REG - RWS Holdings PLC - Final Results
15/12/2022 07:00
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RNS Number : 7802J RWS Holdings PLC 15 December 2022
RWS Holdings plc
Results for the year ended 30 September 2022
The Group has delivered robust cash, generative, profitable growth in line
with market expectations; on track to deliver on our growth strategy, with
FY23 outlook in line with market expectations
RWS Holdings plc ("RWS", "the Group"), a unique, world-leading provider of
technology-enabled language, content and intellectual property services,
announces its final results for the year ended 30 September 2022.
Financial overview
2022 2021 Change
Revenue £749.2m £694.5m +8%
Gross margin 46.7% 45.1% 160bps
Profit before tax £83.2m £55.0m +51%
Adjusted profit before tax(1) £135.7m £116.4m +17%
Basic earnings per share 16.1p 10.9p +48%
Adjusted basic earnings per share(1) 26.6p 23.8p +12%
Dividend:
Proposed final 9.50p 8.50p +12%
Total for year 11.75p 10.50p +12%
Cash conversion(2) 110.2% 96.7% 1,350bps
Net cash(3) £71.9m £45.3m +£26.6m
Group highlights
· Robust performance with good progress on our medium-term
accelerated growth plan:
· Executing on our organic growth levers with faster-than-anticipated
transition towards SaaS revenues, and strong growth in eLearning and
Linguistic Validation revenues;
· Encouraging progress in Language & Content Technology following
re-organisation to give clear accountability and ownership, including over
R&D;
· Language eXperience Delivery ("LXD"), our unique Group-wide
production platform, is successfully partnering with our divisions to process
an increasing proportion of translation volumes, supporting gross margin
improvement;
· Encouraged by the early impact of our transformation and pricing
programmes; and
· Integration of Fonto, the structured content management business
acquired in March, on track and performing well.
· 8% year-on-year increase in revenues reflects an additional
month's trading from SDL plc ("SDL"), growth in Language Services, accelerated
growth in Language and Content Technology, and favourable FX movements.
· Excluding the impact of SDL, revenue growth was 3% year-on-year;
adjusting for foreign exchange movements and the Fonto acquisition, in
constant currency⁴ terms, organic revenue fell 1%. Accelerated growth in
Language and Content Technology and robust performance in Language Services
was offset by softness in Regulated Industries and IP Services.
· We won new client logos in all divisions across multiple end
markets, including aerospace, automotive, education, energy storage, financial
services, IT consulting, manufacturing, medical device, natural gas,
pharmaceutical, software and telecommunications.
· 17% increase in adjusted profit before tax reflects full year
effect of synergies from the integration of SDL, operational leverage from
higher translation volumes through the LXD platform and effective cost
control.
· Significantly improved cash generation, with 110.2% cash
conversion resulting in a £26.6m increase in year-end net cash³ to £71.9m
after payment of the £14.7m initial consideration for Fonto.
· Amended and extended our revolving credit facility from $120
million to $220 million, on similar terms to the Group's previous facility,
with a maturity date of August 2026 and the option to extend the facility via
an uncommitted $100 million accordion and for a further year.
· Recommended final dividend of 9.5p per share; a 12% increase in
the total dividend for the year of 11.75p.
· Further strengthened the Board with the appointments of Julie
Southern as Non-Executive Director and Candy Davies as Chief Financial
Officer. Jane Hyde was also appointed as General Counsel and Company
Secretary and joined the Executive Team.
· Encouraging progress on our Environment, Social and Governance
agenda during the year, including the rapid expansion of our RWS Campus
programme which now covers more than 700 universities across 76 countries and
the award of a silver medal by EcoVadis (a leading business sustainability
ratings provider).
Language Services
· Revenues of £342.1m were 10% higher year-on-year on a reported
basis (FY21: £309.7m) and saw a 1% increase on an organic constant
currency⁴ basis.
· Solid growth in Strategic Solutions Group; some Enterprise
Internationalisation Group clients reduced activity, however satisfaction is
high and retention is strong, so we are well-placed for recovery.
· Adjusted operating profit⁵ increased by 21% to £53.3m (FY21:
£44.1m).
Regulated Industries
· Revenues of £173.0m increased by 6% year-on-year on a reported
basis (FY21: £163.1m) and decreased by 2% on an organic constant currency⁴
basis.
· Strong performance in Linguistic Validation offset by some second
half softness as we saw reduced volumes from one client who has started
offering competing services and as a result of exiting some loss-making
business.
· Adjusted operating profit⁵ increased by 11% to £31.6m (FY21:
£28.4m).
Language & Content Technology
· Revenues of £126.9m were 17% higher year-on-year on a reported
basis (FY21: £108.1m) and saw a 5% increase on an organic constant
currency⁴ basis.
· Product group accountability drove accelerated growth, despite
faster-than-anticipated transition towards SaaS revenues, with 26% of new
revenues for the year being SaaS (FY21: 18%). 29% of revenues for the division
are now attributable to SaaS (FY21: 24%).
· Adjusted operating profit⁵ increased by 45% to £37.6m (FY21:
£25.9m).
IP Services
· Revenues of £107.2m were 6% lower year-on-year on a reported
basis (FY21: £113.6m) and 10% lower on an organic constant currency⁴ basis,
in line with our expectations and previous guidance.
· Lower revenue in FY22 driven by impact of the forthcoming
introduction of the Unitary Patent on our Eurofile services, however solid
growth in Worldfile and other patent services, together with sales improvement
initiatives, are expected to underpin FY23 recovery.
· Adjusted operating profit⁵ fell by 7% to £30.1m (FY21:
£32.3m).
Current trading and outlook
· The Group's outlook is in line with market expectations(6).
· The current economic environment remains challenging whilst also
offering opportunities to strengthen leadership in our markets.
· Our unique capabilities, diverse end-market exposure and strong
client retention continue to enable resilience.
· Capex and investments are expected to be in line with guidance,
with strong cash generation and a strong balance sheet positioning us well to
make the investments announced in March, fund further selective acquisitions
to enhance the Group's capabilities and geographic reach and to maintain a
progressive dividend policy.
Ian El-Mokadem, Chief Executive Officer of RWS, commented:
"Against a backdrop of wider global economic uncertainty, RWS has delivered
robust, cash generative, profitable growth in line with market expectations,
continued its unbroken record of dividend growth and made good progress on the
actions and investments that we set out at our Capital Markets Day in March.
"The successful integration of SDL and the delivery of synergies ahead of
original expectations has driven a strong margin improvement and provided the
Group with a unique combination of technology and expertise from which to
further develop its technology-enabled platform."
"We are also very encouraged by the early signs of delivery against our
organic growth initiatives, particularly eLearning and Linguistic Validation,
our pricing programme and our transformation projects. The simpler, more
efficient and accountable organisational model we have put in place to deliver
our strategy is already making a difference.
"We believe that the current environment presents an opportunity for us to
strengthen our leadership in our markets, as a well-funded business of unique
scale, sector diversification, footprint and capabilities. In parallel, the
Group's strong cash generation and balance sheet means that we retain the
ability and appetite to make strategically compelling acquisitions.
"Whilst remaining mindful of the global economic backdrop, as we enter FY23 we
remain on track to deliver on our growth strategy and are confident in the
long-term opportunities provided by a range of growth drivers across our
markets."
For further information, please contact:
RWS Holdings plc
Andrew Brode, Chairman
Ian El-Mokadem, Chief Executive Officer
Candy Davies, Chief Financial Officer
Rod Day, Interim Deputy Chief Financial Officer 01753 480200
MHP (Financial PR Advisor) rws@mhpgroup.com
Katie Hunt / Simon Hockridge 020 3128 8100
07884 494 112
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
1 RWS uses adjusted results as key performance indicators as
the directors believe these provide a more consistent measure of operating
performance by adjusting for acquisition-related charges and significant
one-off or non-cash items. Adjusted profit before tax is stated before
exceptional items, share-based payment expenses and amortisation of acquired
intangibles. Adjusted earnings per share adjusts for the same items, net of
any associated tax effects.
2. Cash conversion is defined as adjusted operating cash flows divided
by adjusted operating profit.
3. Net cash comprises cash and cash equivalents less loans but before
deducting lease liabilities.
4. Organic constant currency excludes the impact of acquisitions and
assumes constant currency.
5. Adjusted operating profit is stated before amortisation of acquired
intangibles, acquired costs, share-based payments expense and exceptional
items.
6. The latest Group-compiled view of analysts' expectations for FY
2023 gives a range of £773.5m-£795.9m for revenue, with a consensus of
£781.8m; a range of £126.4m-£140.7m for adjusted profit before tax, with a
consensus of £134.3m, and a range of 24.4p to 27.9p for adjusted EPS, with a
consensus of 26.3p.
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 unique combination of
technology and cultural 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.
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 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) .
CHAIRMAN'S STATEMENT
INTRODUCTION
RWS continued to evolve rapidly during FY22, with the formulation and launch
of its medium-term growth strategy, the introduction of new values and
purpose, further development of its Board and Executive Team, and completion
of the SDL integration. The Group is now a unique world-leading provider of
technology-enabled language, content and intellectual property services, which
operates in attractive growing markets with a combined global size estimated
at more than £47bn1. The Group's specialist knowledge, reputation and scale
help it to enjoy leading positions in a range of highly fragmented markets,
serving a highly diversified client base.
PERFORMANCE
The Group delivered £749.2m of revenues for the year, approximately 8% ahead
of the prior year (FY21: £694.5m). This reflects an additional month's
trading from SDL plc ("SDL"), accelerated growth in Language and Content
Technology, modest growth in Language Services, and favourable FX movements.
