l . . . m o c k u e r e c w w w e r e C y b l d e c u d o r p d n a d e n g i s e D . s s e c o r p e e r f e n i r o h c l l a t n e m e e l n a g n i s u d e h c a e b l , r e p a p d e l c y c e r r e m u s n o c t s o p % 0 0 1 , d e i f i t r e c C S F n o d e t n i r P 1 6 0 0 2 RPS Group Plc Centurion Court 85 Milton Park Abingdon Oxon OX14 4RY T +44 (0)1235 863206 www.rpsgroup.com Registered in England No. 2087786 Report and Accounts 2008 R P S G r o u p P c l R e p o r t a n d A c c o u n t s 2 0 0 8 Coastline of North West Australia and Barrow Island where RPS is playing a major role in the commercialisation of untapped gas fields representing 25% of Australia’s gas reserves. creativepeople making a difference rpsgroup.com rpsgroup.com Five Year Summary Revenue Fee income Profit from operations before tax and amortisation Net bank (debt)/cash Net assets Cash generated from operating activities Average number of employees Dividend per share Basic EPS before amortisation Diluted EPS before amortisation 2008 IFRS £000s 470,465 392,096 57,512 (28,555) 287,607 67,386 4,438 3.66p 18.92p 18.66p 2007 IFRS £000s 362,674 305,108 45,010 (32,630) 227,534 45,393 4,093 3.18p 15.17p 14.95p 2006 IFRS £000s 296,843 246,011 34,719 (30,129) 186,934 40,663 3,438 2.76p 12.01p 11.74p 2005 IFRS £000s 217,830 183,520 24,253 (25,940) 161,871 28,149 3,158 2.40p 9.01p 8.82p 2004 IFRS £000s 168,189 144,992 20,682 (16,219) 138,799 15,863 2,525 2.09p 7.12p 7.05p 111 The Five Year Summary does not form part of the audited financial statements. RPS is an international consultancy providing independent advice upon: n the development of land, property and infrastructure n the exploration and development of oil and gas and other natural resources n the management of the environment n the health and safety of people. Isle of Portland Gas Storage RPS helped secure planning permission for the Isle of Portland gas storage facility Report and Accounts 2008 rpsgroup.com Printed on FSC certified, 100% post consumer recycled paper, bleached using an elemental chlorine free process. Contents PAGE 3 Business Review | Key Performance Indicators | | 2008 Results Business Review | | Operations | Risk Management Corporate Responsibility | 7 4 6 7 15 20 26 Management & Governance | 31 32 44 45 The Board | Committees | Corporate Governance | Report of the Directors | Report of the Independent Auditors | | Consolidated Income Statement Consolidated Statement of Recognised Income and Expense | | | Notes to the Consolidated Financial Statements | Accounts | 57 58 63 64 64 65 66 67 | 102 Notes to the Parent Company Financial Statements | 103 Five Year Summary | 111 Consolidated Balance Sheet Consolidated Cash Flow Statement Parent Company Balance Sheet rpsgroup.com Key Performance Indicators Key Performance Indicators 4 Profit (before taxation and amortisation) (£m)* (2007: 45.0) (2008: 57.5) +28% Olympic Dam, Uranium Mine, South Australia Earnings per share (before amortisation) (basic) (p) (2007: 15.17) (2008: 18.92) +25% +29% Queens University Belfast, Physical Education Centre Birmingham City Childrens Hospital Fee Income (£m) (2007: 305.1) (2008: 392.1) *Amortisation of acquired intangibles of £2.7m (2007: £0.5m) Report and Accounts 2008 Business Review 5 Operating Profit (before amortisation) (£m) (2007: 48.5) (2008: 61.6) +27% Operating Cash Flow (£m) (2007: 45.4) (2008: 67.4) +48 % Regeneration near Wembley stadium, London Cash Conversion (2007: 85%) 100% Jack-up Oil Rigs rpsgroup.com 2008 Results 2008 Results 6 n another year of strong profit and earnings growth n all three segments of the Group showed good growth n excellent conversion of profit to cash n dividend increased 15%; covered 5.2 times n balance sheet remains strong with year end net bank borrowings at £28.6m (2007: £32.6m) n bank facilities of £125m available until 2013 n the acquisition and successful integration of quality businesses continued. Blackstaff Recycling Centre, Belfast Waterton Wind Farm, Calgary Report and Accounts 2008 Report and Accounts 2008 Business Review 2008 Results Dividend Acquisitions 7 Profit (before tax and amortisation of acquired intangibles) was £57.5 million (2007: £45.0 million). Basic earnings per share (before amortisation) were 18.92 pence (2007: 15.17 pence). The conversion of profit into cash continued at a high level and our balance sheet remains strong. Operating cash flow was £67.4 million (2007: £45.4 million). Net bank borrowings at the year end were £28.6 million (2007: £32.6 million) after funding acquisitions to the value of £31.2 million in the year (2007: £26.6 million). Our cost of borrowing fell significantly towards the end of the year and looks set to remain at historically low levels. This strong performance has been achieved after increasing our trade debtors and accrued income provisions from £5.1 million to £10.3 million, taking a charge for redundancy costs of £1.0 million and benefiting by £2.2 million from foreign exchange translation of overseas results, on a like for like basis, compared to 2007. Funding We have bank facilities of £125 million available until 2013. Our cash generation, in conjunction with these facilities, means that we are well positioned to continue to develop the Group. The Board is recommending a final dividend of 1.91 pence per share payable on 28 May 2009 to shareholders on the register on 17 April 2009.The total dividend for the full year will be 3.66 pence, an increase of 15% (2007: 3.18 pence). Our dividend has risen at about this rate for 15 consecutive years, providing shareholders with a significant increase in real income. Company Segment Country Our acquisition strategy moved forward positively.Ten acquisitions were made in the year.These had a combined historic annualised profit before tax of £7.6 million and were purchased for a maximum consideration of £44.0 million. A summary of these transactions is set out below. Historic Annual Revenue (£m’s) Maximum Historic Annual Consideration (£m’s) PBT (£m’s) Kraan RW Gregory WTW OceanFix Koltasz Smith RBA GeoCet Mountainheath Paras BEC Total EM P&D Energy Energy P&D EM EM EM Energy P&D NL UK UK UK Australia UK, US, Australia US UK UK Ireland 5.3 12.1 3.6 10.6 2.2 4.5 2.1 1.2 3.0 1.2 45.8 0.82 1.48 0.3 1.25 0.5 0.9 0.6 0.4 1.0 0.35 7.6 4.7 10.2 1.8 7.0 3.1 6.0 1.2 1.9 6.4 1.7 44.0 The integration of these businesses progressed encouragingly. Freeman Hospital in Newcastle upon Tyne rpsgroup.com Business Review 8 8 Energy We provide consultancy services on an international basis to the oil and gas industries from bases in the UK, USA, Canada, Australia, Malaysia and Singapore. In the UK we also provide advice to both the onshore and offshore renewables industry. The business had another outstanding year with strong organic growth being coupled with a number of acquisitions. Carbon Capture & Storage RPS is undertaking a number of technical and commercial carbon capture and storage studies around the world including CO2 storage at Fort Nelson, Canada. Report and Accounts 2008 Report and Accounts 2008 Report and Accounts 2008 Energy Demand for our services from our clients in the international oil and gas sector continued to increase. This reflects both positive market conditions and our position as a world leader in this sector, which is increasing our access to higher value work. The oil and gas companies and their advisors increasingly value the breadth and depth of our expertise.We saw, for example, more interest from clients in the combination of our technical, commercial and risk management expertise, particularly related to the environmental and safety aspects of our work. Our reputation within the financial community in respect of determination of oil and gas reserves for reporting purposes, asset evaluation, and in support of corporate activity continued to develop during the year. The acquisitions made during the course of the year, coupled with organic development, have enabled us to develop further our businesses in the UK, North America and Australia. Outlook Many of the projects in which we are involved are of a long term nature, reflecting the complexity of identifying and securing sources of oil and gas in increasingly challenging environments. This provides a solid underpin for our business. Asset and corporate transactions are also likely to remain a good source of income. New opportunities, for example in relation to unconventional forms of gas, as well as carbon capture and storage are beginning to open up. Even though the prices of oil and gas have fallen significantly from the highs of last year most of our clients remain committed to significant investment programmes and demand for our core services remains strong. The market opportunity in this sector remains encouraging and suggests we will continue to experience organic growth in the coming year. We also anticipate opportunities to make further acquisitions. Business Review 9 +38% 139.6 2008 2007 +38% 25.8 18.5 101.2 18.7 18.4 Fee income (£m’s) Underlying profit* (£m’s) Margin % Average number of employees Energy 2008 2007 Number of employees 679 576 Days absent (%) Average length of service (years) Working part time (%) 2.1 0.8 4.8 8.8 5.8 6.0 Retention Rate (%) 90.5 89.0 Age profile Employees aged under 25 (%) 4.4 3.7 Employees aged 25-29 (%) 14.6 15.8 Employees aged 30-49 (%) 54.9 50.4 Employees aged 50+ (%) 26.1 30.1 Pensions Active members 573 277 Offshore tidal turbine in Orkney, Scotland. * before amortisation of acquired intangible assets of £0.7m (2007: £0.2m). rpsgroup.com Business Review 10 10 Planning & Development Within this business we provide consultancy services in respect of town and country planning, building, landscape and urban design, transport planning and environmental assessment. We remain leaders in this market in the UK, Ireland, Northern Ireland and Western Australia, operating for blue chip clients in both the public and private sectors. Terminal 5, Heathrow Following our successful work on Terminal 5 at Heathrow RPS has recently helped BAA secure planning permission to increase the number of flights at Stansted Airport. Report and Accounts 2008 Report and Accounts 2008 Report and Accounts 2008 Planning & Development Business Review 11 Our activities in the planning and development market in Australia continued to expand. The Australian economy has suffered less in recent months than the UK or Irish economies. The potential of this market gives us confidence about the opportunities for this part of the Group’s business. Outlook As climate change, energy efficiency and other environmental issues grow in importance, the competitive advantage we derive in these markets from our broad range of integrated services should continue to increase. However, until our clients experience less economic uncertainty and have better access to credit, it is likely to be difficult to secure organic growth in this sector. Acquisition opportunities may arise in the UK and Ireland as smaller, less well funded competitors see the advantage of being part of a larger group. Elsewhere more strategic opportunities are being kept under review. +19% 165.2 2008 2007 +16% 30.3 18.4 138.3 26.2 19.0 Fee income (£m’s) Underlying profit* (£m’s) Margin % Planning & Development Average number of employees 2008 2007 Number of employees 2,382 2,216 Days absent (%) Average length of service (years) Working part time (%) 1.5 1.8 4.0 5.7 3.5 7.8 Retention Rate (%) 89.4 87.0 Age profile Employees aged under 25 (%) 12.0 13.2 Employees aged 25-29 (%) 21.0 24.5 Employees aged 30-49 (%) 52.4 50.0 Employees aged 50+ (%) 14.6 12.3 Pensions Active members 1,169 1,128 In the UK our market leadership as well as our ability to advise upon the increasingly broad issues necessary to secure planning permission for large complex schemes, particularly infrastructure projects coming forward under the new planning legislation, remains attractive to clients. In consequence, we continued to work on some of the UK's largest projects.The UK Government’s investment in social and infrastructure projects has also had a beneficial effect on this business.The lack of availability of finance and the general economic downturn began to be felt by some of our private sector clients during the second half of the year. We have many years experience of managing project driven order books in this sector and are well able to match our capacity to projected fees.We were able, therefore, to reduce, in a timely fashion, the size of our workforce, particularly our building design activities in the regions of England, when this became necessary. Our planning business is also able to assist clients in other parts of the Group secure planning permissions for capital projects, for example, in the energy and water sectors. The governments of Ireland and Northern Ireland continued to invest in extensive plans for infrastructure development. We continued to benefit significantly from this investment and have realistic expectations that it will continue in the current year. We are also managing the Climate Change Awareness Campaign, the largest ever public information campaign funded by the Irish government. Work in the private sector in Ireland slowed in the second half and we responded effectively to that. St Phillip’s Marsh - Bristol, Inner-city Regeneration * before amortisation of acquired intangible assets of £1.1m (2007: £0.3m) and redundancy costs of £1.0m (2007: nil). rpsgroup.com Business Review Business Review 12 Burns Beach near Brighton, Western Australia RPS has won a series of awards from the Urban Development Institute of Australia - including the Water Sensitive Urban Development Category for the Brighton Estate near Perth. Report and Accounts 2008 Environmental Management This business provides consultancy services in respect of health, safety, risk and water management in the UK, Australia, US and the Netherlands. The results in 2008 were excellent and benefited from a number of acquisitions. Environmental Management Business Review 13 Outlook Much of the work we do in these markets is regulatory driven and to a degree non- discretionary making further organic growth achievable in the coming year. Many of our service lines are also provided by small competitors and so further acquisitions are also possible. Our business servicing the UK water industry had a particularly good year. RPS's specific strengths in the water industry coupled with our environmental credentials position us well to help with problems created by water shortages and legislation seeking to secure environmental improvement. We are working on long term commissions for the majority of the water companies.These seem likely to continue to generate good revenues through the Ofwat quinquennial review in the remainder of this year. The demand for health & safety consultancy from the nuclear and oil and gas industries has remained buoyant, driven by increasing statutory obligations and a heightened awareness of the importance of these issues. Our business in the Netherlands had another good year. The acquisitions made during the year have enabled us to develop further our business in the UK, the Netherlands, Australia and the US. +32% 92.7 2008 2007 +50% 13.8 14.9 70.4 9.2 13.0 Fee income (£m’s) Underlying profit* (£m’s) Margin % Environmental Management Average number of employees 2008 2007 Number of employees 1,310 1,290 Days absent (%) Average length of service (years) Working part time (%) Retention Rate (%) Age profile 2.3 2.3 5.1 10.0 86.8 3.1 11.0 84.0 Employees aged under 25 (%) 13.6 Employees aged 25-29 (%) Employees aged 30-49 (%) Employees aged 50+ (%) 18.0 49.8 18.6 13.8 17.8 48.8 19.6 Pensions Active members 629 535 Sound Monitoring at Lords Cricket Ground, for the MCC * before amortisation of acquired intangible assets of £1.0m (2007: £0.1m). rpsgroup.com Operations 14 Group Prospects We have a flexible business model, an experienced management team, a strong balance sheet and excellent cash flow and have delivered good results in a range of circumstances for many years. The Board believes RPS is well equipped to meet the current economic challenges; both by managing our existing activities to maintain our high level of efficiency and cost management and also by identifying opportunities for future growth in which we may invest. We are leaders in many of the markets in which we operate and have valuable long term client and project relationships with a significant number of substantial organisations. Our strategy of continuing to build a multi-disciplinary RPS on an international basis remains both appropriate and achievable and we expect the Group to perform well in 2009. Report and Accounts 2008 Report and Accounts 2008 Business Review Operations 15 Key Business Drivers n n the commercial advantage to be gained by developing or redeveloping land, other natural resources such as minerals and oil and gas, or buildings; this requires proper planning, design and evaluation of the potential effects of the proposed development; the necessity for public agencies, privatised utilities, regulated businesses and their agents to provide adequate infrastructure; again such provision requires proper planning, design, evaluation of environmental effects and risk management; n n the necessity to comply with legislation which relates to planning, environmental and health and safety matters; this regulation and legislation derives from the activities of both the European Union and national governments and continues to expand at a rapid pace; and the need to manage and, where possible, eliminate risk which may arise from environmental or health and safety issues; potential risks arise when, for example, assets are being purchased and/or developed or from the existence of substances which, if not properly disposed of or managed, could damage the natural environment or human health. The world is beginning to take seriously the need to do something about the interconnected problems of: n n climate change and the need to reduce carbon emissions; and sourcing safe and secure energy supplies to enable global economic growth to continue. RPS’ skills and experience place us in a strong position to be able to benefit from the actions that will be taken to deal with these fundamental problems.This underpins our long term growth. the Company providing one matching share for every employee purchased share.The PSP is available to senior members of staff and enables them to build significant equity participation over a period of years. Employees The Group remains committed to creating an employment environment which will attract, retain and motivate employees of high calibre.Throughout the Group emphasis is placed upon personal development to meet both today’s needs and those of the future. Employee communication and consultation is encouraged at all levels of the business. The criteria for selection and promotion are the individual’s suitability for the position offered based on their qualifications, experience, skills and abilities. Business units manage the remuneration of staff within the guidelines of approved annual budgets. We have all the traditional personnel management structures within our business carrying out all the necessary administrative functions.There are able personnel management groups dealing with staffing issues in each country within which we operate. The employees of the Group are able to participate in the success of the Company through the Company’s Share Incentive Plan (SIP) and Share Purchase Plan (SPP) and Performance Share Plan (PSP).The SIP and SPP are open to the majority of Group employees and offers them the opportunity of purchasing shares with rpsgroup.com Operations 16 Operating Structure A significant part of the Group’s success derives from the clarity and accountability of its management structure.The core of this structure is the individual business unit which normally comprises a separate office or activity, each of which is treated separately for the purposes of budgeting and accounting. From time to time business units are grouped into either functional or geographical areas.This organisation is capable of delivering and managing significantly more organic and acquired growth. Equally at a time of financial and economic uncertainty as the world is currently experiencing our attention to detail and focus on cost management will enable us to operate the Group efficiently. The Group provides support to the marketing functions of its activities through its business information unit, which is also responsible for the Group website and intranet. We continued to make significant investments in the intranet and website during 2008 as they are the main Report and Accounts 2008 mechanism we use to develop internal and external communications in the Group. In order to do this we also continued to upgrade our IT networks. The businesses in England, Wales and Scotland are supported by centrally run accountancy and personnel functions, with these services being provided locally in Ireland and the Netherlands.The offices in Australia, USA, Canada, Malaysia and Singapore are managed as part of the Energy division and have local accounting and support staff. Equal Opportunities in Employment RPS provides equal opportunities for all its employees and potential employees regardless of their sex, sexual orientation, age, race, religion, ethnic origin, disability, marital status, colour and nationality.The policy applies to the advertisement of jobs, recruitment and appointment, training, conditions of work, pay and to every aspect of employment. We recognise our obligations to ensure that people with disabilities are afforded equal opportunities to employment and progress within the Group. RPS’ policy on equal opportunities covers all areas of discrimination. Training and Continuous Professional Development RPS is committed to the training, education and development of its employees to increase effectiveness, develop potential and ensure adequate succession planning. RPS is named as one of Britain’s Top Employers 2009 by the Corporate Research Foundation.The CRF report, published in April 2009 by Guardian Books, gives RPS top rating with five stars for ‘Company Culture’; ‘Training and Development’ and ‘Pay Benefits’. RPS received four and a half stars for ‘Career Development’ and ‘Working Conditions’. These high scores place RPS in the UK’s top 10 employers of choice. Divisional Directors, their appointed project managers and full-time professional trainers are responsible for the management of training and for the verification of technical competence for project personnel, in accordance with our quality management system. We aim to identify and provide training, education and development for employees, in order that they can develop and apply this knowledge to greater and more demanding roles in the future. Wherever possible we try to identify successors to key posts within the organisation as part of our ongoing succession management policy. All externally advertised posts are first published on the JoinRPS.com careers website which is promoted internally via Group’s Intranet. Central to identifying our training and educational needs is staff appraisal.This activity is concerned with developing staff by identifying and meeting performance and training needs as well as developing individual potential. Appraisals are intended to complement the standard staff induction programme on Company policy and procedures, which covers topics including safety or equipment handling and involves Business Review 17 n Imperial College (University of London), MSc in Geotechnical Engineering n University College London (UCL), one MSc student in Urban Design and another MSc student in Spatial Planning n South Bank University, one MSc student in Transport Engineering and another MSc student in Urban Planning n University of the West of England, MSc in Transport Planning n Anglia Ruskin University, BSc in Environmental Planning Average number of employees Number of employees Days absent (%) Average length of service (years) Working part time (%) Retention Rate (%) Age profile Group 2008 2007 4,478 4,093 1.1 1.7 5.0 7.5 89.6 3.7 8.7 86.0 Employees aged under 25 (%) Employees aged 25-29 (%) Employees aged 30-49 (%) Employees aged 50+ (%) 11.2 19.1 52.1 17.6 12.4 21.5 48.6 17.5 Pensions Active members 2,430 1,978 n Brunel University, School of Engineering & Design EngD in Infrared and Thermal Imaging of Nocturnal Bird Movements Academic Bursaries For the sixth consecutive year, RPS in the UK continued its practice of awarding academic bursaries to students studying at university. In 2008, this included students attending courses at twenty four UK universities: n University of Cambridge Christ’s College, MEng in Civil Engineering & MEng in Structural Engineering n Oxford Brookes University MSc in Environmental Assessment and Management n De Montfort University, MSc in Energy and Sustainable Buildings n Queens University Belfast, MEng in Civil Engineering n University of Wales, Newport (Allt-yr-yn) Campus HND in Business Administration and Accounting n University of Loughborough, two undergraduates studying for an MEng in Civil Engineering n University of Nottingham, two undergraduates studying for an MEng in Civil Engineering n University of Lincoln, BA Architecture n University of St Andrews, MSc in Bat Conservation in the Planning System n University of Sheffield, Part 2 Architecture (MArch) n University of Heriot Watt, MSc in Water Engineering n University of Huddersfield, International Diploma in Architecture rpsgroup.com assessments of competency on a more administrative level. Staff appraisal is a continuous process and is not limited to formal meetings. However, formal appraisal meetings take place in many parts of the Group at least once a year. RPS is a recognised commercial training provider in a number of specific technical fields and is certified by such external bodies as CCNSG (ECITB) on site safety courses. RPS operates a CIWEM approved structured training scheme for its chartered water and environmental engineers and MICE and MIEI approved CPD schemes for civil engineers in the UK and Ireland. Our aim is to help the development of individuals throughout their employment with the Company, by underpinning the strengthening skills and professional ethics, whilst broadening their business knowledge. One of the key objectives of the scheme is the long-term commitment to CPD of all existing staff within the organisation.Thereby, individuals are always able to demonstrate technical experience in specific sectors, such as the water industry, or in relevant aspects of environmental consultancy. RPS’ industrial architecture and civil engineering practice at Newark has an “Investors in People” accreditation recognising its commitment to staff training, internal communications and client feedback dissemination and response.The scheme not only focuses on the in-house training provision for school leavers and graduate level CAD technicians, but also on promoting best practice at every level of the business. Operations 18 n Leeds Metropolitan University, one BLA student in Landscape Architecture n University of York, MSc in Risk Management n University of Newcastle Upon Tyne, one MSc student in Hydrogeology and another MSc student in Mechanical Engineering n Open University, Diploma in Environmental Science n Edinburgh College of Art, two BA(Hons) students studying Landscape Architecture n University of Glamorgan, Diploma in Occupational Health RPS’ scholarship programme in Ireland involved a partnership with leading universities and three institutes of technology. The Irish universities included: n University College, Cork n University College, Dublin n Trinity College, Dublin n University College, Galway n Queens University, Belfast n University of Ulster RPS provided funding to Masters level students to pursue studies in engineering related disciplines. RPS sponsors the Gold Medal for the top Civil Engineering student at University College Dublin and the Centre for Talented Youth programme. In 2008 the RPS North South Scholarships in Sustainable Development were launched with further sponsorship from the Irish Business and Employers Confederation Report and Accounts 2008 (IBEC) and the Confederation of British Industry (CBI) and support from Universities Ireland.Two equivalent RPS bursaries were open to graduates with a primary degree from one jurisdiction proposing to do a Masters degree in the other jurisdiction.These scholarships are designed to promote all-island co- operation and assist the economic development of the North South Business Corridor as part of the implementation of the structures set up under the Good Friday Agreement. Property The Group occupies 118 commercial office premises. In respect of 10 of these we own the freehold.These had an aggregate net book value of £10.0m at December 2008. The remaining properties are occupied under a range of lease agreements.The total rent paid in 2008 was £6.0m. Growth and Funding Despite current economic circumstances RPS operates in markets which are generally attractive and expanding with good long-term prospects, but fast changing. We need, therefore, to keep our products and services and how we market and deliver them under continuous review. The Board believes that the long-term health and growth of the Group will be best secured by ensuring that RPS is, and is perceived by clients and staff to be, a market leader in each of our business areas. Our corporate strategy is designed to achieve this. Our financial growth objectives focus on profit rather than revenue. Whilst it is tempting to remain in products and markets where margins are falling in order to maintain revenue, we do not adopt this approach. Instead we endeavour to find ways of delivering service in more attractive ways to clients or if this is not possible scale back or end our involvement in unattractive markets and develop and invest in new, more attractive, areas.This approach has proved valuable as economic recession took hold around the world during 2008. The Board is committed to achieving year on year profit and earnings growth for the Group, but does not set specific targets for this. We are endeavouring to deliver long- term shareholder value and have, therefore, to balance annual earnings growth with investment in both our existing clients, staff and products and the development of our product offering and capability. The acquisition strategy RPS has pursued over the last decade has brought considerable benefit to shareholders, clients and staff.The companies acquired have enabled us to build strong positions in a number of markets and, for example, to create a new business in the energy sector. This, in turn, enables us to offer a broader, higher quality service