11th Dec 2007 07:00
RWS Holdings PLC11 December 2007 For immediate release 11 December 2007 RWS Holdings plc Preliminary results for the year ended 30 September 07 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 2007. Financial Highlights: Sales and profits at record levels, for the fourth successive year sinceflotation in 2003 • Sales increased by 13.3% to £46.2 million (2006: £40.8m) • Profit before tax* rose by 22.3% to £11.1million (2006: £9.0m) • Profit before tax* margin improved from 22.1% to 23.9% despite unfavourable currency movements • Basic earnings per share* were up 25.6% to 21.1p (2006: 16.8p) • Proposed final dividend of 6.5p gives a total dividend for the year of 8.65p (2006: 7.2p) o increased by 20% for the third successive year • Continued strong cash generation from operations produced net cash at year end of £20.4 million (2006: £15.9m) • Very weak yen and dollar partially offset by strong year-end performance by the euro * before goodwill amortization Operational Highlights: Strong performances from all parts of the business • Further geographic expansion of patent translation activities including in Beijing and the USA • Acquisition and successful integration of Japanese Language Services Limited into our commercial and technical translation operation • Information division grew revenues from its patent database, PatBase, by 70% • Further significant client wins • Continued improvement in staff productivity Executive Chairman Andrew Brode commented: "I am pleased to report another year of strong organic growth driven bycontinued momentum in the core patent translation market, new client wins andincreased utilisation from existing clients. In addition, Japanese LanguageServices Limited which was acquired in June 2007 is trading ahead of ourexpectations. "With a strong financial position, good forward sales visibility and plans inplace to more than compensate for the potential effects of the London Agreementby organic expansion and selective acquisitions, we are confident that ourchosen strategy will deliver further growth in 2008 and that the dividend willcontinue to advance in line with that growth." For further information contact: RWS Holdings plcAndrew Brode, Executive Chairman 01753 480200 SmithfieldKatie Hunt 020 7360 4900 NumisStuart Skinner / James Serjeant 020 7260 1000 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 organic growth from RWS. In itsfourth year as a public company it has delivered new record levels for bothsales and profits. Business Overview RWS is Europe's leading provider of intellectual property support services andhigh level technical, legal and financial translation services. The corebusiness - patent translation - is probably the largest of its kind in theworld, translating over 50,000 patents and intellectual property relateddocuments each year. It serves a multinational blue chip client base drawn fromEurope, North America and Japan. Its clients will be active filers of patents inthe medical, pharmaceutical, chemical, aerospace, defence, automotive,electronics and telecoms sectors, as well as patent agents with similar clients,and the leading intellectual property organisations. The Group comprises twodivisions, the Translation division providing patent and document translation,filing and localisation services in the UK, USA, Europe, Japan and China, andthe Information division, which offers a comprehensive range of patent search,retrieval and monitoring services as well as a recently developed and extremelycomprehensive patent database service accessible by subscribers, known asPatBase. Strategy The Group's strategy is to grow both organically and by selective acquisitionsin the high level technical translation and intellectual property supportservices spaces. Organic growth will flow from leveraging RWS' size andreputation for specialist quality with both existing clients and new majorcorporates in a highly fragmented and largely freelance industry. Results and Financial Review Sales and profit for the year established new records. Sales grew by 13.3% to£46.2 million (2006: £40.8m); profit before tax and goodwill amortization roseby 22.3% to £11.1 million (2006: £9.0m). The effective tax rate was 23.8% (2006:27.8%). Basic earnings per share before goodwill amortization advanced by 25.6 %to 21.1p (2006: 16.8p). This strong performance was achieved despite unfavourable currency movements andwas attributable to our success in both client acquisition and client retention.In addition, improved productivity, high margins in our growing patent database,PatBase, and tight control of translation costs, particularly freelance costs,delivered a strong improvement in our margins, with profit before tax andgoodwill amortization rising from 22.1% to 23.9% of sales revenues. The Group's financial