REG - RWS Holdings PLC - Half-year Report
08/06/2023 07:00
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RNS Number : 0207C RWS Holdings PLC 08 June 2023
This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No 596/2014 (as it forms part of Retained EU Law as defined in the European Union (Withdrawal) Act 2018).
For immediate release 8 June 2023
RWS Holdings plc
Half Year Report for the Six Months ended 31 March 2023
Continued strategic progress, guidance maintained
RWS Holdings plc ("RWS", "the Group", "the Company"), a unique world-leading provider of technology-enabled language, content and intellectual property services, today announces its half year results for the six months ended 31 March 2023 ("the first half", "H1 2023" or "HY23").
Financial overview
H1 2023 H1 2022 Change
restated¹
Revenue £366.3m £357.3m +2.5%
Adjusted profit before tax² £54.4m £60.7m -10%
Reported profit before tax £28.7m £32.9m -13%
Adjusted basic earnings per share² 10.6p 11.9p -11%
Basic earnings per share 5.4p 6.1p -11%
Interim dividend 2.40p 2.25p +7%
Cash conversion² 85% 104% -1900bps
H1 2023 FY 2022 Change
Net cash³ £57.8m £71.9m -£14.1m
H1 2023 highlights
· New business wins and strong retention across all divisions:
o In a wide variety of end markets, particularly in technology, software and
government/defence
o Reflecting the strength and variety of our product and service portfolio
· Having previously noted that we are seeing more competitive
procurement-driven tender processes, we completed a 3-year contract renewal
for one of our largest clients and, in the early months of the second half,
were encouraged by the positive outcomes of a couple of other tender processes
· Continued good progress on the plans and investments announced in
our medium-term strategy at our Capital Markets Day ("CMD") in March 2022:
o Further revenue development in two of our key growth areas - eLearning and
Linguistic Validation
o Successful launch of our AI Data Services proposition, TrainAI, with
important wins early in the second half giving a strong expectation of further
momentum
o Completion of our first transformation programme, on time and on budget -
the transition to a single Microsoft collaboration platform
· 2.5% year-on-year revenue growth:
o 6.8% decrease on an organic constant currency basis ("OCC")⁴( )
reflected some short-term headwinds, as previously outlined:
§ Softer activity levels amongst certain clients in Language Services, as
they adapted to changing end markets
§ Weaker demand in Regulated Industries, which we believe is primarily due to
regulatory bottlenecks and the impact of new US legislation in Life Sciences
§ Excellent increase in SaaS proportion of licence revenues in Language &
Content Technology ("L&CT") to 33% (HY22: 28%), which moderated overall
divisional revenue growth in the period, but builds long-term value for FY24
and beyond
§ IP Services performed in line with our expectations, with the introduction
of the Unitary Patent ("UP") on 1 June expected to trigger the release of a
backlog of deferred patents to grant
o Strong repeat revenue rate of 98% (FY22: 99%) in our services businesses
with an NPS score of +42 (FY22: +41) demonstrating continued high levels of
service
· Gross margins broadly maintained at 45.7% (HY22: 45.9%),
reflecting:
o Some overall price recovery of rising costs, with success in some parts of
the Group balanced by the competitive dynamics in other end markets where we
have prioritised securing longer-term revenue; and
o Efficiency benefits in Language eXperience Delivery ("LXD"), our
production platform, from increased volumes of client content being translated
via the LXD, as well as greater use of post-edited machine translation than in
HY22
o Partially offset by some unfavourable changes in language and client mix
· Adjusted profit before tax² at £54.4m down 10% on HY22,
reflecting reduced volumes, planned investments (in line with our strategy),
mitigated by the abovementioned actions and foreign exchange gains
· Adjusted profit before tax² margin of 14.9%, down from 17.0% in
HY22
· Continued strong cash generation, with cash conversion² of 85%
resulting in net cash³ of £57.8m at 31 March 2023 (HY22: £38.2m) after
paying a record final dividend for FY22 and the planned investments
· A proposed interim dividend of 2.40p, an increase of 7% (HY22:
2.25p)
· In April the Group successfully managed the impact of a cyber
incident after unauthorized access was gained to a legacy application. The
UK's Information Commissioner closed its investigation into the breach in
early May with no further action
Strategy and outlook
· As previously advised, we anticipate a second-half weighting to
the Group's performance and the full year outlook is expected to be in line
with latest guidance and current market expectations⁵
· Full year guidance is supported by meaningful cost actions which
are expected to have a positive impact in FY23 of £10m
· We are taking further cost actions which are expected to have a
positive impact in the region of £25m in FY24
· We remain confident in the multiple long-term growth drivers for
our products and services and, as noted at the CMD last year, we believe that
the large investments and rapid developments in AI and Large Language Models
create clear growth opportunities for the Group
· RWS has longstanding AI capability and expertise in relation to
localisation, language and content technology and content development, with a
pioneering machine translation solution (Language Weaver), a full data
services proposition (TrainAI) and deployment of AI-functionality in our
Tridion and Trados products, all of which make us a significant beneficiary of
developments in AI
· With 60% of the words that we translate through the LXD being
supported by AI, we are already extensive users, benefiting from the
efficiency opportunities this technology brings in the medium term
· In parallel, we continue to ramp up our transformation
programmes, supporting medium-term margin development and creating the
scalable global platform that will underpin our organic and inorganic growth
efforts
Intention to launch a share repurchase
· RWS also announces its intention to launch a share repurchase
programme of up to £50 million to be completed before the Company's Annual
General Meeting in February 2024. The Group maintains a disciplined approach
to investment, returns and capital efficiency, and as such considers the
launch of a repurchase programme as prudent in light of the Group's cash
generation and strong balance sheet. Further details will be announced in due
course
· The Group continues to see exciting opportunities to deploy
capital organically and via acquisitions. The Group has substantial headroom
under its existing facilities even after taking into consideration the
proposed repurchase, payment of dividends in line with its dividend policy,
and the capital to fund its organic growth and acquisition strategy
Ian El-Mokadem, Chief Executive Officer of RWS, commented:
"The Group continues to make progress with its medium-term growth strategy
against a significantly more challenging economic backdrop and a confluence of
short-term headwinds. We have seen softer activity levels and some slower
decision-making amongst certain clients in the first half, however we remain
confident in the structural drivers of demand for our products and services,
and the strength of the solutions that we provide. This is borne out by the
encouraging number of new business wins in the period across all divisions,
the very high levels of retention and satisfaction across our existing client
base and the positive outcomes from several of the recent tender processes
with some of our largest clients.