to our clients and attractive employment to staff and potential recruits.The financial performance of the companies which have been acquired has increased the Group’s growth.The Board sees the maintenance of this element of the strategy as being of Business Review 19 importance to the continued growth of RPS and is prepared to consider more significant acquisitions, as well as making acquisitions outside the countries in which we currently operate. At the year end the Group had net borrowings of £28.6 million (Note 25). RPS normally generates sufficient free cash to fund its working capital and capital expenditure requirements. Additional cash resources are, therefore, only needed in order to pursue the Group’s acquisition strategy. From time to time, the Board therefore secures funds by means of arranging debt finance or equity placings. The Board believes the Group’s current bank facilities, which have recently been increased to £125 million, will enable it to maintain its strategy throughout 2009. Dividend Policy For a number of years our dividend per share has grown at an average annual compound rate of about 15%. Our ability to maintain this level of growth will depend upon both the scale of earnings growth as well as the nature and scale of future acquisitions and how that investment is funded.The final dividend will normally be greater than the interim payment. Shareholder Value The Board manages the Group in order to achieve good levels of growth in shareholder value on a consistent long- term basis.The Board, however, recognises that this can only be achieved by providing a competitive service which adds value to our clients’ organisations and offering an attractive working environment and career prospects to our staff. Striking this balance whilst also respecting our responsibility to society at large, is the main task facing the Board. That the Group has continued to grow over such a long period confirms we are operating in an attractive sector and implementing a proven strategy successfully. As a result of our acquisition strategy the Group had goodwill carried at £243 million in the balance sheet at the end of 2008.The Group undertakes a rigorous impairment test of such goodwill as part of the preparation of its accounts each year. Coastal dyke in the Netherlands Corporate Governance The Tate Modern, London RPS has had a strong system of governance in place throughout its corporate life. In recent years we have formalised this in response to the various codes and guidelines that have emerged. The various policies relevant to this are set out fully on pages 45 to 56.The Board believes that its long-term shareholders understand that RPS operates the highest governance standards. rpsgroup.com Risk Management 20 Mulroy Bay Bridge, Co. Donegal Report and Accounts 2008 Risk Management Business Review 21 RPS Group Risk Analysis RPS supplies a wide range of services to many sectors of the economy in a significant number of countries.This gives rise to a range of potential risks that need to be individually recognised, assessed and effectively managed. Due to the robust structure of the business, the management of these risks is not an additional function to the business, but is treated as an integral part of the way we operate. Executive Directors review the risks the Group may be exposed to and report to the Board all major risks identified. The Group has a well-established and embedded system of internal control and risk management that is designed to safeguard shareholders’ investment, as well as the Group’s assets and reputation. Whilst the Group Board has overall responsibility for the Group’s system of internal control and for reviewing its effectiveness, it is the role of management to implement the policies on risk and control. The principal risks identified by the Group can be described under the following categories: n n Business Strategy - the risk of not delivering the Group’s long-term strategy. Principal risks of the Group include loss of competitive position and strategic risks in relation to specific activities. Business Continuity - the risk that in the event of an adverse occurrence the business operations will not be able to operate. Main areas of risk n here are failure of IT systems and the recruitment and retention of key staff. Financial/Commercial - the risk of performance falling short of expectations.This includes reputational risk linked to quality of work and liability risk not covered by professional indemnity insurance. n Compliance - the risk of failing to comply with all relevant legislation and regulations. Main areas of risk to the Group include legal action from compliance failures. n Health, Safety and Environment - the risk related to the safety of staff, clients, sub-contractors, members of the public and the environment. Business Strategy The Group’s strategy seeks to ensure continuous improvement in the range and quality of our services and our financial performance by: n operating in markets where we can add value to our clients’ activities; n endeavouring to achieve leadership in those markets; and n making acquisitions of quality businesses in order to extend our expertise and geographical presence. Successful implementation of the strategy requires the Board to identify appropriate markets and how to operate in them successfully. Each year the Board sets itself a series of specific objectives and priorities. Progress against these is measured on a regular basis. The Executive Committee reviews and has to approve all acquisitions before any binding commitment is made. For acquisitions with an enterprise value in excess of £20 million the full Group Board approval is required prior to any binding commitment being made. In current economic circumstances the full Group Board is being kept informed about all potential acquisitions. The Executives have developed comprehensive methods of evaluation of potential acquisitions, including the legal framework within which businesses are acquired and methods of integration. Each year the value of goodwill associated with acquisitions carried in the Group balance sheet is reviewed. Reduction and volatility in the Group’s share price increases our WACC (weighted average cost of capital) and, therefore, requires a higher return from acquisitions to justify the goodwill carried. In such circumstances a significant economic downturn as seems likely in 2009 could require impairment charges to be made against certain acquisitions depending upon both their current trading and medium term prospects. Business Continuity Failure to recruit and retain qualified and talented staff can disrupt the Group’s ability to win new contracts and/or execute contracts effectively. Each of the Group’s businesses has, as a management priority, the successful implementation of the recruitment and retention strategy and they do this in rpsgroup.com Risk Management 22 manners appropriate to the markets they operate in. At Group level advice is provided to the businesses about recruitment techniques, remuneration strategies and people management. In addition share schemes are put in place to assist staff motivation and retention. RPS Technology Services (RPSTS) manages all the Group’s IT systems although some detailed functions are carried out locally on site. Each year RPSTS produces a plan for the improvement of the Group’s systems. The Board approves that plan and allocates the appropriate budget.The plan, when necessary and appropriate, includes measures designed to ensure reliability and resilience within the Group’s systems. The fact that the Group has operations in a large number of locations increases its ability to withstand events which cut power and communications or cause equipment malfunction or result from theft. Financial and Commercial Management RPS endeavours to conduct business in an open and fair manner. A significant part of RPS’ success derives from the clarity and accountability of its management structure. The day-to-day business of the Group is carried out in business units which from time to time are grouped in either geographical or functional segments. Each business unit is treated as both a separate business for the purposes of budgeting and accounting and as part of the Group-wide network for marketing and business intelligence purposes. Each unit is managed Report and Accounts 2008 by directors who are responsible for the development of their office and accountable for its performance to the relevant Board. Each business unit prepares a Business Plan which defines the activities and scope of business to be conducted by the office. The budgets quantify the expectations for the Group and comprise a key element of the Business Plans.The Plans (including budgets) are agreed with the Group Board. The businesses in the UK are supported by centrally run accountancy and personnel functions.The Dutch, Irish, North American, Malaysian and Australian businesses have their own accounting and personnel functions. RPS has a detailed financial reporting management system, which includes checks and reviews, financial modelling, accountability and transparency at every level. Operational staff have no access to the underlying processing of transactions. Invoices from suppliers are approved by the Operational Directors and are sent to the finance function for processing and payment. Remittances from clients are received by the finance function.This segregation of duties within the finance team itself and between the offices and the accounting function ensures accountability and sound financial practice at every level. Business unit and office financial results are reviewed monthly by relevant boards and directors. This detailed review, together with the checking and reconciliation work done by the accounting team, ensures the high degree of scrutiny required to minimise the possibility of mistakes, irregularity or fraud remaining undetected. The Group’s Executive Committee, which comprises the Group’s Executive Directors and the Company Secretary meets at least once a month and discusses newly emerging risks as they occur.The minutes of these meetings are provided to the Non-Executive Directors.The Chief Executive reports verbally on the conduct and state of business on a frequent basis. The RPS Board monitors the Group’s financial performance on a monthly basis using detailed budgets as the benchmark. Future performance is estimated by reference to forward order books, although the nature of most contracts means that such forecasting cannot be completely accurate and the degree of imprecision cannot be statistically tested. The Group’s financial instruments comprise cash, bank loans and items such as receivables and payables that arise directly from its operations.The main purpose of these instruments is to provide finance for the Group’s operations. The Group reports its results in sterling and has operations in Ireland, USA, Canada, Australia, Malaysia and the Netherlands that have functional currencies other than sterling. As a result the Group’s balance sheet and income statement can be affected by movement in the exchange rate between sterling and the functional currencies of the overseas operations.The Group does not hedge such translation exposures. Business Review 23 Where operations have part of their trade currencies other than their functional currency they endeavour where possible to match the currency of revenues and cost of sales.The Group occasionally uses foreign exchange contracts and loans to manage transactional risks. It has been and remains the Group’s policy that no trading in financial instruments shall be conducted. The Group has strong review procedures for monitoring and controlling cash flows and the requirements for debt.This includes the production of continuous cash flow projections and the reporting and review of daily cash collections against targets. The internal audit function is undertaken by the Group financial accounting team as part of its other functions. Given the current structure of the Group, the Board and the Audit Committee consider that a separate internal audit function is not required presently.The Board recognises that control risks increase during the integration of newly acquired businesses and during this period monitors closely the status of the systems and commercial integration. RPS is a multi-disciplinary Group operating across international boundaries with a broad base of clients and skilled professional employees. Correspondingly and consistent with its size and complexity the Group has a large number of contractual relationships. In the directors' view, there is no single contract which is essential to the Group's business. Compliance, Litigation and Insurance It is essential RPS complies with prevailing legislation and with the terms of its contracts with clients, staff and suppliers. In order to ensure this the Group has in place a series of quality management systems. In certain parts of its business RPS maintains and implements documented Quality Management Systems which satisfy, as a minimum, the requirements of ISO 9001:2000, through the: n documenting of procedures to control the quality of services; n maintaining records to control and show compliance with quality and client requirements; n recording the implementation of corrective measures necessary to ensure the quality of service provided; n taking appropriate preventative measures to improve quality and minimise the possibility of unsatisfactory service; and n monitoring of the quality management system in operation at each office at regular intervals in order to ensure its continuing and improving effectiveness. Formal certification to ISO 9001:2000 standard is a required procedure for some aspects of RPS’ business; therefore a number of RPS’ offices in the UK, Ireland and the Netherlands are certified to ISO 9001. Offices in North America and Our business depends largely on our ability to attract and retain talented employees. rpsgroup.com Risk Management 24 Australia have quality systems that are based on formal procedures that have been developed in line with ISO 9001 guidelines. Those RPS offices providing environmental monitoring and analytical services hold external accreditations from additional quality assurance schemes. Quality accreditations held by individual RPS offices include those externally audited by UKAS, Aquacheck, RICE, UK NEQAS and the UK Health and Safety Executive’s WASP scheme. In Ireland our offices are quality accredited through the NSAI (National Standards Authority of Ireland) and SGS and for Safety Management through the NISO (National Irish Safety Organisation). However, even when these systems work well issues can arise which may give rise to litigation in which RPS needs to participate.There are procedures in place for managing such litigation.The Group also has extensive cover in place to ensure against losses and potential loss.The main insurance policies are Professional Indemnity and Employers and Public Liability, although a range of others are also in place. Health and Safety The health and safety performance of the Group is fundamental to RPS operations worldwide. Safeguarding the employee’s well-being is of paramount importance with the responsibility resting with the Board.This responsibility is shared with the local management boards within the organisation and is passed down to each manager and employee. The Board sets the policy and objectives for health and safety management.The Company Secretary oversees implementation of the health and safety management within the Group.The performance is discussed at every Board meeting, where an analysis of accidents and incidents is presented together with proactive performance indicators. The Board require that each business provide and maintain safe working conditions, suitable equipment and resources to implement safe systems of work to protect employees, contractors, visitors and other people who could be affected by the Group’s activities. Compliance with legislation in all the countries where activities are carried out is a mandatory requirement. Systems are in place to ensure that this is carried out. Wherever possible the Group aims to surpass minimum standards and develop best-practice within the industry. Each business in the Group has appointed health and safety professionals to implement appropriate management systems. During 2008 RPS Water and the Consulting Engineers offices in Dublin, Cork and Galway successfully achieved certification to OHSAS 18001, the internationally recognised standard for health and safety management. 25.1% (up from 8.3%) of employees across the The University of Manchester, Student Centre Alkmaar waste to energy plant, Netherlands Report and Accounts 2008 Business Review 25 1,000 employees.The large majority of accidents arise from manual handling incidents, although this has reduced considerably in 2008 through the introduction of targeted training. RPS offers clients a range of health and safety consultancy services including process safety, asbestos management, fire safety, occupational health and hygiene, safety auditing and safety engineering. RPS employees include highly qualified specialists who work on safety critical systems in the defence, nuclear, offshore, petrochemical, transport, construction and manufacturing industries. Group work in offices that have had 3rd party certification to OHSAS 18001. are trained to ensure that they can discharge their responsibilities to their staff. 25.1% Accident incident rates Group 8.3% 2007 2008 % Employees working in offices with OHSAS18001 2008 2007 17 26 3.78 6.35 Reportable Injuries Reportable injuries incident rate per 1,000 employees All activities that are undertaken are assessed for hazards with appropriate controls put in place to ensure the risk is reduced to a satisfactory level. Where necessary safe systems of work are documented.There are systems in place throughout the organisation to audit activities to ensure compliance. All employees are trained to ensure that they have the appropriate skills to carry out their job safely. Senior management There is a group wide system for reporting and investigating accidents, dangerous occurrences and near misses. All incidents are investigated to determine the root cause. Any significant incidents are reported throughout the organisation and brought to the attention of the Board. The reportable accident rate has reduced by 40% in 2008 to 3.78 incidents per Plymstock Quarry, Regeneration of a quarry site and new housing development in Plymouth, UK Stansted Airport rpsgroup.com Corporate Responsibility 26 Winter Gardens, Sunderland RPS advised on the award winning project to replace the original Winter Gardens in Sunderland, UK Report and Accounts 2008 Corporate Responsibility Business Review 27 Social Responsibility and Sustainability RPS is committed to ensuring that it conducts its business in a responsible and sustainable way.Taking care of our clients, suppliers, employees, the wider community and the environment and conducting operations with a high standard of business integrity are all essential to the success of our business. The Group requires its entire staff to adopt high standards of behaviour in their daily professional conduct or when travelling on business. Employees are required to be sympathetic to the cultures of and comply with the laws and regulations of the countries in which they operate, also giving due regard to the safety, the well being and the human rights of all project personnel and relevant local communities. RPS is committed to minimising its carbon footprint by reducing energy consumption in its offices and in transportation. RPS has set itself the task of reducing individual energy consumption by 5% each year using 2007 as the base.This will halve our (per capita) energy use by 2020. Clients The Group aims to develop and maintain strong and lasting relationships with its clients. RPS endeavours to deliver all services and reports to the required quality and specification within the time frame agreed with the client. RPS’ employees work with their clients to anticipate and develop their needs. Conflicts of Interest All RPS employees must avoid personal or professional activities and financial interests that could conflict with their responsibilities to the Group. If a conflict of interest does arise then this must be acknowledged and openly reported. Employees must not seek personal gain from third parties, or abuse their position within the Group for personal gain. Any gifts received must be reported and acknowledged. Community Involvement RPS has supported community and charitable fund raising with gifts in kind and financial contributions throughout the year, mostly at office level.The Group and its staff gave or raised £420,822 in charitable contributions during 2008.Taking into account the £168,121 spent on academic bursaries and educational initiatives, the Group’s total contribution to the communities in which it operates was £588,943 (0.125% of total revenue).This was an increase of 60.1% on social contributions made in 2007. Our Planning and Development businesses in the UK and Ireland made charitable contributions and raised funds for community projects worth £133,986 and gave £125,286 in academic bursaries to undergraduate and postgraduate students studying at universities on both sides of the Irish Sea.The Planning and Development businesses donated £45,000 to establish an Urban Design Scholarship working in partnership with the publishers of the Architects Journal and in association with Design for London (now part of the London Development Agency).The award winning work of the top three scholars will be exhibited in May 2009. Our Energy businesses in the UK, North America and Australia made charitable donations and raised funds for community projects worth in total £234,100 and contributed £13,380 for academic bursaries to students studying at universities in the UK and Australia.The largest single charitable donation by the Energy businesses, £16,000 was made towards the Gondwana Link project, which seeks to protect, restore and sustain the natural heritage in the Great Southern Region of Western Australia. At the end of 2008, the Group continued its corporate support for Tree Aid and its educational, tree planting and woodland conservation programmes in Sub-Saharan Africa by making a charitable donation of £15,500 towards its work in Mali, where RPS has worked on oil and gas exploration and mineral extraction studies in recent years. Deforestation in this part of Africa presents particularly acute problems for some of the world's most vulnerable traditional communities. Environmental Management RPS contributes to environmental management through the projects that it undertakes for clients.The Group advises international bodies, governments, local authorities and private companies on improving their environmental performance. A wide range of services are available from conducting ecological surveys through to carbon trading. In the organisation there are many employees with professional qualifications in rpsgroup.com Corporate Responsibility 28 environmental management, some have achieved international recognition for their work and play a leading role in professional bodies. n allocates sufficient management resources to ensure effective implementation of the environmental policies. RPS seeks to manage and reduce its own environmental impact. All businesses in the Group are required to put in place systems to ensure that they identify and reduce potential environmental liabilities. Using these management techniques, RPS endeavours to: A growing proportion of the Group has achieved ISO14001, the internationally recognised environmental management system standard. By the end of 2008 40.7% (up from 22.6%) of our employees work in offices that have had third party certification to the standard. n n n n n comply with all relevant national and regional legislation as a minimum standard; comply with codes of practice and other requirements such as those specified by regulators and our clients; utilise suppliers that offer products which are sustainable, recyclable or environmentally sensitive wherever practicable and economic; promote practical energy efficiency and waste minimisation measures; and provide a shared inter-office IT network and communications technology that reduces the need for business travel. ISO 14001 40.7% 22.6% 2007 2008 % Employees working in offices with ISO14001 RPS has only a small impact on waste as there are comprehensive recycling facilities at most of our offices. In order to achieve this RPS: Climate Change n n ensures employees are trained and motivated to conduct their activities in an environmentally responsible manner; reviews the policy on a regular basis to take into account any new developments in legislation, or environmental management or shareholder expectations; and RPS has extensive skills that enable us to understand and advise upon the causes and effects of climate change. RPS undertakes projects that involve developing strategies to reduce our client’s carbon emissions and adapt buildings and infrastructure to cope with anticipated climatic changes. We anticipate the workload in this area will increase materially in coming years. RPS has undertaken to measure the carbon footprint of its own activities and has set itself the challenge of reducing the (per capita) energy use by 5% each year. RPS successfully achieved its goal in 2008 with an estimated carbon footprint of about 9,400 tonnes, equivalent to 2.1 tonnes for each employee. Energy Management Consumption of energy – primarily electricity and natural gas – in offices has a direct impact on carbon emissions. In 2008, RPS developed its programme to measure the impact of energy use and introduced a Group-wide initiative to reduce consumption. Over 70% of electricity purchased in the UK is bought of a ‘Green Tariff ’.This is from energy sources that are either derived from renewable sources such as wind, capture waste energy such as landfill gas or are from ‘good quality’ combined heat and power plants. As part of its long-term planning strategy RPS will be introducing minimum environmental standards for new offices that will also be taken into consideration whilst refurbishing offices. Over the medium term this should make a significant contribution to the reduction in the total energy demand. Report and Accounts 2008 Business Review 29 Wind farm at Barnesmore Gap, County Donegal rpsgroup.com 30 Shareholders The Group conducts its operations in accordance with what it believes are principles of good corporate governance. Our aim is to provide shareholders with a return on investment that rewards their financial commitment.The Board understands the importance of strong cash flows and earnings and develops its business in such a way as to grow these in a sustainable way as far as possible. The Board endeavours to maintain involvement of shareholders by keeping them informed on major actions or decisions affecting their investment, through a year-round Investor Relations programme. RPS employees in possession of information which, if disclosed, could affect the market price of its shares are prohibited from trading in securities until after public disclosure of such information. The Chairmen of the Audit Committee, Remuneration Committee and Nomination Committee attend the Annual General Meeting, and are available to answer shareholders’ questions. The Chairman and the Senior Independent Non- Executive Director are available to discuss governance, strategy and any issues of concern or interest with any major shareholders. The Chief Executive and Finance Director meet frequently with major institutional shareholders and fund managers. They both attend the Annual General Meeting. There is a standing board agenda item on investor relations and the views of shareholders, insofar as they are known, are disclosed to the Board as a whole. This gives the Board an opportunity to develop an understanding of the views of major shareholders of the Group. Transport and Vehicle Management Travel is an essential requirement in most RPS projects.Video conferencing and other IT initiatives have helped reduce the need to travel. Employees are encouraged to use public transport and some offices have adopted formalised transport plans. A new company car policy was published in 2008 based on vehicle whole life costs. This includes the environmental costs as well as the leasing charges so that cars with a low emission are favoured over less efficient vehicles. CO2 limits have been set for each band.The average CO2 emission from the UK company car fleet has already reduced by 2.5% to 150g/km saving approximately 25 tonnes of CO2. RPS operates 478 vans in the UK. New vans with a CO2 emission of 119g/km will be used in 2009 that are 13% more efficient than the existing fleet.This is projected to save 400 tonnes of CO2 per year and will reduce fuel costs significantly. RPS carries out extensive work around the world, especially in the Energy business. In consequence, there is a requirement for international air travel. A monitoring programme was established in 2008 to determine the carbon impact of these flights. It is estimated that flights booked in the UK accounted for 1,250 tonnes of CO2. Dublin Airport Report and Accounts 2008 Management & Governance Management & Governance 31 Management & Governance | 31 32 44 45 The Board | Committees | Corporate Governance | rpsgroup.com RPS offers and the sectors in which it operates. and adequate funding in place to maintain its strategy. 32 The Board Board Responsibilities As indicated in the Corporate Governance report the Board has defined responsibilities which are as follows: 1. Ensure that the Group has in place at all times a strategy that is capable of delivering realistic returns to shareholders. 2. Continue to organise and monitor the performance of Group’s operations through the Divisional structure. 3. Keep that structure under review and be prepared to change the number and nature of the Divisions in order both to take account of market opportunities and also to deal with management issues. 4. Clarify any ambiguities in the authority, responsibilities and obligations of the various parts of the Divisions both in terms of managing their businesses and reporting upon those businesses. 5. Keep under review the composition of the Divisional Management teams and monitor their performance, being prepared to make changes in order to maintain or improve performance in terms of both delivery to clients and financial results. 9. Keep under review opportunities to extend the geographic areas in which RPS operates. 