These were offset by a reduced volume of activity from some of our largest
global technology clients, a decision to gradually cease work with a
significant client in Regulated Industries and, in IP Services, some weaker
demand arising from the impact of the forthcoming Unitary Patent. Overall, the
Group demonstrated strong resilience against a worsening global economic
backdrop - illustrating the defensive qualities of a well-diversified
business, operating across a number of key territories.
Profit before tax for the year increased to £83.2m (FY21: £55.0m). Adjusted
profit before tax increased to £135.7m (FY21: £116.4m), reflecting effective
cost control, the full year effect of synergies from the integration of SDL,
and operational leverage from higher translation volumes through Language
eXperience Delivery, our production platform.
The Group continues to enjoy a strong balance sheet, with net assets of
£1,141.7m (FY21: £1,010.9m) as at 30 September 2022. This included net cash
of £71.9m (FY21: £45.3m), underlining the Group's continuing cash generation
characteristics.
PEOPLE AND BOARD
At 30 September 2022 RWS employed 7,761 full-time equivalent colleagues across
72 locations in 33 countries (FY21: 7,796). As the world emerged from the
constraints of the global pandemic, we undertook a gradual return to office
working and we introduced an agile working policy that supports a mix of
office and home working for all our colleagues. We recognise the value of
regular face-to-face contact in fostering high-performing teams and effective
collaboration, as well as the benefits of technology in delivering time and
energy savings from a reduction in commuting. In planning the return to our
offices, we also took the opportunity to consider the viability of some of our
locations and were able to reduce the number of offices by approximately 13%,
with associated savings in property and related costs.
As in FY21, our teams responded admirably to the challenges caused by the
lockdowns and travel restrictions in various jurisdictions during the first
half of the year, continuing to focus on delivering high-quality services and
products to our clients, who often faced similar restrictions on their
operations. In February we responded rapidly to the situation in Ukraine and
we continue to provide support for those colleagues impacted by the conflict.
On behalf of the Board, I would like to thank all our teams across the world
for their continuing commitment, focus and efforts to support our clients and
further develop the Group.
On 29 December 2021 we announced that Des Glass, Chief Financial Officer and
Company Secretary, was leaving to pursue other opportunities. On 10 January
2022 we confirmed that Rod Day had joined the Group as Interim Deputy Chief
Financial Officer. Rod has more than thirty years of senior finance and
strategy experience, primarily in the business services, online and retail
sectors. After an effective handover period, Des Glass left on 8 April 2022,
at which point Rod Day was appointed to the Board. In parallel Christopher
Lewey, Group Corporate Development Director and a member of the Executive
Team, was appointed acting Company Secretary.
After a rigorous search and selection process, we announced the appointment of
Candida (Candy) Davies as Chief Financial Officer on 5 July 2022. Candy was
most recently Head of Finance for the Personal Health division of Royal
Philips, the Dutch-headquartered health technology conglomerate, where she
also supported the Group Innovation and Strategy function. Candy joined the
Group on 3 October 2022 and was appointed to the Board the same day. She also
joined the Executive Team and has been conducting a thorough handover with Rod
Day, who will leave the Group on 31 December 2022. Jane Hyde was also
appointed as General Counsel and Company Secretary and joined the Executive
Team on 3 October 2022. As a result of this appointment, Christopher Lewey
stepped down from his role as acting Company Secretary.
On 27 July 2022 we also announced the appointment of Julie Southern as
Non-Executive Director. The appointment further strengthens the Group's highly
experienced Board and forms part of the Group's succession planning, with the
intention that Julie takes up the role of Non-Executive Chairman in October
2023, at which time I will become a Non-Executive Director. Julie, who has
also become a member of the Group's Audit Committee, brings a wealth of
business and governance experience from her executive career and her current
Non-Executive Director roles at Rentokil Initial, Ocado, NXP Semiconductors
and easyJet, and we are delighted to have attracted someone of her calibre to
chair the Group.
On behalf of the Board, I would like to thank Des and Rod for their
significant contributions to the development of the Group.
SUSTAINABILITY AND ESG
RWS remains fully committed to sustainability and achieving the highest
standards in Environmental, Social and Governance ("ESG") in its business
activities and interactions with stakeholders. Sustainability was therefore a
core consideration in the development of the Group's medium-term growth
strategy and purpose.
As a signal of our ambition we will be publishing a separate ESG report for
the first time in January 2023. This comprehensive review sets out our
progress in detail and will be available to download from the Group's website
(www.rws.com/about/corporate-sustainability/).
DIVIDEND
RWS continues to deliver against its progressive dividend policy and this
marks the 19th year in succession that we have increased the dividend. The
Group remains highly cash generative and, while our previously announced
investment programme will mean a higher level of capital expenditure for the
next couple of years, we will continue to deliver high levels of cash
conversion and we have a strong net cash position.
The Board therefore recommends a final dividend of 9.5p per share. Together
with the interim dividend of 2.25p per share, this will result in a total
dividend of 11.75p for the year - an increase of 12% compared with FY21.
Subject to final approval at the AGM, the final dividend will be paid on 24
February 2023 to shareholders on the register at 27 January 2023.
Summary
The Group has delivered another robust set of results against a backdrop of
increasing economic uncertainty and conflict in Eastern Europe. The global
nature of our business and the diverse range of end markets that we operate in
allows us to better navigate these impacts while delivering consistently
strong returns to shareholders.
With an even stronger Board and Executive Team in place, I remain confident in
the Group's position and long-term prospects. We continue to lead the markets
which we serve and we are excited about the opportunities for organic growth
and M&A in the sector, which will support enhanced profitability and cash
conversion in the medium- to long-term. I am looking forward to my last year
as Chairman as the Group continues to deliver on its five-year accelerated
growth plan.
Andrew Brode
CHAIRMAN
14 December 2022
( )
CHIEF EXECUTIVE OFFICER'S REVIEW
I am delighted to report another solid year of progress in the development of
RWS as a unique world-leading provider of technology-enabled language, content
and intellectual property services.
With the impact of the pandemic fundamentally behind us, we have been focused
on developing, launching and starting to implement the Group's medium-term
strategy and accelerated growth plan.
It has been an exciting and busy year for the business as we have also defined
our purpose and values; embarked on a significant transformation programme;
strengthened our Executive Team; completed our second colleague engagement
survey; and made further progress on our ESG journey - all while continuing to
grow our client base.
As always, serving our clients comes first and I take great pride in knowing
that our global teams have continued to deliver day-in-day-out for the many
thousands of organisations who rely on our unique blend of service and
technology solutions.
MEDIUM-TERM STRATEGY AND ACCELERATED GROWTH PLAN
In the first half of the year we conducted a comprehensive review of our
strategy. With the integration of SDL completed, it was an opportunity to
develop a refreshed plan for the next phase of development for the Group.
Consulting widely, using independent expertise and detailed growth forecasts,
we created a focused, ambitious and grounded five-year accelerated growth
plan, a fresh set of values, and a new purpose for the Group - unlocking
global understanding.
The strategy is centred on organic growth - to drive cash generative enhanced
profitability. It will be enabled by a series of transformation investments
that will deliver an efficient and sustainable platform business and will have
the sector's strongest production engine, which we have named Language
eXperience Delivery ("LXD"), at its heart. We have identified a range of
growth initiatives, in both existing markets and in adjacencies, that will
allow us to capitalise on our strengths and deliver value to our clients, as
well as pivoting towards a greater proportion of our revenues being derived
from higher growth segments. The opportunity for RWS is significant, operating
in markets with an estimated combined size of £47bn1, and we have scope to
take advantage of M&A opportunities due to the often fragmented nature of
these markets.
Conscious of the evolving nature of client needs in the end markets that we
serve, and with an exciting suite of language and content technology products,
we believe that we have the right blend of human expertise and software
solutions to successfully meet any client requirement. Our solutions range
from localising content for life-saving applications and global eLearning
platforms, to data labelling and text analytics that offer clients valuable
insight in a single language. Through content transformation and multilingual
data analysis, we help our clients to grow by ensuring they are understood
anywhere, in any language. We continue to partner with many of the world's
leaders in their respective markets.
We regard technological change as an enabler for our sector and for our
business. Technology expands the range of content that can be localised and
brings added sophistication to the solutions that we provide - regardless of
content type, quality and urgency. With the continued explosion in the volume
of content being created and requiring localisation, we are confident that
technology is an opportunity for RWS.
The extent of our human expertise is centred on more than 2,000 in-house
linguists and access to a network of in excess of 30,000 freelance
translators. They are complemented by some of the sector's foremost experts in
neural machine translation, translation productivity and management, and
structured content management, who are focused on the continuous development
of our software products. These experts work with our highly integrated
delivery teams and dedicated account teams for our large and enterprise
clients. Together, they bring a deep level of understanding - client, cultural
and technical - which, in combination, differentiates us in the market.
Our pURPOSE
Understanding is at the core of what we deliver for clients and informs our
purpose - unlocking global understanding. Across our four core use cases
(acquiring and retaining customers; delivering user experiences; maintaining
compliance; and access to insights), we work towards a common outcome -
breaking down barriers to communication and understanding so that our clients
can connect with their audiences, solve problems, and grow their businesses
anywhere in the world. Our global scale and reach allow us to support those
clients whose ambition is to go global. It also means that we can fully
support any client on a genuine 24/7 basis, with experts available across
multiple time zones. We are not only helping clients succeed, we are helping
the world to connect.
Our values
In parallel with defining our medium-term strategy, we have spent time
defining how we think, act and behave as an organisation and developed a new
set of values, grounded in the business we are today, and the one that we will
become. We consulted widely with colleagues, through an initial set of
workshops, core working group input, and then an all-company survey where
everyone was given the opportunity to give us their views. I am delighted that
56% of colleagues did so.
