12th Dec 2006 07:01
RWS Holdings PLC12 December 2006 12 December 2006 RWS Holdings plc Preliminary results for 2005-06 RWS Holdings plc, Europe's leading provider of intellectual property supportservices (patent translations and technical searches) and technicaltranslations, today announced its preliminary results for the year ended 30September 2006. Financial Highlights: • Sales and profits at record levels, for the third successive year since flotation in 2003 • Sales increased by 13.7% to £40.8 million • Profit before tax rose by 21.5% to £9.04 million (before goodwill amortization) • Basic earnings per share were 16.8p (before goodwill amortization) (2005 - 13.5p) • Fully diluted earnings per share were 15.8p (2005 - 12.7p) • Proposed final dividend of 5.35p; total dividend for the year increased 20% to 7.2p (2005 - 6p) • Strong cash generation from operations produced net cash at year end of £15.9 million Operational Highlights: • A strong and resilient performance from the core patent translations business • Significant new client wins in Europe • Excellent performances from Eclipse (2005 acquisition), non-patent translation activities and PatBase database subscription service • Further improvement in margins despite weak yen and euro • Record levels of staff productivity • Business licence granted in Beijing; first major client signed up to Chinese service Outlook: Executive Chairman Andrew Brode commented: "I am delighted to report another year of strong organic growth from RWS inwhich we have continued to enhance our market leadership in our core businesseswith our quality-driven model. We anticipate further growth in sales and profits in 2007 which will be matchedby a progressive dividend policy. The necessary drivers are in place to underpinour confidence in the outlook." For further information contact: RWS Holdings plcAndrew Brode, Executive Chairman 01753 480200 SmithfieldReg Hoare 020 7360 4900 About RWS: RWS is Europe's leading provider of intellectual property support services(patent translations and technical searches) to the medical, pharmaceutical,chemical, aerospace, defence, automotive, electronics and telecoms industries.RWS also provides specialist technical, legal and financial translation servicesfor areas of industry outside the patent arena. RWS is based in the UK, withoffices in Europe, New York, Tokyo and Beijing, and is listed on AIM, the LondonStock Exchange regulated market (RWS.L). Approximately 1,000,000 patent documents are published per annum, 200,000 ofwhich are published in Europe (Source: European Patent Office) and theintellectual property market has shown significant growth in recent years, withpatent applications in Europe having doubled over the last ten years. For further information please visit: www.rws.com Executive Chairman's Statement I am delighted to report another year of strong and resilient organic growthfrom RWS. In its third year as a public company it has established new recordsfor both sales and profits. Business Overview RWS is a leading provider of intellectual property support services and highlevel technical, legal and financial translation services. The core business -patent translation - is the largest of its kind in Europe, translating over50,000 patents and intellectual property related documents each year. It servesa multinational blue chip client base drawn from Europe, North America and Japan. Clients will be active filers of patents in the medical, pharmaceutical,chemical, aerospace, defence, automotive, electronics and telecoms industries,as well as patent agents working on behalf of similar clients and the leadingintellectual property organisations. The Group comprises two divisions, theTranslation division providing patent and document translation, filing andlocalization services in the UK, US, Japan and Europe, and the Informationdivision, which offers a comprehensive range of patent search retrieval andmonitoring services and has recently launched a comprehensive patent databaseservice searchable by subscribers, known as PatBase. Strategy The Group's strategy is focused upon organic growth of its market-leadingpositions in the delivery of translation and search services. Growth will beachieved by leveraging RWS' size and reputation for quality with majorcorporates in a highly fragmented, largely freelance