10. Ensure that the Board has available an appropriate and effective advisory team including brokers, financial advisers, auditors, lawyers and financial public relations professionals. 11. Together with our brokers, maintain an active Investor Relations programme designed to ensure full exposure of the RPS investment case to appropriate fund managers in the UK, Europe and USA. 12. Maintain contact with a wide range of analysts and brokers to ensure current independent research is available to the market. 13. Maintain systems of corporate governance compliant with the Combined Code and appropriate for a company of RPS’ type and size. Discuss these matters with major shareholders on a regular basis. 14. Ensure that the Group operates appropriate risk management systems in respect of all aspects of its business. 6. Ensure the Group and Divisional 15. Ensure that the Group has in place Boards have policies in place to attract and retain high quality staff. 7. Manage and promote the RPS brand vigorously and vigilantly, by ensuring it has an adequate profile amongst the client base that it is respected and strengthened. 8. Keep under review opportunities to extend the range of products IT systems appropriate for the proper operation of the business and its likely expansion. 16. Ensure that the Group has in place both a web-site and an intranet that provides an effective communication medium for staff, clients and others with an interest in RPS. 17. Ensure that the Group has sufficient Report and Accounts 2008 Composition and Operations The Board currently comprises five Executive and five Non-Executive Directors including the Chairman. The Executive Directors are responsible for the management of all the Group’s business activities. The Non-Executive Directors are all independent of management and contribute independent judgement and extensive knowledge and experience to the proceedings of the Board. The Chairman was independent on appointment. The Board generally meets on a monthly basis (other than during holiday periods) and more frequently when business needs require.The Board has a schedule of matters referred to it for decision and the requirement for Board approval on these matters is communicated widely throughout the senior management of the Group. Its principal tasks are to formulate strategy and to monitor and control operating and financial performance in pursuit of the Group’s strategic objectives. The Executive Directors meet at least once a month.The Executive Committee is responsible for all operational matters within the Group except in respect of any decision, or group of decisions, which could not be executed within the limit of funds available to the Group or which are likely to have a material effect upon the trading prospects of the Group.The minutes of the meeting are circulated to the Non-Executive Directors for review. Operational matters do not include the setting of the Group Strategy or budgets 33 for the Group as a whole or raising of equity or debt finance; these remain matters for the full Board to decide on along with anything which requires shareholder consultation or approval, such as results announcements, the Annual Report or Class 1 Circulars. Where Directors have concerns which cannot be resolved about the running of the Company or a proposed action, these concerns are recorded in the Board minutes. It is the policy of the Company that if a Director resigns, concerns expressed are provided in a written statement to the Chairman for circulation to the Board. It is the responsibility of the Company Secretary to ensure appropriate insurance cover is maintained in respect of legal actions against Directors.The level of cover is currently £20 million. The Board is also responsible for the financing of the Group, material capital commitments, commencing or settling major litigation, corporate acquisitions and disposals and appointments to subsidiary company boards and anything else which may materially affect the Group’s performance. Comprehensive papers which deal with all material issues are circulated in advance of each meeting. The Board undertakes an annual performance review.This review looks at all key aspects of the Board’s responsibilities and identifies areas for improvement. There is an agreed procedure for Non- Executive Directors, as well as Executive Directors, to take independent professional advice and training at the Company’s expense.This is in addition to the access which every Director has to the Company Secretary. The Secretary is charged by the Board with ensuring that Board procedures are followed. When new members are appointed to the Board, access is available to appropriate external training courses and to advice from the Company’s solicitors in respect of their role and duties as a public company Director if required. The Non-Executive Directors are appointed for three year terms which are subject to re-election. Any term beyond six years for a Non-Executive is rigorously reviewed, looking at the requirement to refresh the Board.The appointment of the current Chairman is subject to annual re-election. The differing roles of Chairman and Chief Executive are acknowledged and are separate.The key functions of the Chairman are to conduct Board meetings and meetings of shareholders and to ensure that all Directors are properly briefed in order to take a full and constructive part in Board discussions.The Chief Executive is required to develop and lead business strategies and processes to enable the Group’s business to meet the requirements of its clients and needs of its staff and shareholders.The Non- Executive Directors hold meetings with the Chairman without the Executives present at least twice a year.The Non- Executives met during the year, led by the Senior Non-Executive Director, to appraise the Chairman’s performance.The Executive Directors have their performance individually reviewed by the Chief Executive against annually set objectives.The Chief Executive has his performance reviewed by the Chairman and Senior Independent Non-Executive Director. Concerns relating to the executive management of the Company or the performance of the other Non-Executive Directors may be raised with the Senior Independent Non-Executive Director. The Senior Independent Director is available to shareholders if they have concerns which contact through the Chairman, Chief Executive or Finance Director has failed to resolve. The Board is assisted by five committees - Audit, Remuneration, Nomination, Corporate Governance and Executive. The activities of the Environmental and Social Responsibility Committee have now been incorporated into those of the Corporate Governance Committee.The Board regularly considers its own performance and the matters reserved to it. It also monitors its performance against Group strategy and external parameters. The Board agenda gives greater focus to business performance and strategy. Full details of Directors’ remuneration and a statement of the Company’s remuneration policy are set out on pages 48 to 53.The current members of the Remuneration Committee are identified on page 44. Each Executive Director abstains from any discussion or voting at full Board meetings on Remuneration Committee recommendations where the recommendations have a direct bearing on his own remuneration package. rpsgroup.com The Board continued Brook Land Independent Non-Executive Chairman Aged 59. Brook Land was formerly a partner of and is now a consultant to Nabarro. He is a director of a number of private companies. Until June 2008 he was Senior Independent Director of Signet Group plc. He was appointed to the Board in 1997, is serving a fifth term and is being put forward for re-election on an annual basis. Contract Date of contract September 1997 Emoluments and compensation 34 Unexpired term at 31 December 2008 Until AGM 2010 Notice period N/A Basic salary £000s – Bonus £000s – Emoluments excluding pensions Benefits £000s – Fees £000s 87 2008 £000s 87 2007 £000s 87 Pension (paid and provided) 2007 2008 £000s £000s – – Beneficial interests Number of shares at 31 December 2008 and at 13 February 2009 30,000 Number of shares at 31 December 2007 and at 13 February 2008 30,000 Committee membership – Board and Committee Number of Board and Committee meetings attended * Chairman Full Board* 9 Audit Committee – Remuneration Committee – Nomination Committee* 2 Corporate Governance 2 Report and Accounts 2008 Dr Alan Hearne Chief Executive Aged 56. Alan Hearne holds a degree in economics and a doctorate in environmental planning. Following a period of academic research into environmental planning he joined RPS in 1978, became a Director in 1979 and Chief Executive in 1981. Alan Hearne was the plc Entrepreneur of the Year in 2001, was made a Companion of the Institute of Management in 2002, a member of the Board of the Companions in 2007 and fellow of Aston Business School in 2006. Service Contract Date of contract February 1997 Emoluments and compensation Unexpired term at 31 December 2008 12 months Notice period 12 months 35 Basic salary £000s 395 Bonus £000s 325 Emoluments excluding pensions Fees £000s –– Benefits £000s 19 2008 £000s 739 2007 £000s 696 Pension (paid and provided) 2008 £000s *** 2007 £000s *** Share options 1 Jan 2008 Number 62,500 28,157 Exercised Number – – 31 Dec 2008 Number 62,500 28,157 Exercise price 111.0p 146.5p Market value at date of exercise N/A N/A Date from which exercisable 20/3/2008 12/8/2008 LTIP award 2005 2006 2007 2008 Total 1 Jan 2008 number 178,417 145,652 124,893 – 448,962 Granted number – – – 127,419 127,419 Released 178,417 – – – 178,417 31 Dec 2008 – 145,652 124,893 127,419 397,964 Market value of shares at grant 139p 184p 292.3p 310p Expiry date 20/3/2015 12/8/2015 Market value at date of release 341.75p – – – Share Incentive Plan Partnership shares Matching shares Total Beneficial interests Total Beneficial interest at 31 December 2008 1,611 1,611 3,222 Beneficial interest at 31 December 2007 922 921 1,843 Number of shares at 31 December 2008 and at 13 February 2009 482,030 Number of shares at 31 December 2007 and at 13 February 2008 732,030 Committee membership – Board and Committee Number of Board and Committee meetings attended * meets at least once a month ** Chairman Full Board 9 Audit Committee – Remuneration Committee – Nomination Committee – Corporate Governance** 2 Executive Committee * *** In 2006 the Remuneration Committee agreed to make a one-off payment of £300,000 to the pension plan of the CEO prior to 6 April 2006 representing six years of future annual contributions. No further pension contributions will be made during this period. rpsgroup.com The Board continued Gary Young Finance Director Aged 49. Gary Young graduated from Southampton University in 1982 and qualified as a Chartered Accountant in 1986 with Price Waterhouse. Before joining RPS he held a number of financial director roles including positions within Rutland Trust plc and AT&T Capital. He joined RPS in September 2000 and was appointed to the Board in November 2000. Service Contract Date of contract September 2000 36 Emoluments and compensation Unexpired term at 31 December 2008 12 months Notice period 12 months Basic salary £000s 200 Bonus £000s 132 Fees £000s – Benefits £000s 10 2008 £000s 342 Emoluments excluding pensions 2007 £000s 301 Pension (paid and provided) 2007 £000s 27 2008 £000s 30 Share options 1 Jan 2008 Number 27,500 13,720 LTIP award 2005 2006 2007 2008 Total 1 Jan 2008 number 66,906 55,434 49,272 – 171,612 Share Incentive Plan Partnership Shares Matching Shares Total Exercised Number 27,500 – 31 Dec 2008 Number – 13,720 Exercise price 111.0p 146.5p Market value at date of exercise 336.75p N/A Date from which exercisable 20/3/2008 12/8/2008 Granted number – – – 51,612 51,612 Released 66,906 – – – 66,906 31 Dec 2008 – 55,434 49,272 51,612 156,318 Market value of shares at grant 139p 184p 292.3p 310p Expiry date – 12/8/2015 Market value at date of release 341.75p – – – Beneficial Interest at 31 December 2008 3,041 3,041 6,082 Beneficial Interest at 31 December 2007 2,386 2,385 4,771 The beneficial ownership of the Matching Shares will pass to the Directors in three years time, subject to continued employment and the retention of the underlying Partnership Shares. Beneficial interests Total Pensions Number of shares at 31 December 2008 and at 13 February 2009 27,500 Number of shares at 31 December 2007 and at 13 February 2008 – Pension contributions are paid into a Group personal pension. Committee membership – Board and Committee Number of Board and Committee meetings attended * meets at least once a month Full Board 9 Audit Committee - Remuneration Committee - Nomination Committee - Executive Committee * Report and Accounts 2008 Andrew Troup Executive Director Aged 50. Andrew Troup graduated from Reading University in 1979 and qualified as a Chartered Surveyor in 1986. He joined RPS in the same year and became a member of the Board in November 1991. Service Contract Date of contract February 1997 Emoluments and compensation Unexpired term at 31 December 2008 12 months Notice period 12 months 37 Basic salary £000s 200 Bonus £000s 99 Emoluments excluding pensions Fees £000s –– Benefits £000s 10 2008 £000s 309 2007 £000s 232 Pension (paid and provided) 2007 £000s 29 2008 £000s 30 Share options 1 Jan 2008 Number 24,123 24,123 35,000 35,000 35,000 35,000 14,437 14,437 LTIP award 2005 2006 2007 2008 Total 1 Jan 2008 number 75,540 60,326 53,378 – 189,244 Share Incentive Plan Partnership Shares Matching Shares Total Exercised Number 24,123 24,123 35,000 35,000 – – – – 31 Dec 2008 Number _ _ _ _ 35,000 35,000 14,437 14,437 Exercise price 171.0p 171.0p 149.0p 149.0p 111.0p 111.0p 146.5p 146.5p Market value at date of exercise 305.5p 305.5p 305.5p 305.5p N/A N/A N/A N/A Date from which exercisable 6/3/2004 6/3/2006 14/3/2005 14/3/2007 20/3/2006 20/3/2008 12/8/2006 12/8/2008 Expiry date – – – – 20/3/2013 20/3/2015 12/8/2013 12/8/2015 Granted number – – – 38,709 38,709 Released 75,540 – – – 75,540 31 Dec 2008 – 60,326 53,378 38,709 152,413 Market value of shares at grant 139p 184p 292.3p 310p Market value at date of release 341.75p – – – Beneficial Interest at 31 December 2008 1,675 1,675 3,350 Beneficial Interest at 31 December 2007 955 955 1,910 The beneficial ownership of the Matching Shares will pass to the Directors in three years time, subject to continued employment and the retention of the underlying Partnership Shares. Beneficial interests Total Pensions Number of shares at 31 December 2008 and at 13 February 2009 269,266 Number of shares at 31 December 2007 and at 13 February 2008 269,266 Pension contributions are paid into a Group personal pension. Committee membership – Board and Committee Number of Board and Committee meetings attended * meets at least once a month Full Board 9 Audit Committee - Remuneration Committee - Nomination Committee - Executive Committee * rpsgroup.com The Board continued Peter Dowen Executive Director Aged 60. Peter Dowen graduated from Leeds School of Architecture in 1972 and qualified as a Chartered Architect in 1973. After a period in private practice he became a director of Brian Clouston and Partners in 1980 before joining RPS in 1989 when he was appointed to the Board. 38 Service Contract Date of contract February 1997 Unexpired term at 31 December 2008 12 months Notice period 12 months Emoluments and compensation Basic salary £000s 228 Bonus £000s 85 Emoluments excluding pensions Fees £000s –– Benefits £000s 10 2008 £000s 323 2007 £000s 343 Pension (paid and provided) 2007 £000s 33 2008 £000s 34 Share options 1 Jan 2008 Number 32,500 15,051 Exercised Number – – 31 Dec 2008 Number 32,500 15,051 Exercise price 111.0p 146.5p Market value at date of exercise N/A N/A Date from which exercisable 20/3/2008 12/8/2008 Granted number – – – 44,129 44,129 Released 86,331 – – – 86,331 31 Dec 2008 – 68,478 60,022 44,129 172,629 Market value of shares at grant 139p 184p 292.3p 310p Expiry date 20/3/2015 12/8/2015 Market value at date of release 341.75p – – – LTIP award 2005 2006 2007 2008 Total 1 Jan 2008 number 86,331 68,478 60,022 – 214,831 Beneficial interests Total Pensions Number of shares at 31 December 2008 and at 13 February 2009 575,910 Number of shares at 31 December 2007 and at 13 February 2008 750,910 The Executive Directors of the Company earned pensions benefits in a company money purchase (defined contribution) scheme during the year. Committee membership – Board and Committee Number of Board and Committee meetings attended * meets at least once a month Full Board 8 Audit Committee - Remuneration Committee - Nomination Committee - Executive Committee * Report and Accounts 2008 Dr Phil Williams Executive Director Aged 55. Phil Williams joined the Group in September 2003 through the acquisition of Hydrosearch Associates Limited where he held the position of Managing Director. Phil joined Hydrosearch in 1981 and was appointed Managing Director in 1983. Over the next 20 years he led Hydrosearch as the company developed into one of the world’s largest energy sector consulting groups. Phil was appointed to the Board in December 2005. Service Contract Date of contract November 2005 Emoluments and compensation Unexpired term at 31 December 2008 12 months Notice period 12 months 39 Basic salary £000s 260 Bonus £000s 154 Emoluments excluding pensions Fees £000s – Benefits £000s 15 2008 £000s 429 2007 £000s 382 Pension (paid and provided) 2007 £000s 33 2008 £000s 39 LTIP award 2006 2007 2008 Total Share Incentive Plan Partnership Shares Matching Shares Total Beneficial interests Total Pensions 1 Jan 2008 number 57,065 60,222 – 117,287 Granted number – _ 61,935 61,935 31 Dec 2008 57,065 60,222 61,935 179,222 Market value of shares at grant 184p 292.3p 310p Beneficial Interest at 31 December 2008 1,181 1,181 2,362 Beneficial Interest at 31 December 2007 _ _ _ Number of shares at 31 December 2008 and at 13 February 2009 350,000 Number of shares at 31 December 2007 and at 13 February 2008 350,000 Pension contributons are paid into a Group personal pension. Committee membership – Board and Committee Number of Board and Committee meetings attended * meets at least once a month Full Board 9 Audit Committee – Remuneration Committee – Nomination Committee – Executive Committee * rpsgroup.com The Board continued Roger Devlin Senior Independent Non-Executive Director Aged 51. Roger Devlin chairs three private equity companies - Principal Hotels (on behalf of Permira),Traveljigsaw and Gamesys. He is also a non-executive director of National Express. Roger read law at Oxford and trained in the City with Hill Samuel, before going on to join the boards of both Hilton International and Ladbrokes. He joined the Board on 29 April 2002 and is serving a third three-year term. 40 Contract Date of contract April 2002 Emoluments and compensation Unexpired term at 31 December 2008 28 months Notice period N/A Basic salary £000s – Bonus £000s – Emoluments excluding pensions Fees £000s 32 Benefits £000s – 2008 £000s 32 2007 £000s 32 Pension (paid and provided) 2007 £000s – 2008 £000s – Beneficial interests Number of shares at 31 December 2008 and at 13 February 2009 30,000 Number of shares at 31 December 2007 and at 13 February 2008 – Committee membership – Board and Committee Number of Board and Committee meetings attended Full Board 8 Audit Committee 3 Remuneration Committee – Nomination Committee 2 Report and Accounts 2008 Karen McPherson Independent Non-Executive Director Aged 57. Karen was a Non-Executive Director of F&C Asset Management Plc from 1985 to October 2006. Karen has extensive Human Resources experience and currently runs her own independent HR consultancy business, Potential Unlimited, which she founded in Contract Date of contract June 2005 Emoluments and compensation 2000. Prior to this Karen worked for F&C Management Plc from 1996 to 1998 as Director and Head of Human Resources. She previously worked for JP Morgan and Chemical Bank. Karen was appointed to the Board in June 2005 and is serving a second three-year term. Unexpired term at 31 December 2008 29 months Notice period N/A 41 Basic salary £000s – Bonus £000s – Emoluments excluding pensions Fees £000s 35 Benefits £000s – 2008 £000s 35 2007 £000s 32 Pension (paid and provided) 2008 £000s – 2007 £000s – Beneficial interests Number of shares at 31 December 2008 and at 13 February 2009 – Number of shares at 31 December 2007 and at 13 February 2008 – Committee membership – Board and Committee Number of Board and Committee meetings attended * Chairman Full Board 8 Audit Committee – Remuneration Committee* 4 Nomination Committee 2 rpsgroup.com The Board continued John Bennett Independent Non-Executive Director Aged 61. John was appointed to the Board on 1 June 2006. He is a Chartered Accountant with 30 years experience in the house building industry. He was Finance Director of Westbury plc, until it was acquired early in 2006. He has wide experience of financial management, capital and debt raising, acquisitions and investor relations and he played a leading role in the strategic development of Westbury into a top ten volume house builder in the UK. Since the year-end John's appointment has been extended for a second three year term. Contract 42 Date of contract June 2006 Emoluments and compensation Unexpired term at 31 December 2008 6 months Notice period N/A Basic salary £000s – Bonus £000s – Emoluments excluding pensions Fees £000s 32 Benefits £000s – 2008 £000s 32 2007 £000s 32 Pension (paid and provided) 2007 £000s – 2008 £000s – Beneficial interests Number of shares at 31 December 2008 and at 13 February 2009 – Number of shares at 31 December 2007 and at 13 February 2008 – Committee membership – Board and Committee Number of Board and Committee meetings attended * Chairman Full Board 8 Audit Committee* 3 Remuneration Committee 4 Nomination Committee – Report and Accounts 2008 Louise Charlton Independent Non-Executive Director Aged 48. Louise was appointed to the Board on 22 May 2008. She is Group Senior Partner of Brunswick Group LLP, the international corporate communications group of which she is a co-founder. Louise is a Director and Trustee of the Natural History Museum. She is serving an initial three year term. Contract Date of contract May 2008 Emoluments and compensation Unexpired term at 31 December 2008 29 months Notice period N/A 43 Basic salary £000s – Bonus £000s – Emoluments excluding pensions Fees £000s 20 Benefits £000s – 2008 £000s 20 2007 £000s – Pension (paid and provided) 2007 £000s – 2008 £000s – Beneficial interests Number of shares at 31 December 2008 and at 13 February 2009 – Number of shares on appointment – Committee membership – Board and Committee Number of Board and Committee meetings attended Full Board 6 Audit Committee – Remuneration Committee – Nomination Committee – rpsgroup.com Committees Committee membership Audit Committee John Bennett (Chairman) Roger Devlin Remuneration Committee Karen McPherson (Chairman) 44 John Bennett Roger Devlin* Executive Committee Alan Hearne (Chairman) Peter Dowen Andrew Troup Phil Williams Gary Young Nicholas Rowe (Secretary) Nomination Committee Corporate Governance Brook Land (Chairman) Alan Hearne (Chairman) Louise Charlton** Karen McPherson Brook Land Nicholas Rowe (Secretary) The number of Board and Committee meetings attended by each of the Directors during the year was as follows: Full Board Audit Committee Remuneration Committee Nomination Committee Corporate Governance Brook Land Alan Hearne Gary Young Andrew Troup Peter Dowen Phil Williams Roger Devlin Karen McPherson John Bennett Louise Charlton Total number of meetings 9 9 9 9 8 9 8 8 8 6 9 – – – – – – 3 – 3 – 3 – – – – – – – 4 4 – 4 2 – – – – – 2 2 – – 2 * Roger Devlin joined the Renumeration Committeee after the year-end. ** Louise Charlton joined the Nomination Committee in place of Roger Devlin after the year-end. 2 2 – – – – – – – – 2 Report and Accounts 2008 Corporate Governance Committee In order to manage effectively the Group’s structure and organisation during a time when expectations about the nature and standards of Corporate Governance have been changing significantly and rapidly, RPS has established a Corporate Governance Committee.This comprises the Chairman, Chief Executive and Company Secretary; other Directors are consulted as necessary.The Committee reviews issues as they arise and is also responsible for keeping the Board appraised about the implications in respect of changes to the Combined Code.The work of the Corporate Governance Committee is, therefore, reflected into the Audit, Nomination and Remuneration Committees as well as the structure, composition and operation of the Group Board, including the production of the policies described in the Corporate Responsibility Report (pages 27 to 30). The Board should meet regularly to discharge its duties.There should be a formal schedule of matters specifically reserved for its decision.The annual report should include a statement of how the Board operates, including a high level statement of which types of decisions are to be taken by the Board and which are delegated to management. The Annual Report should identify the Chairman, Chief Executive, Senior Director and Chairman and Independent Non-Executive members of Nomination, Audit and Remuneration Committees. It should also set out the number of meetings held and individual attendance. The Chairman should hold meetings with Non-Executive Directors without the Executives present. Led by the Senior Independent Non-Executive Director, the Non-Executive Directors should meet without the Chairman present at least annually to appraise the Chairman’s performance. Where Directors have concerns which cannot be resolved about the running of the Company or a proposed action these concerns should be recorded in the Board minutes. On resignation these concerns should be provided in a written statement to the Chairman for circulation to the Board. The Company should arrange appropriate insurance cover in respect of legal action against Directors. The roles of the Chairman and Chief Executive should be split. The division of responsibilities between the Chairman and Chief Executive should be clearly established, set out in writing and agreed by the Board. The Chairman on appointment should be independent. The Board should identify in the annual report each Non-Executive Director it considers to be independent. At least half the board, excluding the Chairman, should comprise Non-Executive Directors determined by the board to be independent. 45 Combined Code In the opinion of the Board the Chairman and all the other Non-Executive Directors are independent from the Group.The Board is accountable to the Company’s shareholders for good governance and the statement set out below describes how the principles identified in the Combined Code 2006 already referred to above are applied by the Company.The Corporate Governance Committee has reviewed RPS’ performance against the recommendations in the Code. In summary the position is as follows: Combined Code paragraph Comment A.1.1 Compliant Page 32/33 A.1.2 Compliant A.1.3 Compliant A.1.4 Compliant A.1.5 Compliant A.2.1 Compliant 44 33 33 33 33 A.2.2 A.3.1 A.3.2 Compliant Compliant Non- Compliant 32 34-44 * * A further Non-Executive Director was appointed during 2008.The Chairman and the Nomination Committee believe that at present further enlargement of the Board would not assist efficient decision making and are satisfied that the current Non-Executive Directors and Chairman exercise suffcient oversight and control over the Board and the business as a whole. In consequence there are no plans to appoint further Non-Executive Directors. rpsgroup.com Corporate Governance continued The Board should appoint one of the Independent Non-Executive Directors to be the Senior Independent Non-Executive Director.The Senior Independent Director should be available to shareholders if they have concerns which contact through the normal channels of Chairman, Chief Executive or Finance Director has failed to resolve or for which such contact is inappropriate. There should be a Nomination Committee. A majority of the members should be independent Non-Executive Directors.The Chairman or independent non-executive director should chair the committee unless it is dealing with the appointment of a successor to the Chairmanship. The Nomination Committee should make available its terms of reference. 