TIDMRWS
RNS Number : 0891B
RWS Holdings PLC
08 June 2021
For immediate release 8 June 2021
RWS Holdings plc
Half Year Report for the Six Months ended 31 March 2021
Transformational SDL acquisition creates largest provider of
Language Services and Language Technology in the world
A robust first half performance and a good start to the second
half
RWS Holdings plc ("RWS", "the Group"), the world's leading
provider of technology-enabled language, content management and
intellectual property services , today announces its half year
results for the six months ended 31 March 2021 ("the first
half").
Financial overview
H1 2021 H1 2020 Change
Revenue GBP326.4m GBP169.7m 92%
Incl. revenue from acquisitions GBP155.9m
Adjusted profit before
tax (1) GBP50.5m GBP33.1m 53%
Incl. profit from
acquisitions
Reported profit before GBP12.1m
tax GBP24.0m GBP25.8m -7%
Adjusted earnings
per share (1) 10.5p 9.4p 12%
Basic earnings per
share 4.2p 7.3p -42%
Interim dividend 2.00p 1.75p 14%
Net cash/(debt) GBP11.8m (GBP34.5m) GBP46.3m
H1 2021 highlights
-- Good first half performance despite FX headwinds, with
Adjusted profit before tax ahead of the Board's expectations
o 3% underlying revenue growth on an organic constant currency
basis
-- Acquisition of SDL Plc on 4 November 2020 provides the Group
with industry leading technology and makes RWS the largest provider
of Language Services and Language Technology in the world
-- SDL integration progressing well with total cost synergies of
at least GBP33m now identified, significantly ahead of the GBP15m
originally stated
-- Strong performance from former RWS Life Science and Moravia
divisions while IP Services' performance has improved significantly
since FY20
-- Former SDL divisions trading in line with the Board's
expectations with a strong performance from the former content
technology division
-- Net cash of GBP11.8m at 31 March 2021 has substantially
improved from the net debt position of GBP34.5m at 31 March 2020.
Strong balance sheet with cash of GBP62.2m (H1 2020: GBP28.3m).
-- The Board's confidence in the Group's prospects is reflected
in its decision to increase the interim dividend to 2.00p, (H1
2020: 1.75p).
(1) RWS uses adjusted results as key performance indicators as
the Directors believe that 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 amortization of acquired intangibles,
acquisition costs, share-based payment expenses, net gain/loss on
debt modification and exceptional items. Adjusted earnings per
share adjusts for amortization of acquired intangibles,
acquisitions costs, share option costs, net gain/loss on debt
modification and exceptional items, net of any associated tax
effects.
Current trading and outlook
-- Trading performance since the H1 period end has been good, in
line with the Board's expectations for the full year.
-- Recent foreign exchange rates, particularly the relative
weakness of the USD compared to GBP, has continued to create
currency headwinds, which have strengthened since 31 March 2021.
However, we are seeing recovery in our markets, particularly in the
USA, which gives us confidence in our delivering good progress in
the second half of the year.
-- The integration of SDL with RWS continues to proceed to
internal timetable and the value of identified synergies has
increased to GBP33m.
Board changes
-- We have announced separately today that Richard Thompson has
decided to step down from his role as CEO of RWS and will be
succeeded by Ian El-Mokadem.
Andrew Brode, Chairman of RWS, commented :
""It has been a transformational six months for the Group, with
the acquisition of SDL positioning us as the global leader in
language services and technology. Against the backdrop of a global
pandemic, the integration has progressed rapidly, and to schedule,
with a strong management team in place to complete the integration
plans.
"Alongside the successful acquisition RWS has delivered a good
performance in the first half of the year despite headwinds
including currency movements and the impact of Covid-19, which held
back demand from certain customers.
"The second half has started well, with a recovery in our core
markets, particularly in the USA where our former Life Science
business continues to show strong growth, leaving the Group well
placed to deliver in line with our expectations for the full
year.
"I would like to thank Richard for his significant contribution
over the last nine years, during which time he has helped to grow
RWS from a GBP240m market capitalisation in 2012 to over GBP2.5bn
today, and to welcome Ian, who brings a wealth of experience
growing substantial people and services businesses globally, both
organically and through acquisitions.
"I look forward to working with Ian and our strong leadership
team to continue to drive profitable growth, drawing on the
benefits of the SDL acquisition. With our leading global position
and expanded capabilities, scale and reach in our large, growing
and fragmented markets, we are confident about the Group's future
prospects.
For further information, please contact:
RWS Holdings plc
Andrew Brode, Chairman
Richard Thompson, Chief Executive Officer
Des Glass, Chief Financial Officer 01753 480796
MHP (Financial PR Advisor) rws@mhpc.com
Katie Hunt / Simon Hockridge 0203 128 8100
07884 494 112
Numis (Nomad & Joint Broker)
Stuart Skinner / Kevin Cruickshank / Will Baunton 0207 260 1000
Berenberg (Joint Broker)
Ben Wright / Toby Flaux / Alix Mecklenburg-Solodkoff 0203 207 7800
About RWS
RWS Holdings plc is the world's leading provider of
technology-enabled language, content management and intellectual
property services. We help our customers to connect with and bring
new ideas to people globally, by communicating business critical
content at scale and enabling the protection and realization of
their innovations.
Our vision is to help organizations interact effectively with
people anywhere in the world, by solving their language, content
and market access challenges through our collective global
intelligence, deep expertise and smart technology.
Customers include 90 of the globe's top 100 brands, the top 10
pharmaceutical companies and approximately half of the top 20
patent filers worldwide. Our client base spans Europe, Asia
Pacific, and North and South America across the technology,
pharmaceutical, medical, legal, chemical, automotive, government,
and telecommunications sectors, which we serve from offices 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).
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, the Company undertakes no obligation to update or
review these forward-looking statements. Nothing in this
announcement should be construed as a profit forecast. The Company
and its Directors accept no liability to third parties in respect
of this document save as would arise under English law.
RWS Holdings plc
Results for the Six Months ended 31 March 2021
Chairman's Statement
In a transformational period for the Group, during which we
completed the acquisition of SDL, I am pleased to report that RWS
has delivered a good performance despite a challenging set of
comparatives and foreign exchange related headwinds.
Business overview
RWS is the world's leading language services and technology
group, focusing on key market segments where the quality of its
services and technology is of critical importance to its clients.
The Group has a blue-chip multinational client base spanning
Europe, Asia Pacific and North and South America that is
particularly active in the technology, pharmaceutical, medical,
legal, chemical, automotive, government and telecoms
industries.
Following the acquisition of SDL, which completed on 4 November
2020, the Group now has four operating divisions:
-- RWS Language Services is the combination of the fRWS Moravia
business and the fSDL Commercial and Enterprise ("CE") business.
This division focuses on the language service and language
technology needs of many of the world's leading companies and
enjoys long-term relationships with some of the largest publicly
traded companies in the world, particularly in the technology
sector. Its services address our clients' large, complex and
time-critical localization requirements, including adapting
content, software, websites and applications for local markets.
-- RWS IP Services is the world's premier supplier of patent
translations, filing solutions and IP search, retrieval and
monitoring services. The division includes PatBase, the world's
largest patent research database, AOP Connect(TM), with its crowd
of over 40,000 researchers, and international web-based patent
filing platform, inovia. Uniquely, this division employs over 250
full-time, highly qualified translators and over 20 full-time
patent information searchers.
-- RWS Regulated Industries is the combination of the former RWS
("fRWS") Life Sciences business and the former SDL ("fSDL")
Regulated Industries business. This division focuses on the
language service needs of the following markets
- Life sciences market- providing technical translations and linguistic validation to large pharmaceuticals and clinical research organizations in North America, Europe and Asia Pacific.
