TIDMRWS
RNS Number : 0207C
RWS Holdings PLC
08 June 2023
This announcement contains inside information for the purposes
of Article 7 of the Market Abuse Regulation (EU) No 596/2014 (as it
forms part of Retained EU Law as defined in the European Union
(Withdrawal) Act 2018).
For immediate release 8 June 2023
RWS Holdings plc
Half Year Report for the Six Months ended 31 March 2023
Continued strategic progress, guidance maintained
RWS Holdings plc ("RWS", "the Group", "the Company"), a unique
world-leading provider of technology-enabled language, content and
intellectual property services, today announces its half year
results for the six months ended 31 March 2023 ("the first half",
"H1 2023" or "HY23").
Financial overview
H1 2023 H1 2022 Change
restated(1)
Revenue GBP366.3m GBP357.3m +2.5%
Adjusted profit before
tax(2) GBP54.4m GBP60.7m -10%
Reported profit before
tax GBP28.7m GBP32.9m -13%
Adjusted basic earnings
per share(2) 10.6p 11.9p -11%
Basic earnings per share 5.4p 6.1p -11%
Interim dividend 2.40p 2.25p +7%
Cash conversion(2) 85% 104% -1900bps
H1 2023 FY 2022 Change
Net cash(3) GBP57.8m GBP71.9m -GBP14.1m
H1 2023 highlights
-- New business wins and strong retention across all divisions:
o In a wide variety of end markets, particularly in technology,
software and government/defence
o Reflecting the strength and variety of our product and service
portfolio
-- Having previously noted that we are seeing more competitive
procurement-driven tender processes, we completed a 3-year contract
renewal for one of our largest clients and, in the early months of
the second half, were encouraged by the positive outcomes of a
couple of other tender processes
-- Continued good progress on the plans and investments
announced in our medium-term strategy at our Capital Markets Day
("CMD") in March 2022:
o Further revenue development in two of our key growth areas -
eLearning and Linguistic Validation
o Successful launch of our AI Data Services proposition,
TrainAI, with important wins early in the second half giving a
strong expectation of further momentum
o Completion of our first transformation programme, on time and
on budget - the transition to a single Microsoft collaboration
platform
-- 2.5% year-on-year revenue growth:
o 6.8% decrease on an organic constant currency basis ("OCC")
reflected some short-term headwinds, as previously outlined:
-- Softer activity levels amongst certain clients in Language
Services, as they adapted to changing end markets
-- Weaker demand in Regulated Industries, which we believe is
primarily due to regulatory bottlenecks and the impact of new US
legislation in Life Sciences
-- Excellent increase in SaaS proportion of licence revenues in
Language & Content Technology ("L&CT") to 33% (HY22: 28%),
which moderated overall divisional revenue growth in the period,
but builds long-term value for FY24 and beyond
-- IP Services performed in line with our expectations, with the
introduction of the Unitary Patent ("UP") on 1 June expected to
trigger the release of a backlog of deferred patents to grant
o Strong repeat revenue rate of 98% (FY22: 99%) in our services
businesses with an NPS score of +42 (FY22: +41) demonstrating
continued high levels of service
-- Gross margins broadly maintained at 45.7% (HY22: 45.9%), reflecting:
o Some overall price recovery of rising costs, with success in
some parts of the Group balanced by the competitive dynamics in
other end markets where we have prioritised securing longer-term
revenue; and
o Efficiency benefits in Language eXperience Delivery ("LXD"),
our production platform, from increased volumes of client content
being translated via the LXD, as well as greater use of post-edited
machine translation than in HY22
o Partially offset by some unfavourable changes in language and
client mix
-- Adjusted profit before tax(2) at GBP54.4m down 10% on HY22,
reflecting reduced volumes, planned investments (in line with our
strategy), mitigated by the abovementioned actions and foreign
exchange gains
-- Adjusted profit before tax(2) margin of 14.9%, down from 17.0% in HY22
-- Continued strong cash generation, with cash conversion(2) of
85% resulting in net cash(3) of GBP57.8m at 31 March 2023 (HY22:
GBP38.2m) after paying a record final dividend for FY22 and the
planned investments
-- A proposed interim dividend of 2.40p, an increase of 7% (HY22: 2.25p)
-- In April the Group successfully managed the impact of a cyber
incident after unauthorized access was gained to a legacy
application. The UK's Information Commissioner closed its
investigation into the breach in early May with no further
action
Strategy and outlook
-- As previously advised, we anticipate a second-half weighting
to the Group's performance and the full year outlook is expected to
be in line with latest guidance and current market expectations
-- Full year guidance is supported by meaningful cost actions
which are expected to have a positive impact in FY23 of GBP10m
-- We are taking further cost actions which are expected to have
a positive impact in the region of GBP25m in FY24
-- We remain confident in the multiple long-term growth drivers
for our products and services and, as noted at the CMD last year,
we believe that the large investments and rapid developments in AI
and Large Language Models create clear growth opportunities for the
Group
-- RWS has longstanding AI capability and expertise in relation
to localisation, language and content technology and content
development, with a pioneering machine translation solution
(Language Weaver), a full data services proposition (TrainAI) and
deployment of AI-functionality in our Tridion and Trados products,
all of which make us a significant beneficiary of developments in
AI
-- With 60% of the words that we translate through the LXD being
supported by AI, we are already extensive users, benefiting from
the efficiency opportunities this technology brings in the medium
term
-- In parallel, we continue to ramp up our transformation
programmes, supporting medium-term margin development and creating
the scalable global platform that will underpin our organic and
inorganic growth efforts
Intention to launch a share repurchase
-- RWS also announces its intention to launch a share repurchase
programme of up to GBP50 million to be completed before the
Company's Annual General Meeting in February 2024. The Group
maintains a disciplined approach to investment, returns and capital
efficiency, and as such considers the launch of a repurchase
programme as prudent in light of the Group's cash generation and
strong balance sheet. Further details will be announced in due
course
-- The Group continues to see exciting opportunities to deploy
capital organically and via acquisitions. The Group has substantial
headroom under its existing facilities even after taking into
consideration the proposed repurchase, payment of dividends in line
with its dividend policy, and the capital to fund its organic
growth and acquisition strategy
Ian El-Mokadem, Chief Executive Officer of RWS, commented:
"The Group continues to make progress with its medium-term
growth strategy against a significantly more challenging economic
backdrop and a confluence of short-term headwinds. We have seen
softer activity levels and some slower decision-making amongst
certain clients in the first half, however we remain confident in
the structural drivers of demand for our products and services, and
the strength of the solutions that we provide. This is borne out by
the encouraging number of new business wins in the period across
all divisions, the very high levels of retention and satisfaction
across our existing client base and the positive outcomes from
several of the recent tender processes with some of our largest
clients.
"We expect an acceleration of organic growth in the second half,
driven by the expected phasing of the impact of the Unitary Patent,
the commencement of projects previously postponed by clients in the
first half and incremental revenues from our key growth initiatives
and product launches. Linguistic Validation and eLearning have
continued to build well and our data services proposition, TrainAI,
was well received when launched in February, with some encouraging
client wins in the early part of the second half.
"TrainAI is just one of RWS's AI-centred products and services
and we are already well-established as developers, providers and
users of AI technology. Large Language Models (LLMs) represent an
exciting development as far as content generation is concerned and
have a clear role to play in the localisation market in enhancing
existing products like Language Weaver and Trados. However, we do
not believe that LLMs are a replacement for dedicated localisation
products and services with enterprise-grade security, privacy and
domain expertise, which are developed and improved using
high-quality data. Clients are looking for us to help them access
the benefits and navigate the risks of generative AI technologies
and we will continue to develop leading AI-enabled products and
associated services for our end markets.
"Notwithstanding the uncertain macroeconomic environment, the
Group remains resilient and we are continuing to make the
investments in growth initiatives and transformation programmes
that will underpin revenue growth and margin development, alongside
the efficiency actions we are taking. We see clear opportunities
from the growth in AI and will continue to benefit from our diverse
and growing client base, wide range of technology-enabled service
offerings and global footprint.
"With our strong balance sheet and cash generation, we are
actively pursuing acquisitions that could accelerate delivery of
our medium-term plans. We are encouraged to see a much more
exciting pipeline in the last six months which provides us with
attractive opportunities to deploy our cash and we are at an
advanced stage with a number of bolt-on opportunities."
For further information, please contact:
RWS Holdings plc
Andrew Brode, Chairman
Ian El-Mokadem, Chief Executive Officer
Candida Davies, Chief Financial Officer 01753 480200
MHP (Financial PR Advisor) rws@mhpc.com
Katie Hunt / Simon Hockridge / Catherine Chapman 020 3128 8100
07884 494 112
Numis (Nomad & Joint Broker)
Stuart Skinner / Kevin Cruickshank / Will Baunton 020 7260 1000
Berenberg (Joint Broker)
Ben Wright / Toby Flaux / Alix Mecklenburg-Solodkoff 020 3207 7800
The person responsible for releasing this announcement is Jane
Hyde, General Counsel and Company Secretary.
About RWS:
RWS Holdings plc is a unique, world-leading provider of
technology-enabled language, content and intellectual property
services. Through content transformation and multilingual data
analysis, our combination of AI-enabled technology and human
expertise helps our clients to grow by ensuring they are understood
anywhere, in any language.
Our purpose is unlocking global understanding. By combining
cultural understanding, client understanding and technical
understanding, our services and technology assist our clients to
acquire and retain customers, deliver engaging user experiences,
maintain compliance and gain actionable insights into their data
and content.
Over the past 20 years we've been evolving our own AI solutions
as well as helping clients to explore, build and use multilingual
AI applications. With 40+ AI-related patents and more than 100
peer-reviewed papers, we have the experience and expertise to
support clients on their AI journey.
We work with over 80% of the world's top 100 brands, more than
three-quarters of Fortune's 20 'Most Admired Companies' and almost
all of the top pharmaceutical companies, investment banks, law
firms and patent filers. Our client base spans Europe, Asia Pacific
and North and South America. Our 65+ global locations across five
continents service clients in the automotive, chemical, financial,
legal, medical, pharmaceutical, technology and telecommunications
sectors.