"We expect an acceleration of organic growth in the second half, driven by the
expected phasing of the impact of the Unitary Patent, the commencement of
projects previously postponed by clients in the first half and incremental
revenues from our key growth initiatives and product launches. Linguistic
Validation and eLearning have continued to build well and our data services
proposition, TrainAI, was well received when launched in February, with some
encouraging client wins in the early part of the second half.
"TrainAI is just one of RWS's AI-centred products and services and we are
already well-established as developers, providers and users of AI technology.
Large Language Models (LLMs) represent an exciting development as far as
content generation is concerned and have a clear role to play in the
localisation market in enhancing existing products like Language Weaver and
Trados. However, we do not believe that LLMs are a replacement for dedicated
localisation products and services with enterprise-grade security, privacy and
domain expertise, which are developed and improved using high-quality data.
Clients are looking for us to help them access the benefits and navigate the
risks of generative AI technologies and we will continue to develop leading
AI-enabled products and associated services for our end markets.
"Notwithstanding the uncertain macroeconomic environment, the Group remains
resilient and we are continuing to make the investments in growth initiatives
and transformation programmes that will underpin revenue growth and margin
development, alongside the efficiency actions we are taking. We see clear
opportunities from the growth in AI and will continue to benefit from our
diverse and growing client base, wide range of technology-enabled service
offerings and global footprint.
"With our strong balance sheet and cash generation, we are actively pursuing
acquisitions that could accelerate delivery of our medium-term plans. We are
encouraged to see a much more exciting pipeline in the last six months which
provides us with attractive opportunities to deploy our cash and we are at an
advanced stage with a number of bolt-on opportunities."
For further information, please contact:
RWS Holdings plc
Andrew Brode, Chairman
Ian El-Mokadem, Chief Executive Officer
Candida Davies, Chief Financial Officer 01753 480200
MHP (Financial PR Advisor) rws@mhpc.com (mailto:rws@mhpc.com)
Katie Hunt / Simon Hockridge / Catherine Chapman 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
The person responsible for releasing this announcement is Jane Hyde, General
Counsel and Company Secretary.
About RWS:
RWS Holdings plc is a unique, world-leading provider of technology-enabled
language, content and intellectual property services. Through content
transformation and multilingual data analysis, our combination of AI-enabled
technology and human expertise helps our clients to grow by ensuring they are
understood anywhere, in any language.
Our purpose is unlocking global understanding. By combining cultural
understanding, client understanding and technical understanding, our services
and technology assist our clients to acquire and retain customers, deliver
engaging user experiences, maintain compliance and gain actionable insights
into their data and content.
Over the past 20 years we've been evolving our own AI solutions as well as
helping clients to explore, build and use multilingual AI applications. With
40+ AI-related patents and more than 100 peer-reviewed papers, we have the
experience and expertise to support clients on their AI journey.
We work with over 80% of the world's top 100 brands, more than three-quarters
of Fortune's 20 'Most Admired Companies' and almost all of the top
pharmaceutical companies, investment banks, law firms and patent filers. Our
client base spans Europe, Asia Pacific and North and South America. Our 65+
global locations across five continents service clients in the automotive,
chemical, financial, legal, medical, pharmaceutical, technology and
telecommunications sectors.
Founded in 1958, RWS is headquartered in the UK and publicly listed on AIM,
the London Stock Exchange regulated market (RWS.L).
For further information, please visit: www.rws.com (http://www.rws.com) .
Forward-looking statements
This announcement contains certain statements that are forward-looking. These
include statements regarding our intentions, beliefs or current expectations
and those of our officers, Directors and employees concerning, amongst other
things, our results of operations, financial condition, liquidity, prospects,
growth, strategies and the business we operate. By their nature, these
statements involve uncertainty since future events and circumstances can cause
results and developments to differ materially from those anticipated. The
forward-looking statements reflect knowledge and information available at the
date of preparation of this document and, unless otherwise required by
applicable law, RWS undertakes no obligation to update or review these
forward-looking statements. Nothing in this announcement should be construed
as a profit forecast. RWS and its Directors accept no liability to third
parties in respect of this document save as would arise under English law.
1. Prior period balances restated to reflect finalisation of Fonto
purchase price allocation resulting in an increase of amortisation of acquired
intangible assets.
2. RWS uses adjusted results as key performance indicators as the
directors believe these provide a more consistent measure of operating
performance. The definitions for these key performance indicators can be found
in the Appendix.
3. Net cash comprises cash and cash equivalents less loans but before
deducting lease liabilities.
4. OCC excludes the impact of acquisitions and assumes constant
currency.
5. The latest Group-compiled view of analysts' expectations for FY
2023 gives a range of £741.6m-£751.2m for revenue, with a consensus of
£747.1m, and a range of £121.3m-£128.3m for adjusted profit before tax,
with a consensus of £126.6m, and a range of 23.3p to 25.1p for adjusted EPS,
with a consensus of 24.7p.
RWS Holdings plc
Results for the Six Months ended 31 March 2023
Chief Executive Officer's Review
The Group's performance in the first six months of the year ("the first half",
"H1 2023" or "HY23") has demonstrated resilience and the robustness of our
strategy, our people and our business model in the face of a confluence of
short-term headwinds, many of which we expect to improve as we move through
the second half of FY23 and into FY24. While we have delivered growth in
reported revenues, an encouraging number of new business wins across all
divisions and high levels of retention, we have seen softer activity levels
and delays to client decision-making due to a combination of both
client-specific and more general economic and regulatory factors affecting the
end markets that we serve. These led to a decrease in revenue on an organic
constant currency ("OCC") basis.(1)
Despite the challenging conditions, our financial strength has enabled us to
push ahead with our strategy. We have continued to invest in our defined
growth initiatives and the transformation programmes which we believe will
continue to support growth, efficiency and margin development over time.
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.
The Group is a profitable, highly cash-generative business with a strong track
record of growth and value creation. We operate in attractive markets with a
combined global size estimated at more than £47bn, where specialist
knowledge, security, reputation and scale are critical. We offer a wide range
of products and services, delivered with the right blend of technology and
human expertise to meet our clients' content needs. AI-based solutions and
functionality are increasingly central to our success, and we have
long-established AI capability across the content value chain, from the
sourcing and validation of training data to the provision of neural machine
translation across multiple use cases.
We have successfully diversified in recent years and now occupy leading
positions in many of our chosen markets, as well as owning and developing a
significant technology stack.
The Group is organised around four operating divisions:
· Language Services focuses on localisation and related solutions
for a wide range of industry verticals, including automotive, chemical,
consumer, manufacturing, retail, technology, travel and telecommunications.
