Report and Accounts 2009 creativepeople making a difference rpsgroup.com 2 2 Business Review 2009 Results Key Performance Indicators Business Review Operations Risk Management Corporate Responsibility 7 8 8 9 19 24 30 Management & Governance The Board Committees Corporate Governance Accounts Report of the Directors Report of the Independent Auditors Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Cash Flow Statement Consolidated Statement of Changes in Equity Notes to the Consolidated Financial Statements Parent Company Balance Sheet Notes to the Parent Company Financial Statements Five Year Summary Report and Accounts 2009 35 36 48 49 61 62 67 68 68 69 70 71 72 108 109 116 Our profile RPS is an international consultancy providing advice upon: the development of land, property and infrastructure the management of the environment 3 the exploration and production of oil and gas and other natural resources the health and safety of people We trade in the UK, Ireland, the Netherlands, the United States, Canada, Australia and Asia Pacific and undertake projects in many other parts of the world. Delivering results for our clients enables us to offer our employees rewarding careers and create long-term value for shareholders. We employ enthusiastic and talented staff with a unique blend of skills and experience that enables them to provide reliable and practical advice. % rpsgroup.com Integrated services... 4 We deliver services internationally across a broad range of disciplines and sectors. As such, we are uniquely placed to provide a fully integrated response to our clients’ needs, whether this is to develop projects, deal with regulation and legislation or manage risk. We have the knowledge and experience to ensure projects are developed in ways which are sensitive to their environmental impacts. Energy Planning & Development Environmental Management RPS delivers global, multi-disciplinary energy consultancy from offices in Europe, North and South America, Australia and Asia. We provide integrated technical, commercial and project management support services in the fields of geoscience, engineering and HS&E. RPS has expertise in all aspects of the planning and development process from site identification and project definition to implementation and management. We offer world-class planning, design and environmental services from our network of offices. Our aim is to help clients develop their energy resources across the complete asset life-cycle, combining our technical and commercial skills with an extensive knowledge of environmental and safety issues. We have an annual portfolio of well over 500 projects, in over 100 countries, for more than 300 clients. Local and national government and developers set increasingly challenging sustainability targets. Our environmental roots mean we have a unique ability to deliver schemes that meet these standards. RPS is one of the world’s most experienced providers of environmental assessment. During the course of 40 years’ involvement in environmental management, we have gained deep insight into the commercial challenges as well as the political, ethical and legal risks facing our clients. Professional advice in this sector has to be technically excellent and commercially appropriate, but also politically aware and culturally sensitive. We provide advice and services to both public and private sectors in areas including safety, health, environment, water, risk assessment, civil engineering, surveying and laboratories. Report and Accounts 2009 ...a source of difference and strength 5 PLA N N I N Urban Design & Regeneration G & Architecture & Landscape Planning D E V Transport & Infrastructure E L O P Environmental Assessment & Management Engineering M E N T Energy Management Energy Infrastructure Geoscience and Engineering Renewable Energy Seismic Operations Reserves Reporting ERGY N E Well Operations Asset Evaluation LIM C S Equity Determination A T E CH A N G E Y U S TAINA B I L IT Health & Safety Laboratory Services Risk Management Waste Management Utilities Network Management Safety Engineering Air Quality & Noise E N Waste Water Engineering Occupational Health Asbestos VIRONMENTAL M A N A M E N T E G rpsgroup.com local allies with international reach 6 6 Report and Accounts 2009 Report and Accounts 2009 Our global reach RPS employs more than 4,000 people in the UK, Ireland, the Netherlands, the United States of America, Canada, Australia and Asia Pacific. We undertake projects in many other parts of the world. 7 For many years our strategy has been to broaden our range of services and our geographic footprint. This provides our clients with better and broader quality advice. It also enables our staff to enjoy interesting and rewarding careers and our shareholders to receive good returns. Our unique blend of skills helps clients understand and respond to issues fundamental to them and their place in the environment. RPS awarded by The Urban Development Institute of Australia for work at Burns Beach New RPS office opens in Abu Dhabi RPS wellsite geologists contracted for ultra-deepwater drilling operations in the Gulf of Mexico rpsgroup.com 2009 Results 2009 Results 8 8 Key Performance Indicators Revenue (£m) Fee income (£m) Profit before taxation* (£m) Earnings per share* (basic) (p) Operating cash flow (£m) Net bank borrowings (£m) 2009 2008 443.9 470.5 374.4 392.1 52.5 57.5 17.08 18.92 70.6 32.8 67.4 28.6 *Adjusted to add back the amortisation of acquired intangible assets arising on business combinations (including tax effects) (2009: £3.9m; 2008: £2.7m). n diversity of skills and geography enabled the Group to produce results in line with expectations n excellent conversion of profit to cash n balance sheet remains strong with year end net bank borrowings at £33m (2008: £29m) n bank facilities of £125m available until 2013 n dividend increased 15% for sixteenth consecutive year n Conics, a strategic acquisition in Australia, performing well Report and Accounts 2009 Report and Accounts 2009 Offshore Development Evaluation - Greenland Evaluation on behalf of Dong/Nunaoil of potential development options for offshore oil reserves. Business Review 9 Results and Cash Flow Profit (before tax and amortisation of acquired intangibles) was £52.5 million (2008: £57.5 million). Basic earnings per share (before amortisation) were 17.08 pence (2008: 18.92 pence). This resilient performance was achieved after taking a charge for redundancy and other reorganisation costs of £3.5 million (2008: £1.0 million). Economic and financial circumstances affected our trading in the UK. However, these factors also caused sterling to weaken against the currencies in other countries in which we trade. In consequence, and as we have anticipated for some months, we benefitted by £3.7 million from foreign exchange translation of overseas results compared with 2008. Bonus systems within the Group have been largely driven by sharing profit growth; total bonuses paid in respect of 2009 were, in consequence, reduced significantly to £1.6 million (2008: £5.4 million). No bonuses were paid to Group directors. The conversion of profit into cash continued at a high level; operating cash flow was £70.6 million (2008: £67.4 million). We suffered bad debts during the year in the order of £3.8 million. Our trade debtor and accrued income provisions were increased in 2008 in anticipation of this eventuality. These and other provisions have now been reduced by a similar amount. Funding and Dividend Our balance sheet remains strong. We have bank facilities of £125 million available until 2013. The cost of these facilities remains at historically low levels. Net bank borrowings at the year end were £32.8 million (2008: £28.6 million) after funding acquisitions to the value of £44.2 million in the year (2008: £31.2 million). Our cash generation, in conjunction with these facilities, means that we are well positioned to continue to develop the Group. The Board continues to be confident about the Group’s financial strength and is recommending a final dividend of 2.19 pence per share payable on 27 May 2010 to shareholders on the register on 16 April 2010. The total dividend for the full year will be 4.20 pence, an increase of 15% (2008: 3.66 pence). Our dividend has risen at about this rate for 16 consecutive years. Acquisitions The acquisition of Conics in July 2009 represented a significant step forward in the development of RPS’s strategy and our business in Australia. Conics generated revenue of £15.6 million, fees of £14.2 million and made a contribution of £2.6 million during the time it was part of the Group. Our existing strength in Western Australia has been complemented by a business with considerable presence in Queensland and which will also assist us create strong market positions in New South Wales and Victoria. We continue to find our combination of energy and environmental skills is well suited to the Australian market. For example, in Queensland, where Conics is primarily based, the opportunity exists to be at the forefront of the development of coal bed methane, which is likely to be a significant new source of energy in the future. The main element of the Conics integration is currently underway; our enlarged Australian business is being re-presented to the market with a single brand, at the same time as our Perth businesses are being co-located to a new, purpose built office. The Australian economy remains strong relative to those of other developed nations around the world and has excellent links with many parts of Asia. Against this background, the combination of our existing businesses with Conics gives us a considerable platform from which to deliver future growth. The ten acquisitions made in 2008 have been successfully integrated. Interesting new opportunities continue to present themselves. Our strategy of continuing to build a multi-disciplinary RPS on an international basis remains appropriate and achievable and we believe further progress can be made this year. rpsgroup.com Business Review 10 Energy We provide internationally recognised consultancy services to the oil and gas industries from bases in the UK, USA, Canada, Australia and Asia Pacific. Projects are undertaken in many other countries including China, India and Brazil. In the UK we are market leaders in the provision of environmental and engineering advice to the offshore wind energy industry. RPS is one of the world’s leading suppliers of independent oil and gas evaluations encompassing all aspects of geoscience, engineering and commercial advice. Our projects include reserve valuations for IPO and pre-IPO fund raising, M & A due diligence and support and Expert Services to a wide range of clients including major financial institutions and oil companies alike. Report and Accounts 2009 Report and Accounts 2009 Report and Accounts 2009 Business Review Energy We continued to benefit from our clients’ investment in major oil and gas exploration and production programmes. National Oil Companies were increasingly active and have become a more important part of our portfolio of clients. 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. Global investment in exploration and production slowed significantly during the second quarter and remained at a subdued level for the rest of the year. This was apparently in response to continuing uncertainty in economic outlook and short term energy demand, as well as oil price volatility. It had a material impact on our trading, although this was counterbalanced, in part, by the strength of our business which advises our energy clients on environmental matters. 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 continuing to develop. Towards the end of the year we saw signs of increased levels of investment being considered by our clients, but it currently appears that market conditions in the first part of 2010 will show little improvement over the later parts of 2009. In consequence, pricing pressure is also likely to be a continuing feature of the commercial landscape. Conditions could improve in the second half. A number of clients we assisted in 2009 to bid for Round 3 licences from the Crown Estate to develop wind farms off the UK coast have recently learnt they were successful. In consequence, we are well positioned to remain involved at a significant level in this aspect of the development of UK energy capacity. Such projects require multi-disciplinary input and a number of parts of the Group are involved in wind energy projects. 11 +38% 149.1 +38% 27.7 158.0 30.5 2009 2008 18.6 19.3 Fee income (£m’s) Profit* (£m’s) Margin* % Average number of employees Energy 2009 2008 Number of employees 619 621 Days absent (%) 1.1 1.9 Average length of service (years) 4.9 5.5 Working part time (%) Retention rate (%) 10 84 Age profile Employees aged under 25 (%) 4 Employees aged 25-29 (%) Employees aged 30-49 (%) Employees aged 50+ (%) 13 49 34 8 87 4 13 50 33 * before amortisation of acquired intangible assets of £1.8m (2008: £1.1m) and after re-organisation costs of £0.3m (2008: £nil). Carbon capture and storage rpsgroup.com Business Review 12 12 12 Planning & Development Within these businesses 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. The acquisition of Conics gives us a strong presence on the east coast of Australia. Perth Waterfront RPS is the lead environmental consultancy for a major project to revitalise Perth’s Swan River shoreline; this ‘city-defining’ initiative will connect the city to the river and deliver strong economic and social benefits. Report and Accounts 2009 Report and Accounts 2009 Report and Accounts 2009 Planning & Development The economic downturn began to be felt in these businesses in the last part of 2008. We moved quickly to reduce capacity and costs, a process which continued throughout 2009, although the bulk of the cost reduction was in the first half. Our private sector clients, affected by market uncertainties and a reduced ability to access credit, significantly reduced activity levels and, in consequence, the support needed from consultants. The private sector market remained affected by both these characteristics throughout 2009, although in the second half conditions in Australia began to improve and in Britain began to stabilise. Our exposure to the public sector in Britain is relatively limited, although we are involved in a number of private sector infrastructure projects and are increasing our involvement in this market, as it seems relatively robust, particularly in relation to energy related projects. Our businesses in both the Republic of Ireland and Northern Ireland depend significantly on public sector projects. The state of public finances in the Republic put pressures on our business, requiring significant cost cutting throughout the year. In Northern Ireland our business progressed well until the effects of UK public finance constraints began to appear in the last part of the year. Australian government finances remain relatively good; as a result stimulus expenditure was real and beneficial to us. Conics undertakes a significant number of projects for the public sector. 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. We remain optimistic about our activities in Australia, which will remain underpinned by public and private sector investment in infrastructure, particularly related to energy projects. However, until our private sector clients elsewhere, particularly in Britain, experience less economic uncertainty and have better access to credit, organic growth is likely to be constrained. The economy in the Republic of Ireland contracted significantly over the last year, but is now showing signs of stabilising. The Government budget in December indicated it still has infrastructure development as a top priority. How this translates into specific expenditure has yet to be seen fully, although the early signs give some encouragement. In the meantime we continue to reduce our cost base and focus even more closely on working capital management. Business in Northern Ireland is exposed to possible expenditure cuts by the UK Government. However, amidst these difficulties, new opportunities are arising. We have recently been commissioned by the governments of the Republic of Ireland, Northern Ireland and Scotland to examine the feasibility of creating an offshore renewable energy grid in the Irish Sea. Business Review This is a reflection of our broad range of skills and strong market position in all three countries. 