industry. Acquisitions willonly be pursued if they have demonstrable growth prospects and enhanceshareholder value. Results Group sales and profit for the year were both at record levels. Sales grew by13.7% to £40.8 million; profit before tax and goodwill amortization advanced by21.5% to £9.04 million. Basic earnings per share advanced by 24.4% to 16.8p. This strong performance was driven by our success in adding significant newmultinational clients whilst retaining the work of existing customers despitesignificant merger activity. Against a background of continued underlying growth in patent applications filed(European Patent Office 2005 annual report confirmed 8% growth), RWS delivered aresilient performance in its core patent translations activity. The February 2005 acquisition - Eclipse Translations - based in the North East,far exceeded our expectations, delivered excellent results and renewed its twoimportant UK Government contracts. Dividend The Board has recommended a final dividend of 5.35p per share, which, togetherwith the interim payment, will result in a total dividend for the year of 7.2pper share, 20% more than in 2005. The proposed total dividend is more than twicecovered by after tax profits. Subject to shareholder approval at the AnnualGeneral Meeting, the final dividend will be paid on 16 February 2007 to allshareholders on the register at 19 January 2007. Operating Review Translations Patent translations account for 80% of the Group's revenues and achieved furthergood progress in a more challenging environment. Whilst the numbers of grantedpatents rose to new record levels, the flow of those relating to our largestclient fluctuated in the first half of the year and led to a substantialshortfall against prior trends (since restored). It is a measure of theresilience of our business that we were able to compensate for this by winningseveral new clients who delivered considerable volumes of business. The RWSoffering is perceived as a high quality, convenient and cost-effective solutionto our clients' requirement for comprehensive geographical patent protection. In Japan, we have enlarged our office space and staff but the continued weaknessof the yen has held back the performance in sterling terms. The Japanese modelwill be repeated in Beijing where, after significant delays, we have obtained abusiness licence and our first important European client has signed up to ourChinese service effective January 2007. Our commercial and technical translation activities, which include Eclipse andaccount for 14% of sales, have enjoyed their most successful year to datedespite encountering heavy competition. We seek to distance this business fromthe cheap commoditised end of the market, preferring to position ourselves as ahigh quality service provider for larger, more difficult assignments. Wherepossible, we will also seek preferred supplier status. Information The Information division now accounts for only 6% of group sales but enjoyssuperior margins to the rest of the business. It is the largest Europeanprovider of patent search, patent watch and document services but suffers fromthe search budget constraints imposed upon most multinational corporates. As aresult, sales did not advance in 2005-06. However, this division has developed a new database product (PatBase) inpartnership with an intellectual property software business and thissubscription-based initiative experienced significant interest, contributingexcellent margins and lifting the overall performance of the division. We havehigh growth expectations for PatBase in 2006/07. Financial Review This year has seen an already sound financial base strengthen considerably withnet assets now exceeding £20 million, including net cash of £15.9 million. Freecash inflow was £5.7 million and overall net cash increased by £4.0 million. RWSnormally has low capital expenditure (principally I.T. related costs andpremises) and the 2005/06 expenditure totalled £208,000. Despite the growth inthe overall business, the additional working capital requirement was only£831,000, underpinned by good management of receivables. The Group achieved further margin improvement with profit before tax andgoodwill amortization rising from 20.7% to 22.1%. This was accounted for by theexcellent margins on PatBase and tight control of translation