Founded in 1958, RWS is headquartered in the UK and 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. These 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, RWS undertakes no obligation to update or review
these forward-looking statements. Nothing in this announcement
should be construed as a profit forecast. RWS and its Directors
accept no liability to third parties in respect of this document
save as would arise under English law.
1. Prior period balances restated to reflect finalisation of
Fonto purchase price allocation resulting in an increase of
amortisation of acquired intangible assets.
2. RWS uses adjusted results as key performance indicators as
the directors believe these provide a more consistent measure of
operating performance. The definitions for these key performance
indicators can be found in the Appendix.
3. Net cash comprises cash and cash equivalents less loans but
before deducting lease liabilities.
4. OCC excludes the impact of acquisitions and assumes constant currency.
5. The latest Group-compiled view of analysts' expectations for
FY 2023 gives a range of GBP741.6m-GBP751.2m for revenue, with a
consensus of GBP747.1m, and a range of GBP121.3m-GBP128.3m for
adjusted profit before tax, with a consensus of GBP126.6m, and a
range of 23.3p to 25.1p for adjusted EPS, with a consensus of
24.7p.
RWS Holdings plc
Results for the Six Months ended 31 March 2023
Chief Executive Officer's Review
The Group's performance in the first six months of the year
("the first half", "H1 2023" or "HY23") has demonstrated resilience
and the robustness of our strategy, our people and our business
model in the face of a confluence of short-term headwinds, many of
which we expect to improve as we move through the second half of
FY23 and into FY24. While we have delivered growth in reported
revenues, an encouraging number of new business wins across all
divisions and high levels of retention, we have seen softer
activity levels and delays to client decision-making due to a
combination of both client-specific and more general economic and
regulatory factors affecting the end markets that we serve. These
led to a decrease in revenue on an organic constant currency
("OCC") basis.(1)
Despite the challenging conditions, our financial strength has
enabled us to push ahead with our strategy. We have continued to
invest in our defined growth initiatives and the transformation
programmes which we believe will continue to support growth,
efficiency and margin development over time.
Business overview
RWS is a unique world-leading provider of technology-enabled
language, content and intellectual property services. Through
content transformation and multilingual data analysis, our
combination of technology and cultural expertise helps our clients
to grow by ensuring they are understood anywhere, in any
language.
The Group is a profitable, highly cash-generative business with
a strong track record of growth and value creation. We operate in
attractive markets with a combined global size estimated at more
than GBP47bn, where specialist knowledge, security, reputation and
scale are critical. We offer a wide range of products and services,
delivered with the right blend of technology and human expertise to
meet our clients' content needs. AI-based solutions and
functionality are increasingly central to our success, and we have
long-established AI capability across the content value chain, from
the sourcing and validation of training data to the provision of
neural machine translation across multiple use cases.
We have successfully diversified in recent years and now occupy
leading positions in many of our chosen markets, as well as owning
and developing a significant technology stack.
The Group is organised around four operating divisions:
-- Language Services focuses on localisation and related
solutions for a wide range of industry verticals, including
automotive, chemical, consumer, manufacturing, retail, technology,
travel and telecommunications. The range of services includes
localisation, AI-centred data services, eLearning, video
localisation and interpreting services. The division has three
client segments - global technology enterprises (served by the
Enterprise Internationalisation Group), Major Accounts and GoGlobal
(both served by the Strategic Solutions Group). RWS's technology
products are often provided in combination with its services and
the division supports clients at any stage of their globalisation
journey.
-- Regulated Industries provides a range of services for three
verticals - life sciences, financial services and the legal sector.
Service provision is centred around highly specialised technical
translations with a strong emphasis on quality and security. The
division's clients include 19 of the world's top 20 pharmaceutical
companies, 19 of the top 20 asset management companies and 18 of
the top 20 law firms. In the pharmaceutical and medical device
verticals, we work in both the clinical and regulatory phases of
therapy development and our services often make a critical
contribution to life safety.
-- Language & Content Technology ("L&CT") offers a range
of technology products which deliver translation and content
management solutions. A pioneer in machine translation ("MT"),
Language Weaver is a neural MT product, using linguistic AI. With
Trados, RWS offers a suite of translation productivity and
management solutions for enterprises, small and medium-sized
organisations and professionals. Tridion and Contenta are the
Group's content management products, the former focused on both
structured and web content solutions, and the latter specialising
in technical content solutions for the government and defence
sectors. These were supplemented by the acquisition of Fonto in
March 2022, a provider of structured content authoring solutions.
AI is an increasingly important component in our products, with
semantic AI embedded in Tridion to allow more intuitive experiences
to be delivered, tailored to each user's context. All these
products offer clients enterprise grade privacy, security and
quality.
-- IP Services is one of the world's leading providers of patent
translations, filing solutions and IP search, retrieval and
monitoring services. The division delivers highly specialised
technical translations to patent applicants and their
representatives and counts 18 of the world's top 20 patent filers
as its clients.
Language eXperience Delivery ("LXD"), RWS's unique production
platform, translates an increasing proportion of client content
from the Language Services and Regulated Industries divisions. In
the financial year ending 30 September 2024 ("FY24"), the LXD will
also start to process content from the IP Services division. The
LXD uses RWS's technology products to support operational
efficiency and excellence in the delivery of solutions to clients -
the Trados Enterprise product is deployed to aid translation
productivity and management and Language Weaver AI is routinely
used both to analyse client content to enable it to be better
assigned to linguists and to pre-translate content before it is
post-edited by linguists. More than 60% of the words that are
handled by the LXD are machine-translated first by Language Weaver,
making the LXD an extensive and experienced user of AI.
Our strategy
RWS is confident that its medium-term strategy will support the
next phase of the Group's development and will help build a
long-term sustainable business, delivering financial and social
value. Through our defined growth initiatives, we are accelerating
penetration into existing higher growth segments, leveraging our
capabilities into adjacent higher growth segments, and re-affirming
our technology product leadership. We are also expanding the range
of services that we offer to clients - in a climate where clients'
budgets are under pressure, the ability to offer more, across the
localisation and content creation value chain, gives us a range of
opportunities to cross-sell and up-sell to existing clients.
AI is at the heart of these developments and we are already
well-established as developers, providers and users of AI
technology, through products such as Language Weaver and AI data
services such as TrainAI. Large Language Models (LLMs) represent an
exciting development as far as content generation is concerned and
have a clear role to play in the localisation market in enhancing
existing products in our portfolio such as Language Weaver and
Trados. However, we do not believe that LLMs are a replacement for
dedicated localisation products and services with enterprise-grade
security, privacy and domain expertise, which are developed and
improved using high-quality data.
In parallel we are investing to create an efficient scalable
platform that can underpin both organic and inorganic growth. We
completed the first of five transformation programmes in January,
on time and on budget, (with the move to a single Microsoft
collaboration tool) and we continue to make progress with each of
the other four - HR, Finance, IP Services and the LXD. The LXD
transformation programme will deliver operational leverage as we
create the sector's most efficient production platform,
rationalising the way that we work with our freelance community,
streamlining systems and, as noted above, continuing to direct a
greater proportion of our localisation work through the LXD.
RWS's strong cash position means that the Group continues to
seek acquisitions which accelerate delivery of our medium-term
plans. Our disciplined M&A programme is focused on selectively
acquiring complementary businesses which enhance our organic growth
profile and fit with our strategic priorities to add:
-- localisation assets with attractive end market exposure;
-- new capabilities in AI technology and technology-enabled language services;
-- assets that broaden our natural language processing or content management capabilities; and
-- data annotation solutions.
Our strategy is underpinned by the RWS Growth Model, which
demonstrates our unique position and the basis on which we will
deliver our strategy.
The Growth Model's five components are:
-- Building long-term client relationships - we offer a
comprehensive range of services and products, with configurable
solutions to meet any mix of quality, value and speed requirements
from clients, who also benefit from dedicated sector account
management teams and specialist sector expertise in areas such as
life sciences, technology and intellectual property.
-- Deepening our cultural and technical expertise - we support
over 429 language pairs and have access to more than 30,000
freelance linguists alongside nearly 1,700 that we directly employ.
We have rich and varied data - translation memories, term bases and
accumulated knowledge about brands and their voices and different
cultures. We also invest in future linguistic and technical talent
via the RWS Campus programme.
-- Deploying our unique technology and AI - we are machine
translation pioneers via our AI-driven Language Weaver product, and
our neural MT research team is accredited with more than 40
patents. The Trados suite offers a range of market-leading
cloud-oriented translation management and productivity tools, and
we provide complementary content management technologies through
Tridion to allow brands to better reach their audiences. Contenta
offers specialised content management for the defence and aerospace
sectors. Our technology product suite is sold both separately and
alongside our service solutions, as well as supporting our internal
efficiency and effectiveness.
-- Developing our portfolio - RWS consistently delivers strong
cash generation. As a result, the Group has the ability to invest
in service and technical development to support our clients as they
innovate and grow. Our strong balance sheet also allows us to make
further value accretive acquisitions which will support our move
into higher growth segments.
-- Leveraging our global scale and reach - The LXD provides 24 x
7 coverage via a blend of human expertise and technology. The
platform delivers operational leverage, with potential for
sustained efficiency and margin improvement. We are also investing
to establish effective and lean shared services which will support
our four operating divisions and facilitate the integration of
acquisitions and continued margin development.
Half year results
The Group increased revenues to GBP366.3m compared with
GBP357.3m in the six months ended 31 March 2022 ("HY22"), a 2.5%
improvement. On an OCC basis and excluding acquisitions, revenues
fell by 6.8%. Gross margins were broadly maintained at 45.7% (HY22:
45.9%).
The Group achieved an Adjusted PBT(2) of GBP54.4m in the first
half-year, a decrease of 10% compared with GBP60.7m in HY22.
Adjusted profit before tax is stated before exceptional items,
share-based payment expenses and amortisation of acquired
intangibles. On the same basis, adjusted earnings per share
decreased by 11% to 10.6p (HY22: 11.9p).
