Good morning, everybody, and welcome to the RWS half-year results. I'm Ian El-Mokadem, our CEO, and I'm joined at the moment by Rod Day, our interim chief financial officer. Unfortunately, our chairman, Andrew Brode, is slightly delayed, but we hope he will join us during the course of the session. The structure for today's presentation is I'm going to start with a brief overview. I'll then hand over to Rod for the financial review. I'll then come back to do a strategic and operational review, followed by current trading and outlook, and then we'll take questions. Moving straight into the overview, a brief reminder of who we are, a unique world-leading provider of technology-enabled language, content, and IP services, with a really strong track record of growth, both in terms of revenues and profits.
A great story, which is one of the reasons I joined the business almost a year ago now, you know, building from a small UK-focused business to the truly global leader in our industry that we are today. Another one of the reasons I joined this business was the really impressive client list that we serve and continue to serve. A very diversified client base these days, with the top 10 about 30% of group revenues, the top 30 about 41%. Very high levels of tenure, which speak to the quality of service that we deliver and our responsiveness to the changing needs of those clients as their businesses evolve.
You know, revenue growth, you know, good story around revenue growth, with those key accounts as we really partner with them. That is underpinned by very high levels of customer satisfaction with an NPS score of 41. It covers, you know, a whole spectrum of industries, which gives the business really good diversification, but that list of high-quality names says a lot about us, and we're very proud to serve them all. Moving straight to the numbers. A very robust performance with H1 profit ahead of our expectations. Revenues up 9% at GBP 357 million.
Profits up 20% at GBP 60.7 million, obviously, reflecting a full half of SDL in those numbers, as well as obviously some organic growth. Good progress on gross margin. We'll talk more about that, but part of that is due to the early stages of us putting more volume through our Language eXperience Delivery function. CapEx at the lower end of the range that we guided to at 4% as we start to limber up some of the investments we talked about at the Capital Markets Day. Adjusted basic EPS up 13%. An interim dividend up 13%, reflecting our continued commitment to progressive dividend policy. Very strong cash conversion at 120%, and I'll let Rod talk about a bit more about that in a second.
ROE now at the lower end of the range that we communicated as our ambition at the Capital Markets Day. That's also, I think, really encouraging. We introduced our new growth model at the Capital Markets Day, and it won't surprise you to learn that you'll hear me and my colleagues talking about this a lot over coming results sessions. As a structure, it's quite a good way to give you some headlines on what's been going on in the business in the first six months of the year. We've had new wins in our major accounts and GoGlobal sections of our language services business. I'll talk more about all of this later on, including winning some new electric vehicle manufacturers.
Pleasingly, we've seen some progress with our eLearning sales, both to new logos and cross-selling to some of our established clients. Our linguistic validation service in RI continues to grow very strongly, and we are investing in that space, as many of you know. We have started the investments in go-to-market in sales to start to drive that growth in our technology businesses. In terms of our expertise, we are recruiting to support some of those growth initiatives that we announced at the Capital Markets Day. We're improving the way we manage our freelancers in terms of onboarding and managing them through the LXD.
Our campus program, a key pillar of our ESG, as well as a very essential tool for us in terms of building our capabilities in rarer language pairings continues to expand with the addition of eight new languages in six countries in Africa. In terms of technology, we have restructured the way we run our technology businesses, perhaps bringing them more into line with the philosophy of RWS, which was clear P&L ownership. We now have four P&L owners for the 4 technology areas in the business. I think we're seeing already some early-stage progress there with a return to organic growth in our language and content tech division, even after an increase in SaaS revenues, which is also obviously a really positive thing.
We've also had a significant win with a robotic software provider for Tridion, our content management platform. In terms of developing our portfolio, strong cash conversion continues to support our ability to grow. We've started the development of our updated data annotation proposition. We've also made good progress with the acquisition of Fonto that we announced in March. In terms of leveraging our scale, as I've mentioned, we've started to put more volume through the Language eXperience Delivery function. Our IP transformation program is progressing, and we have initiated the programs that we announced in March to start to move the group onto a common finance and HR set of platforms. Those are the headlines.
