Listed companies have several ways of calculating their success. Clearly it helps to declare a profit, and if the shareholders get dividends that is even better. But the CEO of RS2 has another metric that he stands by: that so many of shareholders that trusted the company with their money almost a quarter of a century ago are still there.
“Our priority is to make sure that we repay the shareholders who have faith in us. It is as simple as that. The majority of the shareholders bought in at the very beginning and I do not think that they regret it at all!” Mario Schembri grinned.
He joined RS2 16 years ago, when the card payment software company was just five-years-old, and has seen it grow along with his own career. From an apartment in Sliema, they moved to an apartment in Gżira, but a few years ago needed somewhere which fitted better into their corporate profile.
“In this business if you want to expand, to get the right type of client, give the right image of our company as forward looking, you cannot do that from an apartment,” he said, adding that the company had also grown to 180 employees.
“We looked at a number of sites as we wanted to buy not rent. In the end we came to Mosta as it has a 6,000 sq.m. footprint, which can cater for our current and future needs. We are only using 40 per cent of it at the moment, and are already planning to expand to take over the full site within 24 months.”
The company is simultaneously opening premises in Xewkija, a move that Mr Schembri had first brought up five or six years ago.
“There were two aspects. First of all, we always had issues finding the right people, as there is so much competition for recruitment. Secondly, we had a lot of dedicated Gozitan staff who had to commute every day.
“What if we had a base in Gozo and were able to recruit Gozitan university graduates, offering them the possibility to work in their field in line with their qualifications? And what if our existing staff no longer needed to commute?” he said.
The idea was clearly valid and once the time was right the wheels were put in motion. A site offered by the Gozo Ministry was chosen and the building was demolished and rebuilt to RS2’s design, with the same feel as its Mosta premises, meaning not only the appropriate IT and security infrastructure, but also meetings rooms, canteen and gym, “just as there is in Mosta”, he beamed.
The company’s 25 Gozitans, who come from a variety of departments, will be moving there when it opens next month but the 900 sq.m. building can take around 80-100 people, which would prove handy if RS2 goes ahead with the idea of having a call centre there.
“Thanks to IT, it does not matter whether people are in Malta or Gozo so the staff includes everything from project managers and business analysts to technical and even accounting staff,” he added.
“Good connectivity is crucial in our line of work so we have fibre optic lines, microwave links, a secondary system and even a back-up to the secondary system. If one provider goes down, we can switch to the other and if they are both down, there is another back-up.”
The Mosta headquarters project is the right image for the growing company.The company is expanding but some things will not change: the core of all the development work will always be done in Malta and Gozo.
“Nowhere else; that is a company commitment,” he said, tapping the desk for emphasis.
RS2 was one of the pioneering software firms in Malta to realise the wisdom of licensing – rather than selling – its world-renowned Bankworks software.
“You give your client the right to use your software but the product and intellectual property remains ours. We tell them how to implement it and set up the interfaces and off they go. In theory we do not ever need to see them again – although we always do,” he smiled.
However, RS2 has gone one step further, into managed services – managing the licence on behalf of the client – based in the new wing at Mosta, designed to meet all the international certification required.
“Licensing is very important but it is a one-time payment, with maintenance over and above that. Managed services will give us a recurrent revenue – invoicing month after month. At the moment managed services represents around 7-8 per cent of revenue but over the coming five or six years, we believe that it will eventually overtake licensing. After two years, we are already at break even,” he explained.
We would be looking for companies that could supplement our software, to make it even better
Apart from expanding operations in Malta, the company is also expanding its clientele overseas. It has just signed an agreement with a client in Vietnam and has negotiations underway with a number of other potentials in Asia.
“It is a totally different market which needs to be accommodated with regards to language and time zone. In fact CEO Radi Abd el Haj and I have been to the Philippines as will be opening an office there in the next 6-8 months, manned by around 30 staff, to look after the Asian market,”he said.
In the US, RS2 has already gained a footprint through acquisition. The 50 per cent shareholding of RS2, ITM, and RS2 eventually bought out the other shareholder in Transworks, keen to invest and grow the business on that side of the Atlantic.
“The company had a lot to offer and it did not make economic sense to start from scratch when there was a live company that we could rebrand as RS2 Americas,” he said.
“Transworks was mainly a processing company but it never managed to get the client that we needed. So now we are expanding the scope to licensing and managed services, with software specifically designed for the US market.”
The company is still concluding new agreements in Europe, and Mr Schembri politely coy about the possibility of concluding with another large client, as you would expect from a listed company. One issue that has cropped up repeatedly is the 18.25 per cent shareholding by Barclays, he admitted. The bank was originally a client but then took up shareholding, which could possibly be seen as a conflict of interest by its other banking clients.
“We are asked about it at every annual general meeting,” he sighed. “We raised this point of view with Barclays, and before we even finished the sentence they had understood immediately. In fact, they have a member on the board, for example, and if there is any negotiation with another client which could be considered in any way as competitive, the board member is not present.
“Their scope was not to find out about our competitors but to work with us!”
The company has barely had time to catch its breath in recent years, using its turnover to grow organically.
RS2 reported a €4.2 million pre-tax profit last year and had only resorted to an IPO to raise money for the building in Mosta because it made financial sense to do so in spite of a healthy €4.5 million cash balance. At some stage, however, it may want to grow in a quantum leap, which would mean more acquisitions.
“Let me just say that we are looking at it, although that does not necessarily mean we will go ahead. We are looking at mergers and acquisitions – mainly the latter – to see whether we can tap into the US market in particular.
There are many areas we can go into. We would be looking for companies that could supplement our software, to make it even better than it is. And if we find that it is feasible, after discussing with our accountants and advisors and board, then yes. We might be looking at acquisitions.
“Our net gearing is about 13 per cent, which is very low, and which would help us if we were looking for financing. We have always taken a conservative view about borrowing as we are fortunate to be able to self-finance our daily operations,” he said.
“One year out of the last seven we did not declare a dividend. I told shareholders very clearly at the time that this was not because we did not want to pay dividends but because we knew we would have to spend millions on this building and felt this was the best way to go.
“They understood and in the following years they got dividends. This year they got double the previous year. They are quite happy with our performance,” he beamed.