13 2009 Fee income* Profit** Margin (£m's) (£m's) % GB Ireland Australia 64.5 63.5 33.2 10.6 5.0 8.3 Total 160.9 23.9 16.5 7.9 24.9 14.9 2008 GB Ireland Australia Fee income* Profit** Margin* (£m's) (£m's) % 82.0 69.6 15.8 16.7 7.7 5.2 20.3 11.1 32.7 Total 166.9 29.5 17.7 Planning & Development Average number of employees 2009 2008 Number of employees 2,277 2,381 Days absent (%) Average length of service (years) Working part time (%) Retention Rate (%) Age profile Employees aged under 25 (%) Employees aged 25-29 (%) Employees aged 30-49 (%) Employees aged 50+ (%) 1.4 1.5 4.5 3.8 11 77 10 21 55 14 6 90 12 21 53 14 * fee income total is after intra segment eliminations of £0.3m (2008: £0.5m). ** before amortisation of acquired intangibles assets of £1.7m (2008: £1.1m) and after re-organisation costs of £2.8m (2008: £1.0m). rpsgroup.com Business Review Business Review 14 Environmental Management This business provides consultancy services in respect of health, safety, risk and water management in the UK and the Netherlands. The results in 2009 were excellent, given the economic circumstances in which we were operating. Browse Basin Marine Megafauna Monitoring Programme RPS has been engaged to design and conduct extensive surveys of marine life along the southern Kimberley coast in northern Western Australia, for environmental impact assessment of LNG Developments. Report and Accounts 2009 Environmental Management Outlook Much of the work we do in these markets is regulatory driven and to a degree non- discretionary enabling us to maintain our levels of activity, although we expect pricing pressure to continue. We are well positioned in relation to the new round of investment in the UK water industry which begins in April, although until the current round of contract negotiations is complete we will not know our exact position. Our business in the Netherlands has continued to trade successfully. The Dutch economy suffered a serious recession, but we were well positioned to benefit from increased Government expenditure related to water and transport infrastructure. Our health and safety activities in the UK are largely in regulated markets; this protects volume to a degree, but we came under pricing pressure. As expected, our UK water activities became subdued in the second half as the attention and activity of our clients shifted to the new investment cycle which begins in April 2010. Our nuclear safety activities continued to trade well, as demand held up in a highly regulated market, short of the specialist skills we provide. Business Review 2009 2008 15 +32% 67.1 10.0 14.9 70.3 9.0 12.8 Fee income (£m’s) Profit* (£m’s) Margin* % Environmental Management Average number of employees 2009 2008 Number of employees 1,262 1,323 Days absent (%) Average length of service (years) Working part time (%) Retention rate (%) Age profile Employees aged under 25 (%) Employees aged 25-29 (%) Employees aged 30-49 (%) Employees aged 50+ (%) 2.8 2.3 5.6 12 77 12 16 51 21 5.1 10 87 14 18 50 18 * before amortisation of acquired intangible assets of £0.3m (2008: £0.6m) and after re-organisation costs of £0.4m (2008: nil) Coastal Awards for Excellence in Port Hedland rpsgroup.com Business Review 16 Falkland Islands Site Investigation RPS supported BHP Billiton with their geophysical and geotechnical site surveys that were conducted in the deep waters off the Falkland Islands during the first quarter. RPS supplied field technical QC personnel, HSE field representatives and marine mammal observers to the client. Report and Accounts 2009 Report and Accounts 2009 Group Prospects We have come through the exceptionally challenging circumstances of last year in good shape. However, the economies of the UK and Ireland remain fragile; even if growth returns in 2010 it seems likely, at best, to be modest. Against such a background our clients are likely to remain cautious and cost conscious. We remain focussed, therefore, on continuing to improve the efficiency of our businesses. The Australian economy and public finances are in much better shape, probably leading the developed world. We anticipate our Australian businesses will benefit from this and are looking at further investments to take advantage of our market leading position. Prospects in the Dutch public sector are also reasonably encouraging as sound public finances enable continued investment in the type of projects with which we can become involved. The prospects for our private sector clients in the Netherlands are less clear. The contraction in oil and gas exploration and production investment by many of our clients in 2009 was in stark contrast to the strong growth of previous years. Only modest growth in investment seems likely in 2010, although our increased exposure to National Oil Companies and high profile areas such as Australia, the Gulf of Mexico, Brazil and Iraq may magnify the consequent benefit of that. It seems likely that the pricing pressure we experienced in the second half of 2009 will continue until volumes increase significantly. Our businesses in North America are currently operating largely in the oil and gas market. We see opportunities as these economies recover to make progress with our strategy of broadening the base of our activities. Our profits in the first decade of the 21st Century grew almost eight fold, from £6.65 million to £52.5 million. Although the economic crisis stalled our growth last year and looks likely to constrain growth this year as well, the Board remains confident that RPS is well positioned, internationally, in markets of fundamental importance to the reshaping of the world economy and will experience another extended period of good growth when conditions allow. Business Review 17 Arctic offshore exploration Ormonde gas and wind co-generation project, UK Development of athlete village and infrastructure ahead of 2012 Olympics, London rpsgroup.com Operations 18 Key Business Drivers n The commercial advantage our clients can achieve from sustainable development of land and buildings; n The sustainable provision of infrastructure including airports, roads, water, waste, public transport and power; n Society’s need to secure, in a safe way, adequate supplies of energy from environmentally acceptable sources; n The need to manage environmental and health & safety risks as well as their related legislation/regulation and the arising staff, customer and governance pressures; n Society’s need to deal with climate change and global warming. Report and Accounts 2009 Operations 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 current and future needs. 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 appropriate human resource structures and systems managed by personnel professionals throughout the businesses and countries in which we operate. The Company operates a Share Incentive Plan in the United Kingdom and similar plans overseas. These plans, which are open to the majority of the Group’s employees, enable employees to purchase RPS shares with the Company providing a matching share contribution. The Company also operates a Performance Share Plan in which more senior employees participate and which offers the potential to build a significant equity interest over a number of years. Operating Structure Our operating structure has developed as the Group has grown in size and complexity driven by the need to achieve the correct balance between the autonomy that enables our businesses to operate in a flexible and responsive fashion, whilst ensuring transparency and accountability throughout the Group. The Group is split into a number of operating divisions and companies, which focus on the principal markets that we serve both by sector and geography. Our smaller business units focus on specialised areas but are accountable to the relevant divisional or operating company Board. Underpinning this structure is a set of clear obligations in terms of reporting and authorities that operates throughout the Group and as is described on pages 26 and 27. Our principal businesses in both the UK and overseas employ appropriately qualified accounting, human resource and other support staff. In the recent period of economic uncertainty this structure has enabled the extra attention to detail that is vital to ensure operational efficiency and careful cost management. In addition to retaining appropriate control, the Group provides support to the sales and marketing activities of our businesses through its business information unit which is also responsible for the maintenance and development of the Group’s intranet and website. We have continued to invest in information technology to facilitate better communication and flow of information both internally and externally. Business Review 19 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 all aspects of employment including the advertisement of jobs, recruitment and appointment, training, conditions of work and pay. Planning advisors for the largest healthcare PFI in Europe at St Bartholomew and Royal London Hospitals rpsgroup.com Operations 20 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 Radioactive waste retrieval and treatment at Sellafield Expert witness to the Appeal Court of the Hague Report and Accounts 2009 succession planning. RPS came third in Britain’s Top Employers 2009, a book researched and published by the Corporate Research Foundation. This organisation has been given special recognition by the EU Commission for its outstanding contribution to employer best practice in several EU countries. Divisional Directors, their appointed project managers and 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. Externally advertised posts are initially published on the JoinRPS.com careers website and promoted internally via the 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 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 their 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. Business Review n n n n University of Wales, Newport, BA (Hons) in Business Studies and HNC in Business Studies Course 21 University of York, MSc in Risk Management University of Bristol, HNC in Water Management Birbeck College, BSc in Computing Science BioFuels production facility in Houston, Texas Principal designer and landscape architect for Brisbane Airport Link rpsgroup.com Average number of employees Number of employees Days absent (%) Average length of service (years) Working part time (%) Retention rate (%) Age profile Employees aged under 25 (%) Employees aged 25-29 (%) Employees aged 30-49 (%) Employees aged 50+ (%) Group 2009 2008 4,254 4,438 1.7 1.8 5.4 11 78 9 19 53 19 5.0 7 90 11 19 52 18 Academic Bursaries For the seventh consecutive year, RPS in the UK continued its practice of awarding academic bursaries to students studying at university. In 2009, this included students attending courses at twenty four UK universities: n n n n Christ’s College, University of Cambridge, MEng in Civil Engineering and MEng in Structural Engineering Birmingham City University, BA (Hons) in Architecture, MA in Urban Design & PG Dip in Architecture South Birmingham College, HNC in Building Construction, HNC BSE HVAC University of Central England, MA in Planning n n n n n n n n n n n n n n n Coventry University, BEng in Building Services Stourbridge College, BTEC National Certificate in Building Service Engineering in Electrics University of Southampton, BSc in Acoustics Anglia Ruskin University, BSc in Environmental Planning University College Cardiff, MSc in Town Planning St Andrews University, MSc in Ecology Stirling University, M.Phil in Ecology De Montfort University, MSc in Energy and Sustainable Buildings, Post Graduate MSc in Energy and Sustainable Building London Southbank University, HNC in Civil Engineering University of Nottingham, MEng in Civil Engineering Loughborough University, MEng in Civil Engineering Nottingham Trent University, BEng in Civil Engineering University of Newcastle, MEng in Mechanical Engineering Wolverhampton University, BSc in Architectural Design Technology and BTEC in Civil Engineering University of Nottingham, MSc in Engineering Surveying and Geodesy Operations 22 n Queens University Belfast, MEng in Civil Engineering and a Masters in Sustainable Development Ireland n University College, Dublin, CEng in Civil Engineering Spain n University of Valencia, MBA studies in Building Services Engineering Wetlands translocation project, Waterford, Ireland Report and Accounts 2009 Australia n n n Curtin University, diploma in Accountancy Edith Cowan University, BA in Accountancy Swinburne University of Technology in New South Wales 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 Ireland, RPS North South Scholarships in Sustainable Development continued in 2009. Launched in 2008, 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. 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. Growth and Funding Despite current economic circumstances RPS operates in markets which are generally attractive and expanding with good long-term prospects, but which are 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. 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. This has included the creation of a substantial 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 importance to the continued growth of 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. Current economic circumstances make the achievement of this balance even more challenging. Corporate Governance RPS operates to a strong system of governance in order to safeguard the interests of its shareholders. The structures and policies that are in place to achieve this are set out on pages 49 to 60. RPS and will 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 bank borrowings of £32.8 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 of £125 million are adequate for current purposes, but would be prepared to increase them in order to make appropriate investments. 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 the scale of earnings growth, the nature and scale of future acquisitions and how that investment is funded. The final dividend will normally be greater than the interim payment. Business Review 23 Cross border power grid, Ireland Northshore Riverside Park: award-winning landscape design by Conics rpsgroup.com Risk Management 24 With our unique energy and environmental experience we can offer broad support in developing carbon capture and storage (CCS) projects. Report and Accounts 2009 Business Review Risk Management 25 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 separated from the business, but is treated as an integral part of the way we operate. A key role of the Executive Directors is to assess the risks to which the Group may be exposed, to report material risks to the Board and to recommend measures for their mitigation. 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 personnel, 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 policies relating to 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 n n here are failure of IT systems and the recruitment and retention of key staff. Financial and Commercial - the risk of performance falling short of expectations including the reputational risk linked to quality of work. Legal and Compliance - the risk of failing to comply with all relevant legislation and regulations and liabilities arising from trading activities which are not covered by professional indemnity insurance. 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 n n operating in markets where we can add value to our clients’ activities; endeavouring to achieve leadership in those markets; and 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, full Group Board approval is required prior to any binding commitment being made. In the current economic climate the full Group Board is being kept informed about all potential acquisitions. The Executives have developed comprehensive methods to evaluate potential acquisitions, including the legal framework within which businesses are acquired and methods of integration. Despite the economic downturn seen in 2009 the goodwill impairment review carried out at the year end concluded that no impairment was necessary. The business in Ireland was that most affected by the downturn and is potentially susceptible to goodwill impairment (see note 10 on page 86). 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 a recruitment and retention strategy that is appropriate to the markets in which they operate. 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. rpsgroup.com Risk Management 26 Phosphogypsum Stack Complex - Houston Heyco Energy Group, acreage evaluation Waha Land Masterplan industrial park outside Abu Dhabi Report and Accounts 2009 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 includes measures designed to ensure the reliability and resilience of 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, cause equipment malfunction or result from theft. Financial and Commercial Management The financial management of the Group is undertaken within the framework of the operating structure that is described on page 19. The operating companies and divisions as well as the business units within them are treated as separate entities for the purposes of budgeting and accounting. Each business unit prepares a Business Plan which defines the activities and scope of business to be conducted. 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. Our overseas businesses have their own accounting and personnel functions. RPS has a detailed financial reporting management system, which incorporates 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. 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 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 Business Review 27 Internal space and facilities planning - Deloitte We act for parts of the air travel industry in the emissions debate rpsgroup.com 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 but has operations in Australia, Ireland, USA, Canada, Malaysia and Singapore that have functional currencies other than sterling. As a result the Group’s balance sheet, income statement and statement of comprehensive income 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. 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 at present required. 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. Where operations have part of their trade in currencies other than their functional currency they endeavour where possible to match the currency of revenues and cost of sales. The Group uses foreign exchange contracts and loans to manage transactional risks for commercial but not accounting purposes. Compliance, Litigation and Insurance It is essential that 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. 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 regular cash flow projections and the reporting and review of daily cash collections against targets. 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; Risk Management 28 n n n maintaining records to control and show compliance with quality and client requirements; recording the implementation of corrective measures necessary to ensure the quality of service provided; taking appropriate preventative measures to improve quality and minimise the possibility of unsatisfactory service; and Western Newfoundland exploration program RPS provides consultancy in relation to the prevention and control of Major Accident Hazards Report and Accounts 2009 n monitoring 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 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 insurance cover in place to ensure against such losses and potential losses. A range of policies are in place, the principal of which relate to professional indemnity, employers, public and third party liability. 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. An analysis of accidents and incidents is presented and discussed at every Board meeting. The Board requires that each business provides and maintains 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 although 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. OHSAS 18001 is an internationally recognised standard for health and safety management that is aligned with the ISO 9000 (Quality Management) and ISO 14000 Business Review Accident incident rates 29 Group 2009 2008 19 4.6 17 3.8 Reportable injuries Reportable injuries incident rate per 1,000 employees (Environmental Management) standards. 29.3% of employees across the Group work in offices that now have third party accreditation to the OHSAS 18001 standard (2008: 25.1%). 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 are trained to ensure that they can discharge their responsibilities to their staff. Each Group business has a 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. In 2009, the reportable accident rate was 4.6 accidents per 1,000 employees (2008: 3.8). This increase followed a substantial reduction in 2008, the reportable accident rate in 2007 having been 6.3 accidents per 1,000 employees. The Group continues to develop its health and safety management systems in order to establish an improving trend in its performance. Typically the accidents that occurred are related to manual handling activities, however, slips and falls also account for a significant proportion of the accidents. 