Energy
The exploration and production
of energy and other natural resources
Environment
The development and management
of the built & natural environment
Report and Accounts 2011
rpsgroup.com
29707 March 2012
from an open cast mine.
Close-up view of an exposed coal seam
29707 R&A Alternative Cover.indd 1
25/01/2012 11:11
Introduction
Key Performance Indicators
Operating Highlights
Strategy
Group Structure
Business Review
2011 Results
Risk Management
Employees
Corporate Responsibility
Management & Governance
The Board
Report of the Directors
Key Performance Indicators
Revenue (£m)
Fee income (£m)
PBTA(1) (£m)
Adjusted earnings per share(2) (basic) (p)
Operating cash flow (£m)
Total dividend per share (p)
Statutory reporting
Profit before tax (£m)
Earnings per share (basic) (p)
2
2
3
3
5
9
11
13
15
16
Corporate Governance
Remuneration Report
Report of the Auditors
Accounts
Consolidated Income Statement
21
27
35
37
Consolidated Statement of Comprehensive Income 37
Consolidated Balance Sheet
Consolidated Cash Flow Statement
Consolidated Statement of Changes in Equity
Notes to the Consolidated Financial Statements
Parent Company Balance Sheet
38
39
40
41
74
Notes to the Parent Company Financial Statements 75
Five Year Summary
82
2011
528.7
452.7
2010
461.8
393.3
50.8
48.0
16.68
15.79
71.1
57.9
5.56
4.83
40.5
42.5
13.49
14.78
Operating Highlights
n diversity of activity and geography enabled the Group to produce results at the top end of
market expectations:
- over two thirds of underlying segment profit earned in growth markets of Energy and
energy infrastructure;
- approaching two thirds of underlying segment profit profit earned outside Europe;
n excellent conversion of profit to cash, with operating cash flow of £71.1m (2010: £57.9m);
n balance sheet remains strong with year end net bank borrowings at £23.5m (2010: £31.5m) having
invested £27.2m in acquisitions during 2011;
n committed bank facilities of £125m available until July 2013;
n proposed full year dividend increased by 15%; eighteenth consecutive annual increase of this scale;
n acquisition strategy continued with five transactions completed in the year.
Notes:
(1) PBTA is profit before tax, amortisation of acquired intangibles and transaction related costs, as defined in note 1(g).
(2) Adjusted earnings per share is based on earnings before amortisation of acquired intangibles, transaction related costs and tax credit arising on changes
in Australian tax law.
2
Report and Accounts 2011
Introduction
Strategy
The strategic direction of the Group is determined and monitored by the Board, which each year sets a series of priorities consistent
with that strategy. The Board reviews progress against its strategy and priorities on a regular basis.
We provide a wide range of services for our clients and accordingly operate in a large number of markets both functionally and
internationally. The long term drivers of our business are:
n
n
n
n
the world’s need to secure adequate supplies of energy and other natural resources from environmentally acceptable sources
the commercial advantage resulting from the sustainable development of land and buildings
the need to provide adequate infrastructure such as airports, power stations, public transport, water treatment plants
the need to manage environmental, health and safety risks
Our strategy is to operate in those markets that exhibit these drivers, have sound longer-term prospects and where we can potentially
achieve leading positions. Within that context we seek to improve continuously the range and quality of the services we offer our
clients and where we can best can add value to their activities. We are aiming to build multi-disciplinary businesses in Australia and
North America as we have in the United Kingdom and Ireland as well as building a presence in the developing world through oil, gas
and mineral exploration and production projects.
The development of our business in this way is also important in attracting and retaining high quality employees. This is achieved by
providing competitive remuneration and benefits packages, by providing opportunities for professional growth and advancement and
striving to maintain an open, creative and positive culture.
Client retention and the maintenance of longstanding partnerships with our clients are at the heart of our success. We seek to
deliver focussed and cost-effective advice on both well understood problems and emerging challenges and by doing this to sustain
partnerships with our clients. We maintain an international reputation for meeting the challenges posed by large complex projects and
problems and conducting business in an open and responsible manner.
The increasing diversity and geographical spread of our businesses requires us to continuously monitor and seek to improve the
operational efficiency of our businesses. This entails consideration of management organisation, controls, processes and support
services.
The markets in which we operate are fast moving and so our strategy also needs to be sufficiently flexible to ensure that we can
respond quickly to changing conditions. The nearer term outlook for each of our business segments and how this may impact strategy
is described on pages 5 to 8.
Acquisitions have played an important part in our growth in the past and will continue to be a key part of our strategy. We acquire
businesses that are well managed, deliver sound results and have good reputations in their markets. They may be in sectors where we
are already operating or offer services that are closely related to our own. We already have well established and strong businesses
in a number of countries, which provide a platform for acquisitive growth there. We are seeking to acquire high quality businesses in
Europe, Australia and North America that either add depth to or complement the services we offer clients in those countries. The
Board will consider larger acquisitions as well as acquisitions in countries in which we do not currently operate that are consistent with
overall strategy and provide our international clients with greater local support.
Group Structure
During the year the Group announced that in order to benefit from greater integration it had merged its planning and development
business in UK and Ireland with its environmental management businesses in the UK and The Netherlands. As a result the Group now
consists of two primary reporting segments, being Energy and Built & Natural Environment. The latter is split into two geographic sub-
segments covering Europe and Australia Asia Pacific.
Energy
This is a global, multi-disciplinary consultancy, providing integrated technical, commercial and project management support in the
fields of geo-science, engineering, health, safety and environment 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. The business has regional offices in UK, North America, Australia and Asia and undertakes projects in many other
rpsgroup.com
3
countries. The segment is managed by a single divisional Board to which subsidiary operating Boards, with responsibility for UK, North
America and Australia Asia Pacific, report.
Built and Natural Environment
This is a leading multi-disciplinary consultancy providing a wide but related range of advisory services on all aspects of the built and
natural environment. Planning and development activities, provided from offices throughout the UK and Ireland as well from offices
primarily on the East and West Coast of Australia, include planning, urban design and regeneration, environmental assessment and
management, transport and infrastructure, architecture and landscape, engineering and surveying. Environmental based services in
the UK, The Netherlands and Australia include environmental science, the management of water resources, health safety and risk
management, laboratory testing, asbestos consulting, air quality and noise and property services. The business in Europe is managed by
a single regional Board. Both are supported by a number of subsidiary operating Boards. Our businesses in the Australia Asia Pacific
region are similarly managed by a single regional Board.
Central Costs
Certain central costs are not allocated to the segments because either they predominantly relate to the running of the Group Head
Office function or could only be allocated to segments on an arbitrary basis. Such costs include the remuneration and support costs
of the main board and the costs of the Group finance and marketing functions. These costs are included in the category “unallocated
expenses” in note 3 to the Consolidated Financial Statements on page 48.
Further Information
A sample of the projects and activities that we undertake are described on our website at www.rpsgroup.com.
4
Report and Accounts 2011
2011 Results
Results
PBTA was towards the top end of market expectations at £50.8 million (2010: £48.0 million). Adjusted basic earnings per share were
16.68 pence (2010: 15.79 pence). The underlying profit* contribution of each segment was:
Business Review
(£m)
Energy
Built and Natural Environment
- Europe
- Australia, Asia, Pacific (AAP)
Total
2011
32.1
18.0
11.0
29.0
61.1
2010
25.3
20.2
12.8
33.0
58.2
* underlying profit is segment profit before amortisation of acquired intangible assets, transaction related costs and reorganisation costs, as defined in note 1(g).
Our Energy activities are largely conducted in respect of projects outside Europe. In combination with our Built and Natural
Environment business in Australia Asia Pacific (“AAP”) we now have over 70% of our underlying profit being generated outside
Europe. This exposes us to higher growth economies and better opportunities. A significant proportion of our Built and Natural
Environment activity in both Europe and AAP is in respect of projects to provide the infrastructure necessary to process and deliver
energy resources. Consequently, we estimate almost 70% of our underlying profit is now earned in the global Energy and associated
infrastructure markets.
Cash Flow, Funding and Dividend
The Group continued its excellent conversion of profit into cash. Operating cash flow was £71.1 million (2010: £57.9 million). Our
balance sheet remains strong, with no defined benefit pension schemes or historic pension liabilities. We have bank facilities of £125
million available until July 2013 and the cost of these facilities remains at historically low levels. Net bank borrowings at the year end were
£23.5 million (2010: £31.5 million), after investing in acquisitions to the value of £27.2 million (2010: £18.0 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 2.9 pence per share
payable on 25 May 2012 to shareholders on the register on 13 April 2012. If approved the total dividend for the full year would be
5.56 pence per share, an increase of 15% (2010: 4.83 pence per share). Our dividend has risen at about this rate for eighteen
consecutive years.
Energy
We provide internationally recognised consultancy services to the oil and gas industries from core bases in the UK, USA, Canada and
Australia, with support offices in the Middle East, Asia and Brazil. Projects are undertaken in many other countries, some in difficult
political and working environments which provide both market opportunities and operational challenges for us.
Trading
Fee income (£m’s)
Underlying profit* (£m’s)
Margin (%)
2011
2010
186.1
32.1
17.2
146.8
25.3
17.2
* underlying profit is segment profit before amortisation of acquired intangible assets, transaction related costs and reorganisation costs, as defined in note 1(g).