costs, bothinternal and freelance. Principal Risks The Directors believe that the principal risks to the business arise from theprovision of the Group's services, in a mismatch between currencies (i.e. salesare predominantly in euros, whilst costs are mainly incurred in sterling) and inregulatory changes in patent translation requirements in Europe. As regards the provision of services, RWS has long been ISO-certified and hasexhaustive procedures in place to minimize the risk of error. Additionally, theGroup carries professional indemnity insurance. The currency risk is normally addressed via hedging operations. In 2005/06 muchof the euro and dollar exposure was hedged but at present the Group has noarrangements in place as it anticipates that sterling will weaken, particularlyagainst the euro. At the time RWS was floated on AIM in November 2003 two regulatory initiativeswere identified as threats to our patent translation activities. The first - aEuropean Community Patent - was decisively rejected in 2005, although theCommission is taking soundings as to its possible renaissance. The second - theLondon Agreement - has now been ratified by seven member states, but crucially,not yet by France. We are given to understand that opposition to Frenchratification has weakened, and ratification is no longer constitutionallybarred, but given the up-coming presidential and parliamentary elections inFrance no movement is to be expected in the 2006/07 financial year. The Board ismonitoring developments in France carefully and has plans well in hand to limitany material financial downside were the agreement to be implemented. People I would like to acknowledge the contribution of my Board colleagues and all ofthe staff throughout the Group in delivering such an excellent set of resultsand ensuring the enhancement of RWS' reputation throughout its customer base. Outlook Our markets continue to expand, driven by the urgent need to protectintellectual property in a shrinking world. Globalisation and the expansion ofthe European Union add further macro drivers to our growth opportunities. Our financial position is strong, our forward sales visibility is reassuring andwe can be confident that we will grow further in 2006-07 and that the dividendwill continue to advance, in line with our progressive dividend policy. Andrew BrodeExecutive Chairman11 December 2006 Group Profit and Loss Account for the year ended 30 September 2006 2006 2005 Note £'000 £'000 Turnover 3 40,779 35,875 Cost of sales (24,141) (21,198) ---------- --------- Gross profit 16,638 14,677 Administrative expenses +---------------------+Amortization of goodwill | (631) (616)|Other | (8,082) (7,648)| +---------------------+ (8,713) (8,264) ---------- --------- Profit on ordinary activities before interest 7,925 6,413 Net interest 483 412 ---------- ---------Profit on ordinary activities before taxation 8,408 6,825 Taxation 4 (2,509) (2,265) ---------- ---------Profit on ordinary activities after taxation 5,899 4,560 Attributable to minorities - - ---------- --------- Profit for the financial year 5,899 4,560 ---------- --------- Earnings per 5p Ordinary share 6 Pence PenceBasic earnings per share 15.2 11.9Diluted earnings per share 14.2 11.1 All amounts relate to continuing activities. Group Statement of Total Recognised Gains and Losses for the year ended 30September 2006 2006 2005 £'000 £'000 Profit attributable to shareholders 5,899 4,560 Exchange adjustments on retranslation of net assets ofsubsidiary undertakings (67) (25) --------- ---------Total recognised gains and losses 5,832 4,535 --------- --------- Group Balance Sheet at 30 September 2006 Note 2006 2005 restated --------- --------- ------- -------- £'000 £'000 £'000 £'000 Fixed assetsIntangible assets 6,418 7,049Tangible assets 836 935 --------- -------- 7,254 7,984 Current assetsWork in progress 1,240 773Debtors 7,599 6,571Cash at bank 16,139 12,280 --------- ------- 24,978 19,624 Creditors: amounts due within one year 7 (10,993) (10,437) --------- ------- Net current assets 13,985 9,187 --------- -------- Net assets 21,239 17,171 --------- -------- Capital and reservesCalled up share capital 8/9 1,954 1,922Share premium account 9 1,977 1,378Share option reserve 9 1,873 1,962Capital reserve 9 157 68Reverse acquisition reserve 9 (8,483) (8,483)Profit and loss account 9 