5
Annual Report & Financial Statements
2021
Table of Contents
Pages
Annual Report
Who We Are 01
Chairman’s Statement 05
CEO’s Statement 08
Board of Directors 13
Corporate Social Responsibility 17
Directors’ Report 21
Corporate Governance Statement of Compliance 35
Remuneration Report 44
Statement of the Directors pursuant to Capital Market Rule 5.68 48
Company Information 49
Directors’ Responsibility for the Financial Statements 50
Financial Statements
Statements of Financial Position 52
Statements of Profit or Loss 54
Statements of Comprehensive Income 55
Statements of Changes in Equity 56
Statements of Cash Flows 60
Notes to the Financial Statements 62
Independent Auditors’ Report 177
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Annual Report
3 Annual Report 2021
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Who We Are
A global technology leader
- shaping the future of payments
RS2 Group is one of the world’s leading providers of omni/multichannel payment software and
end-to-end payment solutions for both issuers and acquirers on a single payment platform.
The Group has over a 30-year history of designing and operating payment technologies and
solutions for a wide range of customers across various industries such as banking, e-
commerce and retail.
With seven offices spread across the globe, the Group provides innovative, sustainable,
secure payment solutions and services along the entire payment value chain, and is today the
technology partner of choice for banks, large financial institutions, integrated software
vendors (ISVs), payment facilitators (PayFacs), independent sales organisations (ISOs) and
merchants throughout Europe, North America, Latin America (LATAM), Asia Pacific (APAC) and
the Middle East.
The Group’s cutting edge payment solutions are used by more than 250 customers in 35
countries, allowing its customers to provide services to more than 16 million merchants and
over 350 million cards around the globe through the various business lines of the Group. Among
these customers are 5 of the top 20 multinational and local acquirers.
Following the approval and issuance of an Electronic Money Institution (EMI) license by the
German regulator, the German Federal Financial Supervisory Authority (BaFin), for the Group’s
subsidiary RS2 Financial Services GmbH, the Group is now continuing its exciting journey
towards becoming a leading, full service, global payments player.
One single platform
- enabling global commerce
The Group’s BankWORKS
®
platform is built on a state-of-the-art Application Programming
Interface (API)-based micro services technology, providing end-to-end payment, such as
payment gateway, switching of payment transactions originated from Point-of-Sale (POS),
ATM, e-Commerce, InAPP, clearing and settlement, chargeback management integrated in
the merchant portal, fraud and risk monitoring, reporting and statement, and a sub-GL
accounting and automated reconciliation that fully integrates with the client’s general ledger.
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Who We Are (Continued)
The uniqueness of the solution, being one single global platform deployed on the cloud,
provides the customer through one single API sandbox integration, the ability to transact
globally, integrating to local acquirers and issuers to increase their conversion rate, reduce
their interchange and other related fees and charges, and provide them with quick access to
the market. The Group is well-positioned to service multinational customers and process their
international and local payments, providing them with one single view, consolidated reporting
and reconciliation of their entire businesses in multi-languages, multi-currencies including
crypto, and other digital currencies in multiple time zones.
Business Lines
- covering the entire payment value chain
The Group provides a fully integrated, digital omni-/multichannel payment solutions as well
as value-added services across the entire payments value chain through three global
business lines.
Processing Solutions
- Processing of payment transactions utilising BankWORKS
®
software
A full-feature end-to-end processing solution for issuing and acquiring through a single
integration to RS2’s unique BankWORKS
®
cloud platform. Customers can manage their entire
payment services such as authorisation, on boarding, payment gateway, security and fraud,
chargebacks, reconciliation, and settlement as well as optimise their interchange.
• Processing of payment transactions utilising BankWORKS® software;
• PAAS on a private/public cloud solution for acquiring, issuing, clearing and settlement
covering multiple Omni channels;
• Provision of installation services (setup); and
• Other services including statements, chargebacks, merchant portal and e-commerce
gateway.
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Who We Are (Continued)
Software Solutions
- Licensing of BankWORKS
®
software to banks and financial institutions
RS2’s modular, highly scalable, and flexible software solutions are developed in-house and
cover all areas of payment, including card issuance, merchant acquiring, clearing and
settlement, online switching and authorisation, PIN management, customer services, e-
commerce, and dispute and fraud management, allowing its customers to rapidly and cost-
effectively set up their system by configuring only those products and modules required for
business.
The Group provide flexible collaboration models to suit customers’ business needs:
• Term or perpetual licenses for banks and financial institutions to utilise its BankWORKS
®
issuing and acquiring platform;
• Installation depending on size and scope of installation;
• Customisation, implementation, and installation services;
• Upgrades, enhancements, customisation and on-going support for its BankWORKS
®
platform, as well as updates mandated by international card organizations;
• Additional services, including but not limited to onsite support for testing, implementation
and training beyond the originally defined scope of the initial implementation; and
• Value Added Services.
Merchant Solutions
- Offering issuing and acquiring payment solutions directly to merchants
The Group’s subsidiary RS2 Financial Services GmbH holds an EMI-Licence from the German
regulator, BaFin, enabling the Group to provide a wide array of services using one single
platform that integrates through a strong wide range of APIs to the merchant’s online
businesses and physical shops, consolidating the entire business of the merchant across all
the omni-/ multichannel payments offering them one-stop-shop services including but not
limited to:
• E-Commerce
(card not present) incl.
Payment Service
Provider (PSP) Services
• Card present (incl. POS
Terminals & Network
Services)
• InAPP-Payments
• Payment Gateway
• Chargeback Management
• Call Centre Services
• Issuing of Prepaid Cards
• Fraud and Risk Monitoring
Services
• Reporting and Reconciliation
• Interchange Optimisation
• Smart Routing increasing the
approval rate
• Dynamic Currency Conversion
• Instalments
• Recurring Payments
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The Group
has achieved
important
milestones
across all
business lines.
Mario Schembri
Chairman
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Chairman’s Statement
2021 was a very successful business year for the Group. Despite the continued uncertainty
brought about by the pandemic, the Group has achieved important milestones across all
business lines and it is my pleasure to confirm that the Group has exceeded its profitability
projections for the year.
During 2021, the Group remained focused on implementing and delivering its strategy of
expanding its clients base and providing superior products and services in different markets
throughout Europe, Middle East, North America, LATAM, and APAC. Across all its strategic
priorities, the Group has made strong progress and executed its objectives efficiently.
In the Merchant Solutions business, the Group achieved a major milestone when it obtained
an EMI license from the German regulator, BaFin. The EMI license enables the Group to manage
merchant funding, provide acquiring services and to issue payment instruments.
The Group has launched its acquiring business managed by RS2 Financial Services GmbH in
Q2 2022 in Europe. We expect this to result in a substantial change in the Group’s revenue
model losing its dependence on one-time license fees and moving towards ongoing and
recurring revenue streams based on transaction volumes processed.
In the Processing Solutions business, the Group has more than doubled the volume of
transactions processed on its platform from its existing clients as well as through the on
boarding of new clients. The pandemic has accelerated the shift to digital financial
transactions and electronic payments as people embrace remote and hybrid working and
living.
This shift toward digital payments has also made a marked impact on the Group’s Processing
Solutions business by driving up transaction volumes. This trend will continue to be a positive
catalyst for the Group’s further organic and inorganic growth. In addition, the Group has won
several new major outsourcing clients in Singapore, Indonesia and Australia.
On the Software Solutions business side, the Group has sealed a processing outsource
agreement with one of the largest banks in the United States, on a hybrid licensing and
processing model to deliver Global Acquiring and Issuing Services, further endorsing the power
of our platform. The Group will continue to deliver services to PayFacs, ISVs and ISOs and to
attract tier one financial institutions and banks of all sizes that are increasingly opting for
outsourcing models for their payments processing operations in order to lower costs, reduce
complexity and risks.
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Chairman’s Statement (Continued)
I would like to take this opportunity to thank our team members across the world for their
continued hard work, our Chief Executive Officer (CEO) who has worked tirelessly to grow the
Group’s business and our Board of Directors for their support throughout the year.
I would also like to thank our shareholders, clients and partners for their continued trust and
support. We are in a strong position to deliver on growth and I am confident of continued
success in the coming year.
We look forward to continuing this journey together – beyond payments.
Mario Schembri
Chairman
27 April 2022
Thanks to the
outstanding effort
of the RS2 Team,
the Group has
made very strong
progress,
executing the
majority of its key
strategic
objectives, locally
and globally
positioning the
Group to become
the leader in the
payment Industry.
Radi Abd El Haj
Chief Executive Officer
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CEO’s Statement
2021 results have proven that the strategy of the Group is materialising and continues to gain
momentum. This is evident in the results of the Group derived from ongoing business with
current partners and clients, as well as new contracts entered into in various regions. This
confirms the robustness of the Group’s strategy and the structure of the Group which supports
the acceleration and the scale of the business globally.
Strong Business Performance in 2021
The Group has delivered the planned growth, including scaling of operations of business,
during the fiscal year 2021. Despite the delays in some expected revenue resulting from
unforeseen circumstances and dependencies on third party deliverables, all other projected
revenues were met, thereby allowing the Group to successfully turn around its financial
performance into a respectable profit, which not only meets but exceeds projected results.
Such results are the reward for the tireless commitment, flexibility, and strong cohesion of our
colleagues, Management and Board of Directors.
With the on boarding of new clients and the acceleration of digitalisation during the COVID-
19 pandemic, the Group has more than doubled the volume of transactions processed on the
RS2 Smart Processing Limited platform during 2021 when compared to those processed in the
recent past. This increase is expected to continue to progress with a gradual increase
generated by the Group’s existing clients as well as the on boarding of new clients.
The Group executed strategic milestones to increase its customer base and diversify its global
business across various regions. These include the following:
• In Europe, the Group achieved a major milestone by obtaining an EMI license by the
German regulator, BaFin, that is crucial for the execution of the Group’s strategy
expanding its business globally. Looking forward, following a passporting process, the e-
money license will enable the Group to provide a wide range of payment acceptance and
other financial services to merchants and consumers across Europe. The Group has
launched its acquiring business managed by RS2 Financial Services GmbH in Q2 2022, in
Europe.
• In LATAM, the Group continued to increase its customer base in Mexico, Chile and Peru. In
Brazil, the Group has rolled out its Omni channel acquiring services to new clients, and
processed over two hundred million transactions. In Argentina, the Group enabled its
services to an existing customer in the region to enable its merchant acquiring.
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CEO’S Statement (Continued)
• In North America, the Group invested further in its US subsidiary to continue with its
successful market entry and delivering services to PayFacs, ISVs, and ISOs. At the same
time, it continued to attract large enterprises to process their local and international
businesses. The Group successfully entered into major processing outsourcing agreements
with various payment providers such as ISOs and PayFacs. Significantly, the Group has
signed on one of the largest banks in the US on a hybrid licensing and processing model,
which shows the reputation and the capabilities of the Group from the technology and
delivery perspective which continues to attract tier-one financial enterprises to partner
with RS2 to deliver Global Acquiring and Issuing Services.
• In APAC, the Group has added new major outsourcing clients in Singapore, Indonesia, and
Australia. These clients will increase the Group’s APAC customer base, adding to existing
customers in New Zealand, the Philippines, Malaysia and Vietnam. In Indonesia, the Group
will be providing acquiring and issuing outsourcing services to a subsidiary of a major
financial group in the region.
Delivering On Our Strategic Priorities
The Group has made strong progress and executed all of its key strategic priorities at a steady
pace. This will strongly position the Group to increase the pace of its growth into 2022 and
beyond.
In 2021, the Group remained focused on its strategy of growing and expanding its Managed
Services business and accelerating its global expansion, as well as commencing its Direct
Merchant Acquiring and Issuing Services in Europe and the US.
The Group’s subsidiary RS2 Financial Services GmbH achieved a major milestone by attaining
an EMI license from the German regulator, BaFin that is crucial for the execution of the Group’s
strategy to expand its business globally. The EMI license will enable customers to access a
variety of services related to payments and financial instruments, combined with a wide range
of tools, enabling them to run their business more efficiently while also having real-time access
to financial data, reporting, reconciliation and invoicing. Managing both issuing and acquiring
on the same platform, RS2 Financial Services GmbH will create a unique customer experience
for both merchant and consumer by providing tailor-made services, allowing them to transact
and shop within a trusted business environment.
The Group continued to expand its outsourcing business through its subsidiary, RS2 Smart
Processing Limited, by increasing the number of services offered for existing customers,
enabling them to enter into new markets consolidating their global business. At the same time,
we will offer direct services to the merchants mainly in Europe and follow them internationally
utilising the global Acquiring and Issuing platform capabilities.
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CEO’s Statement (Continued)
RS2 Smart Processing Limited started the transformation phase to a standalone processing
business with respective allocation of tasks and full time equivalent (FTE) in order to:
• Standardise product and service offering to improve time to market and profitability;
• Sell more existing capabilities in existing markets and create a Software as a Service
(SaaS) / Small to Medium Enterprise (SME) model for lean set up and configuration to enrol
clients in a couple of weeks instead of months;
• Implement the products and services capabilities, such as Diners, Amex, UPI and JCB; and
• Finalise a command centre to service our clients around the globe.
With the on boarding of new clients, the Group has more than doubled the volume of
transactions processed on the RS2 Smart Processing Limited platform during 2021 when
compared to those processed in recent times. This increase is expected to continue to
progress with a gradual increase from Group’s current clients as well as through the on
boarding of new clients.
Technology and Platform Update
On the technology front, we commenced the redesign of our platform to become a complete
micro-services environment, by enhancing its stability and increasing our offering by
implementing a wide range of APIs, while also reducing our costs and dependency on specific
software, which in return will increase our margins.
The Group has also concluded its roadmap for the next products and services deliverable to
be introduced to the market using the EMI license. This will include a variety of merchant and
consumer services delivering full scope of payment and banking services including issuing,
integrated payments, omni-channel acquiring and other value added services.
Looking Forward
The Group will continue building on the success of its executed strategy to expand its
outsourcing business through its subsidiary RS2 Smart Processing Limited by offering more
services and expanding together with its existing customers enabling them to enter into new
markets consolidating their global business while starting to offer direct services to the
merchants mainly in Europe and follow them into international market utilising the global
capability of the platform for Issuing and Acquiring.
To further enable our rapid expansion and growth, the Group continues to nurture its hub of
internationally renowned C-Level Executives and industry specialists. Our vast network with
banks and partners around the globe will aid the implementation of the Group’s third business
model and will facilitate the roll-out in Europe.
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CEO’s Statement (Continued)
The aim is to eventually leverage the Group’s network to offer truly global Issuing and Acquiring
services and products to our customers allowing them to control their business and access
their data in real-time to mitigate their risk, anticipate their revenue and expenses, and
manage their cash flow.
We will continue focusing on the regional expansion and provide the respective products and
services in the different markets.
The Group is committed to investing further in North America enabling our US subsidiary to
continue its successful market entry and delivering services to PayFacs, ISVs and ISOs, while
at the same time continuing to attract large processing clients.
The Group will invest in its products and services, Management and staff to meet the great
demand we have today in the US and offer our customers a one-stop-shop for their local
businesses and accompany them on their global expansion.
To stay ahead of the competition, we will continue to invest in our platform digitalising the
entire customer’s journey enabling consumers and businesses in one single ecosystem to
improve their shopping experience increasing their visibility and loyalties.
Closing Remarks
I would like to take this opportunity to thank our great colleagues, whom, without their
dedication and loyalty, we would not be successful, and our Management and Board for
supporting us throughout our journey and the support of our esteemed shareholders for
believing in us and for whom we will be doing our best to offer the best reward that they
deserve.
Stay with us and share our success to continue our global journey.
Let’s be together - beyond payments.
Thank you for your continued support and dedication.
Radi Abd El Haj
Chief Executive Officer
27 April 2022
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Board of Directors
Mario Schembri
Chairman & Non-Executive Director
Mr. Schembri joined RS2 in 1999 as Regional Manager, Mediterranean Region and took on the
role of Deputy Chief Executive Officer in 2006. Mr. Schembri was appointed Chief Executive
Officer in January 2008 and Chairman in January 2012.
Mr. Schembri has extensive knowledge related to card management systems, with diverse
exposure to the international card organisations including VISA International, MasterCard and
DINERS Club International. Up to the time of joining the Company, Mr. Schembri had been in
the banking industry for 26 years and has vast experience relating to retail banking operations,
product management and co-ordination. He also served as a lecturer and examiner for the
IFS for a period of 12 years.
Radi Abd El Haj
CEO & Executive Director
Mr. El Haj joined RS2 in 1997 as a Project Manager for Tier 1 European banks where he was
responsible for the implementation of corporate card programs, later promoted to Customer
Relationship Manager in 2002 and Head of Sales and Implementation in 2004. Mr. El Haj was
appointed Chief Executive Officer in January 2012.
In the cards and payments industry, Mr. El Haj specialises in the areas of issuing, acquiring,
clearing and settlement, e-commerce and accounting. His international experience,
professional contacts in various regions and working closely with the Technical and Product
Development Units within the Group, has contributed in providing RS2’s clients with a global
compliant platform.
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Board of Directors (Continued)
Dr. Robert Tufigno LL.D.
Non-Executive Director
Dr. Tufigno, LL.D., has vast experience in company law, contract law, financial services,
employment law, maritime law and legislative drafting. Dr. Tufigno, who is also an Arbitrator,
has practised in the fields of general commercial law, property law and litigation. He has also
acted as Chairman of Malta’s Employment and Training Corporation and as Chairman of
Malta’s Housing Authority, and as past Board Director of Lohombus Bank. Dr. Tufigno is a
Partner at GTG Advocates.
Franco Azzopardi
Non-Executive Director
Mr. Azzopardi, a Certified Public Accountant with a UK postgraduate MSc in Finance, spent
twenty-seven years working in public practice, ten of which with Deloitte Haskins and Sells
and later in a firm he co-founded in 1990. In 2007 he exited the firm to contribute more towards
the strategic direction of Boards of Directors. He specialises in corporate strategy,
governance, risk and finance. He is today a professional director and a registered fellow
member of the UK Institute of Directors. He serves on Boards of Directors, Audit, and Risk and
Compliance Committees of both listed and private companies in various sectors including
banking, insurance, software and logistics. He is also CEO of the leading logistics company in
Malta. His focus there is sustainable growth in shareholder value, highest degree of readiness
for public listing, and investor-family governance. As part of his social responsibility he also
contributes towards the development of the Malta Institute of Accountants. He is a fellow
member serving on Council since 2007. He was also elected and served as President of the
Institute for the term 2015-2017.
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Board of Directors (Continued)
John Elkins
Non-Executive Director
Mr. Elkins currently serves on the boards of FINCA International, ELATERAL Ltd., Travelex Inc.
and RS2 Software p.l.c.. Mr. Elkins served as President, International Regions at First Data (a
global leader in electronic payments with operations in 35 countries) until June 2015. Mr. Elkins
had full responsibility for over 8,000 employees and all markets outside of the United States.
Mr. Elkins served as a Senior Adviser at McKinsey & Company (2007-2009). Between 2002 and
2007 he served as Executive Vice-President and Global Chief Marketing Officer for Visa
International. Mr. Elkins was the founder, former Chairman and CEO of FutureBrand, built from
a start-up into one of the leading worldwide corporate brand and design consultancies.
Prof. Dr. Raša Karapandža
Non-Executive Director
Prof. Karapandža is a Professor of Finance and serves as Vice Dean Education at EBS
University, Germany. He also serves as an academic director of the Masters in Finance
programme and head of chair of finance. He received a PhD degree in economics and finance
from Barcelona Graduate School of Economics, University Pompeu Fabra, Barcelona. He has
been a visiting research scholar at New York University and at University of California at
Berkeley. He currently also serves as a visiting professor at New York University (NYU). Prof.
Karapandža’s work has been featured in top media outlets like The Wall Street Journal, The
New York Times, and Der Spiegel. He advised members of the US congress on the topics of
regulating cryptocurrencies and other block chain related technologies. He was elected
favourite professor by the EBS business school’s student body for his teaching ten years in a
row — in 2009 through 2020. At EBS University Prof. Karapandža teaches Investments, Finance,
Corporate Finance, Asset Pricing and Fintech class. At NYU Prof. Karapandža teaches a
Fintech course as well as NYU Stern courses on Foundation of Financial Markets and Advanced
Investments.
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Board of Directors (Continued)
David Price
Non-Executive Director
Mr. Price is the Managing Director of Client Coverage in Barclaycard Commercial Payments, a
proven leader within the payments industry, with 15 years’ experience of working within the
Barclays Group. Mr. Price is currently responsible for the Corporate Business within Commercial
Payments as well as building propositions across the whole Barclays Corporate network. Prior
to working in commercial payments, Mr. Price spent 12 years in Payment Acceptance at
Barclaycard, where he developed specialisations across new product deployment,
multinational client acquisition and relationship management. His extensive payments
experience and dedicated client focus gives Mr. Price an extremely interesting perspective on
payment trends, regulation and most importantly what this means to Barclaycard’s customers
and clients.
Dr. Ivan Gatt LL.D.
Company Secretary
Dr. Gatt LL.D. represents clients in a broad spectrum of substantive legal areas. Having vast
experience in advising companies and board committees on corporate governance, he has
facilitated a variety of transactions, including securities offerings, venture capital investments,
corporate acquisitions, regulatory and compliance matters. In addition, he assists clients with
annual general meeting preparation and gives advice on numerous regulatory and
compliance matters. Dr. Gatt has presided over the Levy Appeals Board and the Customs and
Excise Tax Appeals Board of the Ministry of Finance. Dr. Gatt is a Partner at GTG Advocates.
16 | Management Report Annual Report 2021
KSU Freshers‘ Week
Ladybird Foundation
Corporate Social
Responsibility
Student Interns
Hybrid Automobiles
Kavallieri Handball Club
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Corporate Social Responsibility
RS2’s Corporate Social Responsibility (CSR) strategy is aligned with the Company culture and
values embedded in its ethical principles. Within the RS2 Group, we are committed to creating
value and building a sustainable future for our customers, team members, shareholders and
the broader community in which we operate.
RS2’s social responsibility activities are primarily focused on strengthening global communities,
supporting people, education, philanthropic organisations, sports clubs and improving the
environment. We are dedicated to continuous improvement and we are committed to
evolving our environmental, social and community initiatives going forward. Our priorities fall
under three pillars: People, Social Initiatives and Environment.
People
Building a thriving, diverse, inclusive workplace. Our team members are one of RS2’s
greatest strengths. Furthermore, we believe that a company culture focused on diversity and
inclusion is the key driver of creativity and innovation. We therefore strive to make RS2 a great
place to work and foster a culture of inclusion and diversity where all team members are
treated with respect and equality, regardless of gender, ethnicity, sexual orientation, gender
identity, religious beliefs or other characteristics. At RS2, we have more than 480 team
members with 51 different nationalities which highlights our diversity. Our female team
members comprise 33.5% of the Company and we are focused on increasing the proportion
of women in all levels of the Group. Having a team from diverse backgrounds helps bring fresh
ideas and drives innovation, advancing RS2’s growth and success.
Learning and Developing Skills. The skills and competencies of our team members are
important for RS2’s growth and lasting success. With comprehensive training and
development programs, RS2 continuously supports our teams to further develop their skill set.
The Company’s Trainings Academy provides a variety of comprehensive virtual and instructor-
led courses that focus on technical, business and IT skills to strengthen and enrich team
members’ expertise. Furthermore, RS2’s Compliance Portal gives access to legal, ethics and
global compliance training. Through videos, interactive sessions and short quizzes, our teams
enhance their knowledge and professionalism, ensuring adherence to legal regulations and
the ethical use of data and resources to help prevent conflicts of interest. All team members
and managers are obligedto receive the Compliance trainings which cover courses such as
Anti-Fraud and Payments Handling, General Data Protection, Payment Card Industry Data
Security Standards and Security Awareness and Information security.
Improving Mental Health & Well-Being. The COVID-19 pandemic also posed a mental
health challenge for individuals. In support of team members’ emotional health and their
overall well-being, we encouraged all team members to join several virtual mental health
sessions, organised by our Human Resources team in collaboration with the Richmond
Foundation. Since the Company deployed working from home during that time, the Human
Resources team kept everyone's morale up with surprise home deliveries of plants and holiday
treats.
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Corporate Social Responsibility (Continued)
Attracting New Talents. Our recruitment process starts at universities, giving RS2 the
opportunity to meet potential candidates and to identify future professionals. RS2 frequently
participates in university fairs, including KSU Malta Careers Expo and KSU Freshers’ Week at
the University of Malta, as well as the ICTSA Industry Expo organised by the Faculty of ICT at
the University of Malta. Furthermore, our Human Resources team nurtures a close relationship
with the faculties and universities, helping to unlock a talent pool of well-educated and high-
potential students.
Social Initiatives
RS2 is committed to positively contribute to society by leveraging our knowledge and actively
supporting local communities.
Promoting Education. RS2 promotes various initiatives to give numerous young people the
relevant exposure and the right training required to become future contributors to the Fintech
industry.
For the past years, RS2 has made it a point to partake wholeheartedly in events and
programs that promote job exposure opportunities to students. One such event is MITA’s
Student Placement Program. The partnership, with the said agency, has given rise to scores
of students gaining hands-on work experience within diverse departments at RS2. In order to
unlock potential, students are mentored by senior executives and given the opportunity to
delve and participate in projects which in turn hone their technical skills. RS2 provides students
the possibility to work during both the summer holidays and the scholastic year. Upon
completion of studies, many students have been offered full-time employment with the Group.
It is also worth mentioning that RS2 has regularly collaborated with MCAST and acted as the
main sponsor for select events, to provide their students with experience in a technology
company. RS2 firmly believes that this program provides value to the local community while
creating a gateway for RS2 to gain prospective new employees with new talents.
Supporting Communities. RS2 supports various philanthropic organisations as well as
numerous sports and culture programs. Some of these organisations have continued to
receive our ongoing support for a number of years and have grown to consider RS2 as a loyal
partner and contributor. Furthermore, RS2 works with organisations involved in alleviating local
social issues, using a fund with volunteer donations from employees to donate to charitable
institutions. In the reporting year, RS2 has supported the following organisations in Malta,
Philippines and Germany:
•
Dar tal-Providenza
•
Ladybird Foundation
•
Puttinu Cares
•
Cystic Fibrosis Fundraising
• L-Istrina
• Ramon Aboitiz Foundation in the Philippines
•
Dar Merhba Bik
•
MCAS
•
Women for Domestic
Violence
•
Smiling for Jerome
•
Kavallieri Handball Club
• Kings Cup Youth Soccer Tournament
— Spielvereinigung 03 Neu-Isenburg e.V.
All of RS2’s CSR activities help to promote a strong and healthy team relationship, which
proves to be highly beneficial given the extensive growth the Group has experienced in the
past couple of years.
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Corporate Social Responsibility (Continued)
Environment
RS2 remains committed to minimise our footprint on the environment by reducing our energy
consumption, limiting waste and conserving water across our facilities globally. We encourage
all team members to engage themselves on environmental and sustainable matters.
Reducing our environmental footprint. The business model of RS2 in essence has minor
environmental impact. While our global digital platform eliminates paper usage, saving trees,
conserving water and mitigating climate change, our operations impact the environment.
However, RS2 is still committed to reduce its environmental footprint by increasing the eco-
efficiency of our data centres, offices and reducing of business travels. As part of our CO
2
reduction effort, RS2 has started replacing the majority of its car fleet with hybrid vehicles.
Adopting these hybrid technologies will help reduce RS2’s carbon footprint due to less fuel
consumption resulting in lower CO
2
emissions. To further limit paper usage in the offices, RS2
utilises digital signatures for a large number of administrative purposes.
Using water efficiently. Since water is the source of all life, RS2 is taking all possible measures
to use water more efficiently and has also implemented conserving practices such as water-
efficient landscaping across our office footprint. In our building in Malta, the Company uses
rain water collected in an underground reservoir for planned and controlled irrigation through
the use of automatic control timers and feeders. This ensures the optimisation of water usage
according to crop type and season.
Using electricity efficiently. Reducing energy use lowers the running costs and protects the
climate at the same time. The Company already made important steps to use electricity
efficiently by converting to LED lighting in its offices and implementing motion sensor lights to
conserve energy.
Reducing waste. We aim to drive a culture of continuous environmental improvement by
disposing and separating waste generated by our Company in a safe and responsible manner
in the necessary bins placed in various key areas. The generated waste and disposal methods
are measured and reported to ensure we are making progress in our effort to reduce waste.
RS2 is confident that it will continue to achieve a balanced and holistic value for its
stakeholders and will strive continuously to promote sound CSR initiatives. At the same time,
RS2 will continue to positively affirm its efforts to become a sustainable Group and a market
leader within the Fintech industry. We will continue to innovate and evolve our efforts going
forward.
21 Annual Report 2021
1
Directors’ Report
For the year ended 31 December 2021
The Directors present their report, together with the financial statements of RS2 Software p.l.c.
(the “Company”) and its subsidiaries, RS2 Smart Processing Limited, RS2 Software INC., RS2
Software LAC LTDA, RS2 Software APAC Inc., RS2 Germany GmbH and RS2 Merchant Services
Europe GmbH, together with its subsidiaries RS2 Financial Services GmbH and RS2
Zahlungssysteme GmbH (collectively referred to as the “Group”), for the year ended 31
December 2021.
Board of Directors
Mr. Mario Schembri (Chairman)
Mr. Radi Abd El Haj (CEO)
Dr. Robert Tufigno
Mr. Franco Azzopardi
Mr. John Elkins
Prof. Raša Karapandža
Mr. David Price
Principal activities
The Group and the Company are principally engaged in the development, installation,
®
. Through its subsidiaries, the Group acts as service provider with the use
of BankWORKS
®
(Processing Solutions) and has recently established its own ‘Acquiring’
business line by making use of a financial institution license obtained through BaFin, the
German regulator (Merchant Solutions).
During an Extraordinary General Meeting held on 15 December 2020 the Company enhanced
its activities to include acquisition and holding of shares and like instruments, in entities whose
activities are complimentary to the business of the Company, including entities that are
payment, financial or credit institutions, and provider of services to such institutions as well as
merchants.
Business review and future developments
2021 has proven to be a year of continued execution of strategy to deliver the planned growth
of the Group.
During the financial year ending 31 December 2021, RS2 Group added new countries to its
client base in both the APAC and LATAM regions.
22 Annual Report 2021
1
Directors’ Report (Continued)
In APAC, the Group engaged in deploying new customers on its cloud in Singapore, Indonesia
and Australia, while in LATAM the Group increased its customer base in both Brazil and
Columbia. With the on boarding of new clients, RS2 has more than doubled the volume of
transactions processed on the RS2 Smart Processing Limited platform during 2021 when
compared to those processed in prior years. This increase is expected to continue to progress
with a gradual increase from the Group’s current clients as well as through the on boarding of
new clients.
The Group’s investment in human resources provided the necessary support in order to
successfully launch the new acquiring business and obtain the EMI License, through BaFin. This
will enable RS2 to provide a wide range of payment acceptance and other financial services
to merchants and consumers across Europe, as well as to process cross-border merchant
payments globally. The new acquiring business will also bring about a substantial change in
the revenue model for RS2 Group, from dependence on one-time license fees to ongoing and
recurring revenue based on the number and value of transactions processed. The launch of
the Group’s Financial Services sector, following the acquisition of its EMI license, was
concluded successfully in the second quarter of 2022.
In the first half of 2021, RS2 Software p.l.c. successfully raised €15,731,800 in its Preference
Shares Public Offering (PO). A total number of 8,989,600 shares were subscribed for at the offer
price of €1.75 per share. Such shares carry a nominal value of €0.06 per share. In line with the
Group’s business strategy, the additional liquidity generated from the Preference Shares PO
has enabled it to accelerate growth over the coming years by further investing in both the US
and Merchant Solutions arms of the Group, as well as a number of internal projects and
infrastructure.
During the year under review, the Company registered revenues from its principal activities of
€24.5m (2020: €23.8m) and a profit before tax of €5.3m (2020: €5.8m). The Managed Services
arm of the Group, RS2 Smart Processing Limited which is principally engaged in the processing
of payment transactions with the use of BankWORKS®, recorded revenues of €7.5m (2020:
€4.0m) and a profit before tax of €2.1m (2020: loss before tax of €0.2m) while RS2 Software
INC., which serves as the US arm of the Group with specific focus on the provision of Managed
Services in North America, recorded revenues of €16.1m (2020: €8.9m) and a profit before tax
of €0.8m (2020: loss before tax of €5.1m). RS2 Software APAC Inc. is currently supporting the
Company in product development and its expansion in the APAC region. The RS2 German
subsidiaries focus mainly on direct merchant acquiring and issuing services using one platform
that integrates through API to the merchant’s website or store, thereby consolidating the
entire business of the merchant across all the respective payment channels.
During the year under review, on consolidating all of its activities, the Group generated
revenues of €38.7m (2020: €26.8m) and registered a profit before tax of €6.4m (2020: loss
before tax of €3.9m). At 31 December 2021, the Group’s total assets amounted to €47.6m (2020:
€38.1m), whereas its current assets exceeded its current liabilities by €7.5m (2020: current
liabilities exceeded its current assets by €9.1m). The Board of Directors therefore is confident
that the Group can continue to operate as a going concern for the next 12 months from date
of approval of the financial statements as set out on in the Going Concern section below.
A comprehensive review of the business and performance of the Group during the year under
review, and an indication of future developments are given in the CEO’s Statement set out on
pages 8 to 12 of this Annual Report.
23 Annual Report 2021
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Directors’ Report (Continued)
Going Concern
Management has prepared a going concern assessment for RS2 Group, based on the 2021
financials whilst also taking into consideration approved budgets covering periods 2022 to
2024.
At the start of the COVID-19 pandemic, RS2 Group reacted quickly and seamlessly, and all
business lines were switched to working remotely. The Group’s diversified business profile and
the stable contracted revenues helped mitigate the impact the pandemic had on the Group’s
performance. The Software (Licensing) Solutions business is a stable business with a large part
of revenues being contracted revenues. The Processing Solutions business generated higher
revenue when compared to the previous year despite implications brought about by COVID-
19. The business of RS2 Software INC. in the US is also significantly contributing to the revenue
growth of the Group, albeit slower than originally anticipated, primarily due to a delay in the
launch of the ISO business, which was successfully launched in the first quarter of 2022.
RS2 continues to observe the economic landscape to assess potential risks to its future
operations. Climate change is a topic increasingly gaining momentum because of its potential
effect on companies’ business models, cash flows, financial position and financial
performance. While most industries are likely to be affected by climate change and efforts to
manage its impact, some will be more affected by others. The Group is currently not aware of
any present indicators but will continue to monitor the situation so that if any indicators arise
through its customer base, supply chain, bankers, insurers, investors or jurisdiction, these will
be disclosed and reflected accordingly in the Group’s Annual Report.
From a profitability point of view, in 2022, both Software (Licensing) and Managed Services
Solutions are expected to continue delivering a positive bottom line contribution with the
Merchant Solutions arm of the Group expected to start generating a positive bottom line
contribution as from 2023.
On the other hand, from a liquidity perspective, RS2 Group has a solid cash position. The
funding generated from the preference share issue enabled the Group to effectively
implement its strategy, without the need for any short-term bank borrowings for working
capital requirements. RS2 Software p.l.c. has a credit line of €10m available with a local bank,
to meet any future working capital requirements.
In this respect, the Board of Directors is confident that the Group can, not only continue to
operate as a going concern for 12 months from the end of the reporting period, but will
continue to see substantial growth over the coming years.
Principal Risks and Uncertainties
In its operations, the Group has exposure to credit risk, liquidity risk and market risk. The
Group’s objectives, policies and processes target to mitigate the effect of such risk by
constantly measuring and managing such risk, whilst proactively managing its capital. A more
comprehensive outlook of such risk exposure and the Group’s response can be viewed in Note
6 to these financial statements.
24 Annual Report 2021
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Directors’ Report (Continued)
Non-financial risks
i. Market forces and competition
The market in which the Group operates is characterised by rapidly evolving technology and
industry standards, as well as new competitors such as FinTechs and Big Techs entering the
market, driving change and market disruption, bringing new business models to the market.
RS2 must be able to compete with such companies and meet the need for innovation in its
industry. In this regard, over the past years, the Group continued to enhance its platform by
adding new tools that streamline the operation of its clients and differentiate it from
competition in order to onboard more businesses from various industries on its platform
globally. In the last years, the Group invested significantly in its proprietary BankWORKS
®
. This
investment represents development work carried out internally by the Group on enhancement
of BankWORKS
®
and its functionality.
ii. Dependence on key clients
RS2 generally benefits from a highly diversified global client base, including Banks, PayFacs,
PSPs, ISVs, acquirers and issuers. However, since some of its clients are large and global
corporates with a high aggregated payment and processing volume, these key clients stand
for a large proportion of the Group’s revenue. Although Management believes that its
relationships with these key clients are stable, its ability to renew existing agreements with
them, or to enter into new contractual relationships on commercially attractive terms,
depends on a range of commercial and operational factors and events, any of which may be
beyond RS2’s control.
To broaden its client base, markets and opportunities, the Group is investing significantly in its
US subsidiary, namely its processing platform that will be the foundation of the processing
solution in the US, as well as in the operations to ramp up. Furthermore, the Group injected
equity and capital reserves to setup its third business line being Merchant Services, including
its application of the EMI license. In line with the Group’s strategic shift towards Merchant
Solutions, the Group acquired Kalicom Zahlungssysteme GmbH in 2020. This acquisition
provided RS2 with a quick start into the direct acquiring business with immediate capabilities
of selling, installing and servicing terminals and processing card transactions in the German
market for small and mid-size accounts.
iii. Software risk
It is an inherent risk of this industry that software applications could contain undetected errors
which could lead to the software not operating as intended. Any failure of the Group’s current
or future platforms, software and technology infrastructure, including the Cloud-Solution,
could materially adversely affect its business, results of operations, financial condition or
prospects. In this regard, RS2 has developed and continues to develop its own bespoke
processing platform BankWORKS
®
, software and technology infrastructure and operates and
maintains the processing-platform, which are critical to RS2’s operations, customer service
and reputation.
25 Annual Report 2021
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Directors’ Report (Continued)
iv. Cyber security risk
Similar to business and technology, cyber threat evolves and is always present. The most
common cyber security threats result in risks associated with either data breach or service
provision disruptions. The nature of RS2’s business and of its customers and partners, who use
the processing services involve systems and environments that possess large amounts of
sensitive data. RS2 cloud services and data centres as well as its operations, store and
transmit sensitive information related to cardholders, merchants and financial institutions
including names, addresses and accounts amongst other information that could be vulnerable
to computer viruses, physical and cyber-criminal attacks and web fraudsters that could lead
to destruction or theft of transaction data and/or personal data. This could lead to financial
losses or delays in providing services to the customers.
To mitigate such risk, the Group will continue expanding its security resources and tools to
fight and protect its systems and facilities in order to cover any attack or eventualities using
its disaster recovery system and procedures that has been built in various locations to fit this
purpose. In this regard, vulnerability scanning, awareness training, ongoing investments in
security operations, incident security planning, supply chain monitoring, information security
policies, insurance and compliance with regulatory requirements through annual audits are
carried out.
v. Risk to intellectual property and proprietary rights
The Group regards its intellectual property as critical to its success. It relies and will rely on a
combination of trade secret, copyright, trademark and non-disclosure laws, domain name,
registrations and other contractual agreements and technical measures to protect its
intellectual property rights (IPR). To mitigate this risk, RS2 generally seeks to enter into
confidentiality or license agreements with its employees, consultants and clients. The Directors
consider that, currently, RS2 has appropriate systems and procedures to control access to
and distribution of its intellectual property documentation and other proprietary information
and are continually on the lookout for new tools to protect its IPR in the future.
26 Annual Report 2021
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Directors’ Report (Continued)
Dividends
No dividends are being recommended for the year ending 31 December 2021 (2020: NIL).
Reserves
Retained earnings amounting to €22.8m (2020: €19.2m) for the Company and €5.0m (2020:
€1.8m) for the Group are being carried forward.
Key Figures
The Group
2021 2020 2019 2018 2017
€ € € € €
Revenues (Eur 000s) 38,680 26,813 22,100 25,008* 17,380
EBITDA (Eur 000s) 8,760 (1,464) (210) 7,846 2,895
EBITDA margin (%) 22.65% -5.46% -0.95% 31.37% 16.66%
Profit/(loss) before tax (Eur 000s) 6,416 (3,889) (2,115) 6,565 1,226
Earnings/(Loss) per ordinary share €0.02 -€0.02 -€0.01 €0.03 €0.01
Earnings per preference share €0.02 - - - -
Equity to asset ratio (%) 53.41% 18.56% 44.28% 61.51% 69.91%
Debt/equity ratio multiple 0.87 4.39 1.26 0.63 0.43
* Includes the release of deferred income as at 1 January 2018, amounting to €5.6m, as a result of the
adoption of IFRS 15.
As from 1 January 2021, fines and penalties started to be accounted for under Other Expenses instead of under
Finance Costs. As such, EBITDA and EBITDA margin figures between 2017 and 2020 have been re-stated
accordingly.
Subsequent Events
Buy-back of shares of an executive employee of RS2 Software INC. following termination of
employment.
In terms of an agreement entered into in February 2018, an executive (referred to as 'key
management personnel' in Note 27) of RS2 Software INC. was granted 12,500 new shares in
the subsidiary, with certain vesting conditions and restrictions. This executive’s employment
with RS2 Software INC. was terminated in December 2020. A management’s third party expert
was engaged in order to assist in the valuation of the minority stake in RS2 Software INC (refer
to Note 29.3).
27 Annual Report 2021
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Directors’ Report (Continued)
Although as at 31 December 2020, the 12,500 shares of the executive of RS2 Software INC.
were valued at €1m (USD1.2m) by a management's third party expert, RS2 Software INC.'s
Board of Directors held several meetings and in-depth discussions whereby it was agreed by
the Board, that the maximum amount to be offered to the former executive is of €1.36m
(USD1.5m). In this respect, the liability as at the end of the current financial reporting period
accordingly reflects this, being the amount in fact paid to this executive in the first quarter of
2022, reflecting the full and final settlement of this share buy-back transaction.
Settlement of a legal dispute
During the year ended 31 December 2021, a provision in relation to an ongoing dispute with a
former employee of RS2 Software p.l.c. terminated on 26 May 2020, was accounted for
accordingly. During the first quarter of 2022, an out of court settlement agreement took place
in respect of this legal obligation by RS2 Software p.l.c.. The parties signed a settlement
agreement in February 2022, agreeing to a payment of €12,579.
Resignation of a senior management employee having a performance-related share-based
payment (equity-settled)
In the first quarter of 2022, an employee who was due to receive a performance-related
share-based payment (equity-settled) agreed to receive the respective amount in cash
instead. Such amount of €255,000 was settled in March 2022.
Settlement Agreement with a Party related to the Strategic Arrangements in place within the
travel industry
In February 2018, the Group entered into an agreement with a party related to the strategic
arrangements in place within the travel industry. The Group incurred €1m worth of contract
costs mainly related to the costs incurred by the Group in relation to the provision of scoping
and development services necessary for the implementation of pilot services, in anticipation
of a potential long-term strategic relationship with this party, for the development and
commercialisation of a customised processing and payments solution for use in the travel
industry. The total costs incurred were fully provided for in the financial year ended 31
December 2020 since the project was put on hold, and subsequently written off in the current
financial year since there was no potential of the project ever kicking-off any longer. That
being said, subsequent to year end, the aforementioned party approached RS2 with a
settlement agreement, which the Group accepted. As per settlement agreement dated 6
March 2022, RS2 received an amount of €229,200 as full and final settlement of the costs the
Group incurred.
Impact of COVID-19 pandemic
The COVID-19 pandemic has, to date, not had any significant impact on Group and Company
operations. Management do not envisage there to be any further repercussions or negative
impacts to the Group’s and Company’s operations in the years to come, specifically due to
the pandemic.
