2nd Jun 2009 07:00
2 June 2009
RWS Holdings plc
Interim results for the six months to 31 March 2009
RWS Holdings plc, Europe's leading provider of intellectual property support services (patent translations and technical searches) and technical translations, today announced its interim results for the six months ended 31 March 2009.
Financial Highlights:
Currency drives further growth
Normalised earnings per share* were up 21.6% to 13.5p (2008: 11.1p)
Cash generation from operations resulted in net cash at period end of £24.5M (2008: £17.9M), after acquisition costs of £2.2M
Release of corporation tax provision of £4.4M following agreement with HMRC, in respect of capital gains in 2003
* before amortization of intangibles
Operational Highlights:
Resilience in a challenging economic environment
Current Trading:
Executive Chairman Andrew Brode commented:
"The Group has again achieved record results and exceeded the Board's expectations, albeit assisted by the weakness of sterling.
The acquisitions of Communicare (and Document Service Center in 2008) will mitigate the effects of the London Agreement. In a challenging economic climate, our strong financial situation and market leadership position us favourably to grow market share and profits. The second half of the year has begun well."
For further information contact:
RWS Holdings plc
Andrew Brode, Executive Chairman 01753 480200
Smithfield
Reg Hoare / Rebecca Whitehead 020 7360 4900
Numis
Stuart Skinner (Nominated Adviser) 020 7260 1000
James Serjeant (Corporate Broker)
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 services for areas of industry outside the patent arena. RWS is based in the UK, with offices in Europe, New York, Tokyo and Beijing, and is listed on AIM, the London Stock Exchange regulated market (RWS.L).
Approximately 1,000,000 patent documents are published per annum, 200,000 of which are published in Europe (Source: European Patent Office) and the intellectual property market has shown significant growth in recent years, with patent applications in Europe having doubled over the last ten years.
For further information please visit: www.rws.com
RWS GROUP
2 June 2009
RWS Holdings plc
Interim results for the six months to 31 March 2009
Executive Chairman's Statement
The Group has again achieved record results for the six months to 31 March 2009, which reflect solid organic performances across many of the Group's activities. The anticipated loss of revenues arising from the London Agreement has been successfully countered by the Group's acquisitions and favourable exchange rates.
Business Overview
RWS is Europe's leading provider of intellectual property support services and high level technical, legal and financial translation services. Its main business - patent translations - is the largest operation of its kind in Europe, translating over 50,000 patents and intellectual property related documents each year. It addresses a blue chip multinational client base from Europe, North America and Japan, active in patent filing in the medical, pharmaceutical, chemical, aerospace, defence, automotive and telecoms industries, as well as patent agents acting on behalf of such clients. The Group has two principal business activities; Translations, which accounts for over 90% of sales and incorporates patent, commercial and technical translation services, and Information, which includes a comprehensive range of patent search, retrieval and monitoring services as well as PatBase, the largest searchable commercial patent database, available as a subscription service.
Strategy
Our strategy is focused upon organic growth complemented by deploying our substantial cash holdings for selective acquisitions providing they can be demonstrated to enhance shareholder value. Organic growth has been driven by the increasing numbers of patent applications worldwide, the growing demand for language services and our ability to enhance our market share by exploiting our leading position and reputation in an otherwise fragmented sector.
In terms of acquisitive growth, having been pleased with the return on acquisitions made to date, we continue to search for suitable potential acquisitions in the high level technical translation and intellectual property support services spaces. We seek niche businesses capable of delivering well above industry average levels of profitability.
Results & Financial Review
Sales for the six months ended 31 March 2009 were in line with the prior year at £26.8M despite the full impact of the London Agreement. This result exceeded the Board's expectations and was due in no small measure to favourable currency trends.
Profit before tax and amortization of intangibles rose by 17.1% to £8M (2008: £6.8M) as a result of further margin improvement, assisted by currency rates.