Our 2011 results in all parts of the business were encouraging. Conditions in the traditional oil and gas exploration and production
(E&P) market improved steadily during the course of 2011. Our clients increased investment globally, albeit in a cost conscious way.
Our activities in the Middle East and North Africa were disrupted by unrest and conflicts, particularly in Libya, where we have yet to
see any material resumption of activity. Activity levels in the Gulf of Mexico increased during the second half and our performance in
both the US and Canada was particularly strong in the year.
rpsgroup.com
5
The unconventional liquids and gas markets continued to develop strongly. During 2011 we have been particularly active in shale
oil and gas in North America, shale gas in Europe and broadened our involvement in coal seam gas in Australia. Our profile in the
financial services sector improved and we secured significant “competent persons” commissions and other transaction support work
during the year.
Current indications are that global E & P spend in 2012 will exceed that in 2011. Our geographical spread and range of skills and
involvement at many stages of the project life cycle gives us exposure to most parts of the international market likely to benefit from
this increased investment. The global abundance of gas has reduced gas prices and begun to reduce shale gas activity, particularly in the
USA. Our clients’ focus has instead moved more towards unconventional liquids, where we are already well positioned. Activity levels
in the Gulf of Mexico seem likely to continue to increase in the coming months. Activity in North Africa will eventually recommence.
Overall, the Board believes we can look forward to a successful 2012 in this business.
Built and Natural Environment (BNE)
Within these businesses we provide a wide range of consultancy services to many aspects of the property and infrastructure
development and management sectors. These include: the management of water resources, health and safety, risk management, town
and country planning, building, landscape and urban design, surveying and transport planning.
2011
Fee income (£m’s)
Underlying profit* (£m’s)
Margin (%)
2010
Fee income (£m’s)
Underlying profit* (£m’s)
Margin (%)
Europe
178.2
18.0
10.1
Europe
172.9
20.2
11.7
Australia/
Asia Pacific
91.0
11.0
12.1
Australia/
Asia Pacific
76.0
12.8
16.9
Total
269.1
29.0
10.8
Total
248.8
33.0
13.3
* underlying profit is segment profit before amortisation of acquired intangible assets, transaction related costs and reorganisation costs, as defined in note 1(g).
BNE: Europe
Bringing together our businesses in Europe is, as anticipated, enabling us both to increase efficiency and generate new market opportunities
and has helped to counteract difficult market conditions in parts of this business, which are likely to continue.
Performance during the course of the year reflected the differing nature of the various markets in which we operate. Activity in the
water management sector grew as our clients increased spend in the second year of the UK regulatory cycles. We have improved
our position in this market significantly in recent years and have benefitted as a result, despite competitive rate pressure. Our
market profile in respect of both the health and safety and risk management markets also enabled us to deliver good results. The
commercial property development market remained subdued throughout the year. In consequence, we continued to pursue planning
and development opportunities in a range of energy infrastructure markets, such as waste to energy facilities, a range of power
station proposals (nuclear, gas and biomass), on and off shore wind farms, pipelines and grid interconnectors. Investment for these
projects is more readily available and we have done well to position ourselves to benefit from this, although lack of clarity in the UK
Government’s energy policy is undoubtedly affecting our clients’ investment levels.
Our main exposure to public sector expenditure is in the Netherlands and Ireland. Our Dutch business had a good year, underpinned
by the regulatory nature of much of what it does. We continued to downsize our Irish business as needed; as a result it was able to
deliver a respectable performance. Since the year end we have exchanged contracts to enable us to dispose of, for 1.5 million Euros,
that part of this business which provides facilities management support to clients with manufacturing activity in Ireland. Subject to a
TUPE process, this disposal will complete in late March. It will have a minimal affect on the Group’s future profitability, but should
serve to increase margin in the remainder of the Irish business.
The uncertainties in parts of this business are greater than in other parts of the Group as a result of the subdued economic prospects
in the UK and Eurozone. This is likely to continue to create volume and pricing pressures, probably limiting our growth opportunity in
the current year.
6
Report and Accounts 2011
Business Review
BNE: Australia Asia Pacific
Our recovery from the climatic disruption at the beginning of 2011 continued successfully in the second half. This was due to the
ability of our staff in Queensland both to respond to reconstruction investment whilst also focussing their activities on the fast
expanding coal seam gas/LNG industry. This shift in market positioning was made possible by the skills, experience and profile of our
local staff, coupled with the skills and market knowledge of our international Energy staff. As a result of this combination we have
quickly become important suppliers to this fast growing industry. On the west coast we also remain heavily involved in the permitting
and licensing of infrastructure to serve the large scale offshore gas exploration projects. Some of these projects have now reached a
more mature stage of development. Clients are, as a result, becoming more focussed on cost management; this is affecting project
timing and budgets.
We also continued to develop our operations in support of oil, gas and mining projects across Asia. We had particular success in
Mongolia supporting our mining clients.
Outside the natural resources sector the Australian economy is less buoyant. As a result the normal commercial development market
in Australia remains subdued. However, our re-positioning away from this slower moving part of the economy suggests we will be able
to deliver further growth in 2012.
Acquisitions
During the course of 2011 we continued to develop the capability of the Group with five acquisitions. Good progress has been
made with the integration of all these businesses. Terranean is now part of BNE: Australia Asia Pacific. The other four businesses now
form part of Energy. EHI and ASA, in combination, give us a strong position in the metocean consultancy market in both the US and,
together with our capability in Australia, internationally. Nautilus provides an excellent platform to expand our provision of technical
training to many parts of the oil and gas industry. Espey gives us a platform from which to build a water resources consultancy in
the US.
Despite continuing economic uncertainty, we still see markets in which there are growth opportunities and are considering how to
develop these organically and with further acquisitions.
Ernst & Young, the Group’s auditor, indicated that it did not agree with the Group’s interpretation that IFRS3 (2008) Business
Combinations contains a rebuttable presumption in respect of the treatment of contingent deferred consideration, relating to
transactions completed since 1 January 2010. Ernst & Young’s view is that the deferred consideration, due to vendors that is contingent
on their continued employment, should be expensed through the profit and loss account, rather than being treated as capital cost, as
the Group has done previously. Ernst & Young’s review of the Group’s 2011 interim results had not raised this as an issue.
In view of this, and given the previous auditors certification of the Group accounts at 31 December 2010, the Group’s Audit
Committee commissioned an independent opinion from another “big 4” firm. This supported the Group’s interpretation of IFRS3
(2008). DLA Piper, the Group’s lawyers, were also asked to give an opinion on specific legal matters raised by Ernst & Young
concerning the structure of our transactions. DLA also supported the Board’s position. Although the RPS Board remains of the
view that these contingent deferred consideration payments can be treated as capital costs, as they were in the audited Report and
Accounts 2010, the Audit Committee recommended the policy be changed to adopt the Ernst & Young interpretation. The Board
accepted this recommendation. The cash position of the Group is unaffected by these changes.
The Audit Committee also considered the impact of this revised treatment on the 2010 accounts and recommended to the Board
that the impact is not material as omitting that information from the comparative results in the Report and Accounts 2011 would not
influence decisions that were made about the Group. The Board agreed; the 2010 accounts have, therefore, not been restated.
The Board has now modified the Group’s acquisition model to enable it to continue to implement its acquisition strategy without
having to expense deferred consideration.
rpsgroup.com
7
Group Prospects
RPS remains well positioned in markets of long term importance to the global economy. Our focus on Energy and energy
infrastructure markets provides the Group with a substantial underpin to its prospects. We believe that our strategy of building
multi-disciplinary businesses in each of the regions in which we operate to be attractive and achievable. We will, therefore, continue
to develop our business organically, whilst seeking further acquisition opportunities. Our balance sheet is strong enough to continue to
support this strategy.
We have come through the exceptionally challenging circumstances of the last three years in a strong position. We were able to
deliver growth in 2011 and remain on track to produce further growth in 2012. The acquisitions made in 2011 have continued our
international diversification. This is a trend we anticipate will continue, further strengthening our prospects.
8
Report and Accounts 2011
Business Review
Risk Management
The Group supplies a wide range of services in many markets and countries. This gives rise to a range of risks that are recognised,
assessed and effectively managed. The Group’s system of planning, budgeting and performance review assists with the identification
and management of risk. The management of these risks is not separated from the business, but is treated as an integral part of our
culture and the way we operate. Each of our businesses is expected to identify and take appropriate steps to mitigate risks associated
with its operations. The Executive Committee oversees the management of risk to which the Group is exposed and reports those of
a material nature to the Board together with recommendations for their mitigation. The principal risks to which the Group is currently
exposed and is likely to be exposed in the future are outlined below.
Economic Environment
Continuing economic uncertainty may cause the Group’s clients to cancel, postpone or reduce existing or future projects. Continuing
projects may be subject to greater cost pressures. The consequence is that we have staff levels that exceed current workload and
we therefore incur the cost of un-productive time. Although market factors are beyond our control, our exposure to a wide range of
markets across the world mitigates the impact of downturn in any single market. Work on hand is monitored regularly in comparison
to the productive capacity of our fee earning staff. Changing economic conditions in our various markets are closely monitored in
order that pre-emptive action can, as far as possible, be taken.
