REG - RWS Holdings PLC - Half-year Report
09/06/2022 07:00
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RNS Number : 2187O RWS Holdings PLC 09 June 2022
9 June 2022
RWS Holdings plc
Half Year Report for the Six Months ended 31 March 2022
A robust performance with profit ahead of expectations and progress with new
strategic initiatives
RWS Holdings plc ("RWS", "the Group"), a unique world-leading provider of
technology-enabled language, content and intellectual property services, today
announces its half year results for the six months ended 31 March 2022 ("the
first half").
Financial overview
H1 2022 H1 2021(1) Change
Revenue £357.3m £326.4m +9%
Adjusted profit before tax² £60.7m £50.5m +20%
Reported profit before tax £32.9m £14.9m +121%
Adjusted basic earnings per share² 11.9p 10.5p +13%
Basic earnings per share 6.1p 3.0p +103%
Interim dividend 2.25p 2.0p +13%
Cash conversion(3) 120% 79% +4100bps(4)
( )
H1 2022 FY 2021 Change
Net cash(5) £38.2m £45.3m -£7.14m
H1 2022 highlights
· A robust first half with encouraging progress on the plans and
investments announced at our Capital Markets Day ("CMD") in March:
o Technology product teams re-organised to give full ownership and
accountability
o Business partnering model implemented in Language eXperience Delivery
("LXD"), our unique Group-wide production platform, which is now processing a
greater proportion of the Group's translation volumes, supporting gross margin
improvement
o The Business Transformation Office, our programme and project management
function has been revitalised to ensure effective oversight of investments and
growth initiatives
o Integration underway of Fonto, the structured content management business
acquired in March
· 9% year-on-year revenue growth:
o Solid combined growth of 3% on an organic constant currency basis
("OCC")(6) across the three divisions that make up 85% of Group revenues -
Language Services (2% growth), Regulated Industries (5% growth) and Language
& Content Technologies ("L&CT") (2% growth)
o In line with our expectations, continuing weakness in demand in IP
Services (-8% OCC)(6), which accounts for 15% of Group revenues, with actions
underway to drive recovery
o Results demonstrate early progress in increasing the proportion of
revenues coming from higher growth segments, with L&CT now representing
17% of Group revenues in the first half (FY21: 15%)
· Adjusted profit before tax² slightly ahead of Board expectations
at £60.7m, up 20% on prior period, reflecting:
o The full period effect of synergies following the SDL plc acquisition
o Revenue progression; and
o Our leveraging of LXD to enhance margins
· Adjusted profit before tax² margin of 17.0%, up from 15.5% in
the prior period
· Continued strong cash generation, with cash conversion of 120%
resulting in net cash(5) of £38.2m at 31 March 2022 after payment of the
€17.5m (£14.4m) initial consideration for Fonto and paying our largest ever
final dividend of £33.1m
· RWS remains in a strong position to make the investments
announced in March, fund further acquisitions and maintain a progressive
dividend policy
Strategy and outlook
· Encouraging initial signs of organic growth in our software
division (L&CT), with an encouraging increase in the proportion of new
SaaS revenues to 34% (HY21: 24%), which will improve revenue predictability,
notwithstanding the short term transitional impact
· Continued focus on our purpose of Unlocking Global Understanding
and on delivering our accelerated growth plan, with positive progress in
applying the RWS growth model introduced at the CMD:
o Building long-term client relationships
o Deepening our cultural and technical expertise
o Deploying our unique technology and AI
o Developing our portfolio (including a continuing focus on M&A); and
o Leveraging our global scale and reach
· Full year outlook in line with latest guidance and current market
expectations(7) and continuing confidence in the medium to long term drivers
of demand for our products and services
Ian El-Mokadem, Chief Executive Officer of RWS, commented:
"We have delivered a robust performance in the first half, with some good
progress made in defining our medium-term strategy and growth plans, whilst
making the organisational changes that will enable delivery. We successfully
launched our new purpose and values to more than 7,500 colleagues, and we are
seeing an increasingly unified culture across the Group.
"We continued to build long-term relationships with our clients, with a wide
range of contract renewals and service extensions across our divisions. We
have won a number of new clients, with the Major Account and GoGlobal account
segments in Language Services both having a strong first half.
Technology-enabled service solutions continue to be a differentiator and our
eLearning proposition has begun to gain some traction. In Regulated Industries
we achieved further penetration in the high growth Linguistic Validation
segment.
"We have seen good growth in technology product revenues compared with the
prior period, including an increased uptake of SaaS solutions, ahead of our
expectations and the prior period. We are making the planned investments in
the core technology and AI products that we announced at our Capital Markets
Day. These investments will enable us to capitalise on the benefits of being
able to offer a unique blend of services and technology, at scale, to meet our
clients' evolving needs.
"We recognise that there are risks across the global economy, however we
remain confident that we will continue to make good progress in the
development of the Group in the second half, delivering good margin
improvement in the current financial year, and that we are in a strong
position to deliver on our medium-term growth strategy."
For further information, please contact:
RWS Holdings plc
Andrew Brode, Chairman
Ian El-Mokadem, Chief Executive Officer
Rod Day, Chief Financial Officer 01753 480796
MHP (Financial PR Advisor) rws@mhpc.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
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.
Our clients include 90 of the world's top 100 brands, the top 20
pharmaceutical companies and 19 of the top 20 patent filers. Our client base
spans Europe, Asia Pacific and North and South America. We work in the
automotive, chemical, financial, legal, medical, pharmaceutical, technology
and telecommunications sectors, which we serve from 80+ global locations
across five continents.
Founded in 1958, RWS is headquartered in the UK and publicly listed on AIM,
the London Stock Exchange regulated market (RWS.L).
For further information, please visit: www.rws.com (http://www.rws.com) .
Forward-looking statements
This announcement contains certain statements that are forward-looking. These
include statements regarding our intentions, beliefs or current expectations
and those of our officers, Directors and employees concerning, amongst other
things, our results of operations, financial condition, liquidity, prospects,
growth, strategies and the business we operate. By their nature, these
statements involve uncertainty since future events and circumstances can cause
results and developments to differ materially from those anticipated. The
forward-looking statements reflect knowledge and information available at the
date of preparation of this document and, unless otherwise required by
applicable law, RWS undertakes no obligation to update or review these
forward-looking statements. Nothing in this announcement should be construed
as a profit forecast. RWS and its Directors accept no liability to third
parties in respect of this document save as would arise under English law.
1. Prior period balances restated to reflect finalisation of SDL
purchase price allocation resulting in an increase of amortisation of acquired
intangible assets. Profit before tax has decreased by £9.1m accordingly and
profit after tax has decreased by £4.4m following release of deferred tax on
amortisation and impact of prior period tax adjustments.
2. 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.
3. Cash conversion is defined as adjusted operating cash flows divided
by adjusted operating profit.
4. The cash conversion figure for H1 2021 included the settlement of
opening balance sheet liabilities resulting from the Group's acquisition of
SDL plc in November 2020. Adjusting for this one-off payment, cash conversion
for H1 2021 would have been 97%.
5. Net cash comprises cash and cash equivalents less loans but before
deducting lease liabilities.
6. OCC excludes the impact of acquisitions and assumes constant
currency.
7. The latest Group-compiled view of analysts' expectations for FY
2022 gives a range of £735.8m-£755.5m for revenue, with a consensus of
£746.5m, and a range of £133.8m-£135.1m for adjusted profit before tax,
with a consensus of £134.2m.
RWS Holdings plc
Results for the Six Months ended 31 March 2022
Chief Executive Officer's Review
I am pleased to report that we have made encouraging progress in the first six
months of the year, and that we expect to deliver good margin improvement in
the year ending 30 September 2022 ("FY22"), as we continue to implement the
accelerated growth plan that we announced at our Capital Markets Day ("CMD")
on 23 March 2022.
Business overview
RWS is a unique
world-leading provider of technology-enabled language, content and intellectual property services.
Through content transformation and multilingual data analysis, our combination
of technology and cultural expertise helps our clients to grow by ensuring
they are understood anywhere, in any language.
