RWS
Annual Report 2016

Plain-text annual report

R W S H o l d i n g s p l c 2 0 1 6 A n n u a l R e p o r t New horizons RWS Holdings plc 2016 Annual Report RWS Holdings plc 2016 Annual Report Europa House Chiltern Park Chiltern Hill Chalfont St Peter Bucks SL9 9FG United Kingdom Telephone +44 (0) 1753 480 200 Facsimile +44 (0) 1753 480 280 Email rws@rws.com www.rws.com Contents 2 RWS Holdings plc 2016 Annual Report Contents Contents Company Overview Financial Highlights Chairman‘s Statement Strategic Report 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 Parent Company Financial Statements Company Statement of Changes in Equity Notes to the Company Financial Statements Shareholder information 2 4 6 8 12 13 16 17 20 23 24 25 27 28 54 57 58 65 2 RWS Holdings plc 2016 Annual Report RWS Holdings plc 2016 Annual Report 1 Company overview RWS provides language and intellectual property services that support its clients in taking products from concept to market Research and development Patenting Information A comprehensive range of patent search and monitoring services which enable clients to check if their intellectual property is novel, valid for an application or risks infringing upon existing patents. RWS has also established Patbase as one of the world’s largest searchable commercial patent databases covering over 57 million patent families, designed by professional searchers and sold on a subscription basis. Patent Translation & Filing The translation of patent and supporting intellectual property documents in over 200 language pairs and the management of multi-jurisdictional patent filing supported by our international web-based filing platform, inovia.com. Technically and linguistically accurate translations delivered to deadline Efficient processes supported by sophisticated and proprietary technology Over 99% on time* Over 500 million words translated last year* 2 RWS Holdings plc 2016 Annual Report Our in-depth understanding of clients’ differing requirements as their product moves from research and development, to protection and commercialisation enables us to deliver consistently high-quality services at each stage of the product lifecycle, whilst giving RWS visibility of activity across the value chain Clinical Trials, Patient Outcomes Commercialisation and Litigation Life Sciences A full suite of language solutions designed to support the entire life science industry. The translation and linguistic validation of vital content for pharmaceutical, biotech and medical device companies including their clinical research organisations, advertising agencies and other subcontractors. Technical & Commercial Translation The translation of other specialist documents, from technical specifications and manuals to sensitive legal and financial documents. Our work includes the localisation of materials to ensure they are linguistically and culturally appropriate and in line with local regulations in multiple target markets. Excellent quality control and customer service Over 99% of customers happy with the quality of our services* *Source: RWS records RWS Holdings plc 2016 Annual Report 3 Financial Highlights ) m £ ( T B P d e t s u d A j 30 20 10 0 6 5 . 3 0 0 2 0 6 . 4 0 0 2 . 6 0 3 . 7 2 2 . 1 2 2 . 0 1 2 . 2 6 1 . 2 7 1 . 5 4 1 . 6 4 1 . 9 3 0 1 1 1 . . 0 4 9 7 . 5 0 0 2 6 0 0 2 7 0 0 2 8 0 0 2 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 6 1 0 2 Over 80,000 patent and IP documents and 65,000 life science projects per year A strong financial track record Market leader in intellectual property and life science language and support services c.800 employees including subject specialist translators & checkers and project managers Strong reputation for quality and delivery with specialist staff supported by sophisticated technology 7.8% increase in world-wide patent applications in 2015* 14% CAGR in US clinical trials 2011-2016** Growing markets 13% sales growth at CTi since acquisition RWS has a strong track record of executing earnings accretive acquisitions *Source: World Intellectual Property Office, **Source: Number of clinical trials as recorded by ClinicalTrials.gov, a U.S. National Institutes of Health service 4 RWS Holdings plc 2016 Annual Report 10% Commercial Translation 20% Life Sciences 5% Information 90% of revenues in highly specialised fields – intellectual property and life sciences 65% Patent translation & filing Medical & Pharma Aerospace & Defence Chemical Automotive Energy Manufacturing Technology & Telecoms A diversified international, blue chip client base Strong cash generation supports progressive dividend policy 13 years of dividend increases Operations located to service customer needs globally RWS Holdings plc 2016 Annual Report 5 Chairman’s Statement I am pleased to report that RWS has delivered its best year ever despite a far from robust global economic backdrop. For the thirteenth consecutive year since listing on AIM in November 2003, we have achieved growth in sales, underlying profits and dividends, testimony to the strength of our market positions in patent translations, intellectual property services and life sciences services. During the year, we have also continued to invest in those resources which can deliver future expansion. 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 growth in PatBase, China and Japan. In addition, the Group benefited from a strong maiden contribution from CTi, the US life sciences specialist it acquired in October 2015. A material improvement in Group gross margins also contributed to our record results. Group sales advanced by 28% to £122.0 million (2015: £95.2 million). Adjusted operating profit before amortization of intangibles, share option costs and acquisition expenses was up 40% at £32.0 million (2015: £22.9 million). Adjusted profit before tax, amortization of intangibles, share option costs and exceptional acquisition expenses increased by 35% to £30.6 million (2015: £22.7 million). This produced an increase of 35% in adjusted earnings per share to 10.9p (2015: 8.1p). Reported profit before tax was £25.1 million (2015: £20.7 million). This result reflected significantly greater amortization of intangibles largely driven by the CTi acquisition and totalling £4.6 million (2015: £1.6 million), offset by lower share based payment costs. Basic earnings per share were 9.0p (2015: 7.3p), a rise of 23%. The Group’s effective tax rate was 22.9% (2015: 24.8%). As of 30 September 2016, shareholders’ funds had reached £108.7 million (2015: £85.7 million). At 1 October 2015 the Group had net cash of £30.6 million. The Group ended the 2016 financial year with net debt of only £1.5 million, after the £47.1 million cash consideration for CTi which was acquired at the end of October 2015, demonstrating the Group’s continued strong underlying cash 6 RWS Holdings plc 2016 Annual Report generation. Other significant cash outlays included corporation tax of £5.2 million and dividends of £10.6 million. Currency Effects and Hedging This year has been marked by considerable volatility in global currency markets. This was compounded in the aftermath of the EU referendum in late June and the Group has benefitted from the resulting decline in sterling. RWS is a prolific exporter of its services meaning that over 85% of its revenues are non-sterling, its principal exposures being to the euro and the US dollar. The Group’s estimated net exposure to the Euro has been hedged at an average rate of 1 Euro = 83p for the whole of the year to 30 September 2017. The average rate experienced over 2015-16 was 78.1p. Exposure to the US dollar is largely offset by the five year US$45 million dollar loan drawn to acquire CTi. Acquisition of a market leader in Life Sciences translations and linguistic validation The Group announced on 2 November 2015 that it had acquired the entire issued share capital of Corporate Translations Inc. (“CTi”) for a cash consideration of US$70 million. This acquisition was in line with our stated strategy of complementing organic growth with selective acquisitions which have growth potential in attractive sectors and/or geographies, offer excellent margins and enhance shareholder value. The acquisition of CTi established a significant Group presence in the USA which the Board believes is the largest growth opportunity for RWS. CTi is one of the world’s leading life sciences translation and linguistic validation providers. It enjoys a preferred supplier relationship with many of its key clients, with extraordinary penetration of the blue chip life sciences community. CTi’s greater scale, combined with the existing RWS specialist divisions, provided a step change in the Group’s competitive standing amongst the major pharmaceutical groups and contract research organisations, whilst RWS’ strong foothold in Europe is already supporting CTi’s expansion into the European life sciences sector. Funding for the acquisition was via a combination of a US$45 million five-year bank loan and the Group’s internal cash resources. Chairman’s Statement (continued) The acquisition of CTi has been immediately and significantly earnings enhancing, with the US$70 million consideration based upon CTi reporting in excess of US$7 million EBITDA for the year ended 31 December 2015. We have now completed the integration of CTi with our Medical Translation Division, which included the linguistic validation specialist PharmaQuest, and we now report on it as part of our combined life sciences activities. We were also pleased to have appointed Sheena Dempsey as Chief Executive Officer of CTi in early September, following the anticipated departure of the CTi vendors after a hand-over period. She brings a wealth of experience and knowledge of the life sciences space and is a welcome addition to our strong operational management team across the Group. Dividend I am pleased to announce that the Board has recommended a final dividend of 4.45p per share. The interim dividend, paid in July, was 1.15p per share, so the total payout in respect of the year will amount to 5.6p per share, an increase of 15% over 2015 reflecting the Group’s earnings growth during 2016 and the Board’s confidence in the Group’s continued progress. This proposed payout marks a thirteen-year unbroken record of increases in the dividend since flotation in November 2003. The proposed total dividend is 1.6 times covered by basic earnings per share. Subject to shareholder approval at the Annual General Meeting, the final dividend will be paid on 24 February 2017 to all shareholders on the register at 27 January 2017. The shares will trade ex-dividend on 26 January 2017. 