Material Adverse Events
Adverse occurrences may impact our ability to deliver our services and our clients’ demand for them. These are most likely to be
of an environmental nature such as the catastrophic flooding that adversely affected both our own and our clients operations in
Queensland in 2011 and the Macondo oil spill in 2010 that led to a moratorium on deep water drilling in the Gulf of Mexico. Events
of this type are impossible to predict but the range of countries within which we operate and markets we serve limits the impact upon
the Group as a whole.
A lengthy failure or discontinuity in our IT systems could also have a significant impact upon our operations. The Group’s IT systems
are centrally managed with certain specific functions carried out locally. An annual Group plan is produced which includes measures
designed to ensure reliability and resilience of the Group’s systems as well as appropriate catastrophe planning. The Group has
operations in a large number of locations, which would enhance its ability to withstand any individual failure or malfunction. The Group
has never experienced a significant failure or discontinuity of this type.
Recruitment and Retention of Key Personnel
The Group’s services are performed by well-qualified and professional employees with expertise across a wide range of areas. A
failure to recruit and retain employees of appropriate calibre will, accordingly, impact our ability to meet our clients’ requirements and
correspondingly to maintain and grow our business. As described on pages 11 and 12 the Group maintains appropriate remuneration
and incentive structures which are reviewed on a regular basis and maintains an environment that is supportive of professional
development through training and career opportunity.
Market Position and Reputation
The Group’s reputation for project delivery relies upon its public portrayal and the perception of existing and prospective clients.
A major failure of project management or delivery could, accordingly, impact our ability to win future work. The Group operates a
range of appropriate management and quality control systems, many of which are externally accredited and are designed to enable our
employees to provide a consistently high standard of work.
Compliance and Litigation
A failure to deliver our services in accordance with our contractual obligations may lead to a risk of the Group becoming involved in
litigation. In addition, as the contracting environment has evolved, clients in some of our businesses have sought to transfer certain risks
to the consultants it employs. The internal review processes operated by the Group seek to ensure that contractual risks are properly
scrutinised and mitigated as far as possible whilst the management and quality control systems highlighted above minimise the risk of
shortfalls in performance that may give rise to litigation. Appropriate professional indemnity insurance is also maintained in addition to
a normal range of other commercial insurance covers.
The Group is subject to a range of taxation and legal requirements. A failure to comply with these obligations could give rise to legal
liability, financial loss and reputational damage. The Group has in place appropriate internal controls to deal with such matters and
employs appropriately qualified employees through whom it monitors and responds to the regulatory requirements of the countries in
which it operates.
rpsgroup.com
9
Business Acquisitions
As in the past the Group intends to develop and grow the business, in part, by making acquisitions. A failure to identify acquired
liabilities or to integrate acquired businesses could have an adverse impact on the Group’s performance and prospects. Detailed due
diligence is performed on all potential acquisitions drawing upon both internal and external resources. This will include an assessment
of the ability to integrate the acquired business within the Group. When a business is acquired detailed integration plans are developed
and monitored to ensure successful integration into the Group and its control framework.
Funding
The Group’s principal banking facility is a revolving credit of £125,000,000 with Lloyds Bank Plc. This facility expires in 2013 and
a failure to replace it with a similar alternative could inhibit the Group’s ability to fund acquisitions and correspondingly to achieve
future growth. The Group’s financial planning anticipates the expiration of the current facility and ongoing dialogue is maintained with
appropriate financial institutions, with a view to agreeing new facilities during 2012.
Health and Safety
The Group’s activities require the monitoring and management of the health and safety of its employees as well as to sub-contractors,
client personnel and the general public. A failure to manage this risk could expose the Group to significant potential liabilities as well as
damage to reputation. Detailed health and safety policies and procedures are in place to minimise such risk. The Group’s approach to
the management of health and safety is described on page 14.
10
Report and Accounts 2011
Employees
The current profile of the Group’s employees and the changes over the last year are as detailed below.
Group
Average number of employees
Energy*
Built and Natural Environment – Australia Asia Pacific
Built and Natural Environment – Europe
Central
Group total
Days absent (%)
Average length of service (years)
Working part time (%)
Retention rate (%)**
Female (%)
Age profile
Employees aged under 25 (%)
Employees aged 25-29 (%)
Employees aged 30-49 (%)
Employees aged 50+ (%)
*Also uses extensive number of associates/sub-consultants
**excluding redundancies
Business Review
2011
2010
722
855
3,000
109
637
792
2,831
112
4,686
4,372
2
6
10
80
30
9
16
55
20
2
6
9
84
29
8
17
55
20
The attraction, retention and motivation of high calibre employees is a strategic imperative of the Group. To achieve this, the Group
maintains appropriate remuneration structures as well as an environment in which employees are able to develop their skills in a way
that can be applied to our clients’ requirements.
Each of the businesses has the remit to put in place arrangements that meet their specific demands whilst working within the
framework of overall Group-wide structures and systems. Human resource professionals are employed throughout the Group to
support the achievement of this objective. Each of the Executive Directors has overall accountability for the development of human
resource practice within the businesses for which they are responsible.
The Group’s policies in relation to health and safety are described on page 14.
Employee Engagement
Building an environment in which employees feel engaged with their business and the Group as a whole is a key component of our
strategy. This is of particular importance in ensuring the successful integration of newly acquired businesses. We have continued to
develop the Group intranet as a means to communicate the Group’s businesses and achievements as well as policies and procedures.
Regular corporate newsletters also facilitate this flow of information. New employees receive an induction and regular staff appraisals
facilitate open communication between employer and employee as well as identifying developmental needs.
The Group operates share plans across all its businesses aimed at giving employees a tangible interest in the Group’s overall
performance. Share purchase plans are accordingly open to the vast majority of our employees and enable them to purchase shares
in the Company with the benefit of a matching share contribution from the Company. A performance share plan is also operated for
more senior employees, which offers the potential to build an interest in the Company over a number of years.
Training and Development
The Group is committed to the education and development of its employees to enable them to realise their potential and
effectiveness. Divisional directors and project managers are responsible for the management of training and verification of technical
competence for project personal in accordance with our quality management systems. Continuing professional development is of
rpsgroup.com
11
particular importance for our professional employees who are required to demonstrate technical competence within their specific
sectors. The Group accordingly supports a range of schemes through professional bodies and is a recognised training provider in
a number of technical fields. By way of example approved structured training schemes are operated for our chartered water and
environmental engineers through CIWEM in the UK and for our civil engineers in the UK and Ireland through MICE and MIEI.
Employees are also encouraged to take an active involvement within 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. During 2011 we acquired Nautilus which provides training to the Oil and Gas sector. This will enable us to
improve technical training within the Group.
During 2011 RPS continued its long-term practice of supporting staff in pursuing relevant higher education courses. This involved
sponsoring courses at a total of 37 universities and colleges across the United Kingdom, Ireland, USA and Australia.
Vacant positions within the Group are, wherever possible, filled from within and our developmental and training programmes support
this objective. Prior to external advertisement any available posts are announced internally via the Group’s Intranet.
Equal Opportunities
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 and development, conditions of work, pay
and benefits and to every other aspect of employment.
12
Report and Accounts 2011
Business Review
Corporate Responsibility
Commitment
The Group’s corporate governance policies are described in detail elsewhere in the Report and Accounts and provide a framework
within which it can look to achieve attractive levels of return for its shareholders whilst striking a balance between this objective and
recognition of its obligations to its employees, clients and society in general. The Corporate Governance Committee exercises general
oversight in relation to environmental, social and governance (‘ESG’) matters although in the normal course of business the Board
and the Executive Committee assess the risks and opportunities to which such issues give rise. In the Board’s view it has adequate
information to enable the proper assessment of these issues.
As noted in the Risk Management section of this report environmental issues are most likely to effect the Group through the impact
material adverse events may have on the Group’s trading. Whilst given the nature of it’s activities the Group’s own impact on the
environment is comparatively modest the Group’s performance is monitored as outlined below and appropriate action to minimise
impact taken where possible. The Group can, however, make a greater contribution to the environment through its own expertise and
many of the projects with which it is involved. The Group advises international bodies, governments, local authorities and companies
on the improvement of environmental performance. Projects include the development of strategies to reduce carbon emissions as well
as the adaptation of buildings and infrastructure to anticipate climate changes.
The policies adopted by the Group in relation to employees are described elsewhere in this report and those relating to health and
safety are described below; the risks associated with failures in both of these areas are described in the Risk Management section
of this report. The Group recognises the importance of maintaining high standards of business conduct and contributing to the
communities with which it is involved as detailed below. In the Board’s view the challenges, risks and opportunities created by ESG
issues as outlined in the Report and Accounts are unlikely to change significantly in the foreseeable future.
The Group remains a constituent member of the FTSE4 Good Index, which consists of those companies that satisfy a set of globally
recognised standards in the area of corporate responsibility. It is also a participating member of the Carbon Disclosure Project
providing data on an annual basis.
Standards of Business
The Group aims to be honest and fair in all aspects of its business. Through codes of conduct employees are required to adopt high
standards of behaviour in their daily professional roles or when travelling on business. Employees are also 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. 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; the Group has a policy of zero tolerance towards acts of bribery.
Community Involvement
RPS has supported a range of community and charitable initiatives with gifts in kind and financial contributions throughout the year,
mostly at office level. In 2011 the Group and its staff gave or raised £438,000 in charitable contributions (2010: £472,000). Taking into
account the £250,000 spent on academic bursaries and educational initiatives (2010: £188,000), the total contribution of the Group
and its employees to the communities in which it operates was £688,000 (2010: £660,000).
