RWS
Annual Report 2014

Plain-text annual report

2 014 A N N U A L R E P O R T R W S H O L D I N G S P L C A U S T R A L I A C H I N A F R A N C E G E R M A N Y J A P A N S W I T Z E R L A N D U K U S A www.rws.com 2 014 A N N U A L R E P O R T R W S H O L D I N G S P L C Contents Chairman’s Statement Strategic Review Board of Directors Directors’ Report Statement of Directors’ Responsibilities Directors’ Remuneration Report Independent Auditor’s Report to the Members of RWS Holdings plc Financial Statements Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Company Balance Sheet Notes to the Company Financial Statements Shareholder information 2 4 8 9 13 14 17 20 21 22 23 24 50 51 56 RWS Holdings plc 1 Chairman’s Statement It gives me great pleasure to be able to report another year of progress for RWS against a stuttering, slowly improving, economic backdrop and volatile currency markets. For the eleventh consecutive year as a public company we have delivered growth in sales, underlying profits and dividends, demonstrating the strength and resilience of the Group’s core, market leading, patent translations business. inovia has grown quickly whilst a renewed focus on margins is delivering incremental benefits. Elsewhere, the search business prospered, as did PatBase and our operation in China. RESULTS AND FINANCIAL REVIEW The Group has achieved further significant progress in underlying operational performance, reflecting continued growth in the core patent translations business, together with enhanced contributions from the Information division (including PatBase) and China in particular. Group sales advanced by 21% to £93.6 million (2013: £77.4 million), assisted by a first full year contribution from inovia. In constant currency terms, sales were up by 26% to £97.8 million, of which 19% arose from acquisitions. Adjusted operating profit before amortization of intangibles and share option costs was up 9% to £22.0 million (2013: £20.1 million). Adjusted profit before tax, amortization of intangibles, share option costs, and in 2013 a gain on sale of associate increased by 5% to £22.1 million (2013: £21.0 million). This produced a 5% increase in adjusted earnings per share to 40.5p (2013: 38.6p), with no change in the number of shares in issue. As described below, RWS has been adversely affected by the strength of sterling in 2014 compared to 2013. At constant currency, the adjusted profit before tax would have been £23.0 million, a 10% increase over 2013. The principal causes of the adverse currency movement were exchange losses on Euro denominated assets coupled with unrealised losses on forward contracts. Reported profit before tax was £19.6 million (2013: £20.5 million), a fall of 4%, due to higher amortization charges and increased share based payment costs. The basic earnings per share were 35.9p (2013: 37.6p), a fall of 5%. The effective tax rate was 22.6% (2013: 22.4%). 2 RWS Holdings plc At 30 September 2014, shareholders’ funds had reached £78.4 million (2013: £71.7 million), of which net cash represented £22.5 million (2013: £18.3 million). The positive movement in net cash is despite significant outlays in respect of corporation tax of £5.2 million, the final dividend for 2013 and the interim dividend for 2014, totalling £8.7 million, and £4.3 million for the purchase of a new building adjoining Group headquarters for future expansion. CURRENCY EFFECTS AND HEDGING Reported revenues were £4.2 million lower than they would have been on a constant currency basis, resulting from the strong performance of sterling. The average rate used for conversion of Euro revenues was 81.5p to the € versus 84.2p in 2013. For the US dollar, the average rate was 1.66 dollars to the £ versus 1.56 dollars in 2013. RWS’s policy is to hedge its net trading exposure to the Euro, and since the inovia acquisition, to the US$. Looking forward, RWS has hedged its estimated Euro exposure from 1 January 2015 to 31 December 2015 at an average rate of 1 Euro = 81.0p. Similarly, the Group’s estimated net exposure to the US$ has been hedged from 1 January 2015 to 30 September 2015 at an average rate of 1 GBP = US$1.60. DIVIDEND I am pleased to announce that the Board has recommended a final dividend of 18.0p per share. The interim dividend, paid in July, was 4.9p per share, so that the total payout in respect of the year will amount to 22.9p per share, an increase of 13% over 2013, reflecting both the underlying growth in Group earnings during 2014 and the Board’s confidence in the Group’s continued progress. This proposed payout marks an eleven year unbroken record of double digit increases in the dividend since flotation in November 2003. The proposed total dividend is 1.57 times covered by basic earnings per share. Subject to shareholder approval at the Annual General Meeting, the final dividend will be paid on 27 February 2015 to all shareholders on the register at 30 January 2015. Chairman’s Statement (continued) SHARE OPTION PLAN RWS announced on 4 April 2013 that the Board had approved a new share option plan for Executive Directors and senior managers, under which options would be granted over ordinary shares representing up to a maximum of 4% of the Group’s share capital. The plan is designed to further align the interests of senior employees and shareholders and to promote the retention of the Group’s senior executives. Options have been issued to ten participants, with a subscription price of 646p per share. The earliest vesting date is 3 April 2015 and the latest exercise date is 3 April 2021. AUDITORS Earlier this year, in line with best practice, RWS carried out a competitive audit tender process. As a result of which, PricewaterhouseCoopers LLP “PwC” were appointed as the Group’s auditors. Shareholders will be invited to approve PwC’s re- appointment as auditors at the Company’s Annual General Meeting in February 2015. I would like to take this opportunity to thank BDO for their help and support over many years as we have grown and developed the RWS business. to avoid net staff reductions in the recent recession and headcount has now reached 605 full time equivalents (2013: 591), with productivity continuing to improve. I wish to record my thanks to all of them for their contribution. I am delighted to announce that David Shrimpton, the Group’s senior Non Executive Director, has agreed to become Non Executive Deputy Chairman. David has worked with RWS since January 2010 and continues to bring a wealth of financial and business experience to the Board. His appointment is a significant step towards ensuring the future growth of the RWS business. CORPORATE SOCIAL RESPONSIBILITY RWS seeks to be a socially responsible Group which has a positive impact on the communities it operates in. We look to employ a workforce which reflects the diversity of the Group’s communities. No discrimination is tolerated, and we endeavour to give all employees the opportunity to develop their capabilities. We provide an excellent working environment, the latest technology and appropriate training. RWS’s staff contributes generously on a monthly basis to a wide selection of local and national charities and their contributions are matched by the Group. PROPOSED SHARE SPLIT CURRENT TRADING AND OUTLOOK The Directors, having consulted with the Group’s brokers, consider that an enlarged number of ordinary shares with a lower price per share will serve to improve the marketability and liquidity of the Group’s shares. We have made a reasonable start to the new financial year and expect to make further progress as we experience the full benefit of 2014 client wins and develop the targeted cross selling opportunities provided by the inovia acquisition. A proposal will therefore be put to the forthcoming AGM that, subject to shareholder approval, a 5 for 1 share split will be effected. The Board fully expects the Group to grow revenues and profits in 2015, consolidating its market leading position in the intellectual property support services space. PEOPLE RWS has always been dependent upon the quality and commitment of its entire staff to provide and maintain the high levels of service expected by the Group’s clients. We were pleased that we were able Andrew Brode 8 December 2014 RWS Holdings plc 3 Strategic Review BUSINESS MODEL RWS is the world’s largest provider of patent translations and one of the leading players in the provision of intellectual property support services and high level technical translation services. It has a blue chip multinational client base spanning Europe, North America and Asia, active in patent filing in the medical, pharmaceutical, chemical, aerospace, defence, automotive and telecoms industries. The Group’s principal business activities are: ■ Patent translations, which currently accounts for over 55% of Group revenue. RWS differentiates itself from the competition through the quality of its translations and the high level of customer service and support it provides. ■ Information, which includes a comprehensive range of patent search, retrieval and monitoring services as well as PatBase, one of the world’s largest searchable commercial patent databases, access to which is sold exclusively as an annual subscription service. ■ International web based patent filing solutions via the recently acquired inovia business. This activity is expected to grow and continue to be a significant source of patent translation revenues for the RWS Group. ■ Commercial translations, with a particular emphasis on medical and technical translations. OUR STRATEGY RWS’s objective is to increase shareholder value by growing the Group’s revenue and adjusted profit before tax. Our strategy to achieve this is focused upon organic growth complemented by deploying the Group’s substantial cash holdings for selective acquisitions, providing these can be demonstrated to enhance shareholder value. Organic growth is driven by: ■ increases in the worldwide patent filing activities of existing and potential multinational clients ■ corporates, law firms and attorneys outsourcing all or part of the foreign patent search, filing and translation process ■ the growing demand for language services and the Group’s ability to increase its market share by winning new clients attracted by its leading position and reputation, in an otherwise fragmented sector 4 RWS Holdings plc ■ the retention of our client base, which includes the majority of the top 20 patent filers both in Europe and globally, many of which will use the Group for substantially all of their patent translation requirements, and ■ the addition of several key new clients each year with whom activity levels build up over time. In terms of acquisitive growth, we continue to search for suitable potential acquisitions in the intellectual property support services and specialist commercial translation spaces. We seek niche businesses capable of delivering well above industry average levels of profitability or highly complementary businesses capable of reinforcing the Group’s dominant position in intellectual property support and translation services. We are particularly pleased to be able to show our progress against these stated objectives with 11 straight years of sales and profit growth. Annual Revenue £m 100 90 80 70 60 50 40 30 20 10 0 . 3 7 2 3 0 0 2 . 0 1 3 4 0 0 2 . 9 5 3 5 0 0 2 . 8 0 4 6 0 0 2 2 . 6 4 7 0 0 2 . 1 4 5 8 0 0 2 7 . 5 5 9 0 0 2 . 6 0 6 0 1 0 2 . 4 5 6 1 1 0 2 8 . 8 6 2 1 0 2 . 4 7 7 3 1 0 2 6 . 3 9 4 1 0 2 Annual Adjusted PBT £m 25 20 15 10 5 0 6 5 . 0 . 6 4 7 . 0 9 . 3 0 0 2 4 0 0 2 5 0 0 2 6 0 0 2 . 0 1 1 7 0 0 2 . 9 3 1 8 0 0 2 5 . 4 1 9 0 0 2 . 6 4 1 0 1 0 2 2 . 6 1 1 1 0 2 . 2 7 1 2 1 0 2 . 0 1 2 3 1 0 2 . 1 2 2 4 1 0 2 Strategic Review (continued) OPERATING REVIEW Patent Translations The Group’s core patent translations business represents approximately 55% of Group sales and grew underlying revenues by 7% to £52.0 million (2013: £48.8 million, after elimination of £4.7 million of intercompany sales to inovia). The growth drivers were earlier client wins, and organic growth from the established client base. The macroeconomic background delivered further grounds for optimism with record numbers of new patent applications recorded in 2013. The Group has enhanced its market leadership within its chosen niche of servicing a worldwide blue-chip client base, embracing many of the world’s leading patent filers. As evidence of this leading role, the Group serviced 10 of the top 15 applicants at the World Intellectual Property Office and 11 of the top 15 applicants at the European Patent Office in 2013. Following the acquisition of inovia in September 2013, we have been able to combine the direct sales efforts of RWS and inovia in the US (the largest market for intellectual property support services) and have been successful in Europe in developing selective cross selling opportunities with major European corporates. China continues to attract North American and European patent filers seeking patent protection there, as a result of which our headcount in China has grown to 57 employees. As first outlined in last year’s review, we have continued to develop the production and training centre with two universities in Rizhao, which has caught the attention of the university in Xi’an where a similar centre has been established. These centres enable the Group to expand its Chinese offering but at a lower cost than in Beijing. Our long term relationship with international patent bodies seeking to enlarge their collections of translated Chinese patent prosecution documents has prospered. Commercial Translations The commercial translations business, which accounts for 17% of Group sales, experienced currency headwinds and cyclical downturns. We group all non-patent translations in this division and it remains the sector of our business most exposed to competition. It operates in the UK, Germany and Switzerland. Given the intensity of the competition, we continue to focus upon specialist niches and larger projects where the Group’s resources and expertise can provide a competitive edge. We experienced subdued trading in our German- speaking activities in the first half, followed by some improvement in the second half. We have now established an into-German patent translation facility in the Berlin office, which will balance the cyclical effect evident in the commercial translation activities and improve margins through better utilisation of existing