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. Carbon Sequestration Analysis – Western Canada We have developed assessment techniques for many forms of renewable energy rpsgroup.com Corporate Responsibility 30 RPS has supported TreeAid for over four years with charitable contributions for some of Africa’s poorest rural communities to help in the fight against poverty and the effects of climate change. Report and Accounts 2009 Business Review Corporate Responsibility 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 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 has set itself the task of reducing per capita energy consumption by 5% each year using 2007 as the base. This would, if acheived, 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 meet and anticipate their needs. 31 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. In 2009 the Group and its staff gave or raised £480,000 in charitable contributions (2008: £421,000). Taking into account the £105,000 spent on academic bursaries and educational initiatives (2008: £168,000), the Group’s total contribution to the communities in which it operates was £585,000 (2008: £589,000). While the value of social contributions decreased slightly by 0.7% on the previous year, this represents a small increase as a proportion of Group turnover: 0.130% (2008: 0.125%). The continuing efforts of our staff in contributing to this are greatly appreciated. Across our businesses we have contributed to a wide range of charities and initiatives. At Group level we made a donation of £25,500 to Tree Aid in support of its educational, tree planting and woodland conservation programmes in Sub-Saharan Africa. RPS has supported Tree Aid for several years with charitable contributions, fund raising and gifts in kind. In 2009 RPS was acknowledged as the leading corporate sponsor of Tree Aid. We are proud to be associated with their award winning work that assists some of Africa’s poorest rural communities to succeed in the fight against poverty and the effects of climate change. 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 environmental management, some have achieved international recognition for their work and play a leading role in professional bodies. rpsgroup.com Corporate Responsibility 32 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: n comply with all relevant national and regional legislation as a minimum standard; n comply with codes of practice and other requirements such as those specified by regulators and our clients; n utilise suppliers that offer products which are sustainable, recyclable or environmentally sensitive wherever practicable and economic; n promote practical energy efficiency and waste minimisation measures; and n provide a shared inter-office IT network and communications technology that reduces the need for business travel. In order to achieve this RPS: n ensures employees are trained and motivated to conduct their activities in an environmentally responsible manner; n reviews the policy on a regular basis to take into account any new developments in legislation, or environmental management or shareholder expectations; and n allocates sufficient management resources to ensure effective implementation of the environmental policies. Report and Accounts 2009 The specific target set by the Board is to reduce energy consumption by 5% per annum on a per capita basis. This target was not achieved in 2009 with overall energy consumption increasing by 8.5% over the prior year. This increase was roughly proportionate to the increase in office space occupied as noted above. Despite the challenging economic climate RPS will continue in efforts to reduce energy consumption and its related impact on carbon emissions. Over 80% of electricity purchased in the UK during 2009 was on Green tariffs, which compared with 70% in 2008. 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. Due to the ongoing debate over the integrity of using green tariffs in carbon footprint calculations and in accordance with government guidance the green tariff element was not included within the above calculations. A significant proportion of the Group has achieved ISO14001, the internationally recognised environmental management system standard. Waste recycling facilities are in place at most of our offices. Climate Change 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 clients’ carbon emissions and adapt buildings and infrastructure to cope with anticipated climatic changes. We expect the workload in this area to increase. The carbon footprint for RPS in 2008, recalculated in accordance with Greenhouse Gas Protocol and current Defra guidance amounted to 14,258 tonnes, which was equivalent to 3.2 tonnes for each employee. In 2009 the total footprint increased to 14,695 tonnes. In a year that saw a significant reduction in overall headcount, this was equivalent to 3.7 tonnes for each employee. Despite the reduction in headcount, office space occupied showed a small increase with a corresponding impact on both the overall and per capita numbers. In addition numbers were affected by the expansion in the Australian business and its related impact on travel patterns. Corporate Responsibility 33 Cardiff Waterfront RPS is shaping major regeneration schemes across the UK, including landmark urban renewal projects in Belfast, Bristol, Cardiff, Edinburgh, Glasgow, London, Leeds, Liverpool, Manchester, Nottingham, Plymouth and Sheffield. rpsgroup.com Corporate Responsibility 34 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. Investor Relations is discussed at every Board meeting which enables the Board to keep abreast of and develop an understanding of the views expressed by major shareholders. Liveability Volunteers Day, London RPS sponsor Galaxy Under 14’s Girls football team Report and Accounts 2009 Management & Governance RPS Offices in Perth, Australia Management & Governance 35 Management & Governance The Board Committees Corporate Governance 35 36 48 49 rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 36 The Board 36 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 the 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. 6. Ensure the Group and Divisional 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 and is respected and strengthened. 8. Keep under review opportunities to extend the range of products RPS offers and the sectors in which it operates. 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. 15. Ensure that the Group has in place 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 and adequate funding in place to maintain its strategy. Composition and Operations The Board currently comprises four Executive and five Non-Executive Directors including the Chairman. Mr A Troup resigned as a director on 5 November 2009.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 Report and Accounts 2009 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 37 Management & Governance likely to have a material effect upon the trading prospects of the Group.The minutes of meetings are circulated to the Non-Executive Directors for review. Operational matters do not include the setting of the Group Strategy or budgets 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 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 any concerns expressed are provided, in a written statement, to the Chairman for circulation to the Board. The provisions of the Companies Act 2006 concerning a director’s duties in dealing with actual or particular conflicts of interest are now effective. In accordance with these provisions shareholders approved changes to the Company’s Articles of Association to allow directors to authorise such conflicts. These provisions enable the Directors to authorise a conflict, subject to such terms as they may think fit, which may include exclusion from voting in respect of the relevant issue and exclusion from information and discussion relating to the matter. The procedure approved by the Board for authorising conflicts reminds directors of the need to consider their duties as directors and not grant an authorisation unless they believe, in good faith, that this would be likely to promote the success of the Company. A potentially conflicted Director cannot vote on an authorising resolution or be counted in a quorum for that purpose. Any authority granted may be terminated at any time and the director is informed of his obligation to inform the Company without delay should there be any change in the nature of the conflict authorised. In addition, the Board requires the Nomination Committee to check that any individual it nominates to the Board is free of any potential conflict of interest. Since the time that these arrangements were introduced no actual or potential conflicts of interest have arisen. 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. 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. 37 The Board undertakes an annual appraisal of its performance. Directors are asked to complete a detailed review relating to the general operation of the Board and its Committees as well as performance against group strategy. The results are discussed with the Chairman and a summary of the principal findings is presented to and discussed by the Board. Where appropriate the Board agrees changes to process and structure that are necessary to address the issues arising. 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 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 rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:23 Page 38 The Board continued The Board agenda gives significant 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 52 to 57.The current members of the Remuneration Committee are identified on page 48. Executive Directors abstain 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. 38 the requirements of its clients and the 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, led by the Senior Non- Executive Director, meet on an annual basis 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.The Board’s annual appraisal process incorporates a review of the performance of Non- Executive Directors. 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. Report and Accounts 2009 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:23 Page 39 Management & Governance Brook Land Independent Non-Executive Chairman Aged 60. 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 and is being put forward for re-election on an annual basis. Contract Date of contract September 1997 Unexpired term at 31 December 2009 Until AGM 2010 Notice period N/A 39 Emoluments and compensation Basic salary £000s – Bonus £000s – Emoluments excluding pensions Benefits £000s – Fees £000s 95 2009 £000s 95 2008 £000s 87 Pension (paid and provided) 2008 2009 £000s £000s – – Beneficial interests Number of shares at 31 December 2009 and at 3 March 2010 30,000 Number of shares at 31 December 2008 and at 13 February 2009 30,000 Committee membership – Board and Committee Number of Board and Committee meetings attended * Chairman Full Board* 8 Audit Committee – Remuneration Committee – Nomination Committee* 2 Corporate Governance* 2 rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 40 The Board continued Dr Alan Hearne Chief Executive Aged 57. 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 2009 12 months Notice period 12 months Basic salary £000s 395 Bonus £000s – Emoluments excluding pensions Fees £000s – Benefits £000s 19 2009 £000s 414 2008 £000s 739 Pension (paid and provided) 2009 £000s – 2008 £000s ** 40 Share options 1 Jan 2009 Number 62,500 28,157 Exercised Number – – 31 Dec 2009 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 2006 2007 2008 2009 Total 1 Jan 2009 number 145,652 124,893 127,419 – 397,964 Granted number – – 127,4– 275,261 275,261 Released 145,652 – – – 145,652 31 Dec 2009 145,6–2 124,893 127,419 275,261 527,573 Market value of shares at grant 184p 292.3p 310p 143.5p – Expiry date 20/3/2015 12/8/2015 Market value at date of release 146.59p – – – – Share Incentive Plan Partnership shares Matching shares Total Beneficial interests Total Beneficial interest at 31 December 2009 2,437 2,437 4,874 Beneficial interest at 31 December 2008 1,611 1,611 3,222 Number of shares at 31 December 2009 and at 3 March 2010 482,030 Number of shares at 31 December 2008 and at 13 February 2009 482,030 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 – 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. Report and Accounts 2009 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 41 Management & Governance Gary Young Finance Director Aged 50. 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 Emoluments and compensation Unexpired term at 31 December 2009 12 months Notice period 12 months Basic salary £000s 200 Bonus £000s – Fees £000s – Benefits £000s 10 2009 £000s 210 Emoluments excluding pensions 2008 £000s 342 Pension (paid and provided) 2008 £000s 30 2009 £000s 30 41 Share options 1 Jan 2009 Number 13,720 Exercised Number – 31 Dec 2009 Number 13,720 Exercise price 146.5p Market value at date of exercise N/A Date from which exercisable 12/8/2008 LTIP award 2006 2007 2008 2009 Total 1 Jan 2009 number 55,434 49,272 51,612 – 156,318 Granted number – – – 111,498 111,498 Released 55,434 – – – 55,434 31 Dec 2009 – 49,272 51,612 111,498 212,382 Market value of shares at grant 184p 292.3p 310p 143.5p Expiry date 12/8/2015 Market value at date of release 146.59p – – – Share Incentive Plan Partnership Shares Matching Shares Total Beneficial interests Total Pensions Beneficial Interest at 31 December 2009 3,868 3,868 7,736 Beneficial Interest at 31 December 2008 3,041 3,041 6,082 Number of shares at 31 December 2009 and at 3 March 2010 59,409 Number of shares at 31 December 2008 and at 13 February 2009 27,500 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 8 Audit Committee – Remuneration Committee – Nomination Committee – Executive Committee * rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:23 Page 42 The Board continued Peter Dowen Executive Director Aged 61. 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. Service Contract Date of contract February 1997 42 Emoluments and compensation Unexpired term at 31 December 2009 12 months Notice period 12 months Basic salary £000s 228 Bonus £000s – Emoluments excluding pensions Fees £000s – Benefits £000s 10 2009 £000s 238 2008 £000s 323 Pension (paid and provided) 2008 £000s 34 2009 £000s 34 Share options 1 Jan 2009 Number 32,500 15,051 LTIP award 2006 2007 2008 2009 Total 1 Jan 2009 number 68,478 60,022 44,129 – 172,629 Beneficial interests Total Pensions Exercised Number – – 31 Dec 2009 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 – – – 95,331 95,331 Released 68,478 – – – 68,478 31 Dec 2009 – 60,022 44,129 95,331 199,482 Market value of shares at grant 184p 292.3p 310p 143.5p – Expiry date 20/3/2015 12/8/2015 Market value at date of release 146.59p – – – – Number of shares at 31 December 2009 and at 3 March 2010 575,910 Number of shares at 31 December 2008 and at 13 February 2009 575,910 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 8 Audit Committee – Remuneration Committee – Nomination Committee – Executive Committee * Report and Accounts 2009 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 43 Management & Governance Dr Phil Williams Executive Director Aged 56. 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 2009 12 months Notice period 12 months Basic salary £000s 280 Bonus £000s – Emoluments excluding pensions Fees £000s – Benefits £000s 13 2009 £000s 293 2008 £000s 429 Pension (paid and provided) 2008 £000s 39 2009 £000s 42 43 LTIP award 2006 2007 2008 2009 Total 1 Jan 2009 number 57,065 60,222 61,935 – 179,222 Share Incentive Plan Partnership Shares Matching Shares Total Beneficial interests Total Pensions Granted number – _ – 156,098 156,098 Released 57,065 – – – 57,065 31 Dec 2009 – 60,222 61,935 156,098 278,255 Market value of shares at grant 184p 292.3p 310p 143.5P – Market value at date of release 146.59p – – – – Beneficial Interest at 31 December 2009 1,360 1,360 2,720 Beneficial Interest at 31 December 2008 1,181 1,181 2,362 Number of shares at 31 December 2009 and at 3 March 2010 382,987 Number of shares at 31 December 2008 and at 13 February 2009 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 8 Audit Committee – Remuneration Committee – Nomination Committee – Executive Committee * rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 44 The Board continued Roger Devlin Senior Independent Non-Executive Director Aged 52. Roger Devlin chairs four private companies - Principal Hotels (on behalf of Permira),Traveljigsaw, Gamesys and Satellite Information Services. He is also a non-executive director of National Express Group Plc. 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. Contract Date of contract April 2002 44 Emoluments and compensation Unexpired term at 31 December 2009 16 months Notice period N/A Basic salary £000s – Bonus £000s – Emoluments excluding pensions Fees £000s 35 Benefits £000s – 2009 £000s 35 2008 £000s 32 Pension (paid and provided) 2008 £000s – 2009 £000s – Beneficial interests Number of shares at 31 December 2009 and at 3 March 2010 30,000 Number of shares at 31 December 2008 and at 13 February 2009 30,000 Committee membership – Board and Committee Number of Board and Committee meetings attended Full Board 7 Audit Committee 3 Remuneration Committee 5 Nomination Committee – Report and Accounts 2009 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 45 Management & Governance Karen McPherson Independent Non-Executive Director Aged 58. 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 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. Contract Date of contract June 2005 Emoluments and compensation Unexpired term at 31 December 2009 17 months Notice period N/A 45 Basic salary £000s – Bonus £000s – Emoluments excluding pensions Fees £000s 40 Benefits £000s – 2009 £000s 40 2008 £000s 35 Pension (paid and provided) 2008 £000s – 2009 £000s – Beneficial interests Committee membership – Board and Committee Number of Board and Committee meetings attended * Chairman Number of shares at 31 December 2009 and at 3 March 2010 – Number of shares at 31 December 2008 and at 13 February 2009 – Full Board 8 Audit Committee – Remuneration Committee* 5 Nomination Committee 2 rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 46 The Board continued John Bennett Independent Non-Executive Director Aged 62. 