Report and Accounts 2010 Local knowledge international expertise rpsgroup.com We are an international consultancy providing expert advice upon: the exploration and production of energy and other natural resources the development of land, property and infrastructure the management of the environment and the health and safety of people Energy Planning & Development Environmental Management Local knowledge international expertise Successful partners delivering quality results Report and Accounts 2010 Business Review 2010 Results Key Performance Indicators Operations Risk Management Corporate Responsibility 8 8 8 25 31 37 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 3 41 42 43 44 61 62 67 68 68 69 70 71 72 107 108 115 Creative people Creative people making a difference making a difference Trusted leaders Trusted leaders of our professions of our professions rpsgroup.com rpsgroup.com rpsgroup.com 4 An effective international presence Report and Accounts 2010 Report and Accounts 2010 An effective international presence RPS employs around 4,500 people in the UK, Ireland, the Netherlands, the United States, Canada, Brazil, Africa, Australia and Asia. Our truly international presence allows us to undertake co-ordinated and integrated projects throughout the world. 5 Our strategy has been to broaden our range of services and our geographical spread. Since the beginning of 2009 we have undertaken projects in over 120 countries across six continents. n RPS is a remarkable business. Whilst the world has been in the grips of financial and economic turbulence we have progressed calmly and effectively. Our directors, managers and staff at all levels show tremendous skill, application and judgement. Brook Land Chairman rpsgroup.com Integrated Services... 6 Geoscience and Engineering Seismic Operations Reserves Reporting ERGY N E Well Operations Training Asset Evaluation Equity Determination LIM C S Energy Infrastructure Renewable Energy PLA N N I N Urban Design & Regeneration G & Surveying Planning D E V Architecture & Landscape Transport & Infrastructure A T E CH A N G E Environmental Assessment & Management E L O P M E N T Health & Safety Laboratory Services Y U S TAINA B I L IT Engineering Energy Management 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 Report and Accounts 2010 Report and Accounts 2010 ...a source of difference and strength 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. We have the knowledge and experience to ensure projects are developed in ways which are sensitive to their environmental impacts. 7 n RPS is working with the Waterschap Scheldestromen authority across the Dutch province of Zeeland. We will be advising on the design, procurement and construction phases of flood defence and quay improvements over the next four years, across several major estuaries and waterways. n Over the past year, RPS has been working closely with the Province of Nova Scotia on a project to help attract the interest of oil and gas companies looking to explore and develop new territories. rpsgroup.com 8 Key Performance Indicators Revenue (£m) Fee income (£m) Profit before taxation* (£m) Earnings per share* (basic) (p) Operating cash flow (£m) Total dividend per share (p) 2010 2009 461.8 443.9 393.3 374.4 48.0 52.5 15.79 17.08 57.9 4.83 70.6 4.20 *Adjusted to add back the amortisation of acquired intangible assets arising on business combinations of £5.5m (2009: £3.9m) and, in respect of EPS, the one-off tax credit arising on changes in Australian tax Law of £1.8m (2009: £nil). Results Highlights n strong management and diversity of activity and geography enabled the Group to produce resilient results in markets which remained challenging; n almost two thirds of operating profit earned in growth markets of Energy and Australia; n conversion of profit (ebitda) to cash once again over 100%; n balance sheet remains strong with year end net bank borrowings at £31.5m (2009: £32.8m) having spent £18.0m on acquisitions; n committed bank facilities of £125m available until 2013; n full year dividend increased by 15%; n acquisitions made during the year performing well; n since year end two further acquisitions EHI (announced 18 February) and Nautilus (announced 2 March). Report and Accounts 2010 Report and Accounts 2010 2010 Results Results Profit (before tax and amortisation of acquired intangibles) was in line with market expectations at £48.0 million (2009: £52.5 million). Our tax rate at 25.3% (2009: 30.9%) was lower than normal due to a one off benefit arising from changes in the tax law relating to acquisitions in Australia. Basic earnings per share (before amortisation and this one off tax credit) were 15.79 pence (2009: 17.08 pence). Group operating profit (before amortisation) was £51.8 million (2009: £55.3 million). Unallocated central costs were reduced to £5.1 million (2009: £6.2 million) leaving a total result for the three segments of £57.0 million (2009: £61.5 million). Our margins remain exemplary for the sectors in which we operate. The contribution of each segment was: 9 2009 (£m) 2010 27.7 27.3 10.8 9.4 20.2 - UK and Ireland - Australia Energy Planning and Development Both Energy and Environmental Management were broadly flat year on year. Without the Macondo disaster in the Gulf of Mexico, Energy would have made an increased contribution. Planning and Development declined overall, even though the Australian result improved. The significant reduction in the UK and Ireland sub-segment of Planning and Development was the primary cause of the reduction in Group profitability. This was caused by exceptionally difficult trading conditions described below. Our Energy activities are very largely international in character. In combination with our Planning and Development (Australia) business we now have approaching two thirds of our profits being generated outside Europe. This exposes us to higher growth economies and better opportunities. Environmental Management Total 15.6 8.3 23.9 9.4 57.0 10.0 61.5 Cash Flow, Funding and Dividend 2010 was another year of good cash flow, with over 100% of ebitda being converted into cash once again. Operating cash flow was £57.9 million (2009: £70.6 million). Our balance sheet remains strong and we have no defined benefit pension schemes. We have bank facilities of £125 million available until 2013 and the cost of these facilities remains at historically low levels. Net bank borrowings at the year end were £31.5 million (2009: £32.8 million), after investing in acquisitions to the value of £18.0 million (2009: £44.2 million). We are well positioned to continue to fund the Group’s growth strategy. The Board continues to be confident about the Group’s financial strength and is recommending a final dividend of 2.52 pence per share payable on 28 May 2011 to shareholders on the register on 15 April 2011. The total dividend for the full year will be 4.83 pence per share, an increase of 15% (2009: 4.20 pence per share). Our dividend has risen at about this rate for 17 consecutive years. rpsgroup.com 10 n RPS is one of the world’s leading suppliers of independent oil and gas consultancy 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 2010 Report and Accounts 2010 Energy RPS is a global, multi-disciplinary consultancy, providing integrated technical, commercial and project management support in the fields of geoscience, engineering and HS&E to the energy sector. Our aim is to help clients develop their energy resources across the complete life-cycle, combining our technical and commercial skills with an extensive knowledge of environmental and safety issues. 11 n RPS advised KNOC in its acquisition of Dana Petroleum by providing a review of production, development and exploration assets as part of their technical due diligence, in what was the largest ever hostile acquisition by a South Korean firm. Our international reputation as an experienced independent global reserves auditor helped successfully conclude negotiations about the value of Dana’s assets. n RPS has successfully completed a deep water Regional Acquisition Programme campaign, offshore USA. RPS was commissioned to implement a full-scale visual and acoustic monitoring – the world’s largest deployment of this kind. rpsgroup.com 12 n Since 2001, RPS has been involved in more than 250 onshore and offshore wind, wave and tidal energy projects, including the world’s largest offshore wind project, the London Array, (which when completed will provide approximately 25% of London’s electricity supply) and one of the world’s largest onshore schemes in Texas. 157.6 27.3 149.1 27.7 2010 2009 17.3 18.6 Energy Average number of employees 2010 2009 Age profile 2010 2009 Number of employees 637 619 Employees aged under 25 (%) 4 Days absent (%) 1.5 1.1 Employees aged 25-29 (%) Average length of service (years) Working part time (%) Retention rate (%)* 5.6 8.8 92 4.9 10 88 Employees aged 30-49 (%) Employees aged 50+ (%) 14 47 35 4 13 49 34 Fee income (£m’s) Profit* (£m’s) Margin % *excluding redundancies *before amortisation of acquired intangible assets of £2.1m (2009: £1.8m) and after reorganisation costs of £0.3m (2009: £0.3m) Report and Accounts 2010 Report and Accounts 2010 Energy We provide internationally recognised consultancy services to the oil and gas industries from bases in the UK, USA, Canada, Brazil, Australia, the Middle East and Asia. Projects are undertaken in many other countries including China, India, West Africa and the Arctic. As current events in Libya demonstrate, much of the world’s oil reserves are found in difficult working environments. In addition, we are market leaders in the provision of environmental and engineering advice to the UK offshore renewable energy industry. Global investment in exploration and production slowed significantly during the second quarter of 2009 and remained at a subdued level for the rest of that year. Market conditions in the first part of 2010 showed a modest improvement over the latter part of 2009. However, the explosion on 20 April 2010 of the Deepwater Horizon rig on the Macondo prospect resulted in a moratorium on deep water drilling in the Gulf of Mexico. This adversely affected activity levels in our US operations for the rest of 2010. Elsewhere in the world, towards the end of the year, we experienced improved client confidence, particularly as the oil price increased and investment in exploration for unconventional hydrocarbon resources gathered pace. However, the level of demand did not improve sufficiently to remove the pricing pressure from our clients which had built during 2009. National Oil Companies were consistently active and have become an increasingly important part of our portfolio of clients. In addition, 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. Notably, we advised KNOC in its successful bid for Dana Petroleum. Outlook Trading towards the end of 2010 suggests that a sustainable recovery may be underway in our Energy business. The high and rising oil price seems to be stimulating additional activity. Our business development initiatives in Brazil and the Middle East are showing signs of success and our exposure to new exploration areas such as the Arctic should assist our development. 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. Our reputation as providers of asset and corporate valuations was enhanced last year and we believe these markets are likely to remain a good source of fee income. New opportunities, for example, in relation to unconventional forms of gas and the infrastructure they require, are continuing to develop, particularly in respect of shale gas in North America and coal seam gas in Australia. 13 The moratorium on deep water drilling in the Gulf has ended and the first licence to drill was awarded recently. We currently anticipate a significant level of activity to develop in the second half. The need to improve safety within the industry globally has already resulted in additional safety and risk management commissions. We envisage this trend continuing. The acquisition of Boyd in August is, as expected, supporting the development of our oil and gas activities in Canada and increases our exposure to the attractive international mining sector. Since the year end we have completed two further acquisitions. Evans Hamilton (announced on 18 February) provides similar services to the offshore exploration and production industry in the Americas as our successful Metocean business does in Australia. Nautilus (announced on 2 March) takes us into the technical, geosciences training market, which we see having good growth opportunities as the need for specialist training increases across the oil and gas sector. rpsgroup.com 14 n RPS is acting as environmental consultant for a major project to revitalise Perth’s Swan River shoreline. This Department of Planning initiative will connect the city to the river and deliver strong economic and social benefits. Report and Accounts 2010 Report and Accounts 2010 Planning & Development RPS is a leading planning-led multi-disciplinary consultancy in the UK, Ireland and Australia. We offer a unique range of professional and technical services in all aspects of planning and development. Acknowledged as experts in planning, transportation and environmental assessment, we have a detailed understanding of all relevant sectors of the economy. 15 n RPS has been appointed by the Corrib Partners (Shell, Statoil & Vermilion) to undertake the Town Planning, Engineering, Environment Impact Statement and, most significantly, the local Stakeholder Engagement aspects of an onshore pipeline rerouting in Mayo, Ireland. n RPS has secured planning consent for a major new Vodafone call centre in the UK, having previously assisted Amazon in developing its UK distribution centre. rpsgroup.com Planning & Development 16 Within these businesses we provide consultancy services in respect of town and country planning, building, surveying, landscape and urban design, transport planning and environmental assessment. We remain leaders in this market in the UK and Ireland and Australia. Our 2010 results reflect the challenging nature of a number of the markets in which we operate, but also the high quality management we have brought to bear, enabling us to maintain a respectable return, despite demand falling significantly and considerable pricing pressure from clients. The economic downturn began to be felt in parts of these businesses in the last part of 2008. We moved quickly to reduce capacity and costs, a process which continued throughout 2009, and in 2010 particularly as the effects of the global financial crisis spread to the Australia property market. Our commercial development clients, affected by market uncertainties and a reduced ability to access credit, significantly reduced activity levels and, in consequence, the support needed from consultants. Both these characteristics were apparent, internationally, throughout 2010. In the UK this effect was exacerbated by uncertainty surrounding the run up to both the General Election and the new Government’s spending review. In Australia commercial developers became increasingly short of appropriate finance, and so operated at reduced levels, despite the overall health of their economy, relative to others. We have, however, successfully expanded our support to the energy infrastructure sector. The acquisition of Aquaterra in May significantly strengthened our activities in the water and mining sectors, where we see good growth opportunities. Aquaterra’s main operating centre in Perth has relocated into our new Perth office, which is now the Group’s largest. Floods in Queensland in both January/February and December had a significant adverse effect. In Britain we were involved in a number of private sector infrastructure projects and are increasing our involvement in this market, as it seems relatively robust, particularly in respect of energy related projects. The early effects of reduced public expenditure began to be felt by the year end, particularly in Scotland. Our businesses in both the Republic of Ireland and Northern Ireland depend significantly on public sector investment. The weak state of public finances in the Republic continued to put pressure on our business throughout the year, requiring further cost cutting. In Northern Ireland our business progressed reasonably well until the effects of UK public finance constraints began to appear in the last part of the year. In our Interim Management Statement dated 28 October 2010 we announced that in order to ensure a robust Planning and Development business we were merging our British, Irish and Northern Ireland businesses. The integration process was successfully completed before the year end and accordingly we are reporting the results of one business, Planning and Development: UK and Ireland for 2010. In order to provide appropriate year on year comparisons, business segment information has been revised for prior periods, as shown in the announcement made by the Group on 3 February 2011. Outlook As identifying sources of energy, climate change 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 retain long term optimism about the potential for our business in Australia. This is underpinned by public and private sector investment in infrastructure, particularly related to gas exploration and other natural resources projects, as well as the opportunities we now have in the water and mining sectors. However, the effects of the recent extreme flooding and Cyclone Yasi in Queensland are likely to be felt for some while and will affect the first half results of Planning and Development (Australia) significantly. Eventually we should benefit from recovery related work, much of which will be done under the control of the newly created Queensland Reconstruction Authority. It remains unclear, however, when we will move from adverse to beneficial effects. The Board is hopeful that a more normal workload will return during the course of the second half, as our clients re-establish project requirements and we become involved in the early stages of the reconstruction work. Until our commercial development clients in the UK experience less economic uncertainty and have better access to credit, achieving organic growth will remain difficult Report and Accounts 2010 and further setbacks are possible. We are, therefore, focussed on developing additional work with private sector infrastructure providers, particularly in the energy sector. In those parts of the economy more dependent on the public sector we are likely to continue to face uncertainty until the effect of expenditure cuts become clearer. The integration of our Republic of Ireland and Northern Ireland businesses with the British Planning and Development business has been well received by staff and clients, has proceeded well and is already beginning to open up new domestic and international opportunities. Following the economic and political turbulence in Ireland in recent months, it is to be hoped there will now be a period of stability which will allow the economy to begin to recover. 17 n RPS provided architectural, engineering and highway design services for this 100,000m2 high- spec, high security facility for the Ministry of Defence. The building achieved a BREEAM ‘Excellent’ rating in line with the Governments agenda for sustainable development. 2010 2009 Fee income (£m's) Profit* Margin (£m's) % Fee income (£m's) Profit* Margin (£m's) % UK & Ireland 105.2 10.8 Australia 65.2 9.4 10.3 14.4 UK & Ireland 127.7 15.6 Australia 33.2 8.3 Total 170.4 20.2 11.9 Total 160.9 23.9 12.2 24.9 14.9 * before amortisation of acquired intangible assets of £3.1m (2009: £1.7m) and after reorganisation costs of £0.7m (2009: £2.8m) Planning & Development Average number of employees 2010 2009 Age profile 2010 2009 Number of employees 2,349 2,277 Employees aged under 25 (%) Days absent (%) Average length of service (years) Working part time (%) Retention Rate (%)* *excluding redundancies 1.7 1.4 Employees aged 25-29 (%) Employees aged 30-49 (%) Employees aged 50+ (%) 5.8 4.5 7 85 11 94 7 19 60 14 10 21 55 14 rpsgroup.com 18 n RPS won the award for ‘Best Water Consultancy 2010’ at the Edie Awards for Environmental Excellence. The Awards seek to celebrate the year’s most successful green innovators and environmental breakthroughs. n RPS played a critical role as the key contract partner to Dwr Cymru in Wales throughout the freeze and subsequent thaw during Christmas 2010. We were able to deploy vital resource at very short notice in support of our client during this extremely challenging period. Report and Accounts 2010 Report and Accounts 2010 Environmental Management 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 issues facing our clients. Professional advice in this sector has to be technically excellent and commercially appropriate, but also politically aware and culturally sensitive. 