Final Results
RWS Holdings PLC
12 December 2006
12 December 2006
RWS Holdings plc
Preliminary results for 2005-06
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 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 in
which we have continued to enhance our market leadership in our core businesses
with our quality-driven model.
We anticipate further growth in sales and profits in 2007 which will be matched
by a progressive dividend policy. The necessary drivers are in place to underpin
our confidence in the outlook.'
For further information contact:
RWS Holdings plc
Andrew Brode, Executive Chairman 01753 480200
Smithfield
Reg 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 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 and resilient organic growth
from RWS. In its third year as a public company it has established new records
for both sales and profits.
Business Overview
RWS is a leading provider of intellectual property support services and high
level technical, legal and financial translation services. The core business -
patent translation - is the largest of its kind in Europe, 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
. 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 leading
intellectual property organisations. The Group comprises two divisions, the
Translation division providing patent and document translation, filing and
localization services in the UK, US, Japan and Europe, and the Information
division, which offers a comprehensive range of patent search retrieval and
monitoring services and has recently launched a comprehensive patent database
service searchable by subscribers, known as PatBase.
Strategy
The Group's strategy is focused upon organic growth of its market-leading
positions in the delivery of translation and search services. Growth will be
achieved by leveraging RWS' size and reputation for quality with major
corporates in a highly fragmented, largely freelance industry. Acquisitions will
only be pursued if they have demonstrable growth prospects and enhance
shareholder value.
Results
Group sales and profit for the year were both at record levels. Sales grew by
13.7% to £40.8 million; profit before tax and goodwill amortization advanced by
21.5% 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 new
multinational clients whilst retaining the work of existing customers despite
significant merger activity.
Against a background of continued underlying growth in patent applications filed
(European Patent Office 2005 annual report confirmed 8% growth), RWS delivered a
resilient 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 two
important UK Government contracts.
Dividend
The Board has recommended a final dividend of 5.35p per share, which, together
with the interim payment, will result in a total dividend for the year of 7.2p
per share, 20% more than in 2005. 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 16 February 2007 to all
shareholders on the register at 19 January 2007.
Operating Review
Translations
Patent translations account for 80% of the Group's revenues and achieved further
good progress in a more challenging environment. Whilst the numbers of granted
patents rose to new record levels, the flow of those relating to our largest
client fluctuated in the first half of the year and led to a substantial
shortfall against prior trends (since restored). It is a measure of the
resilience of our business that we were able to compensate for this by winning
several new clients who delivered considerable volumes of business. The RWS
offering is perceived as a high quality, convenient and cost-effective solution
to our clients' requirement for comprehensive geographical patent protection.
In Japan, we have enlarged our office space and staff but the continued weakness
of the yen has held back the performance in sterling terms. The Japanese model
will be repeated in Beijing where, after significant delays, we have obtained a
business licence and our first important European client has signed up to our
Chinese service effective January 2007.
Our commercial and technical translation activities, which include Eclipse and
account for 14% of sales, have enjoyed their most successful year to date
despite encountering heavy competition. We seek to distance this business from
the cheap commoditised end of the market, preferring to position ourselves as a
high quality service provider for larger, more difficult assignments. Where
possible, we will also seek preferred supplier status.
Information
The Information division now accounts for only 6% of group sales but enjoys
superior margins to the rest of the business. It is the largest European
provider of patent search, patent watch and document services but suffers from
the search budget constraints imposed upon most multinational corporates. As a
result, sales did not advance in 2005-06.
However, this division has developed a new database product (PatBase) in
partnership with an intellectual property software business and this
subscription-based initiative experienced significant interest, contributing
excellent margins and lifting the overall performance of the division. We have
high growth expectations for PatBase in 2006/07.
Financial Review
This year has seen an already sound financial base strengthen considerably with
net assets now exceeding £20 million, including net cash of £15.9 million. Free
cash inflow was £5.7 million and overall net cash increased by £4.0 million. RWS
normally has low capital expenditure (principally I.T. related costs and
premises) and the 2005/06 expenditure totalled £208,000. Despite the growth in
the 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 and
goodwill amortization rising from 20.7% to 22.1%. This was accounted for by the
excellent margins on PatBase and tight control of translation costs, both
internal and freelance.
