TIDMRWS
RNS Number : 1421I
RWS Holdings PLC
10 December 2020
For immediate release
10 December 2020
RWS Holdings plc
Results for the year ended 30 September 2020
A resilient full year performance, in line with market
expectations
RWS Holdings plc ("RWS", "the Group"), the world's leading
provider of language services and language technology, today
announces its final results for the year ended 30 September
2020.
Financial highlights
2020 2019 Change
Revenue GBP355.8m GBP355.7m +0.02%
Adjusted profit before tax 1 GBP70.2m GBP74.2m -5.5%
Profit before tax GBP58.7m GBP57.7m +1.7%
Adjusted earnings per share(1) 19.9p 21.3p -6.6%
Basic earnings per share 16.9p 16.5p +2.4%
Dividend
Proposed final 7.25p 7.00p +3.6%
Total for year 9.00p 8.75p +2.9%
Cash conversion(2) 100.1% 94.6%
Net debt(1) GBP15.1m GBP36.8m -41.2%
[1] RWS uses adjusted results as key performance indicators as
the Directors believe that these provide a more consistent measure
of operating performance by adjusting for acquisition related
charges and significant one-off or non-cash items. Adjusted
operating profit is stated before interest, amortization of
acquired intangibles, share based payment expense, acquisition
costs and exceptional items. Adjusted profit before tax is stated
before amortization of acquired intangibles, share based payment
expense, acquisition costs and exceptional items. Adjusted earnings
per share adjusts for amortization of acquired intangibles, share
based payment expense, acquisition costs and exceptional items, net
of any associated tax effects.
Net debt comprises loans less cash and cash equivalents
excluding lease liabilities.
(2) Cash conversion is free cash flow expressed as a percentage
of Adjusted net income. This is viewed by the Group as a key
alternative performance measure to understand how much of the
Group's profits have been converted into cash flow available for
dividends, debt repayment and acquisitions.
Free cash flow - is calculated as cash generated from
operations, less proceeds from warranty claim, capital expenditure,
debt service costs, and income taxes.
Adjusted net income - is calculated as statutory profit for the
year adjusted for the Group's amortization on acquired intangibles,
acquisition costs, share based payment expense and exceptional
items.
Highlights
-- Good growth across Life Sciences and Moravia divisions in
spite of the global Covid-19 pandemic
-- Successful integration of the two acquisitions made in the
year, Iconic Translation Machines and Webdunia
-- Acquisition of SDL completed post period end, creating the
world's leading provider of language services and language
technology
-- Board recommending a final dividend of 7.25p (2019: 7.00p, an increase of 3.6%)
RWS Life Sciences
-- Increased revenues by 6% to GBP69.5m, a record high for the
Life Sciences division (2019: GBP65.5m), driven by growth in all
key areas and particularly linguistic validation services
-- Adjusted operating profit increased to GBP20.9m (2019: GBP20.3m)
-- Growth in Covid-19 related clinical trials, translation work
for vaccines, anti-viral medications and antibody testing equipment
was largely offset by Covid-19 related delays in other clinical
trial areas
RWS Moravia
-- Record revenues of GBP173.6m, up 5% (2019: GBP165.0m)
-- Adjusted operating profit increased by 8%, excluding an
adverse exchange rate movement of GBP3.4m caused by the weaker USD;
including this, operating profit was GBP24.8m (2019: GBP26.2m)
-- Growth driven by strong sales to several major technology
clients, particularly during the initial Covid-19 lockdown period,
and increased revenue from a broader range of sectors and
companies, including financial services, online sales platforms and
web services providers
RWS IP Services
-- Revenues down 10% to GBP112.8m (2019: GBP125.2m) against a
strong comparative due to a one-off surge in European Patent Office
work in the prior year
-- Adjusted operating profit decreased 16% to GBP30.2m (2019 GBP36.1m)
-- Covid-19 impacted second half revenues, particularly within
the automotive, aerospace and oil and gas sectors, as certain
clients looked to reduce costs
-- Several new client wins, albeit onboarding has continued to be impacted by Covid-19
Highly complementary acquisitions expanded technology
capabilities and geographical reach
-- Iconic Translation Machines, a specialist in neural machine
translation and AI solutions, and Webdunia, a leader in
translation, localization and technology services based in India,
were acquired in June 2020 and have been integrated and are
performing well
-- Post year end acquisition of SDL in November 2020, creating
the world's leading language services and technology group
Outlook
-- The new financial year has started positively and is slightly ahead of our expectations
-- Our teams have adjusted well to the new requirements of working from home
-- Following the acquisition of SDL, the Group has no net debt
-- SDL integration underway, with divisional structure and new
senior management team confirmed. The integration is expected to
deliver:
o a broader range of best in class solutions for our clients'
language requirements
o synergy opportunities in excess of the already announced
GBP15m through enhanced operational performance over the coming
12-18 months
-- We continue to review a good pipeline of bolt-on acquisition opportunities
Andrew Brode, Chairman of RWS, commented :
"The Group has delivered a resilient performance, reflecting its
diversified revenue streams across its three specialized divisions,
with stronger levels of activity in Life Sciences and Moravia
mitigating headwinds in IP Services.
"The Group's focus on Life Sciences and technology customers,
who are thought to be likely beneficiaries in a post Covid-19
world, and the importance to our customers of managing their
research and development investments through a strong global patent
strategy, puts RWS in a strong position.
"The merger with SDL offers an unrivalled opportunity to
consolidate the Group's world-leading language services offering
and provide our extensive blue-chip client base with best in class
solutions for all of their language requirements.
"The new financial year has begun positively, slightly ahead of
our expectations. We have no net debt and whilst our focus is on
integrating SDL, our strong balance sheet places us in pole
position to compete for the most attractive acquisition
opportunities.
"We look forward with confidence to achieving further progress
in 2021."
For further information, please contact:
RWS Holdings plc
Andrew Brode, Chairman
Richard Thompson, Chief Executive Officer
Des Glass, Chief Financial Officer 01753 480200
MHP (Financial PR advisor) rws@mhpc.com
Katie Hunt / Simon Hockridge 0203 128 8100
Numis (Nomad & Joint Broker)
Stuart Skinner / Kevin Cruickshank / Will Baunton 0207 260 1000
Berenberg (Joint Broker)
Ben Wright / Toby Flaux / Alix Mecklenburg-Solodkoff 0203 207 7800
About RWS:
RWS is the world's leading language services and technology
group. Over the last 60 years, the company has built a reputation
for quality, reliability and flexibility with its global team
of translators, searchers and technical experts.
RWS's specialist divisions combine the latest technology, proven
processes and highly skilled staff to deliver complex services
at each stage of the product lifecycle to meet the diverse needs
of a global, client base spanning Europe, Asia Pacific, and
North and South America across a range of sectors including
technology, pharmaceutical, medical, chemical, automotive, and
telecommunications.
With headquarters in the UK, RWS is publicly listed on AIM,
the London Stock Exchange regulated market (RWS.L).
For further information, please visit: www.rws.com
Forward-Looking Statements
This announcement contains certain statements that are forward-looking
statements. They appear in a number of places through this announcement
and include statements regarding our intentions, beliefs or
current expectations and those of our officers, directors and
employees concerning, amongst other things, our results of operations,
financial condition, liquidity, prospects, growth, strategies
and the business we operate. By their nature, these statements
involve uncertainty since future events and circumstances can
cause results and developments to differ materially from those
anticipated. The forward-looking statements reflect knowledge
and information available at the date of preparation of this
document and, unless otherwise required by applicable law, the
Company undertakes no obligation to update or review these forward-looking
statements. Nothing in this announcement should be construed
as a profit forecast. The Company and its directors accept no
liability to third parties in respect of this document save
as would arise under English law.
Chairman's Statement
Introduction
RWS celebrated its 62nd year in business in 2020 and has grown
to become the world's leading provider of language services. Later
in this statement, I provide details of a most significant post
balance sheet event, the acquisition by RWS of SDL plc ("SDL"),
which creates the world's leading language services and technology
group.
We announced two acquisitions in June 2020, namely Iconic
Translation Machines Ltd ("Iconic"), based in Dublin, a specialist
in the development of best in class neural machine translation and
AI solutions, and Webdunia.com (India) Private Limited
("Webdunia"), a leader in translation, localization and technology
services, based in India. Iconic and Webdunia have settled in well
as valuable additions to the RWS Group.
Performance
The Group achieved revenues of GBP355.8m for the year, in line
with 2019 (GBP355.7m). Life Sciences and Moravia delivered good
revenue growth and resilience in the face of Covid-19. IP Services
experienced some disruption as it adapted to the working from home
environment and suffered additional headwinds.
Adjusted profit before tax fell to GBP70.2m (2019: GBP74.2m). On
an organic, constant currency basis, adjusted profit before tax was
down GBP2.0m.
The Group's balance sheet expanded with net assets of GBP408.8m
(2019: GBP397.5m). Net debt reduced to GBP15.1m (2019: GBP36.8m)
and would have been eliminated had we not purchased Iconic and
Webdunia. Our cash balance also benefited from the receipt of
GBP9.0m relating to a warranty claim in connection with the 2017
acquisition of Moravia. Despite Covid-19 and foreign exchange
headwinds, the Group has continued to demonstrate high levels of
cash generation. Cash conversion at 100.1% improved on the 94.6%
recorded in 2019.
People and Board
In what has been a very challenging year, particularly so in the
second half, I am proud to salute the contribution of our
colleagues, most of whom have adapted extremely well to the
requirements of working from home. RWS is very much a "people"
business, providing a superior quality of service to a large number
of the world's leading and most demanding clients. We continue to
invest in the training and development of our people and providing
them with the relevant technology support to allow them to realize
their full potential. In 2020, it has also been a priority to keep
them safe.
I also wish to thank my fellow directors fo r their advice and
support.
As the level of external scrutiny and regulation rises
inexorably, the role of a non-executive director becomes more
onerous.
I would like to extend special thanks to Elisabeth Lucas and
Tomáš Kratochvíl, who stepped down from the RWS Board on 4
November, when the merger with SDL plc became effective. Elisabeth
has devoted 43 years to the Group with her full-time involvement
culminating as CEO from 1999 - 2011. She was appointed as a
Non-Executive Director upon her retirement as CEO, and I have
relied upon her dedication and professionalism for over 25
years.
Tomáš joined the board in March 2018, following the acquisition
of Moravia, which he helped build to a market-leading localization
provider. The Group is grateful for his independence of thought and
wide industry knowledge.
Environmental, Social and Corporate Governance (ESG)
RWS adopted the QCA Corporate Governance Code in 2018. In 2020
the Group also committed to the United Nations Global Compact
Initiative.
