REG - RWS Holdings PLC - Annual Financial Report
12/12/2023 07:15
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RNS Number : 4112W RWS Holdings PLC 12 December 2023
This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No 596/2014 (as it forms part of Retained EU Law as defined in the European Union (Withdrawal) Act 2018).
For immediate release 12 December 2023
RWS Holdings plc
Results for the year ended 30 September 2023
Encouraging progress with growth initiatives, new client wins and efficiency
drive,
partly mitigating a challenging market
RWS Holdings plc ("RWS", "the Group", "the Company"), a unique world-leading provider of technology-enabled language, content and intellectual property services, today announces its final results for the year ended 30 September 2023 ("FY23").
Financial overview
2023 2022 Change
Revenue £733.8m £749.2m -2%
Gross margin 46.3% 46.7% -40bps
Adjusted profit before tax¹ £120.1m £135.7m -11%
Profit/(Loss) before tax £(10.9)m £83.2m -113%
Adjusted basic earnings per share¹ 23.3p 26.6p -12%
Basic earnings per share (7.1)p 16.1p -144%
Dividend:
Proposed final 9.80p 9.50p +3%
Total for year 12.20p 11.75p +4%
Cash conversion¹ 74.0% 92.7% -1900bps
Net cash² £23.6m £71.9m -67.2%
Group highlights
· Strategic progress, client wins and efficiency drive mitigation
of challenging market backdrop:
· New business wins and strong retention across all divisions and in a
range of end markets, including aviation, e-commerce, engineering,
manufacturing, government/defence, mining, software and technology
· Continuing successful focus on higher growth segments delivered £20m
of incremental revenue (FY22: £5m), notably TrainAI (data services),
eLearning, Linguistic Validation and Patent Attorney initiatives
· As announced in June 2023, delivered a run rate £25m cost savings to
support FY24 profitability whilst investing in growth initiatives
· Invested £40m in capex in line with our strategy to drive growth
levers and deliver transformation
· Increasing proportion of work going through our AI-enabled Language
eXperience Delivery platform ("LXD")
· Integration of Propylon, content management business acquired in
July, on track and progressing well
Financial performance
· Reported revenue declined by c.2% year-on-year and organic
constant currency ("OCC")³ revenue by c.6%, reflecting reduced client
activity in a challenging market environment
· As anticipated, OCC revenue decline slowed from c.7% in the first
half to c.5% in the second half, with improving trends across our services
divisions
· Gross margin broadly maintained at 46.3% (FY22: 46.7%),
reflecting price recovery of rising costs and efficiency benefits from greater
use of LXD, partially offset by some changes in language and client mix
· Adjusted profit before tax ("Adjusted PBT")¹ declined 12%,
reflecting reduced activity in some end markets, offset by in-year cost
savings achieved and the benefits of our foreign exchange hedging programme
· Adjusted PBT¹ margin of 16.4%, down from 18.1% in FY22, after
investments in growth initiatives and transformation
· Macroeconomic challenges and higher cost of capital through
increased market interest rates resulted in a non-cash exceptional goodwill
impairment charge of £62.4m against our technology division which contributed
to a reported loss before tax of £10.9m
· Other principal adjusting items, consistent with prior year,
included amortisation of acquired intangibles of £38.8m (FY22: £34.4m) and
exceptional items relating to restructuring and integration of £22.6m (FY22:
£12.5m)
· Continued strong underlying cash generation, with 74% cash
conversion¹ (lower figure driven primarily by the timing of tax payments and
continued investment in our R&D and Group transformation programmes)
· Net cash² of c.£23.6m at 30 September 2023 (FY22: £71.9m),
after £46.3m of dividends, £31.5m of acquisition costs, £19.4m of share
repurchases and £40.3m of capex
· Recommended final dividend of 9.80p per share (FY22: 9.50p),
giving total dividend of 12.20p (FY22: 11.75p), a 4% increase
Language Services
· Revenues of £329.8m declined by 4% on a reported basis (FY22:
£342.1m) and by 7% on an OCC³ basis, driven by reduced activity as clients
adjusted to more challenging conditions in their own markets
· Won all retender processes with global technology clients
· Client retention and satisfaction remained high, with TrainAI and
eLearning growth initiatives both performing well, providing momentum into
FY24
IP Services
· Revenues of £104.8m declined 2% on a reported basis (FY22:
£107.2m) and by 4% on an OCC³ basis, driven by reductions in client activity
· Volumes recovered in the second half, as anticipated, as the
launch of the Unitary Patent on 1 June 2023 resulted in the release of some of
the backlog of IP work
· Strong performance in both the Patent Attorney and Worldfile
segments
Regulated Industries
· Revenues of £162.5m declined by 6% on a reported basis (FY22:
£173.0m) and by 9% on an OCC³ basis
· Positive progress with Linguistic Validation (clinical stage)
offset by reduced activity at the regulatory stage amongst some Life Sciences
clients; we expect volumes to increase as products move through to the
regulatory approval and launch stages in due course
· The Financial and Legal Services segments performed well, driven
by Financial Services clients ensuring compliance with PRIIPS regulations
Language and Content Technology
· Revenues of £136.7m increased by 8% on a reported basis (FY22:
£126.9m) and decreased 1% on an OCC³ basis
· Encouraging new client wins across the products, with strong
second half bookings for Language Weaver (linguistic AI), including its
largest ever cloud SaaS contract, worth more than $1m over three years
· SaaS licence revenue growth of 23% which became a tailwind for
the Group on a run rate basis in the second half, delivering a more
predictable revenue profile for the division
Current trading and outlook
· As previously announced, the macroeconomic environment remains
challenging with several temporary headwinds, however we are also seeing
opportunities for the Group to strengthen leadership in our markets,
particularly in AI-enabled solutions
· Benefit of £25m cost actions and efficiency improvements to
support profitability in FY24
· Developments in AI and Large Language Models are creating clear
growth opportunities for the Group; the positive response to the beta launch
of Evolve, Language Weaver's pioneering linguistic AI innovation, in November
further cements our strong position in helping clients safely harness the
benefits of AI
· In October we announced the acquisition of ST Communications, a
long-term language partner of RWS, which has given us a presence in Africa and
significantly deepened our expertise in more than 40 African languages
· In line with our capital allocation policy, the share repurchase
programme, announced in June, is progressing as planned
· Overall, trading in the current year has been in line with the
Board's expectations
Ian El-Mokadem, CEO of RWS, commented:
"Against a backdrop of ongoing global uncertainty, we made positive progress
with our medium-term strategy during FY23. Our growth initiatives are
contributing meaningful incremental revenue and we reinforced our partnerships
with several global technology clients through successful outcomes in all
significant retenders. With the acquisition of Propylon and, shortly after the
year end, ST Communications, we have enhanced the Group's offerings,
capabilities and geographical reach.
"This progress has partially mitigated the impact of a challenging market
environment which has led to reduced activity in several end markets and
ongoing price pressure. Nevertheless, retention levels remained high, we won
new clients and we remain confident that activity levels will recover as our
clients' markets normalise. We took effective action to ensure that our cost
base matches current levels of activity and we continue to identify further
efficiency opportunities in our transformation programmes, whilst investing to
support our growth initiatives.
"At our AI and Technology Teach-In in October we demonstrated our longstanding
expertise and capability and, in line with our strategy, we continued to
invest in AI during the year, including the successful launch of the TrainAI
proposition, the incorporation of several AI features into Trados and
increasing its use in our production platform, the LXD. The recent launch of
Evolve, a unique combination of human and artificial intelligence, has the
potential to revolutionise translation processes by significantly reducing the
time it takes to achieve near human quality output.
"Notwithstanding the temporary headwinds in some of our markets, the Group
remains highly resilient. We have a compelling range of AI-enabled solutions
with the enterprise-grade security, quality and privacy that clients are
actively seeking and we are successfully pivoting into higher growth segments,
which is supporting improving trends across all our services divisions. We
continue to transform the Group into a scalable platform to support growth and
profitability.
"Our global scale and reach and diverse portfolio of solutions, clients and
end markets are complemented by a unique combination of market-leading
expertise and technology. With clear structural drivers of demand for our
products and services and a strong balance sheet and cash generation
supporting investment in organic and acquisition opportunities, we are
confident in the long-term prospects of the Group."
RWS Holdings plc
Ian El-Mokadem, Chief Executive Officer
Candida Davies, Chief Financial Officer 01753 480200
MHP (Financial PR Advisor) rws@mhpc.com (mailto:rws@mhpc.com)
Katie Hunt / Eleni Menikou / Catherine Chapman 020 3128 8100
07884 494112
Numis (Nomad & Joint Broker)
Stuart Skinner / Kevin Cruickshank / Will Baunton 020 7260 1000
Berenberg (Joint Broker)
Ben Wright / Toby Flaux / Alix Mecklenburg-Solodkoff 020 3207 7800
The person responsible for releasing this announcement is Jane Hyde, General
Counsel and Company Secretary.
About RWS:
RWS Holdings plc is a unique, world-leading provider of technology-enabled
language, content and intellectual property services. Through content
transformation and multilingual data analysis, our combination of AI-enabled
technology and human expertise helps our clients to grow by ensuring they are
understood anywhere, in any language.
Our purpose is unlocking global understanding. By combining cultural
understanding, client understanding and technical understanding, our services
and technology assist our clients to acquire and retain customers, deliver
engaging user experiences, maintain compliance and gain actionable insights
into their data and content.
Over the past 20 years we've been evolving our own AI solutions as well as
helping clients to explore, build and use multilingual AI applications. With
40+ AI-related patents and more than 100 peer-reviewed papers, we have the
experience and expertise to support clients on their AI journey.
We work with over 80% of the world's top 100 brands, more than three-quarters
of Fortune's 20 'Most Admired Companies' and almost all of the top
pharmaceutical companies, investment banks, law firms and patent filers. Our
client base spans Europe, Asia Pacific, Africa and North and South America.
Our 65+ global locations across five continents service clients in the
automotive, chemical, financial, legal, medical, pharmaceutical, technology
and telecommunications sectors.
Founded in 1958, RWS is headquartered in the UK and publicly listed on AIM,
the London Stock Exchange regulated market (RWS.L).
For further information, please visit: www.rws.com (http://www.rws.com) .
Forward-looking statements
This announcement contains certain statements that are forward-looking. These
include statements regarding our intentions, beliefs or current expectations
and those of our officers, Directors and employees concerning, amongst other
things, our results of operations, financial condition, liquidity, prospects,
growth, strategies and the business we operate. By their nature, these
statements involve uncertainty since future events and circumstances can cause
results and developments to differ materially from those anticipated. The
forward-looking statements reflect knowledge and information available at the
date of preparation of this document and, unless otherwise required by
applicable law, RWS undertakes no obligation to update or review these
forward-looking statements. Nothing in this announcement should be construed
as a profit forecast. RWS and its Directors accept no liability to third
parties in respect of this document save as would arise under English law.
1. RWS uses adjusted results as key performance indicators as the
directors believe these provide a more consistent measure of operating
performance. The definitions for these key performance indicators can be found
in the Glossary.
2. Net cash comprises cash and cash equivalents less loans but before
deducting lease liabilities.
3. OCC: adjusted to reflect a like-for-like comparison between actual
and prior year and assumes constant currency across both reported periods.
CHAIRMAN'S STATEMENT
INTRODUCTION
RWS continued to implement its medium-term strategy during FY23, pivoting
successfully into higher growth segments, making progress in its
transformation programme and building on its longstanding capability to
further deploy AI into its products and operations. The Group operates in
attractive markets with a combined global size estimated at more than
£47bn(1) and a strong set of demand drivers. RWS's specialist knowledge and
experience across all aspects of the content life cycle enable the Group to
meet a broad range of client needs in multiple end markets. The Group's scale,
reputation and highly diversified client base have helped it to maintain
leading positions in a range of highly fragmented markets.
PERFORMANCE
The Group delivered £733.8m of revenue for the year, a decline of
approximately 2% compared with the prior year (FY22: £749.2m). This reflected
a continuing challenging economic environment, which resulted in reduced
activity in a number of our end markets. While we have taken action to ensure
that our cost base matches current levels of activity, we remain confident
that activity levels will recover in due course. RWS continued to demonstrate
considerable resilience, highlighting the defensive qualities of a business
that is well-diversified across end markets, geographies and the solutions
that it provides.
The Group recorded a loss before tax of £10.9m (FY22: profit of £83.2m),
largely due to impairment charges of £62.4m. Adjusted profit before tax
declined to £120.1m (FY22: £135.7m), reflecting reduced revenues and planned
investments in growth and transformation. These have been partly mitigated by
client price increases, foreign exchange gains of £13.0m from the Group's
hedging programme and effective cost control, in particular the implementation
of significant cost actions announced at the half year and the further
migration of translation volumes through the Language eXperience Delivery
("LXD"), our production platform.
The Group continues to have a strong balance sheet, with net assets of
£987.3m (FY22: £1,141.7m) at 30 September 2023 which included net cash of
£23.6m (FY22: £71.9m). The reduction in net assets reflects impairment
charges of £62.4m and decreasing foreign currency denominated net assets by
£60.3m, mainly due to the weakening US Dollar.
PEOPLE AND BOARD
At 30 September 2023 RWS employed 7,910 full-time equivalents across 67
locations in 33 countries (FY22: 7,761). Our agile working policy facilitated
a mix of regular face-to-face contact to support effective collaboration with
the advantage of the benefits of technology in delivering time and energy
savings from a reduction in commuting. With cost-of-living concerns in many of
our locations, the Group's positive approach to flexible working has been
appreciated by colleagues across the world. We continued to consider the
viability of some of our locations and were able to further reduce the number
of offices by c.7%, with associated savings in property and related costs.
Against a difficult macroeconomic environment background, it has been a
challenging year for the Group and I would like to recognise, on behalf of the
Board, the significant efforts by all our teams across the world in continuing
to deliver high quality services and products to our clients. During the year
the Group continued to support those colleagues impacted by the ongoing
conflict in Ukraine. In February, following the earthquake in Türkiye and
Syria, we immediately provided additional support to our home-based team
members and their families in Türkiye. The RWS Foundation made donations of
£13,000 to the humanitarian appeal and colleague donations raised more than
£7,500. After the year end, in light of the conflict in the Middle East, we
moved quickly to provide additional support for colleagues in our Lebanon
office.
Candida Davies was appointed the Group's Chief Financial Officer and joined
the Board at the start of the financial year on 3 October 2022. She brings
deep expertise in finance, strategy and business transformation and a wealth
of international experience in executing and integrating significant corporate
transactions. In order to ensure a smooth handover of responsibilities,
Candida worked closely with Rod Day, who continued as a member of the Board
and as Deputy Chief Financial Officer until 31 December 2022 when, as planned,
he left the Group. I would like to thank Rod for the significant contribution
he made during his year with the Group.