19 n RPS is working with Crossrail as the sole provider of Asbestos and Hazardous materials consultancy services. n RPS provides consultancy advice to prevent and control major accident hazards. For redundant nuclear fuel storage ponds, we have developed a generic safety case approach to allow inspections and intervention work to be conducted safely and cost-effectively. rpsgroup.com 20 n RPS provides occupational health services to a range of organisations. This includes employees of the Foreign and Commonwealth Office on a worldwide basis for whom health promotion surveillance and advice is delivered through a ‘health line’ call centre. 2010 2009 Environmental Management Average number of employees 2010 2009 Age profile 68.5 Number of employees 1,275 1,262 Employees aged under 25 (%) 9.4 13.7 67.1 10.0 14.9 Days absent (%) Average length of service (years) Working part time (%) Retention rate (%)* 2.8 2.8 Employees aged 25-29 (%) Employees aged 30-49 (%) Employees aged 50+ (%) 5.4 12 81 5.6 12 82 2010 2009 12 16 51 21 12 16 51 21 Fee income (£m’s) Profit* (£m’s) Margin % *excluding redundancies *before amortisation of acquired intangible assets of £0.4m (2009: £0.3m) and after reorganisation costs of £0.3m (2009: £0.4m) Report and Accounts 2010 Report and Accounts 2010 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 levels of activity, although we expect pricing pressure to continue. We do not anticipate a particularly good year in the Netherlands, but are well positioned in relation to the new round of investment in the UK water industry. 21 This business provides consultancy services in respect of environmental sciences, health, safety, risk and water management in the UK and the Netherlands. This is another good set of results, with exemplary margins being sustained despite significant pricing pressure from clients. As expected, our UK water activities remained relatively subdued through much of the year as our clients shifted attention to the new regulatory cycle. Towards the end of the year we saw some signs that the new round of investment is getting underway. The Dutch economy has suffered a serious recession, but we have been well positioned to benefit from Government stimulus expenditure related to water and transport infrastructure. During the course of 2010 and particularly when the Dutch government introduced a consolidation budget, our private sector clients became more cautious. This held back our performance towards the end of the year. Our health and safety activities in the UK are largely in regulated markets; this protects volume to an important degree, but exposes us to pricing pressure. The acquisition of Health in Business in February supported our growing occupational health business. It has been integrated successfully and performed well. Our nuclear safety activities continued to trade well, as demand held up in a highly regulated market, short of the specialist skills we provide. rpsgroup.com 22 Report and Accounts 2010 Report and Accounts 2010 Group Prospects 23 We have come through the exceptionally challenging circumstances of the last two years in good shape and hope to resume growth in the current year. However, we face continuing uncertainties in Queensland and in understanding our clients’ responses to reduced public expenditure in a number of countries. We remain focussed, therefore, on continuing to improve the efficiency of our businesses, although enabling our employees to recover some of the ground they have lost in remuneration over the last two years has been important at the beginning of 2011. RPS remains well positioned in markets of fundamental importance to the global economy; these continue to have significant long term potential. We believe that our strategy of building multi-disciplinary businesses in each of the territories in which we operate to be attractive and achievable and we will, therefore, continue to seek acquisition opportunities. Our balance sheet is strong enough to continue to support this strategy. The main drivers of growth for the Group in 2011 are likely to be steadily improving oil and gas exploration and production markets and activity related to providing energy infrastructure. Environmental management is likely to grow, provided the Dutch market does not deteriorate much further. Recovery in commercial property and public sector infrastructure markets seems likely to take longer. We continue to operate in unpredictable circumstances. Overall, however, we currently expect a modestly improved performance in 2011. rpsgroup.com 24 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 2010 Report and Accounts 2010 Operations 25 Employees The Group remains committed to creating an employment environment which will attract, retain and motivate employees of high calibre. 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. RPS was awarded first place in Britain’s Top Employers 2010 by the Corporate Research Foundation (CRF) Institute in association with the Daily Telegraph and HR Management. CRF has been given special recognition by the EU Commission for its outstanding contribution to employer best practice in several EU countries. The Company operates share incentive plans on an international basis. These are open to the majority of the Group’s employees and 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. Changes are 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, 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 management board. Underpinning this structure is a set of clear obligations in terms of reporting and authorities that operates throughout the Group. 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. During the course of 2010 we have developed the structure of our Australian business and its Board in order to enable the further expansion of this business. In addition our British, Irish and Northern Irish Planning and Development businesses have now been merged; this will facilitate more efficient management, marketing and resource allocation. rpsgroup.com Operations 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. Notably during 2010 we installed telepresence video conference systems in the UK and Australia in order to improve communications. Equal Opportunities in Employment RPS provides equal opportunities for all its employees and potential employees regardless of their sex, sexual orientation, trans-gender status, religion or belief, marital status, civil partnership status, pregnancy, age, disability, race, colour, nationality, national or ethnic origins. The policy applies to the process of recruitment and selection, promotion, training, conditions of work, pay and benefits and to every other aspect of employment. Training and Continuous Professional Development RPS is committed to the training, education and development of its employees to increase effectiveness, develop potential and ensure adequate succession planning. 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. Prior to external advertisement any available posts are 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 26 Report and Accounts 2010 bodies as CCNSG (ECITB) on site safety courses. RPS, for example, 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. Employees are encouraged to take on active involvement with professional and industry bodies. In Australia, for example, employees are significant contributors to the Society of Petroleum Engineers, The Urban Development Institute and the Property Council of Australia. Our aim is to help the development of individuals throughout their employment with the Company, by underpinning their 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 Group 2010 2009 4,372 4,254 1.8 2 6 9 84 8 17 55 20 5.4 11 90 9 19 53 19 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+ (%) *excluding redundancies in specific sectors, such as the water industry, or in relevant aspects of environmental consultancy. Academic Bursaries During 2010 RPS continued its long term practice of awarding academic bursaries to students studying relevant courses at particular colleges and universities as well as supporting staff through further academic study. In doing so RPS supported academic study and/or ongoing research at the universities and colleges listed below: n n n n n n n n n n n n n n n University College, London Imperial College, University of London Queen Mary’s College, University of London Birkbeck College, University of London Oxford Brooks University University of Gloucester University of Central England, Birmingham Birmingham City University South Birmingham College Stourbridge College, Birmingham University of Wolverhampton University of Coventry University of Loughborough University of Derby De Montfort University 27 rpsgroup.com Operations Nottingham Trent University, The Netherlands 28 n n n n n n n n University of Nottingham University Lincoln Lincoln College Anglia Ruskin University University of Southampton University of Manchester University of Salford n Sheffield Hallam University n n n n n n n n n n n n University of Northumbria University of York The Open University, Milton Keynes University College, Cardiff University of Wales Newport University of Glamorgan St Andrews University Stirling University Napier University, Edinburgh Aberdeen College of Commerce Queens University Belfast University of Ulster Ireland n University College, Dublin n Trinity College, Dublin n Dublin City University n National University of Ireland Galway Report and Accounts 2010 n n n Technical University of Delft InHolland College, Rotterdam Utrecht College Australia n n University of New England Griffiths University n Queensland University of Technology n n n University of the Sunshine Coast Swinburne University Curtin Universitynsity, diplccountancy 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 range of services and the way 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 endeavour 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 service offering and capability. The acquisition strategy RPS has pursued over the last two decades 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 the Group 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 £31.5 million (Note 24). 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. The Board believes the Group’s current bank facilities, that include a £125 million revolving credit facility (Note 14), are adequate for current purposes, but would be prepared to increase them in order to make appropriate investments. Dividend Policy For many 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. Shareholder Value The Board manages the Group in order to achieve good levels of growth in shareholder value on a consistent long- term basis. It is, however, recognised 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 44 to 59. 29 rpsgroup.com 30 Report and Accounts 2010 Report and Accounts 2010 31 Risk Management 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. 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 well-established and embedded systems of internal controls 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 n n Business Strategy - the risk of not delivering the Group’s long-term strategy. The Group’s principal risks 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. The main risks are failure of IT systems and the recruitment and retention of key staff, although in 2010 we have been affected by the cessation of drilling in the Gulf of Mexico following the Macondo spill and the beginning of catastrophic flooding in Queensland. 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 as well as liabilities arising from trading activities which are not covered by professional indemnity insurance. n Health, Safety and Environment - the risk related to the safety of staff, clients, sub-contractors, members of the public and the environment. Business Strategy The Group’s strategy seeks to ensure continuous improvement in the range and quality of our services and our financial performance by: n operating in markets where we can add value to our clients’ activities; n endeavouring to achieve leadership in those markets; and rpsgroup.com Risk Management n making acquisitions of quality businesses in order to extend our expertise and geographical presence. Successful implementation of the strategy requires the Board to identify appropriate markets and how to operate in them successfully. Each year the Board sets itself a series of specific objectives and priorities. Progress against these is measured on a regular basis. The Executive Committee reviews and has to approve all acquisitions before any binding commitment is made. Normally in respect of 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 recent economic climate, however, the Group Board has been considering all acquisitions. The Executives have developed comprehensive methods to evaluate potential acquisitions, including the legal framework within which businesses are acquired and methods of integration. 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 in place to assist staff motivation and retention. The Executive Directors have overall responsibility for the development of human resource policies in the businesses for which they are responsible. RPS Technology Services (RPSTS) manages all the Group’s IT systems although some specific 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. Events in the Gulf of Mexico and Queensland reminded the Board in 2010 that our business can be adversely affected by natural and man made disasters which cannot be anticipated and which are not controllable by RPS. In both cases our response has been measured and served to limit impacts on our staff, company assets and our financial performance. However, in both those cases the financial impact was significant. There was no additional specific pre-planning which could have been done which would have lessened the impact materially. 32 Report and Accounts 2010 Risk Management 33 Financial and Commercial Management The financial management of the Group is undertaken within the framework of the operating structure that is described on page 25. Business units are treated as separate entities for the purposes of budgeting and accounting. Each business unit maintains a business plan which defines the activities and scope of business to be conducted. The budgets quantify the expectations for the Group. The plans (including budgets) are agreed with the Group Board. The businesses in the UK are supported by centrally managed accounting 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. During the recent financial crisis and economic recession changes have been made to the planning and budgeting processes. These have been successfully designed to reduce resources and processes with a high degree of uncertainty enabling focus to be maintained on work winning and delivery. 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 the detailed budgets as the benchmark. Future performance is estimated by reference to forward order books, although the nature of most contracts means that such forecasting cannot be completely accurate and the degree of imprecision cannot be statistically tested. The Group’s financial instruments comprise cash, bank loans and items such as receivables and payables that arise directly from its operations. The main purpose of these instruments is to provide finance for the Group’s operations. The Group reports its results in sterling but has operations in Australia, Ireland, the Netherlands, USA, Canada, Malaysia, Singapore and Brazil that have functional currencies other than sterling. As a result the Group’s balance sheet, income statement and statement of consolidated 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. 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. It has been and remains the Group’s policy that financial instruments are not used for speculative purposes. The Group has strong review procedures for monitoring and controlling cash flows and funding requirements. This includes the production of cash flow projections and the reporting and review of daily cash collections against targets. The internal audit function is undertaken by the Group financial accounting team as part of its other functions. Given the current structure of the Group, the Board and the Audit Committee consider that a separate internal audit function is not at present required. During the year the Executive Committee performed a full review of internal controls within the rpsgroup.com Risk Management Group the details of which were reported to the Audit Committee. 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, however, there is no single contract or client relationship which is essential to the Group’s business. 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. In appropriate 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 n documenting of procedures to control the quality of services; maintaining records to control and show compliance with quality and client requirements; n n n 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 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). 34 Report and Accounts 2010 Risk Management are reported throughout the organisation and brought to the attention of the Board. 35 In 2010, the reportable accident rate was 3.3 accidents per 1,000 employees (2009: 4.6). Typically the accidents that occurred are related to manual handling activities, however, slips and falls also account for a significant proportion of the accidents. Reportable Accident Rates Group 2010 2009 15 19 3.3 4.6 Reportable injuries Reportable injuries incident rate per 1,000 employees rpsgroup.com 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 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. Health and safety performance is reported at Divisional Board meetings. An analysis of accidents and incidents is presented at every Group 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 mandatory 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 (Environmental Management) standards. 32.4% of employees across the Group work in offices that now have third party accreditation to the OHSAS 18001 standard (2009: 29.3%). 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 36 n RPS has supported Tree Aid for over 5 years with charitable contributions for some of Africa’s poorest rural communities to succeed in the fight against poverty and the effects of Climate Change. Report and Accounts 2010 Report and Accounts 2010 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 long term success of our business. 37 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 achieved, halve our (per capita) energy use by 2020. The need to reduce staff numbers in parts of the Group as a result of recent trading conditions has made this task more challenging than originally envisaged. Our likely success can only be evaluated when economic circumstances improve, allowing staff numbers to stabilise. 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. 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 reported. Employees must not seek personal gain from third parties, or abuse their position within the Group for personal gain. 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 2010 the Group and its staff gave or raised £472,000 in charitable contributions (2009: £480,000). Taking into account the £188,000 spent on academic bursaries and educational initiatives (2009: £105,000), the Group’s total contribution to the communities in which it operates was £660,000 (2009: £585,000). 