I'll come back in a minute to talk in more detail about the divisions, but I'll now hand over to Rod.
Great. Well, thanks, Ian. And as Ian summarized, we're pleased to report good financial progress in the first half of the financial year. Revenue was up 9% year-on-year. This includes the benefit of one month extra revenue of SDL in 2022. Organic constant currency revenue growth was up 1%, with good performance in regulated industries, language services and technology being offset by an anticipated decline in IP services. Gross margin was up 100 basis points. In addition to growth, the benefits from the synergies from the SDL acquisition were an important factor. We've also increased volume through our efficient in-house translation team, LXD, and we've also been addressing unprofitable customers, and this has contributed to improved gross margin percent. Admin expenses as a percent of revenue improved by 40 basis points, again, helped by the SDL acquisition program.
The net result is profit before tax of GBP 60.7 million, running at 17% of revenue. It should be remembered that the RWS profit as a percent of revenue is typically lower in H1 than the second half, and so this 17% in H1 is consistent with a full year outlook of 18%. There are a number of adjusting items which are detailed in the accounts. These include exceptional items of GBP 9 million, as well as amortization of intangibles of GBP 17 million relating to past acquisitions of SDL and Moravia. Looking at reported tax, prior year included a credit of GBP 2.4 million relating to a U.S. tax adjustment, so reducing the comparable. Reported tax expense for H1 2022 was GBP 9.3 million.
Once we've taken account of adjusting items such as exceptionals and the amortization of acquired intangibles, the adjusted effective tax rate came in at 23.7%, consistent with our earlier guidance and expectations. Finally, adjusted EPS came in at 11.9% per share, up 13% on the prior year, and this increase is consistent with the board's agreed increase in the first half dividend. Turning to page 10, this shows the drivers of revenue variance between H1 2022 and H1 2022 in a bit more detail. As I said, the biggest change resulted from the extra month of SDL revenue in 2022. Looking at the operating divisions on a constant currency basis. Language services showed solid growth of 2%, driven by our Go Global accounts and major accounts.
Regulated industries showed an improvement of 5%, with Linguistic Validation showing particularly strong growth. Technology grew by 2%, despite the fact that SaaS new revenue accounted for 34%, up from 24% in the prior year. This dynamic suppressed revenue growth in the segment by 3% year-on-year, although obviously for the longer term, SaaS revenue is more valuable given its recurring nature. The FX impact was relatively minor, primarily due to the strengthening of the sterling against the euro compared to the prior period. Ian will discuss the business unit performance in more detail later. Turning to the cash bridge, operating cash flow before working capital movements came in at GBP 69.7 million. Cash conversion in H1 was 120%, slightly higher than expectations, and once again demonstrating the strong cash generation of the group.
Significant outflows, not surprisingly, related to dividends, tax, CapEx, and of course, the acquisition of Fonto. Total cash at end March 2022 was GBP 80.6 million, and net cash after loans was GBP 38.2 million. For information, as is typical, lease liabilities have not been included in these figures. The balance sheet remains strong, and when comparing March 2022 with September 2022, there's only limited change. Some points to note are that goodwill increased by GBP 17.4 million, driven by the acquisition of Fonto, a movement in the dollar relative to the pound between the end period dates. Intangible assets were amortized by GBP 24.4 million. Net working capital was relatively flat, a small improvement with cash collection rates in H1 2022 very similar to the prior period.
I think some of you will recognize this slide, as we presented at our Capital Markets Day. However, this time we've broken down the GBP 50 million of CapEx and the GBP 47 million of OpEx that we referred to at the time. You'll note that the first bucket, building long-term relationships, is all about OpEx, which is not surprising given this is largely about sales effectiveness. We anticipate a fast payback in these investments. The next two, cultural and technical expertise and unique technology, are a mix of OpEx and CapEx. Each component of these investments is closely tracked and monitored to ensure we get strong returns on a timely basis. The largest bucket of investment for CapEx is leveraging scale and reach. This again is not surprising as it encompasses three large programs.
