Half Yearly Report

RNS Number : 1648T

RWS Holdings PLC

02 June 2009

 



    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

• Sales for the period exceeded budget and were in line with 2008 at £26.8M after the full London Agreement impact

• Profit before tax* for the period rose by 17.1% to £8M (2008: £6.8M)

• Good operational performance enhanced by favourable exchange rates

• Normalised earnings per share* were up 21.6% to 13.5p (2008: 11.1p)

• Interim dividend increased by 12% to 2.8p (2008: 2.5p)

• 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

• Significant reduction in interest income due to lower interest rates

* before amortization of intangibles

Operational Highlights:

Resilience in a challenging economic environment

• Solid performance in core patent translations business in spite of London Agreement

• Acquisition of Communicare Limited in March 2009

• PatBase subscription revenues grew 76%, well ahead of expectations

• Fourth Queen's Award for Enterprise - International Trade

Current Trading:

• Firm trading in the opening weeks of the second half of the year

• Economic climate remains challenging in key markets

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 Brode
Executive 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.

2 Taxation - the charge for the 6 months ended 31 March 2009 is at the likely effective tax rate that will be applicable for the whole year.

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

 

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