Taxation
The adjusted effective tax rate(3) for the Group was 24.4%
(HY22: 23.7%). This increase reflects the impact of different tax
rates in the geographical locations where profits are made,
together with the impact of movements in provisions as part of our
regular reassessment of tax exposures across the Group.
Currency and FX
The Group remains exposed to movements in the US dollar exchange
rate reflecting the fact that the majority of revenues are
denominated in US dollars (approximately 52%). The Group continues
to hedge transactional risk while relying on constant currency
reporting to highlight underlying translation risk, which remains
unhedged. The Group uses forward exchange contracts to hedge risk
at both Group and divisional level.
Cash Flow
Net cash flow from operating activities was GBP60.2m (HY22:
GBP60.1m). During the first half, the major cash outlays were the
final dividend of GBP37.0m, the final purchase consideration for
the Iconic acquisition of GBP4.2m, intangible asset additions of
GBP20.5m and tax payments of GBP11.2m.
Balance sheet and liquidity
At 31 March 2023, shareholders' funds amounted to GBP1,062.7m
(HY22: GBP1,012.1m). At the same date, the Group had net cash of
GBP57.8m (FY22: GBP71.9m), comprising cash of GBP76.3m less
borrowings of GBP18.5m. RWS has a significantly cash generative
business model and the Board is confident that the Group's cash
generation and liquidity put it in a strong position to further
invest in organic growth as well as explore suitable acquisition
opportunities. In addition to its cash reserves, the Group had
drawn US$26m of its US$220m banking facility, leaving headroom of
US$194m at the period end and total liquidity of GBP233m.
Dividend
The Directors have approved an interim dividend of 2.40p per
share, reflecting a 7% increase over the 2.25p interim dividend in
FY22. This reflects the Group's strong financial position, its cash
generative business model and the Board's confidence in its future
prospects.
The dividend will be paid on 21 July 2023 to shareholders on the
register at 23 June 2023 and the ex-dividend date is 22 June 2023.
The Group remains committed to a progressive dividend policy, which
has been followed in every year since flotation in 2003.
Cost actions taken
The Group is taking meaningful cost actions, across all
divisions and functions, and encompassing headcount and
non-headcount spend, which are expected to have a positive impact
in FY23 of GBP10m against plan, and additionally in FY24 in the
region of GBP25m.
In the second half of FY23 we expect to incur approximately
GBP12m of exceptional costs associated with implementing these
actions.
Operating review
Language Services
The Language Services division, which represented 44% of Group
revenues (HY22: 44%) in the period, generated revenues of GBP160.9m
(HY22: GBP158.7m). This was equivalent to a decrease of 8% on an
OCC(1) basis.
In the first half we continued to see reduced activity from some
of our clients as they adapted their priorities to changes in their
end markets. Retention and satisfaction nevertheless remained high
and we therefore remain confident in the strength of these
longstanding relationships and our ability to service their very
diverse needs.
We continue to win new business across the division, including
Norse Atlantic Airways, for whom we have recently delivered
multilingual booking websites and online experiences across any
device or channel, using a combination of our language services
expertise and our Tridion solution. As previously noted, we are
seeing more competitive procurement-driven tender processes,
especially in the technology sector. Whilst these situations are
raising the potential for us to gain share and cross-sell new
services, there is also a risk of some revenue loss or margin
impact in some of our existing business. Encouragingly, we
completed a 3-year contract renewal for one of our largest clients
in the first half and, in the early months of the second half, have
been encouraged by the positive outcomes of a couple of other
tender processes.
In respect of the division's growth initiatives, eLearning
performed well during the period and we have seen some success in
selling the solution to clients in the Regulated Industries
division. In February we launched TrainAI, a refreshed proposition
focused on the range of data services that we have been providing
to several of our largest technology clients since 2016. This is
focused on helping organisations ensure that their own AI models
are trained with dependable and responsible data and encompasses
data collection, annotation and validation services. The service is
backed by a global community of more than 100,000 annotators and
linguists.
We have been encouraged by the market's reception and the sales
and marketing drive which is supporting the launch has already led
to some wins early in the second half. Our pipeline is rapidly
expanding in this area. Two of our major clients have approved us
to train data for the next stage of their AI programmes, giving a
strong expectation of further momentum. These large pilots will
provide us with strong references amongst the data services buyer
landscape and are expected to lead to growth in this developing
area.
The division's adjusted(2) operating profit was GBP13.0m (HY22:
GBP19.6m), driven by reduced activity and planned investments.
Regulated Industries
In Regulated Industries, reported revenues were GBP84.9m (HY22:
GBP85.6m), representing 23% of Group revenues (HY22: 24%). First
half revenues, which fell by 9% on an OCC(1) basis, were impacted
year-on-year by the loss of a major CRO client, as per previous
guidance. The division saw softer trading conditions with several
Life Sciences clients showing reduced levels of activity at the
regulatory stage of therapy development (towards which our
activities are skewed) compared with the same period last year and
the impact of new legislation in the USA, such as the Inflation
Reduction Act. We do not expect this to continue, as the
bottlenecks in the US and European regulatory approvals process
will be resolved and ongoing early-stage investment by
pharmaceutical companies feeds through into increased regulatory
activity in due course. Retention of the existing client base
remains very high.
By contrast, Linguistic Validation, one of our growth
initiatives, and a service focused on the clinical stage of drug
development, has once again performed well and we continue to
benefit from our strong position in this market. In the Financial
and Legal Services segment, we achieved healthy growth, in part due
to the requirement on clients to comply with the PRIIPS
regulations, as expected.
Adjusted(2) operating profit for Regulated Industries was
GBP11.7m (HY22: GBP16.8m), reflecting lower activity levels and the
impact of the loss of the major CRO client, partially mitigated by
early cost actions.
Language & Content Technology
Language & Content Technology ("L&CT") revenues were
GBP67.6m (proforma HY22: GBP63.2m), approximately 18% of Group
revenues (HY22: 17%). This represented a decline of 1% on an OCC(1)
basis.
We continue to see a shift in our licence models to SaaS, linked
to the increased R&D investments in our technology products. We
achieved an excellent 29% growth in SaaS revenues in the period
versus HY22, meaning total SaaS revenues now represent 33% of the
divisional licence revenues in the period (HY22: 28%). This shift
is slightly ahead of plan and has contributed to a c.4% headwind
versus the comparative. Whilst this moderated overall divisional
revenue growth in the period, we believe it builds long-term value
for FY24 and beyond, by supporting greater stability and
predictability of future revenue streams.
We are continuing to make good progress in the division overall.
At the end of the period, we delivered a significant up-sell of two
of our content technology products (Tridion and Fonto) to an
existing major client in Life Sciences and we continue to win new
logos across a range of end markets, including defence, government,
software and infrastructure. We saw a rise in new bookings for
Language Weaver in the last few weeks of the half, confirming its
clear advantage over other solutions in terms of security, quality
and precision. Language Weaver is now used by half of the world's
leading 20 law firms.
In the second half, new Tridion releases (both the Sites and the
Docs versions of the product) are expected to contribute to further
strong progress in the division. We are supporting clients to
migrate from legacy products to the ones that are the basis of our
forward technology strategy.
Adjusted(2) operating profit for the division was GBP15.5m
(proforma HY22: GBP18.2m), impacted by the intended transition from
one off licence purchases to a higher proportion of SaaS
revenues.
IP Services
In IP Services revenues were GBP52.9m (HY22: GBP53.2m),
representing 14% of Group revenues (HY22: 15%). The decline in
revenues on an OCC(1) basis (-6%) in the period was in line with
our expectations as clients opted to defer their patent
applications in order to benefit from protection under the Unitary
Patent ("UP").
As noted in April's trading statement, the UP was introduced on
1 June and, with patents granting from 7 June, we anticipate the
release of a backlog of client work which is expected to underpin
revenues in the second half. Any deferred patents are granting now
with all corresponding UP requests and national validation
activities needing to be completed by September 2023. As such, and
with the positive impact from a divisional sales improvement
initiative, trading remains on track for the year and we anticipate
that the total volume of patents granted by the European Patent
Office in calendar year 2023 will exceed the level in calendar year
2022. Nevertheless, we remain highly engaged with clients to
understand their evolving approach to the UP. Elsewhere in the
division we delivered solid growth in the Worldfile segment.
Continuing action has been taken during the first half to lower
our cost base in IP Services and we also implemented some changes
to the division's leadership team, with a particular focus on
strengthening sales capability and effectiveness. This has been
reflected in the encouraging number of new logos that we have won
in recent months across a range of end markets.
Strong cost control meant that the division delivered an
adjusted(2) operating profit of GBP13.1m (HY22: GBP13.4m).
Sustainability and ESG
Clients increasingly ask us, as their partners, to make
commitments to help them on their own sustainability journeys
and/or give detailed information about our progress and our
assurance ratings in tender processes. We remain committed to being
transparent with all our stakeholders in respect of the progress we
are making and have once again embarked on our annual engagement
programme on double materiality.
On environmental matters, we have continued to gather the
baseline data that will enable us to set science-based targets to
meet our declared carbon emission target - a reduction of 55% by
2030 - and we continue to drive a range of local actions across our
estate to lower energy usage and minimise waste.
After reconstituting The RWS Foundation in FY22, it was
relaunched in February this year. The RWS Foundation is a
charitable trust that aims to make a positive contribution to
unlocking global understanding. Beneficiaries of The RWS Foundation
will cover broadly three areas: Language and Content
Transformation; Diversity, Equity and Inclusion; and Quality
Education. Using RWS's global scale and reach, The RWS Foundation
also provides a way for donors and volunteers - whether RWS,
individuals or partners - to support charities and humanitarian
efforts.
On governance, we launched a refreshed health and safety policy
with associated mandatory training, completed by more than 86% of
colleagues. In the early months of the second half, we asked
colleagues to complete their refresher training on information
security and shared a revised policy on whistleblowing, alongside
an awareness campaign. In April we managed the impact of a cyber
incident successfully after unauthorized access was gained to a
legacy application in the Regulated Industries division. The UK's
Information Commissioner was informed and in early May confirmed it
had closed its investigation into the breach with no further
action.
We have recently also published our Global Reporting Initiative
framework report which received third-party assurance.