Our new values - we partner; we pioneer; we progress; and we deliver - give
everyone at RWS clear guidance as to the behaviours that will underpin our
success. They will also help align colleagues in our journey towards a more
unified company culture.
ORGANISATION AND CULTURE
We made a number of organisational changes to support delivery of our
strategy. We reaffirmed RWS's long-held view on the primacy of the operating
divisions and business units within them, giving clear accountability to the
general managers of our technology product portfolios and putting each R&D
team under the general manager's leadership. We have already seen a positive
effect in the Language and Content Technology division, with a strong return
to growth during the year.
We enhanced sales leadership in several areas and have begun to inculcate a
stronger growth mindset across the business, backed by more readily available
and comparable data on sales and marketing performance, which is reviewed
during our internal quarterly business review process. We have also moved the
product support function closer to the client and have taken some important
steps in relation to our 'voice of the customer' programme, where we
harmonised historically disparate schemes, partnered with one of the world's
leading Net Promoter Score (NPS) experts, and centralised the programme and
expanded its scale - developing a product-specific survey to go alongside the
existing client-focused one.
We announced our accelerated growth plan, values and purpose to investors on
23 March 2022, and to our colleagues and clients in the ensuing two months via
a series of events, engagements and targeted communications. We were
encouraged by the positive response from all our stakeholders and we continue
to reinforce our new Group story, both inside and outside the organisation.
Internally, we are now embedding the purpose and values in everything that we
do, so that they become part of our organisational DNA - from talent
attraction and performance management to colleague development and
recognition.
OPERATING REVIEW
Language Services
Solid growth in Strategic Solutions Group; some Enterprise
Internationalisation Group clients reduced activity, but confidence in these
established, long-term relationships points to recovery
The Language Services division represented 46% of Group revenues in the year
(FY21: 46%). Revenues of £342.1m were 10% higher year on year on a reported
basis (FY21: £309.7m) and saw a 1% increase on an organic constant currency
basis.
In the Strategic Solutions Group there were a number of new client wins in the
Major Account and GoGlobal segments across a variety of verticals. The
particular success that we had in the first half with new business won in the
Americas region continued through the second half. In our GoGlobal
proposition, where we use our expertise, technology and reach to support
high-growth businesses that are expanding rapidly into new territories, we
welcomed several electric vehicle manufacturers to our client base,
demonstrating our ability to serve new entrants alongside many of the more
established global manufacturers. The GoGlobal solution was successfully
introduced into the Japanese and South Korean markets, with some initial
client wins and a healthy pipeline.
One of our key growth initiatives is eLearning, where we had a strong year. We
won several new clients based on our new proposition and expanded into India
and Japan. Cross-selling eLearning into existing accounts accelerated in the
second half of the year and we had our first major wins in providing a full
end-to-end eLearning content lifecycle solution, which included development
and concurrent authoring.
In our Enterprise Internationalisation Group, which serves global technology
enterprises, we had some successful programme wins with one large technology
company and strong revenue development with a global digital retailer in the
first half. We saw a reduced volume of activity from several of the largest
technology clients but we remain confident in the strong, long-term nature of
these relationships. These clients continue to be very satisfied with the
services and solutions we are providing, so we expect to see volumes recover
in due course.
We identified data services, including data annotation and labelling, as an
important growth lever and we have made progress on the investments required
to strengthen our existing offering.
The division's adjusted operating profit2 was £53.3m (FY21: £44.1m), on a
reported basis, reflecting the growth in top-line revenues in the Strategic
Solutions Group, improved gross margin and effective cost control.
Regulated Industries
Strong performance in Linguistic Validation offset by some second half
softness
The Regulated Industries division accounted for 23% of Group revenues in the
year (FY21: 23%). Revenues of £173.0m increased by 6% year on year on a
reported basis (FY21: £163.1m) and decreased by 2% on an organic constant
currency basis.
In the Life Sciences vertical, our Linguistic Validation ("LV") proposition
again performed strongly with a number of additional programmes with existing
clients, as well as some significant new orders in Q4 - with multiple study
programmes covering LV, eCOA migration and proofreading, and consulting
services.
In August we joined Critical Path Institute's Electronic Clinical Outcome
Assessment (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, feedback, and results in
clinical trials and studies. RWS has delivered LV for more than 20,000
clinical outcome assessments, into 429 language pairs, in over 200 different
specific therapeutic and disease areas. As a result, we are pleased to be one
of 19 member organisations who collaborate across multiple disciplines for the
electronic collection of clinical outcome data. The Group also started an
important collaboration with a US-based clinical trial platform provider
during the year.
We saw solid performance with our largest life sciences client, with continued
growth in clinical and regulatory work reflecting increased account management
focus. Across our top 20 clients, we saw good period-on-period growth with 13
of them (on a constant currency basis), including significant new programmes
with an existing medical device client and an existing pharmaceutical client.
We also secured a major new client in the managed care segment - once again
reflecting our continued leadership in annual enrolment in the US - and we won
our first piece of Contract Research Organisation ("CRO") business in Japan.
As previously announced, in the second half of the year we decided to
gradually reduce work with a large CRO which lowered its volumes and moved
into offering competing services.
In the financial and legal services vertical we saw solid revenues, with
several new client wins with financial services organisations in the last
quarter. In the first half we exited several low-margin contracts which
impacted revenues, but improved profit performance. Our ESG and risk and
compliance offerings have shown encouraging signs of progress.
The division's adjusted operating profit2 increased 12% to £31.6m (FY21:
£28.4m), on a reported basis. This was driven by increasing use of LXD, the
exit from low-margin contracts and effective cost control.
Language and Content Technology
Full ownership and accountability for product groups drove accelerated growth,
despite faster-than-anticipated transition towards SaaS revenues
The Language and Content Technology ("L&CT") division accounted for 17% of
Group revenues in the year (FY21: 15%). Revenues of £126.9m were 17% higher
year on year on a reported basis (FY21: £108.1m) and saw a 5% increase on an
organic constant currency basis, despite the higher than anticipated increase
in the proportion of SaaS revenues, which holds back revenue during the
transition phase from perpetual to SaaS licences.
After an encouraging first half we moved to full ownership and accountability
for the leaders of the four principal product areas - Language Weaver, Trados,
Tridion and Contenta - which drove a more focused and successful approach in
the second half. The division's accelerated growth plan resulted in a refined
go-to-market model for each product, aided by the stronger link between
product development and sales and marketing. Leveraging the wider RWS client
portfolio, we have seen an increasing number of sales of language and content
technology solutions to services clients across the Group.
Renewals and extensions were strong and we secured a major new Tridion client
- a provider of robotic automation software. A major new release of our Trados
Studio product (a key productivity tool for individual translators),
incorporating hundreds of new features, drove a positive outcome in the second
half and demonstrated our commitment to innovation across our technology
platform.
SaaS revenue growth for the year was 26% (FY21: 18%), ahead of our plan and
reflecting the success of a more targeted sales approach. The proportion of
SaaS revenues for the division is now 29% (FY21: 24%), offering increased
recurring revenue and improved visibility.
In March 2022 we announced the acquisition of Fonto, a structured content
management business with a strong roster of clients, complementing our Tridion
proposition and widening our proposition in this segment. Integration of Fonto
into the Group is on track.
The division's adjusted operating profit2 was £37.6m (FY21: £25.9m), on a
reported basis, reflecting the growth in top-line revenues, supported by lower
cloud costs and some direct people cost savings, and despite the greater
proportion of SaaS revenues in the year.
IP Services
Lower revenue due to impact of forthcoming introduction of Unitary Patent,
partially offset by solid growth in Worldfile and other patent services
The IP Services division represented 14% of Group revenues in the year (FY21:
16%). Revenues of £107.2m were 6% lower year on year on a reported basis
(FY21: £113.6m) and 10% lower on an organic constant currency basis.
In line with guidance, the division continued to experience weak demand as a
result of the impending introduction of the Unitary Patent (UP). As we noted
in our HY22 results, the European Patent Office (EPO) announced in January
that it would allow clients to delay the granting of patent applications in
order to benefit from protection under the UP. The latest guidance from the
EPO indicates that the UP will become effective in the first half of 2023. We
continue to engage with clients and other stakeholders to understand their
proposed approach to the UP and its likely impact on the division.
Other segments, which account for approximately two-thirds of the division's
revenues, delivered modest growth, including patent translation and filing
outside Europe, IP Research and our operations in Japan. The integration of
Horn & Uchida Patent Translation Ltd was successfully completed and will
support continued growth in East Asia. Revenues in China had another very
strong year, growing by 47%.
In line with lower revenues in our European patent translation and filing
business, we took actions in the first half to lower our cost base. The
division's transformation programme remains key to its longer-term prospects
and we saw good progress during the year on the design of the future state
operating model. The transformation will enhance many aspects of our
proposition and is expected to deliver significant operating efficiencies.
We also restructured the division's leadership team. In the first half, we
strengthened its sales capability and focus to help drive penetration in
renewals and better access to the patent attorney segment, with encouraging
results. We subsequently secured new logos with clients from a diverse range
of verticals, including chemical manufacturing and agricultural sciences;
energy storage and battery manufacturing; pharmaceutical and medical device;
petroleum and natural gas; and the world's largest producer of home
appliances.
In November 2022 we announced the appointment of Daniel Bennett as President,
IP Services. Daniel, who is a proven industry leader with more than 25 years'
international experience in brand protection, covering a breadth of IP and
corporate security issues, will drive the next phase of the division's
development, including delivery of the transformation programme.
The division's adjusted operating profit2 was £30.1m (FY21: £32.3m) on a
reported basis, reflecting the reduction in top-line revenues, offset by good
cost control and the positive impact of the actions taken in the first half,
which protected profitability.
