RWS Holdings plc

Good morning, ladies and gentlemen, and welcome to the annual results presentation of RWS, the results for 2022. Some of you have been attending these for quite some time. I've been doing it since November 03 when we floated, and you'll be pleased to hear that this is my swan song, and so I won't be needing to do it again. We've come a long way since the float in November 03. and there's a long way to go ahead. And I hope you will come away with the impression at the end of the presentation today that the route that we laid out or the plan that we laid out in March of this year at our capital markets day, that we are sticking to that plan and that the first few months of it at least have been delivered. So without any further ado, I'm going to introduce our speakers. So we have Ian El-Moghadam, as you know, our CEO, Rod Day, our interim CFO during this year, and our new CFO, Candy Davis. And I hand over to Ian to take you through the presentation.

Thank you, Andrew. Right. Well, good morning, everybody. Thanks for braving the cold weather for those of you who've come here. And I know we're competing with Harry and Meghan for the news today. So we'll see how we do at the end of the day. As Andrew's already said, we've got the sort of transition going on at this presentation. So Rod's going to do the presentation with me. He's been the CFO for most of this year. Candy's obviously now our official CFO. And we'll be taking questions together and doing the roadshow all together as well. And as Andrew said, I mean, sort of starting off, we'll do a little bit of a backward look, just a bit of an overview. We'll then, a few high-level comments from me on the headline results and where we are with the growth strategy. I'll then hand over to Rod to go through the numbers. And then I'll come back and we'll do a bit more of a deeper dive into our divisions, some of our growth initiatives and ESG before closing with the outlook and then going to questions. And look, I think Andrew alluded to the amazing story that we've had over the last 20-odd years, and it really is an incredible journey and a fitting swan song, I think, for Andrew, who's really been with us along that journey. And today, I think what we're demonstrating is a really robust set of results delivered against a pretty tricky macro context. And I hope by the end of the presentation, you'll also see that we are now demonstrating the early signs of success of the strategy that we launched back in March. And let's launch straight into that. I think it's always right to start a presentation on RWS by talking about our clients. This is one of the reasons I joined the company. It's one of the reasons many people choose to work at RWS. We work with an absolutely fantastic range of clients across a range of sectors on a global basis. They are long-term relationships, 13 years for our top 10, 15 years for our top 30, and And that is delivered because we offer very high levels of customer satisfaction. We get very close to the brands and the companies that we work with. Our people understand their objectives, their target audiences, and that is key to being successful in the industry that we're in. And of course, that diversification across sectors also is one of the reasons why the business is very robust and resilient. Now, if we turn immediately to the numbers, I think there are a very strong set of numbers, again, delivered against the backdrop of integrating SDL, a war in Europe, a worsening economic climate, and the arrival of the unitary patent that we heard about back in January that affects our IP services division. Revenues at £749.2 million. Gross margin up 160 basis points at 46.7%. Adjusted PBT up 17% at £135.7 million. Strong development of the margin reflecting some of those synergies, 18.1% adjusted PBT margin and adjusted EPS at 26.6%. In terms of some of the other metrics, our capex is in line with the guidance we gave. It will build as we go into 23 with our investment programme to peak at 7 and then come back down. Final dividend represents our commitment to an ongoing and progressive dividend policy, so a healthy increase of 12%. Strong cash conversion and rocky in line with the guidance that we've given previously. So a very solid set of results. And back in March, we launched our new growth model, the five things that we spend all of our time focusing on. And I'll talk a lot about this as we go through, but maybe some headlines to start off with. In terms of building long-term client relationships, we've been making the investments in sales and marketing and in delivery and in sales improvement initiatives that we talked about back in March. We've expanded our voice of the customer program. That's the program that gives us our NPS score, but also gives a lot of other insights from our clients in terms of how they see our services and how they'd like them to develop. And that is now across the group, and it's done in a very robust way. We've been investing in some of our growth initiatives, so we'll see some early progress from e-learning in our language services division and from linguistic validation in our regulated industries division, and I'll talk more about those shortly. We've been investing in our software products, and that, coupled with the restructuring we did post the SDL merger, has given us some really good growth and encouraging progress in growing our software businesses. And again, we'll dive more deeply into those later on. And in terms of ongoing development of the portfolio, FY23 will see us continuing with some of those additional growth initiatives, in particular building out our data services offering in language services. And I'm pleased to say that the small acquisition we made and we announced back in March, Fonto, which is in our content management area, has settled in well and is trading in line with expectations. And then last, but by no means least, our language experience delivery platform, that unique platform that combines our in-house translators, our large network of freelancers, and uses our own translation management and AI software, is underpinning the margin improvements that you'll see today. And we'll also give you a little bit more colour