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 with shareholders and to promote the retention of the Group’s senior executives. Options over 4% of the Group’s share capital have been issued to ten participants, with a subscription price of 129.2p per share. The earliest vesting date is 3 April 2015 and the latest exercise date is 3 April 2021. A total of 4,184,810 options were exercised during the year. People The very nature of the Group’s activities dictate that it will always be dependent upon the quality and dedication of its entire staff to meet the demands for high quality and timely delivery required by its worldwide clients. Group headcount reached 792 full time equivalents at the year-end (2015: 621), which includes the 143 CTi employees who joined the Group upon acquisition. I wish to place on record my thanks to all of our employees for their contribution to the Group’s excellent results. Corporate Social Responsibility RWS has always sought to be a socially responsible Group which has a positive impact on the communities it operates in. We look to employ colleagues who reflect 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’ staff contribute generously on a monthly basis to a wide selection of local and national charities chosen by the staff, and their contributions are matched by the Group. Current Trading and Outlook The Group has made a very strong start to the new financial year, benefiting from significant underlying growth in revenues, better gross margins and currency tailwinds. The Board remains highly encouraged by the Group’s opportunities to continue to grow significantly and profitably across its now broader portfolio of market leading businesses, particularly as it looks to build on its position in life sciences in the USA. The Group’s strong cash generation and healthy balance sheet leave us well positioned to pursue that growth through acquisitions and organic investment, whilst also maintaining our progressive dividend policy. Andrew Brode Chairman 6 December 2016 RWS Holdings plc 2016 Annual Report 7 Organic growth is driven by: – increases in the worldwide patent filing activities of existing and potential multinational clients – the development of new drugs by the pharmaceutical industry – the outsourcing by corporates, clinical research organisations, law firms and attorneys of all or part of their foreign patent search, filing and translation and linguistic validation processes. – 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 and in new and/or growing geographies – increasing market share, particularly in the patent translation and life sciences markets – the retention of our client base, which includes a large share 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 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, with our primary focus currently on life sciences in the USA. 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 language services. We are particularly pleased to be able to show our progress against these stated objectives with 13 straight years of sales and profit growth since flotation. Strategic Review Business Model RWS is the world’s leading provider of intellectual property (IP) support services (patent translations, international patent filing solutions and searches), high level technical and commercial translation services and, following the acquisition of Corporate Translation Inc, a leading provider of translation and linguistic validation services to the life sciences sector. RWS has a blue chip multinational client base spanning Europe, North America and Asia, particularly active in patent filing in the medical, pharmaceutical, chemical, aerospace, defence, automotive and telecoms industries. The Group’s principal business activities are: – Patent translations and filing, which currently accounts for over 65% of Group revenue. RWS differentiates itself from the competition through the quality of its translations, its high level of IP expertise and customer service and the use of its international web based patent filing platform, ‘inovia’. Uniquely, the business employs over 100 full time highly qualified translators. – Following the acquisition in October 2015 of Corporate Translations Inc, RWS has established a separate division, focussed solely on the language service needs of the life sciences market, providing technical translations and linguistic validation to large pharmaceutical corporations and clinical research organisations in North America and Europe. – 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. – Commercial translations, with a particular emphasis on technical translations. Our Strategy RWS’ objective is to increase shareholder value by growing the Group’s revenue and profit before tax. Our strategy to achieve this is focused upon organic growth complemented by selective acquisitions, providing these can be demonstrated to enhance shareholder value. 8 RWS Holdings plc 2016 Annual Report Strategic Review (continued) Annual Revenue £m 120 100 90 80 70 60 50 40 30 20 10 0 . 3 7 2 . 0 1 3 . 9 5 3 . 8 0 4 . 2 6 4 . 1 4 5 . 7 5 5 . 6 0 6 . 4 5 6 . 8 8 6 . 4 7 7 . 6 3 9 . 2 5 9 3 0 0 2 4 0 0 2 5 0 0 2 6 0 0 2 7 0 0 2 8 0 0 2 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 . 0 2 2 1 6 1 0 2 Annual Adjusted PBT £m 30 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 . 7 2 2 5 1 0 2 . 6 0 3 6 1 0 2 Operating Review Patent Translations and Filing The Group’s core patent translation and filing business (including inovia) represents 65% of Group sales and grew revenues by 8% to £79.4 million (2015: £73.3 million). This performance reflects earlier client wins, organic growth from the established client base, and further strong growth in China. The macroeconomic background delivered further grounds for confidence with record numbers of new patent applications in 2015. The Group has maintained its market leadership, having recently successfully renewed master service agreements with many of its top clients. It services 11 of the top 20 applicants at the World Intellectual Property Office and 12 of the top 20 applicants at the European Patent Office in 2015. Selling IP services under the RWS inovia brand, the US and European sales teams continue to develop opportunities with large international patent filers which will support FY17 sales. In Asia we continued successfully with our strategy to target Japanese and Chinese international filers for our patent translation and filing services. Sales from Japan are supporting our current growth, while progress in China with a number of innovators is expected to support additional growth in the medium term. 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 70 employees (2015: 63). We are operating from three locations and have continued to develop production and training centres with several Chinese universities. These centres enable the Group to expand its Chinese offering but at a lower cost than in Beijing. We have also continued to expand our long term relationships with international patent bodies seeking to enlarge their collections of translated Chinese patent prosecution documents. Life Sciences The Group’s life science division accounts for 20% of the Group’s sales (£24.4 million compared to £4.2 million in 2015) and focuses on the language service requirements of Pharmaceutical corporations and Clinical Research Organisations. The results of this division include the sales of RWS businesses which service the life sciences sector, namely PharmaQuest and Medical Translation Division (“MTD”) and were previously included within the Commercial Translations division, in addition to an 11 month revenue (US$30.5 million (2015: US$27.0 million), contribution from CTi since its acquisition in October 2015. During the year we successfully completed a thorough market search for a new CEO ahead of the anticipated departure of the vendors of CTi who wished to pursue philanthropic ventures. In early September we announced the appointment of Sheena Dempsey. As described in more detail below, RWS has successfully completed the integration of PharmaQuest and MTD with CTi such that all 3 businesses now operate on the same operating system, using the same process and report to Sheena. RWS Holdings plc 2016 Annual Report 9 Strategic Review (continued) Commercial Translations The commercial translations business, which accounts for 10% of Group sales and operates in the UK, Germany and Switzerland, reported a 2% growth in revenues to £11.9 million (2015: £11.7 million) (after restatement for the move of PharmaQuest and MTD revenues to the new life sciences division). We have grouped all non-patent and non-life science translations in this service line and it remains the segment of our business most exposed to competition. 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 and to investigate ways of improving margins through production process efficiencies. The recently established German patent translation facility is steadily growing and will both balance the cyclical effect evident in the commercial translation activities and improve Germany’s contribution to Group 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 and life sciences businesses, which have already made use of interpreting services provided by Group company Eclipse. Information The information business accounts for 5% of Group sales and reported revenues up 7% to £6.4 million (2015: £6.0 million) reflecting several successful client wins and a good flow of regular work from a number of clients. The high margin subscription service – PatBase – grew by 7.2% during the year. We have continued to invest in PatBase searchability, content, analytics and geographic coverage as well as in a robust, state of the art infrastructure to secure the resilience of the platform which provides 24/7 worldwide access. 10 RWS Holdings plc 2016 Annual Report Market Update Patent Filing Statistics The World Intellectual Property Office (WIPO) has published figures showing a 7.8% world-wide increase in patent applications in 2015; a higher growth rate than the 4.5% seen in 2014. Overall growth is driven by Chinese domestic applications, with the US still being the most active in international filing. Filings are under the two main international filing systems, the PCT (Patent Cooperation Treaty) and the European Patent; PCT numbers increased by 1.7% to 218,000 and European Patent application numbers by 1.6% to 278,867 in 2015. 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, in the emergence of new translation technologies, and 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. These risks are mitigated as follows: – Failings in service provision are most likely to arise as a result of human error. RWS was the first language services provider and, independently, the first search company to adopt 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 profits and the uncertainty around the timetable for its implementation. As one of the three largest patent filers in Europe, the UK would play a key role in the future administration of the Unitary Patent and has been designated as one of the three countries to host a Unitary Patent court. Given the UK’s ‘Brexit’ vote, there was considerable uncertainty as to whether the UK would ratify the Unitary Patent prior to its exit from the European Strategic Review (continued) Union. However, on 28 November 2016 the UK government announced that it is proceeding with preparations to ratify the Unified Patent Court Agreement, which could see the UP introduced in the second half of 2017. As previously reported, there is scepticism among applicants and the IP profession both as regards the UP’s jurisdiction and also the actual financial benefits for those applicants which do not require Europe-wide patent coverage. Because the proposed Unitary Patent will run in parallel with the existing system, it will not provide any financial advantage to many corporates who only seek patent protection in selected key countries. In addition, corporates using the Unitary Patent scheme for the first time will also run the risk of a new and untried intellectual property litigation system. To date there has been insufficient guidance from the UK Government as to the terms it will seek for UK’s exit from the EU. The uncertainty of whether the UP will still cover the UK when it finally exits the EU could add further reluctance to using the new system. We therefore anticipate a minimal loss of revenue in FY17 and we will be closely monitoring client reaction and legal developments over the next six months to establish the impact/position for FY18 and beyond. – In October 2015, RWS acquired CTi with the intention of building a single life sciences business with greater global reach. The subsequent integration focussed on merging RWS’ smaller existing life science businesses of PharmaQuest and MTD into CTi. This integration work included retraining staff, the consolidation of customers and suppliers, and establishing strong IT links between the businesses. This work is now complete. The supplier consolidations have reduced technical costs and improved margins, whilst the consolidation of customers has improved the focus of our service offering and enables RWS to