28 Annual Report 2021
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Directors’ Report (Continued)
Conflict between Russia and Ukraine
In February 2022, Russia launched a large-scale military invasion on Ukraine, one of its
neighbours to the southwest, marking a major escalation to a conflict that began in 2014. The
Group and Company do not have any customers domiciled in such countries, and no
significant impact is expected to be incurred.
Pursuant to Capital Market Rule 5.62
Upon due consideration of the Company’s profitability, balance sheet, capital adequacy and
solvency, the Directors are satisfied that at the time of approving the financial statements,
the Company has adequate resources to continue operating as a going concern for the
foreseeable future.
Pursuant to Capital Market Rule 5.64
Rule 5.64.1 - Share capital structure
The Company’s authorised ordinary share capital is of €14,400,000, divided into 240,000,000
ordinary shares, at €0.06 each. The Company's issued ordinary share capital is of €11,578,114
divided into 192,968,569 ordinary shares of €0.06 each, each ordinary share being fully paid up.
All of the issued Ordinary Shares of the Company form part of one class of Ordinary Shares in
the Company, which shares are listed on the Malta Stock Exchange. All of the Ordinary Shares
have the same rights and entitlement and rank pari passu between themselves.
The following are highlights attached to the Ordinary Shares:
Dividends:
The shares carry equal rights to participate in any distribution of dividends declared by the
Company.
Voting rights:
Each share shall be entitled to two (2) votes at the meetings of the shareholders.
29 Annual Report 2021
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Directors’ Report (Continued)
Pre-emption rights:
Subject to the limitations contained in the Memorandum and Articles of Association,
shareholders are entitled to be offered any new shares to be issued by the Company, in
proportion to their current shareholding, before such shares are offered to the public or to any
person not being a shareholder.
Capital distributions:
The shares carry the right for the holders thereof to participate in any distribution of capital
made whether on a winding up or otherwise.
Transferability:
The shares are freely transferable in accordance with the rules and regulations of the Malta
Stock Exchange applicable from time to time.
Other:
The shares are not redeemable.
The Company’s authorised preference share capital amounts to €3,600,000, divided into
60,000,000 preference shares, at €0.06 each. The Company's issued preference share capital
amounts to €539,376 divided into 8,989,600 preference shares of €0.06 each, each preference
share being fully paid up. All of the issued Preference Shares of the Company form part of one
class of Preference Shares in the Company, which shares are listed on the Malta Stock
Exchange. All of the Preference Shares have the same rights and entitlement and rank pari
passu between themselves.
The following are highlights attached to the Preference Shares:
Dividends:
When a dividend is declared payable in respect of any financial period, the holders of
Preference Shares shall be entitled to a dividend at a premium (“Premium Dividend”) over the
dividend distributed and payable to the holders of Ordinary Shares. Such Premium Dividend
shall be determined by the Board of Directors at the time of issue of the dividend, but shall not
be less than ten per cent (10%).
Bonus Shares:
The holders of Preference Shares shall qualify in the same manner as the holders of Ordinary
Shares to be entitled to any bonus shares issued by the Company.
30 Annual Report 2021
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Directors’ Report (Continued)
Voting rights:
The holder shall not be entitled to vote at the meetings of the shareholders except for the
purpose of:
1) reducing the capital of the Company; or
2) winding up of the Company; or
3) where the proposition to be submitted directly affects their rights and privileges; or
4) when the dividend on their shares is in arrears by more than six (6) months.
In such case where the holder of Preference Shares shall have the right to vote, such
shareholder shall have one (1) vote in respect of each Preference Share held.
Pre-emption rights:
The holders of Preference Shares shall not have any rights of pre-emption in respect of
allotment of Preference shares to officers and employees of the Company and, or its
subsidiaries.
Capital distributions:
The holders of Preference Shares shall not be entitled to participate in the assets of the
Company except by way of distribution of assets to its members on its winding up and this in
the same manner as holders of Ordinary Shares. In any such case the holders of Preference
Shares shall not enjoy any preference over the holders of the other shares.
Transferability:
The shares are freely transferable in accordance with the rules and regulations of the Malta
Stock Exchange applicable from time to time.
Other:
The shares are non-cumulative and are not redeemable.
Rule 5.64.3 - Holding in excess of 5% of the share capital
On the basis of the information available to the Company as at 31 December 2021, Information
Technology Management Holding Limited (ITM) and Barclays Bank P.l.c. (Barclays) hold
96,567,522 and 35,216,796 ordinary shares respectively, equivalent to 47.82% and 17.44% of the
Company’s total issued share capital.
31 Annual Report 2021
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Directors’ Report (Continued)
In his capacity as ultimate shareholder of ITM, Radi Abd El Haj indirectly holds 47.82% of the
issued share capital of the Company. As far as the Company is aware, no other person holds
an indirect shareholding in excess of 5% of its total issued share capital.
Rule 5.64.5 – Employee share option scheme
The Company’s share option scheme is administered by the Board of Directors. The decision
of the Board on all disputes concerning share options is final.
Rule 5.64.7 – Restrictions on transfer of securities
By virtue of an agreement entered between ITM and Barclays, ITM undertook that, for so long
as it holds more than 10% of the issued share capital of the Company, upon receiving any offer
from third parties to acquire securities it holds in the Company, it is required to offer any such
shares that it is desirous to transfer to Barclays.
Rule 5.64.8 - Appointment and replacement of directors
The Memorandum and Articles of the Company regulates the appointment of directors. Article
55.1 of the Articles of Association provides that a member holding not less than 0.5% of the
issued share capital of the Company having voting rights or a number of members who in the
aggregate hold not less than 0.5% of the issued share capital of the Company having voting
rights shall be entitled to nominate fit and proper persons for appointment as directors of the
Company. In addition, the directors themselves, or a committee appointed for the purpose by
the directors, may make recommendations and nominations to the shareholders for the
appointment of directors at the next Annual General Meeting.
Furthermore, in accordance with the provisions of Article 55.1(d) of the Articles of Association,
the Board of Directors, may, at any time, appoint a director if it believes that the appointment
would be beneficial to the Company due to the skill, expertise and knowledge of such person.
Article 55.3 of the Articles of Association of the Company also provides that in the event that
the Board is of the opinion that none of the directors appointed or elected in accordance with
the provisions of these Articles is a non-executive independent director competent in
accounting and/or auditing as required by the Capital Market Rules relating to the
composition of the Audit Committee, the Board shall, during the first Board meeting after the
Annual General Meeting, appoint a person who is independent and competent in accounting
and/or auditing as a non-executive director, and shall appoint such person to the Audit
Committee.
Unless they resign or are removed, directors shall hold office for a period of one year. Directors
whose term of office expires, or who resign or are removed, are eligible for re-appointment.
32 Annual Report 2021
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Directors’ Report (Continued)
Any director may be removed at any time by the Company in a general meeting, provided
that the director who is to be removed shall be given the opportunity of making
representations. A resolution for the appointment and/or removal of a director shall be
considered to be adopted if it received the assent of more than fifty percent of the members
present and voting at the general meeting.
Rule 5.64.8 - Amendments to the Memorandum and Articles of Association
Amendments to the Memorandum and Articles of Association of the Company are regulated
by the Companies Act, 1995 (Chapter 386, Laws of Malta). Subject to the provisions of Article
79 of the Act, and the Approval of the Malta Financial Services Authority, the Company may,
by extraordinary resolution, alter or add to its Memorandum and Articles of Association.
Rule 5.64.9 - Powers of the Board members
The directors are vested with the management of the Company, and their powers of
management and administration emanate directly from the Memorandum and Articles of
Association and the law. The directors are empowered to act on behalf of the Company and
in this respect have the authority to enter into contracts and sue and be sued in representation
of the Company. In terms of the Memorandum and Articles of Association they may do all such
things that are not, by the Memorandum and Articles of Association, reserved for the Company
in general meeting.
By virtue of an extraordinary resolution of the shareholders dated 15 December 2020, the
Board of Directors is authorised to issue any share capital of the Company which is unissued,
which authority is valid for a maximum period of five (5) years, renewable for further periods of
five (5) years each. As at 31 December 2021, the Company had forty-seven million thirty-one
thousand four hundred thirty-one (47,031,431) Ordinary Shares and fifty-one million ten
thousand four hundred (51,010,400) Preference Shares in unissued share capital.
Rule 5.64.11 – Agreements with employees
The Company and one of its subsidiaries, have agreements with employees holding senior
management positions and directors providing for compensation upon termination based on
either an agreed fixed amount or the then applicable annual salary. Such agreements include
a non-competition clause, precluding such employees from competing with the Company and
one of its subsidiaries, in the event that their employment is terminated. In order for these non-
competition clauses to be enforceable, the Company and one of its subsidiaries, are bound
to grant these individuals a sum based on an agreed fixed amount or the then applicable
annual salary.
33 Annual Report 2021
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Directors’ Report (Continued)
In 2017, the Company entered into an agreement with a newly recruited employee holding a
senior management position whereby should the employee achieve a pre-set percentage
over the agreed performance target linked to net profit over three consecutive calendar years
commencing from date of employment, the Company, may at its absolute discretion, grant to
the particular employee a one-time assignment of shares to the equivalence of a pre-agreed
Euro amount. At the end of the three-year period, the Board discussed the aforementioned
employee’s agreement and the respective benefit that could be awarded. As the Group is
fulfilling its growth strategy, and is still heavily investing in territories such as the US and
Germany, this resulted in a net loss rather than a net profit at the end of the three-year period.
Despite this, the obligation to this employee was honoured by awarding the individual 85% of
the total agreed upon compensation.
In 2018, one of the newly formed Company’s subsidiaries entered into an agreement with a
new senior member of the management team, to the effect of allocating 12,500 shares in the
subsidiary, whereby the individual obtained all the rights of a shareholder, including the right
to vote and to receive any dividends with respect to such shares, provided however that the
individual may not sell, transfer, pledge or assign unvested Award shares. The Award shares
vested in equal instalments over 36 months during which the employee must be in office. The
arrangement also included the right by the company to repurchase and the right by the
executive to sell the vested Award shares at fair market value in the case of termination or
resignation happening after the expiration of a fixed specified period. The aforementioned
executive’s employment with RS2 Software INC. was terminated in December 2020 and
accordingly the right to sell the vested shares was triggered.
During 2019, one of Company’s subsidiaries entered into a number of agreements with five
employees, to the effect of allocating 5,626 share options in the subsidiary, with 75% vesting
taking place over 36 months during which the employee must be in office and the remaining
25% vesting taking place over the next 12 months, during which the employee must be in office.
On the tenth anniversary of the grant date or on the termination of employment, any award
shares that have not vested shall automatically be forfeited. Upon termination, all shares
issued upon exercise of the options shall be subject to a call option by the company to
repurchase at fair market value. Three of the five individuals terminated their employment,
while the remaining two individuals signed an amendment to the original agreement granting
the share options to be effective from their respective employment start date. From the total
allocated share options of 5,626 during 2019, 1,563 share options remain in effect as at 31
December 2021.
34 Annual Report 2021
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Directors’ Report (Continued)
Other disclosures pursuant to Rule 5.64
No disclosures are being made pursuant to Rules 5.64.2, 5.64.4, 5.64.6, 5.64.10 as these are not
applicable to the Company.
Approved by the Board of Directors on 27 April 2022 and signed on its behalf by:
Mario Schembri Radi Abd El Haj
Chairman Director
35 Annual Report 2021
1
Corporate Governance Statement of
Compliance
For the year ended 31 December 2021
Pursuant to the Malta Financial Services Authority Capital Market Rules 5.94 and 5.97, RS2
Software p.l.c. (“the Company”) is hereby presenting a statement of compliance with the Code
of Principles of Good Corporate Governance (“the Principles” or “the Code”) for the year ended
31 December 2021, which details the extent to which the Principles have been adopted, as well
as the effective measures taken by the Company to ensure compliance with these Principles.
Good corporate governance is the responsibility of the Board of Directors (“the Board”), which
adopts the Principles and endorses them accordingly. The Board believes that adoption of
the Principles is evidence of the Company’s commitment to a more transparent governance
structure in the best interest of its shareholders and the market as a whole.
As demonstrated by the information set out in this statement, together with the information
contained in the Remuneration Report, the Company believes that it has, save as indicated in
the section entitled “Non-Compliance with the Code”, throughout the accounting period
under review, applied the Principles and complied with the provision of the Code. In the Non-
Compliance Section, the Board indicates and explains the instances where it has departed
from or where it has not applied the Code, as allowed by the Code.
Part 1: Compliance with the Code
Principle One: The Board
The Board is composed of one (1) executive director and six (6) non-executive directors.
All the Directors, individually and collectively, are of the appropriate calibre with the necessary
skills, diversity of knowledge and experience to assist them in providing leadership, integrity
and judgement in directing the Company.
The Board is entrusted with establishing the long-term strategy, objectives and policies of the
Company and ensuring that these are pursued within the parameters of the relevant laws and
regulations and best business practices.
Further detail in relation to the Committees and the responsibilities of the Board may be found
in Principle four of this statement.
Principle Two: Chairman and Chief Executive
In line with the Principles, the roles of the Chairman and the CEO are kept separate. The
Company adopts a structure of clear division of responsibilities between the running of the
Board and the management of the Company’s business. The Chairman is responsible to lead
and set the agenda of the Board. The Chairman ensures that the Board’s members are all
actively engaged in discussions and receive precise, timely and objective information so that
the Directors can take judicious and rigorous decisions to be able to effectively monitor the
performance of the Company.
The Chairman is also responsible for communicating with shareholders. During 2021, the
position of Chairman was occupied by Mr. Mario Schembri.
36 Annual Report 2021
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Corporate Governance Statement of
Compliance (Continued)
The delegation of specific responsibilities to appropriate Committees, namely the Audit
Committee and the Remuneration Committee is taken care of by the Board. On the other
hand, the CEO takes care of the day-to-day running of the Company’s business. During 2021,
this position was occupied by Mr. Radi Abd El Haj.
Principle Three: Composition of the Board
The number of directors shall be not less than three (3) and not more than eight (8) individuals.
This range provides diversity of thought and experience without hindering effective discussion
or diminishing individual accountability. Members of senior management also attend
meetings, albeit without a vote, at the request of the Board, as and when necessary. The
Board is currently composed of one (1) executive director (CEO) and six (6) non-executive
independent directors. In determining the independence or otherwise of its Directors, the
Board has considered, amongst others, the Principles relating to independence contained in
the Code, the Company’s own practice as well as general good practice.
In accordance with Code Provision 3.2 of the Code, the Board has taken the view that the
business relationship existing between the Company and two of its directors, Mr. Mario
Schembri and Dr. Robert Tufigno, is not significant and thus does not undermine the said
Directors’ ability to consider appropriately the issues which are brought before the Board.
Apart from possessing valuable experience, the Board feels that the Directors in question are
able to exercise independent judgement and are free from any relationship which can hinder
their objectivity. The appointment of directors to the Board is reserved exclusively to the
Company’s shareholders, except in so far as an appointment may be made to fill a casual
vacancy on the Board or to comply with the provision of the Capital Market Rules, relating to
the members of the Audit Committee. Prior to being appointed as directors, nominees undergo
a due diligence process by the Company, to establish that they are fit and proper persons.
Principle Four: The Responsibilities of the Board
The Board has the first level responsibility of executing the four basic roles of corporate
governance namely accountability, monitoring, strategy formulation and policy development.
The Board regularly reviews and evaluates corporate strategy, major operational and
financial plans, risk policy and the performance of the Company. The Board has a formal
schedule of matters reserved for it to discuss and includes a review of the management’s
implementation of corporate strategy and corporate objectives, assessment of the
Company’s present and future operations, opportunities, risks and threats emanating from the
external environment as well as current and future strengths and weaknesses.
When a Director is unable to agree with a decision of the Board, because a proposed course
of action is not deemed to be consonant with his statutory or fiduciary duties and
responsibilities, and all reasonable steps have been taken to resolve the issue, the Director
can either opt to formally note his reasons for objection to any decision of the Board, or
alternatively if the decision is of such material importance, then resignation may be the better
alternative. When a Director may feel that resignation may be a better alternative to
submission, which objectively is of material importance to the shareholders, then an
appropriate announcement will be made.
37 Annual Report 2021
1
Corporate Governance Statement of
Compliance (Continued)
Board Committees
The Board has established the Audit Committee and the Remuneration Committee.
Audit Committee
The Audit Committee’s terms of reference, which have been approved by the Malta Financial
Services Authority, are modelled on the provisions of the Capital Market Rules, primarily to
monitor the financial reporting process and the effectiveness of the Company’s internal
control procedures. Whilst the Committee vets and approves related party transactions, it
also considers the materiality and the nature of related party transactions to ensure that the
arm’s length principle is adhered to.
The Audit Committee is responsible for managing the Board’s relationship with the external
auditors, monitoring the audit of the annual and consolidated accounts, making
recommendations to the Board on their appointment and monitoring their independence,
especially with respect to non-audit services. In addition, the Audit Committee is responsible
for considering whether a financial internal audit function is required and makes
recommendations accordingly to the Board. In the event that the Committee determines the
necessity of an internal audit function, it shall recommend the role, functions and remit and
how the establishment of such function shall add value to the Company. The Committee shall
constantly monitor and assess the role and effectiveness of the internal audit function.
Moreover, the Audit Committee shall review the Company’s arrangements related to whistle
blowing, also ensuring that such arrangements allow proportionate and independent
investigation of such matters and appropriate follow up action.
Mr. Franco Azzopardi, an independent non-executive director appointed by the Board, acts
and serves as Chairman, whilst Dr. Robert Tufigno and Prof. Raša Karapandža, both
independent non-executive directors, act as members. No changes in the composition of the
committee took place during the year ended 31 December 2021. The Company Secretary, Dr.
Ivan Gatt, acts as secretary to the Committee.
Mr. Franco Azzopardi is a qualified accountant and auditor who the Board considers as the
person competent in accounting and auditing. Prof. Raša Karapandža is a professor of finance
and serves as an academic director of the Master in Finance programme and is deemed to
be a competent member of the Audit Committee. Dr. Robert Tufigno has practised in the fields
of general commercial law, property law and litigation and due to his legal expertise, Dr.
Robert Tufigno is deemed a competent member of the Audit Committee by the Board. The
Board of Directors of the Company considers that the Audit Committee as a whole has the
required competence relevant to the payment software industry. In fact, each member has an
individual skill set which complements the skills required in this industry.
The members of the Audit Committee are free from any business, family or other relationship
with the Company, its controlling shareholder and the management of either. Dr. Robert
Tufigno is a partner in GTG Advocates (legal advisors to the Company), however such
relationship is not considered to be significant and does not create a conflict of interest such
as to jeopardise exercise of his free judgement. The executive directors, members of senior
management and the external auditors are invited to attend meetings at the request of the
Committee, as and when required.
38 Annual Report 2021
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Corporate Governance Statement of
Compliance (Continued)
Meetings held: 7
Attended
Mr. Franco Azzopardi 7
Dr. Robert Tufigno 6
Prof. Raša Karapandža 7
Principle Five: Board Meetings
Meetings of the Board are held as frequently as necessary and are notified by the Company
Secretary with appropriate notice before the meeting. Each agenda for the forthcoming
meeting is accompanied by such papers and documents as are necessary to make directors
informed of the issues to be discussed and in particular the decisions they are expected to
take. Meetings may also include presentations by Management, whilst other information and
documentation is made available for perusal by the directors, at their request. After each
Board meeting and before the next, minutes that faithfully record attendance and decisions
are circulated to all directors. Members of senior management attend meetings at the request
of the Board, as and when necessary.
When the audit committee’s monitoring and review activities reveal cause for concern or
scope for improvement, it shall make recommendations to the Board on actions needed to
address the issue or improvements to be made. The Board shall satisfy itself that any issues
raised by the audit committee and the external Auditor and communicated to the Board, have
been adequately addressed.
The Board meetings were attended as follows:
Meetings held: 5
Attended
Executive Director
Mr. Radi Abd El Haj (CEO) 5
Non-executive Directors
Mr. Mario Schembri (Chairman) 5
Dr. Robert Tufigno 5
Mr. Franco Azzopardi 5
Mr. John Elkins 4
Prof. Raša Karapandža 5
Mr. David Price 4
Dr. Ivan Gatt occupies the position of Company Secretary.
39 Annual Report 2021
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Corporate Governance Statement of
Compliance (Continued)
Principle Six: Information and professional development
The CEO is appointed by the Board and enjoys the full confidence of the Board. The CEO,
although responsible for the recruitment and selection of senior management, consults with
the Remuneration Committee and the Board on the appointment of, and on a succession plan,
for senior management.
As part of the Company’s succession planning, the Board implements appropriate schemes
to recruit, motivate and retain highly qualified individuals by creating the right environment
and opportunities to move forward within the organisation. On their appointment, new
directors are provided with briefings by the CEO and the other Chief Officers on the activities
of their respective business area. Ongoing training of directors, management and employees
is seen as very important.
The Directors have access to the advice and services of the Company Secretary and
supporting legal advice, and are entitled, as members of the Board, to take independent
professional advice on any matter relating to their duties, at the Company’s expense. The
Directors are fully aware of their responsibility to always act in the best interest of the
Company and its shareholders as a whole, irrespective of whoever appointed them to the
Board.
Principle Seven: Evaluation of the Board
During the year under review, the Board undertook an evaluation of its own performance. The
Board appointed a sub-committee, comprised of Dr. Robert Tufigno and Mr. Franco Azzopardi
to carry out the performance evaluation of the Board and its Committees. The evaluation
exercise was conducted through a Board effectiveness questionnaire. The results were
communicated to the Chairman and then discussed at Board level and there were no material
changes in the Company’s governance structures and organisation to report.
Principle Eight: Committees
The Remuneration Committee is dealt with under a separate section in the Annual Report
entitled “Remuneration Report” which can be found on pages 44 to 47. This section also
includes a “Remuneration Statement” which deals with the remuneration of Directors and
senior management.
Principles Nine and Ten: Relations with Shareholders, Market, and Institutional
Shareholders
The Company is highly committed to having an open and communicative relationship with its
shareholders and investors. At the Company’s Annual General Meeting (AGM), the Board
ensures that information is communicated to the shareholders in a transparent and
accountable manner. The ordinary business at the AGM is to consider the financial statements
of the Company, the directors’ and auditors’ report for the period, to approve any dividend
recommendation by the directors, to elect the directors and to appoint the auditors. The
Chairman ensures that all Directors of the Board who include the Chairmen of the Audit and
Remuneration Committees are available at the AGM in order to answer questions.
40 Annual Report 2021
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Corporate Governance Statement of
Compliance (Continued)
The Board also considers the Annual Report to be an effective document which, in addition to
statutory disclosures, contains detailed information about the Company and its performance.
At the time of the AGM or whenever there are any significant events affecting the Company,
meetings are held with institutional investors, financial intermediaries and stockbrokers. The
Board recognises the importance of providing the market with regular, timely, accurate,
comprehensive and comparable information in sufficient detail to enable investors to make
informed decisions. Periodic Company announcements are issued in accordance with the
Capital Market Rules to maintain a fair and informed market in the Company’s equity
securities. The Board discharges its obligations under the Memorandum and Articles of
Association, legislation, rules and regulations by having in place formal procedures for dealing
with potentially price-sensitive information and ensuring the proper conduct of its officers and
staff in this regard. These procedures are incorporated in an Internal Code of Dealing which is
drawn up in accordance with the requirements of the Capital Market Rules and which applies
to all directors and key employees of the Company.
The Board believes that shareholders should have an opportunity to send communications to
the Board. Any communication from a shareholder, to the Board generally or to a particular
director, should be in writing, signed, contain the number of shares held in the sender’s name
and should be delivered to the attention of the Company Secretary at the principal offices of
the Company.
Any two members of the Company holding at least five per cent (5%) of the shares conferring
a right to attend and vote at general meetings of the Company, may convene an
Extraordinary General Meeting in accordance with the provisions of the Articles of Association.
The Company’s presence is also on the worldwide web through its website at www.rs2.com,
which contains information and news about the Company, its products, developments and
activities, as well as an investors section.
Principle Eleven: Conflicts of Interest
The Directors are strongly aware of their responsibility to act at all times in the interest of the
Company and its shareholders as a whole, and of their obligation to avoid conflicts of interest,
irrespective of whoever appointed them to the Board.
The Board has approved an Internal Code of Dealing that details the obligations of the
directors, as well as those of senior management and other individuals having access to
sensitive information, on dealings in the equity of the Company within the parameters of the
law and the Principles. Each Director has declared his interest in the share capital of the
Company distinguishing between beneficial and non-beneficial interest.
In accordance with the provisions of the Articles of Association of the Company, any actual,
potential or perceived conflict of interest must be immediately declared by a director to the
other members of the Board, who then (also possibly through a referral to the Audit
Committee) decide on whether such a conflict exists. In the event that the Board perceives
such interest to be conflicting with the director’s duties, the conflicted director is required to
leave the meeting and both the discussion on the matter and the vote, if any, on the matter
concerned, are conducted in the absence of the conflicted director.
41 Annual Report 2021
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Corporate Governance Statement of
Compliance (Continued)
When a Director has a continuing material interest that conflicts with the interests of the
Company, he is required to take effective steps to eliminate the grounds for conflict. In the
event that such steps do not eliminate the grounds for conflict, then the Director should
consider resigning.
Principle Twelve: Corporate Social Responsibility
The Company understands that it has an obligation towards society at large to put into
practice sound principles of Corporate Social Responsibility (CSR). It is therefore committed to
embark on initiatives which support the community, the environment, as well as sports and
arts.
The Company recognises the importance of good CSR principles in its dealings with its
employees. In this regard, it actively encourages open communication, teamwork, training and
personal development, whilst creating opportunities based on performance, creativity and
initiative. The Company is committed towards social investment and the quality of life of its
work force and their families, and of the local community in which it operates.
Part 2: Non Compliance with the Code
Principle Four: The Responsibilities of the Board
Principle 4.2.7: The Code recommends the development of a succession policy for the future
composition of the Board of Directors. The Company does not consider this principle to be
applicable to it on the basis that appointment of directors is a matter which is reserved
exclusively to the Company’s shareholders (except as specified herein).
Principle Eight B: Nomination Committee
The Memorandum and Articles of Association of the Company regulates the appointment of
directors. Article 55.1 of the Articles of Association provides that a member, holding not less
than 0.5% of the issued share capital of the Company, having voting rights, or a number of
members who in the aggregate hold not less than 0.5% of the issued share capital of the
Company, having voting rights, shall be entitled to nominate fit and proper persons for
appointment as directors of the Company. In addition, the directors themselves or a
committee appointed for the purpose by the Board may make recommendations and
nominations to the shareholders for the appointment of directors at the next AGM.
Within this context, the Board believes that the setting up of a Nomination Committee is
currently not suited to the Company since it will not be able to undertake satisfactorily its full
functions and responsibilities as envisaged by the spirit of the Code. Notwithstanding this, the
Board will retain under review the issue relating to the setting up of a Nomination Committee.
42 Annual Report 2021
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Corporate Governance Statement of
Compliance (Continued)
Principle Nine (Code provision 9.3): Relations with shareholders and with the market
The Company firmly believes that shareholder participation is an essential precondition for
effective corporate governance. The Company has fully implemented the Shareholders Rights
Directive (Directive 2007/36/EC) as transposed in Maltese Law and to this regard, has
introduced a number of measures aimed at facilitating the exercise of shareholders’ rights and
protecting the shareholders’ interests.
The measures currently available for shareholders, notably the right to put items on the
agenda of the AGM, and to table draft resolutions, and the right to ask questions, provide the
necessary safeguards for the protection of the shareholders’ interests. To this regard, the
Company does not believe that the current corporate structure requires it to introduce (a)
procedures to resolve conflicts between minority shareholders and controlling shareholders;
and/or (b) the possibility for minority shareholders to formally present an issue to the Board
.
Pursuant to Capital Market Rule 5.97
Rule 5.97.4 – Internal Control and Risk Management Systems in relation to the Financial
Reporting Process
The Board is ultimately responsible for the Group’s system of internal control and for reviewing
their effectiveness. Such systems are designed to manage rather than eliminate the risk of
failure to achieve business objectives, and can only provide reasonable, as opposed to
absolute, assurance against material misstatement or loss.
Management is responsible for the identification and evaluation of key risks applicable to the
different areas of business. The Board reviews its risk management policies and strategies and
oversees their implementation to ensure that identified key risks are properly assessed and
managed. An internal audit function is being set up to ensure that appropriate controls are in
place and to review how such key risks are mitigated.
Financial reporting standards are applicable to all entities of the Group. Systems and
procedures are in place to identify, control and report on the high-risk areas. The Board and
the Audit Committee receive monthly management information, giving an analysis of financial
and business performance and position, including variances against budgets.
On a quarterly basis, a discussion is held with the Audit Committee on the processes in place
to generate this financial information. A discussion on the results is also held on a quarterly
basis with the Board of Directors.
Rule 5.97.6 – General Meetings
Pursuant to the Company’s statutory obligations in terms of the Companies Act and the MFSA
Capital Market Rules, the Annual Report and financial statements, the declaration of a
dividend, the election of directors, the appointment of the auditors, the authorisation of the
directors to set their remuneration, and other special business, are proposed and approved
at the Company’s AGM. The Board of Directors is responsible for developing the agenda for
the AGM and sending it to the shareholders.
43 Annual Report 2021
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Corporate Governance Statement of
Compliance (Continued)
The AGM is conducted in accordance with Articles of the Company and has the powers therein
defined. The shareholders’ rights can be exercised in accordance with the Articles of the
Company.
The Memorandum and Articles of the Company may be amended by means of an
extraordinary resolution (as defined in the Articles) of the Company during general meetings.
All shareholders registered in the Shareholders’ Register on the Record Date as defined in the
Capital Market Rules, have the right to attend, participate and vote in the general meeting. A
shareholder or shareholders holding not less than 5% in nominal value of all the shares entitled
to vote at the general meeting may request the Company and/or table draft resolutions for
items included in the agenda of a general meeting. Such requests are to be received by the
Company at least twenty-one (21) days before the date set for the relative general meeting.
A shareholder who cannot participate in the general meeting can appoint a proxy by written
or electronic notification to the Company. Every shareholder represented in person or by proxy
is entitled to ask questions which are pertinent and related to items on the agenda of the
general meeting and to have such questions answered by the directors or such persons as the
directors may delegate for that purpose.
Mario Schembri Radi Abd El Haj
Chairman Director
27 April 2022
44 Annual Report 2021
1
Remuneration Report
For the year ended 31 December 2021
Remuneration Report
Terms of Reference and Membership
The remit of the Remuneration Committee (“the Committee”) is set out in the Terms of
Reference adopted by the Board of Directors. The Committee is composed of three (3) non-
executive directors, Dr. Robert Tufigno (Chairman), Mr. Franco Azzopardi and Mr. Mario
Schembri. The CEO is invited to attend meetings of the Committee where appropriate. The
Chairman of the Committee, Dr. Robert Tufigno, is independent in accordance with Code
Provision 8.A.1.
Meetings
The Committee held two (2) meetings during the period under review.
Attended
Dr. Robert Tufigno 2
Mr. Franco Azzopardi 2
Mr. Mario Schembri 2
Remuneration Statement
Remuneration Policy - Directors
The determination of the remuneration arrangements for Board members is determined by the
Committee. The Committee is primarily responsible for devising appropriate packages
needed to attract, retain and motivate executive and non-executive directors with the right
qualities and skills for the proper management of the Company and for ensuring compliance
with the relevant provisions and regulations of good corporate governance on remuneration
and related matters.
The Company has agreements with directors providing for compensation upon termination
based on either an agreed fixed amount or the then applicable annual salary. These
agreements include a non-competition clause, precluding such employees from competing
with the Company in the event that their employment is terminated. Upon termination of
employment of the said directors, the Company is bound to grant these individuals a sum
based on either an agreed fixed amount or on their annual salary as compensation.
During the year, there were no director contracts which were terminated.
45 Annual Report 2021
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Remuneration Report (Continued)
Remuneration Statement – Senior Management
The Committee also makes recommendations on the remuneration of senior management. In
making such recommendations, it considers that members of senior management of the
Company are provided with appropriate incentives to encourage enhanced performance and
are, in a fair and responsible manner, rewarded for their individual contributions to the success
of the Company.
There have been no significant changes in the Company’s remuneration policy during the
financial year under review and no significant changes are intended to be effected during
2022.
In addition, the Committee is responsible for authorising all remuneration arrangements
involving share options. During the year under review, 91,667 share options were allocated.
There were no share options outstanding as at 31 December 2021.
In the case of the CEO and Chief Officers, the Committee is of the view that the link between
remuneration and performance is reasonable and appropriate.
Non-cash benefits to which the CEO and Chief Officers are entitled are the use of a company
car and health insurance. Other benefits include the rental of a residential property. The
death-in-service benefit also forms part of the contract of employment of senior
management personnel on the same terms applicable to all other Company employees.
The Company has agreements with employees holding senior management positions
providing for compensation upon termination, based either on an agreed fixed amount or on
the then applicable annual salary.
These agreements include a non-competition clause, precluding such employees from
competing with the Company in the event that their employment is terminated. Upon
termination of employment of senior management, the Company is bound to grant these
individuals a sum based on their annual salary as compensation. The Company has opted not
to disclose further information regarding the remuneration to be paid to its senior executives
pursuant to its non-competition clause on the basis that it is commercially sensitive.
Code Provision 8.A.5
Directors
For the financial period under review, the aggregate remuneration of the Directors of the
Company was as follows:
Fixed Remuneration €477,484
Variable Remuneration €200,000
Fixed remuneration as full time employees of the Company €756,036
Others €38,157
46 Annual Report 2021
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Remuneration Report (Continued)
Directors' total remuneration, split out by component, for the financial year ended 31
December 2021, was as follows:
Fixed
Remuneration
Variable
Remuneration
Fixed
remuneration
as full time
employees of
the Company
Others
Total
€
€
€
€
€
Mr. Mario Schembri
(Chairman)
200,265
-
-
-
200,265
Mr. Radi Abd El Haj
(CEO)
53,000
200,000
756,036
-
1,009,036
Dr. Robert Tufigno
75,500
-
-
-
75,500
Mr. Franco Azzopardi
75,500
-
-
-
75,500
Mr. John Elkins
12,719
-
-
38,157
50,876
Prof. Raša
Karapandža
60,500
-
-
-
60,500
Mr. David Price*
-
-
-
-
-
477,484
200,000
756,036
38,157
1,471,677
* Mr. David Price is the Managing Director of Client Coverage in Barclaycard Commercial
Payments. No remuneration is paid by the Company as he is remunerated accordingly by
Barclays Group, being one of the shareholders of RS2 Software p.l.c..
In terms of Code Provision 8.A.5 of the Malta Financial Services Authority Capital Market Rules,
the CEO of RS2 Software p.l.c. received remuneration of €120,000 by one of the subsidiaries
during the financial year ended 31 December 2021. The total emoluments the CEO was entitled
to for this financial year amounted to €1,129,036.
The Remuneration Committee is guided by a policy which binds the members of the committee
and defines parameters on constitution of committees, membership, frequency of meetings,
the duties and defines other obligations of the committee under a section named other
matters.
Within section four (titled Duties) of the aforementioned policy; the Committee has the vested
powers to agree on the remuneration package of the Directors based on parameters as set
out in section 4 (iv). The committee has full visibility of the Company’s projected budgets for
a three-year span, and is also aware of Company performance for any quarter and year. The
remuneration of each Director, together with the responsibility carried by each member,
ensures fair compensation to ensure achievement of the expected results of the Company, as
outlined in the budgets, and also ensures that the overall remuneration package remains
competitive when positioned in the market. The performance criteria applied in 2021 were
based on the increased responsibility that is expected to be carried by the Directors on various
fronts including but not limited to; achievement of performance targets, retention of existing
clients, adherence to governance rules and regulations in the various regions of established
subsidiaries and ensuring best practices, as well as continuing to optimise management and
operations practices of the Group.
The performance criteria on which the variable component of remuneration was awarded
included both an objective evaluation (results-based) and strategic measures (behaviour-
focused).
47 Annual Report 2021
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Remuneration Report (Continued)
The Committee measured these qualities and abilities as critical performance criteria. The
evaluation process also focused on the ability to align the Company’s operations with the
strategy of the organisation and integration with the overall organisation’s goals.
Senior Management personnel
For the financial period under review, the aggregate remuneration of the senior management
personnel of the Company, other than those that serve as Directors, was as follows:
Fixed Remuneration €868,078
Variable Remuneration €320,600
Share-based Payments Nil
Share Options €162,447
Others Nil
The contents of the Remuneration Report have been reviewed by the external auditor to
ensure that the information that needs to be provided in terms of Chapter 12 of the Capital
Market Rules including Appendix 12.1 has been included.
Dr. Robert Tufigno
Chairman, Remuneration Committee
27 April 2022
48 Annual Report 2021
1
Statement of the Directors pursuant to
Capital Market Rule 5.68
For the year ended 31 December 2021
We, the undersigned declare that to the best of our knowledge, the financial statements set
out on pages 51 to 176 are prepared in accordance with the requirements of International
Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and the Group and that the
Directors’ Report includes a fair view of the performance of the business and the position of
the Company and the Group, together with a description of the principal risks and
uncertainties that they face.
Signed on behalf of the Board of Directors on 27 April 2022 by:
Mario Schembri Radi Abd El Haj
Chairman Director
49 Annual Report 2021
1
Company Information
For the year ended 31 December 2021
Directors Mr Mario Schembri (Chairman)
Mr. Radi Abd El Haj (CEO)
Dr. Robert Tufigno
Mr. Franco Azzopardi
Mr. John Elkins
Prof. Raša Karapandža
Mr. David Price
Company Secretary Dr. Ivan Gatt
Registered Office RS2 Buildings
Fort Road, Mosta MST 1859
Malta
Country of Incorporation Malta
Company Registration No C 25829
Auditors Deloitte Audit Limited
Deloitte Place
Triq L-Intornjatur
Central Business District
CBD 3050, Malta
Legal Advisors Gatt Tufigno Gauci Advocates
66, Old Bakery Street
Valletta VLT 1454
Malta
For the year ended 31 December 2021
The Companies Act, 1995 (Chapter 386, Laws of Malta) requires the Directors of the Company
to prepare financial statements for each financial period which give a true and fair view of the
financial position of the Company and the Group as at the end of the financial period and of
the profit or loss of the Company and the Group for that period in accordance with the
requirements of International Financial Reporting Standards as adopted by the EU.
The Directors are responsible for keeping proper accounting records which disclose with
reasonable accuracy, at any time, the financial position of the Group and the Company and
to enable them to ensure that the financial statements have been properly prepared in
accordance with the provisions of the Act.
The Directors are also responsible for safeguarding the assets of the Group and hence for
taking reasonable steps for the prevention and detection of fraud and other irregularities.
Additionally, the directors are responsible for:
• the preparation and publication of the Annual Financial Report, including the
consolidated financial statements and the relevant tagging requirements therein, as required
by Capital Markets Rule 5.56A, in accordance with the requirements of the European Single
Electronic Format Regulatory Technical Standard as specified in the Commission Delegated
Regulation (EU) 2019/815 (the “ESEF RTS”),
• designing, implementing, and maintaining internal controls relevant to the preparation
of the Annual Financial Report that is free from material non-compliance with the requirements
of the ESEF RTS, whether due to fraud or error,
and consequently, for ensuring the accurate transfer of the information in the Annual Financial
Report into a single electronic reporting format.
The Directors, through oversight of management, are responsible to ensure that the Group
establishes and maintains internal control to provide reasonable assurance with regards to
the reliability of financial reporting, effectiveness and efficiency of operations and compliance
with applicable laws and regulations.
Management is responsible, with oversight from the Directors, to establish a control
environment and maintain policies and procedures to assist in achieving the objective of
ensuring, as far as possible, the orderly and efficient conduct of the Group’s business. This
responsibility includes establishing and maintaining controls pertaining to the Group’s
objective of preparing financial statements as required by the Act and managing risks that
may give rise to material misstatements in those financial statements. In determining which
controls to implement to prevent and detect fraud, Directors consider the risks that the
financial statements may be materially misstated as a result of fraud.
Signed on behalf of the Board of Directors on 27 April 2022 by:
Chairman Director
2
Financial Statements
52 Annual Report 2021
2
Statements of Financial Position
As at 31 December
The Group
The Company
2021
2020
2021
2020
Note
€
€
€
€
Assets
Property, plant and equipment
8
Right-of-use assets
9
Intangible assets and goodwill
10
Investments in subsidiaries
11
Deferred tax assets
19
Loans receivable
14
Finance lease receivable
9
Total non-current assets
Trade and other receivables
14
Finance lease receivable
9
Loans receivable
14
Prepayments
Accrued income and contract costs
15
Inventory
13
Cash at bank and in hand
16
Non-current asset held-for-sale
12
Total current assets
Total assets
53 Annual Report 2021
2
Statements of Financial Position (Continued)
As at 31 December
The Group
The Company
2021
2020
2021
2020
Note
€
€
€
€
Equity
Ordinary Share Capital
17
Preference Share Capital
17
Other equity
17
(136,556 )
(136,556 )
Reserves
17
(1,563,479 )
(1,358,891 )
Retained earnings
17
Total equity attributable to
equity holders of the Company
Non-controlling interest
(4,792,747 )
(4,645,276 )
Total equity
Liabilities
Bank borrowings
18
Lease liabilities
9
Employee benefits
28, 29
Deferred tax liability
19
Total non-current liabilities
Bank borrowings
18
Trade and other payables
20
Lease liabilities
9
Derivatives
Current tax payable
Accruals
21
Provisions
32
Employee benefits
28, 29
Deferred income
21
Total current liabilities
Total liabilities
Total equity and liabilities
The accompanying Notes on pages 62 to 176 are an integral part of these financial
statements.
Approved and authorised for issue by the Board of Directors on 27 April 2022 on its behalf by:
Mario Schembri Radi Abd El Haj
Chairman Director
54 Annual Report 2021
2
Statements of Profit or Loss
For the year ended 31 December
The Group
The Company
2021
2020
2021
2020
Note
€
€
€
€
Revenue
22
Cost of sales
(21,734,786 )
(18,623,821 )
(15,263,080 )
(11,758,149 )
Gross profit
Other income
23
Marketing and promotional expenses
(1,383,922 )
(1,524,663 )
(357,523 )
(594,740 )
Administrative expenses
(8,453,193 )
(8,331,729 )
(3,952,621 )
(4,611,193 )
Other expenses
23
(65,173 )
(56,752 )
(36,883 )
(29,036 )
Exchange gain/(loss) on operating activities
23
(786,176 )
(786,907 )
Impairment loss on trade receivables and
contract assets
23 (583,607 ) (27,462 ) (134,778 ) 1,344
Impairment loss on contract costs
23
(1,045,586 )
Provision for legal claims and related expenses
(406,179 )
(406,179 )
Results from operating activities
(3,477,898 )
Finance income
24
Finance costs
24
(200,010 )
(451,573 )
(159,263 )
(321,453 )
Net finance costs
(142,504 )
(410,965 )
(73,346 )
(231,030 )
Profit/(Loss) before income tax
23
(3,888,863 )
Income tax expense
25
(3,067,436 )
(2,066,555 )
(1,798,045 )
(2,163,205 )
Profit/(Loss) for the year
(5,955,418 )
Profit/(Loss) for the year attributable to:
Owners of the Company
(3,780,178 )
Non-controlling interest
(2,175,240 )
Profit/(Loss) for the year
(5,955,418 )
Earnings/(Loss) per ordinary share
26
€ 0.015
-€ 0.020
€ 0.018
€ 0.019
Earnings per preference share
26
€ 0.017
€ 0.019
The accompanying Notes on pages 62 to 176 are an integral part of these financial
statements.
