Final Results

RNS Number : 8779X

RWS Holdings PLC

14 December 2010

 



RWS GROUP

                                                                                                                               14 December 2010

RWS Holdings plc

Preliminary results for the year ended 30 September 2010

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 2010.

Financial Highlights:

 Growth in sales, underlying profits and dividends for the seventh successive year since flotation

·         Sales increased by 9.6% to £60.6m (2009: £55.3m)

·         Underlying operating profit* was £14.3m (2009: £13.9m) despite:

·      a £0.3m negative impact from currency fluctuations (2009: £0.6m positive)

·         Profit before tax* rose by 0.7% to £14.6m (2009: £14.5m) despite:

·      a £0.2m reduction in interest income and the currency swing outlined above

·         Diluted adjusted earnings per share of 24.9p* (2009: 24.6p**)

·         Final dividend of 10.25p (2009: 8.85p); total dividend increased by 15% to 13.4p (2009: 11.65p), continuing an unbroken series of double digit dividend increases since flotation

·         Net cash at year end of £17.9m (2009: £24.3m), after purchase cost of new office building (£10.0m) and prior to recovery of associated VAT of £1.6m

*  before amortization of intangibles, and in 2010 net cost of relocation

** 2009 earnings per share before £4.4m exceptional tax credit and amortization of intangibles

Operational Highlights:

  Good progress in core patent translations business, PatBase and China

·         Substantial growth in patent translations business with significant client wins in Europe and North America

·         Challenging trading conditions in technical translations, particularly in Germany; stabilised in the fourth quarter

·         Chinese business grew revenue by 47% and moved into profit

·         PatBase subscription revenues grew by 27%, retaining attractive margins

·         New headquarters  acquired;  occupation in late December

Executive Chairman Andrew Brode commented on current trading and outlook:

"Trading in the first two months of the new financial year has been encouraging. We have fully hedged our anticipated Euro and dollar trading exposure at attractive rates, we have a strong financial position and we are well placed to grow our share of the patent translations market and to take advantage of the improvement in the technical translations and intellectual property services markets which we are now seeing.

"Whilst the global economic recovery remains fragile, we expect that the realisation of the full year benefit of clients won during 2010, combined with improved efficiencies from our move into a new, integrated office, will further underpin enhanced progress in 2011."

A meeting for analysts will be held today at 9.30am at the offices of Numis Securities,The London Stock Exchange Building, 10 Paternoster Square, London, EC4M 7LT. Please contact Jennifer Kelly on 020 3128 8751 if you would like to attend.

For further information contact:

RWS Holdings plc

Andrew Brode, Executive Chairman                                                                                         01753 480200

MHP

Katie Hunt                                                                                                                            020 3128 8794

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

RWS Holdings plc

Preliminary results for the year ended 30 September 2010

Executive Chairman's Statement

It gives me great pleasure to be able to report another year of progress for RWS against a challenging and volatile economic backdrop. For its seventh consecutive year as a public company it has delivered growth in sales, underlying profits and dividends, demonstrating the strength and resilience of the Group's core, market leading patent translations business which has achieved significant client wins in Europe and North America during the year.

Business Overview

RWS is the world's leading provider of patent translations and one of Europe's leading players in the provision of intellectual property support services and high level technical, legal and financial translation services.  Its main business - patent translation - translates well over 50,000 patents and intellectual property related documents each year.  It has a blue chip multinational client base from Europe, North America and Asia, 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 is  driven by increases in the worldwide patent filing activities of our existing and potential multinational clients, the growing demand for language services and our ability to increase our market share by winning new clients attracted by our leading position and reputation, in an otherwise fragmented sector.  Whilst the global number of applications has fallen modestly during the recession, we have successfully grown market share amongst our target blue-chip customers who have historically remained committed to protecting their intellectual property through the cycle.

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.  Whilst developed economies have been in recession, and profits have fallen, we have, however, found that sellers' price expectations have been too high to fulfil our acquisition criteria.