People and Board
Once again I would like to thank my talented and hard-working
colleagues for continuing to deliver for our clients and one
another through another uncertain period for the world. Whether it
is our linguists (both in-house and the freelance community who
work with us), our technology experts, our client service and sales
teams or the functions that support them, they each make a vital
contribution. With the final easing of travel restrictions, I have
been able to visit our teams in the Czech Republic, France, India,
Japan, Korea and the US in the last six months and see first-hand
some of the innovation they have been working on, as well as meet
with some of our clients.
We have continued to address the feedback from our 2022
colleague engagement survey, with action plans in place at Group
and local levels to drive improvements. We launched a recognition
programme during the period and received almost 500 colleague
nominations for the first half. We are confident that these
initiatives are contributing to strong levels of colleague
retention. Colleague attrition levels have fallen to 12.5% in the
12 months ended 31 March 2023, compared with 15.9% for the 12
months ended 30 September 2022.
At the start of the financial year, Candida Davies joined the
Board as CFO and had a full three-month handover with interim CFO
Rod Day before he left the Group on 31 December 2022. I would like
to thank Rod for the significant contribution he made during his
year with the Group, including initiating the finance
transformation programme, and his support to Candida during their
handover. Jane Hyde also joined the Group as General Counsel and
Company Secretary at the start of October. In November, Daniel
Bennett joined the Executive Team as President, IP Services.
We were shocked by the terrible earthquake in Turkey and Syria
in February and the impact it had on communities. Although we do
not have an office in Turkey, we do have a number of home-based
team members and we are providing ongoing support to them and their
immediate families. Colleague donations raised more than GBP7,500
to support humanitarian efforts and The RWS Foundation made a
GBP10,000 donation to the humanitarian appeal. We have continued to
support our Ukrainian colleagues affected by the ongoing
conflict.
At 31 March 2023 the number of full-time equivalent colleagues
in the Group was 7,944 (HY22: 7,920) .
Intention to launch a Share Repurchase
RWS also announces its intention to launch a share repurchase
programme of up to GBP50 million to be completed before the
Company's Annual General Meeting in February 2024. The Group
maintains a disciplined approach to investment, returns and capital
efficiency, and as such considers the launch of a repurchase
programme as prudent in light of the Group's cash generation and
strong balance sheet. Further details will be announced in due
course.
The Group continues to see exciting opportunities to deploy
capital organically and via acquisitions. The Group has substantial
headroom under its existing facilities even after taking into
consideration the proposed repurchase, payment of dividends in line
with its dividend policy, and the capital to fund its organic
growth and acquisition strategy.
Current trading and outlook
Against a significantly more challenging economic backdrop and a
confluence of short-term headwinds, the Group continues to make
progress in implementing its medium-term strategy, with encouraging
evidence that pivoting into higher growth segments through our
declared growth levers are supporting revenue improvement.
Retention and satisfaction levels amongst existing clients remain
strong.
We continue to invest in our technology products and are adding
AI-based functionality and features to the Trados and Tridion
solutions, alongside further development of Language Weaver.
Together with our AI data services proposition (TrainAI) and our
core localisation services propositions, we remain confident that
we have the right range of solutions to meet evolving client needs,
in particular to help them access the benefits and navigate the
risks of generative AI technologies.
After successfully completing our first transformation
programme, we are focused on ramping up the other four and remain
on track to start delivering the margin benefits that will result
from them in FY24. These transformations will support our growth
ambitions and deliver the lean shared services to allow us to scale
effectively. In parallel, we are taking meaningful cost actions
which will have a positive impact in the region of GBP25m in
FY24.
For the full year, with the benefit of new client wins, the
expected phasing of the impact of the Unitary Patent , the impact
of new product launches and further revenues from our growth
initiatives, we anticipate an acceleration of organic growth in the
second half, delivering a performance in line with current market
expectations. We are encouraged to see a much more exciting M&A
pipeline in the last six months which provides us with attractive
opportunities to deploy our cash and we are at an advanced stage
with a number of bolt-on opportunities.
Ian El-Mokadem
Chief Executive Officer
7 June 2023
1. OCC excludes the impact of acquisitions and assumes constant currency.
2. RWS uses adjusted results as key performance indicators as
the directors believe these provide a more consistent measure of
operating performance. The definitions for these key performance
indicators can be found in the Appendix.
3. The adjusted effective tax rate is the effective tax rate
before exceptional items, amortisation of acquired intangibles, tax
on exceptional items and prior year adjustments.
4. Net cash comprises cash and cash equivalents less loans but
before deducting lease liabilities.
5. Calculated as number of leavers during the financial year, on
a rolling last twelve months basis, divided by average headcount
over the same period, noting the constraints imposed by having
multiple HR systems.
6. FY22 Full Time Equivalent figure restated.
7. The latest Group-compiled view of analysts' expectations for
FY 2023 gives a range of GBP741.6m-GBP751.2m for revenue, with a
consensus of GBP747.1m, and a range of GBP121.3m-GBP128.3m for
adjusted profit before tax, with a consensus of GBP126.6m, and a
range of 23.3p to 25.1p for adjusted EPS, with a consensus of
24.7p.
RWS Holdings plc: Condensed Consolidated Statement of
Comprehensive Income
(Restated)
6 months 6 months
ended 31 ended 31
March 2023 March 2022
(Unaudited) (Unaudited)
GBPm GBPm
Note
===================================================== ====== =============== =============
Revenue 2 366.3 357.3
----------------------------------------------------- ------ --------------- -------------
Cost of sales (198.9) (193.3)
----------------------------------------------------- ------ --------------- -------------
Gross profit 167.4 164.0
----------------------------------------------------- ------ --------------- -------------
Administrative expenses (136.8) (129.8)
----------------------------------------------------- ------ --------------- -------------
Operating profit 30.6 34.2
===================================================== ====== =============== =============
Analysed as:
----------------------------------------------------- ------ =============== =============
Operating profit before charging: 56.3 62.0
----------------------------------------------------- ------ =============== =============
Exceptional items - other 4 (3.5) (8.8)
----------------------------------------------------- ------ =============== =============
Exceptional items - acquisition-related costs 4 (1.6) (0.4)
----------------------------------------------------- ------ --------------- -------------
Share-based payment expenses (1.3) (1.8)
----------------------------------------------------- ------ --------------- -------------
Amortisation of acquired intangibles (19.3) (16.8)
----------------------------------------------------- ------ --------------- -------------
Operating profit 30.6 34.2
===================================================== ====== =============== =============
Net finance costs 3 (1.9) (1.3)
----------------------------------------------------- ------ --------------- -------------
Profit before tax 28.7 32.9
----------------------------------------------------- ------ --------------- -------------
Taxation 5 (7.8) (9.3)
----------------------------------------------------- ------ --------------- -------------
Profit for the period attributable to the
equity holders of the parent company 2 20.9 23.6
----------------------------------------------------- ------ --------------- -------------
Other comprehensive (expense)/ income
----------------------------------------------------- ------ --------------- -------------
(Loss)/ gain on retranslation of foreign operations
(net of deferred tax) (67.7) 9.4
----------------------------------------------------- ------ --------------- -------------
Gain/ (loss) on cash flow hedges (net of deferred
tax) 5.9 (0.7)
----------------------------------------------------- ------ --------------- -------------
Total other comprehensive (expense)/ income (61.8) 8.7
----------------------------------------------------- ------ --------------- -------------
Total comprehensive (expense)/ income attributable
to owners of the Parent (40.9) 32.3
----------------------------------------------------- ------ --------------- -------------
Basic earnings per ordinary share (pence per
share) 7 5.4 6.1
----------------------------------------------------- ------ --------------- -------------
Diluted earnings per ordinary share (pence
per share) 7 5.4 6.0
----------------------------------------------------- ------ --------------- -------------
RWS Holdings plc: Condensed Consolidated Statement of Financial
Position
(Restated)
31 March 31 March 30 September
2023 2022 2022
(Unaudited) (Unaudited) (Audited)
Note GBPm GBPm GBPm
=================================== ====== =============== ============= ==============
Assets
----------------------------------- ------ --------------- ------------- --------------
Non-current assets
----------------------------------- ------ --------------- ------------- --------------
Goodwill 653.3 629.2 692.6
----------------------------------- ------ --------------- ------------- --------------
Intangible assets 359.7 366.2 385.4
----------------------------------- ------ --------------- ------------- --------------
Property, plant and equipment 29.7 31.1 31.3
----------------------------------- ------ --------------- ------------- --------------
Right-of-use assets 31.8 40.0 39.0
----------------------------------- ------ --------------- ------------- --------------
Non-current income tax receivable 1.0 - 1.0
----------------------------------- ------ --------------- ------------- --------------
Deferred tax assets 1.1 1.2 1.1
----------------------------------- ------ --------------- ------------- --------------
1,076.6 1,067.7 1,150.4
----------------------------------- ------ --------------- ------------- --------------
Current assets
----------------------------------- ------ --------------- ------------- --------------
Trade and other receivables 196.3 189.2 220.5
----------------------------------- ------ --------------- ------------- --------------
Foreign exchange derivatives 8.0 - -
----------------------------------- ------ --------------- ------------- --------------
Income tax receivable 3.0 6.7 4.2
----------------------------------- ------ --------------- ------------- --------------
Cash and cash equivalents 8 76.3 80.6 101.2
----------------------------------- ------ --------------- ------------- --------------
283.6 276.5 325.9
----------------------------------- ------ --------------- ------------- --------------
Total assets 1,360.2 1,344.2 1,476.3
----------------------------------- ------ --------------- ------------- --------------
Liabilities
----------------------------------- ------ --------------- ------------- --------------
Current liabilities
----------------------------------- ------ --------------- ------------- --------------
Trade and other payables 154.3 152.6 165.6
----------------------------------- ------ --------------- ------------- --------------
Lease liabilities 9.8 11.9 11.8
----------------------------------- ------ --------------- ------------- --------------
Foreign exchange derivatives - 1.6 0.6
----------------------------------- ------ --------------- ------------- --------------
Income tax payable 19.4 22.3 22.7
----------------------------------- ------ --------------- ------------- --------------
