Final Results

RWS Holdings PLC 11 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 support services (patent translations and technical searches) and technical translations, today announced its preliminary results for the year ended 30 September 2007. Financial Highlights: Sales and profits at record levels, for the fourth successive year since flotation 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 by continued momentum in the core patent translation market, new client wins and increased utilisation from existing clients. In addition, Japanese Language Services Limited which was acquired in June 2007 is trading ahead of our expectations. 'With a strong financial position, good forward sales visibility and plans in place to more than compensate for the potential effects of the London Agreement by organic expansion and selective acquisitions, we are confident that our chosen strategy will deliver further growth in 2008 and that the dividend will continue to advance in line with that growth.' For further information contact: RWS Holdings plc Andrew Brode, Executive Chairman 01753 480200 Smithfield Katie Hunt 020 7360 4900 Numis Stuart 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 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 Executive Chairman's Statement I am delighted to report another year of strong organic growth from RWS. In its fourth year as a public company it has delivered new record levels for both sales and profits. Business Overview RWS is Europe's leading provider of intellectual property support services and high level technical, legal and financial translation services. The core business - patent translation - is probably the largest of its kind in the world, translating over 50,000 patents and intellectual property related documents each year. It serves a multinational blue chip client base drawn from Europe, North America and Japan. Its clients will be active filers of patents in the 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 two divisions, the Translation division providing patent and document translation, filing and localisation services in the UK, USA, Europe, Japan and China, and the Information division, which offers a comprehensive range of patent search, retrieval and monitoring services as well as a recently developed and extremely comprehensive patent database service accessible by subscribers, known as PatBase. Strategy The Group's strategy is to grow both organically and by selective acquisitions in the high level technical translation and intellectual property support services spaces. Organic growth will flow from leveraging RWS' size and reputation for specialist quality with both existing clients and new major corporates 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 rose by 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 and was 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 and goodwill 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. Free cash flow increased to £7.5 million and capital expenditure was, as usual, modest at £224,000. The excellent growth in the overall business required further working capital of £1.8 million. The acquisition of Japanese Language Services absorbed a further £1.1 million, but even after tax and dividend payments net cash advanced by £4.5 million year on year. Dividend The Board recommends a final dividend of 6.5p per share, which, together with the interim payment, will result in a total dividend payout for the year of 8.65p 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 final dividend will be paid on 22 February 2008 to all shareholders on the register at 25 January 2008. Acquisitions Japanese Language Services Limited, which was acquired in June 2007, has been seamlessly integrated into our Translation division and early results are ahead of our expectations with complete client retention and good levels of business. We continue to review acquisition opportunities which will be pursued selectively where they have demonstrable growth prospects and enhance shareholder value. Patent Translation Market The European Patent Office 2006 annual report confirmed further underlying growth 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 almost 80% of revenues. Client retention and acquisition combined with further growth in the numbers of patents granted worldwide ensured that our core business continued to perform ahead of plan. Our largest client regained its leading position after a temporary shortfall in 2006 and the majority of our larger customers increased their utilisation of our services. The RWS offering has long been regarded as a high quality, convenient and cost-effective solution for those clients with significant patent volumes requiring comprehensive geographical intellectual property protection. We have increased our sales effort, especially in the USA where we now employ three 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 yen terms but were held back when expressed in sterling. Our Beijing office is now fully operational and attracting interest from European and North American corporates. The commercial and technical translation activities now include Eclipse, which was acquired in 2005, and Japanese Language Services, which was acquired in 2007, and account for 14% of sales. These activities have achieved excellent results in a highly competitive environment. We continue to seek to protect our margins 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 has traditionally enjoyed far superior margins to the rest of the business. This continues to be the case as it attempts to exploit its market leading position in the provision of patent search, patent watch and document services. Sales of these services advanced only modestly. However, this division was responsible for the development of an extremely comprehensive and searcher-friendly patent database (PatBase). We are exploiting this subscription-based service in partnership with an intellectual property software company and it has delivered in excess of 70% growth in 2007, with the outstanding margins often associated with subscription services. Principal Risks The Directors believe that the principal risks to the business would arise from errors in the provision of the Group's services, in a mismatch between currencies (i.e. sales are predominantly in euros, whilst costs are mainly incurred in sterling) and in regulatory changes to patent translation requirements in Europe. As