provide its life science customers with a consistent, high level of service across both their US and European operations. In addition, cross-selling opportunities have already been identified and are beginning to yield positive results as well as enhancing our sales pipeline. The framework for and experience gained from this successful CTi and RWS integration will be utilised on future acquisitions. – The Group has always embraced new translation technologies and used them to good effect in order to maintain and improve margins, efficiency and competitiveness. Recognizing advances in machine translation technology (MT), we have just completed an internal programme to investigate and trial best MT use and have started integrating MT engines into the translation workflow in appropriate areas along with Translation Memory technology. Very recently, substantial technological progress has been made with the introduction of Neural Machine Translation (NMT) engines, which will also be employed by the Group following further testing and supplier selection. It is clear that the market for general translations will be further eroded by NMT and that a successful LSP (Language Services Provider) needs to focus on premium quality translation work in critical areas, such as IP and life sciences – 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, as evidenced by the exceptionally low unemployment statistics for the area. On behalf of the Board Richard Thompson 6 December 2016 RWS Holdings plc 2016 Annual Report 11 Board of Directors at 30 September 2016 Andrew S Brode (76) Chairman Peter Mountford (59) Non-Executive Director Member of the Audit Committee and the 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 Technologies Group plc and Electric Word plc and Non-Executive Director of a number of private companies Elisabeth A Lucas (60) Non-Executive Director Reinhard Ottway (57) Chief Executive Officer Appointed as a Director 1 January 2012 Joined RWS Group in 1994 and was Business Development Director from 2001 Member of the Audit Committee and the Remuneration Committee Joined RWS Group in 1977, Managing Director of Translations Division from 1992 and Chief Executive Officer from 1995 to 2011 Appointed as a Director on 11 November 2003 Registered office Europa House Chiltern Park Chiltern Hill Chalfont St Peter Buckinghamshire SL9 9FG Company registration number 03002645 Richard Thompson (54) Deputy Chief Executive Officer Finance Director and Company Secretary Appointed as a Director and Company Secretary 28 November 2012 Previously worked for Actix International Limited, a global supplier of software and services to the telecommunications market David E Shrimpton (73) Senior independent Non-Executive Director and Deputy Chairman Member of the Audit Committee and Chairman of the Remuneration Committee Appointed as a Director 1 January 2010 Non-Executive Director of a number of private companies 12 RWS Holdings plc 2016 Annual Report Directors’ Report The Directors present their annual report together with the audited consolidated financial statements for the year ended 30 September 2016. Business performance and risks The review of the business, operations, principal risks and outlook are dealt with in the Strategic Review on pages 8 to 11. The key performance indicators of the Group are revenues and adjusted pre-tax profit before amortization of acquired intangibles, share option costs and acquisition costs. the next 12 months from the date these financial statements were approved. Financial instruments Information about the use of financial instruments by the Group is given in note 18 to the financial statements. Directors Details of members of the Board at 30 September 2016 are set out on page 12. Financial results The financial statements set out the results of the Group for the year ended 30 September 2016 which are shown on page 23. The interests of the Directors in shares during the year are set out on page 18 in the Directors‘ Remuneration Report. Group revenues advanced by 28.2% to £122.0 million (2015: £95.2 million) and pre-tax profit before amortization of intangibles, share option costs and exceptional costs was £30.6 million (2015: £22.7 million), a rise of 34.8%. Profit before tax is £25.1 million (2015: £20.7 million). The total tax expense was £5.8 million (2015: £5.1 million) an effective tax rate of 22.9% (2015: 24.8%). Basic earnings per share was 9.0 pence (2015: 7.3 pence). Dividends The Directors recommend a final dividend of 4.45 pence per Ordinary share (see note 8) to be paid on the 24 February 2017 to shareholders on the register at 27 January 2017, which, together with the dividend of 1.15 pence paid in July 2016 makes a total dividend for the year of 5.60 pence (2015: 4.88 pence). The final dividend will be reflected in the financial statements for the year ending 30 September 2017. The proposed total dividend per share is 1.6 times covered by basic earnings per share. Going concern accounting basis The Group had cash resources of £27.9 million at 30 September 2016 and an overall net debt of £1.5 million following the funding of the CTi acquisition. The Group was able to generate free cash flow of £23.1 million in the year. The Directors have considered the recent operating results, the acquisition of CTi and the associated debt along with the financial position and have a reasonable expectation that the Group has adequate resources to continue in operation as a going concern for Peter Mountford and Richard Thompson retire by rotation at the Annual General Meeting and being eligible offers themselves for re-election. The Company‘s Annual General Meeting will be held in London on 14 February 2017. Directors‘ indemnities As permitted in its articles of association, the Directors 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 year, Directors and Officers liability insurance in respect of itself and its Directors). Corporate governance The Board Throughout the year the Board comprised the Chairman, two 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 Board notes that Elisabeth Lucas was previously the Chief Executive of the Company, however they believe that her in depth knowledge and experience of working with RWS, in the language services industry, gives her a unique insight into the Company‘s operations and markets, making her a very valued member of the RWS Board. RWS Holdings plc 2016 Annual Report 13 Directors’ Report (continued) 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 and Roberto Aletto, IT Director. 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 twice. The Committee reviews and makes recommendations to the Board on: any change in accounting policies; decisions requiring a major element of judgement and risk; compliance with accounting standards and legal and regulatory requirements; disclosures in the interim and annual report and financial statements; 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 pages 17 to 19 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: bi-monthly 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 has 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 on their skills and abilities, enjoy the same career prospects as other employees and the same scope for realising potential. Employee involvement 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. 14 RWS Holdings plc 2016 Annual Report Directors’ Report (continued) Substantial shareholdings At 30 September 2016, excluding the Directors, the following were substantial shareholders: Liontrust Asset Management Octopus Investments Investec Wealth and Investment Hargreave Hale % holding 13.0 7.1 4.6 4.0 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 14 February 2017 Annual General Meeting which renews, for the period ending 14 May 2018, or if earlier the date of the 2018 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 £719,216, representing approximately one third of the share capital of the Company in issue at 6 December 2016. 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 at the date of this report the Company does not hold any Ordinary shares in the capital of the Company in treasury. Statutory Pre-emption Rights 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 14 February 2017 Annual General Meeting which renews, for the period ending on 14 May 2018 or, if earlier, the date of the 2018 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 £215,765 (representing in accordance with institutional investor guidelines, approximately 10% of the share capital in issue as at 6 December 2016) as if the pre-emption rights of section 561 of the Act did not apply. 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. Subject to approval by the Panel on Takeovers and Mergers, an ordinary resolution will be proposed at the 14 February 2017 Annual General Meeting which renews, for the period ending 14 May 2020, or if earlier the date of the 2020 Annual General Meeting the waiver of any requirement under rule 9 for Andrew Brode (Chairman) and any 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. 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. PricewaterhouseCoopers LLP (PwC) has expressed its willingness to continue in office and a resolution to reappoint them will be proposed at the 14 February 2017 Annual General Meeting. RWS Holdings plc 2016 Annual Report 15 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 FRS 101. 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; 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. – make judgements and accounting estimates that On behalf of the Board 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 FRS 101 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. Richard Thompson Finance Director and Company Secretary 6 December 2016 16 RWS Holdings plc 2016 Annual Report Directors’ Remuneration Report Remuneration Committee 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 Board believes that Andrew Brode‘s interests are closely aligned with those of all shareholders and therefore believe that he plays an important role as member of the Remuneration Committee. 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. The remuneration of the Chairman is a matter for the Remuneration Committee, excluding Andrew Brode. 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. Share Options On 3 April 2013 the Board approved a 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 the Chairman and the 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 Chairman‘s and 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 2016 was £1,166,000 (2015: £998,000). The remuneration of individual Directors and the pension contributions paid by the Group to their personal pension schemes during the year were as follows: RWS Holdings plc 2016 Annual Report 17 Directors’ Remuneration Report (continued) Salary or fees £'000 263 332 285 45 35 35 995 Bonus £'000 Taxable benefits £'000 - 70 100 - - - 170 - 1 - - - - 1 2016 Total £'000 263 403 385 45 35 35 1,166 2016 Pension contribu- tions £'000 - 10 9 - - - 19 2015 Total £'000 263 350 270 45 35 35 998 2015 Pension contribu- tions £'000 - 10 7 - - - 17 Andrew Brode Reinhard Ottway Richard Thompson Elisabeth Lucas Peter Mountford David Shrimpton Directors‘ interests in shares The interests of the Directors as at 30 September 2016 (including the interests of their families and related trusts), all of which were beneficial, in the Ordinary shares were: Andrew Brode Elisabeth Lucas Reinhard Ottway Peter Mountford Richard Thompson Ordinary shares of 1 pence 90,174,060 50,000 224,053 68,775 13,000 90,529,888 The interests of Directors at the year end in options to subscribe for Ordinary shares of the Company, together with details of any options granted during the year are included in the following table. All options were granted at market value at the date of grant. 