Our Group is a well-proven, profitable, highly cash-generative business with a
strong track record of growth and value creation. We operate in attractive
growing markets with a combined global size estimated at more than £47bn,
where specialist knowledge, reputation and scale, supported by technology, are
critical. We have successfully diversified over the last seven years and now
occupy leading positions in many of our chosen markets.
The Group is organised around four operating divisions:
· Language Services focuses on localisation solutions for a wide range
of industry verticals, including automotive, chemical, consumer, retail,
technology, travel and telecommunications. The range of services includes
localisation, data training, eLearning, video localisation and interpreting
services. The division has three client segments - technology enterprises
(served by the Enterprise Internationalisation Group), Major Accounts and
GoGlobal (both served by the Strategic Solutions Group). RWS's product
technologies are often provided in combination with its services and the
division supports clients at any stage of their globalisation journey,
localising and adapting content for local markets.
· Regulated Industries provides a range of services for three
verticals - life sciences, financial services and the legal sector. Service
provision is centred around highly specialised, technical translations with a
strong emphasis on quality and security. The division's clients include the
world's top 20 pharmaceutical companies; 19 of the top 20 medical device
companies and 18 of the top 20 law firms. Its work in the pharmaceutical and
medical device verticals makes a critical contribution to life safety,
evidenced by our involvement in the development and testing of vaccines to
combat Covid-19.
· Language & Content Technology ("L&CT") offers a range of
technology products which deliver translation and content management
solutions. A pioneer in machine translation (MT), Language Weaver is a neural
MT product, using linguistic AI. With Trados, RWS offers a suite of
translation productivity and management solutions for enterprises, small and
medium-sized organisations and individuals. Tridion and Contenta are the
Group's content management products, the former focused on both structured and
web content solutions, and the latter specialising in technical content
solutions for the government and defence sectors. These have recently been
supplemented by the acquisition of Fonto.
· IP Services is the world's premier provider of patent translations,
filing solutions and IP search, retrieval and monitoring services. The
division delivers highly specialised technical translations to patent
applicants and their representatives, and counts 19 of the world's top 20
patent filers as its clients.
Three of the divisions are supported by our Language eXperience Delivery
("LXD") function, RWS's unique production platform, which uses a number of the
technology products offered by the fourth division, L&CT, to support
operational efficiency and excellence in the delivery of solutions to clients.
Our strategy
RWS has a clear strategy to build a long-term sustainable business,
delivering financial and social value. At our CMD in March 2022, we introduced
our accelerated growth plan. This strategy is centred on growing organically
through:
· Accelerating penetration into existing high growth segments
· Leveraging our capabilities into adjacent high growth segments
· Growing share of wallet through expanding our service range; and
· Re-affirming our technology product leadership.
In parallel we are investing to deliver the sector's most efficient production
platform, our LXD, which allows us to offer the most appropriate blend of
people and technology to meet client needs, irrespective of content type,
quality requirement or urgency.
This renewed focus on organic growth is complemented by a disciplined M&A
programme to selectively acquire complementary businesses which enhance our
organic growth profile and fit with our strategic priorities to add:
· Localisation assets with attractive end market exposure
· New capabilities in technology-enabled language services
· Assets that broaden our natural language processing capabilities;
and
· Data annotation solutions.
Our approach is defined by the RWS Growth Model which demonstrates our unique
position and the basis on which we will deliver our strategy. The Growth
Model's five components are:
· Building long-term client relationships - we offer the broadest
range of services and products, with configurable solutions to meet any mix of
quality, value and speed requirements from clients, who also benefit from
dedicated sector account management teams and specialist sector expertise in
areas such as life sciences, technology and intellectual property.
· Deepening our cultural and technical expertise - we support over
270 language pairs and have access to more than 29,000 freelance linguists
alongside nearly 2,000 that we directly employ. We have rich and varied data -
translation memories, term bases and accumulated knowledge about brands and
their voices and different cultures. We also invest in future linguistic and
technical talent via the RWS Campus programme.
· Deploying our unique technology and AI - we are machine translation
pioneers via our Language Weaver product, and our neural MT research team is
accredited with more than 45 patents. The Trados suite offers a range of
market-leading cloud-oriented translation management and productivity tools,
and we provide complementary content management technologies to allow brands
to better reach their audiences. Our technology product suite is sold both
separately and alongside our service solutions, as well as supporting our
internal efficiency and effectiveness.
· Developing our portfolio - RWS consistently delivers strong cash
generation. As a result, the Group has the ability to invest in service and
technical development to support our clients as they innovate and grow. Our
balance sheet also allows us to make further value accretive acquisitions
which will support our move into higher growth segments.
· Leveraging our global scale and reach - The LXD provides 24 x 7
coverage via a blend of human expertise and technology. The platform delivers
operational leverage, with potential for sustained efficiency and margin
improvement. We are also investing to establish effective and lean shared
services which will support our four operating divisions and facilitate the
integration of acquisitions and continued margin development.
Half year results
The Group increased revenues to £357.3m compared with £326.4m in the prior
period, a 9% improvement. This figure incorporates a full six months' trading
of SDL plc compared with only five months in the comparative period. On an
organic constant currency basis ("OCC")(1) and excluding acquisitions,
revenues grew by 1%.
The Group achieved an Adjusted PBT² of £60.7m in the first half-year, an
increase of 20% compared with £50.5m in the prior year, which was slightly
ahead of the Board's expectations. Adjusted profit before tax is stated before
exceptional items, share-based payment expenses and amortisation of acquired
intangibles. On the same basis, adjusted earnings per share increased by 13%
to 11.9p (HY21: 10.5p).
Taxation
The adjusted³ effective tax rate for the Group was 23.7% (HY21: 23.4%). This
increase reflects the impact of different tax rates in the geographical
locations where profits are made, together with the impact of movements in
provisions as part of our regular reassessment of tax exposures across the
Group.
Currency and FX
The Group remains exposed to movements in the US dollar exchange rate
reflecting the fact that the majority of revenues (approximately 65%) are
denominated in US dollars. The Group continues to hedge transactional risk
while relying on constant currency reporting to highlight underlying
translation risk, which remains unhedged. The Group uses forward exchange
contracts to hedge risk at both Group and divisional level. Results in the
first half of FY22 have been largely unaffected by the £/US$ exchange rate.
Since period close, the £/US$ exchange rate has seen the dollar strengthen by
7%, which should be favourable to the Group in H2 should it continue. We
typically hedge approximately half of our foreign exchange exposure during the
financial year.
Cash Flow
During the first half, the major cash outlays were the final dividend of
£33.1m, the initial purchase consideration for the Fonto acquisition €17.5m
(£14.4m), purchase of intangible assets of £10.9m and tax payments of
£11.3m. Net cash flow from operating activities was £60.1m.
Balance sheet and liquidity
At 31 March 2022, shareholders' funds amounted to £1,012.1m (HY21: £992.1m).
At the same date, the Group had net cash(4) of £38.2m (HY21: £11.8m),
comprising cash of £80.6m less borrowings of £42.4m. RWS has a significantly
cash generative business model and the Board is confident that the Group's
cash generation and liquidity put it in a strong position to further invest in
organic growth as well as explore suitable acquisition opportunities. In
addition to its cash reserves, the Group had drawn US$58m of its US$120m
banking facility, leaving headroom of US$62m at the period end and total
liquidity of £128m.
Dividend
The Directors have approved an interim dividend of 2.25p per share, reflecting
a 13% increase over the 2.0p interim dividend in FY21. This reflects the
Group's strong financial position, its cash generative business model and the
Board's confidence in its future prospects.
The dividend will be paid on 22 July 2022 to shareholders on the register at
24 June 2022 and the ex-dividend date is 23 June 2022. The Group remains
committed to a progressive dividend policy, which has been followed in every
year since flotation in 2003.