- Legal sector & Financial services market- providing
technical translations via a secure translation platform utilising
the latest neural machine translation and linguistic AI.
-- RWS Language and Content Technology is the combination of
fSDL's Language Technology and Content Technology businesses.
- The Language Technology business comprises three parts:
o Machine Translation - selling fSDL's and fRWS's Iconic machine
translation services to enterprise customers.
o Translation Productivity - selling technology that enables
translators to improve the efficiency of their translation
process.
o Translation Management Systems - tools that allow enterprises
to manage their end-to-end translation and localization
requirements.
- The Content Technology business also comprises three distinct parts:
o Tridion Docs - provides highly structured management software
that allows our customers to manage their complex and high value
content in a structured, cost-efficient and easily accessible
manner.
o Tridion Sites - provides web content management capabilities,
connecting people, processes, and information across teams, brands,
and markets to deliver impactful online experiences globally.
o Contenta - allows our customers to deliver the most accurate
and up-to-date technical content possible. Our publishing suite for
S1000D is an industry-proven publishing solution for technical
content.
Our strategy
Our strategy is to focus on utilising our core strengths of
language and technology expertise, combined with unparalleled
global reach, to provide an increasing range of language and
technology services to existing and new clients. This organic
growth strategy is supplemented by selective acquisitions,
providing these are either complementary to our existing business
or add additional services or geographical coverage, to support our
customers' global aspirations and enhance shareholder value.
Organic growth is driven by:
-- the growing demand for language services and technology,
underpinned by globalization and international trade
-- the increase in the worldwide patent filing activities of
existing and potential multinational clients
-- the development of new drugs and vaccines by the pharmaceutical industry
-- the growth in digital content generated internationally and requiring quality localization
-- increasing regulatory requirements that demand high standards
across all areas of our business
-- the Group's use of technology that enables RWS to provide
customers with a world leading augmented translation service
incorporating the latest IT developments for the language services
sector
-- our customers' demands for highly data secure production processes
-- the outsourcing by corporates, clinical research
organizations, law firms and attorneys of all or part of their
foreign patent search, filing, translation, localization and
linguistic validation processes
-- the Group's ability to attract new clients by virtue of its
market-leading position and reputation in an otherwise fragmented
industry
-- the Group's ability to expand in new and growing geographies
-- an increase in cross divisional and joint selling of the Group's suite of services
Whilst the primary focus is on organic growth, cross-selling and
driving cost saving efficiencies across the Group, we continue to
review selective potential acquisitions that would further
accelerate growth. We seek businesses capable of delivering above
industry average levels of profitability, or highly complementary
businesses capable of reinforcing the Group's leading position in
language services and language or content technology. Once acquired
RWS would utilise its experience to drive through operational
improvements and synergies in the acquired business, which would be
reflected in improved margin growth.
Half year results
Despite the recent foreign exchange headwinds, the Group almost
doubled revenues to GBP326.4m compared to GBP169.7m in the
comparative period. This figure incorporates recent acquisitions,
namely the H1 revenue of Iconic Translation Machines Ltd ("Iconic")
and Webdunia.com (India) Private Limited ("Webdunia") (combined
revenue GBP4.4m), which were acquired in July 2020 and five months'
trading of SDL (GBP151.5m revenue). Excluding acquisitions and on a
constant currency basis, the Group delivered 3% growth in
underlying revenues.
The Group achieved an Adjusted PBT of GBP50.5m in the first
half, compared with GBP33.1m in the prior year, which was ahead of
the Board's expectations.
Adjusted profit before tax, amortization of acquired
intangibles, acquisition costs, share-based payment expenses, net
gain/loss on debt modification and exceptional items increased by
53% to GBP50.5m (H1 2020: GBP33.1m). On the same basis, adjusted
earnings per share increased by 12% to 10.5p (H1 2020: 9.4p).
Taxation
The Group's exposure to underlying US tax rates has increased
with the acquisition of SDL and the adjusted effective tax rate(2)
has increased to 23.4% from 22.4%.
(2) The Adjusted effective tax rate is defined as amortisation
on acquired intangible assets, exceptional items and exceptional
tax items, divided by adjusted profit before tax.
Currency and FX
The Group remains exposed to movements in the US dollar exchange
rate reflecting the fact that the majority of revenues (approx.
two-thirds) are denominated in US dollars. The acquisition of SDL
has increased this exposure in part due to the lack of historical
hedging measures in place at SDL and a material surplus of US
dollars generated from its global operations.
The Group continues to hedge transactional risk while relying on
constant currency reporting to highlight underlying translation
risk, which remains unhedged, and has taken steps to assess and
mitigate the additional currency risk incurred as a result of the
acquisition of SDL including entering into additional US dollar
forward contracts and initiating US dollar hedges across the new
divisional structure at local entity level.
Financial results in the first half of FY21 have been impacted
by movements in the underlying USD-GBP exchange rate as the dollar
has weakened by 5% between periods. The Group continues to focus on
reducing the impact of foreign exchange movements on the financial
results but there remains a significant unhedged position in line
with the Group's internal foreign exchange policy, which remains
exposed to fluctuations in underlying market rates.
Cashflow
During the six months ended 31 March 2021, the major cash
outlays were the final dividend of GBP28.2m, debt repayments and
loan interest of GBP13.9m, acquisition costs of GBP10.6m and tax
payments of GBP10.0m.
Balance sheet and liquidity
As at 31 March 2021, shareholders' funds amounted to GBP1,004.9m
(H1 2020: GBP394.5m). At the same date, the Group had net cash of
GBP11.8m (H1 2020: GBP34.5m net debt), comprising cash of GBP62.2m
less borrowings of GBP50.4m. RWS operates a significantly cash
generative business model and the Board is highly confident that
the Group's cash generation and liquidity put it in a strong
position to further invest in organic growth opportunities as well
as explore suitable acquisition opportunities.
In addition to the Group's cash reserves, it had drawn US$72.5m
of its US$200m banking facility, leaving headroom of US$127.5m at
the period end, of which US$47.5m is guaranteed under a Revolving
Credit Facility and a further US$80m is available under a
non-committed facility.
Dividend
The Directors have approved an interim dividend of 2.00p per
share, reflecting a 14% increase over the 1.75p declared in H1
2020. This reflects both the Group's strong financial position, its
cash generative business model and the Board's confidence in its
future prospects.
This dividend will be paid on 16 July 2021 to those shareholders
on the register as at 25 June 2021, and the ex-dividend date is 24
June 2021. The Group remains committed to a progressive dividend
policy, which has been followed in every year since flotation in
2003 .
Operating review
RWS Language Services
RWS Language Services represented 45% of Group revenues in the
period, with reported sales up 84% to GBP145.8m (H1 2020: GBP79.2m)
largely due to the inclusion of five months revenue from the fSDL
CE business, of GBP63.7m, and GBP3.9m from Webdunia.com (India)
Private Limited, purchased in June 2020, less GBP1.0m of legal
services revenue which have been transferred to RWS Regulated
Industries.
The underlying revenue of the fRWS Moravia business unit grew by
5% on a constant currency basis helped by increased revenue from
one of the world's largest social media platform providers, and one
of the world's largest online retailers. Strong growth here was
offset by weaker sales to several of the division's other top
customers.
The fSDL CE business saw weaker sales on the back of slower
sales to the fSDL Group's former largest customer, which was partly
due to budgetary caution during the pandemic and also because the
client wanted to monitor progress on the integration with Moravia
before it would consider RWS for new business projects. Sales were
also lower with the Group's largest South Korean customer, which
last year cancelled a major software development project. This has
been partly offset by growth in sales to technology customers and
sports equipment manufacturers in the run up to the Olympics.