resources. The commercial translation business does enable RWS to offer customers a complete solution to their translation needs whilst continuing to provide good cross selling opportunities for the patent translation business. Information The information business accounts for 7% of Group sales and enjoyed an outstanding year, with growth of 17% in revenues to £6.2 million (2013: £5.3 million). In particular, our patent search and watch services grew by 36%, whilst the high margin subscription service – PatBase – grew by a further 5%. We have continued to invest in PatBase searchability, content and geographic coverage, and will make further investments in 2015 to secure the resilience and robustness of the platform which provides 24/7 worldwide access. inovia The Group acquired the remaining two thirds of inovia’s equity in September 2013. In its first full year contribution, inovia achieved a 15% increase in gross sales to US$33.0 million (2013: US$28.8 million, of which only US$1.8 million was post acquisition revenue and consolidated into the 2013 financial statements). In sterling terms, gross sales reached £19.4 million (after elimination of £0.5 million of intercompany sales to Patent Translations), and as a continued underlying benefit of the acquisition, patent translation transfer revenues reached $7.1 million (2013: $7.3 million). With new product developments and as a full member of the Group, inovia has been able to attract larger corporates. Its largest customer in 2014, a leading pharmaceutical group, developed from a small volume of sales in 2013. Further penetration of larger corporates is likely to put pressure on margins, but forms part of the strategy for inovia within the Group. It helps to achieve growth and increase market share, generates incremental higher margin translation revenue, and further improves client retention rates. We have RWS Holdings plc 5 Strategic Review (continued) started to see the benefits from the reorganisation of the senior sales management in the US in 2014 (inovia’s key market) and we expect a further double digit sales growth in 2015. In October this year inovia was recognised for the first time as the leading foreign filing provider by Managing Intellectual Property magazine’s annual ranking of the top Patent Cooperation Treaty (PCT) firms, further consolidating the Group’s position as a leading provider of intellectual property support services, which now account for over 80% of the Group’s sales. RISK MANAGEMENT The Group maintains a risk register which is reviewed and assessed on an annual basis by the Board of Directors. The key risks to the business are errors in the provision of the Group’s services, in a mismatch between currencies (especially as between the Euro and Sterling), in regulatory changes to patent translation requirements in Europe and in the failure to successfully integrate acquired businesses into RWS. Additionally, as with any people business delivering high quality services, the Group depends upon its ability to attract and retain well trained staff. MARKET UPDATE These risks are mitigated as follows: Patent Filing Statistics The USA and China drove record-level patent- filing activity via WIPO in 2013 as the number of annual international patent applications surpassed the 200,000 mark for the first time, showing a 5% increase in the 2013 PCT filings to 205,300 (2012: 195,400). The European Patent Office (EPO) also published record numbers, with the total number of European patent filings increasing by 3% to 265,690 (2012: 258,450). European filings from Chinese applicants grew by 16%. Patent applications in China increased by 26% to 825,136 (120,200 of which came from foreign applicants). ■ Failings in service provision are most likely to arise as a result of human error. RWS was one of the earliest adopters of ISO certification and invests in exhaustive and regularly updated procedures to minimise the risk of error. In addition, the Group carries substantial professional indemnity insurance. ■ As previously reported, currency risk is partly mitigated via hedging operations. ■ We have in the past drawn the market’s attention to the proposed European Union Patent (“the Unitary Patent”) and its potential impact upon the Group’s sales and profits. Despite significant hurdles, the Unitary Patent has been making further progress. There appears to be consensus now that the earliest implementation would be in 2016 and that this is still very optimistic. It should be noted that a number of member states of the current European Patent system are not EU members, and that Spain and Italy remain implacably opposed to the Unitary Patent. Professional opinion remains highly sceptical both as regards jurisdiction and actual financial benefits, which cannot be quantified until fees have been set and published. Because the proposed Unitary Patent will run in parallel with the existing system, it will not provide any financial advantage to many corporates seeking patent protection in only selected key countries, and will have a new and untried litigation system. Our research indicates that there is currently little interest amongst large corporates and their professional advisers in full usage of the new system. That being the case, we anticipate minimal, incremental loss of revenues in the first few years after the introduction of the Unitary Patent. 6 RWS Holdings plc Strategic Review (continued) ■ In September 2013 RWS acquired the inovia business. Integration is ongoing and focuses on several areas. Supplier and service consolidation continues to reduce technical costs and improve underlying margins. New technical developments ensure maintenance of our leading market position and help to increase the attractiveness of our technical solutions for new markets and existing RWS customers. Selected cross-selling opportunities have brought in new clients and continue to enhance our pipeline. inovia Directors and other senior managers, regularly attend Board and other meetings in the UK, which improves communication and enhances the integration process. ■ As a significant employer in the local area of South Buckinghamshire, we believe we offer stability of employment, competitive salaries and an excellent working environment. In the current economic climate we have been successful in recruiting high calibre staff as required, but competition for talented people to work on the periphery of the London conurbation is undoubtedly intensifying. On behalf of the Board Richard Thompson 8 December 2014 RWS Holdings plc 7 Board of Directors at 30 September 2014 Andrew S Brode (74) Chairman Peter Mountford (57) Non-Executive Director Member of the Audit Committee and Remuneration Committee Chairman of the Audit Committee and member of the Remuneration Committee Appointed as a Director 11 April 2000 Appointed as a Director 11 April 2000 Founder of Bybrook and led the management buy in of the RWS Group. A substantial shareholder in the Company Chairman of Mountford Capital Limited, Chairman of Heropreneurs and a Non-Executive Director of a number of other private companies Non-Executive Chairman of Learning Technology Group plc and Electric Word plc and Non-Executive Director of Vitesse Media plc Elisabeth A Lucas (58) Non-Executive Director Non-Executive Director of a number of private companies Member of the Audit Committee and member of the Remuneration Committee Reinhard Ottway (55) Chief Executive Officer Joined RWS Group in 1977, Managing Director of Translations Division from 1992 and Chief Executive Officer from 1995 to 2011 Appointed as a Director 1 January 2012 Appointed as a Director on 11 November 2003 Joined RWS Group in 1994 and was Business Development Director from 2001 Richard Thompson (52) Finance Director and Company Secretary Appointed as a Director and Company Secretary 28 November 2012 Registered office Europa House Chiltern Park Chiltern Hill Chalfont St Peter Buckinghamshire SL9 9FG Previously worked for Actix International Limited, a global supplier of software and services to the telecommunications market Company registration number 3002645 David E Shrimpton (71) Senior independent Non-Executive Director and Deputy Chairman Chairman of the Remuneration Committee, member of the Audit Committee Appointed as a Director 1 January 2010 Non-Executive Director of a number of private companies 8 RWS Holdings plc Directors’ Report The Directors present their annual report together with the audited consolidated financial statements for the year ended 30 September 2014. BUSINESS PERFORMANCE AND RISKS The review of the business, operations, principal risks and outlook are dealt with in the Strategic review on pages 4 to 7. The key performance indicators of the Group are revenues and adjusted pre-tax profit before amortization of acquired intangibles, share option costs and any profits or losses on disposal of subsidiaries or associates. FINANCIAL RESULTS The financial statements set out the results of the Group for the year ended 30 September 2014 which are shown on page 20. Group revenues advanced by 20.9% to £93.6 million (2013: £77.4 million) and pre-tax profit before amortization of intangibles and share option costs, and in 2013 gain on disposal of associate, was £22.1 million (2013: £21.0 million), a rise of 5.2%. Profit before tax was £19.6 million (2013: £20.5 million). The current year total tax expense was £4.4 million (2013: £4.6 million) an effective tax rate of 22.6% (2013: 22.4%). Basic earnings per share was 35.9 pence (2013: 37.6 pence). DIVIDENDS The Directors recommend a final dividend of 18.00 pence per Ordinary share to be paid on the 27 February 2015 to shareholders on the register at 30 January 2015, which, together with the dividend of 4.90 pence paid in July 2014, makes a total dividend for the year of 22.90 pence (2013: 20.25 pence). The final dividend will be reflected in the financial statements for the year ending 30 September 2015. The proposed total dividend per share is 1.57 times covered by basic earnings per share. GOING CONCERN ACCOUNTING BASIS In view of the Group’s cash resources (£22.5 million at 30 September 2014), combined with the free cash flow in 2014 of £13.1 million (2013: £16.0 million) and recent operating results, the Directors have a reasonable expectation that the Group has adequate resources to continue in operation for the foreseeable future. For this reason, the Directors continue to adopt the going concern basis in preparing the financial statements. FINANCIAL INSTRUMENTS Information about the use of financial instruments by the Group is given in note 17 to the financial statements. EVENTS AFTER THE REPORTING DATE No significant events have occurred between 30 September 2014 and the date of authorisation of these financial statements. DIRECTORS Details of members of the Board at 30 September 2014 are set out on page 8. The interests of the Directors in shares during the year are set out on page 15 in the Directors’ Remuneration Report. Andrew Brode and Reinhard Ottway retire by rotation at the Annual General Meeting and being eligible offer themselves for re-election. The Company’s Annual General Meeting will be held in London on 10 February 2015. DIRECTORS’ INDEMNITIES As permitted in its articles of association, the Director’s have the benefit of an indemnity which is a third party indemnity provision as defined in section 234 of the Companies Act 2006. The indemnity was in force throughout the last financial year and is currently in force. (The Company also purchased and maintained throughout the financial RWS Holdings plc 9 Directors’ Report (continued) year, Directors and Officers liability insurance in respect of itself and its Directors). CORPORATE GOVERNANCE The Board The Board comprised three Executive and three Non-Executive Directors. The Board considers that all of the Non-Executive Directors are independent in character and judgement and that there are no relationships or circumstances which are likely to affect their independent judgement. The Executive Directors have direct responsibility for business operations whilst the Non-Executive Directors have a responsibility to bring independent, objective judgement to bear on Board decisions. The Board met six times during the year to review financial performance and approve key business decisions, so that it retained control over strategic, budgetary, financial and organisational issues and monitored executive management. In addition to the Executive Directors, the members of the Senior Executive Team are: Charles Sitch, Managing Director UK Translations Division; Neil Simpkin, Deputy Managing Director UK Translations Division; Jo Hindley, Commercial Director UK Translations Division; Caroline Chenique, European Sales Director; Roberto Aletto, IT Director and David Nelson, Managing Director inovia. They are invited to attend various board meetings and report on the areas of responsibility delegated to them. Audit Committee The members of the Audit Committee are Peter Mountford (committee Chairman), David Shrimpton, Elisabeth Lucas and Andrew Brode. The members with the exception of Andrew Brode, are Non-Executive Directors and the Board is satisfied that they have recent and relevant financial experience. Andrew Brode is the Group’s Chairman and a substantial shareholder in the Ordinary shares of the Company. The Finance Director and representatives from the external auditors attend meetings at the request of the Committee. During the year the Committee met four times. The Committee reviews and makes recommendations to the Board on: any change in accounting policies; decisions requiring a major element of judgement 10 RWS Holdings plc and risk; compliance with accounting standards and legal and regulatory requirements; disclosures in the interim and annual report and accounts; dividend policy and payment; any significant concerns of the external auditor about the conduct, results or overall outcome of the annual audit of the Group; and, any matters that may significantly affect the independence of the external auditor. In addition the Committee has oversight of the external audit process and reviews its effectiveness and approves any non-audit services provided. Remuneration Committee Further information about the Committee and the Company’s remuneration policy is set out on page 14 in the Directors’ Remuneration Report. Internal controls and risk management The Board has overall responsibility for the