We have continued to devote significant resources towards
improving our environmental impact and reducing our carbon
emissions globally. Electricity consumption accounts for the
highest proportion of RWS's total GHG emissions. Where possible, we
will move to purchasing renewable energy; replacing existing
lighting with energy efficient LED lighting; ensuring energy
efficient lighting and motion sensors are installed in our larger
sites; and updating air-conditioning to ensure effectiveness and
efficiency. We also gained ISO 14001:2015 certification at our head
office, which we are now seeking to roll out to our other offices.
We have also planted 2,500 trees to offset our carbon emissions and
launched a Green Agenda intranet to educate, inform and engage with
our employees.
Our CEO has been extremely active, particularly during the
extensive Covid-19 lock-down, in engaging and communicating with
the Group's worldwide staff via virtual meetings. Our relationship
with the University of Manchester to provide scholarships for
modern language students from underprivileged backgrounds has been
successful, albeit restricted by the Covid-19 impact. Similarly, we
have been encouraged by our sponsorship of students participating
in Outward Bound Trust events, as well as the related mentoring by
RWS staff. We are actively engaging with potential partners who can
assist us in promoting diversity both within the Group and
externally.
Dividend
Since flotation in November 2003, RWS has pursued a progressive
dividend policy. Our highly cash generative business model and
modest capital expenditure requirements have underpinned rapid debt
repayment, acquisitions, continued organic investment in the
business and an increasing dividend.
We announced in August that the monies received from the UK
government in respect of furloughed employees had been repaid and
that we had not taken any other form of government support.
The Board is, therefore, pleased to recommend a final dividend
of 7.25 per share which, together with the interim dividend of
1.75p per share, will result in a total dividend for the year ended
30 September 2020 of 9.00p per share, an increase of 2.9% compared
to 2019. Subject to shareholder approval at the next AGM, the final
dividend will be paid on 19 February 2021, to shareholders on the
register as at 22 January 2021.
Post Balance Sheet Event
Prior to our year-end, on 27 August, we announced an agreed
all-share offer for SDL plc, a UK listed competitor focused on
language technology, through a scheme of arrangement, which became
effective on 4 November 2020. The enlarged RWS Group combines RWS's
specialist technical language services with SDL's leading language
technology expertise and created the world's leading language
services and technology group, with over 7,000 employees and global
coverage. The successful integration of SDL's operations into the
RWS Group will be management's key focus in the year ahead.
Summary and Outlook
RWS has delivered a resilient performance against the unique
background of the Covid-19 pandemic. We have adjusted well to the
new requirements of working from home.
The acquisition of SDL offers an unrivalled opportunity to
consolidate the Group's world-leading language services offering
and provide our extensive blue-chip client base with best in class
solutions for all of their language requirements.
The new financial year has begun positively, slightly ahead of
our expectation. We have no net debt and a strong balance sheet,
placing us in pole position to compete for the most attractive
acquisition opportunities.
Despite global economic and political uncertainty, I am proud to
chair a fast-expanding Group competing in a growing business
environment.
Andrew Brode
CHAIRMAN
9 December 2020
Chief Executive Officer's Review
Following the acquisition of SDL, RWS is now the world's leading
provider of language services and language technology, focusing on
key market segments where the quality and scale of its services
combined with its market leading technology is of critical
importance to its clients.
The Group has a blue-chip multinational client base spanning
Europe, North and South America and Asia Pacific.
SDL was acquired on 4 November 2020 and its results are not
therefore consolidated within this Annual Report; however it has
been included within this strategic report to provide a full
analysis of the RWS Group's strategy.
The results of Webdunia, which was acquired in June 2020, are
consolidated with the results for the Moravia division. The results
from Iconic Translation Machines, also acquired in June 2020,
whilst immaterial to the consolidated 2020 results, are
consolidated within the Life Sciences division.
It should also be noted that with effect from 1 October 2019,
RWS Language Solutions was merged into RWS Moravia. As a result,
the Group operated as three divisions throughout the 12 months
ended 30 September 2020:
RWS IP Services is a leading supplier of patent translations and
filing solutions, offering a seamless global patent filing
experience and a wide range of cutting-edge intellectual property
(IP) search services. RWS differentiates itself from the
competition through the quality of its translations, its high level
of intellectual property expertise, its customer service and its
use of technology, including:
inovia, its international web-based patent filing platform;
PatBase, one of the world's largest searchable commercial patent
databases, designed by professional searchers for professional
searchers; and
AOP Connect(TM) our global connection to our Crowd of +39,000
researchers, allowing customers to store, review, search full-text,
rank, highlight and organize intellectual property all in one
central location.
RWS Life Sciences focuses solely on the language service needs
of the life sciences market, providing technical translations and
linguistic validation to large pharmaceutical companies, clinical
research organizations and medical device manufacturers in North
America, Europe and Asia. This division was formed on 1 October
2017 following the integration of two acquired businesses, CTi and
LUZ.
RWS Moravia (including RWS Language Solutions) works with many
of the world's largest publicly traded technology companies to
manage their complex localization needs and ensure brand
consistency on a global scale. This includes the adaptation of
content, software, websites, applications, marketing materials and
audio/video for hundreds of languages and geographies. Moravia was
acquired in November 2017. The division includes the Webdunia
business, which provides the Group with additional translation and
IT capabilities in India and the Asia Pacific region.
SDL was acquired after the RWS year end and is clearly an
important part of the RWS business and strategy going forward. SDL
is the world's leading language technology business and one of the
world's largest language services businesses.
Our strategy
We are focused on providing an increasing range of services to
existing and new clients to drive organic growth. This growth is
supplemented by selective acquisitions that are complementary to
our existing business and either add additional services or
increase RWS's geographical coverage to support our clients and
enhance shareholder value.
The acquisition of SDL enables the enlarged RWS business to
drive improved operational synergies through better utilization of
SDL's language technology, streamlining of back office procedures
and operations, and increased cross selling opportunities for IP
Services and Language Technology.
The Group is already making progress integrating the SDL
business and achieving the significant synergies and operational
improvements that have been identified. The detailed three-month
review referred to in the Group's Circular, published in connection
with the acquisition of SDL, is underway. This will provide the
basis for a detailed integration programme designed to optimize the
Group's structure, making the most of its expanded scale, footprint
and capabilities, and to deliver the expected opportunities and
benefits of the acquisition for the Group's stakeholders, whilst
minimizing disruption to customers and employees.
In addition to the integration work, the Group will continue to
drive the growth of the business.
Organic growth will be driven by:
the expected demand, for language services and language
technology, driven by globalization and international trade
the historic trend in worldwide patent filing activities of
existing multinational clients
the development of new drugs by the pharmaceutical industry
the growth in digital content generated internationally and
requiring quality localization
the Group's use of technology that enables it to provide
customers with a world leading augmented translation service,
incorporating the latest IT developments for the language service
sector
the increasing market concerns for data security where RWS's and
SDL's quality services and language technology can provide a
totally secure localization environment
the Group's ability to grow market share and attract new clients
due to its leading position, reputation, scale and range of
capabilities in a fragmented sector
the Group's ability to expand into new or existing but growing
geographies
an increase in cross divisional selling of the Group's suite of
services
In a highly fragmented market, where technology is playing an
increasingly important role, customers look for suppliers with the
scale and capacity to invest, RWS is in an ideal position to
capitalize on this opportunity.
Whilst we are highly focused on the integration of SDL, we will
continue to look for selective acquisition opportunities in the
intellectual property services, specialist language services and
language technology spaces, and we have the benefit of a strong
balance sheet. We seek businesses capable of delivering above
average industry levels of profitability, or that are highly
complementary, and can therefore reinforce the Group's leading
position in language services and technology.
We are pleased to have been able to demonstrate our progress
against this strategy with strong growth in revenues and profits
since flotation.
People
Due to the impact of Covid-19, 2020 has been a truly challenging
year for many people around the globe.
RWS's number one priority has always been the safety and
well-being of its staff. This has been particularly important in
2020 as the entire organization rapidly and efficiently pivoted to
a 'work from home' operational environment. I would like to
congratulate and thank all the RWS staff for the brilliant manner
in which they achieved this.
Of course, working from home is not for everyone as it can
create different stresses which impact upon mental health. As a
result, we have increased our efforts to ensure the well-being of
our teams, through:
Enhanced communications via virtual coffee mornings, emails, and
virtual Town Hall
meetings
An enlarged and enhanced Group intranet with special sections
dedicated to supporting staff working from home
Special events, such as "Well-being week" that provide a range
of activities for staff ranging from mental health to nutrition and
exercise
RWS aims to continually make improvements to create a better
environment for all our teams; we are expanding our staff
environmental initiatives, will increase other employee initiatives
including the 'Well-being' weeks, and will increase and expand our
'Inclusivity' programme; our partnerships with the Outward Bound
Trust and Urban Synergy charity are just part of this
commitment.
Operating review
RWS IP Services
The Group's IP Services division represented 32% of Group sales
in the year and revenues declined by 10% to GBP112.8m (2019:
GBP125.2m). This performance reflects several factors. Firstly,
there was a strong comparative result in 2019 during which the
European Patent Office changed its procedures leading to a one-off
surge in European patent work in the prior period. Secondly, the
2020 results were adversely affected by the full year impact of a
major client lost in the second half of 2019, and another large
client selling a large part of its business. Finally, the adverse
effect of Covid-19, where lockdowns of markets, businesses and many
patent offices around the world led to reduced filing activity. The
Covid-19 impact was particularly pronounced within the Group's
automotive, aerospace and oil and gas customers, which sought to
save costs by reducing the number of patents filed or the number of
territories in which they protect their intellectual property and
certain clients in other industries that also looked to reduce
their IP spend.
Despite the problems caused by the pandemic, the division
achieved several new client wins, including a large telecom
business based in the Asia Pacific region and our sales team
continues to work hard to drive and convert opportunities. However,
it is clear that Covid-19 is continuing to have an adverse impact
through lengthening sales cycles and in the time taken to on-board
new clients.
The Asia Pacific ("APAC") market continues to be a key strategic
focus for the division's longer-term revenue growth ambitions, with
the region continuing to attract North American and European
enterprises seeking patent protection in APAC territories. In
addition, the IP Services division is seeing strong growth in the
local Asian market as we successfully develop new business with
both local companies and patent attorneys and it was pleasing to
see revenue from the Chinese and Japanese IP Services businesses
increasing by 7% and 13% respectively over the prior year.
Revenue at the start of the new financial year has been ahead of
expectations but does reflect the ongoing impact of cautious
customer spend arising from the impact of Covid-19.
The division's lower revenue resulted in a lower adjusted
operating profit of GBP30.2m (2019: GBP36.1m). Overheads were lower
in 2020 but the move to 'working from home' affected the
operational efficiency of the division, as several processes were
initially more labour intensive in the home environment, as the
division correctly maintained IP translation and filing quality
levels.