Normalised earnings per share were up by 21.6% to 13.5p (2008: 11.1p) on an increased number of shares in issue following the exercise of options in Summer 2008. Earnings per share as disclosed in the accounts of 24.2p (2008: 11.4p) have been significantly enhanced by the release of a corporation tax provision of £4.4M following agreement with HMRC in respect of capital gains realised in 2003.
Our strong financial position has been further enhanced both through operational cash flow and the release of the tax provision above. At 31 March 2009, shareholders' funds had reached £44.8M (2008: £31.4M), of which net cash represented £24.5M. Significant outlays included the acquisition of Communicare Limited for £2.2M and the final dividend of £3.3M paid in February 2009. Free cash flow made a further substantial advance to £7.2M (2008: £5.3M). Capital expenditure of £167,000 was again modest. The net working capital increase necessary to fund the business was £0.2M.
Currency movements in the period were generally favourable to a business reporting in sterling. The Group's principal exposure is to Euros, with somewhat less activity transacted in Yen, US$ and Swiss Francs. Without exception, these exchange rates rose from the beginning of October 2008 to levels well above those assumed by management in setting its budget for 2008/09. At 30 September 2008 the Euro/GBP rate was 79.4, whilst the average rate for the period was 87.9 At present, US$ exposure is hedged at 1.60 = £1, but other currencies have not been hedged.Our hedging policy is kept under continual review.
Interest income on the Group's substantial cash balances reduced significantly as the Bank of England cut base rates. This trend will be more marked in the second half.
Dividend
The Directors have approved an interim dividend of 2.8 pence per share, an increase of 12% over the 2008 interim dividend of 2.5 pence per share. The dividend will be paid on 17 July to shareholders on the register on 19 June 2009. In line with our progressive dividend policy, we expect the total dividend for the year to continue to advance in line with the Group's growth for the year as a whole.
Operating Review
Translations
The patent translations business, which accounts for almost 70% of Group revenues, demonstrated its defensive qualities in the face of the anticipated loss of sales revenues from the first full six month period of the London Agreement. RWS' high quality and competitive "translate and file" service, which was developed in a European context, has now been extended to Japan and China with increasing interest being shown by North American and European multinational corporates. The US market is of particular promise to RWS and we have both enhanced our direct sales effort as well as partnering with a US-based consultancy focused on delivering cost saving patenting solutions to large filers.
Our commercial translation services account for 26% of Group revenues. These are non patent related services (medical, legal, financial and other technical translations) where we do experience significant levels of competition and where the current economic environment has proved to be challenging. We acquired Document Service Center (DSC), a Berlin-based provider of technical translations in February 2008 for £5.8M net. The performance of DSC has been impacted by its exposure to German exporters, but it has nevertheless been an earnings enhancing acquisition. We also announced on 3 March 2009 the acquisition of Communicare Limited, a London-based provider of medical and life sciences translations for £2.2M. At this very early stage, we fully anticipate that Communicare will be earnings enhancing in the current year.
Information
The information services business accounts for less than 10% of sales but a somewhat higher proportion of profit. The core patent search and watch services have suffered reduced demand which we attribute to economic pressures on clients.
The PatBase database subscription service has enjoyed further worldwide subscriber interest. We invested last year in improving its coverage and searchability. This investment has paid dividends in the form of a 76% growth in subscription revenues in the period, well ahead of our expectations. The scaleability and operational gearing of PatBase should ensure that it becomes a meaningful contributor to Group profit in the near future.
People
As is to be expected from a business support services leader, success derives from the quality of our staff. This is especially the case in times of economic challenge. As at 31 March 2009, the Group employed 425 people, similar to a year ago.
The announcement of a fourth Queen's Award for Enterprise - International Trade bears testimony to the outstanding contribution of our people.
Current Trading and Outlook
We have seen solid trading in the opening weeks of the second half year. Overall, providing sterling remains relatively weak, we expect the second half to exceed the Board's expectations.