Group’s system of internal controls. The system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. The Directors believe that the Group has internal control systems in place appropriate to the size and nature of the business. The key elements are: bimonthly Group board meetings with reports from and discussions with senior executives on performance and key risk areas in the business; monthly financial reporting, for the Group and for each subsidiary, of actual performance compared to budget and previous year; annual budget setting; and, a defined organisational structure with appropriate delegation of authority. The Board also receives a report from the external auditor on matters identified in the course of the statutory audit work. In addition, a further Board Meeting is held during the year to consider and assess the risks facing the business and approve the steps and timetable senior management have established to mitigate those risks. EMPLOYMENT OF DISABLED PERSONS It is Company policy that people with disabilities should have the same consideration as others with respect to recruitment, retention and personal development. People with disabilities, depending Directors’ Report (continued) on their skills and abilities, enjoy the same career prospects as other employees and the same scope for realising potential. at the date of this report the Company does not hold any Ordinary shares in the capital of the Company in treasury. EMPLOYEE INVOLVEMENT STATUTORY PRE-EMPTION RIGHTS The Company’s policy is to consult and discuss with employees at staff meetings matters likely to affect employee interests. The Company is committed to a policy of recruitment and promotion on the basis of aptitude and ability irrespective of sex, race or religion. Group subsidiaries endeavour to provide equal opportunities in recruiting, training, promoting and developing the careers of all employees. SUBSTANTIAL SHAREHOLDINGS At 30 September 2014, excluding the Directors, the following were substantial shareholders: Liontrust Asset Management Octopus Investments Investec Wealth and Investment Blackrock Investment Management Invesco Perpetual % holding 11.7 4.9 4.3 4.2 3.2 AUTHORITY TO ALLOT Under section 549 Companies Act 2006, the Directors are prevented, subject to certain exceptions, from allotting shares in the Company or from granting rights to subscribe for or to convert any security into shares in the Company without the authority of the shareholders in General meeting. An ordinary resolution will be proposed at the 10 February 2015 Annual General Meeting which renews, for the period ending 10 May 2016, or if earlier the date of the 2016 Annual General Meeting, the authority previously granted to the Directors to allot shares, and to grant rights to subscribe for or convert any security into shares in the Company, up to an aggregate nominal value of £705,266, representing approximately one third of the share capital of the Company in issue at 8 December 2014. The Directors have no immediate plans to make use of this authority except in respect of the issue of shares under the employee share option scheme. As Under section 561 of the Companies Act 2006, when new shares are allotted, they must first be offered to existing shareholders pro rata to their holdings. A special resolution will be proposed at the 10 February 2015 Annual General Meeting which renews, for the period ending on 10 May 2016 or, if earlier, the date of the 2016 Annual General Meeting, the authorities previously granted to the Directors to: (a) allot shares of the Company in connection with a rights issue or other pre-emptive offer; and (b) otherwise allot shares of the Company, or sell treasury shares for cash, up to an aggregate nominal value of £211,579 (representing in accordance with institutional investor guidelines, approximately 10% of the share capital in issue as at 8 December 2014). The Directors have no immediate plans to make use of these authorities. In addition, and in line with best practice, the Company has not issued more than 7.5% of its issued share capital on a non-pro rata basis over the last four years. RULE 9 OF THE CITY CODE Under rule 9 of the city code, where any person acquires an interest in shares which carry 30 per cent or more of the voting rights, that person is normally required to make a general offer to all the remaining shareholders of the Company to acquire their shares. An ordinary resolution was approved at the 11 February 2014 Annual General Meeting which approved, for the period ending on 10 May 2017 or, if earlier, the date of the 2017 Annual General Meeting, the waiver by the Panel on Takeovers and Mergers of any requirement under rule 9 for Andrew Brode (Chairman) and related parties to make a general offer to the shareholders of the Company as a result of any market purchase by the Company of its own shares. RWS Holdings plc 11 Directors’ Report (continued) CHANGE OF AUDITOR Following a tender process in 2014, Pricewaterhouse Coopers LLP (PwC) was appointed as the Company’s external auditor commencing with the 2014 financial year. PwC have expressed their willingness to continue in office and a resolution to reappoint them will be proposed at the Annual General Meeting. INDEPENDENT AUDITORS All of the Directors have taken all the steps that they ought to have taken to make themselves aware of any information relevant to the audit and established that the auditors are aware of that information. As far as each of the Directors is aware, the auditors have been provided with all relevant information. 12 RWS Holdings plc Statement of Directors’ Responsibilities The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and the Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. The Directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market. In preparing these financial statements, the Directors are required to: ■ select suitable accounting policies and then apply them consistently; ■ make judgements and accounting estimates that are reasonable and prudent; ■ state whether the Group financial statements have been prepared in accordance with IFRSs as adopted by the European Union and the Company financial statements have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice, subject to any material departures disclosed and explained in the financial statements; ■ prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. WEBSITE PUBLICATION The Directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the Company’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein. On behalf of the Board Richard Thompson 8 December 2014 RWS Holdings plc 13 Directors’ Remuneration Report REMUNERATION COMMITTEE SHARE OPTIONS On 3 April 2013 the Board approved a new share option scheme. The scheme was designed to incentivise Executive Directors and Executives and further align the interests of senior employees and shareholders. The Committee has responsibility for supervising the scheme and the grant of options under its terms. SERVICE CONTRACTS The Non-Executive Directors do not have service contracts. Their appointments will continue unless and until terminated by either party giving not less than 30 days’ notice. The service contracts of Executive Directors continue unless and until terminated by either party giving at least six months’ notice. The date of the Chairman’s service contract is 30 October 2003 and the service contracts of Reinhard Ottway and Richard Thompson are dated 20 December 2011 and 1 November 2012 respectively. In the event of early termination, the Executive Directors’ service contracts provide for compensation up to a maximum of the total benefits which he or she would have received during the notice period. DIRECTORS’ EMOLUMENTS AND PENSION CONTRIBUTIONS The aggregate remuneration, excluding pension contributions, paid or accrued for the Directors of the Company for service in all capacities during the year ended 30 September 2014 was £952,000 (2013: £965,000). The remuneration of individual Directors and the pension contributions paid by the Group to their personal pension schemes during the year were as follows: The members of the Remuneration Committee are David Shrimpton (committee Chairman), Peter Mountford, Elisabeth Lucas and Andrew Brode. With the exception of Andrew Brode the members are Non-Executive Directors. The remit of the Committee is primarily to determine and agree with the Board the framework or broad policy for the remuneration of the Company’s Executive Directors and, if required by the Board, the Senior Executives of the Group. The remuneration of Non-Executive Directors is a matter for the Board, excluding the Non-Executive Directors. No Director or Senior Executive is involved in any discussion or decision about his or her own remuneration. The Remuneration Committee met once during the year. The Board has confirmed that the Group’s overall remuneration policy is designed to attract and retain the right people and provide appropriate incentives to encourage enhanced performance so as to create growth in shareholder value. INDIVIDUAL ELEMENTS OF REMUNERATION For Executive Directors and Senior Executives the components contained in the total remuneration package are: base salary; performance related annual bonus, share options and other customary benefits such as; holidays and health benefits, sickness benefit and pension contributions. Neither the performance related annual bonus nor the share options apply to the Chairman. Performance related bonuses are based on a combination of sales and/or adjusted profit before tax targets depending on an individual’s area of responsibility. For Non-Executive Directors there is only one component, a base fee. 14 RWS Holdings plc Directors’ Remuneration Report (continued) Salary or fees £’000 247 – 305 229 45 35 35 896 2014 2014 2013 2013 Bonus £’000 Taxable benefits £’000 Pension contributions £’000 Total £’000 Pension contributions £’000 Total £’000 – – 33 19 – – – 52 3 – 1 – – – – 4 250 – 339 248 45 35 35 952 15 – 9 7 – – – 31 239 83 322 206 45 35 35 965 26 2 8 3 – – – 39 Andrew Brode Michael McCarthy (to 31 December 2013) Reinhard Ottway Richard Thompson (from 28 November 2013) Elisabeth Lucas Peter Mountford David Shrimpton DIRECTORS’ INTERESTS IN SHARES The interests of the Directors as at 30 September 2014 (including the interests of their families and related trusts), all of which were beneficial, in the Ordinary shares were: Andrew Brode Elisabeth Lucas Peter Mountford Richard Thompson Ordinary shares of 5 pence 18,034,812 10,000 13,755 2,600 18,061,167 The interests of the Directors at the year end in options to subscribe for Ordinary shares of the Company, together with details of options granted during the year are included in the following table. All options were granted at market value at the date of grant. Approved Share Option scheme Number of shares under option At 1 October 2013 4,643 4,643 Issued in the year Exercised in the year At 30 September 2014 Exercise price pence First date exercisable Last date exercisable – – – – 4,643 4,643 646.00 646.00 03 ⁄04 ⁄16 03 ⁄04 ⁄16 03 ⁄04 ⁄21 03 ⁄04 ⁄21 Reinhard Ottway Richard Thompson Unapproved Share Option scheme Number of shares under option At 1 October 2013 503,149 249,253 Issued in the year Exercised in the year At 30 September 2014 Exercise price pence First date exercisable Last date exercisable – – – – 503,149 249,253 646.00 646.00 03 ⁄04 ⁄15 03 ⁄04 ⁄15 03 ⁄04 ⁄21 03 ⁄04 ⁄21 Reinhard Ottway Richard Thompson RWS Holdings plc 15 Directors’ Remuneration Report (continued) The options granted under both schemes will be exercisable at the mid market price of 646p. The market price of the Company’s share as at 30 September 2014 and the highest and lowest market prices during the year are as follows: 30 September 2014 Highest Market Price Lowest Market Price 760p 1,030p 731p All participants in the share option scheme have indemnified the Company against any tax liability relating to the option including class 1 employer’s national insurance contribution. TRANSACTIONS WITH DIRECTORS During the year there were no material transactions between the Company and the Directors, other than their emoluments. On behalf of the Board Richard Thompson 8 December 2014 16 RWS Holdings plc Independent Auditor’s Report to the Members of RWS Holdings plc REPORT ON THE FINANCIAL STATEMENTS OUR OPINION In our opinion: ■ RWS Holdings plc’s Group financial statements and parent Company financial statements (the “financial statements”) give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 30 September 2014 and of the Group’s profit and cash flows for the year then ended; ■ the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union; ■ the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and ■ the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. WHAT WE HAVE AUDITED RWS Holdings plc’s financial statements comprise: ■ the Consolidated Statement of Financial Position as at 30 September 2014; ■ the Company Balance Sheet as at 30 September 2014; ■ the Consolidated Statement of Comprehensive Income for the year then ended; ■ the Consolidated Statement of Cash Flows for the year then ended; ■ the Consolidated Statement of Changes in Equity for the year then ended; and ■ the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information. Certain required disclosures have been presented elsewhere in the Annual Report, rather than in the notes to the financial statements. These are cross- referenced from the financial statements and are identified as audited. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and IFRSs as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). In applying the financial reporting framework, the Directors have made a number of subjective judgements, for example in respect of significant accounting estimates. In making such estimates, they have made assumptions and considered future events. OPINION ON OTHER MATTER PRESCRIBED BY THE COMPANIES ACT 2006 In our opinion, the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. OTHER MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION ADEQUACY OF ACCOUNTING RECORDS AND INFORMATION AND EXPLANATIONS RECEIVED Under the Companies Act 2006 we are required to report to you if, in our opinion: ■ we have not received all the information and explanations we require for our audit; or ■ adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from branches not visited by us; or ■ the company financial statements are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. DIRECTORS’ REMUNERATION Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of Directors’ remuneration specified by law are not made. We have no exceptions to report arising from this responsibility. RWS Holdings plc 17 Independent Auditor’s Report to the Members of RWS Holdings plc (continued) RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT OUR RESPONSIBILITIES AND THOSE OF THE DIRECTORS We primarily focus our work in these areas by assessing the Directors’ judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements. We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Nigel Reynolds (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 8 December 2014 As explained more fully in the Statement of Directors’ Responsibilities set out on page 13, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland”). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. WHAT AN AUDIT OF FINANCIAL STATEMENTS INVOLVES We conducted our audit in accordance with ISAs (UK & Ireland). An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: ■ whether the accounting policies are appropriate to the group’s and the company’s circumstances and have been consistently applied and adequately disclosed; ■ the reasonableness of significant accounting estimates made by the Directors; and ■ the overall presentation of the financial statements. 18 RWS Holdings plc 2 014 F I N A N C I A L S TAT E M E N T S RWS Holdings plc 19 Consolidated Statement of Comprehensive Income for the year ended 30 September Revenue Cost of sales Gross profit Administrative expenses Operating profit Analysed as: Operating profit before charging: Amortization of customer relationships, trademarks and technology Share based payment costs Operating profit Finance income Finance costs Share in results of associate Gain on disposal of associate Profit before tax Taxation expense Profit for the year Other comprehensive expense* Loss on retranslation of foreign operations Total other comprehensive expense Total comprehensive income attributable to: Owners of the parent Basic earnings per Ordinary share (pence per share) Diluted earnings per Ordinary share (pence per share) Note 3 4 11 19 6 6 7 9 9 2014 £’000 93,556 (56,783) 36,773 (17,187) 19,586 22,036 (1,572) (878) 19,586 57 (14) – – 19,629 (4,430) 15,199 (618) (618) 14,581 35.9 35.6 2013 £’000 77,404 (45,558) 31,846 (12,981) 18,865 20,060 (727) (468) 18,865 456 – 496 693 20,510 (4,592) 15,918 (294) (294) 15,624 37.6 37.6 *Other comprehensive expense includes only items that will be subsequently reclassified to Profit before tax when specific conditions are met. The notes on pages 24 to 48 form part of these financial statements. 20 RWS Holdings plc Consolidated Statement of Financial Position at 30 September Registered Company 3002645 Assets Non-current assets Goodwill Intangible assets Property, plant and equipment Deferred tax assets Current assets Trade and other receivables Foreign exchange derivatives Cash and cash equivalents Total assets Liabilities Current liabilities Trade and other payables Income tax payable Provisions Non-current liabilities Other payables Provisions Deferred tax liabilities Total liabilities Total net assets Equity Capital and reserves attributable to owners of the parent Share capital Share premium Share based payment reserve Reverse acquisition reserve Foreign currency reserve Retained earnings Total equity The notes on pages 24 to 48 form part of these financial statements. Note 10 11 12 13 14 17 20 3 15 16 15 16 13 3 18 2014 £’000 30,512 8,228 17,310 353 56,403 16,385 554 22,479 39,418 95,821 12,277 2,198 480 14,955 30 378 2,024 2,432 17,387 78,434 2,116 3,583 1,346 (8,483) 569 79,303 78,434 2013 £’000 30,780 9,896 13,002 270 53,948 16,574 566 18,305 35,445 89,393 11,512 2,555 740 14,807 – 530 2,343 2,873 17,680 71,713 2,116 3,583 468 (8,483) 1,187 72,842 71,713 The financial statements on pages 20 to 48 were approved by the Board of Directors and authorised for issue on 8 December 2014 and were signed on its behalf by: Andrew Brode Director RWS Holdings plc 21 Consolidated Statement of Changes in Equity for the year ended 30 September Share capital £’000 2,116 – – – – – – – – – – 2,116 3,583 – – – – – – – – – – 2,116 3,583 Share based payment reserve £’000 – – 468 468 – 878 1,346 At 1 October 2012 Profit for the year Currency translation differences Total Comprehensive income for the year 30 September 2013 Dividends Credit arising on share based payments At 30 September 2013 Profit for the year Currency translation differences Total Comprehensive income for the year 30 September 2014 Dividends Credit arising on share based payments At 30 September 2014 Other reserves At 1 October 2012 Other Comprehensive loss for the year Credit arising on share based payments At 30 September 2013 Other Comprehensive loss for the year Credit arising on share based payments At 30 September 2014 Share premium account £’000 Other reserves (see below) £’000 Retained earnings £’000 3,583 (7,002) 64,532 Total equity attributable to owners of the parent £’000 63,229 15,918 (294) 15,624 (7,608) 468 71,713 15,199 (618) 14,581 (8,738) 878 78,434 Total other reserves £’000 (7,002) (294) 468 (6,828) (618) 878 (6,568) – (294) (294) – 468 (6,828) – (618) (618) – 878 (6,568) Reverse acquisition reserve £’000 (8,483) – – (8,483) – – (8,483) 15,918 – 15,918 (7,608) – 72,842 15,199 – 15,199 (8,738) – 79,303 Foreign currency reserve £’000 1,481 (294) – 1,187 (618) – 569 The nature and purpose of each reserve within equity is as follows: – Share capital is nominal value of the shares issued. – Share premium is the amount received for shares issued in excess of their nominal value. – Share based payment reserve is the credit arising on the share based payment charges in relation to the Company’s share option schemes. – Foreign currency reserve is the cumulative gain or loss arising on retranslating the net assets of overseas operations into sterling. – Reverse acquisition reserve was created when RWS Holdings plc became the legal parent of Bybrook Limited. The substance of this combination was that Bybrook Limited acquired RWS Holdings plc. – Retained earnings are the cumulative net gains and losses, including the capital reserve from the Company balance sheet. The notes on pages 24 to 48 form part of these financial statements. 22 RWS Holdings plc Consolidated Statement of Cash Flows for the year ended 30 September Cash flows from operating activities Profit before tax Adjustments for: Depreciation of property, plant and equipment Amortization of intangible assets Share based payment costs Finance income Finance expense Share in results of associate Gain on disposal of associate Operating cash flow before movements in working capital and provisions Decrease/(increase) in trade and other receivables Increase/(decrease) in trade and other payables Cash generated from operations Income tax paid Net cash inflow from operating activities Cash flows from investing activities Interest received Acquisition of subsidiary, net of cash acquired Purchases of property, plant and equipment Purchases of intangibles (computer software) Net cash outflow from investing activities Cash flows from financing activities Dividends paid Net cash outflow from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the year Exchange losses on cash and cash equivalents Cash and cash equivalents at end of the year Free cash flow Analysis of free cash flow Net cash generated from operations Net interest received Income tax paid Purchases of property, plant and equipment Purchases of intangibles (computer software) Free cash flow Note 12 11 21 12 11 8 20 2014 £’000 19,629 599 1,632 878 (57) 14 – – 22,695 64 503 23,262 (5,239) 18,023 108 – (4,919) (78) (4,889) (8,738) (8,738) 4,396 18,305 (222) 22,479 23,262 108 (5,239) (4,919) (78) 13,134 2013 £’000 20,510 666 799 468 (456) – (496) (693) 20,798 (309) (36) 20,453 (4,249) 16,204 151 (14,892) (376) (34) (15,151) (7,608) (7,608) (6,555) 25,096 (236) 18,305 20,453 151 (4,249) (376) (34) 15,945 The Directors consider that the free cash flow analysis above indicates the cash generated from normal activities excluding acquisitions and dividends paid. The notes on pages 24 to 48 form part of these financial statements. RWS Holdings plc 23 Notes to the Consolidated Financial Statements 1 ACCOUNTING POLICIES Basis of accounting and preparation of financial statements RWS Holdings plc is a public limited company incorporated and domiciled in England and Wales whose shares are publicly traded on the Alternative Investment Market of the London Stock Exchange. The Group financial statements consolidate those of the Parent Company and its subsidiaries. The Parent Company financial statements present information about the Company as a separate entity and not about its Group. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, IFRIC interpretations and Companies Act 2006 applicable to Companies reporting under IFRS. The consolidated financial statements have been prepared under the historic cost convention as modified, where applicable, by the revaluation of financial assets and financial liabilities at fair value through the income statement. The principal accounting policies adopted in the preparation of the consolidated financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated. The Company has elected to prepare the Company financial statements in accordance with UK Accounting Standards. These are presented on pages 49 to 55 and the accounting policies in respect of Company information are set out on pages 51 to 52. Changes in accounting policies There were no new standards, interpretations and amendments, applied for the first time from 1 October 2013, that have had a material effect on the financial statements. Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for later accounting periods and which have not been adopted early. There were no new standards, amendments or interpretations that are expected to have a material impact on the Group. 24 RWS Holdings plc The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and judgements that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from these estimates. Judgements include classification of transactions between the income statement and the balance sheet, whilst estimations focus on areas such as carrying values and estimated lives. Consolidation A subsidiary is an entity controlled, directly or indirectly. Control is regarded as the power to govern the financial and operating policies of the entity so as to benefit from its activities. The financial results of subsidiaries are consolidated from the date control is obtained until the date that control ceases. All intra-group transactions are eliminated as part of the consolidation process. On 11 November 2003, RWS Holdings plc became the legal parent company of Bybrook Limited and its subsidiary undertakings. The substance of the combination was that Bybrook Limited acquired RWS Holdings plc in a reverse acquisition. Goodwill arose on the difference between the fair value of the legal parent’s share capital and the fair value of its net liabilities at the reverse acquisition date. This goodwill was written-off in the year ended 30 September 2004, because the goodwill had no intrinsic value. Business combinations Under the requirements of IFRS 3 (revised), all business combinations are accounted for using the acquisition method (‘acquisition accounting’). The cost of a business acquisition is the aggregate of fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the acquirer. Following IFRS 3 (revised) becoming effective, costs directly attributable to business combinations are expensed, where previously they were treated as part of the cost of the acquisition. The cost of a business combination is allocated at the acquisition date by recognising the acquiree’s identifiable assets, liabilities and contingent liabilities Notes to the Consolidated Financial Statements (continued) that satisfy the recognition criteria, at their fair values at that date. The acquisition date is the date on which the acquirer effectively obtains control of the acquiree. An intangible asset, such as customer relationships or trademarks, is recognised if it meets the definition of an intangible asset under IAS 38 ‘Intangible assets’. The excess of the cost of the acquisition over the fair value of the Group’s share of the net assets acquired is recorded as goodwill. Goodwill and other intangible assets Intangible assets are stated at historic purchase cost less accumulated amortization. Goodwill arising on acquisitions is capitalised and subject to an impairment review, both annually and when there is an indication that the carrying value may not be recoverable. At the date of acquisition, goodwill is allocated at the lowest levels for which there are separate identifiable cash flows for the purpose of impairment testing. Assets which have suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. Intangible assets separately identified from goodwill acquired as part of a business combination are initially stated at fair value. The fair value attributable is determined by discounting the expected future cash flows to be generated from that asset at the risk adjusted weighted average cost of capital appropriate to that intangible asset. The assets are amortized over their estimated useful lives which range from five to ten years. Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These assets are amortized using the straight line method over their estimated useful lives (not exceeding three years). Revenue recognition Group revenue represents the fair value of the consideration received or receivable for the rendering of services, net of value added tax and other similar sales based taxes, rebates and discounts and after eliminating inter-company sales. Revenue, other than subscription and commission income, is recognised as a translation, filing or search is fulfilled in accordance with agreed client instructions and includes, where contracts are partially completed, the revenue on the element of the work performed to date. Subscription revenue is recognised on a straight line basis over the term during which the service is provided. Commission income is credited to revenue upon securing the related sale. Accrued income represents the full receivable value of work performed to date. Foreign currencies The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in pounds sterling, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements. In preparing the individual financial statements of the individual companies, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the reporting date. Non-monetary items that are measured in terms of historical cost in foreign currency are not retranslated. Exchange differences on all transactions are taken to operating profit in the Statement of Comprehensive Income. In the consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated at exchange rates prevailing on the reporting date. Income and expense items are translated at the average exchange rates, which approximate to actual rates, for the relevant accounting period. Exchange differences arising, if any, are classified as other comprehensive income and recognised in the Group’s foreign currency reserve. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. The Group has elected to treat goodwill and fair value adjustments arising on acquisitions before the date of transition to IFRSs as sterling-denominated assets and liabilities. RWS Holdings plc 25 Notes to the Consolidated Financial Statements (continued) Segment information Segment information reflects how management controls the business. This is primarily by the type of service supplied and then by the geographic location of the business units delivering those services. The assets and liabilities of the segments reflect the assets and liabilities of the underlying companies involved. Property, plant and equipment Property, plant and equipment are stated at historic purchase cost less accumulated depreciation where cost includes the original purchase price of the asset and the costs attributable to bring the asset to its working condition for intended use. The Group’s policy is to write off the difference between the cost of each item of property, plant and equipment and its estimated residual value systematically over its estimated useful life using the straight-line method on the following bases: Freehold land and buildings – Nil to 2% Long leasehold and leasehold improvements – the length of the lease Furniture and equipment – 10% to 33% Motor vehicles – Over six years All items of property, plant and equipment are tested for impairment when there are indications that the carrying value may not be recoverable. Any impairment losses are recognised immediately in the Statement of Comprehensive Income. Any assets which have suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. The gain or loss on disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the Statement of Comprehensive Income. Associates Where the Group has the power to participate in (but not control) the financial and operating policy decisions of another entity, it is classified as an associate. Associates are initially recognised in the Consolidated Statement of Financial Position at cost. excess of the Group’s investment in the associate are not recognised unless there is an obligation to make good those losses. Any premium paid for an associate above the fair value of the Group’s share of the identifiable assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the associate. Where there is objective evidence that the investment in an associate has been impaired the carrying amount of the investment is tested for impairment in the same way as other non- financial assets. Derivative financial instruments The Group uses derivative financial instruments to manage its exposure to foreign exchange arising from operational activities. Derivative financial instruments are initially measured at fair value (with direct transaction costs being included in the Statement of Comprehensive Income as an expense) and are subsequently remeasured to fair value at each reporting date. Changes in carrying value are recognised in the Statement of Comprehensive Income. Trade and other receivables Trade and other receivables represent amounts due from customers in the normal course of business. All amounts are initially stated at fair value and are subsequently measured at amortized cost, using the effective interest rate method. Cash and cash equivalents Cash and cash equivalents comprise cash in hand, deposits held at call with banks and highly liquid investments with original maturities of three months or less and are subject to an insignificant risk of changes in value. Taxation The tax expense represents the sum of the tax currently payable and deferred tax. Tax is recognised in the Statement of Comprehensive Income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. The Group’s share of post-acquisition profits and losses is recognised in the Consolidated Statement of Comprehensive Income, except that losses in The current tax payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the Statement of Comprehensive Income 26 RWS Holdings plc Notes to the Consolidated Financial Statements (continued) because it excludes items that are not taxable or deductible. The Group’s current tax assets and liabilities are calculated using tax rates that have been enacted or substantively enacted by the reporting date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax is calculated using tax rates that are expected to apply in the period when the liability is settled or the asset realised based on tax rates that have been enacted or substantively enacted at the reporting date. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Employee benefits The Group operates a defined contribution pension plan and has no further obligations once the contributions have been paid. Payments to the plan are recognised in the Statement of Comprehensive Income as they fall due. Paid holidays are regarded as an employee benefit and as such are charged to the Statement of Comprehensive Income as the benefits are earned. An accrual is made at the balance sheet date to reflect the fair value of holidays earned but not yet taken. Trade and other payables Trade and other payables are initially measured at fair value, and are subsequently measured at amortized cost, using the effective interest rate method. Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event from which it is probable that it will result in an outflow of economic benefits that can reasonably be estimated. Leases Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease rental payments are recognised as an expense in the Statement of Comprehensive Income on a straight-line basis over the lease term. The benefit of lease incentives is spread over the term of the lease. Capital The Group considers its capital to comprise its ordinary share capital, share premium, other reserves and accumulated retained earnings. In managing its capital, the Group’s primary objective is to ensure its continued ability to provide a consistent return for its equity shareholders through a combination of capital growth and distributions. The Group has historically considered equity funding as the most appropriate form of capital for the Group but keeps this under review bearing in mind the risks, costs and benefits to equity shareholders of introducing debt finance. Equity issued by the Company is recorded as the proceeds received net of direct issue costs. Share based payments The Group and Company provide benefits to certain employees (including certain Executive Directors), in the form of share based payment transactions whereby employees render services in exchange for rights over shares in the form of share options. These equity settled share based transactions are measured as the fair value of the share option at the grant date. The fair value excludes the effect of non market based vesting conditions. Details regarding the determination of the fair value of these options can be seen in note 19. The fair value determined at the grant date of the share options is expensed on a straight line basis over the vesting period, based on the Group’s RWS Holdings plc 27 Notes to the Consolidated Financial Statements (continued) Fair value of identifiable net assets acquired Upon acquisition of a business the fair value of identifiable assets and liabilities are calculated. These values are either based on reports obtained from independent 3rd party professional valuers or internally generated discounted cash flow forecasts. Share based payments The Group operates a share based payment scheme. The charge for share based payments is based on the fair value of awards at the date of grant which is partly calculated by use of the Black- Scholes pricing model which requires judgement to be made regarding volatility, dividend yield, risk free rates of return and expected option lives. The inputs used in these pricing models to calculate the fair values are set out in note 19. An element of the share based payment charge also relies on certain assumptions over the future performance of the share price which may not be met or may be exceeded by the time the relevant awards vest. Useful economic lives of intangible and tangible assets The useful economic lives and residual values of assets have been established using historic experience and an assessment of the nature of the assets involved. Provisions Provisions are assessed annually in accordance with the Group’s accounting policy. Provisions are recognised when it is probable that an outflow of economic benefits will occur as a result of a past event or transaction and a reliable estimate of the outflow can be made. In the event that estimates are wrong, this may impact the financial statements in future periods. estimate of the number of share options that will vest. At each balance sheet date the Group revises its estimate of the number of options expected to vest as a result of the effect on non market based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in the Consolidated Statement of Comprehensive Income such that the cumulative expense reflects the revised estimate with a corresponding adjustment to equity reserves. Dividends Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial statements in the period in which dividends are approved by the Company’s shareholders. 2 CRITICAL JUDGEMENTS AND ACCOUNTING ESTIMATES IN APPLYING THE GROUP’S ACCOUNTING POLICIES The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The estimates and assumptions are reviewed on an ongoing basis. In the future, actual experience may vary materially from management expectation. Key sources of estimation uncertainty The following estimates and assumptions are considered to have a risk of causing a material adjustment to the carrying amounts of assets and liabilities in the financial statements. Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value in use of the cash- generating units to which goodwill has been allocated. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the cash-generating units and the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the cash- generating unit. More details on the carrying value of goodwill is included in note 10. 28 RWS Holdings plc Notes to the Consolidated Financial Statements (continued) 3 SEGMENT INFORMATION The chief operating decision maker has been identified as the Board. The Board reviews the Group’s internal reporting in order to assess performance and allocate resources, and to date has divided the Group into four reportable segments. The Board assesses the performance of the segments based on revenue and profit/(loss) from operations. These are measured on a basis consistent with the income statement. The Group comprises 4 divisions, Patent and Commercial translations (for management reporting purposes analysed between UK and Overseas), the Information division, offering a full range of patent search, retrieval and monitoring services and inovia, a global provider of web-based filing solutions. The unallocated segment relates to corporate overheads, assets and liabilities. The segment results for the year ended 30 September 2014 are as follows: Revenue Patent translation Commercial translation inovia Information Revenue Operating profit/(loss) before charging: Amortization of customer relationships and trademarks Share based payment (charges)/credit Profit/(loss) from operations Finance income Finance expense Profit before taxation Taxation Profit for the year Translations UK Translations Overseas inovia Information Unallocated £’000 £’000 £’000 £’000 £’000 47,738 10,502 – – 58,240 16,383 (1,429) (320) 14,634 4,288 5,499 – – 9,787 2,175 – (117) 2,058 – – 19,373 – 19,373 967 – – 967 – – – 6,156 6,156 3,135 (143) 19 3,011 – – – – – (624) – (460) (1,084) Group £’000 52,026 16,001 19,373 6,156 93,556 22,036 (1,572) (878) 19,586 57 (14) 19,629 (4,430) 15,199 Overseas intercompany revenues to the UK amounting to £4.8 million have been eliminated on consolidation. All sales between segments are carried out on an arm's length basis. RWS Holdings plc 29 Notes to the Consolidated Financial Statements (continued) 3 SEGMENT INFORMATION (CONTINUED) The segment results for the year ended 30 September 2013 are as follows: Revenue Patent translation Commercial translation inovia Information Revenue Operating profit/(loss) before charging: Amortization of customer relationships and trademarks Share based payment charges Profit/(loss) from operations Finance income Share in results of associate Gain on disposal of associate Profit before taxation Taxation Profit for the year Translations UK Translations Overseas inovia Information Unallocated £’000 £’000 £’000 £’000 £’000 49,035 11,010 – – 60,045 15,973 (584) (160) 15,229 4,505 6,366 – – 10,871 2,322 – (59) 2,263 – – 1,186 – 1,186 129 – – 129 – – – 5,302 5,302 2,390 (143) (19) 2,228 – – – – – (754) – (230) (984) Group £’000 53,540 17,376 1,186 5,302 77,404 20,060 (727) (468) 18,865 456 496 693 20,510 (4,592) 15,918 Overseas intercompany revenues to the UK amounting to £4.2 million have been eliminated on consolidation. All sales between segments are carried out on an arms length basis. The segment assets and liabilities at 30 September 2014 are as follows: Total assets Total liabilities Capital expenditure Depreciation Amortization Translations UK Translations Overseas inovia Information Unallocated £’000 £’000 £’000 £’000 £’000 Group £’000 70,247 5,739 5,448 6,148 8,239 95,821 6,851 1,893 2,881 2,709 3,053 17,387 4,614 345 1429 217 94 60 6 1 – 127 98 143 33 61 – 4,997 599 1,632 Capital expenditure comprises additions to property, plant and equipment and intangible assets, including additions from acquisitions through business combinations. 