RWS Life Sciences
The Group's Life Sciences division accounted for 19% of the
Group's sales in the year. Revenue of GBP69.5m represented an
increase of 6% over the prior period (2019: GBP65.5m).
Following the change in divisional leadership in the second half
of the prior financial year, the business has grown strongly in all
key areas, led by sales of the division's higher margin Linguistic
Validation ("LV") offering, which grew by 8% in constant currency
terms. This increase is particularly pleasing, as it demonstrates
the benefits of previous investment on extra resources for this
part of the business.
Sales to the division's largest customer also grew significantly
in constant currency, helped by the global rollout of a project to
increase its usage of machine translation.
Sales of the other Life Science services increased by 3% in
constant currency, reflecting several factors including the actions
taken by the new management team to improve the focus on sales and
marketing activities.
The impact of Covid-19 on this division was mixed, but overall
slightly positive. There was growth driven by extra work associated
with clinical trials and translation work for vaccines, anti-viral
medications and antibody testing equipment but this was largely
offset by delays in other clinical trial areas and the postponement
of elective surgeries.
The division increased adjusted operating profit by 3% over the
prior year to GBP20.9m (2019: GBP20.3m). This result was driven by
increased revenue, along with strong gross margins, in line with
prior years, despite previous investment in staffing to support
LV's growth, offset by higher overheads largely arising from a full
year of senior management costs and further investment in sales
resource and management to support future growth in the LV
business.
We have seen positive trading in the initial months of the new
financial year. The outlook for the division is encouraging, with
continued good opportunities in LV, good progress with Machine
Translation opportunities and ongoing growth in the Medical Device
sector, where we are continuing to see a positive impact on work
volumes arising from the European Union Medical Device
requirements.
RWS Moravia (including RWS Language Solutions)
The RWS Moravia division accounted for 49% of Group sales, with
revenue of GBP173.6m (2019: GBP164.9m), a 5% increase over the
prior period. The growth was driven by strong sales to several of
the division's major technology customers, particularly during the
initial Covid-19 lockdown period, when accurate messaging across
social media platforms was extremely important. Sales to the
Group's largest client were higher than anticipated, reflecting the
new service development work that was delivered during the last
year, albeit total revenue with the client was lower than the prior
year.
Growth outside the 'top six' major clients (excluding the former
RWS Language Solutions business) was even stronger, up by +6% in
constant currency, with increasing revenue from a range of sectors
and companies, including financial services, online sales platforms
and web services providers.
The division's 5% revenue growth was achieved despite a
significant reduction in sales volumes within the smaller, former
RWS Language Solutions business, which was integrated into RWS
Moravia during the year. This business provides more general
translation services to a range of businesses but with a real focus
on the automotive and renewable energy sectors, both of which
substantially reduced their translation volumes during the lockdown
period.
Moravia's adjusted operating profit increased by 8% excluding an
adverse exchange rate movement of GBP3.4m, largely caused by the
impact of the weaker USD on RWS Moravia's balance sheet. Including
this movement, the division recorded an adjusted operating profit
of GBP24.8m a decrease of 5% over the prior period (2019:
GBP26.2m).
Trading in the first couple of months of the new financial year
has been slightly ahead of our expectations, reflecting ongoing
growth with the division's major customers who continue to value
Moravia's technical expertise and global reach.
SDL integration
Despite having completed the transaction to acquire SDL only a
few weeks ago, the integration process has started well with the
new RWS Senior Leadership team and revised operational structure
having been announced.
The enlarged RWS Group will operate as four divisions, which
will be rebranded in 2021, and which comprise:
RWS IP Services
RWS Life Sciences and SDL Regulated Industries
RWS Moravia and SDL Commercial Enterprise
SDL Language Technology and SDL Content Technologies
Each division will be led by a Managing Director ("MD") who will
be responsible and accountable for the results of their respective
businesses.
In addition, each MD will play a pivotal role in the integration
process for their division's workstream as we simplify and optimize
our operational structure.
Azad Ootam (former Chief Technology Officer at SDL) will take
control of IT and R&D across the enlarged Group, to build upon
SDL's vision for language technology. In addition, Azad will also
work with the rest of the management team to streamline the Group's
product offerings, allowing the business to focus on key areas of
market growth going forward.
The detailed planning for the integration is well underway and
significant synergy opportunities, in excess of the previously
announced GBP15m, have already been identified. The new leadership
team will be working to finalize the integration plan over the
coming weeks, with a view to rolling it out early in 2021. Given
our track record in integrating acquisitions, our proven
integration formula, and our experienced management team, we expect
to deliver a significantly improved operational performance over
the coming 12-18 months.
summary
The Group has delivered a highly resilient performance in a year
of an unprecedented pandemic, whilst we have continued to broaden
the Group's capabilities and reach, with the acquisition of SDL
creating the world's leading language services and technology
group.
We are confident that the Group's enhanced client proposition,
strong balance sheet and experienced management team leaves it well
placed to build on its track record of profitable, cash generative
growth.
Richard Thompson
CHIEF EXECUTIVE OFFICER
9 December 2020
Chief Financial Officer's Review
introduction
2020 has been an unprecedented year but we enter the new fiscal
period with renewed confidence. Having navigated the initial phases
of the ongoing global pandemic we have seen resilience in demand
for our services across all three divisions, particularly in our
key life sciences and technology markets.
We have also been reassured, particularly given the challenging
economic backdrop, by the strength and stability of our balance
sheet that supports our low capex, high growth business model and
has enabled us to complete multiple acquisitions during the period
as well as the transformational acquisition of SDL plc in November
2020, shortly after the end of our financial year. We are confident
that in financial year 2021 we will continue to build our business
organically and successfully progress the integration of SDL into
our operations to enable further growth throughout our divisional
portfolio, while at the same time remaining focused on margins.
We have also remained focused on retaining our strong balance
sheet and improving the flexibility of our financing options. On 10
February 2020, the Group completed a refinancing of its term loan
and entered into a revised agreement with its banking syndicate, on
improved terms, which amended our existing US$160m term loan
maturing on 18 October 2022 into a US$120m revolving credit
facility maturing on 10 February 2024, with an option to extend
maturity until 10 February 2025, subject to lender approvals. The
revised agreement also provides for a US$80m uncommitted accordion
facility.
The Group's enhanced financial position helped to facilitate the
acquisitions of both Iconic and Webdunia in June 2020. Iconic was
purchased for an initial consideration of US$10m with additional
contingent consideration of up to US$10m in RWS shares, subject to
future performance conditions, while Webdunia was purchased for a
total cash consideration of US$21m. Prior to these acquisitions,
the Group was on course to complete the financial year in a net
cash position. Net debt at 30 September 2020 was GBP15.1m, a
significant reduction, despite the Group's acquisitions, from the
net debt position at the end of the previous financial year of
GBP36.8m. Following the transition to IFRS 16, the Group's net debt
including lease liabilities is GBP37.9m. The acquisition of SDL,
post balance sheet, has strengthened our balance sheet and further
reduced our leverage position.
The adoption of IFRS 16 from 1 October 2019 has had a small
impact on our financial results for the period. The impact on the
statement of comprehensive income is an increase in operating
profit of approximately GBP0.5m and an increase in finance costs of
GBP0.7m resulting in a decrease in adjusted profit before tax of
GBP0.2m.
Revenue
Group revenue increased to GBP355.8m in line with the prior
financial year. Revenue excluding acquisitions and on a constant
currency basis was down by 1%. The growth in revenues was partly
due to the contribution of post-acquisition revenues from both
Iconic and Webdunia. Revenue in the second half of the financial
year increased to GBP186.1m compared to first half revenues of
GBP169.7m, an increase of GBP16.4m or 9.7%, and represent a 1.5%
increase on the comparative revenues in the second half of FY 2019.
Overall, this led to a slight increase in revenue weighting towards
the second half of the year and now makes up 52.3% of full year
revenues, up from 51.5% in the comparative financial year.
In terms of divisional revenues, RWS Moravia recorded revenues
of GBP173.6m, an increase of 5.1% on the prior financial year, and
benefitted from both the incremental contribution of
post-acquisition revenues from Webdunia, and also increased
activity from certain technology customers. RWS Life Sciences also
experienced increased demand for their services and posted revenues
of GBP69.5m, an increase of 6% year on year, partially as a result
of additional work related to Covid-19. Increased revenue in these
two divisions was offset by RWS IP Services which recorded revenues
of GBP112.8m, a reduction of 10%. This division faced strong
comparatives and was more exposed to changes in demand consequent
to the ongoing global pandemic.
Group revenue, categorized by client location, continues to
migrate towards the US market which now accounts for 54% of group
revenue, an increase of GBP2.3m over the year ended 30 September
2019. Similar to the prior financial year, only one client
accounted for more than 10% of Group turnover. This client was part
of the RWS Moravia reporting segment.
Gross Profit
Gross profit decreased by 2% to GBP139.6m resulting in a gross
margin of 39.2%. Group gross margin has fallen from 40.1% in the
prior year primarily as a result of both the change in revenue mix
as a result of the relatively lower margin RWS Moravia revenues
accounting for 49% of group revenue this year compared to 46% in
the prior financial year and a slightly lower achieved gross margin
at RWS Moravia in the year.
Administrative Expenses
Administrative expenses, excluding amortization of acquired
intangible, acquisition costs, share based payment expense, and
restructuring costs, increased by GBP2.6m to GBP66.7m, an increase
of 4.1%. As a result of revenue remaining in line with prior year,
in combination with inflationary increases to overheads and foreign
exchange losses due to a strengthening of the Czech Koruna against
the US dollar, adjusted administrative expenses as a percentage of
revenue have increased from 18.0% in the financial year ended 30
September 2019 to 18.7% for the financial year ended 30 September
2020.
Net finance costs
Net finance costs were GBP1.5m (2019: GBP4.2m). Net finance
costs have decreased year on year due primarily to reduced bank
interest payable which has fallen by GBP2.2m as a result of lower
financing costs consequent to the Group's term loan refinancing and
reduced level of debt. In addition, there was a net gain of GBP1.2m
recognized as an exceptional item as a result of the Group
refinancing its term loan into a revolving credit facility. The
introduction of IFRS 16 has resulted in recording GBP0.7m of
finance costs on lease liabilities with no prior period
comparative.
Adjusted Profit before Tax
Adjusted profit before tax is stated before amortization of
acquired intangibles, share based payment expense, acquisition
costs, and exceptional items. The Group uses adjusted results as a
key performance indicator, as the Directors believe that these
provide a more consistent and meaningful measure of the Group's
performance across financial periods. Adjusted Profit before tax of
GBP70.2m recorded in the period has fallen from GBP74.2m in the
financial year ended 30 September 2019, a reduction of 5.5%. This
reduction reflects the slightly lower gross margin achieved along
with increased adjusted administrative expenses while Group revenue
has remained in line with the comparative period. On an organic,
constant currency basis, adjusted profit before tax was down
GBP2.0m. Adjusted profit before tax margin has decreased from 20.9%
in the prior period to 19.7% (19.8% on a like for like basis pre
IFRS 16) for the financial year ended 30 September 2020.