On 3 October 2022 Jane Hyde joined the Executive Team as General Counsel and
Company Secretary, taking overall responsibility for the Group's legal,
governance and risk functions. She has an outstanding record in advising
public companies and has held a mix of private practice and in-house general
counsel roles alongside commercial and compliance roles in international
organisations, including De La Rue plc, JPMorgan Cazenove and Nomura
International. The Group's legal team now reports directly to Jane. She also
leads the company secretarial and risk management activities for the Group.
On 2 October 2023, Andrew Brode stepped down as Chairman. Andrew has been
fundamental to RWS's success since leading a buyout in 1995 and has overseen a
series of significant milestones, from listing the Group on AIM in 2003 to
overseeing significant growth in revenues and profits, driven both by the
underlying business and a series of acquisitions. I would like to thank Andrew
for his dedication to the Group, without which we would not have achieved our
market-leading position. The Board, and everyone at RWS, owes Andrew a huge
debt of gratitude for his contribution over many years and we look forward to
continuing to benefit from his wise counsel as a Non-executive Director.
SUSTAINABILITY AND ESG
RWS remains fully committed to achieving the highest standards in
Environmental, Social and Governance ("ESG") in its business activities and
interactions with stakeholders. We made further progress during the year
towards becoming a truly sustainable business and for the second year we have
published a separate ESG report, which sets out our progress in detail. The
report is available to download from the Group's website
www.rws.com/about/corporate-sustainability/.
DIVIDEND
The Group continues to deliver its progressive dividend policy and this marks
the 20th year in succession that we have increased the dividend. The Group
remains highly cash generative and, notwithstanding our share repurchase and
investment programmes, both of which will last into FY24, we will continue to
deliver high levels of cash conversion.
The Board therefore recommends a final dividend of 9.8p per share. Together
with the interim dividend of 2.4p per share, this will result in a total
dividend of 12.2p for the year, an increase of 4% compared with FY22. Subject
to final approval at the AGM, the final dividend will be paid on 23 February
to shareholders on the register at 26 January 2024.
SUMMARY
The Group has continued to make solid progress in delivering its medium-term
strategy, particularly in relation to its growth initiatives, transformation
programmes and portfolio expansion. This progress has helped to mitigate some
of the effects of a challenging market environment, which has dampened demand
and increased price pressure in some of our end verticals in the last 12
months.
We are well-positioned to take advantage of developments in AI and technology
and the long-term drivers of demand for our products and services are clear.
We are leaders in the majority of markets that we serve and are confident of
the opportunities for growth. The Group remains highly cash generative and has
a strong balance sheet.
With our global reach, diverse set of end markets and high levels of client
retention and satisfaction, I am confident in the Group's long-term prospects.
I would like to thank Andrew for his support during my first 18 months with
RWS and I look forward to working with him and the rest of the Board as we
continue to deliver on our strategy.
Julie Southern
CHAIRMAN
11 December 2023
¹ Sources: OC&C, Slator, CSA, WIPO, EPO, Companies House (2021)
CHIEF EXECUTIVE OFFICER'S REVIEW
INTRODUCTION
We have made steady progress with our medium-term strategy against a backdrop
of ongoing global uncertainty. We are delivering incremental revenue from our
growth initiatives, winning new logos and achieving more efficient delivery of
services through our Language eXperience Delivery platform. This progress has
partially mitigated the impact of a challenging market environment which has
led to reduced activity in several end markets.
Our clients come first and we are proud to continue to have high retention
rates and see further improvements to our Net Promoter Score. As we look ahead
to the coming year and beyond, we will continue to invest in our AI-powered
products and services and help guide clients through their own AI journey.
PROGRESS IN RELATION TO OUR MEDIUM-TERM STRATEGY
In 2022 we launched a new Group strategy and plan for the next phase of the
Group's development. Eighteen months later our strategy remains robust and
valid and the Group continues to make solid progress.
We continue to be confident in the structural drivers of demand for our
products and services and the strength of the solutions that we provide. This
is demonstrated by the encouraging number of new business wins in the period
across all divisions, high levels of retention and satisfaction across our
existing client base and the positive outcomes from several tender processes
involving our largest enterprise clients.
Our growth initiatives, including Linguistic Validation and eLearning, have
continued to build well and our data services proposition, TrainAI, was well
received when it launched in February, with some encouraging client wins in
the early part of the second half. This progress has helped to mitigate some
of the effects of a challenging environment which has resulted in reduced
activity in a number of our end markets.
The actions we took throughout the year to improve efficiency and maintain
profitability have helped to protect margin - particularly the cost actions
that we announced at our interim results. We saw some progress in pricing
(particularly within our Language and Content Technology division), our
transformation programmes and expanding our portfolio.
In July we completed the acquisition of Propylon Holdings Limited
("Propylon"), a content management technology business headquartered in
Dublin, Ireland. Propylon's component content management system is used by
governments, standards bodies, legal publishers and regulated firms to address
the complexities involved with drafting, managing, publishing and updating
legal and legislative content. Shortly after the end of FY23 we announced the
acquisition of ST Communications, a long-term language partner of RWS, which
has given us a presence in Africa and access to significant expertise in more
than 40 African languages. Integration of both businesses has started well and
is proceeding to plan.
Our strategy identified technology and AI as being critical to our future and
the explosion in generative AI and Large Language Models ("LLMs") has
reinforced that view. Our longstanding AI capabilities date back to 2003, and
ever since we have been pioneering in neural machine translation, AI data
services and AI-functionality in our Tridion and Trados products. Our
continued investments and the rapid development in AI and LLMs place us in a
strong position to benefit internally from AI and create clear growth
opportunities for the Group.
During the year we invested in improving our sales effectiveness. Following a
successful pilot within IP Services we extended the programme to other
divisions, with a focus on implementing more rigorous processes around sales
activity and accountability. We also reviewed and sharpened our approach to
account management, introducing a single Group-wide approach to account
planning and development. This will support our cross-selling efforts as we
look to provide more of our solutions to our largest clients.
In line with our medium-term strategy we continue to invest in our
transformation. In January we successfully migrated to a single collaboration
platform, giving the Group an enhanced ability to communicate and work
together more effectively. We have also made progress in HR and Finance
transformation, with the first phase of our new HR platform having gone live
in early December 2023. Shortly after the end of the year we implemented the
first phase of the new finance operating model, including shared service
centres in Brno (Czechia), Bangalore (India) and Shenzhen (China).
The transformation of our IP Services division has also progressed well. The
division's translation operations team became part of the Language eXperience
Delivery ("LXD") platform and shortly after the year end the LXD started to
process IP Services content. We have also consolidated our vendor data and
contracts, generating savings for the Group.
AI AT RWS
At RWS, we have been AI pioneers for many years. Since first launching
statistical machine translation in 2003 and later developing one of the
world's most advanced neural machine translation platforms, our expert
linguists and elite scientists have continued to redefine the limits of
machine translation. Since 2016, we've been a trusted data training and
services partner to the world's leading tech companies on their AI
development, providing the linguistic expertise, cultural insight and quality
data that power their success. Whether clients are exploring, building or
using AI, we have AI solutions and AI-enabled products to support them on
their AI journey.
Our strategy recognises the role of AI and technology in driving growth and
efficiency - both for our clients and for our internal deployment.
Our LXD platform, which provides clients with access to more than 1,750
in-house language specialists and more than 35,000 freelancers, relies on our
AI-powered technologies, including Language Weaver and Trados, to deliver
further improvements in our services. Almost two-thirds of all words
translated by the LXD are translated first by Language Weaver, our AI-powered
neural machine translation platform.
PEOPLE, CULTURE AND ORGANISATION
RWS remains a great place to work and we are proud to have nurtured an
inclusive and diverse environment where everyone has the opportunity to be
their best and be part of a global team.
In a challenging environment, a clear focus is more important than ever and
the business has adopted the acronym EDGE to ensure that all colleagues are
clear about the Group's priorities. EDGE stands for Efficient Delivery, Growth
and Engagement. Our cadence of communications provides context, rationale and
examples that bring each of these three components to life, from our CEO-led
communications and our monthly company newsletter, to updates about our
transformation programmes and via the regular town hall events that take place
across divisions and functions.
A major part of developing our culture and fostering an inclusive environment
is our annual Group-wide Engagement Survey. This year marked the third year in
which we have asked all colleagues for insight into their experience at RWS,
looking at what's working well and what can be improved with regard to
collaboration, engagement, inclusion, growth and development, leadership and
living the Group's values. This year's survey achieved a response rate of 84%
(FY22: 85%) and a 61% (FY22: 69%) favourable colleague engagement score. We
fully recognise that the external challenges we experienced in FY23 and the
difficult decisions we had to take in response have impacted our overall
colleague engagement score. However we have confidence that we can make
positive progress in the year ahead. Encouragingly our highest scoring area
was Trust and Respect (83% favourable), alongside our diverse culture,
relationships with managers and corporate sustainability. In parallel, I am
pleased to report a further improvement in our voluntary colleague attrition
rate(2) to 11.9% for the year (FY22: 15.9%).
To further encourage colleagues to adopt our values and demonstrate their
relevance, this year we launched our 'Ambassador Awards' which is our
all-colleague recognition programme. Twice a year each of our divisions, the
LXD and our Group functions nominate one colleague or team as their best
example of each of the four values. These 24 half-year winners received a
financial reward and their stories are published and promoted internally to
recognise their exceptional contribution. This programme proved extremely
popular and we received more than 750 entries during the year.
A regular rhythm of company communications to all colleagues, where we provide
updates on client and team successes, organisational changes and product
launches, are complemented by a monthly all colleague newsletter.
In January 2023 we undertook a significant information technology migration
project, giving everyone across the business the ability to communicate
effectively and share information on a single instance of Microsoft Teams and
Outlook. We also implemented Viva Engage, a social channel, where all
colleagues can now easily share content and join discussions across the Group.
Our eLearning platform MyLX has continued to provide colleagues with learning
and development opportunities. MyLX offers a comprehensive range of more than
360,000 training modules provided by Skillsoft, giving everyone the
opportunity to improve their skills and personal development. The platform
also allowed us to roll out training in our Code of Conduct, a new information
security module and, for the first time, our global health and safety
programme. At the end of the year we had a 98% completion rate for all
compliance training across the Group.
In June we again brought together our Senior Leadership Team in the UK to
remind ourselves of our organisational purpose and values and to review and
assess progress on our medium-term strategy. This aims to align our most
senior team with our organisational goals before bringing everything to life
throughout the business under this group's combined leadership.
We appointed Daniel Bennett as President of our IP Services division on 10
November 2022, overseeing the Group's full suite of innovation lifecycle
management services, including patent translation and filing, renewals and IP
research studies. We announced on 28 September 2023 that Daniel would be
leaving the business to pursue other opportunities. Daniel has been
instrumental in driving the success of IP Services over the past year by
navigating the team through the launch of the Unitary Patent, fostering a more
growth-oriented culture and realigning the IP leadership team.
With Andrew Brode stepping back from Chairman to become a Non-executive
Director, I would like to thank him personally for the significant support he
has given me during my first two years as CEO of the Group and very much look
forward to continuing to benefit from his wise counsel.
OPERATING REVIEW
Language Services
Client retention and satisfaction remain high, several successful tender
processes and growth initiatives performing well, offset by reduced activity
The Language Services division represented 45% of Group revenues in the year
(FY22: 46%). Revenues of £329.8m were 3.6% lower year on year on a reported
basis (FY22: £342.1m) and saw a 7% decrease on an organic constant currency
basis.
We are proud that client retention and satisfaction remained high and we were
encouraged by positive outcomes following tender processes with several of our
global technology clients, albeit we continued to see reduced activity from
some clients as they adjusted to more challenging conditions in their own
markets.
The Strategic Solutions Group continued to win new clients in both the Major
Accounts and GoGlobal segments, including Norse Atlantic Airways, for whom we
have recently delivered multilingual booking websites and online experiences
across any device or channel, using a combination of our language services
expertise and our Tridion solution.
In our Enterprise Internationalisation Group ("EIG"), which serves global
technology enterprises, we were encouraged to have completed a three-year
contract renewal for one of our largest clients in the first half and, in the
early months of the second half, were pleased by the positive outcomes of
other tender processes. Clients within the EIG consistently provide high NPS
scores and ratings (particularly in 'partnering' and 'delivering') and
continue to be delighted with the services and solutions we provide.
With regards to the division's growth initiatives, eLearning performed well
throughout the year and we have seen some success in cross-selling the
solution to clients in the Regulated Industries division. In February we
launched TrainAI, a refreshed proposition focused on the range of data
services that we have been providing to several of our largest technology
clients since 2016. This is focused on helping organisations ensure that their
own AI models are trained with dependable and responsible data and encompasses
data collection, annotation and validation services. The service is backed by
a global community of more than 100,000 annotators and linguists.
We have been encouraged by the market's reception to TrainAI and the sales and
marketing drive which is supporting the launch led to some wins early in the
second half. Four of our major clients have approved us to train data for the
next stage of their AI programmes, giving a strong expectation of further
momentum. These programmes will provide us with strong references amongst the
data services buyer landscape and are expected to lead to growth in this
developing area.
We were also pleased to complete the beta launch of HAI, a product within
GoGlobal, which will enable clients with ad-hoc translation requests to upload
documentation for rapid translation. We anticipate the full launch of HAI in
early 2024.
The division's adjusted operating profit(3) was £39.4m (FY22: £53.3m) on a
reported basis, reflecting the reduction in top-line revenues and unfavourable
language and client mix, partially mitigated by effective cost control.
Regulated Industries
Linguistic Validation growth initiative performing well, reduced activity
among certain clients in life sciences, while financial services experienced
solid revenues, largely driven by regulatory changes
The Regulated Industries division accounted for 22% of Group revenues in the
year (FY22: 23%). Revenues of £162.5m decreased by 6.1% year on year on a
reported basis (FY22: £173.0m) and decreased by 9% on an organic constant
currency basis.
Several life sciences clients continue to show softness due to the impact of
new legislation in the USA, such as the Inflation Reduction Act, on product
pipelines and due to delays at regulatory authorities; however, we expect
volumes to increase as bottlenecks resolve and as products move through the
regulatory approval process in due course. Revenues were also impacted
year-on-year by the loss of a major Contract Research Organisation ("CRO")
client.
In the Life Sciences vertical our focus on clinical operations has brought
positive progress. The continued strength of our Linguistic Validation ("LV")
proposition supported our pivot to clinical work and has resulted in multiple
wins, including a significant programme with a top 5 pharmaceutical company.
Building on our LV strength, we have introduced technology-enabled solutions,
such as our new electronic Certificate of Display Equivalence ("eCoDE")
Comparison tool. The eCoDE tool will revolutionise the electronic Clinical
Outcome Assessment ("eCOA") screen review process using AI, increasing
accuracy and further reducing timelines for eCOA projects.