The range of services includes localisation, AI-centred data services,
eLearning, video localisation and interpreting services. The division has
three client segments - global technology enterprises (served by the
Enterprise Internationalisation Group), Major Accounts and GoGlobal (both
served by the Strategic Solutions Group). RWS's technology products are often
provided in combination with its services and the division supports clients at
any stage of their globalisation journey.
· 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 19 of
the world's top 20 pharmaceutical companies, 19 of the top 20 asset management
companies and 18 of the top 20 law firms. In the pharmaceutical and medical
device verticals, we work in both the clinical and regulatory phases of
therapy development and our services often make a critical contribution to
life safety.
· 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 professionals. 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 were supplemented by
the acquisition of Fonto in March 2022, a provider of structured content
authoring solutions. AI is an increasingly important component in our
products, with semantic AI embedded in Tridion to allow more intuitive
experiences to be delivered, tailored to each user's context. All these
products offer clients enterprise grade privacy, security and quality.
· IP Services is one of the world's leading providers 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 18 of the world's top
20 patent filers as its clients.
Language eXperience Delivery ("LXD"), RWS's unique production platform,
translates an increasing proportion of client content from the Language
Services and Regulated Industries divisions. In the financial year ending 30
September 2024 ("FY24"), the LXD will also start to process content from the
IP Services division. The LXD uses RWS's technology products to support
operational efficiency and excellence in the delivery of solutions to clients
- the Trados Enterprise product is deployed to aid translation productivity
and management and Language Weaver AI is routinely used both to analyse client
content to enable it to be better assigned to linguists and to pre-translate
content before it is post-edited by linguists. More than 60% of the words that
are handled by the LXD are machine-translated first by Language Weaver, making
the LXD an extensive and experienced user of AI.
Our strategy
RWS is confident that its medium-term strategy will support the next phase of
the Group's development and will help build a long-term sustainable business,
delivering financial and social value. Through our defined growth initiatives,
we are accelerating penetration into existing higher growth segments,
leveraging our capabilities into adjacent higher growth segments, and
re-affirming our technology product leadership. We are also expanding the
range of services that we offer to clients - in a climate where clients'
budgets are under pressure, the ability to offer more, across the localisation
and content creation value chain, gives us a range of opportunities to
cross-sell and up-sell to existing clients.
AI is at the heart of these developments and we are already well-established
as developers, providers and users of AI technology, through products such as
Language Weaver and AI data services such as TrainAI. Large Language Models
(LLMs) represent an exciting development as far as content generation is
concerned and have a clear role to play in the localisation market in
enhancing existing products in our portfolio such as Language Weaver and
Trados. However, we do not believe that LLMs are a replacement for dedicated
localisation products and services with enterprise-grade security, privacy and
domain expertise, which are developed and improved using high-quality data.
In parallel we are investing to create an efficient scalable platform that can
underpin both organic and inorganic growth. We completed the first of five
transformation programmes in January, on time and on budget, (with the move to
a single Microsoft collaboration tool) and we continue to make progress with
each of the other four - HR, Finance, IP Services and the LXD. The LXD
transformation programme will deliver operational leverage as we create the
sector's most efficient production platform, rationalising the way that we
work with our freelance community, streamlining systems and, as noted above,
continuing to direct a greater proportion of our localisation work through the
LXD.
RWS's strong cash position means that the Group continues to seek acquisitions
which accelerate delivery of our medium-term plans. Our disciplined M&A
programme is focused on selectively acquiring 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 AI technology and technology-enabled language
services;
· assets that broaden our natural language processing or content
management capabilities; and
· data annotation solutions.
Our strategy is underpinned 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 a
comprehensive 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
429 language pairs and have access to more than 30,000 freelance linguists
alongside nearly 1,700 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 AI-driven Language Weaver product, and our neural
MT research team is accredited with more than 40 patents. The Trados suite
offers a range of market-leading cloud-oriented translation management and
productivity tools, and we provide complementary content management
technologies through Tridion to allow brands to better reach their audiences.
Contenta offers specialised content management for the defence and aerospace
sectors. 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
strong 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 £366.3m compared with £357.3m in the six
months ended 31 March 2022 ("HY22"), a 2.5% improvement. On an OCC basis and
excluding acquisitions, revenues fell by 6.8%. Gross margins were broadly
maintained at 45.7% (HY22: 45.9%).
The Group achieved an Adjusted PBT² of £54.4m in the first half-year, a
decrease of 10% compared with £60.7m in HY22. 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
decreased by 11% to 10.6p (HY22: 11.9p).
Taxation
The adjusted effective tax rate³ for the Group was 24.4% (HY22: 23.7%). 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 are denominated in US
dollars (approximately 52%). 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.
Cash Flow
Net cash flow from operating activities was £60.2m (HY22: £60.1m). During
the first half, the major cash outlays were the final dividend of £37.0m, the
final purchase consideration for the Iconic acquisition of £4.2m, intangible
asset additions of £20.5m and tax payments of £11.2m.
Balance sheet and liquidity
At 31 March 2023, shareholders' funds amounted to £1,062.7m (HY22: £1,012.1m). At the same date, the Group had net cash⁴ of £57.8m (FY22: £71.9m), comprising cash of £76.3m less borrowings of £18.5m. 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$26m of its US$220m banking facility, leaving headroom of US$194m at the period end and total liquidity of £233m.
Dividend
The Directors have approved an interim dividend of 2.40p per share, reflecting
a 7% increase over the 2.25p interim dividend in FY22. 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 21 July 2023 to shareholders on the register at
23 June 2023 and the ex-dividend date is 22 June 2023. The Group remains
committed to a progressive dividend policy, which has been followed in every
year since flotation in 2003.
Cost actions taken
The Group is taking meaningful cost actions, across all divisions and
functions, and encompassing headcount and non-headcount spend, which are
expected to have a positive impact in FY23 of £10m against plan, and
additionally in FY24 in the region of £25m.
In the second half of FY23 we expect to incur approximately £12m of
exceptional costs associated with implementing these actions.
Operating review
Language Services
The Language Services division, which represented 44% of Group revenues (HY22:
44%) in the period, generated revenues of £160.9m (HY22: £158.7m). This was
equivalent to a decrease of 8% on an OCC(1) basis.
In the first half we continued to see reduced activity from some of our
clients as they adapted their priorities to changes in their end markets.
Retention and satisfaction nevertheless remained high and we therefore remain
confident in the strength of these longstanding relationships and our ability
to service their very diverse needs.