base has gone from strength to strength. Shareholders'funds have advanced to £27.1 million, including net cash of £20.4 million. Freecash flow increased to £7.5 million and capital expenditure was, as usual,modest at £224,000. The excellent growth in the overall business requiredfurther working capital of £1.8 million. The acquisition of Japanese LanguageServices absorbed a further £1.1 million, but even after tax and dividendpayments net cash advanced by £4.5 million year on year. Dividend The Board recommends a final dividend of 6.5p per share, which, together withthe interim payment, will result in a total dividend payout for the year of8.65p per share, yet again a 20% increase over 2006. The proposed total dividend is more than twice covered by after tax profits.Subject to shareholder approval at the Annual General Meeting, the finaldividend will be paid on 22 February 2008 to all shareholders on the register at25 January 2008. Acquisitions Japanese Language Services Limited, which was acquired in June 2007, has beenseamlessly integrated into our Translation division and early results are aheadof our expectations with complete client retention and good levels of business.We continue to review acquisition opportunities which will be pursuedselectively where they have demonstrable growth prospects and enhanceshareholder value. Patent Translation Market The European Patent Office 2006 annual report confirmed further underlyinggrowth in patent applications filed, which provides the macro driver for RWS'continued expansion in its core patent translations activity. Operating Review Translations Patent translations form the core of the Group's business and account for almost80% of revenues. Client retention and acquisition combined with further growthin the numbers of patents granted worldwide ensured that our core businesscontinued to perform ahead of plan. Our largest client regained its leadingposition after a temporary shortfall in 2006 and the majority of our largercustomers increased their utilisation of our services. The RWS offering has longbeen regarded as a high quality, convenient and cost-effective solution forthose clients with significant patent volumes requiring comprehensivegeographical intellectual property protection. We have increased our sales effort, especially in the USA where we now employthree business development managers primarily covering the East and West coasts.The translation work they obtain is undertaken in the UK, Japan and China. In Japan, having occupied enhanced office space in 2007, sales advanced in yenterms but were held back when expressed in sterling. Our Beijing office is nowfully operational and attracting interest from European and North Americancorporates. The commercial and technical translation activities now include Eclipse, whichwas acquired in 2005, and Japanese Language Services, which was acquired in2007, and account for 14% of sales. These activities have achieved excellentresults in a highly competitive environment. We continue to seek to protect ourmargins via preferred supplier or approved contractor status, handling larger,more difficult assignments. Information Whilst the Information division only accounts for 7% of group sales, it hastraditionally enjoyed far superior margins to the rest of the business. Thiscontinues to be the case as it attempts to exploit its market leading positionin the provision of patent search, patent watch and document services. Sales ofthese services advanced only modestly. However, this division was responsible for the development of an extremelycomprehensive and searcher-friendly patent database (PatBase). We are exploitingthis subscription-based service in partnership with an intellectual propertysoftware company and it has delivered in excess of 70% growth in 2007, with theoutstanding margins often associated with subscription services. Principal Risks The Directors believe that the principal risks to the business would arise fromerrors in the provision of the Group's services, in a mismatch betweencurrencies (i.e. sales are predominantly in euros, whilst costs are mainlyincurred in sterling) and in regulatory changes to patent translationrequirements in Europe. As regards service provision, RWS has long been ISO-certified and has exhaustiveprocedures in place to minimise the risk of error. In addition, the Groupcarries comprehensive professional indemnity insurance. The currency risks can normally be addressed via hedging operations. During thefinancial year ended 30 September 2007, we entered into limited euro/sterlinghedging arrangements which have been extended to March 2008. However, the Groupbelieves the recent strength of the euro will continue and has no immediateplans for additional hedges. At the time RWS floated on AIM in November 2003, two regulatory