The economic climate remains challenging in all of our key markets. However, we believe that our strong financial position and market leadership will enable us to achieve further progress.
Andrew BrodeExecutive Chairman
2 June 2009
Consolidated Income Statement
for the six months ended 31 March 2009
|
Unaudited 6 months ended 31 March 2009 |
Audited Year ended 30 Sept. 2008 |
Restated unaudited 6 months ended 31 March 2008 |
||
|
Note |
£'000 |
£'000 |
£'000 |
|
|
Revenue |
26,804 |
54,106 |
26,992 |
|
|
Cost of sales |
(14,395) |
(31,746) |
(16,264) |
|
|
Gross profit |
12,409 |
22,360 |
10,728 |
|
|
Administrative expenses |
(4,976) |
(9,598) |
(4,461) |
|
|
Operating profit |
7,433 |
12,762 |
6,267 |
|
|
Analysed as: |
||||
|
Operating profit before amortization of customer relationships and trademarks |
7,645 |
13,028 |
6,344 |
|
|
Amortization of customer relationships and trademarks |
(212) |
(266) |
(77) |
|
|
Operating profit |
7,433 |
12,762 |
6,267 |
|
|
Finance income |
368 |
919 |
500 |
|
|
Finance expense |
(1) |
(1) |
(1) |
|
|
Profit before taxation |
7,800 |
13,680 |
6,766 |
|
|
Taxation credit/(charge) |
2 |
2,179 |
(4,093) |
(2,161) |
|
Profit for the period |
9,979 |
9,587 |
4,605 |
|
|
Attributable to: |
||||
|
Equity holders of the Company |
6 |
9,979 |
9,587 |
4,605 |
|
Basic earnings pence per Ordinary share |
4 |
24.2 |
23.5 |
11.4 |
|
Diluted earnings pence per Ordinary share |
4 |
23.6 |
22.7 |
10.9 |
Consolidated Statement of Recognised Income and Expense
for the six months ended 31 March 2009
|
Unaudited 6 months ended 31 March 2009 |
Audited Year ended 30 Sept. 2008 |
Restated unaudited 6 months ended 31 March 2008 |
||
|
Note |
£'000 |
£'000 |
£'000 |
|
|
Profit for the period |
9,979 |
9,587 |
4,605 |
|
|
Exchange gains on retranslation of foreign operations |
6 |
1,901 |
667 |
350 |
|
Total recognised income and expense for the period |
11,880 |
10,254 |
4,955 |
|
|
Attributable to |
||||
|
Equity holders of the Company |
11,880 |
10,254 |
4,955 |
|
|
Minority interest |
- |
- |
- |
|
Consolidated Balance Sheet
31 March 2009
|
Unaudited 31 March 2009 |
Audited 30 Sept. 2008 |
Restated unaudited 31 March 2008 |
||
|
Note |
£'000 |
£'000 |
£'000 |
|
|
Assets |
||||
|
Non-current assets |
||||
|
Goodwill |
13,829 |
10,924 |
10,760 |
|
|
Intangible assets |
3,793 |
3,532 |
3,374 |
|
|
Property, plant and equipment |
794 |
738 |
792 |
|
|
Deferred tax assets |
1,034 |
1,265 |
1,333 |
|
|
19,450 |
16,459 |
16,259 |
||
|
Current assets |
||||
|
Trade and other receivables |
11,067 |
10,861 |
12,243 |
|
|
Cash and cash equivalents |
5 |
24,495 |
22,081 |
17,898 |
|
35,562 |
32,942 |
30,141 |
||
|
Total assets |
55,012 |
49,401 |
46,400 |
|
|
Liabilities |
||||
|
Current liabilities |
||||
|
Bank overdraft |
5 |
- |
- |
13 |
|
Trade and other payables |
7,226 |
6,790 |
7,961 |
|
|
Income tax payable |
1,991 |
5,328 |
6,080 |
|
|
Derivative financial instruments |
- |
- |
11 |
|
|
9,217 |
12,118 |
14,065 |
||
|
Non-current liabilities |
||||
|
Deferred tax liabilities |
989 |
884 |
935 |
|
|
989 |
884 |
935 |
||
|
Total liabilities |
10,206 |
13,002 |
15,000 |
|
|
Total net assets |
44,806 |
36,399 |
31,400 |
|
|
Equity |
||||
|
Capital and reserves attributable to equity holders of the Company |
||||
|
Share capital |
2,065 |
2,065 |
2,052 |
|
|
Share premium |
3,401 |
3,401 |
3,123 |
|
|
Reverse acquisition reserve |
(8,483) |
(8,483) |
(8,483) |
|
|
Foreign currency reserve |
2,583 |
682 |
365 |
|
|
Retained earnings |
45,230 |