Adverse exchange rate movements also had a significant impact on
reported sales.
The division's gross margin is broadly in line with the prior
year and tight controls on overheads, combined with the FX rates,
resulted in an improved operational performance, with adjusted
operating profit of GBP20.3m (H1 2020: GBP11.2m).
RWS IP Services
During the period, the division represented 17% of Group
revenues, achieving sales of GBP56.9m (H1 2020: GBP57.9m), a
decrease of 2%, which represents an improvement over the decline in
the second half of 2020, indicating that the intellectual property
market is stabilising. It is also worth noting the division
suffered from a full six-month impact of Covid-19 in H1 2021
compared to a more limited impact in H1 2020.
The division's adjusted operating profit was GBP15.3m (H1 2020:
GBP16.0m), with a stronger gross margin and flat overheads being
offset by the impact of adverse exchange rate movements.
H1 2021 has seen continuing growth in the division's operations
in Japan, as demand for patent applications in Japanese from
European and North American corporates continues to grow.
Pleasingly, direct sales to local companies in both China and Japan
both advanced in the period, achieving double-digit growth with
some good new business wins.
Sales of PatBase, the Group's patent search subscription
business showed a strong 8% increase over the prior period,
following the launch of its new search engine.
RWS Regulated Industries
RWS Regulated Industries, which represented 23% of Group
revenues during the period, grew sales by 131% to GBP75.4m (H1
2020: GBP32.6m) principally due to the inclusion of five months
sales from fSDL's regulated industries business, of GBP40.1m, and
GBP1.0m of legal services related revenue transferred from RWS
Language Services.
The relative weakness of the USD again negatively impacted on
reported sales growth. On a constant currency basis, the fRWS Life
Sciences business grew revenue by 11%, w ith Linguistic Validation
revenue and sales to the Group's largest pharmaceutical customer
continuing to see strong growth. We have also seen further sales
growth in the rest of the Life Sciences business following new
customer wins, further work related to Covid-19 and the
re-commencement of elective surgery, as lockdown restrictions begin
to ease.
The outlook for this division is encouraging and we are
anticipating further increases in pharmacovigilance related work on
the back of the Covid-19 vaccine rollout. The fSDL Regulated
Industries business has also shown increased sales during the five
months since acquisition.
The division delivered adjusted operating profit of GBP10.6m in
the period (H1 2020: GBP9.2m) again reflecting the negative FX
impact but also the lower margins within the fSDL Regulated
Industries business which continue to be reviewed and addressed as
part of the integration process.
RWS Language and Content Technology
The Language and Content Technology is a new division for RWS
which recorded revenue of GBP48.3m in the five months to 31 March
2021. The division saw growth of 4% on a constant currency basis,
compared with the same period in SDL's prior year. The growth was
driven by the Content Technology businesses which saw increased
revenue in all three principal areas of activity, benefitting from
several good wins in the prior period and the recognition of
licence revenues on new business wins in 2021.
Sales in Language Technology were largely flat compared to 2020
with growth in revenue from Machine Translation and Translation
Productivity offset by a decline in Translation Management Systems,
partly due to difficulties in selling during Covid-19, but also due
to the Group's increased push towards selling Software as a Service
("SaaS") resulting in lower initial licence revenue
recognition.
The gross margin of the division was slightly stronger at 72%
and overheads, whilst still high, were lower than the prior year as
we focus on tighter control on costs and start to realise
operational synergies. This resulted in a significantly higher
operating profit of GBP11.1m in the period.
SDL Integration
The integration of SDL with RWS is proceeding to plan, with the
following principal integration workstreams well underway or
completed:
-- Management structure - the business now operates as four
divisions, with a President of each, responsible and accountable
for the profit of each division. The Group has reduced the fSDL
central operations but, in line with its commitment to the fSDL
Board, has maintained Group IT and Language Delivery functions.
-- Rebrand - the fSDL business has been rebranded to RWS with a new combined website launched.
-- SDL product rationalisation - steps are underway to
rationalize the fSDL product portfolio to allow the Group to focus
development resources on the products and services which deliver
the greatest value to our customers. In addition, the former Iconic
machine translation team has been integrated with the fSDL
team.
-- Sharing of sales information & cross-selling - sales
information is being shared across the sales teams and work is
continuing on a unified CRM platform. A large number of cross
selling opportunities have already been identified that are being
actively worked upon. A n ew cross-selling commission scheme has
been introduced to further support organic growth across the
Group.
-- Integrating the work streams of fSDL's largest customer -
work is well underway on moving all operations onto the fSDL
delivery and operating platforms.
-- Completing the integration of SDL's Donnelley Language
Systems ("DLS") - SDL acquired DLS in 2019 but integration had not
been completed. Work is ongoing to streamline and standardise
internal processes.
-- Rationalisation of communication platforms - this has been
particularly important with the majority of employees continuing to
work from home. It also mitigates some of the cultural risks
arising from such an integration.
-- Helix migration - work is well advanced to enable the
migration of selected customers to the SDL Helix delivery platform,
which is expected to lead to improved margins
-- Synergies - the process of identifying synergies continues
and the total value of achievable synergies has increased to GBP33m
since our update in April 2021.
ESG
The Group has increased its work in this area and communicated
directly with shareholders who in aggregate hold 80% of issued
share capital (excluding Directors), to discuss RWS's approach to
ESG and gather views and feedback. We are conducting a similar
exercise with relevant key customers.
RWS is working with its employees globally to identify
opportunities to reduce RWS's and their own carbon footprint and
standardise the management of carbon emission data across the
enlarged Group.
Given the challenges of working from home during a pandemic, the
Group has increased its out-reach programme of events and enhanced
the Group intranet with the aim bringing people together socially
online.
The Group has initiated a major Diversity and Inclusion
initiative with the aim of taking positive action which will ensure
that our staff are aware of the requirement for inclusivity and our
offices reflect the communities in which we operate.
We continue to work collaboratively with third parties in the
communities in which we operate and have welcomed an enlarged
intake of language students to the RWS Brode Scholarship scheme at
Manchester University as well as initiating an RWS staff mentoring
program with Urban Synergy.
Following the acquisition of SDL, the Group took the opportunity
to increase the number of 'independent' members of the Board and
its operating committees and to review and enhance disclosure on
the website of many of the Group's internal governance
documents.
People
RWS has always been a "people" business- without our RWS
colleagues we are nothing -and this has never more true than over
the past 12 months.
The Group is highly reliant upon all the skills of our staff to
deliver innovative, high-quality language services to our clients
globally. Their efforts to grow the business and cope with both the
dreadful impact of Covid-19, and a major integration process has
been nothing short of heroic.
On behalf of the Board, I would like to take this opportunity to
thank all of them for the professional, skilful and positive manner
in which they have continued to service and delight our
customers.
As at 31 March 2021, the Group's number of full-time equivalent
employees was 7,528 (H1 2020: 2,519).
Board changes
The Group has announced separately today, that after almost nine
years with RWS, Richard Thompson, CEO, has decided to leave the
Group. Richard has played a pivotal role in the growth of the
business from a patent translation business in 2012 to become the
world's leading Language Services and technology business, with a
market capitalisation of more than GBP2.4bn.
It is with regret that we have to say goodbye and I would like
to take this opportunity to thank him for his valuable contribution
and help over the years and wish him well in his new ventures.
Following an extensive external succession process, which
identified a number of high calibre candidates, the Board is
pleased to announce that Ian El-Mokadem will become the Group's
CEO, after commencing employment on 19 July 2021.