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. Contract Date of contract June 2006 46 Emoluments and compensation Unexpired term at 31 December 2009 29 months Notice period N/A Basic salary £000s – Bonus £000s – Emoluments excluding pensions Fees £000s 35 Benefits £000s – 2009 £000s 35 2008 £000s 32 Pension (paid and provided) 2008 £000s – 2009 £000s – Beneficial interests Committee membership – Board and Committee Number of Board and Committee meetings attended * Chairman Number of shares at 31 December 2009 and at 3 March 2010 – Number of shares at 31 December 2008 and at 13 February 2009 – Full Board 7 Audit Committee* 3 Remuneration Committee 4 Nomination Committee – Report and Accounts 2009 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 47 Management & Governance Louise Charlton Independent Non-Executive Director Aged 49. 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 2009 17 months Notice period N/A 47 Basic salary £000s – Bonus £000s – Emoluments excluding pensions Fees £000s 30 Benefits £000s – 2009 £000s 30 2008 £000s 20 Pension (paid and provided) 2008 £000s – 2009 £000s Beneficial interests Committee membership – Board and Committee Number of Board and Committee meetings attended Number of shares at 31 December 2009 and at 3 March 2010 – Number of shares at 31 December 2008 and at 13 February 2009 – Full Board 8 Audit Committee – Remuneration Committee – Nomination Committee 2 rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 48 Committees Committee membership Audit Committee Executive Committee John Bennett (Chairman) Alan Hearne (Chairman) Roger Devlin Remuneration Committee Peter Dowen Phil Williams Gary Young Karen McPherson (Chairman) Nicholas Rowe (Secretary) John Bennett Roger Devlin* 48 Corporate Governance Alan Hearne (Chairman) Nomination Committee Brook Land Brook Land (Chairman) Nicholas Rowe (Secretary) Louise Charlton** Karen McPherson 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 Peter Dowen Andrew Troup*** Phil Williams Roger Devlin Karen McPherson John Bennett Louise Charlton Number of meetings held 8 8 8 8 7 8 7 8 7 8 8 – – – – – – 3 – 3 – 3 * Roger Devlin joined the Remuneration Committeee during the year. ** Louise Charlton joined the Nomination Committee during the year. *** Andrew Troup resigned during the year. – – – – – – 5 5 4 – 5 2 – – – – – – 2 – 2 2 2 2 – – – – – – – – 2 Report and Accounts 2009 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 49 Corporate Governance Committee To ensure the effective management of the Group’s structure and organisation during a time when expectations about the nature and standards of Corporate Governance have been evolving 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 and its committees appraised about the implications of changes to the Combined Code and other developments in the field of corporate governance.The work of the Corporate Governance Committee is, therefore, reflected in the activities of the Audit, Nomination and Remuneration Committees as well as the structure, composition and operation of the Group Board.This includes the production of the policies described in the Corporate Responsibility Report (pages 31 to 34). 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. * Since the resignation of A.Troup in November 2009 the Board has been compliant with this provision. Management & Governance 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 2008 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 36-37 49 A.1.2 Compliant 39-48 A.1.3 Compliant A.1.4 Compliant A.1.5 Compliant A.2.1 Compliant 38 37 37 37 A.2.2 A.3.1 Compliant Compliant 36 39-48 A.3.2 Compliant * 36 rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 50 Corporate Governance continued 50 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. 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 the performance of the Board, its committees and its individual Directors.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. Combined Code paragraph Comment A.3.3 Compliant Page 37-38 A.4.1 Compliant 59-60 A.4.2 Compliant 59-60 A.4.3 Compliant 59-60 A.4.4 Compliant 56 A.4.6 Compliant 59-60 A.5.1 Compliant A.5.2 Compliant A.5.3 Compliant 37 37 37 A.6.1 Compliant 37-38 A.7.1 Compliant Notice of Meeting A.7.2 Compliant B.1.1 Compliant B.1.2 B.1.3 Compliant Compliant B.1.5 Compliant 37 52 55 56 56 56 B.1.6 B.2.1 Compliant Compliant * 52 The Remuneration Committee should make available its terms of reference. B.2.1 Compliant 53 * Following the appointment of an additional Non-Executive Director in January 2009 the Committee has been compliant with this provision. Report and Accounts 2009 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 51 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 (as defined in the Listing Rules) and significant changes to existing schemes. The Directors should explain in the annual report their responsibility for preparing accounts and there should be a statement by the auditors 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. Management & Governance Combined Code paragraph Comment B.2.2 Compliant B.2.3 B.2.4 Compliant Compliant Page 52-56 56 55 C.1.1 Compliant 65-67 C.1.2 C.2.1 Compliant 65 Compliant 52 & 59 C.3.1 Non-Compliant *** 51 C.3.2/3.3 Compliant 58-59 C.3.4 Compliant C.3.5 Compliant C.3.6 Compliant C3.6 Compliant C.3.7 Compliant D.1.1 Compliant 58 59 59 n/a 59 34 D.1.2 Compliant 34 D.2.1 Compliant D.2.2 Compliant Notice of Meeting D.2.3 Compliant 34 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. D.2.4 Compliant Notice of Meeting *** The Board has been 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. Notwithstanding this a process is in train to recruit a new Non-Executive Director who will serve as an additional member of this Committee. rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 52 52 Corporate Governance continued Communication The Company attaches great importance to communication with its shareholders and other stakeholders.The full report and accounts is made available to all shareholders and to other parties who have an interest in the Group’s performance on the Group’s website. In addition the Company’s website provides up-to-date information about its organisation, the services it offers and newsworthy subjects.The Company also responds to numerous letters and enquiries from shareholders and others with an interest in the Group. There is regular dialogue with individual institutional shareholders as well as presentations after the interim and annual results and at other events. All shareholders have the opportunity to ask 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 65-67 and the statement of the Directors in respect of going concern appears on page 65. The Board has procedures in place as recommended in the guidance in “The Combined Code on Corporate Governance” and “Turnbull: Guidance on Internal Controls”.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 25-29. 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 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 2009 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 joined the Committee during the year. 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. The Remuneration Committee indicated in its 2008 Report that it was reviewing the operation of the Company’s executive annual bonus arrangements and long-term incentives upon the expiry of the shareholder approval for the RPS Group Plc Long-Term Incentive Plan (the “LTIP”) in the context of its whole remuneration policy in line with best practice. The Remuneration Committee started the consultation process with the Company’s major shareholders in November 2009 on new proposals. It is intended that the consultation will be completed in the first quarter of 2010. 1 1 2 1 2 1 1 2 2 Alan Hearne 1 Fixed 34.4% 2 Variable 65.6% 2 Peter Dowen 42.7% 1 Fixed 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 39.5% 2 Variable 60.5% Analysis of fixed versus performance related pay for Executive Directors 2009 Notes: Fixed compensation comprises: Basic salary Benefits Variable compensation comprises: Maximum Bonus Potential Face Value of LTIP Awards 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 53 Remuneration Committee - Terms of Reference ■ 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; ■ 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; ■ 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; ■ determine the policy for and scope of pension arrangements for each Executive Director; ■ determine targets for any performance-related pay and share schemes operated by the Company; ■ 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; ■ 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; ■ ensure that provisions regarding disclosure of remuneration, including pensions, as set out in the Directors’ Remuneration Report Regulations 2002 and the Code, are fulfilled; ■ be aware of and advise on any major changes in employee benefit structures throughout the Company or Group; ■ be exclusively responsible for establishing the selection criteria, selecting, appointing and setting the terms of reference for any remuneration consultants who advise the Committee; ■ meet as required during the year; and ■ report the frequency of, and attendance by members at, Remuneration Committee meetings in the annual report (see page 48). Remuneration policy The Remuneration Committee’s policy for 2009 was to set the main elements of the remuneration package in order to reflect: ■ the performance of the individual concerned; ■ the performance of the business unit(s) for which he/she is responsible; ■ in the case of Group directors, the performance of the Group as a whole; and ■ 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 53 Management & Governance 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 52 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 from PricewaterhouseCoopers (‘PwC’). Base salary When determining the salary of the Executive Directors the Remuneration Committee takes into consideration: ■ the performance of the Group as a whole; ■ the performance of the individual Executive Director both for the Group and the businesses under his control; ■ pay and conditions throughout the Company; and ■ the market conditions in the sector the Group operates in. The results of this exercise are then benchmarked against an independently established group of listed companies. This group is identified independently by PwC. The basis of selection of the group is: ■ companies within the same sector as the Company; and ■ 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. rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 54 Corporate Governance continued The companies comprising the comparator group used in the last review were as follows: 54 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 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: The earnings per share growth targets that applied in 2009 are set out below: % Earnings per Share Growth Inclusive of RPI % Bonus Payable for EPS Element % Earnings per Share Growth Inclusive of RPI % Bonus Payable for EPS Element 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 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 20 21 22 23 24 25 26 27 28 29 30 31 32 32.2 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 IAS 33. The EPS performance targets were not satisfied in 2009 and therefore no bonuses were payable in respect of this element of the annual bonus. The table below shows the maximum bonus potential that applied for Executive Directors in 2009: % Maximum Bonus Potential % of Maximum Bonus subject to each Target 2008 Executive Chief Executive Finance Director Executive Directors 2009 100 80 80 EPS Target 2009 100 50 50 Divisional & Individual Targets 2009 – 50 50 No bonuses were earned under the Divisional and Individual target elements of the 2009 bonus.Therefore no bonuses were payable to Executive Directors in respect of 2009 under any elements of the bonus plan. As stated earlier in the Report the Company is in active dialogue with its major shareholders about new incentive arrangements for 2010. Long-term Incentives The following table and paragraphs summarise the operation of the Company’s LTIP: Executive 2006 Grant % of Salary/ Condition 2007 Grant % of Salary/ Condition 2008 Grant % of Salary/ Condition 2009 Grant % of Salary/ Condition Maximum Annual Grant Chief Executive Finance Director Executive Directors Performance Condition EPS Growth 100 80 60 60 (see table below) 100 100 80 80 EPS Growth (see table below) 100 100 80 60-80 EPS Growth (see table below) 100 100 80 60-80 EPS Growth (see table below) Release Date 31 March 2012 ■ maximum Bonus Potential for Executive Directors for 2009. ■ bonus targets which applied for 2009. Status Released in full Based on current Release Date on 30 March performance it is 8 April 2011 2009 as the EPS anticipated that the grant will be performance released in full on condition was satisfied (see 14 March 2010 table below) Report and Accounts 2009 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 55 100% of the shares subject to the third grant were released on 30 March 2009. The following shares were awarded at the grant price of £1.84: Full details of the Directors LTIP awards are set out on page 64.The LTIP was approved by shareholders in 2004 for a period of five years. Name Number of ordinary shares Alan Hearne Gary Young Andrew Troup Peter Dowen Phil Williams 145,652 55,434 60,326 68,478 57,065 The market price of the shares on release was £1.4659. The performance conditions attached to the release of LTIP shares related to EPS growth is as follows: % 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 2009 is set out in the following table: Name Alan Hearne Gary Young Andrew Troup Peter Dowen Phil Williams Shares Granted Market value of shares 275,261 111,498 83,624 95,331 156,098 143.5p 143.5p 143.5p 143.5p 143.5p For 2003 and earlier years long-term incentives consisted 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: ■ 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 ■ 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. 55 Management & Governance The Directors’ individual share options are detailed in the Directors’ report on page 63. 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.Total participation in the SIP scheme across the Group is 35% of eligible employees. The Executive Directors also receive the following additional benefits: ■ healthcare; ■ life assurance and dependants’ pensions; ■ disability schemes; and ■ company car or car allowance. Shareholding guideline Shareholdings across the Executive Directors and Senior Executives are not uniform.Therefore, three years ago the Remuneration Committee introduced 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 Company’s long term incentive plans. 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. rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 56 Corporate Governance continued Recommended shareholding requirement as percentage of salary Details of the Directors’ service contracts are included in the table below. The fees paid to the Chairman and each Non-Executive Director are detailed on page 39 and pages 44-47. 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 2009 (months) Brook Land September 1997 Roger Devlin Karen McPherson John Bennett Louise Charlton April 2002 June 2005 June 2006 May 2008 Annual Review 16 17 29 17 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. The table below confirms that the only event on the occurrence of which the Company is liable to make a payment to Executive Directors is on cessation of employment. Potential payment in event of Company takeover or liquidation Potential termination payment Name Alan Hearne 12 months’ notice Peter Dowen 12 months’ notice Andrew Troup 12 months’ notice Gary Young 12 months’ notice Phil Williams 12 months’ notice Nil Nil Nil Nil Nil All Directors are required to seek re- election at least once in 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. Total shareholder return from 1st January 2005 260 240 220 200 180 160 140 120 100 80 2005 2006 2007 2008 2009 RPS Group - Tot Return Ind FTSE All Share - Tot Return Ind FTSE All Share Support SVS £ - Tot Return Ind Name Alan Hearne Gary Young Peter Dowen Phil Williams 150% 100% 100% 100% 56 Service contracts The Company’s policy on the duration of service contracts is that: ■ Executive Directors should have rolling service contracts terminable on no more than one year’s notice served by the Company or the Director; and ■ 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. 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 2009 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 57 Emoluments excluding pensions Pension (paid and provided) Bonus £000s Fees £000s Benefits £000s 2009 £000s 2008 £000s 2009 £000s 2008 £000s – – – – – – – – – – – 795 – – – – – 95 35 40 35 30 235 206 19 10 9 10 13 – – – – – 61 61 414 210 178 238 293 95 35 40 35 30 1,568 – 739 342 309 323 429 87 32 35 32 20 – 2,348 – 30 27 34 42 – – – – – 133 – – 30 30 34 39 – – – – – – 133 Basic salary £000s 395 200 169 228 280 – – – – – 1,272 1,283 Executive: Alan Hearne Gary Young Andrew Troup* Peter Dowen Phil Williams Non-Executive: Brook Land Roger Devlin Karen McPherson John Bennett Louise Charlton Total 2009 Total 2008 The total Directors’ emoluments were £1,568,000 (2008: £2,348,000) excluding pension contributions. *Remuneration for Mr Troup in 2009 is that covered up to his resignation from the Board on 5 November 2009. Following the resignation of Mr Troup as a director and the cessation of his employment on 20 November 2009 it was agreed that the Company would, subject to an appropriate provision for mitigation, continue to pay him an amount which represents his net salary for the period which would otherwise have been his notice period being 12 months. Directors’ emoluments and compensation The following disclosures on Directors’ remuneration and share incentives have been audited as required by Part 3 of Schedule 8 of the Large and Medium- sized Companies and Groups (Accounts and Reports) Regulations 2008.The table above sets out details of the emoluments and compensation received during the year by each Director. Share awards The tables on pages 63 and 64 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 is on on pages 54-55. 