Tree Aid
The Group has for a number of years been an active supporter of Tree Aid and its programme of education, tree planting and
woodland conservation programmes in Sub-Saharan Africa. This support has been sustained over several years through charitable
contributions, fund raising and gifts in kind. In 2011 RPS was again acknowledged as the leading corporate sponsor of Tree Aid. The
Group has agreed to focus its charitable contribution on Tree Aid by sponsoring two additional projects in Ghana and Mali for which
funding of c. £330,000 over a three year period commencing in 2012 will be provided together with appropriate technical support
from employees within the Group. We are proud to have further developed our association with this 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 and Climate Change
Although as a consultancy organisation our impact on the environment is comparatively moderate, the Group seeks to keep this to a
minimum through the adoption of appropriate standards and the setting of specific targets.
The Group endeavours to:
n comply with all relevant national and regional legislation as a minimum standard;
rpsgroup.com
13
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 together with communications and video conferencing technology that reduces the need
for business travel.
To achieve these objectives appropriate training is provided to enable activities to be conducted in an environmentally sensitive
manner and sufficient management resources are allocated to enable effective implementation of policies. Appropriate parts of the
Group have achieved ISO14001, the internationally recognised environmental management system standard. Facilities for recycling
office waste are in place at our offices. During 2011 our offices continued to recycle waste paper, spent toner and ink cartridges,
obsolete computer hardware, printers and mobile phones. Proceeds from this recycling are donated to charity.
The carbon footprint for RPS in 2010, recalculated in accordance with Greenhouse Gas Protocol and current Defra guidance
amounted to 16,083 tonnes. Calculated on a similar basis the overall carbon footprint increased to 17,798 tonnes in 2011. This
was in part the result of our expansion in the United States. In addition during 2011 the number of vehicles operated by our water
business in the United Kingdom again increased significantly. 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 energy consumption per capita by 5% per annum for office energy consumption.
This target was almost achieved in 2011 with office gas and electricity consumption decreasing on a per capita basis by 4.4% over the
prior year from 3.64 MwH to 3.48 MwH per employee. Our ability to sustain improvement will, however, 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 achievements of our targets more challenging. Expansion in North America and Australia are likely to have an
adverse effect as there are high carbon usage regions.
The Group’s policies and objectives for environmental management are reviewed from time to time in the light of changes within the
Group’s businesses new legislation and emerging practice.
Health and Safety
The health and safety of the Group’s employees is of paramount importance and we remain committed to the achievement of
best practice standards that exceed the requirements of law. The Board receives and considers a report relating to health and
safety at all regular meetings. The Board also sets the overall framework and standards for the management of health and safety the
implementation of which is overseen by the Company Secretary. Within this context each of the Group’s businesses is responsible for
the development of appropriate safe working conditions and systems to protect employees, contractors, visitors and others who may
be affected by the Group’s activities. Each business has appropriately qualified health and safety advisors to develop and implement
these systems. Health and safety performance is reported to and reviewed by the Board as well as at operating company level. Each
business within the Group has a system for reporting and investigating accidents, dangerous occurrences and work-related diseases. All
such incidents are investigated to determine the root cause. Any significant incidents are reported within the Group as a whole and
specifically brought to the attention of the Board.
Where appropriate activities are assessed for hazards with appropriate controls put in place and documented to ensure that risk is
reduced to a satisfactory level. Health and safety systems are subject to regular audit. 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 obligations to employees for
whom they are responsible are properly discharged.
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. 33% of employees across the Group work in offices that now
have third party accreditation to the OHSAS 18001 standard.
During the year the Group was neither prosecuted for the breach of health safety regulations nor subject to any investigation by
regulatory authority. In 2011, the reportable accident rate was 2.3 accidents per 1,000 employees (2010: 3.3). Accidents that do occur
most commonly relate to manual handling activities, as well as slips and falls.
Reportable Accident Rates
Group
Reportable injuries
Reportable injuries incident rate per 1,000 employees
2011
12
2.3
2010
15
3.3
14
Report and Accounts 2011
The Board
Brook Land
Non-Executive Chairman
Aged 62. Brook Land was formerly a
senior partner of and is now a consultant
to Nabarro. He is a director of a number
of private companies. Until June 2008
he was Senior Independent Director of
Signet Group plc. He was appointed to
the Board in 1997 and is also Chairman of
the Nomination Committee.
Dr Alan Hearne
Chief Executive
Aged 59. 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, a
fellow of Aston Business School in 2006
and an honorary Doctor of the University
of Kent in 2011.
Gary Young
Finance Director
Aged 52. 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 finance 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 of that year.
Dr Phil Williams
Executive Director
Aged 59. 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.
Robert Miller-Bakewell
Independent Non-Executive Director
Aged 59. Robert joined the Board in
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. Robert
is a member of the Audit and Nomination
Committees as well as being Senior
Independent Director.
John Bennett
Independent Non-Executive Director
Aged 64. John was appointed to the
Board in 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. He is Chairman of the
Audit Committee and a member of the
Remuneration Committee.
Louise Charlton
Independent Non-Executive Director
Aged 51. Louise was appointed to the
Board in 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 a
second three-year term and is a member
of the Remuneration and Nomination
Committees.
Tracey Graham
Independent Non-Executive Director
Aged 46. Tracey Graham joined the Board
in September 2011 having been Chief
Executive of Talaris Limited, an international
cash management business, until 2010.
Tracey led the management buy-out of
Talaris from De La Rue Plc, backed by
private equity house Carlyle in 2008. Prior
to this Tracey was based in California
where she was President of Sequoia Voting
Systems, an election systems company.
Tracey’s background is in Banking and
Insurance where she held senior positions
with HSBC and AXA Insurance. She chairs
the Remuneration Committee and is a
member of the Audit Committee.
rpsgroup.com
15
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 2011.
Results and dividend
The Consolidated Income Statement is set out on page 37 and shows the profit for the year. The Directors recommend a final
dividend of 2.9p (2010: 2.52p) per share. This together with the interim dividend of 2.66 p (2010: 2.31p) per share paid on
21 October 2011 gives a total dividend of 5.56p (2010: 4.83p) per share for the year ended 31 December 2011.
Principal activities and business review
The Group’s principal activities and performance during the year and future prospects as well as its business model and strategy are
described on pages 2 to 14. Financial key performance indicators can be found on page 2. The Board does not use non-financial
key performance indicators to assess the Group as a whole, but parts of the Group do use non-financial key performance indicators
from time to time. Consistent with its size and complexity, the Group has a large number of contractual relationships with clients and
suppliers. In the Directors’ view, however, there is no single contract or client relationship, which is essential to the Group’s business.
The principal operating subsidiary undertakings are listed in note 5 to the Parent Company Financial Statements.
The Business Review contains certain forward looking statements with respect to the financial condition, results of operations and
businesses of RPS. These statements involve risk and uncertainty because they relate to events and depend upon circumstances that
may occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those
expressed or implied by these forward looking statements. The current uncertainty in global economic outlook inevitably increases the
risks to which the Group is exposed. Nothing in the Business Review should be construed as a profit forecast.
Principal risks and uncertainties
The principal risks and uncertainties are reported on pages 9 and 10 in the Risk Management section of the Business Review.
Corporate Governance
The Directors report on corporate governance can be found on pages 21 to 26 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 1 March 2012.
Aberforth Partners
Kames Capital
F & C Asset Management
Old Mutual Asset Managers
Impax Asset Management
Legal & General Investment Management
Montanaro Investment Managers
M & G Investment Management
No. of shares
Percentage
20,732,360
11,059,283
10,563,336
9,542,915
8,717,245
7,821,831
6,950,568
6,685,769
9.48
5.06
4.83
4.36
3.99
3.58
3.18
3.06
16
Report and Accounts 2011
Directors
The Directors of the Company as at 31 December 2011 and their beneficial interests in the ordinary share capital of the Company were:
Management & Governance
Brook Land
John Bennett
Louise Charlton
Robert Miller-Bakewell
Tracey Graham
Alan Hearne
Phil Williams
Gary Young
*As at date of appointment
No. of shares at
31/12/11 and at
01/03/12
No. of shares at
31/12/10 and at
02/03/11
30,000
30,000
–
–
5,000
5,000
12,030
418,439
88,416
–
–
5,000
–*
12,030
418,439
88,416
In addition Roger Devlin and Karen McPherson acted as directors of the Company for part of the year until both retired from the
Board on 6 May 2011. Peter Dowen also served as a director for part of the year until his retirement on 30 September 2011.