Results and Financial Review

The Group has achieved a strong underlying operational performance, reflecting robust growth in the core patent translations business, partially offset by the more challenging trading conditions facing our technical translations activities, especially in Germany. However, the technical translations business in Germany has stabilised since the summer.  Our Chinese activities moved into profit for the first time and PatBase continued its excellent growth.

Sales advanced by 9.6% to £60.6m (2009: £55.3m) conclusively confirming that the Group has successfully absorbed the full impact of the London Agreement.

Underlying operating profit before amortization of intangibles, and in 2010 the net cost of relocation, was up       2.9% to £14.3m (2009: £13.9m), despite the £0.3m negative (2009: £0.6m positive) impact of currency fluctuations. Profit before tax, intangibles amortization and relocation costs was £14.6m (2009: £14.5m) with a  further decline in interest income in excess of £0.2m. Reported profit before tax was £13.7m (2009: £14.0m) and basic earnings per share were 23.2p (2009: 35.0p). The effective cash tax rate was 22.9% (2009: 29.3%); the rate is lower than the prior year due to additional deductions for share options exercised and increased capital allowances in respect of the new office building.

Diluted adjusted earnings per share were up by 1% to 24.9p (2009: 24.6p) on a 2.5% increase in the  number of shares in issue following the exercise of all remaining options in December 2009 and before the £4.4m exceptional credit in 2009 flowing from the release of a corporation tax provision agreed with HMRC in February 2009.

At 30 September 2010 shareholders' funds had reached £52.7m (2009: £48.1m), of which net cash represented £17.9m (2009: £24.3m).  In July 2010 the Group purchased its new headquarters building, based locally in Buckinghamshire, for £10.0m, plus VAT of £1.6m.  This VAT cash outlay was recovered after the financial year end, in November 2010.  In preparation for the move in late December, fit out costs of £1.5m had already been spent by 30 September 2010.  Other significant cash outlays included corporation tax of £3.9m and the final dividend for 2009 and interim dividend for 2010, totalling £5.1m.

Currency movements played a significant role in the comparison of profitability.  In 2009 the opening balance sheet was converted at a Euro/GBP rate of 79.4 and the closing balance sheet at 91.7, a favourable swing of 15.5%.  The 2010 year end rate was 87.0, giving rise to losses of £0.3m (2009: gains of £0.6m).  The Group has now arranged to hedge its Euro trading exposure for the whole of 2010-11 at an average rate of 87.0, and its US$ trading exposure has been hedged at an average rate of 1.54 = £1.

Dividend

The Directors recommend a final dividend of 10.25p per share.  The interim dividend, paid in July, was 3.15p per share, so that the total payout in respect of the year will amount to 13.4p per share, an increase of 15% over 2009, reflecting our confidence in the continued progress of the Group.

The proposed total dividend is 1.7  times covered by after tax profits.  Subject to shareholder approval at the Annual General Meeting, the final dividend will be paid on 18 February 2011 to all shareholders on the register at 21 January 2011.

Operating Review

Translations

The Group's core business (accounting for 70% of sales) remains patent translations and has experienced excellent growth.  It has been able to leverage its market leadership worldwide in this specialist activity to add to an already impressive array of blue-chip multinational clients, with good levels of client wins in Europe and North America this year.  We provide a high quality and competitive "translate and file" service which began in Europe over 15 years ago and over time has been successfully extended on a global scale.  Corporates, particularly US multinationals, wishing to file via the national and PCT routes recognise the benefits of our WorldFile service and it is proving to be a popular one-stop brand.  Demand for our Beijing patent translation service grew substantially, with sales up by 47% compared to the prior year, enabling it to move into profit for the first time.