We continue to participate in the Critical Path Institute's eCOA Consortium to
help drive the science, best practice and adoption of eCOA within clinical
trials. An eCOA replaces the traditional paper-based approach to collecting
patient results and feedback in clinical trials and studies.
The growth in patient recruitment services has also contributed to progress in
the clinical space with significant new wins. We expect this will be an area
of continued expansion going forward and we have continued to leverage our
relationships with major global pharmaceutical clients to expand in the APAC
region, an area with high growth potential.
We have secured a major programme awarded for pharmacovigilance at a leading
CRO as well as a top German pharma company. We also secured a world-renowned
hospital systems provider as a new major client, reflecting our continued
leadership in the healthcare space.
In the financial and legal services vertical, we saw solid revenues driven by
Packaged Retail Investment and Insurance Products ("PRIIPS") regulatory
requirements. We won several new clients, including a major European retail
bank and a key investment banking client. We also saw expansion with some
existing clients, including a large programme with a European general
insurance provider. We are extending our technology offering in financial
services to expand our footprint and increase client retention in the
vertical.
The division's adjusted operating profit(3) decreased 27.5% to £22.9m (FY22:
£31.6m) on a reported basis. This reflected the reduction in top-line revenue
and the impact of the loss of the CRO client, partially mitigated by cost
actions through the year.
Language and Content Technology
Encouraging new client wins across portfolio, proportion of annual technology
licences revenue continues to grow
The Language and Content Technology ("L&CT") division accounted for 19% of
Group revenues in the year (FY22: 17%). Revenues of £136.7m were 7.7% higher
year on year on a reported basis (FY22: £126.9m) and saw a 1% decrease on an
organic constant currency basis.
In FY22 we appointed general managers to have full ownership and
accountability for four principal product areas - Language Weaver, Trados,
Tridion/Fonto and Contenta - which drove a more focused approach. The
division's growth plan resulted in a refined go-to-market model for each
product, and we are pleased with the progress made across all product areas.
We have had some encouraging new client wins, with Language Weaver continuing
to make good progress with strong second half bookings, including its largest
ever Cloud SaaS contract, worth more than a million dollars over three years.
Overall, SaaS revenues as a proportion of annual technology licences revenue
continued to grow. The cumulative benefit from this transition over recent
years is now a tailwind and is delivering, as intended, a more predictable
revenue profile for the division in the future.
We are also pleased to have launched a new version of Trados in July,
alongside a number of new features and functionality to help language
specialists and localisation teams be more productive. We saw encouraging
momentum for SaaS versions of Trados with bookings significantly increasing
year-on-year. We experienced triple digit growth in the principal activity
indicators of Trados - number of projects, files and words translated.
In July 2023 we announced the acquisition of Dublin-based Propylon, a provider
of content creation, management and publishing solutions for the government,
legal, assurance, audit and publishing industries. The integration of Propylon
is progressing well and its platform joins RWS's portfolio of dedicated
solutions for aerospace and defence (Contenta), manufacturing, high-tech and
life sciences (Tridion Docs) and the market-leading XML editor (Fonto).
In the second half, new Tridion releases (both the Sites and the Docs versions
of the product) contributed to further progress in the division. Contenta also
announced the launch of LiveContent 6.0 (the latest version of its LiveContent
solution), a highly flexible cloud-ready architecture for distribution
management of technical publications, technician feedback and analytical data
insights.
At the end of the period, we delivered a significant up-sell of two of our
content technology products (Tridion and Fonto) to an existing major client in
life sciences and we continue to win new logos across a range of end markets,
including defence, government, software and infrastructure.
The division's adjusted operating profit(3) was broadly flat at £37.0m (FY22:
£37.6m) on a reported basis, the higher proportion of SaaS revenues and
ongoing planned investments offsetting the impact of higher top-line revenues.
IP Services
Successfully managed the impact of the Unitary Patent and improved sales
effectiveness, giving strong foundation for FY24
The IP Services division represented 14% of Group revenues in the year (FY22:
14%). Revenues of £104.8m were 2.2% lower year on year on a reported basis
(FY22: £107.2m) and 4% lower on an organic constant currency basis. Following
the introduction of the Unitary Patent ("UP") by the European Patent Office,
the division delivered 2% organic constant currency growth in Q4.
While revenues in FY23 were slightly down on the prior year, mostly due to the
delayed introduction of the UP until 1 June, this was partially offset by
strong growth in Worldfile revenue, particularly in the first half of the
year, and a rebounding of Eurofile revenues during Q4.
We were encouraged by strong progress in one of our declared growth
initiatives, penetrating the Patent Attorneys market, and we anticipate being
able to build on several significant wins in FY24.
Our Japan and China operations delivered mixed results during FY23, with
growth in the latter underpinned by a number of renewals with large Chinese
corporates. This was offset by weakness in our Japan operations stemming from
patent grant delays with a major client.
The IP Research division experienced tougher trading during the year, mostly
due to a significant reduction in work with a key client, however we saw
several new business wins in the last quarter that we anticipate to ramp up
into FY24.
We strengthened the division's management team and we have developed a clear
roadmap for expansion into patent maintenance activities. Additionally,
investment has been put into initiating our Leading for Growth programme,
building on our account management success and appointing regional heads of
sales, aimed at driving consistent sales leadership coaching and metrics
across the division and the acquisition of a number of global new logo
clients.
The division's adjusted operating profit(3) was £27.7m (FY22: £30.1m) on a
reported basis, reflecting the reduction in top-line revenues together with
planned investments in our business to position us for future growth,
partially offset by tight cost control.
SUSTAINABILITY AND ESG
Sustainability is core to the way we operate. Our work for our clients gives
us a natural global perspective and deep understanding of the impact of what
we do. Over the past year we have made significant progress in becoming One
RWS where we:
· understand we need to reduce our carbon footprint to ensure the
future of the planet
· are proud of our diversity and celebrate our cultural and
technical expertise, enabling us to share a deep understanding of client
industries and local cultures
· strive to create a world where understanding is more universal
for everyone
· are focused on ensuring that combination of technology and
cultural expertise helps our clients grow by ensuring they are understood
anywhere
Significant progress has been achieved in each of our four corporate
sustainability pillars - our people, our community, our environment and our
governance - which remain at the centre of our purpose to unlock global
understanding.
Our 2023 engagement survey shows that 79% of colleagues believe that RWS
fosters environmentally friendly practices, 82% of colleagues believe they can
report unethical practices without fear of negative consequences and 78%
believe RWS is taking action to be socially responsible.
Both directly and through The RWS Foundation, we have partnered with a number
of community organisations such as CLEAR Global, have undertaken fundraising
to support the people affected by the devastating earthquakes in Türkiye and
Syria and have progressed our focus on education, partnering with over 700
universities and sponsoring language students via the RWS-Brode Scholarship
programme.
We hold ourselves to high accountability standards. As a result in FY22 we
improved the accuracy of our carbon footprint by improving our data collection
and Greenhouse Gas ("GHG") emissions to include both our operations and supply
chain, and committed to setting carbon reduction targets which are aligned
with the Science Based Targets initiative ("SBTi"). This was further improved
in FY23 and the new targets have been submitted to the SBTi for validation and
will be published once validated.
In April the Group successfully managed the impact of a cyber incident after
unauthorised access was gained to a legacy application. The UK's Information
Commissioner closed its investigation into the breach in early May with no
further action.
We also proudly support the Ten Principles of the United Nations Global
Compact on human rights, labour, environment and anti-corruption. We remain
committed to making the UN Global Compact and its principles part of the
strategy, culture and day-to-day operations of our Group and to engaging in
collaborative projects which advance the broader development goals of the
United Nations, particularly the Sustainable Development Goals.
We are proud of the accomplishments to date, none of which would have been
possible without the unwavering dedication of our colleagues around the globe.
To understand and respond to our clients' needs, we believe it is imperative
to employ a workforce which reflects the many communities to which we provide
services.
CURRENT TRADING AND OUTLOOK
A challenging economic outlook and wider global economic uncertainty has seen
reduced activity from many clients across several end markets. However we are
confident that volumes will return in due course, given the five core demand
drivers in our market. In particular, growth in AI and the continued explosion
of content will give us opportunities.
Progress against our medium-term strategy is working. We are pivoting into
higher growth segments via our growth initiatives, investing in transformation
and developing our portfolio.
We will continue to focus on ensuring efficient delivery across all parts of
the Group. To further support our focus on cost efficiency, no change will be
made to base salary levels for Executive Directors and our senior leadership
team. Where salary increases are awarded, these will be focused on our lowest
paid colleagues.
We are clear that AI is not a headwind, and instead provides an opportunity
for both us and our clients. As illustrated at our AI and Technology Teach-In
in October, we believe that developments in AI have been positive for RWS and
will continue to support our growth and efficiency in FY24 and beyond. We were
also pleased to have announced in November 2023 the beta launch of Evolve, a
new capability within Language Weaver that enables almost human-like quality
in our machine translation output.
As we look to the future, our people, scale, geographic reach and advanced
AI-powered technologies and services, put us in a strong position to further
strengthen our leadership in the market.
Ian El-Mokadem
CHIEF EXECUTIVE OFFICER
11 December 2023
2 Calculated as number of FTE leavers during the financial year, divided by
average number of FTEs during the year, noting the constraints imposed by
having multiple HR systems.
3 Adjusted operating profit is stated before amortisation and impairment of
acquired intangibles, acquisition costs, share-based payments expense and
exceptional items. See Note 4
CHIEF FINANCIAL OFFICER'S REVIEW
INTRODUCTION
The Group has made significant progress during 2023 with management
initiatives to improve efficiency and maintain profitability. The Group has
added to its technology portfolio with the acquisition of Propylon, managed to
maintain strong cash generation during the period despite a continuing
challenging market environment and initiated its first share repurchase
programme. The Group's transformation programme sets a strong platform for
further progress in 2024 and beyond.
During 2023 total revenue declined by 2%, adjusted operating profit by 11%,
and adjusted profit before tax by 11%. Despite the challenging macroeconomic
environment, our key growth levers, such as Linguistic Validation, eLearning
and TrainAI have performed well and we continue to invest behind these levers
to drive future growth. We are also investing to transform our back office
efficiency to better leverage scale. We are encouraged by the ongoing
opportunities for efficiency gains through the use of AI and our
cost-reduction programmes which aim to mitigate the impact of cost inflation.
The Group continued to enhance its portfolio with the acquisition of Propylon
Holdings Limited, whose content management system is used by governments,
standards bodies, legal publishers and regulated firms.
The Group continues to be highly cash generative, with cash generated from
operations of £107.5m during the period, notwithstanding acquisitions and
costs associated with restructuring and integration. Net cash excluding lease
liabilities declined in the period from £71.9m to £23.6m, reflecting the
consideration paid for acquisitions of £31.5m and a further £19.4m paid for
the share repurchase programme.
Reflecting the macro challenges in the last year and the higher cost of
capital through increasing market interest rates, an impairment charge of
£62.4m has been recognised in the period relating to goodwill in respect of
the Group's Language and Content Technology division.
REVENUE
Overall in FY23 the Group generated revenues of £733.8m, which is 2% lower
than FY22. This was due to the impact of challenging economic conditions and
reduced activity in our end markets, partly offset by £13m of benefits from
our foreign exchange hedging programme and a stronger average US Dollar rate
in the period which supported revenues in local sterling currency. On an
organic constant currency ("OCC") basis revenues are 6% lower than those
achieved in FY22.
In divisional terms, Language Services recorded £329.8m in revenue, a 4%
decrease in total revenue and 7% on an OCC basis. Client retention and
satisfaction remain high, albeit we continue to see reduced volume from
certain clients in some end markets as they adjust to more challenging
conditions. The TrainAI and eLearning growth initiatives both performed well
and provide momentum going forwards. Regulated Industries recorded £162.5m in
revenue, a decrease of 6%, although a decline of 9% on an OCC basis
year-on-year. Positive progress has been made with Linguistic Validation and,
while some Life Sciences clients continued to deliver reduced levels of
activity, we expect volumes to increase as more products move through
regulatory approval. Language and Content Technology had total revenue of
£136.7m, an increase of 8% year on year and a decrease of 1% on an OCC basis.
Reported organic growth was 3% ahead of prior year. IP Services recorded
£104.8m in revenue, a decrease of 2% on prior year and 4% on an OCC basis.
The introduction of the Unitary Patent in June has resulted in the release of
some of the backlog of IP work, providing momentum moving forwards.
The majority of the Group revenue, categorised by geography, is in the US
market, which accounts for 54% of the total. No one client accounts for more
than 10% of Group revenue.
GROSS PROFIT
Gross profit decreased by 3% to £339.5m, delivering a gross margin of 46.3%,
down slightly from 46.7% in the prior year. Delivery of the significant cost
actions announced in June is nearing completion and we continue to identify
further opportunities for efficiency gains through our transformation
programmes, including by increasing the proportion of work undertaken through
our Language eXperience Delivery platform and the use of artificial
intelligence ("AI") internally.
ADMINISTRATIVE EXPENSES
Administrative expenses have increased to £346.4m (2022: £263.9m).
Administrative expenses as a percentage of revenue have increased from 35% to
47%, which reflects the impact of the impairment charge related to the Group's
Language and Content Technology CGU of £62.4m, together with the cost to
achieve the efficiency programmes implemented during the period. Adjusted
administrative expenses (gross profit less adjusted operating profit)
increased by £4.0m to £215.7m.
Amortisation of acquired intangibles was £38.8m (2022: £34.4m). This
included additional amortisation for Fonto and Propylon intangible assets,
together with the impact of exchange rate movements during the period.
Amortisation of non-acquired intangibles was £18.1m (2022: £15.7m),
reflecting an increase in capitalised software development costs.
Exceptional costs of £22.6m were incurred during the year, which includes
£12.3m for restructuring and integration costs in relation to the Group's
cost reduction programme, £5.5m for Group transformation costs and £4.8m
related to legacy payments.
Acquisition costs of £5.1m were primarily related to the contingent
consideration and purchase of Propylon Holdings Limited during the period and
contingent consideration for the purchase of Liones Holding B.V. in the prior
period.
FINANCE COSTS
Net finance costs were £4.0m (2022: £3.1m), with the year- on-year increase
due primarily to an increase of £1.2m in interest payable on external debt,
reflecting higher interest rates and increased borrowings. The Group has a
US$220m Revolving Credit Facility ("RCF") maturing on 3 August 2026, with an
option to extend maturity to 3 August 2027. This gives us further flexibility
as we continue to grow the business and seek selective acquisitions to enhance
the Group's capabilities and geographic reach.