55 Annual Report 2021
2
Statements of Comprehensive Income
For the year ended 31 December
The Group
The Company
2021
2020
2021
2020
Note
€
€
€
€
Profit/(Loss) for the year
(5,955,418 )
Other comprehensive income
Items that are or may be reclassified to profit or loss
Foreign currency translation differences
on foreign operations
(430,720 )
Items that will not be reclassified to profit or loss
Net change in fair value of investment in equity
instruments designated at FVTOCI
upon initial recognition
Remeasurement in net defined benefit liability
28
(1,274,237 )
(1,267,290 )
(368,441 )
(912,709 )
(1,188,190 )
Total comprehensive income/(loss)
(6,868,127 )
Total comprehensive income/(loss) attributable to:
Owners of the Company
(5,150,513 )
Non-controlling interest
(147,471 )
(1,717,614 )
Total comprehensive income/(loss)
for the year
(6,868,127 )
The accompanying Notes on pages 62 to 176 are an integral part of these financial
statements.
56 Annual Report 2021
2
Statements of Changes in Equity
For the year ended 31 December
THE GROUP
Note
Ordinary
Share
Capital
Preference
Share
Capital
Other
Equity
Share
premium
Translation
reserve
Fair
value
reserve
Employee
benefits
reserve
Other
reserves
Share
option
reserve
Retained
earnings
Total
Non-
controlling
interest
Total
equity
€
€
€
€
€
€
€
€
€
€
€
€
€
Balance at 1 January 2020
-
-
(45,870 )
(1,873 )
(478,741 )
(2,927,662 )
Comprehensive income for the year
Loss for the year
-
-
-
-
-
-
-
-
-
(3,780,178 )
(3,780,178 )
(2,175,240 )
(5,955,418 )
Other comprehensive income
Foreign currency translation
differences
- - - - (175,198 ) - - - - - (175,198 ) 457,626 282,428
Net change in fair value of investments
designated at FVTOCI upon initial
recognition
- - - - - 79,100 - - - - 79,100 - 79,100
Remeasurement in net defined
benefit liability
28 - - - - - - (1,274,237 ) - - - (1,274,237 ) - (1,274,237 )
Total other comprehensive (loss)/income
for the year
- - - - (175,198 ) 79,100 (1,274,237 ) - - - (1,370,335 ) 457,626 (912,709 )
Total comprehensive (loss)/income for
the year
- - - - (175,198 ) 79,100 (1,274,237 ) - - (3,780,178 ) (5,150,513 ) (1,717,614 ) (6,868,127 )
Transactions recorded directly in equity
Employee share benefits
29
-
-
-
-
-
-
-
(10,385 )
-
-
(10,385 )
-
(10,385 )
-
-
-
-
-
-
-
(10,385 )
-
-
(10,385 )
-
(10,385 )
Transactions with owners
of the Company
Share Issuance Costs
-
-
(136,556 )
-
-
-
-
-
-
-
(136,556 )
-
(136,556 )
-
-
(136,556 )
-
-
-
-
-
-
-
(136,556 )
-
(136,556 )
Balance at 31 December 2020
-
(136,556 )
(221,068 )
(1,752,978 )
(4,645,276 )
57 Annual Report 2021
2
Statements of Changes in Equity (Continued)
For the year ended 31 December
THE GROUP Note
Ordinary
Share
Capital
Preference
Share
Capital
Other
Equity
Share
premium
Translation
reserve
Fair value
reserve
Employee
benefits
reserve
Other
reserves
Share
option
reserve
Retained
earnings
Total
Non-
controlling
interest
Total
equity
€
€
€
€
€
€
€
€
€
€
€
€
€
Balance at 1 January 2021
-
(136,556 )
(221,068 )
(1,752,978 )
(4,645,276 )
Comprehensive income for
the year
Profit for the year
-
-
-
-
-
-
-
-
-
Other comprehensive income
Foreign currency translation
differences
- - - - 53,467 - - - - - 53,467 (484,187 ) (430,720 )
Net change in fair value of equity
investments designated as FVTOCI
upon initial recognition
- - - - - 9,465 - - - - 9,465 - 9,465
Remeasurement in net defined
benefit liability`
28 - - - - - - 52,814 - - - 52,814 - 52,814
Total other comprehensive (loss)/income
for the year
- - - - 53,467 9,465 52,814 - - - 115,746 (484,187 ) (368,441 )
Total comprehensive (loss)/income for
the year
- - - - 53,467 9,465 52,814 - - 3,011,512 3,127,258 (147,471 ) 2,979,787
Transactions with owners
of the Company
Preference Share Issue
17
-
-
-
-
-
-
-
-
-
Share Options Exercised
-
-
-
-
-
-
-
-
(23,650 )
-
-
-
Share Issuance Costs
17
-
(355,054 )
-
-
-
-
-
-
-
-
(355,054 )
-
(355,054 )
Reclassification of preference share
issuance costs
17 - (136,556 ) 136,556 - - - - - - - - - -
-
-
-
-
-
(23,650 )
-
Transfer upon disposal of investments
12
-
-
-
-
-
(86,692 )
-
-
-
-
-
-
Balance at 31 December 2021
-
(167,601 )
-
(1,700,164 )
(4,792,747 )
The accompanying Notes on pages 62 to 176 are an integral part of these financial statements.
58 Annual Report 2021
2
Statements of Changes in Equity (Continued)
For the year ended 31 December
THE COMPANY
Note
Ordinary
Share
Capital
Preference
Share
Capital
Other
Equity
Share
premium
Fair value
reserve
Other
reserves
Share
option
reserve
Employee
benefits
reserve
Retained
earnings
Total
Note
€
€
€
€
€
€
€
€
€
€
Balance at 1 January 2020
-
-
(1,873 )
(502,168 )
Comprehensive income for the year
Profit for the year
-
-
-
-
-
-
-
-
Other comprehensive income
Remeasurement in net defined
benefit liability
28 - - - - - - - (1,267,290 ) - (1,267,290 )
Net change in fair value of equity
investments designated as FVTOCI
upon initial recognition
- - - - 79,100 - - - - 79,100
Total other comprehensive income/(loss)
for the year
- - - - 79,100 - - (1,267,290 ) - (1,188,190 )
Total comprehensive income/loss) for
the year
- - - - 79,100 - - (1,267,290 ) 3,679,753 2,491,563
Transactions recorded
directly in equity
Employee share benefits
29
-
-
-
-
-
(10,385 )
-
-
-
(10,385 )
-
-
-
-
-
(10,385 )
-
-
-
(10,385 )
Transactions with owners
of the Company
Share Issuance Costs
-
-
(136,556 )
-
-
-
-
-
-
(136,556 )
-
-
(136,556 )
-
-
-
-
-
-
(136,556 )
Balance at 31 December 2020
-
(136,556 )
(1,769,458 )
59 Annual Report 2021
2
Statements of Changes in Equity (Continued)
For the year ended 31 December
THE COMPANY
Note
Ordinary
Share
Capital
Preference
Share
Capital
Other
Equity
Share
premium
Fair value
reserve
Other
reserves
Share
option
reserve
Employee
benefits
reserve
Retained
earnings
Total
€
€
€
€
€
€
€
€
€
€
Balance at 1 January 2021
-
(136,556 )
(1,769,458 )
Comprehensive income for the year
Profit for the year
-
-
-
-
-
-
-
-
Other comprehensive income
Remeasurement in net defined
benefit liability
28 - - - - - - - 46,319 - 46,319
Net change in fair value of equity investments
designated as FVTOCI upon initial recognition
- - - - 9,465 - - - - 9,465
Total other comprehensive income for the
year
- - - 9,465 - - 46,319 - 55,784
Total comprehensive income for the year
-
-
-
-
-
-
Transactions with owners
of the Company
Preference Share Issue
-
-
-
-
-
-
-
Share Options excerised
-
-
-
-
-
-
(23,650 )
-
-
Share Issuance Costs
-
(355,054 )
-
-
-
-
-
-
-
(355,054 )
Reclassification of preference share issuance costs
-
(136,556 )
-
-
-
-
-
-
-
-
-
-
(23,650 )
-
Transfer upon disposal of investments
12
-
-
-
-
(86,692 )
-
-
-
-
Balance at 31 December 2021
-
-
(1,723,139 )
The accompanying Notes on pages 62 to 176 are an integral part of these financial statements.
60 Annual Report 2021
2
Statements of Cash Flows
For the year ended 31 December
The Group
The Company
2021
2020
2021
2020
Notes
€
€
€
€
Cash flows from operating activities
Profit/(Loss) for the year
(5,955,418 )
Adjustments for:
Depreciation
8, 9
Amortisation of intangible assets
10
Provision for expected credit losses
23
Provision for impairment loss/(gain) on receivables
23
(53,068 )
(5,341 )
Bad debts written off
23
Interest payable
24
Interest receivable
24
(56,846 )
(31,771 )
(85,257 )
(72,200 )
Provisions
Unwinding of discount on post-employment benefits
28
Post-employment benefit written off/settled
during the year
28 (111,420 ) - (111,420 ) -
Unwinding of discount on contract assets
24
(9,387 )
Unwinding of discount on deposit
Employee share benefits
29
(10,385 )
Impairment loss on intangible assets
10
Gain on sale of property, plant and equipment
Income tax
25
Provision for exchange fluctuations
23, 24
(195,971 )
(850,714 )
Change in fair value of derivative
24
(660 )
(8,836 )
(660 )
(8,836 )
Changes in trade and other receivables
(5,151,924 )
(403,138 )
Changes in trade and other payables
(1,948,637 )
(552,871 )
Change in other related parties' balances
(147,234 )
(5,142,473 )
(13,579,908 )
Inventories
(59,853 )
Cash generated from/(used in) operating activities
(3,760,509 )
Interest paid
(168,527 )
(277,659 )
(148,862 )
(255,586 )
Interest paid on lease liabilities
9
(57,472 )
(64,100 )
(12,988 )
(13,551 )
Interest received
Income taxes paid
(1,455,412 )
(17 )
(1,404,346 )
(17 )
Net cash generated from/(used in) operating
activities
Cash flows from investing activities
Acquisition of property, plant
and equipment
(1,056,042 ) (154,073 ) (131,792 ) (71,366 )
Acquisition of intangible asset
(83,900 )
(145,800 )
Capitalised development costs
10
(3,262,293 )
(2,637,430 )
(2,783,666 )
(1,770,895 )
Acquisition of company
(2,000,000 )
Proceeds from sale of asset
Advances to subsidiaries
(6,558,200 )
(4,080,753 )
Repayment of advances from subsidiaries
Disposal of non-current asset held for sale
Finance lease receipts
Net cash used in investing activities
(4,020,226 )
(4,888,060 )
(4,161,266 )
(3,360,131 )
61 Annual Report 2021
2
Statements of Cash Flows (Continued)
For the year ended 31 December
The Group
The Company
2021
2020
2021
2020
Note
€
€
€
€
Cash flows from financing activities
Proceeds from issue of share capital
Dividends paid
(1,846 )
(1,846 )
Proceeds from bank borrowings
Repayments of bank borrowings
(483,907 )
(594,153 )
(483,907 )
(594,153 )
Repayment of lease liabilities
(392,003 )
(455,615 )
(15,425 )
(26,918 )
Payments of preference share issue costs
(460,054 )
(31,556 )
(460,054 )
(31,556 )
Net cash generated from financing activities
Net movement in cash and cash equivalents
(817,739 )
(5,480,880 )
Cash and cash equivalents at 1 January
(2,834,957 )
(1,357,287 )
(8,117,145 )
(2,637,803 )
Effect of exchange rate fluctuations on cash held
(279,103 )
(659,931 )
Cash and cash equivalents at 31 December
16
(2,834,957 )
(8,117,145 )
Made up of:
Cash at bank and in hand 8,217,898 6,822,254 1,260,672 1,540,066
Bank overdraft
(42 )
(9,657,211 )
(42 )
(9,657,211 )
The accompanying Notes on pages 62 to 176 are an integral part of these financial
statements.
3
Notes to the Financial Statements
63 Annual Report 2021
3
Notes to the financial statements
1 REPORTING ENTITY
incorporated in Malta with registration number C25829. The registered address of the
Company is RS2 Buildings, Fort Road, Mosta, MST 1859, Malta . These consolidated financial
statements as at and for the year ended 31 December 2021 comprise the Company and
its subsidiaries (collectively referred to as “the Group” and individually as “Group entities”).
2 BASIS OF PREPERATION
2.1 STATEMENT OF COMPLIANCE
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 (“IFRS” or “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 ), and Article 4 of
Regulation 1606/2002/EC, which requires the companies having their securities traded on
a regulated market of any EU member state to prepare their consolidated financial
statements in conformity with IFRS as adopted by the EU. Details of the accounting policies
are included in Note 4 to these financial statements. Legal Notice 19 of 2009 as amended
by Legal Notice 233 of 2016, Accountancy Profession (Accounting and Auditing Standards)
(Amendments) Regulations, 2016, which defines compliance with generally accepted
accounting principles and practice as adherence to IFRS as adopted by the EU was also
adhered to when preparing and presenting these financial statements.
2.1.2 GOING CONCERN
A going concern assessment has been performed by Management, based on the 2021
financials whilst also taking into consideration approved budgets covering 2022 up to
2024.
During the year under review, the Company registered revenues from its principal activities
of €24.5m (2020: €23.8m) and a profit before tax of €5.3m (2020: €5.8m).
The Software (Licensing) Solutions business is a stable business with a large part of
revenues being contracted revenues. The Processing Solutions business generated higher
revenue when compared to the previous year despite implications brought about by
COVID-19. In fact, the Managed Services arm of the Group, RS2 Smart Processing Limited
which is principally engaged in the processing of payment transactions with the use of
BankWORKS®, recorded revenues of €7.5m (2020: €4.0m) and a profit before tax of €2.1m
(2020: loss before tax of €0.2m) while RS2 Software INC., which serves as the US arm of the
Group with specific focus on the provision of Managed Services in North America, recorded
revenues of €16.1m (2020: €8.9m) and a profit before tax of €0.8m (2020: loss before tax of
€5.1m).
64 Annual Report 2021
3
2 BASIS OF PREPERATION (Continued)
2.1 STATEMENT OF COMPLIANCE (Continued)
2.1.2 GOING CONCERN (Continued)
RS2 Software APAC Inc. is currently supporting the Company in product development and
its expansion in the APAC region. The RS2 German subsidiaries focus mainly on direct
merchant acquiring and issuing services using one platform that integrates through API to
the merchant’s website or store, thereby consolidating the entire business of the merchant
across all the respective payment channels.
During the year under review, on consolidating all of its activities, the Group generated
revenues of €38.7m (2020: €26.8m) and registered a profit before tax of €6.4m (2020: loss
before tax of €3.9m). At 31 December 2021, the Group’s total assets amounted to €47.6m
(2020: €38.1m), whereas its current assets exceeded its current liabilities by €7.5m (2020:
current liabilities exceeded its current assets by €9.1m). From a liquidity stand point, RS2
Group has a solid cash position. The funding generated from the preference share issue
enabled the Group to effectively implement its strategy, without the need for any short-
term bank borrowings for working capital requirements. RS2 Software p.l.c. has a credit
line of €10m available with a local bank, to meet any future working capital requirements.
The Board of Directors is confident that the Group can, not only continue to operate as a
going concern for 12 months from the end of the reporting period, but will continue to see
substantial growth over the coming years.
Long-term impact of the COVID-19 pandemic
RS2 Group has continued to increase its revenues over prior years despite the COVID-19
pandemic. The payment industry’s stability has played, and will continue to play an
invaluable role in rebooting the global economy following the aftermath of the COVID-19
pandemic. The potential for the payments industry in the mid- to long-term is seen to be
very positive.
Payment systems have proven to be resilient and reliable, as they have been in earlier
crises. Payment systems and providers continue to enjoy a high-level trust from the general
public. The importance of cashless payments is growing rapidly but any projection of
industry performance rests on assumptions about overall economic activity. The outlook
largely depends on the spread of the virus, the public health response, and the
effectiveness of the fiscal, monetary and broader public responses. Some payment
methods are also likely to suffer more than others. The Group’s diversified business profile
and the stable contracted revenues helped mitigate the impact the pandemic has had on
the Group’s performance.
The financial services industry is in the midst of a significant transformation, accelerated
by the COVID-19 pandemic. Given the key role digitalisation plays in the financial lives of
more and more of the world’s population, electronic payments are at the epicentre of this
transformation. Payments are becoming increasingly cashless, and the industry’s role in
fostering inclusion has become a significant priority. Payments are also supporting the
development of digital economies and are driving innovation, all while functioning as a
stable backbone for our economies.
65 Annual Report 2021
3
2 BASIS OF PREPERATION (Continued)
2.1 STATEMENT OF COMPLIANCE (Continued)
2.1.2 GOING CONCERN (Continued)
Underneath the shift to a cashless society lies a larger, more profound change, whereby
the entire infrastructure of payments is being reshaped, with new business models
emerging. The Processing segment continues to show strong growth, especially in the US,
while Merchant Services is more prominent across Europe.
Accelerated by the pandemic, the shift to a cashless society and the rising role of
payments as more than simply an exchange of value for goods and services create a
once-in-a-lifetime opportunity for the payments industry to lead in financial services. At
the same time, by becoming a cornerstone of the global economy, payments can serve as
a catalyst for economic growth, innovation and inclusion.
The outlook for 2022 is that business will continue to accelerate with a strong pipeline
gearing up for the coming year, which, together with the launch of several new exciting
products for the Group, including Merchant reconciliations modules, ELO payment
methods (a Brazilian card scheme which can support credit and prepaid transactions), e-
Commerce gateways “Shop & Pay” amongst others, will lead the Group to a positive 2022
and beyond.
2.2 BASIS OF ACCOUNTING
Details of the Group’s accounting policies are included in Note 4. Changes to significant
accounting policies are described in Note 3.
2.3 BASIS OF MEASUREMENT
The financial statements have been prepared on the historical cost basis, except for
derivative financial instruments which are measured at fair value.
The methods used to measure fair values are discussed further in Note 5.
2.4 FUNCTIONAL AND PRESENTATION CURRENCY
These financial statements are presented in Euro, which is the Company’s functional
currency.
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2 BASIS OF PREPERATION (Continued)
2.5 USE OF ESTIMATES AND JUDGEMENTS
In preparing these financial statements, Management has made judgements, estimates
and assumptions that affect the application of the Group's and the Company’s
accounting policies and the reported amounts of assets, liabilities, income and expenses.
Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in which the estimates are revised and
in any future periods affected.
Information about judgements, assumptions and estimation uncertainties that have a
significant risk of uncertainty which may result in a material adjustment to the carrying
amounts of assets and liabilities is included in the following notes:
Note 2.5.1 impairment reviews
Note 4.6.7 useful life of internally generated computer software, software rights
and customer and other related contractual relationship
Note 5.1.3 and
Note 29.3 cash-settled share-based payments
Note 6 recoverability assessment on trade and other receivables
Note 10.8 and
Note 10.9 impairment test for cash generating unit (CGU) containing goodwill;
key assumptions underlying recoverability
Note 10.8.4,
Note 10.9.4 and
Note 11 recoverability of investment in subsidiaries
Note 28 measurement of defined benefit obligations
In accordance with the requirements of IAS 1 Presentation of Financial Statements,
assumptions and other sources of estimation uncertainty that require Management's most
difficult, subjective or complex judgements include impairment reviews, the estimation of
the fair value of the liability for the cash-settled share-based payment arrangement and
the determination of whether the fee for the implementation activity (without the sale of a
licence) relates to a distinct performance obligation and whether that activity results in the
transfer of a promised good or service to the customer.
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2 BASIS OF PREPERATION (Continued)
2.5 USE OF ESTIMATES AND JUDGEMENTS (Continued)
2.5.1 IMPAIRMENT REVIEWS
The determination of the recoverable amount involves significant management
judgement. In most cases this involves an assessment as to whether the carrying value of
assets can be supported by the present value of future cash flows derived from such assets
using cash flow projections which have been discounted at an appropriate rate. In
calculating the present value of the future cash flows, certain assumptions are required to
be made in respect of highly uncertain matters, as noted below.
With respect to goodwill and intangible assets not yet put in use, IFRS requires
Management to undertake a test for impairment at least annually and at each reporting
period if there is an indication that the asset may be impaired. The Group currently
undertakes an annual impairment test covering goodwill and also reviews other certain
financial and non-financial assets at least annually to consider whether a full impairment
review is required.
There are a number of assumptions and estimates involved in calculating the present value
of future cash flows from the Group’s businesses, including Management’s expectations
of:
• growth in earnings before interest, tax, depreciation and amortisation (EBITDA),
calculated as adjusted operating profit or loss before depreciation and
amortisation;
• timing and quantum of future capital expenditure;
• uncertainty of future technological developments;
• long-term growth rates; and
• the selection of discount rates to reflect the risks involved.
The selection of assumptions and estimates by Management involves significant
judgement and small changes in these assumptions could result in the determination of a
recoverable amount which is materially different to the results obtained using the variables
selected by the Company. This is particularly so in respect to the discount rate and growth
rate assumptions used in the cash flow projections. Changes in the assumptions used
could significantly affect the Group’s impairment evaluation and, hence, results.
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3 NEW STANDARDS AND CHANGES IN SIGNIFICANT ACCOUNTING POLICIES
3.1 NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED
A number of new standards are effective for annual periods beginning on or after 1 January
2022 and earlier application is permitted, however the Group and the Company have not
early adopted the new or amended standards in preparing these financial statements.
These standards include the following:
• Amendments to IAS 1 - Presentation of Financial Statements: Classification of
Liabilities as Current or Non-Current. The amendments affect only the presentation
of liabilities in the statement of financial position. They clarify that the classification
should be based on rights that are in existence at the end of the reporting period,
that classification is unaffected by expectation about whether an entity will
exercise its right to defer settlement of a liability; and make clear that settlement
refers to the transfer to the counterparty of cash, equity instruments, other assets
or services. The amendments are effective for annual periods beginning on or after
1 January 2023.
• Amendments to IAS 1 - Presentation of Financial Statements, IFRS Practice
statement 2: Disclosure of Accounting Policies. The amendments are intended to
help preparers in deciding which accounting policies to disclose in their financial
statements. The amendments are effective for annual periods beginning on or after
1 January 2023.
• Amendments to IAS 8 - Accounting Policies, Changes in Accounting Estimates and
Errors: Definition of Accounting Estimates. The amendments are intended to help
preparers distinguish changes in accounting policies from changes in accounting
estimates. The amendments are effective for annual periods beginning on or after
1 January 2023, with earlier application permitted. An entity shall apply the
amendments to changes in accounting estimates and changes in accounting
policies that occur on or after the beginning of the first annual reporting period in
which it applies the amendments.
• Amendments to IAS 37 - Provisions, Contingent Liabilities and Contingent Assets:
Onerous contracts - Cost of fulfilling a contract. The amendment explains that the
direct cost of fulfilling a contract comprises the incremental costs of fulfilling that
contract and an allocation of other costs that relate directly to fulfilling contracts.
The amendment could result in the recognition of more onerous contract provisions,
because previously some entities only included incremental costs in the costs to
fulfil a contract. The amendments are effective for annual periods beginning on or
after 1 January 2022.
• Amendments to IAS 12 – Income Taxes: Deferred Tax related to Assets and
Liabilities arising from a Single Transaction. The amendments clarify that where
payments that settle a liability are deductible for tax purposes, it is a matter of
judgement whether such deductions are attributable for tax purposes to the
liability recognised in the financial statements or to the related asset component.
Under the amendments, the initial recognition exception does not apply to
transactions that, on initial recognition, give rise to equal taxable and deductible
temporary differences. It only applies if the recognition of a lease asset and lease
liability (or decommissioning liability and decommissioning asset component) give
rise to taxable and deductible temporary differences that are not equal. The
amendments are effective for annual periods beginning on or after 1 January 2023.
The Group and the Company are in the process of assessing the potential impact, if any,
of these Standards on these financial statements.
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3 NEW STANDARDS AND CHANGES IN SIGNIFICANT ACCOUNTING POLICIES
(Continued)
3.2 CHANGES IN SIGNIFICANT ACCOUNTING POLICIES
During the financial year ended 31 December 2021, the Group and the Company adopted
new standards, amendments and interpretations to existing standards that are
mandatory for the Group’s and the Company’s accounting period beginning on 1 January
2021. The adoption of the following standards did not result in significant changes to the
Group’s accounting policies impacting the financial performance and position:
• Amendments to IFRS 16 as amended in March 2021 - Leases – COVID 19 – Related
rent concessions. The amendment to IFRS 16 provides relief to lessees for
accounting for rent concessions from lessors specifically arising from the COVID-19
pandemic. While lessees that elect to apply the practical expedient do not need
to assess whether a concession constitutes a modification, lessees still need to
evaluate the appropriate accounting for each concession as the terms of the
concession granted may vary. Neither the Group nor the Company received any
COVID-19 related rent concessions.
• Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16: Interest Rate Benchmark
Reform – Phase 2 (effective on or after 1 January 2021; Early adoption is permitted).
The amendments address issues that might affect financial reporting when an
existing interest rate benchmark is actually replaced. In respect of the modification
of financial assets, financial liabilities and lease liabilities, the IASB introduced a
practical expedient for modifications required by the reform (modifications required
as a direct consequence of the interbank offered rates (IBOR) reform and made on
an economically equivalent basis). These modifications are accounted for by
updating the effective interest rate. All other modifications are accounted for using
the current IFRS requirements. These amendments enable entities to reflect the
effects of transitioning from IBOR to alternative benchmark interest rates (also
referred to as ‘risk free rates’ or RFRs) without giving rise to accounting impacts that
would not provide useful information to users of financial statements.
As disclosed in Note 14.1, certain loans receivable by the Company carry an interest
rate which is linked to 3-month Euribor. Similarly, as disclosed in Note 18, the
Company and the Group have bank borrowings with an interest rate which is linked
to a 3-month Euribor. The calculation methodology of Euribor changed during 2019.
In July 2019, the Belgian Financial Services and Markets Authority granted
authorisation with respect to Euribor under the European Union Benchmarks
Regulation. This allows market participants to continue to use Euribor for both
existing and new contracts and the Group expects that Euribor will continue to exist
as a benchmark rate for the foreseeable future. Except as disclosed in this
paragraph, neither the Company nor the Group have any other financial assets,
financial liabilities or lease liabilities having rates subject to the IBOR reform.
Accordingly, this amendment did not affect these financial statements.
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4 SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to all periods
presented in these financial statements and have been applied consistently by Group
entities.
4.1 BASIS OF CONSOLIDATION
4.1.1 SUBSIDIARIES
Subsidiaries are entities controlled by the Group. Control exists when the Group has the
power to direct the relevant activities that significantly affect the subsidiary's returns. In
assessing control, there should also be exposure, or rights, to variable returns from its
involvement with the subsidiary and the ability of the Group to use its powers over the
subsidiary to affect the amount of the Group's returns.
The financial statements of the subsidiary companies are included in the consolidated
financial statements from the date that control commences until the date that control
ceases. The accounting policies of the subsidiaries have been amended where necessary
to align them with the policies adopted by the Group. Losses applicable to the non-
controlling interests in a subsidiary are allocated to the non-controlling interest even if
doing so causes the non-controlling interests to have a deficit balance.
Non-controlling interests in the net assets of consolidated subsidiaries are presented
separately from the holding company’s owners’ equity therein. Non-controlling interests in
the profit or loss and other comprehensive income of consolidated subsidiaries are also
disclosed separately.
4.1.2 TRANSACTIONS ELIMINATED ON CONSOLIDATION
Intra-group balances and transactions, and any unrealised income and expenses arising
from intra-group transactions, are eliminated in preparing these consolidated financial
statements.
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4 SIGNIFICANT ACCOUNTING POLICIES (Continued)
4.2 FOREIGN CURRENCY
4.2.1 FOREIGN CURRENCY TRANSACTIONS
Transactions in foreign currencies are translated to the respective functional currencies of
the Group entities at exchange rates at the dates of the transactions. Monetary assets
and liabilities denominated in foreign currencies at the reporting date are translated to
the functional currency at the exchange rate as at that date. The foreign currency gain or
loss on monetary items is the difference between the amortised cost in the functional
currency at the beginning of the period, adjusted for effective interest and payments
during the period, and the amortised cost in foreign currency translated at the exchange
rate at the end of the reporting period. Non-monetary assets and liabilities denominated
in foreign currencies that are measured at fair value are translated to the functional
currency at the exchange rate as at the date that the fair value was determined.
Foreign currency differences arising on retranslation are recognised in profit or loss except
for differences arising on the revaluation of non-monetary items in respect of which gains
and losses are recognised in other comprehensive income. Non-monetary items that are
measured in terms of historical cost in a foreign currency are translated using the exchange
rate at the date of the transaction.
4.2.2 FOREIGN OPERATIONS
The assets and liabilities of foreign operations, including goodwill and fair value
adjustments arising on acquisition, are translated to the functional currency using
exchange rates as at the reporting date. The income and expenses of foreign operations
are translated to the functional currency at exchange rates as at the dates of the
transactions.
Foreign currency differences are recognised in other comprehensive income and
presented within equity in the foreign currency translation reserve. However, if the
operation is a non-wholly owned subsidiary, then the relevant proportion of the translation
difference is allocated to non-controlling interests. When a foreign operation is disposed
of, in part or in full, the relevant amount in the foreign currency translation reserve is
transferred to profit or loss as part of the profit or loss on disposal.
When the settlement of a monetary item receivable from or payable to a foreign operation
is neither planned nor likely in the foreseeable future, foreign exchange gains and losses
arising from such a monetary item are considered to form part of a net investment in a
foreign operation and are recognised in other comprehensive income in the consolidated
financial statements, and are presented within equity in the foreign currency translation
reserve.
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4 SIGNIFICANT ACCOUNTING POLICIES (Continued)
4.3 FINANCIAL INSTRUMENTS
4.3.1 NON-DERIVATIVE FINANCIAL ASSETS
The Group initially recognises loans and receivables and deposits on the date that they
are entered into. All other financial assets are recognised initially on the trade date at
which the Group becomes a party to the contractual provisions of the instrument.
Financial assets not classified at fair value through profit or loss (FVTPL), are initially
recognised at fair value plus directly attributable transaction costs.
The Group derecognises a financial asset when the contractual rights to the cash flows
from the asset expire, or it transfers the rights to receive the contractual cash flows on the
financial asset in a transaction in which substantially all the risks and rewards of ownership
of the financial asset are transferred. Any interest in transferred financial assets that is
created or retained by the Group is recognised as a separate asset or liability.
Financial assets and liabilities are offset and the net amount is presented in the statement
of financial position when, and only when, the Group has a legal right to offset such
amounts and intends to either settle such amounts on a net basis or to realise the asset
and settle the liability simultaneously.
The Group has the following principal non-derivative financial assets: loans, trade
receivables, investments and cash and cash equivalents.
4.3.1.1 CLASSIFICATION OF FINANCIAL ASSETS
All recognised financial assets are subsequently measured in their entirety at either
amortised cost or fair value.
Debt instruments are subsequently measured at amortised cost, if they meet the following
conditions:
• the financial asset is held within a business model whose objective is to hold
financial assets in order to collect contractual cash flows; and
• the contractual terms of the financial asset give rise to cash flows that are solely
payments of principal and interest on the principal amount outstanding on
specified dates.
Debt instruments are subsequently measured at fair value through other comprehensive
income (FVTOCI), if they meet the following conditions:
• the financial asset is held within a business model whose objective is achieved by
both collecting contractual cash flows and selling the financial assets; and
• the contractual terms of the financial asset give rise to cash flows that are solely
payments of principal and interest on the principal amount outstanding on
specified dates.
By default, all other financial assets are subsequently measured at FVTPL.
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4 SIGNIFICANT ACCOUNTING POLICIES (Continued)
4.3 FINANCIAL INSTRUMENTS (Continued)
4.3.1 NON-DERIVATIVE FINANCIAL ASSETS (Continued)
4.3.1.1 CLASSIFICATION OF FINANCIAL ASSETS (Continued)
Despite the foregoing, the Group may make the following irrevocable
election/designation at initial recognition of a financial asset:
• the Group may irrevocably elect to present subsequent changes in fair value of an
equity investment in other comprehensive income if certain criteria are met; and
• the Group may irrevocably designate a debt investment that meets the amortised
cost or FVTOCI criteria as measured at FVTPL, if doing so eliminates or significantly
reduces a measurement or recognition inconsistency.
The Business model
An assessment of business models for managing financial assets is fundamental to the
classification of a financial asset. The Group determines the business models at a level
that reflects how groups of financial assets are managed together to achieve a particular
business objective.
4.3.1.2 DEBT INSTRUMENTS MEASURED AT AMORTISED COST
The following financial assets are classified within this category – trade and other
receivables, cash at bank and loans receivable.
Appropriate allowances for expected credit losses (ECLs) are recognised in profit or loss in
accordance with the Group’s accounting policy on ECLs. Changes in the carrying amount
as a result of foreign exchange gains or losses, impairment gains or losses and interest
income are recognised in profit or loss.
Interest income is recognised using the effective interest rate method and is included in
the line item ‘Finance income’.
Trade receivables which do not have a significant financing component are initially
measured at their transaction price and are subsequently stated at their nominal value
less any loss allowance for ECLs.
4.3.1.3 EQUITY INSTRUMENTS DESIGNATED AS FVTOCI
The Company and the Group do not have such financial assets at the end of the current
year.
On initial recognition, the Company may make an irrevocable election to designate
investments in equity instruments as FVTOCI. Designation as FVTOCI is not permitted if the
equity instrument is held for trading or if it is contingent consideration recognised by an
acquirer in a business combination to which IFRS 3 applies.
Such financial assets are subsequently measured at fair value. Gains and losses arising
from changes in fair value, including foreign exchange gains and losses, are recognised in
other comprehensive income. The cumulative gain or loss that is recognised in other
comprehensive income is not subsequently transferred to profit or loss.
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4 SIGNIFICANT ACCOUNTING POLICIES (Continued)
4.3 FINANCIAL INSTRUMENTS (Continued)
4.3.1 NON-DERIVATIVE FINANCIAL ASSETS (Continued)
4.3.1.3 EQUITY INSTRUMENTS DESIGNATED AS FVTOCI (Continued)
Dividends on these equity instruments are recognised in profit or loss unless the dividends
clearly represent recovery of part of the cost of the investment. Dividends are included
within ‘Other income’.
4.3.2 NON-DERIVATIVE FINANCIAL LIABILITIES
The Group initially recognises all financial liabilities, except for debt securities issued and
subordinated liabilities, on the trade date at which the Group becomes a party to the
contractual provisions of the instrument.
The Group derecognises a financial liability when its contractual obligations are
discharged, cancelled or expired.
Financial assets and liabilities are offset and the net amount presented in the statement
of financial position when, and only when, the Group has a legal right to offset the amounts
and intends either to settle on a net basis or realise the asset and settle the liability
simultaneously.
The Group's non-derivative financial liabilities include: loans, borrowings and trade and
other payables.
Such financial liabilities are recognised initially at fair value plus any directly attributable
transaction costs. Subsequent to initial recognition, these financial liabilities are measured
at amortised cost using the effective interest rate method.
Trade payables are stated at their nominal value, unless the effect of discounting is
material.
4.3.3 DERIVATIVE FINANCIAL INSTRUMENTS
The Group held a derivative financial instrument to hedge its interest rate risk exposures.
The interest rate swap matured during the year ended 31 December 2021.
Derivatives are initially recognised at fair value; attributable transactions are recognised
in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at
fair value and changes therein are accounted for in profit or loss.
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4 SIGNIFICANT ACCOUNTING POLICIES (Continued)
4.3 FINANCIAL INSTRUMENTS (Continued)
4.3.4 SHARE CAPITAL (Continued)
The terms of financial instruments that are issued, the substance of the contractual
arrangement and the definitions of a financial liability, a financial asset and an equity
instrument are evaluated to determine whether the financial instruments issued are
financial liabilities, financial assets or equity instruments or whether they contain separate
components, in which case such components are classified separately as financial
liabilities, financial assets and equity instruments. An equity instrument is any contract that
evidences a residual interest in the assets of the company after deducting all of its
liabilities. Equity instruments are recorded at the proceeds received, net of direct issue
costs. The Company’s ordinary shares, as well as its preference shares, are classified as
equity. Incremental costs directly attributable to the issue of ordinary and preference
shares are recognised as a deduction from equity.
4.3.5 CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash balances and call deposits with original
maturities of three months or less. Bank overdrafts that are repayable on demand and
form part of the Company’s cash management are included as a component of cash and
cash equivalents for the purpose of the statement of cash flows and are presented as
current liabilities in the statement of financial position.
4.4 PROPERTY, PLANT AND EQUIPMENT
4.4.1 RECOGNITION AND MEASUREMENT
Property, plant and equipment are measured at cost less accumulated depreciation and
accumulated impairment losses. Cost includes expenditure that is directly attributable to
the acquisition of the asset.
Borrowing costs related to the acquisition and construction of qualifying assets are
capitalised as incurred.
Gains and losses on disposal of property, plant and equipment are determined by
comparing the proceeds from disposal with the carrying amount of property, plant and
equipment and are recognised net within 'Other income' in profit or loss.
4.4.2 SUBSEQUENT COSTS
The cost of replacing a part of an item of property, plant and equipment is recognised in
the carrying amount of the item if it is probable that the future economic benefits
embodied within the part will flow to the Group and its cost can be measured reliably. The
carrying amount of the replaced part is derecognised. The costs of the day-to-day
servicing of property, plant and equipment are recognised in profit or loss as incurred.
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4 SIGNIFICANT ACCOUNTING POLICIES (Continued)
4.4 PROPERTY, PLANT AND EQUIPMENT (Continued)
4.4.3 DEPRECIATION
Depreciation is calculated over the depreciable amount, which is the cost of an asset, or
other amount substituted for cost, less its residual value.
Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful
lives of each part of an item of property, plant and equipment, since this most closely
reflects the expected pattern of consumption of the future economic benefits embodied
in the asset. Buildings constructed on leased land are depreciated over the shorter of the
lease term and their useful lives unless it is reasonably certain that the Group will obtain
ownership at the end of the lease term. Land is not depreciated.
The estimated useful lives for the current and comparative periods are as follows:
• buildings 25 - 50 years
• electrical and plumbing installation 15 years
• furniture, fixtures & fittings 10 years
• air-conditioning 6 years
• motor vehicles 5 years
• computer equipment 4 years
• terminals 4 years
Depreciation methods, useful lives and residual values are reviewed at each financial
year-end, and adjusted as appropriate.
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4 SIGNIFICANT ACCOUNTING POLICIES (Continued)
4.5 LEASES
4.5.1 THE GROUP AS A LESSEE
The Group assesses whether a contract is or contains a lease, at inception of the contract.
The Group recognises a right-of-use (ROU) asset and a corresponding lease liability with
respect to all lease arrangements in which it is the lessee, except for short-term leases
(defined as leases with a lease term of 12 months or less) and leases of low-value assets
(such as tablets and personal computers, small items of office furniture and telephones).
For these leases, the Group recognises the lease payments as an operating expense on a
straight-line basis over the term of the lease unless another systematic basis is more
representative of the time pattern of the lessee's benefit.
The lease liability is initially measured at the present value of the lease payments that are
not paid at the commencement date, discounted by using the rate implicit in the lease. If
this rate cannot be readily determined, the Group uses its incremental borrowing rate.
Lease payments included in the measurement of the lease liability comprise:
• Fixed lease payments (including in-substance fixed payments), less any lease
incentives receivable;
• Variable lease payments that depend on an index or rate, initially measured using the
index or rate at the commencement date;
• The amount expected to be payable by the lessee under residual value guarantees;
• The exercise price of purchase options, if the lessee is reasonably certain to exercise
the options; and
• Payments of penalties for terminating the lease, if the lease term reflects the exercise
of an option to terminate the lease.
The incremental borrowing rate is the rate of interest that a lessee would have to pay to
borrow the funds necessary to obtain an asset of a similar value to the ROU asset in a
similar economic environment, over a similar term, and with a similar security.
The lease liability is presented in the statement of financial position as a separate line item.
The lease liability is subsequently measured by increasing the carrying amount to reflect
interest on the lease liability (using the effective interest rate method) and by reducing the
carrying amount to reflect the lease payments made.
The Group re-measures the lease liability (and makes a corresponding adjustment to the
related ROU asset) whenever:
• The lease term has changed or there is a change in the assessment of exercise of a
purchase option, in which case the lease liability is re-measured by discounting the
revised lease payments using a revised discount rate;
• The lease payments change due to changes in an index or rate or a change in
expected payment under a guaranteed residual value, in which cases the lease
liability is re-measured by discounting the revised lease payments using an
unchanged discount rate (unless the lease payments change is due to a change in a
floating interest rate, in which case a revised discount rate is used); or
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4 SIGNIFICANT ACCOUNTING POLICIES (Continued)
4.5 LEASES (Continued)
4.5.1 THE GROUP AS A LESSEE (Continued)
• A lease contract is modified and the lease modification is not accounted for as a
separate lease, in which case the lease liability is re-measured based on the lease
term of the modified lease by discounting the revised lease payments using a revised
discount rate at the effective date of the modification.
The Group did not make any such adjustments during the periods presented.
Right-of-use assets
The ROU assets comprise the initial measurement of the corresponding lease liability, lease
payments made at or before the commencement date, less any lease incentives received
and any initial direct costs. They are subsequently measured at cost less accumulated
depreciation and impairment losses, and adjusted for certain re-measurement of the
lease liability.
Whenever the Group incurs an obligation for costs to dismantle and remove a leased
asset, restore the site on which it is located or restore the underlying asset to the condition
required by the terms and conditions of the lease, a provision is recognised and measured
under IAS 37. To the extent that the costs relate to a ROU asset, such costs are included
with the related ROU asset amount, unless those costs are incurred to produce inventories.
ROU assets are depreciated over the shorter period of the lease term and useful life of the
underlying asset. If a lease transfers ownership of the underlying asset, or the cost of the
ROU asset reflects that the Group expects to exercise a purchase option, the related ROU
asset is depreciated over the useful life of the underlying asset. The depreciation starts at
the commencement date of the lease.
The ROU assets are presented in the statement of financial position as a separate line
item.
The Group applies IAS 36 to determine whether a ROU asset is impaired and accounts for
any identified impairment loss as described in Note 4.10.3.
Variable rents that do not depend on an index or rate are not included in the measurement
of the lease liability nor the ROU asset. The related payments are recognised as an
expense in the period in which the event or condition that triggers those payments occurs
and are included within 'Other expenses' in profit or loss.
4.5.2 THE GROUP AS A LESSOR
The Group enters into lease agreements as a lessor with respect to its rented terminals.
Leases for which the Group is a lessor are classified as finance or operating leases.
Whenever the terms of the lease substantially transfer all the risks and rewards of
ownership to the lessee, the contract is classified as a finance lease. All other leases are
classified as operating leases.
When the Group is an intermediate lessor, it accounts for the head lease and the sub-
lease as two separate contracts. The sub-lease is classified as a finance or operating
lease by reference to the ROU asset arising from the head lease.
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4 SIGNIFICANT ACCOUNTING POLICIES (Continued)
4.5 LEASES (Continued)
4.5.2 THE GROUP AS A LESSOR (Continued)
Rental income from operating leases is recognised on a straight-line basis over the term
of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating
lease are added to the carrying amount of the leased asset and recognised on a straight-
line basis over the lease term.
Amounts due from lessees under finance leases are recognised as receivables at the
amount of the Group’s net investment in the leases. Finance lease income is allocated to
accounting periods so as to reflect a constant periodic rate of return on the Group’s net
investment outstanding in respect of the leases.
Subsequent to initial recognition, the Group regularly reviews the estimated unguaranteed
residual value and applies the impairment requirements of IFRS 9, recognising an
allowance for ECLs on the finance lease receivables.
Finance lease income is calculated with reference to the gross carrying amount of the
finance lease receivables, except for credit-impaired financial assets for which interest
income is calculated with reference to their amortised cost (i.e. after a deduction of the
loss allowance).