initiatives werehighlighted as potential threats to our patent translation activities. The first- a European Community Patent - was decisively rejected in 2005. The second -the London Agreement - has now been ratified by sufficient member states for itto be implemented in the near future. On 1 October 2007, it was announced thatwe anticipated that the London Agreement would come into effect in the Spring of2008, that it was a voluntary arrangement, and that the estimated reduction inprofit before tax would be of the order of £1 million in the financial yearending 30 September 2008 and £2 million in a full year. We emphasised that ourcore patent translation activities (into English, primarily for use at the USPatent Office) were unaffected by the London Agreement; the potential loss ofwork comprises the into European language translations performed by freelances. People RWS is a quintessential "people" business. The efforts of my Board colleaguesand all of our staff throughout the world have been fundamental to the deliveryof another set of excellent results and the enhancement of our reputation acrossour customer base. Outlook As has previously been experienced, our markets remain strong in the face ofmore challenging economic conditions. We are, therefore, encouraged by ourfuture prospects which are underpinned by the pressing need for corporates toprotect intellectual property throughout the economic cycle. With a strong financial position, good forward sales visibility and plans inplace to more than compensate for the potential effects of the London Agreementby organic expansion and selective acquisitions, we are confident that ourchosen strategy will deliver further growth in 2008 and that the dividend willcontinue to advance in line with that growth. Andrew BrodeExecutive Chairman10 December 2007 Group Profit and Loss Account for the year ended 30 September 2007 2007 2006 Note £'000 £'000 Turnover 3 46,208 40,779 Cost of sales (26,920) (24,141) ----------- ---------- Gross profit 19,288 16,638 Administrative expenses ----------- ----------Amortization of goodwill (635) (631)Other (8,995) (8,082) ----------- ---------- (9,630) (8,713) ----------- ---------- Profit on ordinary activities before interest 9,658 7,925 Net interest 758 483 ----------- ----------Profit on ordinary activities before taxation 10,416 8,408 Taxation 4 (2,634) (2,509) ----------- ----------Profit on ordinary activities after taxation 7,782 5,899 Minority interests - - ----------- ----------Profit for the financial year 7,782 5,899 ----------- ---------- Earnings per 5 pence Ordinary share 6 Pence PenceBasic earnings per share 19.5 15.2Diluted earnings per share 18.5 14.2 All amounts relate to continuing activities. Group Statement of Total Recognised Gains and Losses for the year ended 30September 2007 2007 2006 £'000 £'000 Profit attributable to shareholders 7,782 5,899 Exchange adjustments on retranslation of net assets ofsubsidiary undertakings 15 (67) ----------- ----------Total recognised gains and losses 7,797 5,832 ----------- ---------- Group Balance Sheet at 30 September 2007 Note 2007 2006 -------- -------- -------- ---------- £'000 £'000 £'000 £'000Fixed assetsIntangible assets 6,865 6,418Tangible assets 749 836 -------- ---------- 7,614 7,254 Current assetsDebtors 7 10,675 8,839Cash at bank 22,144 16,139 ---------- --------- 32,819 24,978 Creditors: amounts due within one year 8 (13,310) (10,993) ---------- --------- Net current assets 19,509 13,985 ---------- ---------Total assets less current liabilities 27,123 21,239 ---------- --------- Capital and reservesCalled up share capital 9/10 2,016 1,954Share premium account 10 2,992 1,977Share option reserve 10 1,556 1,873Capital reserve 10 474 157Reverse acquisition reserve 10 (8,483) (8,483)Profit and loss account 10 28,558 23,751 ---------- ---------Shareholders' funds 10 27,113 21,229Minority interests 10 10 ---------- ---------Shareholders' funds and minority interests 27,123 21,239 ---------- --------- Statement of Group Cash Flow for the year ended 30 September 2007 2007 2006 ------- -------- ------- -------- £'000 £'000 £'000 £'000 Net cash inflow from operating activities 8,858 7,967 Returns on investments and servicing offinanceInterest received 752 474Interest paid (7) (1) ------- ------- 745 473 Tax paid (1,859) (2,485) Capital expenditure and financialinvestmentPurchase of tangible assets (250) (208)Sale of tangible assets 26 - ------- ------- (224) (208) -------- --------Free cash flow 7,520 5,747 AcquisitionAcquisition of subsidiary undertaking (1,174) -Net cash in subsidiary undertaking acquired 44 - ------- ------- (1,130) - Equity dividends paid (2,990) (2,395) FinancingIssue of ordinary shares 1,077 631 -------- --------Increase in cash 4,477 3,983 -------- -------- Notes to the Group Cash Flow