Operating review
Language Services
The Language Services division, which represented 44% of Group revenues (FY21:
46%) in the period, generated revenues of £158.7m (like-for-like(5) HY21:
£155.9m), and grew 2% on an OCC(1) basis. The division had a solid first
half, particularly in the Strategic Solutions Group, where there were a number
of new client wins in the Major Account and GoGlobal segments across a variety
of verticals, particularly from the Americas region. For our GoGlobal
proposition we use our expertise, technology and reach to support high-growth
businesses which 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
Original Equipment Manufacturers. We also introduced the GoGlobal solution to
the Japanese and South Korean markets, with some encouraging early signs.
Having identified eLearning as one of our key growth opportunities, we made
encouraging early progress in the period, with our first two new client wins
using our eLearning solution. In addition, we grew share of wallet with
existing clients, cross-selling eLearning into ten existing accounts,
including one major learning software organisation.
In our Enterprise Internationalisation Group, which serves global technology
enterprises, we had some successful programme wins with a large technology
company and strong revenue development with a global digital retailer. Whilst
client retention remained strong, overall revenues were slightly behind the
prior period, with an expectation that they will recover in the second half.
We had identified data services, including data annotation and labelling, as
a key growth opportunity and we have commenced the investments required to
strengthen our offering.
The division's adjusted² operating profit was £19.6m (like-for-like(5) HY21:
£20.6m). However, this was ahead of prior year, after adjusting for exchange
gains and losses, which had a net adverse impact of £1.8m.
Regulated Industries
In Regulated Industries, reported revenues were £85.6m (like-for-like(5)
HY21: £81.9m), representing 24% of Group revenues (FY21: 23%). The division
grew 5% on an OCC(1) basis, winning several new logos and growing spend in
more than half of its top 20 life sciences accounts.
Our penetration of the Linguistic Validation ("LV") market continues to be a
success, including an enhanced collaboration with a US-based clinical trial
platform provider. We continue to invest in the processes, people and
marketing to take best advantage of this opportunity and are focused on
securing business with other electronic Clinical Outcome Assessment (eCOA)
providers. Clinical Outcome Assessments ("COAs") are used as part of clinical
trials to measure the efficacy of a health intervention and solutions are
increasingly digitised. Performance in relation to our largest life sciences
client was solid, with good growth in regulatory and clinical work.
In clinical operations we are collaborating with a number of clients on
solutions, some of them adjacent to our LV proposition, and scaling up to meet
the growth opportunity that we see in the second half. In the financial and
legal services segments we exited several low margin contracts, supporting an
improved profit performance and allowing stronger focus on growth in the
second half.
Adjusted² operating profit for Regulated Industries was £16.8m
(like-for-like(5) HY21: £10.5m), supported by exiting low margin contracts,
together with increasing use of LXD for production.
Language & Content Technology
L&CT revenues were £59.8m (like-for-like(5) HY21: £58.7m), approximately
17% of Group revenues (FY21: 15%). We simplified our organisation within
L&CT to give full ownership and accountability to the leaders in each of
the principal product areas - Language Weaver, Trados, Tridion and Contenta.
This approach, which reflects RWS's long-held view on the primacy of the
operating divisions, is already having a positive effect, particularly in
relation to the link between go-to market strategies and product development.
First half performance was on plan for the division, with 2% growth on an
OCC(1) basis, including a particularly healthy result for content
technologies, based on a combination of client renewals and extensions, as
well as a major new Tridion client, a provider of robotic automation software.
We made good progress on growing the proportion of SaaS revenues, with 34% of
new client wins being SaaS (like-for-like(5) HY21: 24%). Total SaaS revenues
were 23% of divisional revenues in the period (like-for-like(5) HY21: 20%),
slightly higher than anticipated, supporting greater stability and
predictability of revenue streams in this division.
Trados Studio, our translation productivity solution which is trusted by more
than 270,000 translators, issued a major release on 26 May, with hundreds of
new features, demonstrating our commitment to innovation across our technology
platform. We are optimistic that this will have a positive effect on the
second half.
Adjusted² operating profit for the division was £16.2m (like-for-like(5)
HY21: £13.1m), supported by lower cloud costs and some direct people cost
savings, despite the greater proportion of SaaS revenues in the period.
At the end of the first half we announced the acquisition of Liones Holding BV
("Fonto") for an initial cash consideration of €17.5m (£14.4m) Fonto is a
structured content management business with an impressive roster of clients,
which complements our Tridion proposition and further builds our portfolio.
Integration of Fonto into the Group is underway.
IP Services
In IP Services revenues were £53.2m (like-for-like(5) HY21: £57.8m),
representing 15% of Group revenues (FY21: 16%). As stated at our CMD, the
division is experiencing weak demand as a result of the impending introduction
of the Unitary Patent and growth was -8% on an OCC(1) basis. The European
Patent Office announced in January that it would allow clients to delay the
granting of patent applications in order to benefit from protection under the
Unitary Patent, which is expected to come into effect no earlier than the
final quarter of this calendar year. We continue to monitor the situation very
closely and remain highly engaged with clients to understand their proposed
approach.
We took actions in the first quarter of 2022 to lower our cost base in IP
Services and we continue to focus on the division's transformation programme,
which is expected to deliver significant operating efficiencies and enhance
aspects of our proposition to put the division on a stronger footing to manage
the impact of the Unitary Patent. We are also implementing some changes in the
division's leadership team, with a focus on strengthening its sales capability
to grow renewals and better access the patent attorney segment. The division
has delivered against its revised forecast and, in March, we saw a record
month for IP Research revenues.
Effective cost control meant that the division delivered an adjusted²
operating profit of £13.4m (like-for-like(5) HY21: £15.3m).
Sustainability and ESG
The Group continues to make good progress in respect of its sustainability
journey. As a participant in their Early Adopter Programme, we have submitted
our 2022 Communication on Progress report to the UN Global Compact and our
Global Reporting Initiative framework report has been approved by the
third-party assessor and will shortly be submitted. We have also started our
annual engagement programme on materiality, moving to a new online platform to
collect stakeholders' views.
We have also moved to a new web-based platform to better facilitate measuring
and tracking carbon emissions and continue to gather the baseline data for
FY22 that will allow us to submit science-based targets to SBTi for validation
in FY23. We launched our Sustainable Procurement Policy in the period and the
supporting action planned is being finalised for roll out across all parts of
the Group.
RWS Campus is our global university partnership programme which inspires and
develops localisation talent worldwide. The programme continues to go from
strength to strength, with partnerships with more than 220 universities
worldwide. We have begun our 2022 expansion into Africa, with a focus on eight
languages (including Amharic, Hausa, Swahili and Zulu) across six countries
(Ethiopia, Kenya, Nigeria, South Africa, Tanzania and Uganda).
In terms of governance we recently launched a Group-wide company Code of
Conduct and associated training and we have separated the roles of CFO and
Company Secretary.
People and Board
Our people continue to be the bedrock of RWS. Every day our linguist community
- almost 2,000 in-house translators, with access to more than 29,000
freelancers - demonstrate their specialist sector expertise across multiple
verticals, together with their understanding of culture and nuance, to enable
the best solutions to be provided to clients across the world. They are
complemented by our technology teams, with some of the sector's foremost
experts in neural machine translation, translation productivity and management
and structured content management developing and delivering products which can
transform productivity and effectiveness. 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 to our clients every day.
Encouragingly, our continued focus on colleague retention means that attrition
levels have fallen in the 3 months ended 31 March 2022 (15.2%), compared with
the first quarter of FY22 (17.2%).
At the end of the first half we launched our strategy, purpose and values to
our senior leadership team, ahead of an all-colleague launch in April. Many
colleagues had been involved in the development of the values with 56%
participating in an all-colleague survey in January. These values - we
partner; we pioneer; we progress; we deliver - have been well-received by our
teams across the world, and in the second half of the year and beyond we will
focus on embedding the purpose and values in everything that we do, so that
they become part of our organisational DNA.