on where we are with our key transformation programmes as we go through. We're also trying to give you a little bit more of an insight into some of the data that we use as a management team in assessing where we are with some of those initiatives. And some of this is data that you've had before, and we've just presented it hopefully in an easier fashion, but there are some new KPIs on here as well. So you can see organic growth. You can see our net promoter score. You can see now our repeat revenue rate, which is basically the revenue we're seeing from clients that we had from the year before. So you see a very, very high rate. I've worked in a lot of business services businesses. This is as good as I've seen anywhere. You can also now see incremental revenue from defined growth initiatives. So in this case, that's the incremental revenue we've delivered compared to FY21, in this case for linguistic validation and e-learning, which are the two growth initiatives that got started soonest outside of our technology area. In terms of technology, you can see our SAS license growth. The percentage of SAS revenues is a percentage of our language and content tech division. So again, ahead of where we hoped it would be. And as you all know, the SAS is growing a bit faster than we thought, which does bring down the reported revenue growth. But it's actually a really positive thing because it's long term repeat revenue if it's SAS. And our development spend is trending towards the position we guided it would do now at about 12 percent. We think it'll stick in that 12, 13 percent range now. We'll talk more about M&A. We've got a deep dive on SDL coming up. And then you can see some of our efficiency metrics there, gross margin, the percentage of gross margin that is going into overheads. and also we've added some key ESG metrics here as well. So our attrition rate, which I'm pleased to say has come down quite a bit, a very strong colleague engagement score from our recent survey that we completed back in September. We're tracking diversity within our senior leadership team, so steady year on year, but I would point you to the very significant progress we've made with our executive team, where we've gone from 11%, 33% in my direct reports in the last year. And our board will actually be at 50% male, female when Rod leaves the board in January. So we're currently at about 44%. So I think that's really strong. And I think on the board, we will, by the end of next year, have a female chair, a female senior independent director, and a female CFO. So I think that's a real commitment to getting the right balance. And we are a very diverse business more broadly, but we did have work to do to make sure that our senior leadership team reflected the diversity elsewhere. So I'm glad to say we're making good progress with that, as we are with our sustainability ratings, which I'll talk more about later on. And with that, I will hand over to Rod, who will take you through the numbers.

Thanks. Yeah, good point about me contributing to ESG finally. I'm moving on. Yes, so I'll take you through some of the more detailed financials. I think sort of big picture, obviously, we're pleased with the year as a whole. I'm going to start with the P&L and I'll just work my way down it. So from the top, revenue is up 8% year on year. That does include an extra month of SDL in 2022. So if we strip that out, we're at 3%. During the year, there was also, particularly in the second half of the year, there was a weakening of the pound against the dollar, and that gave us a currency gain. So if we strip that out, our organic constant currency revenue actually declined 1% in the year. If I look at that by division, what we see is, and we'll dig into this in a bit more detail, we had some accelerated growth in language and content technology, pretty robust performance in language services, But then to offset, we had the anticipated decline in IP services and we did have a reduction in regulated industries. Looking now at gross margin, I think it's a particularly good performance. We're up 160 basis points year on year. There's a number of factors behind that. You know, we put more volume through our LXD. That improves the efficiency of our operation. We've had this mixed shift towards technology, which is higher margin. So that's another contributor. And actually, within regulated industries, that margin's also improved. We exited a number of very low margin or even loss-making clients earlier in the year, and that's actually helped to sort of drive up that margin. On admin expenses, as Ian said, actually one of the metrics we look at is the flow through of admin expenses to bottom line. So what's admin expenses as a percent of gross profit? That efficiency has improved in the year. So we're pleased to see that. So the net is, if we look at adjusted PBT, we're at 135.7 million, slightly above our own expectations actually. 18.1% of revenue and 17% growth year on year. Now, in getting to adjusted PBT, there was a number of adjusting items. So you have exceptional costs of £12.5 million, and that's predominantly related to the integration of RWS with SDL and the costs associated with that. Amortisation of intangibles associated with acquisitions, £34.4 million. Again, predominantly related to SDL and the Moravia deal. And then share-based payments, £3.2 million. So reported tax expense for the year is £20.5 million. So our effective tax rate is 24.6%, slightly lower than last year. If you want to look at adjusted effective tax rates, I mean, we're sort of adjusting for exceptionals and what have you at 23.7%. That's kind of consistent with our guidance and expectations. So you sort of flow that through then to adjusted EPS at 26.6 pence a share, up 12% year on year. And that increase is, again, in line with the proposed dividend increase for the full year. So just looking at revenue in a bit more detail, this sort of bridges where we were from 21 through to the end of 22. So I say the first item that was called out earlier is this impact of the extra month of SDL. So that's the 31.6 million pounds. Then if we look by division, on a constant currency basis, you can see language services growth was 1%. So we