 8	9,034,813	9,059,244	8,081,423
Intangible assets 9	6,815,112	6,901,911	6,961,734
Other investment 11	131,785	131,785	131,785
Loans and receivables from related parties 12	-	-	32,087
Accrued income 13	-	354,000	1,440,750
Trade and other receivables 12	-	-	764,731
Total non-current assets	15,981,710	16,446,940	17,412,510
Trade and other receivables 12	1,999,483	3,008,042	4,167,186
Loans and receivables from related parties 12	918,566	810,422	868,045
Prepayments	624,578	511,788	347,781
Accrued income 13	6,011,551	7,219,601	4,844,414
Cash at bank and in hand 14	6,344,155	7,193,681	4,520,446
Total current assets	15,898,333	18,743,534	14,747,872
Total assets	31,880,043	35,190,474	32,160,382

* Certain amounts shown here have been restated to reflect prior year adjustments made for the provision for key management personnel post-employment benefits.

Statement of Financial Position

As at 31 December 2016

	THE GROUP
	2016	2015	1 January 2015
		Restated*	Restated*
	€ Note	€	€
Equity
Share capital	15 9,499,991	8,999,991	8,999,991
Reserves	15 1,000,910	1,529,262	1,572,030
Retained earnings	15 11,506,618	13,409,110	10,481,308
Total equity attributable to
equity holders of the Company	22,007,519	23,938,363	21,053,329
Non-controlling interest	(142,187)	(8,674)	10,940
Total equity	21,865,332	23,929,689	21,064,269
Liabilities
Bank borrowings	16 1,859,899	2,465,781	2,710,067
Employee benefits	26 1,922,045	1,914,139	1,876,515
Deferred tax liabilities	17 758,265	1,302,005	1,134,666
Derivatives	16 84,254	119,187	159,749
Total non-current liabilities	4,624,463	5,801,112	5,880,997
Bank borrowings	16 993,937	978,850	725,846
Trade and other payables	18 849,711	1,122,918	1,160,738
Current tax payable	958,215	1,436,346	1,355,350
Accruals	19 828,974	587,456	547,332
Employee benefits	26 111,422	-	-
Deferred income	19 1,647,989	1,334,103	1,425,850
Total current liabilities	5,390,248	5,459,673	5,215,116
Total liabilities	10,014,711	11,260,785	11,096,113
Total equity and liabilities	31,880,043	35,190,474	32,160,382

* Refer to footnote on Page 1

0 0

Statement of Financial Position

As at 31 December 2016

		THE COMPANY
	2016	2015 Restated*	1 January 2015 Restated*
	€ Note	€	€
Assets
Property, plant and equipment	8 8,713,657	8,834,473	7,816,089
Intangible assets	9 5,327,256	5,461,335	5,669,953
Investments in subsidiaries	10 5,737,262	2,730,104	1,148,774
Other investment	11 131,785	131,785	131,785
Loans and receivables from related parties	12 23,751	2,185,830	3,204,963
Accrued income	13 1,241,928	2,061,205	3,527,483
Trade and other receivables	12 -	-	764,731
Total non-current assets	21,175,639	21,404,732	22,263,778
Trade and other receivables	12 1,804,112	2,807,063	4,100,640
Loans and receivables from related parties	12 1,554,951	810,422	868,045
Prepayments	425,540	436,805	297,453
Accrued income	13 6,314,841	7,634,132	5,193,985
Cash at bank and in hand	14 5,535,139	6,634,403	3,731,903
Total current assets	15,634,583	18,322,825	14,192,026
Total assets	36,810,222	39,727,557	36,455,804

Statement of Financial Position

As at 31 December 2016

	THE COMPANY
	2016	2015 Restated*	1 January 2015 Restated*
Note Equity	€	€	€
Share capital 15 Reserves 15	9,499,991 891,139	8,999,991 1,413,739	8,999,991 1,512,786
Retained earnings 15	16,791,843	18,068,040	14,956,853
Total equity	27,182,973	28,481,770	25,469,630
Liabilities
Bank borrowings 16	1,859,899	2,465,781	2,710,067
Employee benefits 26 Deferred tax liabilities 17	1,356,070 1,518,485	1,358,420 1,956,799	1,330,848 1,694,234
Derivatives 16	84,254	119,187	159,749
Total non-current liabilities	4,818,708	5,900,187	5,894,898
Bank borrowings 16	993,937	978,850	725,846
Trade and other payables 18 Current tax payable	729,543 958,215	1,081,768 1,436,346	1,073,272 1,355,350
Accruals 19	372,183	546,052	536,010
Employee benefits 26 Deferred income 19	111,422 1,643,241	- 1,302,584	- 1,400,798
Total current liabilities	4,808,541	5,345,600	5,091,276
Total liabilities	9,627,249	11,245,787	10,986,174
Total equity and liabilities	36,810,222	39,727,557	36,455,804