18 RWS Holdings plc 2016 Annual Report Directors’ Remuneration Report (continued) Approved Share Option scheme Number of shares under option Reinhard Ottway Richard Thompson Unapproved Share Option scheme At 1 October 2015 23,215 23,215 Issued in the year Exercised in the year At 30 September 2016 Exercise price Pence First date exercis- able Last date exercis- able - - - - 23,215 23,215 129.20 03/04/16 03/04/21 129.20 03/04/16 03/04/21 Number of shares under option At 1 October 2015 Issued in the year Exercised in the year At 30 September 2016 Exercise price Pence First date exercis- able Last date exercis- able Reinhard Ottway Richard Thompson 2,515,745 1,246,265 - 2,515,745 - - - 1,246,265 129.20 03/04/15 03/04/21 129.20 03/04/15 03/04/21 During the year the following Directors exercised options: Date exercised Number Market price at date of exercise Pence Gain £'000 Reinhard Ottway 9 February 2016 2,515,745 180.00 1,278 The options granted under both schemes will be exercisable at the mid market price of 129.2p. The market price of the Company‘s share as at 30th September 2016 and the highest and lowest market prices during the year are as follows: 30 September 2016 Highest Market Price Lowest Market Price 250p 270p 135p All participants in the share option scheme have indemnified the Company against any tax liability relating to the option including class 1 employers 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 David Shrimpton 6 December 2016 RWS Holdings plc 2016 Annual Report 19 Independent auditors’ report to the members of RWS Holdings plc REPORT ON THE GROUP FINANCIAL STATEMENTS Our opinion In our opinion, RWS Holdings plc’s Group financial statements (the “financial statements”): – give a true and fair view of the state of the Group’s affairs as at 30 September 2016 and of its profit and cash flows for the year then ended; – have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union; and – have been prepared in accordance with the requirements of the Companies Act 2006. What we have audited The financial statements, included within the Annual Report (the “Annual Report”), comprise: – the Consolidated Statement of Financial Position as at 30 September 2016; – 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 financial statements is IFRSs as adopted by the European Union, and applicable law. 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 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. 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. Responsibilities for the financial statements and the audit Our responsibilities and those of the Directors As explained more fully in the Statement of Directors’ Responsibilities set out on page 16, 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 Parent 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. 20 RWS Holdings plc 2016 Annual Report Independent auditors’ report to the members of RWS Holdings plc (continued) 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 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. 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. Other matter We have reported separately on the Parent Company financial statements of RWS Holdings plc for the year ended 30 September 2016. Nigel Reynolds (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 6 December 2016 RWS Holdings plc 2016 Annual Report 21 Financial Statements Financial Statements 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 acquired intangibles Acquisition costs Share based payment costs Operating profit Finance income Finance costs Profit before tax Taxation expense Profit for the year Other comprehensive income* Gain on retranslation of foreign operations Total other comprehensive income 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 20 6 6 7 9 9 2016 £’000 121,986 (69,792) 52,194 (25,671) 26,523 32,023 (4.639) (855) (6) 26,523 16 (1,448) 25,091 (5,758) 19,333 8,479 8,479 2015 £’000 95,215 (57,706) 37,509 (16,677) 20,832 22,894 (1,607) - (455) 20,832 71 (251) 20,652 (5,124) 15,528 1,069 1,069 27,812 16,597 9.0 9.0 7.3 7.3 * Other comprehensive income includes only items that will be subsequently reclassified to Profit before tax when specific conditions are met. The notes on pages 28 to 53 form part of these financial statements. RWS Holdings plc 2016 Annual Report 23 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 Loans Trade and other payables Foreign exchange derivatives Income tax payable Provisions Non-current liabilities Loans 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 28 to 53 form part of these financial statements. Note 2016 £’000 2015 £’000 10 11 12 13 14 18 21 3 15 16 18 17 15 16 17 13 3 19 61,518 28,421 17,630 1,875 109,444 28,173 - 27,910 56,083 165,527 6,923 20,207 681 4,702 79 32,592 22,500 30 379 1,326 24,235 56,827 108,700 2,157 8,947 875 (8,483) 10,117 95,087 108,700 31,445 6,836 17,732 340 56,353 17,907 309 30,569 48,785 105,138 - 14,797 - 2,417 77 17,291 - 30 301 1,826 2,157 19,448 85,690 2,116 3,583 1,801 (8,483) 1,638 85,035 85,690 The financial statements on pages 23 to 53 were approved by the Board of Directors and authorised for issue on 6 December 2016 and were signed on its behalf by: Andrew Brode Director 24 RWS Holdings plc 2016 Annual Report Consolidated Statement of Changes in Equity for the year ended 30 September Share capital £’000 Share premium account £’000 Other reserves (see below) £’000 Retained earnings £’000 Total equity attribut- able to owners of the parent £’000 At 1 October 2014 2,116 3,583 (6,568) 79,303 78,434 Profit for the year Currency translation differences Total Comprehensive income for the year ended 30 September 2015 Dividends Credit arising on share based payments At 30 September 2015 Profit for the year Currency translation differences Total Comprehensive income for the year ended 30 September 2016 Issue of shares Deferred tax on unexercised share options Dividends Exercise of share options Credit arising on share based payments At 30 September 2016 Other reserves - - - - - - - 1,069 15,528 - 15,528 1,069 1,069 15,528 16,597 - - 2,116 - - 3,583 - 455 (5,044) (9,796) - 85,035 (9,796) 455 85,690 - - - 41 - - - - 2,157 - - - 5,364 - - - - 8,947 Share based payment reserve £’000 - 8,479 19,333 - 19,333 8,479 8,479 19,333 27,812 - - - (932) 6 2,509 - 414 (10,627) 932 - 95,087 5,405 414 (10,627) - 6 108,700 Reverse acquisition reserve £’000 Foreign currency reserve £’000 Total other reserves £’000 At 1 October 2014 1,346 (8,483) 569 (6,568) Other Comprehensive gain for the year - - 1,069 1,069 Credit arising on share based payments At 30 September 2015 455 1,801 - (8,483) - 1,638 455 (5,044) Other Comprehensive gain for the year - - 8,479 8,479 Exercise of share options Credit arising on share based payments At 30 September 2016 (932) 6 875 - - (8,483) - - 10,117 (932) 6 2,509 RWS Holdings plc 2016 Annual Report 25 Consolidated Statement of Changes in Equity for the year ended 30 September (continued) The nature and purpose of each reserve within equity is as follows: – Share capital is the nominal value of the shares issued. – Share premium is the fair value of the 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 except where the Group applies a net investment hedge. – 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 28 to 53 form part of these financial statements. 26 RWS Holdings plc 2016 Annual Report 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 Operating cash flow before movements in working capital and provisions Increase in trade and other receivables Increase in trade and other payables and provisions Cash generated from operations Income tax paid Net cash inflow from operating activities Cash flows from investing activities Interest paid 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 Proceeds from borrowing Repayment of borrowing Proceeds from the issue of share capital Dividends paid Net cash inflow/(outflow) from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Exchange gains/(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 (paid)/received Income tax paid Purchases of property, plant and equipment Purchases of intangibles (computer software) Free cash flow Note 2016 £’000 2015 £’000 25,091 20,652 12 11 6 6 22 12 11 8 21 941 4,719 6 (16) 1,448 32,189 (4,249) 1,652 29,592 (5,196) 24,396 (369) 16 (47,068) (731) (169) (48,321) 29,485 (4,874) 5,405 (10,627) 19,389 (4,536) 30,569 1,877 27,910 29,592 (353) (5,196) (731) (169) 23,143 824 1,663 455 (71) 251 23,774 (1,529) 2,037 24,282 (5,091) 19,191 - 76 - (1,258) (33) (1,215) - - - (9,796) (9,796) 8,180 22,479 (90) 30,569 24,282 76 (5,091) (1,258) (33) 17,976 The Directors consider that the free cash flow analysis above indicates the cash generated from normal activities excluding acquisitions, dividends paid and the proceeds from the issue of share capital. The notes on pages 28 to 53 form part of these financial statements. RWS Holdings plc 2016 Annual Report 27 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 historical 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 both years presented, unless otherwise stated. The Company has elected to prepare the Company financial statements in accordance with FRS 101. These are presented on pages 56 to 64 and the accounting policies in respect of Company information are set out on page 58. Changes in accounting policies The impact on the Group’s financial statements of the future adoption of new standard interpretations and amendments is still under review.The only relevant amendments to the Group are IFRS 15 ‘Revenue from contracts with customers’ and IFRS 16 ‘Leases’, neither of which is likely to have a material effect on the results or net assets of the Group. There were no other new IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group. 28 RWS Holdings plc 2016 Annual Report 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. 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. 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 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 a trademark, 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 historical 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, Notes to the Consolidated Financial Statements (continued) goodwill is allocated at the lowest levels for which there are separate identifiable cash flows for the purpose of impairment testing. Assets, excluding goodwill, 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 one 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, discounts and 3rd party licences and after eliminating inter- company sales. Revenue, other than subscription, commission and linguistic validation project 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. Revenue from linguistic validation projects is recognised partly on completion of the translation work (50%) with the remainder recognised upon completion of the project. 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 Consolidated 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, except when deferred in Other Comprehensive Income as qualifying as a net investment hedge. 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. 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. RWS Holdings plc 2016 Annual Report 29 Notes to the Consolidated Financial Statements (continued) Property, plant and equipment Property, plant and equipment are stated at historical 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 – 16.67% 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. Derivative financial instruments and hedging 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. The Group hedges the net investment in certain foreign operations by borrowing in the currency of the operations’ net assets. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in Other Comprehensive Income. 30 RWS Holdings plc 2016 Annual Report Gains and losses accumulated in equity are included in the Consolidated Statement of Comprehensive Income when the foreign operation is partially disposed of or sold. 