10 months ago
December 10, 2020
RWS CEO Talks About the Future of SDL
RWS, now the world’s largest language service provider, published results for the financial year ended September 30, 2020. Revenues were essentially flat at GBP 355.8m (versus GBP 355.7m in 2019). Adjusted profit before tax was also largely in line with the prior year at GBP 70.2m (2019: GBP 74.2m).
Divisional performance was robust given the challenging environment of 2020. Revenues for RWS Life Sciences rose by 6% to GBP 69.5m, boosted, in particular, by linguistic validation services. The division also managed to raise operating profits slightly to GBP 20.9m (2019: GBP 20.3m).
RWS Moravia reported record revenues of 173.6m, up from GBP 165m in 2019. Operating profits were down to GBP 24.8m from GBP 26.2m the year prior, but RWS said the weakening US dollar weighed on profits to the tune of GBP 3.4m (RWS Moravia generates much of its revenue from large tech firms in the US.)
While Life Sciences and Moravia largely avoided any direct hit from Covid-19 in 2020, RWS said some clients of its IP Services division — particularly from automotive, aerospace, and oil and gas — cut spending to reduce costs. Consequently, revenues decreased by 10% to GBP 112.8m (2019: GBP 125.2m), and adjusted operating profit fell by 16% to GBP 30.2m (2019: GBP 36.1m).
On the company’s outlook, the announcement quoted Chairman and major shareholder Andrew Brode as saying, “The new financial year has begun positively, slightly ahead of our expectations. We have no net debt and whilst our focus is on integrating SDL, our strong balance sheet places us in pole position to compete for the most attractive acquisition opportunities.”
The results were in line with guidance provided in an October 2020 trading update, so all eyes were on the news regarding initial steps taken to integrate SDL. (The closing of the SDL acquisition occurred after the reporting period.)
RWS has wasted no time integrating its former UK rival. RWS said that, in the course of 2021, it will operate as four new divisions comprising current RWS and SDL units, as follows:
- RWS IP Services
- RWS Life Sciences and SDL Regulated Industries
- RWS Moravia and SDL Commercial Enterprise
- SDL Language Technology and SDL Content Technologies
RWS said that each division will be led by a Managing Director with full P&L responsibility of the respective unit. SDL’s former Chief Technology Officer, Azad Ootam, meanwhile, will be put in charge of the entire group’s IT and R&D and tasked with leveraging SDL’s technology across the company.
“The priority for that part of the business is continuing to run it as it is”
According to RWS, “The detailed planning for the integration is well underway and significant synergy opportunities, in excess of the previously announced GBP 15m, have already been identified.” The group expects to deliver “a significantly improved operational performance over the coming 12–18 months.”
In a phone interview with Slator, RWS CEO Richard Thompson confirmed that they had agreed on the names of the new divisions internally, but are not yet ready to announce them just yet. Asked about the timeline, Thompson said “it will be gradually introduced as we go through next year.”
Thompson did confirm that the label “Life Sciences” will disappear as the addition of SDL’s regulated industries will broaden the division’s client footprint. Beyond life sciences, Thompson said that Finance and Legal are exciting areas for them going forward. The CEO also mentioned medical devices as an opportunity.
While SDL’s regulated industry and enterprise technology clients fit well with RWS’ existing business, SDL’s technology customers (in particular, the translation productivity suite of products including Trados) are adding a completely new set of clients to the portfolio: language service providers (LSPs) and freelance translators.
Leaving Trados Alone (for Now)
Asked about how LSPs and freelancers fit into RWS’ overall strategy and what his plans are for that part of the business, Thompson replied, “The priority for that part of the business is continuing to run it as it is. We are not looking to change it. The top priority really is the integration of the other parts of the business […] and improving SDL’s legacy net margin. I’m focused on those parts of integration.”
“I think there are bags of opportunity within where we are”
He described SDL’s Content and Technologies lines as “good businesses.” According to Thompson, “They make a profit, [and have] really good people. [There are] some exciting new developments in there. We’ll ring fence them as a separate division and continue to run them. I think there’s a place for them within the enlarged RWS. I’m very happy for them to be there. But we’re not going to touch them for some time. There are other, higher priorities.”
After having been a key consolidator in the core translation and localization space for years, is RWS looking farther afield for growth and M&A opportunities in areas such as gaming, media, or data annotation services? “Not too sure we could afford it,” Thompson quipped, clearly referring to Lionbridge’s nearly USD 1bn sale of its data annotation business in November 2020.
Thompson told Slator: “We are very happy in the spaces we are in. We’ve got bags of opportunity in the areas that we are in to continue to expand them. We’re in three key markets in terms of legacy RWS, IP Services, Life Sciences, and Technology — which are all beneficiaries of whatever a post-Covid world [will be]. We have got some really exciting stuff within the SDL content piece; which I think, in due course, we will overlay on top of the services that we have delivered to our major customers. I think there are bags of opportunity within where we are.”