OUR PEOPLE
RWS is a truly people-centred organisation. Deep client understanding,
specialist sector expertise across multiple verticals, and a rich
understanding of culture and nuance enable more than 7,700 colleagues to put
the best solutions in front of clients across the world every day, aided by
some of the sector's smartest technologies.
Through our 'voice of the customer' programme and the high levels of client
retention that we enjoy, we can see the positive impact that our people bring
to our clients' success and the level of trust that we engender. Once again, I
would like to thank all of our incredibly talented teams around the world for
their hard work and dedication which enables us to deliver best-in-class
solutions 24/7.
During the year we continued to focus our efforts on RWS being a great place
to work. As well as defining and launching a new purpose and fresh values
(with 56% of colleagues taking the opportunity to have a say in their
development via a survey), we launched MyLX, a Group-wide learning portal,
demonstrating our commitment to building a culture of continuous learning.
With hundreds of courses available across multiple languages, take-up has been
very encouraging and we continue to add our own bespoke training to the
platform, where required, as well as best-in-class external learning assets
provided by the platform provider Skillsoft.
In September 2022 we conducted our second colleague engagement survey, with
85% of colleagues participating (FY21: 81%). We evolved our approach, moving
to an Employee Promoter Score framework, which gave us an overall employee
engagement score for the first time, as well as making the survey available in
12 languages. The overall engagement score was 69%, with some clearly
articulated strengths, as well as a number of opportunities for us to address.
Partnering with our 'voice of the customer' programme provider also gave us
access to valuable benchmarking data, allowing us to understand the steps we
need to take to match the global benchmark for businesses of our type.
The nature of labour markets has clearly changed over the course of the last
12 months and the importance of having a compelling employee proposition to
attract the right talent is more pertinent than ever, particularly against a
backdrop of increasing wage inflation. We believe that the progress made on
our people agenda during FY22 moved us closer to being the employer of choice
in our sector and I am encouraged by our voluntary colleague attrition rate³
of 15.9% for the year (FY21: 19.2%).
We remain shocked and saddened by the situation in Ukraine and we continue to
focus on supporting our colleagues in Kyiv and the wider humanitarian efforts.
In February we immediately implemented our crisis response plan and continue
to monitor the situation closely.
In addition to the Board and Company Secretariat changes outlined in the
Chairman's Statement, we also took a number of steps during the year to
strengthen our Executive Team. At the start of 2022 Jim McHugh joined as Chief
People Officer, with a remit to fully realise the benefits of scale across all
aspects of the colleague experience, alongside shaping a more unified culture,
to ensure we have committed, energised and engaged people at all levels of the
organisation.
In the spring Maria Schnell was promoted to the position of Chief Language
Officer, leading the development of the LXD - our unique production platform -
with responsibility for our 2,000+ strong team of in-house linguists. At the
same time Emer Dolan was promoted to the role of President, Enterprise
Internationalisation Group (part of our Language Services Division), which
works closely with our largest technology enterprise clients, building highly
integrated solutions that enable them to continually innovate, anticipate
trends and scale their global operations.
In September 2022 we appointed Terry Doyle as Chief Information Officer, with
responsibility for the Group's information technology infrastructure, data,
security and compliance, as well as ensuring the delivery of the
transformation programmes that we launched as part of our medium-term
strategy.
SUSTAINABILITY AND ESG
We have made encouraging progress on our sustainability agenda during the
year. As a participant in their Early Adopter Programme, we submitted our 2022
Communication on Progress report to the UN Global Compact in June 2022, and
our Global Reporting Initiative framework report was submitted in July 2022,
following approval by a third-party assessor.
On the environment we moved to a new web-based platform to better facilitate
measuring and tracking our carbon emissions and have spent the year gathering
the baseline data that will allow us to submit science-based targets to SBTi
for validation in FY23. We also launched our Sustainable Procurement Policy
and rolled out the supporting action plan across the Group.
RWS Campus, our global university partnership programme, which inspires and
develops localisation talent worldwide, had an extremely strong year. We
merged the RWS Trados Academic Partner Programme with RWS Campus, meaning that
we now have more than 700 university partnerships globally across 76
countries. Following the lifting of restrictions in the majority of
geographies, we have been able to return to onsite engagement with
universities, and hosted 90 workshops, talks and events during the year. We
also expanded the RWS Campus programme in Africa, with 12 universities joining
the programme for the first time, as we focused on eight languages, including
Amharic, Hausa, Swahili and Zulu. Trados Studio is now provided free for
teaching purposes to universities (moving from a discounted approach
previously). A third of interns who spend time at RWS through the RWS Campus
programme are offered a full-time career after completing of their degrees.
We also relaunched the RWS Foundation during the year, with a key aspect being
its response to those impacted by the conflict in Ukraine. The Foundation's
Ukraine Appeal raised £34,436 from colleague donations and donated an
additional £15,000 to the International Committee of the Red Cross. The
Foundation also made further donations of £10,000 each to the UNHCR, the UN's
Refugee Agency, and to UNICEF, the UN's Children's Fund.
On governance, we completed the harmonisation of policies across the Group and
shared these with colleagues in the first quarter of the year. In the second
half of the year, we launched a Group-wide Code of Conduct, with associated
training, giving all our people a simple guide to what is expected of them at
work, as well as easy access to the resources that will help support effective
action and decision making. With our ambition to be the best-run business in
our sector, it is vital that our teams are given the framework and the tools
to act with integrity at all times.
Shortly after the end of the year, we were delighted to be awarded a silver
medal by EcoVadis, the world's most trusted provider of business
sustainability ratings. EcoVadis gives silver medals only to the top quartile
of companies participating in its programme worldwide. RWS was also placed in
the top 10% of companies in the industry category 'Other professional,
scientific and technical activities'.
CURRENT TRADING AND OUTLOOK
Against a backdrop of wider global economic uncertainty, RWS has delivered in
line with market expectations. The Group is in a robust position, with
resilience afforded by its diversified capabilities and end markets. We also
remain confident in the long-term opportunities provided by a range of growth
drivers across our markets.
We have continued to make progress on the actions and investments that we set
out at our Capital Markets Day and we are very encouraged by the early signs
of delivery against our organic growth initiatives, particularly eLearning and
Linguistic Validation. We are also encouraged by the impact of our pricing
programme and the Group's focus on its transformation projects. The simpler,
more efficient and accountable organisational model we have put in place to
deliver our strategy is already making a difference.
We also believe that the current environment presents an opportunity for us to
strengthen our leadership in our markets, as a well-funded business of unique
scale, sector diversification, footprint and capabilities. In parallel, the
Group's strong cash generation means that we retain the ability and appetite
to make strategically-compelling acquisitions.
As we enter FY23, our outlook is in line with market expectations and our
capex and investments in line with plans presented at our Capital Markets Day.
Ian El-Mokadem
CHIEF EXECUTIVE OFFICER
14 December 2022
CHIEF FINANCIAL OFFICER'S REVIEW
INTRODUCTION
The Group has made significant progress during 2022. The Group successfully
integrated the acquisition of SDL plc ("SDL") and laid out an ambitious
Accelerated Growth Strategy. During 2022 revenue growth, coupled with improved
margins, has supported strong cash generation. A strong platform has been
built for further progress in 2023 and beyond.
During 2022 total revenue grew by 8%, operating profit by 50%, and adjusted
profit before tax by 17%. Results were supported by an extra month of SDL in
2022 when compared to 2021, the successful execution of the synergy and
integration programme, as well as favourable foreign exchange movements.
Strong performance in the Language and Content Technology division helped to
offset the regulatory impact of the introduction of the Unitary Patent in the
IP Services division. The Group has identified a number of key growth levers,
such as eLearning and Data Annotation, and is investing behind these levers to
drive future growth. We are also investing to transform our back office
efficiency to enable this growth. We are encouraged by the early impact of our
pricing programme, which aims to mitigate the impact of cost inflation. The
Group continued to enhance its portfolio with the acquisition of Liones
Holding B.V, whose flagship product Fonto, is a leading authoring solution for
mission-critical documents.
The Group continues to be highly cash generative, resulting in an increase in
net cash (excluding lease liabilities) from £45.3m as at 30 September 2021 to
£71.9m as at 30 September 2022, notwithstanding significant acquisition
costs, and costs associated with delivering synergies following the
acquisition of SDL. Net cash including lease liabilities is £25.2m -
significantly improved from an equivalent net debt measure of £6.2m as at 30
September 2021.
REVENUE
Overall in FY22 the Group generated revenues of £749.2m, which is 8% higher
than FY21. Revenue in FY22 benefited from an additional month of trading from
SDL, which was acquired in November 2020. Excluding this impact, revenue
growth was 3%. The strengthening of the US Dollar when compared to prior year
also supported revenue in local sterling currency. On an organic constant
currency ("OCC") basis revenues are 1% lower than those achieved in FY21.
In divisional terms, Language Services recorded £342.1m in revenue, a 10%
increase in total revenue and 1% on an OCC basis. Reduced volume from certain
of the largest technology clients was more than offset by growth from the
Strategic Solutions Group. Regulated Industries recorded £173.0m, an increase
of 6%, although a decline of 2% on an OCC basis. Reducing work for a
significant client and also stopping work for a number of unprofitable clients
impacted revenue. Language and Content Technology had total revenue of
£126.9m, an increase of 17% year on year and 5% OCC. Good growth was recorded
across the portfolio, despite the increase in SaaS revenues which in the short
term defers current year revenues to future years. IP Services recorded
£107.2m, a decrease of 6% on prior year and 10% on an OCC basis. The proposed
introduction of the Unitary Patent in the European Union, which we forecast
for H1 FY23, has impacted volumes in the short term as clients look to defer
filings.