Updating and simplifying our tax and HR platforms, a program that many other businesses have already undertaken. We're also improving the workflow and automation of LXD, which should allow for a material contribution to margin. Similarly, we're improving our workflow with IP services, where the system is redesigned. This should improve both cost efficiency and our go-to-market. We view all these investments within this bucket as relatively low risk. They also provide a much stronger platform for future growth and acquisitive growth. That said, I wanted to give some context around the investment CapEx. We note in our earlier outlook that CapEx would peak at 7% of revenue versus a business as usual run rate of 4%. This increase to 7% equates to approximately 18% of our cash conversion.
Say for this half, rather than running at 120%, we'd be running at 102%. Still healthy. A final note is not to forget M&A. We continue to actively seek accretive deals, particularly those that will enhance our future revenue profile. Finally from me, just a reminder of our capital allocation policy, which again, you've seen before, which I think we view as a sort of key recipe for success at RWS. On top of the BAU maintenance, we look to invest to grow. We continue with our progressive dividend policy as we've done this half, and we look to acquire for further growth. This creates a virtuous circle for building future value. With that, I'll hand over to Ian.
Thanks, Rod. Continuing on to dive into the business a little bit more. Obviously, at the Capital Markets Day, we announced our new strategy. Just a reminder of our core purpose, unlocking global understanding, our description of our business, a unique world-leading technology-enabled language content and IP services business. Clarity around our core proposition, which is about content transformation, multilingual data analysis, and using that unique combination of technology and expertise to help our clients to grow by ensuring they're understood anywhere and in any language. Our growth model, which I've already touched on. Very importantly for me, our values. We partner, we pioneer, we progress, and deliver, which are a really important part of unifying the business post the SDL merger.
I have to say, since we launched this at the Capital Markets Day, we've been running a series of communication exercises, both internally and externally with our clients, with very positive feedback to the way we have now, you know, focused the business, and aligned it in a very customer-centric way. Just reminding a bit about how we're organized, but also commenting a little bit upon how the business is changing. The four divisions that we report on remain unchanged. What we have shown on here is the revenue split. I think this is important because one of the themes around our strategy was gradually shifting the group to have greater exposure to the higher growth segments. You see here some early signs of progress there.
Bit more regulated industries, little bit more language and content technology, a little bit less IP services, a little bit less language services. That mix to those higher portions is already starting to take shape. We've talked about our Language eXperience Delivery function a little bit already, but I have to underpin the importance of this. It's a unique capability. It's where we blend our technology with our in-house translators, with our huge network of external freelancers, which allows us to offer a 24/7 service to our clients and allows us to optimize both quality and margin.
For those of you who like a little bit of numbers, the volume going through our LXD has increased from 853 million words in the prior period to 935 million words in the half year we're reporting on here. That is a real sort of shift in volume to use there. Rod's already touched on, you know, the investments that we're starting to make to underpin, in particular, our finance and HR functions, which will again give us further opportunity for efficiency as those come in, as we build some shared services off the back of those platforms. If we turn now to a review of the individual divisions, starting with language services, 2% organic growth at constant currency.
Slight reduction in the reported adjusted operating profit, although there is a currency effect there of about GBP 1.8 million, which, you know, changes that a little bit. If you look underneath this business a little bit and what's been going on in here, as you may all remember, this business is roughly split 50/50 between our enterprise investment internationalization clients, who are our big technology clients broadly, and then our other major accounts and our Go Global accounts, who tend to be smaller businesses who are globalizing for the first time. I think the headline here is that the major accounts in Go Global had a really good first half, slightly behind year-over-year in our big tech clients, but we don't think there's anything particular to comment on there.