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 4 May 2010. This report was approved by the Board on 3 March 2010. Signed on behalf of the Board Karen McPherson Chairman of the Remuneration Committee 3 March 2010 Management & Governance 57 rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 58 58 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. The Committee takes seriously its responsibility to put in place safeguards to ensure auditor objectivity and independence. It has therefore adopted a policy to determine the circumstances in which Auditors may be permitted to undertake non-audit work for the Group. Under the terms of this policy the provision of certain services are prohibited and include those listed below: ■ bookkeeping services ■ preparation of financial statements ■ design and implementation of financial systems ■ valuation services ■ investment advisory, broker and dealing services ■ general management services Certain other services are approved up to agreed financial limits with the provision of such services beyond those limits requiring approval of the Committee.The following fall within this category: ■ taxation services ■ transaction support including due diligence ■ advice relating to risk management and controls ■ accountancy advice and training The provision of any service at any level that does not fall within the above categories requires the approval of the Committee. The split between audit and non-audit fees for the year under review appears on page 82. Report and Accounts 2009 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: ■ 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; ■ any concerns raised will be treated in confidence, and will be investigated and any action proposed reported to the Audit Committee; and ■ the person raising the concern need not disclose their identity. If their identity is disclosed this 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: ■ reviews and agrees terms of reference put forward by the Audit Committee; ■ considers changes to the terms of reference when recommended by the Committee; ■ receives prompt summary reports after each meeting of the Committee; ■ is advised of matters for its attention at other times as deemed necessary by the Committee; ■ will refer matters to the Committee for its attention as necessary; ■ reviews annually the Committee’s policies, practices and performance; and ■ 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 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 59 Management & Governance 59 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. 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. Although no directors were recruited during the year where there is such recruitment this is undertaken through a formal, rigorous and transparent process. The Nomination Committee’s written terms of reference are set out below: Membership The Committee shall review the scope of, approach to and findings from external audit work. The Committee shall be appointed by the Board and shall comprise of a Chairman and at least two other members. The Committee shall discuss with the external auditors any proposed changes in accounting policies. A majority of members of the Committee shall be Independent Non-Executive Directors. 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 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. Notice of meetings 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: ■ regularly review the structure, size and composition of the Board and make recommendations to the Board with rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 60 Corporate Governance continued regard to any adjustments that are deemed necessary; “retirement by rotation” provisions in the Company’s articles of association; ■ prepare a description of the role and capabilities required for a particular appointment; ■ concerning any matters relating to the continuation in office as a Director of any Director at any time; and ■ be responsible for identifying and ■ 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: ■ all the Non-Executive Directors regarding the position of Chief Executive; ■ all the Directors regarding the position of Chairman; and ■ 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. Takeover Directive Disclosures required under the Takeover Directive are included on page 66 and form part of the Group’s Corporate Governance report. 60 nominating for the approval of the Board candidates to fill Board vacancies as and when they arise; ■ satisfy itself with regard to succession planning, that the processes and plans are in place with regard to the Board and senior appointments; ■ 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; ■ ensure on appointment that a candidate has sufficient time to undertake the role and review his commitments; and ■ 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: ■ 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; ■ 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; ■ for the continuation (or not) in service of any Director who has reached the age of 70; ■ concerning the re-election by shareholders of any Director under the Report and Accounts 2009 Report and Accounts 2009 Accounts Accounts 61 Accounts Report of the Directors Report of the Independent Auditors Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Cash Flow Statement Consolidated Statement of Changes in Equity Notes to the Consolidated Financial Statements Parent Company Balance Sheet Notes to the Parent Company Financial Statements Five Year Summary 61 62 67 68 68 69 70 71 72 108 109 116 rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 62 Report of the Directors The Directors present their report together with the audited financial statements for the year ended 31 December 2009. Results and dividend The income statement is set out on page 68 and shows the profit for the year. The Directors recommend a final dividend of 2.19p (2008: 1.91p) per share. This together with the interim dividend of 2.01p (2008: 1.75p) per share paid on 22 October 2009 gives a total dividend of 4.20p (2008: 3.66p) per share for the year ended 31 December 2009. Principal activities and business review Business review information can be found within the Business Review (pages 9 to 32) 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 page 8. 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 5 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 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 25 in the Risk Management section of the Operating and Financial Review. Corporate Governance The Directors report on corporate governance can be found on pages 49-60 and incorporates other parts of the Report and Accounts as detailed therein. Substantial shareholdings The Company is aware of the following interests in excess of 3% of the ordinary share capital of the Company as at 11 February 2010: 62 No. of shares Percentage 18,126,453 12,201,232 11,587,492 9,009,918 7,903,576 7,726,902 7,316,583 6,791,950 6,576,769 8.42 5.67 5.38 4.18 3.67 3.59 3.40 3.15 3.05 Co-operative Asset Management William Blair & Company Aberforth Partners Legal & General Investment Management Neuberger Berman Threadneedle Investments Aegon Asset Management Impax Asset Management Black Rock Report and Accounts 2009 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 63 Accounts Directors 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 Alan Hearne Peter Dowen Andrew Troup (resigned 5 November 2009) Phil Williams Gary Young * As at date of resignation No. of shares at 31/12/09 and at 03/03/10 No. of shares at 31/12/08 and at 06/03/09 30,000 30,000 – – – 482,030 575,910 269,266* 382,987 59,409 30,000 30,000 – – – 482,030 575,910 269,266 350,000 27,500 63 The share options of the Directors under the Executive share option scheme are set out below: Director Alan Hearne Peter Dowen Andrew Troup 1 Jan 2009 number 62,500 28,157 32,500 15,051 35,000 35,000 14,437 14,437 Gary Young 13,720 Exercised number – – – – – – – – – 31 Dec 2009 number 62,500 28,157 32,500 15,051 35,000* 35,000* 14,437* 14,437* Exercise price 111.0p 146.5p 111.0p 146.5p 111.0p 111.0p 146.5p 146.5p 13,720 146.5p Market value at date of exercise Date from which exercisable Expiry date – – – – – – – – _ 20/3/2008 12/8/2008 20/3/2015 12/8/2015 20/3/2008 12/8/2008 20/3/2015 12/8/2015 20/3/2006 20/3/2008 12/8/2006 12/8/2008 20/3/2013 20/3/2015 12/8/2013 12/8/2015 12/8/2008 12/8/2015 * Mr Troup’s outstanding share options are as at his date of resignation. Following cessation of employment on 20 November 2009 and in accordance with the rules of the scheme Mr Troup had a period of six months within which to exercise his outstanding options. Mr Troup exercised all outstanding options within this period. At date of exercise the market price was 207.5p. rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:24 Page 64 Report of the Directors continued The LTIP awards of the Directors are set out below: Director Alan Hearne Peter Dowen 64 Andrew Troup Phil Williams Gary Young 1 Jan 2009 number 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 – 2006 2007 2008 2009 2006 2007 2008 2009 2006 2007 2008 2009 2006 2007 2008 2009 2006 2007 2008 2009 Value of grant at date of grant £000s Granted number Released 31 Dec 2009 number Market Value Market Value Market Value of release £000s at date of release of Shares at Grant 268 365 395 395 126 176 137 137 111 156 120 120 105 176 192 224 102 144 160 160 – – – 275,261 – – – 95,331 – – – 83,624 – – – 156,098 – – – 111,498 145,652 – – – 68,478 – – – 60,326 – – – 57,065 – – – 55,434 – – – – 124,893 127,419 275,261 – 60,222 44,129 95,331 – 53,378* 38,709* 83,624* – 60,222 61,935 156,098 – 49,272 51,612 111,498 184.0p 292.3p 310p 143.5p 184.0p 292.3p 310p 143.5p 184.0p 292.3p 310p 143.5p 184.0p 292.3p 310p 143.5p 184.0p 292.3p 310p 143.5p 146.59p 214 – – – – – – 146.59p 100 – – – 146.59p – – – 146.59p – – – 146.59p – – – – – – 88 – – – 84 – – – 81 – – – The total value of LTIP awards released in 2009 was £567,000 (2008: £1,392,000). * Mr Troup’s outstanding awards are as at date of resignation.The LTIP award made to Mr Troup in 2007 will, subject to satisfaction of the normal performance conditions and in accordance with the original terms of the award, be released on 14 March 2010.The LTIP awards made to Mr Troup in 2008 and 2009 lapsed on cessation of employment on 20 November 2009. Report and Accounts 2009 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:24 Page 65 The market price of the shares at 31 December 2009 was 217p and the range during the financial year was 121.25p to 250p. 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 19 and 20. Charitable and community donations comply with the requirements of the Companies Act 2006. 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: During the year the Group made charitable donations of £480,000 to non-political organisations.Total contributions including contributions in kind amounted to £585,000. ■ so far as the Director is aware, there is no relevant audit information of which the Company’s auditors are unaware; and 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 (2008: 36 days). At the year end the Company had 16 days’ purchases outstanding in respect of payments to suppliers and sub-contractors (2008: 36 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 ■ 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 2006. The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with the Companies Act 2006.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 Accounts 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: ■ consistently select and apply appropriate accounting policies; ■ present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; and 65 ■ 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. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and its profit or loss for that period. 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: ■ select suitable accounting policies and then apply them consistently; ■ make judgements and estimates that are reasonable and prudent; ■ state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and ■ prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 66 Amendments to the Company’s Articles of Association 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 63. Substantial shareholder interests of which the Company is aware are shown on page 62. 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 4 May 2010.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 LLP as the Company’s Auditors. By order of the Board Nicholas Rowe Secretary 3 March 2010 Post balance sheet events There are no significant post balance sheet events to report. 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 2009 the Company’s issued share capital consisted of 215, 247, 277 ordinary shares of 3p each. 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 buy back shares in the Company pursuant to the terms and limitations of resolutions passed by shareholders at each annual general meeting of the Company. Report of the Directors continued Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company for that period. The Directors confirm that they have complied with the above requirements in preparing the financial statements. Directors’ responsibilities statement pursuant to DTR 4 The Directors confirm that to the best of their knowledge: 66 ■ 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 ■ 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 15 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 20 to 22. Report and Accounts 2009 Report and Accounts 2009 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 67 Independent Auditors Report To the members of RPS Group Plc We have audited the financial statements of RPS Group Plc for the year ended 31 December 2009 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated and Parent Company Balance Sheets, the Consolidated Cash Flow Statement, the Consolidated Statement of Changes in Equity and the related notes.The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in preparation of the Parent Company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose.To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the statement of directors' responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland).Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and the Parent Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. Opinion on financial statements In our opinion: ■ the financial statements give a true and fair view of the state of the Group’s and the Parent Company’s affairs as at 31 December 2009 and of the Group’s profit for the year then ended; ■ the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; ■ the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and ■ the financial statements have been prepared in accordance with the requirements of the Companies Act 2006; and, as regards the group financial statements, Article 4 of the lAS Regulation. Opinion on other matters prescribed by the Companies Act 2006 In our opinion: ■ the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006; and ■ the information given in the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements. 67 Accounts Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: ■ adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or ■ the Parent Company financial statements and the part of the directors’ remuneration report to be audited are not in agreement with the accounting records and returns; or ■ certain disclosures of directors’ remuneration specified by law are not made; or ■ we have not received all the information and explanations we require for our audit. Under the Listing Rules we are required to review: ■ the directors’ statement, set out on page 62, in relation to going concern; and ■ the part of the corporate governance statement relating to the Company’s compliance with the nine provisions of the June 2008 Combined Code specified for our review. Graham Clayworth (Senior Statutory Auditor) For and on behalf of BDO LLP, statutory auditor 55 Baker Street London W1U 7EU United Kingdom 3 March 2010 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:24 Page 68 Consolidated Income Statement Revenue Recharged expenses Fee income Operating profit Finance costs Finance income 68 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 2009 £000s Year ended 31 Dec 2008 £000s Notes 3 3 3 443,909 (69,558) 374,351 470,465 (78,369) 392,096 3, 4 51,448 58,862 5 5 8 9 9 9 9 (3,113) 268 52,472 (3,869) (4,424) 384 57,512 (2,690) 48,603 54,822 (14,997) (16,933) 33,606 37,889 15.78 15.59 17.08 16.87 18.00 17.75 18.92 18.66 Consolidated Statement of Comprehensive Income Year ended 31 Dec 2009 £000s Year ended 31 Dec 2008 £000s 33,606 37,889 (3,804) 188 23,811 (573) 29,990 61,127 Profit for the year Other Comprehensive Income Exchange differences Tax recognised directly in equity Total recognised comprehensive income for the year attributable to equity holders of the parent The notes on pages 72 to 115 form part of these financial statements. Report and Accounts 2009 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 69 Consolidated Balance Sheet Assets Non-current assets Intangible assets Property, plant and equipment Investments in associates 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 69 Accounts As at 31 Dec 2009 £000s As at 31 Dec 2008 £000s Notes 10 11 13 15 17 14 18 15 17 19 18 20 21 293,943 28,226 204 322,373 139,247 13,691 152,938 1,802 15,652 68,678 6,135 1,324 93,591 59,347 44,652 9,289 1,301 9,791 3,219 68,252 313,468 6,457 98,238 39,519 169,254 313,468 264,733 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 These financial statements were approved and authorised for issue by the Board on 3 March 2010. The notes on pages 72 to 115 form part of these financial statements. Dr Alan Hearne, Director Gary Young, Director On behalf of the Board of RPS Group Plc. rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 70 Consolidated Cash Flow Statement 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 70 Cash flows from financing activities Proceeds from issue of share capital Repayments of bank borrowings Payment of finance lease liabilities Dividends paid Payment of pre-acquisition dividend Net cash used in financing activities Net (decrease)/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 72 to 115 form part of these financial statements. Report and Accounts 2009 Notes 25 11 22 25 Year ended 31 Dec 2009 £000s Year ended 31 Dec 2008 £000s 70,583 (3,839) 268 (12,550) 54,462 (20,616) (15,075) (4,061) 86 (39,666) 381 (9,023) (599) (8,410) (1,511) (19,162) 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) (4,366) 1,890 16,707 1,350 13,691 13,691 – 13,691 10,884 3,933 16,707 17,088 (381) 16,707 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 71 Consolidated Statement of Changes in Equity Accounts At 1 January 2008 Changes in equity during 2008 Total comprehensive income for the year Issue of new ordinary shares Share based payment expense Dividends At 31 December 2008 Changes in equity during 2009 Total comprehensive income for the year Issue of new ordinary shares Share based payment expense Dividends At 31 December 2009 Share capital £000s 6,319 – 80 – – 6,399 – 58 – – 6,457 Share premium £000s Retained earnings £000s Other reserves £000s Total equity £000s 93,225 110,474 17,516 227,534 – 2,306 – – 95,531 – 2,707 – – 98,238 37,316 (1,247) 2,794 (7,211) 142,126 33,794 (1,536) 3,280 (8,410) 169,254 23,811 2,224 – – 43,551 (3,804) (228) – – 39,519 61,127 3,363 2,794 (7,211) 287,607 29,990 1,001 3,280 (8,410) 313,468 71 The notes on pages 72 to 115 form part of these financial statements. rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 23/3/10 15:25 Page 72 72 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 2009 comprises the Company and its subsidiaries (together referred to as the “Group”). The consolidated financial statements were authorised for issuance on 3 March 2010. (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 IASB has issued the following revised and updated standards that are applicable to the Group and that resulted in changes in presentation for this accounting period; lAS 1 (revised) “Presentation of financial statements”, and IFRS 8 “Operating Segments”. lAS 1 (revised) updates the presentation of the key statements of performance and position for the Group. IFRS 8 introduces new requirements for segmental reporting to be based on the information provided to the Chief Operating Decision Maker (CODM). It also introduces additional disclosure and reconciliation requirements. In addition, the IASB has updated IFRS 7 “Financial Instruments: Disclosures” and issued a variety of IFRIC amendments.The only impact on the Group’s reporting is in respect of disclosure. Otherwise, these financial statements have been prepared using accounting policies set out in the Report and Accounts 2008. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements. (b) Basis of consolidation 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. ii Financial statements of foreign operations 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. Subsidiaries are entities controlled by the Company. Control exists when the 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 amount at the date of that revaluation, an exemption allowed under IFRS 1. ii Leased assets 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 Report and Accounts 2009 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 73 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. 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)). 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 (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)). 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 increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred. 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 are as follows: Customer relationships 3 to 15 years Trade names Order backlog 1 to 5 years 1 to 4 years (f) Trade and other receivables Trade and other receivables are recognised at inception at fair value and then carried 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 73 Accounts 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 of non financial assets 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 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. 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 2008 and 31 December 2009. i Calculation of recoverable amount 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 rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 74 Notes to the Consolidated Financial Statements continued 1. Significant accounting policies continued does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. ■ the life of the option; ■ the market price on the date of grant of the option; ■ the expected volatility of the share (i) Employee benefits price; i Defined contribution plans Obligations for contributions to defined contribution retirement benefit plans are recognised as an expense in the income statement as incurred. 74 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. 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: ■ the exercise price of the option; Report and Accounts 2009 ■ the dividends expected on the shares; and ■ the risk free interest rate for the life of the option. The fair value of conditional share awards has 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. (l) Borrowings 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. 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 i Operating lease payments Payments made under operating leases are recognised in the income statement 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 75 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. 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 75 Accounts 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 goodwill. Judgements are made in respect 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 10. In iii Revenue recognition 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 which would have an impact on the Group’s reporting, have yet to be adopted by the Group: ■ Revised IFRS 3 “Business combinations”; ■ Improvements to IFRSs (2009); ■ Amendments to IFRS 2 “Group cash settled share-based payment transactions”; and ■ Revised IAS 24 “Related Party Disclosures”. rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 76 Notes to the Consolidated Financial Statements continued 2. Revised business segments As announced on 4th February 2010, the Group reviewed the composition of its business segments as a result of the acquisition of Conics (see note 27) and the following two changes have been made. 1. In respect of Planning and Development the results of Britain, Ireland and Australia have been separated. supply services to Energy clients and projects have been moved to the Energy segment. 2.The results of those activities in Environmental Management which primarily The effect of these changes to the 2008 results is shown below. Revised segment results for the year ended 31st December 2008 Planning & Development £000s Energy £000s Environmental Management £000s Group eliminations £000s Consolidated £000s 165,180 1,670 166,850 (41,341) (2,113) (43,454) 206,521 2,200 208,721 30,316 238 30,554 (1,013) – (1,013) (1,057) – (1,057) 28,246 238 28,484 139,586 18,404 157,990 (21,802) (2,532) (24,334) 161,388 20,493 181,881 25,842 4,621 30,463 – – – (663) (406) (1,069) 25,179 4,215 29,394 92,741 (22,481) 70,260 (15,226) 4,645 (10,581) 107,967 (28,104) 79,863 13,841 (4,859) 8,982 – – – (970) 406 (564) 12,871 (4,453) 8,418 (5,411) 2,407 (3,004) – – – (5,411) 5,411 – – – – – – – – – – – – – 392,096 – 392,096 (78,369) – (78,369) 470,465 – 470,465 69,999 – 69,999 (1,013) – (1,013) (2,690) – (2,690) 66,296 – 66,296 76 Fees Previously reported Reallocation Revised Recharged expenses Previously reported Reallocation Revised External revenue Previously reported Reallocation Revised Underlying profit Previously reported Reallocation Revised Reorganisation costs Previously reported Reallocation Revised Amortisation of acquired intangibles Previously reported Reallocation Revised Segment result Previously reported Reallocation Revised Report and Accounts 2009 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 77 Accounts 2. Revised business segments continued Revised segmental balance sheet disclosures for the year ended 31 December 2008 Planning & Development £000s Energy £000s Environmental Management £000s Unallocated Corporate £000s Consolidated £000s Assets Segment assets as previously reported Reallocation Revised segment assets 245,096 (6,932) 238,164 115,927 37,253 153,180 Depreciation and amortisation Depreciation and amortisation as previously reported Reallocation Revised depreciation and amortisation 3,496 168 3,664 1,452 934 2,386 95,612 (30,321) 65,291 3,305 (1,102) 2,203 7,368 – 7,368 549 – 549 464,003 – 464,003 8,802 – 8,802 77 rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 78 3. Business and geographical segments Segment information is presented in the financial statements in respect of the Group’s business segments, which are reported to the Chief Operating Decision Maker (CODM).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. 78 Business segments The Group comprises the following business segments: Planning & Development - consultancy services in GB, Ireland (comprising the Republic of Ireland and Northern Ireland) and Australia 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. Environmental Management - consultancy services in the UK and the Netherlands, related to environmental science, the management of water resources and health, safety and risk management other than to the oil and gas sector. Energy - the provision of a wide range of consultancy services including those relating to health, safety and risk management, on an international basis, to the upstream oil and gas and offshore renewable energy sectors. Segment results for the year ended 31st December 2009 Fees £000s 64,511 63,496 33,235 (300) 160,942 149,057 67,106 (2,754) 374,351 Recharged expenses £000s Intersegment revenue £000s 8,090 18,747 8,648 (27) 35,458 24,616 9,771 (287) 69,558 (1,272) (167) (544) 327 (1,656) (601) (784) 3,041 – Underlying profit £000s Reorganisation costs £000s Amortisation of acquired intangibles £000s 12,387 5,990 8,287 26,664 27,979 10,349 64,992 (1,770) (985) (21) (2,776) (306) (371) (3,453) (887) – (855) (1,742) (1,793) (334) (3,869) External revenue £000s 71,329 82,076 41,339 – 194,744 173,072 76,093 – 443,909 Operating profit £000s 9,730 5,005 7,411 22,146 25,880 9,644 57,670 Planning and Development: GB Ireland Australia Intra P&D eliminations Total Planning and Development Energy Environmental Management Group eliminations Total Planning and Development: GB Ireland Australia Total Planning and Development Energy Environmental Management Total Report and Accounts 2009 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 79 3. Business and geographical segments continued Revised segment results for the year ended 31st December 2008 Planning and Development: GB Ireland Australia Intra P&D eliminations Total Planning and Development Energy Environmental Management Group eliminations Total Planning and Development: GB Ireland Australia Total Planning and Development Energy Environmental Management Total Group Reconciliation Revenue Recharged expenses Fees Underlying profit Reorganisation costs Unallocated expenses Operating profit before amortisation Amortisation Operating profit Finance costs Profit before tax 79 Accounts External revenue £000s 93,544 92,381 22,796 – 208,721 181,881 79,863 – 470,465 Segment result £000s 15,815 7,699 4,970 28,484 29,394 8,418 66,296 2008 £000s 470,465 (78,369) 392,096 69,999 (1,013) (7,434) 61,552 (2,690) 58,862 Fees £000s 81,962 69,569 15,840 (521) 166,850 157,990 70,260 (3,004) 392,096 Recharged expenses £000s Intersegment revenue £000s 13,274 23,111 7,069 – 43,454 24,334 10,581 – 78,369 (1,692) (299) (113) 521 (1,583) (443) (978) 3,004 – Underlying profit £000s Reorganisation costs £000s Amortisation of acquired intangibles £000s 17,672 7,699 5,183 30,554 30,463 8,982 69,999 (1,013) – – (1,013) – – (1,013) (844) – (213) (1,057) (1,069) (564) (2,690) 2009 £000s 443,909 (69,558) 374,351 64,992 (3,453) (6,222) 55,317 (3,869) 51,448 (2,845) (4,040) 48,603 54,822 rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 80 Notes to the Consolidated Financial Statements continued 3. Business and geographical segments continued Planning and Development: GB Ireland Australia Planning and Development total Energy Environmental Management Unallocated Group total 80 Geographical analysis Great Britain Ireland Australia USA Netherlands Canada Other Total Carrying amount of segment assets 2008 £000s 2009 £000s Segment depreciation and amortisation 2008 £000s 2009 £000s 107,356 87,660 76,432 271,448 138,310 58,886 6,667 475,311 2009 £000s 209,970 82,076 70,590 32,762 28,947 18,003 1,561 443,909 112,957 106,606 18,601 238,164 153,180 65,291 7,368 464,003 Revenue 2008 £000s 246,075 92,381 51,975 31,352 27,087 20,504 1,091 470,465 1,948 984 1,837 4,769 3,295 2,131 542 10,737 2009 £000s 180,509 63,327 60,340 29,745 24,268 14,601 1,561 374,351 2,169 1,033 462 3,664 2,386 2,203 549 8,802 Fees 2008 £000s 211,434 69,274 42,913 26,286 23,283 17,815 1,091 392,096 The table above shows revenue and fees to external customers based upon the location from which billing took place. Carrying amount of segment assets 2008 £000s 2009 £000s 224,273 87,660 105,860 21,444 25,970 9,501 603 475,311 241,191 106,606 46,600 26,553 30,061 12,343 649 464,003 Great Britain Ireland Australia USA Netherlands Canada Other Total Report and Accounts 2009 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 81 4. 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 Loss/(profit) on disposal of fixed assets Reorganisation costs Other operating lease rentals payable – property – equipment and motor vehicles Operating sublease income receivable 5. 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 81 Accounts Year ended 31 Dec 2009 £000s Year ended 31 Dec 2008 £000s 443,909 (69,558) 374,351 (184,232) (10,737) (127,934) 51,448 470,465 (78,369) 392,096 (187,280) (8,802) (137,152) 58,862 Year ended 31 Dec 2009 £000s Year ended 31 Dec 2008 £000s 6,429 439 3,869 122 3,453 10,028 4,128 191 6,076 36 2,690 (179) 1,013 5,969 3,367 111 Year ended 31 Dec 2009 £000s Year ended 31 Dec 2008 £000s (1,975) (428) (710) (3,113) 268 (2,845) (3,121) (793) (510) (4,424) 384 (4,040) rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 82 Notes to the Consolidated Financial Statements continued 6. Employee benefit expense Staff costs (including Directors’ emoluments) consist of: Wages and salaries Social security costs Pension costs - defined contribution plans Share based payment expense - equity settled Average number of employees (including Executive Directors) was: Professional Support 82 Details of directors’ remuneration are included on page 57. Year ended 31 Dec 2009 £000s Year ended 31 Dec 2008 £000s 157,648 15,906 7,398 3,280 184,232 3,411 843 4,254 161,676 15,983 6,827 2,794 187,280 3,609 829 4,438 7. Auditors’ remuneration During the year, the Group (including its overseas subsidiaries) obtained the following services from the Group’s auditors at costs as detailed below: 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 Other services Audit services Statutory audit Tax services Year ended 31 Dec 2009 £000s Year ended 31 Dec 2008 £000s 84 95 23 144 – – 51 8 405 92 103 25 162 193 3 36 30 644 Report and Accounts 2009 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 83 8. Income taxes Analysis of charge in the year Current tax UK corporation tax Foreign tax Deferred tax (credit)/charge Tax expense for the year Analysis of (credit)/charge to equity Current tax on share based payments Deferred tax on share based payments Tax (credit)/charge 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% (2008: 28.5%) Expenses not deductible for tax purposes Different tax rates applied in overseas jurisdictions Effect of change in tax rates Prior year adjustments Total tax expense for the year Accounts 2009 £000s 8,377 7,441 15,818 2008 £000s 7,046 7,465 14,511 (821) 2,422 14,997 16,933 (40) (148) (188) (398) 971 573 2009 £000s 48,603 13,609 439 894 – 55 14,997 2008 £000s 54,822 15,624 924 424 (4) (35) 16,933 83 rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 84 Notes to the Consolidated Financial Statements continued 9. 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 84 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 2009 £000s Year ended 31 Dec 2008 £000s 33,606 37,889 000s 000s 212,943 286 2,347 215,576 15.78 15.59 210,546 886 2,049 213,481 18.00 17.75 The directors consider that earnings per share before amortisation 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 of acquired intangibles was based on the weighted average number of ordinary shares outstanding during the year as shown above, the profit attributable to ordinary shareholders before the amortisation of acquired intangible assets and the tax thereon as shown in the table below: Year ended 31 Dec 2009 £000s 33,606 3,869 (1,106) 36,369 17.08 16.87 Year ended 31 Dec 2008 £000s 37,889 2,690 (752) 39,827 18.92 18.66 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 2009 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 85 10. Intangible assets Intellectual property rights £000s Customer relationships £000s Cost At 1 January 2009 Additions Reduction in deferred consideration Adjustment to prior year estimates Foreign exchange differences At 31 December 2009 201 – – – – 201 Aggregate amortisation and impairment losses At 1 January 2009 Amortisation Foreign exchange differences At 31 December 2009 Net book value at 31 December 2009 201 – – 201 – 22,355 12,045 – – 990 35,390 2,387 3,129 94 5,610 29,780 Intellectual property rights £000s Customer relationships £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 Net book value at 31 December 2007 201 – – 201 – – 4,872 12,727 2,508 2,248 22,355 672 1,607 108 2,387 19,968 4,200 Order backlog £000s 1,682 170 – – 20 1,872 469 519 – 988 884 Order backlog £000s – 1,682 – – 1,682 – 469 – 469 1,213 – Accounts Trade names £000s 1,327 – – – 56 1,383 700 221 (6) 915 468 Goodwill £000s Total £000s 255,146 18,742 (32) 269 907 275,032 12,221 – – 12,221 262,811 280,711 30,957 (32) 269 1,973 313,878 15,978 3,869 88 19,935 293,943 85 Trade names £000s Goodwill £000s Total £000s – 1,206 – 121 1,327 – 614 86 700 627 – 218,860 24,628 (2,488) 14,146 255,146 12,221 – – 12,221 242,925 206,639 223,933 40,243 20 16,515 280,711 13,094 2,690 194 15,978 264,733 210,839 rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 23/3/10 15:25 Page 86 Notes to the Consolidated Financial Statements continued 10. Intangible assets continued Adjustment to prior year estimates Acquisitions in 2008 were originally stated at provisional values.These fair values have now been finalised. These adjustments have not been adjusted in the prior year balance sheet on grounds of immateriality in accordance with IAS 8. Of the adjustment to 2008 prior year estimates, £2,508,000 related to the recognition of customer relationship intangibles in respect of JD Consulting. Goodwill acquired in a business combination is allocated at acquisition to the cash generating units (CGUs) that are expected to benefit from that business combination.The Group has re-presented the allocation to CGUs on the basis of this year’s revised segmentation. 86 Planning and Development GB Ireland Australia Total Planning and Development Energy Environmental Management 31 Dec 2009 £000s 31 Dec 2008 £000s 75,160 48,420 30,236 153,816 74,979 51,193 8,188 134,360 77,797 77,545 31,198 262,811 31,020 242,925 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 10.6% based on its WACC. Growth rates are based on management’s expectations of future business volumes and range from 0.6% to 3.6% per annum. Changes in charge out rates are based on 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.The Group assumes a perpetuity based terminal value. Irish CGU The Irish CGU’s recoverable amount exceeds its carrying amount by £12.0m. If the Group’s forecast growth rates in respect of the Irish CGU (estimated to be between 1.0% and 2.6%) reduce by 6 percentage points (to between - 5.0% and - 3.4%) or the Group’s discount rate increases by 1.5 percentage points, the CGU’s carrying amount would equal its recoverable amount. Report and Accounts 2009 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 87 11. Property, plant and equipment Cost or valuation At 1 January 2009 Additions Disposals Additions through acquisition Foreign exchange differences At 31 December 2009 Depreciation At 1 January 2009 Charge for the year Disposals Foreign exchange differences At 31 December 2009 Net book value at 31 December 2008 Net book value at 31 December 2009 Freehold land and buildings £000s Alterations to leasehold premises £000s 12,142 – – – (736) 11,406 2,148 226 – (94) 2,280 9,994 9,126 1,636 275 (160) 1,339 208 3,298 725 313 (161) 21 898 911 2,400 Fixtures, fittings, IT and equipment £000s 47,208 3,511 (4,775) 3,886 38 49,868 34,019 5,999 (4,608) (518) 34,892 13,189 14,976 Motor vehicles £000s 1,407 163 (272) 1,315 180 2,793 926 330 (198) 11 1,069 481 1,724 Accounts Total £000s 62,393 3,949 (5,207) 6,540 (310) 67,365 37,818 6,868 (4,967) (580) 39,139 24,575 28,226 87 At 31 December 2009 the Group had alterations to leasehold properties, motor vehicles and office equipment held under finance lease contracts with net book values of £1,313,000, £1,078,000 and £2,092,000 respectively. 