When a contract includes both lease and non-lease components, the Group applies IFRS
15 to allocate the consideration under the contract to each component.
4.6 INTANGIBLE ASSETS
4.6.1 RE-ACQUIRED RIGHTS
When as part of a business combination, the Group re-acquires a right that it had
previously granted to the acquiree to use one or more of its recognised or unrecognised
assets, an intangible asset is recognised separately from goodwill. The value of the re-
acquired rights is measured on the basis of the remaining contractual term of the related
contract regardless of whether market participants would consider potential contractual
renewals in determining its fair value. A settlement gain or loss is recognised by the Group
when the terms of the contract giving rise to a re-acquired right are favourable or
unfavourable, relative to the terms of current market transactions, for the same or similar
items.
4.6.2 GOODWILL
Goodwill that arises upon the acquisition of subsidiaries is included in intangible assets.
Goodwill represents the excess of the cost of the acquisition over the Group’s interest in
the net fair value of the identifiable assets, liabilities and contingent liabilities of the
acquiree. When the excess is negative, it is recognised immediately in profit or loss.
Subsequent to initial recognition, goodwill is measured at cost less accumulated
impairment losses.
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4 SIGNIFICANT ACCOUNTING POLICIES (Continued)
4.6 INTANGIBLE ASSETS (Continued)
4.6.3 INTERNALLY GENERATED COMPUTER SOFTWARE DEVELOPMENT
Development activities involve a plan or design for the production of new or substantially
improved products and processes. Development expenditure is capitalised only if
development costs can be measured reliably, the product or process is technically and
commercially feasible, future economic benefits are probable, and the Group intends to
and has sufficient resources to complete development and to use or sell the asset.
The expenditure capitalised includes the cost of materials, direct labour and overhead
costs that are directly attributable to preparing the asset for its intended use. Other
development expenditure is recognised in profit or loss as incurred.
Capitalised development expenditure is measured at cost less accumulated amortisation
and accumulated impairment losses.
4.6.4 SOFTWARE RIGHTS
Software rights that are separable or arise from contractual or other legal rights are
recognised as intangible assets if it is probable that the expected future economic
benefits that are attributable to the asset will flow to the entity and the cost of the asset
can be measured reliably.
Software rights are initially measured at cost. Subsequent to initial recognition, software
rights are recognised at cost less any accumulated amortisation and any accumulated
impairment losses.
4.6.5 CUSTOMER AND OTHER RELATED CONTRACTUAL RELATIONSHIP
Customer and other related contractual relationship acquired as a result of a business
combination are initially recognised at their fair value at the date of acquisition, and are
subsequently amortised on a straight-line basis based on the timing of projected cash
flows of the contracts over their estimated useful lives.
4.6.6 SUBSEQUENT EXPENDITURE
Subsequent expenditure is capitalised only when it increases the future economic benefits
embodied in the specific asset to which it relates and when it meets the definition of an
intangible asset and the recognition criteria. All other expenditure is recognised in profit or
loss as incurred.
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4 SIGNIFICANT ACCOUNTING POLICIES (Continued)
4.6 INTANGIBLE ASSETS (Continued)
4.6.7 AMORTISATION
Amortisation is calculated over the cost of the asset, or other amount substituted for cost,
less its residual value.
Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful
lives of intangible assets, other than goodwill, from the date that they are available for use
since this most closely reflects the expected patterns of consumption of the future
economic benefits embodied in the asset.
The estimated useful lives for the current and comparative periods are as follows:
• internally generated computer software 15 years
• software rights 15 years
• computer software 4 years
• other software 15 years
• customer and other related contractual relationship 12 years
The amortisation method, useful life and residual value are reviewed at each financial
year-end and adjusted if appropriate.
The assessment of all four categories of the useful life of software is based on the following
factors:
• The software is the main driver of the Group’s revenue and is expected to remain so
for the foreseeable future;
• Highly qualified teams with robust expertise which enables the software to be
efficiently managed;
• It is a mature product with years of development, knowhow and expertise;
• The software is maintained on a continuous basis to ensure that it keeps up with the
technical, technological and commercial changes;
• Industry and market demands are stable due to the increase in technological
change in the payment processes field;
• The company operates in a niche market with significant barriers to entry;
• The company owns the Intellectual property rights (IPR) for the software and
therefore there is no definite period of control over the asset; and
• The usage of the asset is not dependent on the useful life of assets of other
companies.
The assessment of useful life of customer and other related contractual relationship is
based on the following factors:
• The average churn rate of customers based on historical figures;
• The extent to which the churn rate is expected to fluctuate on particular market
segments due to technological upgrades; and
• The company operates in a competitive market which brings about its own
challenges and affects the churn rate, however there is also an element of loyalty
towards existing integrations.
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4 SIGNIFICANT ACCOUNTING POLICIES (Continued)
4.7 INVENTORIES
Inventories are stated at the lower of cost and net realisable value. Costs of purchased
inventory are determined after deducting rebates and discounts. Cost comprises all costs
of purchase, costs of conversion and other costs incurred in bringing the inventories to their
present location and condition. Net realisable value represents the estimated selling price
less all estimated costs of completion and costs to be incurred in marketing, selling and
distribution.
4.8 INVESTMENTS IN SUBSIDIARIES
Investments in subsidiaries are shown in the statement of financial position of the
Company at cost less any impairment losses.
Loans advanced by the Company to its subsidiaries for which settlement is neither planned
nor likely to occur in the foreseeable future, are treated as an extension to the Company’s
net investment in those subsidiaries and included as part of the carrying amount of
investments in subsidiaries to the extent that they represent a capital contribution.
4.9 BUSINESS COMBINATIONS
The acquisition method of accounting is used to account for all business combinations,
regardless of whether equity instruments or other assets are acquired. The consideration
transferred for the acquisition of a subsidiary comprises the:
• fair values of the assets transferred;
• liabilities incurred to the former owners of the acquired business;
• equity interests issued by the Group;
• fair value of any asset or liability resulting from a contingent consideration
arrangement; and
• fair value of any pre-existing equity interest in the subsidiary.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business
combination are, with limited exceptions, measured initially at their fair values at the
acquisition date. The Group recognises any non-controlling interest in the acquired entity
on an acquisition-by-acquisition basis either at fair value or at the non-controlling
interest’s proportionate share of the acquired entity’s net identifiable assets.
Acquisition-related costs are expensed as incurred, except for costs to issue debt or equity
instruments.
The excess of the consideration transferred; amount of any non-controlling interest in the
acquired entity; and acquisition-date fair value of any previous equity interest in the
acquired entity over the fair value of the net identifiable assets acquired is recorded as
goodwill.
If those amounts are less than the fair value of the net identifiable assets of the business
acquired, the difference is recognised directly in profit or loss as a bargain purchase.
Where settlement of any part of cash consideration is deferred, the amounts payable in
the future are discounted to their present value as at the date of exchange. The discount
rate used is the entity’s incremental borrowing rate, being the rate at which a similar
borrowing could be obtained from an independent financier under comparable terms and
conditions.
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4 SIGNIFICANT ACCOUNTING POLICIES (Continued)
4.9 BUSINESS COMBINATIONS (Continued)
Contingent consideration is classified either as equity or a financial liability. Amounts
classified as a financial liability are subsequently re-measured to fair value, with changes
in fair value recognised in profit or loss unless these represent changes that are the result
of additional information obtained after the acquisition date about facts and
circumstances that existed at the acquisition date and that qualify as measurement
period adjustments.
If the business combination is achieved in stages, the acquisition date carrying value of
the acquirer’s previously held equity interest in the acquiree is re-measured to fair value at
the acquisition date. Any gains or losses arising from such re-measurement are recognised
in profit or loss.
4.10 IMPAIRMENT
4.10.1 INVESTMENTS IN SUBSIDIAIRES
The carrying amounts of the Company’s investments in subsidiaries are reviewed at each
reporting date to determine whether there is an indication of impairment. If such indication
exists, then the asset’s recoverable amount is estimated.
The recoverable amount is the higher of fair value less costs to sell and value-in-use. In
assessing value-in-use, the estimated future cash flows are discounted to their present
value using a pre-tax discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset.
An impairment loss is recognised if the carrying amount of an asset exceeds its estimated
recoverable amount. Impairment losses are recognised in profit or loss.
Impairment losses recognised in prior periods are assessed at each reporting date for any
indications that the loss has decreased or no longer exists. An impairment loss is reversed
if there has been a change in the estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset’s carrying amount does
not exceed the carrying amount that would have been determined if no impairment loss
had been recognised.
4.10.2 NON-DERIVATIVE FINANCIAL ASSETS
4.10.2.1 EXPECTED CREDIT LOSSES
The Group recognises a loss allowance for ECLs on financial assets measured at amortised
cost, as well as contract assets and lease receivables. The amount of ECLs is updated at
each reporting date to reflect changes in credit risk since initial recognition.
For trade receivables and contract assets that do not contain a significant financing
component, the Group applies the simplified approach and recognises lifetime ECL.
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4 SIGNIFICANT ACCOUNTING POLICIES (Continued)
4.10 IMPAIRMENT (Continued)
4.10.2 NON-DERIVATIVE FINANCIAL ASSETS (Continued)
4.10.2.1 EXPECTED CREDIT LOSSES (Continued)
If evidence of a significant increase in credit risk at the individual instrument level is not yet
available, the Group performs the assessment of significant increases in credit risk on a
collective basis by considering information on, for example, a group or sub-group of
financial instruments. Where the Group does not have reasonable and supportable
information that is available without undue cost or effort to measure lifetime ECLs on an
individual instrument basis, lifetime ECLs are measured on a collective basis. In such
instances, the financial instruments are grouped on the basis of shared credit risk
characteristics, such as the nature, size and industry. Where a collective basis is applied,
a provision matrix is used, whereby a fixed provision rate is applied depending on the
number of days that a trade receivable is outstanding. The following steps are followed in
order to estimate the ECL on trade receivables:
Step 1: Determine the appropriate groupings of trade receivables into categories of shared
credit risk characteristics
.
IFRS 9 does not provide any explicit guidance or requirement on how to group trade
receivables. To be able to apply a provision matrix to trade receivables, the population of
individual trade receivables should first be aggregated into groups of receivables that
share similar credit risk characteristics. Management deems that the most appropriate
manner is the trade receivable aged analysis. Moreover, for the purpose of the Group’s
ECL calculation, the provision matrix is prepared in accordance with its default definition.
Step 2: Determine the period over which historical loss rates are obtained to develop
estimates of expected future loss rates
.
Once the sub-groups are identified, historical loss data need to be collected for each sub-
group. Again, IFRS 9 does not provide specific guidance on how far back the historical data
should be collected. Judgement is needed to determine the period over which reliable
historical data can be obtained that is relevant to the future period over which the trade
receivables will be collected. Management deems a 14-month period to be reasonable to
consider for ECL calculation purposes.
Step 3: Determine the historical loss rates
.
Once sub-groups have been identified and the period over which loss data will be
captured has been selected, the Group determines the expected loss rates for each sub-
group sub-divided into past-due categories (i.e. a loss rate for balances that are 0 days
past due, a loss rate for 1-30 days past due, a loss rate for 31-60 days past due, etc.). In
this respect, losses incurred over the 14-month period considered for this exercise are to
be taken for each ageing bucket. Dividing invoiced amounts in each ageing bucket by the
losses incurred results in the loss rates to be used for each ageing bucket.
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4 SIGNIFICANT ACCOUNTING POLICIES (Continued)
4.10 IMPAIRMENT (Continued)
4.10.2 NON-DERIVATIVE FINANCIAL ASSETS (Continued)
4.10.2.1 EXPECTED CREDIT LOSSES (Continued)
Step 4: Consider forward looking macro-economic factors and adjust historical loss rates
to reflect relevant future economic conditions
.
The historical loss rates calculated in Step 3 reflect the economic conditions in place during
the period to which the historical data relate. While they are a starting point for identifying
expected losses, they are not necessarily the final loss rates that should be applied to the
carrying amount. Albeit, Management deems that the historical loss rates were incurred
under economic conditions that are representative of those expected to exist in the
foreseeable future.
Step 5: Calculate the expected credit losses
.
The ECL of each sub-group determined in Step 1 should be calculated by multiplying the
current gross receivable balance plus contract assets by the loss rate. The summation of
all the ECLs of each ageing bucket results in the total ECL of the portfolio.
For all other financial instruments, the Group uses the general approach and recognises
lifetime ECLs when there has been a significant increase in credit risk since initial
recognition. If, on the other hand, the credit risk on the financial instrument has not
increased significantly since initial recognition, the Group measures the loss allowance for
that financial instrument at an amount equal to 12-month ECLs. The assessment of whether
lifetime ECLs should be recognised is based on significant increases in the likelihood or risk
of default occurring since initial recognition, instead of evidence of a financial asset being
credit-impaired at the reporting date or an actual default occurring.
Lifetime ECLs represent the ECLs that will result from all possible default events over the
expected life of a financial instrument. In contrast, 12-month ECLs represents the portion
of lifetime ECLs that is expected to result from default events on a financial instrument that
are possible within 12 months after the reporting date.
The Group recognises an impairment gain or loss in profit or loss for all financial assets with
a corresponding adjustment to their carrying amount, except for investments in debt
instruments that are measured at FVTOCI, for which the loss allowance is recognised in
other comprehensive income and accumulated in equity, and does not reduce the carrying
amount of the financial asset in the statement of financial position.
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4 SIGNIFICANT ACCOUNTING POLICIES (Continued)
4.10 IMPAIRMENT (Continued)
4.10.2 NON-DERIVATIVE FINANCIAL ASSETS (Continued)
4.10.2.1 EXPECTED CREDIT LOSSES (Continued)
Significant increase in credit risk
In assessing whether the credit risk on a financial instrument has increased significantly
since initial recognition, the Group compares the risk of default occurring on the financial
instrument as at the reporting date with the risk of default occurring on the financial
instrument at the date of initial recognition. In making this assessment, the Group considers
both the quantitative and the qualitative information that is reasonable and supportable,
including historical experience and forward-looking information that is available without
undue cost or effort and, where applicable, the financial position of the counterparties.
Irrespective of the outcome of the above assessment, the Group presumes that the credit
risk on a financial asset has increased significantly since initial recognition when
contractual payments are more than 30 days past due, unless the Group has reasonable
and supportable information, that is available without undue cost or effort, that
demonstrates otherwise.
Despite the above assessment, the Group assumes that the credit risk on a financial
instrument has not increased significantly since initial recognition if the financial instrument
is determined to have low credit risk at the reporting date. Accordingly, for these financial
assets, the loss allowance is measured at an amount equal to 12-month ECL. The Group
has applied the low credit risk assumption for cash at bank held with banks rated as
investment grade.
Credit-impaired financial assets
A financial asset is credit-impaired when one or more events that have a detrimental
impact on the estimated future cash flows of that financial asset have occurred.
Evidence that a financial asset is credit-impaired includes observable data about the
following events:
a) significant financial difficulty of the issuer or the borrower;
b) a breach of contract, such as a default or past due event;
c) the lender(s) of the borrower, for economic or contractual reasons relating to the
borrower's financial difficulty, having granted to the borrower a concession(s) that the
lender(s) would not otherwise consider;
d) it is becoming probable that the borrower will enter bankruptcy or other financial
reorganisation; or
e) the disappearance of an active market for that financial asset because of financial
difficulties.
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4 SIGNIFICANT ACCOUNTING POLICIES (Continued)
4.10 IMPAIRMENT (Continued)
4.10.2 NON-DERIVATIVE FINANCIAL ASSETS (Continued)
4.10.2.1 EXPECTED CREDIT LOSSES (Continued)
Based on past experience and reasonable and supportable information which
corroborates this experience, as adjusted (where necessary) for forward-looking
information, the Group and the Company consider that default has occurred when a
financial asset is more than 300 days past due.
Write-off policy
The Company writes off a financial asset when there is information indicating that the
counterparty is in severe financial difficulty and there is no realistic prospect of recovery.
Measurement and recognition of ECLs
For financial assets, the credit loss is the difference between all contractual cash flows that
are due to the Group in accordance with the contract and all the cash flows that the Group
expects to receive, discounted at the original effective interest rate. ECLs represent the
weighted average of credit losses. The assessment of the probability of default, and loss
given default, is based on historical data adjusted by forward-looking information, where
applicable. Forward-looking information considered includes, where applicable, the future
prospects of the industries in which the Group’s debtors operate, as well as consideration
for various external sources of actual and forecasted economic information that relate to
the Group’s core operations.
4.10.3 NON-FINANCIAL ASSETS
The carrying amounts of the Group’s non-financial assets, other than deferred tax assets,
are reviewed at each reporting date to determine whether there is any indication of
impairment. If any such indication exists, then the asset’s recoverable amount is estimated.
For goodwill and intangible assets that have indefinite useful lives, the recoverable amount
is estimated each year at the same time. An impairment loss is recognised if the carrying
amount of an asset or its cash generating unit (CGU) exceeds its estimated recoverable
amount.
The recoverable amount of an asset or CGU is the greater of its value-in-use and its fair
value less costs to sell. In assessing value-in-use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. For the purpose
of impairment testing, assets that cannot be tested individually are grouped together into
the smallest group of assets that generates cash inflows from continuing use that are
largely independent of the cash inflows of other assets or groups of assets (CGU).
Subject to an operating segment ceiling test, for the purpose of goodwill impairment
testing, CGUs to which goodwill has been allocated are aggregated so that the level at
which impairment is tested reflects the lowest level at which goodwill is monitored for
internal reporting purposes. Goodwill acquired in a business combination is allocated to
groups of CGUs that are expected to benefit from the synergies of the combination.
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4 SIGNIFICANT ACCOUNTING POLICIES (Continued)
4.10 IMPAIRMENT (Continued)
4.10.3 NON-FINANCIAL ASSETS (Continued)
Impairment losses are recognised in profit or loss unless the asset is carried at a revalued
amount. For assets recognised at a revalued amount, the impairment loss is recognised in
other comprehensive income to the extent that it does not exceed the amount in the
revaluation recognised for that asset. Impairment losses recognised in respect of CGUs
are allocated first to reduce the carrying amount of any goodwill allocated to the CGU,
and then to reduce the carrying amounts of the other assets in the CGU on a pro-rata
basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets,
impairment losses recognised in prior periods are assessed at each reporting date for any
indications that the loss has decreased or no longer exists. An impairment loss is reversed
if there has been a change in the estimates used to determine the recoverable amount. In
addition to this, an impairment loss is reversed only to the extent that the asset’s carrying
amount does not exceed the carrying amount that would have been determined, net of
depreciation or amortisation, if no impairment loss had been recognised.
4.11 SHORT-TERM EMPLOYEE BENEFITS
Short-term employee benefit obligations are measured on an undiscounted basis and are
expensed as the related service is provided.
The Group contributes towards the respective state pension defined contribution plan in
accordance with local legislation, and to which it has no commitment beyond the payment
of fixed contributions. Obligations for contributions to the defined contribution plan are
recognised immediately in profit or loss.
4.12 SHARE-BASED PAYMENT TRANSACTIONS
The grant-date fair value of equity-settled share-based payment awards granted to
employees is recognised as an employee expense, with a corresponding increase in equity,
over the period that the employees become unconditionally entitled to the awards. The
amount recognised as an expense is adjusted to reflect the number of awards for which
the related service and non-market performance conditions are expected to be met, such
that the amount ultimately recognised as an expense is based on the number of awards
that meet the related services and non-market performance conditions at the vesting
date.
For cash-settled share-based payments, a liability is recognised for the goods or services
acquired, measured initially at the fair value of the liability. As at each reporting date until
the liability is settled, and at the date of settlement, the fair value of the liability is re-
measured, with any changes in fair value recognised in profit or loss for the year.
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4 SIGNIFICANT ACCOUNTING POLICIES (Continued)
4.13 EMPLOYEE BENEFITS
Non-competition post-employment benefits due to employees holding senior
management positions are payable upon cessation for whatever reason, based on either
a fixed amount or the then applicable annual salary. The cost of providing for these post-
employment benefits is determined using the projected unit method, with estimations
being carried out at each reporting date. In line with the recognition of other provisions,
the post-employment benefits are recognised when the Group has a present legal or
constructive obligation as a result of past events, when it is probable that an outflow of
resources embodying economic benefits will be required to settle the obligation. The
liability recognised in the statement of financial position represents the present value of
the expected future payments required to settle the obligation at the end of the reporting
period. The present value of a defined benefit obligation is determined by discounting the
estimated future cash outflows to be paid on termination using market yields. Such yields
are denominated in the currency in which the benefits will be paid and have terms to
maturity approximating the estimated termination date. The Directors consider this to be
an appropriate proxy to a high-quality corporate bond. The service cost and the net
interest on the net defined benefit liability are recognised in profit or loss. Re-
measurements of the net defined benefit liability, are recognised in other comprehensive
income and are not reclassified to profit or loss in a subsequent period. Re-measurements
may include changes in the present value of the defined benefit obligation arising from
experience adjustments and the effects of changes in the actuarial assumptions. Such re-
measurements are reflected immediately in retained earnings.
4.14 PROVISIONS
A provision is recognised if, as a result of a past event, the Group has a present legal or
constructive obligation that can be estimated reliably, and it is probable that an outflow
of economic benefits will be required to settle the obligation. Provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects current market
assessments of the time value of money and the risks specific to the liability. The unwinding
of discount is recognised as a finance cost.
4.15 WARRANTIES
A provision for warranties is recognised when the underlying products or services are sold.
The provision is based on historical warranty data and a weighting of all possible outcomes
against their associated probabilities.
4.16 REVENUE
Revenue is recognised when the Group or the Company satisfies a performance obligation
by transferring control of a promised good or service to a customer. Revenue is measured
based on the consideration specified in a contract with a customer and excludes amounts
collected on behalf of third parties. Determining the timing of the transfer of control, at a
point in time or over time, requires judgement.
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4 SIGNIFICANT ACCOUNTING POLICIES (Continued)
4.16 REVENUE (Continued)
4.16.1 LICENSES
4.16.1.1 PERPETUAL LICENSES AND SIGNIFICANT CUSTOMISATION/
IMPLEMENTATION SERVICES
License fees arise from software license agreements where the Group grants non-
exclusive licenses to use specific BankWORKS® modules. In the case of perpetual licenses,
the fee is generally a one-time fee.
The Group accounts for individual products and services separately if they are distinct,
that is, if a product or service is separately identifiable from other promises in the contract
(i.e. the promise to transfer the good or service is distinct within the context of the contract)
and if a customer can benefit from it either on its own or together with other resources that
are readily available to the customer (i.e. the good or service is capable of being distinct).
In accordance with IFRS 15, the Group is required to assess each arrangement to
understand whether licenses are distinct from the significant implementation and
customisation services provided with that license and from the other services provided. For
the purposes of understanding whether the licenses are distinct, management is required
to consider additional criteria including whether the customers can benefit from the use of
the license alone or otherwise and whether there exist activities which require significant
integration, modification or which are otherwise interdependent.
In this respect, Management has assessed that in the majority of the Group’s contracts,
the license and the significant implementation and customisation services are to be
considered as one performance obligation in terms of the above criteria.
The Group has determined that revenue from this performance obligation should be
recognised provided the criteria for the recognition of a contract are satisfied, including
having an enforceable right to payment. In this case, in accordance with IFRS 15, revenue
is recognised as each licensed system is customised and set up according to the
customer’s specific needs, by reference to the stage of satisfaction of the performance
obligation.
Payment for the license and the significant customisation services is generally fixed and is
payable by the customer in advance by way of milestone payments. Any cash received in
advance of the provision of the customisation services is therefore recognised as a
contract liability, thus representing the entity’s obligation to perform the obligation. Such
amounts are recognised as revenue over the customisation period.
Such contracts are not deemed to be a significant financing component, as the period
between the recognition of revenue under the stage of completion and the payment is
less than one year.
Management has also considered IFRS 15’s impact on contracts in which consideration for
the promise is variable. For the license business, this is relevant for contracts in which the
Group’s consideration is based on a percentage of revenues that are earned by the client
from its own customers. For this variable consideration, the Group concludes that it cannot
include its estimate of such revenues in the transaction price until the uncertainty is
resolved.
This is based on the fact that the variability of the fee based on the customer’s own
revenues indicates that the Group cannot conclude that it is highly probable that a
significant reversal in the cumulative amount of revenue recognised would not occur.
Accordingly, such estimates are not included before they are earned.
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4 SIGNIFICANT ACCOUNTING POLICIES (Continued)
4.16 REVENUE (Continued)
4.16.1 LICENSES (Continued)
4.16.1.2 TERM LICENSE WITH THE PROVISION OF IMPLEMENTATION ACTIVITIES
AND MANAGED SERVICES
The Group is party to a term license agreement with an option by the customer of acquiring
the source code through an additional license for a longer term. The agreement also
governs the provision by the Group of implementation activities at the inception of the
contract and of managed services during the term of the agreement.
The Group accounts for individual products and services separately if they are distinct,
that is, if a product or service is separately identifiable from other promises in the contract
(i.e. the promise to transfer the good or service is distinct within the context of the contract)
and if a customer can benefit from it either on its own or together with other resources that
are readily available to the customer (i.e. the good or service is capable of being distinct).
In accordance with IFRS 15, the Group assesses whether licenses are distinct from the
significant implementation and customisation services provided with that license and from
the other services provided. For the purposes of understanding whether the licenses are
distinct, Management considers additional criteria including whether the customers can
benefit from the use of the license alone or otherwise and whether there exist activities
which require significant integration, modification or which are otherwise interdependent.
In this respect, Management has assessed that the license and the significant
implementation and customisation services are to be considered as one performance
obligation in terms of the above criteria.
The Group recognises the related fee for customisation and implementation activities over
the customisation period. This is established on the basis that the infrastructure is owned,
managed and governed by the customer and is hosted on its own system and that by the
time the customised software is live, the customer has already obtained and paid for that
system, without having to pay an additional amount for such customisation and
implementation activities such that upon the exercise of the option to acquire the
additional license, the customer has the contractual right and the practical ability to
perform the managed services itself.
The Group recognises the revenue attributable to the term license at a point in time,
immediately upon each periodic renewal of the license agreement to the extent that the
contract is either cancellable or to the extent that there is no history of enforcing contracts.
The Group invoices the customer quarterly in advance, based on volume tiers which are
trued-up annually.
The Group does not consider the customer’s option to represent a material right that the
customer would not receive without entering into that contract and accordingly the Group
concludes that this option does not represent another performance obligation in the
arrangement. Accordingly, the entire license fee is being recognised in profit or loss as it
arises, without any deferral. The uniqueness of the contract increases the element of
judgement that is applied in this respect. This conclusion is based on the fact that the
pricing of the option did not alter the pricing of the remaining components of the contract,
the pricing of the option does not give rise to a discount for the license being provided and
the option was granted as security for continuity of service.
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4 SIGNIFICANT ACCOUNTING POLICIES (Continued)
4.16 REVENUE (Continued)
4.16.1 LICENSES (Continued)
4.16.1.2 TERM LICENSE WITH THE PROVISION OF IMPLEMENTATION ACTIVITIES
AND MANAGED SERVICES (Continued)
Given that the contractual form of the exercise price of the option is a function of the
cumulative license fees paid by the customer prior to that option being exercised, the
Group has projected the applicable exercise price during the option period based on its
projections of the annual license fees expected to be applicable to the customer on the
basis of the expected volume of transactions. Based on the pricing of the exercise price,
in conjunction with the additional costs (including employee costs for handling and
managing the software) that would need to be incurred by the customer following the
exercise of the option, the Group believes that the likelihood of the option being exercised
is very low.
For managed services, refer to the accounting policy in 4.16.2.
4.16.2 SERVICES
The Group provides (a) transaction processing services; (b) maintenance services, such as
ongoing support for BankWORKS®, software enhancements and software upgrades; and
(c) other services, including change requests.
The agreements for the maintenance services and the other services are either entered
into (i) at the same time with the sale of the license; or (ii) after the sale of the license, as
part of a comprehensive package. Where the agreements are entered into at the same
time with the sale of the license, the Group assesses whether such agreements need to be
combined with the license contract for the purpose of IFRS 15.
The Group accounts for individual products and services separately if they are distinct,
that is, if a product or service is separately identifiable from other promises in the contract
(i.e. the promise to transfer the good or service is distinct within the context of the contract)
and if a customer can benefit from it either on its own or together with other resources that
are readily available to the customer (i.e. the good or service is capable of being distinct).
Transaction processing is determined to be a performance obligation which is distinct from
the corresponding implementation or customisation activities that are performed in
advance of such transaction processing (see Note 4.16.2.1). Transaction processing services
are regarded as a series of distinct services that are substantially the same and that have
the same pattern of transfer to the customer; the performance obligation is the fact that
the Group needs to stand ready to perform, which obligation is satisfied over time. The
consideration in respect of such services contains variable elements that are dependent
on the volume of transactions processed, with a minimum monthly fee; Management
allocates the variable fees charged for each transaction to the time period in which the
Group has the contractual right to bill the customer since such payments relate specifically
to the Group’s efforts to satisfy the performance obligation and allocating that amount
entirely to that specific time period is consistent with the allocation objective in IFRS 15. The
Group accordingly recognises the monthly billings to customers as revenue in the month
of billing.
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4 SIGNIFICANT ACCOUNTING POLICIES (Continued)
4.16 REVENUE (Continued)
4.16.2 SERVICES (Continued)
Maintenance services are generally billed quarterly or annually in advance. Regardless of
whether the corresponding agreements for such services are entered into at the same time
with the sale of the license, these services are determined to be distinct from the
corresponding licenses under IFRS 15.
Revenues allocated to the maintenance services are recognised over time in accordance
with IFRS 15, as the customer simultaneously receives and consumes all of the benefits
provided by the entity as the entity performs. The transaction price is recognised as a
contract liability at the time of receipt.
Revenue from other additional services requested by the client outside the scope of the
original contract, such as changes that are requested after the sale of the license and/or
the period of customisation, are generally treated as a separate contract if the scope of
the contract increases because of the addition of services that are distinct and the price
charged is calculated at a man-rate per hour that reflects the standalone selling price of
such additional services. This performance obligation is generally recognised over the
period of such service.
Revenue from services provided in comprehensive packages continues to be recognised
over time under IFRS 15 unless separate performance obligations are identified.
There should not be a significant financing component in relation to such services as the
period between the recognition of revenue and the payment is always less than one year.
4.16.2.1 IMPLEMENTATION AND CUSTOMISATION FEES FOLLOWED BY
TRANSACTION PROCESSING SERVICES
Where the Group receives a fee for customisation and implementation activities without
the sale of a license, which are followed by transaction processing services, it assesses
whether the fee relates to the transfer of a promised good or service.
Where the fee relates to an activity that the Group is required to undertake at or near
contract inception to fulfil the contract and that activity does not result in the transfer of
a promised good or service to the customer, the fee is treated as an advance payment for
future goods or services and, therefore, is recognised as revenue when those future goods
or services are provided.
Where the fee relates to a distinct performance obligation and that activity results in the
transfer of a promised good or service to the customer, the related revenue is recognised
over the customisation period. Determining whether the activity represents a distinct
performance obligation and whether it results in a transfer of a promised good or service
to the customer requires judgement.
This is based on the Group’s conclusion that by the time the customised software is live,
the customer has already obtained and paid for the right to have that software solution
hosted elsewhere, without having to pay an additional amount for such customisation and
implementation activities, subject to a migration fee as a separate service that is distinct
and a penalty for the cancellation of future transaction processing services (which reduces
with the number of remaining months) and without the requirement for a different service
provider to pay for an additional license in this regard.
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4 SIGNIFICANT ACCOUNTING POLICIES (Continued)
4.16 REVENUE (Continued)
4.16.3 ACQUIRING BUSINESS
During 2020, the Group introduced new revenue streams following the acquisition of the
POS terminal business. The acquiring business includes the sale and rental of payment
terminals and associated maintenance services, including consultation, installation and
repairs.
4.16.3.1 SALE OF TERMINALS AND TERMINAL EQUIPMENT
The Group enters into a sales contract or sales order with the customer, whereby the
consideration for the terminals or terminal equipment being sold is determined.
Simultaneously, the goods are shipped, the invoice is forwarded to the customer and the
consideration is due immediately. The Group has determined that revenue from this
performance obligation should therefore be recognised immediately provided that the
criteria for the recognition of a contract are satisfied, including having an enforceable right
to payment.
4.16.3.2 MAINTENANCE OF TERMINALS AND TERMINAL EQUIPMENT
The Group enters into a maintenance contract with the customer, specifying the monthly
maintenance fee and the relevant period. The monthly maintenance fee is due and
payable on a monthly basis. The Group has determined that revenue from this
performance obligation should therefore be recognised on a monthly basis in line with the
applicable maintenance period provided that the criteria for the recognition of a contract
are satisfied, including having an enforceable right to payment.
The agreements for the maintenance services are generally entered into at the same time
with the rental agreement, which defines all conditions and fees for the different services
being provided. Where the agreements are entered into at the same time with the rental
agreement, the Group assesses whether such agreements need to be combined with the
rental contract for the purpose of IFRS 15.
4.16.3.3 FEES PER PROCESSED TRANSACTION
The Group also charges transaction fees depending on the type of terminal. The Group
enters into a contract with the customer, specifying the transaction fee for the applicable
period. The sum of the transaction fees due per month are aggregated and billed to the
client. These are payable on a monthly basis. The Group has determined that revenue from
this performance obligation should therefore be recognised on a monthly basis in line with
the applicable maintenance period provided that the criteria for the recognition of a
contract are satisfied, including having an enforceable right to payment.
4.16.3.4 FEES BASED ON OPERATED TRANSACTION VOLUME
The Group also earns revenue based on transaction volume processed by the customer
terminals, both from Giro cards and credit cards. In the case of the former, a commission is
earned based on a percentage of the total transaction volume processed by Giro cards.
This commission is clearly defined in the contract the Group has with its customers.
95 Annual Report 2021
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4 SIGNIFICANT ACCOUNTING POLICIES (Continued)
4.16 REVENUE (Continued)
4.16.3 ACQUIRING BUSINESS (Continued)
4.16.3.4 FEES BASED ON OPERATED TRANSACTION VOLUME (Continued)
The Group has determined that revenue from this performance obligation should therefore
be recognised on a monthly basis in line with the applicable period provided that the
criteria for the recognition of a contract are satisfied, including having an enforceable right
to payment. In the case of revenue generated from transactions of credit cards, the Group
has a contract directly with the acquirer, rather than the customer. The Group therefore
receives a monthly commission from the profit generated by the acquirer from the Group’s
customers, based on transaction volume generated by credit cards.
The Group has determined that revenue from this performance obligation should therefore
be recognised on a monthly basis in line with the applicable period provided that the
criteria for the recognition of a contract are satisfied, including having an enforceable right
to payment.
4.16.4 CONTRACT COSTS
Contract costs that are recognised as an asset are amortised on a systematic basis that
is consistent with the transfer to the customer of the goods or services to which the asset
relates. An impairment loss is recognised in profit or loss to the extent that the carrying
amount of the asset exceeds (a) the remaining amount of consideration that the entity
expects to receive in exchange for the goods or services to which the asset relates; less
(b) the costs that relate directly to providing those goods or services and that have not
been recognised as expenses. An impairment reversal is recognised when the impairment
conditions no longer exist or have improved but the increased carrying amount of the asset
shall not exceed the amount that would have been determined (net of amortisation) if no
impairment loss had been recognised previously.
Incremental costs of obtaining a contract
The incremental costs of obtaining a contract with a customer are recognised as an asset
if the entity expects to recover those costs. Costs to obtain a contract that would have
been incurred, regardless of whether the contract was obtained, are recognised as an
expense when incurred, unless those costs are explicitly chargeable to the customer.
Applying the practical expedient in paragraph 94 of IFRS 15, the Company recognises the
incremental costs of obtaining a contract as an expense when incurred if the amortisation
period of the asset that the entity otherwise would have recognised is one year or less.
Costs to fulfil a contract
The costs incurred in fulfilling a contract with a customer that are not within the scope of
another Standard are recognised as an asset only if (a) the costs relate directly to a
contract or an anticipated contract that the entity can specifically identify; (b) the costs
generate or enhance resources of the entity that will be used in satisfying (or in continuing
to satisfy) performance obligations in the future; and (c) the costs are expected to be
recovered.
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4 SIGNIFICANT ACCOUNTING POLICIES (Continued)
4.16 REVENUE (Continued)
4.16.5 CONTRACT MODIFICATIONS
A contract modification, such as changes that are requested after the sale of the license
and/or the period of customisation, is accounted for as a separate contract if (a) the
scope of the contract increases because of the addition of promised goods or services
that are distinct; and (b) the price of the contract increases by an amount of consideration
that reflects the entity’s standalone selling prices of the additional promised goods or
services and any appropriate adjustments to that price to reflect the circumstances of the
particular contract.
For a contract modification that is not accounted for as a separate contract, the entity
accounts for the promised goods or services not yet transferred at the date of the contract
modification based on the specific facts and circumstances. A contract modification is
accounted for as if it were a termination of the existing contract and the creation of a new
contract if the remaining goods or services are distinct from the goods or services
transferred on or before the date of the contract modification. A contract modification is
accounted for as if it were a part of the existing contract if the remaining goods or services
are not distinct and, therefore, form part of a single performance obligation that is partially
satisfied at the date of the contract modification. If the remaining goods or services are
partly distinct and partly not distinct, the effects of the modification on the unsatisfied
(including partially unsatisfied) performance obligations in the modified contract are
accounted for in a manner that is consistent with the objectives of IFRS 15.
4.16.6 ALLOCATION OF A DISCOUNT
Where a discount is provided, the Group and the Company allocate that discount entirely
to one or more, but not all, performance obligations in the contract if the following criteria
are met: (a) the entity regularly sells each distinct good or service (or each bundle of distinct
goods or services) in the contract on a standalone basis; (b) the entity also regularly sells
on a standalone basis a bundle (or bundles) of some of those distinct goods or services at
a discount to the standalone selling prices of the goods or services in each bundle; and (c)
the discount attributable to each bundle of goods or services is substantially the same as
the discount in the contract and an analysis of the goods or services in each bundle
provides observable evidence of the performance obligation (or performance obligations)
to which the entire discount in the contract belongs. If these criteria are not met, the
discount is allocated proportionately to all performance obligations in the contract.
4.16.7 ALLOCATION OF VARIABLE CONSIDERATION
The Group and the Company allocate a variable amount (and subsequent changes to
that amount) entirely to a performance obligation or to a distinct good or service that
forms part of a single performance obligation if both of the following criteria are met: (a)
the terms of a variable payment relate specifically to the entity’s efforts to satisfy the
performance obligation or transfer the distinct good or service (or to a specific outcome
from satisfying the performance obligation or transferring the distinct good or service); and
(b) allocating the variable amount of consideration entirely to the performance obligation
or the distinct good or service is consistent with the allocation objective in IFRS 15 when
considering all of the performance obligations and payment terms in the contract.
97 Annual Report 2021
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4 SIGNIFICANT ACCOUNTING POLICIES (Continued)
4.17 FINANCE INCOME AND COSTS
Finance income comprises interest income on bank balances, loans receivable,
movements in provisions for non-operating exchange gains, finance income arising on
measuring receivables at amortised cost using the effective interest rate method, gains
on derivatives recognised in the profit or loss and finance income on the net investment in
finance leases. Interest income is recognised as it accrues in profit or loss, using the
effective interest rate method as further described in the accounting policies for non-
derivative financial assets.
Finance costs comprise interest expense on borrowings, movements in provisions for non-
operating exchange losses, and finance cost arising on measuring payables at amortised
cost using the effective interest rate method recognised in profit or loss.
Borrowing costs that are not directly attributable to the acquisition and construction of
qualifying assets are recognised in profit or loss.
Foreign currency gains and losses are reported on a net basis.
4.18 GOVERMENT GRANTS
Government grants are recognised as income over the periods necessary to match them
to the costs for which they are intended to compensate, on a systematic basis.
Government grants that are receivable as compensation for expenses or losses already
incurred or for the purpose of giving immediate financial support to the Group with no
future related costs, are recognised in profit or loss in the period in which they become
receivable.
If a grant is compensation for expenses or losses already incurred, or for which there are
no future related costs, it is recognised in profit or loss in the period in which is becomes
receivable. A grant relating to income is deducted by the Group from the related expense.
Government grants are not recognised until there is reasonable assurance that the
respective entity will comply with the conditions attaching to them and the grants will be
received. A forgivable loan from government is treated as a government grant when there
is reasonable assurance that the entity will meet the terms for forgiveness of the loan.
4.19 INCOME TAX
Income tax expense comprises current and deferred tax. Current and deferred tax are
recognised in profit or loss except to the extent that it relates to a business combination,
or items recognised directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for
the year, using tax rates enacted or substantively enacted at the reporting date, and any
adjustment to tax payable in respect of previous years.
Deferred tax is recognised in respect of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for
taxation purposes.
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4 SIGNIFICANT ACCOUNTING POLICIES (Continued)
4.19 INCOME TAX (Continued)
Deferred tax is not recognised for the following temporary differences: the initial
recognition of assets or liabilities in a transaction that is not a business combination and
that affects neither accounting nor taxable profit or loss, and differences relating to
investments in subsidiaries to the extent that it is probable that they will not reverse in the
foreseeable future. In addition, deferred tax is not recognised for taxable temporary
differences arising on the initial recognition of goodwill.
Deferred tax assets are recognised for unused tax losses, and deductible temporary
differences to the extent that it is probable that future taxable profits will be available
against which they can be used. Future taxable profits are determined based on business
plans for individual subsidiaries in the Group and the reversal of temporary differences.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent
that it is no longer probable that the related tax benefit will be realised; such reductions
are reversed when the probability of future taxable profits improves.
Unrecognised deferred tax assets are reassessed at each reporting date and recognised
to the extent that it has become probable that future taxable profits will be available
against which they can be used.
Deferred tax is measured at the tax rates that are expected to be applied to temporary
differences when they reverse, based on the laws that have been enacted or substantively
enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a
legally enforceable right to offset current tax liabilities and assets, and they relate to
income taxes levied by the same tax authority on the same taxable entity, or on different
tax entities, but they intend to settle current tax liabilities and assets on a net basis or their
tax assets and liabilities will be realised simultaneously.
4.20 EARNINGS PER SHARE
The Group presents basic Earnings per Share (EPS) data for its ordinary shares. For the
purpose of this calculation and for the purpose of Note 26, an ordinary share is an equity
instrument that is subordinate to all other classes of equity instruments. The terms of
preference shares issued by the Company are assessed to determine whether they share
the characteristics of ordinary shares and have any preference attributed to them. In case
that such shares have no preference attributed to them, such instruments are considered
as ordinary shares for the purpose of this calculation, regardless of the legal name
assigned to them.
Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders
of the Company by the weighted average number of ordinary shares outstanding during
the period. Shares are usually included in the weighted average number of shares from the
date consideration is receivable (which is generally the date of their issue).
The Group presents in the statement of comprehensive income basic earnings per share
for each class of ordinary shares that has a different right to share in profit for the period.
4.21 SEGMENT REPORTING
An operating segment is a component of the Group that engages in business activities
from which it may earn revenues and incur expenses, including revenues and expenses
relating to transactions with any of the Group’s other components.
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4 SIGNIFICANT ACCOUNTING POLICIES (Continued)
4.21 SEGMENT REPORTING (Continued)
Operating results of all operating segments are regularly reviewed by the Group’s chief
operating decision maker to make decisions about resources to be allocated to the
segment and assess its performance, and for which discrete financial information is
available.
4.22 DIVIDENDS
Dividends to holders of equity instruments are recognised as liabilities in the period in which
they are declared. These are recognised directly in equity.
4.23 NON-CURRENT ASSETS CLASSIFIED AS HELD FOR SALE
Non-current assets and disposal groups are classified as held for sale if their carrying
amount will be recovered principally through a sale transaction rather than through
continuing use. This condition is regarded as met only when the sale is highly probable and
the asset or disposal group is available for immediate sale in its present condition.