The Directors’ interests under the Company’s Share Incentive Plan were:
Alan Hearne
Phil Williams
Gary Young
No. of shares at
31/12/11
No. of shares at
31/12/10
8,154
5,799
11,361
6,643
4,345
8,773
The Directors’ interests under the Company’s Executive Share Option Plan during the year are set out below:
Director
Alan Hearne
1 Jan
2011
number
62,500
28,157
Gary Young
13,720
Exercised
number
–
–
–
31 Dec
2011
number
62,500
28,157
Exercise
price
111.0p
146.5p
13,720
146.5p
Market value
at date of
exercise
Date from
which
exercisable
Expiry date
–
–
_
20/3/2008
20/3/2015
12/8/2008
12/8/2015
12/8/2008
12/8/2015
Peter Dowen
32,500
15,051
32,500
15,051
–*
–*
111.0p
146.5p
236.5
236.5
20/3/2008
12/08/2008
–
–
*As at date of retirement as a Director
rpsgroup.com
17
The Directors’ interests under the Company’s Long Term Incentive Plan during the year are set out below:
Director
Alan Hearne
Phil Williams
Gary Young
Peter Dowen
Value of
grant at date
of grant
£000s
1 Jan 2011
number
Released
Lapsed 31 Dec 2011
number
Market Value
of Shares
at Grant
2008
127,419
2009*
275,261
2008
61,935
2009*
156,098
2008
51,612
2009*
111,498
2008
44,129
2009**
95,331
395
395
192
224
160
160
137
137
–
–
–
–
–
–
–
–
127,419
–
-
275,261
61,935
–
–
156,098
51,612
-
–
111,498
44,129
95,331
–
–
310p
143.5p
310p
143.5p
310p
143.5p
310p
143.5p
* As the performance conditions in respect of these grants will not be satisfied they will not be released and will lapse in March 2012
** Lapsed as at date of retirement as a Director
The market price of the shares at 31 December 2011 was 180.0p and the range during the financial year was 156.6p to 253.0p.
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 11 and 12.
Charitable and community donations
During the year the Group made charitable donations in cash of £206,000. The Group made no contribution to political organisations
during the year.
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 38 days’ purchases outstanding in respect of payments to suppliers and sub-
contractors (2010: 33 days). At the year end the Company had 8 days’ purchases outstanding in respect of payments to suppliers and
sub-contractors (2010: 18 days).
Going concern
The Group’s business activities, a review of the 2011 results together with factors likely to affect its future development and prospects
are set out on pages 3 to 8. Note 16 to the Consolidated Financial Statements sets out the borrowings of the Group and considers
liquidity risk, whilst note 29 describes the Group’s approach to capital management, and financial risk management in general.
The Group has had good cash flow for a number of years, has a modest amount of net bank debt at the year end and operates well
within the financial covenants applying to the main bank facility that expires in July 2013. The Group is confident that it will renew or
replace this facility this year.
The Group has a diverse range of businesses in a spread of geographies and as a consequence the Directors believe that the Group is
well placed to manage its business risks successfully.
The Directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the
foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements.
18
Report and Accounts 2011
Management & Governance
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
n
so far as the Director is aware, there is no relevant audit information of which the Company’s auditors are unaware; and
the Director has taken all the steps that he or she ought to have taken as a Director in order to make himself/herself aware of any
relevant audit information and to establish that the Company’s auditors are aware of that information.
This confirmation is given and should be interpreted in accordance with the provisions of the Companies Act 2006.
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with the Companies
Act 2006. The Directors are also required to prepare financial statements for the Group in accordance with International Financial
Reporting Standards (IFRS) as adopted by the European Union and Article 4 of the IAS Regulation. The Directors have chosen to
prepare financial statements for the Company in accordance with UK Generally Accepted Accounting Practice.
Group financial statements
International Accounting Standard 1 requires that financial statements present fairly for each financial year the Group’s financial position,
financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in
accordance 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
n
n
consistently select and apply appropriate accounting policies;
present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable
information; and
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
n
state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in
the financial statements; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue
in business.
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.
rpsgroup.com
19
Directors’ responsibilities statement pursuant to DTR 4
The Directors confirm that to the best of their knowledge:
n
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
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
Details on the use of financial instruments and financial risk are included in note 29 to the Consolidated Financial Statements.
Post balance sheet events
Since the year end the Group has exchanged contracts to dispose of that part of our Republic of Ireland business, part of Built and
Natural Environment Europe, which provides facilities management support to clients in Ireland. The consideration for the goodwill and
contracts is €1,500,000. Certain other assets of the business will be sold at net book value whilst trade receivables will be retained and
certain liabilities will be assumed by the acquirer. All staff engaged directly in this business are expected to transfer to the acquirer.
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 2011 the Company’s issued share capital consisted of 218,138,273 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 that 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. Under the Articles of Association 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. It Is the
Company’s policy, however, that all Directors should stand for 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. No such power was exercised during the year
under review.
Directors’ interests in the share capital of the Company are shown in the table on page 17. Substantial shareholder interests of which the
Company is aware are shown on page 16.
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 resulting
from a takeover bid.
Annual General Meeting
The Annual General Meeting will be held on 4 May 2012. 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 Ernst &
Young LLP as the Company’s Auditors.
By order of the Board
Nicholas Rowe
Secretary
7 March 2012
20
Report and Accounts 2011
Registered Office:
20 Milton Park
Abingdon
Oxfordshire OX14 4SH
Registered in England No. 02087786
Management & Governance
Corporate Governance
Chairman’s Introduction
The introduction to the new Combined Code (now renamed the UK Corporate Governance Code) recommends that the Chairman
should report personally how the principles relating to the role and effectiveness of the Board have been applied. I am happy to have
the opportunity to do this. The report below explains our compliance against the detailed provisions of the Code as well as giving a
more detailed view of the activities of the Board and its Committees. It shows a high degree of compliance. As Chairman I have the
key roles of providing leadership to the Board and ensuring we maintain an environment to enable the Board to perform effectively.
Having in place appropriate governance structures is a vital component in meeting these objectives and I strongly believe that the
Board of RPS Group plc achieves this.
The development and membership of the Board is a dynamic process, which is kept under close review. During 2011, one Executive
Director retired after over 20 years’ service and two Non-executives resigned, one having served nine years and the other seven
years. We have transitioned well from having five executives on the Board two years ago to three now. We recruited, as an additional
Non-executive, with the assistance of external consultants, Tracey Graham who brings extensive international business experience
to the Board. As far as the other Non-executives are concerned, John Bennett who chairs the Audit Committee after many years in
public company Finance Director roles, Robert Miller Bakewell who has over 30 years’ city experience and Louise Charlton, who has
extensive corporate communications experience, have all made a significant contribution. Of the four Non-executives on the Board,
you will also see that two are female!
Our annual Board performance review provided the opportunity for our collective and individual performance to be tested and
reviewed. The Board was faced with a major challenge this year due to our new auditors sudden and surprise announcement that they
interpret IFRS3 (2008) differently from our previous auditors. The detail of this and its implications are explained elsewhere. However,
from a governance perspective, I can report that both the Audit Committee (superbly chaired by John Bennett) and the Board
responded exceptionally well and successfully minimised the impact of this event on the operation and performance of the Group.
In my view such events are the best test of the quality of a Board and I believe the RPS Board could not have responded any better.
The management of the audit was below the standard we expect. I have therefore asked the Audit Committee to see what can be
done to improve this going forward.
In addition to the traditional Board Committees (Audit, Remuneration, Nomination and Governance), the involvement of the Non-
executives outside the Board Room enables them to have a better understanding of the operational issues facing a group which has
diversity in both geography and disciplines. The Board actively encourages Non-executives to take the time to visit and engage directly
with our businesses, in addition to the updates they receive at our regular Board meetings.
During the year the Board has continued to review the Group strategy and performance as well as scrutinizing proposed acquisitions.
In addition the Board has continued to oversee the maintenance of appropriate systems, controls and employment policies to
underpin the Group’s commercial strategy. All of these matters are reflected in the Board’s agenda and I am pleased that all our
directors contribute actively to these discussions.
We will continue to develop our processes, procedures and systems as the Group and the wider governance environment evolves.
The performance of RPS over the last three challenging years suggests we have firm foundations on which to build.
Brook Land
Chairman
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 2011, complied with all provisions of the UK Corporate Governance Code
(the ‘Code’), except that in a period of transition from 6 May 2011 when Roger Devlin and Karen McPherson retired from the
Board and 12 September 2011 when Tracey Graham was appointed (a) less than half the Board, excluding the Chairman, consisted
of Independent Non-Executive Directors and (b) the Audit and Remuneration Committees consisted of only two members. In the
period prior to 6 May 2011 and since 12 September 2011 the Company has been fully compliant with the Code.
rpsgroup.com
21
Board Responsibilities
The Board has a schedule of matters that are reserved for its decision, which includes the matters summarised below.
n Determining the Group’s overall strategy
n
Approving annual budgets and financial reporting including
annual and half year results and interim management
statements
n The approval and recommendation of dividends
n
The approval of significant acquisitions and disposals
n
The approval of policies and systems for risk management
and assurance
n The approval of overall policies and plans for human resources
n The appointment of key advisers to the Group
n The approval of major items of capital expenditure
n The settlement of major litigation
Board Structure
At the date of this report the Board comprised three Executive and five Non-Executive Directors including the Chairman. During the
year, as noted above, Roger Devlin and Karen McPherson both retired as Non-Executive Directors and Tracey Graham was appointed
as a Non-Executive Director. In addition Peter Dowen, an Executive Director, retired and left the Board. 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 may subsequently be extended. Any term beyond six years for a
Non-Executive is rigorously reviewed, looking at the requirement to refresh the Board. All directors are subject to annual re-election
by shareholders.
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. During the year Roger Devlin acted as Senior Independent Director until his
retirement from the Board on 6 May 2011 from which time Robert Miller-Bakewell assumed this role.
The Board is assisted by the Audit, Remuneration, Nomination and Corporate Governance Committees, all of which activities are
described in this report. The Chairman of each Committee provides updates as to its activities at Board meetings.
The table below shows the number of Board and Committee meetings attended by each of the Directors during the year.
