RS2 Software generates a pre-tax profit of €6.4 million in 2021

Last week marked the deadline for companies with December financial year ends to publish their 2021 annual financial statements. statement of a pre-tax profit of 6.4 million euros.

RS2’s announcement was highly anticipated following the preferred share issue in the first half of 2021, during which the company released its three-year financial guidance. RS2 shareholders as well as financial analysts were therefore able to compare the actual results published last week with the financial forecasts published in early 2021 in order to understand the progress made by the company despite the COVID-19 pandemic, which has surely disrupted the business operations, especially in the first half. of the year.

Revenues in 2021 amounted to €38.7 million, which translates to an increase of 44.3% compared to the previous year. However, revenues remained below the projections of 42.5 million euros published at the start of 2021. CEO Radi El Haj referred to this in his address to shareholders, explaining that the company experienced “delays in certain expected revenues resulting from unforeseen circumstances and dependencies on third parties”. party deliverables. Meanwhile, the CEO stressed that “all other revenue forecasts have been met.” In fact, he forecast a turnover of 42.5 million euros including an element of approximately 3.8 million euros which represented new business which had not yet been found. On the other hand, the estimated remaining amount of 38.7 million euros was to be generated by business contracted and/or committed (5.95 million euros) as well as by existing customers (32.7 million euros).

It is interesting to note that the actual turnover of 38.7 million euros generated in 2021 corresponds exactly to the amount of planned activity which, at the time of the capital increase, was either already contracted/committed or had to come from existing customers. The data available in the segment information provided in the 2021 annual report indicates that the turnover of the ‘Processing Solutions’ segment amounts to 18.7 million euros. The financial projections included in last year’s prospectus had included revenues from “treatment solutions” of €22.4 million. The shortfall of 3.7 million euros could be due to the delay in the launch of the ISO activity by the American subsidiary RS2 Software Inc. The directors explained that while the American subsidiary contributed significantly to the growth overall group turnover, this was slower than initially expected. “mainly due to a delay in the launch of the ISO activity”. It should be noted, however, that this has since been successfully launched during the first quarter of 2022.

The progress made in the US by RS2 Software Inc is evident in the data available in the annual report, with this subsidiary posting an 81% jump in revenue to €16.1m (2020: €8.9m). euros) and a pre-tax profit of 0.8 million euros compared to a pre-tax loss of 5.1 million euros in 2020. In addition, also including the income generated by the sale of license, the income from North America increased by almost 82% to EUR 16.1 million (2020: 8.87 million) which, in turn, represents almost 42% of the group’s overall revenue.

The ‘Merchants Solutions’ segment also recorded a lower than expected level of revenue in 2021, as it amounted to 2.07 million euros against a forecast figure of 3 million euros. However, the group successfully obtained an electronic money institution license from the German Federal Financial Supervisory Authority “BaFIN” in 2021, thus enabling RS2 to provide a wider range of financial services (including acquiring and issuing direct to merchants) and also allowing it to exploit new business opportunities in virtually all EU and EEA countries. In fact, the CEO indicated in the recent annual report that the group launched its acquisition activity in Europe during the second quarter of this year. The revenue contribution of the ‘Merchants Solutions’ segment is expected to increase significantly to just over 22.1 million euros by 2023. In addition, this segment is expected to be one of the main drivers of the expected exponential increase in group profitability as it represents a higher margin business.

On the other hand, the ‘Software (Licensing) Solutions’ activity is a stable activity with a large part of the revenues coming from contracts. Although over the years RS2 has consistently stated its goal of becoming progressively less dependent on licensing of its BankWorks platform, revenue generated by the Software Solutions segment accounted for 46.2% of total revenue in 2021.

Nevertheless, the importance of the ‘Software Solutions’ segment should be diluted by the upcoming growth of ‘Processing Solutions’ and ‘Merchant Solutions’. Indeed, while the turnover of the ‘Software (Licensing) Solutions’ segment was expected to increase to 19.6 million euros by 2023, taking into account the very strong projected growth of the two other business units, ‘Software Solutions’ would represent only 19.2% of the total by 2023, assuming the financial targets as planned when issuing the preferred shares are met.

Although the significant ramp-up of the business is encouraging, the most positive element of RS2’s 2021 financial results is the considerable recovery in profitability. The group reported an EBITDA of €8.76m compared to the forecast figure of €3.58m and the negative figure of €1.43m recorded in 2020. It would be interesting for the company to provide more details on this better than expected performance, although it is clear that the increase in profitability emanates from a more efficient use of resources, which ultimately led to a significant increase in profit margins.

After the losses recorded in 2019 (-€1.63m) and 2020 (-€3.78m), RS2 posted a net profit of just over €3m for 2021, well above the marginal net profit of 0 €.16 million anticipated at the time of the capital increase in 2021. This is certainly a welcome development for the group’s shareholders, who over the years have been patient in seeing the gradual transformation of RS2’s business model into a a true global player across the entire payments value chain.

Against this backdrop, and given the magnitude of the higher level of earnings achieved in 2021 despite slightly lower revenue levels, RS2 should consider issuing an updated financial guidance for this year as well as 2023.

Given the magnitude of the higher level of earnings achieved in 2021 despite slightly lower revenue levels, RS2 should consider issuing an updated financial forecast for this year as well as 2023.

In last year’s prospectus, the directors had forecast revenue to grow to €68.4m in 2022 and €102m in 2023, with EBITDA and pre-tax profit reaching €29.5m respectively. euros and 24.9 million euros in 2023. An updated set of financial forecasts help the investment community to measure the progress made by the group in its international expansion strategy.

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