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, rpsgroup.com Corporate Responsibility fund raising and gifts in kind. In 2010 RPS was again acknowledged as the leading corporate sponsor of Tree Aid. We are proud to continue our association 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 as part of many projects that it undertakes for clients. The Group advises international bodies, governments, local authorities and private companies on improving their environmental performance. We have many employees with professional qualifications in environmental management; some have achieved international recognition for their work and play a leading role in professional bodies. Although RPS seeks to manage and reduce its own environmental impact, our greatest impact is to be found in the advice we provide to clients many of whom are undertaking major capital projects. 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. Parts of the Group has achieved ISO14001, the internationally recognised environmental management system standard. Facilities for recycling office waste are in place at our offices. During 2010 our offices recycled waste paper, spent toner and ink cartridges, obsolete computer hardware, printers and mobile phones. Proceeds from this recycling were donated to charity. 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 38 Report and Accounts 2010 buildings and infrastructure to cope with anticipated climatic changes. We expect the workload in this area to increase. The carbon footprint for RPS in 2009, recalculated in accordance with Greenhouse Gas Protocol and current Defra guidance amounted to 14,662 tonnes. Calculated on a similar basis the overall carbon footprint increased to 16,972 tonnes in 2010. This was in part the result of the first time inclusion of our Eastern Australian offices in the calculations, these being part of a business acquired during 2009. In addition during 2010 the number of vans operated by our Environmental Management business in the United Kingdom increased significantly as the business grew. A large number of these new vans are low carbon emission, which will progressively minimise the impact of this fleet on the overall footprint. The specific target set by the Board is to reduce per capita office energy consumption by 5% per annum. This target was achieved in 2010 with office gas and electricity consumption decreasing by 7.7% per capita over the prior year from 3.9 per capita to 3.6 MwH per employee. As indicated above, however, our ability to sustain improvement will be dependent on economic circumstances; the continuing uncertain environment in which we operate means that the structure of our businesses may be affected in ways that make the achievement of our targets more challenging. 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. 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. 39 rpsgroup.com rpsgroup.com 40 RPS Offices in Perth, Australia Report and Accounts 2010 Report and Accounts 2010 Report and Accounts 2010 Management & Governance The Board Committees Corporate Governance 41 42 43 44 rpsgroup.com The Board Brook Land Non-Executive Chairman Dr Phil Williams Executive Director Aged 57. 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. Roger Devlin Senior Independent Non-Executive Director Aged 53. 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 final three-year term. Karen McPherson Independent Non-Executive Director Aged 59. 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. Aged 61. 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. 42 Dr Alan Hearne Chief Executive Aged 58. 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. Gary Young Finance Director Aged 51. 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. Peter Dowen Executive Director Aged 62. 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. Report and Accounts 2010 John Bennett Independent Non-Executive Director Aged 63. 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. John is serving a second three year term. Louise Charlton Independent Non-Executive Director Aged 50. 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 was a co-founder. Louise is a Director and Trustee of the Natural History Museum. She is serving an initial three-year term. Robert Miller-Bakewell Independent Non-Executive Director Aged 58. Robert joined the Board on 4 May 2010 and is serving an initial three year term. Robert was a Senior Director of Investment Research at Merrill Lynch from 1998 to 2008 and prior to this worked as an investment analyst with NatWest Markets and its predecessor companies. Over the previous twenty years his focus was on analysing and advising water, waste, transport and environmental infrastructure companies both in the UK and internationally. He is also a member of OFWAT’s Future Regulation Panel. Committees Committee membership Audit Committee Nomination Committee Corporate Governance John Bennett (Chairman) Brook Land (Chairman) Brook Land (Chairman) Roger Devlin Robert Miller-Bakewell Louise Charlton Karen McPherson Executive Committee* Alan Hearne Nicholas Rowe (Secretary) 43 Remuneration Committee Alan Hearne (Chairman) Karen McPherson (Chairman) John Bennett Roger Devlin Peter Dowen Phil Williams Gary Young Nicholas Rowe (Secretary) The number of Board and Committee meetings attended by each of the Directors during the year was as follows: Full Board Audit Committee Remuneration Committee Nomination Committee Corporate Governance Brook Land Alan Hearne Gary Young Peter Dowen Phil Williams Roger Devlin Karen McPherson John Bennett Louise Charlton Robert Miller-Bakewell** Number of meetings held 8 8 8 8 8 7 8 8 8 5 8 – – – – – 3 – 3 – 2 3 – – – – – 3 3 3 – – 3 3 – – – – – 3 – 3 – 3 * The Executive Committee meets monthly or more frequently if required. ** Robert Miller-Bakewell joined the Board and the Audit Committee during the year. 2 2 – – – – – – – – 2 rpsgroup.com Corporate Governance Corporate Governance Committee The Corporate Governance Committee is responsible for overseeing the Group structure and organisation and evaluating these in the context of developments in standards of corporate governance. The Committee keeps the Board and its other committees appraised of developments that may impact their structure and activities. It also oversees the policies described in the Corporate Responsibility Statement as well as the Group’s environmental policies. The Committee consists of the Chairman, Chief Executive and Company Secretary. Combined Code The Company has, throughout the year to 31 December 2010, complied with all provisions of the Combined Code on Corporate Governance 2008 (the ‘Code’), except that in the period to 4 May 2010, the Audit Committee consisted of only two independent Non-Executive Directors. On appointment of Robert Miller-Bakewell to that Committee full compliance with the Code was achieved. The table below summarises how the Company has applied each of the provisions of the Code: 44 Combined Code paragraph A.1.1 Comment Compliant Page 47-48 A.1.2 Compliant 42-43 A.1.3 Compliant 48 A.1.4 Compliant 48 A.1.5 Compliant A.2.1 Compliant A.2.2 A.3.1 Compliant Compliant 48 47 47 42 A.3.2 Compliant 47 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. Report and Accounts 2010 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. An explanation should be given if neither an external search consultancy nor open advertisement has been used in the appointment of a non-executive director. 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. Management & Governance Management & Governance Combined Code paragraph A.3.3 Comment Compliant Page 47 A.4.1 Compliant 58-59 A.4.2 Compliant 58-59 A.4.3 Compliant 58-59 45 A.4.4 Compliant 55 A.4.6 Compliant 58-59 A.5.1 Compliant A.5.2 Compliant A.5.3 Compliant A.6.1 Compliant A.7.1 Compliant 48 48 48 48 Notice of Meeting A.7.2 Compliant 47 B.1.1 Compliant B.1.2 B.1.3 Compliant Compliant B.1.5 Compliant B.1.6 B.2.1 Compliant Compliant 49 49 54 55 55 55 The Remuneration Committee should make available its terms of reference. B.2.1 Compliant 50 rpsgroup.com Corporate Governance continued 46 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. Combined Code paragraph Comment B.2.2 Compliant B.2.3 B.2.4 Compliant Compliant Page 49-54 55 50 C.1.1 Compliant 65-67 C.1.2 C.2.1 Compliant Compliant 65 58 C.3.1 Compliant * 57 C.3.2/3.3 Compliant 57-58 C.3.4 Compliant 57 C.3.5 Compliant C.3.6 Compliant C3.6 Compliant C.3.7 Compliant D.1.1 Compliant 57 57 n/a 57 39 D.1.2 Compliant 39 D.2.1 Compliant D.2.2 Compliant Notice of Meeting D.2.3 Compliant 39 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 * On appointment of an additional Non-Executive Director to the Committee in May 2010 compliance with this provision was achieved. Report and Accounts 2010 Management & Governance Management & Governance 47 Board Responsibilities The Board has a schedule of matters that are reserved for its decision. The key responsibilities of the Board are as follows: 1. 2. 3. 4. 5. 6. 7. 8. 9. To ensure that the Group maintains a strategy that is capable of delivering realistic returns to shareholders. To organise and monitor the performance of the Group’s operations through the Divisional structure. To 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. To 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. To 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. To ensure the Group and Divisional Boards have policies in place to attract and retain high quality staff. To manage and promote the RPS brand by ensuring it has an adequate profile amongst the client base and is respected and strengthened. To keep under review opportunities to extend the range of products RPS offers and the sectors in which it operates. To keep under review opportunities to extend the geographic areas in which RPS operates. 10. To ensure that the Board has available an appropriate and effective advisory team including brokers, financial advisers, auditors, lawyers and financial public relations professionals. 11. To maintain, together with our brokers, 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. To maintain contact with a wide range of analysts and brokers to ensure current independent research is available to the market. 13. To maintain systems of corporate governance compliant with the Combined Code and appropriate for a company of RPS’ type and size. To discuss these matters with major shareholders on a regular basis. 14. To ensure that the Group operates appropriate risk management systems in respect of all aspects of its business. 15. To ensure that the Group has in place IT systems appropriate for the proper operation of the business and its likely expansion. 16. To 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. To ensure that the Group has sufficient and adequate funding in place to maintain its strategy. The Board is also responsible for the financing of the Group, material capital commitments, commencing or settling major litigation, corporate acquisitions and disposals, appointments to subsidiary company boards and anything else which may materially affect the Group’s performance. The requirement to obtain Board approval is communicated widely throughout the Group’s senior management. Board Structure At the date of this report the Board comprised four Executive and six Non-Executive Directors including the Chairman. Robert Miller-Bakewell was appointed as a Non-Executive Director on 4 May 2010. The Executive Directors are responsible for the day to day management of all the Group’s business activities. The Non-Executive Directors are in the opinion of the Board all independent of management and contribute independent judgement as well as extensive knowledge and experience to the proceedings of the Board. The Chairman was independent on appointment. 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. With effect from the 2011 Annual General Meeting all directors will be subject to annual re-election. The Chairman and Chief Executive have clear and distinct roles. The key functions of the Chairman are to conduct Board meetings as well as 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‘s role is to develop and lead business strategies and processes to enable the Group’s business to meet the requirements of its clients and the needs of its staff and shareholders. The Senior Independent Director is available to shareholders who wish to raise concerns that cannot be resolved through the Chairman, Chief Executive or Finance Director. Roger Devlin acted as Senior Independent Director throughout the year under review. The Board is assisted by the Audit, Remuneration, Nomination, Corporate Governance and Executive committees, all of which activities are described in this report. The Chairman of each Committee provides updates as to its activities at Board meetings. Board Operations The Board generally meets on a monthly basis, except during holiday periods, but may meet more frequently should circumstance require. The Board agenda gives significant focus to business performance and strategy. Comprehensive rpsgroup.com 48 Corporate Governance continued papers are circulated well in advance of Board meetings. These include general updates and briefings on significant issues from the Chief Executive, the Finance Director, each of the Executive Directors and the Company Secretary. At meetings oral reports are made on issues arising from written reports; both these and other matters of immediate importance are discussed by the Board. Presentations on the operations of particular operating companies are made from time to time. The Company Secretary assists the Chairman in ensuring that Board procedures are followed and advises on matters of Corporate Governance. The services of the Company Secretary are available to Directors generally. The Executive Directors meet formally at least once a month. The Executive Committee is responsible for all operational matters within the Group except in respect of any decision, or group of decisions, which could not be executed within the limit of funds available to the Group or which are likely to have a material effect upon the trading prospects of the Group. The minutes of 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 decision of the full Board 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 regarding the management of the Company or a proposed action, these concerns are recorded in the Board minutes. It is Company policy that if a Director resigns any concerns expressed are provided, in a written statement, to the Chairman for circulation to the Board. Shareholders have previously approved changes to the Company’s Articles of Association to allow Directors to authorise conflicts in accordance with the Companies Act 2006. 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. The Company maintains Directors and Officers liability insurance with a current limit of indemnity of £20m. There is an agreed procedure for Directors to take independent professional advice and training at the Company’s expense. Board Performance 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. 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 Report and Accounts 2010 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. Directors receive an induction on appointment including considerable information on the Company as well as the Board and its procedures. They also meet other members of the Board to be briefed on strategy, financial matters and other key issues. Advice is available from the Company’s solicitors if required. During the year updates are provided on key issues as required, including visits to operating companies to meet local management. 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. 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 Committee comprises Karen McPherson (Chairman), John Bennett, and Roger Devlin all of whom were members throughout the year. The Chairman of the Company 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 frequency of, and attendance by members at, Remuneration Committee meetings is set out on page 43 of the report and accounts. The Remuneration Committee appointed and received wholly independent advice on executive compensation from PricewaterhouseCoopers (‘PwC’). 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 31-35. 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 and risk management from information provided by management and the Group’s external auditors. Such a review was undertaken during 2010 the outcome of which was satisfactory. The key procedures that the Directors have established to provide effective internal financial controls are as follows: 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. Accounting policies and guidelines are issued to all accounting teams including those of acquired companies. These set out the principles of and minimum standards required by the Board for effective financial control. Management & Governance Management & Governance 1 1 2 1 1 2 2 Alan Hearne 1 Fixed 34.4% 2 Variable 65.6% 2 Peter Dowen 1 Fixed 44.3% 2 Variable 55.7% 49 Gary Young 1 Fixed 44.4% 2 Variable 55.6% Phil Williams 1 Fixed 44.2% 2 Variable 55.8% Analysis of fixed versus performance related pay for Executive Directors 2010 Notes: Fixed compensation comprises: Basic salary Pension Contribution Benefits Variable compensation comprises: Maximum contribution under the Bonus Plan rpsgroup.com 50 Corporate Governance continued Remuneration Committee - Terms of Reference The terms of reference of the Remuneration Committee are as set out below: n n n n n n the Committee has been delegated responsibility by the Board to determine and agree with the Board the framework or broad policy for 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, when necessary, 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, to 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 2 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; to determine the policy for and scope of pension arrangements for each Executive Director; to 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; n to ensure that contractual terms on termination, and any payments made, are fair to the individual and the Report and Accounts 2010 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; The Bonus Plan replaced the annual bonus plan and LTIP for Executive Directors for 2010. Full details of the Bonus Plan are set out below. n n n n n to ensure that provisions regarding disclosure of remuneration, including pensions, as set out in The Large & Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008 and the UK Corporate Governance Code, are fulfilled; to be aware of and advise on any major changes in employee benefit structures throughout the Company or Group; to be exclusively responsible for establishing the selection criteria, selecting, appointing and setting the terms of reference for any remuneration consultants who advise the Committee; to meet as required during the year; and to report the frequency of, and attendance by members at, Remuneration Committee meetings in the annual report. Background 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 in November 2009 with its major shareholders on a new incentive plan, the RPS Group Plc Bonus Plan (the ‘Bonus Plan’). This exercise was completed in the first quarter of 2010. Feedback was sought from and provided by shareholders and as a result of this the final design and operation of the Bonus Plan was amended and broad shareholder support confirmed. Remuneration policy The Remuneration Committee’s policy for 2010 was to set the main elements of the remuneration package in order to reflect: n n n n the performance of the individual concerned; the performance of the business unit(s) for which he/she is responsible; in the case of the Group directors, the performance of the Group as a whole; and the relevant market(s) for the executives and the terms and conditions prevailing in those markets. The Committee recognises that the main competitors of the Group and, therefore, comparators for the remuneration are found outside the group of companies that are listed. In consequence, the Committee needs to reflect that in its deliberations including RPS’ market leading position in a number of those markets. The Committee is, in addition, mindful of trends and best practice amongst listed companies of a similar size in the Support Services sector. The policy is designed to attract, retain and motivate individuals by providing the opportunity to earn competitive levels of compensation provided performance is delivered, whilst remaining within the range of compensation offered by similar companies. Directors’ remuneration is the subject of annual review in accordance with this policy. Additionally, it focuses on the contribution to the continued long term growth and success of the Company and seeks to align Director interests with those of the Company, employees and shareholders. The charts on page 49 demonstrate the proportion of the maximum potential compensation which is performance related for each Executive Director. Base salary When determining the salary of the Executive Directors the Remuneration Committee takes into consideration: n n n n 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: n n 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.. The companies comprising the comparator group used in the last review were as follows: Aggreko Plc Alfred McAlpine Plc Amec Plc Ashtead Group Plc Atkins WS PLC Babock International Group BPP Holdings PLC BSS Group PLC Bunzl PLC Connaught Plc Davis Service Group PLC De La Rue Plc Diploma Plc Electrocomponents Plc Filtrona PLC Galiform Plc Hays PLC Homeserve PLC Interserve PLC Intertek Group PLC John Menzies Plc Lavendon Group Plc Michael Page International Plc Mitie Group Mouchel Group PLC PayPoint PLC Premier Farnell PLC Regus PLC Scott Wilson Group Plc Serco Group Plc Shanks Group Plc SIG PLC Speedy Hire PLC SThree PLC Travis Perkins PLC White Young Green PLC WSP Group PLC The Committee has access to information on the pay and conditions of other employees in the Group when determining the remuneration packages for Executive Directors. The Remuneration Committee actively considers the relationship between general changes to employees pay and conditions and any proposed changes in the remuneration packages for Executive Directors to ensure it can be sufficiently 51 Management & Governance robust in its determinations in light of the position of the Company as a whole. Taking account all of the above factors the Executive Directors were all awarded a basic salary increase of 2.5% as at 1 January 2010. Bonus Plan Rationale for the Bonus Plan The Remuneration Committee believes that the Bonus Plan is an appropriate incentive arrangement for the Company for the following reasons: n n n n n n the Plan provides a direct link between the level of profit generated by the Company and the total incentive cost; the Plan is self-financing, if threshold profit levels are not achieved there will be no Company contribution; there is a risk adjustment mechanism built in to the operation of the Plan with a claw back of contributions if the threshold profit is not met for any financial year during the Plan period; the Plan allows the Remuneration Committee to align performance conditions to the budget and performance of the Company for each financial year; the operation of the Plan is simple and transparent to participants, the Company and shareholders; the Plan has a potential retentive effect as participants can see the potential benefits accruing over the plan period; n there is an alignment of Executive Directors’ interests with shareholders: n n shareholders receive a minimum level of profit prior to any incentive payments to Executive Directors; Executive Directors are encouraged to pursue consistent levels of profit and rpsgroup.com the contribution to the Plan will be calculated on the following basis: available was not increased by the implementation of the new Plan; the Remuneration Committee will set the threshold profit at the beginning of each financial year. Only in exceptional circumstances will the Committee amend the threshold profit once it has been set; n n up to 3% of the total profit for the financial year will be contributed to the Bonus Plan for the Executive Directors. This is subject to an individual cap as a percentage of salary provided that the threshold profit is met or exceeded. The Remuneration Committee considers the 3% maximum contribution to be appropriate based on the historic incentives costs of the Executive Directors of the Company and their counterparts in the other constituents of the Support Services Sector; where the actual profit for the financial year is less than the threshold profit, 15% of the difference will be deducted from the value of funds held in the Plan provided that the value cannot be less than zero; there is a maximum contribution that can be made to a participant’s plan account in respect of any financial year (see below). The Remuneration Committee determined these limits based on the aggregate of the historic level of LTIP award and bonus potential set by the Committee. The Committee was keen to ensure that the total incentive compensation the value of deferred contributions in to a participant’s plan account will be held in shares; participants will be entitled to the release of bonus units with an aggregate bonus unit price equal to 50% of the balance of their Plan accounts at the end of each financial year, with the final balance of the Plan account paid at the end of the third year. Details of Bonus Plan Operation for 2010 This section of the report sets out the following information in respect of the 2010 operation of the Bonus Plan: n n n the maximum contribution set for each Executive Director; the profit thresholds and contribution percentages set for the 2010 financial year; the actual contribution made to the Bonus Plan in respect of the 2010 financial year; and n the corresponding plan account payments and balances for participants. Maximum Contribution 2010 Maximum Contribution Name Alan Hearne Gary Young Phil Williams Peter Dowen under the Plan Maximum Contribution for 2010 (%age Salary) 200% 150% 150% 150% 200% 150% 150% 150% 52 Corporate Governance continued n n n n n n there is a long term alignment with the interests of shareholders as the deferred element of the Plan is in the form of equity. Summary of the Main Features of the Bonus Plan The Bonus Plan is based on a percentage of the profits earned during a three year period which is used to create a bonus pool. 50% of the bonus pool is paid out in year 1, 50% of the cumulative balance of the bonus pool is paid out in year 2 and the cumulative balance (after payments in years 1 and 2 and contribution to the pool in respect of year 3) is paid out as a larger final payment at the end of year 3. The key features of the Bonus Plan are: n at the beginning of the plan period participants will have a plan account to which bonus units will be allocated. These bonus units will only have value if the Company makes a contribution to the Plan. On the basis that the threshold profit is exceeded and a contribution is made into the Plan a number of the bonus units will be eligible for release each year. The Remuneration Committee will in its discretion when determining how many eligible bonus units to release (and therefore the level of annual payment received by the participant) take into account individual and wider Company and divisional financial and non financial performance; including the Company’s sustainability, environmental and corporate governance record; Report and Accounts 2010 Management & Governance Management & Governance Profit & Contribution Thresholds for 2010 Level PBTA Threshold (this figure is net of all bonus costs including the bonus costs under the Plan for this Financial year) Bonus Plan Contribution Percentage Bonus Plan Deduction Percentage Actual PBTA for 2010 *Straight line between points. Level 0 <£45m Level 1 £45m Level 2 £52.5m 1%* 3%* 15% £48m Total Plan Contribution £874,000 Participant Plan Accounts The following table sets out the details of the Plan Accounts for the Executive Directors: 53 Plan Account Details Opening Balance 2010 Plan Contribution 2010 Plan Deduction Balance 2010 Payment Closing Balance Value to be deferred in Shares Alan Hearne £ Gary Young £ Phil Williams £ 372,813 – 186,407 186,406 186,406 141,579 – 70,790 70,789 70,789 198,206 – 99,103 99,103 99,103 Peter Dowen will, as announced, be leaving the Company in September 2011 and will not, therefore, be participating in the Plan. The Bonus Plan will be operated for 2011 with the same main parameters. However, the Remuneration Committee will set the appropriate thresholds and contribution levels for 2011 taking into account the circumstances of the Company and market generally. Long-term Incentives Shareholder approval has lapsed for the LTIP and therefore no further grants will be made under this Plan; as indicated above the LTIP and former annual bonus plan have been replaced by the Bonus Plan. The following table and paragraphs summarise the operation of the Company’s LTIP: Executive Maximum Annual Grant Chief Executive Finance Director Executive Directors Performance Condition Status 2007 Grant % of Salary/ Condition 100 100 80 80 EPS Growth (see table below) Released in full on 14 March 2010 as the EPS performance condition was satisfied (see table below) 2008 Grant % of Salary/ Condition 100 100 80 60-80 EPS Growth (see table below) Based on current performance it is anticipated that the grant will lapse on 8 April 2011 2009 Grant % of Salary/ Condition 100 100 80 60-80 EPS Growth (see table below) Release Date 31 March 2012 rpsgroup.com The Executive Directors also receive the following additional benefits: n healthcare; n life assurance and dependents’ pensions; n disability schemes; and n company car or car allowance. Shareholding Guideline Shareholdings across the Executive Directors and Senior Executives are not uniform. Therefore, four 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 their shareholding by their participation in the Company’s incentive plans. Name Alan Hearne Gary Young Phil Williams Peter Dowen Recommended shareholding requirement as percentage of salary 150% 100% 100% 100% is no realistic prospect that the 2009 grant under the LTIP will result in any release in March 2012. As a result a charge of £214,000 made previously has also been released into the 2010 profit and loss account. There are no other outstanding awards under the LTIP and in consequence the LTIP is in practical terms closed. Full details of the Directors LTIP awards are set out on page 64. In years prior to the introduction of the LTIP in 2004 the Company operated an Executive Share Option Plan. All outstanding options under this plan are set out on page 63. All performance conditions under this Plan were met details of which have been set out in previous reports of the Committee. No options were issued at a discount under this plan. Benefits The Executive Directors participate in a Company money purchase (defined contribution) scheme for which the Employer contribution is 15%. In 2006 the Remuneration Committee agreed to pay a one-off pension contribution in respect of Alan Hearne representing six years of annual contributions. No further pension contributions are therefore being paid in respect of Alan Hearne during that period. 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 30% of eligible employees. Corporate Governance continued 100% of the shares subject to the 2007 grant were released on 14 March 2010. The following table sets out the number of shares released to the Executive Directors: Name Alan Hearne Gary Young Phil Williams Peter Dowen Number of ordinary shares 124,893 49,272 60,222 60,222 54 The market price of shares on release was £1.781. The performance conditions attached to the release of LTIP shares related to EPS growth are 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 *Straight line release applies between these points. The Remuneration Committee will determine the satisfaction of the performance conditions in respect of both the LTIP. The EPS figure used by the Company will be 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 sustained real increase in the financial performance of the Company. The Committee has determined that there will be no release of the 2008 grant made in 2011. A charge of £495,000 made previously was, therefore, released into the 2010 profit and loss account. In addition the Committee has determined that there Report and Accounts 2010 Management & Governance Management & Governance Service contracts The Company’s policy on the duration of service contracts is that: All of the Company’s Executive Directors have service contracts with the Company as detailed below. The fees paid to the Chairman and each Non-Executive Director are detailed on the following page. n n Executive Directors should have rolling service contracts terminable on no more than one year’s notice served by the Company or the Director; and 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 or for extended notice periods or compensation in the event of a change of control. None of the Directors’ contracts provide for liquidated damages. Name Date of Contract Notice Period (months) Alan Hearne Peter Dowen Phil Williams Gary Young February 1997 February1997 November 2005 September 2000 12 12 12 12 The only event on the occurrence of which the Company is liable to make a payment to any of the Executive Directors is cessation of employment. With effect from the Company’s annual general meeting in 2011 all directors will be required to seek re-election on an annual basis. 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. 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 2010 (months) Brook Land September 1997 April 2002 Roger Devlin June 2005 Karen McPherson June 2006 John Bennett Louise Charlton May 2008 Robert Miller-Bakewell May 2010 Annual Review 4 5 17 5 29 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. 55 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. 240 220 200 180 160 140 120 100 80 60 Total shareholder return from 1st January 2006 2006 2007 2008 2009 2010 RPS Group - Tot Return Ind FTSE All Share - Tot Return Ind FTSE All Share Support SVS£- Tot Return Ind rpsgroup.com Corporate Governance continued Executive: Alan Hearne Gary Young Peter Dowen Andrew Troup* Phil Williams Non-Executive: Brook Land Roger Devlin Karen McPherson John Bennett Louise Charlton Robert Miller-Bakewell** Total 2010 Total 2009 56 Emoluments excluding pensions Pension (paid and provided) Bonus £000s Fees £000s Benefits £000s 2010 £000s 2009 £000s 2010 £000s 2009 £000s 186 71 – – 99 – – – – – – 356 – – – – – – 95 35 40 35 30 17 252 235 17 10 10 – 11 608 286 244 – 397 95 – 35 – 40 – 35 – 30 – – 17 48 1,787 – 61 414 210 238 178 293 95 35 40 35 30 – – 1,568 – 31 35 – 43 – – – – – – 109 – – 30 34 27 42 – – – – – – – 133 Basic salary £000s 405 205 234 – 287 – – – – – – 1,131 1,272 The total Directors’ emoluments were £1,787,000 (2009: £1,568,000) excluding pension contributions. In addition Employers National Insurance Contribution paid in respect of these emoluments were £196,000 (2009: £170,000). * Remuneration for Mr Troup in 2009 is that covered up to his resignation from the Board on 5 November 2009. **Robert Miller-Bakewell joined the board on 4 May 2010. 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. 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 6 May 2011. This report was approved by the Board on 2 March 2011. Signed on behalf of the Board Karen McPherson Chairman of the Remuneration Committee 2 March 2011 Report and Accounts 2010 Management & Governance Management & Governance 57 Audit Committee The Audit Committee comprises three Independent Non-Executive Directors; John Bennett, Roger Devlin and Robert Miller-Bakewell. It has written terms of reference set out as below. Although the Board considers that all current members of the Committee have experience which is relevant to the role, John Bennett, who is a Chartered Accountant, is the member of the Committee specifically identified as having recent and relevant financial experience. The Committee 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. During the year the Committee assisted the Board in conducting the review of internal controls described on page 49. The Audit Committee has considered the need for an internal audit function but considers that at present the financial controls operating throughout the Group and the reviews undertaken by the Group Finance function are adequate without a separate internal audit function. The Audit Committee keeps the scope and cost effectiveness of the external audit under review. The independence and effectiveness of the external auditor is reviewed annually and audit partners are rotated every five years. The possibility of undertaking an audit tender process is considered on a regular basis. As part of its responsibility to ensure independence and objectivity the committee has 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: n bookkeeping services n preparation of financial statements n design and implementation of financial systems n valuation services n investment advisory, broker and dealing services n 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: n n n taxation services transaction support including due diligence advice relating to risk management and controls n 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 80. The Company has in place formal procedures which allow staff of the Company to, in confidence, raise concerns about possible improprieties in matters of financial reporting and other issues. These procedures are reviewed by the Audit Committee and are as follows: n n n any employee wishing to raise a concern regarding internal controls, accounting or audit matters may do so with the Senior Non-Executive Director, Roger Devlin, or the Company Secretary, Nicholas Rowe; 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 at least 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. Relationship between the Committee and the Board The RPS Group Plc Board: n n n n n n n 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. rpsgroup.com 58 Corporate Governance continued Committee authority The Committee shall have the authority to consider any matters relating to the financial affairs of the Group. The Committee shall have the authority to request relevant information from any employee and employees shall be expected to respond accordingly. The Committee may take external professional advice with respect to its responsibilities and duties. The Committee shall have no executive responsibilities with respect to implementation of its recommendations. Committee responsibilities and duties Financial matters The Committee shall review accounting policies and practices used by the Group, as well as information to be published to the London Stock Exchange prior to its submission to the Board. The Committee shall ensure that the information presented by the Group supports a balanced, clear and understandable view of its financial position and prospects. External audit The Committee shall make recommendations to the Board with respect to the appointment of external auditors and will take steps necessary to satisfy itself about the continuing independence of relevant firms. The Committee shall review the level of external audit fees. The Committee shall review the scope of, approach to and findings from external audit work. The Committee shall discuss with the external auditors any proposed changes in accounting policies. The Committee Chairman will liaise directly with the external auditors in order to ensure a full understanding of any issues that arise from their work and will report to the Committee accordingly. Report and Accounts 2010 Report and Accounts 2010 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 The Committee meets as required, but not less than once a year, and comprises the Non-executive Chairman, Brook Land and two Independent Non-Executive Directors Louise Charlton and Karen McPherson. The Company Secretary attends all meetings. Its responsibilities include reviewing the Board structure, size and composition, nominating candidates to the Board when vacancies arise and recommending Directors who are retiring to be put forward for re-election. The Committee believes that the Board as currently constituted provides an appropriate range and balance of skills and experience. The Executive Directors have many years experience with the Company and of their specific roles. The Non-Executive Directors, as their biographies indicate, have skills ranging across finance, law, investment analysis, human resources and corporate communication. The Committee, however, keeps Board succession planning and the need to retain Board balance under careful review. Succession plans deal specifically with each of the roles undertaken by the Executive Directors whilst taking into account the developing needs of the business. Account is also taken of the need to periodically refresh the Non-executive compliment and ensure that they continue to provide the range and balance of skills required. The Committee acknowledges that diversity, including gender, is an important consideration in addressing these issues and takes account of this in its planning. The pursuit of diversity does, however, create other issues. By way of example two of the Non-Executive Directors, who provide valuable advice to the Board in other areas do not feel qualified to sit on the Audit Committee. When Directors are appointed to the Board, this is through a formal, rigorous and transparent process. Robert Miller-Bakewell was appointed as a Non-Executive Director on 4 May 2010. This followed a careful evaluation of the skills currently available at Board level and how these could best be enhanced and balanced. Previously Mr. Miller-Bakewell had worked as an investment analyst working within the Company’s sector. After a number of detailed and rigorous interviews, the Committee concluded that his skills and experience offered a strong match with the Company’s requirements. Mr. Miller- Bakewell was only then appointed following a meeting with all other Directors and final consideration of the appointment by the Committee and the Board. The Nomination Committee’s written terms of reference are set out below: Membership The Committee shall be appointed by the Board and shall comprise a Chairman and at least two other members. A majority of members of the Committee shall be Independent Non-Executive Directors. The Board appoints 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. attend the Annual General Meeting prepared to respond to any shareholder questions on the Committee’s activities. Secretary The Company Secretary acts 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 requires. 