PROFIT BEFORE TAX
The Group reported a loss before tax of £10.9m (2022: profit of £83.2m), the
decline having been driven by impairment charges, lower revenues and client
activity, together with increases in exceptional charges related to the
Group's cost reduction initiative. These have been partially offset by foreign
exchange gains of £13.0m from our Group hedging programme and the release of
management bonuses during the period.
ADJUSTED PROFIT BEFORE TAX
Adjusted profit before tax ("Adjusted PBT") is stated before amortisation and
impairment of acquired intangibles, share-based payment expense, acquisition
costs and exceptional items. The Group uses adjusted results as a key
performance indicator, as the Directors believe that these provide a more
consistent and meaningful measure of the Group's underlying performance across
financial periods. The Adjusted PBT of £120.1m (Adjusted PBT margin: 16.4%)
recorded in the period has decreased from £135.7m (Adjusted PBT margin:
18.1%) in the prior year.
TAX CHARGE
The Group's tax charge for the year was £16.8m (2022: £20.5m). The adjusted
tax charge for the period was £29.6m (2022: £32.1m) representing an
effective adjusted tax rate of 24.6% compared with 23.7% in the prior
financial year. The rise in the effective rate largely reflects the increase
in the UK tax rate from 19% to 25% in April 2023 and, to a lesser extent, tax
rates in overseas countries which are higher than the UK tax rate.
EARNINGS PER SHARE AND DIVIDEND
Basic earnings per share for the financial year decreased from 16.1p to
(7.1)p, a decrease of 144%, while adjusted basic earnings per share decreased
from 26.6p to 23.3p, representing a decrease of 12%, which reflects the after
tax impact of significant adjusting items this financial year including the
cost reduction and transformation programmes. The weighted average number of
ordinary shares in issue for basic and adjusted basic earnings decreased from
389.4m to 388.2m, principally due to the proportionate impact of the ordinary
shares repurchased through the share repurchase programme.
A final dividend for the financial year ended 30 September 2023 of 9.8 pence
per share has been proposed, equivalent to £37.4m, while an interim dividend
of 2.4 pence per share, equivalent to £9.3m, was paid during the financial
period. A final dividend for the year ended 30 September 2022 of 9.5 pence per
share, equivalent to £36.8m, was paid in this financial period.
The proposed total dividend for the year of 12.2 pence per share represents a
4% increase on the total dividend relative to the prior financial period of
11.75 pence per share.
BALANCE SHEET AND WORKING CAPITAL
Net assets at 30 September 2023 decreased by £154.4m to £987.3m. The main
drivers of this decrease was the impairment of goodwill of £62.4m and
decreasing foreign currency denominated net assets by £60.3m, mainly due to
the weakening US Dollar.
Current assets at 30 September 2023 of £290.2m have decreased by £35.7m on
the prior financial year. This includes a decrease in trade and other
receivables of £8.2m and in cash and cash equivalents balances of £25.0m to
£76.2m.
Current liabilities have also decreased to £182.6m at 30 September 2023, a
decrease of £21.0m, primarily due to a decrease in trade and other payables
balances of £15.8m. Non-current liabilities have increased by £14.9m,
reflecting a net increase in loan balances under our RCF of £23.3m and an
increase in provisions of £4.8m, partly offset by a decrease in lease
liabilities of £11.3m, trade and other payables of £1.2m and deferred tax of
£0.7m.
CASH FLOW
Cash generated from operations was £129.2m, £19.6m less than the prior year,
when cash generated was £148.8m. Operating cash flow before movements in
working capital and provisions decreased from £157.5m to £130.9m. The net
working capital outflow of £1.7m has decreased by £7.0m from the prior
financial year's outflow of £8.7m. This has been driven by improvement in
working capital management.
Significant cash outflows from investing activities included net cash
consideration for the acquisition of Propylon Holdings Limited of £25.1m,
contingent and deferred consideration of £6.4m for prior period acquisitions
of Iconic and Liones Holding B.V. and purchases of intangible software of
£36.5m.
The Group announced a share repurchase programme during the period and has
repurchased £19.4m of shares at the balance sheet date. The programme is
progressing as planned and is in line with our capital allocation policy. Cash
flows from other financing activities included dividends paid within the
financial year ended 30 September 2023 of £46.3m.
Cash balances at the financial year end amounted to £76.2m, with external
borrowings of £52.6m, excluding lease liabilities, resulting in a net cash
position of £23.6m (2022: £101.2m cash and external borrowings of £29.3m,
resulting in net cash of £71.9m). Net debt including lease liabilities was
£9.9m (2022: net cash of £25.2m).
POST BALANCE SHEET EVENTS
On 3 October 2023 the Group acquired ST Comms Language Specialists Proprietary
Limited, a Cape Town based language services provider. The acquisition has
been funded from existing cash resources and is in line with the Group's
strategy to actively pursue acquisitions that have the potential to accelerate
delivery of its medium-term plans.
The Group has continued its share repurchase programme and from 1 October 2023
to 8 December 2023 has purchased a further 6,252,443 shares at an average
price of 234.3p per share.
Candida Davies
CHIEF FINANCIAL OFFICER
11 December 2023
Consolidated Statement of Comprehensive Income
for the year ended 30 September 2023
Note 2022
2023 £m
£m
Revenue 733.8 749.2
Cost of sales (394.3) (399.0)
Gross profit 339.5 350.2
Administrative expenses (346.4) (263.9)
Operating (loss)/ profit (6.9) 86.3
Analysed as:
Adjusted operating profit: 123.8 138.5
Amortisation of acquired intangibles (38.8) (34.4)
Impairment losses 9 (62.4) -
Acquisition costs (5.1) (2.1)
Share based payment expense (1.8) (3.2)
Exceptional items 5 (22.6) (12.5)
Operating (loss)/ profit (6.9) 86.3
Finance income 0.6 0.2
Amortisation of capitalised exceptional finance costs 5 (0.3) (0.3)
Finance costs (4.3) (3.0)
(Loss)/ profit before tax (10.9) 83.2
Taxation 6 (16.8) (20.5)
(Loss)/ profit for the year attributable to the owners of the Parent (27.7) 62.7
Other comprehensive (expense)/ income
Items that may be reclassified to profit or loss:
(Loss)/ gain) on retranslation of quasi equity loans (net of deferred tax) (1.9) 6.1
(Loss)/ gain on retranslation of foreign operations (60.3) 107.3
Gain/ (loss) on hedging (net of deferred tax) 2.0 (6.7)
Total other comprehensive (expense)/ income (60.2) 106.7
Total comprehensive (expense)/ income attributable to owners of the Parent (87.9) 169.4
Basic earnings per ordinary share (pence per share) 8 (7.1) 16.1
Diluted earnings per ordinary share (pence per share) 8 (7.1) 16.0
Consolidated Statement of Financial Position
as at 30 September 2023
Note 2022
2023 £m
£m
Non-current assets
Goodwill 9 608.6 692.6
Intangible assets 10 359.4 385.4
Property, plant and equipment 27.5 31.3
Right-of-use assets 27.5 39.0
Non-current income tax receivable 1.4 1.0
Deferred tax assets 6 1.2 1.1
1,025.6 1,150.4
Current assets
Trade and other receivables 212.3 220.5
Income tax receivable 1.7 4.2
Cash and cash equivalents 12 76.2 101.2
290.2 325.9
Total assets 1,315.8 1,476.3
Current liabilities
Trade and other payables 149.8 165.6
Lease liabilities 9.9 11.8
Foreign exchange derivatives - 0.6
Income tax payable 15.3 22.7
Provisions 7.6 2.9
182.6 203.6
Non-current liabilities
Loans 11 52.6 29.3
Lease liabilities 23.6 34.9
Trade and other payables 2.3 3.5
Provisions 9.7 4.9
Deferred tax liabilities 6 57.7 58.4
145.9 131.0
Total liabilities 328.5 334.6
Total net assets 987.3 1,141.7
Capital and reserves attributable to owners of the Parent
Share capital 3.8 3.9
Share premium 54.5 54.4
Share based payment reserve 5.3 6.0
Reverse acquisition reserve (8.5) (8.5)
Merger reserve 624.4 624.4
Foreign currency reserve 33.7 95.9
Hedge reserve (3.5) (5.5)
Retained earnings 277.6 371.1
Total equity 987.3 1,141.7
Consolidated Statement of Changes in Equity
for the year ended 30 September 2023
Share Share Other reserves (see below) £m
capital
Note
£m premium Retained earnings Total attributable
account £m to owners
£m of Parent
£m
At 30 September 2021 3.9 54.2 602.4 350.4 1,010.9
Profit for the year - - - 62.7 62.7
Loss on hedging - - (6.7) - (6.7)
Gain on retranslation of quasi equity loans - - 6.1 - 6.1
Gain on retranslation of foreign operations - - 107.3 - 107.3
Total comprehensive income for the year - - 106.7 62.7 169.4
Issue of shares - 0.2 - - 0.2
Deferred tax on unexercised share options - - - (0.1) (0.1)
Dividends - - - (41.9) (41.9)
Equity-settled share based payments charge - - 3.2 - 3.2
At 30 September 2022 3.9 54.4 712.3 371.1 1,141.7
Loss for the year - - - (27.7) (27.7)
Gain on hedging - - 2.0 - 2.0
Loss on retranslation of quasi equity loans - - (1.9) - (1.9)
Loss on retranslation of foreign operations - - (60.3) - (60.3)
Total comprehensive (expense)/ income for the year - - (60.2) (27.7) (87.9)
Issue of shares - 0.1 - - 0.1
Deferred tax on unexcercised share options 6 - - - (0.2) (0.2)
Deferred consideration settlement - - (2.5) - (2.5)
Dividends 7 - - - (46.3) (46.3)
Purchase of own shares (0.1) - - (19.3) (19.4)
Equity-settled share based payments charge - - 1.8 - 1.8
At 30 September 2023 3.8 54.5 651.4 277.6 987.3
Other reserves
Share based Reverse acquisition reserve Merger Foreign currency reserve Total
payment £m reserve £m Hedge reserve other
reserve £m £m reserves
£m £m
At 30 September 2021 2.8 (8.5) 624.4 (17.5) 1.2 602.4
Other comprehensive (expense)/ income for the year - - - 113.4 (6.7) 106.7
Equity-settled share based payments charge 3.2 - - - - 3.2
At 30 September 2022 6.0 (8.5) 624.4 95.9 (5.5) 712.3
Other comprehensive (expense)/income for the year - - - (62.2) 2.0 (60.2)
Equity-settled share based payments charge 1.8 - - - - 1.8
Deferred Consideration settlement (2.5) - - - - (2.5)
At 30 September 2023 5.3 (8.5) 624.4 33.7 (3.5) 651.4
Consolidated Statement of Cash Flows
for the year ended 30 September 2023
Note
2023 2022
£m £m
Cash flows from operating activities
(Loss)/ profit before tax (10.9) 83.2
Adjustments for:
Depreciation of property, plant and equipment 7.3 7.1
Amortisation of intangible assets 10 56.9 50.1
Impairment losses 9 62.4 -
Depreciation of right-of-use assets 9.4 10.8
Share-based payment expense 1.8 3.2
Net finance costs 4.0 3.1
Operating cash flow before movements in working capital 130.9 157.5
(Increase) in trade and other receivables (2.3) (5.6)
Increase/ (decrease) in trade and other payables and provisions 0.6 (3.1)
Cash generated from operations 129.2 148.8
Income tax paid (21.7) (21.3)
Net cash inflow from operating activities 107.5 127.5
Cash flows from investing activities
Interest received 0.6 0.1
Acquisition of subsidiary, net of cash acquired 13 (31.5) (14.1)
Purchases of property, plant and equipment (3.8) (5.3)
Purchases of intangibles (software) 10 (36.5) (24.3)
Net cash outflows from investing activities (71.2) (43.6)
Cash flows from financing activities
Proceeds from borrowings 49.0 -
Repayment of borrowings (25.0) (25.5)
Transaction costs relating to debt refinancing - (1.5)
Interest paid (2.6) (1.4)
Lease liability payments (including interest charged of £1.1m (2022: £1.3m)) (11.9) (13.1)
Proceeds from the issue of share capital 0.1 0.2
Purchase of own shares (19.4) -
Dividends paid 7 (46.3) (41.9)
Net cash outflow from financing activities (56.1) (83.2)
Net (decrease)/ increase in cash and cash equivalents (19.8) 0.7
Cash and cash equivalents at beginning of the year 101.2 92.5
Exchange (losses)/ gains on cash and cash equivalents (5.2) 8.0
Cash and cash equivalents at end of the year 12 76.2 101.2
Notes to the Consolidated Financial Statements
1. Accounting policies
Basis of accounting and preparation of financial statements
The financial information is extracted from the Group's consolidated financial
statements for the year ended 30 September 2023, which were approved by the
Board of Directors on 11 December 2023.
RWS Holdings plc ("the Parent Company") is a public company, limited by
shares, incorporated and domiciled in England and Wales whose shares are
publicly traded on AIM, the London Stock Exchange regulated market.
The financial information set out in this announcement does not constitute the
Company's statutory accounts for the year ended 30 September 2023. Statutory
accounts for 2022 have been delivered to the registrar of companies, and those
for 2023 will be delivered in due course. The auditor has reported on those
accounts; their reports were (i) unqualified, (ii) did not include a reference
to any matters to which the auditor drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under section
498 (2) or (3) of the Companies Act 2006.
The principal accounting policies adopted in the preparation of the
consolidated financial statements are set out below and within the Notes to
which they relate to provide context to users of the financial statements. The
policies have been consistently applied to both years presented, unless
otherwise stated.
The potential climate change-related risks and opportunities to which the
Group is exposed, as identified by Management, are disclosed in the the
Group's Annual Report and Accounts. Management has assessed the potential
financial impacts relating to the identified risks and exercised judgement in
concluding that there are no further material financial impacts of the Group's
climate-related risks and opportunities on the financial statements. These
judgements will be kept under review by Management as the future impacts of
climate change depend on environmental, regulatory and other factors outside
of the Group's control which are not all currently known.
Going concern
In making their going concern assessment, the Directors have considered the
Group's current financial position and forecast earnings and cashflows for the
18-month period ending 31 March 2025. The business plan used to support this
going concern assessment is derived from the Board-approved budget. The
Directors have undertaken a rigorous assessment of going concern and liquidity
taking into account key uncertainties and sensitivities on the future
performance of the Group. In making this assessment the Directors have
considered the Group's existing debt levels, the committed funding and
liquidity positions under its debt covenants and its ability to continue
generating cash from trading activities.
As at 30 September 2023, the Group has net debt of £9.9m comprising the
Group's US$220m revolving credit facility ("RCF") (£52.6m drawn at year end)
and lease liabilities of £33.5m, less cash and cash equivalents of £76.2m.