0 0 0 0 0 0

Statements of Changes in Equity

For the year ended 31 December 2016

THE GROUP

Attributable to equity holders of the Company

	Share capital Note €	Share premium €	Translation reserve €	Share option reserve €	Retained earnings €	Total €	Non controlling interest €	Total equity €
Balance at 1 January 2015	8,999,991	1,292,743	59,244	220,043	12,357,823	22,929,844	10,940	22,940,784
Impact of correction of errors	27 -	-	-	-	(1,876,515) (1,876,515)		-	(1,876,515)
Restated balance at 1 January 2015	8,999,991	1,292,743	59,244	220,043	10,481,308	21,053,329	10,940	21,064,269
Comprehensive income for
the year (restated)
Profit for the year	-	-	-	-	4,828,733	4,828,733	(9,386)	4,819,347
Other comprehensive income
Foreign currency translation
differences	-	-	56,279	-	-	56,279	(10,228)	46,051
Total other comprehensive
income for the year	-	-	56,279	-	-	56,279	(10,228)	46,051
Total comprehensive income for
the year (restated)	-	-	56,279	-	4,828,733	4,885,012	(19,614)	4,865,398
Transactions with owners
of the Company
Dividend to equity holders	-	-	-	-	(1,999,978) (1,999,978)		-	(1,999,978)
Share options exercised	-	-	-	(99,047)	99,047	-	-	-
Balance at
31 December 2015	8,999,991	1,292,743	115,523	120,996	13,409,110	23,938,363	(8,674)	23,929,689
Balance at 1 January 2016	8,999,991	1,292,743	115,523	120,996	13,409,110	23,938,363	(8,674)	23,929,689
Comprehensive income for
the year
Profit for the year	-	-	-	-	576,906		576,906 (123,773)	453,133
Other comprehensive income
Foreign currency translation
differences	-	-	(5,752)	-	-	(5,752)	(9,740)	(15,492)
Total other comprehensive income
for the year	-	-	(5,752)	-	-	(5,752)	(9,740)	(15,492)
Total comprehensive income for
the year	-	-	(5,752)	-	576,906		571,154 (133,513)	437,641
Transactions with owners
of the Company
Bonus issue	500,000	(500,000)	-	-	-	-	-	-
Dividend to equity holders	-	-	-	-	(2,501,998) (2,501,998)		-	(2,501,998)
	500,000	(500,000)	-	-	(2,501,998) (2,501,998)		-	(2,501,998)
Share options excercised	-	-	-	(22,600)	22,600	-	-	-
Balance at
31 December 2016	9,499,991	792,743	109,771	98,396	11,506,618	22,007,519 (142,187)		21,865,332

- - -

Statements of Changes in Equity

For the year ended 31 December 2016

THE COMPANY

Note	Share capital €	H Share e premium d €	Share option reserve €	Retained earnings €	Total €
Balance at 1 January 2015	8,999,991	1,292,743	220,043	16,287,701	26,800,478
Impact of correction of errors 27	-	-	-	(1,330,848) (1,330,848)
Restated balance at 1 January 2015	8,999,991	1,292,743	220,043	14,956,853	25,469,630
Comprehensive income for
the year (restated)
Profit for the year	-	-	-	4,930,368	4,930,368
Total comprehensive income
for the year (restated)	-	-	-	4,930,368	4,930,368
Transactions recorded directly in equity
Equity portion of financial asset	-	-	-	113,267	113,267
Discount unwind	-	-	-	(31,517)	(31,517)
	-	-	-	81,750	81,750
Transactions with owners of the Company
Dividend to equity holders	-	-	-	(1,999,978) (1,999,978)
Share options exercised	-	-	(99,047)	99,047	-
Balance at 31 December 2015	8,999,991	1,292,743	120,996	18,068,040	28,481,770
Balance at 1 January 2016	8,999,991	1,292,743	120,996	18,068,040	28,481,770
Comprehensive income for the year
Profit for the year	-	-	-	1,232,154	1,232,154
Total comprehensive income for the year	-	-	-	1,232,154	1,232,154
Transactions recorded
directly in equity
Discount unwind	-	-	-	(28,953)	(28,953)
	-	-	-	(28,953)	(28,953)
Transactions with owners
of the Company
Bonus issue	500,000	(500,000)	-	-	-
Dividend to equity holders	-	-	-	(2,501,998) (2,501,998)
Share options excercised	-	-	(22,600)	22,600	-
Balance at 31 December 2016	9,499,991 -	792,743 -	98,396	16,791,843 -	27,182,973 -