The majority of the Group revenue, categorised by geography, is in the US
market, which accounts for 52% of the total. Client concentration is such that
no one client accounts for more than 10% of Group turnover.
GROSS PROFIT
Gross profit increased by 12% to £350.2m, delivering a gross margin of 46.7%.
This represents an increase from 45.1% in the prior year, primarily as a
result of the change in revenue mix towards the higher gross margin division
of Language and Content Technology, increased use of the Language eXperience
Delivery, benefits from SDL integration synergies, and favourable foreign
exchange movements with the strengthening of the US dollar relative to a
number of currencies.
ADMINISTRATIVE EXPENSES
Administrative expenses have increased to £263.9m (FY21: £257.0m).
Administrative expenses as a percentage of revenue have decreased from 37% to
35%, which reflects the impact of the integration activities during the
period. Adjusted administrative expenses (gross profit less adjusted operating
profit) increased by £17.0m to £211.7m, a rise of 9% year on year. The extra
month of costs from SDL, combined with unfavourable FX, more than offset the
benefit of integration synergies.
Exceptional items of £12.5m were incurred during the year, which includes
£7.4m for IT integration and £3.2m for severance, termination and other
costs in relation to the SDL integration. Acquisition costs of £2.1m, were
primarily related to the purchase of Liones Holding B.V. during the period.
FINANCE COSTS
Net finance costs were £3.1m (FY21: £2.4m). Net finance costs have increased
year on year due primarily to an increase in interest payable on external debt
of £0.6m, driven by a rise in interest rates. On 3 August 2022, the Group
entered into an Amendment and Restatement Agreement with its banking
syndicate, which amended its existing US$120m RCF maturing on 10 February
2024, to a US$220m 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 our business and seek selective acquisitions to enhance the Group's
capabilities and geographic reach. The debt refinancing was accounted for as a
debt modification without extinguishment, resulting in a nominal debt
modification gain being recognised in the parent company's statement of
comprehensive income.
ADJUSTED PROFIT BEFORE TAX
Adjusted profit before tax ("Adj PBT") is stated before amortisation of
acquired intangibles, share-based payment expense, acquisition costs, and
exceptional items (see reconciliation in the Alternative Performance Measures
section). 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
Adj PBT of £135.7m (Adj PBT margin: 18.1%) recorded in the period has
increased from £116.4m (Adj PBT margin: 16.8%) in the prior year.
TAX CHARGE
The Group's tax charge for the year was £20.5m (FY21: £13.8m), representing
an effective tax rate on profit before tax of 24.6% compared with 25.1% in the
prior financial year. The corporate income tax rates in the overseas countries
in which the Group operates continue to be higher than the existing UK
corporate income tax rate of 19%, which results in a higher effective rate
than the headline UK rate.
EARNINGS PER SHARE AND DIVIDEND
Basic earnings per share for the financial year increased from 10.9p to 16.1p,
an increase of 48%, while adjusted basic earnings per share increased from
23.8p to 26.6p, representing an increase of 12%, which reflects the after tax
impact of significant adjusting items this financial year consequent to the
acquisition of SDL. The weighted average number of ordinary shares in issue
for basic and adjusted basic earnings increased from 378.5m to 389.4m,
principally due to the proportionate impact of the ordinary shares issued in
connection with the SDL acquisition in the prior period.
A final dividend for the financial year end 30 September 2022 of 9.5 pence per
share has been proposed, equivalent to £37.0m, while an interim dividend of
2.25 pence per share, equivalent to £8.7m, was paid during the financial
period. A comparative final dividend for the year ended 30 September 2021 of
8.5 pence per share, equivalent to £33.1m, was paid in this financial
period.
The proposed total dividend for the year of 11.75 pence per share represents a
12% increase on the total dividend relative to the prior financial period of
10.5 pence per share.
BALANCE SHEET AND WORKING CAPITAL
Net assets at 30 September 2022 increased by £130.8m to £1,141.7m. The main
driver of this increase was the strengthening USD, increasing
dollar-denominated net assets by £119m.
Current assets at 30 September 2022 of £325.9m have increased by £38.1m on
the prior financial year, including an increase in trade and other receivables
of £28.7m. Cash and cash equivalents balances of £101.2m have increased by
£8.7m.
The increase in trade and other receivables is primarily driven by the growth
of the business in the period and includes an increase in trade receivables of
£15.2m and an increase in accrued income of £16.3m. This increase reflects
stronger revenues during the financial year, whilst the average days' sales
outstanding (the calculation of which measures the number of days' billings in
trade receivables) has remained stable.
Current liabilities have also increased to £203.6m at 30 September 2022, an
increase of £12.7m, primarily due to an increase in trade and other payables
balances of £13.6m. Non-current liabilities have decreased by £14.4m,
reflecting a net reduction in loan balances under our RCF of £17.9m, a
reduction in other non-current liabilities of £3.7m, partly offset by an
increase in deferred tax liabilities of £7.2m.
CASH FLOW
Cash generated from operations was £148.8m, £46.8m more than the prior
financial year, when cash generated was £102.0m. Operating cash flow before
movements in working capital and provisions increased from £125.5m to
£157.5m. The net working capital outflow of £8.7m has reduced by £14.8m
from the prior financial year's outflow of £23.5m. This has been driven by
improvement in payment cycles during the period, with outflows in trade
receivables from growth of the business offset by inflows across trade
payables.
Significant cash outflows from investing activities included net cash
consideration for the acquisitions of Liones Holding B.V of £14.1m and
purchases of intangible software of £24.3m.
Cash flows from financing activities included £25.5m in repaid debt and
associated interest, and dividends paid within the financial year ended 30
September 2022 of £41.9m.
Cash balances at the financial year end amounted to £101.2m, with external
borrowings of £29.3m, excluding lease liabilities, resulting in a net cash
position of £71.9m (FY21: £92.5m cash and external borrowings of £47.2m,
resulting in net cash of £45.3m). Net cash including lease liabilities was
£25.2m (FY21: net debt of £6.2m).
POST BALANCE SHEET EVENTS
No other significant events have occurred between the balance sheet date and
the date of authorising these financial statements.
Rod Day
INTERIM DEPUTY CHIEF FINANCIAL OFFICER
14 December 2022
1 - Sources: OC&C, Slator, CSA, WIPO, EPO, Companies House
2 - Adjusted operating profit is stated before amortisation of acquired
intangibles, acquisition costs, share-based payments expense and exceptional
items.
3 - 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.
Consolidated Statement of Comprehensive Income
for the year ended 30 September 2022
Note 2022 2021
£m £m
Revenue 749.2 694.5
Cost of sales (399.0) (381.3)
Gross profit 350.2 313.2
Proceeds from warranty claim - 1.2
Administrative expenses (263.9) (257.0)
Operating profit 86.3 57.4
Analysed as:
Adjusted operating profit: 138.5 118.5
Amortisation of acquired intangibles (34.4) (34.4)
Acquisition costs (2.1) (11.2)
Share based payment expense (3.2) (1.4)
Exceptional items 5 (12.5) (14.1)
Operating profit 86.3 57.4
Finance income 0.2 -
Amortisation of capitalised exceptional finance costs 5 (0.3) (0.3)
Finance costs (3.0) (2.1)
Profit before tax 83.2 55.0
Taxation 6 (20.5) (13.8)
Profit for the year attributable to the owners of the Parent 62.7 41.2
Other comprehensive income/ (expense)
Items that may be reclassified to profit or loss:
Gain/ (loss) on retranslation of quasi equity loans (net of deferred tax) 6.1 (0.6)
Gain/ (loss) on retranslation of foreign operations 107.3 (31.8)
(Loss)/ gain on hedging (net of deferred tax) (6.7) 1.6
Total other comprehensive income/ (expense) 106.7 (30.8)
Total comprehensive income attributable to owners of the Parent 169.4 10.4
Basic earnings per ordinary share (pence per share) 8 16.1 10.9
Diluted earnings per ordinary share (pence per share) 8 16.0 10.9
Consolidated Statement of Financial Position
as at 30 September 2022
Note 2022 2021
£m £m
Non-current assets
Goodwill 9 692.6 615.8
Intangible assets 10 385.4 366.6
Property, plant and equipment 31.3 32.1
Right-of-use assets 39.0 42.4
Non-current income tax receivable 1.0 1.0
Deferred tax assets 6 1.1 1.5
1,150.4 1,059.4
Current assets
Trade and other receivables 220.5 191.8
Income tax receivable 4.2 3.5
Cash and cash equivalents 12 101.2 92.5
325.9 287.8
Total assets 1,476.3 1,347.2
Current liabilities
Trade and other payables 165.6 152.0
Lease liabilities 11.8 11.0
Foreign exchange derivatives 0.6 0.7
Income tax payable 22.7 22.1
Provisions 2.9 5.1
203.6 190.9
Non-current liabilities
Loans 11 29.3 47.2
Lease liabilities 34.9 40.5
Trade and other payables 3.5 2.4
Provisions 4.9 4.1
Deferred tax liabilities 6 58.4 51.2
131.0 145.4
Total liabilities 334.6 336.3
Total net assets 1,141.7 1,010.9
Capital and reserves attributable to owners of the Parent
Share capital 3.9 3.9
Share premium 54.4 54.2
Share based payment reserve 6.0 2.8
Reverse acquisition reserve (8.5) (8.5)
Merger reserve 624.4 624.4
Foreign currency reserve 95.9 (17.5)
Hedge reserve (5.5) 1.2
Retained earnings 371.1 350.4
Total equity 1,141.7 1,010.9
Consolidated Statement of Changes in Equity
for the year ended 30 September 2022
Notes Share Share Other reserves Total attributable
capital
£m premium (see below) Retained earnings to owners
account £m £m of Parent
£m £m
At 30 September 2020 2.8 53.6 7.4 345.1 408.9
Profit for the year - - - 41.2 41.2
Gain on hedging - - 1.6 - 1.6
Loss on retranslation of quasi equity loans - - (0.6) - (0.6)
Loss on retranslation of foreign operations - - (31.8) - (31.8)
Total comprehensive income for the year - - (30.8) 41.2 10.4
Issue of shares - 0.6 - - 0.6
