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. This information is provided by RNS The company news service from the London Stock Exchange

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