23,751 20,314 --------- --------Shareholders' funds 9/10 21,229 17,161Minority interests 10 10 --------- --------Shareholders' funds and minority interests 21,239 17,171 --------- -------- The restatement of 2005 comparatives arises on adoption of Financial ReportingStandard 21 and is explained in note 2 Statement of Group Cash Flow for the year ended 30 September 2006 2006 2005 --------- --------- --------- --------- £'000 £'000 £'000 £'000 Net cash inflow from operating activities 7,967 7,142 Returns on investments and servicing offinanceInterest received 474 401Interest paid (1) (1) --------- --------- 473 400 Tax paid (2,485) (2,143) Capital expenditure and financialinvestmentPurchase of tangible fixed assets (208) (233) --------- ---------Free cash flow 5,747 5,166 Acquisitions and disposalsAcquisition of subsidiary undertakings - (2,430)Net overdraft in subsidiary undertakingsacquired - (249) --------- --------- - (2,679) Dividends paid to shareholders (2,395) (1,970) FinancingIssue of ordinary shares 631 674 --------- ---------Increase in cash 3,983 1,191 --------- --------- Notes to the Group Cash Flow Statement Reconciliation of operating profit to net cash flow from operating activities 2006 2005 £'000 £'000 Group operating profit 7,925 6,413Depreciation and amortization 938 958Work in progress increase (467) (91)Debtors increase (1,017) (1,341)Creditors increase 653 1,218Other non-cash movements (65) (15) --------- --------Net cash inflow from operating activities 7,967 7,142 --------- -------- Reconciliation of net cash flow to movement in net funds 2006 2005 £'000 £'000 Increase in cash in the year 3,983 1,191Net funds at beginning of the year 11,929 10,738 --------- --------Net funds at end of the year 15,912 11,929 --------- -------- Analysis of net funds At 1 Oct Cash At 30 Sept 2005 flow 2006 £'000 £'000 £'000 Cash 12,280 3,859 16,139Overdrafts (351) 124 (227) --------- --------- --------- 11,929 3,983 15,912 --------- --------- --------- Notes 1. Basis of preparation The results have been prepared using accounting policies consistent with thoseused in the preparation of the statutory accounts. The financial information isderived from the Group financial statements for the years ended 30 September2006 and 2005, and does not constitute full accounts within the meaning ofSection 240 of the Companies Act 1985. Statutory accounts for 2005 have beendelivered to the Registrar of Companies and those for 2006 will be delivered indue course and posted to shareholders in January. The auditors have reported onthose accounts; their reports were unqualified and did not contain statementsunder Section 237 (2) or (3) of the Companies Act 1985. Copies of thisannouncement are available at the registered office of the Company, 8 BakerStreet, London W1U 3LL and at the offices of the Company's nominated advisers,Numis Securities Limited, Cheapside House, 138 Cheapside, London EC2V 6LH andits public relations advisers, Smithfield Consultants Limited, 10 AldersgateStreet, London EC1A 4HJ for a period of 14 days from the date hereof. On 11 November 2003, RWS Holdings plc became the legal parent company of BybrookLimited and its subsidiary undertakings. The substance of the combination wasthat Bybrook Limited acquired RWS Holdings plc in a reverse acquisition. The Directors have adopted reverse acquisition accounting as a basis ofconsolidation in order to give a true and fair view of the substance of thecombined entity. In invoking the true and fair override, the Directors note thatreverse acquisition accounting is endorsed by International Financial ReportingStandard 3 and that the Urgent Issues Task Force of the UK's AccountingStandards Board considered the subject and concluded that there are instanceswhere it is right and proper to invoke the true and fair override in such a way. Goodwill arose on the difference between the fair value of the legal parent'sshare capital and fair value of its net liabilities at the reverse acquisitiondate. This goodwill has been written-off in the year ended 30 September 2004,because the goodwill has no intrinsic value. Other goodwill arising onconsolidation and purchased goodwill are capitalised and amortized through theProfit and Loss Account over the Directors' estimate of its useful economic lifethat does not exceed 20 years. 