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. 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 current tax payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the Statement of Comprehensive Income 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. Notes to the Consolidated Financial Statements (continued) 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 debt financing has been introduced where it was felt that the benefits exceed the risks and costs to equity shareholders of introducing this type of finance. Equity issued by the Company is recorded as the proceeds received net of direct issue costs. Loans Borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the Consolidated Statement of Comprehensive Income over the period of the borrowings on an effective interest basis. 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. Details regarding the determination of the fair value of these options can be seen in note 20. 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 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, or in the case of interim dividends, when they are paid. RWS Holdings plc 2016 Annual Report 31 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. Accruals Costs which have not been invoiced to the Group are estimated and recorded as accruals. Judgement is required where the amount of the cost is not known and this may differ from the actual cost. 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. Allowance for doubtful debts Provision is made for receivables where amounts may be considered to be irrecoverable. In the event that this estimate is wrong , this may impact the financial statements in future periods. Notes to the Consolidated Financial Statements (continued) 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 and intangible assets Determining whether goodwill and intangible assets are impaired requires an estimation of the value in use of the cash-generating units to which goodwill and intangible assets have 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 and intangible assets is included in notes 10 and 11. Acquisition accounting The Group acquired Corporate Translations Inc on 30 October 2015 for £47.1m consideration. Accounting for the acquisition required a fair value exercise to assess the assets and liabilities acquired, including any separately identifiable intangible assets, both of which can be a particularly subjective process. 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 20. 32 RWS Holdings plc 2016 Annual Report 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 has divided the Group into 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. Reporting segments have been reclassified from prior years, and the comparatives have been restated in order to be more representative of the Group’s current internal reporting. Following the successful integration of the inovia web-based filing business into the patent translation business and the acquisition of Corporate Translations Inc the Board monitors and manages the Group in four reportable segments and assesses these segments based on revenue and profit/(loss) from operations. The four segments are: – Patent translation division providing patent and technical document translation and filing services with offices in the UK, USA, Europe, Japan and China. – Life science division providing technical translations and linguistic validation to the medical and pharmaceutical sector. This division includes the newly acquired Corporate Translations Inc plus the medical translation and Pharmaquest linguistic validation businesses both previously included within the Commercial segment. – Commercial division providing non patent technical translation and localisation services. – Information division which offers a full range of patent search, retrieval and monitoring services as well as an extremely comprehensive patent database service accessible by subscribers, known as PatBase. The unallocated segment relates to corporate overheads, assets and liabilities. The segment results for the year ended 30 September 2016 are as follows: Patent and Commer- cial UK £’000 Patent and Commer- cial Overseas £’000 Life Sciences £’000 Informa- tion £’000 Unallo- cated £’000 Group £’000 Revenue Patent translation Commercial translation Life sciences Information Revenue Operating profit/(loss) before charging: Amortization of acquired intangibles Acquisition costs Share based payment charges Profit/(loss) from operations Finance income Finance expense Profit before taxation Taxation Profit for the year 74,704 6,277 - - 80,981 20,325 (981) - (3) 19,341 4,655 5,578 - - 10,233 2,604 (334) - - 2,270 - - 24,416 - 24,416 6,170 (3,181) - - 2,989 - - - 6,356 6,356 3,598 (143) - - 3,455 - - - - - (674) - (855) (3) (1,532) 79,359 11,855 24,416 6,356 121,986 32,023 (4,639) (855) (6) 26,523 16 (1,448) 25,091 (5,758) 19,333 Overseas intercompany revenues to the UK amounting to £6.1 million have been eliminated on consolidation. The segment results for the year ended 30 September 2015 are as follows: RWS Holdings plc 2016 Annual Report 33 Notes to the Consolidated Financial Statements (continued) Patent and Commer- cial UK £’000 Patent and Commer- cial Overseas £’000 Life Sciences £’000 Informa- tion £’000 Unallo- cated £’000 Group £’000 Revenue Patent translation Commercial translation Life sciences Information Revenue Operating profit/(loss) before charging: Amortization of acquired intangibles Share based payment charges Profit/(loss) from operations Finance income Finance expense Profit before taxation Taxation Profit for the year 69,334 6,079 - - 75,413 17,490 (903) (140) 16,447 4,013 5,578 - - 9,591 2,099 (316) (59) 1,724 - - 4,204 - 4,204 893 (245) (23) 625 - - - 6,007 6,007 3,114 (143) - 2,971 - - - - - (702) - (233) (935) 73,347 11,657 4,204 6,007 95,215 22,894 (1,607) (455) 20,832 71 (251) 20,652 (5,124) 15,528 Overseas intercompany revenues to the UK amounting to £5.2 million have been eliminated on consolidation. The segment assets and liabilities at 30 September 2016 are as follows: Patent and Commer- cial UK £’000 Patent and Commer- cial Overseas £’000 Life Sciences £’000 Informa- tion £’000 Unallo- cated £’000 Group £’000 73,083 12,584 12,790 2,831 69,622 37,135 6,116 2,432 3,916 1,845 165,527 56,827 248 389 981 200 108 376 132 34 3,184 132 236 143 238 174 35 950 941 4,719 Total assets Total liabilities Capital expenditure Depreciation Amortization 34 RWS Holdings plc 2016 Annual Report Notes to the Consolidated Financial Statements (continued) The segment assets and liabilities at 30 September 2015 are as follows: Patent and Commer- cial UK £’000 Patent and Commer- cial Overseas £’000 Life Sciences £’000 Informa- tion £’000 Unallo- cated £’000 Group £’000 72,943 11,415 11,039 2,427 7,369 756 6,024 2,585 7,763 2,265 105,138 19,448 230 338 903 118 105 372 13 18 245 507 193 143 390 170 - 1,258 824 1,663 Total assets Total liabilities Capital expenditure Depreciation Amortization Capital expenditure comprises additions to property, plant and equipment and intangible assets, including additions from acquisitions through business combinations. 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 2016 £’000 Liabilities 2016 £’000 Assets 2015 £’000 Liabilities 2015 £’000 161,611 54,982 97,375 17,183 644 250 376 2,646 3,916 - - 1,386 459 1,845 196 322 244 7,001 7,763 1,368 - 522 375 2,265 165,527 56,827 105,138 19,448 Assets allocated to a segment consist primarily of operating assets such as property, plant and equipment, intangible assets, goodwill, receivables and cash. Liabilities allocated to a segment comprise primarily bank loans, 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 2016 £’000 2015 £’000 15,510 62,751 43,725 121,986 17,637 45,308 32,270 95,215 No customer accounted for more than 5% of Group turnover in the current year (prior year 7%). RWS Holdings plc 2016 Annual Report 35 Notes to the Consolidated Financial Statements (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 Capital expenditure 2016 £’000 2015 £’000 *restated 2016 £’000 2015 £’000 *restated 2016 £’000 2015 £’000 *restated UK Continental Europe Asia, United States of America and Australia 90,541 5,579 80,993 5,578 87,559 7,999 98,862 3,100 25,866 121,986 8,644 95,215 69,969 165,527 3,176 105,138 618 44 288 950 1,140 74 44 1,258 * The 2015 figures have been restated to include the inovia figures within the UK segment. These had previously been considered part of the Asia, United States of America and Australia segment. 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 Auditors’ remuneration Fees payable to the Company’s auditors for the audit of the Group’s annual accounts – The audit of subsidiaries of the Company – Taxation Compliance services – Taxation Advisory services – Audit related assurance services Total fees 2016 £’000 2015 £’000 33,654 941 4,719 (1,756) 1,086 77 54 136 115 182 208 695 25,870 824 1,663 (1,305) 623 121 54 95 78 - - 227 36 RWS Holdings plc 2016 Annual Report Notes to the Consolidated Financial Statements (continued) 5 Staff costs Staff costs (including Directors) comprise: Wages and salaries Social security costs Other pension costs Share based payment expense (note 20) 2016 £’000 2015 £’000 28,980 3,576 1,092 6 33,654 22,192 2,731 492 455 25,870 The Group operates a defined contribution pension scheme making payments on behalf of employees to their personal pension plans. Payments of £1,092,000 (2015: £492,000) 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 payables totalling £53,000 (2015: £54,000). Details of Directors’ remuneration and pension contributions are disclosed in the Directors’ Remuneration Report on pages 17 to 19. Key management compensation Short term employee benefits Post employment benefits Share based payments 2016 £’000 3,077 104 6 3,187 2015 £’000 2,645 45 455 3,145 The key management compensation includes the six (2015: six) Directors of RWS Holdings plc, the five (2015: five) members of the Senior Executive Team who are not Directors of RWS Holdings plc the four (2015: four) Managing Directors of the operating subsidiary undertakings based overseas and the two (2015: nil) former owners of CTi who were employed by the Group during the year. The monthly average number of people employed by the Group, including Directors and part-time employees, during the year was: Production staff Administrative staff 2016 Number 2015 Number 629 159 788 477 135 612 RWS Holdings plc 2016 Annual Report 37 Notes to the Consolidated Financial Statements (continued) 6 Finance income and expense Finance income – Returns on short-term deposits Finance expense – Bank interest payable – Movement in the fair value of foreign currency contracts Net finance income 7 Taxation Taxation recognised in the income statement is as follows: Current tax expense Tax on profit for the current year – UK – Overseas Adjustments in respect of prior years Deferred tax Current year movement Adjustments in respect of prior years Total tax expense 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 20.0% (2015: 20.5%) Effects of: Items not deductible or not chargeable for tax purposes Differences in overseas tax rates Adjustments in respect of prior years Total tax expense for the year 2016 £’000 2015 £’000 16 71 (458) (990) (1,448) (1,432) (6) (245) (251) (180) 2016 £’000 2015 £’000 4,171 3,325 (32) 7,464 (1,624) (82) 5,758 2016 £’000 25,091 5,018 (512) 1,366 (114) 5,758 3,957 1,039 288 5,284 (228) 68 5,124 2015 £’000 20,652 4,234 60 474 356 5,124 Factors that may affect future tax charges The standard rate of corporation tax in the UK changed from 21.0% to 20.0% with effect from 1 April 2015. Legislation was enacted to reduce the main rate of corporation tax from 20% to 19% with effect from 1 April 2017 and 17% from 1 April 2020. The reductions in tax rate 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. 