We continue to win new business across the division, including Norse Atlantic
Airways, for whom we have recently delivered multilingual booking websites and
online experiences across any device or channel, using a combination of our
language services expertise and our Tridion solution. As previously noted, we
are seeing more competitive procurement-driven tender processes, especially in
the technology sector. Whilst these situations are raising the potential for
us to gain share and cross-sell new services, there is also a risk of some
revenue loss or margin impact in some of our existing business. Encouragingly,
we completed a 3-year contract renewal for one of our largest clients in the
first half and, in the early months of the second half, have been encouraged
by the positive outcomes of a couple of other tender processes.
In respect of the division's growth initiatives, eLearning performed well
during the period and we have seen some success in selling the solution to
clients in the Regulated Industries division. In February we launched
TrainAI, a refreshed proposition focused on the range of data services that we
have been providing to several of our largest technology clients since 2016.
This is focused on helping organisations ensure that their own AI models are
trained with dependable and responsible data and encompasses data collection,
annotation and validation services. The service is backed by a global
community of more than 100,000 annotators and linguists.
We have been encouraged by the market's reception and the sales and marketing
drive which is supporting the launch has already led to some wins early in the
second half. Our pipeline is rapidly expanding in this area. Two of our major
clients have approved us to train data for the next stage of their AI
programmes, giving a strong expectation of further momentum. These large
pilots will provide us with strong references amongst the data services buyer
landscape and are expected to lead to growth in this developing area.
The division's adjusted² operating profit was £13.0m (HY22: £19.6m), driven
by reduced activity and planned investments.
Regulated Industries
In Regulated Industries, reported revenues were £84.9m (HY22: £85.6m),
representing 23% of Group revenues (HY22: 24%). First half revenues, which
fell by 9% on an OCC¹ basis, were impacted year-on-year by the loss of a
major CRO client, as per previous guidance. The division saw softer trading
conditions with several Life Sciences clients showing reduced levels of
activity at the regulatory stage of therapy development (towards which our
activities are skewed) compared with the same period last year and the impact
of new legislation in the USA, such as the Inflation Reduction Act. We do not
expect this to continue, as the bottlenecks in the US and European regulatory
approvals process will be resolved and ongoing early-stage investment by
pharmaceutical companies feeds through into increased regulatory activity in
due course. Retention of the existing client base remains very high.
By contrast, Linguistic Validation, one of our growth initiatives, and a
service focused on the clinical stage of drug development, has once again
performed well and we continue to benefit from our strong position in this
market. In the Financial and Legal Services segment, we achieved healthy
growth, in part due to the requirement on clients to comply with the PRIIPS
regulations, as expected.
Adjusted² operating profit for Regulated Industries was £11.7m (HY22:
£16.8m), reflecting lower activity levels and the impact of the loss of the
major CRO client, partially mitigated by early cost actions.
Language & Content Technology
Language & Content Technology ("L&CT") revenues were £67.6m (proforma
HY22: £63.2m), approximately 18% of Group revenues (HY22: 17%). This
represented a decline of 1% on an OCC¹ basis.
We continue to see a shift in our licence models to SaaS, linked to the
increased R&D investments in our technology products. We achieved an
excellent 29% growth in SaaS revenues in the period versus HY22, meaning total
SaaS revenues now represent 33% of the divisional licence revenues in the
period (HY22: 28%). This shift is slightly ahead of plan and has contributed
to a c.4% headwind versus the comparative. Whilst this moderated overall
divisional revenue growth in the period, we believe it builds long-term value
for FY24 and beyond, by supporting greater stability and predictability of
future revenue streams.
We are continuing to make good progress in the division overall. At the end of
the period, we delivered a significant up-sell of two of our content
technology products (Tridion and Fonto) to an existing major client in Life
Sciences and we continue to win new logos across a range of end markets,
including defence, government, software and infrastructure. We saw a rise in
new bookings for Language Weaver in the last few weeks of the half, confirming
its clear advantage over other solutions in terms of security, quality and
precision. Language Weaver is now used by half of the world's leading 20 law
firms.
In the second half, new Tridion releases (both the Sites and the Docs versions
of the product) are expected to contribute to further strong progress in the
division. We are supporting clients to migrate from legacy products to the
ones that are the basis of our forward technology strategy.
Adjusted² operating profit for the division was £15.5m (proforma HY22:
£18.2m), impacted by the intended transition from one off licence purchases
to a higher proportion of SaaS revenues.
IP Services
In IP Services revenues were £52.9m (HY22: £53.2m), representing 14% of
Group revenues (HY22: 15%). The decline in revenues on an OCC¹ basis (-6%) in
the period was in line with our expectations as clients opted to defer their
patent applications in order to benefit from protection under the Unitary
Patent ("UP").
As noted in April's trading statement, the UP was introduced on 1 June and,
with patents granting from 7 June, we anticipate the release of a backlog of
client work which is expected to underpin revenues in the second half. Any
deferred patents are granting now with all corresponding UP requests and
national validation activities needing to be completed by September 2023. As
such, and with the positive impact from a divisional sales improvement
initiative, trading remains on track for the year and we anticipate that the
total volume of patents granted by the European Patent Office in calendar year
2023 will exceed the level in calendar year 2022. Nevertheless, we remain
highly engaged with clients to understand their evolving approach to the UP.
Elsewhere in the division we delivered solid growth in the Worldfile segment.
Continuing action has been taken during the first half to lower our cost base
in IP Services and we also implemented some changes to the division's
leadership team, with a particular focus on strengthening sales capability and
effectiveness. This has been reflected in the encouraging number of new logos
that we have won in recent months across a range of end markets.
Strong cost control meant that the division delivered an adjusted² operating
profit of £13.1m (HY22: £13.4m).
Sustainability and ESG
Clients increasingly ask us, as their partners, to make commitments to help
them on their own sustainability journeys and/or give detailed information
about our progress and our assurance ratings in tender processes. We remain
committed to being transparent with all our stakeholders in respect of the
progress we are making and have once again embarked on our annual engagement
programme on double materiality.
On environmental matters, we have continued to gather the baseline data that
will enable us to set science-based targets to meet our declared carbon
emission target - a reduction of 55% by 2030 - and we continue to drive a
range of local actions across our estate to lower energy usage and minimise
waste.
After reconstituting The RWS Foundation in FY22, it was relaunched in February
this year. The RWS Foundation is a charitable trust that aims to make a
positive contribution to unlocking global understanding. Beneficiaries of The
RWS Foundation will cover broadly three areas: Language and Content
Transformation; Diversity, Equity and Inclusion; and Quality Education. Using
RWS's global scale and reach, The RWS Foundation also provides a way for
donors and volunteers - whether RWS, individuals or partners - to support
charities and humanitarian efforts.