2. Accounting policies The Group's main accounting policies under UK GAAP are unchanged from theprevious year apart from the adoption of certain new Financial ReportingStandards (FRS). Changes in accounting policies The adoption of FRS 17 'Retirement benefits' has had no impact on the financialstatements. The adoption of FRS 21 'Events after the balance sheet date' has resulted in achange in accounting policy in respect of proposed equity dividends. If theCompany declares dividends to the holders of equity instruments after thebalance sheet date the Company does not recognise those dividends as a liabilityat the balance sheet date. Previously where these equity dividends were proposedafter the balance sheet date but before authorisation of the financialstatements they were recorded as liabilities at the balance sheet date. Theaggregate amount of equity dividends proposed before approval of the financialstatements which have not been shown as liabilities at the balance sheet date,are disclosed in the notes to the financial statements. As a result of operatingthe standard, net assets and retained profits at 30 September 2005 haveincreased by £1,672,000 and net assets at 30 September 2006 have increased by£2,091,000 FRS 22 'Earnings per share' has been adopted and there has been no impact on thecalculation of earnings per share. FRS 22 only allows basic and diluted earningsper share on the face of the profit and loss account. Other methods ofcalculating earnings per share are required to be shown in the notes withreference to the basis of the calculations carried out and reconciled to theearnings per share reported under this standard. The presentational requirements of FRS 25 'Financial instruments: disclosure andpresentation' were adopted. FRS 28 'Corresponding amounts' has had no impact on the financial statements. Intangible fixed assetsOn acquisition of a business, fair values are attributed to the net assetsacquired. Goodwill arises where the fair value of the consideration given for abusiness exceeds the fair value of such net assets. Goodwill arising onacquisitions is capitalised and amortized through the Profit and Loss Accountover the Directors' estimate of its useful economic life (generally notexceeding 20 years). Goodwill is reviewed for impairment when there areindications that the carrying value may not be recoverable. Other purchased goodwill is capitalised and amortized through the Profit andLoss Account over the Directors' estimate of the useful economic life. Theeconomic life for each asset within this category is considered individually andis not normally expected to exceed 20 years. 3. Segment information 2006 2005 restated £'000 £'000Turnover by class of businessTranslation and localization services 38,032 33,327Information services 2,747 2,548 ----------- ---------- 40,779 35,875 ----------- ---------- The tables below show information by geographic area and, for turnover andassets, material countries. Turnover by geographic location of Group undertaking United Kingdom 36,673 31,748Continental Europe 616 611Japan 3,304 3,339United States of America 186 177 ----------- ---------- 40,779 35,875 ----------- ---------- Turnover by geographic market in which customers are located United Kingdom 5,676 4,882Continental Europe Germany 14,296 13,284 France 4,812 3,698 Other 8,228 6,695 ----------- ---------- 27,336 23,677Japan 2,470 2,446United States of America 5,061 4,747Other 236 123 ----------- ---------- 40,779 35,875 ----------- ---------- Total assets by location of Group undertaking UK 30,476 26,082Others 1,756 1,526 ----------- ---------- 32,232 27,608 ----------- ---------- Net assets by location of Group undertaking UK 19,898 16,038Others 1,341 1,133 ----------- ----------Net assets 21,239 17,171 ----------- ---------- Profit before taxation by business sector and location of Group undertaking In the opinion of the Directors, disclosure would be seriously prejudicial tothe interests of the Group. 4. Taxation 2006 2005 £'000 £'000Analysis of tax charge:Corporation tax 2,403 2,024Adjustments in respect of prior years (154) (53)Overseas taxation 260 294 ----------- ----------Total current tax charge 2,509 2,265 ----------- ---------- The Group has estimated capital losses of £20 million available for offsetagainst the capital gain arising on the redemption of loan notes in the yearended 30 September 2004. As the quantum of the capital losses has not beenagreed the offset of the capital losses has not been recognised in the currenttax charge and no deferred tax asset recognised. 