Management must be committed to the sale, which should be expected to qualify for
recognition as a completed sale within one year from the date of classification. Non-
current assets and disposal groups classified as held for sale are measured at the lower of
the assets’ previous carrying amount and fair value less costs to sell, unless the
measurement provisions of such assets and liabilities (such as financial assets within the
scope of IFRS 9) are scoped out of IFRS 5. An impairment loss is recognised in profit or loss.
Non-current assets are not depreciated (or amortised) while they are classified as held for
sale or while they are part of a disposal group classified as held for sale.
5 DETERMINATION OF FAIR VALUES
A number of the Group’s accounting policies and disclosures require the determination of
fair value, for both financial and non-financial assets and liabilities. Fair values have been
determined for measurement and/or disclosure purposes based on the following methods.
When applicable, further information about the assumptions made in determining fair
values is disclosed in the notes specific to that asset or liability. When measuring the fair
value of an asset or liability, the Group uses observable market data whenever sufficient
data is available.
Fair values are categorised into different levels in a fair value hierarchy based on the inputs
used in the valuation techniques as follows:
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2: inputs other than quoted market prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived
from prices); and
• Level 3: inputs for the asset or liability that are not based on observable market data
(unobservable inputs).
If the inputs used to measure the fair value of an asset or a liability might be categorised
in different levels of the fair value hierarchy, then the fair value measurement is categorised
in its entirety in the same level of the fair value hierarchy as the lowest level input that is
significant to the entire measurement.
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5 DETERMINATION OF FAIR VALUES (Continued)
5.1 MEASUREMENT OF FAIR VALUES
5.1.1 LOANS RECEIVABLE
The fair value of loans receivable is estimated as the present value of future cash flows,
discounted at the market rate of interest at the reporting date. This fair value is determined
for disclosure purposes and is categorised as Level 2 of the fair value hierarchy.
5.1.2 NON-DERIVATIVE FINANCIAL LIABILITIES
Fair value is calculated based on the present value of future principal and interest cash
flows, discounted at the market rate of interest at the reporting date. Such non-derivative
financial liabilities entail bank borrowings, which have been categorised as Level 2 fair
values.
5.1.3 SHARE-BASED PAYMENT TRANSACTIONS
The fair value of employee share options or awards is measured using inputs that include
the share price at measurement date, the exercise price of the instrument, if any, expected
volatility (based on an evaluation of the Company’s historic volatility) where appropriate,
the life of the instrument, expected dividends to the extent applicable, and the risk-free
interest rate. Service and non-market performance conditions attached to the
transactions are not taken into account in determining fair value.
For the cash-settled share-based payment arrangements, further disclosures are
provided in Note 29.3.
Expected dividends were not included in the fair value measurement since the individual is
entitled to the rights of a shareholder, including the right to receive dividends from the date
of grant of shares.
5.1.4 FINANCE LEASE RECEIVABLES
The fair value of the finance lease receivables is classified as Level 2 and was calculated
using the discounted cash flow method using an appropriate discount rate.
5.1.5 OTHER INVESTMENT
Under IFRS 9, this investment was classified as an equity instrument designated as at
FVTOCI upon initial recognition. The fair value measurement for ‘Other investment’ has
been categorised as a Level 3 fair value based on the inputs to the valuation techniques
used.
As further disclosed in Note 12, in 2020, Management expressed interest in disposing of the
other investment in full. In this respect, the equity value as at end of December 2020 was
reclassified from Other Investment to Non-current Asset classified as Held-for-Sale and
the book value was adjusted to match the offered selling price of €296,205, with the gain
in fair value of investment in equity instruments being taken to other comprehensive
income. This sale was concluded successfully during the year ended 31 December 2021.
101 Annual Report 2021
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5 DETERMINATION OF FAIR VALUES (Continued)
5.2 FAIR VALUES VERSUS CARRYING AMOUNTS
The reported carrying amounts at the respective reporting dates of the Group's and
Company's current financial instruments are a reasonable approximation of their fair
values in view of their short-term maturities. Derivative financial instruments are carried at
fair value.
The Group's and Company's carrying amounts of other financial assets and liabilities, other
than the Company's investment in subsidiaries, in the statement of financial position are a
reasonable approximation of their respective fair values.
6 FINANCIAL RISK MANAGEMENT
6.1
OVERVIEW
The Group has exposure to the following risks from its use of financial instruments:
• credit risk;
• liquidity risk; and
• market risk.
This note presents information about the Group’s exposure to each of the above risks, the
Group’s objectives, policies and processes for measuring and managing risk, and the
Group’s management of capital. Further quantitative disclosures are included throughout
these financial statements. The Company's exposure to such risks is substantially similar to
that of the Group unless otherwise stated.
6.2
RISK MANAGEMENT FRAMEWORK
The Board of Directors has overall responsibility for the establishment and oversight of the
Group’s risk management framework.
The Group’s risk management policies are established to identify and analyse the risks
faced by the Group, to set appropriate risk limits and controls, as well as to monitor risks
and adherence to limits.
Risk management policies and systems are reviewed regularly to reflect changes in market
conditions and the Group’s activities. The Group, through its training and management
standards and procedures, aims to develop a disciplined and constructive control
environment in which all employees understand their roles and obligations.
The Group’s Audit Committee oversees how Management monitors compliance with the
Group’s risk management policies and procedures and reviews the adequacy of the risk
management framework in relation to the risks faced by the Group.
6.3 CREDIT RISK
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a
financial instrument fails to meet its contractual obligations, and arises principally from the
Group's trade receivables from customers, finance lease receivables, loans receivable,
contract assets, and cash held with financial institutions.
102 Annual Report 2021
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6 FINANCIAL RISK MANAGEMENT (Continued)
6.3 CREDIT RISK (Continued)
Specifically, the Group’s exposure to credit risk arising from its trade receivables, is
influenced mainly by the individual characteristics of each customer. The demographics of
the Group’s customer base, including the default risk of the industry and country in which
customers operate, have less of an influence on credit risk.
The majority of the Group’s customers have been transacting with the Group for several
years, and losses have occurred infrequently. In monitoring customer credit risk, customers
are classified according to their credit characteristics, geographic location and ageing
profile. Trade receivables relate to the Group’s customers to whom services are rendered.
6.3.1 EXPOSURE TO CREDIT RISK
The carrying amount of financial assets represents the maximum credit exposure. The
maximum exposure to credit risk at the reporting dates was as follows:
2021 2020 2021 2020
€ € € €
Non-current assets
Amounts receivable from related parties - 796,631 2,107,484 3,099,629
Finance lease receivables 97,702 89,071 - -
97,702 885,702 2,107,484 3,099,629
Current assets
Trade and other receivables 6,065,903 2,736,289 17,308,767 7,860,512
Finance lease receivables 56,440 41,443 - -
Loans and receivables from related parties 945,565 910 945,790 1,135
Accrued income and contract costs 3,776,538 2,425,586 6,148,870 9,590,302
Cash at bank 8,214,173 6,817,075 1,258,534 1,535,884
19,058,619 12,021,303 25,661,961 18,987,833
Carrying Amount
The Group
The Company
The maximum exposure to credit risk for trade and other receivables, finance lease
receivables, loans receivable, and accrued income, at the respective reporting dates by
geographic region was as follows:
2021 2020 2021 2020
€ € € €
N
on-current assets
Europe 97,702 885,702 2,050,000 3,046,631
South America - - 57,484 52,998
97,702 885,702 2,107,484 3,099,629
Current assets
Europe 4,875,367 3,291,189 6,292,504 4,941,299
Middle East 780,587 651,942 771,095 649,834
South America 574,385 165,342 259 -
North America 3,687,834 (48,065) 17,074,338 11,480,994
Asia 926,273 1,143,820 265,231 379,822
10,844,446 5,204,228 24,403,427 17,451,949
Carrying Amount
The Group
The Company
103 Annual Report 2021
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6 FINANCIAL RISK MANAGEMENT (Continued)
6.3 CREDIT RISK (Continued)
6.3.1 EXPOSURE TO CREDIT RISK (Continued)
The nature of the Group and the Company’s activities is to service financial institutions
(including banks) and accordingly a significant proportion of receivables fall within this
industry. In 2021, 66% (2020: 65%) of the Group’s revenue is attributable to sales
transactions with three (2020: three) major customers in the banking and payments
industry as per Note 7.4. The below table shows the receivable balances together with
accrued income due by these major customers as at 31 December 2021 and 2020
respectively.
2021 2020 2021 2020
€ € € €
C
ustomers situated in Europe 1,565,574 1,402,597 1,565,574 1,402,597
Customers situated in North America 2,744,129 - - -
4,309,703 1,402,597 1,565,574 1,402,597
The Group
The Company
6.3.2 IMPAIRMENT LOSSES
The Group establishes an allowance for impairment that represents its estimate of incurred
losses in respect of trade and other receivables. This allowance represents specific
provisions against individual exposures and a collective provision where necessary, unless
this is considered to be immaterial.
The tables below detail, by credit risk rating grades, the gross carrying amount of financial
assets.
Bank balances 2021 2020 2021 2020
External rating grades € € € €
AA
- - 505,928 - -
A+ 7,033,351 5,790,464 94,483 1,020,746
BBB+ 16,329 - - -
BBB- 20,999 15,534 20,999 15,534
Unrated 1,143,494 505,149 1,143,052 499,604
Gross/net carrying amount at 31 December
8,214,173 6,817,075 1,258,534 1,
535,884
The Group
The Company
The Group’s cash is placed with reputable financial institutions, such that Management
does not expect any institution to fail to meet repayments of amounts held in the name of
the Group.
104 Annual Report 2021
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6 FINANCIAL RISK MANAGEMENT (Continued)
6.3 CREDIT RISK (Continued)
6.3.2 IMPAIRMENT LOSSES (Continued)
Finance lease receivables 2021 2020 2021 2020
Internal rating grades € € € €
Performing* 154,142 130,514 - -
Gross/net carrying amount at 31 December
154,142
130,514 - -
Loans receivable 2021 2020 2021 2020
I
nternal rating grades € € € €
Performing* 945,565 797,541 3,053,274 3,100,764
Gross/net carrying amount at 31 December
945,565
797,541 3,053,274 3,100,764
*The contracting party has a low risk of default and does not have any past due amounts (12m ECL).
31 December 2021
Trade debtors, contract assets and finance lease receivables
Internal rating grades € € €
N
ot in default - simplified model applied - 10,449,190 -
In default - - 4,339
Gross carrying amount at 31 December 2021 - 10,449,190 4,339
Loss allowance at 31 December 2021 - (452,608) (4,339)
Net carrying amount at 31 December 2021
-
9,996,582 -
31 December 2021
Trade debtors and contract assets
Internal rating grades € € €
N
ot in default - simplified model applied 20,750,220 2,882,833 -
In default - - -
Gross carrying amount at 31 December 2021 20,750,220 2,882,833 -
Loss allowance at 31 December 2021 - (175,416) -
Net carrying amount at 31 December 2021
20,750,220
2,707,417 -
Lifetime ECL not-credit impaired
Lifetime ECL
credit impaired
The Group
Individual
Impairments
Collective
Impairments
Individual
Impairments
The Company
Individual
Impairments
Collective
Impairments
Individual
Impairments
The Company
The Group
Lifetime ECL not-credit impaired
Lifetime ECL
credit impaired
105 Annual Report 2021
3
6 FINANCIAL RISK MANAGEMENT (Continued)
6.3 CREDIT RISK (Continued)
6.3.2 IMPAIRMENT LOSSES (Continued)
31 December 2020
Trade debtors and contract assets
Internal rating grades € € €
Not in default - simplified model applied 120,000 6,395,627 -
In default - - 59,108
Gross carrying amount at 31 December 2020 120,000 6,395,627 59,108
Loss allowance at 31 December 2020 - (43,000) (59,108)
Net carrying amount at 31 December 2020
120,000 6,352,627 -
The Group
Lifetime ECL not-credit impaired
Lifetime ECL
credit impaired
Individual
Impairments
Collective
Impairments
Individual
Impairments
Impairment losses on contract costs for RS2 Group as at 31 December 2020 amounted to
€1,045,588. Such impairment losses have been written off in full in 2021.
31 December 2020
Trade debtors and contract assets
Internal rating grades € € €
Not in default - simplified model applied 14,743,099 2,750,715 -
In default - - -
Gross carrying amount at 31 December 2020 14,743,099 2,750,715 -
Loss allowance at 31 December 2020 - (43,000) -
Net carrying amount at 31 December 2020
14,743,099 2,707,715 -
Individual
Impairments
Collective
Impairments
Individual
Impairments
The Company
Lifetime ECL not-credit impaired
Lifetime ECL
credit impaired
Write-offs during the reporting period amounted to €1,272,653 (2020: €111,354) and €2,362
(2020: €nil) for the Group and the Company, respectively. No reversals of write-offs
happened during the year ended 31 December 2021 (2020: €nil).
106 Annual Report 2021
3
6 FINANCIAL RISK MANAGEMENT (Continued)
6.3 CREDIT RISK (Continued)
6.3.2 IMPAIRMENT LOSSES (Continued)
31 December 2021
Lifetime ECL
credit impaired
Individual
Impairments
Collective
Impairments
Individual
Impairments
Trade debtors, contract assets and finance lease receivables € € €
O
pening balance at 1 January 2021 - 43,000 54,745
Movement during the year - 409,608 (50,406)
Closing balance 31 December 2021 - 452,608 4,339
31 December 2021
Lifetime ECL
credit impaired
Individual
Impairments
Collective
Impairments
Individual
Impairments
Trade receivables and contract assets € € €
O
pening balance at 1 January 2021 - 43,000 -
Movement during the year - 132,416 -
Closing balance 31 December 2021 - 175,416 -
31 December 2020
Lifetime ECL
credit impaired
Individual
Impairments
Collective
Impairments
Individual
Impairments
Trade debtors, contract assets and finance lease receivables € € €
Opening balance at 1 January 2020 - 39,000 147,064
Movement during the year - 4,000 (92,319)
Closing balance 31 December 2020 - 43,000 54,745
31 December 2020
Lifetime ECL
credit impaired
Individual
Impairments
Collective
Impairments
Individual
Impairments
Trade receivables and contract assets € € €
Opening balance at 1 January 2020 - 39,000 5,341
Movement during the year - 4,000 (5,341)
Closing balance 31 December 2020 - 43,000 -
The Company
Lifetime ECL not-credit impaired
Lifetime ECL not-credit impaired
The Company
Lifetime ECL not-credit impaired
The Group
Lifetime ECL not-credit impaired
The Group
Impairment losses on contract costs as at 31 December 2020 amounted to €1,045,586.
Such impairment losses have been written off in full in 2021.
107 Annual Report 2021
3
6 FINANCIAL RISK MANAGEMENT (Continued)
6.4 LIQUIDITY RISK
Liquidity risk is the risk that the Group will not be able to meet its financial obligations,
which are associated with its financial liabilities that are settled by delivering cash or
another financial asset, as they fall due. The Group’s approach to managing liquidity is to
ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities
when due, under both normal and stressed conditions, without incurring unacceptable
losses or risking damage to the Group’s reputation.
The Group monitors its cash flow requirements on a regular basis and ensures that it has
sufficient cash on demand to meet expected operational expenses; this excludes the
potential impact of extreme circumstances that cannot reasonably be predicted.
The following are the contractual maturities of financial liabilities, including estimated
interest payments.
Carrying
amount
Contractual
Cash flows
12 months or
less
1 - 2 years 2 - 5 years
More than 5
years
€ € € € € €
31 December 2021
The Group
Secured bank loans 1,621,942 1,694,008 535,603 535,560 622,845 -
Accrued expenses 3,455,711 3,455,711 3,455,711 - - -
1,895,735 1,895,735 1,895,735 - - -
3,909,545 3,916,201 - - 270,090 3,646,111
Lease liabilities 2,181,930 2,399,474 458,239 423,606 939,448 578,181
13,064,863 13,361,129 6,345,288 959,166 1,832,383 4,224,292
The Company
Secured bank loans 1,621,942 1,694,008 535,603 535,560 622,845 -
Accrued expenses 1,508,055 1,508,055 1,508,055 - - -
1,419,710 1,419,710 1,419,710 - - -
3,473,288 3,479,942 - - 270,090 3,209,852
Lease liabilities 450,812 573,997 28,409 28,409 124,998 392,181
8,473,807 8,675,712 3,491,777 563,969 1,017,933 3,602,033
Trade and other payables
Post-employment benefits
Trade and other payables
Post-employment benefits
Carrying
amount
Contractual
Cash flows
12 months or
less
1 - 2 years 2 - 5 years
More than 5
years
€ € € € € €
31 December 2020
The Group
Secured bank loans 11,763,018 11,885,992 10,192,771 535,560 1,157,661 -
660 564 564 - - -
Accrued expenses 3,376,536 3,376,536 3,376,536 - - -
2,166,879 2,166,879 2,166,879 - - -
4,073,688 4,075,630 111,422 - 270,090 3,694,118
Lease liabilities 2,277,846 2,536,974 384,606 357,970 998,968 795,430
23,658,627 24,042,575 16,232,778 893,530 2,426,719 4,489,548
The Company
Secured bank loans 11,763,018 11,885,992 10,192,771 535,560 1,157,661 -
660 564 564 - - -
Accrued expenses 1,577,322 1,577,322 1,577,322 - - -
1,984,010 1,984,010 1,984,010 - - -
3,630,934 3,632,875 111,422 - 270,090 3,251,363
Lease liabilities 466,237 602,404 28,
409 28,409 122,157 423,429
19,422,181 19,683,167 13,
894,498 563,969 1,549,908 3,674,792
Trade and other payables
Interest rate swap
Trade and other payables
Post-employment benefits
Post-employment benefits
Interest rate swap
Further disclosures on liquidity risk are provided in Note 2.1.2.
108 Annual Report 2021
3
6 FINANCIAL RISK MANAGEMENT (Continued)
6.5
MARKET RISK
Market risk is the risk that changes in market prices, namely foreign exchange rates,
interest rates and equity prices will affect the Group’s income or the value of its holdings
of financial instruments. The objective of market risk management is to manage and
control market risk exposures within acceptable parameters, while optimising the return.
6.5.1 CURRENCY RISK
The Group is exposed to currency risk on sales and purchases that are denominated in a
currency other than the functional currency of the Company, the Euro. The currencies in
which these transactions are primarily denominated are USD, PHP, NZD and GBP.
The Group relies on natural hedges between inflows and outflows in currencies other than
the Euro, and does not otherwise hedge against exchange gains or losses which may arise
on the realisation of amounts receivable and settlement of amounts payable in foreign
currencies.
The Group’s exposure to foreign currency risk as at 31 December was as follows, based on
notional amounts:
The Group
NZD CHF PHP USD JOD BRL GBP CAD
ISK
Trade receivables 466,181 - 3,764,777 3,966,295 - - 584,221 -
-
Accrued income 189,129 - 685,714 1,411,500 - - 258,872 -
-
Cash at bank 51 216 2,506,749 5,391,072 - 228,320 128,366 432
14,207
Trade payables - - (1,225,687) (136,044) 32 (16,165) (3,014) -
-
Deferred income (45,042) - - (176,131) - - (263,730) -
-
Gross statement of
financial position
exposure
610,319 216 5,731,553 10,456,692 32 212,155 704,715 432
14,207
The Company
Trade receivables - - - 9,509,403 - - 584,221 -
-
Receivables from
related parties
- - - 65,000 - - - -
-
Accrued income - - - 4,949,911 - - 258,872 -
-
Cash at bank - - - 18,260 - - 125,033 -
-
Trade payables - - (176,636) (4,119) 32 - (3,014) -
-
Deferred income - - - (159,208) - - (263,730) -
-
Gross statement of
financial position
exposure
- - (176,636) 14,379,247 32 - 701,382 -
-
2021
The Group
NZD CHF PHP USD JOD BRL GBP CAD
ISK
Trade receivables 1,120,327 - 276,059 621,161 - - 151,585 -
-
Accrued income 148,051 - - 642,241 - - 875,784 -
-
Cash at bank 1,458 - 5,224,837 5,331,981 - 112,733 91,516 432
-
Trade payables - - (542,272) (287,428) (60) (14,720) (463) -
-
Deferred income (60,342) - - (175,392) - - (424,816) (2,000)
-
Gross statement of
financial position
exposure
1,209,494 - 4,958,624 6,132,563 (60) 98,013 693,606 (1,568)
-
The Company
Trade receivables - - - 6,177,245 - - 151,585 -
-
Accrued income - - - 3,839,727 - - 875,784 -
-
Cash at bank - - - 10,930 - - 87,220 -
-
Trade payables - - 125,000 (71,694) (60) - (463) -
-
Deferred income - - - (159,208) - - (424,816) -
-
Gross statement of
financial position
exposure
- - 125,000 9,797,000 (60) - 689,310 -
-
2020
109 Annual Report 2021
3
6 FINANCIAL RISK MANAGEMENT (Continued)
6.5
MARKET RISK (Continued)
6.5.1 CURRENCY RISK (Continued)
The following significant exchange rates applied during the year:
2021 2020 2021 2020
NZD 1 0.5980 0.5694 0.6032 0.5888
CHF 1 0.9249 0.9341 0.9680 0.9258
USD 1 0.8455 0.8755 0.8829 0.8149
JOD 1 1.1923 1.2351 1.2399 1.1546
BRL 1 0.1568 0.1697 0.1585 0.1569
PHP 1 0.0172 0.0177 0.0173 0.0169
GBP 1 1.1633 1.1240 1.1901 1.1123
CAD 1 0.6745 0.6536 0.6948 0.6397
ISK 1 0.0067 0.0065 0.0068 0.0064
Average rate
Reporting date spot rate
SENSITIVITY ANALYSIS
A 10 percent strengthening of the Euro against the following currencies as at 31 December
would have (decreased)/increased equity and profit or loss by the amounts shown below.
This analysis assumes that all other variables, in particular interest rates, remain constant.
The analysis is performed on the same basis for 2020.
Equity
Profit or
loss Equity
Profit or
loss
€
€ € €
31 December 2021
NZD
(36,813) (36,813) - -
CHF
(21) (21) - -
USD
(923,247) (923,247) (1,269,579) (1,269,579)
JOD
(4) (4) (4) (4)
BRL
(3,362) (3,362) - -
PHP
(9,923) (9,923) 306 306
GBP
(83,867) (83,867) (83,470) (83,470)
CAD
(30) (30) - -
ISK
(10) (10) - -
31 December 2020
NZD
(71,214) (71,214) - -
CHF
- - - -
USD
(499,761) (499,761) (798,386) (798,386)
JOD
7 7 7 7
BRL
(1,538) (1,538) - -
PHP
(8,387) (8,387) (211) (211)
GBP
(77,151) (77,151) (76,673) (76,673)
CAD
1,693 1,693 - -
ISK
- - - -
The Group
The Company
A 10 percent weakening of the Euro against the above currencies as at 31 December would
have had the equal but opposite effect on the above currencies to the amounts shown
above, on the basis that all other variables remain constant.
110 Annual Report 2021
3
6 FINANCIAL RISK MANAGEMENT (Continued)
6.5
MARKET RISK (Continued)
6.5.2
INTEREST RATE RISK
The Group’s borrowings are subject to an interest rate that varies according to revisions
made to the Bank’s Lending Base Rate. In prior years, the Group had entered into an
interest rate swap for the purpose of hedging the risk of changes in cash flows related to
interest payments on one of its facilities. This interest rate swap matured in 2021.
Interest on certain loans receivable, bank borrowings and cash at bank are also tested for
interest rate risk.
6.5.2.1 INTEREST RATE PROFILE
At the reporting date the interest rate profile of the Group’s and the Company’s interest-
bearing financial instruments was:
2021 2020 2021 2020
€ € € €
Fixed rate instruments
Financial assets 944,103 796,631 944,103 796,631
Variable rate instruments
Financial assets 8,214,173 6,817,079 3,308,534 3,785,887
Financial liabilities (1,621,942) (11,763,679) (1,621,942) (11,763,679)
6,592,231 (4,946,600) 1,686,592 (7,977,792)
The Group
The Company
6.5.2.2 INTEREST RATE RISK
The Group is exposed to interest rate risk on its financial instruments arising from
movements in the Bank’s 3-month Euribor rate.
111 Annual Report 2021
3
6 FINANCIAL RISK MANAGEMENT (Continued)
6.5
MARKET RISK (Continued)
6.5.2
INTEREST RATE RISK (Continued)
6.5.2.3 CASH FLOW SENSITIVITY ANALYSIS FOR VARIABLE RATE INSTRUMENTS
A change of 100 basis points in interest rates at the reporting date would
increase/(decrease) equity and profit or loss by the amounts shown below. This analysis
assumes that all other variables, in particular foreign currency rates, remain constant. The
analysis is performed on the same basis for 2020.
100 bp 100 bp 100 bp 100 bp
i
ncrease decrease increase decrease
€ € € €
31 December 2021
Variable rate instruments 65,922 (65,922) 65,922 (65,922)
31 December 2020
Variable rate instruments (49,268) 49,459 (49,268) 49,459
100 bp 100 bp 100 bp 100 bp
increase decrease increase decrease
€ € € €
31 December 2021
Variable rate instruments 16,866 (16,866) 16,866 (16,866)
31 December 2020
Variable rate instruments (102,080) 102,271 (102,080) 102,271
Profit or loss
Equity
The Group
Profit or loss
Equity
The Company
6.5.3 EQUITY PRICE RISK
As at end of December 2021, the Group is no longer exposed to equity risks arising from
equity investments classified at FVTOCI. As at end of December 2020, the Group held
equity investments measured at FVTOCI, which were disposed of in 2021, as disclosed in
Note 12.
112 Annual Report 2021
3
6 FINANCIAL RISK MANAGEMENT (Continued)
6.6
CAPITAL MANAGEMENT
The Group’s policy is to maintain a strong capital base so as to maintain investors,
creditors and market confidence and to sustain future development of the business. The
capital structure consists of debt and items presented within equity in the statement of
financial position. The Board of Directors monitors the return on capital, which the Group
defines as net operating income divided by total shareholders’ equity. The Board of
Directors also monitors the level of dividends to ordinary and preference shareholders. The
Board of Directors manage the Company’s capital structure and make adjustments to it,
in light of changes in economic conditions.
The capital structure is reviewed on an ongoing basis. Based on recommendations of the
Directors, the Company balances its overall capital structure through the payment of
dividends, new share issues, as well as the issue of new debt or redemption of existing
debt. There were no changes in the Group’s approach to capital management during the
year.
During the financial year ending 31 December 2021, RS2 Software p.l.c. successfully raised
€15,731,800 by way of a Preference Share PO. The additional liquidity generated from the
Preference Share PO has enabled the Group to continue implementing its business
strategy.
The Group is not subject to externally imposed capital requirements.
7 OPERATING SEGMENTS
The Group has three reportable segments, as described below, which represent the
Group’s business units. The business units offer different services and are managed
separately because they require different operating and marketing strategies. For each of
the business units, the Group’s Board of Directors reviews internal management reports on
a bi-annual basis. The following summary describes the operations in each of the Group’s
reportable segments:
•
Software (License) solutions
- Licensing of the Group’s BankWORKS® software to
banks and service providers, including maintenance and enhanced services thereto.
•
Processing solutions
- Processing of payment transactions utilising the Group’s
BankWORKS® software.
•
Merchant solutions
- includes issuing and acquiring payment solutions directly to
merchants, including terminal and PSP gateway services.
Information regarding the results of each reportable segment is included below. The
internal management reports that are reviewed by the Group’s Board of Directors include
the results of each subsidiary, with additional disclosures showing disaggregated revenues
attributable to each reportable segment. Inter-segment pricing is determined on an arm’s
length basis.
113 Annual Report 2021
3
7 OPERATING SEGMENTS (Continued)
7.1 INFORMATION ABOUT REPORTABLE SEGMENTS
31 December 2021
Software
(Licensing)
Solutions
Processing
Merchant
Solutions
Total
reportable
segments
€ € € €
External revenues 17,
850,900 18,759,855 2,069,108 38,679,863
Inter-segment revenues 8,928,725 - 336,953 9,265,678
Segment revenues 26,779,625 18,759,855 2,406,061 47,945,541
Finance income 85,917 8 27,960 113,885
Finance expense (209,689) (5,183) (58,574) (273,446)
(1,802,668) (534,908) (124,455) (2,462,031)
(132,416) 956,112 - 823,696
Movement in amounts written off (2,360) (1,398,962) (5,980) (1,407,302)
6,324,505 2,865,598 (974,000) 8,216,103
(1,854,616) (1,157,686) (55,134) (3,067,436)
Reportable segment assets 63,522,518 23,906,099 6,439,326 93,867,943
2,968,282 1,217,147 184,121 4,369,550
Reportable segment liabilities 17,500,939 26,212,878 2,776,235 46,490,052
Capital expenditure
Depreciation and
amortisation
Movement in provision for impairment
loss on receivables
Income tax expense
Reportable segment profit/(loss)
before income tax
114 Annual Report 2021
3
7 OPERATING SEGMENTS (Continued)
7.1 INFORMATION ABOUT REPORTABLE SEGMENTS (Continued)
31 December 2020
Software
(Licensing)
Solutions
Processing
Merchant
Solutions
Total
reportable
segments
€ € € €
External revenues 11,903,028 12,718,241 2,005,110 26,626,379
Inter-segment revenues 7,244,007 - 187,
344 7,431,351
Segment revenues 19,147,035 12,718,241 2,192,454 34,057,730
Finance income 90,423 157 19,928 110,508
Finance expense (401,336) (38,546) (62,545) (502,427)
(1,657,102) (566,143) (113,578) (2,336,823)
(3,086) (1,093,261) - (1,096,347)
Movement in amounts written off - (111,354) - (111,354)
6,010,754 (5,293,959) (934,688) (217,893)
Income tax (credit)/expense
(2,169,583) 75,688 27,340 (2,066,555)
Reportable segment assets 52,684,812 16,497,630 4,087,315 73,269,757
137,
565 42,604 109,907 290,076
Reportable segment liabilities
28,089,044 20,397,520 2,780,937 51,267,501
Capital expenditure
Depreciation and
amortisation
Reportable segment profit/(loss)
before income tax
Movement in provision for impairment
loss on receivables
115 Annual Report 2021
3
7 OPERATING SEGMENTS (Continued)
7.2 RECONCILIATIONS OF REPORTABLE SEGMENT PROFIT OR LOSS, ASSETS
AND LIABILITIES, AND OTHER MATERIAL ITEMS
2021 2020
€ €
External Revenues
Total revenue for reportable segments 47,945,541 34,057,730
Elimination of inter-segment transactions (9,265,678) (7,244,008)
Consolidated revenue 38,679,863 26,813,722
Finance income
Total finance income for reportable segments 113,885
110,508
Elimination of inter-segment transactions (56,379) (69,900)
Consolidated finance income 57,506 40,608
Finance expense
Total finance expense for reportable segments 273,446 502,427
Elimination of inter-segment transactions (73,436) (50,854)
Consolidated finance expense 200,010 451,573
Depreciation and amortisation
Total depreciation and amortisation for reportable segments 2,462,031 2,336,823
Elimination of inter-segment transactions (260,157) (292,525)
Consolidated depreciation and amortisation 2,201,874 2,044,298
Profit/(loss) before income tax
Total profit/(loss) before income tax for reportable segments 8,216,103 (217,893)
Elimination of inter-segment transactions (1,800,439) (3,670,970)
Consolidated reportable segment profit/(loss) before income tax 6,415,664 (3,888,863)
Assets
Total assets for reportable segments 93,867,943 73,269,757
Elimination of computer software (1,768,432) (2,766,160)
Elimination of contract assets (21,441,744) (23,336,300)
Elimination of other inter-segment assets (23,050,799) (9,082,105)
Consolidated total assets 47,606,968 38,085,192
-
Liabilities
Total liabilities for reportable segments 46,490,052 51,267,501
Elimination of inter-segment balances (19,173,055) (11,882,760)
Elimination of inter-segment accruals (5,321,619) (8,825,773)
Elimination of other inter-segment liabilities 184,947 456,114
Consolidated total liabilities
22,180,325 31,015,082
116 Annual Report 2021
3
7 OPERATING SEGMENTS (Continued)
7.2 RECONCILIATIONS OF REPORTABLE SEGMENT PROFIT OR LOSS, ASSETS
AND LIABILITIES, AND OTHER MATERIAL ITEMS (Continued)
Except for revenues, the line items in the above tables are allocated as follows – (a)
Software (Licensing) solutions comprises the results and financial position of RS2 Software
plc, RS2 Software APAC Inc. and RS2 Software LAC LTDA, (b) Processing comprises the
results and financial position of RS2 Software Inc. and RS2 Smart Processing Limited and
(c) Merchant Solutions comprises the results and financial position of the German
subsidiaries. The revenue of RS2 Software Inc. is allocated to the following two segments
– Software (Licensing) solutions and Processing.
Assets allocated to reportable segments exclude the BankWORKS® license held by RS2
Smart Processing Limited and RS2 Software INC. and any contract assets recognised in
relation to services provided between the three segments. Likewise, the Group liabilities
exclude accruals, inter-segment balances and inter-segment liabilities.
7.3 GEOGRAPHICAL INFORMATION
In presenting information for the Group on the basis of geographical segments, revenue is
based on the geographical location of its customers. The following non-current segment
assets are based on the geographical location of the assets and exclude financial
instruments.
Revenues
Non-current
assets
€ €
31 December 2021
Malta 230,928 18,947,012
UK and Ireland 14,393,360 -
USA 16,122,061 4,141,760
Other countries 7,933,514 3,997,882
38,679,863 27,086,654
31 December 2020
Malta 145,484 12,801,135
UK and Ireland 11,135,826 -
USA 8,869,527 6,876,332
Other countries 6,662,885 4,197,621
26,813,722 23,875,088
Other countries comprise revenue based on geographical location of customers, which
individually are immaterial and do not exceed 10% of total revenue.
7.4 MAJOR CUSTOMERS
For the year ended 31 December 2021, revenues from three (2020: three) major customers
of the licensing and processing segments amounted to €4,546,317, €5,766,566 and
€15,024,008 respectively (2020: €4,424,291, €4,501,673 and €8,613,497 respectively) of the
Group's total revenues.
117 Annual Report 2021
3
8 PROPERTY, PLANT AND EQUIPMENT
8.1 THE GROUP
Land and
buildings
Leasehold
Improvements
Equipment,
furniture and
fittings
Motor
vehicles
Terminals Total
€ € € € € €
C
ost
Balance at 1 January 2020 7,977,167 1,404,045 4,688,480 198,572 - 14,268,264
Additions from acquisition - - 5,475 29,600 5,285 40,360
Transfer from RoU assets - - - - 17,108 17,108
Additions - - 187,306 - 9,639 196,945
Disposals - (1,722) - - (1,722)
Impairment of asset - - (378) - - (378)
- (917) (84,889) (886) - (86,692)
Balance at 31 December 2020 7,977,167 1,403,128 4,794,272 227,286 32,032 14,433,885
Balance at 1 January 2021 7,977,167 1,403,128 4,794,272 227,286 32,032 14,433,885
Adjustments/Reclassifications - 66,091 (66,091) - (993) (993)
Additions - - 1,038,293 19,631 5,583 1,063,507
Disposals - - - (5,000) - (5,000)
- 554 70,209 535 - 71,298
Balance at 31 December 2021 7,977,167 1,469,773 5,836,683 242,452 36,622 15,562,697
Depreciation
Balance at 1 January 2020 1,244,051 299,017 3,349,540 162,730 - 5,055,338
Depreciation for the year 102,464 63,516 425,326 32,509 2,873 626,688
Disposals - - (627) - - (627)
- (910) (48,178) (765) - (49,853)
Balance at 31 December 2020 1,346,515 361,623 3,726,061 194,474 2,873 5,631,546
Balance at 1 January 2021 1,346,515 361,623 3,726,061 194,474 2,873 5,631,546
Depreciation for the year 101,703 59,938 456,630 26,097 22,003 666,371
D
isposals - - - (2,145) - (2,145)
- 556 43,818 491 - 44,865
Balance at 31 December 2021 1,448,218 422,117 4,226,509 218,917 24,876 6,340,637
Carrying amounts
At 1 January 2020 6,733,116 1,105,028 1,338,940 35,842 - 9,212,926
At 31 December 2020 6,630,652 1,041,505 1,068,211 32,812 29,159 8,802,339
At 31 December 2021 6,528,949 1,047,656 1,610,174 23,535 11,746 9,222,060
Effects of movement in
exchange
Effects of movement in
exchange
Effects of movement in
exchange
Effects of movement in
exchange
118 Annual Report 2021
3
8 PROPERTY, PLANT AND EQUIPMENT (Continued)
8.2 THE COMPANY
Land and
buildings
Leasehold
Improvements
Equipment,
furniture and
fittings
Motor
vehicles
Total
€ € € € €
Cost
Balance at 1 January 2020 7,977,168 1,330,722 2,528,312 175,034 12,011,236
Additions
- - 106,415 - 106,415
Balance at 31 December 2020 7,977,168 1,330,722 2,634,727 175,034 12,117,651
Balance at 1 January 2021 7,977,168 1,330,722 2,634,727 175,034 12,117,651
Additions
- - 136,600 - 136,600
Adjustments/Reclassifications - 7,989 (7,989) - -
Balance at 31 December 2021 7,977,168 1,338,711 2,763,338 175,034 12,254,251
Depreciation
Balance at 1 January 2020 1,235,799 275,767 2,206,610 147,823 3,865,999
Depreciation for the year 102,464 56,375 166,910 13,608 339,357
Balance at 31 December 2020 1,338,263 332,142 2,373,520 161,431 4,205,356
Balance at 1 January 2021 1,338,263 332,142 2,373,520 161,431 4,205,356
Depreciation for the year 97,404 - 204,160 13,603 315,167
Adjustments/Reclassifications 4,303 52,797 (57,100) - -
Balance at 31 December 2021 1,439,970 384,939 2,520,580 175,034 4,520,523
Carrying amounts
At 1 January 2020 6,741,369 1,054,955 321,702 27,211 8,145,237
At 31 December 2020 6,638,905 998,580 261,207 13,603 7,912,295
At 31 December 2021 6,537,198 953,772 242,758 - 7,733,728
119 Annual Report 2021
3
9 LEASES
9.1 THE GROUP AS A LESSEE
This note provides information about lease agreements for which the Group was a lessee
during 2021. These include:
9.1.1 LEASED PREMISES GOZO
An agreement was entered into for an emphyteutical grant for leased land at Imġarr Road,
Xewkija, Gozo under a deed with the Government of Malta. The lease is for a twenty five-
year term, lasting until April 2039. Upon expiration of the emphyteutical grant, the
emphyteutical site and any improvements thereon shall devolve to the Government
without any obligation on the latter to compensate the Company.
9.1.2 LEASED OFFICES USA
An agreement for leased offices in Denver, USA. The initial term of the lease was for a five-
year term, commencing in 2016 up until March 2021. The initial lease agreement included
an option for the lessee to renew for a further four-year term or to terminate subject to a
notice in writing provided that the conditions of the contract agreement are satisfied. The
option to extend the term was taken up and a lease contract renewal agreement was
entered into as of April 2021 valid until June 2024.
9.1.3 LEASED OFFICES PHILIPPINES
An agreement for leased offices in Manila, Philippines. The lease was for a three-year
period commencing during June 2016, and was subsequently renewed in June 2019 for
another five-year term, up until June 2024. The renewal of this lease was treated as a new
lease in accordance with IFRS 16. The agreement includes an option to renew the lease
term provided that both parties mutually agree on the new contract provisions. The lease
may be terminated prior to the lease termination date; however, in so doing the lessee will
be liable to penalties.
9.1.4 LEASED APARTMENT MALTA
An agreement for a leased apartment in Mosta, Malta. The lease was for a two-year period
commencing during June 2017, and was subsequently renewed in June 2019 for another
two-year term. This was, however, terminated earlier than expected during the first quarter
of 2021, since the apartment was not being used.
120 Annual Report 2021
3
9 LEASES (Continued)
9.1 THE GROUP AS A LESSEE (Continued)
9.1.5 LEASED OFFICES GERMANY
An agreement for leased offices in Neu-Isenburg, Germany. This agreement was entered
into with a related party on 1 January 2019. The lease is for a ten-year term, lasting until
December 2028, with an extension clause that stipulates that if the tenancy is not
terminated by either party at least six months before the end date, this is renewed again
for another five-year term. Accordingly, the enforceable period of this lease (and the lease
term) is 10 years.
An agreement for leased offices in Reinsdorf, Germany. At acquisition date, the remaining
period of the lease was for 6 months up until June 2020, with an extension clause that
stipulates that if the tenancy is not terminated by either party at least 3 months before the
end date, this is renewed for a further one-year term. The lease was renewed for a further
one-year term in July 2021 and later terminated on 30 March 2022.
9.1.6 LEASED CARS IN GERMANY
Various agreements for leased cars in Germany. The leases are for a three-year term,
ending between August 2022 and May 2024. The enforceable period of such leases (and
the lease term) is 3 years. These agreements were entered into at different points in time
between August 2019 and June 2021. The lease rate is based on driven kilometres (20k-
30k) per annum.
121 Annual Report 2021
3
9 LEASES (Continued)
9.1 THE GROUP AS A LESSEE (Continued)
9.1.7 GROUP AND COMPANY LEASES
As further disclosed in Note 11.12, upon acquisition of Kalicom Zahlungssysteme GmbH
(renamed to RS2 Zahlungssysteme GmbH) on 1 January 2020, the Group acquired 400
terminals which had lease terms expiring during the previous reporting period. At the end
of the lease terms, the legal ownership was transferred to RS2 Zahlungssysteme GmbH
and therefore these terminals were reclassified from ROU assets to Property, Plant and
Equipment.
The following table presents the carrying amounts of the Group’s and the Company’s ROU
assets recognised and the movements during the period:
The Group
Land and
buildings
Cars Terminals T
otal
€ € € €
As at 1 January 2020 2,560,771 - - 2,560,771
Additions from acquisitions - - 51,341 51,341
Depreciation charge for the year (403,460) (40,615) (34,233) (478,308)
Additions to right-of-use assets - 124,018 - 124,018
Transfer to property, plant and equipment - - (17,108) (17,108)
Effects of movement in exchange rates 4,468 - - 4,468
As at 31 December 2020 2,161,779 83,403 - 2,245,182
As at 1 January 2021 2,161,779 83,403 - 2,245,182
Additions to right-of-use assets 221,821 87,294 - 309,115
Depreciation charge for the year (371,179) (61,729) - (432,908)
Effects of movement in exchange rates 1,125 - - 1,125
As at 31 December 2021 2,013,546 108,968 - 2,122,514
The Company
Land and
buildings
Total
€ €
A
s at 1 January 2020 497,120 497,120
Depreciation charge for the year (36,578) (36,578)
As at 31 December 2020 460,542 460,542
As at 1 January 2021 460,542 460,542
Depreciation charge for the year (30,660) (30,660)
Additions to right-of-use assets - -
As at 31 December 2021 429,882 429,882
122 Annual Report 2021
3
9 LEASES (Continued)
9.1 THE GROUP AS A LESSEE (Continued)
9.1.7 GROUP AND COMPANY LEASES (Continued)
The following table presents the carrying amounts of the Group's and the Company's lease
liabilities and the movements during the period:
The Group
Land and
buildings
Cars Terminals Total
€
€ € €
As at 1 January 2020 2,562,102 - - 2,562,102
Additions from acquisitions - - 47,341 47,341
Additions - 124,018 - 124,018
Accretion of interest 60,994 2,567 539 64,100
Payments (429,274) (42,561) (47,880) (519,715)
As at 31 December 2020 2,193,822 84,024 - 2,277,846
As at 1 January 2021 2,193,822 84,024 - 2,277,846
Additions 221,831 68,794 - 290,625
Accretion of interest 54,963 2,509 - 57,472
Payments (387,945) (61,530) - (449,475)
Effects of movement in exchange rates
5,462 - - 5,462
As at 31 December 2021 2,088,133 93,797 - 2,181,930
The Company
Land and
buildings
Total
€ €
As at 1 January 2020 493,155 493,
155
Accretion of interest 13,551 13,551
Payments (40,469) (40,469)
As at 31 December 2020 466,237 466,237
As at 1 January 2021 466,237 466,237
Accretion of interest 12,988 12,988
Payments (28,413) (28,413)
As at 31 December 2021 450,812 450,812
2021
2020
2021 2020
€ € € €
Current
410,767
333,149
15,868
15,420
Non-current
1,771,163
1,944,697
434,944
450,817
The Company
The Group
123 Annual Report 2021
3
9 LEASES (Continued)
9.1 THE GROUP AS A LESSEE (Continued)
9.1.7 GROUP AND COMPANY LEASES (Continued)
The maturity analysis of lease liabilities is disclosed in Note 6.4.