30 RWS Holdings plc Notes to the Consolidated Financial Statements (continued) The segment assets and liabilities at 30 September 2013 are as follows: Total assets Total liabilities Capital expenditure Depreciation Amortization Translations UK Translations Overseas inovia Information Unallocated £’000 £’000 £’000 £’000 £’000 62,744 6,451 6,408 367 584 5,250 1,849 4,508 4,081 5,286 1,950 11,605 3,349 159 98 65 8 – – 88 142 143 126 59 7 Group £’000 89,393 17,680 6,789 666 799 Capital expenditure comprises additions to property, plant and equipment and intangible assets, including additions from acquisitions through business combinations. The majority of unallocated assets relates to cash held by the Parent Company. Segment assets and liabilities are reconciled to the Group’s assets and liabilities as follows: Segment assets and liabilities Unallocated: Deferred tax Property, plant and equipment Non-financial assets Other financial assets and liabilities Total unallocated Assets 2014 £’000 Liabilities 2014 £’000 Assets 2013 £’000 Liabilities 2013 £’000 87,582 14,334 77,788 14,331 250 102 216 7,671 8,239 95,821 1,712 – 483 858 3,053 17,387 189 130 271 11,015 11,605 89,393 2,048 – 771 530 3,349 17,680 The assets allocated to a segment consist primarily of operating assets such as property, plant and equipment, intangible assets, goodwill, receivables and cash. The liabilities allocated to a segment comprise primarily trade payables and other operating liabilities. The Group’s operations are based in the UK, Continental Europe, Asia, United States of America and Australia. The table below shows turnover by the geographic market in which customers are located. UK Continental Europe Asia, United States of America and Australia 2014 £’000 16,511 46,134 30,911 93,556 2013 £’000 11,401 43,522 22,481 77,404 No customer accounted for more than 7% of Group turnover in either the current or prior year. RWS Holdings plc 31 Notes to the Consolidated Financial Statements (continued) 3 SEGMENT INFORMATION (CONTINUED) The following is an analysis of revenue, carrying amount of assets, and additions to property, plant and equipment and intangible assets, analysed by the geographical area in which the Group’s undertakings are located. Revenue Segment assets 2014 £’000 64,396 5,499 23,661 93,556 2013 £’000 65,347 6,335 5,722 77,404 2014 £’000 84,633 2,588 8,600 95,821 2013 £’000 79,636 2,440 7,317 89,393 Capital expenditure 2014 2013 £’000 £’000 4,774 106 39 4,919 6,656 43 90 6,789 UK Continental Europe Asia, United States of America and Australia 4 PROFIT FROM OPERATIONS This has been arrived at after charging/(crediting): Staff costs (note 5) Depreciation of property, plant and equipment and motor vehicles (note 12) Amortization of intangible assets (note 11) Foreign exchange gains Operating lease rentals: – Property – Plant and equipment Auditor’s remuneration Fees payable to the Company’s auditors and its associates for the audit of the Group’s annual accounts Fees payable to the Company’s auditors and its associates for other services: – The audit of the Company’s subsidiaries – Tax Compliance services – Audit-related assurance services Total fees 5 STAFF COSTS Staff costs (including Directors) comprise: Wages and salaries Social security costs Other Pension costs Share based payment expense (note 19) 2014 £’000 2013 £’000 25,632 599 1,632 (481) 22,091 666 799 (316) 627 132 50 95 60 – 205 621 175 53 87 58 18 216 2014 £’000 2013 £’000 21,847 2,493 414 878 25,632 18,910 2,345 368 468 22,091 The Group operates a defined contribution pension scheme making payments on behalf of employees to their personal pension plans. 32 RWS Holdings plc Notes to the Consolidated Financial Statements (continued) Payments of £414,000 (2013: £368,000) were made in the year and charged to the income statement in the period they fell due. At the year end there were unpaid amounts included within Other Creditors totalling £53,000 (2013: £44,000). Details of Directors’ remuneration and pension contributions are disclosed in the Directors’ Remuneration Report on pages 14 to 16. Key management compensation Short term employee benefits Post employment benefits Share based payments 2014 £’000 2,466 77 878 3,421 2013 £’000 2,434 75 468 2,977 The key management compensation includes the six (2013: seven) Directors of RWS Holdings plc, the five (2013: five) members of the Senior Executive Team who are not Directors of RWS Holdings plc and the four (2013: three) Managing Directors of the operating subsidiary undertakings based overseas. The monthly average number of people employed by the Group, including Directors and part-time employees, during the year was: Production staff Administrative staff 6 FINANCE INCOME AND EXPENSE Finance income – Returns on short-term deposits – Movement in the fair value of foreign currency contracts Finance expense – Interest on deferred consideration relating to an acquisition – Movement in the fair value of foreign currency contracts Net finance income 2014 Number 2013 Number 464 129 593 434 98 532 2014 £’000 2013 £’000 57 – (1) (13) 43 149 307 – – 456 RWS Holdings plc 33 Notes to the Consolidated Financial Statements (continued) 7 TAXATION Taxation recognised in the income statement is as follows: Current tax expense Tax on profit for the current year – UK – Overseas Adjustment in respect of prior years Deferred tax Current year movement Prior year movement Total tax expense in the Statement of Comprehensive Income The table below reconciles the UK statutory tax charge to the Group’s total tax charge. Profit before taxation Notional tax charge at UK corporation tax rate of 22.0% (2013: 23.5%) Effects of: Items not deductible or not chargeable for tax purposes Gain on disposal of associate not chargeable for tax Differences in overseas tax rates Adjustments in respect of prior years Total tax expense for the year 2014 £’000 2013 £’000 4,077 717 89 4,883 (395) (58) 4,430 2014 £’000 19,629 4,318 (116) – 139 89 4,430 4,097 861 (180) 4,778 (196) 10 4,592 2013 £’000 20,510 4,820 (160) (163) 275 (180) 4,592 Factors that may affect future tax charges The standard rate of corporation tax in the UK changed from 24.0% to 23.0% with effect from 1 April 2013. Legislation was enacted to reduce the main rate of corporation tax from 23.0% to 21.0% with effect from 1 April 2014. The main rate will reduce further to 20% (and will become unified with the small companies rate) from 1 April 2015. The reductions in tax rate to 21% and subsequently to 20% were substantively enacted for the purposes of IAS 12, ‘Income taxes’, on 2 July 2013. As these rate changes have been substantively enacted at the balance sheet date, their effects have been included in these financial statements. 8 DIVIDENDS TO SHAREHOLDERS Final, paid 21 February 2014 (2013: paid 22 February 2013) Interim, paid 25 July 2014 (2013: paid 19 July 2013) 34 RWS Holdings plc 2014 2014 2013 2013 pence per share 15.75 4.90 20.65 £’000 6,665 2,073 8,738 pence per share 13.48 4.50 17.98 £’000 5,704 1,904 7,608 Notes to the Consolidated Financial Statements (continued) The Directors recommend a final dividend in respect of the financial year ended 30 September 2014 of 18.00 pence per Ordinary share to be paid on 27 February 2015 to shareholders who are on the register at 30 January 2015. This dividend is not reflected in these financial statements as it does not represent a liability at 30 September 2014. The final proposed dividend will reduce shareholders’ funds by an estimated £7.6 million. 9 EARNINGS PER ORDINARY SHARE Basic earnings per share are based on the post-tax group profit for the year and a weighted average number of Ordinary shares in issue during the year calculated as follows: Weighted average number of Ordinary shares in issue for basic earnings Dilutive impact of share options Weighted average number of Ordinary shares for diluted earnings 2014 2013 42,315,968 410,758 42,726,726 42,315,968 23,190 42,339,158 Adjusted earnings per Ordinary share is also presented to eliminate the effects of amortization of customer relationships, trademarks and share options and in 2013 a gain on sale of an associate. This presentation shows the trend in earnings per Ordinary share that is attributable to the underlying trading activities. The reconciliation between the basic and adjusted figures is as follows: 2014 Basic earnings per share 2013 Basic earnings per share 2014 Diluted earnings per share pence pence pence 2013 Diluted earnings per share pence 2014 £’000 2013 £’000 Profit for the year Post tax adjustments Amortization of customer relationships, trademarks and technology Gain on sale of Associate Charges for share based payments Adjusted earnings 15,199 15,918 35.9 37.6 35.6 37.6 1,242 – 694 17,135 574 (547) 370 16,315 3.0 – 1.6 40.5 1.4 (1.3) 0.9 38.6 2.9 – 1.6 40.1 1.4 (1.3) 0.9 38.6 10 GOODWILL Cost and net book value At 1 October Additions Exchange adjustments At 30 September 2014 £’000 30,780 – (268) 30,512 restated 2013 £’000 14,053 16,800 (73) 30,780 In the year management finalised the fair value adjustments relating to the acquisition of inovia in 2013. This has resulted in a £455,000 increase to goodwill. Further details can be seen in note 21. RWS Holdings plc 35 Notes to the Consolidated Financial Statements (continued) 10 GOODWILL (CONTINUED) During the year, goodwill was tested for impairment. The recoverable amount for each cash-generating unit (“CGU”) has been determined from value in use calculations. The key assumptions for the value in use calculations are those regarding discount rates, growth rates and expected changes to selling prices and direct costs during the period. All of these assumptions have been reviewed during the year. Management estimates discount rates using pre tax rates that reflect current market assessments of the time value of money and the risk specific to each CGU, this has resulted in a range of discount rates being used within the calculations. The growth rates used in the calculations are based on a review of both recently achieved growth rates and a prudent estimate of likely future growth rates for each specific market sector. Key assumptions for the value in use calculations are as follows: Translations UK Translations Continental Europe inovia Information Long Term Growth Rate Discount Rates 2% 2% 2% 2% 11% 12% 17% 12% As part of the value in use calculation, management prepare cash flow forecasts derived from the most recent financial budgets, approved by the Board of Directors for the next 12 months, and extrapolates the cash flows for 5 years based on an estimated growth rate. This rate does not exceed the expected growth rate for the relevant markets of each CGU. The Group has conducted a sensitivity analysis on the carrying value of each of the CGUs. For the Translations UK and Information CGUs there are no reasonably possible changes in the key assumptions that could cause the carrying value of the CGUs to exceed their recoverable amounts. For the Continental Europe and inovia CGUs a reduction in growth rates of 56% and 64% respectively would be required to cause the carrying value of goodwill to equal the recoverable amount. Based on the result of the value in use calculations undertaken, the Directors conclude that the recoverable amount in the CGUs exceeds its carrying value. The allocation of goodwill to CGUs is as follows: Translations UK Continental Europe inovia Information At 30 September 2014 £’000 2013 £’000 17,751 4,143 21,894 6,837 1,781 30,512 17,751 4,411 22,162 6,837 1,781 30,780 Subsidiaries A list of the subsidiaries whose results or financial position principally affect the figures shown in the Group financial statements is shown in note 4 to the Company’s separate financial statements. 36 RWS Holdings plc Notes to the Consolidated Financial Statements (continued) 11 INTANGIBLE ASSETS Cost At 1 October 2012 Additions Disposals Currency translation At 30 September 2013 Additions Disposals Currency translation At 30 September 2014 Accumulated amortization and impairment At 1 October 2012 Amortization charge Disposals Currency translation At 30 September 2013 Amortization charge Disposals Currency translation At 30 September 2014 Net book value At 1 October 2012 At 30 September 2013 At 30 September 2014 Technology Trademarks Customer relationships £’000 £’000 £’000 Software £’000 Total £’000 – 2,011 – (37) 1,974 – – – 1,974 – – – – – 385 – 10 395 – 1,974 1,579 236 – – 12 248 – – (16) 232 220 17 – 11 248 – – (16) 232 16 – – 6,324 4,368 – 109 10,801 – – (218) 10,583 2,187 710 – 70 2,967 1,187 – (123) 4,031 4,137 7,834 6,552 339 34 (61) 13 325 78 (10) (22) 371 218 72 (61) 8 237 60 (6) (17) 274 121 88 97 6,899 6,413 (61) 97 13,348 78 (10) (256) 13,160 2,625 799 (61) 89 3,452 1,632 (6) (146) 4,932 4,274 9,896 8,228 Trademarks, Technology and Customer Relationships are amortized over 5 to 10 years and Software over 3 years. RWS Holdings plc 37 Notes to the Consolidated Financial Statements (continued) 12 PROPERTY, PLANT AND EQUIPMENT Cost At 1 October 2012 Currency translation Additions Acquisitions Disposals At 30 September 2013 Currency translation Additions Disposals At 30 September 2014 Accumulated depreciation At 1 October 2012 Currency translation Acquisitions Depreciation charge Disposals At 30 September 2013 Currency translation Depreciation charge Disposals At 30 September 2014 Net book value At 1 October 2012 At 30 September 2013 At 30 September 2014 Freehold land and buildings Leasehold land, buildings and improvements Furniture and equipment £’000 £’000 £’000 Motor vehicles £’000 12,375 – – – – 12,375 – 4,538 – 16,913 311 – – 178 – 489 – 215 – 704 12,064 11,886 16,209 519 – – – – 519 – 62 – 581 262 – – 64 – 326 – 4 – 330 257 193 251 2,022 9 376 13 (78) 2,342 (39) 319 (9) 2,613 1,109 6 4 420 (73) 1,466 (27) 378 (9) 1,808 913 876 805 79 – – – – 79 – – – 79 28 – – 4 – 32 – 2 – 34 51 47 45 Total £’000 14,995 9 376 13 (78) 15,315 (39) 4,919 (9) 20,186 1,710 6 4 666 (73) 2,313 (27) 599 (9) 2,876 13,285 13,002 17,310 The Freehold addition in 2014 includes £4,300,000 of new office space on the Chiltern Park estate for future business expansion. 