Statements of Comprehensive Income

For the year ended 31 December 2016

	The Group		The Company
	2016	2015	2016	2015
		Restated*		Restated*
	Note €	€	€	€
Continuing Operations
Revenue	20 17,171,291	19,437,614	15,629,023	18,005,849
Cost of sales	(10,307,069)	(10,083,741)	(8,895,042)	(8,794,926)
Gross profit	6,864,222	9,353,873	6,733,981	9,210,923
Other income	21 41,048	622,804	30,582	622,865
Marketing and promotional expenses	(803,681)	(554,239)	(731,003)	(551,183)
Administrative expenses	(3,609,731)	(2,533,540)	(2,732,932)	(2,278,510)
Capitalised development costs	9 498,177	860,844	498,177	860,844
Other expenses	21 (2,146,434)	(1,196,243)	(2,142,477)	(1,196,243)
Results from operating activities	843,601	6,553,499	1,656,328	6,668,696
Finance income	22 191,033	84,350	243,493	174,573
Finance costs	22 (153,818)	(211,395)	(142,308)	(210,680)
Net finance income/ (costs)	37,215	(127,045)	101,185	(36,107)
Profit before income tax	21 880,816	6,426,454	1,757,513	6,632,589
Income tax expense	23 (427,683)	(1,607,107)	(525,359)	(1,702,221)
Profit for the year	9 453,133	4,819,347	1,232,154	4,930,368
Other comprehensive income
Items that are or may be reclassified to profit or loss
Foreign currency translation differences
on foreign operations	(15,492)	46,051	-	-
Total comprehensive income	437,641	4,865,398	1,232,154	4,930,368
Profit attributable to:
Owners of the Company	576,906	4,828,733	1,232,154	4,930,368
Non-controlling interest	(123,773)	(9,386)	-	-
Profit for the year	453,133	4,819,347	1,232,154	4,930,368
Total comprehensive income attributable to:	-	-	-	-
Owners of the Company	571,154	4,885,012	1,232,154	4,930,368
Non-controlling interest	(133,513)	(19,614)	-	-
Total comprehensive income
for the year	437,641	4,865,398	1,232,154	4,930,368
Earnings per share	- 24 € 0.004	- € 0.030	- € 0.008	- € 0.031

Statements of Cash Flows

For the year ended 31 December 2016

	The Group		The Company
	2016	2015 Restated*	2016	2015 Restated*
Note	€	€	€	€
Cash flows from operating activities
Profit for the year	453,133	4,819,347	1,232,154	4,930,368
Adjustments for: Depreciation 8	653,518	617,127	481,867	452,979
Amortisation of intangible assets 9	632,256	1,069,462	632,256	1,069,462
Capitalised development costs 9	(498,177)	(860,844)	(498,177)	(860,844)
Provision for impairment loss on receivables 21	364,787	(1,169,280)	364,787	(1,169,280)
Bad debts written off 21	347,423	2,365,523	347,423	2,365,523
Interest payable 22	124,491	151,997	124,466	151,997
Interest receivable 22	(12,293)	(13,551)	(46,988)	(72,257)
Unwinding of discount on
post -employment benefit 26	119,328	37,624	109,072	27,572
Unwinding of discount on
accrued income 22	11,189	(30,237)	(17,766)	(61,754)
Income tax 23	427,683	1,607,107	525,359	1,702,221
Provision for exchange fluctuations 21	809,339	(196,789)	809,110	(196,789)
Gain on disposal of asset 21	(8,004)	-	(8,004)	-
Change in fair value of cash flow hedge 22	(34,933)	(40,562)	(34,933)	(40,562)
	3,389,740	8,356,924	4,020,626	8,298,636
Changes in trade and other receivables	951,892	(435,723)	905,055	(95,514)
Changes in trade and other payables	(88,313)	(183,417)	(231,389)	(173,050)
Cash generated from operating activities	4,253,319	7,737,784	4,694,292	8,030,072
Interest paid	(138,977)	(149,749)	(138,977)	(149,749)
Interest received	1,839	5,451	1,680	53,676
Income taxes paid	(1,446,642)	(1,358,772)	(1,441,803)	(1,358,661)
Net cash from operating activities	2,669,539	6,234,714	3,115,192	6,575,338
Cash flows from investing activities Acquisition of property, plant
and equipment	(568,252)	(1,510,230)	(355,037)	(1,386,365)
Proceeds on sale of property plant and equipment	9,000	-	9,000	-
Investment in subsidiary 10		-	(112,105)	(1,499,580)
Advances to subsidiaries		-	(842,307)	(608,901)
Repayment of advances to subsidiaries		-	28,458	1,873,257
Net cash used in investing activities	(559,252)	(1,510,230)	(1,271,991)	(1,621,589)