They often can be a little bit lumpy. There's no loss of clients there, and we're confident of rebuilding that up in the second half. America's region was strong, including those new EV manufacturers that I mentioned earlier. GoGlobal was strong, and we've expanded that capability to cover markets, including Japan and South Korea. Despite being slightly behind in the first half in the tech account segment, we have had some very good revenue growth with our large global digital retailer client and also with one of our large technology companies. You know, a very solid kind of first half. We're starting to also make progress on things like eLearning, which is one of our growth initiatives, where we've already had some client wins and some encouraging progress with cross-selling.
We are ramping up our efforts to relaunch our data services proposition in the next financial year. If I turn now to Regulated Industries, pleasingly 5% organic growth at constant currency here. A really, you know, fantastic performance in terms of operating profit. This is the division more than any which is putting more volume through the LXD. If you look at what's been going on here, continued penetration and really good growth in Linguistic Validation, including collaboration with a US-based clinical trial platform provider. Solid performance with our largest life sciences client with good growth with them in regulatory and clinical work. Overall, good period-on-period growth with 14 of our top 20 clients here. Gross margin we've touched on.
I think the other thing that's worth pulling out here is we have exited some loss-making or low-margin you know clients that came with the SDL merger. I think that's absolutely the right thing to do in terms of value creation. The effect of that is roughly about a percentage point of growth in that first half number. It's kind of reasonably material, but very important, I think, for the long-term health of this division. If we turn now to Language and Content Technology, we're really pleased to report a return to growth in this space. It was flat for the full year last year. This obviously is a really important part of our strategy moving forward.
That 2% organic growth belies the fact that actually we've had a meaningful shift towards SaaS revenues, with SaaS revenues in that mix now 34% in the period as opposed to 24% in the prior period. That obviously is really good for the long-term health and predictability of this part of the business, but it actually has the effect of suppressing that headline growth rate by about three percentage points. It's actually relatively meaningful in terms of, again, the progress that we've made here. Profit margin reflects, I think, a more efficient go-to-market model, progress with things like cloud costs that underpin the offerings here. I think what we have done, as we mentioned earlier, is put P&L accountability into the four product lines that we now have.
That's Trados, our translation management and translation productivity brand. It's Tridion, our content management platform. Contenta, our other content management platform aimed at the defense and aerospace industries. Very importantly, LanguageWeaver, our AI and MT business. They're now in clear hands. We've had good growth in content technologies with client renewals and extensions. We've won a major new Tridion client, a robotic automation software company. We've just as part of, you know, refreshing that technology product offering, launched a new release of Trados Studio, which is our translation productivity tool. We would expect that to underpin further growth in the second half of the year.
I'm also pleased to report that Fonto, that we acquired in the content management space, has settled in nicely into the group with integration, broadly on track. In terms of IP services, as everybody knows, I think, this business being hit by the long-flagged arrival of the Unitary Patent, it is in line with the expectations we set at the Capital Markets Day. 8% revenue decline at constant currency, with, you know, actions underway to mitigate that impact as much as possible. We've referred to the transformation program, which will have a more medium-term effect in terms of automation and efficiency and enhanced proposition for customers.
In the near term, we've made some changes to the sales team in this business to accelerate growth in areas like renewals and patent attorney sales, where we think there is opportunity to improve growth there. We've also taken cost actions in the first half, roughly a run rate of about GBP 1 million of cost there. We'll see, I guess, half of that coming through in the second half of the year to underpin the margin. The actual date when the Unitary Patent, you know, comes into effect remains a bit of a moving target, but our best estimate is calendar Q4 this year.
Pretty much where we thought we would be when we talked about this at the Capital Markets Day. In terms of ESG, we continue, I think, good progress on all three pillars here. We're making good progress in terms of our commitments on carbon with a shift to science-based targets being the primary focus, and we're on track to submit our proposals on that for FY 2023. We're also currently preparing our disclosure to CDP. As I've mentioned, we've spent quite a lot of effort rolling out our purpose and values internally. Our campus program continues to expand into new countries.