46 The Nomination Committee should evaluate the balance of skills, knowledge and experience on the Board and evaluate the role and capabilities required for a particular appointment. On appointment of a Chairman, the Nomination Committee should prepare a job specification. A Chairman’s other significant commitments should be disclosed to the Board before appointment and included in the Annual Report. The terms and conditions of appointment of Non-Executive Directors should be made available for inspection by any person at the Company’s registered office and at the AGM. The annual report should describe the work of the Nomination Committee, including processes it has used in relation to Board appointments. New Directors should receive a full, formal and tailored induction on joining the Board. Shareholders should be offered the opportunity to meet the new Non-Executive. All Directors should have access to independent professional advice. Committees should be provided with sufficient resources to undertake their duties. All Directors should have access to the advice and services of the Company Secretary, who is responsible to the Board for ensuring that Board procedures are complied with. The Board should state in the annual report how it evaluates performance of the Board, its committees and its individual Directors has been conducted.The Non-Executive Directors led by the Senior Independent Director should be responsible for performance evaluation of the Chairman. All Directors should be subject to election by shareholders at the first Annual General Meeting after their appointment, and to re-election thereafter at intervals of no more than three years. The names of Directors submitted for election or re-election should be accompanied by sufficient biographical details and any other relevant information. The Non-Executive Directors should be appointed for specified terms subject to re-election. Any term beyond six years for a Non-Executive should be subject to particularly rigorous review, and take into account the need for progressive refreshing of the Board. Performance-related elements of remuneration should form a significant proportion of the total remuneration package of the Executive Directors. Share options should not be offered at a discount. Remuneration for Non-Executive Directors should reflect the time commitment and responsibilities of the role and should not include share options. The Remuneration Committee should consider what compensation commitments the Directors’ terms of appointment would entail in the event of early termination. Notice or contract periods of Executive Directors should be one year or less. A Remuneration Committee should be established with at least three Independent Non-Executives. The Remuneration Committee should make available its terms of reference. Combined Code paragraph Comment Page A.3.3 Compliant 33 & 40 A.4.1 Compliant 55-56 A.4.2 Compliant 55-56 A.4.3 Compliant 55-56 A.4.4 Compliant 55 A.4.6 Compliant 55-56 A.5.1 Compliant A.5.2 Compliant A.5.3 Compliant A.6.1 Compliant A.7.1 Compliant A.7.2 Compliant B.1.1 Compliant B.1.2 B.1.3 Compliant Compliant B.1.5 Compliant B.1.6 B.2.1 Compliant Non Compliant 33 33 33 33 Notice of Meeting 33 48 51 52 52 52 ** 48-49 ** For the year under review the Board has been satisfied that the two members of the Committee had sufficient expertise to ensure that the affairs of the Committee were conducted in an efficient and professional manner. Since the year end, however, a third independent Non-Executive Director has joined the Committee. Report and Accounts 2008 The Remuneration Committee should set remuneration for all executives. The Remuneration Committee should recommend and monitor the level and structure of remuneration for senior management. The Board should determine the remuneration of the Non-Executive Directors. Shareholders should be invited specifically to approve all new long-term incentive schemes and significant changes to existing schemes. The Directors should explain in the annual report their responsibility for preparing accounts and a statement, by the auditor about their reporting responsibilities. The Directors should report that the business is a going concern. The Board should conduct at least annually, a review of the effectiveness of the Group’s system of internal controls and should report to shareholders that they have done so. The Board should establish an Audit Committee with at least three members who should all be Independent Non-Executive Directors. At least one member of the Audit Committee should have recent and relevant financial experience. The role and responsibility of the Audit Committee should be set out in written terms of reference.This should be disclosed in the annual report. The Audit Committee should review arrangements by which staff of the Company may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters. The Audit Committee should consider annually whether there is a need for an internal audit function and make a recommendation to the Board. The Audit Committee should have primary responsibility for making a recommendation on the appointment, reappointment or removal of the external auditors. If the Board does not accept the Audit Committee’s recommendation it should include in its annual report a statement explaining why the Board take a different position. The annual report should explain to shareholders how independence is safeguarded if the auditor provides non audit services. The Chairman should ensure that the views of the shareholders are disclosed to the Board as a whole.The Chairman is available to discuss governance and strategy with the shareholders.The Senior Independent Director should attend sufficient meetings with a range of major shareholders in order to develop a balanced understanding of the issues and concerns of the shareholders. The Board should state in their annual report the steps they have taken to ensure Board members develop an understanding of the views of major shareholders about their Company. The Company should propose a separate resolution at the AGM on each substantially separate issue and should in particular propose a resolution at the AGM relating to the report and accounts. The Company should count all proxy votes and indicate the level of proxies lodged on each resolution, and the balance for and against the resolution and the number of abstentions. The Company should ensure that votes cast are properly received and recorded. Chairmen of the Audit, Remuneration and Nomination Committees should attend the AGM in order to be available to answer questions. The Company should arrange for the Notice of AGM and related papers to be sent to shareholders at least 20 working days before the meeting. Combined Code paragraph Comment B.2.2 Compliant B.2.3 B.2.4 Compliant Compliant Page 48-53 52 50 C.1.1 Compliant 61-63 C.1.2 C.2.1 Compliant 61 Compliant 48 & 55 47 C.3.1 Non-Compliant *** C.3.2/3.3 Compliant 54-55 C.3.4 Compliant C.3.5 Compliant C.3.6 Compliant C3.6 Compliant C.3.7 Compliant D.1.1 Compliant 54 55 54 n/a 54 30 D.1.2 Compliant 30 D.2.1 Compliant D.2.2 Compliant Notice of Meeting D.2.3 Compliant 30 D.2.4 Compliant *** The Board is satisfied that the two current members of the Audit Committee have sufficient expertise to ensure that the affairs of that Committee are conducted in a professional and effective manner. rpsgroup.com 48 Corporate Governance continued Communication The Company places a great deal of importance on communication with its shareholders.The full report and accounts are made available to all shareholders and to other parties who have an interest in the Group’s performance on the Group’s website.The Company responds to numerous letters from shareholders and customers when these are received.The Company’s website also provides up-to- date information about its organisation, the services it offers and newsworthy subjects. There is regular dialogue with individual institutional shareholders as well as presentations after the interim and preliminary results and at other events. All shareholders have the opportunity to put questions at the Company’s Annual General Meeting. Audit and internal controls The respective responsibilities of the Directors and the independent auditors in connection with the accounts are explained on pages 61-63 and the statement of the Directors in respect of going concern appears on page 61. The Board has procedures in place as recommended in the guidance in “The Combined Code on Corporate Governance” and “Turnbull: Guidance on Internal Controls” and these have been in place for the whole year and up to the date of approval of the financial statements. The risk management policies are described on pages 21-25. The Board is responsible for the Group’s system of internal control which is designed to provide reasonable but not absolute assurance against material misstatement or loss.The Board reviews from time to time the effectiveness of the system of internal control from information provided by management (page 55) and the Group’s external auditors. The key procedures that the Directors have established to provide effective internal financial controls are as follows: Report and Accounts 2008 Financial reporting: A detailed formal budgeting process for all Group businesses culminates in an annual Group budget which is approved by the Board.The results for the Group are reported monthly against this budget to the Board. Financial and accounting principles and internal financial controls assurance: Compliance with these is reviewed as requested. A detailed financial and accounting controls manual sets out the principles of and minimum standards required by the Board for effective financial control. Capital investment:The Company has clearly defined guidelines for capital expenditure.These include annual budgets, detailed appraisal and review procedures, levels of authority and due diligence requirements where businesses are being acquired. Remuneration Report The Directors who were members of the Remuneration Committee throughout the year were: Karen McPherson and John Bennett. Roger Devlin has joined the Committee since the year end. The Chairman and Chief Executive have assisted the Remuneration Committee in their deliberations on other Directors’ remuneration.The Company Secretary is in attendance at the meeting to provide the committee with any additional advice that is required. Remuneration Committee - Terms of Reference n the Committee has been delegated responsibility by the Board to determine and agree with the Board the framework or broad policy for the remuneration of the Executive Directors and Senior Employees of the Company; the remuneration of Non-Executive Directors is a matter for the executive members of the Board who take advice from the independent consultants. No Director or manager is involved in any decisions as to their own remuneration; 1 1 2 1 2 1 1 2 2 Alan Hearne 1 Fixed 34.4% 2 Variable 65.6% 2 Peter Dowen 1 Fixed 42.7% 2 Variable 57.3% Andrew Troup 1 Fixed 42.9% 2 Variable 57.1% Gary Young 1 Fixed 39.6% 2 Variable 60.4% Phil Williams 1 Fixed 40.7% 2 Variable 59.3% Analysis of fixed versus performance related pay for Executive Directors 2008 Notes: Fixed compensation comprises: Basic salary Benefits Variable compensation comprises: Maximum Bonus Potential Face Value of LTIP Awards n within the terms of the agreed policy, determine the total individual remuneration package of each Executive Director including, where appropriate, bonuses, benefits, and long-term incentive allocations; n the quorum necessary for the transaction of business is two members. A duly convened meeting of the Committee at which a quorum is present shall be competent to exercise all or any of the authorities, powers and discretions vested in or exercisable by the Committee; n determine the policy for and scope of pension arrangements for each Executive Director; n determine targets for any performance-related pay and share schemes operated by the Company; n in determining such packages and arrangements, give due regard to the comments and recommendations of the Combined Code as well as the Listing Rules of the Financial Services Authority and associated guidance; n ensure that contractual terms on termination, and any payments made, are fair to the individual and the Company, that failure is not rewarded and that the duty to mitigate loss is fully recognised, in line with the statement of best practice in the ABI Guidelines; n ensure that provisions regarding disclosure of remuneration, including pensions, as set out in the Directors’ Remuneration Report Regulations 2002 and the Code, are fulfilled; n be aware of and advise on any major changes in employee benefit structures throughout the Company or Group; n be exclusively responsible for establishing the selection criteria, selecting, appointing and setting the terms of reference for any remuneration consultants who advise the Committee; n meet as required during the year; and n report the frequency of, and attendance by members at, Remuneration Committee meetings in the annual report (see page 44). Remuneration policy Base salary The Remuneration Committee’s policy is to set the main elements of the remuneration package in order to reflect: n the performance of the individual When determining the salary of the Executive Directors the Remuneration Committee has taken into consideration: n the performance of the Group as concerned; a whole; n the performance of the business unit(s) for which he/she is responsible; n in the case of Group directors, the performance of the Group as a whole; and n the relevant market(s) for executives and the terms and conditions prevailing in those markets. The Committee recognises that the main competitors of the Group and, therefore, comparators for remuneration are found outside the group of companies that are listed. In consequence, the Committee needs to reflect that in its deliberations including RPS’ market leading position in a number of those markets. The Committee is, in addition, mindful of trends and best practice amongst listed companies of a similar size in the Support Services sector. The policy is designed to attract, retain and motivate individuals by providing the opportunity to earn competitive levels of compensation provided performance is delivered, whilst remaining within the range of compensation offered by similar companies. Directors’ remuneration is the subject of annual review in accordance with this policy. Additionally, it focuses on the contribution to the continued long term growth and success of the Company and seeks to align their interests with those of the Company, employees and shareholders. The charts on page 50 demonstrate the proportion of the maximum potential compensation which is performance related for each Executive Director. The Remuneration Committee appointed and received wholly independent advice on executive compensation and associated share administration from Halliwell Consulting. n the performance of the individual Executive Director both for the Group and the businesses under his control; n pay and conditions throughout the 49 Company; and n the market conditions in the sector the Group operates in. The results of this exercise were then benchmarked against an independently established group of listed companies. This group was identified independently by Halliwell Consulting. The basis of selection of the group was: n companies within the same sector as the Company; and n companies with a range of market capitalisations such that the Company sits within the middle of the comparator group.This group is reviewed on an annual basis. The companies comprising the comparator group used in the 2008 Review were as follows: Aggreko Plc Alfred Mcalpine Plc Amec Plc Ashtead Group Plc Atkins WS PLC Babock International Group BPP Holdings PLC BSS Group PLC Bunzl PLC Connaught Plc Davis Service Group PLC De La Rue Plc Diploma Plc Electrocomponents Plc Filtrona PLC Galiform Plc Hays PLC Homeserve PLC Interserve PLC Intertek Group PLC John Menzies Plc Lavendon Group Plc Michael Page International Plc Mitie Group Mouchel Group PLC PayPoint PLC Premier Farnell PLC Regus PLC Scott Wilson Group Plc Serco Group Plc Shanks Group Plc SIG PLC Speedy Hire PLC SThree PLC Travis Perkins PLC White Young Green PLC WSP Group PLC rpsgroup.com Corporate Governance continued The Remuneration Committee accepted a recommendation from the Executive Directors that base salaries of the latter would not be increased as at 1 January 2009. Performance bonus The tables set out: n maximum Bonus Potential for Executive Directors for 2008. n bonus targets which applied for 2008. The earnings per share growth targets that applied in 2008 are set out below: % Earnings per Share Growth Inclusive of RPI % Bonus Payable for EPS Element 50 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 32.2 14.00 23.10 28.70 34.30 39.90 45.50 47.95 50.40 52.85 55.30 57.75 60.20 62.65 65.10 67.55 70.00 72.45 74.90 77.35 79.80 82.25 84.70 87.15 89.60 92.05 94.50 96.95 99.40 100.00 EPS figures are based upon the Company’s adjusted figures under IFRS. In respect of 2008 the EPS growth shown in the audited accounts was 25% giving rise to Executives being entitled to 82.25% of the maximum potential bonus subject to the target. Report and Accounts 2008 The table below shows the maximum bonus potential that applied for Executive Directors in 2008: % Maximum Bonus Potential % of Maximum Bonus subject to each Target 2008 Executive Chief Executive Finance Director Executive Directors 2008 100 80 80 In view of the exceptional financial circumstances which currently prevail and which seem likely to affect economic prospects for some time, all divisional bonus schemes in the Group are currently being reviewed.The Remuneration Committee believes it is essential that any scheme for the Group executives is compatible with and reflects the schemes for other employees and so will not finalise the 2009 scheme for executives until it is clear what Long-term Incentives EPS Target 2008 100 50 50 Divisional & Individual Targets 2008 50 50 principles are appropriate throughout the Group. The Committee will, as it has done in previous years, provide an explanation of the 2009 bonus targets, their level of satisfaction and the resulting bonus payments (if any) in the 2009 Remuneration Committee Report.The maximum bonus potential for 2009 will not exceed the current maximum of 100% of salary per annum. The following table and paragraphs summarise the operation of the Company’s LTIP: Executive 2005 Grant % of Salary/ Condition 2006 Grant % of Salary/ Condition 2007 Grant % of Salary/ Condition 2008 Grant % of Salary/ Condition Maximum Annual Grant Chief Executive Finance Director Executive Directors Performance Condition EPS Growth 100 80 60 60 (see table below) 100 80 60 60 EPS Growth (see table below) 100 100 80 80 EPS Growth (see table below) Status Based on current Release Date Released on 18 May 2008 in performance it is 14 March 2010 anticipated that full as the EPS the grant will be performance released in full on condition was 30 March 2009 satisfied (see table below) 100 100 80 60-80 EPS Growth (see table below) Release Date 8 April 2011 100% of the shares subject to the second grant were released on 18 May 2008.The following shares were awarded at the grant price of £1.39: Name Number of ordinary shares n the performance criteria in order to ensure that what has been approved by shareholders remain appropriate to the Company’s current circumstances and prospects. Alan Hearne Gary Young Andrew Troup Peter Dowen 178,417 66,906 75,540 86,331 The market price of the shares on release was £3.4175. The Remuneration Committee reviews on an annual basis the current share incentives in respect of: n their operation; n the grant levels; and In this context it should be noted that the current shareholder approval for the Company LTIP will expire at the 2009 AGM.The Remuneration Committee is reviewing the future provision of equity- based incentives for Executive Directors and may make proposals to shareholders in due course. The performance conditions attached to the release of LTIP shares related to EPS growth is as follows: 51 % Average Basic EPS Growth p.a. above RPI % of LTIP Award Released* 3 4 5 6 7 8 9 10 12.5 25 37.5 50 62.5 75 87.5 100 * There will be straight line release between these points. The Remuneration Committee will determine the satisfaction of the performance conditions in respect of both the LTIP and historic options.The EPS figure used by the Company will be the audited basic EPS figure disclosed in the Company’s Financial Statements. The performance condition comparing increases in earnings per share against inflation was chosen in order to ensure that LTIP awards and options would only be received against a background of a sustained real increase in the financial performance of the Company. The grant of awards for 2008 is set out in the following table: Name Alan Hearne Gary Young Andrew Troup Peter Dowen Phil Williams Shares Granted Market value of shares 127,419 51,612 38,709 44,129 61,935 £3.10 £3.10 £3.10 £3.10 £3.10 Full details of the Directors LTIP awards are set out on page 60. For 2003 and earlier years long-term incentives comprised of annual grants of options.The Remuneration Committee set out the level of the option grant to the Executive Directors of the Company at the median level. The maximum annual grant under the Executive Share Option Scheme was 75% of salary. Options were not issued at a discount.The Performance Conditions attached to the Share Options granted to the Directors under the Executive Share Option Schemes are that: n Ordinary Options may only be exercised if, over any three year measurement period of the Company, beginning no earlier than the financial year during which the option is granted, the percentage growth in earnings per share exceeds the growth in the Retail Prices Index over the same period by at least 3% per annum, being 9% for the three year period; and n Super Options may only be exercised if, over any five year measurement period of the Company, beginning no earlier than the financial year during which the option is granted, the percentage growth in earnings per share exceeds the growth in the Retail Price Index over the same period by at least 6% per annum, being 30% for the five year period. It is also necessary for the share price to rise over both the three and five year periods to make the exercise worthwhile. Options are not able to be exercised if performance is below target, and there is no reward for below target performance. The performance conditions are measured at the end of the three and five year holding periods applying to the relevant grants of Options.There is no re-testing of the performance conditions.The Directors are required to refund to the Company all National Insurance contributions payable at exercise. During the year the Directors exercised share options as follows: Name Options exercised Andrew Troup Gary Young 118,246 27,500 At date of exercise market price was 305.5p in respect of Mr Troup and 336.75p in respect of Mr Young. The total gain at dates of exercise was £236,764. The Directors’ individual share options are detailed in the Directors’ report on page 59. No further options have been granted to the Executive Directors following the adoption of the LTIP. Benefits The Executive Directors participate in a Company money purchase (defined contribution) scheme for which the Employer Contribution is 15%. Executive Directors can also participate in the all-employee Inland Revenue Share Incentive Plan (SIP).The SIP gives employees the opportunity to purchase up to £1,500 of shares a year with the Company providing one additional matching share for every employee purchased share.The total participation in the SIP scheme is 33% of eligible employees. The Executive Directors also receive the following additional benefits: n healthcare; n life assurance and dependants’ pensions; n disability schemes; and n company car or car allowance. Shareholding guideline Shareholdings across the Executive Directors and Senior Executives are not uniform.The Remuneration Committee has, therefore, introduced two years ago shareholding guidelines to encourage long- term share ownership by the Executives. The guidelines encourage Executive Directors to build up and retain a holding of shares.The Remuneration Committee believes this forms a stable incentive pay platform on which to build a responsible relationship between shareholders, the Executives and the Company. It is intended that the Executives will be able to build up the necessary shareholding by their participation in the LTIP. If the shareholding requirement is not proportionately satisfied the Remuneration Committee may take this into account when determining the levels of future awards under the LTIP. Name Alan Hearne Gary Young Andrew Troup Peter Dowen Phil Williams Recommended Shareholding Requirement as Percentage of Salary 150% 100% 100% 100% 100% rpsgroup.com is liable to make a payment to Executive Directors is on cessation of employment. Executive Director are detailed on page 34 and pages 40-43. Potential payment in event of Company takeover or liquidation Potential termination payment Name 12 months’ notice Alan Hearne Peter Dowen 12 months’ notice Andrew Troup 12 months’ notice 12 months’ notice Gary Young 12 months’ notice Phil Williams Nil Nil Nil Nil Nil The Company’s articles state that a Director shall retire at the first Annual General Meeting after the date of his seventieth birthday, and then must face annual election thereafter. All Directors face election at least every three years. Non-Executive Directors The fees paid to the Non-Executive Directors are determined by the Board and aim to be competitive with other fully listed companies of equivalent size and complexity.The Chairman of the Company receives a higher fee than the other Non- Executive Directors and Committee Chairmen and the Senior Independent Director receive an additional payment.The fees paid to the Chairman and each Non- Details of the terms of appointment of the serving Non-Executive Directors are set out in the table below: Name Unexpired term of contract as at 31 Dec Initial Contract date 2008 (months) Brook Land September 1997 Roger Devlin Karen McPherson John Bennett Louise Charlton April 2002 June 2005 June 2006 May 2008 Annual Review 28 29 6 29 Since the year end John Bennett's contract has been extended for a further three year term. Non-Executive Directors are not entitled to participate in the pension plan or the performance based pay schemes including annual bonus and share schemes.Terms and conditions of appointment of Non- Executive Directors are available for inspection by any person at the Company’s registered office and at the AGM. 52 Corporate Governance continued Service contracts The Company’s policy on the duration of service contracts is that: n Executive Directors should have rolling service contracts terminable on no more than one year’s notice served by the Company or the Director; and n Non-Executive Directors are appointed for fixed terms of three years, renewable on agreement of both the Company and the Director. The policy on termination payments is that the Company does not make payments beyond its contractual obligations, including any payment in respect of notice to which a Director is entitled after mitigation is considered. None of the Directors’ contracts provide for automatic payments in excess of one year. None of the Directors’ contracts provide for liquidated damages. In the year ended 31 December 2008, no compensation was paid to any Director resigning from the Board. Details of the Directors’ service contracts are included in the table below. The table below shows that the only event on the occurrence of which the Company Performance Graph The graph shows a comparison of the total shareholder return from the Company’s shares for each of the last five financial years against the total shareholder return for the companies comprising the FTSE All Share, the FTSE All Share Support Services sector and the comparator group.The Remuneration Committee has selected these benchmarks as they provide a good indication of the Company’s general performance. Report and Accounts 2008 Total shareholderreturn from 1st January 2004200420052006200720082602402202001801601401201008060RPS Group - Tot Return IndFTSE All Share - Tot Return IndFTSE All Share Support SVS£- Tot Return Ind Executive: Alan Hearne Gary Young Andrew Troup Peter Dowen Phil Williams Non-Executive: Basic salary £000s 395 200 200 228 260 Brook Land Roger Devlin Karen McPherson John Bennett Louise Charlton (appointed 22/05/08) Total 2008 Total 2007 – – – – – 1,283 1,180 Emoluments excluding pensions Pension (paid and provided) Bonus £000s Fees £000s Benefits £000s 2008 £000s 2007 £000s 2008 £000s 2007 £000s 325 132 99 85 154 – – – – – 795 713 – – – – – 87 32 35 32 20 206 183 19 10 10 10 15 – – – – – 64 61 739 342 309 323 429 87 32 35 32 20 2,348 – 696 301 232 343 382 87 32 32 32 – – 2,137 – 30 30 34 39 – – – – – 133 – – 27 29 33 33 – – – – – – 122 The total Directors’ emoluments were £2,348,000 (2007: £2,137,000) excluding pension contributions. Directors’ emoluments and compensation The following disclosures on Directors’ remuneration and share incentives have been audited as required by part 3 of Schedule 7A of the Companies Act 1985. The table above sets out details of the emoluments and compensation received during the year by each Director. Share awards The tables on pages 59 and 60 set out details of the audited share options and LTIPs held by each Director during the year. A description of the terms and conditions of the scheme are held on pages 50-51. The Company operates its share schemes within the dilution limits specified by the ABI. Pensions The Executive Directors of the Company earned pensions benefits in a company money purchase (defined contribution) scheme apart from Phil Williams whose pension benefits are in a Group Personal Pension plan (defined contribution) during the year. An Ordinary Resolution to approve this report will be proposed at the Company’s Annual General Meeting on 1 May 2009. This report was approved by the Board on 4 March 2009. Signed on behalf of the Board Karen McPherson Chairman of the Remuneration Committee 4 March 2009 53 rpsgroup.com 54 Remuneration Report Corporate Governance continued Audit Committee The Audit Committee has written terms of reference set out below.These are also available on the Group website. It reviews the draft financial statements prior to submission to the Board and monitors and makes recommendations to the Board regarding the Group’s accounting policies and considers significant matters relating to internal control procedures. The Audit Committee keeps the scope and cost effectiveness of the external audit under review. In order to ensure the independence of its auditors is not prejudiced in any way, the Board has maintained a policy that the auditors, BDO Stoy Hayward LLP, will not, other than in exceptional circumstances, be used to undertake any assignment for the Group or any part of the Group not related to the audit, tax issues and the review of Interim Results. If the Executives believe exceptional circumstances do exist, the appointment of the auditors for some other assignment needs to be specifically approved in advance by the Audit Committee.The Audit Committee keeps non-audit services under review.This policy applies to all the territories in which the Group operates.The split between audit and non-audit fees for the year under review appears on page 74. The Company has in place formal whistleblowing procedures which allow staff of the Company to, in confidence, raise concerns about possible improprieties in matters of financial reporting and other issues.These procedures are reviewed by the Audit Committee and are as follows: n any employee wishing to raise a concern regarding internal controls, accounting or audit matters may do so with the Senior Non-Executive Director, Roger Devlin, or the Company Secretary, Nicholas Rowe; n any concerns raised will be treated in confidence, and will be investigated and any action proposed reported to the Audit Committee; and Report and Accounts 2008 n the person raising the concern need not disclose their identity. However, it would be of greater benefit in investigating the situation if the person raising the concern identifies himself or herself. If their identity is disclosed their identity will not be passed on by the person receiving the complaint without the individual’s consent. Audit Committee - Terms of Reference Committee composition, capabilities and meetings The Committee shall comprise two Independent Non-Executive Directors (with a quorum of two), appointed by the Board, all of whom possess an adequate understanding of the financial management and reporting requirements of publicly quoted companies. The Board will appoint a suitably qualified Director other than the Chairman to chair the Committee.The Company Secretary is secretary to the Committee. The Committee shall meet at least twice per annum and may invite to attend: the Chief Executive