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 2007 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 9,203 9,994 1,211 57 403 (109) 74 1,636 557 228 (109) 49 725 654 911 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 11,306 13,189 Motor vehicles £000s 1,276 68 106 (170) 127 1,407 733 229 (124) 88 926 543 481 Total £000s 56,684 854 5,944 (7,161) 6,072 62,393 34,978 6,112 (6,215) 2,943 37,818 21,706 24,575 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. rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 88 Notes to the Consolidated Financial Statements continued 12. Subsidiaries A list of the significant subsidiaries, including the name, country of incorporation and proportion of ownership interests is given in Note 5 to the Parent Company’s financial statements on page 112. 13.Trade and other receivables 88 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 2009 £000s 98,138 (5,281) 92,857 41,598 (4,005) 37,593 5,364 3,433 139,247 31 Dec 2008 £000s 117,433 (6,143) 111,290 41,536 (4,136) 37,400 6,555 2,362 157,607 The Group’s trade and other receivables All amounts shown under trade and other All amounts shown under trade and other receivables fall due within one year. have been reviewed for signs of impairment. receivables fall due within one year. The carrying value of trade and other receivables is considered a reasonable approximation of fair value. Certain trade receivables were found to be The carrying value of trade and other The Group’s trade and other receivables have been reviewed for signs of impairment. Certain trade receivables were found to be impaired impaired and a provision of £5,281,000 Certain trade receivables are past due but receivables is considered a reasonable and a provision of £[x] (2006:£[x]) has been recorded accordingly. Certain accrued income balances have been found to be impaired and (2008: £6,143,000) has been recorded have not been impaired.These relate to approximation of fair value due to their a provision of £[x] (2006: £[x]) have been recorded against them.The individ4a00aired balances mainly relate to customers who are accordingly. Certain accrued income balances customers where we have no history of short term nature and the provisions for experiencing unexpected financial difficulties. have been found to be impaired and a default and no concerns over their financial impairment recorded against them. provision of £4,005,000 (2008: £4,136,000) 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 has been recorded against them. default and no concerns over their financial situation.The age of financial assets past due but not impaired is as follows: due but not impaired is as follows: The individually impaired balances mainly relate to items under discussion with customers. Ageing Not more than three months More than three months Movements in impairment As at 1 January 2009 Income statement charge Receivables written off during the year as uncollectible Additions through acquisitions Foreign exchange As at 31 December 2009 As at 1 January 2008 Income statement charge Receivables written off during the year as uncollectible Additions through acquisitions Foreign exchange As at 31 December 2008 Report and Accounts 2009 2009 £000s 11,131 14,524 25,655 Trade receivables Accrued income £000s £000s 6,143 11 (1,809) 1,066 (130) 5,281 2,695 3,098 (164) 117 397 6,143 4,136 873 (1,714) 848 (138) 4,005 2,383 2,398 (1,220) – 575 4,136 2008 £000s 15,375 16,906 32,281 Total £000s 10,279 884 (3,523) 1,914 (268) 9,286 5,078 5,496 (1,384) 117 972 10,279 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 89 13.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 Accounts 31 Dec 2009 £000s 54,913 37,904 13,285 3,651 29,056 438 139,247 31 Dec 2008 £000s 63,045 51,058 24,899 5,887 10,794 1,924 157,607 The maximum exposure to credit risk at the reporting date is the carrying amount of each class of receivable mentioned above. 89 14.Trade and other payables Trade creditors Creditors for taxation and social security Other creditors Deferred income Accruals 31 Dec 2009 £000s 16,822 11,053 3,039 13,120 24,644 68,678 31 Dec 2008 £000s 23,042 13,555 3,476 14,408 33,387 87,868 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 due to the short term nature of these liabilities. rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 90 Notes to the Consolidated Financial Statements continued 15. Borrowings Bank loans Bank overdraft Finance lease creditor 31 Dec 2009 £000s 41,949 – 4,505 46,454 90 Bank loans 2009 £000s Other loans 2009 £000s Total 2009 £000s Bank loans 2008 £000s Other loans 2008 £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 419 256 41,274 41,949 419 41,530 1,383 1,213 1,909 4,505 1,383 3,122 1,802 1,469 43,183 46,454 1,802 44,652 407 – 45,148 45,555 407 45,148 49 27 12 88 49 39 31 Dec 2008 £000s 45,174 381 88 45,643 Total 2008 £000s 456 27 45,160 45,643 456 45,187 The principal features of the Group’s borrowings are as follows: (i) (ii) An uncommitted £1,000,000 bank overdraft facility, repayable on demand. The Group has two principal bank loans: (a) A revolving credit facility of £125,000,000, 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. There were loans drawn totalling £40,931,000 (2008: £45,148,000) and bonding facility utilisation of £7,165,000 (2008: £6,316,000) at 31 December 2009. The facility is guaranteed by the Company and certain subsidiaries but no security over the Group’s assets exists. (b) Australian Dollar denominated loans of £1,018,000.The loans were taken out between September 2004 and October 2009 by a company that was acquired by the Group in July 2009. Repayments commenced in September 2004 and will continue until September 2014.The loans are guaranteed by interlocking guarantees between the acquired company’s entities, fixed and floating charges over its assets and a letter of credit provided by Lloyds TSB Bank Plc. The carrying amounts of our long term borrowings approximate fair value as the borrowings have been transacted in the past two months and the loan is revolving in nature. Loan liquidity risk profile 2009 2008 < 1 year 2 years 3-5 years 1,736,668 1,736,668 43,604,715 47,078,051 1,303,839 1,303,839 48,459,132 51,066,810 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 2009 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 91 Accounts 16. Obligations under finance leases Amounts payable under finance leases: Minimum lease payments 2009 £000s 1,717 3,550 5,267 Less future interest charges 2009 £000s (334) (428) (762) Present value of minimum lease payments 2009 £000s 1,383 3,122 4,505 Minimum lease payments 2008 £000s 54 42 96 Less future interest charges 2008 £000s (5) (3) (8) Present value of minimum lease payments 2008 £000s 49 39 88 Within one year In two to five years 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 2009, the average lease term is three years. average effective borrowing rate was 8.9%. 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 Group’s obligations under finance leases are secured by interlocking guarantees between certain Group entities, fixed and floating charges over Group assets, the lessors’ rights over the leased assets and a letter of credit provided by Lloyds TSB Bank Plc. The carrying amount of obligations under finance leases is considered to be a reasonable approximation of fair value. 91 17. 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. 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 Total deferred consideration payable Less amount due for settlement within 12 months Amount due for settlement after 12 months 31 Dec 2009 £000s 10,210 4,822 620 15,652 5,640 – – 5,640 3,649 3,649 24,941 15,652 9,289 31 Dec 2008 £000s 7,525 8,440 620 16,585 4,517 4,386 620 9,523 1,940 1,940 28,048 16,585 11,463 Deferred consideration is recorded at present value calculated with reference to the local rates of the acquisitions concerned (varying between 2.84% and 6.34%).The movement in fair value is taken through the profit and loss in the financing costs line. rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 92 Notes to the Consolidated Financial Statements continued 18. Provisions Warranty Property Property 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 contractual The provision for property costs relates to years. obligations and will be utilised within operating lease rentals and related costs on 5 years. vacated property and will be utilised within Warranty 16 years. This provision is in respect of the pre-acquisition contractual obligations of acquired entities and will be utilised within [9] years. This provision is in respect of reinstatement obligations related to leasehold properties and will be utilised within 16 years. Dilapidations Property £000s Warranty £000s Dilapidations £000s 92 As at 1 January 2009 Additional provision in the year Utilised in year On acquisition of subsidiary Exchange difference At 31 December 2009 Due as follows: Within one year After more than one year 1,337 585 (273) 75 (56) 1,668 951 – (429) – (12) 510 The carrying value of the provisions disclosed above is a reasonable approximation of their fair value. 19. 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 Liability acquired on acquisition of subsidiary Exchange differences At 31 December 2,698 35 (511) 140 3 2,365 2009 £000s 1,324 3,219 4,543 2009 £000s (6,746) 821 148 (4,015) 1 (9,791) Total £000s 4,986 620 (1,213) 215 (65) 4,543 2008 £000s 1,417 3,569 4,986 2008 £000s 114 (2,421) (971) (3,380) (88) (6,746) Report and Accounts 2009 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 93 Accounts 19. Deferred taxation continued Deferred tax assets At 1 January 2008 Reclassifications Charge to income for the year Charge to equity for the year Asset acquired on acquisition of subsidiary Exchange differences At 1 January 2009 Reclassifications Charge to income for the year Charge to equity for the year Asset acquired on acquisition of subsidiary Exchange differences At 31 December 2009 Deferred tax liabilities At 1 January 2008 Reclassifications Charge to income for the year Asset acquired on acquisition of subsidiary Exchange differences At 1 January 2009 Reclassifications Charge to income for the year Asset acquired on acquisition of subsidiary Exchange differences At 31 December 2009 Depreciation in excess of capital allowances £000s Employment benefits £000s Tax losses £000s Provisions £000s Share based payments £000s 487 426 (194) – 5 28 752 – 66 – (6) 18 830 805 – 5 – 62 44 916 – (208) – 851 63 1,622 63 – (35) – – – 28 – (228) – 230 (1) 29 344 211 (286) – 179 28 476 (476) – – – – – 1,392 – (364) (971) – – 57 – 265 148 – – 470 Total £000s 3,091 637 (874) (971) 246 100 2,229 (476) (105) 148 1,075 80 2,951 93 Foreign exchange on investments £000s Revaluation of properties £000s Tax deductible goodwill £000s Provisions £000s Other £000s Total £000s – (211) (1,416) – – (1,627) – 742 – – (885) (274) – – – (87) (361) – – – 29 (332) (2,492) (417) (56) (3,775) (34) (6,774) (82) 569 (4,070) 25 (10,332) – – – – – – 476 (288) (1,020) (137) (969) (211) (9) (75) 149 (67) (213) 82 (97) – 4 (224) (2,977) (637) (1,547) (3,626) (188) (8,975) 476 926 (5,090) (79) (12,742) rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 94 Notes to the Consolidated Financial Statements continued 20. Share capital Ordinary shares of 3p each 240,000,000 7,200 240,000,000 7,200 Authorised 2009 Number Authorised 2009 £000s Authorised 2008 Number Authorised 2008 £000s 94 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 Ordinary shares held by the ESOP Trust Ordinary shares held by the SIP Trust Issued and fully paid 2009 £000s 2009 Number Issued and fully paid 2008 £000s 2008 Number 213,286,497 313,713 1,000 457,668 384,006 386,955 – 417,438 215,247,277 6,399 9 – 14 11 12 – 12 6,457 210,632,004 283,011 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 2009 Number 2008 Number 859,575 2,905,608 668,111 2,442,526 The ESOP Trust has elected to waive the dividend on the unallocated ordinary shares held. The table below shows options outstanding at 31 December 2009. 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) 2003 - 2010 2004 - 2011 2005 - 2012 2006 - 2013 2007 - 2014 2008 - 2015 2011 - 2018 86,600 62,750 116,166 233,312 61,455 297,948 315,000 1,173,231 125 - 143 136 - 154 125 - 149 111 - 171 149 111 - 147 295 Please see page 66 in the Report of the Directors for details of the Group’s capital management procedures. Report and Accounts 2009 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 95 21. Other reserves At 1 January 2008 Changes in equity during 2008 Exchange differences Issue of new shares At 31 December 2008 Changes in equity during 2009 Exchange differences Issue of new shares At 31 December 2009 Accounts Merger reserve £000s Employee trust £000s Shares to be issued £000s Translation reserve £000s Total other £000s 16,993 (2,943) 222 3,244 17,516 – 3,086 20,079 – 608 20,687 – (640) (3,583) – (836) (4,419) – (222) – 23,811 – 27,055 23,811 2,224 43,551 – – – (3,804) – 23,251 (3,804) (228) 39,519 95 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. 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 statement of comprehensive income and consolidated statement of changes in equity. rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 96 Notes to the Consolidated Financial Statements continued 22. Dividends Amounts recognised as distributions to equity holders during the period: Final dividend for the year ended 31 December 2008 of 1.91p (2007: 1.66p) per share Interim dividend for the year ended 31 December 2009 of 2.01p (2008: 1.75p) per share Proposed final dividend for the year ended 31 December 2009 of 2.19p (2008: 1.91p) per share Year ended 31 Dec 2009 £000s 4,093 4,317 8,410 4,728 Year ended 31 Dec 2008 £000s 3,498 3,713 7,211 4,088 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. 96 23. Operating lease arrangements At 31 December 2009 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 2009 £000s 9,639 24,456 17,941 52,036 Property 2008 £000s 6,815 19,914 22,876 49,605 Other 2009 £000s 2,710 2,713 – 5,423 Other 2008 £000s 2,961 3,677 – 6,638 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 2009 was £191,000 (2008: £111,000). The minimum rent receivable under non-cancellable operating leases is as follows: Receivables Within one year In two to five years After five years 2009 £000s 107 171 14 292 2008 £000s 127 260 36 423 Report and Accounts 2009 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 97 Accounts 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 Profit before tax Adjustments for: Interest payable and similar charges Interest receivable Depreciation Amortisation of acquired intangibles Share based payment expense Loss/(profit) on sale of property, plant and equipment Share of profit of associates Decrease/(increase) in trade and other receivables (Decrease)/increase in trade and other payables Cash generated from operations Year ended 31 Dec 2009 £000s Year ended 31 Dec 2008 £000s 48,603 54,822 97 3,113 (268) 6,868 3,869 3,280 152 (78) 31,223 (26,179) 70,583 4,424 (384) 6,112 2,690 2,794 (179) – (8,175) 5,282 67,386 The table below provides an analysis of net bank borrowings, comprising cash and cash equivalents, interest bearing bank loans and finance leases, during the year ended 31 December 2009. Cash and cash equivalents Bank loans Finance lease creditor Net bank borrowings At 31 Dec 2008 £000s 16,707 (45,174) (88) (28,555) Cash flow £000s Acquisitions £000s Foreign Exchange £000s At 31 Dec 2009 £000s (4,366) 9,023 599 5,256 _ (4,007) (4,519) (8,526) 1,350 (1,791) (497) (938) 13,691 (41,949) (4,505) (32,763) 26. Major non-cash transactions There were no major non-cash transactions during the year. rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 98 Notes to the Consolidated Financial Statements continued 27. Acquisitions Conics Ltd The Group completed the acquisition of 100% of the issued share capital of Conics Ltd on 30 July 2009. Conics is a multi- disciplinary consultancy based on the East coast of Australia, primarily in Queensland. This transaction has been accounted for under the purchase method of accounting. Prior to acquisition, Conics kept their own management accounts and adding their results to those of the rest of the Group would produce Group revenue for the period of £464,154,000 and Group profit before tax of £51,950,000. Intangible assets arising on acquisition have been recognised at fair value.The residual excess over the net assets acquired, including intangible assets, is recognised as goodwill in the financial statements. The Group has allotted provisional fair values to the net assets acquired 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 allotted to them by the Group are as follows: 98 Intangible assets: Customer relationships Order backlog Other intangibles Property, plant and equipment Cash Other assets Other liabilities Net assets acquired Consideration Initial consideration - cash Deferred consideration - cash Expenses of acquisition Total cost of acquisition Goodwill arising on acquisition Book value £000s Fair value £000s – – 5,259 6,540 505 11,764 (13,373) 10,695 12,045 170 – 6,540 505 11,764 (17,037) 13,987 21,132 11,162 435 32,729 18,742 The fair value adjustments made to the preacquisition carrying values to determine provisional fair values relate to the recognition of intangible fixed assets and the associated deferred tax. The Group has not recognised a trade name intangible on the basis of materiality and has recently commenced the rebranding of Conics to RPS. Goodwill represents the value of the assembled workforce acquired.The contribution of Conics for the period post acquisition to Group revenue has been £15,559,000 and to Group profit before tax has been £2,595,000. Prior period acquisitions In 2008 the Group completed the acquisition of ten companies - Kraan Consulting Holding BV, RW Gregory LLP, WTW and Associates Ltd, Oceanfix International Ltd,The Land Management Unit Trust Ltd, Rudall Blanchard Associates Group Ltd,The Geocet Group LLC, Mountainheath Services Ltd, Paras Ltd and Business and Environmental Communications Ltd.The provisional fair values allotted to the net assets of these acquisitions have now been finalised.The net effect has been to credit net assets acquired by £237,000 relating to the recognition of additional liabilities and the associated tax effects. Report and Accounts 2009 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 99 28.Derivatives and other financial instruments Set out below are the narrative disclosures relating to 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 contracts 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 are the most significant aspects for the Group in the area of financial instruments. 