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 immediately 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 The terms and conditions of appointment of Non-Executive Directors should be made available for inspection by any person at the Company’s registered office and at the AGM. Duties The Committee shall: n n n n n n n regularly review the structure, size and composition of the Board and make recommendations to the Board with regard to any adjustments that are deemed necessary; prepare a description of the role and capabilities required for a particular appointment; be responsible for identifying and 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: n with regard to the Chairman having assessed every three years whether the present incumbent shall continue in 59 Management & Governance n n n n n 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 “retirement by rotation” provisions in the Company’s articles of association; concerning any matters relating to the continuation in office as a Director of any Director at any time; 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: n all the Non-Executive Directors regarding the position of Chief Executive; n all the Directors regarding the position of Chairman; and n detailing items that should be published in the Company’s Annual Report relating to the activities of the Committee. Authority The Committee is authorised to seek any information it requires from any employee of the Company in order to perform its duties. The Committee is authorised to obtain, at the Company’s expense, outside legal or other professional advice on any matters within its terms of reference. Takeover Directive Disclosures required under the Takeover Directive are included on page 66 and form part of the Group’s Corporate Governance report. rpsgroup.com 60 Report and Accounts 2010 Report and Accounts 2010 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 72 107 108 115 rpsgroup.com Report of the Directors The Directors present their report together with the audited financial statements of RPS Group Plc and its subsidiary undertakings (the ‘Group’) for the year ended 31 December 2010. Results and dividend The Consolidated Income Statement is set out on page 68 and shows the profit for the year. The Directors recommend a final dividend of 2.52p (2009: 2.19p) per share. This together with the interim dividend of 2.31p (2009: 2.01p) per share paid on 21 October 2010 gives a total dividend of 4.83p (2009: 4.20p) per share for the year ended 31 December 2010. Principal activities and business review Business review information can be found within the Business Review (pages 8 to 39) which reports on the 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 62 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 31 in the Risk Management section of the Business Review. Corporate Governance The Directors report on corporate governance can be found on pages 44-59 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 15 February 2011. No. of shares Percentage 19,458,621 10,055,074 9,740,444 9,197,978 8,356,852 8,178,883 8,149,160 7,449,204 8.95 4.63 4.48 4.23 3.85 3.76 3.75 3.43 Aberforth Partners Aegon Asset Management Harding Loevner Impax Asset Management F & C Asset Management Co-operative Asset Management Legal & General Investment Management William Blair & Company Report and Accounts 2010 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 Robert Miller-Bakewell Alan Hearne Peter Dowen Phil Williams Gary Young The Directors interests under the Company’s Share Incentive Plan were: Alan Hearne Phil Williams Gary Young * As at appointment on 4 May 2010 No. of shares at 31/12/10 and at 02/03/11 No. of shares at 31/12/09 and at 03/03/10 30,000 30,000 3,000 – – 5,000 12,030 275,910 418,439 88,416 30,000 30,000 – – – –* 482,030 575,910 382,987 59,409 63 No. of shares at 31/12/10 No. of shares at 31/12/09 6,643 4,345 8,773 4,874 2,720 7,736 The Directors interests under the Executive share option scheme are set out below: Director Alan Hearne Peter Dowen 1 Jan 2010 number 62,500 28,157 32,500 15,051 Gary Young 13,720 Exercised number – – – – – 31 Dec 2010 number 62,500 28,157 32,500 15,051 Exercise price 111.0p 146.5p 111.0p 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 12/8/2008 12/8/2015 rpsgroup.com Report of the Directors continued The interests of the Directors under the Company’s Long Term Incentive Plan are set out below: 64 Director Alan Hearne Peter Dowen Phil Williams Gary Young Value of grant at date of grant £000s 1 Jan 2010 number Granted number Released 31 Dec 2010 number Market Value Market Value Market Value of release £000s at date of release of Shares at Grant 2007 2008* 124,893 127,419 2009** 275,261 2007 2008* 2009** 60,222 44,129 95,331 2007 2008* 60,222 61,935 2009** 156,098 2007 2008* 49,272 51,612 2009** 111,498 365 395 395 176 137 137 176 192 224 144 160 160 – – – – – – – – – – – – 124,893 – – 60,222 – – – 127,419 275,261 – 44,129 95,331 60,222 – – – 61,935 156,098 49,272 – – – 51,612 111,498 292.3p 310p 143.5p 292.3p 310p 143.5p 292.3p 310p 143.5p 292.3p 310p 143.5p 178.1p – – 178.1p – – 178.1p – – 178.1p – – 222 – – 107 – – 107 – – 88 – – The total value of LTIP awards released in 2010 was £524,000 (2009: £567,000). No grants were made in 2010. * These grants will not be released and will lapse in March 2011 ** It is anticipated that these grants will not be released and will lapse in March 2012. In consequence it is anticipated that there will be no further releases under the plan. Report and Accounts 2010 The market price of the shares at 31 December 2010 was 230.4p and the range during the financial year was 169.8p to 230.4p. 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 25 to 28. Charitable and community donations During the year the Group, including fund raising by staff, made charitable donations of £472,000 to non-political organisations. 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 33 days’ purchases outstanding in respect of payments to suppliers and sub-contractors (2009: 36 days). At the year end the Company had 18 days’ purchases outstanding in respect of payments to suppliers and sub-contractors (2009: 16 days). Going concern The financial statements have been prepared on a going concern basis as the Directors have a reasonable expectation that the Group has adequate resources to continue in business for the foreseeable future. Directors’ responsibilities statement The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company, for safeguarding the assets, for taking reasonable steps for the prevention and detection of fraud and other irregularities and for the preparation of a Directors’ Report and Remuneration Report which comply with the requirements of the Companies Act 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: n so far as the Director is aware, there is no relevant audit information of which the Company’s auditors are unaware; and n the Director has taken all the steps that he or she ought to have taken as a Director in order to make himself/herself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of the Companies Act 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, 65 Accounts other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board’s ‘Framework for the Preparation and Presentation of Financial Statements’. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRS. A fair presentation also requires the Directors to: n consistently select and apply appropriate accounting policies; n present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; and n provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance. 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: n select suitable accounting policies and then apply them consistently; n make judgements and estimates that are reasonable and prudent; n state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and n prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. rpsgroup.com Post balance sheet events On 18 February 2011 the Group announced the acquisition of Evans- Hamilton Inc. for a maximum consideration of US$8.7m (£5.5m). On 2 March 2011 the Group announced the acquisition of Nautilus Limited and Nautilus World Limited for a maximum consideration of £18.6m. 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 2010 the Company’s issued share capital consisted of 217,187,913 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. With effect from the 2011 Annual General Meeting all directors will be required to seek annual re-election. 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. 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 6 May 2011.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 2 March 2011 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 n the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and n the ‘Business Review’ includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, and that the ‘Risk Management’ report includes a description of the principal risks and uncertainties that they face. Financial instruments Information about the Group’s management of financial risk can be found in notes 27 to 30 of the consolidated financial statements. Capital management The capital of the Group consists of debt, which includes the borrowings and facilities disclosed in note 14 to the consolidated financial statements, cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in notes 19 and 20.The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns and pursue the strategy of the Group. Report and Accounts 2010 Report of the Independent Auditors To the members of RPS Group Plc We have audited the financial statements of RPS Group Plc for the year ended 31 December 2010 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 and express an opinion on 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 A description of the scope of an audit of financial statements is provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm. Opinion on financial statements In our opinion: n 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 2010 and of the Group’s profit for the year then ended; n the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; n the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and n 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: n the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006; and n the information given in the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion: Accounts n 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 n 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 n certain disclosures of directors’ remuneration specified by law are not made; or n we have not received all the 67 information and explanations we require for our audit. Under the Listing Rules we are required to review: n the directors’ statement, set out on page 65, in relation to going concern; n 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; and n certain elements of the report to shareholders by the Board on directors’ remuneration. Matthew White (Senior Statutory Auditor) For and on behalf of BDO LLP, statutory auditor 55 Baker Street London W1U 7EU United Kingdom 2 March 2011 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). rpsgroup.com 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) Adjusted basic earnings per share (pence) Adjusted diluted earnings per share (pence) Year ended 31 Dec 2010 £000s 461,830 (68,568) 393,262 Year ended 31 Dec 2009 £000s 443,909 (69,558) 374,351 46,309 51,448 (4,025) 185 47,993 (5,524) (3,113) 268 52,472 (3,869) 42,469 48,603 (10,733) (14,997) 31,736 33,606 14.78 14.69 15.79 15.69 15.78 15.59 17.08 16.87 Notes 2 2 2 2,3 4 4 7 8 8 8 8 Consolidated Statement of Comprehensive Income Year ended 31 Dec 2010 £000s Year ended 31 Dec 2009 £000s 31,736 33,606 6,978 85 (3,804) 188 38,799 29,990 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 106 form part of these financial statements. Report and Accounts 2010 Consolidated Balance Sheet Assets Non-current assets Intangible assets Property, plant and equipment Investments 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 liability Provisions Net assets Equity Share capital Share premium Other reserves Retained earnings Total shareholders’ equity 69 Accounts As at 31 Dec 2010 £000s As at 31 Dec 2009 £000s Notes 9 10 12 14 16 13 17 14 16 18 17 19 20 314,621 28,107 447 343,175 158,766 13,933 172,699 1,744 9,873 86,971 2,618 1,768 102,974 69,725 43,726 8,661 1,052 11,291 3,177 67,907 344,993 6,516 101,941 45,581 190,955 344,993 293,943 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 These financial statements were approved and authorised for issue by the Board on 2 March 2011. The notes on pages 72 to 106 form part of these financial statements. Dr Alan Hearne, Director Gary Young, Director On behalf of the Board of RPS Group Plc. rpsgroup.com Consolidated Cash Flow Statement Cash generated from operations Interest paid Interest received Income taxes paid Net cash from operating activities 70 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 Dividends received Net cash used in investing activities 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 increase/(decrease) 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 The notes on pages 72 to 106 form part of these financial statements. Notes 24 21 24 Year ended 31 Dec 2010 £000s Year ended 31 Dec 2009 £000s 57,874 (4,507) 185 (14,384) 39,168 (4,418) (13,626) (6,856) 3,193 116 (21,591) 229 (5,022) (1,491) (9,710) (694) (16,688) 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) 889 (4,366) 13,691 (647) 13,933 16,707 1,350 13,691 13,933 13,691 Report and Accounts 2010 Consolidated Statement of Changes in Equity Accounts As 1 January 2009 Changes in equity during 2009 Total comprehensive income Issue of new ordinary shares Share based payment expense Dividends paid At 31 December 2009 Changes in equity during 2010 Total comprehensive income Issue of new ordinary shares Share based payment expense Dividends paid At 31 December 2010 Share capital £000s 6,399 – 58 – – 6,457 – 59 – – 6,516 Share premium £000s Retained earnings £000s Other reserves £000s Total equity £000s 95,531 142,126 43,551 287,607 – 2,707 – – 98,238 – 3,703 – – 101,941 33,794 (1,536) 3,280 (8,410) 169,254 31,821 (2,036) 1,626 (9,710) 190,955 (3,804) (228) – – 39,519 6,978 (916) – – 45,581 29,990 1,001 3,280 (8,410) 313,468 38,799 810 1,626 (9,710) 344,993 71 The notes on pages 72 to 106 form part of these financial statements. rpsgroup.com Notes to the Consolidated Financial Statements 72 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 2010 comprise the Company and its subsidiaries (together referred to as the “Group”). The consolidated financial statements were authorised for issuance on 2 March 2011. (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; lAS27 (revised) “Consolidated and separate financial statements” and IFRS3 (revised) “Business Combinations”. The IASB has also issued a variety of IFRIC amendments and interpretations that have no impact on the Group’s reporting. Otherwise, these financial statements have been prepared using accounting policies set out in the Report and Accounts 2009. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements. (b) Basis of consolidation Where the company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. The consolidated financial statements present the results of the company and its subsidiaries as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full. The consolidated financial statements incorporate the results of business combinations using the purchase method. In the Consolidated Balance Sheet, the acquiree’s identifiable assets, liabilities and Report and Accounts 2010 contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained.They are deconsolidated from the date control ceases. (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. 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 benefits embodied within the item will flow to the Group and the cost of the item can be measured reliably. All other costs are recognised in the income statement as incurred. iv Depreciation Depreciation is charged to income on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Land is not Accounts 73 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 (2004) 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. The Group has applied IFRS 3 (R) for the first time for transactions occuring in this accounting period. In respect of acquisitions prior to 26 June 2002, goodwill is included on the basis of its deemed cost, which represents the amount recorded under previous GAAP. The classification and accounting treatment of business combinations that occurred prior to 26 June 2002 has not been restated in preparing the Group’s opening IFRS balance sheet at 1 January 2004, in accordance with IFRS.1. Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is tested annually for impairment (see accounting policy (h)). ii Other intangible assets Intangible assets other than goodwill that are acquired by the Group are stated at cost less accumulated amortisation (see below) and impairment losses (see accounting policy (h)). Intangible assets identified in a business combination are capitalised at fair value at the date of acquisition if they are separable from the acquired entity or give rise to other contractual/legal rights.The fair values ascribed to such intangibles are arrived at by using appropriate valuation techniques. Expenditure on internally generated goodwill and brands is recognised in income as an expense as incurred. iii Subsequent expenditure Subsequent expenditure on capitalised intangible assets is capitalised only when it 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. Trade and other receivables are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Impairment losses are taken to the income statement as incurred. (g) Cash and cash equivalents Cash at bank comprises cash balances and call deposits with an original maturity of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purposes of the statement of cash flows. Cash is categorised as a loan and receivable and is carried at amortised cost. (h) Impairment of non financial assets The carrying amounts 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 asset’s 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 2009 and 31 December 2010. 