and the Finance Director, representatives of the external auditors and anyone else who may assist the Committee from time to time. Current membership: John Bennett (Chairman) and Roger Devlin.The Company Secretary attends all meetings. Relationship between the Committee and the Board The RPS Group Plc Board: n reviews and agrees terms of reference put forward by the Audit Committee; n considers changes to the terms of reference when recommended by the Committee; n receives prompt summary reports after each meeting of the Committee; n is advised of matters for its attention at other times as deemed necessary by the Committee; n will refer matters to the Committee for its attention as necessary; n reviews annually the Committee’s policies, practices and performance; and n ensures that funds are available to the Committee for external advice when needed, which shall be obtained via an Executive Director. Committee authority The Committee shall have the authority to consider any matters relating to the financial affairs of the Group. The Committee shall have the authority to request relevant information from any employee and employees shall be expected to respond accordingly. The Committee may take external professional advice with respect to its responsibilities and duties. The Committee shall have no executive responsibilities with respect to implementation of its recommendations. Committee responsibilities and duties Financial matters The Committee shall review accounting policies and practices used by the Group, as well as information to be published to the London Stock Exchange prior to its submission to the Board. The Committee shall ensure that the information presented by the Group supports a balanced, clear and understandable view of its financial position and prospects. External audit The Committee shall make recommendations to the Board with respect to the appointment of external auditors and will take steps necessary to satisfy itself about the continuing independence of relevant firms. The Committee shall review the level of external audit fees. The Committee shall review the scope of, approach to and findings from external audit work. 55 The Committee shall discuss with the external auditors any proposed changes in accounting policies. The Committee Chairman will liaise directly with the external auditors in order to ensure a full understanding of any issues that arise from their work and will report to the Committee accordingly. Risk management Internal controls The Committee shall review the means by which sound systems of internal control are maintained across the Group and shall review reports on the effectiveness of those systems. Internal audit The Committee shall review at least annually the internal audit function and will make appropriate recommendations to the Board. Other risk management systems The Committee shall consider the adequacy of other systems which help to manage the Group’s exposures to damage or loss. Nomination Committee - Terms of Reference The Committee meets as required, but not less than once a year, and comprises three Independent Non-Executive Directors.The Company Secretary attends all meetings. Its responsibilities include reviewing the Board structure, size and composition, nominating candidates to the Board when vacancies arise and recommending Directors who are retiring by rotation to be put forward for re- election. An external search consultancy was used in recruiting the Non-Executive Director who joined the Board during the year. The Nomination Committee’s written terms of reference are set out below: Membership Notice of meetings The Committee shall be appointed by the Board and shall comprise of a Chairman and at least two other members. A majority of members of the Committee shall be Independent Non-Executive Directors. The Board shall appoint the Committee Chairman. In the absence of the Committee Chairman and/or an appointed deputy, the remaining members present shall elect one of their number to chair the meeting. If a regular member is unable to act due to absence, illness or any other cause, the Chairman of the Committee may appoint another Director of the Company to serve as an alternate member having due regard to maintaining the required balance of Executive and Independent Non- Executive members. Care should be taken to minimise the risk of any conflict of interest that might be seen to give rise to an unacceptable influence. Current membership: Brook Land (Chairman), Louise Charlton and Karen McPherson. Secretary The Company Secretary shall act as the Secretary of the Committee and attend all meetings. Quorum The quorum necessary for the transaction of business is two. A duly convened meeting of the Committee at which a quorum is present shall be competent to exercise all or any of the authorities, powers and discretions vested in or exercisable by the Committee. Frequency of meetings The Committee shall meet not less than once a year and at such other times as the Board or any member of the Committee shall require. Meetings of the Committee shall be summoned by the Secretary of the Committee at the request of the Chairman of the Committee. Unless otherwise agreed, notice of each meeting confirming the venue, time and date together with an agenda of items to be discussed, shall be forwarded to each member of the Committee no fewer than five working days prior to the date of the meeting. As far as practical meetings shall be held before or after meetings of the Main Board. Minutes of meetings The Secretary shall minute the proceedings and resolutions of all Committee meetings, including the names of those present and in attendance. Minutes of Committee meetings shall be circulated to all members of the Committee and to the Chairman of the Board and made available on request to other members of the Board. Annual General Meeting The Chairman of the Committee shall attend the Annual General Meeting prepared to respond to any shareholder questions on the Committee’s activities. The terms and conditions of appointment of Non-Executive Directors should be made available for inspection by any person at the Company’s registered office and at the AGM. Duties The Committee shall: n regularly review the structure, size and composition of the Board and make recommendations to the Board with regard to any adjustments that are deemed necessary; n prepare a description of the role and capabilities required for a particular appointment; rpsgroup.com n concerning any matters relating to the continuation in office as a Director of any Director at any time; and n concerning the appointment of any Director to Executive or other office other than to the positions of Chairman and Chief Executive, the recommendation for which would be considered at a meeting of: n all the Non-Executive Directors regarding the position of Chief Executive; n all the Directors regarding the position of Chairman; and n detailing items that should be published in the Company’s Annual Report relating to the activities of the Committee. Authority The Committee is authorised to seek any information it requires from any employee of the Company in order to perform its duties. The Committee is authorised to obtain, at the Company’s expense, outside legal or other professional advice on any matters within its terms of reference. 56 Corporate Governance continued n be responsible for identifying and nominating for the approval of the Board candidates to fill Board vacancies as and when they arise; n satisfy itself with regard to succession planning, that the processes and plans are in place with regard to the Board and senior appointments; n assess and articulate the time needed to fulfil the role of Chairman, Senior Independent Director and Non- Executive Director, and undertake an annual performance evaluation to ensure that all members of the Board have devoted sufficient time to their duties; n ensure on appointment that a candidate has sufficient time to undertake the role and review his commitments; and n ensure that the Secretary on behalf of the Board has formally written to any appointees, detailing the role and time commitments and proposing an induction plan produced in conjunction with the Chairman. It shall also make recommendations to the Board: n with regard to the Chairman having assessed every three years whether the present incumbent shall continue in post, taking into account the needs of continuity versus freshness of approach; n as regards the reappointment of any Non-Executive Director at the conclusion of his or her specified term of office; especially when they have concluded their second term; n for the continuation (or not) in service of any Director who has reached the age of 70; n concerning the re-election by shareholders of any Director under the “retirement by rotation” provisions in the Company’s articles of association; Report and Accounts 2008 Accounts Accounts 57 Report of the Directors | Report of the Independent Auditors | | Consolidated Income Statement Consolidated Statement of Recognised Income and Expense | | | Notes to the Consolidated Financial Statements | Accounts | 57 58 63 64 64 65 66 67 | 102 Notes to the Parent Company Financial Statements | 103 Five Year Summary | 111 Consolidated Balance Sheet Consolidated Cash Flow Statement Parent Company Balance Sheet rpsgroup.com Report of the Directors The Directors present their report together with the audited financial statements for the year ended 31 December 2008. Results and dividend The income statement is set out on page 64 and shows the profit for the year. The Directors recommend a final dividend of 1.91p (2007: 1.66p) per share. This together with the interim dividend of 1.75p (2007: 1.52p) per share paid on 23 October 2008 gives a total dividend of 3.66p (2007: 3.18p) per share for the year ended 31 December 2008. Principal activities and business review Business review information can be found within the Business Review (pages 7 to 19) which reports on RPS Group’s principal activities and performance during the past year and prospects for the future. Financial key performance indicators can be found on pages 4 to 5. The Board does not use non- financial key performance indicators to assess the Group as a whole, but component parts of the Group do use non-financial key performance indicators from time to time. The principal operating subsidiary undertakings are listed in Note 6 to the Parent Company Financial Statements. The Business Review contains certain forward looking statements with respect to the financial condition, results of operations and businesses of RPS. These statements involve risk and uncertainty because they relate to events and depend upon circumstances that may occur in the future. There are a number of factors that could cause actual results or developments to 58 Co-operative Asset Management Threadneedle Investments Legal & General Investment Management Neuberger Berman Bank of America Corporation Aegon Asset Management Impax Asset Management Directors differ materially from those expressed or implied by these forward looking statements.The current uncertainty in global economic outlook inevitably increases the risks to which the Group is exposed. Nothing in the Business Review should be construed as a profit forecast. Principal risks and uncertainties The principal risks and uncertainties are reported on page 21 in the Risk Management section of the Operating and Financial Review. Substantial shareholdings The Company is aware of the following interests in excess of 3% of the ordinary share capital of the Company as at 24 February 2009: No. of shares Percentage 16,590,856 12,282,283 9,538,976 7,245,901 7,208,251 6,978,244 6,612,780 7.77 5.76 4.47 3.40 3.38 3.27 3.10 The Directors of the Company during the year and their beneficial interests in the ordinary share capital of the Company were: Brook Land Roger Devlin Karen McPherson John Bennett Louise Charlton (appointed 22 May 2008) Alan Hearne Peter Dowen Andrew Troup Phil Williams Gary Young Report and Accounts 2008 No. of shares at 31/12/08 and at 04/03/09 No. of shares at 31/12/07 and at 06/03/08 30,000 30,000 – – – 482,030 575,910 269,266 350,000 27,500 30,000 – – – – 732,030 750,910 269,266 350,000 – The share options of the Directors under the Executive share option scheme are set out below: Director Alan Hearne Peter Dowen Andrew Troup Gary Young 1 Jan 2008 number 62,500 28,157 32,500 15,051 24,123 24,123 35,000 35,000 35,000 35,000 14,437 14,437 27,500 13,720 Exercised number – – – – 24,123 24,123 35,000 35,000 – – – – 27,500 – 31 Dec 2008 number 62,500 28,157 32,500 15,051 – – – – 35,000 35,000 14,437 14,437 – 13,720 Exercise price Market value at date of exercise Date from which exercisable Expiry date 111.0p 146.5p 111.0p 146.5p 171.0p 171.0p 149.0p 149.0p 111.0p 111.0p 146.5p 146.5p 111.0p 146.5p – – – – 305.5p 305.5p 305.5p 305.5p – – – – 20/3/2008 12/8/2008 20/3/2015 12/8/2015 20/3/2008 12/8/2008 20/3/2015 12/8/2015 6/3/2004 6/3/2006 14/3/2005 14/3/2007 20/3/2006 20/3/2008 12/8/2006 12/8/2008 – – – – 20/3/2013 20/3/2015 12/8/2013 12/8/2015 336.75p _ 20/3/2008 12/8/2008 – 12/8/2015 59 rpsgroup.com Report of the Directors continued The LTIP awards of the Directors are set out below: Director Alan Hearne 60 Peter Dowen Andrew Troup Phil Williams Gary Young 1 Jan 2008 number 178,417 145,652 124,893 – 86,331 68,478 60,222 – 75,540 60,326 53,378 – 57,065 60,222 – 66,906 55,434 49,272 – 2005 2006 2007 2008 2005 2006 2007 2008 2005 2006 2007 2008 2006 2007 2008 2005 2006 2007 2008 Value of grant at date of grant £000s Granted number Released 31 Dec 2008 number Market Value Market Value Market Value of release £000s at date of release of Shares at Grant 248 268 365 395 120 126 176 137 105 111 156 120 105 176 192 93 102 144 160 – – – 127,419 – – – 44,129 – – – 38,709 – – 61,935 – – – 51,612 178,417 – – – 86,331 – – – 75,540 – – – – – – 66,906 – – – – 145,652 124,893 127,419 – 68,478 60,222 44,129 – 60,326 53,378 38,709 57,065 60,222 61,935 – 55,434 49,272 51,612 139.0p 184.0p 292.3p 310p 139.0p 184.0p 292.3p 310p 139.0p 184.0p 292.3p 310p 184.0p 292.3p 310p 139.0p 184.0p 292.3p 310p 341.75p 610 – – – – – – 341.75p 295 – – – – – – 341.75p 258 – – – – – – – – – – – – 341.75p 229 – – – – – – The total value of LTIP awards released in 2008 was £1,392,000 (2007: £2,046,000). Report and Accounts 2008 61 The market price of the shares at 31 December 2008 was 140p and the range during the financial year was 103.25p to 344.75p. None of the Directors were materially interested in any significant contract to which the Company or any of its subsidiaries were party during the year. Employees The Group’s policies in relation to employees are disclosed on pages 15 to 17. Charitable and community donations During the year the Group made charitable donations of £420,822 to non-political organisations.Total contributions including contributions in kind amounted to £588,943. Supplier payment policy The Group has due regard to the payment terms of suppliers and settles all undisputed accounts in accordance with payment terms agreed with the supplier. At the year end the Group had 36 days’ purchases outstanding in respect of payments to suppliers and sub-contractors (2007: 31 days). At the year end the Company had 26 days’ purchases outstanding in respect of payments to suppliers and sub-contractors (2007: 39 days). Going concern The financial statements have been prepared on a going concern basis as the Directors have a reasonable expectation that the Group has adequate resources to continue in business for the foreseeable future. Directors’ responsibilities statement The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company, for safeguarding the assets, for taking reasonable steps for the prevention and detection of fraud and other irregularities and for the preparation of a Directors’ Report and Remuneration Report which comply with the requirements of the Companies Act 1985. Financial statements are published on the Group’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 accuracy of the Group’s website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein. Each of the persons who is a Director at the time of this report confirms that: n so far as the Director is aware, there is no relevant audit information of which the Company's auditors are unaware; and n the Director has taken all the steps that he or she ought to have taken as a Director in order to make himself/herself aware of any relevant audit information and to establish that the Company's auditors are aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of the Companies Act 1985. The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with the Companies Act 1985.The Directors are also required to prepare financial statements for the Group in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and Article 4 of the IAS Regulation.The Directors have chosen to prepare financial statements for the Company in accordance with UK Generally Accepted Accounting Practice. Group financial statements International Accounting Standard 1 requires that financial statements present fairly for each financial year the Group’s financial position, financial performance and cash flows.This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board’s ‘Framework for the Preparation and Presentation of Financial Statements’. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRS. A fair presentation also requires the Directors to: n consistently select and apply appropriate accounting policies; n present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; and n provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance. Parent company financial statements Company law requires the Directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to: n select suitable accounting policies and then apply them consistently; n make judgements and estimates that are reasonable and prudent; n state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and n prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors confirm that they have complied with the above requirements in preparing the financial statements. rpsgroup.com Additional information The following additional information is provided for shareholders as a result of the implementation of the Takeover Directive into UK Law. As at 31 December 2008 the Company’s issued share capital consisted of 213,286,497 ordinary shares of 3p each. On a show of hands at a general meeting of the Company every holder of ordinary shares present in person is entitled to vote on a show of hands and on a poll every member present in person or by proxy and entitled to vote has one vote for every ordinary share held. There are no shares in issue which carry special rights with regard to control of the Company. There are no restrictions on the transfer of ordinary shares in the Company other than those that may be imposed by law or regulation from time to time. The Company’s Articles of Association may be amended by special resolution at a general meeting of the shareholders. Directors are appointed by ordinary resolution at a general meeting of the shareholders.The Board can appoint a Director but anyone so appointed must be elected by an ordinary resolution at the next general meeting. Any Director who has held office for more than three years since their last appointment must offer themselves for re-election at the next annual general meeting. The Directors have power to manage the Company’s business subject to the provision of the Company’s Articles of Association, law and applicable regulations. The Directors have power to issue and buyback shares in the Company pursuant to the terms and limitations of resolutions passed by shareholders at each annual general meeting of the Company. New Articles are being proposed at this year’s Annual General Meeting which have some impact on the rights attaching to the Company’s shares. Explanatory notes relating to these changes are included in the notice of this meeting which accompanies this report. Directors’ interests in the share capital of the Company are shown in the table on page 58. Substantial shareholder interests of which the Company is aware are shown on page 58. The Company is party to a number of commercial agreements which, in line with normal practice in the industry, may be affected by a change of control following a takeover bid. None of these agreements are, however, considered to be of material significance.There are no agreements between the Company and its directors or employees providing for compensation for loss of office of employment that occurs because of a takeover bid. Annual General Meeting The Annual General Meeting will be held on 1 May 2009.The Notice of Annual General Meeting circulated with this Report and Accounts contains a full explanation of the business to be conducted at that meeting.This includes a resolution to re-appoint BDO Stoy Hayward LLP as the Company's Auditors. By order of the Board Nicholas Rowe Secretary 4 March 2009 62 Report of the Directors continued Directors’ responsibility statement pursuant to DTR 4 The Directors confirm that to the best of their knowledge: n the financial statements, prepared in accordance with International Financial Reporting standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and n the 'Business Review' includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, and that the 'Risk Management' report includes a description of the principal risks and uncertainties that they face. Financial instruments Information about the Group’s management of financial risk can be found in notes 28 to 31 of the consolidated financial statements. Capital management The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to stakeholders through the optimisation of the debt and equity balance.The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 14 to the consolidated financial statements, cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in notes 19 to 21. Post balance sheet events There are no significant post balance sheet events to report. Report and Accounts 2008 Report of the Independent Auditors To the shareholders of RPS Group Plc We have audited the group and parent company financial statements (the ‘’financial statements’’) of RPS Group Plc for the year ended 31 December 2008 which comprise the consolidated income statement, the consolidated and parent company balance sheets, the consolidated cash flow statement, the consolidated statement of recognised income and expense and the related notes.These financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the directors’ remuneration report that is described as having been audited. Respective responsibilities of directors and auditors The directors’ responsibilities for preparing the annual report and group financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union, and for preparing the parent company financial statements and directors’ remuneration report in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the statement of directors’ responsibilities. Our responsibility is to audit the financial statements and the part of the directors’ remuneration report to be audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part of the directors’ remuneration report to be audited have been properly prepared in accordance with the Companies Act 1985 and whether, in addition, the group financial statements have been properly prepared in accordance with Article 4 of the IAS Regulation. We also report to you whether, in our opinion, the information given in the directors’ report is consistent with the financial statements. In addition we report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed. We review whether the corporate governance statement reflects the company’s compliance with the nine provisions of the 2006 Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the group’s corporate governance procedures or its risk and control procedures. We read other information contained in the annual report and consider whether it is consistent with the audited financial statements.This other information comprises only the Report of the Directors, the Five Year Summary and the Business Review and Management and Governance sections, excluding that part of the Remuneration Report to be audited. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Our report has been prepared pursuant to the requirements of the Companies Act 1985 and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of the Companies Act 1985 or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the part of the directors’ remuneration report to be audited. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial 63 statements, and of whether the accounting policies are appropriate to the group’s and company’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the directors’ remuneration report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the directors’ remuneration report to be audited. Opinion In our opinion: n the group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the group’s affairs as at 31 December 2008 and of its profit for the year then ended; n the group financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation; n the parent company financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the parent company’s affairs as at 31 December 2008; n the parent company financial statements and the part of the directors’ remuneration report to be audited have been properly prepared in accordance with the Companies Act 1985; and n the information given in the directors’ report is consistent with the financial statements. BDO Stoy Hayward LLP Chartered Accountants and Registered Auditors 55 Baker Street London W1U 7EU 4 March 2009 rpsgroup.com Consolidated Income Statement Revenue Recharged expenses Fee income Operating profit Finance costs Finance income 64 Profit before tax and amortisation of acquired intangibles Amortisation of acquired intangibles Profit before tax Tax expense Profit for the year attributable to equity holders of the parent Basic earnings per share (pence) Diluted earnings per share (pence) Basic earnings per share before amortisation of acquired intangibles (pence) Diluted earnings per share before amortisation of acquired intangibles (pence) Year ended 31 Dec 2008 £000s Year ended 31 Dec 2007 £000s 470,465 (78,369) 392,096 58,862 (4,424) 384 57,512 (2,690) 54,822 362,674 (57,566) 305,108 47,975 (3,792) 296 45,010 (531) 44,479 (16,933) (13,569) 37,889 30,910 18.00 17.75 18.92 18.66 14.99 14.78 15.17 14.95 Notes 2 2 2 2, 3 4 4 7 8 8 8 8 Consolidated Statement of Recognised Income and Expense Year ended 31 Dec 2008 £000s Year ended 31 Dec 2007 £000s 23,811 (573) 23,238 37,889 61,127 5,787 743 6,530 30,910 37,440 Exchange differences Tax recognised directly in equity Income and (expense) recognised directly in equity Profit for the year Total recognised income for the year attributable to equity holders of the parent Report and Accounts 2008 Consolidated Balance Sheet Assets Non-current assets Intangible assets Property, plant and equipment Deferred tax assets Current assets Trade and other receivables Cash at bank Liabilities Current liabilities Borrowings Deferred consideration Trade and other payables Corporation tax liabilities Provisions Net current assets Non-current liabilities Borrowings Deferred consideration Other creditors Deferred tax liabilities Provisions Net assets Equity Share capital Share premium Other reserves Retained earnings Total shareholders’ equity 65 As at 31 Dec 2008 £000s 264,733 24,575 – 289,308 157,607 17,088 174,695 456 16,585 87,868 2,688 1,417 109,014 65,681 45,187 11,463 417 6,746 3,569 67,382 287,607 6,399 95,531 43,551 142,126 287,607 Notes 9 10 18 12 14 16 13 17 14 16 18 17 20 20 20, 21 20 20 As at 31 Dec 2007 £000s 210,839 21,706 114 232,659 119,504 10,884 130,388 174 8,939 62,750 3,434 595 75,892 54,496 43,340 10,453 1,320 – 4,508 59,621 227,534 6,319 93,225 17,516 110,474 227,534 These financial statements were approved and authorised for issue by the Board on 4 March 2009. The notes on pages 67 to 110 form part of these financial statements. Dr Alan Hearne, Director Gary Young, Director On behalf of the Board of RPS Group Plc. rpsgroup.com Consolidated Cash Flow Statement 66 Cash generated from operations Interest paid Interest received Income taxes paid Net cash from operating activities Cash flows from investing activities Purchases of subsidiaries net of cash acquired Deferred consideration Purchase of property, plant and equipment Sale of property, plant and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from issue of share capital Proceeds from sale of own shares (Repayments)/proceeds from bank borrowings Payment of finance lease liabilities Dividends paid Payment of pre-acquisition dividend Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Effect of exchange rate fluctuations Cash and cash equivalents at end of year Cash and cash equivalents comprise: Cash at bank Bank overdraft Cash and cash equivalents at end of year The notes on pages 67 to 110 form part of these financial statements. Notes 25 10 22 25 Year ended 31 Dec 2008 £000s Year ended 31 Dec 2007 £000s 67,386 (3,770) 384 (15,574) 48,426 (22,332) (8,854) (5,935) 1,094 (36,027) 464 – (2,174) (117) (7,211) (1,471) (10,509) 1,890 10,884 3,933 16,707 17,088 (381) 16,707 45,393 (3,967) 296 (12,925) 28,797 (15,758) (10,846) (5,811) 4,239 (28,176) 1,730 1,293 3,001 (149) (6,144) – (269) 352 9,805 727 10,884 10,884 – 10,884 Report and Accounts 2008 67 Notes to the Consolidated Financial Statements 1. Significant accounting policies RPS Group Plc (the “Company”) is a company domiciled in England. The consolidated financial statements of the Company for the year ended 31 December 2008 comprises the Company and its subsidiaries (together referred to as the “Group”). The consolidated financial statements were authorised for issuance on 4 March 2009. (a) Basis of preparation The Group has prepared its annual financial statements in accordance with International Financial Reporting Standards (IFRS) as endorsed by the European Union and implemented in the UK. The financial statements are presented in pounds sterling, rounded to the nearest thousand. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements. (b) Basis of consolidation Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The Group’s consolidated financial statements incorporate the financial statements of the Company together with those of subsidiaries from the date control commences to the date that control ceases. Intragroup balances, and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the financial statements. (c) Foreign currency i Foreign currency transactions Transactions in foreign currency are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to pounds sterling at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in income. amount at the date of that revaluation, an exemption allowed under IFRS 1. ii Financial statements of foreign operations ii Leased assets The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to pounds sterling at the exchange rate ruling at the balance sheet date.The revenues and expenses of foreign operations are translated to pounds sterling at rates approximating the foreign exchange rates ruling at the dates of the transactions. Foreign exchange differences arising on retranslation are recognised directly in the translation reserve. iii Net investment in foreign operations Exchange differences arising from the translation of the net investment in foreign operations are taken to translation reserve. They are recycled and taken to income upon disposal of the operation.The Company has elected, in accordance with IFRS 1, that in respect of all foreign operations, any differences that have arisen before 1 January 2004 have been set to zero. iv Foreign currency forward contracts Foreign currency forward contracts are initially recognised at nil value, being priced- at-the-money at origination. Subsequently they are measured at fair value (determined by price changes in the underlying forward rate, the interest rate, the time to expiration of the contract and the amount of foreign currency specified in the contract). Changes in fair value are recognised in income as they arise. (d) Property, plant and equipment i Owned assets Items of property, plant and equipment are stated at cost or deemed cost less accumulated depreciation (see below) and impairment losses (see accounting policy (h)). Certain items of property, plant and equipment that had been revalued to fair value on or prior to 1 January 2004, the date of transition to IFRS, are measured on the basis of deemed cost, being the revalued Leases which contain terms whereby the Group assumes substantially all the risks and rewards incidental to ownership of the leased item are classified as finance leases. Assets acquired under a finance lease are capitalised at the inception of the lease at fair value of the leased assets, or if lower, the present value of the minimum lease payments. The land and buildings elements of property leases are considered separately for the purposes of lease classification. Obligations under finance leases are included in liabilities net of finance costs allocated to future periods. All other leases are classified as operating leases and are not capitalised. Lease payments are accounted for as described in accounting policy note (o). iii Subsequent costs The Group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred if it is probable that the future economic benefits embodied within the item will flow to the Group and the cost of the item can be measured reliably. All other costs are recognised in the income statement as incurred. iv Depreciation Depreciation is charged to income on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Land is not depreciated.The estimated useful lives are as follows: Freehold buildings 50 years Alterations to leasehold premises Motor vehicles Fixtures, fittings, IT and equipment Life of lease 4 years 3 to 8 years rpsgroup.com 68 1. Significant accounting policies continued (e) Intangible assets i Goodwill All business combinations are accounted for by applying the purchase method. Goodwill has been recognised in acquisitions of subsidiaries and the business, assets and liabilities of partnerships.The Board has elected, in accordance with IFRS 1, that the date from which it applies IFRS 3 shall be 26 June 2002. In respect of business combinations that have occurred since that date, goodwill represents the difference between the cost of the acquisition and the fair value of the identifiable assets acquired. In respect of acquisitions prior to this date, goodwill is included on the basis of its deemed cost, which represents the amount recorded under previous GAAP. The classification and accounting treatment of business combinations that occurred prior to 26 June 2002 has not been restated in preparing the Group’s opening IFRS balance sheet at 1 January 2004, in accordance with IFRS.1. Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is tested annually for impairment (see accounting policy (h)). ii Other intangible assets Intangible assets other than goodwill that are acquired by the Group are stated at cost less accumulated amortisation (see below) and impairment losses (see accounting policy (h)). Intangible assets identified in a business combination are capitalised at fair value at the date of acquisition if they are separable from the acquired entity or give rise to other contractual/legal rights.The fair values ascribed to such intangibles are arrived at by using appropriate valuation techniques. Expenditure on internally generated goodwill and brands is recognised in income as an expense as incurred. iii Subsequent expenditure Subsequent expenditure on capitalised intangible assets is capitalised only when it Report and Accounts 2008 increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred. recorded at a revalued amount in which case it is treated as a revaluation decrease to the extent that a surplus has previously been recorded. iv Amortisation Amortisation is charged to profit or loss on a straight-line basis from the date that the intangible assets are available for use over their estimated useful lives unless such lives are indefinite.The estimated useful lives of the Group’s intangible assets range between 4 and 15 years. Impairment losses recognised in respect of cash generating units are allocated first to reduce the carrying value of goodwill allocated to the cash generating unit and then to reduce the carrying amount of the other assets in the unit on a pro-rata basis. Goodwill was tested for impairment at 31 December 2007 and 31 December 2008. (f) Trade and other receivables i Calculation of recoverable amount Trade and other receivables are stated at their amortised cost less impairment losses (see accounting policy (h)).Trade and other receivables are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Impairment losses are taken to the income statement as incurred. (g) Cash and cash equivalents Cash at bank comprises cash balances and call deposits with an original maturity of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purposes of the statement of cash flows. Cash is a loan and receivable and is carried at amortised cost. (h) Impairment The carrying amount of the Group’s assets, other than deferred tax assets, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the assets’ recoverable amount is estimated. For goodwill the recoverable amount is estimated at each annual balance sheet date. An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement unless the asset is The recoverable amount is the greater of the net selling price and value in use. In assessing value in use, 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 asset. ii Reversals of impairment An impairment loss in respect of goodwill is not reversed. In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the assets carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (i) Employee benefits i Defined contribution plans Obligations for contributions to defined contribution retirement benefit plans are recognised as an expense in the income statement as incurred. ii Share-based payment transactions The Group operates a range of equity settled share option and conditional share award schemes for employees. The Company has applied IFRS 2 to all share options and conditional share awards which were granted to employees and had not vested as at 1 January 2005. 69 The fair value of the employee services received in exchange for the grant of options or conditional share awards is recognised as an expense to the income statement. Fair value has been determined by using IFRS accepted valuation methodologies (see below). The amount expensed to the income statement over the vesting period is determined by reference to the fair value of the options and conditional share awards, excluding the impact of any non-market vesting conditions. Non-market vesting conditions are included in assumptions about the number of options and conditional share awards that are expected to vest. At each balance sheet date the Group revises its estimates of the number of options and conditional share awards that are expected to vest.The impact of the revision of original estimates, if any, is recognised in the income statement, with a corresponding adjustment to equity, over the remaining vesting period. No adjustment is made for failure to achieve market vesting conditions. The fair value of options granted under the Executive Share Option Scheme (“ESOS”) and Save As You Earn (“SAYE”) scheme have been calculated using a binomial model taking into account the following inputs: n the exercise price of the option; n the life of the option; n the market price on the date of grant of the option; n the expected volatility of the share price; n the dividends expected on the shares; and n the risk free interest rate for the life of the option. The fair value of conditional share awards have been calculated using the market value of the shares on the date of grant adjusted for any non-entitlement to dividends over the vesting period and market based performance conditions such as total shareholder return. iii Accrued holiday pay Provision is made at each balance sheet date for holidays accrued but not taken, to the extent that they may be carried forward, calculated at the salary of the relevant employee at that date. (j) Provisions A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, when appropriate, the risks specific to the liability. A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. (k) Trade and other payables Trade and other payables are recognised on inception at fair value and then carried at amortised cost. Where deferred consideration is in the form of shares and the number of shares to be issued is fixed, the fair value is credited to equity under the heading “Shares to be issued”. (n) Revenue Revenue from services rendered is recognised in income in proportion to the stage of completion of the transaction at the balance sheet date. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due or associated costs. An expected loss on a contract is recognised immediately in the income statement. Revenue includes expenses recharged to clients. Such expenses include mileage, accommodation, planning applications, counsels’ fees and fees from sub-consultants charged on at low margin. Revenue which has been recognised but not invoiced by the balance sheet date is included in trade and other receivables in accrued income. Amounts invoiced in advance are included in trade and other payables within deferred income. (o) Expenses (l) Borrowings i Operating lease payments Bank overdrafts and interest bearing loans are initially measured at fair value and then held at amortised cost. Obligations under finance leases are dealt with in accordance with accounting policy note (o). (m) Deferred consideration Deferred consideration arises when settlement of all or any part of the cost of a business combination is deferred. It is stated at fair value at the date of acquisition, which is determined by discounting the amount due to present value at that date. Interest is imputed on the fair value of non interest bearing deferred consideration at the discount rate and expensed within interest payable and similar charges. At each balance sheet date deferred consideration comprises the remaining deferred consideration valued at acquisition plus interest imputed on such amounts from acquisition to the balance sheet date. Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense. ii Finance lease payments Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability.The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. iii Interest payable and similar charges Finance costs comprise interest payable on bank overdrafts and loans, interest imputed on deferred consideration (see accounting policy (m)) and interest on finance leases. rpsgroup.com 70 Notes to the Consolidated Financial Statements continued 1. Significant accounting policies continued iv Interest receivable Finance income comprises interest receivable on funds invested. (p) Income tax Income tax on the income for the periods presented comprises current and deferred tax. Income tax is recognised in income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.The following temporary differences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit and the differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. In accordance with IAS12, deferred tax is taken directly to equity to the extent that the intrinsic value of the outstanding share awards (based on the closing share price) is greater than the share based payment expense already charged to the income statement.The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend. (q) Dividends In the case of Dividends are recognised when they become legally payable. interim dividends to equity shareholders, this is when they are paid. In the case of final dividends, this is when approved by the shareholders at the AGM. (r) Employee Share Ownership Plan (ESOP) As the Company is deemed to have control of its ESOP trust, it is treated as a subsidiary and consolidated for the purpose of the Group accounts. The ESOP’s assets (other than investments in the Company’s shares), liabilities, income and expenses are included on a line-by-line basis in the Group financial statements. The ESOP’s investment in the Company’s shares is deducted from shareholders’ funds in the Group balance sheet as if they were treasury shares, except that profits on the sale of ESOP shares are not credited to the share premium account. (s) Key accounting estimates and judgements In the process of applying the Group’s accounting policies described above, management has made the following judgements, which have the most significant effect on the amounts recognised in the financial statements. Any other estimates or judgements are made as described in the accounting policies above. i Intangible assets As described in accounting policy (e) above, the Group recognises certain intangible assets on acquisition other than Judgements are made in respect goodwill. of useful lives and valuation methods affecting the carrying value and amortisation charges in respect of these assets. ii Goodwill As described in accounting policy (e) above, the Group undertakes annual impairment reviews of goodwill. Judgements in respect of discount and growth rates are made in respect of these assets. These judgements are shown in note 9. iii Revenue recognition In The Group’s revenue recognition policy is stated in accounting policy note (n). some cases, judgement is required to determine the appropriate proportion of the services performed to date on the contract and the extent to which fees will be recoverable. Actual results could differ from these estimates. Any subsequent changes are accounted for with an effect on income at the time such updated information becomes available. (t) Accounting standards issued but not adopted During the year, the IASB and the IFRIC issued additional standards which are effective for periods starting after the date of these financial statements.The following standards and interpretations have yet to be adopted by the Group: n Amended IAS 1 “Presentation of financial statements: a revised presentation” n Amended IFRS 2 “Share based payment: vesting conditions and cancellations” n Revised IFRS 3 “Business combinations” n IFRS 8 “Operating segments” n IFRIC 11 “Group and treasury share transactions” The Directors anticipate that the adoption of these standards will have no material impact upon the results or net assets of the Group other than disclosure. Report and Accounts 2008 71 2. Business and geographical segments Segment information is presented in the financial statements in respect of the Group’s business segments, which are the primary basis of segment reporting.The business segment reporting format reflects the Group’s management and internal reporting structure. Inter-segment pricing is determined on an arm’s length basis. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Business segments The Group comprises the following business segments: Planning & Development - consultancy services in the UK, Ireland, Australia and US related to town and country planning, urban design, architecture, transport planning and highway design, environmental impact assessment and provision of water and waste utilities and energy infrastructure. Segment results for the year ended 31 December 2008 Revenue Recharged expenses Fee income Underlying profit Redundancy cost Amortisation of acquired intangibles Segment result Unallocated expenses Operating profit Planning & Development £000s Environmental Management £000s Energy £000s Eliminations £000s Consolidated £000s 206,521 (41,341) 165,180 30,316 (1,013) (1,057) 28,246 107,967 (15,226) 92,741 13,841 – (970) 12,871 161,388 (21,802) 139,586 25,842 – (663) 25,179 (5,411) – (5,411) – – – – 470,465 (78,369) 392,096 69,999 (1,013) (2,690) 66,296 (7,434) 58,862 Segment results for the year ended 31 December 2007 Planning & Development £000s Environmental Management £000s Energy £000s Eliminations £000s Consolidated £000s Revenue Recharged expenses Fee Income Underlying profit Amortisation of acquired intangibles Segment result Unallocated expenses Operating profit 164,972 (26,721) 138,251 26,209 (296) 25,913 83,199 (12,754) 70,445 9,174 (80) 9,094 119,327 (18,091) 101,236 18,662 (155) 18,507 (4,824) – (4,824) – – – 362,674 (57,566) 305,108 54,045 (531) 53,514 (5,539) 47,975 rpsgroup.com Notes to the Consolidated Financial Statements continued 2. Business and geographical segments continued Segmental balance sheet as at 31 December 2008 Segment assets Segment liabilities Other information Capital additions Depreciation and amortisation 72 Planning & Development £000s 245,096 52,178 Environmental Management £000s 95,612 31,259 Energy £000s 115,927 31,315 Unallocated Corporate £000s 7,368 61,644 Consolidated £000s 464,003 176,396 2,239 3,496 2,326 3,305 930 1,452 449 549 5,944 8,802 Segmental balance sheet as at 31 December 2007 Segment assets Segment liabilities Other information Capital additions Depreciation and amortisation Revenue by Geographical Market Planning & Development £000s 190,403 42,126 Environmental Management £000s 68,338 16,219 2,408 2,463 1,573 1,502 Energy £000s 86,854 26,423 774 751 Unallocated Corporate £000s 17,452 50,745 Consolidated £000s 363,047 135,513 1,094 573 5,849 5,289 2008 £000s 178,835 132,136 159,494 470,465 2007 £000s 154,365 94,395 113,914 362,674 Carrying amount of segment assets 31 Dec 2007 £000s 31 Dec 2008 £000s Additions to property, plant and equipment and intangible assets Year ended 31 Dec 2007 £000s Year ended 31 Dec 2008 £000s 249,046 128,811 86,146 464,003 222,949 90,939 49,159 363,047 32,703 7,966 5,518 46,187 9,393 1,305 21,949 32,647 UK Eurozone Rest of the World UK Eurozone Rest of the World Report and Accounts 2008 3. Operating profit - by nature of expense Revenue Recharged Expenses Fee Income Staff costs Depreciation and amortisation Other operating costs Operating profit The following items have been included in arriving at profit: Depreciation of property plant and equipment – owned assets – under finance leases Amortisation of intangible assets Profit on disposal of fixed assets Redundancy costs Provision for dilapidations Operating lease provision Other operating lease rentals payable – property – equipment and motor vehicles Operating sublease income receivable 4. Net financing costs Finance costs Interest on loans, overdraft and finance leases Interest imputed on deferred consideration Interest payable on deferred consideration Finance income Deposit interest receivable Net financing costs 73 Year ended 31 Dec 2008 £000s 470,465 (78,369) 392,096 (187,280) (8,802) (137,152) 58,862 Year ended 31 Dec 2008 £000s 6,076 36 2,690 179 1,013 – – 5,969 3,367 111 Year ended 31 Dec 2007 £000s 362,674 (57,566) 305,108 (143,353) (5,289) (108,491) 47,975 Year ended 31 Dec 2007 £000s 4,493 265 531 3,224 – 2,514 585 5,711 2,764 199 Year ended 31 Dec 2008 £000s Year ended 31 Dec 2007 £000s (3,121) (793) (510) (4,424) 384 (4,040) (2,838) (655) (299) (3,792) 296 (3,496) rpsgroup.com Notes to the Consolidated Financial Statements continued 5. Employee benefit expense Staff costs (including Directors’ emoluments) consist of: Wages and salaries Social security costs Pension costs - defined benefit plan Pension costs - defined contribution plans Share based payment expense - equity settled 74 Average monthly number of employees (including Executive Directors) was: Professional Support Details of directors’ remuneration are included on page 53. 6. Auditors’ remuneration Year ended 31 Dec 2008 £000s 161,676 15,983 – 6,827 2,794 187,280 3,609 829 4,438 Year ended 31 Dec 2007 £000s 123,078 12,794 21 5,318 2,142 143,353 3,386 707 4,093 During the year, the Group (including its overseas subsidiaries) obtained the following services from the Group’s auditors at costs as detailed below: Year ended 31 Dec 2008 £000s Principal auditors Audit services Statutory audit of the Group’s annual accounts Statutory audit of the Group’s subsidiaries Other services Network firms of principal auditors Audit services Statutory audit of the Group’s subsidiaries Other auditors Corporate finance Tax services Compliance services Other services Audit services Statutory audit Tax services 92 103 25 162 193 – 3 36 30 644 Report and Accounts 2008 Year ended 31 Dec 2007 £000s 83 92 26 116 160 30 4 34 41 586 7. Income taxes Analysis of charge in the year Current tax UK Corporation tax Foreign tax Deferred tax expense Tax expense for the year Analysis of charge/(credit) to equity Current tax on share based payments Deferred tax on share based payments Tax expense in equity for the year The charge for the year can be reconciled to the profit per the income statement as follows: Profit before tax Tax at the UK effective rate of 28.5% (2007: 30%) Expenses not deductible for tax purposes Different tax rates applied in overseas jurisdictions Utilisation of previously unrecognised tax losses Effect of change in tax rates Prior year adjustments Total tax expense for the year 75 2008 £000s 7,046 7,465 14,511 2,422 16,933 (398) 971 573 2008 £000s 54,822 15,624 924 424 – (4) (35) 16,933 2007 £000s 7,817 5,394 13,211 358 13,569 (1,437) 694 (743) 2007 £000s 44,479 13,344 505 (407) (7) 153 (19) 13,569 rpsgroup.com Notes to the Consolidated Financial Statements continued 8. Earnings per share The calculations of basic and diluted earnings per share were based on the profit attributable to ordinary shareholders and a weighted average number of ordinary shares outstanding during the related period as shown in the tables below: Profit attributable to ordinary shareholders 76 Weighted average number of ordinary shares for the purposes of basic earnings per share Effect of shares to be issued as deferred consideration Effect of employee share schemes Weighted average number of ordinary shares for the purposes of diluted earnings per share Basic earnings per share (pence) Diluted earnings per share (pence) Year ended 31 Dec 2008 £000s 37,889 000s 210,546 886 2,049 213,481 18.00 17.75 Year ended 31 Dec 2007 £000s 30,910 000s 206,256 92 2,827 209,175 14.99 14.78 The directors consider that earnings per share before amortisation of acquired intangibles provides a more meaningful measure of the Group’s performance than statutory earnings per share.The calculation of basic and diluted earnings per share before amortisation were based on the weighted average number of ordinary shares outstanding during the year as shown above and the profit attributable to ordinary shareholders before the amortisation on acquired intangibles assets and the tax thereon as shown in the table below: Year ended 31 Dec 2008 £000s 37,889 2,690 (752) 39,827 18.92 18.66 Year ended 31 Dec 2007 £000s 30,910 531 (159) 31,282 15.17 14.95 Profit attributable to ordinary shareholders Amortisation of acquired intangibles Tax on amortisation of acquired intangibles Adjusted profit attributable to shareholders Basic earnings per share before amortisation (pence) Diluted earnings per share before amortisation (pence) Report and Accounts 2008 9. Intangible assets Intellectual Property Rights £000s Customer Relationships £000s Order backlog £000s Cost At 1 January 2008 Additions Adjustment to prior year estimates Foreign exchange differences At 31 December 2008 201 – – – 201 Aggregate amortisation and impairment losses At 1 January 2008 Amortisation Foreign exchange differences At 31 December 2008 Net book value at 31 December 2008 201 – – 201 – 4,872 12,727 2,508 2,248 22,355 672 1,607 108 2,387 19,968 – 1,682 – – 1,682 – 469 – 469 1,213 Trade names £000s – 1,206 – 121 1,327 – 614 86 700 627 Goodwill £000s Total £000s 218,860 24,628 (2,488) 14,146 255,146 12,221 – – 12,221 242,925 223,933 40,243 20 16,515 280,711 13,094 2,690 194 15,978 264,733 77 Cost At 1 January 2007 Additions Reduction in deferred consideration Adjustment to prior year estimates Foreign exchange differences At 31 December 2007 Aggregate amortisation and impairment losses At 1 January 2007 Amortisation Foreign exchange differences At 31 December 2007 Net book value at 31 December 2007 Intellectual property rights £000s Customer relationships £000s Goodwill £000s Total £000s 201 – – – – 201 201 – – 201 – 2,104 2,610 – – 158 4,872 129 531 12 672 4,200 187,175 27,188 (58) 771 3,784 218,860 12,221 – – 12,221 206,639 189,480 29,798 (58) 771 3,942 223,933 12,551 531 12 13,094 210,839 rpsgroup.com Notes to the Consolidated Financial Statements continued 9. Intangible assets continued Adjustment to prior year estimates Acquisitions in 2007 were originally stated at provisional fair values.These fair values have now been finalised.The main adjustment to prior year estimates was the recognition of a customer relationship intangible of £2,508,000 in respect of JD Consulting.The corresponding entry was a reduction in goodwill.These adjustments 78 Planning & Development Great Britain Ireland (Southern) Ireland (Northern) Other Environmental Management Great Britain Netherlands Other Energy have not been adjusted in the prior year balance sheet on grounds of immateriality in accordance with IAS 8. Of the adjustment to 2007 prior year estimates, £644,000 related to the recognition of deferred tax liabilities, £77,000 related to additional consideration and £50,000 related to a reduction in the fair value of investments. Goodwill acquired in a business combination is allocated at acquisition to the cash generating units that are expected to benefit from that business combination. The carrying amount of goodwill has been allocated as follows: 31 Dec 2008 £000s 31 Dec 2007 £000s 74,177 43,336 7,856 13,502 138,871 25,529 10,533 12,753 48,815 55,239 69,465 33,902 7,856 5,594 116,817 20,785 6,838 10,256 37,879 51,943 242,925 206,639 past practices and expectations of future changes in the respective markets. The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management and extrapolates cash flows for the following four years and assumes a perpetuity based terminal value. The Group tests annually for impairment, or more frequently if there are indications that goodwill might be impaired. The recoverable amounts of the cash generating units have been determined from value in use calculations.The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to charge out rates during the period. Management estimates discount rates using post-tax rates that reflect current market assessments of the time value of money and the risks specific to the cash generating units.The Group used a discount rate of 9.8% based on its WACC. Growth rates are based on management’s expectations of future business volumes and range from 2% to 5% per annum. Changes in charge out rates are based on Report and Accounts 2008 10. Property, plant and equipment Cost or valuation At 1 January 2008 Additions through acquisition Additions Disposals Foreign exchange differences At 31 December 2008 Depreciation At 1 January 2008 Provided for the year Disposals Foreign exchange differences At 31 December 2008 Net book value at 31 December 2008 Freehold land and buildings £000s Alterations to leasehold premises £000s 11,042 – – (1,080) 2,180 12,142 1,839 207 (170) 272 2,148 9,994 1,211 57 403 (109) 74 1,636 557 228 (109) 49 725 911 Fixtures, fittings IT and equipment £000s 43,155 729 5,435 (5,802) 3,691 47,208 31,849 5,448 (5,812) 2,534 34,019 13,189 Motor vehicles £000s 1,276 68 106 (170) 127 1,407 733 229 (124) 88 926 481 Total £000s 56,684 854 5,944 (7,161) 6,072 62,393 34,978 6,112 (6,215) 2,943 37,818 24,575 79 At 31 December 2008 the Group had motor vehicles and office equipment held under finance lease contracts with net book values of £111,000 and £2,000 respectively. Cost or valuation At 1 January 2007 Additions through acquisition Additions Disposals Foreign exchange differences At 31 December 2007 Depreciation At 1 January 2007 Provided for the year Disposals Foreign exchange differences At 31 December 2007 Net book value at 31 December 2007 Net book value at 31 December 2006 Freehold land and buildings £000s Alterations to leasehold premises £000s 11,218 97 – (851) 578 11,042 1,651 216 (88) 60 1,839 9,203 9,567 918 38 297 (84) 42 1,211 412 168 (28) 5 557 654 506 Fixtures, fittings IT and equipment £000s 34,790 2,153 5,390 (402) 1,224 43,155 27,063 4,158 (258) 886 31,849 11,306 7,727 Motor vehicles £000s 1,250 86 162 (262) 40 1,276 706 216 (212) 23 733 543 544 Total £000s 48,176 2,374 5,849 (1,599) 1,884 56,684 29,832 4,758 (586) 974 34,978 21,706 18,344 At 31 December 2007, the Group had motor vehicles and office equipment held under finance lease contracts with net book values of £236,000 and £6,000 respectively. rpsgroup.com Notes to the Consolidated Financial Statements continued 11. Subsidiaries A list of the significant subsidiaries, including the name, country of incorporation, proportion of ownership interests is given in Note 6 to the Parent Company’s financial statements on page 106. 