RWS tumbles into loss

RWS Holdings (RWS) has blamed its poor performance on “temporary headwinds” several times this year. However, investors will be getting increasingly nervous about the underlying health of the language services group, which translates things like patents and technical documents. Organic constant currency revenue declined by 6 per cent in the 12 months to September, reflecting “reduced client activity in a challenging market environment”. Meanwhile, adjusted profit before tax fell by 11 per cent to £120mn.

The adjusted figure paints a far cheerier picture than the statutory numbers, though. RWS reported a statutory loss before tax of £10.9mn, driven by a £62.4mn impairment charge relating to its technology division and £22.6mn of restructuring and integration costs. 

None of RWS’s four divisions – language services, IP services, regulated industries, or technology – achieved revenue growth on a constant currency basis, which management attributed to “dampened demand and increased price pressure in some of our end verticals”. 

Management is confident that demand will return “in due course” and insisted that artificial intelligence “is not a headwind” but a benefit. The group has also identified £25mn of cost savings to support profitability next year and, despite the turbulence, is still making plenty of cash. The dividend has just been hiked for the twentieth year in a row.

The group’s cash conversion did fall from 93 per cent to 74 per cent in the period, however, as a result of tax payments and investment in research and development. Meanwhile, there is little visibility over when sales will pick up again, and little clarity about the impact that AI will ultimately have on demand for specialist translation services. 

For several months, we have been waiting expectantly for RWS’s turnaround plan to take effect. We are still waiting on any meaningful improvements. Sell.

Last IC View: Hold, 254p, 8 Jun 2023