Tax charge
The Group's tax charge for the year was GBP12.2m (2019:
GBP12.6m) representing an effective tax rate on Profit before tax
of 20.9% compared to 21.8% in the prior financial year. The
corporate income tax rates in the overseas countries in which the
Group operates continue to be higher than the UK corporate income
tax rate of 19% which results in a higher effective rate than the
headline UK rate.
Earnings per share
Basic earnings per share for the financial year increased from
16.5p to 16.9p, an increase of 2.4%, while adjusted basic earnings
per share decreased from 21.3p to 19.9p. The weighted average
number of ordinary shares in issue for basic and adjusted basic
earnings increased from 273.6m to 275.0m principally due to new
ordinary shares issued in connection with share options
exercised.
Balance Sheet and working capital
Net assets at 30 September 2020 increased by GBP11.4m to
GBP408.8m. Non-current assets at 30 September 2020 increased by
GBP11.7m to GBP456.5m primarily due to additions to net assets as a
result of the acquisitions of Webdunia and Iconic and the
establishment of Right-of-use assets under IFRS 16 of GBP20.1m.
Current assets at 30 September 2020 of GBP134.1m have increased
by GBP1.6m on the prior financial year. Cash balances of GBP51.4m
have increased by GBP4.4m while there has been a significant
reduction in trade receivables of GBP8.5m. This reduction has been
due in part to an increase in accrued income balances but mainly
due to an improvement in our days' sales outstanding measure, (the
calculation of which measures the number of days' billings in trade
receivables) from 51 days outstanding in the prior financial year
to just over 44 days outstanding for the year ended 30 September
2020 as a result of a greater focus on credit and collections
procedures across the Group. Current liabilities have reduced by
GBP25.4m from GBP89.9m at 30 September 2019 to GBP64.5m at 30
September 2020. This reduction reflects the fact that, following
the refinancing transaction, loan balances of GBP25.7m previously
classified as current liabilities are now reclassified as
non-current liabilities. Trade payables have reduced by GBP0.7m as
the Group has maintained payment terms to our supplier base during
the global pandemic, while deferred income has increased by GBP2.1m
to GBP5.2m at 30 September 2020.
Cash flow
Cash generated from operations was GBP94.5m, an improvement from
the prior financial year of GBP12.7m or 15.5%. Free cash flow has
also increased, from GBP58.3m to GBP59.1m for the year ended 30
September 2020. Free cash flow is calculated as cash generated from
operations, less the proceeds from a warranty claim, capital
expenditure, debt servicing cost, and income taxes paid and
represents the surplus cash generated by the Group available for
debt repayments, mergers and acquisitions or dividend payments.
This increase in free cash flow has been achieved primarily as the
Group was able to improve cash collections, despite the impact of
Covid-19, reflecting the Group's blue-chip client base. The
strength of the Group's continued ability to generate significant
free cash flow is demonstrated by an increase in cash conversion
from the 94.6% recorded in the last financial year up to a level of
100.1% in the current financial year.
Significant cash flows from investing activities included
outflows of GBP23m, net of cash acquired, in connection with the
acquisitions of Iconic and Webdunia in June 2020.
Cash flows from financing activities included GBP29.4m in repaid
debt and dividends paid within the financial year ended 30
September 2020 of GBP24m, representing the final dividend related
to the financial year ended 30 September 2019 of GBP19.2m or seven
pence per share, along with the interim dividend paid for the
current period of GBP4.8m equivalent to 1.75 pence per share.
Cash balances at the financial year end amounted to GBP51.4m
with external borrowings of GBP66.5m, excluding lease liabilities,
resulting in a net debt position of GBP15.1m (2019: GBP47m cash and
external borrowings of GBP83.7m, resulting in net debt of
GBP36.7m).
POST BALANCE SHEET EVENTS
On 27 August 2020, the Group announced that it had reached
agreement with SDL for an all share combination, pursuant to which
RWS acquired the entire issued and to be issued share capital of
SDL by means of a court-sanctioned scheme of arrangement which
became effective on 4 November 2020. Accordingly, 113,338,511 new
ordinary shares were issued by the parent company of RWS as
consideration to acquire 100% of the shares in SDL.
Given the size, complexity and close proximity of this
transformative acquisition to the date of approval of the financial
statements it has not yet been possible to complete a purchase
price allocation to determine provisional fair values. Therefore,
fair values of identifiable assets and liabilities and the amount
attributable to goodwill has not been disclosed.
No other significant events have occurred between the balance
sheet date and the date of authorizing these financial
statements.
Des Glass
GROUP CHIEF FINANCIAL OFFICER
9 December 2020
Consolidated Statement of Comprehensive Income
for the year ended 30 September 2020
2020 2019
Note GBP'000 GBP'000
----------------------------------------------------------------------- ----------
Revenue 4 355,783 355,696
Cost of sales (216,180) (213,210)
===================================================== === ========== ==========
Gross profit 139,603 142,486
Proceeds from warranty claim 6 9,017 -
Administrative expenses (88,419) (80,606)
----------------------------------------------------- --- ---------- ----------
Operating profit 60,201 61,880
Analyzed as:
Adjusted operating profit: 5 72,881 78,396
Amortization of acquired intangibles (15,317) (15,414)
Acquisition costs (4,112) (791)
Share based payment expense (1,057) (311)
Exceptional items 6 7,806 -
===================================================== === ========== ==========
Operating profit 60,201 61,880
Finance income 50 105
===================================================== === ========== ==========
Net gain on debt modification 6 1,193 -
===================================================== === ========== ==========
Finance costs (2,770) (4,268)
===================================================== === ========== ==========
Profit before tax 58,674 57,717
----------------------------------------------------- --- ---------- ----------
Taxation 7 (12,243) (12,577)
===================================================== === ========== ==========
Profit for the year 46,431 45,140
----------------------------------------------------- --- ---------- ----------
Other comprehensive (expense)/income*
(Loss)/gain on retranslation of foreign operations (14,214) 20,141
Gain/(loss) on cash flow hedges 1,864 (2,661)
===================================================== === ========== ==========
Total other comprehensive (expense)/income (12,350) 17,480
----------------------------------------------------- --- ---------- ----------
Total comprehensive income attributable to:
Owners of the Parent 34,081 62,620
===================================================== === ========== ==========
Basic earnings per ordinary share (pence per
share) 9 16.9 16.5
Diluted earnings per ordinary share (pence
per share) 9 16.9 16.4
===================================================== === ========== ==========
*Other comprehensive (expense)/income includes only items that
will be subsequently reclassified to profit before tax when
specific conditions are met.
Consolidated Statement of Financial Position
as at 30 September 2020
2020 2019
Note GBP'000 GBP'000
--------------------------------------------------------------- ---------
Assets
Non-current assets
Goodwill 10 253,908 249,421
Intangible assets 157,813 169,109
Property, plant and equipment 22,791 22,888
Right-of-use assets 20,084 -
Deferred tax assets 1,939 3,371
============================================== ==== ========= =========
Current assets 456,535 444,789
Trade and other receivables 82,086 85,543
Foreign exchange derivatives 601 -
Cash and cash equivalents 51,380 46,974
============================================== ==== ========= =========
134,067 132,517
============================================== ==== ========= =========
Total assets 4 590,602 577,306
---------------------------------------------- ---- --------- ---------
Liabilities
Current Liabilities
Loans 11 - 25,681
Trade and other payables 57,576 57,343
Lease liabilities 3,207 -
Foreign exchange derivatives 103 824
Income tax payable 3,561 5,969
Provisions 87 87
============================================== ==== ========= =========
Non-current liabilities 64,534 89,904
Loans 11 66,515 58,045
Lease liabilities 19,571 -
Trade and other payables 357 318
Provisions 2,368 843
Deferred tax liabilities 28,409 30,700
============================================== ==== ========= =========
117,220 89,906
============================================== ==== ========= =========
Total liabilities 4 181,754 179,810
---------------------------------------------- ---- --------- ---------
Total net assets 408,848 397,496
---------------------------------------------- ---- --------- ---------
Equity
Capital and reserves attributable to owners
of the Parent
Share capital 2,752 2,737
Share premium 53,634 51,757
Share based payment reserve 1,389 662
Reverse acquisition reserve (8,483) (8,483)
Foreign currency reserve 14,868 29,082
Hedge reserve (389) (2,253)
Retained earnings 345,077 323,994
============================================== ==== ========= =========
Total equity 408,848 397,496
---------------------------------------------- ---- --------- ---------
Consolidated Statement of Changes in Equity
for the year ended 30 September 2020
Total
Share Other attributable
Share premium reserves Retained to owners
capital account (see below) earnings of Parent
--------------------------
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ---- --------- ------------ ------------------ ---------- -------------------
At 1 October 2018 2,735 51,549 1,250 299,745 355,279
Profit for the year - - - 45,140 45,140
Loss on cash flow hedges - - (2,661) - (2,661)
Gain on retranslation of
foreign
operations - - 20,141 - 20,141
========================== ==== ========= ============ ================== ========== ===================
Total comprehensive income
for
the year - - 17,480 45,140 62,620
Issue of shares 2 208 - - 210
Deferred tax on
unexercised share
options - - - 145 145
Income tax on unexercised
share
options - - - 131 131
Dividends 8 - - - (21,200) (21,200)
Exercise of share options - - (33) 33 -
Equity settled share based
payments - - 311 - 311
========================== ==== ========= ============ ================== ========== ===================
At 30 September 2019 2,737 51,757 19,008 323,994 397,496
Adjusted on initial
application
of IFRS 16 (net of tax) - - - (504) (504)
========================== ==== ========= ============ ================== ========== ===================
Restated balance at 1
October
2019 2,737 51,757 19,008 323,490 396,992
Profit for the year - - - 46,431 46,431
Gain on cash flow hedges - - 1,864 - 1,864
Loss on retranslation of
foreign
operations - - (14,214) - (14,214)
========================== ==== ========= ============ ================== ========== ===================
Total comprehensive income
for
the year - - (12,350) 46,431 34,081
Issue of shares 15 1,877 - - 1,892
Deferred tax on
unexercised share
options - - - (1,100) (1,100)
Dividends 8 - - - (24,063) (24,063)
Exercise of share options - - (319) 319 -
Equity-settled share based
payments - - 1,046 - 1,046
========================== ==== ========= ============ ================== ========== ===================
At 30 September 2020 2,752 53,634 7,385 345,077 408,848
-------------------------- ---- --------- ------------ ------------------ ---------- -------------------
Other reserves Share
based Reverse Foreign Total
payment acquisition Hedge currency other
reserve reserve reserve reserve reserves
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- --------- ------------ ------------------ ---------- -------------------
At 1 October 2018 384 (8,483) 408 8,941 1,250
Other comprehensive income
for
the year - - (2,661) 20,141 17,480
Exercise of share options (33) - - - (33)
Equity-settled share based
payments 311 - - - 311
========================== =============== ============ ================== ========== ===================
At 30 September 2019 662 (8,483) (2,253) 29,082 19,008
Other comprehensive
expense for
the year - - 1,864 (14,214) (12,350)