38 RWS Holdings plc 2016 Annual Report Notes to the Consolidated Financial Statements (continued) 8 Dividends to shareholders Final, paid 26 February 2016 (2015: paid 27 February 2015) Interim, paid 22 July 2016 (2015: paid 24 July 2015) 2016 pence per share 2016 £’000 2015 pence per share 3.85 1.15 5.00 8,146 2,481 10,627 3.60 1.03 4.63 2015 £’000 7,617 2,179 9,796 The Directors recommend a final dividend in respect of the financial year ended 30 September 2016 of 4.45 pence per Ordinary share to be paid on 24 February 2017 to shareholders who are on the register at 27 January 2017. This dividend is not reflected in these financial statements as it does not represent a liability at 30 September 2016. The final proposed dividend will reduce shareholders’ funds by an estimated £9.6 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: 2016 2015 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 214,215,397 1,564,458 215,779,855 211,579,840 1,086,738 212,666,578 Adjusted earnings per Ordinary share is also presented to eliminate the effects of acquired intangibles, share options and exceptional acquisition costs. 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: 2016 2015 £’000 £’000 2016 Basic earnings per share pence 2015 Basic earnings per share pence 2016 Diluted earnings per share pence 2015 Diluted earnings per share pence Profit for the year Adjustments: Amortization of acquired intangibles Acquisition costs Charges for share based payments Tax effect of adjustments Adjusted earnings 19,333 15,528 9.0 7.3 9.0 7.3 4,639 855 6 (1,515) 23,318 1,607 - 455 (412) 17,178 2.2 0.4 0.0 (0.7) 10.9 0.8 - 0.2 (0.2) 8.1 2.1 0.4 0.0 (0.7) 10.8 0.8 - 0.2 (0.2) 8.1 RWS Holdings plc 2016 Annual Report 39 Notes to the Consolidated Financial Statements (continued) 10 Goodwill Cost and net book value Opening Additions Exchange adjustments At 30 September 2016 £’000 2015 £’000 31,445 22,788 7,285 61,518 30,512 - 933 31,445 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: Patent and Commercial UK Patent and Commercial Overseas Life Sciences Information Long Term Growth Rate Discount Rates Revenue Growth 2% 2% 2% 2% 9% 8% 12% 9% 5% 6% 7% 6% Long term growth rate is the rate applied to determine the terminal value at 5 years. The discount rate is the pre-tax discount rate. Revenue growth is the average annual increase in revenue over the 5 year projection period. As part of the value in use calculation, management prepares 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 a period of 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. There are no reasonably possible changes in the key assumptions that could cause the carrying value of the CGUs to exceed their recoverable amounts. 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. 40 RWS Holdings plc 2016 Annual Report Notes to the Consolidated Financial Statements (continued) The allocation of goodwill to each CGU is as follows: Patent and Commercial UK Patent and Commercial Overseas Life Sciences Information At 30 September 11 Intangible assets Trade name £’000 Clinician database £’000 Technology £’000 Trade- marks £’000 Cost At 1 October 2014 Additions Disposals Currency translation At 30 September 2015 Additions Acquisitions Disposals Currency translation At 30 September 2016 Accumulated amortization and impairment At 1 October 2014 Amortization charge Disposals Currency translation At 30 September 2015 Amortization charge Disposals Currency translation At 30th September 2016 Net book value At 1 October 2014 At 30 September 2015 At 30 September 2016 - - - - - - 957 - 167 1,124 - - - - - 119 - 10 129 - - 995 - - - - - - 4,467 - 777 5,244 - - - - - 443 - 38 481 1,974 - - 143 2,117 - - - 342 2,459 395 415 - 37 847 453 - 176 1,476 232 - - (12) 220 - - - 38 258 232 - - (12) 220 - - 38 258 2016 £’000 25,120 4,632 29,985 1,781 61,518 2015 £’000 22,472 3,961 3,231 1,781 31,445 Customer relation- ships & order book £’000 10,583 - - 89 10,672 - 16,548 - 3,933 31,153 4,031 1,192 - (47) 5,176 3,624 - 836 9,636 Software £’000 Total £’000 371 33 (2) (17) 385 169 - (11) 68 611 274 56 (2) (13) 315 80 (11) 64 448 13,160 33 (2) 203 13,394 169 21,972 (11) 5,325 40,849 4,932 1,663 (2) (35) 6,558 4,719 (11) 1,162 12,428 - - 4,763 1,579 1,270 983 - - - 6,552 5,496 21,517 97 70 163 8,228 6,836 28,421 Technology, Trademarks, Trade name, Clinician database and Customer relationships are amortized over 5 to 10 years and Software over not more than 3 years. The Order book intangible identified in valuing CTi acquisition is amortised over one year and has been included within Customer relationships. RWS Holdings plc 2016 Annual Report 41 Notes to the Consolidated Financial Statements (continued) 12 Property, plant and equipment Leasehold land, buildings and improve- ments £’000 Freehold land and buildings £’000 Furniture and equipment £’000 Motor vehicles £’000 16,913 - 97 - 17,010 - - - - 17,010 704 - 228 - 932 - - 229 - 1,161 16,209 16,078 15,849 581 - 2 - 583 - - - - 583 330 - 49 - 379 - - 28 - 407 251 204 176 2,613 (28) 1,159 (912) 2,832 182 731 240 (62) 3,923 1,808 (16) 537 (912) 1,417 126 190 674 (62) 2,345 805 1,415 1,578 79 - - - 79 14 - - - 93 34 - 10 - 44 12 - 10 - 66 45 35 27 Total £’000 20,186 (28) 1,258 (912) 20,504 196 731 240 (62) 21,609 2,876 (16) 824 (912) 2,772 138 190 941 (62) 3,979 17,310 17,732 17,630 Cost At 1 October 2014 Currency translation Additions Disposals At 30 September 2015 Currency translation Additions Acquisitions Disposals At 30 September 2016 Accumulated depreciation At 1 October 2014 Currency translation Depreciation charge Disposals At 30 September 2015 Currency translation Acquisitions Depreciation charge Disposals At 30 September 2016 Net book value At 1 October 2014 At 30 September 2015 At 30 September 2016 42 RWS Holdings plc 2016 Annual Report 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 2014 (Charged)/credited to income At 30 September 2015 Credited to income Credited to equity At 30 September 2016 Deferred tax liabilities At 1 October 2014 Charged/(credited) to income Charged to equity At 30 September 2015 Credited to income Charged to equity At 30 September 2016 Deferred tax assets Deferred tax liabilities Net deferred tax balance at 30 September Deprecia- tion in excess of capital allowances £’000 Other temporary differences £’000 58 (24) 34 20 - 54 126 28 154 623 - 777 Share Options £’000 169 (17) 152 478 414 1,044 Total £’000 353 (13) 340 1,121 414 1,875 Accelerated capital allowances £’000 Intangibles £’000 Total £’000 312 145 - 457 (92) - 365 1,712 (386) 43 1,369 (493) 85 961 2016 £’000 2,024 (241) 43 1,826 (585) 85 1,326 2015 £’000 1,875 (1,326) 549 340 (1,826) (1,486) 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 2016 Annual Report 43 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 At 30 September 2016 £’000 24,429 (101) 24,328 365 3,480 28,173 2015 £’000 15,718 (507) 15,211 272 2,424 17,907 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 approximates to their fair value. Trade receivables net of allowances are held in the following currencies at the reporting date: Sterling Euros Japanese Yen US Dollars Swiss Francs Other The ageing of trade receivables net of allowances 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 (Released)/Charged At 30 September 2016 £’000 2,524 9,918 680 10,614 526 66 24,328 2016 £’000 15,346 5,040 2,752 779 411 24,328 2016 £’000 507 (217) (189) 101 2015 £’000 2,495 7,088 437 4,337 684 170 15,211 2015 £’000 9,163 3,855 1,343 505 345 15,211 2015 £’000 144 (26) 389 507 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. 44 RWS Holdings plc 2016 Annual Report Notes to the Consolidated Financial Statements (continued) 15 Loan Due in less than one year Loan Due in more than one year Loan 2016 £’000 6,923 22,500 2015 £’000 - - On 30 October 2015 the Group acquired the entire issued share capital of Corporate Translations Inc (see note 22) The acquisition was funded from internal resources and a US$45m loan from Barclays.This loan is repayable over 5 years on a straight line basis. Interest is charged quarterly at LIBOR plus 1% and the debt is secured on the assets of CTi and other subsidiaries in the Group. 16 Trade and other payables Due in less than one year Trade payables Other tax and social security payable Other payables Accruals and deferred income At 30 September 2016 £’000 2015 £’000 7,260 1,252 1,363 10,332 20,207 6,960 1,024 599 6,214 14,797 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 2016 £’000 2015 £’000 30 30 This long term creditor relates to rental deposits received in relation to the leasing of a portion of Randall House. RWS Holdings plc 2016 Annual Report 45 Notes to the Consolidated Financial Statements (continued) 17 Provisions Due in less than one year At 1 October Utilised Charged/(released) to the Statement of Comprehensive Income Transferred (to)/from provisions due in more than one year At 30 September Due in more than one year At 1 October Transferred from/(to) provisions due in less than one year At 30 September 2016 £’000 77 (77) 157 (78) 79 2016 £’000 301 78 379 2015 £’000 480 (76) (404) 77 77 2015 £’000 378 (77) 301 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. 46 RWS Holdings plc 2016 Annual Report Notes to the Consolidated Financial Statements (continued) 18 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 receivables and accrued revenue - current Foreign exchange derivatives Cash and cash equivalents At 30 September Financial liabilities Trade and other payables - current Loan Foreign exchange derivatives At 30 September Carrying value 2016 £’000 Carrying value 2015 £’000 26,547 - 27,910 54,457 12,331 29,423 681 42,435 16,746 309 30,569 47,624 10,611 - - 10,611 Trade receivables and accrued revenue – current includes accrued revenue of £2,219,000 (30 September 2015: £1,535,000). 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. Group’s borrowings have a number of financial covenants which are tested bi-annually. The Board manages compliance by reviewing forecasts on a regular basis. 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%. The loan of USD$45 milion is for a period of 5 years with interest payable at 1% over LIBOR on a straight line basis. RWS Holdings plc 2016 Annual Report 47 Notes to the Consolidated Financial Statements (continued) The currency profiles of the Group’s cash and cash equivalents at 30 September 2016 are set out below. Assets – Cash and cash equivalents Sterling US Dollars Euros Yen Swiss Francs Other Financial liabilities – Loan US Dollars Floating rate 2016 £’000 Floating rate 2015 £’000 9,460 9,733 4,870 1,749 1,655 443 27,910 18,415 4,639 4,983 1,171 1,034 327 30,569 £’000 £’000 29,423 - If interest rates changed by 1%, the impact would not be material to the Group’s results in either the current or prior year. The Directors believe that a change of 1% represents a reasonable sensitivity of the Group’s interest rate risk. 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 with a further institution carrying an 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 5% (2015 – 7%) 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 44% (2015: 51%) of Group external sales in the reporting period were denominated in Euros and 31% in US dollars (2015: 20%) while the cost base of the Group is predominantly denominated in sterling. 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. 