Shortly after the end of period we welcomed Rod Day to the Board as interim
CFO after a full handover from Des Glass. Maria Schnell was promoted to the
position of Chief Language Officer, leading the development of the LXD, our
unique production platform, and ensuring that the value of our linguistic
expertise is effectively combined with our strong technology proposition and
deep understanding of client industries and local cultures - all underpinned
by our experience in content, our rich data networks, and talented people.
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 - from localisation, data analysis and testing to
linguistic quality assurance and video localisation - that enable them to
continually innovate, anticipate trends and scale their global operations.
Today we are also announcing the appointment of Jane Hyde as General Counsel
and Company Secretary. Jane, who will attend the Group's Board and Committee
meetings, will focus on strengthening the Group's legal, governance, and
compliance approach and will develop RWS's company secretarial and risk
management capabilities to support the achievement of our growth strategy
ambitions. Jane is currently the General Counsel and Company Secretary of De
La Rue plc, overseeing all legal and corporate governance matters, business
ethics and risk management.
We are shocked and saddened by the ongoing situation in Ukraine and we
continue to do everything that we can to support our colleagues and wider
humanitarian efforts. We implemented our crisis response plan and continue to
monitor the situation closely. The RWS Foundation's Ukraine Appeal has raised
£34,436 from employee 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.
At 31 March 2022 the number of full-time equivalent employees in the Group was
7,796 (HY21: 7,528).
Current trading and outlook
We continue to make good progress moving into the second half of the year as
we start to see the upside from our teams' focused efforts on our growth
levers, in particular Linguistic Validation, eLearning, GoGlobal and data
services. The benefits of our reorganisation in the L&CT division are
starting to show, driving growth on the back of better focus on clear product
roadmaps. Colleagues and clients have given very positive feedback to the
launch of our new values and purpose - unlocking global understanding.
As I approach the completion of my first year with RWS, I am pleased with the
progress that we have made and am excited about the prospects for the Group.
We remain confident in the medium to long-term drivers of demand for our
products and services and we know that we have a compelling suite of
propositions to address client needs. Our planned investments will support
accelerated growth and deliver effective and lean shared services to support
our operating divisions.
We anticipate delivering good margin improvement in the current financial year
in line with market expectations(6) and demonstrable progress on the delivery
of our accelerated growth plan.
Ian El-Mokadem
Chief Executive Officer
9 June 2022
1. OCC excludes the impact of acquisitions and assumes constant
currency.
2. 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.
3. The adjusted effective tax rate is the effective tax rate before
exceptional items , amortisation of acquired intangibles, tax on exceptional
items and prior year adjustments
4. Net cash comprises cash and cash equivalents less loans but before
deducting lease liabilities.
5. All like-for-like HY21 comparative figures have been adjusted to
reflect a full six-month contribution from SDL plc.
6. The latest Group-compiled view of analysts' expectations for FY
2022 gives a range of £735.8m-£755.5m for revenue, with a consensus of
£746.5m, and a range of £133.8m-£135.1m for adjusted profit before tax,
with a consensus of £134.2m.
RWS Holdings plc: Condensed Consolidated Statement of Comprehensive Income
(Restated)
6 months ended 31 March 2022 6 months ended 31 March 2021
(Unaudited) (Unaudited)
£m £m
Note
Revenue 2 357.3 326.4
Cost of sales (193.3) (179.9)
Gross profit 164.0 146.5
Administrative expenses (129.8) (129.9)
Operating profit 34.2 16.6
Operating profit before charging: 62.0 52.2
Exceptional items - other 4 (8.8) (6.8)
Exceptional items - acquisition-related costs 4 (0.4) (10.6)
Share-based payment expenses (1.8) (0.7)
Amortisation of acquired intangibles (16.8) (17.5)
Operating profit 34.2 16.6
Finance costs 3 (1.3) (1.7)
Profit before tax 32.9 14.9
Taxation 5 (9.3) (3.8)
Profit for the period attributable to the equity holders of the parent company 2 23.6 11.1
Other comprehensive expense
Gain / (Loss) on retranslation of foreign operations (net of deferred tax) 9.4 (22.8)
(Loss) on cash flow hedges (net of deferred tax) (0.7) (2.7)
Total other comprehensive expense 8.7 (25.5)
Total comprehensive income 32.3 (14.4)
Basic earnings per ordinary share (pence per share) 7 6.1 3.0
Diluted earnings per ordinary share (pence per share) 7 6.0 3.0
(Total comprehensive income is attributable to the equity holders of the
parent company.)
( )
RWS Holdings plc: Condensed Consolidated Statement of Financial Position
(Restated)
31 March 2022 31 March 2021 30 September 2021
(Audited)
(Unaudited) (Unaudited)
£m
£m £m
Note
Assets
Non-current assets
Goodwill 633.2 620.4 615.8
Intangible assets 366.0 368.8 366.6
Property, plant and equipment 31.1 35.8 32.1
Right-of-use assets 40.0 47.0 42.4
Deferred tax assets 1.2 1.4 1.5
Capitalised commissions - 0.5 -
Non-current income tax receivable - - 1.0
1,071.5 1,073.9 1,059.4
Current assets
Trade and other receivables 189.2 172.6 191.8
Capitalised commissions - 1.9 -
Foreign exchange derivatives - 2.2 -
Cash and cash equivalents 8 80.6 62.2 92.5
Income tax receivable 6.7 - 3.5
276.5 238.9 287.8
Total assets 1,348.0 1,312.8 1,347.2
Liabilities
Current liabilities
Trade and other payables 154.3 142.4 152.0
Lease liabilities 11.9 16.3 11.0
Foreign exchange derivatives 1.6 - 0.7
Income tax payable 22.3 15.8 22.1
Provisions 3.3 1.1 5.1
193.4 175.6 190.9
Non-current liabilities
Borrowings 9 42.4 50.4 47.2
Lease liabilities 36.4 36.5 40.5
Trade and other payables 4.7 3.6 2.4
Provisions 5.3 4.0 4.1
Deferred tax liabilities 53.7 50.6 51.2
142.5 145.1 145.4
Total liabilities 335.9 320.7 336.3
Total net assets 1,012.1 992.1 1,010.9
Equity
Capital and reserves attributable to owners of the parent
Share capital 3.9 3.9 3.9
Share premium 54.3 53.6 54.2
Share-based payment reserve 4.6 2.1 2.8
Reverse acquisition reserve (8.5) (8.5) (8.5)
Merger reserve 624.4 624.4 624.4
Foreign currency reserve (8.1) (7.9) (17.5)
Hedge reserve 0.5 (3.1) 1.2
Retained earnings 341.0 327.6 350.4
Total equity 1,012.1 992.1 1,010.9
RWS Holdings plc: Condensed Consolidated Statement of Changes in Equity
Share capital Share premium Other reserves (see below) Retained earnings Total attributable to owners of parent
£m £m £m £m £m
At 1 October 2020 2.8 53.6 7.4 345.1 408.9
Profit for the period - - - 11.1 11.1
Loss on cash flow hedges - - (2.7) - (2.7)
Loss on retranslation of foreign operations - - (22.8) - (22.8)
Total comprehensive income for the period to 31 March 2021 - - (25.5) 11.1 (14.4)
Issue of shares 1.1 - 624.4 - 625.5
Purchase of own shares - - - (0.4) (0.4)
Dividends (28.2) (28.2)
Exercise of share options - - - - -
Equity-settled share-based payments - - 0.7 - 0.7
At 31 March 2021 (restated) 3.9 53.6 607.0 327.6 992.1
At 30 September 2021 3.9 54.2 602.4 350.4 1,010.9
Profit for the period - - - 23.6 23.6
Loss on cash flow hedges - - (0.7) - (0.7)
Gain on retranslation of foreign operations - - 9.4 - 9.4
Total comprehensive income for the period to 31 March 2022 - - 8.7 23.6 32.3
Issue of shares (net of issue costs) - 0.1 - - 0.1
Dividends - - - (33.1) (33.1)
Exercise of share options - - - - -
Equity-settled share-based payments - - 1.8 - 1.8
Deferred tax on share-based payments - - - 0.1 0.1
At 31 March 2022 (unaudited) 3.9 54.3 612.9 341.0 1,012.1
RWS Holdings plc: Condensed Consolidated Statement of Changes in Equity
Share-based payment reserve £m
Reverse acquisition reserve £m Foreign currency reserve £m Total other reserves £m
Merger reserve £m Hedge reserve
£m
Other reserves
At 1 October 2020 1.4 (8.5) - (0.4) 14.9 7.4
Other comprehensive income for the period to 31 March 2021 - - - (2.7) (22.8) (25.5)