Technical translation services delivered 23% of Group revenues.  These comprise commercial and technical non-patent translations requiring a high degree of accuracy and quality.  This offering normally experiences higher levels of competition than our patent translation activities, and given the fragile economic environment and lower levels of available work, competition had intensified, acutely so in Germany. However, we are encouraged to have seen that more stable conditions have returned in the fourth quarter of the financial year ended 30 September 2010.  The technical translations segment also embraces the majority of acquisition opportunities.  We continue to review an active deal pipeline but unrealistic price aspirations on the part of sellers have resulted in businesses being withdrawn from sale or sales to other bidders with less demanding criteria.

Information

The information services business accounts for 7% of sales, and a significantly higher proportion of profit.  The underlying activity levels of our core patent search and watch services, excluding one particularly large order, are showing modest growth on the prior year, but remain well below pre-recession levels.

The PatBase database subscription service has enjoyed further worldwide subscriber interest.  We continue to invest in improving its coverage and searchability.  This investment has paid dividends in the form of a further 27% growth in subscription revenues in the period.  The scalability and operational gearing of PatBase has allowed it to grow to contribute over 10% of Group profits.

Principal Risks

The Directors, having further reviewed the Group's risk profile, remain convinced that the principal risks to the business are errors in the provision of the Group's services, in a mismatch between currencies (especially as between the euro and sterling), and in regulatory changes to patent translation requirements in Europe.  Additionally, as with any people business delivering high quality services, the Group depends upon its ability to attract and retain well trained staff.

These risks are mitigated as follows:

·       Failings in service provision are most likely to arise as a result of human error.  RWS was one of the earliest adopters of ISO certification and invests in exhaustive and regularly updated procedures to minimise the risk of error.  In addition, the Group carries substantial professional indemnity insurance.

·       Currency risk is normally addressed via hedging operations.  Currently, sterling/dollar exposure for the whole of 2010/11 has been hedged at $1.54=£1, and sterling/euro exposure is similarly hedged at Euro 1.15=£1.

·       The London Agreement was implemented in May 2008 and the financial years 2008/09 and 2009/10  have therefore borne the full effect, which was broadly in line with our expectations.  RWS would also be impacted if a further initiative - the European Community Patent - were to become effective.  This latter initiative was decisively rejected in 2005 but continues to be discussed.  The thrust of our acquisition strategy since 2005 has been to target technical translation businesses which have zero exposure to any developments in the patent field.

·       As a major employer in the local area of South Buckinghamshire, we believe we offer stability of employment, competitive salaries and a good working environment.  In the current economic environment we have been successful in recruiting high calibre staff as required.

Corporate Social Responsibility

Our staff contribute generously and regularly to a selection of local and national charitable causes and their contributions are matched by the Group.

People

RWS will always be a quintessential "people" business, heavily reliant upon the efforts of its staff to provide the high levels of service quality expected by our clients.  During the more than two years of economic downturn we have been fortunate in maintaining headcount, and indeed increasing employment in some of our locations.  In an ever more competitive world, staff commitment will be the key to growing market share.

Premises

As already reported, we exchanged contracts in May for the purchase of the freehold of a new headquarters building located in Chalfont St Peter, South Buckinghamshire, some 20 miles from Central London.  Completion took place in July, twenty weeks later than envisaged.  Fit out is now complete and the principal move will take place over Christmas.  As a result, four separate office locations will be amalgamated and, as well as the saving in rents, we anticipate significant improvements in operational efficiency.  The purchase price equates to a yield of 7.5% based upon the previously agreed rent at the expense of limited interest income.  The total cost, including fit out, will be £12.6m.

Current Trading and Outlook

Trading in the first two months of the new financial year has been encouraging. We have fully hedged our anticipated Euro and dollar trading exposure at attractive rates, we have a strong financial position and we are well placed to grow our share of the patent translation market and to take advantage of the improvement in the technical translations and intellectual property services markets.

Whilst the global economic recovery remains fragile, we expect that the realisation of the full year benefit of clients won in 2010, combined with improved efficiencies from our move into a new, integrated office, will further underpin progress in 2011.