On governance, we launched a refreshed health and safety policy with
associated mandatory training, completed by more than 86% of colleagues. In
the early months of the second half, we asked colleagues to complete their
refresher training on information security and shared a revised policy on
whistleblowing, alongside an awareness campaign. In April we managed the
impact of a cyber incident successfully after unauthorized access was gained
to a legacy application in the Regulated Industries division. The UK's
Information Commissioner was informed and in early May confirmed it had closed
its investigation into the breach with no further action.
We have recently also published our Global Reporting Initiative framework
report which received third-party assurance.
People and Board
Once again I would like to thank my talented and hard-working colleagues for
continuing to deliver for our clients and one another through another
uncertain period for the world. Whether it is our linguists (both in-house and
the freelance community who work with us), our technology experts, our client
service and sales teams or the functions that support them, they each make a
vital contribution. With the final easing of travel restrictions, I have been
able to visit our teams in the Czech Republic, France, India, Japan, Korea and
the US in the last six months and see first-hand some of the innovation they
have been working on, as well as meet with some of our clients.
We have continued to address the feedback from our 2022 colleague engagement
survey, with action plans in place at Group and local levels to drive
improvements. We launched a recognition programme during the period and
received almost 500 colleague nominations for the first half. We are confident
that these initiatives are contributing to strong levels of colleague
retention. Colleague attrition levels have fallen to 12.5% in the 12 months
ended 31 March 2023, compared with 15.9% for the 12 months ended 30 September
2022.⁵
At the start of the financial year, Candida Davies joined the Board as CFO and
had a full three-month handover with interim CFO Rod Day before he left the
Group on 31 December 2022. I would like to thank Rod for the significant
contribution he made during his year with the Group, including initiating the
finance transformation programme, and his support to Candida during their
handover. Jane Hyde also joined the Group as General Counsel and Company
Secretary at the start of October. In November, Daniel Bennett joined the
Executive Team as President, IP Services.
We were shocked by the terrible earthquake in Turkey and Syria in February and
the impact it had on communities. Although we do not have an office in Turkey,
we do have a number of home-based team members and we are providing ongoing
support to them and their immediate families. Colleague donations raised more
than £7,500 to support humanitarian efforts and The RWS Foundation made a
£10,000 donation to the humanitarian appeal. We have continued to support our
Ukrainian colleagues affected by the ongoing conflict.
At 31 March 2023 the number of full-time equivalent colleagues in the Group
was 7,944 (HY22: 7,920)⁶.
Intention to launch a Share Repurchase
RWS also announces its intention to launch a share repurchase programme of up
to £50 million to be completed before the Company's Annual General Meeting in
February 2024. The Group maintains a disciplined approach to investment,
returns and capital efficiency, and as such considers the launch of a
repurchase programme as prudent in light of the Group's cash generation and
strong balance sheet. Further details will be announced in due course.
The Group continues to see exciting opportunities to deploy capital
organically and via acquisitions. The Group has substantial headroom under its
existing facilities even after taking into consideration the proposed
repurchase, payment of dividends in line with its dividend policy, and the
capital to fund its organic growth and acquisition strategy.
Current trading and outlook
Against a significantly more challenging economic backdrop and a confluence of
short-term headwinds, the Group continues to make progress in implementing its
medium-term strategy, with encouraging evidence that pivoting into higher
growth segments through our declared growth levers are supporting revenue
improvement. Retention and satisfaction levels amongst existing clients remain
strong.
We continue to invest in our technology products and are adding AI-based
functionality and features to the Trados and Tridion solutions, alongside
further development of Language Weaver. Together with our AI data services
proposition (TrainAI) and our core localisation services propositions, we
remain confident that we have the right range of solutions to meet evolving
client needs, in particular to help them access the benefits and navigate the
risks of generative AI technologies.
After successfully completing our first transformation programme, we are
focused on ramping up the other four and remain on track to start delivering
the margin benefits that will result from them in FY24. These transformations
will support our growth ambitions and deliver the lean shared services to
allow us to scale effectively. In parallel, we are taking meaningful cost
actions which will have a positive impact in the region of £25m in FY24.
For the full year, with the benefit of new client wins, the expected phasing
of the impact of the Unitary Patent , the impact of new product launches and
further revenues from our growth initiatives, we anticipate an acceleration of
organic growth in the second half, delivering a performance in line with
current market expectations.⁷ We are encouraged to see a much more exciting
M&A pipeline in the last six months which provides us with attractive
opportunities to deploy our cash and we are at an advanced stage with a number
of bolt-on opportunities.
Ian El-Mokadem
Chief Executive Officer
7 June 2023
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. The definitions for these key performance indicators can be found
in the Appendix.
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. Calculated as number of leavers during the financial year, on a
rolling last twelve months basis, divided by average headcount over the same
period, noting the constraints imposed by having multiple HR systems.
6. FY22 Full Time Equivalent figure restated.
7. The latest Group-compiled view of analysts' expectations for FY
2023 gives a range of £741.6m-£751.2m for revenue, with a consensus of
£747.1m, and a range of £121.3m-£128.3m for adjusted profit before tax,
with a consensus of £126.6m, and a range of 23.3p to 25.1p for adjusted EPS,
with a consensus of 24.7p.