regards service provision, RWS has long been ISO-certified and has exhaustive procedures in place to minimise the risk of error. In addition, the Group carries comprehensive professional indemnity insurance. The currency risks can normally be addressed via hedging operations. During the financial year ended 30 September 2007, we entered into limited euro/sterling hedging arrangements which have been extended to March 2008. However, the Group believes the recent strength of the euro will continue and has no immediate plans for additional hedges. At the time RWS floated on AIM in November 2003, two regulatory initiatives were highlighted 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 it to be implemented in the near future. On 1 October 2007, it was announced that we anticipated that the London Agreement would come into effect in the Spring of 2008, that it was a voluntary arrangement, and that the estimated reduction in profit before tax would be of the order of £1 million in the financial year ending 30 September 2008 and £2 million in a full year. We emphasised that our core patent translation activities (into English, primarily for use at the US Patent Office) were unaffected by the London Agreement; the potential loss of work comprises the into European language translations performed by freelances. People RWS is a quintessential 'people' business. The efforts of my Board colleagues and all of our staff throughout the world have been fundamental to the delivery of another set of excellent results and the enhancement of our reputation across our customer base. Outlook As has previously been experienced, our markets remain strong in the face of more challenging economic conditions. We are, therefore, encouraged by our future prospects which are underpinned by the pressing need for corporates to protect intellectual property throughout the economic cycle. With a strong financial position, good forward sales visibility and plans in place to more than compensate for the potential effects of the London Agreement by organic expansion and selective acquisitions, we are confident that our chosen strategy will deliver further growth in 2008 and that the dividend will continue to advance in line with that growth. Andrew Brode Executive Chairman 10 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 Pence Basic earnings per share 19.5 15.2 Diluted 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 30 September 2007 2007 2006 £'000 £'000 Profit attributable to shareholders 7,782 5,899 Exchange adjustments on retranslation of net assets of subsidiary 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 £'000 Fixed assets Intangible assets 6,865 6,418 Tangible assets 749 836 -------- ---------- 7,614 7,254 Current assets Debtors 7 10,675 8,839 Cash 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 reserves Called up share capital 9/10 2,016 1,954 Share premium account 10 2,992 1,977 Share option reserve 10 1,556 1,873 Capital reserve 10 474 157 Reverse acquisition reserve 10 (8,483) (8,483) Profit and loss account 10 28,558 23,751 ---------- --------- Shareholders' funds 10 27,113 21,229 Minority 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 of finance Interest received 752 474 Interest paid (7) (1) ------- ------- 745 473 Tax paid (1,859) (2,485) Capital expenditure and financial investment Purchase of tangible assets (250) (208) Sale of tangible assets 26 - ------- ------- (224) (208) -------- -------- Free cash flow 7,520 5,747 Acquisition Acquisition of subsidiary undertaking (1,174) - Net cash in subsidiary undertaking acquired 44 - ------- ------- (1,130) - Equity dividends paid (2,990) (2,395) Financing Issue 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 from operating activities 2007 2006 £'000 £'000 Group operating profit 9,658 7,925 Depreciation and amortization 951 938 Profit on sale of tangible assets (5) - Debtors increase (1,756) (1,484) Creditors increase - 653 Other 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 3,983 Net 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 22,144 Overdrafts (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 those used in the preparation of the statutory accounts. The financial information is derived from the Group financial statements for the years ended 30 September 2007 and 2006, and does not constitute full accounts within the meaning of Section 240 of the Companies Act 1985. Statutory accounts for 2006 have been delivered to the Registrar of Companies and those for 2007 will be delivered in due course and posted to shareholders in January. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under Section 237 (2) or (3) of the Companies Act 1985. Copies of this announcement are available at the registered office of the Company, 8 Baker Street, 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 Consultants Limited, 10 Aldersgate Street, 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 Bybrook Limited and its subsidiary undertakings. The substance of the combination was that Bybrook Limited acquired RWS Holdings plc in a reverse acquisition. The Directors have adopted reverse acquisition accounting as a basis of consolidation in order to give a true and fair view of the substance of the combined entity. In invoking the true and fair override, the Directors note that reverse acquisition accounting is endorsed by International Financial Reporting Standard 3 and that the Urgent Issues Task Force of the UK's Accounting Standards Board considered the subject and concluded that there are instances where 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's share capital and fair value of its net liabilities at the reverse acquisition date. This goodwill was written-off in the year ended 30 September 2004, because the goodwill had no intrinsic value. Other goodwill arising on consolidation and purchased goodwill are capitalised and amortized through the Profit and Loss Account over the Directors' estimate of 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 the previous year apart from the adoption of certain new Financial Reporting Standards (FRS). Changes in accounting policies The adoption of FRS 20 'Share-based payment' has had no impact on the financial statements. Turnover Turnover represents sales to outside customers at invoiced amounts less value added tax. Revenue, other than subscription revenue, is recognised as a translation, filing or search is fulfilled in accordance with agreed