Andrew Brode

Executive Chairman

13 December 2010

Consolidated Statement of Comprehensive Income

for the year ended 30 September

	Note	2010 £'000	2009 £'000
Revenue	3	60,625	55,321
Cost of sales		(33,434)	(30,068)
Gross profit		27,191	25,253
Other operating income		253	-
Administrative expenses		(14,118)	(11,859)
Profit from operations		13,326	13,394
Analysed as:
Operating profit before charging:		14,270	13,889
Amortization of customer relationships and trademarks		(566)	(495)
Relocation costs and related other operating income		(378)	-
Profit from operations		13,326	13,394
Finance income		346	593
Finance expense		(15)	(1)
Profit before tax		13,657	13,986
Taxation (expense)/credit	4	(3,908)	490
Profit for the year		9,749	14,476
Other comprehensive income
Exchange (loss)/gain on retranslation of foreign operations		(318)	1,745
Deferred tax on share options		-	(131)
Total other comprehensive (expense)/ income		(318)	1,614
Total comprehensive income		9,431	16,090
Total comprehensive income attributable to:
Owners of the parent		9,431	16,090
Basic earnings per Ordinary share (pence per share)	6	23.2	35.0
Diluted earnings per Ordinary share (pence per share)	6	23.0	34.3

Consolidated Statement of Financial Position

at 30 September

	Note	2010 £'000	2009 £'000
Assets
Non-current assets
Goodwill		13,070	13,281
Intangible assets		4,182	4,885
Property, plant and equipment		12,426	762
Investment in joint venture		-	170
Deferred tax assets		205	1,143
Other receivables		1,500	2,467
		31,383	22,708
Current assets
Trade and other receivables		14,056	11,641
Foreign exchange derivatives		105	-
Cash and cash equivalents		17,908	24,269
		32,069	35,910
Total assets		63,452	58,618
Liabilities
Current liabilities
Trade and other payables		7,086	6,496
Income tax payable		1,378	2,139
Provisions		642	-
		9,106	8,635
Non-current liabilities
Provisions		567	586
Deferred tax liabilities		1,134	1,328
		1,701	1,914
Total liabilities		10,807	10,549
Total net assets		52,645	48,069
Equity
Capital and reserves attributable to owners of the parent
Share capital		2,116	2,065
Share premium		3,583	3,401
Reverse acquisition reserve		(8,483)	(8,483)
Foreign currency reserve		2,109	2,427
Retained earnings		53,320	48,649
		52,645	48,059
Minority interest		-	10
Total equity		52,645	48,069

Consolidated Statement of Changes in Equity

for the year ended 30 September

	Share capital £'000	Share premium account £'000	Other reserves £'000	Retained earnings £'000	Attributable to owners of the parent £'000	Minority interest £'000	Total equity £'000
At 1 October 2008	2,065	3,401	(7,801)	38,724	36,389	10	36,399
Equity element of deferred tax on share based payments	-	-	-	(131)	(131)	-	(131)
Dividends	-	-	-	(4,420)	(4,420)	-	(4,420)
Profit for the year	-	-	-	14,476	14,476	-	14,476
Currency translation differences	-	-	1,745	-	1,745	-	1,745
At 30 September 2009	2,065	3,401	(6,056)	48,649	48,059	10	48,069
Issue of shares	51	182	-	-	233	-	233
Preference share redemption	-	-	-	-	-	(10)	(10)
Dividends	-	-	-	(5,078)	(5,078)	-	(5,078)
Profit for the year	-	-	-	9,749	9,749	-	9,749
Currency translation differences	-	-	(318)	-	(318)	-	(318)
At 30 September 2010	2,116	3,583	(6,374)	53,320	52,645	-	52,645

Other reserves

	Foreign currency reserve £'000	Reverse acquisition reserve £'000	Total other reserves £'000
At 1 October 2008	682	(8,483)	(7,801)
Currency translation differences	1,745	-	1,745
At 30 September 2009	2,427	(8,483)	(6,056)
Currency translation differences	(318)	-	(318)
At 30 September 2010	2,109	(8,483)	(6,374)

