Final Results
RWS Holdings PLC
15 December 2005
15 December 2005
RWS Holdings plc
Preliminary results for the year ended 30 September 2005
RWS Holdings plc today announced its preliminary results for the year ended 30
September 2005.
Financial Highlights:
• Sales and profits at record levels
• Sales increased by 15.4% to £35.9 million
• Profit before tax rose by 24.5% to £7.44 million (before goodwill
amortization)
• Basic earnings per share were 13.5p (before goodwill amortization)
• Proposed final dividend of 4.35p per share making 6p for the year,
an increase of 20% over 2004
• Strong cash generation from operations with net cash at year end of
£11.9 million
Operational Highlights:
• Continued strong performance from the core patent translations business,
reflecting the value attached to intellectual property protection by
major international corporates
• Record levels of staff productivity
• Steady flow of new client wins
• Successful integration of Eclipse Translations, acquired in February 2005
• Consolidation of Patbase launch with subscriber take up exceeding
expectations
• Significant progress in Tokyo and Berlin operations
• Launch of operations in Beijing
Outlook:
Executive Chairman Andrew Brode commented:
'RWS has again produced record results. It has continued to build upon its
market leading positions in patent translation and information search where
quality is paramount.
We expect to deliver further double digit growth in 2006 and to grow the
dividend in line with results. Our forward order visibility and recent new
client wins underpin my confidence that new benchmarks will be established in
2006.'
For further information contact:
RWS Holdings plc
Andrew Brode, Executive Chairman 01753 480200
Weber Shandwick Square Mile
Nick Oborne 020 7067 0721
About RWS:
RWS is a 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.
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 Holdings plc
Preliminary Results 2005
Executive Chairman's Statement
I am pleased to report a robust performance from RWS with record sales and
profits for its second year as a public company.
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 operation of its kind in Europe, translating over
30,000 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. The Group comprises two
divisions, the RWS Translation division providing patent and documentation
translation, filing and localization services in the UK, US, Japan and Europe,
and RWS Information division, which offers a comprehensive range of patent
search, retrieval and monitoring services.
Strategy
The Group's strategy is to expand organically through the leveraging of its
market-leading positions and reputation in the delivery of translation and
search services. It will deploy its cash reserves for selective acquisitions if
they can be demonstrated to enhance growth and shareholder value.
Results
The Group achieved further progress based upon its commanding position in its
core patent translations activity. The underlying market growth continued with
the European Patent Office annual report for 2004 confirming 10% growth in
patent applications filed.
Sales and profit for the year were both at record levels. Sales grew by 15.4%
to £35.9 million; profit before tax and goodwill amortization rose by 24.5% to
£7.44 million. The Group has continued to gain significant multinational clients
whilst retaining the work of existing clients. We expect this trend to continue
in our core business.
RWS is the leading patent translations specialist in Europe, which is regarded
as its home market; 2005 was also a further excellent year for our Japanese
patent translations activities both in terms of sales and profit.
We acquired Eclipse Translations, based in North East England, in February 2005.
The company enjoys excellent relationships with UK Government departments and
has performed in line with the expectations we had for the business prior to
its acquisition.
Dividend
The Board has recommended a final dividend of 4.35p per share, which, together
with the interim dividend, will result in a total dividend for the year of 6.0p
per share, 20% more than in 2004. The proposed total dividend is almost twice
covered by after tax profits.
Operating Review
Translations
Patent translations account for 80% of our business and showed solid growth
driven by record numbers of granted patents and demand from a wide group of
multinational corporates to secure comprehensive geographic patent protection.
The RWS translate and file service is perceived as high quality, convenient and
cost-effective. Our Japanese operation seeks to replicate the European service.
Clients appreciate our 'one-stop shop' approach coupled with the ability to
manage substantial volumes across multiple jurisdictions. Effective
October 2005 we have established a presence in Beijing which will provide patent
translation services for our multinational clients. This business will incur
costs in 2006 but we expect it to move into profit in late 2007.
Our commercial and technical translation services, which now include Eclipse,
account for 13% of sales, and face heavy competition. At the lower end of the
difficulty/quality spectrum, translation is being commoditised. RWS has always
sought to position itself as a quality service provider and remains therefore
unwilling to accept low margin projects where price is the sole determinant for
the prospective client.
Information
The Information division now accounts for only 7% of group sales. This division
experienced a marked downturn in Summer 2004 and has struggled to maintain the
lower levels established at that time. Costs have been reduced to reflect the
lower level of business, and this division continues to enjoy excellent margins.
