RWS’ Life Sciences Bet Starts to Pay Off as CTi Boosts Half-year Results

UK-based RWS announced half-year results for the six months ended March 31, 2016. Slator discussed the results with RWS Executive Chairman Andrew Brode, CEO Reinhard Ottway, and Group Finance Director and Deputy CEO Richard Thompson.

RWS has delivered another set of solid numbers. Revenues grew 25% from GBP 45.4m (H1 2015) to GBP 56.9m. Profits are up even more, growing by 42.3% to GBP 14.8m (H1 2015: GBP 10.4m). The company looks certain to extend its streak of uninterrupted revenue and profit growth for a 13th consecutive year when full-year results are announced toward the end of 2016. RWS had employed 787 staff by end of March 2016.

The company also published a detailed revenue split with Patent Translation and Filing at 65%, Life Sciences, 20% (including CTi), Commercial Translations, 10%, and Information and PatBase, at 5% of revenue.

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CTi Drives Growth

A key driver behind growth was the acquisition of life sciences specialist CTi. The Connecticut-based business contributed GBP 9.4m in revenue and GBP 2.7m in pre-tax profit in the five months since the deal closed, which means it continued to rack up double-digit growth on both the top and ottom lines since the acquisition.

Asked about CTi’s strong performance, RWS management told Slator that around 50% of CTi’s business is in linguistic validation, which tends to have bulkier projects than the traditional patent and commercial translation business as well as being more profitable.

Calendar H1 2015 had marked a bit of trough for CTi, after which business picked up strongly, which benefited RWS after the acquisition. RWS management expressed confidence about the second half of the year as CTi’s “order backlog is reasonably healthy.”

In a kind of reverse integration, RWS decided to fold its “existing UK life sciences activities, Pharmaquest and the Medical Translation Division, into CTi to form an enlarged unit.” Per RWS management, the CTi brand will remain.

Unitary Patent

A cloud looms on the RWS horizon: the pending launch of Europe’s Unitary Patent, which RWS management acknowledges will not be a positive for the business.

In the short to medium term, however, the company expects a limited impact because large patent filers (i.e., RWS) will adopt a wait-and-see approach as the Unitary Patent is being implemented while the current system is still in place. That said, much of it could change should the UK opt to leave the European Union in the upcoming vote.

China

RWS has maintained a production unit in China for 10 years now, responding to the increasing demand for Chinese translations from outside of China. Since medium to large enterprises increasingly innovate within China, however, RWS said they increasingly see opportunities with China-based firms too.

While this is “kind of a slowish process,” according to CEO Reinhard Ottway, he has no doubt about the potential of the Chinese market.

Acquisitions

Executive Chairman Andrew Brode told Slator the company’s stated aim continues to be its expansion in the United States, with IP and life sciences targets being the main focus. Other regulated industries, such as legal or finance, may be reviewed, but RWS does not want to dilute its strong gross margins through acquisitions that primarily add revenue.

According to Brode, the CTi acquisition has put RWS on the map among US brokers, which now make sure he receives information memos of companies willing to sell.

The market has reacted muted to the results with RWS share trading up slightly by 1.7% at the time of writing.