You know, I think especially in the sort of slightly challenging world we've all been in the last couple of months, I'm really quite proud of some of the efforts, you know, our teams have been making, supporting things like Translators without Borders, who help people get critical information often at really difficult moments and that has been helping people fleeing the conflict in Ukraine. Our RI division is also really proud to have supported one of our clients, St. Jude Children's Research Hospital, to evacuate more than 600 children with cancer from Ukraine to neighboring Poland, and then on to North America and other European locations, there again, helping with what we can do best, English to Ukrainian translations in this case.
In terms of governance, our CFO and company secretary roles are already now separate, and we just announced today the appointment of Jane Hyde, our new Company Secretary and General Counsel. She's a really experienced professional, and we're excited that she will be joining us on the first of October. As promised, we launched our new group-wide code of conduct, and the training on that across the group is underway. We've also launched our new sustainable procurement policy with supporting actions to underpin that in place across all of the divisions. Turning now to current trading and outlook. This is the chart exactly as we presented it at the Capital Markets Day with our near-term and outer years guidance.
I think if you think about the numbers that we've presented today, you know, growth is clearly the focus area for us. Margin, you know, very nicely on track. Cash conversion well ahead of those near-term targets. CapEx at the lower end of the range here, and ROCE now in that 11%-13% range, having been just below it when we reported last time. Early days, but I think, you know, encouraging start. We haven't talked much about M&A, but, you know, we clearly remain very focused on looking for, you know, value creating M&A will help to accelerate that shift into the higher growth segments that we've talked about.
In terms of outlook, as we've talked about, encouraging initial signs of organic growth in language and content tech with the benefits of that reorganization starting to show. New client wins across the business, especially in language services and RI. Starting to see real focused efforts on some of those growth levers, Linguistic Validation, eLearning, GoGlobal, Data Services, which will, you know, start to phase in an impact over the next, year or two. In terms of investments, we've talked about the LXD and the importance of that in terms of underpinning our gross margin. We are investing in those core technology products as evidenced by the launch of Trados Studio a couple of weeks ago. The infrastructure programs are up and running.
We've made a number of changes internally to make sure that we've got the right people driving those growth initiatives with new talent like Jane joining us from the outside as well. In terms of full-year guidance, our outlook is in line with the latest guidance and market expectations. We remain confident in the medium to long-term drivers of demand for our products and services, notwithstanding the more challenging economic backdrop that we are all facing. Our very clear focus is on delivering the accelerated growth plan that we announced in March. That's it in terms of presentation. We now turn to Q&A. I think what we'll do is we'll start with questions here in the room.
We'll then invite questions for those on the webcast and take it from there. If you could just wait for the microphone if you're in the room and just say who you are, that would be wonderful. I think, James, you wanna go first?
Thanks. Morning. It's James Sheridan, Numis. I've got three, please. Firstly, just on the SaaS revenues within language and content tech, I think the 34% you quoted is proportion of new revenues that are SaaS. If I recall rightly, the 50% target that you set out at the CMD is total revenues within the division from SaaS.
Right.
With that in mind, do you have a target for what proportion of new revenues should come from SaaS over the medium term?
Rod, are you happy to pick that one up?
I mean, eventually, they should equate. It becomes sort of one matches the other. What we need to do is obviously reach that point. We expect to see our revenues from new revenues as SaaS increasing up to 50% over the next two to three years. By the time we hit 2026, it should be closely balanced.
Okay. Second question. You quoted the NPS score of plus circa 40 as of April this year. How does that compare to a year ago?
It was 42. It's pretty much bang on. I think it's an important question, actually. What we have done is, you know, put in place an even better method for tracking NPS across the group and making sure that we're able to track it through all of our sort of touch points in a way that was a bit difficult with the merger before. It's a really important metric for me. I think it's one of the best ways of tracking, you know, how we're doing, how we're delivering for our clients. It's a metric that, you know, we're very, very focused on and, you know, obviously correlates quite closely, I think, to retention and growth in key accounts.
Great. Finally on LXD, I think the numbers that you quoted sort of suggest that you've put about 10% more words through-
Something like that.