Consolidated Statement of Cash Flows

for the year ended 30 September

		2010 £'000	2009 £'000
Cash flows from operating activities
Profit before tax		13,657	13,986
Adjustments for:
Depreciation of property, plant and equipment		260	289
Amortization of intangible assets		661	601
Finance income		(346)	(593)
Finance expense		15	1
Operating cash flow before movements
in working capital and provisions		14,247	14,284
Increase in trade and other receivables		(2,302)	(672)
Increase/(decrease) in trade and other payables		1,018	(30)
Cash generated from operations		12,963	13,582
Interest paid		(15)	(1)
Income tax paid		(3,885)	(2,700)
Net cash inflow from operating activities		9,063	10,881
Cash flows from investing activities
Interest received		346	656
Development loan repaid (2009: advanced)		1,072	(2,363)
Acquisition of subsidiaries, net of cash acquired		-	(2,826)
Purchases of property, plant and equipment		(11,929)	(279)
Purchases of intangibles (computer software)		(84)	(53)
Net cash outflow from investing activities		(10,595)	(4,865)
Cash flows from financing activities
Proceeds from the issue of share capital		233	-
Preference shares redeemed		(10)	-
Dividends paid		(5,078)	(4,420)
Net cash outflow from financing activities		(4,855)	(4,420)
Net (decrease)/increase in cash and cash equivalents		(6,387)	1,596
Cash and cash equivalents at beginning of the year		24,269	22,081
Exchange gains on cash and cash equivalents		26	592
Cash and cash equivalents at end of the year		17,908	24,269
Free cash flow
Analysis of free cash flow
Net cash generated from operating activities		12,963	13,582
Net interest received		331	655
Income tax paid		(3,885)	(2,700)
Purchases of property, plant and equipment		(11,929)	(279)
Purchase of intangibles (computer software)		(84)	(53)
Free cash flow		(2,604)	11,205

The Directors consider that the free cash flow analysis above indicates the cash utilised in (2009: generated from) normal activities excluding acquisitions and dividends.

Notes to the Accounts

1.  General information

RWS Holdings plc is a company incorporated in the United Kingdom.  The address of the registered office is 55 Baker Street, London, W1U 7EU.

The Group's financial statements for the year ended 30 September 2010, from which this financial information has been extracted, and for the comparative year ended 30 September 2009, are prepared in accordance with International Financial Reporting Standards ('IFRS') adopted for use in the EU.

The financial information shown in the announcement for the year ended 30 September 2010 and the year ended 30 September 2009 set out above does not constitute statutory accounts but is derived from those accounts.  The results have been prepared using accounting policies consistent with those used in the preparation of the statutory accounts.  The financial information contained in this announcement does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006.  Statutory accounts for the year ended 30 September 2009 have been delivered to the Registrar of Companies and those for the year ended 30 September 2010 will be delivered shortly.  The auditors have reported on the accounts for the year ended 30 September 2010; their report was unqualified, did not contain statements under Section 498 (2) or (3) of the Companies Act 2006 and did not contain any matters to which the auditors drew attention without qualifying their report.

Copies of this announcement are available at the registered office of the Company for a period of 14 days from the date hereof.

2.  Significant accounting policies

Basis of accounting

During the year the Group adopted IAS 1 (amended) 'Presentation of Financial Statements'. The effect of adopting this standard is presentational and has no impact on the reported profit or net assets of any period. The adoption of IAS 1 (amended) has led to the inclusion of a 'Statement of Comprehensive Income' and a 'Statement of Changes in Equity' as primary statements.

The  other principal accounting policies adopted in the preparation of this preliminary announcement remain unchanged from those set out fully in the financial statements for the year ended 30 September 2009.

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs.  The Group expects to publish full financial statements that comply with IFRSs on 16 January 2011.