Exercise of share options (319) - - - (319)
Equity-settled share based
payments 1,046 - - - 1,046
========================== =============== ============ ================== ========== ===================
At 30 September 2020 1,389 (8,483) (389) 14,868 7,385
-------------------------- --------------- ------------ ------------------ ---------- -------------------
Consolidated Statement of Cash Flows
for the year ended 30 September 2020
2020 2019
Note GBP'000 GBP'000
------------------------------------------------------ ---- -------- --------
Cash flows from operating activities
Profit before tax 58,674 57,717
Adjustments for:
Depreciation of property, plant and equipment 2,951 3,025
Amortization of intangible assets 18,731 18,364
Depreciation of right-of-use assets 4,492 -
Share-based payment expense 1,057 311
Finance income (50) (105)
Net gain on debt modification 6 (1,193) -
Finance costs 2,770 4,268
Operating cash flow before movements in working
capital and provisions 87,432 83,580
Decrease/(increase) in trade and other receivables 5,374 (11,523)
Increase in trade and other payables and provisions 1,723 9,770
Cash generated from operations 94,529 81,827
Income tax paid (15,164) (11,464)
====================================================== ==== ======== ========
Net cash inflow from operating activities 79,365 70,363
------------------------------------------------------ ---- -------- --------
Cash flows from investing activities
Interest received 50 105
Acquisition of subsidiary, net of cash acquired 12 (22,973) (4,536)
Purchases of property, plant and equipment (2,942) (3,844)
Purchases of intangibles (software) (5,119) (4,170)
====================================================== ==== ======== ========
Net cash outflow from investing activities (30,984) (12,445)
------------------------------------------------------ ---- -------- --------
Cash flows from financing activities
Proceeds from borrowings 15,711 -
Repayment of borrowings (29,417) (25,057)
Transaction costs relating to debt refinancing (615) -
Interest paid (3,189) (4,125)
Lease liability payments (4,094) -
Proceeds from the issue of share capital 1,892 210
Dividends paid 8 (24,063) (21,200)
====================================================== ==== ======== ========
Net cash outflow from financing activities (43,773) (50,172)
------------------------------------------------------ ---- -------- --------
Net increase in cash and cash equivalents 4,608 7,746
------------------------------------------------------ ---- -------- --------
Cash and cash equivalents at beginning of the
year 46,974 38,155
Exchange (losses)/gains on cash and cash equivalents (202) 1,073
====================================================== ==== ======== ========
Cash and cash equivalents at end of the year 51,380 46,974
------------------------------------------------------ ---- -------- --------
Free cash flow - Non-GAAP measure
Analysis of free cash flow
Cash generated from operations 94,529 81,827
Proceeds from warranty claim (9,017) -
Net interest paid (3,139) (4,020)
Income tax paid (15,164) (11,464)
Purchases of property, plant and equipment (2,942) (3,844)
Purchases of intangibles (software) (5,119) (4,170)
Free cash flow 5 59,148 58,329
------------------------------------------------------ ---- -------- --------
Free cash flow excludes proceeds from warranty claim of GBP9.0
million (2019: GBPnil).
1. GENERAL INFORMATION
RWS Holdings plc ("the Parent Company") is a public company,
limited by shares, incorporated and domiciled in England and Wales
whose shares are publicly traded on AIM, the London Stock Exchange
regulated market.
The consolidated financial statements consolidate those of the
Company and its subsidiaries ("the Group"). The consolidated
financial statements, from which this financial information has
been extracted, have been prepared in accordance with International
Financial Reporting Standards (IFRS) as adopted by the EU, IFRS IC
interpretations and the Companies Act 2006 applicable to Companies
reporting under IFRS.
The financial information shown in the announcement for the year
ended 30 September 2020 and the year ended 30 September 2019 set
out above does not constitute statutory accounts but is derived
from those accounts. Except as described below, the principal
accounting policies applied in the preparation of the consolidated
financial statements are consistent with those of the annual
financial statements for the year ended 30 September 2019, as
described in those financial statements. The financial information
contained in this announcement does not constitute statutory
accounts within the meaning of Section 434 of the Companies Act
2006. Statutory accounts for the year ended 30 September 2019 have
been delivered to the Registrar of Companies and those for the year
ended 30 September 2020 will be delivered shortly, having been
approved by the Directors on 9 December 2020. The auditors have
reported on the accounts for the years ended 30 September 2019 and
30 September 2020, their reports were 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. ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of
the consolidated financial statements are set out below. The
policies have been consistently applied to both years presented,
unless otherwise stated.
New accounting standards, amendment
and interpretations
IFRS 16 "Leases" - (Effective from 1 October 2019)
The Group has adopted IFRS 16 from 1 October 2019 and applied
the modified retrospective approach.
IFRS 16 provides a single on-balance sheet accounting model for
lessees which recognizes a right-of-use asset, representing its
right to use the underlying asset, and lease liability,
representing the Group's obligation to make payments for the use of
the underlying asset. The distinction between finance and operating
leases has been removed for lessees. Comparatives for the prior
period have not been restated and the adjustments arising from the
new leasing standard are therefore recognized in the opening
balance sheet on 1 October 2019 as follows:
1 October
2019
GBP'000
---------------------------- ---------
Non-Current assets
Right-of-use assets 23,650
Deferred tax asset 140
Trade and other receivables (14)
============================ =========
Total assets 23,776
---------------------------- ---------
Current liabilities
Trade and other payables (682)
Lease liabilities 5,261
Non-Current liabilities
Lease liabilities 19,701
============================ =========
Total liabilities 24,280
============================ =========
Total movement in retained
earnings as at 1 October
2019 (504)
---------------------------- ---------
The Group has predominantly office leases, which were all
previously accounted for under IAS 17 as operating leases. These
leases have a variety of lease terms and some include scheduled
rent reviews, break options, extension options or rent increases
based on future indices (e.g. CPI).
At transition, the Group recognized lease liabilities for leases
which had previously been classified as operating leases by
measuring the present value of the remaining lease payments,
discounted by an incremental borrowing rate. The Group's weighted
average incremental borrowing rate at 1 October 2019 was 2.9%.
In regard to right-of-use assets, these were measured at
either:
> Their carrying amount as if IFRS 16 had applied since the
lease commencement date (or where subsidiaries holding these leases
were acquired by the Group), discounted by the relevant incremental
borrowing rate as at 1 October 2019. The Group has applied this
transition methodology where sufficient historical information has
been available; or
> An amount equal to the lease liability. This approach has
been applied to a small number of property and non-property leases
where either historical information was unavailable or where these
leases were not considered to be material.
Reconciliation of lease commitments
to opening lease liability
balance GBP'000
------------------------------------ -------
Operating lease commitments
as disclosed at 30 September
2019 24,687
Effect of discounting using
the Group's incremental borrowing
rate (2,292)
Short term leases with less
than 12 months to expiry
not recognized as a liability (188)
Low value leases not recognized
as a liability (58)
Recognition differences relating
to lease extension options
and lease term assumptions 2,813
==================================== =======
Lease liability recognized
as at
1 October 2019 24,962
------------------------------------ -------
Practical expedients applied
On adoption of IFRS 16, the Group has used the following
practical expedients permitted by the standard:
> Used a single incremental borrowing rate for similar leases exposed to similar risks
> Excluded initial direct costs for the measurement of
right-of-use assets at the date of the initial application
> Used hindsight in determining the lease term where the
contract contains options to extend or terminate the lease
> Excluded long-term leases with less than 12 months remaining until expiry.
Additionally, on transition the Group elected not to reassess
whether a contract is, or contains, a lease, instead relying on the
assessment already made applying 'IAS 17, 'Leases' and IFRIC 4
'Determining whether an arrangement contains a lease'.
Impact on the statement of comprehensive income
The impact on the statement of comprehensive income for the year
ended 30 September 2020 is an increase in operating profit of
approximately GBP0.5m and an increase in finance costs of GBP0.7m
resulting in a decrease in profit before tax of GBP0.2m.
Impact on the statement of cash flows
There has been a change to the classification of cash flows in
the statement of cash flows with operating lease payments
previously categorized as cash flows from operating activities now
being disclosed within financing activities. In the 12 months to 30
September 2020 there are GBP4.1 million of lease payments within
financing activities comprising GBP3.4 million of the repayment of
lease liabilities and GBP0.7 million of interest paid. There were
no changes to the net cash flows related to leases.
Accounting policy
The Group recognizes a right-of-use asset and a lease liability
at the lease commencement date.
The right-of-use asset is initially measured at cost, comprising
the initial amount of the lease liability plus any initial direct
costs incurred and an estimate of costs to restore the underlying
asset, less any lease incentives received. The right-of-use asset
is subsequently depreciated using the straight-line method from the
commencement date to the earlier of the end of the useful life of
the asset or the end of the lease term.
The lease liability is initially measured at the present value
of the lease payments that are not paid at the commencement date,
discounted using the incremental borrowing rate. The lease
liability is measured at amortized cost using the effective
interest method. It is remeasured when there is a change in future
lease payments arising from a change in an index or a rate or a
change in the Group's assessment of whether it will exercise an
extension or termination option. When the lease liability is
remeasured, a corresponding adjustment is made to the right-of-use
asset.
Payments associated with short term leases or low- value assets
are recognized on a straight-line basis as an expense in the income
statement. Short term leases are leases with a term of 12 months or
less.
The Group's activities as a lessor are currently not
material.
There were no other new IFRSs or IFRS IC interpretations that
are not yet effective that are expected to have a material impact
on the Group.
Basis of consolidation
The consolidated financial statements comprise the financial
statements of the Parent Company and subsidiaries controlled by the
Parent Company, drawn up to 30 September 2020. Control is regarded
as the power to govern the financial and operating policies of the
entity, so as to benefit from its activities. The financial results
of subsidiaries are consolidated from the date control is obtained,
until the date that control ceases.
All intra-group transactions are eliminated as part of the
consolidation process.
Going concern
As part of the Director's consideration of the appropriateness
of adopting the going concern basis in preparing these financial
statements, a range of scenarios have been prepared. The
assumptions modelled include reasonable downside scenarios, as well
as taking into consideration the potential impact of COVID-19
across the Group over the period until March 2022.