Issue of shares to acquire subsidiary undertaking 1.1 - 624.4 - 625.5
Deferred tax on unexercised share options - - - 0.4 0.4
Dividends - - - (36.0) (36.0)
Purchase of own shares (0.3) (0.3)
Equity-settled share based payments charge - - 1.4 - 1.4
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 6 - - - (0.1) (0.1)
Dividends 7 - - - (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
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 2020 1.4 (8.5) - 14.9 (0.4) 7.4
Other comprehensive (expense)/ income for the year - - - (32.4) 1.6 (30.8)
Issue of shares to acquire subsidiary undertaking - - 624.4 - - 624.4
Equity-settled share based payments charge 1.4 - - - - 1.4
At 30 September 2021 2.8 (8.5) 624.4 (17.5) 1.2 602.4
Other comprehensive income/ (expense) 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
Consolidated Statement of Cash Flows
for the year ended 30 September 2022
Note 2022 2021
£m £m
Cash flows from operating activities
Profit before tax 83.2 55.0
Adjustments for:
Depreciation of property, plant and equipment 7.1 6.2
Amortisation of intangible assets 10 50.1 47.8
Depreciation of right-of-use assets 10.8 12.7
Share-based payment expense 3.2 1.4
Net finance costs 3.1 2.4
Operating cash flow before movements in working capital 157.5 125.5
(Increase) in trade and other receivables (5.6) (23.8)
(Decrease)/ increase in trade and other payables (3.1) 0.3
Cash generated from operations 148.8 102.0
Income tax paid (21.3) (17.1)
Net cash inflow from operating activities 127.5 84.9
Cash flows from investing activities
Net cash acquired on acquisition of SDL plc - 55.0
Settlement of share related liabilities on acquisition of SDL plc - (6.4)
Acquisition of subsidiary, net of cash acquired 13 (14.1) (1.5)
Purchases of property, plant and equipment (5.3) (4.1)
Purchases of intangibles (software) 10 (24.3) (19.1)
Net cash (outflows)/ inflow from investing activities (43.7) 23.9
Cash flows from financing activities
Repayment of borrowings (25.5) (17.1)
Transaction costs relating to debt refinancing (1.5) -
Interest received 0.1 -
Interest paid (1.4) (0.6)
Lease liability payments (including interest charged of £1.3m (2021: £1.5m)) (13.1) (12.6)
Proceeds from the issue of share capital 0.2 0.6
Purchase of own shares - (0.3)
Dividends paid 7 (41.9) (36.0)
Net cash outflow from financing activities (83.1) (66.0)
0.7 42.8
Net increase in cash and cash equivalents
92.5 51.4
Cash and cash equivalents at beginning of the year
Exchange gains/(losses) on cash and cash equivalents 8.0 (1.7)
Cash and cash equivalents at end of the year 12 101.2 92.5
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 2022, which were approved by the
Board of Directors on 14 December 2022.
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 2022. Statutory
accounts for 2021 have been delivered to the registrar of companies, and those
for 2022 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 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 2024. 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 2022, the Group has net cash of £25.2m comprising the
Group's US$220m revolving credit facility ("RCF") ( £29.3m drawn at year end)
and lease liabilities of £46.7m, less cash and cash equivalents of £101.2m.
The RCF matures in August 2026 but is extendable for a further year subject to
lender consent. At year end the Group's net leverage ratio (as defined by the
RCF agreement) is -0.11x EBITDA, while its interest coverage ratio (as defined
by the RCF agreement) is 64.2x 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 10% 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 2024. 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 2024 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
£55.2m (2021: £34.9m).
Licence revenue in the year amounted to £55.2m (2021: £34.9m).
Capitalised development costs
The Group capitalises development costs relating to software product
development and internally generated software in line within line with 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 £22.6m (2021: £19.7m) (see
Note 10).
Estimates and assumptions
The Group has considered whether there are 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 assets and liabilities within the next financial year
and there are none for this financial year.
Other estimates and assumptions
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 £51.2m
(2021: £34.9m). The effect of changing the estimated total cost of each
contract could, in aggregate, have a material 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 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 to be a significant estimate. 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. See Note 9
and 10 for further details.
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 UTPs was £6.8m (2021: £6.5m), 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 contracts are typically billed in arrears on completion of
the work with revenue recognised as accrued income balances. 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 licenses are recognised upfront when performance obligations are
delivered in the same manner as a perpetual license sale but, typically, are
billed annually and do not follow the same billing pattern as the Group's
contracts for perpetual licenses, instead billing follows more closely that of
a SaaS license 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 licenses using the residual method based upon other components of
the contract. The residual method is used because the prices of licenses 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 2022
£m 2021
£m
At a point in time 21.2 25.3
Over time 86.0 88.3
IP Services 107.2 113.6
At a point in time 26.0 24.0
Over time 100.9 84.1
Language and Content Technology 126.9 108.1
Over time 342.1 309.7
Language Services 342.1 309.7
Over time 173.0 163.1
Regulated Industries 173.0 163.1
Total revenue from contracts with customers 749.2 694.5
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 IFRS15 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 £1.9m (2021: £2.7m).
Capitalised contract costs are recognised within other debtors on the
statement of financial position.
Receivables, contract assets and contract liabilities with customers
Receivables, contract assets and contract liabilities 2022 2021
£m £m
Net trade receivables 148.9 133.7
Contract assets (accrued income) 51.2 34.9
Contract liabilities (deferred income) (53.0) (43.0)
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 £54.1m (2021:
£49.1m). 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 2021 was £40.8m (2021: £1.7m).
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 Liones Holding
B.V. in March 2022.
Unallocated costs reflect corporate overheads and other expenses not directly
attributed to segments.
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
Segment results for the year ended 30 September 2021 L&CT 1 (#_ftn1) IP Services Regulated Industries Language Services1 Group
£m
£m £m £m Unallocated Costs £m
£m
Revenue from contracts with customers 108.1 113.6 163.1 309.7 - 694.5
Operating profit/(loss) before charging: 25.9 32.3 28.4 44.1 (12.2) 118.5
Amortisation of acquired intangibles (7.4) (0.1) (14.5) (12.4) - (34.4)
Acquisition costs 0.0 0.0 0.0 0.0 (11.2) (11.2)
Exceptional items (see note 5) 0.0 (5.0) (0.2) (1.6) (7.3) (14.1)
Share-based payment expense (0.8) (0.2) (0.1) (0.2) (0.1) (1.4)
Profit/(loss) from operations 17.7 27.0 13.6 29.9 (30.8) 57.4
Net finance expense (2.4)
Profit before taxation 55.0
Taxation (13.8)
Profit for the year 41.2
1 Webdunia was previously included in Language Services and is now part of
L&CT. This comparative table has been restated to reflect this change
The table below shows revenue by the geographic market in which clients are
located.
Revenue by client location 2021
2022 £m
£m
UK 85.9 77.3
Continental Europe 178.2 213.8
United States of America 390.2 322.9
Rest of the world 94.9 80.5
Total 749.2 694.5
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
2022 2021
£m
£m
UK 189.5 175.1
Continental Europe 166.6 174.1
United States of America 339.0 297.3
Rest of the world 54.1 48.0
Total 749.2 694.5
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 FY22 FY21
£m £m
UK 162.7 148.0
Continental Europe 79.0 76.3
United States of America 147.2 118.6
Rest of the World 67.5 61.5
Total 456.4 404.4
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.
2022 2022 2022 2021 2021 2021
Pre-tax Tax impact Total Pre-tax Tax impact Total
£m £m £m £m £m £m
Group transformation programme (0.3) 0.1 (0.2) (4.8) 1.2 (3.6)
Restructuring & integration related costs (12.2) 2.4 (9.8) (10.5) 2.3 (8.2)
Proceeds from warranty claim - - - 1.2 - 1.2
Total exceptional items - operating (12.5) 2.5 (10.0) (14.1) 3.5 (10.6)
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 (12.8) 2.5 (10.3) (14.4) 3.5 (10.9)
As part of a strategic review of the business, the Group has initiated a
transformation programme for Finance and Human Resources to drive improved
efficiencies in future periods. In 2022, £0.5m of cost was incurred and paid
during the period. The Group expects to incur and pay further material costs
over the next 2 years related to the transformation totalling £15.9m and the
ongoing benefits from the integration will be recognised in operating profit
in the statement of comprehensive income.
Included with restructuring and integration costs are £3.2m of severance
agreements and termination payments included within the businesses defined
integration plan for SDL plc. A further £7.4m was incurred in respect of IT
integration projects, all of which was paid during the period. An additional
£1.6m was incurred and paid in respect of contract termination costs to
rehouse the Group's data warehousing capability for the integrated business.
The cost of delivering synergies is classified as exceptional to highlight the
expense of delivering the integration and represent costs which are considered
by the Group to be outside the normal course of business.
In FY20, a settlement was agreed for a claim made by the Group under warranty
insurance taken out as part of the Moravia acquisition in 2017. In FY21, a
final amount of £1.2m was received relating to this settlement claim.
Exceptional finance costs of £0.3m (2021: £0.3m) relate to the amortisation
expense associated with a gain on debt modification recognised in previous
accounting periods.