38,724 |
34,333 |
|
|
44,796 |
36,389 |
31,390 |
||
|
Minority interest |
10 |
10 |
10 |
|
|
Total equity |
6 |
44,806 |
36,399 |
31,400 |
Consolidated Cash Flow Statement
for the six months ended 31 March 2009
|
Unaudited 6 months ended 31 March 2009 |
Audited Year ended 30 Sept. 2008 |
Restated unaudited 6 months ended 31 March 2008 |
||
|
Note |
£'000 |
£'000 |
£'000 |
|
|
Cash flows from operating activities |
||||
|
Profit before taxation |
7,800 |
13,680 |
6,766 |
|
|
Adjustments for: |
||||
|
Depreciation of property, plant and equipment |
151 |
315 |
154 |
|
|
Amortization of intangible assets |
267 |
359 |
77 |
|
|
Finance income |
(368) |
(919) |
(500) |
|
|
Finance expense |
1 |
1 |
1 |
|
|
Other non-cash movements |
- |
- |
(147) |
|
|
Operating cash flow before movements |
||||
|
in working capital and provisions |
7,851 |
13,436 |
6,351 |
|
|
(Increase)/decrease in trade and other receivables |
(36) |
402 |
(945) |
|
|
Increase in trade and other payables |
289 |
244 |
1,492 |
|
|
Cash generated from operations |
8,104 |
14,082 |
6,898 |
|
|
Interest paid |
(1) |
(1) |
(1) |
|
|
Income tax paid |
(1,176) |
(4,119) |
(1,953) |
|
|
Net cash inflow from operating activities |
6,927 |
9,962 |
4,944 |
|
|
Cash flows from investing activities |
||||
|
Interest received |
418 |
889 |
459 |
|
|
Acquisition of subsidiary, net of cash acquired |
7 |
(2,259) |
(5,817) |
(5,817) |
|
Purchases of property, plant and equipment |
(151) |
(258) |
(120) |
|
|
Purchases of intangibles (computer software) |
(16) |
(202) |
- |
|
|
Net cash outflow from investing activities |
(2,008) |
(5,388) |
(5,478) |
|
|
Cash flows from financing activities |
||||
|
Proceeds from the issue of shares |
- |
458 |
167 |
|
|
Dividends paid |
(3,263) |
(3,647) |
(2,621) |
|
|
Net cash outflow from financing activities |
(3,263) |
(3,189) |
(2,454) |
|
|
Net increase/(decrease) in cash and cash equivalents |
1,656 |
1,385 |
(2,988) |
|
|
Cash and cash equivalents at the beginning of the period |
22,081 |
20,389 |
20,389 |
|
|
Exchange gains on cash and cash equivalents |
758 |
307 |
484 |
|
|
Cash and cash equivalents at the end of the period |
5 |
24,495 |
22,081 |
17,885 |
|
Free cash flow |
||||
|
Analysis of free cash flow |
||||
|
Net cash generated from operating activities |
8,104 |
14,082 |
6,898 |
|
|
Net interest received |
417 |
888 |
458 |
|
|
Income tax paid |
(1,176) |
(4,119) |
(1,953) |
|
|
Purchases of property, plant and equipment |
(151) |
(258) |
(120) |
|
|
Purchase of intangibles (computer software) |
(16) |
(202) |
- |
|
|
Free cash flow |
7,178 |
10,391 |
5,283 |
|
Notes
1 Accounting policies
Basis of preparation
The interim financial statements were approved by the Board of Directors on 1 June 2009 and the interim results for the half years ended 31 March 2009 and 31 March 2008 are neither audited nor reviewed by our auditors. The accounts in this interim report do not constitute statutory accounts in accordance with Section 240 of the Companies Act 1985. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group for the year ended 30 September 2008. The Group's statutory accounts for the year ended 30 September 2008 have been filed with the Registrar of Companies. The auditors have reported on the accounts for the year ended 30 September 2008; their report was unqualified, did not contain any statements under s237 (2) or (3) of the Companies Act 1985 and did not contain any matters to which the auditors drew attention without qualifying their report.