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 fair value of the forward foreign exchange contracts held at year end was not material. The Group does not hedge balance sheet and income statement translation exposures. Accounts 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 15 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 99 Interest rate risk The Group draws down short term loans, that may be renewed, against its revolving 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 receivables Bank loans Trade and other payables Other financial liabilities 2009 £000s 13,691 139,247 152,938 41,949 68,678 110,627 2008 £000s 17,088 157,607 174,695 45,555 87,868 133,423 rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 100 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 2009 Sterling £000s Euro US Dollar £000s £000s Norwegian Australian Dollar £000s Krone £000s Central African Francs £000s Russian Roubles £000s Canadian Dollars £000s Other £000s Total £000s 100 Functional currency of Group operation Sterling Euro Australian Dollar Canadian Dollar Malaysian Ringgit At 31 December 2009 – 90 (181) (252) – (343) 12,370 – – (5) – 12,365 1,018 (21) 790 (89) (246) 1,452 177 – – – – 177 1,104 – – – (36) 1,068 99 – – – – 99 80 – – – – 80 (1,045) – (28) – – (1,073) (152) – 39 – – (113) 13,651 69 620 (346) (282) 13,712 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 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 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 US Dollars. Over the year these currencies showed volatilities of up to 14% and 24% respectively. If Sterling strengthened against these currencies by 14% and 24%, the impact would be to reduce Group profit by £69,000. these currencies the impact would have If Sterling had weakened against been to increase Group profit by £95,000. This impact is calculated by applying a typical contract period of 14 days.These movements would have had no impact on Group equity and reserves. Report and Accounts 2009 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 101 Accounts 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 2009 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 2008 £000s 2009 £000s Fixed rate financial liabilities 2008 £000s 2009 £000s – – – – – – – 257 – 124 – 381 7,509 1,567 52,951 443 8,925 71,395 37,803 6,047 11,725 842 16,893 73,310 The maturity profile of financial liabilities is as follows: Floating rate financial liabilities 2008 £000s 2009 £000s Fixed rate financial liabilities 2008 £000s 2009 £000s Within one year In one to two years In two to five years – – – – 381 – – 381 17,454 7,110 46,831 71,395 Currency Sterling Euro Australian Dollar Canadian Dollar US Dollar Weighted average interest rate % 2009 4.9 4.1 5.4 1.4 1.4 4.8 16,660 9,325 47,325 73,310 Weighted average interest rate % 2008 3.6 3.8 5.9 3.7 2.2 3.7 101 2009 £000s 7,509 1,567 52,951 443 8,925 71,395 2009 £000s 17,454 7,110 46,831 71,395 Total 2008 £000s 37,803 6,304 11,725 966 16,893 73,691 Total 2008 £000s 17,041 9,325 47,325 73,691 Fixed rate financial liabilities Weighted average period for which rate is fixed – months 2008 Weighted average period for which rate is fixed – months 2009 7 7 9 1 1 7 5 5 6 1 2 5 rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 102 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 2009 £000s (1,816) 8,207 2,980 2,396 1,559 365 13,691 2008 £000s (1,153) 11,004 3,569 2,399 409 860 17,088 102 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 2009, 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 31 Dec 2009 £000s 31 Dec 2008 £000s 76,904 48,536 Interest rate sensitivity 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 2009, the weighted average interest rates the Group pays have increased by 1.1%. A 1.1% decrease in interest rates would increase Group profit by £460,000. A further 1.1% increase in interest rates would decrease Group profit by £460,000. Report and Accounts 2009 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 103 Accounts 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 2009 £000s 2008 £000s 13,691 130,450 144,141 17,088 148,690 165,778 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 13 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 and are supported by the government. 103 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 2009 for the period ended 31 December 2009. 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. 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 2009: rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 104 Notes to the Consolidated Financial Statements continued 32. Share-based payments continued Share Options Year of grant 1999 2000 2001 2002 2003 2004 2008 Weighted average exercise price 104 Number outstanding 31 Dec 2008 19,500 140,600 96,500 240,347 695,744 1,750 315,000 1,509,441 New grants Exercised Lapsed – – – – – – – – (18,000) (49,000) (8,000) (62,976) (175,737) – – (313,713) (1,500) (500) (1,000) (8,000) (16,947) – – (27,947) Grants replaced Number outstanding 31 Dec 2009 Weighted average exercise price – 1,500 2,750 500 700 – – 5,450 – 92,600 90,250 169,871 503,760 1,750 315,000 1,173,231 73p 128p 166p 149p 111p 118p 295p Vesting conditions 3 or 5 years 3 or 5 years 3 or 5 years 3 or 5 years 3 or 5 years 3 years 3 years 162p 124p 122p 145p 173p The weighted average share price at the date of exercise during the period was £1.99. Number outstanding 31 Dec 2007 19,500 21,000 161,100 114,623 343,975 810,714 1,750 – 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) Grants replaced Number outstanding 31 Dec 2008 Weighted average exercise price – – 1,500 39,873 1,250 2,000 – – 44,623 – 19,500 140,600 96,500 240,347 695,744 1,750 315,000 1,509,441 53p 73p 128p 166p 149p 111p 118p 295p 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 3 years 126p 295p 134p 109p 167p 162p Year of grant 1998 1999 2000 2001 2002 2003 2004 2008 Weighted average exercise price The weighted average share price at the date of exercise during the period was £3.10. Report and Accounts 2009 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 105 Accounts SAYE Year of grant 2003 Year of grant 2003 LTIP Year of grant 2006 2007 2008 2009 Year of grant 2005 2006 2007 2008 Number outstanding 31 Dec 2008 Exercised Lapsed Number outstanding 31 Dec 2009 42,508 42,508 (1,000) (1,000) (41,508) (41,508) – – Number outstanding 31 Dec 2007 98,656 98,656 Exercised (56,148) (56,148) Number outstanding 31 Dec 2008 42,508 42,508 Lapsed – – Number outstanding 31 Dec 2008 386,955 347,987 323,804 – 1,058,746 Number outstanding 31 Dec 2007 407,194 386,955 347,987 – 1,142,136 New grants Releases Forfeits – – – 721,812 721,812 (386,955) – – – (386,955) – – (38,709) (83,624) (122,333) New grants Releases Forfeits – – – 323,804 323,804 (407,194) – – – (407,194) – – – – – Exercise price Vesting conditions 147p 3 or 5 years Exercise price Vesting conditions 147p 3 or 5 years 105 Number outstanding 31 Dec 2009 – 347,987 285,095 638,188 1,271,270 Number outstanding 31 Dec 2008 – 386,955 347,987 323,804 1,058,746 Vesting conditions 3 years 3 years 3 years 3 years Vesting conditions 3 years 3 years 3 years 3 years rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 106 Notes to the Consolidated Financial Statements continued 32. Share-based payments continued PSP Year of grant 2005 2006 2007 2008 2009 106 Year of grant 2005 2006 2007 2008 SIP Year of grant 2005 2006 2007 2008 2009 Year of grant 2004 2005 2006 2007 2008 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 New grants Releases Lapses – – – – 1,520,898 1,520,898 (9,869) (308,064) (65,098) (978) (7,972) (391,981) – (19,003) (23,872) (6,508) (18,292) (67,675) 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 Forfeits – – – – 639,297 639,297 (100) (5,754) (9,306) (23,244) (12,525) (50,929) (3,439) (280,702) (29,075) (66,449) (26,944) (406,609) 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) Number outstanding 31 Dec 2009 – 12,044 430,191 100,901 1,494,634 2,037,770 Number outstanding 31 Dec 2008 9,869 339,111 519,161 108,387 976,528 Number outstanding 31 Dec 2009 – 15,372 233,860 554,101 599,828 1,403,161 Number outstanding 31 Dec 2008 – 3,539 301,828 272,241 643,794 1,221,402 Vesting conditions 3 years 3 years 2 or 3 years 1, 2 or 3 years 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 3 years Vesting conditions 3 years 3 years 3 years 3 years 3 years Report and Accounts 2009 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 107 Accounts 33. Events after the balance sheet date There were no material post balance sheet events. 34. Contingent liabilities As at 31 December 2009, 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. 107 PSP 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. Fair value at measurement date Weighted fair value PSP awards 130.01p - 346.32p 193.55p 1, 2 or 3 years 1.45% - 1.50% 1.45% Holding period 4.1% - 5.2% 4.1% - 4.5% SIP Expected dividend yield 0.76% - 2.44% 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 126.00p - 389.75p 209.22p 3 years During the year ended 31 December 2009, the Group recognised expense of £3,280,000 related to the fair value of the share based payment arrangements (year ended 31 December 2008: £2,794,000). 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 ESOS SAYE LTIP PSP SIP 13% 5% 0% 5% 5% In addition, the Group estimated that all other non-market based performance conditions would be satisfied in full. rpsgroup.com Share Options and SAYE Options The fair values of the above equity instruments have been determined using the following criteria: Share Options SAYE Share price on grant Expected volatility 111 - 295.25p 147p 26.8% - 31.6% 26.3% - 28.5% Expected life 3 or 5 years 3 or 5 years Expected dividend yield Risk-free interest rate Fair value at measurement date Weighted fair value 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 an earnings per share performance condition, the fair value has 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. Fair value at measurement date Weighted fair value Holding period LTIP awards 133.12p - 301.25p 189.95p 3 years Expected dividend yield 0.88% - 2.38% 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 108 Parent Company Balance Sheet Fixed assets Intangible assets Tangible assets Investments Current assets Debtors Cash at bank and in hand 108 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 Note 3 4 5 6 7 8 9 11, 12 12 12 12 As at 31 Dec 2009 £000s 844 2,469 192,132 195,445 77,473 3,115 80,588 28,115 52,473 247,918 40,931 52 206,935 6,457 98,238 85,940 16,300 206,935 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 These financial statements were approved and authorised for issue by the Board on 3 March 2010. The notes on pages 109 to 115 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 2009 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 109 Notes to the Parent Company Financial Statements Accounts 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 written off on a straight line 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 103). 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. 109 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 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 110 Notes to the Parent Company Financial Statements continued 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. 2. Profit attributable to shareholders No profit and loss account is provided for the Parent Company as allowed by Section 408 of the Companies Act 2006. Year ended 31 Dec 2009 £000s Year ended 31 Dec 2008 £000s 70,527 4,124 Goodwill £000s 2,134 1,224 66 1,290 844 910 110 Profit for the year attributable to the shareholders of the Parent Company, dealt with in the accounts of the Parent Company The remuneration of the auditors for the statutory audit of the Company was £37,000 (2008: £40,000) 3. Intangible Assets Cost At 1 January 2009 and at 31 December 2009 Amortisation At 1 January 2009 Charge for the year At 31 December 2009 Net book value at 31 December 2009 Net book value at 31 December 2008 Report and Accounts 2009 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 111 4.Tangible Assets Cost or valuation At 1 January 2009 Transfers Additions Disposals At 31 December 2009 Depreciation At 1 January 2009 Transfers Provided for the year Disposals At 31 December 2009 Net book value at 31 December 2009 Net book value at 31 December 2008 Accounts Freehold land and buildings £000s Alterations to leasehold premises £000s Fixtures, fittings, IT and equipment £000s 2,045 (1) – – 2,044 440 – 44 – 484 1,560 1,605 253 (1) – (90) 162 114 – 3 (90) 27 135 139 3,334 127 273 (8) 3,726 2,354 111 495 (8) 2,952 774 980 Total £000s 5,632 125 273 (98) 5,932 2,908 111 542 (98) 3,463 2,469 2,724 111 rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 112 Notes to the Parent Company Financial Statements continued 5. 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 2009 Additions At 31 December 2009 Provisions At 1 January 2009 and 31 December 2009 Net book value at 31 December 2009 Net book value at 31 December 2008 112 £000s 178,108 14,862 192,970 838 192,132 177,270 Additions in 2009 relate to restructuring of the USA companies and represent RPS Group Plc’s investment in the new US holding company. 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 Consultants Pty Limited RPS Energy Pty Limited RPS Environment Pty Limited Harper Somers O’Sullivan Pty Limited MetOcean Engineers Pty Limited Conics 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 2009 England England England England Northern Ireland Netherlands Netherlands Netherlands Netherlands Netherlands Netherlands Ireland Ireland Ireland Ireland Australia 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%* 100%* 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 113 6. 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. 7. Creditors: amounts falling due within one year Amounts due to subsidiary undertakings Deferred consideration Trade creditors Corporation tax Other creditors Accruals The liability in respect of deferred consideration is due to the vendors of acquired businesses. 8. Creditors: amounts falling due after more than one year Bank loans Deferred consideration Due as follows: After one year and within two years After two years and within five years 113 Accounts 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 2009 £000s 26 75,516 469 161 713 588 77,473 31 Dec 2009 £000s 25,744 487 188 – 419 1,277 28,115 31 Dec 2009 £000s 40,931 – 40,931 – 40,931 40,931 rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 114 Notes to the Parent Company Financial Statements continued 9. Provision for liabilities At 1 January 2009 and at 31 December 2009 10. Deferred taxation 114 Movement on deferred taxation: Net asset at beginning of year Credit/(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 11. Share capital Ordinary shares of 3p each At 1 January 2009 At 31 December 2009 Dilapidations £000s 52 31 Dec 2008 £000s 644 (175) 469 31 Dec 2008 £000s 285 184 469 31 Dec 2009 £000s 469 244 713 31 Dec 2009 £000s 496 217 713 Number 240,000,000 240,000,000 Authorised Value £000s Allotted and fully paid Value £000s Number 7,200 7,200 213,286,497 215,247,277 6,399 6,457 Full details of the share capital of the Company are disclosed in Note 20 of the Consolidated Financial Statements. Report and Accounts 2009 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 115 Accounts 12. 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 Profit and shares loss reserve £000s £000s 6,319 80 – – – 6,399 58 – – – 6,457 93,225 2,306 – – – 95,531 2,707 – – – 98,238 16,993 3,086 – – – 20,079 608 – – – 20,687 222 (222) – – – – – – – – – 32 – – – – 32 – – – – 32 (2,943) (640) – – – (3,583) (836) – – – (4,419) 23,619 (1,247) 2,794 4,124 (7,211) 22,079 (1,536) 3,280 70,527 (8,410) 85,940 Total £000s 137,467 3,363 2,794 4,124 (7,211) 140,537 1,001 3,280 70,527 (8,410) 206,935 115 At 1 January 2008 Issue of new shares Share based payment expense Retained profit for the year Dividend paid At 31 December 2008 Issue of new shares Share based payment expense Retained profit for the year Dividend paid At 31 December 2009 13. Dividends Full details of dividends paid by the Company are disclosed in Note 22 of the Consolidated Financial Statements. 14. Commitments under operating leases At 31 December 2009 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 2009 £000s Land and buildings 31 Dec 2008 £000s 240 514 14 768 20 192 48 260 31 Dec 2009 £000s 83 51 – 134 Other 31 Dec 2008 £000s 8 89 – 97 15. Directors’ interests in transactions There were no transactions during the year in which the Directors had any interest. 16. Purchase of undertakings The Company did not make any acquisitions during the year. The increase in investments relates to the restructuring of the Company’s USA subsidiaries. rpsgroup.com 23846_DRAFT_27_Mar19_back.qxd 22/3/10 12:08 Page 116 Five Year Summary Revenue Fee income Profit from operations before tax and amortisation Net bank debt Net assets Cash generated from operating activities Average number of employees Dividend per share Basic EPS before amortisation Diluted EPS before amortisation 2009 £000s 443,909 374,351 52,472 (32,763) 313,468 70,583 4,254 4.20p 17.08p 16.87p 2008 £000s 470,465 392,096 57,512 (28,555) 287,607 67,386 4,438 3.66p 18.92p 18.66p 2007 £000s 362,674 305,108 45,010 (32,630) 227,534 45,393 4,093 3.18p 15.17p 14.95p 2006 £000s 296,843 246,011 34,719 (30,129) 186,934 40,663 3,438 2.76p 12.01p 11.74p 2005 £000s 217,830 183,520 24,253 (25,940) 161,871 28,149 3,158 2.40p 9.01p 8.82p 116 The Five Year Summary does not form part of the audited financial statements. Report and Accounts 2009 Report and Accounts 2009 R P S G r o u p P c R e p o r t l a n d A c c o u n t s 2 0 0 9 creativepeople making a difference . . . 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 l d e 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 6 4 8 3 2 rpsgroup.com rpsgroup.com
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