Ian brings with him a wealth of experience in senior management
roles in large and international services businesses, most recently
as CEO of V.Group, the world's leading ship management and marine
support services business, where he oversaw a significant
transformation programme, including the delivery of new
digitally-enabled approaches to crewing and vessel management,
international development, cultural change and acquisitions. Prior
to that he was CEO of Exova Group, the global materials testing and
calibration services provider, which he steered through its IPO in
2014, growing its revenues and profitability substantially, both
organically and through 18 acquisitions, before executing its sale
to Element Materials Technology in 2017. Prior to that he was the
Managing Director, Compass Group, UK & Ireland.
Current trading and outlook
The second half has started well, with a recovery in our
markets, particularly in the USA where our former Life Science
business continues to show strong growth, leaving the Group well
placed to deliver good progress in line with the Board's
expectations for the full year, despite foreign exchange
headwinds.
The integration of SDL continues to progress well, with a strong
management team in place to complete the integration plans and
realise the increased level of identified synergies.
Together with the leadership team, I look forward to continuing
to drive the Group's profitable growth, drawing on the benefits of
the SDL acquisition. With our leading global position and expanded
capabilities, scale and reach in our large, growing and fragmented
markets, we are confident about the Group's future prospects.
Andrew Brode
Chairman
8 June 2021
RWS Holdings plc: Condensed Consolidated Statement of
Comprehensive Income
Note Restated(1)
(Unaudited) (Unaudited)
6 months 6 months
ended ended
31 March 31 March
2021 2020
GBPm GBPm
================================================== ===== ============= ==============
Revenue 2 326.4 169.7
-------------------------------------------------- ----- ------------- --------------
Cost of sales (179.9) (103.9)
-------------------------------------------------- ----- ------------- --------------
Gross profit 146.5 65.8
-------------------------------------------------- ----- ------------- --------------
Administrative expenses (120.8) (39.6)
-------------------------------------------------- ----- ------------- --------------
Operating profit 25.7 26.2
================================================== ===== ============= ==============
Operating profit before charging: 52.2 34.7
-------------------------------------------------- ----- ------------- --------------
Amortization of acquired intangibles (8.4) (7.6)
-------------------------------------------------- ----- ------------- --------------
Acquisition costs (10.6) (0.2)
-------------------------------------------------- ----- ------------- --------------
Share based payment expense (0.7) -
-------------------------------------------------- ----- ------------- --------------
Other exceptional items 4 (6.8) (0.7)
-------------------------------------------------- ----- ------------- --------------
Operating profit 25.7 26.2
================================================== ===== ============= ==============
Finance costs (including an exceptional gain
on debt modification of GBPNil (HY20: GBP1.3m) 3 (1.7) (0.4)
-------------------------------------------------- ----- ------------- --------------
Profit before tax 24.0 25.8
-------------------------------------------------- ----- ------------- --------------
Taxation (8.5) (5.8)
-------------------------------------------------- ----- ------------- --------------
Profit for the period attributable to the equity
holders of the parent company 2 15.5 20.0
-------------------------------------------------- ----- ------------- --------------
Other comprehensive expense
-------------------------------------------------- ----- ------------- --------------
(Loss) on retranslation of foreign operations
(net of deferred tax) (4.8) (2.4)
-------------------------------------------------- ----- ------------- --------------
(Loss) on cash flow hedges (net of deferred
tax) (2.7) (2.9)
-------------------------------------------------- ----- ------------- --------------
Total other comprehensive expense (7.5) (5.3)
-------------------------------------------------- ----- ------------- --------------
Total comprehensive income 8.6 14.7
-------------------------------------------------- ----- ------------- --------------
Basic earnings per ordinary share (pence per
share) 6 4.2 7.3
-------------------------------------------------- ----- ------------- --------------
Diluted earnings per ordinary share (pence
per share) 6 4.2 7.3
-------------------------------------------------- ----- ------------- --------------
(Total comprehensive income is attributable to the equity
holders of the parent company) (.)
(1) The gain on debt modification relating to the 6 month period
ending 31 March 2020 has been re-presented as finance income in
these interim financial statements having previously been included
within exceptional items. See note 1 for further details.
RWS Holdings plc: Condensed Consolidated Statement of Financial
Position
Note (Unaudited) (Unaudited) (Audited)
at at at
31 March 31 March 30 September
2021 2020 2020
GBPm GBPm GBPm
=================================== ===== ============ ============ ==============
Assets
----------------------------------- ----- ------------ ------------ --------------
Non-current assets
----------------------------------- ----- ------------ ------------ --------------
Goodwill 777.2 247.5 253.9
----------------------------------- ----- ------------ ------------ --------------
Intangible assets 191.7 160.4 157.8
----------------------------------- ----- ------------ ------------ --------------
Property, plant and equipment 35.8 22.5 22.8
----------------------------------- ----- ------------ ------------ --------------
Right-of-use assets 42.9 21.0 20.1
----------------------------------- ----- ------------ ------------ --------------
Deferred tax assets 10.3 2.3 1.9
----------------------------------- ----- ------------ ------------ --------------
Capitalised commissions 0.5 - -
----------------------------------- ----- ------------ ------------ --------------
1,058.4 453.7 456.5
----------------------------------- ----- ------------ ------------ --------------
Current assets
----------------------------------- ----- ------------ ------------ --------------
Trade and other receivables 173.1 85.6 82.1
----------------------------------- ----- ------------ ------------ --------------
Capitalised commissions 1.9 - -
----------------------------------- ----- ------------ ------------ --------------
Foreign exchange derivatives 2.2 - 0.6
----------------------------------- ----- ------------ ------------ --------------
Cash and cash equivalents 7 62.2 28.3 51.4
----------------------------------- ----- ------------ ------------ --------------
239.4 113.9 134.1
----------------------------------- ----- ------------ ------------ --------------
Total assets 1,297.8 567.6 590.6
----------------------------------- ----- ------------ ------------ --------------
Liabilities
----------------------------------- ----- ------------ ------------ --------------
Current liabilities
----------------------------------- ----- ------------ ------------ --------------
Trade and other payables 141.2 52.0 57.5
----------------------------------- ----- ------------ ------------ --------------
Lease liabilities 12.2 4.5 3.2
----------------------------------- ----- ------------ ------------ --------------
Foreign exchange derivatives - 3.0 0.1
----------------------------------- ----- ------------ ------------ --------------
Income tax payable 8.1 3.5 3.6
----------------------------------- ----- ------------ ------------ --------------
Provisions 1.1 0.1 0.1
----------------------------------- ----- ------------ ------------ --------------
162.6 63.1 64.5
----------------------------------- ----- ------------ ------------ --------------
Non-current liabilities
----------------------------------- ----- ------------ ------------ --------------
Borrowings 8 50.4 62.7 66.5
----------------------------------- ----- ------------ ------------ --------------
Lease liabilities 36.5 17.9 19.6
----------------------------------- ----- ------------ ------------ --------------
Trade and other payables 2.1 - 0.3
----------------------------------- ----- ------------ ------------ --------------
Provisions 7.1 0.7 2.4
----------------------------------- ----- ------------ ------------ --------------
Deferred tax liabilities 34.2 28.7 28.4
----------------------------------- ----- ------------ ------------ --------------
130.3 110.0 117.2
----------------------------------- ----- ------------ ------------ --------------
Total liabilities 292.9 173.1 181.7
----------------------------------- ----- ------------ ------------ --------------
Total net assets 1,004.9 394.5 408.9
----------------------------------- ----- ------------ ------------ --------------
Equity
----------------------------------- ----- ------------ ------------ --------------
Capital and reserves attributable
to owners of the parent
----------------------------------- ----- ------------ ------------ --------------
Share capital 3.9 2.8 2.8
----------------------------------- ----- ------------ ------------ --------------
Share premium 668.4 53.6 53.6
----------------------------------- ----- ------------ ------------ --------------
Share based payment reserve 2.1 0.4 1.4
----------------------------------- ----- ------------ ------------ --------------
Reverse acquisition reserve (8.5) (8.5) (8.5)
----------------------------------- ----- ------------ ------------ --------------
Foreign currency reserve 10.1 26.7 14.9
----------------------------------- ----- ------------ ------------ --------------
Hedge reserve (3.1) (5.2) (0.4)
----------------------------------- ----- ------------ ------------ --------------
Retained earnings 332.0 324.6 345.1
----------------------------------- ----- ------------ ------------ --------------
Total equity 1,004.9 394.5 408.9
----------------------------------- ----- ------------ ------------ --------------
RWS Holdings plc: Condensed Consolidated Statement of Changes in
Equity
Other
reserves Total attributable
Share Share (see Retained to owners
capital premium below) earnings of parent
GBPm GBPm GBPm GBPm GBPm