The following are the amounts recognised in profit or loss for financial years ended 31
December:
2021 2020
2021
2020
€ € € €
Depreciation expense 432,908 478,306 30,660 36,578
Interest expense on lease liabilities
57,472 64,100 12,988 13,551
Expenses relating to short-term leases 56,866 - - -
Total amount recognised in profit or loss 547,246 542,406 43,648 50,129
The Group
The Company
The total cash outflow for leases amounted to €449,473 and €28,413 (2020: €519,715 and
€40,469) for the Group and the Company, respectively.
The variable lease payments with respect to the lease on cars held by the Group were not
material as at 31 December 2021 and 2020. No variable lease payments exist as at 31
December 2021 and 2020 with respect to the leases held by the Company.
No residual value guarantees apply with respect to the leases held by the Group and the
Company as at 31 December 2021 and 2020.
9.2 THE GROUP AS A LESSOR
9.2.1 OPERATING LEASE ARRANGEMENTS
Operating leases, in which the Group is the lessor, relate to:
a) rental of a small number of POS terminals owned by the Group which are not of a
specialised nature with lease terms of less than three (3) years. During this lease term,
the customers cannot terminate the contract without paying a penalty for early
termination; and
b) rental of POS terminals to taxi drivers in Berlin. The lease agreement with taxi drivers
does not have any specific lease term. The terminals are not of a specialised nature
and taxi drivers may choose to obtain POS terminals from other suppliers. In addition,
the lessee may choose to cancel the contract, providing three months’ notice without
incurring penalties. The option to extend or renew the contract is considered to be
highly unlikely due to other available options for taxi drivers. The lessee does not have
an option to purchase the terminals at the expiry of the lease period.
124 Annual Report 2021
3
9 LEASES (Continued)
9.2 THE GROUP AS A LESSOR (Continued)
9.2.1 OPERATING LEASE ARRANGEMENTS (Continued)
Maturity analysis of operating lease receipts:
THE GROUP
2021 2020
€ €
Within 1 year 3,717 15,697
Between 1 and 2 years 1,109 2,032
Total 4,826 17,729
The following table presents the amounts reported in profit or loss:
THE GROUP
2021 2020
€ €
Lease income on operating leases 53,317 60,335
Depreciation of the year (22,003) (37,105)
Total 31,314 23,230
9.2.2 FINANCE LEASE RECEIVABLES
THE GROUP
2021 2020
€ €
Additions on business combination on 1 January 130,514 80,294
Additions during the year 68,764 79,535
Release of receivables during the year (73,017) (49,243)
Unwinding of interest 27,881 19,928
Balance at 31 December 2021 154,142 130,514
125 Annual Report 2021
3
9 LEASES (Continued)
9.2 THE GROUP AS A LESSOR (Continued)
9.2.2 FINANCE LEASE RECEIVABLES (Continued)
THE GROUP
2021 2020
€ €
Amounts receivable under finance leases:
Within 1 year 82,735 63,468
Between 1 and 2 years 65,907 58,913
Between 2 and 3 years 50,626 41,073
Between 3 and 4 years 45,312 17,232
More than 4 years - 13,840
Undiscounted lease payments 244,580 194,526
Less unearned finance income (90,438) (64,012)
Present value of lease payments receivable 154,142 130,514
Impairment loss allowance - -
Net investment in the lease 154,142 130,514
Undiscounted lease payments analysed as:
Recoverable within 12 months 82,735 63,468
Recoverable after 12 months 161,845 131,058
244,580 194,526
Net investment in the lease analysed as:
Recoverable within 12 months 56,440 41,443
Recoverable after 12 months 97,702 89,071
154,142 130,514
During the prior year, the finance lease receivables increased as a result of the acquisition
of 100% of the issued share capital of Kalicom Zahlungssysteme GmbH (renamed to RS2
Zahlungssysteme GmbH) by RS2 Group (RS2 Merchant Services Europe GmbH).
During the years ended 31 December 2021 and 2020, the Group entered into finance
leasing arrangements with customers as a lessor, through the rental of POS terminals
owned by the Group. The duration of the rental contracts differs from one customer to
another, however the average term of the finance lease entered into is four (4) years.
During this rental period, the customer cannot terminate the contract without incurring a
penalty for early termination. Ownership of the terminal is not transferred to the customer
at the end of the contract term.
The Group determined that for those contracts having a remaining life of three (3) years or
more, and therefore equal or longer than 75% of the economic life of the terminals, the
lessor has a finance lease, even though the title is not transferred.
The Group is not exposed to foreign currency risk as a result of the lease arrangements, as
all leases are denominated in Euro.
126 Annual Report 2021
3
9 LEASES (Continued)
9.2 THE GROUP AS A LESSOR (Continued)
9.2.2 FINANCE LEASE RECEIVABLES (Continued)
Residual value risk on terminals under lease is not significant, because of the existence of
a secondary market with respect to the asset.
The following table presents the amounts included in profit or loss:
The Group 2021 2020
€ €
27,881 19,928
Finance income on the net investment in finance leases
The Group’s finance lease arrangements do not include variable payments.
The average effective interest rate contracted approximates 24 per cent (24%) per annum.
None of the finance lease receivables at the end of the reporting period are past due, and
taking into account the historical default experience and the future prospects of the
industries in which the lessees operate, the Management of the Group consider that no
finance lease receivable is impaired.
127 Annual Report 2021
3
10 INTANGIBLE ASSETS AND GOODWILL
10.1 THE GROUP
Goodwill
Internally
generated
computer
s
oftware
Software
rights
Other
computer
software
Customer and
other related
contractual
r
elationship
Total
€ € € € € €
C
ost
Balance at 1 January 2020 663,037 18,235,792 3,000,000 733,041 - 22,631,870
Additions 1,262,715 2,637,430 - 145,800 594,309 4,640,254
Effects of movement in exchange rates
(56,032) 283,168 -
(61,948) - 165,188
Balance at 31 December 2020 1,869,720 21,
156,390 3,000,000 816,893 594,309 27,437,312
Balance at 1 January 2021 1,869,720 21,156,390 3,000,000 816,893 594,309 27,437,312
Additions - 3,262,293 11,900 72,000 - 3,346,193
Effects of movement in exchange rates 50,646 581,328 - 55,996 - 687,970
Balance at 31 December 2021 1,920,366 25,000,011 3,011,900 944,889 594,309 31,471,475
Amortisation
Balance at 1 January 2020 - 12,045,441 1,625,000 - - 13,670,441
Charge for the year - 688,157 200,000 1,621 49,526 939,304
Balance at 31 December 2020 - 12,733,598 1,825,000 1,621 49,526 14,609,745
Balance at 1 January 2021 - 12,733,598 1,825,000 1,621 49,526 14,609,745
Charge for the year - 840,661 200,000 12,405 49,529 1,102,595
Impairment during the year - - 17,055 - - 17,055
Balance at 31 December 2021 - 13,574,259 2,042,055 14,026 99,055 15,729,395
Carrying amounts
At 1 January 2020 663,037 6,190,351 1,375,000 733,041 - 8,961,429
At 31 December 2020 1,869,720 8,422,792 1,175,000 815,272 544,783 12,827,567
At 31 December 2021 1,920,366 11,425,752 969,845 930,863 495,254 15,742,080
128 Annual Report 2021
3
10 INTANGIBLE ASSETS AND GOODWILL (Continued)
10.2 THE COMPANY
Internally
generated
computer
software
Software
rights
Total
€ € €
Cost
Balance at 1 January 2020 17,149,683 3,000,000 20,149,683
Additions 1,770,895 - 1,770,895
Balance at 31 December 2020 18,920,578 3,000,000 21,920,578
Balance at 1 January 2021 18,920,578 3,000,000 21,920,578
Additions 2,783,666 - 2,783,666
Balance at 31 December 2021 21,704,244 3,000,000 24,704,244
Amortisation
Balance at 1 January 2020 12,045,441 1,625,000 13,670,441
Amortisation for the year 677,640 200,000 877,640
Balance at 31 December 2020 12,723,081 1,825,000 14,548,081
Balance at 1 January 2021 12,723,081 1,825,000 14,548,081
Amortisation for the year 843,599 200,000 1,043,599
Impairment during the year - 17,055 17,055
Balance at 31 December 2021 13,566,680 2,042,055 15,608,735
Carrying amounts
At 1 January 2020 5,104,242 1,375,000 6,479,242
At 31 December 2020 6,197,497 1,175,000 7,372,497
At 31 December 2021 8,137,564 957,945 9,095,509
10.3 AMORTISATION
The amortisation of internally generated and other computer software, customer and
other related contractual relationship and software rights is included in cost of sales.
129 Annual Report 2021
3
10 INTANGIBLE ASSETS AND GOODWILL (Continued)
10.4 INTERNALLY GENERATED COMPUTER SOFTWARE
The internally generated computer software, which is continually under development, is
recognised annually and the relative amortisation is charged annually in line with the
accounting policy in Note 4.6.7. RS2 Software INC. has not begun amortising their internally
generated computer software as yet since they are not operating on their own platform.
The remaining amortisation period ranges depending on when the assets are available for
use, and generally do not exceed 15 years being the total amortisation period.
10.5 SOFTWARE RIGHTS
The BankWORKS® software rights were acquired by the Company in 2011 from a customer
situated in the Scandinavian region. The relative amortisation is charged annually in line
with the accounting policy in Note 4.6.7. The remaining amortisation period for the software
rights amounts to 5 years (2020: 6 years).
10.6 OTHER COMPUTER SOFTWARE
Other computer software mainly comprises BankWORKS® license held by RS2 Software
INC. as well as bank identification number sponsorship costs relating to RS2 Financial
Services GmbH. The relative amortisation is charged annually in line with the accounting
policy in Note 4.6.7. The remaining amortisation period for the bank identification number
sponsorship costs amounts to 14 years (2020: 15 years).
10.7 CUSTOMER AND OTHER RELATED CONTRACTUAL RELATIONSHIP
Upon acquisition of Kalicom Zahlungssysteme GmbH on 1 January 2020 (refer to Note 11.12),
the Group also acquired an existing customer base and other contractual relationship. The
relative amortisation is charged annually in line with the accounting policy in Note 4.6.7.
The remaining amortisation period for the customer and other related contractual
relationship amounts to 10 years (2020: 11 years).
10.8 IMPAIRMENT TESTING FOR CASH-GENERATING UNIT CONTAINING
GOODWILL (RS2 SOFTWARE INC.)
Goodwill primarily arose from the acquisition of 26% of the issued share capital of RS2
Software LLC (formerly Transworks LLC) in 2009. During 2014, the Company acquired a
further 38.2% shareholding in RS2 Software LLC for $500,000. In 2018, RS2 Software LLC
was merged into a newly formed company, RS2 Software INC., in which the Company held
the same percentage holding that it held in RS2 Software LLC. For the purposes of
impairment testing of goodwill arising on the acquisition of RS2 Software LLC (now merged
into RS2 Software INC.), the recoverable amount of the related CGU containing goodwill
was based on its value-in-use and was determined by discounting the projected future
cash flows to be generated from RS2 Software INC.. As at the end of 31 December 2021,
the total shareholding stood at 56.47% (2020: 57.05%). For this purpose, Management
prepared forecasts of net cash flows for the five-year period 2022 - 2026 (2020: 2021 -
2025) and applied growth rates for subsequent years.
130 Annual Report 2021
3
10 INTANGIBLE ASSETS AND GOODWILL (Continued)
10.8 IMPAIRMENT TESTING FOR CASH-GENERATING UNIT CONTAINING
GOODWILL (RS2 SOFTWARE INC.) (Continued)
10.8.1 PAST PERFORMANCE AND OUTLOOK
North America presents the largest market in the growing global payment industry.
Electronic payment growth continues to benefit from secular trends. Mega-mergers in the
card processing market have created a void of providers to serve ISOs, ISVs and PayFacs.
Legacy players have blurred the value chain and operate patchworks of legacy platforms
cobbled together through acquisitions and technology-oriented new entrants still focus
on niche markets but creating massive shareholder value. RS2 Software INC. has adapted
and certified RS2 Software p.l.c.’s proven BankWORKS® payment processing platform for
the North American Market, activated its first BIN sponsorship and hired a core team.
RS2 Software INC. offers a global, complete and modern cloud-based processing platform
(issue/settle/acquire) for any form of payment (including crypto-currency), with rich
functionality and API enablement. RS2 Software INC. is positioned as a leading service
provider in the United States that enables innovators to create their own payment
ecosystem. Focus is on filling the void created by mega-mergers: target customers are
technical ISOs, ISVs, PayFacs and technology companies with merchant base. The core
global platform is enabled for online and offline processing and the company has an
ambitious product roadmap for the years to come.
10.8.2 ASSUMPTIONS
There are a number of assumptions and estimates involved in calculating the present value
of future cash flows from the Group’s businesses, including Management’s expectations
of:
• growth in forecast net cash flows, calculated as adjusted operating profit or loss
before depreciation and amortisation;
• timing and quantum of future capital expenditure;
• uncertainty of future technological developments;
• long-term growth rates; and
• discount rates to reflect the risks involved.
Current year
In order to estimate the Enterprise Value of the subsidiary, which was used by Management
for the purposes of impairment testing of goodwill arising on the acquisition of RS2
Software LLC (now merged into RS2 Software INC.) as well as impairment testing of the
Company’s investment in the US subsidiary, an income approach valuation methodology
has been considered.
The key assumptions used in the calculation of the value-in-use of RS2 Software INC. are
the forecasted net cash flows and the discount rate, used in a risk-adjusted cash flow
forecast.
131 Annual Report 2021
3
10 INTANGIBLE ASSETS AND GOODWILL (Continued)
10.8 IMPAIRMENT TESTING FOR CASH-GENERATING UNIT CONTAINING
GOODWILL (RS2 SOFTWARE INC.) (Continued)
10.8.2 ASSUMPTIONS (Continued)
The cash flow projections used to calculate value-in-use consider the forecast net cash
flows for five years and a terminal growth rate of 1.86%. These projections comprise cash
flow movements based on:
• revenue expected to be generated over the following five years, with growth being
projected on the forecasted sales volumes and charges. Such revenue forecasts
comprise the revenue potential of current leads and ongoing negotiations with
prospective clients, as well as revenue expected from new targets.
• expenses expected to be incurred to generate forecasted revenues. Such
expenses mainly encompass wages and salaries for staff engaged in
management, operations, sales and administration; operating costs including
hosting and software related; consultancy fees, travelling and other ancillary
expenses.
For 2021, the projection risk of 6.0% as well as a small company risk premium of 3.5% were
reflected in the forecasted net cash (outflows)/inflows.
Discount rate*:
2021
Post-tax
15.2%
Pre-tax
18.4%
* The discount rate is a measure based on the US risk-free rate (based on US Government
30-year bond), industry specific risk rate and the estimated projection risk rate of the
business initiative. The discount rate reflects the current market assessments of the time
value of money and Management's assessment of the risks specific to the projected cash
flows.
Comparative year
As further disclosed in Note 29.3, following the termination of employment of an executive
(referred to as 'key management personnel' in Note 27) of RS2 Software INC., a
management’s expert was engaged in order to assist with the valuation of the minority
stake in RS2 Software INC.. In order to estimate the Enterprise Value of the subsidiary, which
was also used by Management for the purposes of impairment testing of goodwill arising
on the acquisition of RS2 Software LLC (now merged into RS2 Software INC.) as well as
impairment testing of the Company’s investment in the US subsidiary, an income approach
valuation methodology has been considered.
The key assumptions used in the calculation of the value-in-use of RS2 Software INC. are
the forecasted free cash flows and the discount rate, used in a risk-adjusted cash flow
forecast.
132 Annual Report 2021
3
10 INTANGIBLE ASSETS AND GOODWILL (Continued)
10.8 IMPAIRMENT TESTING FOR CASH-GENERATING UNIT CONTAINING
GOODWILL (RS2 SOFTWARE INC.) (Continued)
10.8.2 ASSUMPTIONS (Continued)
The cash flow projections used to calculate value-in-use consider the forecasted free
cash flows for five years and a terminal growth rate of 2%. These projections comprise cash
flow movements based on:
• revenues include Management’s revenue projections in full, expected to be
generated over the following five years, with growth being projected on the
forecasted sales volumes and charges. Such revenue forecasts comprise the
revenue potential of current leads and ongoing negotiations with prospective
clients, as well as revenue expected from new targets.
• expenses expected to be incurred to generate forecasted revenues. Such
expenses mainly encompass wages and salaries for staff engaged in
management, operations, sales and administration; operating costs including
hosting and software related; consultancy fees, and other ancillary expenses.
In addition, projection risk of 10.0% was reflected in the forecasted net cash
(outflows)/inflows, thereby considering the risk associated with the achievement of the
financial projections under the various scenarios.
Discount rate*:
2020
Post-tax
21.9%
Pre-tax
26.5%
* The discount rate is a measure based on the US risk-free rate (based on 20-year US
Treasury debt), industry specific risk rate and the estimated projection risk rate of the
business initiative. The discount rate reflects the current market assessments of the time
value of money and Management's assessment of the risks specific to the projected cash
flows.
10.8.3 TERMINAL GROWTH RATE
Cash flows beyond 2026 have been extrapolated using a terminal growth rate of 1.86%
(2020: 2.00%). The terminal growth rate was determined based on Management's estimate
of the long-term compounded annual cash flow growth rate, consistent with the
assumption that a market participant would make.
133 Annual Report 2021
3
10 INTANGIBLE ASSETS AND GOODWILL (Continued)
10.8 IMPAIRMENT TESTING FOR CASH-GENERATING UNIT CONTAINING
GOODWILL (RS2 SOFTWARE INC.) (Continued)
10.8.4 ASSESSMENT
At Company level, the recoverable amount of RS2 Software INC. was determined to be
higher than its carrying amount. The carrying amount comprises the cost of the investment
in shares and advances to RS2 Software INC. at 31 December 2021 which stood at €10.9m
(2020: €10.7m).
At Group level, the carrying amount of the CGU, which includes internally generated as
well as other computer software in relation to RS2 Software INC., amounts to €7.7m (2020:
€1.7m), of which goodwill amounts to €0.7m (2020: €0.6m).
In line with the outcome of such assessments, Management is of the opinion that the
investment in RS2 Software INC., both from a Company and a Group perspective, is not
impaired.
10.9 IMPAIRMENT TESTING FOR CASH-GENERATING UNIT CONTAINING
GOODWILL (RS2 ZAHLUNGSSYSTEME GMBH)
As further disclosed in Note 11.12, during the period ending on 31 December 2020, goodwill
arose from the acquisition of 100% of the issued share capital of Kalicom Zahlungssysteme
GmbH (renamed to RS2 Zahlungssysteme GmbH) by RS2 Group (RS2 Holding Europe
GmbH). For the purposes of impairment testing of goodwill arising on this acquisition, the
recoverable amount of the related CGU containing goodwill was based on its value-in-
use and was determined by discounting the projected future cash flows to be generated
from RS2 Zahlungssysteme GmbH. For this purpose, Management prepared forecasts of
net cash flows for the five-year period 2022 - 2026 (2020: 2021 - 2025) and applied growth
rates for subsequent years.
10.9.1 BACKGROUND AND OUTLOOK
RS2 Zahlungssysteme GmbH is an ISO and payment provider business for SMEs and
selected key account merchants across Germany. The services provided by RS2
Zahlungssysteme GmbH include network service provider, giro card (an interbank network
and debit card service virtually connecting all German ATMs and banks) and credit card
acceptance, terminals, terminal management, technical maintenance and a wide range
of value added services. The acquisition is a starting point for RS2`s direct merchant
business with more than 4,000 terminals and over 1,800 merchants under management.
134 Annual Report 2021
3
10 INTANGIBLE ASSETS AND GOODWILL (Continued)
10.9 IMPAIRMENT TESTING FOR CASH-GENERATING UNIT CONTAINING
GOODWILL (RS2 ZAHLUNGSSYSTEME GMBH) (Continued)
10.9.2 ASSUMPTIONS
There are a number of assumptions and estimates involved in calculating the present value
of future cash flows from the Group’s businesses, including Management’s expectations
of:
• growth in forecast net cash flows, calculated as adjusted operating profit or loss
before depreciation and amortisation;
• timing and quantum of future capital expenditure;
• uncertainty of future technological developments;
• long-term growth rates; and
• discount rates to reflect the risks involved.
The key assumptions used in the calculation of the value-in-use of RS2 Zahlungssysteme
GmbH, are the forecasted net cash flows and the discount rate, used in a risk-adjusted
cash flow forecast.
The cash flow projections used to calculate value-in-use consider the forecast net cash
flows for five years and a terminal growth rate of 1.06% (2020: 0.95%). These projections
comprise cash flow movements based on:
• revenue expected to be generated over the following five years, with growth being
projected on the forecasted sales volumes and charges. Such revenue forecasts
comprise the revenue potential of current leads and ongoing negotiations with
prospective clients, as well as revenue expected from new targets.
• expenses expected to be incurred to generate forecasted revenues. Such
expenses mainly encompass wages and salaries for staff engaged in operations;
operating costs; and other ancillary expenses.
For both 2021 and 2020, the projection risk of 4.0% (2020: 4.0%) as well as a small company
risk premium of 2.0% (2020: 2.0%) were reflected in the forecasted net cash
(outflows)/inflows.
Discount rate*:
2021
2020
Post-tax
10.5%
11.0%
Pre-tax
13.7%
14.4%
* The discount rate is a measure based on the German risk-free rate (based on German
Government 30-year bond), industry specific risk rate, the estimated projection risk rate of
the business initiative as well as a small company risk premium. The discount rate reflects
the current market assessments of the time value of money and Management's
assessment of the risks specific to the projected cash flows.
135 Annual Report 2021
3
10 INTANGIBLE ASSETS AND GOODWILL (Continued)
10.9 IMPAIRMENT TESTING FOR CASH-GENERATING UNIT CONTAINING
GOODWILL (RS2 ZAHLUNGSSYSTEME GMBH) (Continued)
10.9.3 TERMINAL GROWTH RATE
Cash flows beyond 2026 have been extrapolated using a terminal growth rate of 1.06%
(2020: 0.95%). The terminal growth rate was determined based on Management's estimate
of the long-term compounded annual cash flow growth rate, consistent with the
assumption that a market participant would make.
10.9.4 ASSESSMENT
At Group level, the carrying amount of the CGU, which includes customer and other related
contractual relationship in relation to RS2 Zahlungssysteme GmbH, amounts to €2.0m
(2020: €2.1m), of which goodwill amounts to €1.3m (2020: €1.3m). At Company level, the
carrying amount comprises the cost of investment in shares and advances to the
subsidiary which at 31 December 2021 amounted to €2.9m (2020: €1.1m). In line with the
outcome of such an assessment, Management is of the opinion that this CGU is not
impaired.
11 INVESTMENTS IN SUBSIDIARIES
11.1 MOVEMENT SCHEDULE OF INVESTMENTS IN SUBSIDIARIES
2021 2020
€ €
Balance at 1 January 16,306,108 14,475,363
Contribution to subsidiaries 1,636,876 1,830,745
Balance at 31 December 17,942,984 16,306,108
The Company
11.2 CONTRIBUTIONS TO SUBSIDIARIES
Contributions to subsidiaries are unsecured, interest free and represent capital
contributions.
136 Annual Report 2021
3
11 INVESTMENTS IN SUBSIDIARIES (Continued)
11.3 FURTHER DETAILS ABOUT RS2 SOFTWARE P.L.C.’S INVESTMENT IN
SUBSIDIARIES
Nature of business
2021 2020
% %
RS2 Smart Processing Limited RS2 Buildings, 99.
92 99.92 Transaction processing
Fort Road, services with the use
Mosta MST1859 of BankWORKS®
Malta
RS2 Software INC. Twelfth floor, Suite No. 1285, 56.47 57.05 Transaction processing
South Ulster, Denver, Colorado services with the use
USA of BankWORKS®
RS2 Software LAC LTDA Rua Manoel de Nóbrega 99.00 99.00 Provision of support and
Município de São Paulo other related services
Estado de São Paulo to the Company and its
Brazil clients
RS2 Software APAC Inc. Unit 1501 AccraLaw Tower 99.99 99.99 Provision of support and
2nd Avenue Corner 30th Street other related services
Bonifacio Global City to the Company and its
Barangay Fort Bonifacio clients
Taguig City 1634, Metro Manila
Philippines
RS2 Germany GmbH
Martin-Behaim-Straβe 12
100.00 100.00
Provision of support and
63263 Neu-Isenburg other related services
Germany to the Company and its
clients
RS2 Merchant Services
Martin-Behaim-Straβe 15A 100.00 100.00 Holding company
Europe GmbH 63263 Neu-Isenburg
Germany
Ownership interest fully paid-up
Registered office
137 Annual Report 2021
3
11 INVESTMENTS IN SUBSIDIARIES (Continued)
11.3 FURTHER DETAILS ABOUT RS2 SOFTWARE P.L.C.’S INVESTMENT IN
SUBSIDIARIES (Continued)
In addition, RS2 Merchant Services Europe GmbH owns the following subsidiaries:
Registered office
Ownership interest
fully paid-up
Nature of business
2021
2020
%
%
RS2 Financial Services
GmbH
Martin-Behaim-Straße
12
63263 Neu
-Isenburg
Germany
100.00
100.00
Merchant Solutions
RS2 Zahlungssysteme
GmbH (previously
Kalicom
Zahlungssysteme
GmbH)
Martin
-Behaim-Straße 12
63263 Neu
-Isenburg
Germany
100.00
100.00
Merchant Solutions
11.4 INVESTMENT IN RS2 SOFTWARE INC.
On 12 June 2009, the Company acquired control of RS2 Software LLC, a transaction
processing company in the United States of America, by acquiring 26% of the shares and
voting interests in the company. On 24 September 2014, the Company acquired a further
38.2% shareholding in RS2 Software LLC. On 16 February 2018, a new company, RS2
Software INC. was incorporated and the Company held 64.2% shareholding in it. The newly
formed corporation merged with RS2 Software LLC on 28 March 2018, with the former
company being the remaining company. As further detailed in Note 29.3, in February 2018,
the Group recruited a new CEO for its North American business. This executive was granted
12,500 new shares in RS2 Software INC., with certain vesting conditions and restrictions.
Furthermore, in March 2019, the Group granted 5,626 share options to its management,
with certain vesting conditions and restrictions. These arrangements are accounted for as
cash-settled and accordingly a corresponding liability is recognised in the Group financial
statements. During the period in which such individuals will hold the shares, the Group’s
effective voting rights will be reduced accordingly. The carrying amount is tested for
impairment as disclosed in Note 10.8.4.
As at 31 December 2021 issued ordinary share capital in RS2 Software INC. amounted to
€1,398,576 (2020: €1,398,576). Profit for the year amounts to €773,577 (2020: loss of
€5,065,085) and the accumulated losses total €4,265,379 (2020: €5,190,453). The
translation reserve of RS2 Software INC. comprises all foreign currency differences arising
from the translation of the financial statements of foreign operations. This reserve is non-
distributable and amounts to a negative €234,020 (2020: €38,775).
138 Annual Report 2021
3
11 INVESTMENTS IN SUBSIDIARIES (Continued)
11.5 INVESTMENT IN RS2 SMART PROCESSING LIMITED
On 29 May 2012, the Company subscribed to and was allotted 1,200 shares in RS2 Smart
Processing Limited, a company registered in Malta, representing 99.92% of the share
capital of this subsidiary. During 2015, RS2 Smart Processing Limited increased its
authorised share capital to 1,500,000 ordinary shares at a nominal value of €1.00 each.
The increase in share capital was fully subscribed to by the existing shareholders as at 31
December 2014 in a proportionate manner.
At Company level, the recoverable amount of RS2 Smart Processing Limited was
determined to be higher than its carrying amount. The carrying amount comprises the cost
of the investment in shares and advances to RS2 Smart Processing Limited at 31 December
2021 which stood at €2.2m (2020: €2.5m). The key assumptions used in the calculation of
the value-in-use of RS2 Smart Processing Limited are the forecasted net cash flows and
the discount rate and any major fluctuations in these unobservable inputs may significantly
impact the estimated recoverable amount and consequently, any excess of such amount
over the carrying amount.
As at 31 December 2021 issued ordinary share capital in RS2 Smart Processing Limited
amounted to €1,500,000 (2020: €1,500,000). Profit for the year amounted to €934,336
(2020: loss of €153,187) and the accumulated losses amounted to €728,933 (2020:
€1,663,269). Other reserves relates to post-employment benefits to key management
personnel amounting to €22,978 (2020: €16,482).
11.6 INVESTMENT IN RS2 SOFTWARE LAC LTDA
On 16 September 2015, the Company subscribed to and was allotted 3,465 shares in RS2
Software LAC LTDA, a company registered in Brazil, representing 99.00% of the share
capital of this subsidiary.
As at 31 December 2021 issued ordinary share capital in RS2 Software LAC LTDA amounted
to €789 (2020: €789). Loss for the year amounts to €2,189 (2020: profit of €4,228) and
accumulated losses amounted to €36,242 (2020: €34,053). The translation reserve of RS2
Software LAC LTDA comprises all foreign currency differences arising from the translation
of the financial statements of foreign operations. This reserve is non-distributable and
amounts to €15,047 (2020: €15,251).
11.7 INVESTMENT IN RS2 SOFTWARE APAC INC.
On 4 April 2016, the Company subscribed to and was allotted 55,745 shares of PhP100 each
in RS2 Software APAC Inc., a company registered in the Philippines, representing 99.99% of
the share capital of this subsidiary.
As at 31 December 2021 issued ordinary share capital in RS2 Software APAC Inc. amounted
to €112,105 (2020: €112,105). Profit for the year amounts to €958,957 (2020: €135,312) and the
retained earnings reserve totals €1,506,508 (2020: €529,450). The translation reserve of RS2
Software APAC Inc. comprises all foreign currency differences arising from the translation
of the financial statements of foreign operations. This reserve is non-distributable and
amounts to a negative €41,886 (2020: €64,201).
139 Annual Report 2021
3
11 INVESTMENTS IN SUBSIDIARIES (Continued)
11.7 INVESTMENT IN RS2 SOFTWARE APAC INC. (Continued)
At Company level, the recoverable amount of RS2 Software APAC Inc. was determined to
be higher than its carrying amount. The carrying amount comprises the cost of the
investment in shares and advances to RS2 Software APAC Inc. at 31 December 2021 which
stood at €1.1m (2020: €1.1m). The key assumptions used in the calculation of the value-in-
use of RS2 Software APAC Inc. are the forecasted net cash flows and the discount rate.
Any major fluctuations in these unobservable inputs may significantly impact the
estimated recoverable amount and consequently, any excess of such amount over the
carrying amount.
11.8 INVESTMENT IN RS2 GERMANY GMBH
On 2 February 2018, the Company subscribed to and was allotted 1 share equivalent to
€25,000 in RS2 Germany GmbH, a company registered in Germany, representing 100.00%
of the share capital of this subsidiary.
As at 31 December 2021 issued ordinary share capital in RS2 Germany GmbH amounted to
€25,000 (2020: €25,000). Loss for the year amounts to €1,642 (2020: profit of €21,879) and
the retained earnings reserve totals €626,549 (2020: €628,189).
At Company level, the recoverable amount of RS2 Germany GmbH was determined to be
higher than its carrying amount. The carrying amount comprises the cost of the investment
in shares and advances to RS2 Germany GmbH at 31 December 2021 which stood at €0.7m
(2020: €0.7m). The key assumptions used in the calculation of the value-in-use of RS2
Germany GmbH are the forecasted net cash flows and the discount rate and any major
fluctuations in these unobservable inputs may significantly impact the estimated
recoverable amount and consequently, any excess of such amount over the carrying
amount.
11.9 INVESTMENT IN RS2 MERCHANT SERVICES EUROPE GMBH
On 1 November 2019, the Company subscribed to and was allotted 25,000 shares
equivalent to €25,000 in RS2 Merchant Services Europe GmbH a company registered in
Germany, representing 100.00% of the share capital of this subsidiary.
As at 31 December 2021, issued ordinary share capital in RS2 Merchant Services Europe
GmbH amounted to €25,000 (2020: €25,000). The loss for the year amounts to €1,029,134
(2020: €907,348) and the accumulated losses total €2,058,409 (2020: €1,029,274). Other
reserves amount to €2,850,000 (2020: €1,050,000).
At Company level, the recoverable amount of RS2 Merchant Services Europe GmbH was
determined to be higher than its carrying amount. The carrying amount comprises the cost
of the investment in shares and advances to RS2 Merchant Services Europe GmbH at 31
December 2021 which stood at €2.9m (2020: €1.1m). The key assumptions used in the
calculation of the value-in-use of RS2 Merchant Services Europe GmbH are the forecasted
net cash flows and the discount rate and any major fluctuations in these unobservable
inputs may significantly impact the estimated recoverable amount and consequently, any
excess of such amount over the carrying amount.
140 Annual Report 2021
3
11 INVESTMENTS IN SUBSIDIARIES (Continued)
11.10 RESTRICTIONS ON ASSETS AND LIABILITIES
Other than as disclosed, there are no significant restrictions on the ability to access or use
assets, and settle liabilities of the Group.
11.11 NON-CONTROLLING INTERESTS
As at 31 December 2021, RS2 Software p.l.c.’s investment in RS2 Software INC. stood at
56.47% (2020: 57.05%), whilst the NCI’s percentage shareholding stood at 43.53% (2020:
42.95%). On the other hand, RS2 Software p.l.c.’s investment in RS2 Software LAC LTDA
stood at 99.00% (2020: 99.00%), whilst the NCI’s percentage shareholding stood at 1.00%
(2020: 1.00%).
RS2 Software INC. 2021 2020
NCI percentage 43.53% 42.95%
Non-current assets 8,982,568 7,021,186
Current assets 8,545,143 4,478,148
Non-current liabilities (1,407,823) (1,075,193)
Current liabilities (19,220,712) (14,177,244)
Net liabilities (3,100,824) (3,753,103)
Net liabilities attributable to NCI (1,349,789) (1,611,958)
Adjustments:
Share of capital contribution due to the Company (4,244,818) (4,123,191)
Adjustment upon elimination of investment in subsidiary 213,368 207,365
Amounts due to the Company
(59,621) (58,827)
Amounts due to subsidiaries
(12,242) (11,149)
Foreign currency translation reserve attributable to NCI (84,034) 400,140
Other adjustments 744,027 551,998
Net assets attributable to other NCI 362 341
Net liabilities attributable to total NCI (4,792,747) (4,645,281)
Revenue 16,122,061 8,869,476
Profit/(Loss) 773,577 (5,065,085)
Total comprehensive income 16,895,638 3,804,391
Income/(Loss) attributable to NCI
336,738 (2,175,454)
(Loss)/Profit attributable to other NCI (22) 214
Profit/(Loss) attributable to total NCI 336,716 (2,175,240)
Cash flows from operating activities 1,646,126 8,140,245
Cash flows from investing activities (1,778,253) (4,973,540)
Cash flows from financing activities (dividends to NCI: Nil) 98,489 714,913
Net movement in cash and cash equivalents (33,638) 3,881,618
141 Annual Report 2021
3
11 INVESTMENTS IN SUBSIDIARIES (Continued)
11.12 ACQUISITION OF RS2 SOFTWARE ZAHLUNGSSYSTEME GMBH
In December 2019, the RS2 Group (RS2 Holding Europe GmbH) acquired a shelf company
and renamed it Kalicom Zahlungssysteme GmbH. The purpose of this acquisition was to
acquire Kalicom Liebers Zahlungssysteme KG.
Kalicom Liebers Zahlungssysteme KG is one of the most successful commercial network
operators for electronic, card-based payment systems with more than four thousand
payment terminals, located in Reinsdorf, Germany. It serves SMEs across Germany with
products including POS terminals, giro card/direct debit processing, routing of credit card
transactions and referral of acquiring services.
On 1 January 2020, Kalicom Zahlungssysteme GmbH (later renamed RS2 Zahlungssysteme
GmbH) purchased 100% of Kalicom Liebers Zahlungssysteme KG, categorised as share
deal. RS2 Zahlungssysteme GmbH (previously Kalicom Zahlungssysteme GmbH) is a 100%
subsidiary of RS2 Merchant Services Europe GmbH, which is a 100% subsidiary of RS2
Software p.l.c..
This acquisition is a further step for RS2 to eliminate any dependencies on third parties to
ensure first class services. At the same time, this gives RS2 a quick start into the German
acquiring market.
The transaction is classified as a Class 1 transaction as per Capital Market Rules of the
Malta Stock Exchange. The purchase price of this acquisition was €2,000,000 plus
acquisition related costs. To finance this deal, RS2 Software p.l.c. increased its credit line
with one of the Company’s bankers. RS2 Software p.l.c. provided the purchaser with an
intercompany loan to cover the purchase price and the acquisition related costs. The costs
related to this acquisition amounted to €225,000 on legal fees and other related costs and
were included within the line item administrative expenses in the 2020 statement of profit
or loss.
The following table summarises the recognised amounts of assets acquired and liabilities
assumed at the date of acquisition of RS2 Zahlungssysteme GmbH (previously Kalicom
Zahlungssysteme GmbH):
Fair value
2020
€
Property, plant and equipment 40,360
Right-of-use assets 51,341
Intangible assets – customer and other related
contractual relationship
594,309
Deferred tax assets 183,211
Inventories 13,404
Finance lease receivables 80,294
Lease liabilities (47,341)
Deferred tax liabilities (178,293)
Net identifiable assets acquired 737,285
Add: Goodwill 1,262,715
Net assets acquired 2,000,000
142 Annual Report 2021
3
11 INVESTMENTS IN SUBSIDIARIES (Continued)
11.12 ACQUISITION OF RS2 SOFTWARE ZAHLUNGSSYSTEME GMBH (Continued)
The goodwill is attributable to RS2 Zahlungssysteme GmbH’s strong position and
profitability in the electronic, card-based payment systems and synergies expected to
arise after the Company’s acquisition of the new subsidiary. The Group will receive tax
deductions of €1,957,133 based on the goodwill that is recognised by the acquiree in its
own books based on local tax reporting. Some of this goodwill pertains to identifiable
intangible assets which are recognised as such by the Group.
The fair value of finance lease receivables was €80,294 at date of acquisition, and was
deemed as fully recoverable.
The acquired business contributed revenues of €1,996,395 and net loss before tax of
€78,460 to the Group for the reporting period with effect from 1 January 2020, being the
date of acquisition.
12 NON-CURRENT ASSET CLASSIFIED AS HELD-FOR-SALE
This asset comprised an investment in a company incorporated in the US which engages
in the provision of end-to-end electronic payment platforms. Under IFRS 9, this investment
was classified as an equity instrument designated at FVTOCI upon initial recognition, but
was subsequently reclassified to Non-current Asset classified as Held-for-Sale at 31
December 2020.
In November 2020, Management were informed that investment holders in the
aforementioned company were given an option to sell part or all of their holdings based
on a specific valuation price. As Management deemed this sale price to be reasonable, it
expressed interest in disposing of the full investment held, due to the fact that this is
deemed to no longer be in line with RS2 Group’s strategy. In this respect, the equity value
as at end of December 2020 was reclassified from Other Investment to Non-current Asset
classified as Held-for-Sale and the book value was adjusted to match the offered selling
price of €296,205 (being the fair value at date of disposal), with the gain in fair value of
investment in equity instruments being taken to other comprehensive income. This sale was
concluded successfully during 2021 and this asset was subsequently derecognised in the
books of the Company. No significant gains or losses were recorded upon disposal of this
investment in 2021 when compared to the carrying amount as at 31 December 2020. As
further disclosed in Note 23.1, dividends received from this investment in 2021 amounted to
€10,230 (2020: €31,018).
13 INVENTORIES
2021 2020
€ €
C
urrent
Finished goods - terminals at cost 81,244 21,391
The Group
Inventories recognised as an expense during the year ended 31 December 2021 amounted
to €54,026 (2020: €85,237). These were included in cost of sales.
Write-downs of inventories to net realisable value amounted to €3,608 (2020: €nil).
None of these inventories have been pledged as security for liabilities (2020: none).
143 Annual Report 2021
3
14 TRADE AND OTHER RECEIVABLES
2021 2020 2021 2020
€ € € €
C
urrent
Trade receivables 5,210,591 1,806,290 1,315,537 410,511
Amounts owed by subsidiaries - - 15,303,578 7,277,151
Amounts owed by other related parties 686,846 167,989 686,846 167,989
Other receivables 168,466 762,010 2,806 4,861
6,065,903 2,736,289 17,308,767 7,860,512
The Group
The Company
Transactions with related parties are set out in Note 31 to these financial statements.
Trade receivables for the Group and the Company are shown net of impairment losses
recognised during the year as disclosed in Note 23.3.
Information about the Group’s and the Company’s exposure to credit and market risks for
trade receivables is included in Note 6.
14.1 LOANS RECEIVABLE
2021 2020 2021 2020
€ € € €
Non-current
Loans receivable from parent company - 796,631 - 796,625
Loans receivable from other group companies - - 2,107,484 2,303,004
- 796,631 2,107,484 3,099,629
Current
Loans receivable from parent company 944,103 - 944,103 -
Amounts owed by group companies - - 225 225
Amounts owed by other related parties 1,462 910 1,462 910
945,565 910 945,790 1,135
The Group
The Company
Amounts due by parent company are unsecured and bear interest at the rate of 3% per
annum. The parent company shall settle the balance by way of a sale of shares which it
holds in a subsidiary company. Subsequent to year end, terms of the arrangement were
agreed between the parties. The ultimate shareholder, Radi Abd El Haj, has provided a
personal guarantee on all amounts receivable from the parent company, should it fail to
settle the amounts due.
Amounts due by RS2 Software LAC LTDA of €57,484 as at 31 December 2021 (2020: €52,998)
were
unsecured, repayable on demand and did not bear any interest.
Amount due by RS2 Financial Services GmbH of €50,000 as at 31 December 2021 (2020:
€50,000) was unsecured and bear interest of 2.7% per annum over the 3-month Euribor.
Such amount is repayable by 2025.
Amount due by RS2 Zahlungssysteme GmbH of €2.0m (2020: €2.2m) was unsecured and
bears interest of 2.7% per annum over the 3-month Euribor. Such amount is repayable by
2024.
Transactions with related parties are set out in Note 31 to these financial statements. The
Group’s and the Company’s exposure to credit and market risks for loans receivable are
disclosed in Note 6.