The range of scenarios consider the impact of reductions to the
Group's revenues and corresponding cash flows, with mitigating
actions by management limited to equivalent reductions in the
Group's controllable cost base. No significant structural changes
to the business have been assumed in any of the scenarios modelled
with all mitigating actions are wholly within management's
control.
Subsequent to 30 September 2020, the Group's all- share
acquisition of SDL plc completed and at the date of acquisition SDL
had significant cash reserves and no outstanding debt, thereby
further strengthening the Group's balance sheet and liquidity.
For the year ended 30 September 2020, the Group's revenue has
been in line with the prior year. The Group's Life Sciences and
Moravia divisions have seen revenue growth compared to the prior
year, with revenues growing at a faster rate during the second half
of the financial year, when COVID-19 restrictions were tighter than
as at the date of authorizing these financial statements. Revenues
in the IP Services division have fallen 10% compared with the prior
year, as set out on page 13 of the Strategic Report.
As at 30 September 2020, the Group's balance sheet reflects a
net asset position of GBP408.8 million and the liquidity of the
Group remains strong with GBP51.4m of cash reserves. During the
year we refinanced our debt into a US$120 million revolving credit
facility (RCF) with a maturity date of February 2024, which is
extendable for a further year subject to lender consent. At year
end US$31.1 million is undrawn, while the RCF also offers an
accordion facility of US$80 million, subject to lender consent,
however in all scenarios modelled the Group's liquidity
requirements are within the US$120 million RCF.
At 30 September 2020, our net debt position excluding lease
liabilities is GBP15.1m (see note 17), and the Group's two debt
covenants under its RCF being the ratio of Net Debt to trailing
12-month Adjusted EBITDA (as defined in the RCF agreement) and
trailing 12-month EBITDA to Finance Charges (as defined in the RCF
agreement) are 0.23:1 and 44.97:1, respectively. Both are well
within the covenant limits permitted by the Group's RCF. The Group
has assessed its forecast compliance with these covenants at 31
March 2021, 30 September 2021 and 31 March 2022 and concluded that
even in the most severe but plausible scenario modelled, the Group
will continue to comply with its covenants.
On the basis set out above, the Directors consider it
appropriate to conclude that the Group has adequate resources to
continue as a going concern for the foreseeable future and for a
period of at least 12 months from the date of authorizing these
financial statements. Therefore, the Group continues to adopt the
going concern basis for preparing its financial statements.
Exceptional items
When items of income or expense are material or they are one-off
or non-recurring in nature, they are disclosed separately within
the financial statements. Such exceptional items include
reorganization costs, proceeds from warranty claims, and net gains
from debt modifications.
Proceeds from warranty claims has been classified as operating
activities in the Group's statement of cash flows.
3. CRITICAL JUDGEMENTS AND ACCOUNTING ESTIMATES IN APPLYING THE
GROUP'S ACCOUNTING POLICIES
The preparation of the financial statements, in conformity with
generally accepted accounting principles, requires management to
make estimates and judgements that affect the reported amounts of
assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported
period. Actual results could differ from these estimates.
These estimates and judgements are based on historical
experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
They are reviewed on an ongoing basis. Revisions to estimates are
recognized prospectively.
Impairment of goodwill and intangible assets
An impairment test of goodwill (performed annually) and other
intangible assets (when an indicator of impairment exists),
requires estimation of the value in use of the CGUs to which
goodwill and other intangible assets have been allocated. The value
in use calculation requires the Group to estimate the future cash
flows expected to arise from the CGUs, for which the Group
considers revenue growth rates to be a significant estimate. The
estimated future cash flows derived are discounted to their present
value using a pre-tax discount rate that reflects estimates of
market risk premium, asset betas, the time value of money and the
risks specific to the CGU.
Acquisition accounting
Judgement is often required in determining the identifiable
intangible assets acquired as part of a business combination that
must be recognized as an asset in the Group's consolidated
financial statements. Estimation is required in determining both
the fair value of all identified assets, liabilities acquired, any
contingent consideration and in particular intangible assets. In
determining these fair value a range of assumptions are used,
including forecast revenue, discount rates, and attrition rates
that are specifically related to the intangible asset being valued.
The useful economic lives of these assets is estimated using
management's best estimates and reassessed annually. If the useful
economic lives of the Group intangible assets were one year
shorter, the impact on the income statement would be a reduction of
GBP1.8 million to profit before tax.
Accounting for leases
The Group has applied significant judgement to the determination
of the expected lease term over which to recognize a lease
liability. The Group's sole lease with a break clause expires in
May 2030 with a one-time break clause exercisable in May 2025.
Whether this break clause will be triggered is not reasonably
certain at either transition or 30 September 2020, but will be
reassessed at each reporting date. Such reassessment will take into
account time to expiry of the option, current and future trading,
the Group's office space needs, and the economic benefits of
triggering the break clause. If this break clause were assumed at
30 September 2020 the impact on the Group's financial statements
would be a reduction of GBP3.6 million in right of use assets and
GBP3.6 million in lease liabilities.
4. REVENUE FROM CONTRACTS WITH CUSTOMERS & SEGMENT
INFORMATION
Revenue from contracts with customers
The Group generates all revenue from contracts with its
customers for the provision of translation and localization,
intellectual property support solutions and life sciences language
services. Revenue from providing these services during the year is
recognized both at a point in time and over time as shown in the
table below:
Timing of revenue recognition for contracts 2020 2019
with customers GBP'000 GBP'000
-------------------------------------------- -------- --------
At a point in time 106,928 119,625
Over time 5,850 5,615
============================================ ======== ========
IP Services 112,778 125,240
At a point in time 140,705 135,014
Over time 32,846 29,976
============================================ ======== ========
Moravia 173,551 164,990
At a point in time 47,629 45,173
Over time 21,825 20,293
============================================ ======== ========
Life Sciences 69,454 65,466
Total revenue from contracts with customers 355,783 355,696
-------------------------------------------- -------- --------
The following table provides information about receivables,
accrued income and deferred income from contracts with
customers.
2020 2019
Receivables, accrued and deferred income GBP'000 GBP'000
----------------------------------------- -------- --------
Net trade receivables 60,762 69,244
Accrued income 14,107 9,642
Deferred income (5,210) (3,079)
========================================= ======== ========
Accrued income relates to the Group's right to consideration for
work completed and delivered but not invoiced as at year end and is
transferred to trade receivables when an invoice is issued to the
client. Clients are typically invoiced on a monthly basis and
consideration is payable when invoiced. During the year GBP9.6
million of accrued income recognized at the beginning of the year
was invoiced.
Deferred income relates to advance consideration received from
clients for PatBase subscriptions and linguistic validation
projects, where revenue is recognized over time as the services are
provided/delivered to clients. During the year, GBP3.1 million of
deferred revenue at the beginning of the period has been recognized
as revenue.
Segment information
The chief operating decision maker has been identified as the
Group's Board of Directors. The Board reviews the Group's internal
reporting in order to assess performance and allocate resources.
The Board divides the Group into three reportable segments and
assesses the performance of each segment based on revenue and
profit/(loss) from operations. These are measured on a basis
consistent with the statement of comprehensive income.
The three segments are:
> RWS IP Services: provides the quality patent translations,
a seamless global patent filing experience and a wide range of
intellectual property (IP) search services.
> RWS Life Sciences: provides a full suite of language
services, including technical translations and linguistic
validation, exclusively for the life sciences industry.
> RWS Moravia: provides localization services including the
adaptation of content, software, websites, applications, marketing
material and audio/video to ensure brand consistency.
In the year ended 30 September 2019, there were four reportable
segments; RWS Language Solutions, which was previously shown
separately, is now included within RWS Moravia.
The prior year segment information has been restated for
comparability purposes.
The unallocated segment relates to corporate overheads, assets
and liabilities.
Life
Segment results for the year ended IP Services Sciences Moravia Unallocated Group
30 September 2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- ----------- --------- -------- ----------- ---------------
Revenue from contracts with customers 112,778 69,454 173,551 - 355,783
Operating profit/(loss) before
charging: 30,191 20,934 24,805 (3,049) 72,881
Amortization of acquired intangibles (671) (6,004) (8,642) - (15,317)
Acquisition costs - (259) (504) (3,349) (4,112)
Exceptional items (see note 6) (815) - (396) 9,017 7,806
Share-based payments expense (45) (116) (192) (704) (1,057)
Profit from operations 28,660 14,555 15,071 1,915 60,201
======================================= =========== ========= ======== =========== ===============
Finance income 1,243
Finance expense (2,770)
Profit before taxation 58,674
======================================= =========== ========= ======== =========== ===============
Taxation (12,243)
======================================= =========== ========= ======== =========== ===============
Profit for the year 46,431
--------------------------------------- ----------- --------- -------- ----------- ---------------
Segment results for Life
the year ended IP Services Sciences Moravia Unallocated Group
30 September 2019 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ------------ --------- --------- ----------- ----------------
Revenue from
contracts with
customers 125,240 65,466 164,990 - 355,696
Operating
profit/(loss) before
charging: 36,119 20,327 26,181 (4,231) 78,396
Amortization of
acquired intangibles (674) (6,036) (8,704) - (15,414)
Acquisition costs - - (195) (596) (791)
Share-based payments
expense (74) - (58) (179) (311)
Profit/(loss) from
operations 35,371 14,291 17,224 (5,006) 61,880
====================== ============ ========= ========= =========== ============================
Finance income 105
Finance expense (4,268)
Profit before
taxation 57,717
====================== ============ ========= ========= =========== ============================
Taxation (12,577)
====================== ============ ========= ========= =========== ============================
Profit for the year 45,140
---------------------- ------------ --------- --------- ----------- ----------------------------
Segment assets and IP Services Life Moravia Unallocated Group
liabilities at GBP'000 Sciences GBP'000 GBP'000 GBP'000
30 September 2020 GBP'000
----------------------- ---------------------- --------- ----------- ---------------- --------
Total assets 97,946 143,990 335,885 12,781 590,602
Total liabilities 23,904 31,568 116,854 9,428 181,754
====================== ======================= ========= =========== ================ ========
Capital expenditure 894 241 17,037 398 18,570
Depreciation 619 302 1,845 185 2,951
Amortization 2,070 7,208 13,945 - 23,223
---------------------- ----------------------- --------- ----------- ---------------- --------
Life
Segment assets and liabilities at 30 IP Services Sciences Moravia Unallocated Group
September 2019 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- ----------- --------- -------- ----------- --------
Total assets 105,453 138,676 329,511 3,666 577,306
Total liabilities 23,009 44,636 108,249 3,916 179,810
===================================== =========== ========= ======== =========== ========
Capital expenditure 758 349 6,778 159 8,044
Depreciation 582 259 2,006 178 3,025
Amortization 747 6,095 11,512 10 18,364
------------------------------------- ----------- --------- -------- ----------- --------
Capital expenditure comprises additions to property, plant and
equipment and intangible assets, including additions from
acquisitions through business combinations.