48 RWS Holdings plc 2016 Annual Report Notes to the Consolidated Financial Statements (continued) The Group applies net investment hedge accounting in respect of borrowings associated with the acquisition of foreign operations, reducing the effect of currency fluctuations in the income statement by recognising gains or losses directly in equity. Assets and liabilities of Group entities located in Germany, Switzerland, the United States, Japan, China and Australia 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 2016 £’000 Liabilities 2015 £’000 3,092 30,592 8 111 77 33,880 2,204 201 1 55 141 2,602 Assets 2016 £’000 12,388 6,720 1,487 20 124 20,739 Assets 2015 £’000 10,287 6,057 1,189 91 237 17,861 Foreign currency sensitivity analysis The following table details the Group’s sensitivity to a 10% (2015:10%) 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 Profit and loss impact 2015 £’000 735 532 108 3 1,378 2016 £’000 845 505 134 (8) 1,476 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. RWS Holdings plc 2016 Annual Report 49 Notes to the Consolidated Financial Statements (continued) The Group’s derivative financial instruments, which take the form of forward foreign exchange contracts in place at the year end are as follows: 2016 £’000 2015 £’000 Forward foreign currency exchange contracts (681) 309 An analysis of the Group’s forward contracts’ maturity is as follows: Up to 3 months 3 to 6 months 6 to 12 months 2016 £’000 (288) (297) (96) (681) 2015 £000 309 - - 309 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 debt financing has been introduced where it was felt that the benefits exceed the risks and costs to equity shareholders of introducing this type of finance. Following dividend payments of £10,627,000, closing reserves are £108,700,000. At 30 September 2016 there was £29,423,000 of external debt finance on the balance sheet being the balance of the $45 million loan taken out to part fund the acquisition of Corporate Translations Inc. (note 22). The Group is not subject to externally imposed capital requirements. In addition the Group held its own Cash and cash equivalents at the year end of £27,910,000. 19 Share capital Authorised Ordinary shares of 1 pence each (2015: 1 pence) Allotted, called up and fully paid At beginning of year Subdivision of shares Issue of shares 2016 Number 2016 £’000 2015 Number 2015 £’000 500,000,000 5,000 500,000,000 5,000 211,579,840 - 4,184,810 2,116 - 41 42,315,968 169,263,872 - 2,116 - - 2,116 At end of year 215,764,650 2,157 211,579,840 At the RWS Holdings plc AGM on 10 February 2015, shareholders approved a resolution to subdivide the Company’s existing shares so that each 5p Ordinary share was subdivided into 5 Ordinary shares of 1p each. These new 1p shares were admitted for trading on the London Stock Exchange on 11 February 2015. The increase in share capital was as a result of the exercise of share options by a Director and several Senior Executives. 50 RWS Holdings plc 2016 Annual Report Notes to the Consolidated Financial Statements (continued) 20 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 vest after a period of 3 years for the approved scheme and 2 years for the unapproved scheme 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 unap- proved options Vesting Date Exercise Price (£) Grant Date approved options unap- proved options Lapse Date Balance at 1 Oct 2015 Exercised Balance at 30 Sep 2016 139,290 7,971,285 46,430 4,138,380 92,860 3,832,905 1.292 3 April 2013 3 April 2016 3 April 2015 3 April 2021 A charge of £6,000 (2015: £455,000) has been made in the accounts relating to share options all of which related to equity settled share based payment transactions. 4,184,810 options were exercised during the year (2015: Nil). The fair value of the share options 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 1.292 1.292 3 33.5 2.69 2 1.31 1.292 1.292 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 at the date of grant. RWS Holdings plc 2016 Annual Report 51 Notes to the Consolidated Financial Statements (continued) 21 Cash and cash equivalents Cash at bank and in hand Short-term deposits 2016 £’000 18,477 9,433 27,910 2015 £’000 15,935 14,634 30,569 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. 22 Acquisition On 30 October 2016, the Group acquired the entire issued share capital of Corporate Translations Inc for a cash consideration of US$70 million plus US$2 million for working capital. The acquisition was funded by a US$45 million five year loan and internal cash resources. The fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows: Book value £’000 Provisional fair value adjustments £’000 Provisional fair values £’000 Net assets acquired: Property, plant and equipment Trade name Orderbook Customer relationships Clinician Database Trade and other receivables Cash and cash equivalents Trade and other payables Goodwill Total consideration Satisfied by: Cash Cash flow: Total consideration Cash included in undertaking acquired Net cash consideration in cash flow statement 168 - - - - 6,020 208 (3,762) 2,634 (118) 957 824 15,724 4,467 - - - 21,854 50 957 824 15,724 4,467 6,020 208 (3,762) 24,488 22,788 47,276 47,276 47,276 (208) 47,068 Corporate Translations Inc contributed £21.2 million revenue and £3.4 million to the Group’s profit after tax for the year between the date of acquisition and the balance sheet date. If the acquisition had been completed on the first day of the financial year, Group revenues for the year would have been £123.9 million and Profit for the year £19.6 million. Acquisition costs of £855,000 have been charged through the Consolidated Statement of Comprehensive Income. 52 RWS Holdings plc 2016 Annual Report Notes to the Consolidated Financial Statements (continued) 23 Related party transactions During the year in the normal course of business, RWS provided translation services worth £357,000 (2015: £295,000) to Learning Technologies Group plc (“LTG”) a company in which Andrew Brode has a notifiable interest. An amount of £38,000 due from LTG at 30 September 2016 was paid in October and November 2016 (2015: £30,000). 24 Commitments and contingent liabilities The Group had no material capital commitments contracted for but not provided for in the financial statements. (2015: £nil) 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 (2015: £nil). The loan of $45 million taken out with Barclays Bank plc to part fund the acquisition of Corporate Translations Inc has been guaranteed against the assets of CTi and other fellow subsidiary undertakings. 25 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 2016 £’000 2015 £’000 1,476 2,297 1,133 4,906 780 801 365 1,946 26 Events since the reporting date No significant events have occurred between the balance sheet date and the date of authorisation of these financial statements. RWS Holdings plc 2016 Annual Report 53 Independent auditors’ report to the members of RWS Holdings plc REPORT ON THE PARENT COMPANY FINANCIAL STATEMENTS Our opinion In our opinion, RWS Holdings plc’s Parent Company financial statements (the “financial statements”): – give a true and fair view of the state of the Parent Company’s affairs as at 30 September 2016; – have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and – have been prepared in accordance with the requirements of the Companies Act 2006. What we have audited The financial statements, included within the Annual Report (the “Annual Report”), comprise: – the Parent Company Statement of Financial Position as at 30 September 2016; 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 Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or – the Parent Company Statement of Changes in Equity – the financial statements are not in agreement with for the year then ended; and the accounting records and returns. – the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information. We have no exceptions to report arising from this responsibility. 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 financial statements is United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law (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. 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. Responsibilities for the financial statements and the audit Our responsibilities and those of the Directors As explained more fully in the Statement of Directors’ Responsibilities set out on page 16, 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 Parent Company’s members as a body in accordance with Chapter 3 of 54 RWS Holdings plc 2016 Annual Report Independent auditors’ report to the members of RWS Holdings plc (continued) Other matter We have reported separately on the Group financial statements of RWS Holdings plc for the year ended 30 September 2016. Nigel Reynolds (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 6 December 2016 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 Parent 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. 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. RWS Holdings plc 2016 Annual Report 55 Parent Company Financial Statements The following parent entity financial statements are prepared under FRS 101 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 page 58 to 59. Statement of Financial Position at 30 September 2016 Registered Company 3002645 Fixed assets Investments Current assets Debtors Foreign exchange derivatives Cash at bank and in hand Total assets Current liabilities Loan Trade and other payables Foreign exchange derivatives Net current assets Total assets less current liabilities Creditors: amounts falling due after more than one year Loan Net assets Capital and reserves Share capital Share premium account Share based payment reserve Capital reserve Profit and loss account Total shareholders’ funds Note 2016 £’000 2015 £’000 6 7 10 8 9 10 8 11 44,817 44,817 913 - 6,991 7,904 15,326 15,326 5,982 309 7,735 14,026 52,721 29,352 6,923 263 681 7,867 - 230 - 230 44,854 29,122 44,854 29,122 22,500 22,354 2,157 8,947 1,807 2,030 7,413 22,354 - 29,122 2,116 3,583 1,801 2,030 19,592 29,122 The financial statements on pages 56 to 64 were approved by the Board of Directors and authorised for issue on 5 December 2016 and were signed on its behalf by: Andrew Brode Director 56 RWS Holdings plc 2016 Annual Report Parent Company Financial Statements (continued) Statement of changes in Equity Share capital £’000 Share premium account £’000 Share based payment Reserve £’000 Capital Reserve £’000 Retained earnings £’000 Total £’000 At 1 October 2014 2,116 3,583 1,346 2,030 18,724 27,799 Profit for the financial year Total Comprehensive Income for the year Dividends Credit arising on share based payments - - - - - - - - - - - 455 - - - - 10,664 10,664 10,664 10,664 (9,796) - (9,796) 455 Balance at 30 September 2015 2,116 3,583 1,801 2,030 19,592 29,122 Loss for the financial year Total Comprehensive loss for the year Dividends - - - - - - Credit arising on share based payments Issue of shares - 41 - 5,364 - - - 6 - - - (1,552) (1,552) (1,552) (1,552) - (10,627) (10,627) - - - - 6 5,405 Balance at 30 September 2016 2,157 8,947 1,807 2,030 7,413 22,354 The nature and purpose of each reserve within equity is as follows: – Share capital is the nominal value of the shares issued. – Share premium is the fair value of the shares issued in excess of their nominal value. – The balance on the capital reserve is an amount not distributable to shareholders and not transferred to the Income Statement. – Share based payment reserve is the credit arising on the share based payment charges in relation to the Company’s share option schemes. – Retained earnings are the cumulative net gains and losses, including the capital reserve from the Company balance sheet. RWS Holdings plc 2016 Annual Report 57 Notes to the Company Financial Statements 1 General information RWS Holdings plc is the holding company of a number of subsidiaries which provide patent translations, intellectual property support services, high level technical and commercial translations and linguistic validation services. 