Exercise of share options - - - - - -
Equity-settled share-based payments 0.7 - - - - 0.7
Shares issued during the year - - 624.4 - - 624.4
At 31 March 2021 (restated) 2.1 (8.5) 624.4 (3.1) (7.9) 607.0
At 30 September 2021 2.8 (8.5) 624.4 1.2 (17.5) 602.4
Other comprehensive loss for the period to - - - (0.7) 9.4 8.7
31 March 2022
Exercise of share options - - - - - -
Equity-settled share-based payments 1.8 - - - - 1.8
At 31 March 2022 (unaudited) 4.6 (8.5) 624.4 0.5 (8.1) 612.9
RWS Holdings plc: Condensed Consolidated Statement of Cash Flows
(Restated)
6 months ended 31 March 2022 6 months ended 31 March 2021
(Unaudited) (Unaudited)
£m £m
Note
Cash flows from operating activities
Profit before tax 32.9 14.9
Adjustments for:
Depreciation of property, plant and equipment 3.2 3.1
Amortisation of right-of-use asset 5.3 5.4
Amortisation of intangible assets 24.4 23.4
Share-based payment expense 1.8 0.7
Finance expense 1.3 1.7
Foreign exchange (0.1) (0.5)
Fair value movement on derivatives 0.8 (1.8)
Operating cash flow before movements in working capital and provisions 69.6 46.9
(Increase)/decrease in trade and other receivables 3.5 (9.2)
(Decrease) in trade and other payables (1.7) (11.0)
Cash generated from operating activities 71.4 26.7
Income tax paid (11.3) (10.0)
Net cash inflow from operating activities 60.1 16.7
Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired (13.9) 55.0
Purchases of property, plant and equipment (2.1) (4.2)
Purchases of intangible assets (10.9) (5.7)
Net cash outflow from investing activities (26.9) 45.1
Cash flows from financing activities
Repayment of borrowings (5.9) (12.5)
Transaction costs relating to debt refinancing - -
Interest paid (0.6) (1.4)
Lease liability payments (6.2) (5.8)
Proceeds from the issue of share capital, net of share issue costs 0.1 0.5
Purchase of own shares - (0.4)
Dividends paid 6 (33.1) (28.2)
Net cash (outflow)/inflow from financing activities (45.7) (47.8)
Net (decrease)/increase in cash and cash equivalents (12.5) 14.0
Cash and cash equivalents at beginning of the period 92.5 51.4
Exchange (losses)/gains on cash and cash equivalents 0.6 (3.2)
Cash and cash equivalents at end of the period 8 80.6 62.2
Notes to the Condensed Consolidated Financial Statements
1 Basis of preparation
General information
The half year condensed consolidated financial statements do not constitute
statutory accounts within the meaning of section 434 of the Companies Act
2006. The statutory accounts for the year ended 30 September 2021 were
approved by the Board of Directors on 9 December 2020 and have been filed with
the Registrar of Companies. The auditor's report on those accounts was
unqualified, did not draw attention to any matters by way of emphasis and did
not contain a statement made under Section 498 (2) or (3) of the Companies Act
2006.
The condensed consolidated financial statements for the six months ended 31
March 2022 were approved by the Directors on 8 June 2022.
Basis of preparation
On 31 December 2020, International Financial Reporting Standards ("IFRS") as
adopted by the European Union at that date were brought into UK law and became
UK-adopted international accounting standards, with any future changes being
subject to endorsement by the UK Endorsement Board. This condensed
consolidated interim financial report for the half-year reporting period ended
31 March 2022 has been prepared on a going concern basis in accordance with
the UK-adopted IAS 34 'Interim Financial Reporting'.
The preparation of condensed consolidated interim financial statements in
conformity with IFRS requires management to make judgments, estimates and
assumptions that affect the application of accounting policies and reported
amounts of assets and liabilities, income and expenses. The estimates and
associated assumptions are based on historical experience and various other
factors that are believed to be reasonable under the circumstances, the
results for which form the basis of making the judgements about carrying
values of assets and liabilities that are not readily available from other
sources. Actual results may differ from these estimates.
Prior period balances have been restated following completion of the SDL plc
purchase price allocation from the prior year. This has resulted in a
reallocation of amounts from goodwill to acquired intangible assets (see Note
12) which have been amortised in accordance with group policy. Profit before
tax has decreased by £9.1m due to the amortisation charge and profit after
tax has decreased by £4.4m following release of deferred tax related to the
amortisation and the impact of prior period tax adjustments (see Note 5).
Accounting policies
The accounting policies adopted in the preparation of the condensed
consolidated interim financial statements are consistent with those of the
Group's annual financial statements for the year ended 30 September 2021.
New accounting standards and interpretations
In the current period, the Group has applied a number of amendments to IFRS
issued by the International Accounting Standards Board that are mandatorily
effective for an accounting period that begins after 1 January 2021 and have
been implemented with effect from 1 July 2021. These are:
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 -'Interest Rate
Benchmark Reform - Phase 2'; and
Amendment to IFRS 16 - ' COVID-19-Related Rent Concessions beyond 30 June
2021'.
Their addition has not had any material impact on the disclosures, or amounts
reported in the Group Financial Statements.
New standards and interpretations not yet adopted
At the date of the interim report, the following standards and interpretations
which have not been applied in the report were in issue but not yet effective
(and in some cases had not yet been adopted by the UK). The Group will
undertake an assessment of the impact of these new standards and
interpretations prior to their adoption. These are:
Amendments to IAS 1 - 'Classification of Liabilities as Current or
Non-Current';
Amendments to IAS 16 - 'Property, Plant and Equipment - Proceeds before
Intended Use';
Annual Improvements 2018-2020 Cycle;
Amendments to IAS 37 - 'Onerous Contracts - Cost of Fulfilling a Contract';
Amendments to IAS 1 and IFRS Practice Statement 2 - 'Disclosure of Accounting
Policies';
Amendments to IAS 12 - 'Deferred Tax related to Assets and Liabilities arising
from a Single Transaction'; and
Amendments to IAS 8- 'Definition of Accounting Estimates'.
Going concern
At 31 March 2022, the Group's balance sheet reflects a net asset position of
£1,012.1 million and the liquidity of the Group remains strong with £80.6
million of cash reserves. Our US$120 million revolving credit facility ("RCF")
has a maturity date of February 2024 and is extendable for a further year
subject to lender consent. At period end, US$62 million of this RCF facility
is undrawn.
At 31 March 2022, the Group is in a net cash position excluding lease
liabilities of £38.2 million (see note 9), and the Group's two debt covenants
under its RCF, being the ratio of Net Debt to trailing 12- month Adjusted
EBITDA (as defined in the RCF agreement) and trailing 12-month EBITDA to
Finance Charges (as defined in the RCF agreement) are both are well within the
covenant limits permitted by the Group's RCF.
On the basis set out above, the Directors consider it appropriate to conclude
that the Group has adequate resources to continue as a going concern for the
foreseeable future and for a period of at least 12 months from the date of
authorising these interim financial statements. Therefore, the Group continues
to adopt the going concern basis for preparing its interim financial
statements.
Principal risks and uncertainties
The Board routinely monitors risks that could materially and adversely affect
the Group's ability to achieve strategic goals, its financial condition and
the results of its operations. In addition to the risks outlined in the
Group's annual report and financial statements for the year ended 30 September
2021, the Board considers the deteriorating global economic outlook and
increasing inflationary pressures, as emerging risks. It also notes the
realisation of the previously identified regulatory risk in respect of Unitary
Patent protection as having crystallised in the first half.