Principal Risks
The Directors believe that the principal risks to the business arise from 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 in patent translation requirements in Europe.
As regards the provision of services, RWS has long been ISO-certified and has
exhaustive procedures in place to minimize the risk of error. Additionally, the
Group carries professional indemnity insurance.
The currency risk is normally addressed via hedging operations. In 2005/06 much
of the euro and dollar exposure was hedged but at present the Group has no
arrangements in place as it anticipates that sterling will weaken, particularly
against the euro.
At the time RWS was floated on AIM in November 2003 two regulatory initiatives
were identified as threats to our patent translation activities. The first - a
European Community Patent - was decisively rejected in 2005, although the
Commission is taking soundings as to its possible renaissance. The second - the
London Agreement - has now been ratified by seven member states, but crucially,
not yet by France. We are given to understand that opposition to French
ratification has weakened, and ratification is no longer constitutionally
barred, but given the up-coming presidential and parliamentary elections in
France no movement is to be expected in the 2006/07 financial year. The Board is
monitoring developments in France carefully and has plans well in hand to limit
any material financial downside were the agreement to be implemented.
People
I would like to acknowledge the contribution of my Board colleagues and all of
the staff throughout the Group in delivering such an excellent set of results
and ensuring the enhancement of RWS' reputation throughout its customer base.
Outlook
Our markets continue to expand, driven by the urgent need to protect
intellectual property in a shrinking world. Globalisation and the expansion of
the European Union add further macro drivers to our growth opportunities.
Our financial position is strong, our forward sales visibility is reassuring and
we can be confident that we will grow further in 2006-07 and that the dividend
will continue to advance, in line with our progressive dividend policy.
Andrew Brode
Executive Chairman
11 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 Pence
Basic earnings per share 15.2 11.9
Diluted 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 30
September 2006
2006 2005
£'000 £'000
Profit attributable to shareholders 5,899 4,560
Exchange adjustments on retranslation of net assets of
subsidiary 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 assets
Intangible assets 6,418 7,049
Tangible assets 836 935
--------- --------
7,254 7,984
Current assets
Work in progress 1,240 773
Debtors 7,599 6,571
Cash 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 reserves
Called up share capital 8/9 1,954 1,922
Share premium account 9 1,977 1,378
Share option reserve 9 1,873 1,962
Capital reserve 9 157 68
Reverse acquisition reserve 9 (8,483) (8,483)
Profit and loss account 9 23,751 20,314
--------- --------
Shareholders' funds 9/10 21,229 17,161
Minority interests 10 10
--------- --------
Shareholders' funds and minority interests 21,239 17,171
--------- --------
The restatement of 2005 comparatives arises on adoption of Financial Reporting
Standard 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 of
finance
Interest received 474 401
Interest paid (1) (1)
--------- ---------
473 400
Tax paid (2,485) (2,143)
Capital expenditure and financial
investment
Purchase of tangible fixed assets (208) (233)
--------- ---------
Free cash flow 5,747 5,166
Acquisitions and disposals
Acquisition of subsidiary undertakings - (2,430)
Net overdraft in subsidiary undertakings
acquired - (249)
--------- ---------
- (2,679)
Dividends paid to shareholders (2,395) (1,970)
Financing
Issue 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 6,413
Depreciation and amortization 938 958
Work in progress increase (467) (91)
Debtors increase (1,017) (1,341)
Creditors increase 653 1,218
Other 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 1,191
Net 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 16,139
Overdrafts (351) 124 (227)
--------- --------- ---------
11,929 3,983 15,912
--------- --------- ---------
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
2006 and 2005, and does not constitute full accounts within the meaning of
Section 240 of the Companies Act 1985. Statutory accounts for 2005 have been
delivered to the Registrar of Companies and those for 2006 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, Cheapside House, 138 Cheapside, London EC2V 6LH 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 has been written-off in the year ended 30 September 2004,
because the goodwill has 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 17 'Retirement benefits' has had no impact on the financial
statements.