RWS Holdings plc: Condensed Consolidated Statement of Comprehensive Income
(Restated)
6 months ended 31 March 2023 6 months ended 31 March 2022
(Unaudited) (Unaudited)
£m £m
Note
Revenue 2 366.3 357.3
Cost of sales (198.9) (193.3)
Gross profit 167.4 164.0
Administrative expenses (136.8) (129.8)
Operating profit 30.6 34.2
Analysed as:
Operating profit before charging: 56.3 62.0
Exceptional items - other 4 (3.5) (8.8)
Exceptional items - acquisition-related costs 4 (1.6) (0.4)
Share-based payment expenses (1.3) (1.8)
Amortisation of acquired intangibles (19.3) (16.8)
Operating profit 30.6 34.2
Net finance costs 3 (1.9) (1.3)
Profit before tax 28.7 32.9
Taxation 5 (7.8) (9.3)
Profit for the period attributable to the equity holders of the parent company 2 20.9 23.6
Other comprehensive (expense)/ income
(Loss)/ gain on retranslation of foreign operations (net of deferred tax) (67.7) 9.4
Gain/ (loss) on cash flow hedges (net of deferred tax) 5.9 (0.7)
Total other comprehensive (expense)/ income (61.8) 8.7
Total comprehensive (expense)/ income attributable to owners of the Parent (40.9) 32.3
Basic earnings per ordinary share (pence per share) 7 5.4 6.1
Diluted earnings per ordinary share (pence per share) 7 5.4 6.0
( )
RWS Holdings plc: Condensed Consolidated Statement of Financial Position
(Restated)
31 March 2023 31 March 2022 30 September 2022
(Audited)
(Unaudited) (Unaudited)
£m
£m £m
Note
Assets
Non-current assets
Goodwill 653.3 629.2 692.6
Intangible assets 359.7 366.2 385.4
Property, plant and equipment 29.7 31.1 31.3
Right-of-use assets 31.8 40.0 39.0
Non-current income tax receivable 1.0 - 1.0
Deferred tax assets 1.1 1.2 1.1
1,076.6 1,067.7 1,150.4
Current assets
Trade and other receivables 196.3 189.2 220.5
Foreign exchange derivatives 8.0 - -
Income tax receivable 3.0 6.7 4.2
Cash and cash equivalents 8 76.3 80.6 101.2
283.6 276.5 325.9
Total assets 1,360.2 1,344.2 1,476.3
Liabilities
Current liabilities
Trade and other payables 154.3 152.6 165.6
Lease liabilities 9.8 11.9 11.8
Foreign exchange derivatives - 1.6 0.6
Income tax payable 19.4 22.3 22.7
Provisions 2.5 3.3 2.9
186.0 191.7 203.6
Non-current liabilities
Loans 9 18.5 42.4 29.3
Lease liabilities 28.7 36.4 34.9
Trade and other payables 5.0 2.6 3.5
Provisions 4.3 5.3 4.9
Deferred tax liabilities 55.0 53.7 58.4
111.5 140.4 131.0
Total liabilities 297.5 332.1 334.6
Total net assets 1,062.7 1,012.1 1,141.7
Equity
Capital and reserves attributable to owners of the parent
Share capital 3.9 3.9 3.9
Share premium 54.5 54.3 54.4
Share-based payment reserve 4.8 4.6 6.0
Reverse acquisition reserve (8.5) (8.5) (8.5)
Merger reserve 624.4 624.4 624.4
Foreign currency reserve 28.2 (8.1) 95.9
Hedge reserve 0.4 0.5 (5.5)
Retained earnings 355.0 341.0 371.1
Total equity 1,062.7 1,012.1 1,141.7
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 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)
Share-based payments expense - - 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
At 30 September 2022 3.9 54.4 712.3 371.1 1,141.7
Profit for the period - - - 20.9 20.9
Gain on cash flow hedges - - 5.9 - 5.9
Loss on retranslation of foreign operations - - (67.7) - (67.7)
Total comprehensive (expense)/ income for the period to 31 March 2023 - - (61.8) 20.9 (40.9)
Issue of shares (net of issue costs) - 0.1 - - 0.1
Dividends - - - (37.0) (37.0)
Cash-settled share-based payments - - (2.5) - (2.5)
Share-based payments expense - - 1.3 - 1.3
At 31 March 2023 (unaudited) 3.9 54.5 649.3 355.0 1,062.7
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 30 September 2021 2.8 (8.5) 624.4 1.2 (17.5) 602.4
Other comprehensive (expense)/ income for the period to 31 March 2022 - - - (0.7) 9.4 8.7
Share-based payments expense 1.8 - - - - 1.8
At 31 March 2022 (unaudited) 4.6 (8.5) 624.4 0.5 (8.1) 612.9
At 30 September 2022 6.0 (8.5) 624.4 (5.5) 95.9 712.3
Other comprehensive income/ (expense) for the period to 31 March 2023 - - - 5.9 (67.7) (61.8)
Cash-settled share-based payments (2.5) - - - - (2.5)
Share-based payments expense 1.3 - - - - 1.3
At 31 March 2023 (unaudited) 4.8 (8.5) 624.4 0.4 28.2 649.3
RWS Holdings plc: Condensed Consolidated Statement of Cash Flows
(Restated)
6 months ended 31 March 2023 6 months ended 31 March 2022
(Unaudited) (Unaudited)
£m £m
Note
Cash flows from operating activities
Profit before tax 28.7 32.9
Adjustments for:
Depreciation of property, plant and equipment 4.6 3.2
Amortisation of right-of-use asset 4.7 5.3
Amortisation of intangible assets 27.7 24.4
Share-based payment expense 1.3 1.8
Finance income (0.4) -
Finance expense 2.3 1.3
Unrealised foreign exchange gain (0.1) (0.1)
Fair value movement on derivatives (5.4) 0.8
Operating cash flow before movements in working capital 63.4 69.6
Decrease in trade and other receivables 14.2 3.5
(Decrease) in trade and other payables (6.2) (1.7)
Cash generated from operating activities 71.4 71.4
Income tax paid (11.2) (11.3)
Net cash inflow from operating activities 60.2 60.1
Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired (4.2) (13.9)
Purchases of property, plant and equipment (2.1) (2.1)
Purchases of intangible assets (20.5) (10.9)
Net cash outflow from investing activities (26.8) (26.9)
Cash flows from financing activities
Repayment of borrowings (8.3) (5.9)
Net interest paid (1.7) (0.6)
Lease liability payments (6.0) (6.2)
Proceeds from the issue of share capital, net of share issue costs 0.1 0.1
Dividends paid 6 (37.0) (33.1)
Net cash outflow from financing activities (52.9) (45.7)
Net decrease in cash and cash equivalents (19.5) (12.5)
Cash and cash equivalents at beginning of the period 101.2 92.5
Exchange (losses)/ gains on cash and cash equivalents (5.4) 0.6
Cash and cash equivalents at end of the period 8 76.3 80.6
Notes to the Condensed Consolidated Financial Statements
1 Basis of preparation
General information
RWS Holdings plc, together with its subsidiaries, provides translations
services worldwide.
RWS Holdings plc is a public limited company incorporated under the Companies
Act 2006 and domiciled in England and Wales and its shares are quoted on the
AIM Market.
This condensed consolidated interim financial report does not constitute
statutory accounts within the meaning of Section 434 of the Companies Act
2006. The statutory accounts of RWS Holdings plc in respect of the year ended
30 September 2022 have been delivered to the Registrar of Companies, upon
which the Company's auditors have given a report which was unqualified and did
not contain any statement under Section 498 of the Companies Act 2006
The condensed consolidated interim financial report for the six months ended
31 March 2023 were approved by the Directors on 7 June 2023.
Basis of preparation
The condensed consolidated interim financial report is for the six months
ended 31 March 2023. It is unaudited and prepared in accordance with the AIM
rules for Companies and with IAS 34, 'Interim Financial Reporting'. The
condensed consolidated interim financial report should be read in conjunction
with the annual financial statements for the year ended 30 September 2022.
which have been prepared in accordance with international accounting standards
and in conformity with the requirements of the Companies Act 2006
HY22 balances have been restated following completion of the Fonto purchase
price allocation from the prior period. This has resulted in a
recharacterisation of £4m from purchase consideration to contingent
consideration in accordance with IFRS 3 and a corresponding reduction in
goodwill. This amount is being accrued to the profit and loss on a straight
line basis in accordance with IAS 19.