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 †
Tracey Graham*
Number of meetings held
9
9
9
5
9
2
3
9
8
9
4
9
* Served as Directors and Committee members for part-year only
** Served as Remuneration Committee member for part year only
† Served as Nomination Committee member for part year only
Board Operations
–
–
–
–
–
1
–
5
–
5
2
5
–
–
–
–
–
2
2
3
1
–
1
3
2
–
–
–
–
–
2
–
2
–
–
2
2
2
–
–
–
–
–
–
–
–
–
2
The Board generally meets on a monthly basis, except during holiday periods, but may meet more frequently should circumstances
require. The Board agenda gives significant focus to business performance and strategy. Comprehensive papers are circulated well in
22
Report and Accounts 2011
Management & Governance
advance of Board meetings. These include general updates and briefings on significant issues from each of the Executive Directors and
the Company Secretary. These reports 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, which consists of the three Executive
Directors supported by the Company Secretary, is responsible for all operational matters within the Group subject to those matters
that remain reserved for the Board. The minutes of Executive Committee meetings are circulated to the Non-Executive Directors
for review.
Where Directors have concerns that cannot be resolved regarding the management of the Company or a proposed action, these
concerns are recorded in the Board minutes. In accordance with Company policy any concerns expressed by a Director on resignation
are provided, in a written statement, to the Chairman for circulation to the Board.
The Company’s Articles of Association contain provisions that 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. No actual or potential conflicts of interest arose
during the year under review.
There is an agreed procedure for Directors to take independent professional advice and training at the Company’s expense. The
Company maintains Directors and Officers liability insurance with a current limit of indemnity of £20m.
The Group’s general strategy and its related business model are described on page 3.
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. Such a review was undertaken during 2011 and although no
major issues arose, some reorganisation of the Board and Board Committee timetable was subsequently agreed in order to facilitate a
more efficient transaction of business. In addition the review process highlighted a need to compliment the Board’s skills through the
recruitment of a Non-Executive Director with international management experience; this was achieved on the appointment of Tracey
Graham to the Board.
The Non-Executive Directors hold meetings with the Chairman without the Executives present at least twice a year. The Non-
Executives, led by the Senior Non-Executive Director, meet on an annual basis to appraise the Chairman’s performance. The Executive
Directors have their performance individually reviewed by the Chief Executive against annually set objectives. The Chief Executive has
his performance reviewed by the Chairman and Senior Independent Non-Executive Director. The Board’s annual appraisal process
incorporates a review of the performance of Non-Executive Directors.
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 technical issues as required including
those relating to corporate governance and corporate social responsibility. Non-Executive Directors undertake regular visits to
operating companies in order to improve understanding of more operational issues.
The Board is mindful of the provisions of the Code indicating that an externally facilitated performance review should be carried out at
least once in every three years and is considering its options in this regard. We are concerned that few of those offering such services
can claim to be experienced and independent.
Communication
The Company attaches great importance to communication with its shareholders and other stakeholders. In addition to regular
financial reporting the Group 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.
rpsgroup.com
23
In addition to presentations of full and half-year results, senior executives led by the Chief Executive hold meetings with the company’s
principal shareholders to discuss the Company’s strategy and performance. The Chairman and Senior Independent Director are also
available to discuss issues with major shareholders. An investor relations report is presented at all regular Board meetings to ensure
that the Board is kept aware of the views of major shareholders and the investment community generally.
The Chairman of each of the Board Committees attends the Annual General Meeting and is available to answer questions.
Audit and internal controls
The respective responsibilities of the Directors and the independent auditors in connection with the accounts are explained on pages
19, 20 and 35 and the statement of the Directors in respect of going concern appears on page 18.
The Board has throughout the year and up to the date of approval of the financial statements had procedures in place as
recommended in the guidance in the UK Corporate Governance Code and “Turnbull: Guidance on Internal Controls”. The principal
risks to which the Group is exposed and the measures to mitigate such risks are described on pages 9 and 10.
The Board is responsible for the Group’s system of risk management and internal control, which are 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 2011 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: The results for the Group are reported to and reviewed by the Board on a monthly basis. A detailed formal
budgeting process for all Group businesses culminates in an annual Group budget which is approved by the Board.
Financial and accounting principles and internal financial controls assurance: Accounting policies and guidelines are issued to all
accounting teams including those of acquired companies. These set out the principles and minimum standards required by the Board
for effective financial control. Compliance with these policies and guidelines is reviewed on a regular basis.
Capital investment: The Group 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.
Treasury: the Group operates a central treasury function that undertakes required borrowing and foreign exchange transactions as
well as the daily monitoring of bank balances and cash receipts. Appropriate payment authorisation processes are in place in all parts
of the Group.
Audit Committee
The Audit Committee comprises three Independent Non-Executive Directors; John Bennett, Robert Miller-Bakewell and Tracey
Graham. Roger Devlin served as a member of the Committee until his retirement from the Board and Tracey Graham was appointed
as a member on her joining the Board. The Committee has written terms of reference which are available on the Company’s website
and on request from the Company Secretary. Although the Board considers that all current members of the Committee have
experience that 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 major issue the Committee dealt with during the year arose when Ernst & Young indicated that it did not agree with the Group’s
interpretation of IFRS3 (2008) Business Combinations that it contains a rebuttable presumption in respect of the treatment of
contingent deferred consideration, relating to transactions completed since I January 2010. Ernst & Young’s view is that the deferred
consideration due to vendors that is contingent on their continued employment, should be expensed through the profit and loss
account, rather than being treated as capital cost, as the Group has done previously. Ernst & Young’s review of the Group’s 2011
interim results had not raised this as an issue.
In view of this, and given the previous auditors certification of the Group accounts at 31 December 2010, the Audit Committee
commissioned an independent opinion from another ‘’big 4” firm. This supported the Group’s interpretation of IFRS3 (2008). DLA
Piper, the Group’s lawyers, were also asked to give an opinion on specific legal matters raised by Ernst & Young concerning the
structure of our transactions. DLA also supported the Board’s position. Although the RPS Board remains of the view that these
contingent deferred consideration payments can be treated as capital costs, as they were in the audited 2010 report and accounts,
the Audit Committee recommended the accounting treatment be changed to adopt the Ernst & Young interpretation. The Board
accepted this recommendation.
The Audit Committee also considered the impact of this revised treatment on the 2010 accounts and recommended to the Board
that the impact is not material as omitting that information from the comparative results in the Report and Accounts for 2011 would
not influence the decisions that users make about the Group. The Board agreed; the 2010 accounts have, therefore, not been restated.
24
Report and Accounts 2011
Management & Governance
The Audit Committee has reviewed and supports the Board’s new preferred measures of Group profitability, including profit before
tax, amortisation and transaction related costs (“PBTA”) and adjusted earnings per share. The Committee and Board consider these
provide more meaningful measures than statutory profit before tax and earnings per share.
The Committee reviews and approves audit plans with the Auditors prior to work being undertaken and reviews the integrity of the
Group’s financial statements and announcements prior to their submission to the Board. This review includes ensuring that statutory
and associated legal and regulatory requirements are met as well as considering significant reporting judgements, the adoption of
appropriate accounting policies and practices and compliance with accounting standards. As part of this process the Committee
receives reports on the scope and outcome of the annual audit and management’s response to this. The Committee also monitors the
effectiveness of the Group’s internal financial controls and risk management processes; this included assisted the Board in conducting
the review of internal controls described above. The Audit Committee regularly reviews the need for an internal audit function and
remains of the view at present the financial controls operating throughout the Group and the reviews undertaken by the Group
Finance function are adequate without a dedicated internal audit function.
The Audit Committee keeps the scope, cost and effectiveness of the external audit under review as well as making recommendations
as to the annual re-appointment of Auditors. During the year the Committee undertook a review of the external audit appointment
following which a competitive tender process was initiated and Ernst & Young LLP was appointed as Auditor. The independence and
effectiveness of the external auditor will continue to be subject to annual review and audit partners rotated at least every five years. 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
investment advisory, broker and dealing services
n design and implementation of financial systems
n general management services
n valuation 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
taxation services
n advice relating to risk management and controls
n
transaction support including due diligence
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 51.
The Committee also keeps under review the means by which staff may, in confidence, raise concerns about financial improprieties
relating to financial reporting, internal control or other matters. The company’s procedure allows for any such matters to be reported
to the Company Secretary who will ensure that any such matters are properly investigated and reported to the Audit Committee
and the Board. Any individual raising a concern need not disclose their identity and if such identity is disclosed it will not be passed on
without the consent of that individual.
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 Robert Miller-Bakewell. The Committee’s key responsibilities include reviewing
the Board structure, size and composition as well as evaluating the balance of skills, knowledge and experience which may be required
in the future and making recommendations to the Board accordingly. It is also responsible for nominating candidates to the Board when
vacancies arise, recommending Directors who are retiring to be put forward for re-election and where appropriate considering any issues
relating to the continuation in office of any Director. It has written terms of reference which are available on the Company’s website and
on request from the Company Secretary.
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 senior level corporate management, finance, law, investment analysis, 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, as noted above, to provide the range and balance of skills required. The Committee and the Board have remained cognisant of
rpsgroup.com
25
the need to encourage Board diversity and during the year the Company announced its view that a female representation of 25 per cent
Board membership was an appropriate level. On the appointment of Tracey Graham to the Board this level was achieved.
