Half Year Trading Statement
RWS Holdings plc , a unique world-leading provider of technology-enabled language, content and intellectual property services, today provides an update on trading for the six months ended 31 March 2023 ("the first half"), ahead of the announcement of its interim results on 8 June 2023.
RWS has delivered solid revenue growth of 2.5% in challenging market conditions, with revenue of £366.3m compared with £357.3m in the first half of the prior year. This reflects an organic constant currency ("OCC") sales contraction of 6.8%, offset by favourable currency movements. During the period, we continued to win new business in all divisions, and retention and client satisfaction levels remain high, albeit we saw softer activity levels and slower decision making amongst certain clients.
Adjusted profit before tax is expected to be approximately £54m in the first half, compared with £60.7m in the first half of the prior year, reflecting the planned investments in our organic growth initiatives and transformation programmes, and including the benefits from our foreign currency hedging programme.
As noted in our AGM statement and recognising ongoing macro-economic uncertainty, we still expect an acceleration of organic growth in the second half due to continued progress with certain growth initiatives, the expected phasing of the impact of the Unitary Patent in IP Services, planned product launches and the commencement of a number of projects postponed by clients in H1.
Adjusted PBT for the full year is now expected to be at the lower end of the range of market expectations1, reflecting the current reduced levels of activity, offset by cost actions we are taking and the ongoing efficiencies being delivered through our Language eXperience Delivery ("LXD") platform.
Cash generation remains strong and the Group had net cash2 of £57.5m on 31 March 2023, after the recent £37m payment of the Group's final dividend for FY22 and the anticipated higher level of investment in transformation.
In IP Services, trading remains on track for the year, with a positive impact from our sales improvement initiative. The advent of the Unitary Patent, which we expect to be launched on 1 June, is anticipated to result in the release of a backlog of IP work supporting a stronger second half in line with our expectations.
In Regulated Industries, first half revenues have been impacted year-on-year by the loss of services revenue with a major CRO client, as guided previously. We have also seen generally weaker trading conditions with a number of Life Sciences clients showing reduced levels of activity at the regulatory stage compared with the equivalent period last year. This is not expected to continue as bottlenecks in US regulatory approvals are resolved and pharma companies' ongoing early-stage investment leads to increased regulatory activity in due course. By contrast, our focus on Linguistic Validation, a service focused on the clinical stage of drug development, has continued to deliver good growth.
In Language Services, we continue to see reduced demand from a number of our clients as they adapt their priorities to changes in their end markets, however we remain confident in the strength of these longstanding relationships and our ability to service their very diverse needs. Whilst we continue to win new business across the division, we are also 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 heightened risk of some revenue loss or margin impact in some of our existing business.
Reported growth in the Language & Content Technology ("L&CT") division has been moderated once again in the period by a faster than anticipated shift to SaaS revenues, in line with our strategy, and we have seen some slower decision-making by clients. Overall, we remain encouraged by the progress we are making in the division, where we recently delivered a significant up-sell of two of our content technology products (Tridion and Fonto) to an existing major client in Life Sciences. New product releases in the second half are expected to contribute to further strong progress in the division.
We continue to make good progress with the growth initiatives and investments outlined at our Capital Markets Day ("CMD") in March 2022, which build upon existing capabilities and move us into higher growth segments. In particular, we continue to see good growth in eLearning and Linguistic Validation.
At our CMD, we also highlighted that we see continued investment in AI and content creation as growth opportunities for the Group. As well as seeing an increase in bookings and a fast shift to SaaS of our Neural Machine Translation platform, Language Weaver, we are also significant users of it ourselves, with over 60% of the words we translate through the LXD platform being supported by AI, thereby enhancing the productivity of both our in-house and freelance linguists.
The experience we have gained developing and training Language Weaver, as well as work on AI related projects we have completed for major clients, also positions the Group well to support the development and training of AI platforms for a range of other uses. We are therefore excited to have recently launched, as planned, our data services proposition, TrainAI. This new growth initiative offers a range of data collection, annotation and validation services for all types of AI data, where we anticipate strong demand.
In January, we also completed the transition to a single Microsoft collaboration platform and we continue to ramp up the transformation programmes in HR, Finance, IP Services and the LXD.
Ian El-Mokadem, CEO of RWS, commented:
"Whilst the market context has become significantly more challenging in the last 12 months, we continue to make important progress with the medium-term growth strategy that we announced at our CMD in March 2022 which will provide the Group with an efficient, scalable platform that is expected to underpin both organic growth and future acquisitions.
"Our diverse and growing client base, wide range of technology-enabled service offerings, global footprint, the growth initiatives we are driving and the efficiency actions we are taking, continue to provide the Group with resilience and opportunity in an uncertain macroeconomic environment.
"We are well-established developers, providers and users of AI and welcome the continuing growth in such technologies. We plan to continue to develop our offer with a range of AI enabled products and related services which provide clients with enterprise-grade security, quality and privacy, as well as strong ethical practices in the sourcing and quality checking of data for training AI models.
"With our strong balance sheet and cash generation, we are actively pursuing acquisition opportunities that could accelerate delivery of our medium-term plans."