====================================== ========= ========= ========== ========== ===================
At 1 October 2019 2.7 51.8 19.0 323.6 397.1
-------------------------------------- --------- --------- ---------- ---------- -------------------
Profit for the period - - - 20.0 20.0
-------------------------------------- --------- --------- ---------- ---------- -------------------
Loss on cash flow hedges - - (2.9) - (2.9)
-------------------------------------- --------- --------- ---------- ---------- -------------------
Loss on retranslation of foreign
operations - - (2.4) - (2.4)
-------------------------------------- --------- --------- ---------- ---------- -------------------
Total comprehensive income for the
period to 31 March 2020 - - (5.3) 20.0 14.7
-------------------------------------- --------- --------- ---------- ---------- -------------------
Issue of shares 0.1 1.9 - - 2.0
-------------------------------------- --------- --------- ---------- ---------- -------------------
Dividends - - - (19.3) (19.3)
-------------------------------------- --------- --------- ---------- ---------- -------------------
Exercise of share options - - (0.3) 0.3 -
-------------------------------------- --------- --------- ---------- ---------- -------------------
Equity-settled share-based payments - - - - -
-------------------------------------- --------- --------- ---------- ---------- -------------------
At 31 March 2020 2.8 53.7 13.4 324.6 394.5
-------------------------------------- --------- --------- ---------- ---------- -------------------
At 30 September 2020 2.8 53.6 7.4 345.1 408.9
-------------------------------------- --------- --------- ---------- ---------- -------------------
Profit for the period - - - 15.5 15.5
-------------------------------------- --------- --------- ---------- ---------- -------------------
Loss on cash flow hedges - - (2.7) - (2.7)
-------------------------------------- --------- --------- ---------- ---------- -------------------
Loss on retranslation of foreign
operations - - (4.8) - (4.8)
-------------------------------------- --------- --------- ---------- ---------- -------------------
Total comprehensive income for the
period to 31 March 2020 - - (7.5) 15.5 8.0
-------------------------------------- --------- --------- ---------- ---------- -------------------
Issue of shares (net of issue costs) 1.1 614.8 - - 615.9
-------------------------------------- --------- --------- ---------- ---------- -------------------
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 (unaudited) 3.9 668.4 0.6 332.0 1,004.9
-------------------------------------- --------- --------- ---------- ---------- -------------------
RWS Holdings plc: Condensed Consolidated Statement of Changes in
Equity
Share Reverse Hedge Foreign Total
based acquisition reserve currency other
payment reserve reserve reserves
reserve GBPm GBPm GBPm
GBPm GBPm
===================================== ========= ============= ========= ========== ==========
Other reserves
------------------------------------- --------- ------------- --------- ---------- ----------
At 1 October 2019 0.7 (8.5) (2.3) 29.1 19.0
------------------------------------- --------- ------------- --------- ---------- ----------
Other comprehensive income for
the period at 31 March 2020 - - (2.9) (2.4) (5.3)
------------------------------------- --------- ------------- --------- ---------- ----------
Exercise of share options (0.3) - - - (0.3)
------------------------------------- --------- ------------- --------- ---------- ----------
Equity-settled share-based payments - - - - -
------------------------------------- --------- ------------- --------- ---------- ----------
At 31 March 2020 (unaudited) 0.4 (8.5) (5.2) 26.7 13.4
------------------------------------- --------- ------------- --------- ---------- ----------
At 30 September 2020 (audited) 1.4 (8.5) (0.4) 14.9 7.4
------------------------------------- --------- ------------- --------- ---------- ----------
Other comprehensive loss for the
period to 31 March 2020 - - (2.7) (4.8) (7.5)
------------------------------------- --------- ------------- --------- ---------- ----------
Exercise of share options - - - - -
------------------------------------- --------- ------------- --------- ---------- ----------
Equity-settled share-based payments 0.7 - - - 0.7
------------------------------------- --------- ------------- --------- ---------- ----------
At 31 March 2021 (unaudited) 2.1 (8.5) (3.1) 10.1 0.6
------------------------------------- --------- ------------- --------- ---------- ----------
RWS Holdings plc: Condensed Consolidated Statement of Cash
Flows
Note (Unaudited) (Unaudited)
6 months 6 months
ended ended
31 March 31 March
2021 2020
GBPm GBPm
====================================================== ===== ============ ============
Cash flows from operating activities
------------------------------------------------------ ----- ------------ ------------
Profit before tax 24.0 25.8
------------------------------------------------------ ----- ------------ ------------
Adjustments for:
------------------------------------------------------ ----- ------------ ------------
Depreciation of property, plant and equipment 3.1 1.5
------------------------------------------------------ ----- ------------ ------------
Amortization of right-of-use asset 5.4 2.7
------------------------------------------------------ ----- ------------ ------------
Amortization of intangible assets 14.3 9.1
------------------------------------------------------ ----- ------------ ------------
Share-based payment expense 0.7 -
------------------------------------------------------ ----- ------------ ------------
Net gain on debt modification 4 0.1 (1.3)
------------------------------------------------------ ----- ------------ ------------
Finance expense 1.6 1.7
------------------------------------------------------ ----- ------------ ------------
Foreign exchange (0.5) -
------------------------------------------------------ ----- ------------ ------------
Fair value movement on derivatives (1.8) -
------------------------------------------------------ ----- ------------ ------------
Operating cash flow before movements in working
capital and provisions 46.9 39.5
------------------------------------------------------ ----- ------------ ------------
(Increase) in trade and other receivables (9.2) (0.2)
------------------------------------------------------ ----- ------------ ------------
(Decrease) in trade and other payables (11.0) (5.1)
------------------------------------------------------ ----- ------------ ------------
Cash generated from operating activities 26.7 34.2
------------------------------------------------------ ----- ------------ ------------
Income tax paid (10.0) (8.7)
------------------------------------------------------ ----- ------------ ------------
Net cash inflow from operating activities 16.7 25.5
------------------------------------------------------ ----- ------------ ------------
Cash flows from investing activities
------------------------------------------------------ ----- ------------ ------------
Acquisition of subsidiary, net of cash acquired 55.0 -
------------------------------------------------------ ----- ------------ ------------
Purchases of property, plant and equipment (4.2) (1.0)
------------------------------------------------------ ----- ------------ ------------
Purchases of intangible assets (5.7) (1.9)
------------------------------------------------------ ----- ------------ ------------
Net cash outflow from investing activities 45.1 (2.9)
------------------------------------------------------ ----- ------------ ------------
Cash flows from financing activities
------------------------------------------------------ ----- ------------ ------------
Repayment of borrowings (12.5) (18.0)
------------------------------------------------------ ----- ------------ ------------
Transaction costs relating to debt refinancing - (0.6)
------------------------------------------------------ ----- ------------ ------------
Interest paid (1.4) (1.3)
------------------------------------------------------ ----- ------------ ------------
Lease liability payments (5.8) (3.0)
------------------------------------------------------ ----- ------------ ------------
Proceeds from the issue of share capital, net
of share issue costs 0.5 2.0
------------------------------------------------------ ----- ------------ ------------
Purchase of own shares (0.4) -
------------------------------------------------------ ----- ------------ ------------
Dividends paid 6 (28.2) (19.3)
------------------------------------------------------ ----- ------------ ------------
Net cash (outflow)/inflow from financing activities (47.8) (40.2)
------------------------------------------------------ ----- ------------ ------------
Net (decrease)/increase in cash and cash equivalents 14.0 (17.6)
------------------------------------------------------ ----- ------------ ------------
Cash and cash equivalents at beginning of the
period 51.4 47.0
------------------------------------------------------ ----- ------------ ------------
Exchange (losses)/gains on cash and cash equivalents (3.2) (1.1)
------------------------------------------------------ ----- ------------ ------------
Cash and cash equivalents at end of the period 7 62.2 28.3
------------------------------------------------------ ----- ------------ ------------
Free cash flow
------------------------------------------------------ ----- ------------ ------------
Analysis of free cash flow
------------------------------------------------------ ----- ------------ ------------
Net cash generated from operations 26.7 34.2
------------------------------------------------------ ----- ------------ ------------
Net interest paid (1.4) (1.3)
------------------------------------------------------ ----- ------------ ------------
Income tax paid (10.0) (8.7)
------------------------------------------------------ ----- ------------ ------------
Purchases of property, plant and equipment (4.2) (1.0)
------------------------------------------------------ ----- ------------ ------------
Purchases of intangibles (5.7) (1.9)
------------------------------------------------------ ----- ------------ ------------
Free cash flow 5.3 21.3
------------------------------------------------------ ----- ------------ ------------
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 2020 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 to 31 March 2021 were approved by the Directors on 7 June
2021.