The RCF matures in August 2026 but is extendible for a further year subject to
lender consent. At year end the Group's net leverage ratio (as defined by the
RCF agreement) is -0.1x EBITDA, while its interest coverage ratio (as defined
by the RCF agreement) is 39.9x EBITDA and are well within the covenants
permitted by the Group's RCF agreement.
In light of the Group's principal risks and uncertainties, the Directors
believe that the appropriate sensitivity in assessing the Group and Company's
ability to continue as a going concern are to model a range of reasonably
plausible downside scenarios, including a 20% reduction to the Group's
revenues and corresponding cash flows, with mitigating actions from Management
limited to equivalent reductions in the Group's controllable cost base. No
significant structural changes to the Group have been assumed in any of the
downside scenarios modelled with all mitigating actions wholly within
Management's control.
In each of these modelled downside scenarios, the Group continues to have
significant covenant and liquidity headroom over the period through to 31
March 2025. Consequently, the Directors are confident that the Group and
Company will have sufficient cash reserves and committed debt facilities to
withstand reasonably plausible downside scenarios and therefore continue to
meet its liabilities as they fall due for the period ending 31 March 2025 and
therefore prepared the financial statements on a going concern basis.
2. CRITICAL JUDGEMENTS AND ACCOUNTING ESTIMATES IN APPLYING THE GROUP'S
ACCOUNTING POLICIES
The preparation of the financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
judgements that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from these
estimates.
These estimates and judgements are based on historical experience and other
factors, including expectations of future events that are believed to be
reasonable under the circumstances. They are reviewed on an ongoing basis.
Revisions to estimates are recognised prospectively.
Judgements
In the process of applying the Group's accounting policies, Management has
made the following judgements, which have the most significant effect on the
amounts recognised in the consolidated financial statements:
Revenue - multi-element arrangements
To determine the appropriate revenue recognition for contracts containing
multi-elements that include both products and services, we evaluate whether
the contract should be accounted for as a single, or multiple performance
obligations. Management is required to exercise a degree of judgement in
setting the criteria used for determining when revenue which involves several
elements should be recognised and the stand-alone selling price of each
element. The Group generally determines the stand-alone selling prices of
elements based on prices which are not observable and are therefore based on
stand-alone list prices which are then subject to discount. These prices are
reviewed on an annual basis and amended where appropriate. This is performed
in conjunction with a fair value assessment of the stand-alone selling prices
to assess reasonableness of the transaction price allocation. Further detail
regarding the stand-alone selling prices for the purpose of allocating the
transaction price in multi-element arrangements is provided in Note 3.
The judgement could materially affect the timing and quantum of revenue and
profit recognised in each period. Licence revenue in the year amounted to
£61.1m (2022: £55.2m).
Capitalised development costs
The Group capitalises development costs relating to product development and
internally generated software in line with International Accounting Standard
('IAS') 38 'Intangible Assets'. Management applies judgement in determining if
the costs meet the criteria and are therefore eligible for capitalisation.
Significant judgements include the technical feasibility of the development,
recoverability of the costs incurred, economic viability of the product, and
potential market available considering its current and future customers and
when, in the development process, these milestones have been met. Where
software products are already in use, Management applies judgement in
determining whether further development spend increases the economic benefit
and whether any previously capitalised costs should be expensed. Development
costs capitalised during the year amounted to £19.3m (2022: £22.6m) (see
Note 10).
Estimates and assumptions
The key assumptions and estimates concerning the future and other key sources
of estimation uncertainty at the reporting date, that have significant risk of
causing a material adjustment to the carrying amount of the assets and
liabilities within the next financial year are discussed below:
Acquisition accounting
Judgement is often required in determining the identifiable intangible assets
acquired as part of a business combination that must be recognised in the
Group's consolidated financial statements. Estimation is required in
determining both the fair value of all identified assets, liabilities
acquired, any contingent consideration and in particular intangible assets. In
determining these fair values, a range of assumptions are used, including
forecast revenue, discount rates, and attrition rates that are specifically
related to the intangible asset being valued. The useful economic lives of
these assets is being estimated using Management's best estimates and
reassessed annually.
Other estimates and assumptions
The consolidated financial statements include other estimates and assumption.
Whilst Management do not consider these to be significant accounting
estimates, the recognition and measurement of certain material assets and
liabilities are based on assumptions which, if changed, could result in
adjustments to the carrying amounts of and liabilities.
Revenue - rendering of services
Management makes estimates of the total costs that will be incurred on a
contract by contract basis. Management reviews the estimate of total costs on
each contract on an ongoing basis to ensure that the revenue recognised
accurately reflects the proportion of the work done at the balance sheet date.
All contracts are of a short-term nature. The majority of services work is
invoiced on completion and the amount of year end work in progress was £52.7m
(2022: £51.2m). The effect of changing the estimated total cost of each
contract could, in aggregate, have an effect on the carrying amount of accrued
income at the balance sheet date.
Impairment of goodwill and intangible assets
An impairment test of goodwill (performed annually) and other intangible
assets (when an indicator of impairment exists), requires estimation of the
value in use of the cash generating units ('CGUs') to which goodwill and other
intangible assets have been allocated. The value-in-use calculation requires
the Group to estimate the future cash flows expected to arise from the CGUs,
for which the Group considers revenue growth rates and EBITDA margin to be
significant estimates. The estimated future cash flows derived are discounted
to their present value using a pre-tax discount rate that reflects estimates
of market risk premium, asset betas, the time value of money and the risks
specific to the CGU. During the period an impairment of £62.4m has been
recognised in respect of the Language and Content Technology CGU. See Note 9
and 10 for further details.
Additionally, the Group has considered other reasonable possible changes to
the assumptions underlying the CGU valuations that would need to occur and
which would cause an impairment as follows:
Regulated Industries - EBITDA margin: By using the actual FY23 EBITDA margin
(17.0%) across the projection period while keeping all other factors
consistent with the base model, we have noted an impairment of £3.1m at the
lower end range of the WACC which is a reasonable possible change. Headroom
would be eliminated at an EBITDA margin of 17.2%. The value-in-use headroom of
£65.3m exceeded the carrying asset amount by 30%.
Language Services - Discount factor (WACC): There is evidence of reasonable
possible change at the higher end of the WACC sensitivity (+200bps) which
causes an impairment of £0.2m. Headroom would be eliminated by an increase
in the WACC of 199bps or a reduction in revenue growth of 3.4%. The
value-in-use headroom of £60.9m exceeded the carrying asset amount by 15.2%.
Language and Content Technology - Revenue growth: adjusting revenue by 1%
impacts the value in use by approximately £17m which is a reasonable possible
change. The impairment would be eliminated by increasing revenue by 3.4%.
IP Services - Due to the significant headroom available after additional
sensitivities have been performed no additional disclosure is required. The
value-in-use headroom of £216.7m exceeded the carrying asset amount by 332%.
Taxation - uncertain tax positions
Uncertainties exist in respect of interpretation of complex tax regulations,
including transfer pricing, and the amount and timing of future taxable
income. Given the nature of the Group's operating model, the wide range of
international transactions and the long-term nature and complexity of
contractual agreements, differences arising between the actual results and
assumptions made, or future changes to assumptions, could necessitate future
adjustments to taxation already recorded. The Group considers all tax
positions on a separate basis, with any amounts determined by the most
appropriate of either the expected value or most likely amount on a case by
case basis.
Most deferred tax assets are recognised because they can offset the future
taxable income from existing taxable differences (primarily on acquired
intangibles) relating to same jurisdiction or entity. Where there are
insufficient taxable differences, deferred tax assets are recognised in
respect of losses and other deductible differences where current forecasts
indicate profits will arise in future periods against which they can be
deducted. The total value of uncertain tax positions ('UTPs') was £6.7m
(2022: £6.8m), see Note 6.
3. REVENUE FROM CONTRACTS WITH CUSTOMERS
Accounting policy
IFRS 15 provides a single, principles based five step model to be applied to
all sales contracts as outlined below. It is based on the transfer of control
of goods and services to customers and replaces the separate models for goods
and services. The specific application of the five step principles of IFRS 15
as they apply to the Group's revenue contracts with customers are explained
below at an income stream level. In addition to this, the individual
performance obligations identified within the Group's contracts with customers
are individually described as part of this Note to the financial statements.
For multi-element arrangements, revenue is allocated to each performance
obligation based on stand-alone selling price, regardless of any separate
prices stated within the contract. This is most common within the Group's
contract for technology licences, which may include performance obligations in
respect of the licences, support and maintenance, hosting services and
professional services. The Group's software licences are either perpetual,
term or software as a service (SaaS) in nature. The Group's revenue contracts
do not include any material future vendor commitments and thus no allowances
for future costs are made.
The allocation of transaction price to these obligations is a significant
judgement, more details of the nature and impact of the judgement are included
in Note 2. The identification of the performance obligations within some
multi-element arrangements involves judgement, however none of the Group's
contracts requires significant judgement in this regard.
Language Services and patent filing contracts are typically billed in arrears
on completion of the work with revenue recognised as accrued income
balances. The Group's technology contracts are typically billed in advance
and revenue recognition deferred where the performance obligation is satisfied
over time. The Group's contracts for term licences are recognised upfront when
performance obligations are delivered in the same manner as a perpetual
licence sale but, typically, are billed annually and do not follow the same
billing pattern as the Group's contracts for perpetual licences, instead
billing follows more closely that of a SaaS licence contract.
Disaggregated information about the Group's revenue recognition policy and
performance obligations are summarised below:
Patent Filing Services (IP Services segment)
The Group's Patent Filing revenue contracts with customers include a sole
performance obligation which is satisfied at a point in time, being the
completion of patent filing and delivery to the client. Revenue is recognised
when the sole performance obligation is satisfied, which is when the benefits
of control of the services provided are delivered to the customer.
Language Services (IP Services, Language Services and Regulated Industries
segments)
The Group's Language Services contracts with customers provide for the Group
to be reimbursed for their performance under the contract as the work is
undertaken. Accordingly, as the Group has both the right to payment and no
alternative use for the translated asset, the Group recognises revenue over
time for this performance obligation.
The Group measures the completeness of this performance obligation using input
methods. The relevant input method is the cost incurred to date as a
proportion of total costs, in determining the progress towards the completion
of the performance obligation for Language Services contracts.
Perpetual and term licences (Language and Content Technology segment)
The Group's perpetual and term licences are accounted for at a point in time
when the customer obtains control of the licence, occurring either where the
goods are shipped or, more commonly, when electronic delivery has taken place
and there is no significant future vendor obligation.
The software to which the licence relates has significant standalone
functionality and the Group has determined that none of the criteria that
would indicate the licence is a right to access apply. In addition, the Group
has identified no other performance obligations under their contracts for
these licences which would require the Group to undertake significant
additional activities which affects the software. The Group therefore believes
the obligation is right to use the licence as it presently exists and
therefore applies the point in time pattern of transfer. Transaction price is
allocated to licences using the residual method based upon other components of
the contract. The residual method is used because the prices of licences are
highly variable and there is no discernible standalone selling price from past
transactions.
'SaaS' licences (Language and Content Technology segment)
Unlike the Group's perpetual and term licences, the Group has identified that
there are material ongoing performance obligations associated with the
provision of SaaS licences. The Group has identified that this creates a right
to access the intellectual property, instead of a right to use. Accordingly,
the associated licence revenue is recognised over time, straight line for the
duration of the contract. As with other licences, the Group utilises the
residual method to allocate transaction price to these performance
obligations.
Support and maintenance (Language and Content Technology segment)
Support and maintenance represents a stand ready obligation to provide
additional services to the Group's licence customers over the period of
support included in the contract. The Group measures the obligation by
reference to the standalone selling price, based upon internal list prices
subject to discount. The pattern of transfer is deemed to be over time on the
basis that this is a continuing obligation over the period of support
undertaken and accordingly, recognised as revenue on a straight line basis
over the course of the contract.
Hosting services (Language and Content Technology segment)
The Group provides managed services (hosting) as part of certain contracts
with customers. The pattern of transfer for the service is such that the
customer simultaneously receives and consumes the benefits provided by the
Group and therefore, is recognised over time for the duration of the
agreement. Transaction price from the contract is allocated to hosting
services obligations based upon a cost plus method.
Professional services (Language and Content Technology segment)
The Group provides professional services to customers including training,
implementation and installation services alongside certain contracts for
software licences. These services are sold in units of consultant time and are
therefore measured on an output method basis. Revenue is therefore recognised
on these engagements based on the units of time delivered to the end customer.
Transaction price is allocated based upon the standalone selling price,
calculated by reference to the internal list prices for consultant time
subject to any discounts. A small number of the Group's professional services
contracts are on a fixed price contract and the output method is used based on
an appraisal of applicable milestones.
Revenue from contracts with customers
The Group generates all revenue from contracts with its customers for the
provision of translation and localisation, intellectual property support
solutions and the provision of software. Revenue from providing these services
during the year is recognised both at a point in time and over time as shown
in the table below:
Timing of revenue recognition for contracts with customers 2023 2022
£m £m
At a point in time 22.4 21.2
Over time 82.4 86.0
IP Services 104.8 107.2
At a point in time 25.8 26.0
Over time 110.9 100.9
Language and Content Technology 136.7 126.9
Over time 329.8 342.1
Language Services 329.8 342.1
Over time 162.5 173.0
Regulated Industries 162.5 173.0
Total revenue from contracts with customers 733.8 749.2
See Note 4 for information on revenue disaggregation by geographical location.
Capitalised contract costs
Capitalised contract costs primarily relate to sales commission costs
capitalised under IFRS 15 and are amortised over the length of the contract.
The group has taken advantage of the practical expedient to recognise, as an
expense, any costs which would be recognised in fewer than 12 months from
being incurred. This primarily relates to the Group's language services
commissions and point in time technology revenue related commissions. The
value of capitalised contract costs at year end was £1.7m (2022: £1.9m).
Capitalised contract costs are recognised within other debtors on the
statement of financial position.
Receivables, contract assets and contract liabilities with customers 2023 2022
£m £m
Net trade receivables 138.6 148.9
Contract assets (accrued income) 52.7 51.2
Contract liabilities (deferred income) (49.9) (53.0)
Contract assets are recognised where performance obligations are satisfied
over time until the point at which the Group's right to consideration is
unconditional when these are classified as trade receivables which, is
generally the point of final invoicing.
For performance obligations satisfied over time, judgement is required in
determining whether a right to consideration is unconditional. In such
situations, a receivable is recognised for the transaction price of the
non-cancellable portion of the contract when the Group starts satisfying the
performance obligation. The Group recognises revenue for partially satisfied
performance obligations as 'Accrued Income'.