Provisions 2.5 3.3 2.9
----------------------------------- ------ --------------- ------------- --------------
186.0 191.7 203.6
----------------------------------- ------ --------------- ------------- --------------
Non-current liabilities
----------------------------------- ------ --------------- ------------- --------------
Loans 9 18.5 42.4 29.3
----------------------------------- ------ --------------- ------------- --------------
Lease liabilities 28.7 36.4 34.9
----------------------------------- ------ --------------- ------------- --------------
Trade and other payables 5.0 2.6 3.5
----------------------------------- ------ --------------- ------------- --------------
Provisions 4.3 5.3 4.9
----------------------------------- ------ --------------- ------------- --------------
Deferred tax liabilities 55.0 53.7 58.4
----------------------------------- ------ --------------- ------------- --------------
111.5 140.4 131.0
----------------------------------- ------ --------------- ------------- --------------
Total liabilities 297.5 332.1 334.6
----------------------------------- ------ --------------- ------------- --------------
Total net assets 1,062.7 1,012.1 1,141.7
----------------------------------- ------ --------------- ------------- --------------
Equity
----------------------------------- ------ --------------- ------------- --------------
Capital and reserves attributable to owners
of the parent
------------------------------------------------------------ ------------- --------------
Share capital 3.9 3.9 3.9
----------------------------------- ------ --------------- ------------- --------------
Share premium 54.5 54.3 54.4
----------------------------------- ------ --------------- ------------- --------------
Share-based payment reserve 4.8 4.6 6.0
----------------------------------- ------ --------------- ------------- --------------
Reverse acquisition reserve (8.5) (8.5) (8.5)
----------------------------------- ------ --------------- ------------- --------------
Merger reserve 624.4 624.4 624.4
----------------------------------- ------ --------------- ------------- --------------
Foreign currency reserve 28.2 (8.1) 95.9
----------------------------------- ------ --------------- ------------- --------------
Hedge reserve 0.4 0.5 (5.5)
----------------------------------- ------ --------------- ------------- --------------
Retained earnings 355.0 341.0 371.1
----------------------------------- ------ --------------- ------------- --------------
Total equity 1, 062.7 1, 012.1 1,141.7
----------------------------------- ------ --------------- ------------- --------------
RWS Holdings plc: Condensed Consolidated Statement of Changes in
Equity
Total
attributable
Share Share Other reserves Retained to owners
capital premium (see below) earnings of parent
GBPm GBPm GBPm GBPm GBPm
======================================= ========= ========= =============== ========== ==============
At 30 September 2021 3.9 54.2 602.4 350.4 1,010.9
--------------------------------------- --------- --------- --------------- ---------- --------------
Profit for the period - - - 23.6 23.6
--------------------------------------- --------- --------- --------------- ---------- --------------
Loss on cash flow hedges - - (0.7) - (0.7)
--------------------------------------- --------- --------- --------------- ---------- --------------
Gain on retranslation of foreign
operations - - 9.4 - 9.4
--------------------------------------- --------- --------- --------------- ---------- --------------
Total comprehensive income for the
period to 31 March 2022 - - 8.7 23.6 32.3
--------------------------------------- --------- --------- --------------- ---------- --------------
Issue of shares (net of issue costs) - 0.1 - - 0.1
--------------------------------------- --------- --------- --------------- ---------- --------------
Dividends - - - (33.1) (33.1)
--------------------------------------- --------- --------- --------------- ---------- --------------
Share-based payments expense - - 1.8 - 1.8
--------------------------------------- --------- --------- --------------- ---------- --------------
Deferred tax on share-based payments - - - 0.1 0.1
--------------------------------------- --------- --------- --------------- ---------- --------------
At 31 March 2022 (unaudited) 3.9 54.3 612.9 341.0 1,012.1
--------------------------------------- --------- --------- --------------- ---------- --------------
At 30 September 2022 3.9 54.4 712.3 371.1 1,141.7
--------------------------------------- --------- --------- --------------- ---------- --------------
Profit for the period - - - 20.9 20.9
--------------------------------------- --------- --------- --------------- ---------- --------------
Gain on cash flow hedges - - 5.9 - 5.9
--------------------------------------- --------- --------- --------------- ---------- --------------
Loss on retranslation of foreign
operations - - (67.7) - (67.7)
--------------------------------------- --------- --------- --------------- ---------- --------------
Total comprehensive (expense)/ income
for the period to 31 March 2023 - - (61.8) 20.9 (40.9)
--------------------------------------- --------- --------- --------------- ---------- --------------
Issue of shares (net of issue costs) - 0.1 - - 0.1
--------------------------------------- --------- --------- --------------- ---------- --------------
Dividends - - - (37.0) (37.0)
--------------------------------------- --------- --------- --------------- ---------- --------------
Cash-settled share-based payments - - (2.5) - (2.5)
--------------------------------------- --------- --------- --------------- ---------- --------------
Share-based payments expense - - 1.3 - 1.3
--------------------------------------- --------- --------- --------------- ---------- --------------
At 31 March 2023 (unaudited) 3.9 54.5 649.3 355.0 1,062.7
--------------------------------------- --------- --------- --------------- ---------- --------------
RWS Holdings plc: Condensed Consolidated Statement of Changes in
Equity
Share-based
payment Reverse Foreign Total
reserve acquisition Merger Hedge currency other
GBPm reserve reserve reserve reserve reserves
Other reserves GBPm GBPm GBPm GBPm GBPm
=================================== ============ ============== ========== ========== =========== ===========
At 30 September 2021 2.8 (8.5) 624.4 1.2 (17.5) 602.4
----------------------------------- ------------ -------------- ---------- ---------- ----------- -----------
Other comprehensive (expense)/
income for the period to 31
March 2022 - - - (0.7) 9.4 8.7
----------------------------------- ------------ -------------- ---------- ---------- ----------- -----------
Share-based payments expense 1.8 - - - - 1.8
----------------------------------- ------------ -------------- ---------- ---------- ----------- -----------
At 31 March 2022 (unaudited) 4.6 (8.5) 624.4 0.5 (8.1) 612.9
----------------------------------- ------------ -------------- ---------- ---------- ----------- -----------
At 30 September 2022 6.0 (8.5) 624.4 (5.5) 95.9 712.3
----------------------------------- ------------ -------------- ---------- ---------- ----------- -----------
Other comprehensive income/
(expense) for the period to
31 March 2023 - - - 5.9 (67.7) (61.8)
----------------------------------- ------------ -------------- ---------- ---------- ----------- -----------
Cash-settled share-based payments (2.5) - - - - (2.5)
----------------------------------- ------------ -------------- ---------- ---------- ----------- -----------
Share-based payments expense 1.3 - - - - 1.3
----------------------------------- ------------ -------------- ---------- ---------- ----------- -----------
At 31 March 2023 (unaudited) 4.8 (8.5) 624.4 0.4 28.2 649.3
----------------------------------- ------------ -------------- ---------- ---------- ----------- -----------
RWS Holdings plc: Condensed Consolidated Statement of Cash
Flows
(Restated)
6 months 6 months
ended 31 March ended 31
2023 March 2022
(Unaudited) (Unaudited)
GBPm GBPm
Note
Cash flows from operating activities
------------------------------------------------- ------ ----------------- -------------
Profit before tax 28.7 32.9
------------------------------------------------- ------ ----------------- -------------
Adjustments for:
------------------------------------------------- ------ ----------------- -------------
Depreciation of property, plant and equipment 4.6 3.2
------------------------------------------------- ------ ----------------- -------------
Amortisation of right-of-use asset 4.7 5.3
------------------------------------------------- ------ ----------------- -------------
Amortisation of intangible assets 27.7 24.4
------------------------------------------------- ------ ----------------- -------------
Share-based payment expense 1.3 1.8
------------------------------------------------- ------ ----------------- -------------
Finance income (0.4) -
------------------------------------------------- ------ ----------------- -------------
Finance expense 2.3 1.3
------------------------------------------------- ------ ----------------- -------------
Unrealised foreign exchange gain (0.1) (0.1)
------------------------------------------------- ------ ----------------- -------------
Fair value movement on derivatives (5.4) 0.8
------------------------------------------------- ------ ----------------- -------------
Operating cash flow before movements in working
capital 63.4 69.6
------------------------------------------------- ------ ----------------- -------------
Decrease in trade and other receivables 14.2 3.5
------------------------------------------------- ------ ----------------- -------------
(Decrease) in trade and other payables (6.2) (1.7)
------------------------------------------------- ------ ----------------- -------------
Cash generated from operating activities 71.4 71.4
------------------------------------------------- ------ ----------------- -------------
Income tax paid (11.2) (11.3)
------------------------------------------------- ------ ----------------- -------------
Net cash inflow from operating activities 60.2 60.1
------------------------------------------------- ------ ----------------- -------------
Cash flows from investing activities
------------------------------------------------- ------ ----------------- -------------
Acquisition of subsidiary, net of cash acquired (4.2) (13.9)
------------------------------------------------- ------ ----------------- -------------
Purchases of property, plant and equipment (2.1) (2.1)
------------------------------------------------- ------ ----------------- -------------
Purchases of intangible assets (20.5) (10.9)
------------------------------------------------- ------ ----------------- -------------
Net cash outflow from investing activities (26.8) (26.9)
------------------------------------------------- ------ ----------------- -------------
Cash flows from financing activities
------------------------------------------------- ------ ----------------- -------------
Repayment of borrowings (8.3) (5.9)
------------------------------------------------- ------ ----------------- -------------
Net interest paid (1.7) (0.6)
------------------------------------------------- ------ ----------------- -------------
Lease liability payments (6.0) (6.2)
------------------------------------------------- ------ ----------------- -------------
Proceeds from the issue of share capital,
net of share issue costs 0.1 0.1
------------------------------------------------- ------ ----------------- -------------
Dividends paid 6 (37.0) (33.1)
------------------------------------------------- ------ ----------------- -------------
Net cash outflow from financing activities (52.9) (45.7)
------------------------------------------------- ------ ----------------- -------------
Net decrease in cash and cash equivalents (19.5) (12.5)
------------------------------------------------- ------ ----------------- -------------
Cash and cash equivalents at beginning of
the period 101.2 92.5
------------------------------------------------- ------ ----------------- -------------
Exchange (losses)/ gains on cash and cash
equivalents (5.4) 0.6
------------------------------------------------- ------ ----------------- -------------
Cash and cash equivalents at end of the period 8 76.3 80.6
------------------------------------------------- ------ ----------------- -------------
Notes to the Condensed Consolidated Financial Statements
1 Basis of preparation
General information
RWS Holdings plc, together with its subsidiaries, provides
translations services worldwide.