Basis of preparation
The annual financial statement of the Group are prepared in
accordance with International Financial Reporting Standards
('IFRSs') as adopted by the EU. The interim condensed consolidated
financial statements for the six months ended 31 March 2021 have
been prepared on a going concern basis in accordance with IAS 34
Interim Financial Reporting.
The preparation of condensed consolidated interim financial
statements in conformity with IFRSs 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 adjustment
The Group has re-presented the gain on debt modification of
GBP1.3m in the prior period from exceptional items (included as
part of administrative expenses) to finance expense. The impact of
this reclassification has been to reduce operating profit by
GBP1.3m and to decrease net finance expense by GBP1.3m. There is no
impact on profit before tax or profit after tax and there is no
impact on the cash flows of the Group. Earnings per share metrics
are also not impacted by this change.
Accounting policies
The accounting policies adopted in the preparation of the
condensed consolidated interim financial statements are those as
set out in the Group's financial statements for the year ended 30
September 2020.
New accounting standards and interpretations
There have not been any new standards or interpretations adopted
in the period which would have a material financial impact on, or
disclosure requirement for, the Group's interim report.
Going concern
As at 31 March 2021, the Group's balance sheet reflects a net
asset position of GBP1,004.9 million and the liquidity of the Group
remains strong with GBP62.2m of cash reserves. Our US$120 million
revolving debt facility (RCF) has a maturity date of February 2024
and is extendable for a further year subject to lender consent. At
period end, US$47.5 million of this RCF facility is undrawn, while
the RCF also offers an accordion facility of US$80 million, subject
to lender consent.
At 31 March 2021, the Group is in a net cash position excluding
lease liabilities of GBP11.8m (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 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 authorizing 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 principal risks and uncertainties were disclosed in the
Group's annual report and financial statements for the year ended
30 September 2020 and remain broadly unchanged. RWS has an
established process both to manage risk and to seek to mitigate the
impact of risk as much as possible should it materialise.
Operational risks include management succession, system
interruption and business continuity, data protection, compliance,
contract management, integration of acquisitions, maintaining
technology leadership and intellectual property. Financial risks
include liquidity, credit risk, interest rates and financial
reporting.
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
have been updated following the acquisition of SDL in November 2020
from those reported in the financial statements for the year ended
30 September 2020. These are:
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 R&D expenditure for
capitalisation under IAS38 Intangible Assets.
-- The determination of the expected lease term over which to recognise a lease liability.
Areas of estimation 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.
2 Revenue from contracts with customers and segment information
The Group generates revenue from contracts with its customers
for the provision of translation and localization, intellectual
property support solutions, life sciences language services and
language and content technology. Revenue from providing these
services during the year is recognized either at a point in time
and over time as shown in the table below .
Timing of revenue recognition for (Unaudited) (Unaudited)
contracts with customers
6 months 6 months
ended ended
31 March 31 March
2021 2020
GBPm GBPm
----------------------------------- ---- ------------ ------------
At a point in time 158.8 142.5
Over time 167.6 27.2
----------------------------------------- ------------ ------------
Total revenue from contracts with
customers 326.4 169.7
----------------------------------------- ------------ ------------
Segmental reporting
Following the acquisition of SDL the Board divided the Group
into four reportable segments. The Board assesses the performance
of the segments based on revenue and adjusted profit / (loss) from
operations. These are measured on a basis consistent with the
Condensed Consolidated Statement of Comprehensive Income. The four
reportable segments are:
-- RWS IP Services: provides the highest quality patent
translations, a seamless global patent filing experience and a wide
range of cutting-edge intellectual property (IP) search
services.
-- RWS Regulated Services: provides a full suite of language
services, including technical translations and linguistic
validation, exclusively for the life sciences, legal and banking
industries.
-- RWS Language Services: provides language solutions and
localization services including the adaptation of content,
software, websites, applications, marketing material and
audio/video to ensure brand consistency.
-- RWS Technology: provides a full range of language and content
technology solutions for both enterprise and individual
customers.
The unallocated segment relates to corporate overheads.
Segment results for RWS IP RWS Regulated RWS Language RWS Technology Unallocated Group
the 6 months ended Services Industries Services GBPm
31 March 2021 - (Unaudited) GBPm GBPm GBPm GBPm
GBPm
============================== ========== ============== ============= =============== ============ =======
Revenue 56.9 75.4 145.8 48.3 - 326.4
Operating profit/(loss)
before charging: 15.3 10.6 20.3 11.1 (5.1) 52.2
------------------------------- ---------- -------------- ------------- --------------- ------------ -------
Amortization of acquired
intangibles (0.1) (4.3) (4.0) - - (8.4)
Acquisition costs - - - - (10.6) (10.6)
Share-based payments
expense - - - - (0.7) (0.7)
Other exceptional
items - - - - (6.8) (6.8)
------------------------------- ---------- -------------- ------------- --------------- ------------ -------
Operating profit/(loss) 15.2 6.3 16.3 11.1 (23.2) 25.7
Finance expense (1.7)
------------------------------- ---------- -------------- ------------- --------------- ------------ -------
Profit before taxation 24.0
Taxation (8.5)
------------------------------- ---------- -------------- ------------- --------------- ------------ -------
Profit for the period 15.5
------------------------------- ---------- -------------- ------------- --------------- ------------ -------
Segment information below represents the reportable segments as
identified by the Board prior to the acquisition of SDL:
Segment results for RWS IP RWS Life RWS Language Unallocated Group
the 6 months ended Services Sciences Services
31 March 2020 - (Unaudited) GBPm GBPm GBPm GBPm
GBPm
============================== ========== ========== ============= ============ ======
Revenue 57.9 32.6 79.2 - 169.7
Operating profit/(loss)
before charging: 16.0 9.2 11.2 (1.7) 34.7
------------------------------- ---------- ---------- ------------- ------------ ------
Amortization of acquired
intangibles (0.3) (3.0) (4.3) - (7.6)
Acquisition costs - - - (0.2) (0.2)
Share-based payments - - - - -
expense
Other exceptional
items (0.7) - - - (0.7)
------------------------------- ---------- ---------- ------------- ------------ ------
Operating profit/(loss) 15.0 6.2 6.9 (1.9) 26.2
Finance expense (0.4)
------------------------------- ---------- ---------- ------------- ------------ ------
Profit before taxation 25.8
Taxation (5.8)
------------------------------- ---------- ---------- ------------- ------------ ------
Profit for the period 20.0
------------------------------- ---------- ---------- ------------- ------------ ------
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 GBP2.4m (HY20:
GBPNil).