I am pleased to report that our new PatBase database product is selling well
ahead of expectations and has been favourably received by subscribers (corporate
research departments and patent agents). We are in the process of expanding the
database search functionality and subscriber appeal.
Financial Review
The Group's financial position has strengthened considerably with net assets
reaching £15.5 million, including net cash of £11.9 million. Free cash inflow
was £5.2 million before expending £2.7 million on the acquisition of Eclipse,
including £0.3 million on the early redemption of a bank mortgage on the Eclipse
premises. Overall net cash inflow was £1.2 million. As in prior years, capital
expenditure remained modest and good management of receivables ensured that the
working capital increase was not material, after allowing for the Eclipse
acquisition.
The most significant currency pair for the business is Euro/Sterling with
approximately half of total sales billed in Euros; conversely, much of the cost
base is Sterling denominated. During 2005, the Group's Euro exposure was
largely hedged at a rate of 69.5. At present, only modest Euro hedging is in
place as we anticipate a weakening in Sterling. The US dollar exposure is hedged
at 1.74 for 2006.
People
I would like to thank all my Board colleagues and operating company directors
for their valued contribution. All of the staff deployed throughout the
Group deserve thanks for their efforts in delivering another set of record
results. I wish in particular to pay tribute to the resolve of the staff of our
Information division whose office is immediately adjacent to the site of the
7 July terrorist outrage in Tavistock Square.
Outlook
RWS has done well despite depressed economic conditions in the Eurozone. Our
forward sales position is positive and our financial position is strong. We
expect to deliver further double digit growth in 2006 and to grow the dividend
in line with earnings. Your Board is confident that the necessary drivers
are in place to meet our financial objectives.
Andrew Brode
Executive Chairman
14 December, 2005
RWS Holdings plc
Preliminary Results 2005
Group Profit and Loss Account for the year ended 30 September 2005
2005 2004
-------------------------------------- --------------------------------------
Before
goodwill Goodwill
amortization amortization
Before and and
goodwill Goodwill exceptional exceptional
amortization amortization Total Items Items Total
Note £'000 £'000 £'000 £'000 £'000 £'000
Turnover 3 35,875 - 35,875 31,095 - 31,095
Cost of sales (21,198) - (21,198) (18,327) - (18,327)
-------------------------------------- --------------------------------------
Gross profit 14,677 - 14,677 12,768 - 12,768
Administrative expenses
Amortization of goodwill - (616) (616) - (542) (542)
Goodwill write-off - - - - (1,916) (1,916)
Non-recurring costs
associated with
the flotation - - - - (297) (297)
Other (7,648) - (7,648) (7,143) - (7,143)
-------------------------------------- --------------------------------------
(7,648) (616) (8,264) (7,143) (2,755) (9,898)
-------------------------------------- --------------------------------------
Group operating profit 7,029 (616) 6,413 5,625 (2,755) 2,870
Loss on sale of
subsidiary undertakings - - - - (126) (126)
-------------------------------------- --------------------------------------
Profit on ordinary
activities before interest 6,413 2,744
Net interest 412 - 412 352 - 352
-------------------------------------- --------------------------------------
Profit on ordinary
activities before taxation 7,441 (616) 6,825 5,977 (2,881) 3,096
Taxation 4 (2,265) - (2,265) (1,884) 1,662 (222)
-------------------------------------- --------------------------------------
Profit on ordinary
activities after taxation 5,176 (616) 4,560 4,093 (1,219) 2,874
Attributable to minorities - - - - - -
-------------------------------------- --------------------------------------
Net profit for the
financial year
(Profit attributable
to shareholders) 5,176 (616) 4,560 4,093 (1,219) 2,874
--------------------------- ---------------------------
Dividends 5 (2,319) (1,890)
--------- ---------
Profit retained for
the financial year 8 2,241 984
--------- ---------
Earnings per 5p
Ordinary share 6
Basic earnings per
share 13.5p 11.9p 12.2p 8.6p
Diluted earnings
per share 12.6p 11.1p 11.5p 8.1p
All amounts relate to continuing activities.