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 2022.
New accounting standards and interpretations
The following accounting standards updates were effective for the first time
during this accounting period:
Amendments to IAS 37 - 'Onerous Contracts - Cost of Fulfilling a Contract';
Amendments to IAS 16 - 'Property, Plant and Equipment - Proceeds before
Intended Use'; and
Amendments to IFRS 3 - 'Reference to the Conceptual Framework'.
These standards and amendments do not have a material impact on the 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 this report were in issue but not yet effective
(and in some cases had not yet been adopted by the UK):
IFRS 17 - Insurance Contracts
Amendment to IAS 8 - 'Definition of Accounting Estimates';
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';
Amendments to IFRS16 'Lease Liability in a Sale and Leaseback';
Amendments to IAS 1 - 'Classification of Liabilities as Current or
Non-Current';
Amendments to IFRS 10 and IAS 28 - Sale or Contribution between an Investor
and its Associate or Joint Venture'
The directors anticipate that the adoption of these standards and
interpretations will have no material impact on the Group's financial
statements.
Going concern
At 31 March 2023, the Group's balance sheet reflects a net asset position of
£1,062.7m and the liquidity of the Group remains strong with £76.3m of cash
reserves. 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.
At the period end, US$194m of this RCF is undrawn.
At 31 March 2023, the Group is in a net cash position excluding lease
liabilities of £57.8m (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 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. The Group's risk management framework is
explained on page 44 of our FY 2022 Annual Report and Financial Statements
which is available on our website at www.rws.com (http://www.rws.com) . The
Board assumes overall accountability for the management of risk whilst the
Audit Committee continues to monitor and review the effectiveness of the
Group's risk management and internal control systems. The identified principal
risks are considered unchanged from those outlined on pages 45 to 46 of our
2022 Annual Report and Financial Statements. These are customer and economic
trends, talent retention and development, IT and information security,
sustainability and environment, business transformation, supply chain and
logistics, legal and regulatory compliance and financial controls.
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 are
described in note 2 of the Group's 2022 Annual Report and Financial Statements
and summarised below:
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.
· 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'.
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.
Timing of revenue recognition for contracts with customers
6 months ended 6 months
31 March 2023 (Unaudited) ended
31 March 2022 (Unaudited)
£m
£m
At a point in time 23.2 22.8
Over time 343.1 334.5
Total revenue from contracts with customers 366.3 357.3
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 patent
applicants and their representatives.
Segment results for the 6 months ended 31 March 2023 (Unaudited)
Language Services Regulated Industries
£m £m L&CT IP Services Unallocated Group
£m £m £m £m
Revenue 160.9 84.9 67.6 52.9 - 366.3
Operating profit/ (loss) before charging: 13.0 11.7 15.5 13.1 3.0 56.3
Amortisation of acquired intangibles (7.3) (6.3) (5.7) - - (19.3)
Exceptional items - acquisition-related costs - - - - (1.6) (1.6)
Share-based payments expenses - - - - (1.3) (1.3)
Exceptional items - other - - - - (3.5) (3.5)
Operating profit/(loss) 5.7 5.4 9.8 13.1 (3.4) 30.6
Finance expense (1.9)
Profit before taxation 28.7
Taxation (7.8)
Profit for the period 20.9
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
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 £2.0m (HY22: £2.3m).
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 2023 31 March 2022
(Unaudited) (Unaudited)
£m £m
Trade receivables (included in trade and other receivables) 126.4 124.9
Accrued income (included in trade and other receivables) 46.4 40.7
Total contract assets 172.8 165.6
Deferred income (included in trade and other payables) 51.6 53.1
Total contract liabilities 51.6 53.1
3 Net finance expense
6 months 6 months ended 31 March 2022
ended 31 (Unaudited)
March 2023 £m
(Unaudited)
£m
Net finance expense
- Net bank interest payable 1.0 0.4
- Interest payable on lease obligations 0.7 0.7
- Amortised borrowing costs 0.2 0.2
Net finance expense 1.9 1.3
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 6 months
ended 31 March 2023 ended 31 March 2022
(Unaudited) (Unaudited)
£m £m
Other exceptional items 3.5 8.8
Acquisition-related costs 1.6 0.4
Total exceptional items 5.1 9.2
Other exceptional items
A description of the principal items included is provided below:
Integration costs - £2.3m was incurred in respect of IT integration projects
to enhance service delivery capability and reduce business complexity across
the newly enlarged Group. A further £0.4m was incurred related to delivering
synergies from business integration and ongoing simplification of the Group's
corporate structure.
Transformation costs - £0.2m was incurred during the period in respect of
transformation programmes for Finance and Human Resources initiated as part of
a strategic review of the business to drive improved efficiencies in future
periods. The Group expects to incur and pay further material costs over the
next 18 months related to the transformation totalling £15m and the ongoing
benefits from the integration will be recognised in the operating profit in
the statement of comprehensive income.
Severance costs - £0.6m was incurred in respect of severance and termination
payments related to the businesses defined integration plan for the OneRWS
initiative.
Finance costs - £0.2m was incurred related to amortisation expense associated
with a gain on debt modification recognised in previous accounting periods.
All the costs noted above were incurred and paid during the period. In
addition, the Group is taking action to reduce costs which is expected to have
a positive impact in FY23 of £10m and in the region of £ 25 m for FY24. The
Group expects to incur approximately £12m of exceptional cost during the
second half of FY23 to achieve these benefits.
In HY22, other exceptional costs included costs of £8.8m related to
restructuring and integration costs incurred following the acquisition of SDL
plc.
Acquisition-related costs
Acquisition-related costs of £1.6m (HY22: £0.4m) include £1.1m of
contingent consideration associated with the acquisition of Fonto being
recognised in accordance with IFRS 3, £0.2m related to settlement of final
obligations in respect of the Iconic acquisition and £0.4m in respect of
on-going strategic projects. These have been accounted for as exceptional
items in line with the Group's accounting policy and treatment of similar
costs during the year ended 30 September 2022.
In the prior period, acquisition-related costs of £0.4m related primarily to
transaction fees associated with the acquisition of Liones Holding BV
("Fonto").