12.Trade and other receivables 80 Trade receivables Less provision for impairment of trade receivables Trade receivables net Accrued income Less provision for impairment of accrued income Accrued income net Prepayments Other debtors 31 Dec 2008 £000s 117,433 (6,143) 111,290 41,536 (4,136) 37,400 6,555 2,362 157,607 31 Dec 2007 £000s 84,593 (2,695) 81,898 30,581 (2,383) 28,198 6,150 3,258 119,504 All amounts shown under trade and other receivables fall due within one year. All amounts shown under trade and other The carrying value of trade and other receivables is considered a reasonable approximation of fair value. receivables fall due within one year. found to be impaired and a provision of £6,143,000 (2007: £2,695,000) has been recorded accordingly. Certain accrued The Group’s trade and other receivables have been reviewed for signs of impairment. Certain trade receivables were found to be impaired The carrying value of trade and other Certain trade receivables are past due but income balances have been found to be and a provision of £[x] (2006:£[x]) has been recorded accordingly. Certain accrued income balances have been found to be impaired and receivables is considered a reasonable have not been impaired.These relate to impaired and a provision of £4,136,000 a provision of £[x] (2006: £[x]) have been recorded against them.The individually impaired balances mainly relate to customers who are approximation of fair value. customers where we have no history of experiencing unexpected financial difficulties. (2007: £2,383,000) has been recorded default and no concerns over their financial The Group’s trade and other receivables against them. Certain trade and other receivables are past due but have not been impaired.These relate to customers where we have no history of situation.The ages of financial assets past have been reviewed for signs of default and no concerns over their financial situation.The age of financial assets past due but not impaired is as follows: impairment. Certain trade receivables were due but not impaired is as follows: relate to items under discussion with customers. The individually impaired balances mainly Ageing Not more than three months More than three months 2008 £000s 15,375 16,906 32,281 Movements in impairment Trade Receivables Accrued income £000s £000s As at 1 January 2008 Income statement charge Receivables written off during the year as uncollectible Additions through acquisition Foreign exchange As at 31 December 2008 As at 1 January 2007 Income statement charge Receivables written off during the year as uncollectible Foreign exchange As at 31 December 2007 Report and Accounts 2008 2,695 3,098 (164) 117 397 6,143 2,272 582 (98) (61) 2,695 2,383 2,398 (1,220) 0 575 4,136 2,259 1,906 (1,891) 109 2,383 2007 £000s 9,811 10,350 20,161 Total £000s 5,078 5,496 (1,384) 117 972 10,279 4,531 2,488 (1,989) 48 5,078 12.Trade and other receivables continued The carrying amounts of the Group’s trade and other receivables are denominated as follows: UK Pound Sterling Euro US Dollar Canadian Dollar Australian Dollar Other 31 Dec 2008 £000s 63,045 51,058 24,899 5,887 10,794 1,924 157,607 31 Dec 2007 £000s 62,238 35,330 10,516 2,867 8,248 305 119,504 81 The maximum exposure to credit risk at the reporting date is the carrying amount of each class of receivable mentioned above. 13.Trade and other payables Trade creditors Creditors for taxation and social security Other creditors Deferred income Accruals Year ended 31 Dec 2008 £000s Year ended 31 Dec 2007 £000s 23,042 13,555 3,476 14,408 33,387 87,868 17,446 11,638 2,154 6,142 25,370 62,750 All amounts shown under trade and other payables fall due for payment within one year. The carrying values of trade and other payables are considered to be a reasonable approximation of fair value. rpsgroup.com Notes to the Consolidated Financial Statements continued 14. Borrowings Bank loans Bank overdraft Finance lease creditor 82 31 Dec 2008 £000s 45,174 381 88 45,643 Bank loans 2008 £000s Other loans 2008 £000s Total 2008 £000s Bank loans 2007 £000s Other loans 2007 £000s The borrowings are repayable as follows: On demand or in not more than one year In the second year In the third to fifth years inclusive Less amount due for settlement within 12 months Amount due for settlement after 12 months 407 – 45,148 45,555 407 45,148 49 27 12 88 49 39 456 27 45,160 45,643 456 45,187 62 57 43,227 43,346 62 43,284 112 31 25 168 112 56 31 Dec 2007 £000s 43,346 _ 168 43,514 Total 2007 £000s 174 88 43,252 43,514 174 43,340 The principal features of the Group’s borrowings are as follows: (i) An uncommitted £2,000,000 bank overdraft facility, repayable on demand. (ii) The Group has one principal bank facility which is a revolving credit facility of £100,000,000, incorporating a bonding facility, with Lloyds TSB Bank plc, the Group’s principal bank, expiring in 2013. Loans carry interest equal to LIBOR plus a margin determined by reference to the total bank borrowing of the Group. Since the year end the facility has been increased to £125,000,000. There were loans drawn totalling £45,148,000 (2007: £43,227,000) and bonding facility utilisation of £6,316,000 (2007: £3,926,000) at 31 December 2008. The facility is guaranteed by the Company and certain subsidiaries but no security over the Group’s assets exists. The carrying amounts of short term borrowings approximate their fair values as the impact of discounting is not significant. The carrying amounts of our long term borrowings also approximate fair value. Loan liquidity risk profile 2008 2007 < 1 year 2 years 3-5 years 1,303,839 1,303,839 48,459,132 51,066,810 2,614,346 2,614,346 47,252,061 52,480,753 The liquidity risk profile above shows the expected cashflows in respect of the Group’s loan facilities assuming that the loan balance at year end remains constant until expiry of the facilities. It also assumes that interest and foreign exchange rates remain constant at the rates existing at the year end for that period. Report and Accounts 2008 15. Obligations under finance leases Amounts payable under finance leases: Minimum lease payments 2008 £000s 54 42 96 Within one year In two to five years Less future interest charges 2008 £000s (5) (3) (8) Present value of minimum lease payments 2008 £000s 49 39 88 Minimum lease payments 2007 £000s 121 61 182 Less future interest charges 2007 £000s (9) (5) (14) Present value of minimum lease payments 2007 £000s 112 56 168 83 During the year the Group was assigned a number of motor vehicles under finance lease agreements as part of its acquired businesses.The For the year ended 31 December 2008, the average lease term is three years. average effective borrowing rate was 7%. Interest rates are fixed at the contract date. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments. The carrying amount of obligations under finance leases is considered to be a reasonable approximation of fair value. The Group’s obligations under finance leases are secured by the lessors’ rights over the leased assets. 16. Deferred consideration The liability in respect of deferred consideration comprises shares and interest bearing and non-interest bearing cash obligations due to the vendors of acquired businesses. 31 Dec 2008 £000s Cash due within one year: Interest bearing Non-interest bearing Shares due within one year Cash due between one and two years: Interest bearing Non-interest bearing Shares due between one and two years Cash due between two and five years: Interest bearing Non-interest bearing Total deferred consideration payable Less amount due for settlement within 12 months Amount due for settlement after 12 months 7,525 8,440 620 16,585 4,517 4,386 620 9,523 1,940 – 1,940 28,048 16,585 11,463 31 Dec 2007 £000s 2,366 6,573 – 8,939 2,666 5,583 – 8,249 – 2,204 2,204 19,392 8,939 10,453 Deferred consideration is recorded at present value calculated with reference to the local LIBOR rates of the acquisitions concerned.The movement in fair value is taken through the profit and loss in the financing costs line. rpsgroup.com Notes to the Consolidated Financial Statements continued 17. Provisions Property Property Warranty Dilapidations The provision for property costs relates to operating lease rentals and related costs on vacated property and will be utilised within [7] This provision is in respect of the pre- The provision for property costs relates to years. acquisition contractual obligations of operating lease rentals and related costs on acquired entities and contractual obligations vacated property and will be utilised within Warranty of existing entities and will be utilised within 6 years. This provision is in respect of the pre-acquisition contractual obligations of acquired entities and will be utilised within 8 years. [9] years. This provision is in respect of reinstatement obligations related to leasehold properties and will be utilised within 17 years. Property £000s Warranty £000s Dilapidations £000s 2,698 176 (711) 346 189 2,698 2008 £000s 1,417 3,569 4,986 2008 £000s 114 (2,421) (971) – (3,380) – (88) (6,746) 84 As at 1 January 2008 Additional provision in the year Utilised in year On acquisition of subsidiary Exchange difference At 31 December 2008 Due as follows: Within one year After more than one year 1,764 27 (657) – 203 1,337 641 423 (139) – 26 951 The carrying value of the provisions disclosed above is a reasonable approximation of their fair value. 18. Deferred taxation The movement for the year in the Group’s net deferred tax position was as follows: At 1 January Charge to income for the year Charge to equity for the year Effect of change in tax rate Asset acquired on acquisition of subsidiary Fair value adjustments to prior year acquisitions Exchange differences At 31 December Report and Accounts 2008 Total £000s 5,103 626 (1,507) 346 418 4,986 2007 £000s 595 4,508 5,103 2007 £000s 2,465 (336) (694) (22) (621) (644) (34) 114 85 18. Deferred taxation continued Deferred tax assets At 1 January 2007 Reclassifications Charge to income for the year Charge to equity for the year Effect of change in tax rate Asset acquired on acquisition of subsidiary Fair value adjustments to prior year acquisitions Exchange differences At 31 December 2007 Reclassifications Charge to income for the year Charge to equity for the year Asset acquired on acquisition of subsidiary Exchange differences At 31 December 2008 Deferred tax liabilities At 1 January 2007 Charge to income for the year Charge to equity for the year Effect of change in tax rate Asset acquired on acquisition of subsidiary Fair value adjustments to prior year acquisitions Exchange differences At 31 December 2007 Reclassifications Charge to income for the year Asset acquired on acquisition of subsidiary Exchange differences At 31 December 2008 Depreciation in excess of capital allowances £000s Employment benefits £000s Tax losses £000s Provisions £000s Share based payments £000s 813 (27) 168 – (42) (405) (36) 16 487 426 (194) – 5 28 752 895 14 (434) – (24) 343 – 11 805 – 5 – 62 44 916 51 – 14 – (3) – – 1 63 – (35) – – – 28 17 13 468 – (50) (70) – (34) 344 211 (286) 179 28 476 Foreign exchange on investments £000s Revaluation of properties £000s Tax deductible goodwill £000s – – – – – – – – (211) (1,416) – – (1,627) (251) – – – – – (23) (274) – – – (87) (361) (1,392) (381) 49 128 (288) (608) – (2,492) (417) (56) (3,775) (34) (6,774) 2,557 – (391) (743) (31) – – – 1,392 – (364) (971) – – 57 Other £000s (225) 220 – – (201) – (5) (211) (9) (75) 149 (67) (213) Total £000s 4,333 – (175) (743) (150) (132) (36) (6) 3,091 637 (874) (971) 246 100 2,229 Total £000s (1,868) (161) 49 128 (489) (608) (28) (2,977) (637) (1,547) (3,626) (188) (8,975) rpsgroup.com Notes to the Consolidated Financial Statements continued 19. Share capital Ordinary shares of 3p each 240,000,000 7,200 240,000,000 7,200 Authorised 2008 Number Authorised 2008 £000s Authorised 2007 Number Authorised 2007 £000s Issued and fully paid 2008 £000s 2008 Number Issued and fully paid 2007 £000s 2007 Number 86 Ordinary shares of 3p each At 1 January Issued under share option schemes Issued under save as you earn schemes Issued under the Share Incentive Plan Issued in respect of the Performance Share Plan Issued in respect of the Long Term Incentive Plan Issued in consideration for acquisitions during the year Issued in respect of deferred consideration related to acquisitions in prior years At 31 December 210,632,004 283,011 56,148 317,623 409,940 407,194 1,088,665 91,912 213,286,497 6,319 8 2 10 12 12 33 3 6,399 Ordinary shares held by the ESOP Trust Ordinary shares held by the SIP Trust 205,445,957 1,327,059 16,392 148,064 745,737 571,862 1,412,581 964,352 210,632,004 2008 Number 668,111 2,442,526 6,163 40 1 5 22 17 42 29 6,319 2007 Number 689,421 1,581,755 The ESOP Trust has elected to waive the dividend on the unallocated ordinary shares held. The table below shows options outstanding at 31 December 2008. There are options over 15,000 of the shares held in the ESOP Trust outstanding that are included in the table below.These are exercisable between 2005 and 2011 at an exercisable price range of 153p to 171p. Period exercisable Number Exercise price (p) 2002 - 2009 2003 - 2010 2004 - 2011 2005 - 2012 2006 - 2013 2007 - 2014 2008 - 2015 2011 - 2018 19,500 119,600 69,000 173,404 331,808 89,693 391,436 315,000 1,509,441 72 - 83 125 - 143 136 - 154 125 - 149 111 - 171 149 111 - 147 295 Please see page 62 in the Report of the Directors for details of the Group’s capital management procedures. Report and Accounts 2008 20. Statement of changes in equity At 1 January 2007 Changes in equity during 2007 Tax recognised directly in equity Exchange differences Net income recognised directly in equity Profit for the year Total recognised income and expense for the year Transfer Issue of new ordinary shares Sale of own shares Share based payment expense Tax on share based payments Expenses of issue of equity shares Shares to be issued Dividends At 31 December 2007 Changes in equity during 2008 Tax recognised directly in equity Exchange differences Net income recognised directly in equity Profit for the year Total recognised income and expense for the year Issue of new ordinary shares Share based payment expense Dividends At 31 December 2008 87 Share capital £000s 6,163 – – – – – – 156 – – – – – – 6,319 – – – – – 80 – – 6,399 Share premium £000s Retained earnings £000s Other reserves £000s Total equity £000s 89,836 79,828 11,107 186,934 – – – – – – 3,451 – – – (62) – – 93,225 – – – – – 2,306 – – 95,531 743 – 743 30,910 31,653 4,053 (1,281) 671 2,142 (448) – – (6,144) 110,474 (573) – (573) 37,889 37,316 (1,247) 2,794 (7,211) 142,126 – 5,787 5,787 – 5,787 (4,053) 4,057 622 – – – (4) – 17,516 – 23,811 23,811 – 23,811 2,224 – – 43,551 743 5,787 6,530 30,910 37,440 – 6,383 1,293 2,142 (448) (62) (4) (6,144) 227,534 (573) 23,811 23,238 37,889 61,127 3,363 2,794 (7,211) 287,607 rpsgroup.com Notes to the Consolidated Financial Statements continued 21. Other reserves 88 At 1 January 2007 Changes in equity during 2007 Exchange differences Transfer to retained earnings Issue of new shares Sale of own shares Shares to be issued At 31 December 2007 Changes in equity during 2008 Exchange differences Issue of new shares At 31 December 2008 Merger reserve £000s Employee trust £000s Share scheme £000s Shares to be issued £000s Translation reserve £000s Total other £000s 10,642 (3,042) 4,053 1,997 (2,543) 11,107 – – 6,351 – – 16,993 – 3,086 20,079 – – (523) 622 – (2,943) – (640) (3,583) – (4,053) – – – – – – (1,771) – (4) 222 5,787 – – – – 3,244 – – – – (222) – 23,811 – 27,055 5,787 (4,053) 4,057 622 (4) 17,516 23,811 2,224 43,551 The following describes the nature and purpose of each reserve within equity: Reserve Description and purpose Share premium Premium on shares issued in excess of nominal value, other than on shares issued in respect of acquisitions when merger relief is taken. Merger reserve Premium on shares issued in respect of acquisitions when merger relief is taken. Employee trust Own shares held by the SIP and ESOP trusts. Shares to be issued Shares to be issued in respect of deferred consideration, where the number of shares to be issued is fixed. Share scheme Cumulative expense of equity settled share based payments recognised in the consolidated income statement.The share scheme reserve has been transferred into retained earnings during the period. Translation reserve Cumulative gains/losses arising on retranslating the net assets of overseas operations into sterling. Retained earnings Cumulative net gains and losses recognised in the consolidated income statement and statement of recognised income and expense. Report and Accounts 2008 22. Dividends Amounts recognised as distributions to equity holders during the period: Final dividend for the year ended 31 December 2007 of 1.66p (2006: 1.44p) per share Interim dividend for the year ended 31 December 2008 of 1.75p (2007: 1.52p) per share Proposed final dividend for the year ended 31 December 2008 of 1.91p (2007: 1.66p) per share Year ended 31 Dec 2008 £000s 3,498 3,713 7,211 4,088 Year ended 31 Dec 2007 £000s 2,967 3,177 6,144 3,496 89 The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in the financial statements. 23. Operating lease arrangements At 31 December 2008, the Group’s total remaining commitments as lessee under non-cancellable operating leases for certain of its office properties and motor vehicles was as follows: Commitments Within one year In two to five years After five years Operating leases - lessor Property 2008 £000s 6,815 19,914 22,876 49,605 Property 2007 £000s 5,761 15,724 18,905 40,390 Other 2008 £000s 2,961 3,677 – 6,638 Other 2007 £000s 2,474 3,166 – 5,640 Certain properties have been vacated prior to the end of the lease term. Where possible the Group always endeavours to sub-lease such vacant space on short term lets.The sub lease rental income during the year ended 31 December 2008 was £111,000 (2007: £199,000). The minimum rent receivable under non-cancellable operating leases is as follows: Receivables Within one year In two to five years After five years 2008 £000s 127 260 36 423 2007 £000s 189 473 58 720 rpsgroup.com Notes to the Consolidated Financial Statements continued 24. Related party transactions Related parties as defined by IAS 24, are the subsidiary companies and members of the Executive Board.Transactions between the the Company and its subsidiaries have been Related parties, as defined by IAS 24, are Company and its subsidiaries have been eliminated on consolidation and are not disclosed in this note.There were no transactions within eliminated on consolidation and are not the subsidiary companies and members of the year in which the Directors had any interest. disclosed in this note.There were no the Executive Board.Transactions between transactions within the year in which the Directors had any interest. 25. Notes to the Consolidated Cash Flow Statement 90 Profit before tax Adjustments for: Interest payable and similar charges Interest receivable Depreciation Amortisation of acquired intangibles Share based payment expense Profit on sale of property, plant and equipment Provision for dilapidations Provision for onerous lease Increase in trade and other receivables Increase in trade and other payables Cash generated from operations Year ended 31 Dec 2008 £000s Year ended 31 Dec 2007 £000s 54,822 4,424 (384) 6,112 2,690 2,794 (179) – – (8,175) 5,282 67,386 44,479 3,792 (296) 4,758 531 2,142 (3,224) 2,514 585 (14,018) 4,130 45,393 The table below provides an analysis of net borrowings, comprising cash and cash equivalents, interest bearing bank loans and finance leases, during the year ended 31 December 2008. At 31 Dec 2007 £000s 10,884 (43,346) (168) (32,630) Cash flow £000s Other £000s 1,890 2,174 117 4,181 _ _ (38) (38) Foreign Exchange £000s At 31 Dec 2008 £000s 3,933 (4,002) 1 (68) 16,707 (45,174) (88) (28,555) Cash and cash equivalents Bank loans Finance lease creditor Net borrowings 26. Major non-cash transactions Part of the consideration for the purchase of the subsidiary undertakings that occurred during the year comprised the issue of shares. Further details of the acquisitions are set out in Note 27 Report and Accounts 2008 91 27. Acquisitions The Group completed the acquisition of ten companies during 2008. Each purchase has been accounted for as an acquisition. Prior to completion of the transactions each acquired business kept its own management accounts. Adding the results shown in these accounts to the Group results produces Group revenue for the period of £478,306,000 and Group operating profit after amortisation of acquired intangibles of £56,081,000. All intangible assets were recognised at their respective fair values.The residual excess over the net assets acquired, including intangible assets, is recognised as goodwill in the financial statements. Date of acquisition Place of incorporation Percentage of entity acquired Nature of business acquired 6 Feb 2008 Kraan Consulting Holding BV 12 Mar 2008 RW Gregory LLP 17 Mar 2008 WTW and Associates Ltd 19 Mar 2008 Oceanfix International Ltd 27 Mar 2008 Land Management Unit Trust (“Koltasz Smith”) 30 Mar 2008 Rudall Blanchard Associates Group Ltd 16 Apr 2008 The GeoCet Group LLC 18 Sep 2008 Mountainheath Services Ltd Paras Ltd 9 Oct 2008 Business and Environmental Communications Ltd 12 Dec 2008 UK USA UK UK Ireland The Netherlands 100% UK Assets and certain liabilities 100% UK 100% UK Australia Assets and certain liabilities Urban planning consultancy Engineering consultancy Oil and gas consultancy Oil and gas consultancy Urban planning consultancy 100% Health and safety consultancy Environmental consultancy 100% Specialist laboratory 100% 100% Oil and gas consultancy Communications consultancy 100% These businesses have been integrated with other parts of the Group and are no longer managed separately.They share resources, revenues, costs and market opportunities with other parts of the Group and should no longer be considered individual businesses.The contributions to the revenue and operating profit after amortisation of acquired intangibles to the Group’s results for the year of those entities where it is practicable to separately identify their results are given below: Kraan Consulting Holding BV Mountainheath Services Ltd Business and Environmental Communications Ltd Revenue £000s 6,046 373 39 Operating profit before amortisation £000s Operating profit £000s 728 111 4 188 87 4 It is impracticable to separately identify the revenue and operating profit contribution of the other acquisitions for the period since acquisition as these entities have been fully integrated into existing Group operations. rpsgroup.com Notes to the Consolidated Financial Statements continued 27. Acquisitions during the period continued The Group has allotted the net assets of its acquisitions provisional fair values as it did not have complete information at the balance sheet date. Details of the carrying values of the acquired net assets and the provisional fair values assigned to them by the Group are as follows: Intangible assets Customer relationships £000s Order backlog £000s Trade Other names intangibles £000s £000s Property, plant & equipment £000s Cash £000s Other assets £000s Other Net assets acquired £000s liabilities £000s Pre acquisition carrying values 92 Kraan RWG WTW Oceanfix LMT RBA Geocet Mountainheath Paras BEC Provisional fair values Kraan RWG WTW Oceanfix LMT RBA Geocet Mountainheath Paras BEC – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 2,714 2,960 – 3,121 550 1,207 – 818 1,357 – 12,727 – 1,080 190 147 – 107 – – 158 – 1,682 374 200 – – 632 – – – – – 1,206 119 – – – – – – – – – 119 – – – – – – – – – – – – 146 252 2,002 20 81 191 87 – 144 9 3 (248) 1,695 4,147 (3) 1,007 533 2,454 701 928 1,604 611 337 288 230 849 760 321 322 (955) (4,900) (455) (978) (335) (943) (774) (389) (554) (208) 933 4,861 13,677 (10,491) – 124 252 2,002 (248) 1,654 4,055 (3) 1,007 533 2,454 701 928 1,604 611 337 288 230 849 760 321 322 (1,849) (4,900) (510) (1,892) (691) (1,311) (774) (620) (976) (208) 854 4,861 13,544 (13,731) 19 25 191 87 – 144 9 3 757 1,501 569 2,090 557 1,676 174 273 1,064 438 9,099 2,769 5,649 703 4,388 1,383 2,622 174 860 2,157 438 21,143 The fair value adjustments made to the pre acquisition carrying values to determine provisional fair values relate to the alignment of depreciation accounting policies, the identification of intangibles and the deferred tax recognised on the fair value adjustments. Consideration Kraan RWG WTW Oceanfix LMT RBA Geocet Mountainheath Paras BEC Initial consideration Cash £000s Shares £000s Acquisition expenses £000s 3,009 5,200 1,344 4,491 1,857 3,460 590 1,176 3,524 1,075 25,726 – 1,700 – – – – – – 1,200 – 2,900 344 217 118 163 290 162 106 123 173 112 1,808 Fair value of deferred consideration Cash £000s 1,720 3,238 468 2,445 1,238 1,340 554 722 1,706 666 14,097 Shares consideration £000s £000s Total Net assets acquired £000s Goodwill acquired £000s – – – – – 1,240 – – – – 1,240 5,073 10,355 1,930 7,099 3,385 6,202 1,250 2,021 6,603 1,853 45,771 2,769 5,649 703 4,388 1,383 2,622 174 860 2,157 438 21,143 2,304 4,706 1,227 2,711 2,002 3,580 1,076 1,161 4,446 1,415 24,628 Report and Accounts 2008 As part of the consideration for RWG, 572,970 ordinary shares of RPS Group PLC were allotted to the vendors. As part of the deferred consideration for RBA £1,240,000 of ordinary shares in RPS Group Plc will be allotted to the vendors. Goodwill represents the value of the assembled professional workforce acquired with these businesses. Prior period acquisitions In 2007 the group acquired APA Petroleum Engineering Inc. and the Scotia Group Inc. The group has finalised the provisional fair values of the net assets of these acquisitions.The effect has been a credit to net assets on acquisition of these entities by £20,000 relating to adjustments to the fair value of the opening tax, receivables and PPE balances. On JD Consulting a customer relationship intangible of £2,508,000 has been recognised.There have been no changes to the fair values of the net assets acquired with the remainder of the 2007 acquisitions. 93 28.Derivatives and other financial instruments Set out below are the narrative disclosures relating to financial instruments.The numerical disclosures are set out in Notes 29, 30 and 31. are the most significant aspects for the Group in the area of financial instruments. It is exposed to a lesser extent to liquidity risk.The Board reviews and agrees policies for managing each of these risks and they are summarised below. Financial instruments Foreign currency risk The Group’s financial assets comprise cash and trade and other receivables which are categorised as “Loans and other receivables” and held at amortised cost. The Group’s financial liabilities comprise bank loans and trade and other payables which are categorised as “Other financial liabilities” and held at amortised cost. The fair value of the loan is determined by discounting at the loan interest rate. The Group occasionally uses forward foreign currency to manage transactional currency risks arising from the Group’s operations. It is, and has been throughout the period under review, the Group’s policy that no trading in financial instruments shall be undertaken. Foreign currency risk and interest rate risk The Group, which is based in the UK and reports in sterling, has investments in overseas operations in the Netherlands, Ireland, USA, Canada and Australia that have functional currencies other than sterling. As a result the Group’s balance sheet and income statement can be affected by movement in the exchange rate between sterling and the functional currencies of overseas operations.The most important exchange rate as far as the Group is concerned is the pound/euro rate. The Group does not hedge balance sheet and income statement translation exposures. Interest rate risk The Group draws down short term loans, that may be renewed, against its revolving credit facility principally in sterling at fixed rates of interest for the term of the loan. The Group’s overdraft bears interest at floating rates. Surplus funds are placed on short-term deposit or held within accounts bearing interest related to bank base rate. Liquidity risk The Group has strong cash flow and the funds generated by operating companies are managed on a country basis.The Group also considers its long-term funding requirements as part of the annual business planning cycle. Please see note 14 for further detail of the Group’s bank facilities. Credit risk The Group is mainly exposed to credit risk from credit sales. It is Group policy, implemented locally, to assess the credit risk of new customers before entering contracts.The Group does not enter into complex derivatives to manage credit risk. Fair values The fair value of the financial assets and liabilities of the Group are considered to be materially equivalent to their book value. Classification of financial instruments Cash Trade and other receivables Loans and other recievables Bank loans Trade and other payables Other financial liabilities 2008 £000s 17,088 157,607 174,695 45,555 87,868 133,423 2007 £000s 10,884 119,504 130,388 43,346 62,750 106,096 rpsgroup.com Notes to the Consolidated Financial Statements continued 29. Foreign currency risk The table below shows the extent to which Group companies have monetary assets and liabilities in currencies other than their own functional currency. Foreign exchange differences arising on the translation of these assets and liabilities were taken to the income statement of the Group companies during the year. Net foreign currency monetary assets/(liabilities) at 31 December 2008 Sterling £000s Euro US Dollar £000s £000s Norwegian Australian Dollar £000s Krone £000s Canadian Dollar £000s Danish Krone £000s Russian Rouble £000s Other £000s Total £000s 94 Functional currency of Group operation Sterling Euro Australian Dollar Canadian Dollar Malaysian Ringitt At 31 December 2008 – 224 111 143 – 478 (641) – 59 – – (582) 1,376 (32) (138) (279) (91) 836 325 – – – – 325 183 – – – – 183 162 – (3) – – 159 131 – – – – 131 310 – – – – 310 30 – 88 – – 118 1,876 192 117 (136) (91) 1,958 Net foreign currency monetary assets/(liabilities) at 31 December 2007 Sterling £000s Euro £000s US Dollar £000s Norwegian Krone £000s Malaysian Ringgit £000s Danish Krone £000s Other £000s Total £000s Functional currency of Group operation Sterling Euro Australian Dollar Canadian Dollar At 31 December 2007 Foreign currency sensitivity The Group considers the volatility of currency markets over the year to be representative of the foreign currency risk it is exposed to.The main exposures the Group had at year end were Euros and USD, and over the year Sterling weakened relative to them by approximately 30%. If Sterling strengthened against these currencies by 30%, the impact in respect of – (29) 113 176 260 1,337 – 33 (10) 1,360 223 90 174 381 868 116 – – – 116 – – 173 – 173 55 – – – 55 41 – 50 – 91 1,772 61 543 547 2,923 the revaluation of net foreign currency monetary assets, would be to reduce Group profit by £59,000. If Sterling had weakened against these currencies the impact would have been to increase Group profit by £109,000. These