Judgements and estimates
The preparation of these condensed consolidated interim financial statements
requires management to exercise judgement in applying the Group's accounting
policies. It also requires the use of estimates and assumptions that affect
the reported amounts of assets, liabilities, income and expenses. The actual
future outcomes may differ from these estimates and give rise to material
adjustments to the reported results and financial position of the Group.
Estimates and underlying assumptions are reviewed on an ongoing basis, with
revisions recognised in the year in which the estimates are revised and in any
future periods affected. The Group's significant estimates and judgements
noted below are:
Areas of estimation and uncertainty:
· Value in use estimation for the Group's Cash Generating Units
("CGUs")
· Interpretation of applicable tax legislation and the
recoverability of the Group's resulting deferred tax assets.
· The incremental borrowing rate used to discount the Group's lease
liabilities.
· Estimates of cost to complete for the rendering of services
delivered on an 'over time' basis and by extension the associated accrued
income.
Significant areas of judgement:
· The allocation of transaction price to the identified performance
obligations within the Group's contracts containing multi-element arrangements
(note 2).
· The eligibility of the Group's Research & Development
expenditure for capitalisation under IAS38 - 'Intangible Assets'.
· The determination of the expected lease term over which to
recognise a lease liability.
2 Revenue from contracts with customers and segment
information
The Group generates revenue from contracts with its customers for the
provision of translation and localisation, intellectual property support
solutions, life sciences language services and language and content
technology. Revenue from providing these services during the year is
recognised either at a point in time and over time as shown in the table
below.
Following the acquisition of SDL plc the company has determined that an
amendment to the accounting policy within the IP Services, Life Sciences and
Moravia businesses was required to reflect correctly the nature of these
revenue streams as being 'over time' rather than the previously disclosed
'point in time' recognition.
The note below for the half year has been restated to reflect 'over time'
revenue recognition for these revenue streams in line with the corrected
accounting policy.
Timing of revenue recognition for contracts with customers
(Restated)
6 months ended 6 months ended
31 March 2022 31 March 2021
(Unaudited) (Unaudited)
£m £m
At a point in time 22.8 22.2
Over time 334.5 304.2
Total revenue from contracts with customers 357.3 326.4
Segmental reporting
The chief operating decision maker for the Group is identified as the 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 assesses the performance of the
segments based on revenue and adjusted profit before tax. These are measured
on a basis consistent with the Condensed Consolidated Statement of
Comprehensive Income. The four reporting segments, which match the operating
segments, are explained in more detail below:
· Language Services: provides localisation services including data
training, eLearning, video localisation and interpreting services to a wide
variety of industry verticals.
· Regulated Industries: provides a full suite of language services,
including highly specialised technical translations and linguistic validation,
exclusively for the life sciences, legal and financial services industries.
· Language & Content Technology ("L&CT"): provides a range
of technology products which deliver translation and content management
solutions for enterprises, small and medium-sized organisations and
individuals.
· IP Services: provides patent translations, patent filing and a
wide range of intellectual property ("IP") search, retrieval and monitoring
services, delivering highly specialised technical translations to patient
applicants and their representatives.
The prior year segment information excludes the Horn & Uchida acquisition
which completed on 7 July 2021. The unallocated segment relates to corporate
overheads.
Segment results for the 6 months ended 31 March 2022 (Unaudited) Language Services Regulated Industries
£m £m L&CT IP Services Unallocated Group
£m £m £m £m
Revenue 158.7 85.6 59.8 53.2 - 357.3
Operating profit/(loss) before charging: 19.6 16.8 16.2 13.4 (4.0) 62.0
Amortisation of acquired intangibles (6.7) (6.2) (3.9) - (16.8)
Exceptional items - acquisition-related costs - - - - (0.4) (0.4)
Share-based payments expenses - - - - (1.8) (1.8)
Exceptional items - other - - - - (8.8) (8.8)
Operating profit/(loss) 12.9 10.6 12.3 13.4 (15.0) 34.2
Finance expense (1.3)
Profit before taxation 32.9
Taxation (9.3)
Profit for the period 23.6
Segment results for the 6 months ended 31 March 2021 (Unaudited) Language Services Regulated Industries IP Services (Restated) (Restated)
£m £m L&CT £m Unallocated Group
£m £m £m
Revenue 142.7 74.6 52.2 56.9 - 326.4
Operating profit/(loss) before charging: 18.9 10.6 12.5 15.3 (5.1) 52.2
Amortisation of acquired intangibles (4.0) (4.3) - (0.1) (9.1) (17.5)
Exceptional items - acquisition-related costs - - - - (10.6) (10.6)
Share-based payments expenses - - - - (0.7) (0.7)
Exceptional items - other - - - - (6.8) (6.8)
Operating profit/(loss) 14.9 6.3 12.5 15.2 (32.3) 16.6
Finance expense (1.7)
Profit before taxation 14.9
Taxation (3.8)
Profit for the period 11.1
Capitalised contract costs, contract asset and contract liabilities
The Group holds material asset balances in respect of contract costs
capitalised as they meet the criteria under IFRS 15 as incremental costs to
obtain a contract. These primarily relate to the commissions paid on the
acquisition of new contracts, the value of these balances at the balance sheet
date was £2.3m (HY21: £2.4m).
Contract assets and liabilities are recognised at the point in which the
Group's right to consideration is unconditional. The Group uses the term
'Trade Receivables' for these financial asset balances. Contract assets are
recognised where performance obligations are satisfied over time until the
point of final invoicing when these are classified as 'Trade Receivables'. The
Group recognises revenue for partially satisfied performance obligations as
'Accrued Income', below is a summary of contract balances held by the Group:
31 March 2022 31 March 2021
(Unaudited) (Unaudited)
£m £m
Trade receivables (included in trade and other receivables) 124.9 115.7
Accrued income (included in trade and other receivables) 40.7 31.9
Total contract assets 165.6 147.6
Deferred income (included in trade and other payables) 53.1 45.1
Total contract liabilities 53.1 45.1
3 Finance expense
6 months ended 31 March 2022 6 months ended 31 March 2021
(Unaudited) (Unaudited)
£m £m
Finance expense
- Bank interest payable 0.4 0.5
- Interest payable on lease obligations 0.7 1.0
- Amortised borrowing costs 0.2 0.2
Net finance expense 1.3 1.7
4 Exceptional items
Exceptional items are items of financial significance which the Group believes
should be separately identified on the face of the income statement to assist
in understanding the underlying financial performance achieved by the Group.
6 months ended 6 months ended 31 March 2021
31 March 2022 (Unaudited)
(Unaudited) £m
£m
Other exceptional items 8.8 6.8
Acquisition-related costs 0.4 10.6
Total exceptional items 9.2 17.4
Other exceptional items
Other exceptional items relate primarily to the restructuring and integration
costs incurred following the acquisition of SDL plc. These costs include
severance agreements, termination payments and other costs included within the
business's defined integration plan for SDL plc to deliver expected run-rate
cost synergies of £15m by the end of FY22 as communicated to the market. The
costs of delivering these synergies are classified as exceptional as they are
considered by the Group to be outside the normal course of business. Normal
trading redundancy costs are charged to the income statement as incurred. The
results of cost savings will be shown within operating profit.
In the prior period, other exceptional items included costs of £6.8m related
to the restructuring and integration costs incurred following the acquisition
of SDL plc.
Acquisition-related costs
Acquisition-related costs of £0.4m (HY21: £10.6m) include transaction fees
associated with the acquisition of Liones Holding BV ("Fonto"). The Directors
are of the view that each of these items meet the requirements to be
considered exceptional as they are non-recurring and by their nature do not
form part of the Group's ongoing operating activities.
In the prior period, acquisition-related costs of £10.6m related primarily to
transaction fees associated with the acquisition of SDL plc.