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:
(Unaudited) (Unaudited)
At 31 March At 31 March
2021 2020
GBPm GBPm
==================================== ============= =============
Trade receivables (included in
trade and other receivables) 115.7 62.4
Accrued income (included in trade
and other receivables) 31.9 15.5
Total contract assets 147.6 77.9
Deferred income (included in trade
and other payables) 45.1 4.7
Total contract liabilities 45.1 4.7
3 Finance expense
Restated(1)
(Unaudited) (Unaudited)
6 months 6 months
ended ended
31 March 31 March
2021 2020
GBPm GBPm
================================================ ============= =============
Finance expense
- Net gain on debt modification (considered as
part of exceptional finance costs) (0.1) 1.3
- Bank interest payable (0.4) (1.2)
- Interest payable on lease obligations (1.0) (0.3)
- Amortized borrowing costs (0.2) (0.2)
Net finance expense (1.7) (0.4)
------------------------------------------------ ------------- -------------
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. The Group separately
reports the cost of restructuring programmes, acquisition costs and
other exceptional items:
Restated(1)
(Unaudited) (Unaudited)
6 months 6 months
ended ended
31 March 31 March
2021 2020
GBPm GBPm
=========================== ============= =============
Other exceptional items (6.8) (0.7)
Acquisition related costs (10.6) (0.2)
Total exceptional items (17.4) (0.9)
--------------------------- ------------- -------------
Other exceptional items
Other exceptional items include costs of GBP6.8m relating to the
restructuring and integration costs incurred following the
acquisition of SDL. Restructuring costs relate to the costs of
organisational change associated with the Group's integration
programme. Normal trading redundancy costs are charged to the
income statement as incurred. The results of cost savings will be
shown within operating profit.
These restructuring costs include identifying further synergies
and integration opportunities as a result of the acquisition of SDL
and the exit of certain legacy teams.
In the prior period, other exceptional items included redundancy
costs of GBP0.7m related to the restructuring of the sales team
within the IP Services division.
Acquisition related costs
Acquisition costs of GBP10.6m (HY20: GBP0.2m) include deal fees
associated with the acquisition of SDL.
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.
5 Taxation
(Unaudited) (Unaudited)
6 months 6 months
ended ended
31 March 31 March
2021 2020
GBPm GBPm
======================== ============ ============
Total current taxation 8.1 7.3
Deferred taxation 0.4 (1.5)
Tax expense 8.5 5.8
------------------------ ------------ ------------
Effective tax rate
The effective tax rate on reported profit before tax was 35.4%
(HY20: 22.5%). 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 of SDL.
The adjusted tax charge was GBP11.8m (HY20: GBP7.4m) giving an
effective tax rate of 23.4% (HY20: 22.4%) on adjusted profit before
tax of GBP50.5m (HY20: GBP33.1m) Adjusted profit before tax is an
adjusted measure which, is reconciled as part of the APMs 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 expenses and amortisation of acquired intangible
assets. 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 2021 adjusted for discrete items as
required.
The Group's adjusted effective tax rate going forward is
expected to be in the region of 22% to 25%. The rate is higher than
the effective UK rate principally due to the impact of higher tax
rates in overseas countries and to a lesser extent disallowable
expenditure. 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
GBP7.7m at 31 March 2021 (HY20: GBP0.4m).
6 Dividends
An interim dividend of 2.0p (HY20: 1.75p) per ordinary share
will be paid on 16 July 2021 to shareholders on the register at 25
June 2021.
This dividend, declared by the Directors after the balance sheet
date, has not been recognized in these financial statements as a
liability at 31 March 2021. The interim dividend will reduce
shareholders' funds by an estimated GBP7.8m (HY20: GBP4.9m).
Dividends paid in the period were GBP28.2m (HY20: GBP19.3m).
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 before
tax is the numerator used for this measure. The Group has
identified the following items to be excluded when arriving at
adjusted profit before tax: amortisation of acquisition intangible
assets, acquisition costs, share based payment expenses and other
exceptional items.
6 months 6 months
ended ended
31 March 31 March
2021 2020
==================================================== ========== ==========
Earnings per ordinary share - basic (p) 4.2 7.3
Earnings per ordinary share - diluted (p) 4.2 7.3
Adjusted earnings per ordinary share - basic (p) 10.5 9.4
Adjusted earnings per ordinary share - diluted (p) 10.5 9.4
---------------------------------------------------- ---------- ----------
6 months 6 months
ended ended
31 March 31 March
2021 2020
Earnings Earnings
GBPm GBPm
======================================================== ============ ============
Profit for the period 15.5 20.0
Adjustments:
Amortization of acquired intangibles 8.4 7.6
Acquisition costs 10.6 0.2
Share based payment expense 0.7 -
Other exceptional items 6.8 (0.6)
Net expense on debt modification (0.1) (1.3)
Tax effect of adjustments (3.4) (1.5)
-------------------------------------------------------- ------------ ------------
Adjusted profit attributable to equity holders of
the parent 38.5 25.7
-------------------------------------------------------- ------------ ------------
6 months 6 months
ended ended
31 March 31 March
2021 2020
======================================================== ============ ============
Weighted average number of ordinary shares in issue
for basic earnings 367,537,066 274,802,384
Dilutive impact of share options 13,871 118,744
-------------------------------------------------------- ------------ ------------
Weighted average number of ordinary shares for diluted
earnings 367,550,937 274,921,128
-------------------------------------------------------- ------------ ------------
8 Cash and cash equivalents
(Unaudited) (Unaudited) (Audited)
31 March 31 March 30 September
2020
2021 2020 GBPm
GBPm GBPm
============================================ ============ ============ ===============
Cash at bank and in hand 50.6 28.3 50.1
Short-term deposits 11.6 - 1.3
-------------------------------------------- ------------ ------------ ---------------
Cash and cash equivalents in the cash flow
statement 62.2 28.3 51.4
-------------------------------------------- ------------ ------------ ---------------
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
(Unaudited)
At 1 October Effects Non-cash Acquired 31 March
of cash movements with subsidiary
flows
2020 GBPm GBPm GBPm 2021
GBPm GBPm
================================== ============== ========= =========== ================= ============
Cash 51.4 (41.0) (3.2) 55.0 62.2
---------------------------------- -------------- --------- ----------- ----------------- ------------
Non-current loans and borrowings (69.2) 14.5 2.0 - (52.7)
---------------------------------- -------------- --------- ----------- ----------------- ------------
Net costs to acquire borrowings 2.7 - (0.4) - 2.3
---------------------------------- -------------- --------- ----------- ----------------- ------------
Net debt (excluding lease
liabilities) (15.1) (26.5) (1.6) 55.0 11.8
---------------------------------- -------------- --------- ----------- ----------------- ------------
Lease liabilities (22.8) 5.9 1.7 (33.5) (48.7)
---------------------------------- -------------- --------- ----------- ----------------- ------------
Net debt (including lease
liabilities) (37.9) (20.6) 0.1 21.5 (36.9)
---------------------------------- -------------- --------- ----------- ----------------- ------------
At 31 March 2021, the Group is in a net cash position excluding
lease liabilities of GBP11.8m 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 22 January 2021, 1,730,173 Long Term Incentive Plan ('LTIP')
shares were awarded to certain key senior executives and employees
of the Group.