Statement Reconciliation of operating profit to net cash flow fromoperating activities 2007 2006 £'000 £'000 Group operating profit 9,658 7,925Depreciation and amortization 951 938Profit on sale of tangible assets (5) -Debtors increase (1,756) (1,484)Creditors increase - 653Other non-cash movements 10 (65) -------- ---------Net cash inflow from operating activities 8,858 7,967 -------- --------- Reconciliation of net cash flow to movement in net funds 2007 2006 £'000 £'000 Increase in cash in the year 4,477 3,983Net funds at beginning of the year 15,912 11,929 -------- ---------Net funds at end of the year 20,389 15,912 -------- --------- Analysis of net funds At 1 Oct Cash At 30 Sept 2006 flow 2007 £'000 £'000 £'000 Cash 16,139 6,005 22,144Overdrafts (227) (1,528) (1,755) --------- ----------- ---------- 15,912 4,477 20,389 --------- ----------- ---------- 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 September2007 and 2006, and does not constitute full accounts within the meaning ofSection 240 of the Companies Act 1985. Statutory accounts for 2006 have beendelivered to the Registrar of Companies and those for 2007 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, London Stock Exchange Building, 10 Paternoster Square,London EC4M 7LT and its public relations advisers, Smithfield ConsultantsLimited, 10 Aldersgate Street, London EC1A 4HJ for a period of 14 days from thedate 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 was written-off in the year ended 30 September 2004, becausethe goodwill had no intrinsic value. Other goodwill arising on consolidation and purchased goodwill are capitalisedand amortized through the Profit and Loss Account over the Directors' estimateof its useful economic life that 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 20 'Share-based payment' has had no impact on the financialstatements. Turnover Turnover represents sales to outside customers at invoiced amounts less valueadded tax. Revenue, other than subscription revenue, is recognised as atranslation, filing or search is fulfilled in accordance with agreed clientinstructions. Subscription revenue is recognised on a straight line basis overthe term during which the service is provided. Accrued income represents amounts not invoiced for work that has been performed. For the financial year ended 30 September 2006 in accordance with UITF 40'Revenue recognition and service contracts', services for translations andfiling were not accounted for as long tem contracts as the impact of activityfalling into different accounting periods was considered not to be material tothe financial statements. For the financial year ended 30 September 2007, work in progress reported in theprevious financial year has been reclassified as accrued income to be consistentwith the current year in accordance with FRS 28 'Corresponding Amounts'. Thecorresponding amounts for the profit and loss account have not been adjusted asthe effects are considered not to be significant. Intangible assets On 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 (ranging between 8 and20 years). Goodwill is reviewed for impairment when there are indications thatthe 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 andranges between 8 and 20 years. 3 Segment information 2007 2006 £'000 £'000Turnover by class of businessTranslation and localization services 43,121 38,032Information services 3,087 2,747 --------- --------- 46,208 40,779 --------- --------- The tables below show information by geographic area and, for turnover andassets, material countries. Turnover by geographic location of Group undertakingsUnited Kingdom 42,010 36,673Continental Europe 817 616Japan 3,190 3,304United States of America 191 186 --------- --------- 46,208 40,779 --------- --------- Turnover by geographic market in which customers arelocatedUnited Kingdom 7,123 5,676Continental EuropeGermany 15,349 14,296France 4,828 4,812Other 10,105 8,228 --------- --------- 30,282 27,336Japan 2,408 2,470United States of America 6,076 5,061Other 319 236 --------- --------- 46,208 40,779 --------- --------- Total assets by location of Group undertakingsUK 38,796 30,476Others 1,637 1,756 --------- --------- 40,433 32,232 --------- --------- Net assets by location of Group undertakingsUK 25,924 19,898Others 1,199 1,341 --------- ---------Net assets 27,123 21,239 --------- --------- Profit before taxation by business sector and location of Group undertakingsIn the opinion of the Directors, disclosure would be seriously prejudicial tothe interests of the Group. 