The financial information presented in this document has been prepared on the basis of the IFRS in issue that are either endorsed by the EU and effective at 30 September 2009 or are expected to be endorsed before the financial statements are approved and authorised for issue. Based on these adopted and unadopted IFRS, the directors have made assumptions about the accounting policies expected to be applied when the annual IFRS statements are prepared for the year ended 30 September 2009. In addition, the adopted IFRS that will be effective in the annual financial statements for the year ended 30 September 2009 are still subject to change and to additional interpretations and therefore can not be determined with certainty. Accordingly, the accounting policies for that annual period will be determined finally only when the annual financial statements for the Group are prepared for the year ended 30 September 2009.
The comparatives for the six months ended 31 March 2008 have been restated in line with the accounting policies and IFRS adjustments determined finally in preparing the Annual Report for the year ended 30 September 2008. This has affected goodwill, intangibles acquired, deferred tax and employee related liabilities.
HM Revenue & Customs have now agreed capital losses that offset capital gains arising on the redemption of loan notes in the year ended 30 September 2004. Therefore, the provision of £4.4 million has been released against the current year tax charge.
|
3 Dividends |
6 months ended 31 March 2009 |
Year ended 30 Sept. 2008 |
6 months ended 31 March 2008 |
|||
|
pence per share |
£'000 |
pence per share |
£'000 |
pence per share |
£'000 |
|
|
Interim for 2008: paid July 2008 (2007: 2.15 pence) |
- |
- |
2.50 |
1,026 |
- |
- |
|
Final for 2008: paid February 2009 (2007: 6.50 pence) |
7.90 |
3,263 |
6.50 |
2,621 |
6.50 |
2,621 |
|
Dividends paid to shareholders |
7.90 |
3,263 |
9.00 |
3,647 |
6.50 |
2,621 |
An interim dividend of 2.80 pence per Ordinary share will be paid on 17 July 2009 to Shareholders on the register at 19 June 2009. This dividend, declared by the Directors after the balance sheet date, has not been recognised in these financial statements as a liability at 31 March 2009.
4 Earnings per Ordinary share
The Group shows both a basic and an adjusted earnings per share figure as the Directors believe that this information will be of interest to the users of the accounts in measuring the Group's performance and underlying trends.