38 RWS Holdings plc Notes to the Consolidated Financial Statements (continued) 13 DEFERRED TAX The deferred tax assets and liabilities and the movements during the year, before offset of balances within the same jurisdiction, are as follows: Deferred tax assets At 1 October 2012 Credited/(charged) to income At 30 September 2013 Credited/(charged) to income At 30 September 2014 Deferred tax liabilities At 1 October 2012 Acquisition of subsidiary Charged/(credited) to income Credited to equity At 30 September 2013 Charged/(credited) to income Credited to equity At 30 September 2014 Accelerated tax depreciation Other temporary differences £’000 £’000 Share Options £’000 – 58 58 111 169 67 (5) 62 (4) 58 161 (11) 150 (24) 126 Accelerated tax depreciation Intangibles £’000 £’000 211 – 83 – 294 18 – 312 956 1,340 (227) (20) 2,049 (330) (7) 1,712 2014 £’000 Total £’000 228 42 270 83 353 Total £’000 1,167 1,340 (144) (20) 2,343 (312) (7) 2,024 2013 £’000 Deferred tax assets Deferred tax liabilities Net deferred tax balance at 30 September 353 (2,024) (1,671) 270 (2,343) (2,073) Deferred tax is calculated using tax rates that are expected to apply in the period when the liability is settled or the asset realised based on tax rates that have been enacted or substantively enacted at the reporting date. RWS Holdings plc 39 Notes to the Consolidated Financial Statements (continued) 14 TRADE AND OTHER RECEIVABLES Trade receivables Less: allowance for doubtful debts Other receivables Prepayments and accrued income 2014 £’000 13,792 (144) 13,648 131 2,606 16,385 2013 £’000 13,523 (156) 13,367 222 2,985 16,574 Trade receivables are non-interest bearing and generally have a 30 day term. Due to their short maturities, the carrying amount of trade and other receivables approximate to their fair value. Trade receivables net of allowances are held in the following currencies: Sterling Euros Japanese Yen US Dollars Swiss Francs Other The ageing of trade receivables at the reporting date was: Not past due Past due 1-30 days Past due 31-60 days Past due 61-90 days Past due > 90 days Movement in allowance for doubtful debts: At 1 October Utilised Charged At 30 September 2014 £’000 2,555 6,311 444 3,656 504 178 13,648 2014 £’000 9,191 3,268 805 288 96 13,648 2013 £’000 2,423 5,907 562 4,110 351 14 13,367 2013 £’000 8,390 3,657 935 311 74 13,367 2014 £’000 2013 £’000 156 (23) 11 144 161 (14) 9 156 Given the profile of the Group’s customers, no further credit risk has been identified with trade receivables other than those balances for which an allowance has been made. 40 RWS Holdings plc Notes to the Consolidated Financial Statements (continued) 15 TRADE AND OTHER PAYABLES Due in less than one year Trade payables Other tax and social security payable Other creditors Accruals and deferred income 2014 £’000 2013 £’000 5,771 1,015 590 4,901 12,277 4,944 969 737 4,862 11,512 The carrying amount of trade and other payables approximates to their fair value. Trade payables normally fall due within 30 to 60 days. Due in more than one year Rental deposits 2014 £’000 2013 £’000 30 – This long term creditor relates to rental deposits received in relation to the leasing of a portion of the newly acquired property, Randall House. 16 PROVISIONS Due in less than one year At 1 October Charged to the income statement Utilised Released Transferred from provisions due in more than one year At 30 September 2014 £’000 2013 £’000 740 – (55) (281) 76 480 336 404 – – – 740 Of the above provision, £404,000 relates to a claim made by a third party for the cost of work performed during the sale of inovia to RWS in September 2013. This is the full value of the claim, which is expected to be determined by arbitration in the first half of 2015. Due in more than one year At 1 October Utilised Charged to the income statement Transferred to provisions due in less than one year At 30 September 2014 £’000 2013 £’000 530 (76) – (76) 378 530 (75) 75 – 530 This long term provision relates solely to monthly ongoing future pension payments to a third party and will continue for the remainder of the recipients life. RWS Holdings plc 41 Notes to the Consolidated Financial Statements (continued) 17 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT Categories of financial instruments All financial assets other than derivative assets are classified as loans and receivables, and all financial liabilities are held at amortized cost. The principal financial assets and liabilities on which financial risks arise are as follows: Financial assets Trade and other receivables – current Foreign exchange derivatives Cash and cash equivalents Financial liabilities Trade and other payables – current Carrying value 2014 £’000 Carrying value 2013 £’000 15,246 554 22,479 38,279 8,486 8,486 15,303 566 18,305 34,174 7,655 7,655 Trade and other receivables – current includes accrued revenue of £1,598,000 (30 September 2013: £1,936,000). Trade and other payables – current includes Trade payables, other tax and social security balances plus certain other selected accruals. Financial risk management objectives and policies The principal financial risks to which the Group is exposed are those of liquidity, interest rate, credit, foreign currency and capital. Each of these is managed as set out below. The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group’s Finance Director. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s competitiveness and flexibility. Liquidity risk In addition to its cash balances the Group has an overdraft facility of £1.5 million which was undrawn as at the year end. Most available funds, after meeting working capital requirements, are invested in sterling, euro and US dollar deposits with maturities not exceeding three months. Accordingly, liquidity risk is considered to be low. Interest rate risk The majority of the Group’s cash balances are held with its principal bankers earning interest at variable rates of interest. The target yield on deposits is UK base rate plus a margin. To the extent the sterling overdraft is utilised it attracts a rate of base plus 2%. 42 RWS Holdings plc Notes to the Consolidated Financial Statements (continued) The currency profiles of the Group’s cash and cash equivalents at 30 September 2014 are set out below. Assets – Cash and cash equivalents Sterling US Dollar Euros Yen Swiss Francs Other Floating rate Floating rate 2013 2014 £’000 £’000 9,607 4,324 6,175 961 1,206 206 22,479 11,645 3,317 2,144 597 585 17 18,305 If interest rates changed by 1%, the profit and loss impact would not be material to the Group’s results in either the current or prior year. irectors believe that a change of 1% represents a reasonable sensitivity of the Group’s interest rate risk. D The The analysis assumes that all other variables remain constant. Credit risk The Group is exposed to credit risk on cash and cash equivalents, derivative instruments and trade and other receivables. Cash balances, predominantly held in the UK are placed with the Group’s principal bankers who are rated A by Standard & Poor’s, and also with an additional two institutions carrying an A and A- rating. Trade receivable exposures are managed locally in the operating units where they arise. The client base tends to be major blue chip organisations or self regulated bodies such as patent agents and legal firms. As a result the Group rarely considers a credit check is appropriate but, and where management have doubt, they will use their judgement and may impose a credit limit or require payment in advance. No client accounts for more than 7% (2013: 6%) of group revenues and there were no significant concentrations of credit risk at the balance sheet date. Provisions for doubtful debts are established in respect of specific trade and other receivables where it is deemed they may be irrecoverable. Foreign currency risk Approximately 51% (2013: 50%) of group external sales in the reporting period were denominated in Euros and 20% in US dollars (2013: 17%) while the cost base of the Group is predominantly denominated in sterling. The Group has established spot and forward foreign exchange facilities with its principal bankers and Investec at a level that enables it to manage most of its Euro and US dollar currency exposures on expected future sales over the next twelve months. The Group’s policy is, where possible, to allow Group entities to settle liabilities denominated in the functional currency with cash generated in that currency from their own operations. Transaction exposures arise from non-local currency sales and purchases by subsidiaries with gains and losses on transactions arising from fluctuations in exchange rates being recognised in the income statement. In entities which have a material exposure the policy is to seek to manage the risk using forward foreign exchange contracts. RWS Holdings plc 43 Notes to the Consolidated Financial Statements (continued) 17 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED) Assets and liabilities of Group entities located in Germany, Switzerland, the United States, Japan and China are principally denominated in their respective currencies and are therefore not materially exposed to currency risk. On translation to sterling gains or losses arising are recognised directly in equity. The carrying amounts of the Group’s material foreign currency denominated monetary assets and liabilities at the reporting date are as follows: Euros US Dollars Swiss Francs Yen Other Liabilities 2014 £’000 Liabilities 2013 £’000 2,052 185 – 408 59 2,704 942 186 – – 59 1,187 Assets 2014 £’000 11,046 5,345 1,277 21 92 17,781 Assets 2013 £’000 6,429 2,997 577 457 121 10,581 Foreign currency sensitivity analysis The following table details the Group’s sensitivity to a 10% increase and decrease in sterling against the major currencies listed in the table above. The sensitivity analysis includes only the outstanding denominated monetary items and adjusts their translation at the end of the period for a 10% change in the sterling exchange rate. A positive number below indicates an increase in profit and other equity where sterling weakens against the relevant currency. For a 10% strengthening of sterling against the relevant currency, there would be an equal and opposite impact on profit and other equity, and the balances would be negative. The sensitivities below are based on the exchange rates at the reporting date used to convert the assets or liabilities to sterling. Euros US Dollars Swiss Francs Yen 818 469 116 (35) 1,368 Profit and loss impact 2013 2014 £’000 £’000 499 256 52 42 849 If the exchange rate on uncovered exposures were to move significantly between the year end and date of payment or receipt there could be an impact on the Group’s profit. As all financial assets and liabilities are short-term in nature this risk is not considered to be material. Whilst the table above indicates the Group’s gross exposure, in practice this would be reduced as a result of the forward foreign currency contracts in place. The fair value of the forward foreign currency contracts at 30 September 2014 was £554,000 which was confirmed to the valuation provided by Barclays Bank plc and Investec respectively. 44 RWS Holdings plc Notes to the Consolidated Financial Statements (continued) The Group’s derivative financial instruments in place at the year end are as follows: Forward foreign currency exchange contracts An analysis of the Group’s forward contracts maturity is as follows: Up to 3 months 3 to 6 months 6 to 12 months 2014 £’000 2013 £’000 554 566 2014 £’000 186 105 263 554 2013 £000 139 137 290 566 Capital risk The Group considers its capital to comprise its ordinary share capital, share premium, other reserves and accumulated retained earnings. In managing its capital, the Group’s primary objective is to ensure its continued ability to provide a consistent return for its equity shareholders through a combination of capital growth and distributions. The Group has historically considered equity funding as the most appropriate form of capital for the Group but keeps this under review bearing in mind the risks, costs and benefits to equity shareholders of introducing debt finance. Following dividend payments of £8,738,000, closing reserves are £78,434,000 and there is no external debt finance. The Group is not subject to externally imposed capital requirements. 18 SHARE CAPITAL Authorised Ordinary shares of 5 pence each Allotted, called up and fully paid At beginning and end of year 2014 Number 2014 £’000 2013 Number 2013 £’000 100,000,000 5,000 100,000,000 5,000 42,315,968 2,116 42,315,968 2,116 RWS Holdings plc 45 Notes to the Consolidated Financial Statements (continued) 19 SHARE BASED PAYMENT On 6 April 2013 the Company adopted a new share option scheme for senior employees. Under the scheme, options to purchase ordinary shares are granted by the Board of Directors, subject to the exercise price of the option being not less than the market value at the grant date. The options typically vest after a period of 3 years and the vesting schedule is subject to predetermined overall company selection criteria. In the event that the option holder’s employment is terminated, the option may not be exercised unless the Board of Directors so permits. The options expire 8 years from the date of grant. Number of approved options Number of unapproved options Vesting date Exercise Price Grant Date approved options unapproved options Lapse Date 32,501 1,660,141 6.46 3 April 2013 3 April 2016 3 April 2015 3 April 2021 A charge of £878,000 (2013: £468,000) has been made in the accounts relating to share options all of which related to equity settled share based payment transactions. No options were exercised during the year. The fair values of the share option is estimated as at the date of grant using the Black-Scholes option pricing model. The following table lists the range of assumptions applied to the options granted in the respective period shown. Weighted average share price at grant Weighted average exercise price Expected life of option (years) Volatility (%) Dividend yield (%) Risk free interest rate (%) Option value Approved Option Scheme Unnapproved Option Scheme 6.46 6.46 3 33.5 2.69 2 1.31 6.46 6.46 2 33.5 2.69 2 1.11 Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous 3 years. 20 CASH AND CASH EQUIVALENTS Cash at bank and in hand Short-term deposits 2014 £’000 12,990 9,489 22,479 2013 £’000 14,255 4,050 18,305 Short-term deposits have original maturity of three months or less. The fair value of these assets supports their carrying value. There are no restrictions regarding the utilisation of the Group’s cash resources. 