RWS Holdings plc
Preliminary Results 2005
Group Balance Sheet at 30 September 2005
2005 2004
----------------- -----------------
Note £'000 £'000 £'000 £'000
Fixed assets
Intangible assets 7,049 5,451
Tangible assets 935 585
------ ------
7,984 6,036
Current assets
Work in progress 773 682
Debtors 6,571 5,217
Cash at bank 12,280 11,107
------ ------
19,624 17,006
Creditors: amounts due within one year (12,109) (10,400)
------ ------
Net current assets 7,515 6,606
------ ------
Total assets less current liabilities 15,499 12,642
Creditors: amounts due after one year - (33)
------ ------
Net assets 15,499 12,609
------ ------
Capital and reserves
Called up share capital 7/8 1,922 1,889
Share premium account 8 1,378 737
Share option reserve 8 1,962 2,030
Capital reserve 8 68 -
Reverse acquisition reserve 8 (8,483) (8,483)
Profit and loss account 8 18,642 16,426
------ ------
Shareholders' funds - equity interests 8 15,489 12,599
Non-equity minority interests 10 10
------ ------
Shareholders' funds and minority interests 15,499 12,609
------ ------
RWS Holdings plc
Preliminary Results 2005
Statement of Group Cash Flow for the year ended 30 September 2005
2005 2004
-------------------- --------------------
Note £'000 £'000 £'000 £'000
Net cash inflow from operating activities 9 7,142 5,265
Returns on investments and servicing
of finance
Interest received 401 570
Interest paid (1) (75)
------- -------
400 495
Tax paid (2,143) (1,330)
Capital expenditure and financial investment
Purchase of tangible fixed assets (233) (210)
Sale of tangible fixed assets - 5
Redemption of loan notes - 17,500
------- -------
(233) 17,295
------- -------
Free cash flow 5,166 21,725
Acquisitions and disposals
Acquisition of subsidiary undertakings (2,430) -
Net overdraft in subsidiary
undertakings acquired (249) -
Overdraft transferred on disposal of
subsidiary undertakings - 62
Acquisition related expenses and
other payments to
third parties on the reverse
acquisition - (1,693)
------- -------
(2,679) (1,631)
Equity dividends paid to shareholders (1,970) (567)
Equity dividends paid to
shareholders of Bybrook Limited - (10,000)
------- -------
(1,970) (10,567)
Financing
Issue of Ordinary shares 674 -
------- -------
Increase in cash 10 1,191 9,527
------- -------
RWS Holdings plc
Preliminary Results 2005
Notes to the Accounts
1 Basis of Consolidation and Presentation of Financial Information
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 2005 and 2004, and does
not constitute full accounts within the meaning of Section 240 of the Companies Act
1985. Statutory accounts for 2004 have been delivered to the Registrar of Companies and
those for 2005 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, Collins
Stewart Limited, 9th Floor, 88 Wood Street, London EC2V 7QR and its public relations
advisers, Weber Shandwick Square Mile, Fox Court, 14 Gray's Inn Road, London WC1X 8WS
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 accounting policies remain unchanged from 30 September 2004.
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 2005 2004
£'000 £'000
Turnover by class of business
Translation and localization services 33,327 28,448
Information services 2,548 2,647
---------- ----------
35,875 31,095
---------- ----------
The tables below show information by geographic area and, for turnover and assets,
material countries.
Turnover by geographic location of Group undertaking
United Kingdom 31,748 27,597
Continental Europe 611 481
Japan 3,339 2,711
United States of America 177 306
---------- ----------
35,875 31,095
---------- ----------
Turnover by geographic market in which customers are located
United Kingdom 4,882 4,583
Continental Europe
Germany 13,284 10,501
France 3,698 3,062
Other 6,695 7,105
---------- ----------
23,677 20,668
Japan 2,446 1,678
United States of America 4,747 4,050
Other 123 116
---------- ----------
35,875 31,095
---------- ----------
Total assets by location of Group undertaking
UK 26,082 21,868
Others 1,526 1,174
---------- ----------
27,608 23,042
---------- ----------
Net assets by location of Group undertaking
UK 14,366 11,762
Others 1,133 847
---------- ----------
Net assets 15,499 12,609
---------- ----------
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 2005 2004
£'000 £'000
Analysis of tax charge:
Corporation tax 2,024 1,691
Adjustments in respect of prior periods (53) -
Overseas taxation 294 193
---------- ----------
2,265 1,884
Exceptional tax credit - (1,662)
---------- ----------
Total current tax charge 2,265 222
---------- ----------
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 2005 2004
------------------------ ------------------------
Pence per £'000 Pence per £'000
share share
On each 5p Ordinary share
Interim, paid on 30 June 2005 1.65 647 1.50 567
Final proposed (2004 - paid 7 March 2005) 4.35 1,672 3.50 1,323
------------------------ ------------------------
6.00 2,319 5.00 1,890
------------------------ ------------------------
6 Earnings per Ordinary share 2005 2004
------------------------ ------------------------
Earnings EPS Earnings EPS
£'000 Pence £'000 Pence
Basic earnings 4,560 11.9 2,874 8.6
Goodwill amortization and exceptional
items, non-recurring
costs and charges 616 1.6 2,881 8.5
------------------------ ------------------------
5,176 13.5 5,755 17.1
Exceptional tax credit from prior year
trading losses - - (1,662) (4.9)
------------------------ ------------------------
Adjusted earnings 5,176 13.5 4,093 12.2
------------------------ ------------------------
No significant tax effect arose from the adjustment for goodwill and exceptional items in the
year ended 30 September 2004.