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 does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (i) Employee benefits i Defined contribution plans Obligations for contributions to defined contribution retirement benefit plans are recognised as an expense in the income statement as incurred. rpsgroup.com 74 Notes to the Consolidated Financial Statements continued 1. Significant accounting policies continued 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: n the exercise price of the option; n the life of the option; 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). n the market price on the date of grant (m) Deferred consideration of the option; n the expected volatility of the share price; n the dividends expected on the shares; and n the risk free interest rate for the life of the option. The fair value of conditional share awards has been calculated using the market value Deferred consideration arises when settlement of all or any part of the cost of a business combination is deferred. For acquisitions completed under IFRS 3, 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”. For acquisitions completed under IFRS3 (R), the fair value of contingent consideration is calculated at each balance sheet date and any gains or losses are taken to the Consolidated Income Statement. (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 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 Report and Accounts 2010 Accounts 75 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. impairment reviews of goodwill. Judgements in respect of discount and growth rates are made in respect of these assets. These judgements are shown in note 9 (q) Dividends In the case of Dividends are recognised when they become legally payable. interim dividends to equity shareholders, this is when they are paid. In the case of final dividends, this is when approved by the shareholders at the AGM. (r) Employee Share Ownership Plan (ESOP) As the Company is deemed to have control of its ESOP trust, it is treated as a subsidiary and consolidated for the purpose of the Group accounts. The ESOP’s assets (other than investments in the Company’s shares), liabilities, income and expenses are included on a line-by-line basis in the Group financial statements. The ESOP’s investment in the Company’s shares is deducted from shareholders’ funds in the Group balance sheet as if they were treasury shares, except that profits on the sale of ESOP shares are not credited to the share premium account. (s) Key accounting estimates and judgements In the process of applying the Group’s accounting policies described above, management has made the following judgements, which have the most significant effect on the amounts recognised in the financial statements. Any other estimates or judgements are made as described in the accounting policies above. i Intangible assets As described in accounting policy (e) above, the Group recognises certain intangible assets on acquisition other than Judgements are made in respect goodwill. of useful lives and valuation methods affecting the carrying value and amortisation charges in respect of these assets. ii Goodwill As described in accounting policy (e) above, the Group undertakes annual iii Revenue recognition In The Group’s revenue recognition policy is stated in accounting policy note (n). some cases, judgement is required to determine the appropriate proportion of the services performed to date on the contract and the extent to which fees will be recoverable. Actual results could differ from these estimates. Any subsequent changes are accounted for with an effect on income at the time such updated information becomes available. (t) Reorganisation costs The Group has highlighted the cost of reorganisation in notes 2 and 3 to these accounts.This classification includes such items as redundancy costs, profit or loss on disposals of PPE, the costs of consolidation of office space, rebranding costs, acquisition and other costs arising as a consequence of reorganisation.They are included within the appropriate lines in the consolidated income statement. (u) 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: n IAS 24 (Revised) “Related Party Disclosures” n Improvements to IFRSs (2010) n Amendments to IFRS 7 (Disclosures - Transfers of Financial Assets)* n IFRS 9 Financial Instruments* *Not yet endorsed by EU rpsgroup.com 2. 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) which is the Group’s Board of Directors.The business segment reporting format reflects the Group’s management and internal reporting structure. Inter-segment pricing is determined on an arm’s length basis. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Business segments As announced on 3 February 2011 the Group merged its Planning and Development businesses in Britain, Ireland and Northern Ireland.The Group comprises the following business segments: Planning & Development - consultancy services in UK and 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. 76 Segment results for the year ended 31st December 2010 Fees £000s 105,150 65,232 (6) 170,376 157,554 68,521 (3,189) 393,262 Recharged expenses £000s Intersegment revenue £000s 18,118 11,898 – 30,016 30,450 8,807 (705) 68,568 (1,985) (951) 6 (2,930) (160) (804) 3,894 – Underlying profit £000s Reorganisation costs £000s Amortisation of acquired intangibles £000s 10,442 10,473 20,915 27,616 9,714 58,245 384 (1,064) (680) (289) (298) (1,267) (837) (2,240) (3,077) (2,060) (387) (5,524) External revenue £000s 121,283 76,179 – 197,462 187,844 76,524 – 461,830 Operating profit £000s 9,989 7,169 17,158 25,267 9,029 51,454 Planning and Development: UK and Ireland Australia Intra P&D eliminations Total Planning and Development Energy Environmental Management Group eliminations Total Planning and Development: UK and Ireland Australia Total Planning and Development Energy Environmental Management Total Report and Accounts 2010 2. Business and geographical segments continued Segment results for the year ended 31st December 2009 Planning and Development: UK and Ireland Australia Intra P&D eliminations Total Planning and Development Energy Environmental Management Group eliminations Total Planning and Development: UK and 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 of acquired intangibles Operating profit Finance costs Profit before tax 77 Accounts External revenue £000s 153,405 41,339 – 194,744 173,072 76,093 – 443,909 Segment result £000s 14,735 7,411 22,146 25,880 9,644 57,670 2009 £000s 443,909 (69,558) 374,351 64,992 (3,453) (6,222) 55,317 (3,869) 51,448 Fees £000s 127,728 33,235 (21) 160,942 149,057 67,106 (2,754) 374,351 Recharged expenses £000s Intersegment revenue £000s 26,813 8,648 (3) 35,458 24,616 9,771 (287) 69,558 (1,136) (544) 24 (1,656) (601) (784) 3,041 – Underlying profit £000s Reorganisation costs £000s Amortisation of acquired intangibles £000s 18,377 8,287 26,664 27,979 10,349 64,992 (2,755) (21) (2,776) (306) (371) (3,453) (887) (855) (1,742) (1,793) (334) (3,869) 2010 £000s 461,830 (68,568) 393,262 58,245 (1,267) (5,145) 51,833 (5,524) 46,309 (3,840) (2,845) 42,469 48,603 rpsgroup.com Notes to the Consolidated Financial Statements continued 2. Business and geographical segments continued Planning and Development: UK and Ireland Australia Planning and Development total Energy Environmental Management Unallocated Group total 78 Geographical analysis UK Ireland Australia USA Netherlands Canada Other Total Carrying amount of segment assets 2009 £000s 2010 £000s Segment depreciation and amortisation 2009 £000s 2010 £000s 184,542 100,938 285,480 165,373 61,245 3,776 515,874 2010 £000s 210,444 49,527 110,712 35,019 25,867 26,718 3,543 461,830 195,016 76,432 271,448 138,310 58,886 6,667 475,311 Revenue 2009 (Restated) £000s 225,016 67,030 70,590 32,762 28,947 18,003 1,561 443,909 2,306 4,626 6,932 3,658 2,027 463 13,080 2010 £000s 180,224 40,690 93,152 32,349 22,918 20,422 3,507 393,262 2,932 1,837 4,769 3,295 2,131 542 10,737 Fees 2009 (Restated) £000s 192,216 51,620 60,340 29,745 24,268 14,601 1,561 374,351 The table above shows revenue and fees to external customers based upon the location from which billing took place. UK Ireland Australia USA Netherlands Canada Other Total Carrying amount of segment assets 2009 (Restated) £000s 2010 £000s 232,800 74,989 133,472 21,863 24,045 26,442 2,263 515,874 233,586 78,347 105,860 21,444 25,970 9,501 603 475,311 The Group has changed how it monitors its Planning and Development business in the UK and Ireland which it now reports as one operating segment.Therefore the analyses in respect of 2009 have been revised to present Northern Ireland within the UK numbers. Report and Accounts 2010 3. Operating profit - by nature of expense Revenue Recharged expenses Fee income Staff costs Depreciation and amortisation Other operating costs Operating profit The following items have been included in arriving at profit: Depreciation of property, plant and equipment – owned assets – under finance leases Amortisation of acquired intangible assets Loss on disposal of property, plant and equipment Reorganisation costs – profit on disposal of property, plant and equipment – other reorganisation costs Other operating lease rentals payable – property – equipment and motor vehicles Operating sublease income receivable 4. Net financing costs Finance costs Interest on loans, overdraft and finance leases Interest imputed on deferred consideration Interest payable on deferred consideration Finance income Deposit interest receivable Net financing costs 79 Accounts Year ended 31 Dec 2010 £000s Year ended 31 Dec 2009 £000s 461,830 (68,568) 393,262 (194,430) (13,080) (139,443) 46,309 443,909 (69,558) 374,351 (184,232) (10,737) (127,934) 51,448 Year ended 31 Dec 2010 £000s Year ended 31 Dec 2009 £000s 6,635 921 5,524 17 (1,546) 2,813 10,465 3,278 (161) 6,429 439 3,869 122 – 3,453 10,028 4,128 (191) Year ended 31 Dec 2010 £000s Year ended 31 Dec 2009 £000s (3,079) (241) (705) (4,025) 185 (3,840) (1,975) (428) (710) (3,113) 268 (2,845) rpsgroup.com Notes to the Consolidated Financial Statements continued 5. Employee benefit expense Staff costs (including Directors’ emoluments) comprise: 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 80 Year ended 31 Dec 2010 £000s Year ended 31 Dec 2009 £000s 168,478 15,343 8,983 1,626 194,430 3,551 821 4,372 157,648 15,906 7,398 3,280 184,232 3,411 843 4,254 The Group considers the Directors to be the key management personnel and details of directors’ remuneration are included on pages 56 and 64. 6. 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 Corporate finance Other auditors Audit services Statutory audit Tax services Other services Year ended 31 Dec 2010 £000s Year ended 31 Dec 2009 £000s 74 83 23 156 35 64 – 13 448 84 95 23 144 – 51 8 – 405 Report and Accounts 2010 7. Income taxes Analysis of charge in the year Current tax UK corporation tax Foreign tax Deferred tax credit Tax expense for the year Analysis of credit to equity Current tax on share based payments Deferred tax on share based payments Tax credit 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% (2009: 28%) Expenses not deductible for tax purposes Different tax rates applied in overseas jurisdictions Effect of change in tax rates Effect of change in Australian tax law Prior year adjustments Total tax expense for the year Accounts Year ended 31 Dec 2010 £000s Year ended 31 Dec 2009 £000s 5,706 5,092 10,798 8,377 7,441 15,818 (65) (821) 10,733 14,997 81 (23) (62) (85) (40) (148) (188) Year ended 31 Dec 2010 £000s Year ended 31 Dec 2009 £000s 42,469 11,891 259 659 (85) (1,754) (237) 10,733 48,603 13,609 439 894 – – 55 14,997 Tax Law Amendment (2010 Measures No. 1) Act 2010 was enacted in Australia during July and amends the tax treatment of certain assets acquired in business combinations.The one-off impact is to retrospectively reduce the income tax liability for the head company of the Australian tax group for the years ended 31 December 2007 and 2009 when acquisitions entered the tax group.The tax expense for 2010 is reduced by £1,754,000 in relation to the impact of this new legislation. rpsgroup.com Notes to the Consolidated Financial Statements continued 8. Earnings per share The calculations of basic and diluted earnings per share were based on the profit attributable to ordinary shareholders and a weighted average number of ordinary shares outstanding during the related period as shown in the tables below: Profit attributable to ordinary shareholders 82 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 2010 £000s Year ended 31 Dec 2009 £000s 31,736 33,606 000s 000s 214,737 – 1,311 216,048 14.78 14.69 212,943 286 2,347 215,576 15.78 15.59 The directors consider that earnings per share before amortisation and the one off effect of the change in Australian tax law (see note 7) provides a more meaningful measure of the Group’s performance than statutory earnings per share.The calculations of adjusted basic and diluted earnings per share were 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 and the one off change in Australian tax law as shown in the table below: Year ended 31 Dec 2010 £000s 31,736 5,524 (1,598) (1,754) 33,908 15.79 15.69 Year ended 31 Dec 2009 £000s 33,606 3,869 (1,106) – 36,369 17.08 16.87 Profit attributable to ordinary shareholders Amortisation of acquired intangibles Tax on amortisation of acquired intangibles Change in Australian tax law Adjusted profit attributable to shareholders Adjusted basic earnings per share (pence) Adjusted diluted earnings per share (pence) Report and Accounts 2010 Accounts 9. Intangible assets Intellectual property rights £000s Customer relationships £000s Cost At 1 January 2010 Additions Reduction in deferred consideration Adjustment to prior year estimates Foreign exchange differences At 31 December 2010 201 – – – – 201 Aggregate amortisation and impairment losses At 1 January 2010 Amortisation Foreign exchange differences At 31 December 2010 Net book value at 31 December 2010 201 – – 201 – 35,390 5,662 – – 3,352 44,404 5,610 4,431 513 10,554 33,850 Order backlog £000s 1,872 1,103 – – 119 3,094 988 895 8 1,891 1,203 Trade names £000s 1,383 50 – – 114 1,547 915 198 47 1,160 387 Goodwill £000s Total £000s 275,032 7,854 (1,366) 1,887 7,995 291,402 12,221 – – 12,221 279,181 313,878 14,669 (1,366) 1,887 11,580 340,648 19,935 5,524 568 26,027 314,621 83 Intangible asset additions that are recorded in 2010 have been recognised at their provisional fair values (see Note 26). Adjustment to prior year estimates The deferred consideration and net assets of acquisition in 2009 were originally stated at provisional fair 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. Intellectual property rights £000s Customer relationships £000s Order backlog £000s Trade names £000s Goodwill £000s Total £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 Net book value at 31 December 2008 201 – – 201 – – 22,355 12,045 – – 990 35,390 2,387 3,129 94 5,610 29,780 19,968 1,682 170 – – 20 1,872 469 519 – 988 884 1,213 1,327 – – – 56 1,383 700 221 (6) 915 468 627 255,146 18,742 (32) 269 907 275,032 12,221 – – 12,221 262,811 242,925 280,711 30,957 (32) 269 1,973 313,878 15,978 3,869 88 19,935 293,943 264,733 rpsgroup.com Notes to the Consolidated Financial Statements continued 9. Intangible assets continued Goodwill 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. Planning and Development GB Northern Ireland and Republic of Ireland UK and Ireland Australia Total Planning and Development 84 Energy Environmental Management 31 Dec 2010 £000s 31 Dec 2009 £000s 75,027 47,291 122,318 40,895 163,213 84,587 31,381 279,181 75,160 48,420 123,580 30,236 153,816 77,797 31,198 262,811 The Group tests annually for impairment or more frequently if there are indications that goodwill might be impaired. Management have not identified any impairment triggering events in the period since the last annual review. The recoverable amounts of CGUs are determined from value in use calculations. The determination of whether or not goodwill has been impaired requires an estimate to be made of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation includes estimates about the future financial performance of the CGUs. In all cases the approved budget for the following financial year forms the basis for the cash flow projections for a CGU.The cash flow projections in the four financial years following the budget year reflect management’s expectations of the medium-term operating performance of the CGU and the growth prospects in the CGU’s market.Thereafter, a perpetuity is applied to the final year’s cash flows. Key assumptions The key assumptions in the value in use calculations are the discount rates applied, the growth rates and margins assumed over the forecast period. Discount rate applied The discount rate applied to a CGU represents a pre-tax rate that reflects the market assessment of the time value of money at the end of the reporting period and the risks specific to the CGU.The Group bases its estimate for the long term pre-tax discount rate on its weighted average cost of capital (WACC).The inputs to this calculation are derived from long term market and industry data. The discount rates applied to the CGUs were in the range 12.2% to 15.4%. Growth rates The growth rates applied reflect management’s expectations regarding the future performance of the business.These incorporate the effects of the global recession over the last two years, the expected recovery of the CGUs affected and the past experience of the Group as it emerged from previous recessions.They also reflect the expected benefits of the reorganisation of the UK and Ireland P&D business announced on 28th October 2010. The five year EBIT growth rates applied to the CGUs were in the range 5% to 25% per annum after taking into account a range of probability weighted scenarios. The long term growth rates applied to the perpetuity calculations were in the range 2.25% to 2.4% per annum reflecting the average long term growth rates of the economies in which the CGUs are based. Margins The EBIT margins used to derive forecast cash flows are based on management’s expectations of future market development and also margins achieved historically. The margins applied to CGUs were in the range 5% to 25%. Summary of results During the year, all goodwill was tested for impairment with no impairment charge resulting (2009: £nil).The goodwill allocated to the Planning and Development UK and Ireland operating segment was tested at the operating segment level, the Great Britain level and whole of Ireland level. No impairment resulted from any of these tests. The Directors consider a range of scenarios in order to assess how sensitive the value in use calculations are to the above variables. If the Group’s operating margins remain at current levels, it would not be required to recognise an impairment charge. In the Directors’ view, a 1% absolute movement in the value of the WACC is reasonably possible. If that movement occurred the Group would not recognise any impairment in the carrying value of the goodwill in any CGU. Report and Accounts 2010 10. Property, plant and equipment Cost or valuation At 1 January 2010 Additions Disposals Additions through acquisition Foreign exchange differences At 31 December 2010 Depreciation At 1 January 2010 Charge for the year Disposals Foreign exchange differences At 31 December 2010 Net book value at 31 December 2010 Freehold land and buildings £000s Alterations to leasehold premises £000s 11,406 45 (1,762) – (297) 9,392 2,280 207 (355) (43) 2,089 7,303 3,298 1,859 (423) 10 556 5,300 898 618 (385) 72 1,203 4,097 Fixtures, fittings, IT and equipment £000s 49,868 4,511 (5,983) 412 1,381 50,189 34,892 6,226 (5,894) 182 35,406 14,783 Motor vehicles £000s 2,793 498 (617) – 349 3,023 1,069 505 (536) 61 1,099 1,924 Accounts Total £000s 67,365 6,913 (8,785) 422 1,989 67,904 39,139 7,556 (7,170) 272 39,797 28,107 85 At 31 December 2010 the Group had alterations to leasehold properties, motor vehicles and office equipment held under finance lease contracts with net book values of £1,272,000, £819,000 and £1,537,000 respectively. 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 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 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. rpsgroup.com Notes to the Consolidated Financial Statements continued 11. 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 111. 