Assets and liabilities are Assets 2020 Liabilities Assets 2019 Liabilities
reconciled to the Group's assets 2020 2019
and liabilities as follows:
-------------------------------------
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- ------------------------------ ----------- -------------------- -----------
Total segment assets and liabilities 577,821 172,326 573,640 175,894
Unallocated:
Deferred tax 218 1,960 1,063 1,509
Property, plant and equipment 515 - 302 -
Non-financial assets 788 5,696 999 2,198
Other financial assets and
liabilities 377 1,772 - 209
Cash and cash equivalents 10,883 - 1,302 -
===================================== ============================== =========== ==================== ===========
Total unallocated assets and
liabilities 12,781 9,428 3,666 3,916
===================================== ============================== =========== ==================== ===========
Total Group assets and liabilities 590,602 181,754 577,306 179,810
------------------------------------- ------------------------------ ----------- -------------------- -----------
Assets allocated to a segment consist primarily of operating
assets such as property, plant and equipment, intangible assets,
goodwill, receivables and cash.
Liabilities allocated to a segment comprise primarily bank
loans, trade and other payables.
The Group's operations are based in the UK, Continental Europe,
the United States of America, China, Japan, India, Thailand,
Argentina, Australia, Columbia and Canada. The table below shows
turnover by the geographic market in which clients are located.
2020 2019
Turnover by client location GBP'000 GBP'000
---------------------------- -------- --------
UK 29,906 29,791
Continental Europe 104,883 108,770
United States of America 193,088 190,807
Rest of the world 27,906 26,328
============================ ======== ========
355,783 355,696
---------------------------- -------- --------
One client accounted for more than 10% of Group turnover in the
current year (2019: one). This client was part of the Moravia
reporting segment.
The following is an analysis of revenue and non-current assets
analyzed by the geographical area in which the Group's undertakings
are located.
Non-Current
Revenue assets
================== ==================
Geographical information 2020 2019 2020 2019
GBP'000 GBP'000 GBP'000 GBP'000
------------------------- -------- -------- -------- --------
UK 108,359 123,770 29,611 28,397
Continental Europe 88,446 84,134 275,877 276,058
United States of America 147,012 138,730 124,706 134,238
Rest of the world 11,966 9,062 26,341 6,096
========================= ======== ======== ======== ========
355,783 355,696 456,535 444,789
------------------------- -------- -------- -------- --------
5. ALTERNATIVE PERFORMANCE MEASURES
RWS uses adjusted results as a key performance indicator, as the
Directors believe that these provide a more consistent measure of
the Group's operating performance. Adjusted profit is therefore
stated before amortization of acquired intangibles, acquisition
costs, share-based payment expenses and exceptional items.
The table below reconciles the statutory profit before tax to
the adjusted profit before tax.
Reconciliation of statutory profit before tax to 2020 2019
adjusted profit before tax: GBP'000 GBP'000
------------------------------------------------- --------- --------
Statutory profit before tax 58,674 57,717
================================================== ======== ========
Amortization of acquired intangibles 15,317 15,414
Acquisition costs 4,112 791
Share-based payment expense 1,057 311
Exceptional items (note 6) (8,999) -
================================================== ======== ========
Adjusted profit before tax 70,161 74,233
-------------------------------------------------- -------- --------
Reconciliation of adjusted operating profit to statutory 2020 2019
operating profit: GBP'000 GBP'000
--------------------------------------------------------- -------- --------
Adjusted operating profit 72,881 78,396
========================================================= ======== ========
Amortization of acquired intangibles (15,317) (15,414)
Acquisition costs (4,112) (791)
Share-based payment expense (1,057) (311)
Exceptional items (note 6) 7,806 -
========================================================= ======== ========
Statutory operating profit 60,201 61,880
--------------------------------------------------------- -------- --------
A further alternative profit measure that is used by the Group
is free cash flow which the Directors believe provides a more
meaningful measure of the Group's cash that is available for use
after the cost of servicing debt and tax. Free cash flow excludes
proceeds from warranty claim of GBP9.0 million (2019: GBPnil).
6. EXCEPTIONAL ITEMS
2020 2019
GBP'000 GBP'000
------------------------------------ -------- --------
Proceeds from warranty claim 9,017 -
Reorganization costs (1,211) -
==================================== ======== ========
Total exceptional items - operating 7,806 -
Net gain on debt modification 1,193 -
==================================== ======== ========
Total exceptional items - financing 1,193 -
==================================== ======== ========
Total exceptional items 8,999 -
------------------------------------ -------- --------
Reorganization costs of GBP1.2 million relate to the
restructuring of the sales team within the IP Services division and
redundancy programmes completed in both IP Services and Moravia
during the year.
On 22 September 2020, a settlement for a claim made by the Group
under warranty insurance taken out as part of the Moravia
acquisition in November 2017. An amount of GBP9.0 million was
agreed and received during the year. This has been treated as an
operating activity in the statement of cash flows.
The Directors are of the view that each of these items is
non-recurring and by their nature do not form part of the Group's
ongoing operating activities.
7. TAXATION
2020 2019
GBP'000 GBP'000
------------------------------------------------------ -------- --------
Taxation recognized in the statement of comprehensive
income is as follows:
Current tax expense
Tax on profit for the current year
- UK 3,490 6,228
- Overseas 9,673 8,815
Adjustments in respect of prior years 208 (824)
13,371 14,219
Deferred tax expense
Current year movement (1,254) (1,715)
Adjustments in respect of prior years 126 73
====================================================== ======== ========
Total tax expense for the year 12,243 12,577
------------------------------------------------------ -------- --------
The table below reconciles the UK statutory 2020 2019
tax charge to the Group's total tax charge GBP'000 GBP'000
----------------------------------------------------- --------- --------
Profit before taxation 58,674 57,717
Notional tax charge at UK corporation tax rate
of 19.0% (2019: 19.0%) 11,148 10,966
Effects of:
Items not deductible or not chargeable for tax
purposes (1,676) 448
Differences in overseas tax rates 2,449 1,914
Adjustments in respect of prior years 322 (751)
===================================================== ========= ========
Total tax expense for the year 12,243 12,577
----------------------------------------------------- --------- --------
There was no tax recognized in other comprehensive
income (2019: GBPNil).
Factors that may affect future tax charges
The standard rate of corporation tax in the UK changed from 20%
to 19% with effect from 1 April 2017 and will remain at this level
following the UK Government March 2020 budget.
The aggregate income and deferred tax arising in the reporting
period and not recognized in net profit or loss or other
comprehensive income but directly (debited) or credited to equity
was as follows:
2020 2019
Amounts recognized directly in equity GBP'000 GBP'000
-------------------------------------- -------- --------
Current tax:
Share options - 131
====================================== ======== ========
Deferred tax:
Share options (1,100) 145
Other temporary differences (10) 528
Acquired intangibles (1,274) 1,550
====================================== ======== ========
Total amount recognized in equity (2,384) 2,354
-------------------------------------- -------- --------
8. DIVIDS TO SHAREHOLDERS
2020 2019
pence per 2020 pence per 2019
share GBP'000 share GBP'000
------------------------------------ ------------- -------- ------------- --------
Final, paid 21 February 2020 (2019:
paid 22 February 2019) 7.00 19,247 6.00 16,413
Interim, paid 17 July 2020 (2019:
paid 19 July 2019) 1.75 4,816 1.75 4,787
==================================== ============= ======== ============= ========
8.75 24,063 7.75 21,200
------------------------------------ ------------- -------- ------------- --------
The Directors recommend a final dividend in respect of the
financial year ended 30 September 2020 of 7.25 pence per ordinary
share, to be paid on 19 February 2021 to shareholders who are on
the register at 22 January 2021. This dividend is not reflected in
these financial statements as it does not represent a liability at
30 September 2020. The final proposed dividend will reduce
shareholders' funds by an estimated GBP28.2 million.
9. EARNINGS PER ORDINARY SHARES
Basic earnings per share is calculated using the Group's profit
after tax and the weighted average number of ordinary shares in
issue during the year, as follows:
2020 2019
Number Number
---------------------------------------------- ----------- -----------
Weighted average number of ordinary shares
in issue for basic earnings 274,995,438 273,556,236
Dilutive impact of share options 119,359 1,250,343
============================================== =========== ===========
Weighted average number of ordinary share for
diluted earnings 275,114,797 274,806,579
---------------------------------------------- ----------- -----------
The reconciliation between the basic and adjusted earnings per
share is as follows:
2020 2019 2020 2019
Basic Basic Diluted Diluted
earnings earnings earnings earnings
2020 2019 per share per share per share per share
GBP'000 GBP'000 pence pence pence pence
------------------------------ -------- -------- --------- --------- --------- ---------
Profit for the year 46,431 45,140 16.9 16.5 16.9 16.4
============================== ======== ======== ========= ========= ========= =========
Adjustments:
Amortization of acquired
intangibles 15,317 15,414 5.6 5.6 5.6 5.6
Acquisition costs 4,112 791 1.5 0.3 1.5 0.3
Share based payments expense 1,057 311 0.4 0.1 0.4 0.1
Net gain of debt modification (1,193) - (0.4) - (0.4) -
Exceptional items (7,806) - (2.9) - (2.9) -
Tax effect of adjustments (3,375) (3,176) (1.2) (1.2) (1.2) (1.2)
============================== ======== ======== ========= ========= ========= =========
Adjusted earnings 54,543 58,480 19.9 21.3 19.9 21.2
------------------------------ -------- -------- --------- --------- --------- ---------
RWS uses adjusted earnings per share as a key performance
indicator, as the Directors believe that this provides a more
consistent measure of the Group's operating performance. Adjusted
earnings and adjusted earnings per share are therefore stated
before amortization of acquired intangibles, acquisition costs,
share based payment expenses and exceptional items, net of any
associated tax effects.
GOODWILL
2020 2019
GBP'000 GBP'000
------------------------ -------- --------
Cost and net book value
At 1 October 249,421 233,236
Additions 14,513 3,430
Exchange adjustments (10,026) 12,755
======================== ======== ========
At 30 September 253,908 249,421
------------------------ -------- --------
During the year, goodwill was tested for impairment. The
recoverable amount for each CGU has been determined from value in
use calculations. The key assumptions for the value in use
calculations are those regarding discount rates and revenue growth
rates. Also in the current year, the CGUs have been revised with
the inclusion of the Language Solutions business into the Moravia
CGU following an operational reorganisation. This has resulted in
an increase in the carrying value of the Moravia CGU of GBP10.7m.
All of these assumptions have been reviewed during the year.
Management estimates discount rates using pre-tax rates that
reflect current market assessments of the time value of money and
the risk specific to each CGU. This has resulted in a range of
discount rates being used within the value in use calculations.