LXD
Yeah
year-on-year, which is broadly the same as the sort of increase in revenues across the
Across the wider group.
Yes. I think the area where we've shifted work that was previously being done within the division is RI in this period. We are gradually moving work. Prior to this initiative, you know, broadly, if you looked at language services, the half which was the sort of the non-tech clients in there, all of that volume was going through the LXD and that broadly all came from former SDL.
What we're now doing is gradually moving work from the other divisions which were previously done, you know, within the division or through, you know, suppliers that they managed into that LXD structure, which means we're able to leverage our technology, deploy our AI and other automation tools to drive productivity, and also leverage our scale in terms of supplier relationships through a central supply chain team that sits within the LXD. That transition will continue. It is dependent on some of the investments that we're making. For example, in RI where we have specific audit requirements because the nature of the work that we do, we have to make sure the systems in the LXD can support that. There will be a phased sort of migration there.
I think with our technology clients in the other half of language services, they have, as I think you all know, very bespoke and particular needs. We will start there by leveraging, if you like, supply chain and making sure that we're negotiating where we've got common suppliers, and then where possible, we will move more of that volume into the LXD over time. The area which will probably be the last into the LXD is IP services, where I think, you know, we'd rather sort of focus first on getting the transformation program in place and then very cautiously we will move work that's appropriate into the LXD. I think there will always be some very specialist work in IP services that will stay outside of it for good reason.
Thank you.
Yeah. Just to be clear, the 10% increase is 12 months on 12 months. It's not 12 months on 11 months.
Callum.
Okay. Morning, guys. Calum Battersby from Berenberg. Three questions, please. Firstly, can you just give any more color on the performance from the groups enterprise or large technology customers with language services and any commentary on the outlook for growth from that segment? Thanks.
Yeah. I think, as I said, it's, you know, as you know, we've got a small number of very large clients in that division. We haven't lost any clients. We've actually won, you know, some new programs with a couple of them in particular that I referenced, one of our large tech clients, one of our large online retail clients. I think what we're seeing is with some of the others, just slight lumpiness in terms of when the work comes through. It was always a little bit hard for us to predict, but I don't think there's anything unusual going on in there. We would expect to see, you know, stronger growth, you know, in the second half there.
Always a little bit hard to predict when it comes through.
Okay, great. Secondly, the unallocated costs have fallen pretty meaningfully in the group, compared to the prior year, either H one or H two. I just wanted to check if there's any more information on what's happened there, if that's some of those costs have now been allocated or if just the central cost base has shrunk in size.
Rod, do you wanna pick that one up?
Yeah, that's really the reduction in central costs is driving that.
Lastly, wondered if the company had any views on the potential for a share buyback, given kind of the current valuation and state of the balance sheet.
Yeah. I'll take that one. Look, what I can say is we have discussed this several times as a board, and the conclusion we've come to, obviously, because we haven't announced one, is that we're not going to do one at this time. I think the reasons for that are, you know, we've clearly communicated a strategy which is about investing for growth, is about M&A, includes a commitment to an ongoing, very strong track record of a progressive dividend, which is well covered. And at this point, we think it is appropriate to focus there. It is something the board reviews from time to time, and we do listen to all of our stakeholders in that process.
Great. Thank you.
Morning. James Zaremba from Barclays. Three questions, please. One, how do you determine how large the in-house LXD resource is, and how does accountability for utilization work here, noting the function sits outside the business units that would like to use it?
That's a really great question. Maria, who some of you met at the Capital Markets Day, our Chief Language Officer, runs the LXD. The LXD, one of the changes we've made is there's now like a business partner from the LXD who sits on the management teams of the big language service businesses. There's, you know, those people are accountable for the success of those divisions and obviously particularly the margin impact that the LXD has. There's a direct connection. The incentives are aligned between the two. That I think ensures that the LXD is delivering to the needs of the businesses, which is really, really important for all of our functions, not just the LXD.