The LTIPs consist of shares based on market conditions and are
split between Earnings per Share ('EPS') and total shareholder
return ('TSR') conditions.
On 22 February 2021, 253,707 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 2024 and will be exercisable for a period of six
months thereafter.
11 Related party transactions
On 23 February 2021 Ocorian Limited, acting as trustee of the
RWS Holdings plc Employee Benefit Trust (EBT) purchased in the
market a total of 55,896 Ordinary Shares of 1p each at an average
price of 637.43p pence per share. The shares will be held in the
EBT, a discretionary trust, and are intended to be used to satisfy
the exercise of share options by employees. Following this
transaction the EBT holds a total of 55,896 shares, representing
approximately 0.01% of the RWS's issued share capital. Costs of
GBP356k relating to this purchase have been deducted from retained
earnings.
During the year, in the normal course of business, the Group
provided translation services worth GBP97k (HY20: GBP64k) 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 GBP83k (HY20: GBP31k) was due from LTG at
the reporting date.
12 Acquisitions
Acquisition of Webdunia
On 9 June 2020, the Group acquired the localization 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. Webdunia is a leader in translation, localization and
technology services to technology and digital companies in the
Indian and North American markets. The acquisition will be highly
complementary to RWS's existing Moravia business, will strengthen
our Indian-based translation and localization market share, support
our customers' growth aspirations in India, as well as complement
our digital technology services.
The fair value of identifiable
assets and liabilities acquired,
purchase consideration and Fair values
goodwill were as follows: GBPm
=================================== ============
Net assets acquired:
Customer relationships 6.0
Databases 0.7
Software 0.2
Property, plant and equipment 0.3
Right-of-use assets 1.9
Trade and other receivables 2.3
Cash and cash equivalents 1.0
Trade and other payables (0.8)
Lease liabilities (1.9)
Deferred tax liabilities (2.0)
Provisions (0.3)
------------------------------------ ------------
Total identifiable net assets 7.4
------------------------------------ ------------
Goodwill 9.4
------------------------------------ ------------
Total consideration 16.8
------------------------------------ ------------
Satisfied by:
Cash 16.8
------------------------------------ ------------
All cash flows incurred on the acquisition of Webdunia were
recorded in the year ended 30 September 2020, there were no cash
outflows in the current period (HY20: None).
During the measurement period the Group has identified total
intangible assets (excluding goodwill) on acquisition of GBP6.0m
and GBP0.7m for customer relationships and databases respectively.
These assets have given rise to additional deferred tax liabilities
for the opening balance sheet of GBP2.0m from the provisional net
assets on acquisition as disclosed in the financial statements for
the year ending 30 September 2020. This gave rise to total goodwill
of GBP9.4m on acquisition.
Acquisition of SDL Plc
As disclosed in the Group's financial statements for the year
ending 30 September 2020 as a post balance sheet event, On 27
August 2020, the Parent Company announced it had reached agreement
with SDL plc ("SDL") for an all-share combination, pursuant to
which RWS would acquire the entire issued and to be issued share
capital of SDL by means of a court-sanctioned scheme of
arrangement.
Subsequent to 30 September 2020, following the shareholders of
both SDL and the Parent Company voting in favour of the proposed
all-share combination, a court-sanctioned scheme of arrangement was
effective on 4 November 2020. Accordingly, 113,338,511 new ordinary
shares were issued by the Parent Company as full consideration to
acquire 100% control of SDL.
The provisional fair value
of identifiable assets and
liabilities acquired, purchase
consideration and goodwill Fair values
were as follows: GBPm
================================= ============
Net assets acquired:
Intangible assets 41.5
Software 13.0
Property, plant and equipment 12.0
Right-of-use assets 30.0
Trade and other receivables 87.5
Deferred tax assets 7.3
Cash and cash equivalents 55.0
Trade and other payables (99.0)
Lease liabilities (33.5)
Deferred tax liabilities (7.1)
Provisions (7.1)
---------------------------------- ------------
Total identifiable net assets 99.6
---------------------------------- ------------
Goodwill 522.6
---------------------------------- ------------
Total consideration 622.2
---------------------------------- ------------
Satisfied by:
Shares 622.2
---------------------------------- ------------
Provisional values above are stated before purchase price
allocation due to the size and complexity of the acquisition and
the size of the values relative to the Group's financial
statements. The Directors expect that the PPA work will identify
material intangible assets and their allocation from the goodwill
value disclosed above will lead the goodwill to be materially
different to that as disclosed above. Intangible assets as included
above are those which were acquired with SDL before adjustments for
fair values on purchase price allocation and include both
internally generated intangibles (R&D) and acquired intangibles
from acquisitions undertaken by the former SDL Group. The value of
Goodwill held by SDL on the opening balance sheet has been removed
from net assets and is included in the value of goodwill as
disclosed above.
The Directors expect the associated deferred tax amounts
recognisable on the intangible assets will also be material, with a
compensating material increase to goodwill expected to be reported
in the Group's financial statements for the year ending 30
September 2021, once the purchase price allocation procedures are
finalised.
Appendix - Alternative performance measures
Alternative performance measures
The Board uses a number of alternative performance measures
which, are measures that can be directly reconciled to GAAP
measures. The Board primarily uses '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.
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 and
exceptional tax (reconciled below).
-- Adjusted earnings per share : earnings per share before
exceptional items net of tax, amortisation of acquired intangibles
net of tax, share-based payments 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 HY21 HY20
tax reconciliation GBPm GBPm
Statutory profit before
tax 24.0 25.8
------ ------
Exceptional items 6.8 0.7
------ ------
Acquisition related
costs 10.6 0.2
------ ------
Exceptional finance
gain - (1.3)
------ ------
Share-based payments 0.7 -
------ ------
Amortisation of acquired
intangibles 8.4 7.6
------ ------
Adjusted profit before
tax 50.5 33.1
------ ------
Adjusted operating HY21 HY20
cash flows reconciliation GBPm GBPm
Adjusted operating
profit 52.2 34.7
------- ------
Depreciation and amortisation
from non-acquired
intangibles 14.4 5.7
------- ------
Share based payment
expense 0.7 -
------- ------
Net working capital
changes (20.2) (5.3)
------- ------
Adjusted operating
cash flows 47.1 35.1
------- ------
Operating cash conversion HY21 HY20
reconciliation GBPm GBPm
Adjusted operating
profit 52.2 34.7
------ ------
Adjusted operating
cash flows 47.1 35.1
------ ------
Operating cash conversion 90% 101%
------ ------
Adjusted effective HY21 HY20
tax rate GBPm GBPm
Tax charge 8.5 5.8
------ ------
Tax on amortisation
of acquired intangibles 2.1 1.3
------ ------
Tax on exceptional
items 1.2 0.3
------ ------
Adjusted tax charge 11.8 7.4
------ ------
Adjusted profit before
tax 50.5 33.1
------ ------
Adjusted effective
tax rate 23.4% 22.4%
------ ------
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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