RWS Holdings plc is a public limited company incorporated under
the Companies Act 2006 and domiciled in England and Wales and its
shares are quoted on the AIM Market.
This condensed consolidated interim financial report does not
constitute statutory accounts within the meaning of Section 434 of
the Companies Act 2006. The statutory accounts of RWS Holdings plc
in respect of the year ended 30 September 2022 have been delivered
to the Registrar of Companies, upon which the Company's auditors
have given a report which was unqualified and did not contain any
statement under Section 498 of the Companies Act 2006
The condensed consolidated interim financial report for the six
months ended 31 March 2023 were approved by the Directors on 7 June
2023.
Basis of preparation
The condensed consolidated interim financial report is for the
six months ended 31 March 2023. It is unaudited and prepared in
accordance with the AIM rules for Companies and with IAS 34,
'Interim Financial Reporting'. The condensed consolidated interim
financial report should be read in conjunction with the annual
financial statements for the year ended 30 September 2022. which
have been prepared in accordance with international accounting
standards and in conformity with the requirements of the Companies
Act 2006
HY22 balances have been restated following completion of the
Fonto purchase price allocation from the prior period. This has
resulted in a recharacterisation of GBP4m from purchase
consideration to contingent consideration in accordance with IFRS 3
and a corresponding reduction in goodwill. This amount is being
accrued to the profit and loss on a straight line basis in
accordance with IAS 19.
Accounting policies
The accounting policies adopted in the preparation of the
condensed consolidated interim financial statements are consistent
with those of the Group's annual financial statements for the year
ended 30 September 2022.
New accounting standards and interpretations
The following accounting standards updates were effective for
the first time during this accounting period:
Amendments to IAS 37 - 'Onerous Contracts - Cost of Fulfilling a
Contract';
Amendments to IAS 16 - 'Property, Plant and Equipment - Proceeds
before Intended Use'; and
Amendments to IFRS 3 - 'Reference to the Conceptual
Framework'.
These standards and amendments do not have a material impact on
the financial statements.
New standards and interpretations not yet adopted
At the date of the interim report, the following standards and
interpretations which have not been applied in this report were in
issue but not yet effective (and in some cases had not yet been
adopted by the UK):
IFRS 17 - Insurance Contracts
Amendment to IAS 8 - 'Definition of Accounting Estimates';
Amendments to IAS 1 and IFRS Practice Statement 2 - 'Disclosure
of Accounting Policies';
Amendments to IAS 12 - 'Deferred Tax related to Assets and
Liabilities arising from a Single Transaction';
Amendments to IFRS16 'Lease Liability in a Sale and
Leaseback';
Amendments to IAS 1 - 'Classification of Liabilities as Current
or Non-Current';
Amendments to IFRS 10 and IAS 28 - Sale or Contribution between
an Investor and its Associate or Joint Venture'
The directors anticipate that the adoption of these standards
and interpretations will have no material impact on the Group's
financial statements.
Going concern
At 31 March 2023, the Group's balance sheet reflects a net asset
position of GBP1,062.7m and the liquidity of the Group remains
strong with GBP76.3m of cash reserves. On 3 August 2022, the Group
entered into an Amendment and Restatement Agreement ("ARA") with
its banking syndicate which amended its existing US$120m RCF
maturing on 10 February 2024, to a US$220m RCF Facility maturing on
3 August 2026, with an option to extend maturity to 3 August 2027.
At the period end, US$194m of this RCF is undrawn.
At 31 March 2023, the Group is in a net cash position excluding
lease liabilities of GBP57.8m (see note 9), 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 both well within the covenant
limits permitted by the Group's RCF.
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 authorising these
interim financial statements. Therefore, the Group continues to
adopt the going concern basis for preparing its interim financial
statements.
Principal risks and uncertainties
The Board routinely monitors risks that could materially and
adversely affect the Group's ability to achieve strategic goals,
its financial condition and the results of its operations. The
Group's risk management framework is explained on page 44 of our FY
2022 Annual Report and Financial Statements which is available on
our website at www.rws.com . The Board assumes overall
accountability for the management of risk whilst the Audit
Committee continues to monitor and review the effectiveness of the
Group's risk management and internal control systems. The
identified principal risks are considered unchanged from those
outlined on pages 45 to 46 of our 2022 Annual Report and Financial
Statements. These are customer and economic trends, talent
retention and development, IT and information security,
sustainability and environment, business transformation, supply
chain and logistics, legal and regulatory compliance and financial
controls.
Judgements and estimates
The preparation of these condensed consolidated interim
financial statements requires management to exercise judgement in
applying the Group's accounting policies. It also requires the use
of estimates and assumptions that affect the reported amounts of
assets, liabilities, income and expenses. The actual future
outcomes may differ from these estimates and give rise to material
adjustments to the reported results and financial position of the
Group. Estimates and underlying assumptions are reviewed on an
ongoing basis, with revisions recognised in the year in which the
estimates are revised and in any future periods affected. The
Group's significant estimates and judgements are described in note
2 of the Group's 2022 Annual Report and Financial Statements and
summarised below:
Areas of estimation and uncertainty:
-- Value in use estimation for the Group's Cash Generating Units ("CGUs")
-- Interpretation of applicable tax legislation and the
recoverability of the Group's resulting deferred tax assets.
-- Estimates of cost to complete for the rendering of services
delivered on an 'over time' basis and by extension the associated
accrued income.
Significant areas of judgement:
-- The allocation of transaction price to the identified
performance obligations within the Group's contracts containing
multi-element arrangements (note 2).
-- The eligibility of the Group's Research & Development
expenditure for capitalisation under IAS38 - 'Intangible
Assets'.
2 Revenue from contracts with customers and segment information
The Group generates revenue from contracts with its customers
for the provision of translation and localisation, intellectual
property support solutions, life sciences language services and
language and content technology. Revenue from providing these
services during the year is recognised either at a point in time
and over time as shown in the table below.
Timing of revenue recognition for contracts with customers
6 months 6 months
ended ended
31 March 31 March
2023 (Unaudited) 2022 (Unaudited)
GBPm GBPm
----------------------------------- ------------------- -------------------
At a point in time 23.2 22.8
Over time 343.1 334.5
------------------------------------ ------------------- -------------------
Total revenue from contracts with
customers 366.3 357.3
------------------------------------ ------------------- -------------------
Segmental reporting
The chief operating decision maker for the Group is identified
as the Board of Directors collectively. The Board reviews the
Group's internal reporting in order to assess performance and
allocates resources. The Board divides the Group into four
reportable segments and assesses the performance of the segments
based on revenue and adjusted profit before tax. These are measured
on a basis consistent with the Condensed Consolidated Statement of
Comprehensive Income. The four reporting segments, which match the
operating segments, are explained in more detail below:
-- Language Services: provides localisation services including
data training, eLearning, video localisation and interpreting
services to a wide variety of industry verticals.
-- Regulated Industries: provides a full suite of language
services, including highly specialised technical translations and
linguistic validation, exclusively for the life sciences, legal and
financial services industries.
-- Language & Content Technology ("L&CT"): provides a
range of technology products which deliver translation and content
management solutions for enterprises, small and medium-sized
organisations and individuals.
-- IP Services: provides patent translations, patent filing and
a wide range of intellectual property ("IP") search, retrieval and
monitoring services, delivering highly specialised technical
translations to patent applicants and their representatives.
Segment results for
the 6 months ended 31 Language Regulated
March 2023 (Unaudited) Services Industries L&CT IP Services Unallocated Group
GBPm GBPm GBPm GBPm GBPm GBPm
========================== =========== ============= ======= ============== ============== ========
Revenue 160.9 84.9 67.6 52.9 - 366.3
Operating profit/ (loss)
before charging: 13.0 11.7 15.5 13.1 3.0 56.3
------------------------------ ----------- ------------ -------- -------------- -------------- --------
Amortisation of acquired
intangibles (7.3) (6.3) (5.7) - - (19.3)
Exceptional items -
acquisition-related
costs - - - - (1.6) (1.6)
Share-based payments
expenses - - - - (1.3) (1.3)
Exceptional items -
other - - - - (3.5) (3.5)
------------------------------ ----------- ------------ -------- -------------- -------------- --------
Operating profit/(loss) 5.7 5.4 9.8 13.1 (3.4) 30.6
Finance expense (1.9)
------------------------------ ----------- ------------ -------- -------------- -------------- --------
Profit before taxation 28.7
Taxation (7.8)
------------------------------ ----------- ------------ -------- -------------- -------------- --------
Profit for the period 20.9
------------------------------ ----------- ------------ -------- -------------- -------------- --------
Segment results for
the 6 months ended 31 Language Regulated
March 2022 (Unaudited) Services Industries L&CT IP Services Unallocated Group
GBPm GBPm GBPm GBPm GBPm GBPm
========================== =========== =============== ======= ============== ============== ========
Revenue 158.7 85.6 59.8 53.2 - 357.3
Operating profit/(loss)
before charging: 19.6 16.8 16.2 13.4 (4.0) 62.0
------------------------------ ----------- ---------- ------------ -------------- -------------- --------
Amortisation of acquired
intangibles (6.7) (6.2) (3.9) - - (16.8)
Exceptional items -
acquisition-related
costs - - - - (0.4) (0.4)
Share-based payments
expenses - - - - (1.8) (1.8)
Exceptional items -
other - - - - (8.8) (8.8)
------------------------------ ----------- ---------- ------------ -------------- -------------- --------
Operating profit/(loss) 12.9 10.6 12.3 13.4 (15.0) 34.2
Finance expense (1.3)
------------------------------ ----------- ---------- ------------ -------------- -------------- --------
Profit before taxation 32.9
Taxation (9.3)
------------------------------ ----------- ---------- ------------ -------------- -------------- --------
Profit for the period 23.6
------------------------------ ----------- ---------- ------------ -------------- -------------- --------
Capitalised contract costs, contract asset and contract
liabilities
The Group holds material asset balances in respect of contract
costs capitalised as they meet the criteria under IFRS 15 as
incremental costs to obtain a contract. These primarily relate to
the commissions paid on the acquisition of new contracts, the value
of these balances at the balance sheet date was GBP2.0m (HY22:
GBP2.3m).