5 Taxation
(Restated)
6 months 6 months
ended 31 March 2023 ended 31 March 2022
(Unaudited) (Unaudited)
£m £m
Total current taxation 9.1 9.3
Deferred taxation (1.3) -
Tax expense 7.8 9.3
Effective tax rate
The effective tax rate on reported profit before tax was 27.2% (HY22: 28.3%).
The Group's effective tax rate for the period is higher than the UK's
statutory tax rate mainly due to the impact of overseas tax rates as well as
non-tax deductibility of acquisition related exceptional costs.
The adjusted tax charge was £13.3m (HY22: £14.4m) giving an adjusted
effective tax rate of 24.4% (HY22: 23.7%) on adjusted profit before tax of
£54.4m (HY22: £60.7m) 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 2023 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 largely offset by
the tax rates in countries that are higher than the UK.
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 £6.2m at 31 March 2023 (HY22:
£6.4m).
6 Dividends
An interim dividend of 2.40p (HY22: 2.25p) per ordinary share will be paid on
21 July 2023 to shareholders on the register at 23 June 2023. The ex-dividend
date is 22 June 2023.
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 2023.
The interim dividend will reduce shareholders' funds by an estimated £9.3m
(HY22: £8.8m).
Dividends paid in the period were £37.0m (HY22: £33.1m).
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 2023 6 months ended 31 March 2022
Earnings per ordinary share - basic (p) 5.4 6.1
Earnings per ordinary share - diluted (p) 5.4 6.0
Adjusted earnings per ordinary share - basic (p) 10.6 11.9
Adjusted earnings per ordinary share - diluted (p) 10.6 11.9
(Restated)
6 months ended 31 March 2023 6 months ended 31 March 2022
Earnings Earnings
£m £m
Profit for the period 20.9 23.6
Adjustments:
Amortisation of acquired intangibles 19.3 16.8
Share-based payment expenses 1.3 1.8
Exceptional items 5.1 9.2
Tax effect of adjustments (5.6) (5.1)
Tax adjustment in respect of prior years 0.1 -
Adjusted profit attributable to equity holders of the parent 41.1 46.3
6 months 6 months ended 31 March 2022
ended 31
March 2023
Weighted average number of ordinary shares in issue for basic earnings 389,438,555 389,476,257
Dilutive impact of share options 30,688 1,006,302
Weighted average number of ordinary shares for diluted earnings 389,469,243 390,482,559
8 Cash and cash equivalents
31 March 31 March 30 September 2022
2023 2022 (Audited)
(Unaudited) (Unaudited) £m
£m £m
Cash at bank and in hand 68.2 76.2 94.8
Short-term deposits 8.1 4.4 6.4
Cash and cash equivalents in the cash flow statement 76.3 80.6 101.2
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 2022 Effects of cash flows Non-cash movements 31 March 2023
£m (Unaudited)
£m £m £m
Cash & cash equivalents 101.2 (19.5) (5.4) 76.3
Issue costs 2.9 - (0.4) 2.5
Loans (current and non-current) (32.2) 8.3 2.9 (21.0)
Net cash (excluding lease liabilities) 71.9 (11.2) (2.9) 57.8
Lease liabilities (46.7) 6.0 2.2 (38.5)
Net cash (including lease liabilities) 25.2 (5.2) (0.7) 19.3
At 31 March 2023, the Group is in a net cash position, excluding lease
liabilities, of £57.8m and the Group's two debt covenants under its RCF being
the net leverage ratio and interest coverage ratio are both are well within
the covenant limits permitted by the Group's RCF.
10 Share-based compensation grants
On 24 January 2023, 2,476,243 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
measured in 2025 by reference to performance in the period to 30 September
2025, based on earnings per share ('EPS') and total shareholder return ('TSR')
targets.
On 16 January 2023, 287,292 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 2026 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 £292k (HY22: £309k) to subsidiaries of Learning
Technologies Group plc (LTG), a company in which Andrew Brode, the Group's
Chairman, has a significant interest. £164k (HY22: £82k) was due from LTG at
the reporting date.
12 Acquisitions
Liones Holding BV ("Fonto") (Prior Period Acquisition)
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 recognised on the identified intangible assets. The fair values of
Trade and other receivables and other classes of assets and their gross
contractual amount are the same.
Fonto contributed £3.7m to Group Revenue and £1.9m to profit after tax in
HY23 (HY22 Revenue: £Nil and Profit after tax: £Nil). In the year to 30
September 2022, Fonto contributed £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 by £1.1m during the year to 30 September 2022.
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 continued successfully
during HY23.
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 2022. 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 2023 and 31 March 2022, 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:
31 March 31 March 30 September 2022
2023 2022 (Audited)
(Unaudited) (Unaudited) £m
£m £m
Assets
Forward foreign currency exchange contracts 8.0 - -
Liabilities
Forward foreign currency exchange contracts - 1.6 0.6
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
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).
· Cash conversion: free cash flow before exceptional cashflows,
divided by adjusted net income.
· Free cash flow, before exceptional cash flows: net cash inflow
from operating activities before exceptional cash flows, less purchase of
fixed assets, net interest paid and lease liability payments (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 HY23 HY22
£m £m
Statutory profit before tax 28.7 32.9
Exceptional items - other 3.5 8.8
Exceptional items - acquisition-related costs 1.6 0.4
Share-based payments expense 1.3 1.8
Amortisation of acquired intangibles 19.3 16.8
Adjusted profit before tax 54.4 60.7
Free Cash Flow reconciliation HY23 HY22
£m £m
Net cash inflow from operating activities 60.2 60.1
Exceptional cash flows 4.9 7.8
Purchases of property, plant and equipment and intangible assets (22.6) (13.0)
Net interest paid (1.7) (0.6)
Lease liability payments (6.0) (6.2)
Free cash flow 34.8 48.1
Operating cash conversion reconciliation HY23 HY22
£m £m
Adjusted net income 41.1 46.3
Free cash flow 34.8 48.1
Operating cash conversion 85% 104%
HY23 HY22
Adjusted effective tax rate £m £m
Tax charge 7.8 9.3
Tax on amortisation of acquired intangibles 4.4 3.6
Tax on exceptional items 1.2 1.5
Prior Year Adjustments (0.1) -
Adjusted tax charge 13.3 14.4
Adjusted profit before tax 54.4 60.7
Adjusted effective tax rate 24.4% 23.7 %
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 cash comprises cash and cash equivalents and external borrowings. Net cash
excludes lease liabilities but is reconciled to a measure including lease
liabilities in note 9.
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