|
6 months ended 31 March 2009 |
Year ended 30 Sept. 2008 |
Restated 6 months ended 31 March 2008 |
||||
|
Earnings £'000 |
EPS Pence |
Earnings £'000 |
EPS Pence |
Earnings £'000 |
EPS Pence |
|
|
Profit attributable to equity holders of the Company for basic earnings per share calculation |
9,979 |
24.2 |
9.587 |
23.5 |
4,605 |
11.4 |
|
Amortization of customer relationships and trademarks (after taxation) |
153 |
0.3 |
192 |
0.5 |
56 |
0.1 |
|
Exceptional tax credit (note 2) |
(4,434) |
(10.7) |
- |
- |
- |
- |
|
Adjusted earnings |
5,698 |
13.8 |
9,779 |
24.0 |
4,661 |
11.5 |
|
Basic diluted earnings |
9,979 |
23.6 |
9,587 |
22.7 |
4,605 |
10.9 |
|
Adjusted diluted earnings |
5,698 |
13.5 |
9,779 |
23.2 |
4,661 |
11.1 |
Basic and diluted earnings are based on the post-tax group profit for the period and a weighted average number of Ordinary shares in issue during the period calculated as follows:
|
|
Number of shares
6 months ended
31 March 2009
|
Number of shares
Year ended
30 Sept. 2008
|
Number of shares
6 months ended
31 March 2008
|
|||
|
|
|
|
|
|
|
|
|
Weighted average number of Ordinary shares in issue for basic earnings
|
41,303,988
|
40,790,376
|
40,394,812
|
|||
|
Dilutive impact of share options outstanding
|
916,408
|
1,370,712
|
1,711,321
|
|||
|
Weighted average number of Ordinary shares for diluted earnings
|
42,220,396
|
42,161,088
|
42,106,133
|
|||
At 31 March 2009 there were unexercised options over a total of 1,011,980 (2008 - 1,270,533) Ordinary shares.
|
5 Cash and cash equivalents |
6 months ended 31 March 2009 |
Year ended 30 Sept. 2008 |
6 months ended 31 March 2008 |
|
£'000 |
£'000 |
£'000 |
|
|
Cash at bank and in hand |
16,995 |
19,621 |
6,198 |
|
Short-term deposits |
7,500 |
2,460 |
11,700 |
|
Cash and cash equivalents |
24,495 |
22,081 |
17,898 |
|
Bank overdrafts (secured) |
- |
- |
13 |
|
Cash and cash equivalents in the cash flow statement |
24,495 |
22,081 |
17,885 |
Short-term deposits have original maturity of three months or less.
|
6 Statement of changes in equity |
6 months ended 31 March 2009 |
Year ended 30 Sept. 2008 |
Restated 6 months ended 31 March 2008 |
|
£'000 |
£'000 |
£'000 |
|
|
Total equity at the beginning of the period |
36,399 |
28,722 |
28,722 |
|
Profit for the period |
9,979 |
9,587 |
4,605 |
|
Dividends (note 3) |
(3,263) |
(3,647) |
(2,621) |
|
Currency translation differences |
1,901 |
667 |
350 |
|
Issue of shares |
- |
458 |
167 |
|
Equity element of deferred tax on share based payments |
(210) |
612 |
177 |
|
Total equity at the end of the period |
44,806 |
36,399 |
31,400 |
7 Acquisition
On 3 March 2009, the Group acquired the entire share capital of Communicare Limited, whose principal activity is the provision of technical translations for the medical and pharmaceutical industries, for a cash consideration of £2,233,000.
A full evaluation of goodwill and the identification of the acquired intangible assets has not yet been completed. Pending this, the provisional fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:
|
Book value |
Provisional fair value adjustments |
Provisional fair values |
|
|
£'000 |
£'000 |
£'000 |
|
|
Net assets acquired: |
|||
|
Property, plant and equipment |
22 |
- |
22 |
|
Trade and other receivables |
206 |
- |
206 |
|
Corporation tax debtor |
10 |
- |
10 |
|
Overdrafts |
(26) |
- |
(26) |
|
Trade and other payables |
(146) |
- |
(146) |
|
66 |
- |
66 |
|
|
Goodwill |
2,167 |
||
|
Total consideration |
2,233 |
||
|
Satisfied by: |
|||
|
Cash |
2,122 |
||
|
Directly attributable costs: legal and professional fees |
111 |
||
|
Total consideration |
2,233 |
||
|
Cash flow: |
|||
|
Total consideration |
2,233 |
||
|
Overdraft included in undertaking acquired |
26 |
||
|
Net cash consideration in cash flow statement |
2,259 |
Related Shares:
RWS Holdings