Statements of Cash Flows

For the year ended 31 December 2016

	The Group		The Company
	2016	2015 Restated*	2016	2015 Restated*
Note	€	€	€	€
Cash flows from financing activities
Dividends paid	(2,495,477)	(1,996,827)	(2,495,477)	(1,996,827)
Proceeds from bank borrowings	377,791	874,809	377,791	874,809
Repayments of bank borrowings	(968,585)	(866,091)	(968,585)	(866,091)
Net cash used in financing activities	(3,086,271)	(1,988,109)	(3,086,271)	(1,988,109)
Net (decrease)/increase in cash and cash equivalents	(975,984)	2,736,375	(1,243,070)	2,965,640
Cash and cash equivalents at 1 January	7,193,681	4,512,037	6,634,403	3,723,494
Effect of exchange rate fluctuations on cash held	126,458	(54,731)	143,806	(54,731)
Cash and cash equivalents at 31 December 14	6,344,155	7,193,681	5,535,139	6,634,403

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 (Chapter386, 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 Group recognised total revenues of €17.2m in 2016. Revenue generation remained strong and, albeit lower than 2015, it continues to sustain the growth registered in the past years. The decrease in revenue is attributable to the implementation of our strategy of intensifying our focus on the managed services business. Due to the different inherent characteristics of revenue recognition between the license and managed services, this may result in lower revenue and profitability in the interim period until stabilisation occurs.

Processing fees generated by the managed services business, increased by 24%. This increase reflects additional revenue from new and existing clients in the form of implementation and transaction fees. The Group concluded further agreements towards the end of 2016 and in the beginning of 2017, the revenue from which is expected to be realised during 2017 and later years.

Consistent with prior years, service fees from both the licensing and the processing business accounts towards the larger portion of the revenue mix, 61% (2015: 62%). Licence fees amount to 20% (2015: 20%) and maintenance fees amount to 12% (2015: 12%).

In its efforts to continue servicing its current client base and being able to take on potential new client opportunities, the Group continues to invest heavily in human resources and infrastructure, and thus during the year under review it continued to build up its operations staff complement by an average of 11% compared to the prior year. The increase in personnel costs was partly offset by a reduction in amortisation of intangible assets for the year as the earlier additions to intangible assets reached full amortisation by the end of 2015. Total cost of sales for the year amounts to €10.3m.

Gross profit of the Group for the year stands at €6.9m, with a gross profit margin of 40%, a reduction of 8% when compared to 2015. This is attributable to an increase in cost of sales that is not proportionate to the decline in revenues.

Group marketing and promotional expenses increased again for the second year running, this year by 45% (2015: 68%) over the prior year. This reflects the Group's special efforts to bolster its penetration in foreign markets in line with its strategy of global expansion through increased participation in major industry events and marketing related travel. These increased activities are contributing directly to the Group's business pipeline and translating into new clients.

Administrative expenses increased by 43% when compared to 2015 which increase is directly linked to the setting up of the offices in the United States and the Philippines, increase in salaries expenses at the Head Office and other general administrative expenses. Such expenses relate to increased human resources costs, higher travelling expenses, legal and professional set-up costs and premises rental expenses.

Contrary to the previous year, during 2016 the Group was negatively impacted by fluctuations in foreign currency movements amounting to €1.4m as represented under other expenses mainly as result of fluctuations to the Pound Sterling against the Euro.

Review of Performance (continued)

The Group recognised a net amount of €0.7m in impairment losses on trade receivables. This is after reversing the effect of provisions for impairment accounted for in previous years and after eliminating the effect of unwinding of amortisation on the receivable balances. These impairment losses result from default and/or doubt on the recovery of receivables accumulated over the past few years. Notwithstanding this, the Group maintains a strong client base widening the diversity of its client portfolio by attracting new clients from different regions across the globe.

EBITDA for 2016 stands at €2.3m, representing 13% of total revenue. Eliminating the effect of the impairment loss, EBITDA would increase to €3m, representing 17% of total revenue.

The Group is reporting a profit before tax of €0.9m, representing a net profit margin of 5%. Income tax expense for the 2016 amounts to €0.4m, leaving a profit after tax of €0.5m.

Group assets decreased from €35.2m to €31.9m and total equity decreased from €23.9m to €21.9m. Net cash generated from operating activities amounts to €2.7m when compared with €6.2m in 2015. After payment of €0.6m in acquisition of property, plant and equipment and a payment of dividend of €2.5m, the Group closes the year with a cash balance of €6.3m, compared with €7.2m at end of 2015. Notwithstanding a year where the Group experienced an increase in staff and other costs relating to expansion in the United States and Philippines and the impact of exchange fluctuations against the Euro, the Group is still in a strong cash flow position to continue with its growth strategy.