The total value of the transaction price allocated to unsatisfied or partially
unsatisfied performance obligations at the year-end is £53.5m (2022:
£54.1m). Support and maintenance is a stand ready obligation discharged
straight line over the duration of the Group's software contracts, the period
over which this is recognised can be identified based on the value of current
and non-current deferred income. Unsatisfied performance obligations in
respect of language and professional services are all short-term and expected
to be recognised in less than one year.
The Group offsets any contract liabilities with any contract assets that may
arise within the same customer contract, typically, this only applies to the
Group's licence and support and maintenance revenue contracts. In all material
respects there are no significant changes in the Group's contract asset or
liability balances other than business-as-usual movements during the year.
Revenue recognised in the year that was included in deferred revenue at 1
October 2022 was £49.5m (2022: £40.8m).
4. Segment Information
The chief operating decision maker for the Group is identified as the Group's
Board of Directors collectively. The Board reviews the Group's internal
reporting in order to assess performance and allocates resources. The Board
divides the Group into four reportable segments and assess the performance of
each segment based on the revenue and adjusted profit before tax.
The four reporting segments, which match the operating segments, are explained
in more detail below:
· Language Services: The revenues are derived by providing
localisation services which include translation and adaptation of content
across a variety of media and materials to ensure brand consistency.
· Regulated Industries: Revenue is generated through the translation
and linguistic validation for customers who operate in regulated industries
such as life sciences.
· IP Services: The Group's IP Services segment provides high quality
patent translations, filing services and a broad range of intellectual
property ("IP") search services.
· Language and Content Technology ("L&CT"): Revenue is generated
through the provision of a range of translation technologies and content
platforms to clients. This was enhanced by the acquisition of Propylon
Holdings Ltd in July 2023.
Unallocated costs reflect corporate overheads and other expenses not directly
attributed to segments.
Segment results for the year ended 30 September 2023 L&CT IP Services Regulated Industries Language Services Group
£m
£m £m £m Unallocated Costs £m
£m
Revenue from contracts with customers 136.7 104.8 162.5 329.8 - 733.8
Operating profit/(loss) before charging: 37.0 27.7 22.9 39.4 (3.2) 123.8
Amortisation of acquired intangibles (12.0) (0.1) (12.3) (14.4) - (38.8)
Impairment losses (see Note 9) (62.4) - - - - (62.4)
Acquisition costs - - - - (5.1) (5.1)
Exceptional items (see Note 5) (3.3) (6.0) (1.3) (5.7) (6.3) (22.6)
Share based payment expense (0.2) - (0.2) (0.5) (0.9) (1.8)
(Loss)/ profit from operations (40.9) 21.6 9.1 18.8 (15.5) (6.9)
Net finance expense (4.0)
Loss before taxation (10.9)
Taxation (16.8)
Loss for the year (27.7)
Segment results for the year ended 30 September 2022 L&CT IP Services Regulated Industries Language Services Group
£m
£m £m £m Unallocated Costs £m
£m
Revenue from contracts with customers 126.9 107.2 173.0 342.1 - 749.2
Operating profit/(loss) before charging: 37.6 30.1 31.6 53.3 (14.1) 138.5
Amortisation of acquired intangibles (8.0) (0.2) (12.4) (13.8) - (34.4)
Acquisition costs - - - - (2.1) (2.1)
Exceptional items (see Note 5) (3.0) (0.5) (2.3) (3.9) (2.8) (12.5)
Share based payment expense (1.8) (0.2) (0.3) (0.4) (0.5) (3.2)
Profit from operations 24.8 29.2 16.6 35.2 (19.5) 86.3
Net finance expense (3.1)
Profit before taxation 83.2
Taxation (20.5)
Profit for the year 62.7
The table below shows revenue by the geographic market in which clients are
located.
Revenue by client location 2023 2022
£m £m
UK 81.7 85.9
Continental Europe 167.8 178.2
United States of America 393.2 390.2
Rest of the World 91.1 94.9
Total 733.8 749.2
The Group does not place reliance on any specific customer and has no
individual customers that generate more than 10% or more of its total Group
revenue.
The following is an analysis of revenue by the geographical area in which the
Group's undertakings are
located.
Revenue by subsidiary location
2023 2022
£m
£m
UK 191.8 189.5
Continental Europe 156.6 166.6
United States of America 334.6 339.0
Rest of the World 50.8 54.1
Total 733.8 749.2
The table below shows operating assets by geographical location of the Group's
undertakings. These assets exclude goodwill and acquired intangibles.
Operating assets by geography 2023 2022
£m £m
UK 190.2 162.7
Continental Europe 80.8 79.0
United States of America 128.1 147.2
Rest of the World 59.1 67.5
Total 458.2 456.4
5. exceptional items
Accounting policy
Exceptional items are those items that in Management's judgement should be
disclosed separately by virtue of their size, nature or incidence, in order to
provide a better understanding of the underlying financial performance of the
Group. In determining whether an event or transaction is exceptional,
Management considers qualitative factors such as frequency or predictability
of occurrence. Examples of exceptional items include the costs of integration,
severance and restructuring costs which Management do not believe reflect the
business's trading performance and therefore are adjusted to present
consistency between periods.
2023 2023 2022 2022 2022
2023 Tax impact Total Pre-tax Tax impact Total
Pre-tax £m £m £m £m £m
£m
Group transformation programme (5.5) 1.1 (4.4) (0.3) 0.1 (0.2)
Restructuring & integration related costs (12.3) 2.9 (9.4) (12.2) 2.4 (9.8)
Legacy payment arrangements (4.8) - (4.8) - - -
Total exceptional items - operating (22.6) 4.0 (18.6) (12.5) 2.5 (10.0)
Amortisation of exceptional finance (0.3) - (0.3) (0.3) - (0.3)
Total exceptional items - financing (0.3) - (0.3) (0.3) - (0.3)
Total exceptional items (22.9) 4.0 (18.9) (12.8) 2.5 (10.3)
A description of the principal items included is provided below:
Transformation costs - £5.5m was incurred during the period in respect of
transformation programmes for Finance and Human Resources initiated as part of
a strategic review of the business to drive improved efficiencies in future
periods and includes severance costs of £1.7m. In total £2.4m has been paid
in the period. The severance costs are expected to be paid during the first
half of FY24 and the ongoing benefits from the integration will be recognised
in the operating profit in the Statement of Comprehensive Income.
Restructuring Costs - £7.6m was incurred in respect of severance and
termination payments related to the Group's cost reduction plan which is
expected to have a positive impact in FY24 of approximately £25m. A further
£0.6m of severance costs were incurred in respect of the businesses defined
integration plan for the OneRWS initiative. A total of £4.4m of these costs
were paid during the period.
Integration costs - £3.4m was incurred in respect of IT integration projects
to enhance service delivery capability and reduce business complexity across
the Group. A further £0.7m was incurred related to delivering synergies from
business integration and ongoing simplification of the Group's corporate
structure. All of these amounts were paid during the period.
Legacy payments - £4.3m was recognised in the period in respect of an ongoing
liability related to historic agreements with former owners of the business
and their respective families. This expense had previously been recognised as
incurred. A further £0.5m was paid during the period in respect of current
year obligations.
Finance costs - £0.3m was incurred related to amortisation expense associated
with a gain on debt modification recognised in previous accounting periods.
In the prior period, exceptional costs included £7.4m of IT integration
costs, £3.2m of severance costs, £1.6m of contract termination costs, £0.3m
for Group Transformation programmes and £0.3m of exceptional finance costs.
In total £12.5m was charged during the prior period.
Acquisition-related costs
Acquisition-related costs of £5.1m (2022: £2.1m) includes a total of £3.3m
of contingent consideration associated with the acquisition of Propylon
Holdings Limited (£1.2m) during the period and the acquisition of Liones
Holdings B.V. Limited (£2.1m) in the prior period. These amounts are being
recognised in accordance with IFRS 3.
A further £1.5m of transaction fees were incurred associated with the
Propylon acquisition, and £0.3m in respect of on-going strategic projects.
These have been accounted for as exceptional items in line with the Group's
accounting policy and treatment of similar costs during the year ended 30
September 2022.
6. TAXATION
Accounting policy
The charge for current taxation is based on the results for the year as
adjusted for items which are non-assessable or disallowed. It is calculated
using tax rates that have been enacted or substantively enacted by the balance
sheet date. Current tax assets and liabilities are offset when the relevant
tax authority permits net settlement and the group intends to settle on a net
basis.
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 where this differs.
Deferred tax is not recognised for temporary differences related to
investments in subsidiaries and associates where the Group is able to control
the timing of the reversal of the temporary difference and it is probable that
this will not reverse in the foreseeable future; on the initial recognition of
non-deductible goodwill; and on the initial recognition of an asset or
liability in a transaction that is not a business combination and that, at the
time of the transaction, does not affect the accounting or taxable profit.
Deferred tax is measured on an undiscounted basis, and at the tax rates that
have been enacted or substantively enacted by the reporting date that are
expected to apply in the periods in which the asset or liability is settled.
Deferred tax assets are recognised to the extent that it is probable that
future taxable profits will be available against which they can be used and
are reviewed at each reporting date.
Deferred tax assets and liabilities are offset when they relate to income
taxes levied by the same taxation authority, when the Group intends to settle
its current tax assets and liabilities on a net basis and that authority
permits the Group to make a single net payment.
Current and deferred tax is recognised in the income statement except when it
relates to items credited or charged directly to other comprehensive income or
equity, in which case the current or deferred tax is also recognised within
other comprehensive income or equity respectively (for example share-based
payments).
Uncertain tax positions
The Group operates in numerous tax jurisdictions around the world. At any
given time, the Group is involved in disputes and tax audits and will also
have a number of tax returns potentially subject to audit. These tax audits
may give rise to significant tax issues take several years to resolve. In
estimating the probability and amount of any tax charge, Management takes into
account the views of internal and external advisers and updates the amount of
tax provision whenever necessary. The ultimate tax liability may differ from
the amount provided depending on interpretations of tax law, settlement
negotiations or changes in legislation. As referenced in Note 2, the Group
considers all tax positions separately and uses either the most likely or
expected value method of calculation on a case by case basis.
VAT
Revenues, expenses and assets are recognised net of the amount of VAT except
where the VAT incurred on a purchase of goods and services is not recoverable
from the taxation authority, in which case the VAT is recognised as part of
the cost of acquisition of the asset or as part of the expense item as
applicable; and trade receivables and payables are stated with the amount of
VAT included. The net amount of VAT recoverable from, or payable to, the
taxation authority is included as part of receivables or payables in the
balance sheet.
Taxation recognised in income and equity is as follows: 2023 2022
£m £m
Current Tax Charge
UK corporation tax at 22% (2022: 19%) 4.8 5.7
Overseas current tax charge 17.7 18.7
Adjustment in respect of previous years (2.4) (4.2)
Deferred Tax Charge
Origination and reversal of temporary differences (5.9) (2.4)
Rate change impact 0.2 0.1
Adjustment in respect of previous years 2.4 2.6
Total tax expense in profit or loss 16.8 20.5
Total tax charge in equity 0.2 0.1
Total tax in other comprehensive income (0.3) 0.7
Total tax charge for the year 16.7 21.3
Reconciliation of the Group's tax charge to the UK statutory rate: 2023 2022
£m £m
(Loss)/ profit before taxation (10.9) 83.2
Notional tax charge at UK corporation tax rate of 22% (2022: 19%) (2.4) 15.8
Effects of:
Expenses not deductible for tax purposes 3.1 2.2
Impact of impairment losses 13.7 -
Adjustments in respect of previous years - (1.6)
Changes in tax rates 0.2 0.1
Higher tax rates on overseas earnings 2.2 4.0
Tax charge as per the income statement 16.8 20.5
Effective tax rate (154.1)% 24.6%
Factors that may affect future tax charges
The Group's taxation strategy is aligned to its business strategy and
operational needs. The Directors are responsible for tax strategy supported by
a global team of tax professionals and advisers. RWS strives for an open and
transparent relationship with all tax authorities and are vigilant in ensuring
that the Group complies with current tax legislation.
The Group's effective tax rate for the year is higher than the UK's statutory
tax rate due to the impact of non-tax deductibility of acquisition costs, as
well as non recoverable withholding tax suffered of intragroup dividends. The
Group's tax rate is also sensitive to the geographic mix of profits and
reflects a combination of higher rates in certain jurisdictions, such as
Germany and Japan, a lower rate in the UK and Czechia with other rates that
lie in between.
The adjustments in respect of prior periods includes a release of a release of
historic uncertain tax positions, offset by new risks identified and provided
for during the period. There has also been a recharacterisation of current and
deferred tax assets and liabilities following true ups of filed tax returns.
Transfer pricing
Tax liabilities are recognised when it is considered probable that there will
be a future outflow of funds to a tax authority. The methodology used to
estimate liabilities is set out in Note 2. In common with other multinational
companies and given the Group has operations in 33 countries, transfer pricing
arrangements are in place covering transactions that occur between Group
entities.
The Group periodically reviews its historic UTPs for transfer pricing and
whilst it is not possible to predict the outcome of any pending tax authority
investigations, adequate provisions are considered to be included in the Group
accounts to cover any expected estimated future settlement. In carrying out
this review, and subsequent quantification, Management has made judgements,
taking into account: the status of any unresolved matters; strength of
technical argument and clarity of legislation; external advice, statute of
limitations and any expected recoverable amounts under the Mutual Agreement
Procedure ('MAP'). During the period the Group reduced the provision for
liabilities that are expected to no longer be sought by tax authorities on the
basis that the relevant statute of limitations has expired. In addition, UTPs
related to transfer pricing were increased during the year to reflect current
period trading as well as new historic risks identified during the period.
The current tax liability of £15.3m on the balance sheet comprises £9.7m of
UTPs, although it is not expected that these will be cash settled within 12
months of the year end date. The deferred tax liability of £57.7m on the
balance sheet is net of £3.0m of deferred tax assets relating to uncertain
tax positions.
Pillar Two
On 20 December 2021, the OECD published their proposals in relation to Global
Anti-Base Erosion Rules, which provide for an internationally co-ordinated
system of taxation to ensure that large multinational groups pay a minimum
level of corporate income tax in countries where they operate. The UK enacted
its Pillar Two legislation in July 2023 which will require UK multinational
entities to comply with the Pillar Two rules for periods starting after 31
December 2023 which for RWS will be the period ended 30 September 2025. As the
Pillar Two rules are not yet in force, RWS has not sought to quantify the
known or reasonably estimated impact of the Pillar Two rules in this set of
financial statements.