3.  Segmental information

The Group's operations are based in UK, Europe, Asia and the United States of America. The table below shows turnover by the geographic market in which customers are located.

	2010 £'000	2009 £'000
UK	7,529	7,490
Continental Europe	41,231	39,557
Asia and United States of America	11,865	8,274
	60,625	55,321

4.  Taxation

		2010 £'000	2009 £'000
Taxation recognised in the income statement is as follows:
Current tax expense
Tax on profits for the current year
- UK		2,763	3,669
- Overseas		493	532
Adjustment to prior years		(127)	(4,536)
		3,129	(335)
Deferred  tax expense
Origination and reversal of temporary differences		779	(155)
Total tax expense/(credit) in the income  statement		3,908	(490)

The table below reconciles the UK statutory tax charge to the Group's total tax charge.

		2010 £'000	2009 £'000
Profit before taxation		13,657	13,986
Multiplied by the rate of corporation tax in the UK of 28% (2009: 28%)		3,824	3,916
Effects of:
Items not deductible for tax purposes		193	78
Income not assessable to tax		(30)	-
Differences in overseas tax rates		87	61
Utilisation of losses brought forward		(39)	-
Adjustment to prior periods		(127)	(4,545)
Total tax expense/(credit) for the year		3,908	(490)

A corporation tax provision of £4.4 million in respect of capital gains realised in 2003 was released in 2009 as offsetting capital losses were agreed by HM Revenue & Customs.

5.  Dividends to shareholders

	2010 pence per share	2010 £'000	2009 pence per share	2009 £'000
Final, paid 19 February 2010 (2009: paid 20 February 2009)	8.85	3,745	7.90	3,263
Interim, paid 16 July 2010 (2009: paid 17 July 2009)	3.15	1,333	2.80	1,157
	12.00	5,078	10.70	4,420

    The Directors recommend a final dividend in respect of the financial year ended 30 September 2010 of 10.25 pence per Ordinary share to be paid on 18 February 2011 to shareholders who are on the register at 21 January 2011.  This dividend is not reflected in these financial statements as it does not represent a liability at 30 September 2010.  The final proposed dividend will reduce shareholders' funds by an estimated £4.3 million.

6. Earnings per Ordinary share

    Basic and diluted earnings per share are based on the post-tax group profit for the year and a weighted average number of Ordinary shares in issue during the year calculated as follows:

	2010	2009
Weighted average number of Ordinary shares in issue for basic earnings	42,096,937	41,303,988
Dilutive impact of share options	200,403	925,678
Weighted average number of Ordinary shares for diluted earnings	42,297,340	42,229,666

    An adjusted earnings per Ordinary share has also been presented to eliminate the effects of amortization of customer relationships and trademarks, the net cost of relocation and the exceptional tax credit in 2009. This presentation shows the trend in earnings per Ordinary share that is attributable to the underlying trading activities.  The reconciliation between the basic and adjusted figures is as follows:

	2010 £'000	2009 £'000	2010 Basic earnings per share pence	2009 Basic earnings per share pence	2010 Diluted earnings per share pence	2009 Diluted earnings per share pence
Profit for the year	9,749	14,476	23.2	35.0	23.0	34.3
Amortization of customer relationships and trademarks (after taxation)	408	356	1.0	0.9	1.0	0.8
Net cost of relocation	378	-	0.9	-	0.9	-
Exceptional tax credit (on prior year capital losses)	-	(4,439)	-	(10.7)	-	(10.5)
Adjusted earnings	10,535	10,393	25.1	25.2	24.9	24.6

7.  Events since the reporting date

There have been no events since 30 September 2010 that require disclosure.

Additional Regulatory Disclosures as required by Rule 17 and Schedule 2 Annex III of the AIM Rules for Companies dated February 2010, updated disclosure on information relating to the directors can be found on the following link http://www.rws.com/EN/Company/RWS-Company-Information.html"

 

END

 

 

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