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 have a
number of tax returns potentially subject to audit, significant issues may
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.
2022 2021
£m £m
Current Tax Charge
- UK corporation tax at 19% (2021: 19%) 5.7 4.7
- Overseas current tax charge 18.7 15.9
Adjustment in respect of previous years (4.2) (3.0)
Deferred Tax Charge
Origination and reversal of temporary differences (2.4) (4.4)
Rate change impact 0.1 2.0
Adjustment in respect of previous years 2.6 (1.4)
Total tax expense in profit or loss 20.5 13.8
Total tax charge in equity 0.1 (0.4)
Total tax in other comprehensive income 0.7 0.2
Total tax charge for the year 21.3 13.6
Reconciliation of the Group's tax charge to the UK statutory rate: 2022 2021
£m £m
Profit before taxation 83.2 55.0
Notional tax charge at UK corporation tax rate of 19.0% (2021: 19.0%) 15.8 10.4
Effects of:
Expenses not deductible for tax purposes 2.2 2.4
Adjustments in respect of previous years (1.6) (4.4)
Changes in tax rates 0.1 2.0
Higher/(lower) tax rates on overseas earnings 4.0 3.4
Tax charge as per the income statement 20.5 13.8
Effective tax rate 24.6% 25.1%
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,
offset by the impact of recognizing historic US Research and Development tax
credits related to the period FY16-FY21. 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 Czech Republic with other rates that lie in between.
The majority of the adjustments in respect of prior periods relates to
historic Research and Developments tax credits recognised in the US of a
£1.6m credit to deferred taxes. In addition , a £4.5m credit to current tax
and £3.9m debit to deferred tax has been recognised as an adjustment to prior
periods representing the impact of the reduction of historic uncertain tax
positions recognised for transfer pricing that are outside the relevant
jurisdictional statute of limitations.
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 39 countries, transfer pricing
arrangements are in place covering transactions that occur between Group
entities.
The Group periodically reviews its historic uncertain tax positions ('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 £22.7m on the balance sheet comprises £15.2m of
uncertain tax provisions, although it is not expected that these will be cash
settled within 12 months of the year end date. The deferred tax liability of
£58.4m on the balance sheet is net of £6.5m 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. In January 2022
the UK government reconfirmed its intention to introduce legislation to give
effect to the OECD proposals. The new rules are expected to take effect from
2023 onwards, however the impact on the Group will depend on the precise rules
adopted in individual countries which are not known at this time.
Deferred tax Share based payments Accelerated capital allowances Acquired intangibles Tax losses
£m £m Other temporary differences £m £m Total
£m £m
At 1 October 2020 0.2 (1.1) 1.0 (28.5) - (28.4)
Adjustments in respect of prior years (0.3) (0.5) 1.6 (0.3) 0.9 1.4
Acquisitions* 0.1 0.1 2.6 (44.4) 15.3 (26.3)
Credited to income 0.2 (0.2) 1.8 0.5 0.1 2.4
Credited to equity / OCI 0.4 - - - - 0.4
Foreign exchange differences - - (0.2) 1.1 (0.1) 0.8
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)
*The acquisitions line includes £0.9m of deferred tax in respect of the
Moravia error correction referenced in this note
Deferred tax assets and liabilities are presented on the balance sheet after
jurisdictional netting as follows:
2022 2021
£m £m
Deferred tax assets 1.1 1.5
Deferred tax liabilities (58.4) (51.2)
Net deferred tax liability (57.3) (49.7)
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 £143.9m (2021:
£143.0m) available for offset against future profits. A deferred tax asset of
£9.9m (2021: £16.7m) has been recognised in respect of £44.0m (2021:
£72.6m) 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 IFRIC 23.
No deferred tax asset has been recognised in respect of the remaining £99.9m
(2021: £70.4m) 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 £23.5m (2021: £17.7m).
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 £6.0m (2021: £10.0m).
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 £82.3m. Since the Group is
able to control the timing of reversal of these temporary differences, a
current tax liability of £0.2m has been recognised on the unremitted earnings
it is anticipating to be distributed that would give rise to a tax charge. The
Group has an estimated unrecognised deferred tax liability of £4.7m 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.
2022 2021
£m £m
Final ordinary dividend for the year ended 30 September 2021 was 8.5p (2020: 33.1 28.2
7.5p)
Interim dividend, paid 22 July 2022 was 2.25p (2021: 2.00p paid 16 July 2021) 8.8 7.8
41.9 36.0
The Directors recommend a final dividend in respect of the financial year
ended 30 September 2022 of 9.5 pence per ordinary share, to be paid on 24
February 2023 to shareholders who are on the register at 27 January 2023. This
dividend is not reflected in these financial statements as it does not
represent a liability at 30 September 2022. The final proposed dividend will
reduce shareholders' funds by an estimated £37.0m.
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:
2022 2021 2022 2021 2021
£m £m Basic earnings Basic earnings 2022 Diluted earnings
per share per share Diluted earnings per share
pence pence per share pence
pence
Profit for the year 62.7 41.2 16.1 10.9 16,0 10.9
Adjustments:
Amortisation of acquired intangibles 34.4 34.4
Acquisition costs 2.1 11.2
Share based payments expense 3.2 1.4
Net gain of debt modification 0.3 0.3
Exceptional items 12.5 14.1
Tax effect of adjustments (10.0) (7.3)
Tax adjustments in respect of prior years (1.6) (4.5)
Adjusted earnings 103.6 90.8 26.6 23.8 26.5 23.8
2022 2021
Number Number
Weighted average number of ordinary shares in issue for basic earnings 389,374,854 378,460,314
Dilutive impact of share options 1,469,514 648,504
Weighted average number of ordinary shares for diluted earnings 390,844,368 379,108,818
9. GOODWILL
Cost and net book value 2022 2021
£m £m
At 1 October 615.8 257.2
Additions (note 13) 7.8 378.6
Adjustments in respect of prior periods (note 6) (0.4) (1.0)
Exchange adjustments 69.4 (19.0)
At 30 September 692.6 615.8
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, 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 cash generating unit ("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
Profit or Loss, 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 2022 Long-term Discount Average revenue
growth rate rate growth
IP Services 2.0% 12.5% 3.2%
Regulated Industries 2.0% 13.2% 6.7%
Language Services 2.0% 12.7% 5.1%
Language and Content Technology 2.0% 13.5% 10.9%
Key assumptions for the value in use - 30 September 2021
IP Services 2.0% 10.4% 4.0%
Life Sciences 2.0% 10.9% 5.5%
Moravia 2.0% 11.0% 5.5%
SDL - Technology 2.0% 11.4% 8.0%
SDL - Language Services 2.0% 11.1% 5.5%
SDL - Regulated industries 2.0% 12.3% 5.5%
During the year, management has reviewed its identified CGUs in light of the
further integration work that has been performed by the Group since the
acquisition of SDL plc in November 2020, and based on the result of this
review, management believes the Group now has four CGUs. Key factors of the
integration in the year that were considered in management's conclusion
included the integration of delivery of services to customers across fRWS and
fSDL businesses and commencing to internally report and plan resources on the
combined businesses.
In accordance with IAS 36, management performed a value in use impairment test
on the pre-existing six CGUs and determined there to be no impairment of
goodwill within any CGU. Following this impairment test the Life Sciences and
SDL - Regulated Industries CGUs were merged to form the Regulated Industries
CGU. Additionally, the Moravia and SDL - Language Services CGUs are also
merged to form a Language Services CGU.
At year end management has performed an additional value in use impairment
test on the Group four CGUs as detailed further below.
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.
As part of the value in use calculation, management prepares cash flow
forecasts derived from the most recent financial budgets and 5 year plan, both
approved by the Board of Directors and extrapolates the cash flows for a
further year based on an estimated growth rate which is either based on
management's best estimate or 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 recoverable amount of
each CGU exceeds its carrying value.
The Directors believe there are no cash-generating units where reasonably
possible changes to the underlying assumptions exist that would give rise to
impairment.
The allocation of goodwill to each CGU is as follows: 2022 2021
£m £m
IP Services 35.8 31.3
Regulated Industries¹ 150.4 133.6
Language Services² 239.9 208.1
Language and Content Technology 266.5 242.8
At 30 September 692.6 615.8
1 Previously Life Sciences and SDL - Regulated Industries
2 Previously Moravia and SDL - Language Services
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 Client Internally Total
names & supplier £m & Trademarks relationships Software generated £m
software
£m databases £m & order books £m
£m
£m £m
Cost
At 30 September 2020 9.5 6.6 6.3 2.2 187.7 12.5 9.8 234.6
Additions - - 10.3 - - 1.8 9.4 21.5
Acquisitions - - 107.1 - 139.4 - - 246.5
Disposals (9.1) - - - (3.1) (1.6) (3.7) (17.5)
Currency translation (0.4) (0.2) (0.3) (0.1) (11.0) - - (12.0)
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 (note 13) 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
Accumulated amortisation and impairment
At 30 September 2020 5.6 2.7 4.7 1.6 50.0 8.5 5.1 78.2
Amortisation charge 3.7 0.6 15.5 0.4 23.0 1.6 3.0 47.8
Disposals (9.1) - - - (3.1) (1.3) (3.7) (17.2)
Currency translation (0.2) (0.1) (0.2) (0.1) (1.7) - - (2.3)
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
Net book value
At 30 September 2020 3.9 3.9 1.6 0.6 137.7 4.0 4.7 156.4
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
Amortisation of acquired intangibles was £34.4m (2021: £34.4m) and
amortisation of other intangibles was £15.7m (2021: £13.4m). The £15.7m
amortisation of other intangibles comprises £1.9m on amortisation of software
(2021: £1.6m), £3.4m on internally developed intangibles (2021: £3.0m).and
£10.4m (2021: £9.0m) of technology which related to the SDL business. The
residual £34.4m of amortisation was wholly incurred on acquired intangible
assets (2021: £34.4m). The Group has identified intangible assets which are
individually material as follows:
· SDL technology products acquired of £61.9m (2021: £74.2m) with a
remaining useful life of 5 years
· SDL's Helix platform of £15.8m (2021: £18.9m) with a remaining
useful life of 5 years
· SDL's customer relationships of £122.9m (2021:£124.4m) with a
remaining useful life of 9 years
· Moravia's customer relationships of £99.9m (2021: £81.1m) with a
remaining useful life of 15 years and
· Life Science's customer relationships of £11.6m (2021: £11.8m)
with a remaining useful life of 5 years.