144 Annual Report 2021
3
15 ACCRUED INCOME AND CONTRACT COSTS
2021 2020 2021 2020
€ € € €
Current
Contract assets owed by third parties 3,468,459 1,237,306 760,770 797,757
Contract assets owed by parent company - 120,000 - 120,000
Contract assets owed by subsidiary - - 5,080,021 7,613,401
Contract assets owed by other related parties 308,079 974,144 308,079 974,144
3,776,538 2,331,450 6,148,870 9,505,302
Contract costs - 94,136 - 85,000
3,776,538 2,425,586 6,148,870 9,590,302
2021 2020 2021 2020
€ € € €
Category of activity
Licence fees excluding customisation 268,297 372,604 268,297 5,329,291
Service fees, transaction processing
and customisation
Maintenance fees 7,615 - 273,600 704,100
Re-imbursement of expenses 556 - 120 -
Other recharges - - 416,846 1,607,396
3,776,538 2,331,450 6,148,870 9,505,302
Contract costs - 94,136 - 85,000
3,776,538 2,425,586 6,148,870 9,590,302
The Group
The Company
The Group
The Company
3,500,070
5,190,007
1,958,846
1,864,515
145 Annual Report 2021
3
15 ACCRUED INCOME AND CONTRACT COSTS (Continued)
Significant changes in the contract assets balances during the period are as follows:
2021 2020 2021 2020
€ € € €
2,331,450 1,959,235 9,
505,302 4,418,561
3,394,931 1,364,484 5,
190,279 7,639,603
Release of opening contract assets to revenue (1,819,543) (487,735) (
8,511,643) (3,712,235)
Other movements 4,776 (500,534) (
17,892) 1,163,373
(135,076) (4,000) (
17,176) (4,000)
Balance at 31 December 3,776,538 2,331,450 6,
148,870 9,505,302
Movement on expected credit losses on contract
assets
Increases as a result of further progress
Balance at 1 January
The Group
The Company
Transactions with related parties are set out in Note 31 to these financial statements.
In relation to implementation and customisation which is followed by transaction
processing services, the following applies: (a) where the fee is treated as an advance
payment for future goods or services and is therefore recognised as revenue when those
future goods or services are provided, the related costs are amortised on a straight-line
basis over the period that the related future service is expected to be transferred to the
customer; and (b) where the fee relates to a distinct performance obligation and that
activity results in the transfer of a promised good or service to the customer, the related
revenue and costs are recognised over the customisation period.
Other contract costs mainly relate to the deferral of costs incurred by the Group in relation
to the provision of certain scoping and development services necessary for the
implementation of pilot services in anticipation of a potential long-term strategic
relationship with another party for the development and commercialisation of a
customised processing and payments solution for use in the travel industry.
During the performance of the scoping and development services, each of the two parties
is required to bear its own cost, subject to the recovery of certain costs by the Group if
such activity is terminated by the counterparty.
No amortisation of contract costs took place in 2021 and 2020 due to the fact that the
related activities to which those contract costs relate had not commenced during these
periods. As at 31 December 2021, provisions on group contract costs amounted to €nil
(2020: €1.2m). The provision booked in 2020 was fully written off during 2021.
146 Annual Report 2021
3
16 CASH AND CASH EQUIVALENTS
2021 2020 2021 2020
€ € € €
Cash at bank 8,214,173 6,817,075 1,258,534 1,535,884
Cash in hand 3,725 5,179 2,138 4,182
Bank overdraft (42) (9,657,211) (42) (9,657,211)
8,217,856 (2,834,957) 1,260,630 (8,117,145)
The Group
The Company
Bank overdraft relates to a bank overdraft facility from APS Bank p.l.c., as detailed in Note
18.
17 CAPITAL AND RESERVES
17.1 SHARE CAPITAL
2021 2020
ISSUED SHARE CAPITAL € €
Ordinary shares - issued and fully paid-up
192,968,569 shares at €0.06 per share 11,578,114 11,578,114
2021 2020
€ €
Preference shares - issued and fully paid-up
8,989,600 shares at €0.06 per share 539,376 -
Group and Company
Group and Company
AUTHORISED SHARE CAPITAL
On 15 December 2020, an Extraordinary General Meeting (EGM) was held whereby it was
approved that the authorised share capital of the Company be varied and increased from
200,000,000 shares to 300,000,000 shares at a nominal value of €0.06 each. During the
same meeting, it was also resolved that the authorised share capital be split between
€14,400,000 (240,000,000) ordinary shares and €3,600,000 (60,000,000) preference
shares, both at €0.06 each.
147 Annual Report 2021
3
17 CAPITAL AND RESERVES (Continued)
17.1 SHARE CAPITAL (Continued)
SHAREHOLDER RIGHTS
Ordinary shares
The holders of ordinary shares are entitled to receive dividends as declared from time to
time. On 15 December 2020, during the EGM referred to above, it was resolved that
ordinary shareholders are entitled to two votes per share at the meetings of the Company.
All ordinary shares shall rank
pari passu
.
Preference shares
During the current year, the Company issued 8,989,600 preference shares with a nominal
value of €0.06 per share, at an offer price of €1.75. The shares are denominated in EUR. The
Preference Shares carry the right to participate in the Company’s profits in the form of non-
cumulative dividends at a premium of not less than 10% over the dividend distributed and
payable to the holders of Ordinary Shares.
The Preference Shareholders have the right to attend general meetings of the Company
but, save for specific circumstances as documented in the Company’s Memorandum and
Articles of Association, do not have the right to vote at any general meeting of the
Company. In those cases, where Preference Shareholders have the right to vote, such
Preference Shareholders have one vote in respect of each Preference Share whereas
Ordinary Shareholders have two in respect of each Ordinary Share. The Preference
Shareholders carry the right to participate in any distribution of capital made whether on
a winding up or otherwise, pari passu with all other Ordinary Shares. The Preference Shares
are not redeemable or convertible into any other form of security.
Preference share capital is shown net of total share issuance costs of €491,610 (2020:
€136,556) directly attributable to the issue of the preference shares. Share issuance costs
relate to expenditure associated with issuing preference shares and include registration
fees, legal fees and marketing expenses.
17.2 SHARE PREMIUM
As at 31 December 2021, share premium reserve amounted to €15,193,501, of which an
amount of €15,192,424 represents the share premium on the subscription of 8,989,600
preference shares of a nominal value of €0.06 each at a share price €1.75 each.
The share premium amount of €1,077 (2020: €1,077) represents the balance of premium on
issue of five million (5,000,000) ordinary shares of a nominal value of €0.20 each at a share
price of €0.80 each. This share premium balance is net of transaction costs of €207,266
directly attributable to the issue of the ordinary shares.
During 2012, the Company allotted 2,499,956 bonus shares (1 for every 15 held) at a nominal
value of €0.20 each, amounting to €499,991 out of its share premium reserve.
During 2013, the Company allotted 2,500,000 bonus shares (1 for every 16 held) at a nominal
value of €0.20 each, amounting to €500,000 out of its share premium reserve.
During the year ended 31 December 2014, the Company allotted 2,500,000 bonus shares
(1 for every 17 held) at a nominal value of €0.20 each, amounting to €500,000 out of its
share premium reserve.
148 Annual Report 2021
3
17 CAPITAL AND RESERVES (Continued)
17.2 SHARE PREMIUM (Continued)
During the year ended 31 December 2016, the Company allotted 5,000,000 bonus shares
(1 for every 18 held) at a nominal value of €0.20 each, amounting to €500,000 out of its
share premium reserve.
During the year ended 31 December 2017, the Company allotted 13,194,432 bonus shares (1
for every 12 held) approved by the AGM held on 20 June 2017 at a nominal value of €0.06
each, amounting to €791,666 out of its share premium reserve.
17.3 RESERVES
17.3.1 TRANSLATION RESERVE
The translation reserve of the Group comprises all foreign currency differences arising from
the translation of the financial statements of foreign operations. This reserve is non-
distributable.
17.3.2 SHARE OPTION RESERVE
The share option reserve represents the fair value at grant date of the employees’ expense
in respect of equity-settled share-based payments based on the vesting period.
17.3.3 OTHER RESERVE
The other reserve relates to share-based payments granted by the Company to its
employees under its employee share-based payment arrangement.
17.3.4 FAIR VALUE RESERVE
The fair value reserve represents the cumulative gains and losses arising on the revaluation
of equity investments at FVTOCI that have been recognised in other comprehensive
income.
17.3.5 EMPLOYEE BENEFITS RESERVE
The employee benefits reserve includes non-competition post-employment benefits due
to employees holding senior management positions as further disclosed in Note 28 to these
financial statements.
17.4 RETAINED EARNINGS
During the year ended 31 December 2019, the Company allotted 21,440,950 bonus shares
(1 for every 8 held) approved by the AGM held on 18 June 2019 at a nominal value of €0.06
each, amounting to €1,286,457 out of its retained earnings.
149 Annual Report 2021
3
17 CAPITAL AND RESERVES (Continued)
17.5 AVAILABILITY OF RESERVES FOR DISTRIBUTION
The non-distributable reserves include the Share premium reserve, Employee benefits
reserve, Fair value reserve, Translation Reserve, Other reserves and the Share option
reserve.
18 BANK BORROWINGS
2021 2020
€ €
Non-current liabilities
Bank loan 1,124,000 1,621,137
1,124,000 1,621,137
Current liabilities
Bank loan 497,900 484,670
Bank overdraft 42 9,657,211
497,942 10,141,881
Group and Company
Bank borrowings represent the balance on two banking facilities. The first facility is a loan
which was sanctioned to the Company on 19 December 2019 to finance the investment
cost relating to the cost of acquisition of a merchant acquiring company based in
Germany, repayable over a period of 5 years and subject to interest at the rate of 2.7%
over the 3-month Euribor rate, floored at 0% per annum.
The second facility is an overdraft facility used for working capital requirements in
connection with routine business operations, repayable on demand at the Bank's
discretion and is subject to interest at the rate of 2.7% over the 3-month Euribor rate,
floored at 0% per annum. During 2020, there was a temporary increase of up to €6.5m on
the second facility, which expired on 30 April 2021. The bank overdraft balance was later
settled in May 2021.
18.1 COLLATERAL HEDGED AGAINST BANK BORROWINGS
All facilities are secured by first general hypothec over the Company's assets, first special
hypothec and special privileges over the land situated in Mosta with a carrying amount of
€5,288,076 and a pledge on a comprehensive insurance policy covering the hypothecated
property.
18.2 UNDRAWN OVERDRAFT FACILITIES
As at 31 December 2021, the Group had undrawn overdraft facilities of €10.0m (2020:
€7.8m).
150 Annual Report 2021
3
19 DEFERRED TAX ASSETS AND LIABILITIES
Deferred tax assets and liabilities are attributable to the following:
The Group
2021 2020 2021 2020 2021 2020
€ € € € € €
-
- (143,535) (108,154) (143,535) (108,154)
Intangible assets 166,364 208,325 (2,634,975) (2,373,793) (2,468,611) (2,165,468)
126 431,782 - - 126 431,782
51,984 358,708 - - 51,984 358,708
45,193 - - - 45,193 -
97,438 - - - 97,438 -
- 342,505 (24,804) - (24,804) 342,505
158,413 - - (15,050) 158,413 (15,050)
188,545 - (292,600) (104,055) (104,055) (104,055)
311 3,379 (2,281) (2,328) (1,970) 1,051
2,281 2,329 - - 2,281 2,329
710,655 1,347,028 (3,098,195) (2,603,380) (2,387,540) (1,256,352)
(710,655) (1,347,028) 710,655 1,347,028 - -
- - (2,387,540) (1,256,352) (2,387,540) (1,256,352)
The Company
2021 2020 2021 2020 2021 2020
€ € € € € €
- - (95,399) (104,044) (95,399) (104,044)
Intangible assets - - (2,043,278) (1,805,481) (2,043,278) (1,805,481)
- - - - - -
47,391 345,141 - - 47,391 345,141
45,193 - - - 45,193 -
Other provisions
97,438
- - - 97,438 -
61,396 - - (15,050) 61,396 (15,050)
188,545 188,545 - - 188,545 188,545
311 3,379 - - 311 3,379
440,274 537,065 (2,138,677) (1,924,575) (1,698,403) (1,387,510)
(440,274) (537,065) 440,274 537,065 - -
- - (1,698,403) (1,387,510) (1,698,403) (1,387,510)
Provision for exchange fluctuations
Assets
Liabilities
Balance
Property, plant and equipment
Impairment loss on receivables
Balance
Provision for legal claims
Other provisions
Unabsorbed losses
Temporary difference on expected
credit losses under IFRS 9
Temporary difference on revenues
previously recorded under IAS 18
Liabilities
Temporary difference on leases
under IFRS 16
Tax assets/(liabilities)
Set off of tax
Net tax liabilities
Assets
Temporary difference arising from
other liabilities
Property, plant and equipment
Impairment loss on receivables
Provision for exchange fluctuations
Provision for legal claims
Temporary difference on expected
credit losses under IFRS 9
Temporary difference on revenues
previously recorded under IAS 18
Temporary difference on leases
under IFRS 16
Tax assets/(liabilities)
Set off of tax
Net tax liabilities
The deferred tax liability includes the temporary differences between the written down
value and the net book value of the Group’s and Company's assets.
Deferred tax assets have not been recognised in respect of tax losses, until such time as
more definitive information becomes available that sufficient tax profit will be available
against which the Group can use the benefits therefrom. The unused tax losses on which
no deferred tax asset is recognised at 31 December 2021 amounted to €2,956,977 (2020:
€7,991,841).
151 Annual Report 2021
3
19 DEFERRED TAX ASSETS AND LIABILITIES (Continued)
Movement in temporary differences during the year are as follows:
The Group Recognised Recognised
Balance i
n profit Balance in profit Balance
1 Jan 2020 or loss 31 Dec 2020 or loss 31 Dec 2021
€ € € € €
(98,541) (9,613) (108,154) (35,381) (143,535)
Intangible assets (2,090,993) (74,475) (2,165,468) (303,143) (2,468,611)
51,472 380,310 431,782 (431,656) 126
70,470 288,238 358,708 (306,724) 51,984
Provision for legal claims - - - 45,193 45,193
Other provisions - - - 97,438 97,438
Unabsorbed losses 376,017 (33,512) 342,505 (367,309) (24,804)
346,822 (346,822) - - -
13,650 (28,700) (15,050) 173,463 158,413
(63,513) (40,542) (104,055) - (104,055)
4,091 (3,040) 1,051 (3,021) (1,970)
(43,629) 43,629 - - -
- 2,329 2,329 (48) 2,281
(1,434,154) 177,802 (1,256,352) (1,131,188) (2,387,540)
Impairment loss on receivables
Property, plant and equipment
Provision for exchange fluctuations
Unabsorbed capital allowances
Temporary difference on expected
credit losses under IFRS 9
Temporary difference on revenues
previously recorded under IAS 18
Temporary difference on leases
under IFRS 16
Temporary difference on revenues
recognised in line with IFRS 15
Temporary difference arising from
other liabilities
The Company Recognised Recognised
Balance in profit Balance in profit Balance
1 Jan 2020 or loss 31 Dec 2020 or loss 31 Dec 2021
€ € € € €
(97,634) (6,410) (104,044) 8,645 (95,399)
Intangible assets (1,667,493) (137,988) (1,805,481) (237,797) (2,043,278)
1,869 (1,869) - - -
71,322 273,819 345,141 (297,750) 47,391
Provision for legal claims
- - - 45,193 45,193
Other provisions
- - - 97,438 97,438
13,650 (28,700) (15,050) 76,446 61,396
229,087 (40,542) 188,545 - 188,545
4,091 (712) 3,379 (3,068) 311
(1,445,108) 57,598 (1,387,510) (310,893) (1,698,403)
Property, plant and equipment
Impairment loss on
receivables
Provision for exchange fluctuations
Temporary difference on expected
credit losses under IFRS 9
Temporary difference on revenues
recognised in line with IFRS 15
Temporary difference on leases
under IFRS 16
152 Annual Report 2021
3
20 TRADE AND OTHER PAYABLES
2021 2020 2021 2020
€ € € €
Trade payables 1,754,589 809,996 508,230 453,738
Other payables 64,961 599,177 198,477 350,332
Dividends payable 33,045 34,890 33,045 34,890
Other taxes and social securities 30,344 696,429 317,605 649,002
Amounts due to other related parties 12,796 26,387 362,353 496,048
1,895,735 2,166,879 1,419,710 1,984,010
The Group
The Company
Transactions with related parties are set out in Note 31 to these financial statements.
The Group’s and the Company’s exposure to currency and liquidity risk related to trade
and other payables is disclosed in Note 6.
21 ACCRUALS AND DEFERRED INCOME
21.1 ACCRUALS
2021 2020 2021 2020
€ € € €
Accrued expenses owed to third parties 2,844,289 2,571,298 922,849 887,498
Amounts due to other related parties 611,422 805,238 585,206 689,824
3,455,711 3,376,536 1,508,055 1,577,322
The Group
The Company
153 Annual Report 2021
3
21 ACCRUALS AND DEFERRED INCOME (Continued)
21.2 DEFERRED INCOME
2021 2020 2021 2020
€ € € €
Current
Contract liabilities owed by third parties 1,254,231 1,390,824 1,061,241 1,104,270
Contract liabilities owed by subsidiary - - 528,000 528,000
Contract liabilities owed by other related parties 312,771 472,959 312,771 472,959
1,567,002 1,863,783 1,902,012 2,105,229
Deferred income owed by subsidiary - - 104,628 47,907
1,567,002 1,863,783 2,006,640 2,153,136
2021 2020 2021 2020
€ € € €
Category of activity
Licence fees excluding customisation 26,250 26,250 506,250 506,250
Service fees, transaction processing and customisation 188,967 407,240 78,457 168,686
Maintenance fees 1,292,285 1,370,793 1,257,805 1,370,793
Comprehensive packages 59,500 59,500 59,500 59,500
1,567,002 1,863,783 1,902,012 2,105,229
Deferred income owed by subsidiary - - 104,628 47,907
1,567,002 1,863,783 2,006,640 2,153,136
The Group
The Company
The Group
The Company
Significant changes in the contract liabilities balances during the period are as follows:
2021 2020 2021 2020
€ € € €
Balance at 1 January 1,863,783 1,836,512 2,105,229 1,903,695
Release of opening contract liabilities to revenue (580,774) (106,782) (572,674) (81,469)
398,072 461,889 398,072 266,667
Other movements (114,079) (327,836) (28,615) 16,336
Balance at 31 December 1,567,002 1,863,783 1,902,012 2,105,229
Increases due to cash received, excluding amounts recognised
as revenue during the year
The Group
The Company
154 Annual Report 2021
3
22 REVENUE
22.1 DISAGGREGATION OF REVENUE
Revenue is stated after deduction of sales rebates and indirect taxes and comprises
revenue from contracts with customers (except for operating lease income).
In the following table, revenue is disaggregated by category of activity. The below table
also includes a reconciliation of the disaggregated revenue with the Group’s reportable
segments.
The Group
2021 2020 2021 2020 2021 2020 2021 2020
€ € € € € € € €
Ca
tegory of activity
Licence fees
excluding
customisation
4,965,218 2,794,782 - - - - 4,965,218 2,794,782
Service fees,
transaction
processing and
c
ustomisation
9,115,727 7,
610,226 18,681,693 10,173,682 2,016,958 1,905,791 29,814,378 19,689,699
Maintenance fees
3,059,168 3,
367,073 117,167 41,417 24,270 13,599 3,200,605 3,422,089
Comprehensive
packages
714,000 714,000 - - - - 714,000 714,000
Re-imbursement
of expenses
- 28,616 (42,219) 78,816 - 25,385 (42,219) 132,817
Operating lease
revenue
- - - - 27,881 60,335 27,881 60,335
17,854,113 14,514,697 18,756,641 10,293,915 2,069,109 2,005,110 38,679,863 26,813,722
Total
Software (Licensing) Solutions
Processing Solutions
Merchant Solutions
The revenue recognised in the Group’s statements of profit or loss during the year ended
31 December 2021 amounted to €10.1m (2020: €5.4m) in relation to implementation
activities (without the sale of a license) which are considered to be a distinct performance
obligation resulting in the transfer of a promised good or service to the customer.
The below table outlines the Company’s revenue disaggregated by category of activity.
The Company 2021 2020
€ €
C
ategory of activity
Licence fees 3,337,656 5,500,927
Service fees 16,520,262
13,335,887
Maintenance fees 3,945,703 3,963,499
Comprehensive packages 714,000 714,000
Re-imbursement of expenses 9,344 298,569
24,526,965 23,812,882
In the following tables, revenue is disaggregated by primary geographical markets. The
below table also includes a reconciliation of the disaggregated revenue with the Group’s
reportable segments.
155 Annual Report 2021
3
22 REVENUE (Continued)
22.1 DISAGGREGATION OF REVENUE (Continued)
The Group
2021 2020 2021 2020 2021 2020 2021 2020
€ € € € € € € €
Geographical markets
Europe 12,110,410 10,844,724 4,330,851 2,496,979 2,069,109 2,005,110 18,510,370 15,346,813
Middle East 730,946 716,273 105,104 184,834 - - 836,050 901,107
North America 4,650,218 2,407,643 11,471,802 6,461,884 - - 16,122,020 8,869,527
South America - - 1,151,728 64,144 - - 1,151,728 64,144
Asia 362,539 546,057 1,697,156 1,086,074 - - 2,059,695 1,632,131
17,854,113 14,514,697 18,756,641 10,293,915 2,069,109 2,005,110 38,679,863 26,813,722
Software (Licensing) Solutions
Processing Solutions
Merchant Solutions
Total
As outlined in the above table, the Group’s revenue is mainly generated through sales
transactions concluded with customers situated in Europe and North America (2020:
Europe).
The below table outlines the Company’s revenue disaggregated by primary geographical
markets.
The Company 2021 2020
€ €
Geographical markets
Europe 14,241,202 12,309,742
Middle East 730,947 716,273
North America 9,494,564 10,454,365
Asia 60,252 332,502
24,526,965 23,812,882
156 Annual Report 2021
3
22 REVENUE (Continued)
22.2 CONTRACT BALANCES
The following table provides information about the Group’s and the Company's
receivables, contract assets and contract liabilities from contracts with customers.
2021 2020 2021 2020
€ € € €
Receivables, which are included in ‘Trade and other receivables’
6,065,903 2,736,289 17,308,767 7,860,512
Contract assets
3,776,538 2,331,450 6,148,870 9,505,302
Contract liabilities
(1,567,002) (1,863,783) (1,902,012) (2,105,229)
The Group
The Company
The contract assets primarily relate to the Group’s rights to consideration for work
completed but not billed at the reporting date. The contract assets are transferred to
receivables when the rights become unconditional. This usually occurs when the Group
issues an invoice to the customer. The contract liabilities primarily relate to the advance
consideration received from customers, for which the revenue recognition criteria are not
yet met.
22.3 FUTURE REVENUES
The following tables include revenue expected to be recognised in the future related to
performance obligations that are unsatisfied (or partially unsatisfied) at 31 December 2021
and 2020.
2021
2022 2023
2024
and beyond
Total
€ € € €
Licence fees
19,964 - 300,000 319,964
Services fees
108,065 10,763 125,000 243,828
2021 2022
2023
and beyond
Total
€ € € €
Licence fees
19,964 - 780,000 799,964
Services fees
5,940 - 173,000 178,940
The Group
The Company
157 Annual Report 2021
3
22 REVENUE (Continued)
22.3 FUTURE REVENUES (Continued)
2020
2021 2022
2023
and beyond
Total
€ € € €
Licence fees
20,353 - 300,000 320,353
Services fees
1,314,737 43,461 391,820 1,750,018
2021 2022
2023
and beyond
Total
€ € € €
Licence fees
20,353 - 780,000 800,353
Services fees
6,018 - 173,000 179,018
The Group
The Company
The Group applies the practical expedient in paragraph 121 of IFRS 15 and does not
disclose information about remaining performance obligations that have original
expected durations of one year or less. The Group also does not disclose information
about the remaining performance obligations that have a fixed amount and for which the
Group has a right to invoice the customer in the amount that corresponds directly with the
value of the entity’s performance completed to date in accordance with paragraph B16 of
IFRS 15.
The above also excludes fees from transaction processing services that are recognised in
terms of Note 4.16.2.
23 PROFIT BEFORE INCOME TAX
The Group’s and Company’s profit before income tax includes total fees charged by the
auditors of the Group and Company for:
2021 2020 2021 2020
€ € € €
A
udit fee 210,195 180,000 205,195 175,000
24,500 52,500 2,000 30,000
234,695 232,500 207,195 205,000
The Company
The Group
Total fees payable to the Company’s auditors for non-audit services
other than other assurance and tax advisory services
The fees payable to other auditors of the subsidiaries in relation to audit services for 2021
amount to €9,863 (2020: €7,617).
23.1 OTHER INCOME
2021 2020 2021 2020
€ € € €
Other income 323,014 73,551 241,821 8,769
Dividend receivable 10,230 31,018 10,230 31,018
333,244 104,569 252,051 39,787
The Group
The Company
158 Annual Report 2021
3
23 PROFIT BEFORE INCOME TAX (Continued)
23.1 OTHER INCOME (Continued)
During the years ended 31 December 2021 and 2020, the Company was granted funds
through schemes administered by Malta Enterprise, MITA and other government bodies.
These schemes consist of both Maltese government schemes as well as schemes
emanating from European Union funds. For 2021, grants amounted to €16,775 (2020: €8,769)
which are captured as part of other income in the note above.
23.2 OTHER EXPENSES
2021 2020 2021 2020
€ € € €
Fines and penalties 26,066 29,975 15,931 29,036
Impairment loss on intangible asset 17,055 - 17,055 -
Other expenses 22,052 26,777 3,897 -
65,173 56,752 36,883 29,036
The Group
The Company
23.3 EXCHANGE GAIN/(LOSS) ON OPERATING ACTIVITIES
2021 2020 2021 2020
€ € € €
U
nrealised operating exchange gains/(losses) 189,646 (730,466) 848,127 (727,399)
Realised operating exchange losses (17,725) (55,710) (89,926) (59,508)
171,921 (786,176) 758,201 (786,907)
The Group
The Company
23.4 IMPAIRMENT LOSS ON TRADE RECEIVABLES AND CONTRACT ASSETS
2021 2020 2021 2020
€ € € €
(53,068) (145,385) - (5,344)
- 53,066 - -
Bad debts written off 227,067 111,354 2,362 -
Increase in provision on contract costs - 1,045,586 - -
409,608 5,427 132,416 1,000
- 3,000 - 3,000
583,607 1,073,048 134,778 (1,344)
The Group
The Company
Decrease in provision for impairment loss on trade receivables
Impairment loss on contract assets
Movement in provision for expected credit losses
Increase in provision for impairment loss on trade receivables
The increase in provision for contract costs in 2020 was fully written off during the year
ended 31 December 2021.
159 Annual Report 2021
3
23 PROFIT BEFORE INCOME TAX (Continued)
23.5 EXPENSES BY NATURE
2021 2020 2021 2020
Note € € € €
Wages and salaries
27 19,960,906 19,429,910 10,330,465 9,903,256
Directors’ emoluments
27 1,579,106 1,377,007 1,459,106 1,257,007
Non-competition benefits
27 93 173 93 173
Share-based arrangements
27 332,628 271,560 - (10,385)
Subcontracted costs 712,578 843,621 4,901,109 3,640,835
Professional fees 1,204,477 1,287,208 233,259 475,910
Consultancy fees 2,472,780 505,254 2,025,643 429,968
Travelling expenses 190,076 329,689 97,220 214,017
Participation in fairs and seminars 1,644 6,330 - 2,500
Depreciation
8, 9 1,099,279 1,104,994 345,827 375,935
Amortisation
10 1,102,595 939,304 1,043,599 877,640
Impairment gain/(loss) on trade receivables
23.4 583,607 24,462 134,778 (4,344)
Impairment gain on contract assets
23.4 - 3,000 - 3,000
Impairment loss on contract costs
23.4 - 1,045,586 - -
Impairment on intangible asset 10 - - 17,055 -
Recharge of expenses to intercompany - - (685,052) (326,857)
Other Expenses 3,387,091 3,228,091 247,962 940,026
32,626,860 30,396,189 20,151,064 17,778,681
The Group
The Company
24 FINANCE INCOME AND FINANCE COSTS
2021 2020 2021 2020
€ € € €
Bank interest income 1,413 1,409 240 115
Interest on loans receivable 27,473 10,435 85,017 72,085
- - - 9,387
Change in fair value of interest rate swap 660 8,836 660 8,836
Other interest and similar income 27,960 19,928 - -
Finance income 57,506 40,608 85,917 90,423
Bank interest expense (148,863) (242,105) (148,862) (242,050)
Other expenses - (539) - -
Non-operating unrealised exchange gain/(loss) 6,325 (145,368) 2,587 (65,852)
Interest expense on lease liabilities
(57,472) (63,561) (12,988) (13,551)
Finance costs (200,010) (451,573) (159,263) (321,453)
Net finance costs (142,504) (410,965) (73,346) (231,030)
Discount unwind of trade receivables
The Group
The Company
All the above items of finance income and cost are recognised in profit or loss.
160 Annual Report 2021
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25 INCOME TAX EXPENSE
25.1 RECOGNISED IN PROFIT OR LOSS
2021 2020 2021 2020
€ € € €
Current tax expense
Current tax charge for the year 1,935,066 2,237,153 1,487,119 2,220,786
Withholding tax on interest received 33 28 33 17
Foreign tax charge for the year 1,149 2,258 - -
1,936,248 2,239,439 1,487,152 2,220,803
Deferred tax expense
Origination and reversal of temporary differences 1,131,188 (172,884) 310,893 (57,598)
Income tax expense 3,067,436 2,066,555 1,798,045 2,163,205
The Group
The Company
25.2 RECONCILIATION OF EFFECTIVE TAX RATE
The income tax expense for the year and the result of the accounting profit multiplied by
the tax rate applicable in Malta, the Company’s country of incorporation, are reconciled
as follows:
2021 2020 2021 2020
€ € € €
Profit/(loss) before tax 6,415,664 (3,888,863) 5,312,807 5,842,958
2,245,482 (1,361,102) 1,859,482 2,045,035
Effect of tax rates in foreign jurisdictions (204,736) 1,293,342 - -
Tax effect of:
Non-taxable income 1,812 (13,562) (231) (6,378)
Non-deductible expenses 294,511 (1,351,168) 5,577 104,796
Different tax rates on bank interest income (48) (23) (48) (23)
(96,986)
263,982
630,154 1,284,840 - -
Other disallowed expenses (66,735) 19,775 (66,735) 19,775
Income tax expense 3,067,436 2,066,555 1,798,045 2,163,205
Elimination of intercompany transaction
Depreciation charges not deductible by way of
capital allowances
2,194,492
Unrecognised deferred tax assets on
unrelieved tax losses
-
-
-
-
(39)
The Group
The Company
Income tax using the domestic income tax rate of
35%
161 Annual Report 2021
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26 EARNINGS PER SHARE
The calculation of basic earnings per share is calculated by dividing the profit attributable
to owners of the Company (the numerator) by the weighted average number of ordinary
shares outstanding during the year (the denominator). The earnings used in the calculation
is net of all expenses including taxes, minority interests and preference dividends.
The earnings used in the calculation is net of all expenses including taxes, minority interests
and preference dividends which do not meet the definition of ordinary shares for the
purpose of this calculation. For the Company’s ordinary shares, the EPS was derived by
dividing the profit of the Group of €2,912,160 (2020: loss of €3,780,178) and the Company of
€3,398,808 (2020: €3,679,753) by 192,968,569 (2020: 192,968,569), being the equivalent
weighted-average number of shares outstanding during the year. For the Company’s
preference shares, which meet the definition of another class of ordinary shares for the
purpose of this calculation and which were issued during the current year, the EPS was
derived by dividing the profit of the Group of €99,352 and the Company of €115,954 by
5,984,857, being the equivalent weighted-average number of shares outstanding during
the year.
Earnings per ordinary share of the Group and the Company for the year ended 31
December 2021 amounted to €0.015 and €0.018 respectively (2020: -€0.020 and €0.019
respectively). Earnings per preference share of the Group and the Company for the same
reporting period amounted to €0.017 and €0.019 respectively.
Due to the variable element on the preference share entitlement, on the basis of trends in
the current share price, an assumption has been taken where the preference dividend will
not exceed 10% of the dividend on the ordinary shares.
27 PERSONNEL EXPENSES
Personnel expenses incurred by the Group and the Company during the year are analysed
as follows:
2021 2020 2021 2020
Note
€ € € €
Directors’ emoluments:
Fees 477,484 443,253 477,484 443,253
Remuneration 1,000,604 840,720 880,604 720,720
Indemnity insurance 25,586 17,602 25,586 17,602
Fringe benefits 75,432 75,432 75,432 75,432
Key management personnel
emoluments:
Remuneration 2,376,402 2,407,482 1,181,282 1,134,401
Non-competition benefits 28 93 173 93 173
Share-based arrangements
29 324,978 233,268 -
(10,385)
Fringe benefits 10,396 12,163 7,396 7,213
4,290,975 4,030,093 2,647,877 2,388,409
Other personnel emoluments:
Wages and salaries 16,082,209 15,644,136 8,619,093 8,254,605
Social security contributions 1,491,899 1,366,129 522,694 507,037
Share-based arrangements
29 7,650 38,292 -
-
21,872,733 21,078,650 11,789,664 11,150,051
The Group
The Company
162 Annual Report 2021
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27 PERSONNEL EXPENSES (Continued)
Personnel expenses incurred during the year include share-based arrangements. Other
personnel expenses included in the above table are short-term in nature. Personnel
expenses incurred during the year do not include long-term employment benefits nor
employment termination benefits.
The weekly average number of persons employed by the Group and the Company during
the year were as follows:
2022 2021 2022 2021
No. No. No. No.
Operating 322 268 201 191
Management and administration 96 80 56 52
418 348 257 243
The Group
The Company
27.1 GOVERNMENT GRANTS
During 2020, RS2 Software INC. submitted an SBA Paycheck Protection Program (PPP) loan
application which was granted in due course. In addition to this, RS2 Financial Services
GmbH and RS2 Zahlungssysteme GmbH also took advantage of COVID-19 schemes
available to them in 2020 and accordingly applied for a wage supplement covering the
reduced hours worked by employees of these German entities during the initial lock-down
period. These grants were approved and paid out by the German Government.
Payroll grants of €nil (2020: €560,154) were netted off against personnel expenses of RS2
Group, in accordance with the requirements of IAS 20. There were no unfulfilled conditions
or other contingencies attaching to these grants. In 2021, RS2 Group did not benefit directly
from any government grants or any other forms of government assistance, except as
disclosed in Note 23.1.
28 POST-EMPLOYMENT BENEFITS
Non-competition post-employment benefits due to employees holding senior
management positions are payable upon cessation based on an agreed fixed amount or
the then applicable annual salary. Such benefits are commensurate to the non-compete
clauses which bind personnel not to compete with the Company, or its subsidiaries, for
periods ranging between one and three years. This liability is recognised in the statement
of financial position and represents the present value of the defined benefit obligation as
at 31 December 2021 based on the following:
i) Discount rate, determined by reference to market yields at the end of the reporting
period. This discount rate is used to discount the liability to the net present value;
ii) The expectation of the respective employees’ termination date; and
iii) The expected future salary growth in line with the Group’s policies.
The discount rate is based on market yields arising on high-quality Corporate Bonds. Such
yields are denominated in the currency in which the benefits will be paid and have terms
to maturity approximating the estimated termination date. The Directors consider such
rates to be an appropriate proxy to a high-quality corporate bond.
163 Annual Report 2021
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28 POST-EMPLOYMENT BENEFITS (Continued)
When estimating the expected years to retirement, the Directors considered the current
age and the expected retirement age of key management personnel. An average of the
remaining number of years each member of key management personnel is expected to
work until retirement age, is deemed to be a more realistic time period to consider
compared to other term periods.
A reasonable growth rate was used when determining the future salary growth rates to be
deployed in the valuation model, which assumption took into account the general
percentage increases of the more recent years and also the Group’s budgeted
projections.
The movement in the liability is as follows:
2021 2020 2021 2020
€ € € €
Post-employment liabilities
Present value at 1 January 4,073,687 2,946,511 3,630,934 2,363,471
Recognised in profit or loss:
Discount unwind 93 173 93 173
Recognised in other comprehensive income:
Remeasurement adjustment (52,814) 1,274,237 (46,319) 1,267,290
Present value at 31 December 3,909,546 4,073,687 3,473,288 3,630,934
The Group
The Company
Post-employment benefit written off/settled
during the year
(111,420)
(147,234)
(111,420)
-
Balances as at 31 December 2021 are deemed to fall due after more than one year. The
re-measurement adjustment is as a result of financial actuarial losses resulting from an
adjustment in the annual salary of certain executives.
Post-employment benefit exposes the Group and the Company to the following risks:
i) Interest rate risk, since a decrease in market yield will increase the liability; and
ii) Longevity risk, since the longer the key management person remains in office the
higher the liability.
The significant assumptions applied by the Company in respect of post-employment
benefits were as follows:
2021 2020 2021 2020
0% - 0.029% 0% - 0.054% 0% - 0.029% 0% - 0.054%
Rate of projected salary increase 3% 3% 3% 3%
6.51yrs
6.82yrs
6.52 yrs
6.80yrs
Expected years to termination
(weighted average)
Discount rates
The Company
The Group
164 Annual Report 2021
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28 POST-EMPLOYMENT BENEFITS (Continued)
The cost of providing for these post-employment benefits is determined using the
projected unit credit method, with estimations being carried out at each reporting date.
Due to the nature of the assumptions, in accordance with the provisions of IAS 19, the
Group and the Company did not involve a qualified actuary in the measurement of their
post-employment benefit obligations.
The Group and the Company are providing sensitivity analysis in connection with the key
assumption applied. This analysis is prepared at the end of each reporting period and
shows how the liability would be affected by such hypothetical changes in the
assumptions that were reasonably possible at that date, while holding all other
assumptions constant. The below sensitivity is for illustrative purposes only and may not be
representative of the actual changes in the post-employment benefits obligation. This is
due to the fact that it is unlikely that a change in assumptions would occur in isolation of
one another.
- If the discount rate is 100 basis points higher (lower) with all other assumptions held
constant, the net present value of the post-employment benefit obligation decreases
by €218,510 (decreases by €1,823) at Company level and €245,931 (decreases by €1,823)
at Group level.
- If the expected years to termination increases (decreases) by two years with all other
assumptions held constant, the net present value of the post-employment benefit
obligation increases by €190,045 (decreases by €176,285) at Company level and
increases by €216,614 (decreases by €201,328) at Group level.
- If the salaries of key management personnel increase (decrease) by an additional 1%
over the budgeted increase with all other assumptions held constant, the net present
value of the post-employment benefit obligation increases by €209,545 (decreases by
€196,212) at Company level and increases by €237,822 (decreases by €223,019) at
Group level.
29 SHARE-BASED PAYMENT ARRANGEMENTS
At 31 December 2021, the Group had the following share-based payment arrangements.
29.1 RS2 EMPLOYEE SHARE OPTION SCHEME (EQUITY-SETTLED)
An RS2 Employee Trust was set up during the year ended 31 December 2010 to purchase
and hold 750,000 ordinary shares in the Company in order to satisfy the future exercise of
options by employees in accordance with the scheme.
The number of shares in respect of which share options were granted under the Scheme in
a three (3) year period was limited to 2% of the then issued share capital of the Company
(850,000 shares). Options were exercisable at any time up to eight (8) years from the date
on which the options are granted.
The scheme was implemented during 2011, being the first year of performance, and 2013,
being the last year of performance.
During the year ended 31 December 2021, a total of 108,973 share options were exercised,
whilst a total of 73,467 share options expired, resulting in 100,600 (2020: 283,040) share
options outstanding at 31 December 2021. The weighted average exercise price amounted
to €1.82 (2020: €2.17) during the year ended 31 December 2021.
This RS2 Employee Share Option Scheme expired in February 2022. Any unexercised shares
will no longer be available to be exercised by the employees.
165 Annual Report 2021
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29 SHARE-BASED PAYMENT ARRANGEMENTS (Continued)
29.2 PERFORMANCE-RELATED SHARE-BASED PAYMENT (EQUITY-SETTLED)
In 2017, the Company entered into an agreement with a newly recruited employee holding
a senior management position whereby should the employee achieve a pre-set
percentage over the agreed performance target linked to net profit over three
consecutive calendar years commencing from date of employment, the Company, may at
its absolute discretion, grant to the particular employee a one-time assignment of shares
to the equivalence of a pre-agreed Euro amount. At the end of the three-year period, the
Board discussed the aforementioned employee’s agreement and the respective benefit
that could be awarded. As the Group is fulfilling its growth strategy, and is still heavily
investing in territories such as the US and Germany, this resulted in a net loss rather than a
net profit at the end of the three-year period. Despite this, the obligation to this employee
is still being honoured by awarding the individual 85% of the total agreed upon
compensation.
In this respect, as at 31 December 2021, a provision of €255,000 (2020: €255,000) is included
in the Group’s and Company’s Other Reserves. The movement in this provision from 2019
to 2020 reflected a change in estimate resulting in a change in the estimated payment
from 100% to 85%.
As further disclosed in Note 33.3, in the first quarter of 2022, this employee agreed to
receive the respective amount in cash instead of shares. Such amount of €255,000 was
settled in March 2022.
29.3 PERFORMANCE-RELATED SHARE-BASED PAYMENT (CASH-SETTLED)
In terms of an agreement entered into in February 2018, an executive (referred to as 'key
management personnel' in Note 27) of RS2 Software INC. was granted 12,500 new shares
in the subsidiary (the ‘Award shares’), with certain vesting conditions and restrictions. In
terms of the agreement, upon transfer of the Award shares to the individual, the latter
obtained all the rights of a shareholder, including the right to vote and to receive any
dividends with respect to such shares, provided however that the individual may not sell,
transfer, pledge or assign unvested Award shares.
The Award shares shall vest monthly in equal instalments over a service period of 36 months
with an accelerated vesting upon a Change of Control Event during the vesting period and
with the requirement to forfeit all Award Shares (whether vested or unvested) in the case
of termination or resignation during a fixed specified period from the date of grant.
The arrangement also includes the right by the company to repurchase and the right by
the executive to sell the vested Award shares at fair market value in the case of termination
or resignation happening after the expiration of a fixed specified period. The
aforementioned executive’s employment with RS2 Software INC. was terminated in
December 2020, with all the remaining unvested shares becoming automatically vested in
terms of the arrangement, and accordingly, the right to sell the vested shares was
triggered.
As further disclosed in Note 10.8.2, following the termination of employment of the
executive, a management’s third party expert was engaged in order to assist in the
valuation of the minority stake held in RS2 Software INC. The liability as at 31 December
2020, amounting to €1m (USD 1.2m), is based on that valuation, which was approved by
the Board of RS2 Software Inc. In estimating the liability, certain assumptions were made,
as further herein.
166 Annual Report 2021
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29 SHARE-BASED PAYMENT ARRANGEMENTS (Continued)
29.3 PERFORMANCE-RELATED SHARE-BASED PAYMENT (CASH-SETTLED)
(Continued)
RS2 Software INC.'s Board of Directors held several meetings and in-depth discussions
whereby the Board agreed to offer a maximum amount of €1.32m (USD1.5m) in this respect.
The Board of the subsidiary believes that this amount exceeds the fair market value of the
12,500 shares. The liability as at end of the current financial reporting period reflects this
offer and the movement is being recognised accordingly in profit or loss.
The subsidiary’s offer was accepted by the executive in the first quarter of 2022 as full and
final settlement of the share buy-back transaction. Refer to Note 33.1 for further detail.
In terms of agreements entered into in March 2019, five management personnel of RS2
Software INC. were granted 5,626 share options in the subsidiary (the ‘share options’), with
certain vesting conditions. The weighted average exercise price amounts to USD7.12. In
terms of the agreement, upon vesting of the share options, the participant may exercise
all or a portion of the options vested to the extent of the shares vested. Three of the five
individuals terminated their employment, while the remaining two individuals signed an
amendment to the original agreement granting the share options to be effective from their
respective employment start date. From the total allocated share options, 1,563 share
options remain in effect as at 31 December 2020 and 2021.