Contract assets and liabilities are recognised at the point in
which the Group's right to consideration is unconditional. The
Group uses the term 'Trade Receivables' for these financial asset
balances. Contract assets are recognised where performance
obligations are satisfied over time until the point of final
invoicing when these are classified as 'Trade Receivables'. The
Group recognises revenue for partially satisfied performance
obligations as 'Accrued Income', below is a summary of contract
balances held by the Group:
31 March 31 March
2023 2022
(Unaudited) (Unaudited)
GBPm GBPm
------------------------------------------------ -------------- -------------
Trade receivables (included in trade and other
receivables) 126.4 124.9
Accrued income (included in trade and other
receivables) 46.4 40.7
------------------------------------------------ -------------- -------------
Total contract assets 172.8 165.6
------------------------------------------------ -------------- -------------
Deferred income (included in trade and other
payables) 51.6 53.1
------------------------------------------------ -------------- -------------
Total contract liabilities 51.6 53.1
------------------------------------------------ -------------- -------------
3 Net finance expense
6 months 6 months
ended 31
March 2022
ended 31 (Unaudited)
March 2023 GBPm
(Unaudited)
GBPm
----------------------------------------- -------------- -------------
Net finance expense
- Net bank interest payable 1.0 0.4
- Interest payable on lease obligations 0.7 0.7
- Amortised borrowing costs 0.2 0.2
Net finance expense 1.9 1.3
----------------------------------------- -------------- -------------
4 Exceptional items
Exceptional items are items of financial significance which the
Group believes should be separately identified on the face of the
income statement to assist in understanding the underlying
financial performance achieved by the Group.
6 months 6 months
ended 31 March ended 31
2023 March 2022
(Unaudited) (Unaudited)
GBPm GBPm
--------------------------- ----------------- -------------
Other exceptional items 3.5 8.8
Acquisition-related costs 1.6 0.4
Total exceptional items 5.1 9.2
--------------------------- ----------------- -------------
Other exceptional items
A description of the principal items included is provided
below:
Integration costs - GBP2.3m was incurred in respect of IT
integration projects to enhance service delivery capability and
reduce business complexity across the newly enlarged Group. A
further GBP0.4m was incurred related to delivering synergies from
business integration and ongoing simplification of the Group's
corporate structure.
Transformation costs - GBP0.2m was incurred during the period in
respect of transformation programmes for Finance and Human
Resources initiated as part of a strategic review of the business
to drive improved efficiencies in future periods. The Group expects
to incur and pay further material costs over the next 18 months
related to the transformation totalling GBP15m and the ongoing
benefits from the integration will be recognised in the operating
profit in the statement of comprehensive income.
Severance costs - GBP0.6m was incurred in respect of severance
and termination payments related to the businesses defined
integration plan for the OneRWS initiative.
Finance costs - GBP0.2m was incurred related to amortisation
expense associated with a gain on debt modification recognised in
previous accounting periods.
All the costs noted above were incurred and paid during the
period. In addition, the Group is taking action to reduce costs
which is expected to have a positive impact in FY23 of GBP10m and
in the region of GBP[25]m for FY24. The Group expects to incur
approximately GBP12m of exceptional cost during the second half of
FY23 to achieve these benefits.
In HY22, other exceptional costs included costs of GBP8.8m
related to restructuring and integration costs incurred following
the acquisition of SDL plc.
Acquisition-related costs
Acquisition-related costs of GBP1.6m (HY22: GBP0.4m) include
GBP1.1m of contingent consideration associated with the acquisition
of Fonto being recognised in accordance with IFRS 3, GBP0.2m
related to settlement of final obligations in respect of the Iconic
acquisition and GBP0.4m in respect of on-going strategic projects.
These have been accounted for as exceptional items in line with the
Group's accounting policy and treatment of similar costs during the
year ended 30 September 2022.
In the prior period, acquisition-related costs of GBP0.4m
related primarily to transaction fees associated with the
acquisition of Liones Holding BV ("Fonto").
5 Taxation
(Restated)
6 months 6 months
ended 31 ended 31
March 2023 March 2022
(Unaudited) (Unaudited)
GBPm GBPm
------------------------ -------------- -------------
Total current taxation 9.1 9.3
Deferred taxation (1.3) -
Tax expense 7.8 9.3
------------------------ -------------- -------------
Effective tax rate
The effective tax rate on reported profit before tax was 27.2%
(HY22: 28.3%). The Group's effective tax rate for the period is
higher than the UK's statutory tax rate mainly due to the impact of
overseas tax rates as well as non-tax deductibility of acquisition
related exceptional costs.
The adjusted tax charge was GBP13.3m (HY22: GBP14.4m) giving an
adjusted effective tax rate of 24.4% (HY22: 23.7%) on adjusted
profit before tax of GBP54.4m (HY22: GBP60.7m) Adjusted profit
before tax is an adjusted measure which, is reconciled as part of
the Alternative Performance Measures section at the end of this
report.
The adjusted tax charge is the total tax charge as disclosed in
the Condensed Consolidated Income Statement less the tax effects of
exceptional items and amortisation of acquired intangibles. The
effective income tax rate represents the best estimate of the
average annual effective income tax rate expected for the full
year, applied to the profit before income tax for the six months
ended 31 March 2023 adjusted for discrete items as required.
The Group's adjusted effective tax rate going forward is
expected to be in the region of 25%, similar to the effective UK
rate. There are some countries in which the tax rate is lower than
the UK, but the impact is largely offset by the tax rates in
countries that are higher than the UK.
Uncertain tax provisions
The Group holds uncertain tax provisions in relation to historic
transfer pricing arrangements between the UK, Ireland, the US as
well as other tax risks across the Group. These provisions total
GBP6.2m at 31 March 2023 (HY22: GBP6.4m).
6 Dividends
An interim dividend of 2.40p (HY22: 2.25p) per ordinary share
will be paid on 21 July 2023 to shareholders on the register at 23
June 2023. The ex-dividend date is 22 June 2023.
This dividend, declared by the Directors after the balance sheet
date, has not been recognised in these financial statements as a
liability at 31 March 2023. The interim dividend will reduce
shareholders' funds by an estimated GBP9.3m (HY22: GBP8.8m).
Dividends paid in the period were GBP37.0m (HY22: GBP33.1m).
7 Earnings per share
Basic earnings per share is calculated by dividing the profit
attributable to equity holders by the weighted average number of
ordinary shares in issue during the period.
Diluted earnings per share is calculated by adjusting the basic
earnings per share for the effects of share options and awards
granted to employees. These are included in the calculation when
their effects are dilutive.
Adjusted earnings per share is a trend measure, which presents
the long-term profitability of the Group excluding the impact of
specific transactions that management considers affects the Group's
short-term profitability. The Group presents this measure to assist
investors in their understanding of trends. Adjusted profit after
tax is the numerator used for this measure. The Group has
identified the following items to be excluded when arriving at
adjusted profit after tax: exceptional items, share-based payment
expenses and amortisation of acquired intangibles.
(Restated)
6 months 6 months
ended 31 ended 31
March 2023 March 2022
------------------------------------------------ ------------- -------------
Earnings per ordinary share - basic (p) 5.4 6.1
Earnings per ordinary share - diluted (p) 5.4 6.0
Adjusted earnings per ordinary share - basic
(p) 10.6 11.9
Adjusted earnings per ordinary share - diluted
(p) 10.6 11.9
------------------------------------------------ ------------- -------------
(Restated)
6 months 6 months
ended 31 ended 31
March 2023 March 2022
Earnings Earnings
GBPm GBPm
------------------------------------------------ ------------- ------------
Profit for the period 20.9 23.6
Adjustments:
Amortisation of acquired intangibles 19.3 16.8
Share-based payment expenses 1.3 1.8
Exceptional items 5.1 9.2
Tax effect of adjustments (5.6) (5.1)
Tax adjustment in respect of prior years 0.1 -
------------------------------------------------ ------------- ------------
Adjusted profit attributable to equity holders
of the parent 41.1 46.3
------------------------------------------------ ------------- ------------
6 months 6 months
ended 31 ended 31
March 2023 March 2022
------------------------------------------------ ------------ ------------
Weighted average number of ordinary shares in
issue for basic earnings 389,438,555 389,476,257
Dilutive impact of share options 30,688 1,006,302
------------------------------------------------ ------------ ------------
Weighted average number of ordinary shares for
diluted earnings 389,469,243 390,482,559
------------------------------------------------ ------------ ------------
8 Cash and cash equivalents
31 March 31 March 30 September
2022
2023 2022 (Audited)
(Unaudited) (Unaudited) GBPm
GBPm GBPm
--------------------------------------- --------------- -------------- --------------
Cash at bank and in hand 68.2 76.2 94.8
Short-term deposits 8.1 4.4 6.4
--------------------------------------- --------------- -------------- --------------
Cash and cash equivalents in the cash
flow statement 76.3 80.6 101.2
--------------------------------------- --------------- -------------- --------------
Short-term deposits include deposits with a maturity of three
months or less, or deposits that can be readily converted into
cash. The fair value of these assets supports their carrying
value.