When Directors are appointed to the Board, this is through a formal, rigorous and transparent process. Tracey Graham was appointed
as a Non-Executive Director on 12 September 2011. This followed a careful evaluation of the skills currently available at Board level
and how these could best be enhanced and balanced. A job specification was prepared and a shortlist of candidates prepared using the
services of an external search agency. After a number of detailed and rigorous interviews, the Committee concluded that Tracey Graham’s
skills and experience offered a strong match with the Company’s requirements. The appointment was only then made following meetings
with other Directors and final consideration of the appointment by the Committee and the Board.
John Bennett whose second three year term as a Non-Executive Director will expire at the forthcoming Annual General meeting has
agreed to continue for a further three year term. This further term was only agreed after careful scrutiny bearing in mind the need to
achieve the appropriate balance between the retention of acquired experience and refreshment of the Board.
Remuneration Committee
The membership and activities of the Remuneration Committee are described in the Remuneration Report on pages 27 to 34.
Takeover Directive
Disclosures required under the Takeover Directive are included on page 20 and form part of the Group’s Corporate Governance report.
26
Report and Accounts 2011
Management & Governance
Remuneration Report
The Committee currently comprises Tracey Graham (Chair), John Bennett, and Louise Charlton all of whom are Independent Non-
Executive Directors. Karen McPherson and Roger Devlin both served as members of the Committee for part of the year until they
retired as Directors. Louise Charlton was appointed to the Committee during the year and Tracey Graham was appointed as Chair of
the Committee on her appointment as a Director. The principal responsibility of the Committee is to determine the remuneration of
the Executive directors including pension rights and any compensation payments. The Committee also monitors the level and structure
of remuneration for the Group’s senior management. The Committee’s detailed terms of reference are available on the Company’s
website and on request from the Company Secretary.
The Chairman of the Company and the Chief Executive have both assisted the Remuneration Committee in its 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 Committee has continued to receive wholly independent advice on executive compensation from
PricewaterhouseCoopers (‘PwC’). PwC provide no other services to the Group.
Details of frequency and attendance at meetings of the Committee are detailed on page 22.
Remuneration policy
The Remuneration Committee’s policy for 2011 was to set the main elements of the remuneration package in order to reflect:
n
the performance of the individual concerned;
n
the performance of the business unit(s) for which he/she is responsible;
n
in the case of the Group directors, the performance of the Group as a whole; and
n
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 their 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 Directors’ interests with those of the Company,
employees and shareholders.
The table below shows the proportion of the maximum potential compensation that is performance related for each
Executive Director.
Analysis of fixed versus performance related pay for Executive Directors 2011
Alan Hearne
Gary Young
Phil Williams
Notes:
Fixed compensation comprises: Basic salary, Pension Contribution, Benefits
Variable compensation comprises: Maximum contribution under the Bonus Plan
Fixed
%
35.1
44.9
44.4
Variable
%
64.9
55.1
55.6
Base salary
When determining the salary of the Executive Directors the Remuneration Committee takes into consideration:
n
the performance of the Group as a whole;
n
the performance of the individual Executive Director both for the Group and the businesses under his control;
n pay and conditions throughout the Company; and
n
the market conditions in the sectors in which the Group operates
rpsgroup.com
27
In addition, the salaries and overall remuneration packages of Executive Directors are benchmarked against independently established
groups of listed companies operating within the same sector as the Company.
Remuneration Review
During the year an independent review of base salaries and total compensation (the ‘Review’) was undertaken on behalf of the
Remuneration Committee by PwC. The review of total compensation utilised PwC’s standard methodology to compare the total
of base salary, on target bonus, the expected value of long term incentives and pension benefits in respect of companies within the
comparator group with the equivalent compensation for the Company’s Executive Directors.
The first grouping reviewed (the ‘Main Comparator Group’) consisted of the following companies which are broadly the same as those
the Remuneration Committee has used in previous years.
Aggreko Plc
Amec Plc
Ashtead Group Plc
Atkins WS PLC
Babock International Group
Bunzl PLC
De La Rue Plc
Electrocomponents Plc
Filtrona 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
Serco Group Plc
Shanks Group Plc
SIG PLC
Speedy Hire PLC
SThree PLC
Travis Perkins PLC
White Young Green PLC
WSP Group PLC
In addition a sub-set of the main Comparator Group (the ‘International Sub-set’) was used. This consisted of the constituents of
the main group that generate in excess of 60% of their turnover from overseas. The Group is becoming increasingly international
with over two-thirds of operating profit now generated from outside of Europe. The demands placed upon the Executive Directors
in managing a substantially more complex multi-national Group have therefore grown significantly. Correspondingly the market in
which the Group competes for executive talent is increasingly international. The Remuneration Committee therefore considers the
International Subset an important comparator group for the purpose of considering Executive Directors’ remuneration.
The International Sub-Set consists of the following companies.
Aggreko Plc
Amec Plc
Ashtead Group Plc
Bunzl Plc
Electrocomponents Plc
Filtrona PLC
Hays PLC
Intertek Group PLC
Michael Page International Plc
Premier Farnell PLC
Regus PLC
Shanks Group Plc
WSP Group PLC
The Committee also undertook a separate review of the UK Energy sector at Divisional Board level for Phil Williams the Executive
Director responsible for the Group’s operations in this sector. The review was undertaken using data taken from PwC’s proprietary
database and conducted at Divisional level to take account of the large size of companies operating within this sector. The Divisional
data would not, however, take account of additional responsibilities commensurate with being a director of a listed company. The
Committee felt that this separate review was required to reflect the importance of the Group’s Energy business and the very
competitive market for executive talent within the Energy sector. The positioning of the Executive Directors relative to the relevant
comparator groups is summarised below.
In respect of the Chief Executive Alan Hearne, the review showed 2011 base salary to be between lower and median quartile in
respect of the Main Comparator Group but below lower quartile in respect of the International Subset. Total compensation in 2011
was below lower quartile in respect of both of these comparator groups.
In respect of the Finance Director Gary Young, base salary and total compensation were below lower quartile in respect of both the
Main Comparator Group and the International Subset.
For Phil Williams, the Executive Director responsible for the Group’s Energy business, the review showed that base salary was above
median in respect of the Main Comparator Group and between lower quartile and median against the International Subset. Against
the Energy Sector data base salary was above median. In respect of total compensation, however, he was placed at or below lower
quartile in respect of all three comparator groups.
In addition to the consideration of appropriate benchmarking information the Committee has considered other factors in reviewing
levels of remuneration. As noted above the Group has become increasingly international, the proportion of the Group’s operating
profits generated from outside the United Kingdom increased having more than doubled between 2006 and 2011 so that more than
two thirds of operating profit is generated from outside Europe. The complexity of the issues with which the Executive team are now
28
Report and Accounts 2011
Management & Governance
required to deal has increased correspondingly as well as the demands imposed by working across international time zones and far
greater international travel. These pressures have been magnified by a reduction in the size of the Executive team that numbered five
at the start of 2009 but has now reduced to three and which has required all to assume additional responsibilities.
The Committee is also mindful of the relationship between the value of remuneration paid to the Board and Group performance.
The table below shows the total value of remuneration payable to Directors over a five year period and its relationship to reported
Group profits.
£000s
2007
2008
2009
2010
2011
Basic
salaries
1,180
1,283
1,272
1,131
1,145
Annual
bonus*
713
795
–
356
628
Share
plans**
3,788
1,629
567
524
54
Pension
conts.
Benefits
in kind
Ned fees
Total costs
PBTA
122
133
133
109
124
61
64
61
48
59
183
206
235
252
249
6,047
4,110
2,268
2,420
2,259
45,010
57,512
52,472
47,993
50,812
Remuneration
Received as % of
PBTA
13.43
7.15
4.32
5.04
4.40
* Represents sums paid under the annual bonus plan between 2007 and 2009 and sums paid under the Bonus Banking Plan in respect of 2010 and 2011.
** Represents gains made under the Long Term Incentive Plan and the Executive Share Option Plan by reference to the market price of shares at the time of
maturity of award or exercise of share option.
Total remuneration received by Directors over this period relative to Group performance has, therefore, followed a downward trend.
The Committee has access to pay and conditions of other employees within the Group when determining remuneration for the
Executive Directors also considered the relationship between general changes to pay and conditions within the Group as a whole.
In setting remuneration for 2011 and 2012 the Committee therefore took account of the competitive nature of the markets within
which the Group operates, appropriate benchmarking data, changes in the nature of the Group and executive responsibilities, pay
and conditions within the Group and overall costs to the Group. Placed in this context the Committee concluded that the changes
detailed below were reasonable and struck an appropriate balance between providing remuneration packages that remain competitive
but which are not excessive relative to these various factors.
Changes to Remuneration in respect of 2011
In respect of the salary review undertaken as at 1 January 2011, the Committee increased the base salary of Alan Hearne by 5% to
£425,000, the base salary of Phil Williams by 11.5% to £320,000 and that of Gary Young by 9.75% to £225,000.
Changes to Remuneration in respect of 2012
In the interests of transparency the Remuneration Committee is also disclosing the changes to Executive Remuneration that took
effect from 1 January 2012.
In respect of the salary review undertaken at this time the Committee increased the base salary of Alan Hearne by 5% to £446,000,
the base salary of Phil Williams by 6.25% to £340,000 and that of Gary Young by 3% to £231,750.
