Almost as soon as RWS Holdings (RWS) completed its $320m (£255m) acquisition of Czech-based LSP Moravia, foreign exchange rates started moving against it. The deal broadened the language translation provider's global presence, but it warned in April that weakness in the dollar would cause it to miss previous profit estimates. Performance at Moravia was also held in check due to lower sales from a major client, but sales growth returned over the second half of FY2018 and there has been successful action on reducing the cost base. Moravia has a large client base among Silicon Valley tech giants, which should facilitate increased cross-selling opportunities.
The cost of the acquisition skewed statutory earnings to the negative, but the adjusted figures were up 22 per cent for the year. However, you get some idea of the increased scale from the two-thirds increase in gross profits to £119m. The Moravia deal has increased the group’s net debt position, with obligations standing at £65.1m at the full year, from £20.2m previously. Adjusted operating cash conversion held broadly steady at 66 per cent, although investors will need to monitor this metric closely as Moravia is bedded in. Management expects the group to return to a net cash position by the end of 2020, although it is still open to further acquisitions.
The Moravia deal has profoundly changed RWS’s structure, making localisation – helping brands translate across cultures – its most significant business area. The US is also now its largest market, accounting for 54 per cent of revenues, up from 32 per cent previously. However, management said that while the US would remain on top for the next two or three years, China may well overtake it after that.
House broker Numis is forecasting adjusted pre-tax profits of £69.5m, giving EPS of 19.9p in March 2019 (from £61.8m and 17.3p in FY2018).
| RWS HOLDINGS (RWS) | ||||
| ORD PRICE: | 483p | MARKET VALUE: | £ 1.32bn | |
| TOUCH: | 481-483p | 12-MONTH HIGH: | 519p | LOW: 336p |
| DIVIDEND YIELD: | 1.6% | PE RATIO: | 46 | |
| NET ASSET VALUE: | 130p* | NET DEBT: | 18% | |
| Year to 30 Sep | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2014 | 93.6 | 19.6 | 7.2 | 4.58 |
| 2015 | 95.2 | 20.7 | 7.3 | 4.88 |
| 2016 | 122 | 25.1 | 9.0 | 5.60 |
| 2017 | 164 | 33.9 | 11.0 | 6.50 |
| 2018 | 306 | 39.7 | 10.4 | 7.50 |
| % change | +87 | +17 | -5 | +15 |
| Ex-div: | 24 Jan | |||
| Payment: | 22 Feb | |||
| *Includes intangible assets of £406m, or 148p a share | ||||