Deferred tax Share based payments Other temporary differences Acquired intangibles Tax losses
£m Accelerated capital allowances £m £m £m Total
£m £m
At 30 September 2021 0.6 (1.7) 6.8 (71.6) 16.2 (49.7)
Adjustments in respect of prior years - (0.1) 1.7 - (4.2) (2.6)
Acquisitions - - - (2.5) - (2.5)
Credited to income - - 0.4 4.4 (2.5) 2.3
Charged to equity / OCI (0.1) - - - - (0.1)
Foreign exchange differences - - 0.9 (6.0) 0.4 (4.7)
At 30 September 2022 0.5 (1.8) 9.8 (75.7) 9.9 (57.3)
Adjustments in respect of prior years - (0.1) (0.1) 0.1 (2.3) (2.4)
Acquisitions - - - (1.3) - (1.3)
Credited to income 0.2 - 1.7 4.4 (0.6) 5.7
Transfers to current taxes - - - - (2.8) (2.8)
Charged to equity / OCI (0.2) - - - - (0.2)
Foreign exchange differences - - (1.4) 3.4 (0.2) 1.8
At 30 September 2023 0.5 (1.9) 10.0 (69.1) 4.0 (56.5)
Deferred tax assets and liabilities are presented on the balance sheet after
jurisdictional netting as follows:
2023 2022
£m £m
Deferred tax assets 1.2 1.1
Deferred tax liabilities (57.7) (58.4)
Net deferred tax liability (56.5) (57.3)
Deferred tax assets and liabilities
Deferred tax is calculated using tax rates that are expected to apply in the
period when the liability has been settled or the asset realised based on tax
rates that have been enacted or substantively enacted at the reporting date.
Most deferred tax assets are recognised because they can offset the future
taxable income from existing taxable differences (primarily on acquired
intangibles) relating to same jurisdiction or entity. Where there are
insufficient taxable differences, deferred tax assets are recognised in
respect of losses and other deductible differences where current forecasts
indicate profits will arise in future periods against which they can be
deducted.
Losses
At the balance sheet date the Group has unused tax losses of £113.0m (2022:
£143.9m) available for offset against future profits. A deferred tax asset of
£3.9m (2022: £9.9m) has been recognised in respect of £17.7m (2022:
£44.0m) of such losses. These losses include corresponding adjustments that
could be claimed on settlement of uncertain tax positions with overseas tax
authorities as accounted for under International Financial Reporting
Interpretations Committee 23 ('IFRIC 23').
No deferred tax asset has been recognised in respect of the remaining £95.3m
(2022: £99.9m) as these can only be used to offset limited types of profits
and as it is not considered probable that there will be the required type of
future trading or non-trading profits available in the correct entities
necessary to permit offset and recognition.
The unrecognised deferred tax asset on losses is £21.9m (2022: £23.5m).
Recognised deferred tax assets principally relate to UK and US activities of
the acquired SDL business.
The Group has recognised deferred tax assets on losses in the US which have a
20 year expiry date and expects to use these losses in this period, the
earliest date these losses expire is 31 December 2033 and at the year-end
losses amounted to £4.2m (2022: £6.0m).
Unremitted earnings
Dividends received from subsidiaries are largely exempt from UK tax but may be
subject to dividend withholding taxes levied by the overseas tax jurisdictions
in which the subsidiaries operate. The gross temporary differences of those
subsidiaries affected by such potential taxes is £79.2m. The Group has an
estimated unrecognised deferred tax liability of £4.9m of unremitted earnings
where no distributions are expected to be paid in the foreseeable future.
7. DIVIDENDS TO SHAREHOLDERS
Accounting policy
Dividends payable to the Parent Company's shareholders are recognised as a
liability in the Group's financial statements in the period in which dividends
are approved by the Parent Company's shareholders.
2023 2022
£m £m
Final ordinary dividend for the year ended 30 September 2022 was 9.5p (2021: 37.0 33.1
8.5p)
Interim ordinary dividend, paid 21 July 2023 was 2.4p (2022: 2.0p paid 22 July 9.3 8.8
2022)
46.3 41.9
The Directors recommend a final dividend in respect of the financial year
ended 30 September 2023 of 9.8pence per ordinary share, to be paid on 23
February 2024 to shareholders who are on the register at 26 January 2024. This
dividend is not reflected in these financial statements as it does not
represent a liability at 30 September 2023. The final proposed dividend will
reduce shareholders' funds by an estimated £36.8m.
8. EARNINGS PER SHARE
Accounting policy
Basic earnings per share
Basic earnings per share is calculated using the Group's profit after tax and
the weighted average number of ordinary shares in issue during the year.
Diluted earnings per share
Diluted earnings per share is calculated by adjusting the basic earnings per
share for the effects of share options and awards granted to employees. These
are included in the calculation when their effects are dilutive.
Adjusted earnings per share
Adjusted earnings per share is a trend measure, which presents the long-term
profitability of the Group, excluding the impact of specific transactions that
Management considers affects the Group's short-term profitability. The Group
presents this measure to assist investors in their understanding of trends.
Adjusted earnings is the numerator used for this measure. Adjusted earnings
and adjusted earnings per share are therefore stated before amortisation of
acquired intangibles, acquisition costs, share based payment expenses and
exceptional items, net of any associated tax effects.
The reconciliation between the basic and adjusted earnings per share is as
follows:
2023 2022 2022 2023 2022
£m £m 2023 Basic earnings Diluted earnings Diluted earnings
Basic earnings per share per share per share
per share pence pence pence
pence
(Loss)/ profit for the year (27.7) 62.7 (7.1) 16.1 (7.1) 16.0
Adjustments:
Amortisation of acquired intangibles 38.8 34.4
Impairment losses 62.4 -
Acquisition costs 5.1 2.1
Share based payments expense 1.8 3.2
Net gain of debt modification 0.3 0.3
Exceptional items 22.6 12.5
Tax effect of adjustments (12.8) (10.0)
Tax adjustments in respect of prior years - (1.6)
Adjusted earnings 90.5 103.6 23.3 26.6 23.3 26.5
2023 2022
Number Number
Weighted average number of ordinary shares in issue for basic earnings 388,231,290 389,374,854
Dilutive impact of share options 30,688 1,469,514
Weighted average number of ordinary shares for diluted earnings 388,261,978 390,844,368
9. GOODWILL
Cost and net book value 2023 2022
£m £m
At 1 October 692.6 615.8
Additions (Note 13) 12.9 7.8
Impairment (62.4) -
Adjustments in respect of prior periods (Note 6) - (0.4)
Exchange adjustments (34.5) 69.4
At 30 September 608.6 692.6
Accounting policy
Goodwill arising on business combinations (representing the excess of fair
value of the consideration given over the fair value of the separable net
assets acquired) is capitalised, and its subsequent measurement is based on
annual impairment reviews, with any impairment losses recognised immediately
in profit or loss in the statement of comprehensive income. Direct costs of
acquisition are recognised immediately in profit or loss in the statement of
comprehensive income as an expense.
At least annually, or when otherwise required, the Directors review the
carrying amounts of the Group's property, plant and equipment and intangible
assets to determine whether there is any indication of an impairment loss. If
any such indication exists, the recoverable amount of the asset is estimated
in order to determine the extent of any impairment loss. A full impairment
review is performed annually for goodwill regardless of whether an indicator
of impairment exists.
The recoverable amount is the higher of fair value less costs of disposal 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 as well as risks
specific to the asset or CGU for which the estimates of future cash flows have
not been adjusted.
If the recoverable amount of an asset or CGU is estimated to be less than its
carrying amount, the carrying amount of the asset or CGU is reduced to its
recoverable amount. An impairment loss is recognised as an expense immediately
in profit or loss in the consolidated statement of comprehensive income.
Where an impairment loss subsequently reverses, the carrying amount of the
asset is increased to the revised estimate of its recoverable amount, but not
beyond the carrying amount that would have been determined had no impairment
loss been recognised for the asset in prior-years. A reversal of an impairment
loss is recognised immediately as income in the Consolidated Statement of
Comprehensive Income, although impairment losses relating to goodwill may not
be reversed.
Where it is not possible to estimate the recoverable amount of an individual
asset, the impairment test is carried out on the smallest group of assets to
which it belongs for which there are separately identifiable cash flows; its
CGU. Goodwill is allocated on initial recognition to each of the Group's CGUs
that are expected to benefit from the synergies of the combination giving rise
to the goodwill. Goodwill is allocated at the lowest level monitored by
Management, and no higher than an operating segment.
Key assumptions for the value in use - 30 September 2023 Long-term Discount rate
growth rate
Average Average
revenue growth
EBITDA margin
IP Services 2.0% 14.3% 4.0% 29.7%
Regulated Industries 2.0% 15.2% 2.7% 21.9%
Language Services 2.0% 15.1% 2.9% 17.2%
Language and Content Technology 2.0% 17.4% 8.7% 36.3%
Key assumptions for the value in use - 30 September 2022
IP Services 2.0% 12.5% 3.2% 30.7%
Regulated Industries 2.0% 13.2% 6.7% 25.1%
Language Services 2.0% 12.7% 5.1% 20.4%
Language and Content Technology 2.0% 13.5% 10.9% 41.1%
The Group has four CGUs and in accordance with IAS 36, Management performed a
value in use impairment test at 30 September 2023. The key assumptions for the
value-in-use calculations are those regarding discount rates and revenue
growth rates. All of these assumptions have been reviewed during the year.
Management estimates discount rates using pre-tax rates that reflect current
market assessments of the time value of money and the risk specific to each
CGU.
This has resulted in a range of discount rates being used within the value in
use calculations.
Determination of key assumptions
The long-term growth rate is the rate applied to determine the terminal value
on year five cash flows. This rate is determined by the long term compound
annual growth rate in adjusted operating profit as estimated by Management
with reference to external benchmarks.
The discount rate is the pre-tax discount rate calculated by Management based
on a series of inputs starting with a risk free rate based on the return on
long term, zero coupon government bonds. The risk free rate is adjusted with a
beta to reflect sensitivities to market changes, before consideration of other
factors such as a size premium.
Revenue growth is the average annual increase in revenue over the five-year
projection period. The revenue growth rate is determined by Management based
on the most recently prepared budget for the future period and adjusted for
longer term developments within operating segments where such developments are
known and possible to reliably forecast.
The trading projections for the five-year period underlying the value-in-use
reflect assumptions for EBITDA margins. The EBITDA margin is based on a number
of elements of the operating model over the longer-term, including pricing
trends, volume growth and the mix of complexity of translation activity and
assumptions regarding cost inflation.
As part of the value-in-use calculation, Management prepares cash flow
forecasts derived from the most recent financial budgets as approved by the
Board of Directors and extrapolates the cash flows for future years based on
estimated growth rates which are based on Management's best estimate of the
expected growth rate of the market in which the CGU operates.
The Group has conducted sensitivity analyses on the value in use/recoverable
amount of each of the CGUs. Based on the result of the value in use
calculations undertaken, the Directors conclude that the allocation of
goodwill to each of the CGUs is as shown in the table below:
The allocation of goodwill to each CGU is as follows: 2023 2022
£m £m
IP Services 33.2 35.8
Regulated Industries 141.8 150.4
Language Services 223.9 239.9
Language and Content Technology 209.7 266.5
At 30 September 608.6 692.6
Goodwill assessment
The value-in-use calculations performed confirm that the recoverable goodwill
amount for IP Services, Regulated Industries and Language Services CGUs each
exceed their asset carrying value. The calculation for the Language and
Content Technology CGU gave a value-in-use result of £333.3m which was
£62.4m below the asset carrying value and accordingly an equivalent
impairment loss has been recognised.
This impairment loss has been recognised within administrative expenses in the
Consolidated Statement of Comprehensive Income in the period. The impairment
has arisen primarily due to the significant increase in discount rates as a
result of macroeconomic factors and to a lesser extent, uncertainty regarding
longer term growth rates. Whilst the Group expects long-term growth from the
Technology strategy, the accounting standard (IAS 36) for impairment
assessments does not allow forecasts to be used where assumptions cannot be
evidenced or have not yet been fully implemented (e.g. cost savings). As a
result, whilst the Group is focused on committing to delivering its growth
strategy, the ongoing cost reduction and efficiency programmes restrict the
available evidence to demonstrate this growth as at the balance sheet date.
Consequently, the full extent of potential longer-term gains are not reflected
in the impairment modelling.
10. INTANGIBLE ASSETS
Accounting policy
Intangible assets are carried at cost less accumulated amortisation and
impairment losses. Intangible assets acquired from a business combination are
initially recognised at fair value. An intangible asset acquired as part of a
business combination is recognised outside goodwill if the asset is separable
or arises from contractual or other legal rights.
Where computer software is not an integral part of a related item of computer
hardware, the software is classified as an intangible asset. The capitalised
costs of software for internal use include external direct costs of materials
and services consumed in developing or obtaining the software, and directly
attributable payroll and payroll-related costs arising from the assignment of
employees to implementation projects. Capitalisation of these costs ceases
when the software is substantially complete and ready for its intended
internal use.
Other intangible assets are amortised using the straight-line method over
their estimated useful lives as follows:
Trade names 5 to 8 years
Clinician database 10 years
Supplier database 13 years
Technology 3 to 7 years
Non-compete clauses 5 years
Trademarks 5 years
Client relationships 7 to 20 years
Acquired computer software licences are capitalised on the basis of the costs
incurred to acquire and bring to use the specific software. These assets are
amortised using the straight-line method over their estimated useful lives
which range from one to five years, these costs are recognised in
administrative expenses within the consolidated statement of comprehensive
income.
Research and development
Research costs are expensed as incurred. Development expenditure is
capitalised when Management is satisfied that the expenditure being incurred
meets the recognition criteria from IAS 38. Specifically, this is at the point
which Management believe they can demonstrate:
The technical feasibility of completing the asset
The intention to complete the asset for use or sale
The ability to use or sell the asset
The future benefits expected to be realised from the sale or use of the asset
The availability of sufficient resources to enable completion of the asset
Reliable measurement for the costs incurred during the course of development
Where these criteria are not met the expenditure is expensed to the income
statement. Following the initial capitalisation of the development expenditure
the cost model is applied, requiring the asset to be carried at cost less any
accumulated amortisation and impairment losses. Any expenditure capitalised is
amortised over the period of expected future economic benefit from the related
project. For capitalised development costs this period is 3 to 7 years.
The carrying value of development costs is reviewed for impairment annually
when the asset is not yet in use or more frequently when an indicator of
impairment arises during the reporting period indicating that the carrying
value may not be recoverable.
Development costs that are subject to amortisation are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable.