The share options shall vest to 75% after not less than three but not more than four years
of continued service completed since the grant date and to 100% after not less than four
years of continued service are completed since the grant date. Options will become fully
exercisable and vested as of the time of a Change in Control with the requirement to forfeit
share options (vested and unvested) in the case of termination for cause. Upon
termination, all shares issued upon exercise of the options shall be subject to a call option
by the company to repurchase at fair market value. Based on the terms of the contracts,
it is concluded that the company has a present obligation to settle in cash, hence their
classification as cash-settled share-based payment arrangements.
The key assumptions used in the calculation of the value of the cash-settled share-based
awards for the remaining two management personnel of RS2 Software INC. are the
forecasted net cash flows and the discount rate used in a risk-adjusted cash flow forecast,
with the pre-tax discount rate used being 18.4% (post-tax: 15.2%).
Valuation approach in the comparative year
Following the termination of employment of the executive who held 12,500 shares, a
management’s third-party expert was engaged in order to assist in the valuation of the
minority stake held in RS2 Software INC.. In order to estimate the Enterprise Value of the
subsidiary, the income approach valuation methodology was applied.
The income approach indicates the value of a company based on the value of cash flows
that the business is expected to generate in the future. Under this approach,
management’s expert applied four different scenarios. The basis of all scenarios are
Management projections from 2021 till 2025, with different assumptions being taken by the
management’s expert. At one extreme, only the committed revenues are considered,
whilst at the other extreme, management’s full revenue projections are considered.
167 Annual Report 2021
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29 SHARE-BASED PAYMENT ARRANGEMENTS (Continued)
29.3 PERFORMANCE-RELATED SHARE-BASED PAYMENT (CASH-SETTLED)
(Continued)
The below table summarises the assumptions being taken:
Scenario 1
- Only confirmed (contracted) revenues are assumed.
- No marketing costs are assumed.
- Direct costs, administration expenses, and capitalised
development costs are assumed pro-rata on Management’s
projections.
Scenario 2
- Confirmed revenues as per Scenario 1, plus:
o 65% of committed transaction-based revenue;
o 55% of named clients expected to be contracted in the near
term;
o 35% of other unnamed clients with whom agreements are
still being negotiated; and
o 20% of provisional revenue.
- Direct costs, administration expenses, marketing expenses, and
capitalised development costs are assumed pro-rata on
Management’s projections.
Scenario 3
- Confirmed revenues as per Scenario 1, plus:
o 80% of committed transaction-based revenue;
o 55% of named clients expected to be contracted in the near
term;
o 45% of other unnamed clients with whom agreements are
still being negotiated; and
o 40% of provisional revenue.
- Direct costs, administration expenses, marketing expenses, and
capitalised development costs are assumed pro-rata on
Management’s projections.
Scenario 4
- Company will meet its projected revenues in full.
- Direct costs, administration expenses, marketing expenses, and
capitalised development costs as projected by Management.
The key assumptions used in the calculation of the value as at 31 December 2020 are the
forecasted net cash flows and the discount rate which are used in a risk-adjusted cash
flow forecast, with the pre-tax discount rate used being 26.5% (post-tax: 21.9%).
In addition, the market approach has also been considered by the management’s expert.
Such an approach indicates the market value of the ordinary shares of a company based
on a comparison to comparable entities in similar lines of business that are publicly traded
or which are part of a public or private transaction.
The information provided to the management’s expert, together with the underlying
assumptions and valuation methodologies used, have been reviewed and agreed upon
by the Board of the subsidiary.
The expense recognised in profit or loss during 2021 relating to the aforementioned
executive’s shares and the two remaining management personnel’s shares amounted to
€332,630 (2020: €281,946) and the corresponding liability at year-end amounted to
€1,407,822 (2020: €1,075,194), which was computed on the graded vesting approach. In
respect of the executive, 100% of the Award shares were vested by 31 December 2020.
168 Annual Report 2021
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29 SHARE-BASED PAYMENT ARRANGEMENTS (Continued)
29.3 PERFORMANCE-RELATED SHARE-BASED PAYMENT (CASH-SETTLED)
(Continued)
In respect of the share options relating to the management personnel of RS2 Software
INC., 95% of the outstanding options were vested by 31 December 2021 (2020: 68%).
2021 2020 2021 2020
€ € € €
N
on-Current liabilities
Share-based payments 57,038 77,194 - -
Current liabilities
Share-based payments 1,350,784 998,000 - -
The Group
The Company
30 CAPITAL COMMITMENTS
The Group and the Company have no capital commitments in 2021 and 2020.
31 RELATED PARTIES
31.1 PARENT AND ULTIMATE CONTROLLING PARTY
The Company is owned by ITM Holding Limited , a local registered company which holds
50.04% (2020: 50.04%) of ordinary shares and 0.32% (2020: nil) of preference shares in RS2
Software p.l.c.. ITM’s registered office is 66, Old Bakery Street, Valletta, Malta. The ultimate
parent company of the Group is RS2 Holding GmbH , a company registered in Germany. In
his capacity as ultimate shareholder of ITM, Radi Abd El Haj indirectly holds 50.04% (2020:
50.04%) of the issued ordinary share capital and 0.32% (2020: nil) of the issued preference
share capital of the Company.
Given that the Preference Shareholders shall not, save for specific circumstances as
documented in the Company’s Memorandum and Articles of Association, have the right to
vote at any general meeting of the Company, as disclosed in Note 17.1, as a result, the
voting rights vested in the Ordinary Shareholders were not diluted as a consequence of
the Offer.
31.2 IDENTITY OF RELATED PARTIES
The Company has a related party relationship with its parent company, its subsidiaries,
the Company’s key management personnel (including its Directors and the Company’s
senior management), and entities in which the Directors or their immediate relatives have
an ownership interest and management entities that provide key management personnel
services to the Group (“other related parties”). The compensation of such management
entities amount to €45,456 (2020: €79,535) and is included in the table below as part of the
legal and administrative services.
The Company uses the legal services of GTG Advocates in relation to advice given to the
Company. Amounts were billed based on normal market rates for such services and were
due and payable under normal payment terms. The Company also uses consultancy
services by one of the Directors amounting to €38,157 (2020: €39,303).
169 Annual Report 2021
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31 RELATED PARTIES (Continued)
31.2 IDENTITY OF RELATED PARTIES (Continued)
Directors of the Company hold directly and indirectly 51.36% (2020: 51.70%) of the voting
shares of the Company.
31.3 RELATED PARTY TRANSACTIONS
2021 2020 2021
2020
€ € € €
Parent company
Interest charged to 27,473 10,455 27,473 10,455
Subsidiaries
Support services provided to 12,533,450 12,053,767
Support services provided by (4,665,067) (3,361,020)
Recharge of salaries to - (29,001)
Other related parties
Depreciation charge on right-of-use asset 172,000 172,000 - -
Interest expense on lease liability 20,904 23,590 - -
Legal and administrative services provided by 286,590 212,478 241,134 132,943
Support services provided to 4,546,317 4,501,673 4,546,317 4,501,673
Support services not yet invoiced provided to 308,079 974,144 308,079 974,144
The Group
The Company
31.4 RELATED PARTY BALANCES
The Group and Company enter into transactions with key management personnel during
the course of their normal business. Transactions with key management personnel are set
out in Notes 27 and 29 to these financial statements but are not included in Note 31.3.
Additional information on amounts due to/by related parties is set out in Notes 14, 15, 20
and 21 to these financial statements. Such amounts due to/by related parties are
unsecured, repayable on demand and do not bear any interest other than disclosed in
those notes. As disclosed in Note 14.1, the ultimate shareholder has provided a personal
guarantee in favour of the Company on all amounts due by the parent company.
In addition, as further disclosed in Note 9.1.5, the Group has an agreement for leased offices
in Neu-Isenburg, Germany, with a related party. As at 31 December 2021, ROU assets
amounting to €1,203,999 (2020: €1,375,999) and lease liabilities amounting to €1,232,593
(2020: €1,397,688) relating to this lease are included within the Group’s Statements of
Financial Position. The depreciation charge for the year in relation to this asset amounts to
€172,000 (2020: €172,000) and the interest expense for the year in relation to this lease
liability amounted to €20,904 (2020: €23,590).
170 Annual Report 2021
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32 PROVISIONS AND CONTINGENT LIABILITIES
32.1 PROVISION FOR LEGAL CLAIM BY DEBTOR
During the year ended 31 December 2021, a provision was booked in relation to a claim by
one of the Company’s debtors. Although it transpired that the Company was not legally
obliged to settle any amounts in relation to the claim raised, the Company offered the
debtor an amount of €116,543 as a discount against future services.
32.2 LEGAL DISPUTE WITH A FORMER EMPLOYEE
During the year ended 31 December 2021, a provision was booked in relation to an ongoing
dispute with a former employee of RS2 Software p.l.c., whose employment was terminated
on 26 May 2020. During the first quarter of 2022, an out of court settlement agreement
took place in respect of this legal obligation by RS2 Software p.l.c.. As disclosed in Note
33.2, the parties signed a settlement agreement in March 2022, agreeing to a payment of
€12,579.
32.3 PROVISION FOR COSTS INCURRED IN RELATION TO PROFESSIONAL
ADVICE
During the year ended 31 December 2021, a provision of €100,000 was accounted for by
the Group and the Company in relation to expenses incurred to date covering advice
obtained from various legal advisors.
32.4 PROVISION FOR RECTIFICATION OF WORK
During the year ended 31 December 2021, the Group and the Company accounted for a
provision of €178,394 in respect of rectification of work which needs to be carried out
imminently.
The amounts in respect of the provisions detailed above in Notes 32.1 to 32.4 are
expected to be settled within the next year, although an element of uncertainty
still exists.
171 Annual Report 2021
3
33 SUBSEQUENT EVENTS
33.1 BUY-BACK OF SHARES OF AN EXECUTIVE EMPLOYEE OF RS2 SOFTWARE
INC. FOLLOWING TERMINATION OF EMPLOYMENT
In terms of an agreement entered into in February 2018, an executive (referred to as 'key
management personnel' in Note 27) of RS2 Software INC. was granted 12,500 new shares
in the subsidiary, with certain vesting conditions and restrictions. This executive’s
employment with RS2 Software INC. was terminated in December 2020. A management’s
third party expert was engaged in order to assist in the valuation of the minority stake in
RS2 Software INC (refer to Note 29.3). Although as at 31 December 2020, the 12,500 shares
of the executive of RS2 Software INC. were valued at €1m (USD1.2m) by the afremoentioned
management's third party expert, RS2 Software INC.'s Board of Directors held several
meetings and in-depth discussions whereby it was agreed by the board, that the
maximum amount to be offered in respect of this case is €1.4m (USD1.5m). In this respect,
the liability as at the end of the current financial reporting period accordingly reflects this,
being the amount paid to this executive in the first quarter of 2022 as full and final
settlement of the share buy-back transaction.
33.2 SETTLEMENT OF A LEGAL DISPUTE
During the year ended 31 December 2021, a provision was booked in relation to an ongoing
dispute with a former employee of RS2 Software p.l.c., whose employment was terminated
on 26 May 2020. During the first quarter of 2022, an out of court settlement agreement
took place in relation to this dispute. The parties signed a settlement agreement in March
2022, agreeing to a payment of €12,579.
33.3 RESIGNATION OF A SENIOR MANAGEMENT EMPLOYEE HAVING A
PERFORMANCE-RELATED SHARE-BASED PAYMENT (EQUITY-SETTLED)
In the first quarter of 2022, an employee who was due to receive a performance-related
share-based payment (equity-settled) agreed to receive the respective amount in cash
instead. Such amount of €255,000 was settled in March 2022.
33.4 SETTLEMENT AGREEMENT WITH A PARTY RELATED TO THE STRATEGIC
ARRANGEMENTS IN PLACE WITHIN THE TRAVEL INDUSTRY
In February 2018, the Group entered into an agreement with a party, related to the
strategic arrangements in place within the travel industry. The Group incurred €1m worth
of contract costs mainly related to the costs incurred by the Group in relation to the
provision of scoping and development services necessary for the implementation of pilot
services, in anticipation of a potential long-term strategic relationship with this party, for
the development and commercialisation of a customised processing and payments
solution for use in the travel industry. The total costs incurred were fully provided for in the
financial year ended 31 December 2020 since the project was put on hold, and
subsequently written off in the current financial year since there was no potential of the
project ever kicking-off any longer. That being said, subsequent to year end, the
aforementioned party approached RS2 Group with a settlement agreement, which the
Group accepted. As per settlement agreement dated 6 March 2022, RS2 received an
amount of €229,200 as full and final settlement of the costs incurred.
172 Annual Report 2021
3
33 SUBSEQUENT EVENTS (Continued)
33.5 IMPACT OF COVID-19 PANDEMIC
The COVID-19 pandemic has, to date, not had any significant impact on Group and
Company operations. Management do not envisage there to be any further repercussions
or negative impacts to the Group’s and Company’s operations in the years to come,
specifically due to the pandemic.
33.6 CONFLICT BETWEEN RUSSIA AND UKRAINE
In February 2022, Russia launched a large-scale military invasion of Ukraine, one of its
neighbours to the southwest, marking a major escalation to a conflict that began in 2014.
The Group and Company do not have any customers domiciled in such countries, and no
significant impact is expected to be incurred.
173 Annual Report 2021
3
34 COMPARATIVE INFORMATION
Comparative figures disclosed in the main components of these financial statements have
been reclassified to conform with the current year’s disclosure format for the purpose of
compliance with the International Financial Reporting Standards, and the requirements of
the Maltese Companies Act (Cap. 386).
In the Key Figures table in the Directors’ Report, as from 1 January 2021, fines and penalties
started to be accounted for under Other Expenses instead of under Finance Costs. As
such, EBITDA and EBITDA margin figures between 2017 and 2020 have been re-stated
accordingly.
Directors Reports - Key Figures 2020 2019 2018 2017
(As previously reported) € € € €
EBITDA (1,404) (199) 7,851 2,902
EBITDA Margin -5.24% 0.90% 31.39% 16.69%
Directors Reports - Key Figures 2020 2019 2018 2017
(As restated) € € € €
EBITDA (1,464) (210) 7,846 2,902
EBITDA Margin -5.46% -95.00% 31.37% 16.66%
In statement of cash flow, “Repayment of lease liabilities”, an amount of €64,100 for the
Group and €13,551 for the Company was reclassified from “Cash flows from financing
activities” to “Cash flows from operating activities” under “Interest paid on lease liabilities”.
(restated) (as reported) (restated) (as reported)
2020 2020 2020 2020
€ € € €
Cash flows from operating activities
Interest paid on lease liabilities
(64,100) - (13,551) -
Cash flows from financing activities
Repayment of lease liabilities
9 (455,615) (519,715) (26,918) (40,469)
The Group
The Company
In Note 6.5.1, specifically the table showing the sensitivity assessment performed when
assuming a 10 percent strengthening of the Euro against foreign currencies, the 2020
impact on equity and profit or loss for NZD was updated as it was erroneously presented
in prior year financial statements.
Equity Equity
Profit or
loss
Profit or
loss
(restated) (as reported) (restated) (as reported)
€ €
€ €
31 December 2020
NZD (71,214) (1,547,488) (71,214) (1,547,488)
The Group
The Group
174 Annual Report 2021
3
34 COMPARATIVE INFORMATION (Continued)
Moreover, the tables for the comparative year illustrating individual and collective
impairments for both the Group and the Company have been adjusted to reflect the
rationale applied in the current reporting period. For the Group, an amount of €120,000
relating to accrued income in respect of a related party has been reclassified from
“Collective Impairments” to “Individual Impairments” under “Lifetime ECL not-credit
impaired" section.
Furthermore, for both the Group and the Company, gross carrying amounts totalling to
€1,402,597 have been reclassified from "Individual Impairments" to "Collective Impairments"
under "Lifetime ECL not-credit impaired" section whilst loss allowances totalling to €1,000
have been reclassified from "Individual Impairments" to "Collective Impairments" under
"Lifetime ECL not-credit impaired" section as well. The latter reclassification has also been
reflected in the tables of the Group and the Company showing the movement in loss
allowances during the comparative period, as well as the opening balance of loss
allowances on 1 January 2021.
31 December 2020
Trade debtors, contract assets and
Finance lease receivables (restated) (restated) (as reported) (as reported)
€ € € €
Internal rating grades
Not in default - simplified model applied 120,000 6,395,627 1,402,597 5,113,030
In default - - - -
Gross carrying amount at 31 December 2020 120,000 6,395,627 1,402,597 5,113,030
Loss allowance at 31 December 2020 - (43,000) (1,000) (42,000)
Net carrying amount at 31 December 2020 120,000 6,352,627 1,401,597 5,071,030
Individual
Impairments
Collective
Impairments
Individual
Impairments
Collective
Impairments
The Group
The Group
Lifetime ECL not-credit impaired
Lifetime ECL not-credit impaired
31 December 2020
Trade debtors and contract assets
Internal rating grades
(restated) (restated) (as reported) (as reported)
Not in default - simplified model applied € € € €
In default 14,743,099 2,750,715 16,145,696 1,348,118
Gross carrying amount at 31 December 2020 - - - -
Loss allowance at 31 December 2020 14,743,099
2,750,715 16,145,696 1,348,118
Net carrying amount at 31 December 2020 - (43,000) (1,000) (42,000)
14,743,099 2,707,715 16,144,696 1,306,118
31 December 2020
Individual
Impairments
Collective
Impairments
Individual
Impairments
Collective
Impairments
(restated) (restated) (as reported) (as reported)
Trade debtors, contract assets and finance lease receivables € € € €
Opening balance at 1 January 2020 - 39,000 1,000 38,000
Movement during the year -
4,000 - 4,000
Closing balance 31 December 2020 - 43,000 1,000 42,000
31 December 2020
Individual
Impairments
Collective
Impairments
Individual
Impairments
Collective
Impairments
(restated) (restated) (as reported) (as reported)
Trade receivables and contract assets € € € €
Opening balance at 1 January 2020 - 39,000 1,000 38,000
Movement during the year - 4,000 - 4,000
Closing balance 31 December 2020 - 43,000 1,000 42,000
The Company
Lifetime ECL not-credit impaired
The Company
Individual
Impairments
Collective
Impairments
The Group
The Group
Lifetime ECL not-credit impaired
The Company
The Company
Lifetime ECL not-credit impaired
Lifetime ECL not-credit impaired
Lifetime ECL not-credit impaired
Lifetime ECL not-credit impaired
Individual
Impairments
Collective
Impairments
175 Annual Report 2021
3
34 COMPARATIVE INFORMATION (Continued)
In Note 15 “Accrued income and contract costs”, an amount of €4,000 was reclassified
from “Other movements” to “Movement on expected credit loss on contract assets”.
2020 2020 2020 2020
(
restated) (as reported) (restated) (as reported)
€ € € €
Other movements (500,534) (504,534) 1,163,373 1,159,373
Movement on expected credit losses on
contract assets
(4,000) -
(4,000) -
The Group
The Company
In Note 21 “Accruals and deferred income”, an amount of €805,238 was reclassified from
“Accrued expenses owed to third parties” to “Amounts due to other related parties”.
Accruals
2020 2020 2020 2020
(restated) (as reported) (restated) (as reported)
€ € € €
Accrued expenses owed to third parties 2,571,298 3,376,536 887,498 1,370,248
Amounts due to other related parties 805,238 - 689,824 207,074
3,376,536 3,376,536 1,577,322 1,577,322
The Group
The Company
In Note 23.5 “Expenses by nature”, the line item “other expenses” included recharge of
expenses from the Company to a subsidiary, which are accounted for as a reduction in the
expenses in the books of the Company. Therefore, an amount of (€326,857) was reclassified
from the line item “other expenses” to “recharge of expenses to intercompany”, and thus
the other expenses now reads €940,026.
Expenses by Nature
2020 2020 2020 2020
(
restated) (as reported) (restated) (as reported)
€ € € €
Recharge of expenses to intercompany - - (326,857) -
Other Expenses 3,228,091 3,198,116 940,026 584,133
The Company
The Group
176 Annual Report 2021
3
34 COMPARATIVE INFORMATION (Continued)
In Note 24 “Finance Income and Finance Costs”, an amount of €543 was reclassified from
“interest expense on lease liabilities” to “other expenses”. In addition, for 2020, amounts of
€29,975 and €29,036 for the Group and Company respectively, were reclassified from
“Other expenses” within Note 24 “Finance Income and Finance Costs” to “Fines and
penalties” within Note 23.2 “Other expenses”. Furthermore, for 2020, realised operating
exchange losses of €55,710 and €59,508 for the Group and the Company respectively,
were reclassified from “Other Expenses” to “Exchange gain/(loss) on operating activities”.
Also for 2020, unrealised operating exchange losses of €730,466 and €727,399 for the
Group and the Company respectively, were reclassified from “Other Expenses” to
“Exchange gain/(loss) on operating activities”. These reclassifications were also reflected
in the Statement of Profit or Loss ended on 31 December 2020.
Statements of Profit or Loss
2020 2020 2020 2020
(restated) (as reported) (restated) (as reported)
€ € € €
Other expenses (56,752) (812,953) (29,036) (786,907)
Exchange gain/(loss) on operating activities (786,176)
- (786,907) -
Finance costs (451,573) (481,548) (321,453) (350,489)
FINANCE COSTS
2020 2020 2020 2020
(restated) (as reported) (restated) (as reported)
€ € € €
Other expenses (539) (29,975) - (29,036)
Interest expense on lease liabilities (63,561) (64,100) (13,551) (13,551)
The Group
The Company
The Group
The Company
The above reclassification also resulted in a change in Note 7 Operating segments as can
be noted below.
2020 2020
(restated) (as reported)
€ €
Finance expense
Total finance expense for reportable segments
502,427 502,427
Elimination of inter-segment transactions (50,854) (20,879)
Consolidated finance expense 451,573 481,548
The Group
Other expenses
2020 2020 2020 2020
(restated) (as reported) (restated) (as reported)
€ € € €
Realised operating exchange losses - 55,710 - 59,508
Unrealised operating exchange losses - 730,466 - 727,399
Fines and penalties 29,975 - 29,036 -
Exchange gain/(loss) on operating activities
2020 2020 2020 2020
(restated) (as reported) (restated) (as reported)
€ € € €
Unrealised operating exchange losses (730,466) - (727,399) -
Realised operating exchange losses (55,710) - (59,508) -
(786,176) - (786,907) -
The Group
The Company
The Company
The Group
4
Independent Auditors’ Report
To the Members of RS2 Software p.l.c.
Deloitte Audit Limited is a limited liability company registered in Malta with registered office at Deloitte Place, Triq L-Intornjatur, Central Business District, CBD 3050
Malta. Deloitte Audit Limited forms part of the Deloitte Malta firm. The Deloitte Malta firm consists of (i) Deloitte, a civil partnership regulated in terms of the laws of
Malta, constituted between limited liability companies, operating at Deloitte Place, Triq L-Intornjatur, Central Business District, CBD 3050 Malta and (ii) the affiliated
operating entities: Deloitte Services Limited (C51320), Deloitte Advisory and Technology Limited (C23487), Deloitte Audit Limited (C51312) and Malta International
Training Centre Limited (C5663), all limited liability companies registered in Malta with registered offices at Deloitte Place, Triq L-Intornjatur, Central Business District,
CBD 3050 Malta. The Deloitte Malta firm is an affiliate of Deloitte Central Mediterranean S.r.l., a company limited by guarantee registered in Italy with registered
number 09599600963 and its registered office at Via Tortona no. 25, 20144, Milan, Italy. For further details, please visit www.deloitte.com/mt/about.
Deloitte Central Mediterranean S.r.l. is the affiliate for the territories of Italy, Greece and Malta of Deloitte NSE LLP, a UK limited liability partnership and member firm
of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”). DTTL and each of its member firms are legally separate and independent
entities. DTTL, Deloitte NSE LLP and Deloitte Central Mediterranean S.r.l. do not provide services to clients. Please see www.deloitte.com/about to learn more about
our global network of member firms.
© 2021. For information, contact Deloitte Malta.
Deloitte Audit Limited
Deloitte Place
Triq L-Intornjatur
Central Business District
CBD 3050
Malta
Tel: +356 2343 2000, 2134 5000
Fax: +356 2133 2606
info@deloitte.com.mt
www.deloitte.com/mt
Company Ref No: C51312
VAT Reg No: MT2013 6121
Exemption number: EXO2155
Report on the Audit of the Financial Statements
Opinion
We have audited the individual financial statements of RS2 Software p.l.c. (the Company) and the
consolidated financial statements of the Company and its subsidiaries (together, the Group), set
out on pages 51 to 176, which comprise the Statements of Financial Position of the Company and
the Group as at 31 December 2021, and the Statements of Profit or Loss, the Statements of
Comprehensive Income, Statements of Changes in Equity and Statements of Cash Flows of the
Company and the Group for the year then ended, and notes to the financial statements, including
a summary of significant accounting policies.
In our opinion, the accompanying financial statements give a true and fair view of the financial
position of the Company and the Group as at 31 December 2021, and of the Company’s and the
Group’s financial performance and cash flows for the year then ended in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the European Union and have
been properly prepared in accordance with the requirements of the Companies Act (Cap. 386).
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our
responsibilities under those standards are further described in the
Auditor’s Responsibilities for the
Audit of the Financial Statements
section of our report. We are independent of the Company and
the Group in accordance with the International Ethics Standards Board for Accountants’
International Code of Ethics for Professional Accountants including International Independence
Standards
(IESBA Code) together with the
Accountancy Profession (Code of Ethics for Warrant
Holders) Directive
(Maltese Code) that are relevant to our audit of the financial statements in Malta,
and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code and the
Maltese Code. We believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our opinion. In conducting our audit, we have remained independent of the
Company and the Group and have not provided any of the non-audit services prohibited by article
18A(1) of the Accountancy Profession Act (Cap. 281).
Independent Auditors’ Report (Continued)
To the Members of RS2 Software p.l.c.
Report on the Audit of the Financial Statements
(Continued)
4
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in
our audit of the financial statements of the current period and include the most significant assessed
risks of material misstatement (whether or not due to fraud) that we identified. The key audit matters
described below were addressed in the context of our audit of the individual and consolidated
financial statements as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters.
Impairment testing of goodwill relating to the Group’s US and German operations recognised
in the consolidated financial statements
Under IFRSs, the Group is required to annually test the amount of goodwill recognised in the
consolidated financial statements for impairment. These impairment tests are significant to our
audit because the amount of goodwill as at 31 December 2021 relating to the Group’s US operations
amounted to
EUR0.7m
and the amount of goodwill that arose on the acquisition of Kalicom business
in Germany during the previous year amounted to
EUR1.3m
and these amounts are material to the
consolidated financial statements. In addition, the directors’ assessment process is highly
judgmental and is based on assumptions, such as forecasted business growth rates, profit margins,
weighted average cost of capital and effective tax rates, which are affected by expected future
market or economic conditions.
Our audit procedures to address the risk of material misstatement on this matter included:
• Involving an internal valuation specialist to assess the Group’s impairment testing
methodology determined from value-in-use calculations and the key assumptions applied by
the directors for this purpose.
• Performing sensitivity analysis of the impairment testing calculations to changes in key inputs
such as the projected growth rate and the weighted average cost of capital.
• Reviewing the impairment testing calculations for reasonability, mathematical accuracy and
consistency.
Independent Auditors’ Report (Continued)
To the Members of RS2 Software p.l.c.
Report on the Audit of the Financial Statements
(Continued)
4
Impairment testing of goodwill relating to the Group’s US and German operations recognised
in the consolidated financial statements (Continued)
We also focused on the adequacy of the Group’s disclosures about those assumptions to which
the outcome of the impairment test is most sensitive, that is, those that have the most significant
effect on the determination of the recoverable amount of goodwill.
The Group’s disclosures about goodwill are included in note 10, which specifically explains that the
directors have assessed the carrying amount of goodwill
as at 31 December 2021 to be recoverable
and that there is no impairment in the value of the goodwill.
Impairment testing of investment in US subsidiary and German subsidiary held by the
Company in the individual financial statements
As at 31 December 2021, the Company held an investment with a carrying amount of
EUR10.9m
in its
US subsidiary, RS2 Software Inc.. The Company performed an impairment assessment of its
investment in this subsidiary by computing its value-in-use in conjunction with the testing of
impairment of goodwill arising on the US operations.
In addition, as at 31 December 2021, the Company also held an investment with a carrying amount
of
EUR2.9m
in the German intermediate holding company, RS2 Merchant Services Europe GmbH,
which reported a loss for the year ended 31 December 2021 of
EUR1m
. The Company performed an
impairment assessment of its investment in this subsidiary by computing the value-in-use arising
from the two subsidiaries held by RS2 Merchant Services Europe GmbH, comprising the business of
RS2 Zahlungssysteme GmbH (previously Kalicom Zahlungssysteme KG) purchased during the
previous financial year and the acquiring business being developed by RS2 Financial Services
GmbH.
The carrying amount of these investments are material to the Company’s financial statements and
the directors’ assessment process is highly judgmental and is based on assumptions, such as
forecast business growth rates, profit margins, weighted average cost of capital and effective tax
rates, which are affected by expected future market or economic conditions.
Independent Auditors’ Report (Continued)
To the Members of RS2 Software p.l.c.
Report on the Audit of the Financial Statements
(Continued)
4
Impairment testing of investment in US subsidiary and German subsidiary held by the
Company in the individual financial statements (Continued)
Our procedures to address the risk of material misstatement arising on this matter included:
• Involving an internal valuation specialist to assess the Company’s impairment testing
methodology determined from value-in-use calculations and the key assumptions applied by
the directors for this purpose.
• Performing sensitivity analysis of the impairment testing calculations to changes in key inputs
such as the projected growth rate and the weighted average cost of capital.
• Reviewing the impairment testing calculations for reasonability, mathematical accuracy and
consistency.
We also focused on the adequacy of the Company’s disclosures in notes 10 and 11 about the key
assumptions that were used in the value-in-use calculations which have the most significant effect
on the determination of the recoverable amount of the investments in subsidiary. The disclosures
state that the recoverable amount of each of these investments in subsidiary was determined by
the Company to be higher than its carrying amount.
Other Information
The directors are responsible for the other information. The other information comprises (i) the Who
We Are section, (ii) the Chairman’s statement, (iii) the CEO’s statement, (iv) the Board of Directors’
section, (v) the Corporate Social Responsibility section, (vi) the Directors’ Report, (vii) the Corporate
Governance Statement of Compliance, (viii) the Remuneration Report, (viii) the Statement of
Directors pursuant to Capital Market Rule 5.68, (ix) Company Information and (x) the Directors’
responsibilities for the financial statements, which we obtained prior to the date of this auditor’s
report.
However, the other information does not include the individual and consolidated financial
statements, our auditor’s report and the relevant tagging applied in accordance with the
requirements of the European Single Electronic Format, as defined in our
Report on Other Legal and
Regulatory Requirements.
Except for our opinions on the Directors’ Report in accordance with the Companies Act (Cap. 386),
and on the Corporate Governance Statement of Compliance and on the Remuneration Report in
accordance with the Capital Markets Rules issued by the Malta Financial Services Authority, our
opinion on the financial statements does not cover the other information and we do not express
any form of assurance conclusion thereon.
Independent Auditors’ Report (Continued)
To the Members of RS2 Software p.l.c.
Report on the Audit of the Financial Statements
(Continued)
4
Other Information (Continued)
In connection with our audit of the financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the audit or otherwise
appears to be materially misstated. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact. We
have nothing to report in this regard.
With respect to the Directors’ Report, we also considered whether the Directors’ Report includes
the disclosure requirements of Article 177 of the Companies Act (Cap. 386) and the statement
required by Rule 5.62 of the Capital Markets Rules on the Company’s and the Group’s ability to
continue as a going concern.
In accordance with the requirements of sub-article 179(3) of the Companies Act (Cap. 386) in relation
to the Directors’ Report on pages 21 to 34, in our opinion, based on the work undertaken in the
course of the audit:
• the information given in the Directors’ Report for the financial year for which the financial
statements are prepared is consistent with those financial statements; and
• the Directors’ Report has been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Company, the Group and their environment
obtained in the course of the audit, we have not identified any material misstatements in the
Directors’ Report.
Responsibilities of the Directors and the Audit Committee for the Financial Statements
As explained more fully in the Statement of Directors’ responsibilities on page 50, the directors are
responsible for the preparation of financial statements that give a true and fair view in accordance
with IFRSs as adopted by the European Union and the requirements of the Companies Act (Cap.
386), and for such internal control as they determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Company’s
and the Group’s ability to continue as a going concern, disclosing, as applicable, matters related
to going concern and using the going concern basis of accounting unless the directors either intend
to liquidate the Company and/or the Group or to cease operations, or have no realistic alternative
but to do so.
The directors have delegated the responsibility for overseeing the Company’s and the Group’s
financial reporting process to the Audit Committee.
Independent Auditors’ Report (Continued)
To the Members of RS2 Software p.l.c.
Report on the Audit of the Financial Statements
(Continued)
4
Auditor’s Responsibilities for the Audit of the Financial Statements
This report, including the opinions set out herein, has been prepared for the Company’s members
as a body in accordance with articles 179, 179A and 179B of the Companies Act (Cap. 386).
Our objectives are to obtain reasonable assurance about whether the financial statements as a
whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinions in accordance with articles 179, 179A and 179B of the Companies
Act (Cap. 386). Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with ISAs will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken
on the basis of these financial statements.
In terms of article 179A(4) of the Companies Act (Cap. 386), the scope of our audit does not include
assurance on the future viability of the Company and the Group or on the efficiency or effectiveness
with which the directors have conducted or will conduct the affairs of the Company and the Group.
The financial position of the Company and/or the Group may improve, deteriorate, or otherwise be
subject to change as a consequence of decisions taken, or to be taken, by the management thereof,
or may be impacted by events occurring after the date of this opinion, including, but not limited to,
events of force majeure.
As such, our audit report on the Company’s and the Group’s historical financial statements is not
intended to facilitate or enable, nor is it suitable for, reliance by any person, in the creation of any
projections or predictions, with respect to the future financial health and viability of the Company
and/or the Group, and cannot therefore be utilised or relied upon for the purpose of decisions
regarding investment in, or otherwise dealing with (including but not limited to the extension of
credit), the Company and/or the Group. Any decision-making in this respect should be formulated
on the basis of a separate analysis, specifically intended to evaluate the prospects of the Company
and/or the Group and to identify any facts or circumstances that may be materially relevant
thereto.
Independent Auditors’ Report (Continued)
To the Members of RS2 Software p.l.c.
Report on the Audit of the Financial Statements
(Continued)
4
Auditor’s Responsibilities for the Audit of the Financial Statements (Continued)
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain
professional scepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the financial statements, whether due
to fraud or error, design and perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s and the Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by the directors.
• Conclude on the appropriateness of the directors’ use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to
events or conditions that may cast significant doubt on the Company’s and the Group’s ability
to continue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor’s report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are
based on the audit evidence obtained up to the date of our auditor’s report. However, future
events or conditions may cause the Company and/or the Group to cease to continue as a
going concern. Accordingly, in terms of generally accepted auditing standards, the absence of
any reference to a material uncertainty about the Company’s and/or the Group’s ability to
continue as a going concern in our auditor’s report should not be viewed as a guarantee as to
the Company’s and/or the Group’s ability to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including
the disclosures, and whether the financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the
Companies or business activities within the Group to express an opinion on the consolidated
financial statements. We are responsible for the direction, supervision and performance of the
group audit. We remain solely responsible for our audit opinion.
Independent Auditors’ Report (Continued)
To the Members of RS2 Software p.l.c.
Report on the Audit of the Financial Statements
(Continued)
4
Auditor’s Responsibilities for the Audit of the Financial Statements (Continued)
For the avoidance of doubt, any conclusions concerning the adequacy of the capital structure of
the Company, including the formulation of a view as to the manner in which financial risk is
distributed between shareholders and/or creditors cannot be reached on the basis of these
financial statements alone and must necessarily be based on a broader analysis supported by
additional information.
We communicate with the Audit Committee regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
We also provide the Audit Committee with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable,
related safeguards.
From the matters communicated with the Audit Committee, we determine those matters that were
of most significance in the audit of the individual and consolidated financial statements of the
current period and are therefore the key audit matters. We describe these matters in our auditor’s
report unless law or regulation precludes public disclosure about the matter or when, in extremely
rare circumstances, we determine that a matter should not be communicated in our report because
the adverse consequences of doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
Report on Other Legal and Regulatory Requirements
Report on compliance of the Annual Financial Report with the requirements of the European
Single Electronic Format Regulatory Technical Standard as specified in the Commission
Delegated Regulation (EU) 2019/815 (the "ESEF RTS”)
Pursuant to Capital Markets Rule 5.55.6 issued by the Malta Financial Services Authority, we have
undertaken a reasonable assurance engagement in accordance with the requirements of the
Accountancy Profession (European Single Electronic Format) Assurance Directive
issued by the
Accountancy Board in terms of the Accountancy Profession Act (Cap. 281), hereinafter referred to
as the “ESEF Directive 6”, on the annual financial report of the Company and the Group for the year
ended 31 December, 2021, prepared in a single electronic reporting format.
Independent Auditors’ Report (Continued)
To the Members of RS2 Software p.l.c.
Report on the Audit of the Financial Statements
(Continued)
4
Report on Other Legal and Regulatory Requirements (Continued)
Report on compliance of the Annual Financial Report with the requirements of the European
Single Electronic Format Regulatory Technical Standard as specified in the Commission
Delegated Regulation (EU) 2019/815 (the "ESEF RTS”) (Continued)
Solely for the purposes of our reasonable assurance report on the compliance of the annual
financial report with the requirements of the ESEF RTS, the “Annual Financial Report” comprises the
Directors’ Report, Directors’ responsibilities for the Financial Statements, the Corporate Governance
Statement of Compliance, the annual financial statements, Company Information, and the
Independent auditor’s report, as set out in Capital Markets Rules 5.55.
Responsibilities of the Directors for the Annual Financial Report
The directors are responsible for:
• the preparation and publication of the Annual Financial Report, including the consolidated
financial statements and the relevant tagging requirements therein, as required by Capital
Markets Rule 5.56A, in accordance with the requirements of the ESEF RTS,
• designing, implementing, and maintaining internal controls relevant to the preparation of the
Annual Financial Report that is free from material non-compliance with the requirements of the
ESEF RTS, whether due to fraud or error, and consequently, for ensuring the accurate transfer of
the information in the Annual Financial Report into a single electronic reporting format.
Auditor’s responsibilities for the Reasonable Assurance Engagement
Our responsibility is to obtain reasonable assurance about whether the Annual Financial Report,
including the consolidated financial statements and the relevant electronic tags therein comply, in
all material respects, with the ESEF RTS, based on the evidence we have obtained. We conducted
our reasonable assurance engagement in accordance with the requirements of ESEF Directive 6.
The nature, timing and extent of procedures we performed, including the assessment of the risks of
material non-compliance with the requirements of the ESEF RTS, whether due to fraud or error, were
based on our professional judgement and included:
Independent Auditors’ Report (Continued)
To the Members of RS2 Software p.l.c.
Report on the Audit of the Financial Statements
(Continued)
4
Auditor’s responsibilities for the Reasonable Assurance Engagement (Continued)
• Obtaining an understanding of the Company’s and the Group’s internal controls relevant to the
financial reporting process, including the preparation of the Annual Financial Report, in
accordance with the requirements of the ESEF RTS, but not for the purpose of expressing an
assurance opinion on the effectiveness of these controls.
• Obtaining the Annual Financial Report and performing validations to determine whether the
Annual Financial Report has been prepared in accordance with the requirements of the
technical specifications of the ESEF RTS.
• Examining the information in the Annual Financial Report to determine whether all the required
tags therein have been applied and evaluating the appropriateness, in all material respects, of
the use of such tags in accordance with the requirements of the ESEF RTS.
We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for
our reasonable assurance opinion.
Reasonable Assurance Opinion
In our opinion, the Annual Financial Report for the year ended 31 December, 2021 has been prepared,
in all material respects, in accordance with the requirements of the ESEF RTS.
This reasonable assurance opinion only covers the transfer of the information in Annual Financial
Report into a single electronic reporting format as required by the ESEF RTS, and therefore does not
cover the information contained in the Annual Financial Report.
Report on Corporate Governance Statement of Compliance
Pursuant to Rule 5.94 of the Capital Markets Rules issued by the Malta Financial Services Authority,
the directors are required to include in the Company’s Annual Financial Report a Corporate
Governance Statement of Compliance explaining the extent to which they have adopted the
Code
of Principles of Good Corporate Governance
set out in Appendix 5.1 to Chapter 5 of the Capital
Markets Rules, and the effective measures that they have taken to ensure compliance with those
principles. The Corporate Governance Statement of Compliance is to contain at least the
information set out in Rule 5.97 of the Capital Markets Rules.
Independent Auditors’ Report (Continued)
To the Members of RS2 Software p.l.c.
Report on the Audit of the Financial Statements
(Continued)
4
Report on Corporate Governance Statement of Compliance (Continued)
Our responsibility is laid down by Rule 5.98 of the Capital Markets Rules, which requires us to include
a report to shareholders on the Corporate Governance Statement of Compliance in the Company’s
Annual Financial Report.
We read the Corporate Governance Statement of Compliance and consider the implications for
our report if we become aware of any information therein that is materially inconsistent with the
financial statements or our knowledge obtained in the audit, or that otherwise appears to be
materially misstated. We also review whether the Corporate Governance Statement of
Compliance contains at least the information set out in Rule 5.97 of the Capital Markets Rules.
We are not required to, and we do not, consider whether the directors’ statements on internal
control cover all risks and controls, or form an opinion on the effectiveness of the Company’s
corporate governance procedures or its risk and control procedures.
In our opinion, the Corporate Governance Statement of Compliance set out on pages 35 to 43 has
been properly prepared in accordance with the requirements of Rules 5.94 and 5.97 of the Capital
Markets Rules.
Report on Remuneration Report
Pursuant to Rule 12.26K of the Capital Markets Rules issued by the Malta Financial Services Authority,
the directors are required to draw up a Remuneration Report, whose contents are to be in line with
the requirements listed in Appendix 12.1 to Chapter 12 of the Capital Markets Rules.
Our responsibility is laid down by Rule 12.26N of the Capital Markets Rules, which requires us to check
that the information that needs to be provided in the Remuneration Report, as required in terms of
Chapter 12 of the Capital Markets Rules, including Appendix 12.1, has been included.
In our opinion, the Remuneration Report set out on pages 44 to 47 includes the information that
needs to be provided in the Remuneration Report in terms of the Capital Markets Rules.
Independent Auditors’ Report (Continued)
To the Members of RS2 Software p.l.c.
Report on the Audit of the Financial Statements
(Continued)
4
Matters on which we are required to report by exception under the Companies Act
Under the Companies Act (Cap. 386), we have responsibilities to report to you if in our opinion:
• Proper accounting records have not been kept;
• Proper returns adequate for our audit have not been received from branches not visited by
us;
• The financial statements are not in agreement with the accounting records and returns; or
• We have been unable to obtain all the information and explanations which, to the best of
our knowledge and belief, are necessary for the purpose of our audit.
We have nothing to report to you in respect of these responsibilities.
Auditor tenure
We were first appointed by the members of the Company to act as statutory auditor of the
Company and the Group on 19 June 2018 for the financial year ended 31 December 2018, and were
subsequently reappointed as statutory auditors by the members of the Company on an annual
basis. The period of total uninterrupted engagement as statutory auditor including previous
reappointments of the firm is four financial years.
Consistency of the audit report with the additional report to the Audit Committee
Our audit opinion is consistent with the additional report to the Audit Committee in accordance
with the provisions of Article 11 of the EU Audit Regulation No. 537/2014.
David Delicata as Director
in the name and on behalf of
Deloitte Audit Limited
Registered auditor
Central Business District, Birkirkara, Malta
27 April 2022
RS2.COM
RS2 Software p.l.c.
RS2 Buildings, Triq Il-Fortizza,
Il-Mosta MST 1859
Malta
Tel: +356 2134 5857
Email: info@rs2.com