The same would be true of finance and HR, but particularly here because it's a core part of production. That accountability is there. You know, I think that's how we think about it. Obviously, we track very closely the volume of words, the mix of languages, which affects actually the margin quite considerably for us and is actually quite hard to predict from month to month. I think we're getting better and better data out of the LXD now to understand kind of what's driving our margin, how that should influence pricing. I think we can only get better at that over time.
Can you comment on inflation and within your medium-term guidance today, what the current expectation is for price versus volume?
Yeah. Look, I think in, clearly inflation is, you know, is a big focus for us, as is pricing. As we talked about previously, I think the pricing muscle within RWS had not been to the gym for a while, so definitely needed some exercise. We are now exercising the pricing muscle. To do that, what we've done is each of our divisions now has someone who's responsible for pricing, has a little pricing team who are responsible for, you know, driving a pricing plan for each division. We are now starting to track sort of progress on pricing within each of the divisions.
We're also supporting our sales and account teams with training because many of them are just not used to having pricing discussions and don't necessarily rush to have them. I think on the pricing front, that's how we are approaching it. In terms of inflation, we're in the process of giving guidance to our divisions for the next financial year in terms of what we think they will be facing in different parts of the world in terms of our core costs, but in particular, obviously people, both directly employed people, but also inflationary increases through the LXD and, you know, obviously other suppliers as well.
I think, you know, not sure I want to give a number to that yet 'cause it's kind of work in progress, but I think we are addressing it in all of the ways that I've seen before. I'm kind of ex-Compass and actually been drawing a lot of the approach that we used to take there when inflation ticked up a bit. It's gonna take some time. I think the thing that gives me some confidence is whilst we're limbering up the pricing muscle, we are also accelerating other initiatives to manage our cost base. I think our ability to manage the margin, you know, I think we're feeling okay about it, but, you know, clearly we're in a more challenging economic environment than we've been for some time.
Lastly, just on IP services, I'm wondering if you could provide a bit more detail on the growth, you know, Europe versus non-Europe, and then I guess the second quarter versus the first quarter, noting the decision happened in January.
Yeah, sure. Look, I mean, the big negative hit is clearly in the European part of that business. As you'd expect, roughly as you know, it's sort of roughly split equally between the European Patent Office and the work we do elsewhere. You know, the big hit is obviously in that as we'd expect in that bit that's exposed to the Unitary Patent. I think as you'd expect, Asia doing much better, and actually, you know, record numbers in our research part of IP services. It is hitting the bit you'd expect it to be hitting.
I think it's fair to say that we all believe we can do better overall in IP services, which is why we are making some changes both to the proposition and to the go-to-market, and the sales team there, because I think there's more we can do in terms of self-help there. The big factor is clearly the regulatory change, which is just something that is what it is.
Thanks.
I mean, it's obviously important to note that, you know, this division is now 15% of the group. Had we been talking about this 10 years ago, we've been 100% of the group, and it would've been a much bigger deal. I think it is vindication of that diversification strategy that the group has been undertaking for many years. Just there.
Hi. Good morning. It's Kai from Canaccord. A couple on organic growth, particularly around the IPS bits. Firstly, I'm just curious, in the second half, the organic decline was about high single digits. Is that are you expecting it to be of a similar magnitude or perhaps higher because of the sort of annualization effect? Then also looking into next year, should we continue to expect a decline in IPS or when will it stabilize roughly?
I think roughly, you know, we're expecting a similar sort of second half to the first half, you know, and we would expect another year of decline next year as we see the Unitary Patent coming into effect. I think the way we've thought about IP services, if you think over the five years, is two difficult years this year and next year as that sort of part of the business finds a new kind of normal. Then as our other initiatives kick in as that baselines, we'd expect to start seeing that business, you know, growing both top line and improving its margin again with the transformation program obviously underpinning that. That's how we're thinking about it. It is a bit of a moving target just in terms of when it all takes effect.
Then in that context, sort of the guidance you've given for fiscal 2023 about sort of an acceleration organic growth.