46 RWS Holdings plc Notes to the Consolidated Financial Statements (continued) 21 ACQUISITIONS inovia Holdings Pty Limited On 17 September 2013 the Group acquired the remaining two thirds share of inovia Holdings Pty Limited. The fair values disclosed at 30 September 2013 were provisional. These have now been finalised and the balance sheet at 30 September 2013 restated. The adjustments shown below have been reflected in the 2013 balance sheet and all relevant notes. The net assets acquired were: Net assets acquired: Property, plant and equipment Intellectual property Intangible asset – customer relationships Intangible asset – technology based Trade and other receivables Cash and cash equivalents Trade and other payables Provisions Deferred tax liabilities Goodwill on acquisition Total consideration Satisfied by: Cash Deferred consideration Fair value of 33% associate Estimated Fair value adjustments at 30 Sep 2013 Original Book value Estimated Fair value Measurement period at 30 Sep adjustments 2013 Revised Fair value at 30 Sep 2013 £’000 £’000 £’000 £’000 £’000 7 1,025 – – 1,594 1,971 (2,849) – – 1,748 – (1,025) 2,975 2,011 49 – – – (1,047) 2,963 7 – 2,975 2,011 1,643 1,971 (2,849) – (1,047) 4,711 15,106 19,817 14,871 180 4,766 19,817 – – – – (96) 94 (373) (404) – (779) 7 – 2,975 2,011 1,547 2,065 (3,222) (404) (1,047) 3,932 15,561 19,493 14,871 (144) 4,766 19,493 The main factors leading to a recognition of goodwill on the acquisition of inovia Holdings Pty Limited are, the presence of certain intangible assets in the acquired entity which do not qualify for separate recognition such as the assembled workforce and cost synergies within the Group’s operations in the United Kingdom, and, an unidentified proportion representing the balance contributing to profit generation. Goodwill arising from the acquisition of inovia has been allocated to both the inovia and the UK Translations CGU. The allocation is based on management’s assessment of the relative future benefits to each CGU arising from the acquisition. RWS Holdings plc 47 Notes to the Consolidated Financial Statements (continued) 22 RELATED PARTY TRANSACTIONS During the year in the normal course of business, RWS provided translation services worth £113,000 (2013: £81,000) to entities within the Learning Technologies Group plc and Andrew Brode has an interest in this Company. An amount of £2,000 due from Learning Technologies Group plc at 30 September 2014 was discharged in October 2014 (2013: £9,000). 23 COMMITMENTS AND CONTINGENT LIABILITIES The Group had no material capital commitments contracted for but not provided for in the financial statements (2013: £nil). 24 OPERATING LEASE COMMITMENTS Operating lease payments represent rentals payable by the Group for its office properties and certain equipment. Property leases have various terms, escalation clauses and renewal rights. At the reporting date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows: Within one year In the second to fifth years inclusive After five years 2014 £’000 2013 £’000 771 861 478 2,110 806 1,117 29 1,952 25 EVENTS SINCE THE REPORTING DATE No significant events have occurred between the balance sheet date and the date of authorisation of these financial statements. 48 RWS Holdings plc 2 014 P A R E N T C O M P A N Y F I N A N C I A L S T A T E M E N T S RWS Holdings plc 49 Parent Company Financial Statements The following parent entity financial statements are prepared under UK GAAP and relate to the Company and not to the Group. The statement of accounting policies which have been applied to these accounts can be found on pages 51 and 52. Company Balance Sheet at 30 September Registered Company 3002645 Fixed assets Investments Current assets Debtors Cash at bank and in hand Creditors: amounts falling due within one year Net current assets Total assets less current liabilities Capital and reserves Share capital Share premium account Share option reserve Capital reserve Profit and loss account Total shareholders’ funds 2014 £’000 2013 £’000 Note 4 5 6 7 8 8 8 8 8 14,871 14,871 5,984 6,535 12,519 145 12,374 27,245 2,116 3,583 1,346 2,030 18,170 27,245 13,993 13,993 4,013 10,040 14,053 246 13,807 27,800 2,116 3,583 468 2,030 19,603 27,800 The financial statements on pages 50 to 55 were approved by the Board of Directors and authorised for issue on 8 December 2014 and were signed on its behalf by: Andrew Brode Director 50 RWS Holdings plc Notes to the Parent Company Financial Statements 1 ACCOUNTING POLICIES Basis of preparation These financial statements present financial information for RWS Holdings plc as a separate entity, and have been prepared in accordance with the historical cost convention, the Companies Act 2006 and United Kingdom Accounting Standards (UK Generally Accepted Accounting Practice). The Company’s Consolidated Financial Statements, prepared in accordance with International Financial Reporting Standards as adopted by the European Union, are separately presented. The principal accounting policies adopted in these company financial statements are set out below and, unless otherwise indicated, have been consistently applied for all periods presented. In accordance with FRS 18, Accounting policies, the Directors have reviewed the accounting policies of the Company as set out below and consider them to be appropriate. Going concern The Directors believe that preparing these financial statements on the going concern basis is appropriate based on cash flow projections for the foreseeable future. Related party transactions The Company is exempt under the terms of FRS 8, Related party disclosures, from disclosing related party transactions with entities that are part of the Group. Cash flow statement The cash flows of the Company are included in the consolidated cash flow statement of RWS Holdings plc which is included in this annual report. Consequently, the Company is exempt under the terms of FRS1 (revised) from publishing a cash flow statement. The principal accounting policies are: Investments Investments are stated at cost less provision for impairment. Pensions Contributions to personal pension plans are charged to the profit and loss account in the period in which they fall due. Dividend distribution Interim dividends are recorded when they are paid and the final dividends are recorded when they become legally payable. Taxation Current tax, including UK corporation tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Share based payments The Group and Company provide benefits to certain employees (including certain Executive Directors), in the form of share based payment transactions whereby employees render services in exchange for rights over shares in the form of share options. These equity settled share based transactions are measured as the fair value of the share option at the grant date. The fair value excludes the effect of non market based vesting conditions. Details regarding the determination of the fair value of these options can be seen in note 19 of the consolidated financial statements. RWS Holdings plc 51 Notes to the Parent Company Financial Statements (continued) 1 ACCOUNTING POLICIES (CONTINUED) The fair value determined at the grant date of the share options is expensed on a straight line basis over the vesting period, based on the Group’s estimate of share options that will vest. At each balance sheet date the Group revises its estimate of the number of options expected to vest as a result of the effect on non market based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in the Consolidated Statement of Comprehensive Income such that the cumulative expense reflects the revised estimate with a corresponding adjustment to equity reserves. 2 PROFIT FOR THE YEAR The Company has taken advantage of Section 408 of the Companies Act 2006 and has not included its own Profit and Loss Account in these financial statements. The Company profit after tax for the year ended 30 September 2014 under UK GAAP was £7,305,000 (2013: £7,064,000). Audit fees payable in relation to the audit of the financial statements of the Company are £50,000 (2013: £53,000). Fees paid to PwC LLP and its associates for non-audit services to the Company itself are not disclosed in the individual accounts of RWS Holdings plc because the Company’s consolidated accounts are required to disclose such fees on a consolidated basis. 3 DIRECTORS AND EMPLOYEES There were no employees (2013: nil) of the Company other than the Directors. The remuneration of the Directors of RWS Holdings plc for services in all capacities is set out below: Directors’ emoluments Pension costs – paid to the Director’s personal pension scheme 2014 £’000 952 31 983 2013 £’000 965 39 1,004 During the year the Company had 6 (2013: 7) Directors, including three Non-Executive Directors, providing services to the Group. During the year 3 Directors (2013: 4) received contributions to their personal pension schemes. Emoluments of the highest paid Director: Emoluments Pension costs – paid to the Director’s personal pension scheme 2014 £’000 2013 £’000 339 9 348 322 8 330 Details of Directors’ remuneration and pension contributions are disclosed in the Directors’ Remuneration Report on pages 14 to 16. 52 RWS Holdings plc Notes to the Parent Company Financial Statements (continued) 4 INVESTMENTS Cost and net book value at beginning of year Additions – capital contributions Cost and net book value at beginning and end of year 2014 £’000 13,993 878 14,871 2013 £’000 13,525 468 13,993 The Directors consider that the value of the company’s fixed asset investments, which are listed below, is supported by their underlying assets. The following were the principal wholly owned subsidiary undertakings and have been consolidated in the financial statements: Country of incorporation Nature of business Beijing RWS Science & Technology Information Consultancy Co. Ltd RWS Group Deutschland GmbH (formerly Document Service Center GmbH) Eclipse Translations Limited RWS Schweiz GmbH (formerly Ifama GmbH) KK RWS Group Lawyers’ and Merchants’ Translation Bureau Inc RWS Group GmbH RWS Group Limited RWS Information Limited RWS (Overseas) Limited RWS Translations Limited PharmaQuest Limited inovia Pty Holdings Limited China Germany England Switzerland Japan USA Germany England England England England England Australia Patent, technical and legal translations Technical and legal translations Technical and legal translations Technical and legal translations Patent, technical and legal translations Technical and legal translations Technical and legal translations Holding company Patent and technical information searches Holding company Patent, technical and legal translations Technical and medical translations Patent filing All principal subsidiary undertakings, except RWS Group Limited, are held indirectly. 5 DEBTORS Amounts owed by Group undertakings Deferred tax Other debtors Prepayments Amounts due within one year 2014 £’000 5,942 – 14 28 5,984 2013 £’000 3,542 396 18 57 4,013 The amounts owed by Group undertakings are repayable on demand and classified as due within one year. RWS Holdings plc 53 Notes to the Parent Company Financial Statements (continued) 6 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR Trade Creditors Amounts owed to group undertakings Accruals 7 SHARE CAPITAL Authorised Ordinary shares of 5 pence (2013: 5 pence) each Allotted, called up and fully paid Ordinary shares of 5 pence (2013: 5 pence) each At beginning and end of the year 2014 £’000 2013 £’000 6 36 103 145 9 75 162 246 2014 Number 2014 £’000 2013 Number 2013 £’000 100,000,000 5,000 100,000,000 5,000 42,315,968 2,116 42,315,968 2,116 8 SHAREHOLDERS’ FUNDS AND MOVEMENTS ON RESERVES Share capital £’000 2,116 – – – 2,116 Share premium account £’000 3,583 – – – 3,583 Share based payment reserve £’000 468 878 – – 1,346 Total Profit & loss Shareholders’ funds account £’000 £’000 19,603 – (8,738) 7,305 18,170 27,800 878 (8,738) 7,305 27,245 Capital reserve £’000 2,030 – – – 2,030 At beginning of year Credit arising on share based payment charges Dividends Profit for the year At end of year The balance on the capital reserve is an amount not distributable to shareholders and not transferred to the profit and loss account. 9 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS Opening shareholders’ funds Profit for the year Share Options Dividends paid Shareholders’ funds at end of year 54 RWS Holdings plc 2014 £’000 27,800 7,305 878 (8,738) 27,245 2013 £’000 27,876 7,064 468 (7,608) 27,800 Notes to the Parent Company Financial Statements (continued) 10 GUARANTEES AND OTHER FINANCIAL COMMITMENTS In respect of overdraft facilities, the Company, together with certain subsidiary undertakings, has given to the Group’s principal bankers cross-guarantees secured by fixed and floating charges over the assets of the Group. At the end of the year liabilities covered by these guarantees totalled £nil (2013: £nil). 11 RELATED PARTY TRANSACTIONS The Company has taken advantage of the exemption allowed under Financial Reporting Standard No 8 “Related Party Transactions” not to disclose any transactions or balances with entities which are part of the Group as consolidated financial statements of the ultimate parent company are available from Companies House. 12 POST BALANCE SHEET EVENTS There have been no events since 30 September 2014 that require disclosure. RWS Holdings plc 55 Shareholder information Corporate headquarters and Registered office No. 3002645 Europa House Chiltern Park Chiltern Hill Chalfont St Peter Buckinghamshire SL9 9FG United Kingdom Tel: +44 (0)1753 480200 Fax: +44 (0)1753 480280 Public relations advisers MHP Communications 60 Great Portland Street London W1W 7RT Tel: +44 (0)20 3128 8100 Nominated adviser and broker Numis Securities Ltd London Stock Exchange Building 10 Paternoster Square London EC4M 7LT Tel: +44 (0)20 7260 1000 Registrars Capita Asset Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Tel: 087 1664 0300 (calls cost 10p per minute plus network extras, lines are open 8.30am – 5.30pm Mon – Fri) from outside the UK: +44 (0)20 8639 3399 Email: ssd@capita.co.uk Independent Auditors PricewaterhouseCoopers LLP Embankment Place London WC2N 6RH Solicitors Olswang 90 High Holborn London WC1V 6XX Principal bankers Barclays Bank plc Level 28 1 Churchill Place Canary Wharf London E14 5HP 56 RWS Holdings plc www.rws.com 2014 ANNUAL REPORT RWS HOLDINGS PLC 

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