RWS pleased with first half despite IP services weakness

Language, technology and intellectual property service provider RWS reported a “robust” first half in an update on Tuesday, with adjusted profit before tax expected to be at least £60m.

The AIM-traded firm said that would be slightly above plan, and compared well with the £50.5m it recorded a year prior.

It said the improvement reflected the full-year effect of synergies following the acquisition of SDL in November 2020, as well as margin benefits from increasing volumes through Language Experience Delivery (LXD), its group-wide production platform.

RWS said it expected the group's profit performance would be in line with expectations for the full year.

Revenues in the first half were £357.3m, compared with £326.4m in the prior year period, reflecting a full six month contribution from the acquisition of SDL and some modest currency headwinds.

Underlying organic constant currency growth across the group was 1%, with growth in regulated industries, language services, and language and content technology more than offsetting weakness in intellectual property services.

The firm said the regulated industries division continued to perform well, with particularly strong growth in its linguistic validation segment.

In language services, it reported underlying organic constant currency growth, with “encouraging performance” in the strategic solutions segment.

Within the language and content technology division, the company saw “solid growth” in the first half despite a faster-than-expected change in mix towards software-as-a-service revenues.

As it previously announced, the intellectual property services division was seeing some weakness in demand resulting from the impending introduction of the unitary patent, and recorded a decline in revenue on an organic constant currency basis of 8%.

That was broadly in line with its most recent guidance, and compared with overall growth of 3% across the other three divisions on the same basis.

Cash generation remained strong, RWS said, and the group had net cash of £38m on 31 March, after the recent £33m payment of its final dividend for 2021 and the €17.5m initial cash consideration for the acquisition of Liones Holding, trading as Fonto, in March.

While the average exchange rate for dollars to sterling in the first half was broadly unchanged compared with the prior period, there was a strengthening of sterling against the euro, which gave rise to a modest foreign exchange headwind in the first half.

“As outlined at our recent capital markets day, we are focused on the actions and investments which support our medium-term strategy and five year accelerated growth plan,” said chief executive officer Ian El-Mokadem.

“We are excited about the benefits from the SDL acquisition and the progress we are making through our LXD platform, which harnesses our scale and presents a strong operational leverage opportunity.

“There are clear advantages from owning a unique suite of technology and AI products alongside the wide range of language service solutions that the Group offers to its diverse, global client base.”

El-Mokadem said the company was investing in those products as part of its strategy, confident that technology was “at the heart” of further deepening its long-term client relationships and delivering accelerated organic growth.

“With the benefit of our strong balance sheet, we continue to explore selective acquisitions to complement our organic growth initiatives.

“As part of our commitment to developing our portfolio, we welcomed the Fonto team into the Group in March and have started the process of integrating the business.

“We remain confident that we are on track to deliver further progress and good margin improvement in the 2022 financial year.”

RWS said it would announce its interim results for the six months ended 31 March on 9 June.

At 1056 BST, shares in RWS Holdings were down 1.74% at 417.8p.