4 Taxation 2007 2006 £'000 £'000Analysis of tax charge:Corporation tax 2,437 2,403Adjustments in respect of prior years (69) (154)Overseas taxation 266 260 --------- ---------Total current tax charge 2,634 2,509 --------- --------- 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 2007 2006 £'000 £'000On each 5 pence Ordinary shareFinal proposed 2005 (paid 16 February 2006) - 4.35 pence pershare - 1,672Interim, paid on 14 July 2006 - 1.85 pence per share - 723Final proposed 2006 (paid 16 February 2007) - 5.35 pence pershare 2,123 -Interim, paid on 13 July 2007 - 2.15 pence per share 867 - --------- ------- 2,990 2,395 --------- ------- Final dividend proposed for the year of 6.50 pence per share(2006: 5.35 pence) 2,621 2,091 --------- ------- 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 £2.6 million. 6 Earnings per Ordinary share 2007 2006 ------- --------- --------- ----------- Earnings EPS Earnings EPSBasic £'000 Pence £'000 Pence Basic earnings 7,782 19.5 5,899 15.2Goodwill amortization 635 1.6 631 1.6 -------- --------- --------- -----------Adjusted earnings 8,417 21.1 6,530 16.8 -------- --------- --------- ----------- Diluted Basic earnings 7,782 18.5 5,899 14.2Goodwill amortization 635 1.6 631 1.6 -------- --------- --------- -----------Adjusted earnings 8,417 20.1 6,530 15.8 -------- --------- --------- ----------- No significant tax effect arose from the adjustment for goodwill in either thecurrent or prior year. Diluted earnings per share are based on the group profit for the year and aweighted average of Ordinary shares in issue during the year calculated asfollows: Number of shares Number of shares In issue 39,883,725 38,763,414Dilutive potential Ordinary sharesarising from unexercised share options 2,108,859 2,863,444 ------------ ------------ 41,992,584 41,626,858 ------------ ------------ At 30 September 2007 there were unexercised options over a total of 1,996,533(2006: 3,234,472) Ordinary shares. 7 Debtors: include accrued income of £1,562,000 and the prior year includes anamount of £1,240,000 reclassified from work in progress as explained within Note2. 8 Creditors: amounts due within one year include corporation tax of £6,308,000(2006: £5,533,000). 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. 9 Share capital 2007 2006 £'000 £'000Authorised100,000,000 Ordinary shares of 5 pence 5,000 5,000 ----------- ---------- Allotted, called up and fully paid40,319,435 Ordinary shares of 5 pence (2006: 39,081,496) 2,016 1,954 ----------- ---------- During the year, as a result of options exercised, 1,237,939 Ordinary shares of5 pence each were issued for a cash consideration of £1,076,755. 10 Shareholders' funds and movements on reserves Share Profit and Share premium Other loss Shareholders' capital account reserves account funds £'000 £'000 £'000 £'000 £'000 At beginningof year 1,954 1,977 (6,453) 23,751 21,229Issue of sharecapital inrespect ofshare options 62 1,015 - - 1,077Dividends - - - (2,990) (2,990)Profitretained forthe financialyear - - - 7,782 7,782Exchangemovements - - - 15 15 -------- -------- ------- -------- ----------At end of year 2,016 2,992 (6,453) 28,558 27,113 -------- -------- ------- -------- ---------- Reverse Share Total acquisition option Capital other reserve reserve reserve reserves £'000 £'000 £'000 £'000OtherreservesAt beginningof year (8,483) 1,873 157 (6,453)Issue of sharecapital inrespect ofshare options - (317) 317 - -------- -------- ------- --------At end of year (8,483) 1,556 474 (6,453) -------- -------- ------- -------- 11 Reconciliation of movements on shareholders' funds 2007 2006 £'000 £'000 Profit for the financial year 7,782 5,899Dividends paid (note 5) (2,990) (2,395) --------- ----------Net additions to shareholders' funds 4,792 3,504 --------- ---------- Opening shareholders' funds 21,229 17,161Additions to shareholders' funds 4,792 3,504Issue of share capital in respect of share options 1,077 631Exchange adjustment on consolidation 15 (67) --------- ----------Shareholders' funds at end of year 27,113 21,229 --------- ---------- 12 Acquisition On 8 June 2007, the Group acquired the whole of the issued share capital ofJapanese Language Services Limited for a cash consideration of £1,174,000. In calculating the goodwill arising on acquisition, there were no adjustmentsfrom book value in determining the fair value of net assets acquired. Book value and fair value £'000Current assets:Debtors 66Cash at bank 44 ----------Total assets 110Creditors: amounts due within one year (18) ----------Net assets 92 ---------- Cash consideration (including expenses of £31,845) 1,174Net assets acquired 92 ----------Goodwill arising on consolidation 1,082 ---------- The net outflow of cash arising from the acquisition of Japanese LanguageServices Limited was as follows: Cash flows £'000Cash consideration (including expenses of £31,845) 1,174Cash acquired 44 ----------Net outflow of cash 1,130 ---------- 13 Post balance sheet events There have been no events since 30 September 2007 that require disclosure. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
RWS Holdings