9 Loans
1 October Effects Non-cash 31 March
2022 of cash movements 2023
flows
GBPm (Unaudited)
GBPm GBPm GBPm
---------------------------------------- ---------- --------- ----------- --------------
Cash & cash equivalents 101.2 (19.5) (5.4) 76.3
Issue costs 2.9 - (0.4) 2.5
Loans (current and non-current) (32.2) 8.3 2.9 (21.0)
---------------------------------------- ---------- --------- ----------- --------------
Net cash (excluding lease liabilities) 71.9 (11.2) (2.9) 57.8
Lease liabilities (46.7) 6.0 2.2 (38.5)
---------------------------------------- ---------- --------- ----------- --------------
Net cash (including lease liabilities) 25.2 (5.2) (0.7) 19.3
---------------------------------------- ---------- --------- ----------- --------------
At 31 March 2023, the Group is in a net cash position, excluding
lease liabilities, of GBP57.8m and the Group's two debt covenants
under its RCF being the net leverage ratio and interest coverage
ratio are both are well within the covenant limits permitted by the
Group's RCF.
10 Share-based compensation grants
On 24 January 2023, 2,476,243 Long Term Incentive Plan ('LTIP')
shares were awarded to certain key senior executives and employees
of the Group.
The LTIPs comprise conditional awards of shares, with
performance conditions measured in 2025 by reference to performance
in the period to 30 September 2025, based on earnings per share
('EPS') and total shareholder return ('TSR') targets.
On 16 January 2023, 287,292 share options were granted under the
Group's SAYE scheme, which in normal circumstances will not be
exercisable until the completion of a three-year savings period
ending on 1 April 2026 and will be exercisable for a period of six
months thereafter.
11 Related party transactions
During the first half, in the normal course of business, the
Group provided translation services worth GBP292k (HY22: GBP309k)
to subsidiaries of Learning Technologies Group plc (LTG), a company
in which Andrew Brode, the Group's Chairman, has a significant
interest. GBP164k (HY22: GBP82k) was due from LTG at the reporting
date.
12 Acquisitions
Liones Holding BV ("Fonto") (Prior Period Acquisition)
On 22 March 2022, the Group acquired the entire issued share
capital of Liones Holding BV ('Fonto') and its subsidiaries for an
initial consideration of Euro 17.7m (GBP14.7m) on a cash and debt
free basis, with additional contingent consideration of Euro 5m
payable in two equal installments on the first and second
anniversary of the transaction. Fonto is a structured content
management business which complements our Tridion proposition and
further builds our Content Technology portfolio.
The fair value of identifiable assets and
liabilities acquired, purchase consideration Fair values
and goodwill were as follows: GBPm
Net assets acquired:
Intangible assets 8.9
Property, plant and equipment 0.1
Right-of-use assets 0.2
Trade and other receivables 0.9
Cash and cash equivalents 0.6
Trade and other payables (1.1)
Corporation tax (0.3)
Deferred tax (2.2)
Lease liabilities (0.2)
------------------------------------------------ --------------
Total identifiable net assets 6.9
Goodwill 7.8
------------------------------------------------ --------------
Total consideration 14.7
------------------------------------------------ --------------
Satisfied by:
Cash 14.7
------------------------------------------------ --------------
The provisional fair values of assets and liabilities were
recognised effective 22 March 2022 with the purchase price
allocation work concluded in August 2022. This resulted in an
allocation of GBP6.4m to customer relationships, GBP2.1m to
technology assets and GBP0.4m to brands, with a corresponding
reduction in goodwill. Additional deferred tax liabilities of
GBP2.2m were recognised on the identified intangible assets. The
fair values of Trade and other receivables and other classes of
assets and their gross contractual amount are the same.
Fonto contributed GBP3.7m to Group Revenue and GBP1.9m to profit
after tax in HY23 (HY22 Revenue: GBPNil and Profit after tax:
GBPNil). In the year to 30 September 2022, Fonto contributed
GBP1.1m to Group revenue and GBP0.1m to profit after tax for the
period between date of acquisition and the balance sheet date. If
the acquisition had been completed on the first day of the
financial year, Fonto would have contributed additional revenues of
GBP3.4m and increased profit after tax by GBP1.1m during the year
to 30 September 2022.
The goodwill of GBP7.8m on acquisition comprises the value of
expected synergies to be realized across future periods. These
derive primarily from cross sales of RWS products integration of
services work with the RWS professional service teams and up-sell
of Tridion as a content management service. Integration of Fonto
into the RWS Group has continued successfully during HY23.
13 Financial risk management and financial instruments
The Group's operations expose it to a variety of financial risks
including foreign currency risk, credit risk, liquidity risk and
interest rate risk. The Group's treasury policy addresses issues of
liquidity, funding and investment as well as currency, credit,
liquidity and interest rate risks. The condensed consolidated
interim financial statements do not include all the financial risk
management information and disclosures required in the annual
financial statements. This information and related disclosures are
presented in the Group's annual financial statements at 30
September 2022. There have been no significant changes to risk
management policies or processes since the year end.
The Group holds a number of financial instruments that are held
at fair value within the condensed consolidated interim financial
statements. In deriving the fair value the derivative financial
instruments are classified as level 1, level 2, or level 3
dependent on the valuation method applied in determining their fair
value.
The different levels are defined as follows:
Level
-------------------------------------------------------------------------------
1 Quoted prices (unadjusted) in active markets for identical assets
or liabilities
2 Inputs other than quoted prices included within level 1 that are
observable for the asset or liability, either directly (prices) or
indirectly (derived from prices)
3 Inputs for the assets and liabilities that are not based on observable
market data (unobservable inputs)
-------------------------------------------------------------------------------
The financial instruments held at fair value by the Group relate
to foreign currency forward contracts used as derivatives for
hedging. For both the six months ended 31 March 2023 and 31 March
2022, the assets and liabilities arising from foreign currency
forward contracts have been classified as level 2. The fair value
of these instruments at each of the period ends was:
31 March 31 March 30 September
2022
2023 2022 (Audited)
(Unaudited) (Unaudited) GBPm
GBPm GBPm
---------------------------------------------- ---------------- -------------- --------------
Assets
Forward foreign currency exchange contracts 8.0 - -
---------------------------------------------- ---------------- -------------- --------------
Liabilities
Forward foreign currency exchange contracts - 1.6 0.6
---------------------------------------------- ---------------- -------------- --------------
There have been no transfers between level 1 and 2 in any period
and there are no level 3 items. The fair value of other financial
assets and liabilities, including trade and other receivables, cash
and cash equivalents, trade and other payables and borrowings
approximate to their carrying amount.
14 Post Balance Sheet events
There have not been any significant events that have occurred
between the balance sheet date and the date of authorising these
financial statements which require disclosure or adjustment within
these financial statements.
Appendix
Alternative performance measures
The Board uses a number of alternative performance measures,
which can be directly reconciled to GAAP measures. The Board
primarily uses these 'adjusted' measures as they exclude the impact
of non-recurring transactions which are not part of the normal
course of business. Adjusted measures therefore are calculated by
removing the impact of exceptional items, share-based payment
expenses and amortisation of acquired intangibles together, where
relevant, with their associated tax effects.
Adjusted measures used by the Board include:
-- Adjusted profit before tax : Profit before tax before
exceptional items, share-based payment expenses and amortisation of
acquired intangibles (reconciled on the face of the income
statement).
-- Adjusted profit after tax : profit after tax before
exceptional items, share-based payment expenses and amortisation of
acquired intangibles (reconciled in note 7 as the numerator for
adjusted EPS and adjusted diluted EPS).
-- Cash conversion: free cash flow before exceptional cashflows,
divided by adjusted net income.
-- Free cash flow, before exceptional cash flows : net cash
inflow from operating activities before exceptional cash flows,
less purchase of fixed assets, net interest paid and lease
liability payments (reconciled below).
-- Adjusted effective tax rate: effective tax rate before
exceptional items, amortisation of acquired intangibles, tax on
exceptional items and prior year adjustments (reconciled
below).
-- Adjusted earnings per share : earnings per share before
exceptional items net of tax, share-based payment expenses,
amortisation of acquired intangibles net of tax and exceptional tax
amounts (reconciled in note 7).
-- Constant currency: Prior period underlying measures,
including revenue are retranslated at the current period exchange
rates to neutralise the effect of currency fluctuations.
HY23 HY22
Adjusted profit before tax reconciliation GBPm GBPm
Statutory profit before tax 28.7 32.9
------ ------
Exceptional items - other 3.5 8.8
------ ------
Exceptional items - acquisition-related costs 1.6 0.4
------ ------
Share-based payments expense 1.3 1.8
------ ------
Amortisation of acquired intangibles 19.3 16.8
------ ------
Adjusted profit before tax 54.4 60.7
------ ------
HY23 HY22
Free Cash Flow reconciliation GBPm GBPm
Net cash inflow from operating activities 60.2 60.1
------- -------
Exceptional cash flows 4.9 7.8
------- -------
Purchases of property, plant and equipment and
intangible assets (22.6) (13.0)
------- -------
Net interest paid (1.7) (0.6)
------- -------
Lease liability payments (6.0) (6.2)
------- -------
Free cash flow 34.8 48.1
------- -------
HY23 HY22
Operating cash conversion reconciliation GBPm GBPm
Adjusted net income 41.1 46.3
------ ------
Free cash flow 34.8 48.1
------ ------
Operating cash conversion 85% 104%
------ ------
HY23 HY22
Adjusted effective tax rate GBPm GBPm
Tax charge 7.8 9.3
------ -------
Tax on amortisation of acquired intangibles 4.4 3.6
------ -------
Tax on exceptional items 1.2 1.5
------ -------
Prior Year Adjustments (0.1) -
------ -------
Adjusted tax charge 13.3 14.4
------ -------
Adjusted profit before tax 54.4 60.7
------ -------
Adjusted effective tax rate 24.4% 23.7 %
------ -------
KPIs
KPIs are those key performance indicators used by management and
the Board to monitor the success of the Group. These differ from
the Group's alternative performance measures as they are measures
that cannot necessarily be calculated from GAAP measures.
The KPIs, reviewed by the Board include revenue growth, gross
margin and free cash flow. Free cash flow is defined as cash
generated from operations after interest and tax costs, maintenance
capital expenditure and capitalised research and development costs.
Maintenance capital expenditure is the recurring level of capital
expenditure required for the business in its current form to
operate in medium term and excludes non-recurring investment in
capitalised system and infrastructure costs.
Net cash comprises cash and cash equivalents and external
borrowings. Net cash excludes lease liabilities but is reconciled
to a measure including lease liabilities in note 9.
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END
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