5 Taxation
(Restated)
6 months ended 31 March 2022 6 months ended 31 March 2021
(Unaudited) (Unaudited)
£m £m
Total current taxation 9.3 6.6
Deferred taxation - (2.8)
Tax expense 9.3 3.8
Effective tax rate
The effective tax rate on reported profit before tax was 27.7% (HY21: 35.4%
Restated 25.5%). The Group's effective tax rate for the period is higher than
the UK's statutory tax rate mainly due to the impact of non-tax deductibility
of exceptional costs related to the acquisition and integration of SDL plc.
The adjusted tax charge was £14.4m (HY21:11.8m) giving an effective tax rate
of 23.7% (HY21: 23.4%) on adjusted profit before tax of £60.7m (HY21:
£50.5m) Adjusted profit before tax is an adjusted measure which, is
reconciled as part of the Alternative Performance Measures section at the end
of this report.
The adjusted tax charge is the total tax charge as disclosed in the Condensed
Consolidated Income Statement less the tax effects of exceptional items and
amortisation of acquired intangibles. The effective income tax rate represents
the best estimate of the average annual effective income tax rate expected for
the full year, applied to the profit before income tax for the six months
ended 31 March 2022 adjusted for discrete items as required.
The Group's adjusted effective tax rate going forward is expected to be in the
region of 25%, similar to the effective UK rate. There are some countries in
which the tax rate is lower than the UK, but the impact is small, either
because the countries are not significant contributors to Group profit or the
tax rate difference is not significant.
Uncertain tax provisions
The Group holds uncertain tax provisions in relation to historic transfer
pricing arrangements between the UK, Ireland, the US as well as other tax
risks across the Group. These provisions total £6.4m at 31 March 2022 (HY21:
£7.7m).
6 Dividends
An interim dividend of 2.25p (HY21: 2.0p) per ordinary share will be paid on
22 July 2022 to shareholders on the register at 24 June 2022. The ex-dividend
date is 23 June 2022.
This dividend, declared by the Directors after the balance sheet date, has not
been recognised in these financial statements as a liability at 31 March 2022.
The interim dividend will reduce shareholders' funds by an estimated £8.8m
(HY21: £7.8m).
Dividends paid in the period were £33.1m (HY21: £28.2m).
7 Earnings per share
Basic earnings per share is calculated by dividing the profit attributable to
equity holders by the weighted average number of ordinary shares in issue
during the period.
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 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 profit after tax is the numerator used for this measure. The Group
has identified the following items to be excluded when arriving at adjusted
profit after tax: exceptional items, share-based payment expenses and
amortisation of acquired intangibles.
(Restated)
6 months ended 31 March 2022 6 months ended 31 March 2021
Earnings per ordinary share - basic (p) 6.1 3.0
Earnings per ordinary share - diluted (p) 6.0 3.0
Adjusted earnings per ordinary share - basic (p) 11.9 10.5
Adjusted earnings per ordinary share - diluted (p) 11.9 10.5
(Restated)6 months ended 31 March 2021
6 months ended 31 March 2022 Earnings
Earnings £m
£m
Profit for the period 23.6 11.1
Adjustments:
Amortisation of acquired intangibles 16.8 17.5
Share-based payment expenses 1.8 0.7
Exceptional items 9.2 17.4
Tax effect of adjustments (5.1) (5.8)
Tax adjustment in respect of prior years - (2.4)
Adjusted profit attributable to equity holders of the parent 46.3 38.5
6 months ended 31 March 2022 6 months ended 31 March 2021
Weighted average number of ordinary shares in issue for basic earnings 389,476,257 367,537,066
Dilutive impact of share options 1,006,302 13,871
Weighted average number of ordinary shares for diluted earnings 390,482,559 367,550,937
8 Cash and cash equivalents
30 September 2021
31 March 2022 31 March 2021 (Audited)
(Unaudited) (Unaudited) £m
£m £m
Cash at bank and in hand 76.2 50.6 89.6
Short-term deposits 4.4 11.6 2.9
Cash and cash equivalents in the cash flow statement 80.6 62.2 92.5
Short-term deposits include deposits with a maturity of three months or less,
or deposits that can be readily converted into cash. The fair value of these
assets supports their carrying value.
9 Loans
1 October 2021 Effects of cash flows Non-cash movements Acquired subsidiary 31 March 2022
£m £m £m £m (Unaudited)
£m
Cash 92.5 (13.1) 0.6 0.6 80.6
Non-current loans and borrowings (49.2) 5.9 (0.9) - (44.2)
Net costs to acquire borrowings 2.0 - (0.2) - 1.8
Net debt (excluding lease liabilities) 45.3 (7.2) (0.5) 0.6 38.2
Lease liabilities (51.5) 6.2 (2.8) (0.2) (48.3)
Net debt (including lease liabilities) (6.2) (1.0) (3.3) 0.4 (10.1)
At 31 March 2022, the Group is in a net cash position excluding lease
liabilities of £38.2m and the Group's two debt covenants under its RCF being
the ratio of Net Debt to trailing 12- month Adjusted EBITDA (as defined in the
RCF agreement) and trailing 12-month EBITDA to Finance Charges (as defined in
the RCF agreement) are both are well within the covenant limits permitted by
the Group's RCF.
10 Share-based compensation grants
On 24 January 2022, 1,345,699 Long Term Incentive Plan ('LTIP') shares were
awarded to certain key senior executives and employees of the Group.
The LTIPs comprise conditional awards of shares, with performance conditions
based on earnings per share ('EPS') and total shareholder return ('TSR')
targets.
On 17 February 2022, 211,288 share options were granted under the Group's SAYE
scheme, which in normal circumstances will not be exercisable until the
completion of a three year savings period ending on 1 April 2025 and will be
exercisable for a period of six months thereafter.
11 Related party transactions
During the first half, in the normal course of business, the Group provided
translation services worth £309k (HY21: £97k) to subsidiaries of Learning
Technologies Group plc (LTG), a company in which Andrew Brode, the Group's
Chairman, has a significant interest. An amount of £82k (HY21: £83k) was due
from LTG at the reporting date. In the prior period, Ocorian Limited, acting
as trustee of the RWS Holdings plc Employee Benefit Trust ("EBT") purchased a
total of 55,896 Ordinary Shares of 1p each at an average price of 637.43p
pence per share. These shares continue to be held in the EBT, a discretionary
trust, and are intended to be used to satisfy the exercise of share-based
awards by employees. No further shares were purchased in the current period.
The shares represent approximately 0.01% of RWS's issued share capital. Costs
of £356k relating to this purchase were deducted from retained earnings in
FY21.
12 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
€17.5m (on a cash and debt free basis), with additional deferred
consideration of €5m payable in two equal instalments on the first and
second anniversary of the transaction.
The provisional fair value of identifiable assets and liabilities acquired, Fair values
purchase consideration and goodwill were as follows:
£m
Net assets acquired
Intangible assets 8.7
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 6.7
Goodwill 11.8
Total consideration 18.5
Satisfied by:
Cash 14.4
Deferred consideration 4.1
The provisional fair values of assets and liabilities were recognised
effective 22 March 2022 and are stated including the initial purchase price
allocation ("PPA"). The Directors expect that the finalisation of the PPA work
may identify changes in the intangible assets and their allocation from the
goodwill amount disclosed above, together with associated deferred tax on
intangibles. These adjustments will be reflected in the Group's financial
statements for the year ending 30 September 2022 and are not expected to be
material.
Prior Period Acquisitions
SDL plc
During the six months ended 31 March 2021, the Group acquired SDL plc and
finalisation of the acquisition accounting and purchase price allocation has
resulted in a restatement of amounts previously reported in the Group's 31
March 2021 interim financial statements. The transaction, being a
share-for-share exchange to acquire greater than 90% of the share capital in
SDL plc, was eligible for merger relief under the Companies Act. Accordingly,
the £624.4m of share premium that would have been created on the acquisition
has been recognised within a merger reserve.