Trade Clinician Technology Non-compete Internally Total
names & supplier £m & trademarks Client Software generated £m
software
£m databases £m relationships £m
£m
£m & order books
£m
Cost
At 30 September 2021 - 6.4 123.4 2.1 313.0 12.7 15.5 473.1
Additions - - 15.5 - 0.2 1.9 6.9 24.5
Acquisitions 0.4 - 2.1 - 6.4 - - 8.9
Adjustments in respect of prior periods - - - - 0.4 - - 0.4
Disposals - - - - - (1.9) (2.7) (4.6)
Currency translation - 1.2 1.2 0.4 47.5 0.8 0.6 51.7
At 30 September 2022 0.4 7.6 142.2 2.5 367.5 13.5 20.3 554.0
Additions - - 15.4 - - 2.5 18.6 36.5
Transfers - - (1.0) - - - 1.0 -
Acquisitions (Note 13) 0.7 - 3.1 - 8.0 - - 11.8
Disposals - - - - - (0.6) (3.7) (4.3)
Currency translation - (0.6) (1.2) (0.2) (23.9) (0.2) (0.1) (26.2)
At 30 September 2023 1.1 7.0 158.5 2.3 351.6 15.2 36.1 571.8
Accumulated amortisation and impairment
At 30 September 2021 - 3.2 20.0 1.9 68.2 8.8 4.4 106.5
Amortisation charge - 0.7 18.4 0.2 25.5 1.9 3.4 50.1
Disposals - - - - - (1.9) (2.7) (4.6)
Currency translation - 0.7 1.1 0.4 13.6 0.5 0.3 16.6
At 30 September 2022 - 4.6 39.5 2.5 107.3 9.3 5.4 168.6
Amortisation charge 0.1 0.7 23.8 - 26.4 2.0 3.9 56.9
Disposals - - - - - (0.6) (3.7) (4.3)
Currency translation - (0.4) (0.5) (0.2) (7.5) (0.1) (0.1) (8.8)
At 30 September 2023 0.1 4.9 62.8 2.3 126.2 10.6 5.5 212.4
Net book value
At 30 September 2021 - 3.2 103.4 0.2 244.8 3.9 11.1 366.6
At 30 September 2022 0.4 3.0 102.7 - 260.2 4.2 14.9 385.4
At 30 September 2023 1.0 2.1 95.7 - 225.4 4.6 30.6 359.4
Amortisation of acquired intangibles was £38.8m (2022: £34.4m) and
amortisation of other intangibles was £18.1m (2022: £15.7m). The £18.1m
amortisation of other intangibles comprises £2.0m on amortisation of software
(2022: £1.9m), £3.9m on internally developed intangibles (2022: £3.4m).and
£12.2m (2022: £10.4m) of technology which related to the SDL business. The
residual £38.8m of amortisation was wholly incurred on acquired intangible
assets (2022: £34.4m). The Group has identified intangible assets which are
individually material as follows:
SDL technology products acquired of £49.8m (2022: £61.9m) with a remaining
useful life of 4 years
SDL's Helix platform of £12.6m (2022: £15.8m) with a remaining useful life
of 4 years
SDL's customer relationships of £104.3m (2022: £122.9m) with a remaining
useful life of 8 years
Moravia's customer relationships of £85.4m (2022: £99.9m) with a remaining
useful life of 14 years and
Life Science's customer relationships of £8.2m (2022: £11.6m) with a
remaining useful life of 4 years.
No other classes of intangible asset hold individually material items. The
remaining average useful life is 10 years.
11. LOANS
Accounting policy
Loans are recognised initially at fair value, less directly attributable
transaction costs. Subsequent to initial recognition, loans are stated at
amortised cost using the effective interest method. Loans are classified as
current, unless the Group has the discretion to roll over an obligation for a
period of at least 12 months under an existing loan facility.
Directly attributable transaction costs are capitalised into the loans to
which they relate and are amortised using the effective interest rate method.
When an existing loan facility is replaced by another from the same lender on
substantially different terms, or the terms of an existing loan are
substantially modified, such an exchange or modification is treated as the
derecognition of the original liability and the recognition of a new
liability. The difference in the respective carrying amounts is recognised in
the profit or loss in the statement of comprehensive income.
2022
2023 £m
£m
Due in more than one year
Loan 54.7 32.2
Issue costs (2.1) (2.9)
At 30 September 52.6 29.3
Analysis of net debt 30 September 2023 At 1 October Acquired Cash flows At 30 September
£m £m £m Non-cash £m
charges
£m
Cash and cash equivalents 101.2 3.3 (23.1) (5.2) 76.2
Issue costs 2.9 - - (0.8) 2.1
Loans (current and non-current) (32.2) - (24.0) 1.5 (54.7)
Net debt excluding lease liabilities ("Net debt") 71.9 3.3 (47.1) (4.5) 23.6
Lease liabilities (46.7) (0.3) 11.9 1.6 (33.5)
Net debt including lease liabilities 25.2 3.0 (35.2) (2.9) (9.9)
Analysis of net debt 30 September 2022 At 1 October Acquired Cash flows Non-cash At 30 September
£m £m £m charges £m
£m
Cash and cash equivalents 92.5 0.6 0.1 8.0 101.2
Issue costs 2.0 - 1.5 (0.6) 2.9
Loans (current and non-current) (49.2) - 25.5 (8.5) (32.2)
Net debt excluding lease liabilities ("Net debt") 45.3 0.6 27.1 (1.1) 71.9
Lease liabilities (51.5) (0.2) 13.1 (8.1) (46.7)
Net debt including lease liabilities (6.2) 0.4 40.2 (9.2) 25.2
Non-cash charges against the loan balance represent the effects of foreign
exchange on the financial liability.
On 3 August 2022, the Group entered into an Amendment and Restatement
Agreement ("ARA") with its banking syndicate which amended its existing
US$120m RCF maturing on 10 February 2024, to a US$220m RCF Facility maturing
on 3 August 2026 with an option to extend maturity to 3 August 2027.
Under the terms of the ARA, the Group's interest margin over the Secured
Overnight Financing Rate ("SOFR") reference interest rate ranges from 95bps to
195bps and is dependent on the Group's net leverage. Commitment fees are
payable on all committed, undrawn funds at 35% of the applicable interest
margin. The ARA also contains a US$100m uncommitted accordion facility.
All transaction costs incurred in amending and re-stating the RCF were
capitalised and are being amortised over the extended maturity period of the
facility on a straight-line basis. Currently all Group borrowings under the
RCF are denominated in US Dollars or Sterling.
12. CASH AND CASH EQUIVALENTS
2023 2022
£m £m
Cash at bank and in hand 68.5 94.8
Short-term deposits 7.7 6.4
76.2 101.2
The fair value of cash and cash equivalents is £76.2m (2022: £101.2m).
Restricted cash at 30 September 2023 was £Nil (2022: £Nil).
Short-term deposits have an original maturity of three months or less
depending on the immediate cash requirements of the Group, and earn interest
at the respective short-term deposit rates. Management consider short term
deposits to be subject to an insignificant risk of changes in value.
13. ACQUISITIONS
Propylon Holdings Ltd ("Propylon")
On 12 July 2023, the Group acquired the entire issued share capital of
Propylon Holdings Limited ('Propylon') and its subsidiaries for an initial
consideration of Euro 30.1m (£25.6m) on a cash and debt free basis.
Additional consideration of Euro 12.9m is payable in two equal instalments on
the first and second anniversary of the transaction contingent upon key
personnel remaining employed. Propylon is a component content management
business which compliments both our Tridion and Fonto propositions and further
builds our Content Technology portfolio.
The fair value of identifiable assets and liabilities acquired, purchase
consideration and goodwill were as follows:
The provisional fair value of identifiable assets and liabilities acquired,
purchase consideration and goodwill were as follows:
Fair values
£m
Net assets acquired:
Intangible assets 11.8
Property, plant and equipment 0.1
Right-of-use assets 0.3
Trade and other receivables 4.3
Cash and cash equivalents 3.3
Trade and other payables (1.6)
Corporation tax (0.6)
Deferred tax (1.3)
Lease liabilities (0.3)
Total identifiable net assets 16.0
Goodwill 12.9
Total consideration 28.9
Satisfied by:
Cash 28.9
The provisional fair values above, are stated before the finalisation of the
purchase price allocation ('PPA'). The provisional PPA procedures have
resulted in an allocation of £8.0m to Customer Relationships, £3.1m to
Technology assets and £0.7m to Brands with a corresponding reduction in
Goodwill. Additional deferred tax liabilities of £1.2m were recognised on the
identified intangible assets. The fair values of trade and other receivables,
and other classes of assets, and their gross contractual amount are the same.
Propylon contributed revenue of £3.1m to Group revenue and £0.4m to profit
after tax for the period between date of acquisition and the balance sheet
date. If the acquisition had been completed on the first day of the financial
year, Propylon would have contributed additional revenues of £10.1m and
increased profit after tax for the year by £3.5m.
The goodwill of £12.9m on acquisition comprises the value of expected
synergies to be realised across future periods. These derive primarily from
the cross sales of RWS products and integration of services work with the RWS
professional service teams. Integration of Propylon into the RWS Group has
commenced and will continue during FY24.
14. POST BALANCE SHEET EVENTS
On 3 October 2023, the Group acquired ST Comms Language Specialists
Proprietary Limited, a Cape Town based language services provider for an
initial consideration of $675k (£558k) on a cash and debt free basis with
additional contingent consideration of $675k (£558k) due two equal
instalments on the first and second anniversary of the transaction.
The Company has continued its share repurchase programme, and from 1 October
2023 to the date of approval of these financial statements has purchased on
the open market 6,252,443 shares at an average price of 234.3p.
ALTERNATIVE PERFORMANCE MEASURES
RWS uses adjusted results as a key performance indicator, as the Directors
believe that these provide a more consistent measure of the Group's operating
performance. Adjusted profit is therefore stated before amortisation and
impairment of acquired intangibles, acquisition costs, share-based payment
expense and exceptional items. The table below reconciles the statutory profit
before tax to the adjusted profit before tax.
Reconciliation of statutory profit before tax to adjusted profit before tax: 2023 2022
£m £m
Statutory (loss)/profit before tax (10.9) 83.2
Amortisation of acquired intangibles 38.8 34.4
Impairment losses (Note 9) 62.4 -
Acquisition costs 5.1 2.1
Share-based payment expense 1.8 3.2
Exceptional items (Note 5) 22.6 12.5
Exceptional finance costs (Note 5) 0.3 0.3
Adjusted profit before tax 120.1 135.7
Reconciliation of adjusted operating profit to statutory operating profit: 2023 2022
£m £m
Adjusted operating profit 123.8 138.5
Amortisation of acquired intangibles (38.8) (34.4)
Impairment losses (Note 9) (62.4) -
Acquisition costs (5.1) (2.1)
Share-based payment expense (1.8) (3.2)
Exceptional items (Note 5) (22.6) (12.5)
Statutory operating (loss)/ profit (6.9) 86.3
Cash conversion: 2023 2022
£m £m
Adjusted profit before tax 120.1 135.7
Adjusted tax charge (29.6) (32.1)
Adjusted net income 90.5 103.6
Net cash inflow 107.5 127.5
Exceptional cash flows 13.7 13.1
Purchase of PPE (3.8) (5.3)
Purchase of intangibles (36.5) (24.3)
Net interest (2.0) (1.3)
Lease liability payments (11.9) (13.1)
Free cash flow 67.0 96.6
Cash conversion 74.0% 93.2%
Organic Revenue
Organic revenue is calculated by adjusting the prior year's revenues by adding
pre-acquisition revenues for the corresponding period of ownership.1
2021 2022 2022 2023 2023 Organic revenue
Organic revenue
Organic revenue
Organic revenue1 Organic revenue
growth/(loss) 2023
growth/(loss) Organic
revenue growth/(loss) %
IP Services 113.6 (6.4) 107.2 (2.4) 104.8 (2%)
Regulated Industries 171.2 1.8 173.0 (10.5) 162.5 (6%)
Language Services 323.6 18.5 342.1 (12.3) 329.8 (4%)
Language & Content Technology 121.5 10.6 132.1 4.6 136.7 3%
Total 729.9 24.5 754.4 (20.6) 733.8 (3%)
1 Includes Liones Holdings B.V. and Propylon Holdings Ltd's pre-acquisition
operating results
Organic revenue at constant exchange rates
Organic revenue at constant exchange rates is calculated by adjusting the
prior year's revenues by adding pre-acquisition revenues for the corresponding
period of ownership, and applying the 2023 foreign exchange rates to both
years.
2022 2022 2023 2023 Organic revenue Organic
Revenue at
Pre-acq revenue
Revenue growth
constant currency revenue growth
FY23 rates
at FY23 rates1 2022 Organic revenue at constant exchange rates
IP Services 109.1 - 109.1 (4.3) 104.8 (4%)
Regulated Industries 179.3 - 179.3 (16.8) 162.5 (9%)
Language Services 354.2 - 354.2 (24.4) 329.8 (7%)
Language & Content Technology 132.6 5.2 137.8 (1.1) 136.7 (1%)
Total 775.2 5.2 780.4 (46.6) 733.8 (6%)
1 Includes Liones Holdings B.V. and Propylon Holdings Ltd's pre-acquisition
operating results
Glossary
Adjusted earnings per share or Adjusted EPS - is stated before amortisation
and impairment of acquired intangibles, acquisition costs, share-based payment
expense and exceptional items, net of associated tax effects.
Adjusted net income - is calculated as statutory profit for the year adjusted
for the Group's amortisation and impairment of acquired intangibles,
acquisition costs, share based payment expense and exceptional items.
Adjusted operating cash flow - is operating cash flow excluding the impact of
acquisition costs and exceptional items.
Adjusted operating profit - is operating profit before charging amortisation
and impairment of acquired intangibles, acquisition costs, share-based payment
expense and exceptional items. The Group uses share-based payments as part of
remuneration to align the interests of senior management and employees with
shareholders. These are non-cash charges and the charge is based on the
Group's share price which can change. These costs are therefore added back to
assist with the understanding of the underlying trading performance.
Adjusted profit before tax or Adjusted PBT - is stated before amortisation and
impairment of acquired intangibles, acquisition costs, share-based payment
expense and exceptional items.
Amortisation of acquired intangibles - is the value of amortisation recognised
on intangibles that were acquired as part of business combinations, net of the
amortisation on those intangibles charged by the underlying business. This is
reconciled to total amortisation as part of Note 10 in the financial
statements.
Free cash flow - is the net cash inflow from operating activities before
exceptional cash flows, less purchases of fixed assets, net interest paid and
lease liabilities.
Cash conversion - is the free cash flow expressed as a percentage of adjusted
net income.
Constant currency - constant currency measures apply consistent rates for
foreign exchange to remove the impact of currency movements in financial
performance.
EBITDA - is defined as the Group's profit before interest, tax, depreciation
and amortisation.
Net debt - net debt is calculated by taking the Group's cash balance less any
amounts under loans, borrowings and lease liabilities. The Group presents net
debt both including and excluding the impact of lease liabilities as part of
note 16 of the ARA.
Organic - organic measures exclude the impact of acquisitions without assuming
constant currency and are prepared on a common basis with the prior year.
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