2005 2004
Number of shares Number of 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 38,204,648 33,590,041
Dilutive potential Ordinary shares arising from
unexercised share options 2,735,932 2,040,730
------------------------ ------------------------
40,940,580 35,630,771
------------------------ ------------------------
The weighted average number of Ordinary shares in issue in 2004 reflects that the equivalent of
only 462,095 Ordinary shares were in issue for the period from the beginning of that financial
year until 11 November 2003. At 30 September 2005 there were unexercised options over a total of
3,874,472 (2004 - 4,533,857) Ordinary shares.
7 Share capital 2005 2004
£'000 £'000
Authorised
100,000,000 Ordinary shares of 5p 5,000 5,000
------------------------ ------------------------
Allotted, called up and fully paid
38,441,496 Ordinary shares of 5p 1,922 1,889
------------------------ ------------------------
8 Reconciliation of shareholders' funds and movements on reserves
Share
Share premium Other Profit and loss Shareholders'
capital account reserves account funds
£'000 £'000 £'000 £'000 £'000
Group
At beginning of year 1,889 737 (6,453) 16,426 12,599
Issue of share capital 33 641 - - 674
Profit retained for the
financial year - - - 2,241 2,241
Exchange movements - - - (25) (25)
--------------------------------------------------------------------
At end of year 1,922 1,378 (6,453) 18,642 15,489
--------------------------------------------------------------------
Reverse Share Total
acquisition option Capital other
reserve reserve reserve reserves
£'000 £'000 £'000 £'000
Other reserves
At beginning of year (8,483) 2,030 - (6,453)
Issue of share capital - (68) 68 -
----------------------------------------------------
At end of year (8,483) 1,962 68 (6,453)
----------------------------------------------------
9 Reconciliation of operating profit to net cash flow from operating activities
2005 2004
£'000 £'000
Group operating profit 6,413 2,870
Depreciation and amortization 958 2,737
Profit on sale of tangible fixed assets - (1)
Work in progress (increase)/decrease (91) 445
Debtors (increase)/decrease (1,341) 171
Creditors increase/(decrease) 1,218 (883)
Other non-cash movements (15) (74)
-------------- --------------
Net cash inflow from operating activities 7,142 5,265
-------------- --------------
10 Reconciliation of net cash flow to movement in net funds
2005 2004
£'000 £'000
Increase in cash in the year 1,191 9,527
Net funds at beginning of the year 10,738 1,211
-------------- --------------
Net funds at end of year 11,929 10,738
-------------- --------------
11 Acquisition of subsidiary undertakings
On 1 February 2005, the Group acquired Eclipse Translations Limited for a consideration
of £2,250,000 paid in cash. In calculating the goodwill arising on acquisition, the
provisional fair value of net assets acquired has been assessed and adjustments to book
value made where necessary. These adjustments are summarised in the following table:
Provisional fair value adjustments
Taxation Revaluation of Fair value
Book value liabilities fixed assets to the Group
£'000 £'000 £'000 £'000
--------------------------------------------------------
Fixed assets 524 - (65) 459
Current assets 281 - - 281
Creditors due within one year (524) (300) - (824)
--------------------------------------------------------
Net assets/(liabilities) acquired 281 (300) (65) (84)
--------------------------------------------------------
Cash consideration (including acquisition expenses 2,430
of £180,000)
Less: amount recoverable from the vendors in
respect of taxation liabilities (300)
----------
2,130
Net liabilities acquired 84
----------
Goodwill 2,214
----------
Net overdraft included in undertakings acquired 249
----------
The effects of the acquisition on results for the Group for the year to 30 September
2005, are not material and are therefore not shown separately on the Group Profit and
Loss Account and Group Cash Flow Statement.
12 Post balance sheet events
There have been no events that require disclosure since 30 September 2005.
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