The provisional fair value of identifiable assets and liabilities acquired, Fair values
purchase consideration and goodwill were as follows:
£m
Net assets acquired:
Technology 107.1
Customer relationships 139.4
Property, plant and equipment 12.0
Right-of-use assets 34.1
Trade and other receivables 87.1
Deferred tax assets 17.5
Cash and cash equivalents 55.0
Trade and other payables (91.0)
Corporation tax (13.9)
Other taxes payable (6.4)
Lease liabilities (37.7)
Deferred tax liabilities (45.0)
Provisions (10.1)
Total identifiable net assets 248.1
Goodwill 377.4
Total consideration 625.5
Satisfied by:
Shares 625.5
The provisional fair values in relation to acquisitions included in the 31
March 2021 interim statements have been updated resulting in additional
intangible assets of £192m being recognised. Of this amount, £139.4m was in
respect of Customer Relationships and £52.6m was in respect of Technology.
The increase in acquired intangible assets have given rise to an additional
deferred tax liability of £37.8m. Overall net assets acquired increased by
£3.3m.
Webdunia
On 9 June 2020 the Group acquired the localisation and software services
business units of Webdunia.com (India) Private Limited ('Webdunia') as well as
the technology solutions component of its affiliated company, Diaspark Inc.
The total cash consideration was US$ 21.0m.
The provisional fair value of identifiable assets and liabilities acquired, Fair values
purchase consideration and goodwill were as follows:
£m
Net assets acquired:
Customer relationships 5.8
Databases 0.7
Property, plant and equipment 0.3
Right-of-use assets 1.9
Trade and other receivables 2.4
Deferred tax assets -
Cash and cash equivalents 0.9
Trade and other payables (0.8)
Corporation tax -
Other taxes payable -
Lease liabilities (1.9)
Deferred tax liabilities (1.9)
Provisions (0.2)
Total identifiable net assets 7.2
Goodwill 9.6
Total consideration 16.8
Satisfied by:
Cash 16.8
The Webdunia PPA exercise was completed in May 2021 and largely reflected in
the 31 March 2021 accounts. Review of the opening balance sheet included in
the prior year comparatives and the final PPA workings resulted in a decrease
in intangible assets of £0.4m and an increase to goodwill of £0.2m giving an
overall decrease in net assets acquired of £0.2m.
Horn & Uchida
The Group acquired Horn & Uchida Patent Translation Ltd, a specialist in
patent translation based in Osaka Japan for cash consideration of Y349m
(£2.3m) on 7 July 2021 for 100% of its ordinary share capital.
The provisional fair value of identifiable assets and liabilities acquired, Fair values
purchase consideration and goodwill were as follows:
£m
Net assets acquired:
Customer relationships 0.7
Investment securities 0.2
Trade and other receivables 1.0
Deferred tax assets 0.1
Cash and cash equivalents 0.8
Trade and other payables (1.0)
Total identifiable 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 to goodwill. No provisional fair value changes were
made to any other class of asset.
13 Financial risk management and financial instruments
The Group's operations expose it to a variety of financial risks including
foreign currency risk, credit risk, liquidity risk and interest rate risk. The
Group's treasury policy addresses issues of liquidity, funding and investment
as well as currency, credit, liquidity and interest rate risks. The condensed
consolidated interim financial statements do not include all the financial
risk management information and disclosures required in the annual financial
statements. This information and related disclosures are presented in the
Group's annual financial statements at 30 September 2021. There have been no
significant changes to risk management policies or processes since the year
end.
The Group holds a number of financial instruments that are held at fair value
within the condensed consolidated interim financial statements. In deriving
the fair value the derivative financial instruments are classified as level 1,
level 2, or level 3 dependent on the valuation method applied in determining
their fair value.
The different levels are defined as follows:
Level
1 Quoted prices (unadjusted) in active markets for identical assets or
liabilities
2 Inputs other than quoted prices included within level 1 that are
observable for the asset or liability, either directly (prices) or indirectly
(derived from prices)
3 Inputs for the assets and liabilities that are not based on
observable market data (unobservable inputs)
The financial instruments held at fair value by the Group relate to foreign
currency forward contracts used as derivatives for hedging. For both the six
months ended 31 March 2022 and 31 March 2021, the assets and liabilities
arising from foreign currency forward contracts have been classified as level
2. The fair value of these instruments at each of the period ends was:
30 September 2021
31 March 2022 31 March 2021 (Audited)
(Unaudited) (Unaudited) £m
£m £m
Assets
Forward foreign currency exchange contracts - 2.2 -
Liabilities
Forward foreign currency exchange contracts 1.6 - 0.7
There have been no transfers between level 1 and 2 in any period and there are
no level 3 items. The fair value of other financial assets and liabilities,
including trade and other receivables, cash and cash equivalents, trade and
other payables and borrowings approximate to their carrying amount.
14 Post Balance Sheet events
There have not been any 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.
Appendix - Alternative performance measures
Alternative performance measures
The Board uses a number of alternative performance measures, which can be
directly reconciled to GAAP measures. The Board primarily uses these
'adjusted' measures as they exclude the impact of non-recurring transactions
which are not part of the normal course of business. Adjusted measures
therefore are calculated by removing the impact of exceptional items,
share-based payment expenses and amortisation of acquired intangibles
together, where relevant, with their associated tax effects.
Adjusted measures used by the Board include:
· Adjusted profit before tax: Profit before tax before exceptional
items, share-based payment expenses and amortisation of acquired intangibles
(reconciled on the face of the income statement).
· Adjusted profit after tax: profit after tax before exceptional
items, share-based payment expenses and amortisation of acquired intangibles
(reconciled in note 7 as the numerator for adjusted EPS and adjusted diluted
EPS).
· Adjusted operating cash flows: operating cash flows before
exceptional items (reconciled below).
· Adjusted effective tax rate: effective tax rate before
exceptional items, amortisation of acquired intangibles, tax on exceptional
items and prior year adjustments (reconciled below).
· Adjusted earnings per share: earnings per share before
exceptional items net of tax, share-based payment expenses, amortisation of
acquired intangibles net of tax and exceptional tax amounts (reconciled in
note 7).
· Constant currency: Prior period underlying measures, including
revenue are retranslated at the current period exchange rates to neutralise
the effect of currency fluctuations.
Adjusted profit before tax reconciliation HY22 HY21
£m £m
Statutory profit before tax 32.9 14.9
Exceptional items - other 8.8 6.8
Exceptional items - acquisition-related costs 0.4 10.6
Share-based payment expenses 1.8 0.7
Amortisation of acquired intangibles 16.8 17.5
Adjusted profit before tax 60.7 50.5
Adjusted operating cash flows reconciliation HY22 HY21
£m £m
Adjusted operating profit 62.0 52.2
Depreciation (excluding right-of-use assets) 3.2 3.1
Amortisation of non-acquired intangibles 7.6 5.9
Net Working Capital Changes 1.8 (20.2)
Adjusted operating cash flows 74.6 41.0
Operating cash conversion reconciliation HY22 HY21
£m £m
Adjusted operating profit 62.0 52.2
Adjusted operating cash flows 74.6 41.0
Operating cash conversion 120% 79%
HY22 HY21
Adjusted effective tax rate £m £m
Tax charge 9.3 3.8
Tax on amortisation of acquired intangibles 3.6 4.4
Tax on exceptional items 1.5 1.3
Prior Year Adjustments - 2.3
Adjusted tax charge 14.4 11.8
Adjusted profit before tax 60.7 50.5
Adjusted effective tax rate 23.7 % 23.4%
KPIs
KPIs are those key performance indicators used by management and the Board to
monitor the success of the Group. These differ from the Group's alternative
performance measures as they are measures that cannot necessarily be
calculated from GAAP measures.
The KPIs, reviewed by the Board include revenue growth, gross margin and free
cash flow. Free cash flow is defined as cash generated from operations after
interest and tax costs, maintenance capital expenditure and capitalised
research and development costs. Maintenance capital expenditure is the
recurring level of capital expenditure required for the business in its
current form to operate in medium term and excludes non-recurring investment
in capitalised system and infrastructure costs.
Net debt comprises cash and cash equivalents and external borrowings. Net debt
excludes lease liabilities but is reconciled to a measure including lease
liabilities in note 9.
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