movements would have had no impact on Group equity and reserves. In 2007, the Euro was the key currency the Group was exposed to. Management considered a 10% movement in foreign exchange rates possible, which would have resulted in Group profit for 2007 decreasing by £124,000 (if Sterling strengthened against Euro) or increasing by £151,000 (if Sterling weakened). Report and Accounts 2008 30. Interest rate risk Interest rate risk and profile of financial liabilities and assets The interest rate risk profile of the Group’s financial liabilities which at 31 December 2008 comprised deferred consideration, finance lease obligations and bank loans, were as follows: Currency Sterling Euro Australian Dollar Canadian Dollar US Dollar At 31 December Floating rate financial liabilities 2007 £000s 2008 £000s Fixed rate financial liabilities 2007 £000s 2008 £000s – 257 – 124 – 381 – – – – – – 37,803 6,047 11,725 842 16,893 73,310 38,781 120 11,711 2,764 9,530 62,906 The maturity profile of financial liabilities is as follows: Floating rate financial liabilities 2007 £000s 2008 £000s Fixed rate financial liabilities 2007 £000s 2008 £000s Within one year In one to two years In two to five years 381 – – 381 – – – – 16,660 9,325 47,325 73,310 Currency Sterling Euro Australian Dollar Canadian Dollar US Dollar Weighted average interest rate % 2008 3.6 3.8 5.9 3.7 2.2 3.7 9,114 8,337 45,455 62,906 Weighted average interest rate % 2007 6.2 3.2 6.8 4.8 5.4 6.1 95 2008 £000s 37,803 6,304 11,725 966 16,893 73,691 2008 £000s 17,041 9,325 47,325 73,691 Total 2007 £000s 38,781 120 11,711 2,764 9,530 62,906 Total 2007 £000s 9,114 8,337 45,455 62,906 Weighted average period for which rate is fixed – months 2008 Fixed rate financial liabilities Weighted average period for which rate is fixed – months 2007 5 5 6 1 2 5 4 23 10 4 3 5 rpsgroup.com Notes to the Consolidated Financial Statements continued 30. Interest rate risk continued Cash balances at year end Currency Sterling Euro US Dollar Australian Dollar Canadian Dollar Other At 31 December 96 2008 £000s (1,153) 11,004 3,569 2,399 409 860 17,088 2007 £000s 1,075 4,053 4,413 432 242 669 10,884 Cash balances are held in either non-interest bearing current accounts or instant access deposit accounts bearing floating rate interest. Borrowing facilities The Group has the following undrawn committed borrowing facilities available in respect of which all conditions precedent had been met. The undrawn borrowing facilities comprise revolving credit facilities that expire between two and five years where interest costs are fixed at the time drawings are made. During 2008, the Group had an overdraft facility expiring within one year, carrying floating rate interest. Expiring in more than 2 years but not more than 5 years Interest rate sensitivity 31 Dec 2008 £000s 48,536 31 Dec 2007 £000s 20,602 The Group considers the volatility of interest rates over the year to be representative of the potential interest rate risk it is exposed to. Over 2008, the weighted average interest rates the Group pays have reduced by 2.4%. A 2.4% increase in interest rates would decrease Group profit by £1,040,000. Since base rates are unlikely to reduce to less than 0% the Group does not consider a movement of more than minus 0.5% possible. If this had occurred, it would increase Group profit by £215,000. Report and Accounts 2008 31. Credit Risk The Group’s exposure to credit risk is limited to the carrying amount of financial assets recognised at the balance sheet date, as summarised below: Class of financial asset Cash and cash equivalents Trade and other receivables 2008 £000s 17,088 148,690 165,778 2007 £000s 10,884 110,096 120,980 The directors consider the above financial assets that are not impaired to be of good credit quality including those that are past due. See In respect of trade and other receivables, The directors consider the above financial note 12 for further detail on receivables that are past due. the group is not exposed to any significant assets that are not impaired to be of good credit risk exposure to any single credit quality including those that are past None of the group’s assets are secured by collateral. counterparty or any group of due. See note 12 for further detail on In respect of trade and other receivables, the group is not exposed to any significant credit risk exposure to any single counterparty or any counterparties with similar characteristics. receivables that are past due. group of counterparties with similar characteristics. None of the group’s assets are secured The credit risk for liquid funds is considered negligible, since the counterparties are reputable banks with high quality external credit ratings. by collateral. The credit risk for liquid funds is considered negligible, since the counterparties are reputable banks with high quality external credit ratings. 97 32. Share-based payments In accordance with IFRS 2, the Group has recognised an expense to the income statement representing the fair value of outstanding equity settled share based payment awards to employees which have not vested as at 1 January 2008 for the period ended 31 December 2008. The Group has calculated the fair market value of options using a binomial model and for whole share awards the fair value has been based on the market value of the shares at the date of grant adjusted to take into account some of the terms and conditions upon which the shares were granted. Those fair values were charged to the income statement over the relevant vesting period adjusted to reflect actual and expected vesting levels. It should be noted that the Group has not relied on the exemption afforded under IFRS 1 to exclude instruments granted before 7 November 2002. Prior to 2004, the Group granted options and super options to employees under the Executive Share Option Scheme (“ESOS”) and Save as You Earn (“SAYE”) scheme. During the year, the Group made a further grant of options to employees under the ESOS. Under the ESOS, share options are granted at the market price on the date of grant with the exercise of options subject to the satisfaction of corporate performance conditions and continuity of employment provisions. For SAYE options, share options are granted at the market price on the date of grant. Employees can exercise the SAYE option at the end of their savings contract. Since 2004 the Group has incentivised and motivated employees through the grant of conditional share awards under the Long Term Incentive Plan (“LTIP”) for Executive Directors and other senior directors; the Performance Share Plan (“PSP”), for senior managers and staff, and the Share Incentive Plan (“SIP”), available to staff. Under these arrangements shares are granted at no cost to the employee.The release of shares granted under the LTIP and PSP are subject to the satisfaction of corporate performance conditions and continuity of employment provisions.The release of shares under the SIP are subject to continuity of employment provisions. The following tables set out details of share schemes activity over the year from 1 January 2008: rpsgroup.com Notes to the Consolidated Financial Statements continued 32. Share-based payments continued Share Options 98 Year of grant 1998 1999 2000 2001 2002 2003 2008 Weighted average exercise price Number outstanding 31 Dec 2007 19,500 21,000 161,100 114,623 343,975 812,464 – 1,472,662 New grants Exercised Lapsed – – – – – – 315,000 315,000 (9,000) (1,500) (21,000) (57,996) (90,921) (102,594) – (283,011) (10,500) – (1,000) – (13,957) (14,376) – (39,833) Number outstanding 31 Dec 2008 Weighted average exercise price 53p 73p 128p 166p 149p 111p – 19,500 140,600 96,500 240,347 697,494 315,000 1,509,441 Grants replaced – – 1,500 39,873 1,250 2,000 – 44,623 Vesting conditions 3 or 5 years 3 or 5 years 3 or 5 years 3 or 5 years 3 or 5 years 3 or 5 years 3 years 126p 295p 134p 109p 167p 162p The weighted average share price at the date of exercise during the period was £3.10. Number outstanding 31 Dec 2006 21,000 227,832 453,990 243,675 778,926 1,177,610 4,500 2,907,533 New grants Exercised Lapsed (1,500) – (206,832) – (274,340) – (113,552) – (373,759) – (354,576) – (2,500) – – (1,327,059) – – (18,550) (15,500) (61,192) (10,570) (2,000) (107,812) Grants replaced Number outstanding 31 Dec 2007 Weighted average exercise price – – – – – – – – 19,500 21,000 161,100 114,623 343,975 812,464 – 1,472,662 53p 73p 126p 165p 149p 116p 118p Vesting conditions 3 or 5 years 3 or 5 years 3 or 5 years 3 or 5 years 3 or 5 years 3 or 5 years 3 years 126p 125p 145p 126p 125p Year of grant 1998 1999 2000 2001 2002 2003 2004 Weighted average exercise price The weighted average share price at the date of exercise during the period was £3.33. Report and Accounts 2008 SAYE Year of grant 2003 Year of grant 2003 LTIP Year of grant 2005 2006 2007 2008 Year of grant 2004 2005 2006 2007 Number outstanding 31 Dec 2007 98,656 98,656 Number outstanding 31 Dec 06 139,704 139,704 Number outstanding 31 Dec 2007 407,194 386,596 347,987 – 1,141,777 Number outstanding 31 Dec 2006 571,862 407,194 386,596 – 1,365,652 Exercised (56,148) (56,148) Lapsed – – Exercised Lapsed (16,392) (16,392) (24,656) (24,656) Number outstanding 31 Dec 2008 42,508 42,508 Number outstanding 31 Dec 07 98,656 98,656 Exercise price Vesting conditions 147p 3 or 5 years Exercise price Vesting conditions 147p 3 or 5 years 99 New grants Releases – – – 323,804 323,804 (407,194) – – – (407,194) New grants Releases – – – 347,987 347,987 (571,862) – – – (571,862) Number outstanding 31 Dec 2008 – 386,596 347,987 323,804 1,058,387 Number outstanding 31 Dec 2007 – 407,194 386,596 347,987 1,141,777 Vesting conditions 3 years 3 years 3 years 3 years Vesting conditions 3 years 3 years 3 years 3 years rpsgroup.com 100 Notes to the Consolidated Financial Statements continued 32. Share-based payments continued PSP Year of grant 2005 2006 2007 2008 Year of grant 2004 2005 2006 2007 SIP Year of grant 2004 2005 2006 2007 2008 Year of grant 2004 2005 2006 2007 Number outstanding 31 Dec 2007 299,089 443,719 575,525 – 1,318,333 Number outstanding 31 Dec 2006 825,539 341,743 487,976 – 1,655,258 Number outstanding 31 Dec 2007 57,382 350,984 354,522 324,003 – 1,086,891 Number outstanding 31 Dec 2006 66,990 401,885 394,568 – 863,443 New grants Releases Lapses – – – 111,058 111,058 (288,335) (90,640) (30,848) (117) (409,940) (885) (13,968) (25,516) (2,554) (42,923) New grants Releases Lapses – – – 578,101 578,101 (745,737) – – – (745,737) (79,802) (42,654) (44,257) (2,576) (169,289) New grants Releases Forfeits – – – – 666,448 666,448 (57,382) (328,884) (18,799) (15,652) (10,189) (430,906) – (18,561) (33,895) (36,110) (12,465) (101,031) New grants Releases Forfeits – – 5,914 335,189 341,103 (3,516) (14,699) (11,731) (2,200) (32,146) (6,092) (36,202) (34,229) (8,986) (85,509) Number outstanding 31 Dec 2008 9,869 339,111 519,161 108,387 976,528 Number outstanding 31 Dec 2007 – 299,089 443,719 575,525 1,318,333 Number outstanding 31 Dec 2008 – 3,539 301,828 272,241 643,794 1,221,402 Number outstanding 31 Dec 2007 57,382 350,984 354,522 324,003 1,086,891 Vesting conditions 3 years 3 years 2 or 3 years 1, 2 or 3 years Vesting conditions 3 years 3 years 2 or 3 years 1, 2 or 3 years Vesting conditions 3 years 3 years 3 years 3 years Vesting conditions 3 years 3 years 3 years 3 years Report and Accounts 2008 Share Options and SAYE Options The fair values of the above equity instruments have been determined using the following criteria: been calculated as the market value of the shares on the date of grant adjusted to reflect the fact that a participant is not entitled to receive dividends over the three year performance period. In determining the charge to the income statement the Group made the following assumptions with regard to annual lapse rates as at the date of grant: Share scheme Annual lapse rate Share price on grant Expected volatility Share Options SAYE 111 - 295.25p 147p Fair value at measurement date Weighted fair value 26.8% - 31.6% 26.3% - 28.5% Holding period LTIP awards 133.12p - 301.25p 171.25p 3 years Expected life 3 or 5 years 3 or 5 years Expected dividend yield 0.88% - 1.40% ESOS SAYE LTIP PSP SIP 13% 5% 0% 5% 5% 101 144.70p - 346.32p 34. Contingent liabilities 1.45% - 1.50% 1.45% PSP Expected dividend yield Risk-free interest rate Fair value at measurement date Weighted fair value 4.1% - 5.2% 4.1% - 4.5% 33.01p - 94.22p 43.51p - 54.83p 42.93p 50.13p The volatility has been based on the annualised average of the standard deviations of the daily historical continuously compounded returns of the Group’s share price over the most appropriate period from the date of grant. The risk-free rate of interest was assumed to be the yield to maturity on a UK Gilt strip with the term to maturity equal to the expected life of the option. The expected dividend yield is an estimate of the dividend yield at the date of grant for the duration of the option’s life. LTIP For LTIP awards with a total shareholder return (“TSR”) performance condition, the fair value has been calculated as the market value of the shares on the date of grant adjusted to reflect some of the terms and conditions upon which the shares were awarded. The Group took into account the market based TSR condition and the fact that a participant is not entitled to receive dividends over the three year performance period. For LTIP awards with an earnings per share performance condition, the fair value has For the purposes of calculating the fair value of conditional shares awarded under the PSP the fair value was calculated as the market value of the shares at the date of grant adjusted to reflect the fact that a participant is not entitled to receive dividends over the performance period. PSP awards Fair value at measurement date Weighted fair value Holding period 190.70p 1, 2 or 3 years Expected dividend yield 0.76% - 1.21% SIP For the purposes of calculating the fair value of conditional shares awarded under the SIP, the fair value was calculated as the market value of the shares at the date of grant. Participants are entitled to receive dividends over the three year holding period therefore no adjustment was made to the market value. Fair value at measurement date Weighted fair value Holding period SIP awards 52.22p - 389.75p 214.89p 3 years During the year ended 31 December 2008, the Group recognised expense of £2,794,000 related to the fair value of the share based payment arrangements (year ended 31 December 2007: £2,142,000). In addition, the Group estimated that all non-market based performance conditions would be satisfied in full. 33. Events after the balance sheet date There were no material post balance sheet events. As at 31 December 2008 the Group had contingent liabilities in respect of contractual performance guarantees and other matters entered into, for or on behalf of certain Group undertakings. It is not expected that any material liability will arise in respect thereof, and the Directors estimate that the fair value of such guarantees is not material. rpsgroup.com Parent Company Balance Sheet Fixed assets Intangible assets Tangible assets Investments 102 Current assets Debtors Cash at bank and in hand Creditors: amounts falling due within one year Net current assets Total assets less current liabilities Creditors: amounts falling due after more than one year Provisions for liabilities Net assets Capital and reserves Called up share capital Share premium account Profit and loss reserve Other reserves Shareholders’ funds As at 31 Dec 2008 £000s 910 2,724 177,270 180,904 53,914 2,465 56,379 51,059 5,320 186,224 45,635 52 140,537 6,399 95,531 22,079 16,528 140,537 Note 4 5 6 7 8 9 10 12, 13 13 13 13 As at 31 Dec 2007 £000s 976 3,494 174,300 178,770 34,559 2,101 36,660 30,974 5,686 184,456 46,868 121 137,467 6,319 93,225 23,619 14,304 137,467 These financial statements were approved and authorised for issue by the Board on 4 March 2009. The notes on pages 103 to 110 form part of these financial statements. Dr Alan Hearne, Director Gary Young, Director On behalf of the Board of RPS Group Plc. Report and Accounts 2008 103 Notes to the Parent Company Financial Statements 1. Accounting policies The financial statements have been prepared under the historical cost convention as modified by the revaluation of certain assets and are in accordance with applicable UK accounting standards.The following principal accounting policies have been applied: Goodwill Goodwill arising on the acquisition of businesses, representing any excess of the fair value of the consideration given over the fair value of the identifiable assets and liabilities acquired is capitalised. Purchased goodwill is capitalised and written off on a straightline basis over its useful economic life of up to 20 years. Valuation of investments Investments held as fixed assets are stated at cost, less any provision for impairment in value. Leased assets and assets held under hire purchase contracts Where assets are financed by hire purchase or leasing agreements that give rights approximating to ownership (finance leases), the assets are treated as if they had been purchased outright.The amount capitalised is the present value of the minimum lease payments payable during the lease term.The corresponding leasing commitments are shown as amounts payable to the lessor. Depreciation on the relevant assets is charged to the profit and loss account. Lease payments are split between capital and interest using the actuarial method and the interest element is charged to the profit and loss account. All other leases are treated as operating leases.Their annual rentals are charged to the profit and loss account on a straight line basis over the lease term. Tangible fixed assets Foreign currency translation Tangible fixed assets are stated at cost or valuation, net of depreciation and any provision for impairment. Depreciation is provided to write off the cost, less estimated residual values, of all tangible fixed assets, excluding freehold land, over their expected useful lives. It is calculated at the following rates: Freehold buildings 50 years Alterations to leasehold premises Motor vehicles Fixtures, fittings, IT and equipment Life of lease 4 years 3 to 8 years Revaluation of properties The Company has taken advantage of the transitional arrangements in FRS 15 “Tangible Fixed Assets” and retained the book values of certain freehold properties that were revalued prior to implementation of that standard. Where an asset that was previously revalued is disposed of, its book value is eliminated and an appropriate transfer made from the revaluation reserve to the profit and loss reserve. Foreign currency transactions are translated at the rates ruling when they occurred. Foreign currency monetary assets and liabilities are translated at the rates ruling at the balance sheet date. Pension costs Contributions to the Company’s defined contribution pension schemes are charged to the profit and loss account in the year in which they become payable. Share based employee remuneration The Company has applied FRS 20 “Share- based payment” to all share options and conditional share awards which were granted to employees and had not vested at 1 January 2005. A charge is recognised on the same basis as that recognised for the Group under IFRS 2 (see page 104). Where the Company will be issuing shares to satisfy share awards made by its subsidiaries, the Company records a capital contribution equal to the fair value of the share-based payment incurred by its subsidiaries except to the extent that the subsidiaries reimburse the Company. 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. Deferred tax is recognised in respect of timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date.Timing differences are differences between the Company’s taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the financial statements. A net deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Deferred tax is not recognised when fixed assets are sold and it is more likely than not that the taxable gain will be rolled over, being charged to tax only if and when the replacement assets are sold. Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured on a non- discounted basis. Employee Share Ownership Plan (ESOP) In accordance with UITF 32, the assets, income and expenditure of the ESOP Trust are incorporated into the Company Financial Statements. Financial instruments Disclosures on financial instruments have not been included in the Company’s financial statements as its consolidated financial statements include appropriate disclosures. rpsgroup.com Financial assets Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Trade debtors and other receivables are recognised at fair value on inception and are subsequently carried at amortised cost.They are subject to impairment tests whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Impairment losses are taken to the profit and loss account as incurred. Financial liabilities Amounts held at amortised cost Trade creditors and other payables including bank loans are recognised at fair value on inception and are subsequently carried at amortised cost. 104 2. Employees The average number of employees during the year was 113 (2007: 97). Details of Directors’ remuneration are shown on page 53. Staff costs (including Directors’ emoluments) consist of: Wages and salaries Social security costs Pension costs Share based payments Year ended 31 Dec 2008 £000s 5,049 619 334 995 6,997 Details of share-based payments are included in Note 32 to the Consolidated Financial Statements.These disclosures meet the requirements of FRS 20. 3. Profit attributable to shareholders No profit and loss account is provided for the Parent Company as allowed by Section 230 of the Companies Act 1985. Year ended 31 Dec 2008 £000s Profit for the year attributable to the shareholders of the Parent Company, dealt with in the accounts of the Parent Company 4,124 The remuneration of the auditors for the statutory audit of the Company was £40,000 (2007: £40,000) Year ended 31 Dec 2007 £000s 4,460 789 283 822 6,354 Year ended 31 Dec 2007 £000s 8,381 Report and Accounts 2008 4. Intangible Assets Cost At 1 January 2008 and at 31 December 2008 Amortisation At 1 January 2008 Charge for the year At 31 December 2008 NBV at 31 December 2008 NBV at 31 December 2007 5.Tangible Assets Cost or valuation At 1 January 2008 Additions Disposals At 31 December 2008 Depreciation At 1 January 2008 Provided for the year Disposals At 31 December 2008 NBV at 31 December 2008 NBV at 31 December 2007 105 Goodwill £000s 2,134 1,158 66 1,224 910 976 Total £000s 5,997 450 (815) 5,632 2,503 551 (146) 2,908 2,724 3,494 Freehold land and buildings £000s Alterations to leasehold premises £000s Fixtures, fittings IT and equipment £000s 2,860 – (815) 2,045 540 46 (146) 440 1,605 2,320 253 – – 253 112 2 – 114 139 141 2,884 450 – 3,334 1,851 503 – 2,354 980 1,033 rpsgroup.com Notes to the Parent Company Financial Statements continued 6. Investments Shares are held directly by RPS Group Plc except where marked by an asterisk where they are held by a subsidiary undertaking. All trading subsidiaries provide environmental consultancy services. Subsidiary undertakings Cost At 1 January 2008 Additions At 31 December 2008 Provisions 106 At 1 January 2008 and 31 December 2008 NBV at 31 December 2008 NBV at 31 December 2007 Additions in 2008 comprised capital contributions. £000s 175,138 2,970 178,108 838 177,270 174,300 Subsidiary undertakings The following were the principal operating subsidiaries during the year: Proportion of registration and operation ordinary share capital held Country of The Environmental Consultancy Limited RPS Water Services Limited RPS Energy Limited RPS Energy Consultants Limited RPS Ireland Limited RPS Groep BV RPS Advies BV RPS Analyse BV RPS BCC BV RPS Kraan Consulting BV RPS Kraan Detachering BV RPS Group Limited RPS Engineering Services Limited RPS Planning & Environment Limited RPS Consulting Engineers Limited RPS Energy Pty Limited RPS Consultants Pty Limited RPS Environment Pty Limited Harper Somers O’Sullivan Pty Limited MetOcean Engineers Pty Limited Cambrian Consultants (CC) America Inc Exploration Consultants Limited Inc Scotia Group Inc RPS JD Consulting Inc RPS Energy Canada Limited Geoprojects Canada Limited Report and Accounts 2008 England England England England Northern Ireland Netherlands Netherlands Netherlands Netherlands Netherlands Netherlands Ireland Ireland Ireland Ireland Australia Australia Australia Australia Australia USA USA USA USA Canada Canada 100% 100% 100% 100%* 100% 100% 100%* 100%* 100%* 100%* 100%* 100% 100%* 100%* 100%* 100%* 100%* 100%* 100%* 100%* 100%* 100%* 100%* 100%* 100%* 100%* 7. Debtors Trade debtors Amounts due from subsidiary undertakings Other debtors Corporation tax Deferred tax Prepayments and accrued income All amounts shown under debtors fall due for payment within one year. 8. Creditors: amounts falling due within one year Amounts due to subsidiary undertakings Deferred consideration Trade creditors Corporation tax Other creditors Accruals 9. Creditors: amounts falling due after more than one year The liability in respect of deferred consideration is due to the vendors of acquired businesses. Bank loans Deferred consideration Due as follows: After one year and within two years After two years and within five years 107 31 Dec 2008 £000s 128 51,266 196 – 469 1,855 53,914 31 Dec 2008 £000s 43,722 3,153 571 99 633 2,881 51,059 31 Dec 2008 £000s 45,148 487 45,635 487 45,148 45,635 31 Dec 2007 £000s 318 30,771 111 181 644 2,534 34,559 31 Dec 2007 £000s 23,419 3,076 961 – 418 3,100 30,974 31 Dec 2007 £000s 43,227 3,641 46,868 3,154 43,714 46,868 rpsgroup.com Notes to the Parent Company Financial Statements continued 10. Provision for liabilities At 1 January 2008 Released during the year At 31 December 2008 Dilapidations £000s 121 (69) 52 The provision booked during the year relates to dilapidations which have been identified on several buildings leased by the Company. 11. Deferred taxation 108 Movement on deferred taxation: Net asset at beginning of year Charge to income for the year Net asset at year end Deferred taxation balances comprise: Short term timing differences Depreciation in excess of capital allowances Deferred tax asset 12. Share capital Ordinary shares of 3p each At 1 January 2008 At 31 December 2008 31 Dec 2008 £000s 644 (175) 469 31 Dec 2008 £000s 285 184 469 31 Dec 2007 £000s 267 377 644 31 Dec 2007 £000s 407 237 644 Number 240,000,000 240,000,000 Authorised Value £000s Allotted and fully paid Value £000s Number 7,200 7,200 210,632,004 213,286,497 6,319 6,399 Full details of the share capital of the Company are detailed in Note 19 of the Consolidated Financial Statements. Report and Accounts 2008 13. Reconciliation of movements in shareholders' funds Share capital £000s Share premium £000s Merger reserve £000s Shares to Revaluation reserve be issued £000s £000s Employee trust shares £000s Share scheme Profit and reserve loss reserve £000s £000s Total £000s 6,163 89,836 10,642 1,997 32 (3,042) 4,053 16,245 125,926 – 156 – – – – – – – 6,319 80 – – – 6,399 – 3,451 – (62) – – – – – 93,225 2,306 – – – 95,531 – 6,351 – – – – – – – 16,993 3,086 – – – 20,079 – (1,771) – – (4) – – – – 222 (222) – – – – – – – – – – – – 32 – – – – 32 – (523) 622 – – – – – – (2,943) (640) – – – (3,583) (4,053) – – – – – – – – – – – – – – 4,053 (1,281) 671 – – 2,142 (448) 8,381 (6,144) 23,619 (1,247) 2,794 4,124 (7,211) 22,079 – 6,383 1,293 (62) (4) 2,142 (448) 8,381 (6,144) 137,467 3,363 2,794 4,124 (7,211) 140,537 109 At 1 January 2007 Transfer of reserve to profit and loss reserve Issue of new shares Sale of own shares Expenses of issue of equity shares Shares to be issued Share-based payment expense Tax on share-based payment expense Retained profit for the year Dividend paid At 31 December 2007 Issue of new shares Share-based payment expense Retained profit for the year Dividend paid At 31 December 2008 14. Dividends Full details of dividends paid by the Company are disclosed in Note 22 of the Consolidated Financial Statements. 15. Commitments under operating leases At 31 December 2008 the Company had annual commitments under non-cancellable operating leases as set out below: Operating leases which expire: Within one year In two to five years After five years 31 Dec 2008 £000s Land and buildings 31 Dec 2007 £000s 20 192 48 260 – 56 243 299 31 Dec 2008 £000s 8 89 – 97 Other 31 Dec 2007 £000s 4 79 – 83 rpsgroup.com Notes to the Parent Company Financial Statements continued 16. Directors’ interests in transactions There were no transactions during the year in which the Directors had any interest. 17. Purchase of undertakings The Company did not make any acquisitions during the year. 110 Report and Accounts 2008 Five Year Summary Revenue Fee income Profit from operations before tax and amortisation Net bank (debt)/cash Net assets Cash generated from operating activities Average number of employees Dividend per share Basic EPS before amortisation Diluted EPS before amortisation 2008 IFRS £000s 470,465 392,096 57,512 (28,555) 287,607 67,386 4,438 3.66p 18.92p 18.66p 2007 IFRS £000s 362,674 305,108 45,010 (32,630) 227,534 45,393 4,093 3.18p 15.17p 14.95p 2006 IFRS £000s 296,843 246,011 34,719 (30,129) 186,934 40,663 3,438 2.76p 12.01p 11.74p 2005 IFRS £000s 217,830 183,520 24,253 (25,940) 161,871 28,149 3,158 2.40p 9.01p 8.82p 2004 IFRS £000s 168,189 144,992 20,682 (16,219) 138,799 15,863 2,525 2.09p 7.12p 7.05p 111 The Five Year Summary does not form part of the audited financial statements. RPS is an international consultancy providing independent advice upon: n the development of land, property and infrastructure n the exploration and development of oil and gas and other natural resources n the management of the environment n the health and safety of people. Isle of Portland Gas Storage RPS helped secure planning permission for the Isle of Portland gas storage facility Report and Accounts 2008 rpsgroup.com l . . . m o c k u e r e c w w w e r e C y b l d e c u d o r p d n a d e n g i s e D . s s e c o r p e e r f e n i r o h c l l a t n e m e e l n a g n i s u d e h c a e b l , r e p a p d e l c y c e r r e m u s n o c t s o p % 0 0 1 , d e i f i t r e c C S F n o d e t n i r P 1 6 0 0 2 RPS Group Plc Centurion Court 85 Milton Park Abingdon Oxon OX14 4RY T +44 (0)1235 863206 www.rpsgroup.com Registered in England No. 2087786 Report and Accounts 2008 R P S G r o u p P c l R e p o r t a n d A c c o u n t s 2 0 0 8 Coastline of North West Australia and Barrow Island where RPS is playing a major role in the commercialisation of untapped gas fields representing 25% of Australia’s gas reserves. creativepeople making a difference rpsgroup.com rpsgroup.com
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