The growth rates used in the calculations are based on a review
of both recently achieved growth rates and a prudent estimate of
expected future growth rates for each specific market sector.
Long-term Average
Key assumptions for the value in use calculations growth Discount revenue
are as follows: rate rate growth
-------------------------------------------------- --------- -------- --------
IP Services 2.0% 9.0% 2.8%
Life Sciences 2.0% 10.6% 5.2%
Moravia 2.0% 10.5% 5.0%
Iconic 3.0% 11.0% 32.1%
-------------------------------------------------- --------- -------- --------
The long-term growth rate is the rate applied to determine the
terminal value on year five cash flows. The discount rate is the
pre-tax discount rate. Revenue growth is the average annual
increase in revenue over the five-year projection period.
As part of the value in use calculation, management prepares
cash flow forecasts derived from the most recent financial budgets,
approved by the Board of Directors for the next 12 months, and
extrapolates the cash flows for a period of four years based on an
estimated growth rate which is either based on management's best
estimate or the expected growth rate of the market in which the CGU
operates.
The Group has conducted sensitivity analyses on the value in
use/recoverable amount of each of the CGUs. Based on the result of
the value in use calculations undertaken, the Directors conclude
that the recoverable amount of each CGU exceeds its carrying
value.
In performing its assessment of the carrying value of Goodwill,
the Directors believe there is only one cash- generating unit where
reasonably possible changes to the underlying assumptions exist
that would give rise to an impairment, being Moravia. As a result,
sensitivity analyses have been performed for this cash generating
unit. The recoverable amount exceeds the carrying value by GBP87.4
million. An increase in the pre-tax discount rate of 260 basis
point from 10.5% to 13.1% would lead to the recoverable amount of
Moravia equalling its carrying amount.
The Directors believe there are no other cash-generating units
where reasonably possible changes to the underlying assumptions
exist that would give rise to impairment.
The allocation of goodwill to 2020 2019
each CGU is as follows: GBP'000 GBP'000
------------------------------ -------- --------
IP Services 31,168 32,360
Life Sciences 66,573 69,511
Moravia 147,731 147,550
Iconic 8,436 -
============================== ======== ========
At 30 September 253,908 249,421
------------------------------ -------- --------
10. LOANS
2020 2019
GBP'000 GBP'000
--------------------------- ------------ --------------------------------- ---------------
Due in less than one year
Loan - 26,037
Issue costs - (356)
At 30 September 2020 - 25,681
Due in more than one year
Loan 69,153 58,787
Issue costs (2,638) (742)
At 30 September 2020 66,515 58,045
At 1 October Non-cash At 30 September
2019 Transferred Cash flows charges 2020
Analysis of net debt GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cash and cash equivalents 46,974 - 4,608 (202) 51,380
Issue costs 1,098 - 615 925 2,638
Loans due in less than
one year (26,037) (3,380) 29,417 - -
Loans due in more than
one year (58,787) 3,380 (15,711) 1,965 (69,153)
Net debt - Excluding lease
liabilities -
("Net debt") (36,752) - 18,929 2,688 (15,135)
Lease liabilities (24,962) - 2,183 1 (22,778)
Net debt - Including lease
liabilities (61,714) - 21,112 2,689 (37,913)
On 10 February 2020, the Group entered into an Amendment and
Restatement Agreement ("ARA") with its banking syndicate which
amended its existing US$160 million term loan maturing on 18
October 2022 into a US$120 million Revolving Credit Facility
("RCF") maturing on 10 February 2024, with an option to extend
maturity until 10 February 2025.
Under the terms of the ARA, the Group's interest margin over US
LIBOR, is determined by the Group's net leverage. At signing, the
Group's existing term loan debt was transferred across to the RCF.
Commitment fees are payable on all committed, undrawn funds at 35%
of the applicable interest margin. The ARA also contains a US$80
million uncommitted accordion facility.
This debt refinancing has been accounted for as a debt
modification without extinguishment under IFRS 9 Financial
Instruments as the terms of the debt remain substantially the same.
A debt modification gain has been recognized within Finance income
in the statement of comprehensive income.
11. ACQUISITIONS
Iconic Translation Machines Ltd
On 9 June 2020, the Group acquired the entire issued share
capital of Iconic Translation Machines Ltd (Iconic), for an initial
consideration of US$10.0 million, with additional contingent
consideration of up to US$10.0 million in RWS shares, subject to
future performance . Based in Dublin, Ireland, Iconic specializes
in developing best-in-class neural machine translation (NMT)
solutions adapted for specific industries and blue-chip clients.
The acquisition will provide RWS with the competitive advantage of
leveraging language technology to improve on an already
high-quality standards and service delivery, as well as strengthen
our capabilities in service-offerings in the NMT sector.
The provisional fair value of identifiable
assets and liabilities acquired, purchase Provisional Fair Values
consideration and goodwill were as follows: GBP'000
Net assets acquired:
Property, plant and equipment 39
Client relationships 668
Software 812
Deferred tax liability (185)
Trade and other receivables 358
Deferred tax asset 40
Cash and cash equivalents 328
Trade and other payables (1,182)
Total identifiable net assets 878
Goodwill 8,204
Total consideration 9,082
Satisfied by:
Cash 7,431
Contingent consideration 1,651
Cash flow:
Cash consideration 7,431
Cash included in undertaking acquired (328)
Net cash consideration in statement of cash
flows 7,103
During the measurement period of 12 months post acquisition, the
Group shall obtain all the information necessary to identify and
measure the identifiable intangible assets and retrospectively
adjust the provisional amounts recognized at the acquisition
date.
Iconic contributed GBP0.4 million revenue and GBP0.0 million to
the Group's profit after tax for the period between the date of
acquisition and the balance sheet date, excluding the impact of
amortization on acquired intangibles. If the acquisition had been
completed on the first day of the financial year, Iconic would have
contributed additional revenues of GBP0.9 million and profit after
tax for the year of GBP0.3 million to the Group.
Acquisition costs of GBP0.3 million have been charged through
the consolidated statement of comprehensive income. Trade and other
receivables acquired of GBP0.4 million included no gross
contractual amounts receivable. None of the goodwill recognized on
the acquisition of Iconic is expected to be deductible for tax
purposes.
Contingent consideration of up to US$10.0 million in RWS shares
is payable after 28 months, subject to the achievement of
pre-agreed revenue and EBITDA targets. All contingent consideration
relating to the former owners who are continuing as employees has
been recognized in the income statement.
Webdunia
On 9 June 2020, the Group acquired the localization and software
services business units of Webdunia.com (India) Private Limited
("Webdunia") as well as the technology solutions component of its
affiliated Company, Diaspark Inc. The total cash consideration was
US$21m. Webdunia is a leader in translation, localization and
technology services to technology and digital companies in the
Indian and North American markets. The acquisition will be highly
complementary to RWS's existing Moravia business, will strengthen
our Indian-based translation and localization market share, support
our customers' growth aspirations in India, as well as complement
our digital technology services.
The provisional fair value of identifiable
assets and liabilities acquired, purchase Provisional fair values
consideration and goodwill were as follows: GBP'000
Net assets acquired:
Customer relationships 7,859
Software 177
Property, plant and equipment 298
Right-of-use asset 1,887
Trade and other receivables 2,264
Cash and cash equivalents 965
Trade and other payables (767)
Lease liabilities (1,911)
Provisions (246)
Total identifiable net assets 10,526
Goodwill 6,309
Total consideration 16,835
Satisfied by:
Cash 16,835
Cash flow:
Total consideration 16,835
Cash included in undertaking acquired (965)
Net cash consideration in statement of cash
flows 15,870
During the measurement period of 12 months post acquisition, the
Group shall obtain all the information necessary to identify and
measure the identifiable intangible assets and retrospectively
adjust the provisional amounts recognized at the acquisition
date.
Webdunia contributed GBP2.8 million revenue and GBP0.8 million
to the Group's profit after tax for the period between the date of
acquisition and the balance sheet date, excluding the impact of
amortization on acquired intangibles. If the acquisition had been
completed on the first day of the financial year, Webdunia would
have contributed additional revenues of GBP5.2 million and profit
after tax for the year of GBP1.3 million to the Group.
Acquisition costs of GBP0.5 million have been charged through
the consolidated statement of comprehensive income. Trade and other
receivables acquired of GBP2.3 million included no gross
contractual amounts receivable. None of the goodwill recognized on
the acquisition of Webdunia is expected to be deductible for tax
purposes.
Acquisition of the prior year (20 January 2019) Alpha
Translations
On 17 January 2019, the Group acquired the entire issued share
capital of Alpha Translations Canada Inc. ("Alpha") a leader in
expert legal and financial translations, for a cash consideration
of US$6.0 million. Based in Alberta, Canada, Alpha provides rapid
delivery of high-quality legal and financial translations to
multinational law firms and corporations, with a client base
principally located in Germany. Clients include many of the world's
top 100 law firms and Fortune 500 companies. The acquisition is
highly complementary to RWS's existing Language Solutions business
and strengthens its specialist legal and financial translation
offering.
The fair value of identifiable assets and liabilities
acquired, Fair Values
purchase consideration and goodwill were as follows: GBP'000
Net assets acquired:
Property, plant and equipment 29
Client relationships 1,051
Supplier database 649
Deferred tax liability (450)
Trade and other receivables 346
Cash and cash equivalents 65
Trade and other payables (519)
Total identifiable net assets 1,171
Goodwill 3,430
Total consideration 4,601
Satisfied by:
Cash 4,601
Cash flow:
Total consideration 4,601
Cash included in undertaking acquired (65)
Net cash consideration in statement of cash flows 4,536
There were no changes to provisional fair values during the
measurement period.
12. POST BALANCE SHEET EVENTS
On 27 August 2020, the Parent Company announced it had reached
agreement with SDL plc ("SDL") for an all- share combination,
pursuant to which RWS would acquire the entire issued and to be
issued share capital of SDL by means of a court-sanctioned scheme
of arrangement.
Subsequent to 30 September 2020, following the shareholders of
both SDL and the Parent Company voting in favour of the proposed
all-share combination, a court-sanctioned scheme of arrangement was
effective on 4 November 2020. Accordingly, 113,338,511 new ordinary
shares were issued by the Parent Company as full consideration to
acquire 100% control of SDL.
Given the size, complexity and close proximity of this
transformative acquisition to the date of approval of the financial
statements it has not yet been possible to complete a purchase
price allocation to determine provisional fair values. Therefore no
fair values have been included in these financial statements and
nor has the amount of applicable goodwill been determined.
No other significant events have occurred between the balance
sheet date and the date of authorizing these financial
statements.
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END
FR EANANELEEFFA
(END) Dow Jones Newswires
December 10, 2020 02:00 ET (07:00 GMT)
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