12.Trade and other receivables 86 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 receivables 31 Dec 2010 £000s 113,525 (6,580) 106,945 46,571 (5,996) 40,575 6,963 4,283 158,766 31 Dec 2009 £000s 98,138 (5,281) 92,857 41,598 (4,005) 37,593 5,364 3,433 139,247 All amounts shown under trade and other The Group’s trade and other receivables All amounts shown under trade and other receivables fall due within one year. receivables fall due within one year. have been reviewed for signs of impairment. 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 impaired and a provision of £6,580,000 The Group’s trade and other receivables have been reviewed for signs of impairment. Certain trade receivables were found to be impaired receivables is considered a reasonable Certain trade receivables are past due but (2009: £5,281,000) has been recorded. and a provision of £[x] (2006:£[x]) has been recorded accordingly. Certain accrued income balances have been found to be impaired and approximation of fair value due to their have not been impaired.These relate to Certain accrued income balances have been a provision of £[x] (2006: £[x]) have been recorded against them.The individ4a00aired balances mainly relate to customers who are short term nature and the provisions for customers where we have no history of found to be impaired and a provision of experiencing unexpected financial difficulties. impairment recorded against them. default and no concerns over their financial £5,996,000 (2009: £4,005,000) has been situation.The ages of financial assets past Certain trade and other receivables are past due but have not been impaired.These relate to customers where we have no history of recorded against them. due but not impaired is as follows: default and no concerns over their financial situation.The age of financial assets past 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 2010 £000s 12,559 13,433 25,992 2009 £000s 11,131 14,524 25,655 Report and Accounts 2010 12.Trade and other receivables continued Movements in impairment As at 1 January 2010 Income statement charge Receivables written off during the year as uncollectible Additions through acquisitions Foreign exchange As at 31 December 2010 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 Trade receivables Accrued income £000s £000s 5,281 1,640 (773) 382 50 6,580 6,143 11 (1,809) 1,066 (130) 5,281 4,005 2,198 (1,598) 1,032 359 5,996 4,136 873 (1,714) 848 (138) 4,005 31 Dec 2010 £000s 68,082 25,645 14,672 13,009 35,691 1,667 158,766 Accounts 87 Total £000s 9,286 3,838 (2,371) 1,414 409 12,576 10,279 884 (3,523) 1,914 (268) 9,286 31 Dec 2009 £000s 54,913 37,904 13,285 3,651 29,056 438 139,247 31 Dec 2009 £000s 16,822 24,644 11,053 13,120 3,039 68,678 The carrying amounts of the Group’s trade and other receivables are denominated as follows: Sterling Euro US Dollar Canadian Dollar Australian Dollar Other The maximum exposure to credit risk at the reporting date is the carrying amount of each class of receivable mentioned above. 13.Trade and other payables Trade payables Accruals Creditors for taxation and social security Deferred income Other payables 31 Dec 2010 £000s 24,320 30,224 12,788 14,590 5,049 86,971 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 31 Dec 2009 £000s 41,949 4,505 46,454 Total 2009 £000s 1,802 1,469 43,183 46,454 (1,802) 44,652 2009 £000s 1,737 1,737 43,604 47,078 Notes to the Consolidated Financial Statements continued 14. Borrowings Bank loans Finance lease creditor 31 Dec 2010 £000s 41,816 3,654 45,470 88 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 Bank loans 2010 £000s Other loans 2010 £000s Total 2010 £000s Bank loans 2009 £000s Other loans 2009 £000s 322 196 41,298 41,816 (322) 41,494 1,422 1,211 1,021 3,654 (1,422) 2,232 1,744 1,407 42,319 45,470 (1,744) 43,726 419 256 41,274 41,949 (419) 41,530 1,383 1,213 1,909 4,505 (1,383) 3,122 Loan liquidity risk profile <1 year 1-2 years >2 but <5 years 2010 £000s 1,144 990 41,718 43,852 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. The principal features of the Group’s borrowings and bank facilities are as follows: (i) An uncommitted £1,000,000 bank overdraft facility, repayable on demand. (ii) The Group has two principal bank loans: (a) A revolving credit facility of £125,000,000 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 £41,064,000 at 31 December 2010 (2009: £40,931,000).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 £752,000.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. (iii) Bonding facility of £13,000,000 with Lloyds TSB Bank Plc. Utilisation at the year end was £6,735,000. (2009 £7,165,000) The carrying amounts of short term borrowings approximate their fair values, as the impact of discounting is not significant. The carrying amounts of our long term borrowings approximate fair value as the borrowings have been transacted in the two months prior to year end and the loan is revolving in nature. Report and Accounts 2010 Accounts 15. Obligations under finance leases Amounts payable under finance leases: Minimum lease payments 2010 £000s 1,684 2,471 4,155 Less future interest charges 2010 £000s (262) (239) (501) Present value of minimum lease payments 2010 £000s 1,422 2,232 3,654 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 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 2010, 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, 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. 89 16. Deferred consideration The liability in respect of deferred consideration comprises shares and interest bearing and non-interest bearing cash obligations due to the vendors of acquired businesses. 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 Cash due between two and five years: Interest bearing 31 Dec 2010 £000s 7,632 2,241 – 9,873 5,406 2,124 7,530 1,131 1,131 31 Dec 2009 £000s 10,210 4,822 620 15,652 5,640 – 5,640 3,649 3,649 Total deferred consideration payable Less amount due for settlement within 12 months Amount due for settlement after 12 months 18,534 (9,873) 8,661 24,941 (15,652) 9,289 Deferred consideration is recorded at present value calculated with reference to the LIBOR rates prevailing at the time of acquisition in respect of the currency in which the deferred consideration is denominated (varying between 1.0% and 5.8%). The movement in present value is taken through the profit and loss within finance costs. rpsgroup.com Notes to the Consolidated Financial Statements continued 17. Provisions Property Warranty 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 one year. vacated property and will be utilised within Warranty 15 years. This provision is in respect of the pre-acquisition contractual obligations of acquired entities and will be utilised within [9] years. Dilapidations This provision is in respect of reinstatement obligations related to leasehold properties and will be utilised within 15 years. Total £000s 4,543 427 (1,601) 1,426 150 4,945 2009 £000s 1,324 3,219 4,543 2009 £000s (6,746) (4,015) – 1 821 148 – (9,791) Property £000s Warranty £000s Dilapidations £000s 2,365 156 (540) 182 88 2,251 2010 £000s 1,768 3,177 4,945 2010 £000s (9,791) (1,747) 1,061 (941) (20) 62 85 (11,291) 90 As at 1 January 2010 Additional provision in the year Utilised in year On acquisition of subsidiary Exchange difference At 31 December 2010 Due as follows: Within one year After more than one year 1,668 21 (937) 1,244 67 2,063 510 250 (124) – (5) 631 The carrying value of the provisions disclosed above is a reasonable approximation of their fair value. 18. Deferred taxation The movement for the year in the Group’s net deferred tax position was as follows: At 1 January Asset acquired on acquisition of subsidiary Fair value adjustments to prior year acquisitions Exchange differences Charge to income for the year Charge to equity for the year Effect of change in tax rate At 31 December Report and Accounts 2010 Accounts 18. Deferred taxation continued Deferred tax assets 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 1 January 2010 Charge to income for the year Charge to equity for the year Effect of change in tax rate Asset acquired on acquisition of subsidiary Exchange differences At 31 December 2010 Deferred tax liabilities Depreciation in excess of capital allowances £000s Employment benefits £000s Tax losses £000s Provisions £000s Share based payments £000s 752 – 66 – (6) 18 830 (195) – (40) (2) (9) 584 916 – (208) – 851 63 1,622 262 – (9) 250 283 2,408 28 – (228) – 230 (1) 29 – – – – 2 31 476 (476) – – – – – – – – – – – 57 – 265 148 – – 470 (399) (3) 3 – – 71 Total £000s 2,229 (476) (105) 148 1,075 80 2,951 (332) (3) (46) 248 276 3,094 91 Foreign exchange on investments £000s Revaluation of properties £000s Tax deductible goodwill £000s Provisions £000s Other £000s Total £000s At 1 January 2009 Reclassifications Charge to income for the year Asset acquired on acquisition of subsidiary Exchange differences At 1 January 2010 Reclassifications Charge to income for the year Charge to equity for the year Effect of change in tax rate Asset acquired on acquisition of subsidiary Fair value adjustments to prior year acquisitions Exchange differences At 31 December 2010 (1,627) – 742 – – (885) – 279 – 22 – – – (584) (361) – – 29 (332) – – – – – – 12 (320) (6,774) (82) 569 (4,070) 25 (10,332) – 795 65 140 (1,977) – (746) (12,055) – 476 (288) (1,020) (137) (969) (25) (651) – (31) (18) 1,061 (456) (1,089) (213) 82 (97) – 4 (224) 25 (111) – – – – (27) (337) (8,975) 476 926 (5,090) (79) (12,742) – 312 65 131 (1,995) 1,061 (1,217) (14,385) rpsgroup.com Notes to the Consolidated Financial Statements continued 19. Share capital Ordinary shares of 3p each 240,000,000 7,200 240,000,000 7,200 Authorised 2010 Number Authorised 2010 £000s Authorised 2009 Number Authorised 2009 £000s 92 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 respect of deferred consideration related to acquisitions in prior years At 31 December Issued and fully paid 2010 £000s 2010 Number Issued and fully paid 2009 £000s 2009 Number 215,247,277 185,303 – 745,667 378,202 347,987 314,155 217,218,591 6,457 6 – 22 12 10 9 6,516 213,286,497 313,713 1,000 457,668 384,006 386,955 417,438 215,247,277 6,399 9 – 14 11 12 12 6,457 Ordinary shares held by the ESOP Trust Ordinary shares held by the SIP Trust The ESOP Trust has elected to waive the dividend on the unallocated ordinary shares held. The table below shows options outstanding at 31 December 2010. 2010 Number 2009 Number 1,582,690 3,085,882 859,575 2,905,608 Period exercisable Number Exercise price (p) 2004 - 2011 2005 - 2012 2006 - 2013 2007 - 2014 2008 - 2015 2011 - 2018 2013 - 2020 37,750 82,206 168,812 47,409 250,100 315,000 295,000 1,196,277 136 - 154 125 - 149 111 - 171 149 111 - 147 295 195 Please see page 66 in the Report of the Directors for details of the Group’s capital management procedures. Report and Accounts 2010 20. Other reserves At 1 January 2009 Changes in equity during 2009 Exchange differences Issue of new shares At 31 December 2009 Changes in equity during 2010 Exchange differences Issue of new shares At 31 December 2010 Accounts Merger reserve £000s Employee trust £000s Translation reserve £000s Total other £000s 20,079 (3,583) 27,055 43,551 – 608 20,687 – (836) (4,419) (3,804) – 23,251 (3,804) (228) 39,519 – 569 21,256 – (1,485) (5,904) 6,978 – 30,229 6,978 (916) 45,581 93 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. 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 Notes to the Consolidated Financial Statements continued 21. Dividends Amounts recognised as distributions to equity holders during the period: Final dividend for the year ended 31 December 2009 of 2.19p (2008: 1.91p) per share Interim dividend for the year ended 31 December 2010 of 2.31p (2009: 2.01p) per share Proposed final dividend for the year ended 31 December 2010 of 2.52p (2009: 2.19p) per share Year ended 31 Dec 2010 £000s 4,722 4,988 9,710 5,461 Year ended 31 Dec 2009 £000s 4,093 4,317 8,410 4,728 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. 94 22. Operating lease arrangements At 31 December 2010 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 Property 2010 £000s 10,731 25,467 15,675 51,873 Property 2009 £000s 9,639 24,456 17,941 52,036 Other 2010 £000s 2,857 3,720 – 6,577 Other 2009 £000s 2,710 2,713 – 5,423 Operating leases - lessor 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 2010 was £161,000 (2009: £191,000). The minimum rent receivable under non-cancellable operating leases is as follows: Receivables Within one year In two to five years After five years 2010 £000s 164 340 – 504 2009 £000s 107 171 14 292 Report and Accounts 2010 Accounts 23. Related party transactions Related parties as defined by IAS 24, are the subsidiary companies and members of the Executive Board.Transactions between the are not disclosed in this note.There were Related parties, following the definitions Company and its subsidiaries have been eliminated on consolidation and are not disclosed in this note.There were no transactions within no transactions within the year in which the within IAS 24, are the subsidiary companies the year in which the Directors had any interest. Directors had any interest.The and members of the Board.Transactions Remuneration Report contains details of between the Company and its subsidiaries Board emoluments. have been eliminated on consolidation and 24. 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 (Profit)/loss on sale of property, plant and equipment Share of profit of associates (Increase)/decrease in trade and other receivables Increase/(decrease) in trade and other payables Cash generated from operations Year ended 31 Dec 2010 £000s Year ended 31 Dec 2009 £000s 42,469 48,603 95 4,025 (185) 7,556 5,524 1,626 (1,579) (335) (7,981) 6,754 57,874 3,113 (268) 6,868 3,869 3,280 152 (78) 31,223 (26,179) 70,583 The table below provides an analysis of net bank borrowings, comprising cash and cash equivalents, interest bearing loans and finance leases, during the year ended 31 December 2010. At 31 Dec 2009 £000s Cash flow £000s Foreign Exchange £000s At 31 Dec 2010 £000s 13,691 (41,949) (4,505) (32,763) 889 5,022 1,491 7,402 (647) (4,889) (640) (6,176) 13,933 (41,816) (3,654) (31,537) Cash and cash equivalents Bank loans Finance lease creditor 25. Major non-cash transactions There were no major non-cash transactions during the year. rpsgroup.com Notes to the Consolidated Financial Statements continued 26. Acquisitions The Group completed the following acquisitions during 2010 to strengthen and broaden the skill base of the Group: Date of Acquisition Place of incorporation Percentage of entity acquired Nature of business acquired Health in Business Ltd Aquaterra Consulting Pty Ltd Boyd Exploration Consultants Ltd 15/03/2010 27/05/2010 26/08/2010 UK Australia Canada 100% Occupational health 100% Environmental consultancy Mining consultancy 100% These businesses have been integrated with other parts of the Group.The contributions to the revenue and operating profit to the Group’s results for the period of those entities where it is practicable to separately identify their results is given below: 96 HIB Aquaterra Boyd Revenue £000s 1,405 7,801 3,557 Operating profit £000s 103 583 443 The Group has allocated the net assets of its acquisitions provisional fair values as it did not have complete information at the balance sheet date. Details of the carrying values of the acquired net assets and the provisional fair values assigned to them by the Group follows: Customer relationships £000s Intangible assets Trade names £000s Property, plant and equipment £000s Order book £000s Provisional fair values HIB Aquaterra Boyd – 402 701 1,103 520 2,535 2,607 5,662 50 – – 50 12 260 150 422 Cash £000s 60 2,228 2,568 4,856 Other assets £000s Other Iiabilities £000s Net assets acquired £000s 342 2,931 3,704 6,977 (426) (4,422) (4,880) (9,728) 558 3,934 4,850 9,342 The Group proforma revenue and operating profit as required by IFRS 3 (R) assuming all acquisitions were completed on the first day of the year are calculated to be £471,447,000 and £46,513,000 respectively. Report and Accounts 2010 Accounts Fair value of acquired receivables £000s Gross contractual amounts receivable £000s Estimated unreceivable cash flows £000s 300 2,357 3,547 6,204 300 2,357 3,547 6,204 – – – – Receivables analysis HIB Aquaterra Boyd The vendors of HIB, Aquaterra and Boyd have entered into indemnity and warranty arrangements with the Group.The total undiscounted cashflow that could be receivable by the Group is between £nil and £6,204,000. As the Group does not expect that these warranties will become receivable, it has not recognised an indemnification asset on acquisition. 97 Initial cash Deferred cash Total consideration consideration £000s £000s consideration £000s Net assets acquired £000s Goodwill Tax deductible Goodwill acquired £000s £000s HIB Aquaterra Boyd 720 4,104 4,450 9,274 217 3,778 3,927 7,922 937 7,882 8,377 17,196 558 3,934 4,850 9,342 379 3,948 3,527 7,854 – – – – The Group incurred costs related to acquisitions totalling £324,000 which have been expensed through the consolidated income statement (2009: £nil). Goodwill represents the value of the accumulated workforce associated with these acquisitions. Goodwill at 1 January 2010 Additions through acquisition Adjustment to prior year estimates Reduction in deferred consideration Foreign exchange Goodwill at 30 December 2010 Acquisitions made in 2010 Boyd Aquaterra £000s £000s Acquisitions made in 2009 Conics £000s – 3,948 – – 461 4,409 – 3,527 – – 193 3,720 20,816 – 1,887 (1,166) 3,875 25,412 HIB £000s – 379 – – – 379 There were no accumulated impairment losses at the beginning or the end of the period. Prior period acquisitions In 2009 the Group acquired Conics Pty Ltd, a multi–disciplinary consultancy based on the East coast of Australia, primarily in Queensland. The provisional fair values of the net assets acquired with this business have now been finalised.The net effect has been to credit the net assets acquired by £1,887,000 related to the alignment of accounting policies, the write off of irrecoverable receivables and the associated tax effects. rpsgroup.com Notes to the Consolidated Financial Statements continued 27.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. 98 Financial instruments 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. Foreign currency risk The Group, which is based in the UK and reports in sterling, has investments in overseas operations in the Netherlands, Ireland, USA, Canada, Australia, Malaysia and Brazil 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 rates as far as the Group is concerned is the Sterling/Australian dollar 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. credit facility principally in sterling at fixed rates of interest for the term of the loan. The Group’s overdraft bears interest at floating rates. Surplus funds are placed on short-term deposit or held within accounts bearing interest related to bank base rate. Liquidity risk The Group has strong cash flow and the funds generated by operating companies are managed on a country basis.The Group also considers its long-term funding requirements as part of the annual business planning cycle. Please see note 14 for further detail of the Group’s bank facilities. Credit risk The Group is mainly exposed to credit risk from credit sales. It is Group policy, implemented locally, to assess the credit risk of new customers before entering contracts.The Group does not enter into complex derivatives to manage credit risk. Fair values 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 2010 £000s 13,933 158,766 172,699 41,816 86,971 128,787 2009 £000s 13,691 139,247 152,938 41,949 68,678 110,627 Report and Accounts 2010 Accounts 28. 