No other classes of intangible asset hold individually material items. The
remaining average useful life is 11 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 2021
£m £m
Due in more than one year
Loan 32.2 49.2
Issue costs (2.9) (2.0)
At 30 September 29.3 47.2
Analysis of net debt - 30 September 2022 At 1 October Acquired Cash flows At 30 September
£m £m £m Non-cash £m
charges
£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
Analysis of net debt - 30 September 2021 At 1 October Acquired Cash flows At 30 September
£m £m £m Non-cash £m
charges
£m
Cash and cash equivalents 51.4 55.8 (13.1) (1.6) 92.5
Issue costs 2.6 - - (0.6) 2.0
Loans (current and non-current) (69.1) - 17.7 2.2 (49.2)
Net debt - excluding lease liabilities - ("Net debt") (15.1) 55.8 4.6 - 45.3
Lease liabilities (22.8) (37.7) 12.6 (3.6) (51.5)
Net debt - including lease liabilities (37.9) 18.1 17.2 (3.6) (6.2)
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$100 million uncommitted accordion facility.
The debt refinancing was accounted for as a debt modification without
extinguishment resulting in a nominal debt modification gain being recognised
in the parent company's statement of comprehensive income of £5k.
All transaction costs incurred in amending and re-stating the RCF have been
capitalised and are being amortised over the 4-year term of the facility on a
straight-line basis. Currently all Group borrowings under the RCF are
denominated in USD.
12. CASH AND CASH EQUIVALENTS
2022 2021
£m £m
Cash at bank and in hand 94.8 89.6
Short-term deposits 6.4 2.9
101.2 92.5
The fair value of cash and cash equivalents is £101.2m (2021: £92.5m).
Restricted cash at 30 September 2022 was £Nil (2021: £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
Liones Holding BV ("Fonto")
On 22 March 2022, the Group acquired the entire issued share capital of Liones
Holding BV ('Fonto') and its subsidiaries for an initial consideration of Euro
17.7m (£14.7m) on a cash and debt free basis, with additional contingent
consideration of Euro 5m payable in two equal installments on the first and
second anniversary of the transaction. Fonto is a structured content
management business which complements our Tridion proposition and further
builds our Content Technology portfolio.
The fair value of identifiable assets and liabilities acquired, purchase
consideration and goodwill were as follows:
Fair values
£m
Net assets acquired:
Intangible assets 8.9
Property, plant and equipment 0.1
Right-of-use assets 0.2
Trade and other receivables 0.9
Cash and cash equivalents 0.6
Trade and other payables (1.1)
Corporation tax (0.3)
Deferred tax (2.2)
Lease liabilities (0.2)
Total identifiable net assets 6.9
Goodwill 7.8
Total consideration 14.7
Satisfied by:
Cash 14.7
The provisional fair values of assets and liabilities were recognised
effective 22 March 2022 with the purchase price allocation work concluded in
August 2022. This resulted in an allocation of £6.4m to customer
relationships, £2.1m to Technology assets and £0.4m to Brands, with a
corresponding reduction in goodwill. Additional deferred tax liabilities of
£2.2m were recognized 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.
Fonto contributed revenue of £1.1m to Group revenue and £0.1m 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, Fonto would have contributed additional revenues of £3.4m and increased
profit after tax for the year by £1.1m.
The goodwill of £7.8m on acquisition comprises the value of expected
synergies to be realized across future periods. These derive primarily from
cross sales of RWS products integration of services work with the RWS
professional service teams and up-sell of Tridion as a content management
service. Integration of Fonto into the RWS Group has progressed during the
second half of the financial year and will continue during FY23.
Horn & Uchida (prior year acquisition)
The Group acquired Horn & Uchida Patent Translation Ltd, a specialist
based on Osaka, Japan for cash consideration of Y349m (£2.2m) on 7 July 2021
for 100% of its ordinary share capital.
The fair value of identifiable assets and liabilities acquired, purchase
consideration and goodwill were as follows:
Fair values
£m
Net assets acquired:
Customer relationships 0.7
Investment securities 0.2
Trade and other receivables 1.0
Cash and cash equivalents 0.8
Trade and other payables (1.0)
Deferred tax assets 0.1
Total identifiable net assets 1.8
Goodwill 0.5
Total consideration 2.3
Satisfied by:
Cash 2.3
The provisional fair values of assets and liabilities were recognised
effective 7 July 2021 with the purchase price allocation work concluded in
January 2022. This resulted in an allocation of £0.7m to customer
relationships and a corresponding reduction in goodwill. Additional deferred
tax liabilities on the identified intangibles were recognised of £0.2m, with
a corresponding increase in intangible assets. No provisional fair value
changes were made to any other class of asset.
14. POST BALANCE SHEET EVENTS
There have been no significant events that have occurred between the balance
sheet date and the date of authorising these financial statements which
require disclosure or adjustment within these financial statements.
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 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: 2022 2021
£m £m
Statutory profit before tax 83.2 55.0
Amortisation of acquired intangibles 34.4 34.4
Acquisition costs 2.1 11.2
Share-based payment expense 3.2 1.4
Exceptional items (note 5) 12.5 14.1
Exceptional finance costs 0.3 0.3
Adjusted profit before tax 135.7 116.4
Reconciliation of adjusted operating profit to statutory operating profit: 2022 2021
£m £m
Adjusted operating profit 138.5 118.5
Amortisation of acquired intangibles (34.4) (34.4)
Acquisition costs (2.1) (11.2)
Share-based payment expense (3.2) (1.4)
Exceptional items (note 5) (12.5) (14.1)
Statutory operating profit 86.3 57.4
Organic Revenue
Organic revenue is calculated by adjusting the prior year revenues by adding
pre-acquisition revenues for the corresponding period of ownership.
2020 2021 2021 2022 2022 Organic Revenue2 Organic
Organic Revenue
Organic Revenue
Revenue Growth
Organic Revenue Organic Revenue
Growth/(Loss)
Growth/(Loss)
IP Services 112.8 0.8 113.6 (6.4) 107.2 (6%)
Regulated Industries 157.2 14.0 171.2 1.8 173.0 1%
Language Services 320.9 2.7 323.6 18.5 342.1 8%
Language & Content Technology 113.7 2.8 116.5 9.1 125.6 8%
Total 704.6 20.3 724.9 23.0 747.9 3%
Organic revenue at constant exchange rates
Organic revenue at constant exchange rates is calculated by adjusting the
prior year revenues by adding pre-acquisition revenues for the corresponding
period of ownership and applying the 2022 foreign exchange rates to both
years.
2021 2021 2021 Organic revenue at constant exchange rates 2022 2022 Organic Revenue2 Organic
Revenue at
Pre Acq Revenue
Revenue Growth
Constant Currency Revenue Growth
FY 22 Rates
at FY 22 Rates1
IP Services 117.5 1.4 118.9 (11.7) 107.2 (10%)
Regulated Industries 168.6 8.1 176.7 (3.7) 173.0 (2%)
Language Services 324.4 13.9 338.3 3.8 342.1 1%
Language & Content Technology 110.9 8.4 119.3 6.3 125.6 5%
Total 721.4 31.8 753.2 (5.3) 747.9 (1%)
1 Includes SDL and Horn & Uchida's pre-acquisition operating results
² Excludes the FY22 operating revenue of Liones Holding B.V.
Adjusted Operating Profit
Adjusted operating profit is calculated by adjusting operating profit for the
impact of exceptional items, amortisation of acquired intangibles, acquisition
costs and share based payments. This is further analysed in note 4 and
labelled as 'Operating profit/(loss) before charging.
Cash flow conversion calculations 2018 2019 2020 2021 2022
£m £m £m £m £m
Adjusted operating profit 66.3 78.4 72.9 118.5 138.5
Depreciation (excluding right of use asset depreciation) 2.8 3.0 3.0 6.2 7.1
Amortisation from non-acquired intangibles 2.0 3.0 3.4 13.4 15.7
Net changes in working capital (7.1) (1.8) 7.1 (23.5) (8.7)
Underlying cash flow from adjusted operating activities 64.0 82.6 86.4 114.6 152.6
Cash conversion 96.5% 105.4% 118.5% 96.7% 110.2%
Glossary
Adjusted earnings per share or Adjusted EPS - is stated before amortisation of
acquired intangibles, acquisition costs, share-based payment expense and
exceptional items, net of associated tax effects.
Adjusted net income - Adjusted net income is calculated as statutory profit
for the year adjusted for the Group's amortisation on 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 (reconciled above) - is operating profit before
charging amortisation 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 (reconciled above) - is stated
before amortisation 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
amount is added back in arriving at adjusted profit and adjusted EPS measures.
This is reconciled to total amortisation as part of note 10.
Cash conversion - is the adjusted operating cash flow expressed as a
percentage of adjusted operating profit.
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 the net value of cash or debt held by the business,
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.
(#_ftnref1)
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