Mm-hmm
to let's say mid-single digit or, you know
Yeah
give or take, it would then seem to imply that the other parts of the business accelerate probably more pronounced from the current growth rates. I'm just kind of curious, what do you think the main drivers are and what sort of visibility you have on that acceleration?
I think it's a lot about, you know, the bits of the business that are already doing well. We're investing in Linguistic Validation, for example, in RI, where we're basically ramping up so we can do more because that has grown very strongly in the first half of this year. It's about some of the other growth initiatives that we mentioned at the Capital Markets Day, and I've touched on some of them today as well. Things like eLearning, things like Data Services and language services. Those initiatives will start to kick in as we go into FY 2023 as some of those sales enablement and technology investments start to take effect. I think those are some of the key pillars there. It does build.
I think also technology, you know, I think we are really pleased with with the first half performance in language and content tech. Getting that back to growth is a really important sort of moment for the group, I think. Now we've got that clarity of accountability. We're putting, you know, the investment into releases that we think are going to support, you know, more increasingly what we think customers need in those areas. All of those things, you know, should start to kick in. I think when we put the five-year plan together, we didn't kinda add them all up and assume they all went brilliantly. You know, I think there's hopefully a little bit of contingency in there just in case the odd thing slips. So far so good, I think. Okay, great. Thank you.
Thank you. Katie Cousins from Shore Capital. Just wondering if there's any developments in your recruitment and retention of freelancers during the period?
I think just on sort of attrition perhaps first of all, which is a question that we get asked a lot. It's actually improved a bit. I think for the full year we'd had about 17.2% attrition. That equivalent number's now 15.2%. And I'd like to think that's a bit about, you know, perhaps the labor markets in some places getting a little bit better, little bit about our proposition in the marketplace and you know that helping to retain and attract talent. I think broadly we're keeping up with recruitment. I get a report if any role in the group has not been filled within 100 days, and there's pretty much nothing on it right now.
That's actually I think a good sign that our centralized recruitment team are doing a good job. Clearly we're having to pay a bit more for the people that we're hiring in some places, but we're also trying to exploit our international footprint quite well to mitigate that where we can. I think in terms of freelancers, I mean, clearly there's inflationary pressures in that community as well. But I think overall we also had quite a lot of self-help we could do there in terms of tightening up the supply chain, leveraging our scale. I think again, at this point they are holding their own quite nicely.
Thank you.
Any more questions in the room? Do we have any questions?
James.
Oh, sorry, James.
Rod seems to go off a bit lightly, so maybe I can help you. What would your technology margin have been without the SaaS revenue headwinds? Is this a better reflection of the underlying margin you expect to achieve?
It would've been GBP 1 million lower.
The margin would've been.
Sorry. It is GBP 1 million lower as a consequence of the SaaS. Any questions from the online community?
Thank you. There are no questions from the Conference Call at the moment, but we do have a question from the webcast. If I could just remind people that if you'd like to ask a question, please use the question button, the control bar below. The question is: Which do you view as the most material initiatives for strategic progress in H2?
That's a great question. I mean, there's quite a lot on. I think in the short term, the things that make the biggest difference are things like the investment in linguistic validation, where we've got a proven proposition, we've got a nice position in the marketplace, and we just need to ramp up, you know, our capacity. I think we do see language and content tech, you know, that's starting to pull nicely as we've closed. I think those are the initiatives with the shortest term potential. Probably also eLearning, which we've been surprised by the early success that we've had with that initiative. Probably in the very near term, those ones.
Then as we go into next year, Data Services, you know, Go Global and expanding that proposition out, at renewals in IP services as that proposition starts to be developed. So they phase in over the period.
Superb. Thank you. We're just going to pause for a moment. We'll just wait to see if anyone's putting any further questions into the webcast at the moment, that's there before we start the roundup for the day. No further questions at the moment. Ian, I'll pass back to you for your closing remarks.
Okay. Well, look, just leaves it to me to say thank you all very much for joining us today and for your questions and continued interest in the business. We look forward to talking to you further. Thank you.