client instructions. Subscription revenue is recognised on a straight line basis over the 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 and filing were not accounted for as long tem contracts as the impact of activity falling into different accounting periods was considered not to be material to the financial statements. For the financial year ended 30 September 2007, work in progress reported in the previous financial year has been reclassified as accrued income to be consistent with the current year in accordance with FRS 28 'Corresponding Amounts'. The corresponding amounts for the profit and loss account have not been adjusted as the effects are considered not to be significant. Intangible assets On acquisition of a business, fair values are attributed to the net assets acquired. Goodwill arises where the fair value of the consideration given for a business exceeds the fair value of such net assets. Goodwill arising on acquisitions is capitalised and amortized through the Profit and Loss Account over the Directors' estimate of its useful economic life (ranging between 8 and 20 years). Goodwill is reviewed for impairment when there are indications that the carrying value may not be recoverable. Other purchased goodwill is capitalised and amortized through the Profit and Loss Account over the Directors' estimate of the useful economic life. The economic life for each asset within this category is considered individually and ranges between 8 and 20 years. 3 Segment information 2007 2006 £'000 £'000 Turnover by class of business Translation and localization services 43,121 38,032 Information services 3,087 2,747 --------- --------- 46,208 40,779 --------- --------- The tables below show information by geographic area and, for turnover and assets, material countries. Turnover by geographic location of Group undertakings United Kingdom 42,010 36,673 Continental Europe 817 616 Japan 3,190 3,304 United States of America 191 186 --------- --------- 46,208 40,779 --------- --------- Turnover by geographic market in which customers are located United Kingdom 7,123 5,676 Continental Europe Germany 15,349 14,296 France 4,828 4,812 Other 10,105 8,228 --------- --------- 30,282 27,336 Japan 2,408 2,470 United States of America 6,076 5,061 Other 319 236 --------- --------- 46,208 40,779 --------- --------- Total assets by location of Group undertakings UK 38,796 30,476 Others 1,637 1,756 --------- --------- 40,433 32,232 --------- --------- Net assets by location of Group undertakings UK 25,924 19,898 Others 1,199 1,341 --------- --------- Net assets 27,123 21,239 --------- --------- Profit before taxation by business sector and location of Group undertakings In the opinion of the Directors, disclosure would be seriously prejudicial to the interests of the Group. 4 Taxation 2007 2006 £'000 £'000 Analysis of tax charge: Corporation tax 2,437 2,403 Adjustments 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 offset against the capital gain arising on the redemption of loan notes in the year ended 30 September 2004. As the quantum of the capital losses has not been agreed the offset of the capital losses has not been recognised in the current tax charge and no deferred tax asset recognised. 5 Dividends 2007 2006 £'000 £'000 On each 5 pence Ordinary share Final proposed 2005 (paid 16 February 2006) - 4.35 pence per share - 1,672 Interim, paid on 14 July 2006 - 1.85 pence per share - 723 Final proposed 2006 (paid 16 February 2007) - 5.35 pence per share 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 the balance sheet date. The final proposed dividend will reduce shareholders' funds by an estimated £2.6 million. 6 Earnings per Ordinary share 2007 2006 ------- --------- --------- ----------- Earnings EPS Earnings EPS Basic £'000 Pence £'000 Pence Basic earnings 7,782 19.5 5,899 15.2 Goodwill 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 14.2 Goodwill 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 the current or prior year. Diluted earnings per share are based on the group profit for the year and a weighted average of Ordinary shares in issue during the year calculated as follows: Number of shares Number of shares In issue 39,883,725 38,763,414 Dilutive potential Ordinary shares arising 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 an amount of £1,240,000 reclassified from work in progress as explained within Note 2. 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 liability on the gain arising on the redemption of loan notes in the year ended 30 September 2004. 9 Share capital 2007 2006 £'000 £'000 Authorised 100,000,000 Ordinary shares of 5 pence 5,000 5,000 ----------- ---------- Allotted, called up and fully paid 40,319,435 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 of 5 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 beginning of year 1,954 1,977 (6,453) 23,751 21,229 Issue of share capital in respect of share options 62 1,015 - - 1,077 Dividends - - - (2,990) (2,990) Profit retained for the financial year - - - 7,782 7,782 Exchange movements - - - 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 £'000 Other reserves At beginning of year (8,483) 1,873 157 (6,453) Issue of share capital in respect of share 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 5,899 Dividends paid (note 5) (2,990) (2,395) --------- ---------- Net additions to shareholders' funds 4,792 3,504 --------- ---------- Opening shareholders' funds 21,229 17,161 Additions to shareholders' funds 4,792 3,504 Issue of share capital in respect of share options 1,077 631 Exchange 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 of Japanese Language Services Limited for a cash consideration of £1,174,000. In calculating the goodwill arising on acquisition, there were no adjustments from book value in determining the fair value of net assets acquired. Book value and fair value £'000 Current assets: Debtors 66 Cash at bank 44 ---------- Total assets 110 Creditors: amounts due within one year (18) ---------- Net assets 92 ---------- Cash consideration (including expenses of £31,845) 1,174 Net assets acquired 92 ---------- Goodwill arising on consolidation 1,082 ---------- The net outflow of cash arising from the acquisition of Japanese Language Services Limited was as follows: Cash flows £'000 Cash consideration (including expenses of £31,845) 1,174 Cash 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 Exchange

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