2 Summary of significant accounting policies The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. Basis of preparation The financial statements of RWS Holdings plc have been prepared in accordance with Financial Reporting Standard 101, ‘Reduced Disclosure Framework’ (FRS 101). The financial statements have been prepared under the historical cost convention as modified by the revaluation of land and buildings and derivative financial assets and financial liabilities measured at fair value through the income statement and in accordance with the Companies Act 2006. This is the first year the Company has prepared accounts under FRS101 and the transitional adjustments are set out in note 14. The preparation of financial statements in conformity with FRS 101 requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company’s accounting policies. The following exemptions from the requirements of IFRS have been applied in the preparation of these financial statements, in accordance with FRS 101: – Paragraphs 45(b) and 46 to 52 of IFRS 2, ‘Share-based payment’ (details of the number and weighted-average exercise prices of share options and how the fair value of goods or services received was determined). – IFRS 7, ‘Financial Instruments: Disclosures’. – Paragraphs 91 to 99 of IFRS 13, ‘Fair value measurement’ (disclosure of valuation techniques and inputs used for fair value measurement of assets and liabilities). – Paragraph 38 of IAS 1, ‘Presentation of financial statements’ comparative information requirements in respect of (i) paragraph 79(a) (iv) of IAS 1 (ii) paragraph 73(e) of IAS 16 ‘Property, plant and equipment’ (iii) paragraph 118(e) of IAS 38 ‘Intangible assets’ (reconciliations between the carrying amount at the beginning and end of the period). – The following paragraphs of IAS 1, ‘Presentation of financial statements’: 10(d), (statement of cash flows), 16 (statement of compliance with all IFRS), 38A (requirement for minimum of two primary statements, including cash flow statements), 38B-D (additional comparative information) 111 (cash flow statement information), and 134-136 (capital management disclosures). – IAS 7, ‘Statement of cash flows’ – Paragraph 30 and 31 of IAS 8 ‘Accounting policies, changes in accounting estimates and errors’ (requirement for the disclosure of information when an entity has not applied a new IFRS that has been issued but is not yet effective). – Paragraph 17 of IAS 24, ‘Related party disclosures’ (key management compensation). The requirements in IAS 24, ‘Related party disclosures’ to disclose related party transactions entered into between two or more members of a Group. 58 RWS Holdings plc 2016 Annual Report Notes to the Company Financial Statements (continued) Going concern The Company meets its day-to-day working capital requirements through its cash reserves and borrowings. After making enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the next 12 months. The Company therefore continues to adopt the going concern basis in preparing its financial statements. Derivative financial instruments and hedging activities The Company has not applied hedge accounting and all derivatives are measured at fair value through profit and loss. Investments Investments are stated at cost less provision for impairment. Cost includes capital contributions arising from share options. Pensions Contributions to personal pension plans are charged to the income statement 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 payment 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 20 of the consolidated financial statements. 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 Company 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. Where the share options are awarded to employees of subsidiaries, the amount of the charge is passed down to the subsidiary in the form of a capital contribution which is recognised as an increase in the investment in that subsidiary. 3 Derivative Financial Instruments The Company enters into forward foreign currency contracts to mitigate the exchange rate risk for certain foreign currency receivables. At 30 September 2016 the outstanding contracts all mature within 12 months (2015: 3 months) of the year end. The Company is committed to sell €19,200,000 and receive a fixed sterling amount. RWS Holdings plc 2016 Annual Report 59 Notes to the Company Financial Statements (continued) The forward currency contracts are measured at fair value, which is determined using valuation techniques that utilise observable inputs. The key assumptions used in valuing the derivatives are the exchange rates for the Euro which are sold for sterling. 4 Operating profit The Company has taken advantage of Section 408 of the Companies Act 2006 and has not included its own Income statement in these financial statements. The Company loss after tax for the year ended 30 September 2016 under FRS 101 was £1,552,000 (2015 profit: £10,664,000). Audit fees payable in relation to the audit of the financial statements of the Company are £54,000 (2015: £54,000). 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. 5 Directors and employees There were no employees (2015: 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 2016 £’000 1,166 19 1,185 2015 £’000 998 17 1,015 During the year the Company had six (2015: 6) Directors, including three Non-Executive Directors, providing services to the Group. During the year two Directors (2015: 2) received contributions to their personal pension schemes. Emoluments of the highest paid Director: Emoluments Pension costs – paid to the Director’s personal pension scheme 2016 £’000 403 10 413 2015 £’000 350 10 360 Details of Directors’ remuneration and pension contributions are disclosed in the Directors’ Remuneration Report on pages 17 to 19. 60 RWS Holdings plc 2016 Annual Report Notes to the Company Financial Statements (continued) 6 Investments Cost and net book value at beginning of year Purchase of shares in a subsidiary undertaking Additions – capital contributions Cost and net book value at end of year 2016 £’000 15,326 29,485 6 44,817 2015 £’000 14,871 - 455 15,326 The Directors consider that the value of the Company’s fixed asset investments, which are listed below, is supported by their underlying profitability. The following were the wholly owned subsidiary undertakings and have been consolidated in the financial statements: Country of incorporation Nature of business Beijing RWS Science & Technology Information China Patent, technical and legal translations Consultancy Co. Ltd Communicare Limited Corporate Translations Inc. Corporate Translations UK Limited Eclipse Translations Limited England Technical and legal translations USA England England Translation and linguistic validation Translation and linguistic validation Technical and legal translations RWS Schweiz GmbH (formerly Ifama GmbH) Switzerland Technical and legal translations Japanese Language Services Limited England Technical and legal translations KK RWS Group Lawyers’ and Merchants’ Translation Bureau Inc Japan USA Patent, technical and legal translations Technical and legal translations RWS Group Deutschland GmbH Germany Technical and legal translations RWS Group Limited RWS Information Limited RWS (Overseas) Limited RWS Translations Limited RWS UK Holding Co. Limited RWS US Holding Co. Inc Pharmaquest Limited inovia Pty Holdings Limited inovia LLC inovia Europe GmbH England England England England England USA England Australia USA Holding company Patent and technical information searches Holding company Patent, technical and legal translations Holding company Holding company Technical and medical translations Patent translations Patent translations Germany Patent translations All subsidiary undertakings, except RWS Group Limited are held indirectly. RWS Holdings plc 2016 Annual Report 61 Notes to the Company Financial Statements (continued) 7 Debtors Amounts owed by Group undertakings Other debtors Prepayments Amounts due within one year 8 Loan Due in less than one year Loan Due in more than one year Loan 2016 £’000 876 8 29 913 2016 £’000 6,923 22,500 2015 £’000 5,942 13 27 5,982 2015 £’000 - - On 30 October 2015 the Group acquired the entire issued share capital of Corporate Translations Inc (see note 22 of the consolidated accounts). The acquisition was funded from internal resources and a US$45 million loan from Barclays. This loan is repayable over 5 years on a straight line basis. Interest is charged quarterly at 1% over LIBOR and the debt is secured by the assets of CTi and other subsidiaries in the Group. 9 Creditors: amounts falling due within one year Trade creditors Amounts owed to Group undertakings Accruals 2016 £’000 8 36 219 263 2015 £’000 9 103 118 230 The amounts owed both by and to Group undertakings are repayable on demand and classified as due within one year. 62 RWS Holdings plc 2016 Annual Report Notes to the Company Financial Statements (continued) 10 Financial instruments The Company’s derivative financial instruments, which take the form of forward foreign exchange contracts, in place at the year end are as follows: 2016 £’000 2015 £’000 Foreign exchange derivatives An analysis of the Group’s forward contracts’ maturity is as follows: (681) 2016 £’000 (288) (297) (96) (681) 309 2015 £000 309 - - 309 Up to 3 months 3 to 6 months 6 to 12 months 11 Share capital Authorised Ordinary shares of 1 pence each (2015: 1 pence) Allotted, called up and fully paid At beginning of year Subdivision of shares Issue of shares 2016 Number 2016 £’000 2015 Number 2015 £’000 500,000,000 5,000 500,000,000 5,000 211,579,840 - 4,184,810 2,116 - 41 42,315,968 169,263,872 - 2,116 - - 2,116 At end of year 215,764,650 2,157 211,579,840 The increase in share capital was as a result of the exercise of share options by a Director and several Senior Executives. 12 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 (2014: £nil). The loan of US$45 million taken to fund the acquisition of Corporate Translations Inc is secured against the assets of CTi and other subsidiaries of the Group. 13 Post balance sheet events There have been no events since 30 September 2016 that require disclosure. RWS Holdings plc 2016 Annual Report 63 Notes to the Company Financial Statements (continued) 14 Appendix to the Financial Statements – First time adoption of FRS 101 Background This is the first year in respect of which the Company has prepared its financial statements under FRS 101. The previous financial statements for the year ended 30 September 2015 were prepared under ‘UK GAAP’. The date of transition to FRS 101 for the Company is 1 October 2014. Set out below are descriptions of the various implementation options applied by the Company in preparing the financial statements for the year ended 30 September 2016, as well as reconciliations from ‘UK GAAP’ to FRS 101 for both total equity as at 1 October 2014 and 30 September 2015 and comprehensive income for the year ended 30 September 2015. Reconciliation of Total Equity as at 1 October 2014 and 30 September 2015 UK GAAP – As previously reported Forward foreign exchange contracts FRS 101 1 October 2014 £’000 30 September 2015 £’000 27,245 28,814 554 308 27,799 29,122 Reconciliation of Total Comprehensive Income for the period ended 30 September 2015 Profit for the financial year UK GAAP – As previously reported Forward foreign exchange contracts FRS 101 £ 10,910 (246) 10,664 64 RWS Holdings plc 2016 Annual Report 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 Shareholder information Corporate headquarters and Registered office No. 03002645 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 6 Agar Street London WC2N 4HN 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 Registrars Limited The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Tel: 087 1664 0300 From overseas: +44 371 664 0300 calls outside the United Kingdom Email: shareholderenquiries@capita.co.uk RWS Holdings plc 2016 Annual Report 65 Contents 2 RWS Holdings plc 2016 Annual Report R W S H o l d i n g s p l c 2 0 1 6 A n n u a l R e p o r t New horizons RWS Holdings plc 2016 Annual Report RWS Holdings plc 2016 Annual Report Europa House Chiltern Park Chiltern Hill Chalfont St Peter Bucks SL9 9FG United Kingdom Telephone +44 (0) 1753 480 200 Facsimile +44 (0) 1753 480 280 Email rws@rws.com www.rws.com 

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