The adoption of FRS 21 'Events after the balance sheet date' has resulted in a
change in accounting policy in respect of proposed equity dividends. If the
Company declares dividends to the holders of equity instruments after the
balance sheet date the Company does not recognise those dividends as a liability
at the balance sheet date. Previously where these equity dividends were proposed
after the balance sheet date but before authorisation of the financial
statements they were recorded as liabilities at the balance sheet date. The
aggregate amount of equity dividends proposed before approval of the financial
statements 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 operating
the standard, net assets and retained profits at 30 September 2005 have
increased 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 the
calculation of earnings per share. FRS 22 only allows basic and diluted earnings
per share on the face of the profit and loss account. Other methods of
calculating earnings per share are required to be shown in the notes with
reference to the basis of the calculations carried out and reconciled to the
earnings per share reported under this standard.
The presentational requirements of FRS 25 'Financial instruments: disclosure and
presentation' were adopted.
FRS 28 'Corresponding amounts' has had no impact on the financial statements.
Intangible fixed 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 (generally not
exceeding 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
is not normally expected to exceed 20 years.
3. Segment information
2006 2005
restated
£'000 £'000
Turnover by class of business
Translation and localization services 38,032 33,327
Information services 2,747 2,548
----------- ----------
40,779 35,875
----------- ----------
The tables below show information by geographic area and, for turnover and
assets, material countries.
Turnover by geographic location of Group undertaking
United Kingdom 36,673 31,748
Continental Europe 616 611
Japan 3,304 3,339
United States of America 186 177
----------- ----------
40,779 35,875
----------- ----------
Turnover by geographic market in which customers are located
United Kingdom 5,676 4,882
Continental Europe
Germany 14,296 13,284
France 4,812 3,698
Other 8,228 6,695
----------- ----------
27,336 23,677
Japan 2,470 2,446
United States of America 5,061 4,747
Other 236 123
----------- ----------
40,779 35,875
----------- ----------
Total assets by location of Group undertaking
UK 30,476 26,082
Others 1,756 1,526
----------- ----------
32,232 27,608
----------- ----------
Net assets by location of Group undertaking
UK 19,898 16,038
Others 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 to
the interests of the Group.
4. Taxation
2006 2005
£'000 £'000
Analysis of tax charge:
Corporation tax 2,403 2,024
Adjustments 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 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
2006 2005
restated
£'000 £'000
On each 5p Ordinary share
Final proposed 2004 (paid 7 March 2005) - 3.50 pence per
share - 1,323
Interim, paid on 30 June 2005 - 1.65 pence per share - 647
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 -
-------- -------
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 the
balance sheet date. The final proposed dividend will reduce shareholders' funds
by 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 11.9
Goodwill 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 the
current or prior year.
Number of Number of
shares shares
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:
In issue 38,763,414 38,204,648
Dilutive potential Ordinary shares
arising 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 liability
on the gain arising on the redemption of loan notes in the year ended 30
September 2004.
8. Share capital
2006 2005
£'000 £'000
Authorised
100,000,000 Ordinary shares of 5p 5,000 5,000
----------- ---------
Allotted, called up and fully paid
39,081,496 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 September
2005 1,922 1,378 (6,453) 18,642 15,489
as previously
stated
Prior year
adjustment:
Restatement on
adoption of FRS 21
(note 2) - - - 1,672 1,672
-------- --------- -------- -------- ----------
Opening
shareholders' funds
as restated 1,922 1,378 (6,453) 20,314 17,161
Issue of share
capital in respect
of share options 32 599 - - 631
Dividends - - - (2,395) (2,395)
Profit retained for
the financial year - - - 5,899 5,899
Exchange 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 £'000
Other reserves
At beginning of year (8,483) 1,962 68 (6,453)
Issue of share capital in respect
of - (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 4,560
Dividends paid (note 5) 2,395 1,970
------------ ---------
Net additions to shareholders' funds 3,504 2,590
------------ ---------
Opening shareholders' funds as previously stated 15,489 12,599
Restatement of dividends re FRS 21 1,672 1,323
------------ ---------
Opening shareholders' funds as restated 17,161 13,922
Additions to shareholders' funds 3,504 2,590
Issue of share capital in respect of share options 631 674
Exchange 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.
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