5. Dividends 2006 2005 restated £'000 £'000On each 5p Ordinary shareFinal proposed 2004 (paid 7 March 2005) - 3.50 pence pershare - 1,323Interim, paid on 30 June 2005 - 1.65 pence per share - 647Final proposed 2005 (paid 16 February 2006) - 4.35 pence pershare 1,672 -Interim, paid on 14 July 2006 - 1.85 pence per share 723 - -------- ------- 2,395 1,970 -------- ------- Final dividend proposed for the year of 5.35 pence per share(2005: 4.35 pence) 2,091 1,672 -------- ------- The proposed final dividend has not been accrued as it was declared after thebalance sheet date. The final proposed dividend will reduce shareholders' fundsby an estimated £2.1 million. 6. Earnings per Ordinary share 2006 2005 --------- ----------- --------- ---------- Earnings EPS Earnings EPS £'000 Pence £'000 Pence Basic earnings 5,899 15.2 4,560 11.9Goodwill amortization 631 1.6 616 1.6 --------- ----------- --------- ----------Adjusted earnings 6,530 16.8 5,176 13.5 --------- ----------- --------- ---------- Diluted adjusted earnings per share 15.8 12.7 ----------- ---------- No significant tax effect arose from the adjustment for goodwill in either thecurrent or prior year. Number of Number of shares sharesDiluted earnings per share are based on the groupprofit for the year and a weighted average of Ordinaryshares in issue during the year calculated as follows: In issue 38,763,414 38,204,648Dilutive potential Ordinary sharesarising from unexercised share options 2,863,444 2,735,932 ------------ ------------ 41,626,858 40,940,580 ------------ ------------ At 30 September 2006 there were unexercised options over a total of 3,234,472(2005: 3,874,472) Ordinary shares. 7. Creditors: amounts due within one year include corporation tax of £5,533,000(2005: £5,509,000). The taxation amount includes £4,434,000 being the liabilityon the gain arising on the redemption of loan notes in the year ended 30September 2004. 8. Share capital 2006 2005 £'000 £'000Authorised100,000,000 Ordinary shares of 5p 5,000 5,000 ----------- --------- Allotted, called up and fully paid39,081,496 Ordinary shares of 5p (2005: 38,441,496) 1,954 1,922 ----------- --------- 9. Shareholders' funds and movements on reserves Share Profit Share Premium Other and loss Shareholders' capital account reserves account funds £'000 £'000 £'000 £'000 £'000 At 30 September2005 1,922 1,378 (6,453) 18,642 15,489as previouslystatedPrior yearadjustment:Restatement onadoption of FRS 21(note 2) - - - 1,672 1,672 -------- --------- -------- -------- ----------Openingshareholders' fundsas restated 1,922 1,378 (6,453) 20,314 17,161 Issue of sharecapital in respectof share options 32 599 - - 631Dividends - - - (2,395) (2,395)Profit retained forthe financial year - - - 5,899 5,899Exchange movements - - - (67) (67) -------- --------- -------- -------- ----------At end of year 1,954 1,977 (6,453) 23,751 21,229 -------- --------- -------- -------- ---------- Reverse Share Total acquisition option Capital other reserve reserve reserve reserves £'000 £'000 £'000 £'000Other reservesAt beginning of year (8,483) 1,962 68 (6,453)Issue of share capital in respectof - (89) 89 -share options --------- -------- -------- ----------At end of year (8,483) 1,873 157 (6,453) --------- -------- -------- ---------- 10. Reconciliation of movements on shareholders' funds 2006 2005 restated ------------ --------- £'000 £'000 Profit/(loss) for the financial year 5,899 4,560Dividends paid (note 5) 2,395 1,970 ------------ ---------Net additions to shareholders' funds 3,504 2,590 ------------ --------- Opening shareholders' funds as previously stated 15,489 12,599Restatement of dividends re FRS 21 1,672 1,323 ------------ ---------Opening shareholders' funds as restated 17,161 13,922 Additions to shareholders' funds 3,504 2,590Issue of share capital in respect of share options 631 674Exchange adjustment on consolidation (67) (25) ------------ ---------Shareholders' funds at end of year 21,229 17,161 ------------ --------- 11. Post balance sheet events There have been no events since 30 September 2006 that require disclosure. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
RWS Holdings