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 2010 Sterling £000s Euro US Dollar £000s £000s Norwegian Australian Dollar £000s Krone £000s Functional currency of Group operation Sterling Euro Australian Dollar Canadian Dollar Malaysian Ringgit Mongolian Tugrik At 31 December 2010 – (8) (236) (71) (20) (3) (338) (588) – 7 (10) – – (591) 111 (8) (280) 25 (161) 67 (246) 343 – – – – – 343 203 – – – (159) (77) (33) Net foreign currency monetary assets/(liabilities) at 31 December 2009 Sterling £000s Euro US Dollar £000s £000s Norwegian Australian Dollar £000s Krone £000s 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 Central African Francs £000s 147 – – – – – 147 Central African Francs £000s 99 – – – – 99 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 Norwegian Krone. Over the year these currencies showed volatilities of up to 13% and 12% respectively. If Sterling strengthened against these currencies by 13% and 12%, the impact would be to increase Group profit before tax by £1,000. If Sterling had weakened against these Russian Roubles £000s Canadian Dollars £000s Other £000s Total £000s 99 327 – – – – – 327 278 – (24) – – – 254 453 – 12 – – – 465 1,274 (16) (521) (56) (340) (13) 328 Russian Roubles £000s Canadian Dollars £000s Other £000s Total £000s 80 – – – – 80 (1,045) – (28) – – (1,073) (152) – 39 – – (113) 13,651 69 620 (346) (282) 13,712 currencies the impact would have been to reduce Group profit before tax by £1,000. These movements would have had no impact on Group equity and reserves. rpsgroup.com Notes to the Consolidated Financial Statements continued 29. 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 2010 comprised deferred consideration, finance lease obligations and bank loans, were as follows: Currency Sterling Euro Australian Dollar Canadian Dollar US Dollar At 31 December 100 Floating rate financial liabilities 2009 £000s 2010 £000s Fixed rate financial liabilities 2009 £000s 2010 £000s – – 7,560 – – 7,560 – – – – – – 17,219 249 12,129 4,452 22,395 56,444 7,509 1,567 52,951 443 8,925 71,395 The maturity profile of financial liabilities is as follows: Floating rate financial liabilities 2009 £000s 2010 £000s Fixed rate financial liabilities 2009 £000s 2010 £000s 3,837 3,723 – 7,560 – – – – 7,780 5,214 43,450 56,444 17,454 7,110 46,831 71,395 2010 £000s 17,219 249 19,689 4,452 22,395 64,004 2010 £000s 11,617 8,937 43,450 64,004 Total 2009 £000s 7,509 1,567 52,951 443 8,925 71,395 Total 2009 £000s 17,454 7,110 46,831 71,395 Weighted average interest rate % 2010 Weighted average interest rate % 2009 Fixed rate financial liabilities Weighted average period for which rate is fixed – months 2009 Weighted average period for which rate is fixed – months 2010 2.0 3.6 6.4 1.1 1.4 3.1 4.9 4.1 5.4 1.4 1.4 4.8 1 11 17 18 1 6 7 7 9 1 1 7 Within one year In one to two years In two to five years Financial liabilities Currency Sterling Euro Australian Dollar Canadian Dollar US Dollar Report and Accounts 2010 Cash balances at year end Currency Sterling Euro US Dollar Australian Dollar Canadian Dollar Other At 31 December Accounts 2010 £000s 3,571 1,409 2,322 3,718 1,672 1,241 13,933 2009 £000s (1,816) 8,207 2,980 2,396 1,559 365 13,691 Cash balances are held in either non-interest bearing current accounts or instant access deposit accounts bearing floating rate interest. 101 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 2010, 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 2010 £000s 31 Dec 2009 £000s 83,936 76,904 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 2010, the weighted average interest rate the Group pays have reduced by 1.7%. A 1.7% decrease in interest rates would increase Group profit before tax by £887,000. A further 1.7% increase in interest rates would decrease Group profit before tax by £887,000. rpsgroup.com Notes to the Consolidated Financial Statements continued 30. 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 2010 £000s 2009 £000s 13,933 147,520 161,453 13,691 130,450 144,141 102 The directors consider the above financial assets that are not impaired to be of good credit quality including those that are past due. See In respect of trade and other receivables, The directors consider the above financial note 12 for further detail on receivables that are past due. the group is not exposed to any significant assets that are not impaired to be of good credit risk exposure to any single credit quality including those that are past None of the group’s assets are secured by collateral. counterparty or any group of due. See note 12 for further detail on In respect of trade and other receivables, the group is not exposed to any significant credit risk exposure to any single counterparty or any counterparties with similar characteristics. receivables that are past due. group of counterparties with similar characteristics. None of the group’s assets are secured The credit risk for liquid funds is considered negligible, since the counterparties are reputable banks with high quality external credit ratings. by collateral. The credit risk for liquid funds is considered negligible, since the counterparties are reputable banks with high quality external credit ratings and are supported by the government. 31. 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 2010 for the period ended 31 December 2010. 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. 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. Share holder approval has lapsed for the LTIP and therefore no further grants will be made under this plan; the LTIP and former annual bonus plan have been replaced by the Bonus Plan (see page 51).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 2010: Report and Accounts 2010 Accounts Share Options Number outstanding 31 Dec 2009 92,600 90,250 169,871 503,760 1,750 315,000 – 1,173,231 New grants Exercised Lapsed – – – – – – 295,000 295,000 (42,800) (33,500) (27,214) (81,789) – – – (185,303) (49,800) (6,500) (14,792) (15,559) – – – (86,651) Grants replaced Number outstanding 31 Dec 2010 Weighted average exercise price – – – – – – – – – 50,250 127,865 406,412 1,750 315,000 295,000 1,196,277 128p 148p 149p 116p 118p 295p 195p Vesting conditions 3 or 5 years 3 or 5 years 3 or 5 years 3 or 5 years 3 years 3 years 3 years 103 173p 195p 129p 136p 187p Year of grant 2000 2001 2002 2003 2004 2008 2010 Weighted average exercise price The weighted average share price at the date of exercise during the period was £2.16. 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 Year of grant 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 £1.99. SAYE Year of grant 2003 Year of grant 2003 Number outstanding 31 Dec 2009 Exercised Lapsed Number outstanding 31 Dec 2010 – – – – – – – – Number outstanding 31 Dec 2008 Exercised Lapsed Number outstanding 31 Dec 2009 Exercise price – – Exercise price Vesting conditions 3 or 5 years Vesting conditions 42,508 42,508 (1,000) (1,000) (41,508) (41,508) – – 147p 3 or 5 years rpsgroup.com Notes to the Consolidated Financial Statements continued 31. Share-based payments continued LTIP Year of grant 2007 2008 2009 Year of grant 104 2006 2007 2008 2009 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 New grants Releases Forfeits – – – – (347,987) – – (347,987) – – – – New grants Releases Forfeits – – – 721,812 721,812 (386,955) – – – (386,955) – – (38,709) (83,624) (122,333) Number outstanding 31 Dec 2010 – 285,095 638,188 923,283 Number outstanding 31 Dec 2009 – 347,987 285,095 638,188 1,271,270 Vesting conditions 3 years 3 years 3 years Vesting conditions 3 years 3 years 3 years 3 years Based on current performance, it is not expected that the LTIP awards made in 2008 and 2009 will vest. PSP Year of grant Number outstanding 31 Dec 2009 2005 2006 2007 2008 2009 2010 Year of grant 2005 2006 2007 2008 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 New grants Grants replaced Releases Lapses – – – – – 38,453 38,453 New grants – – – – 1,520,898 1,520,898 9,443 – – – – – 9,443 Grants replaced – – – – – – (9,443) (7,748) (336,467) (9,048) (15,496) – (378,202) – – (39,626) (33,057) (190,535) – (263,218) Releases Lapses (9,869) (308,064) (65,098) (978) (7,972) (391,981) – (19,003) (23,872) (6,508) (18,292) (67,675) Number outstanding 31 Dec 2010 Vesting conditions – 4,296 54,098 58,796 1,288,603 38,453 1,444,246 3 years 3 years 2 or 3 years 1, 2 or 3 years 3 years 3 years Number outstanding 31 Dec 2009 Vesting conditions – 12,044 430,191 100,901 1,494,634 2,037,770 3 years 3 years 2 or 3 years 1, 2 or 3 years 3 years Report and Accounts 2010 SIP Year of grant 2006 2007 2008 2009 2010 Year of grant 2005 2006 2007 2008 2009 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 New grants Releases Forfeits – – – – 635,219 635,219 (15,372) (221,074) (28,493) (24,615) (7,234) (296,788) – (12,786) (39,506) (44,662) (19,333) (116,287) 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) Number outstanding 31 Dec 2010 – – 486,102 530,551 608,652 1,625,305 Number outstanding 31 Dec 2009 – 15,372 233,860 554,101 599,828 1,403,161 Accounts Vesting conditions 3 years 3 years 3 years 3 years 3 years Vesting conditions 3 years 3 years 3 years 3 years 3 years 105 Share Options and SAYE Options The fair values of the above equity instruments have been determined using the following criteria: been calculated as the market value of the shares on the date of grant adjusted to reflect the fact that a participant is not entitled to receive dividends over the three year performance period. Share price on grant Expected volatility Expected life Share Options 111 - 295.25p 26.8% - 39.3% 3 or 5 years Expected dividend yield 1.45% - 2.01% Risk-free interest rate 2.8% - 5.2% Fair value at measurement date Weighted fair value 33.01p - 94.22p 43.42p 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 Fair value at measurement date Weighted fair value Holding period LTIP awards 133.63p - 301.25p 185.53p 3 years Expected dividend yield 0.95% - 2.38% 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 Holding period PSP awards 130.01p - 202.58p 165.36p 3 years Expected dividend yield 0.9% - 2.44% SIP For the purposes of calculating the fair value of conditional shares awarded under the SIP, the fair value was calculated as the market value of the shares at the date of grant. Participants are entitled to receive dividends over the three year holding period therefore no adjustment was made to the market value. Fair value at measurement date Weighted fair value Holding period SIP awards 126.00p - 335.75p 193.31p 3 years During the year ended 31 December 2010, the Group recognised expense of £1,626,000 related to the fair value of the share based payment arrangements (year ended 31 December 2009: £3,280,000). 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 ESOS LTIP PSP SIP Annual lapse rate 0% 0% 5% 10% In addition, the Group estimated that all non-market based performance conditions would be satisfied in full. rpsgroup.com Notes to the Consolidated Financial Statements continued 32. Events after the balance sheet date 32. Events after the balance sheet date 32. Events after the balance sheet date Since these acquisitions were completed on 18 February 2011 and 2 March 2011, it is not practicable to provide the remaining information required by IFRS 3. 106 Evans-Hamilton Incorporated The Group completed the acquisition of 100% of the issued share capital of Evans- Hamilton Incorporated, a US-based oceanographic consulting firm, on 18 February 2011 for a maximum cash cash consideration of US$8.67 million (£5.5 million). In the financial year ended 31 December 2010 Evans-Hamilton Inc had revenues of US$7.5 million (£4.7 million) and profit before tax of US$1.4 million (£0.9 million) after adjustment for non-recurring items. Net assets at 31 December 2010 were US$0.6 million (£0.4 million) after adjusting for assets excluded from the transaction. On the same basis, gross assets at 31 December 2010 were US$3.75 million (£2.4 million). Net debt at 31 December 2010 was US$1.5 million (£1.0 million). Initial consideration of US$4.67 million (£3.0 million) has been paid. Subject to certain operational conditions being met, two further sums of US$2.0 million (£1.3million) will be paid on the first and second anniversaries of the transaction. The Nautilus Group The Group completed the acquisition 100% of the issued share capital of Nautilus Ltd and Nautilus World Ltd (together “Nautilus”), a UK/US based business providing geosciences and petroleum engineering training to the oil and gas industry on 2 March 2011, for a maximum cash consideration of £18.6 million. In the year ended 31 December 2010 Nautilus had revenues of £10.2 million and profit before tax of £3.1 million, after adjustment for non-recurring items. Net assets at 31 December 2010 were £1.2 million, after adjusting for assets excluded from the transaction. On the same basis, gross assets at 31 December 2010 were £6.8 million. The business has no significant debt. Consideration paid at completion was £10.6 million. Subject to certain operational conditions being met, three further sums of £2.8 million, £2.7 million and £2.6 million will be paid on the first three anniversaries of the transaction. 33. Contingent liabilities As at 31 December 2010, 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. Report and Accounts 2010 Parent Company Balance Sheet Fixed assets Intangible assets Tangible assets Investments Current assets Debtors Cash at bank and in hand Creditors: amounts falling due within one year Provisions for liabilities 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 Accounts As at 31 Dec 2009 £000s 844 2,469 192,132 195,445 77,473 3,115 80,588 28,115 – 28,115 52,473 247,918 40,931 52 206,935 6,457 98,238 85,940 16,300 206,935 107 Note 3 4 5 6 7 9 8 9 11, 12 12 12 12 As at 31 Dec 2010 £000s 778 1,241 234,259 236,278 48,125 273 48,398 25,986 16 26,002 22,396 258,674 41,064 59 217,551 6,516 101,941 93,710 15,384 217,551 These financial statements were approved and authorised for issue by the Board on 2 March 2011. The notes on pages 108 to 114 form part of these financial statements. Dr Alan Hearne, Director Gary Young, Director On behalf of the Board of RPS Group Plc. rpsgroup.com Notes to the Parent Company Financial Statements 108 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. Tangible fixed assets 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. Report and Accounts 2010 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. Foreign currency translation 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. 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. Accounts 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. 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 £33,000 (2009: £37,000) 3. Intangible Assets Cost At 1 January 2010 and at 31 December 2010 Amortisation At 1 January 2010 Charge for the year At 31 December 2010 Net book value at 31 December 2010 Net book value at 31 December 2009 109 Year ended 31 Dec 2010 £000s Year ended 31 Dec 2009 £000s 16,002 70,527 Goodwill £000s 2,134 1,290 66 1,356 778 844 rpsgroup.com Notes to the Parent Company Financial Statements continued 4.Tangible Assets 110 Cost or valuation At 1 January 2010 Transfers Additions Disposals At 31 December 2010 Depreciation At 1 January 2010 Transfers Provided for the year Disposals At 31 December 2010 Net book value at 31 December 2010 Net book value at 31 December 2009 Freehold land and buildings £000s Alterations to leasehold premises £000s Fixtures, fittings, IT and equipment £000s 2,044 150 – (1,762) 432 484 18 29 (355) 176 256 1,560 162 (150) – – 12 27 (17) 2 – 12 – 135 3,726 62 639 – 4,427 2,952 59 431 – 3,442 985 774 Total £000s 5,932 62 639 (1,762) 4,871 3,463 60 462 (355) 3,630 1,241 2,469 Report and Accounts 2010 Accounts 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 Additions At 31 December Provisions At 1 January 2010 and 31 December 2010 Net book value at 31 December 2010 £000s 2009 £000s 192,970 42,127 235,097 838 234,259 178,108 14,862 192,970 838 192,132 111 During 2010 RPS Group Plc converted £42,127,000 of its long term intercompany debt with the Australian sub group into equity in the Australian Holding Company. Additions in 2009 relate to restructuring of the USA companies and represent RPS Group Plc’s cost of investment in the 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 Consultants (UK) Limited (formerly RPS Water Services Limited) RPS Energy Limited RPS Energy Consultants Limited RPS Health in Business 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 RPS Australia East Pty Ltd Aquaterra Consulting Pty Limited Cambrian Consultants (CC) America Inc RPS JD Consulting Inc RPS Energy Canada Limited Geoprojects Canada Limited Boyd Exploration Consultants Limited England England England England England Northern Ireland Netherlands Netherlands Netherlands Netherlands Netherlands Netherlands Ireland Ireland Ireland Ireland Australia Australia Australia Australia Australia Australia Australia USA USA Canada 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%* 100%* rpsgroup.com Notes to the Parent Company Financial Statements continued 6. Debtors Trade debtors Amounts due from subsidiary undertakings Other debtors Corporation tax Deferred tax Prepayments and accrued income 112 All amounts fall due for payment within one year. 7. Creditors: amounts falling due within one year Amounts due to subsidiary undertakings Deferred consideration Trade creditors 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 Due as follows: After two years and within five years Report and Accounts 2010 31 Dec 2010 £000s 7 45,400 365 1 460 1,892 48,125 31 Dec 2010 £000s 23,094 – 1,154 349 1,389 25,986 31 Dec 2009 £000s 26 75,516 469 161 713 588 77,473 31 Dec 2009 £000s 25,744 488 188 418 1,277 28,115 31 Dec 2010 £000s 31 Dec 2009 £000s 41,064 40,931 41,064 41,064 40,931 40,931 Accounts Dilapidations £000s 52 23 75 2009 £000s – 52 52 113 31 Dec 2009 £000s 469 244 713 31 Dec 2009 £000s 496 217 713 2010 £000s 16 59 75 31 Dec 2010 £000s 713 (253) 460 31 Dec 2010 £000s 222 238 460 9. Provision for liabilities As at 1 January 2010 Additional provision in the year As at 31 December 2010 Due as follows Within one year After more than one year The provision made in the year relates to leasehold property reinstatement obligations. 10. Deferred taxation Movement on deferred taxation: Net asset at beginning of year (Charge)/credit 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 2010 At 31 December 2010 Number 240,000,000 240,000,000 Authorised Value £000s Allotted and fully paid Value £000s Number 7,200 7,200 215,247,277 217,218,591 6,457 6,516 Full details of the share capital of the Company are disclosed in Note 19 to the Consolidated Financial Statements. rpsgroup.com 12. Reconciliation of movements in shareholders’ funds 114 At 1 January 2009 Issue of new shares Share based payment expense Retained profit for the year Dividend paid At 31 December 2009 Issue of new shares Share based payment expense Retained profit for the year Dividend paid At 31 December 2010 13. Dividends Share capital £000s Share premium £000s Merger Revaluation reserve reserve £000s £000s Employee trust Profit and shares loss reserve £000s £000s Total £000s 6,399 58 – – – 6,457 95,531 2,707 – – – 98,238 20,079 608 – – – 20,687 59 – – – 3,703 – – – 6,516 101,941 569 – – – 21,256 32 – – – – 32 – – – – 32 (3,583) (836) – – – (4,419) 22,079 (1,536) 3,280 70,527 (8,410) 85,940 140,537 1,001 3,280 70,527 (8,410) 206,935 (1,485) – – – 810 (2,036) 1,626 1,626 17,890 17,890 (9,710) (9,710) (5,904) 93,710 217,551 Full details of dividends paid by the Company are disclosed in Note 21 of the Consolidated Financial Statements. 14. Commitments under operating leases At 31 December 2010 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 2010 £000s Land and buildings 31 Dec 2009 £000s 90 308 – 398 240 514 14 768 31 Dec 2010 £000s 16 62 – 78 Other 31 Dec 2009 £000s 83 51 – 134 15. Directors’ interests in transactions Directors emoluments were paid by RPS Group Plc and they are disclosed in the Remuneration Report. Apart from these, there were no transactions during the year in which the Directors had any interest. Report and Accounts 2010 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 Adjusted basic EPS Adjusted diluted EPS Accounts 2010 £000s 2009 £000s 2008 £000s 2007 £000s 2006 £000s 461,830 393,262 47,993 (31,537) 344,993 57,874 4,422 4.83p 15.79p 15.69p 443,909 374,351 52,472 (32,763) 313,468 70,583 4,254 4.20p 17.08p 16.87p 470,465 392,096 57,512 (28,555) 287,607 67,386 4,438 3.66p 18.92p 18.66p 362,674 305,108 45,010 (32,630) 227,534 45,393 4,093 3.18p 15.17p 14.95p 296,843 246,011 34,719 (30,129) 186,934 40,663 3,438 2.76p 12.01p 11.74p 115 The Five Year Summary does not form part of the audited financial statements. rpsgroup.com 27401 March 2011 Printed on FSC certified, 100% post consumer recycled paper, bleached using an elemental chlorine free process. 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