had our strategic solutions division within that. That's a pretty robust performance, and that offset a modest decline in enterprise internationalization. Regulated industries, that showed a decrease of 2%. So although we had continued great performance actually within linguistic validation, that was offset by this decline in revenue from a large CRO that we've referenced before. And also, as I was saying, these exiting of low-margin clients earlier in the year. Technology grew by 5%. Very pleased with that, actually. And that's despite the fact that SaaS performance accelerated again. So it now accounts for 29% of revenue in 22, up from 24% in the prior year. In the short term, the accelerated growth of SaaS actually suppresses revenue growth. But obviously, we like SaaS because it's more recurring in nature. It's more sticky, et cetera. There's more opportunity in future upsells. Keep moving along. IP services, that's down 10% in constant currency terms. That's consistent with our guidance and expectations. As we previously noted, the impending introduction of the unitary pattern in the European Union, that's impacted our revenue this year. Some filings have been deferred as the companies can wait and consider how to take advantage of this new regulation when it comes into being in the first half of next year. Acquisition, that's Fonto. That's a small acquisition we made earlier this year. And then the final point just to make on this is the impact of currency that, again, I referenced earlier. Obviously, everything's relative to the pound. The particular issue here has been the weakening of the pound against the dollar in the second half of the year, which is sort of actually starting to come back the other way. Now, that actually was a material contributor to revenue of £27 million. So we'll dig into some of the underlying activities within these divisions in Ian's next section. Just looking at cash, so again, another good year of cash and cash conversion. So the conversion figure that we show here is 110%, and that's based on the calculation of underlying cash flow from operating activities divided by adjusting operated profit, and that's the calculation we've used for a number of years. I know there's lots of other ways of doing this, and One of those we actually showed in our capital markets day, which was free cash flow before exceptionals divided by adjusted net income. That gives a cash conversion of 83.3%, and that's in line with what we said at the time of being between 80 and 85%. So just to give you a couple of perspectives on that, but certainly pleased with cash. In terms of the outflows, as you'd expect, dividends, tax, CapEx, the acquisition of Fonto. But the net is, in terms of net cash after loans, we're at 71.9 million at the end of the year. And that's an increase of 26.6 million over the 12 months. And probably just the last point on cash is we refinanced the RCF during the second half of the year. So we've extended the value from $120 million to $220 million. out to 2026. It's on very similar terms to what we had before, so we were pleased with that, and obviously that sets us up for potential M&A as that occurs. The drawdown on the RCF at the year end was only 36 million of that 220 million, so there's plenty of headroom there. Looking at the balance sheet briefly, so net assets increased by £131 million during the year. Just to call out a couple of points, goodwill increased by £77 million. That's partly the acquisition of Fonto, but there is a particular FX issue in terms of point in time. So we're obviously valuing the balance sheet on the 30th of September when the pound was particularly weak against the So actually you get an FX gain, if you like, which is very material in goodwill. Similar story, actually, in intangible assets. So although we had the typical amortization there, again, we had an FX gain that more than offset that. And then net working capital. That increased by $15 million. Now, that's partly because we had higher revenue. But again, there's this FX impact as of the 30th of September. If you look at our underlying DSO, for example, at that point in time, it's actually very similar year on year, if anything, slightly down. But it's just trying to explain why that's gone up. So Ian just did reference earlier some of the big projects that we're engaged with. And we've talked about these large infrastructure projects before because they do have an impact on our capex, particularly we are at We're at 4% in 2022, as we expected. We've guided to 7% next year, and then it sort of ramps back down to 4%. Some of the big items behind that, just to give a bit more visibility, One from the top is Project Highlander, which is putting us on one unified Microsoft tenant, which will happen in the first half of 2023. We are looking to move our disparate HR and finance systems onto one platform, Dynamics 365. That will be much more coherent, much more efficient, much more scalable. way of working, I can tell you from personal experience on that. And that will be complete during 2024. From an operating point of view, IP services, we're doing the whole rebamping and modernising of the workflow that allows to be much more efficient, a lot more agile. That'll be again complete in 2024. And then the last one we just call out here is the LXD, the language experience delivery platform. There's a lot of work going on there to sort of further improve the competitive efficiency of that. And the major benefits we'll see from that are in 2025. Just to wrap up. So here's just a very simple financial model that we use in terms of the way we manage cash and recycle and grow cash. And we obviously have our business as usual spend to keep the business on a solid footing and drive growth. sustained organic growth. Then we look to accelerate that growth and some of the growth initiatives that Ian has referenced earlier and we'll talk about later in the presentations is that investment. We continue our progressive dividend policy. We're doing that again this year. We look to acquire for growth. So we're going to get accretive value through M&A. And we use that as a sort of virtuous circle for managing the business. So that's it for me. I'm back to Ian.