With effect from 1 January 2012 the Committee agreed that, in lieu of pension contributions, a salary supplement of 25% of basic
salary would be payable to Alan Hearne. This payment does not rank for the purposes of calculating payments under the Bonus
Banking Plan or other employee benefits linked to salary.
It was also agreed that the employer pension contribution payable for Phil Williams should, with effect from 1 January 2012, be
increased from 15% to 17.5%. In addition the maximum annual contribution payable to Phil Williams under the Bonus Banking Plan
was increased from 150% to 175% of base salary.
RPS Group Plc Bonus Plan (the ‘Bonus Plan’)
Background
The Bonus Plan was introduced with effect from 1 January 2010 and 2011 was therefore its second year of operation. This single plan
replaced the Company’s Long Term Incentive Plan (‘LTIP’) and the annual bonus plan that operated up to 31 December 2009. The
Bonus Plan, the rationale for which was set out in last year’s report, was introduced following consultation with the Company’s major
shareholders. The principal details of the Bonus Plan and its operation in 2011 are set out below.
rpsgroup.com
29
Summary of the Main Features of the Bonus Plan
The Bonus Plan is based on a percentage of the PBTA 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 may be 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) may be 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 have a plan account to which bonus units are 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 has
discretion when determining how many eligible bonus units to release (and therefore the level of annual payment received by the
participant) to take into account individual and wider Company and divisional financial and non financial performance; including the
Company’s sustainability, environmental and corporate governance record;
n
the contribution to the Plan is calculated on the following basis:
n
n
the Remuneration Committee sets 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;
up to 3% of the total PBTA for the financial year will be contributed to the Bonus Plan for the Executive Directors provided
that the threshold profit is met or exceeded. This is subject to an individual cap as a percentage of salary. The Remuneration
Committee considers a 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;
n
if the actual PBTA 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;
n
there is a maximum contribution that can be made to a participant’s plan account in respect of any financial year (see below);
n
the value of deferred contributions in a participant’s plan account is held in shares;
n
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.
The following section of the report sets out the principal terms on which the plan operated in 2011.
Maximum Contribution 2011
Name
Alan Hearne
Gary Young
Phil Williams
Profit & Contribution Thresholds for 2011
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
*Straight line between points.
Level 0
<£48m
15%
Maximum Contribution under the Plan
(%age Salary)
Maximum Contribution
for 2011
200%
150%
150%
Level 1
£48m
1%*
200%
150%
150%
Level 2
£53.5m
3%*
The Bonus Plan PBTA for 2011 was £50.8m which generated a Total Plan Contribution of £1,028,000.
30
Report and Accounts 2011
Management & Governance
Participant Plan Accounts
The following table sets out the details of the Plan Accounts for the Executive Directors:
Plan Account Details
Opening Balance
2011 Plan Contribution
2011 Plan Deduction
Total
2011 Payment
Closing Balance
Alan Hearne
£
200,961
462,600
–
663,561
331,780
331,781
Phil Williams
£
107,534
328,960
–
436,494
218,247
218,247
Gary Young
£
76,826
236,440
–
313,266
78,316
234,950
The balance of the Bonus Plan contribution for 2010 that was not paid in cash was deferred in the form of shares in the Company that
were purchased by and are held by the Company’s employee benefit trust. The opening balance represents these shares valued using the
closing price of ordinary shares in the Company on 7 March 2012 together with the value of dividends on the shares paid during the year.
The closing balance represents the value deferred or to be deferred in the form of shares after the 2011 payment.
The Bonus Plan will be operated for 2012 with the same main parameters. The Remuneration Committee will, however, set the
appropriate thresholds and contribution levels for 2012 taking into account the circumstances of the Company and market generally.
Long Term Incentive Plan
As noted above the LTIP has ceased to operate the final award under this plan having been made in 2009.
The table below shows the position in relation to the two awards under the LTIP that were outstanding at the beginning of the year.
Executive
Maximum Annual Grant
Chief Executive
Finance Director
Executive Directors
Performance Condition
Status
2008 Grant
% of Salary/
Condition
100
100
80
60-80
EPS Growth
(see table below)
This award
lapsed on
8 April 2011
2009 Grant
% of Salary/
Condition
100
100
80
60-80
EPS Growth
(see table below)
This award
will lapse on
31 March 2012
The performance conditions that attached to the release of LTIP awards related to EPS growth and were as follows:
% Average Basic EPS Growth p.a. above RPI
% of 3 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 determined the satisfaction of the performance conditions in respect of the LTIP. The EPS figure used by
the Committee was the audited basic EPS figure disclosed in the Company’s Financial Statements.
The performance condition comparing increases in earnings per share against inflation was chosen in order to ensure that LTIP awards
would only be received against a background of sustained real increase in the financial performance of the Company. As previously
reported the performance conditions attached to the LTIP award made in 2008 were not satisfied and accordingly this award lapsed during
2011. As also previously anticipated the Remuneration Committee has also determined that the performance conditions attaching to the
award made in 2009 have not been satisfied and this award will lapse on 31 March 2012.
Full details of the Directors individual LTIP awards are set out on page 18.
rpsgroup.com
31
Executive Share Option Plan
In years prior to 2004 when the LTIP was introduced, the Company operated an Executive Share Option Plan. 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. During the year Peter Dowen exercised options over 32,500 shares granted at an option price of
111p and 15,051 shares at a price of 146.5p. At the date of exercise of these options the market price was 236.5p giving a total gain
of £54,333. All outstanding options under this plan are set out on page 17.
Benefits
The Executive Directors participate in defined contribution pension schemes to which the employer contribution rate in 2011
was 15%. In 2006 the Remuneration Committee agreed to a one off payment to be made to the pension plan of Alan Hearne
representing six years annual contributions. Accordingly no pension contributions were made into his plan for the period expiring
in October 2011. In respect of the period from October to December 2011 the Company paid £16,000 to Alan Hearne in lieu of
pension contributions.
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. In addition they receive the following benefits:
n healthcare;
n
life assurance and dependents’ pensions;
n disability schemes; and
n company car or car allowance.
Shareholding Guideline
The Committee operates a system of shareholding guidelines to encourage long-term share ownership by the Executive Directors.
The Committee believes this forms a stable 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.
The current guidelines are as detailed below..
Name
Alan Hearne
Gary Young
Phil Williams
Recommended shareholding
requirement as percentage of salary
150%
100%
100%
Service contracts
It remains the Company’s policy that Executive Directors should have rolling service contracts terminable on no more than one year’s
notice served by the Company or the Director.
Details of the Executive Directors’ service contracts are shown below.
Name
Alan Hearne
Phil Williams
Gary Young
Date of Contract
February 1997
November 2005
September 2000
Notice Period
(months)
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. The Company’s policy on termination payments is 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 extended notice periods or compensation in the event of a change of control. None of the Directors’ contracts provide
for liquidated damages.
32
Report and Accounts 2011
Management & Governance
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 whilst
Committee Chairmen and the Senior Independent Director receive an additional payment. The fees paid to the Chairman and the Non-
Executive Directors are detailed on the following page.
Non-Executive Directors are appointed for three years term which may be renewed by mutual agreement. In common with the
Executive Directors all Non-Executives are subject to annual re-election by shareholders.
Details of the terms of appointment of the serving Non-Executive Directors are set out in the table below:
Name
Brook Land
John Bennett
Louise Charlton
Robert Miller-Bakewell
Tracey Graham
Initial Contract date
September 1997
June 2006
May 2008
May 2010
August 2011
Unexpired term of contract as
at 31 Dec 2010 (months)
Annual Review
5
29
17
32
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 Annual General Meeting.
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.
Total shareholder return from 1st January 2007
140
130
120
110
100
90
80
70
60
50
2007
2008
2009
2010
2011
RPS Group - Tot Return Ind
FTSE All Share - Tot Return Ind
FTSE All Share Support SVS£ - Tot Return Ind
rpsgroup.com
33
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.
Executive:
Alan Hearne
Gary Young
Peter Dowen*
Phil Williams
Non-Executive:
Brook Land
Roger Devlin*
Karen McPherson*
John Bennett
Louise Charlton
Robert Miller-Bakewell
Tracey Graham**
Total 2011
Total 2010
Basic
salary
£000s
425
225
175
320
–
–
–
–
–
–
–
1,145
1,131
Bonus
£000s
332
78
–
218
–
–
–
–
–
–
–
628
356
Fees
£000s
Benefits
£000s
–
–
–
–
101
13
15
40
32
36
12
249
252
20
16
7
16
–-
-–
–
–
–
–
–
59
48
Emoluments excluding pensions
Pension (paid and provided)
2011
£000s
777
319
182
554
101
13
15
40
32
36
12
2,081
–
2010
£000s
608
286
244
397
95
35
40
35
30
17
–
–
1,787
2011
£000s
2010
£000s
16
34
26
48
–
–
–
–
–
–
–
31
35
43
–
–
–
–
–
–
124
–
–
109
The total Directors’ emoluments were £2,081,000 (2010: £1,787,000) excluding pension contributions. In addition Employers National Insurance Contribution
paid in respect of these emoluments were £250,000 (2010: £196,000).
* Emoluments in 2011 represent those paid for part of the year up to date of retirement. A payment of £80,000 was made to Peter Dowen after retirement
from the Company in consideration of a successful transition of responsibilities.
** Emoluments represent those paid for part year since date of appointment.
Share awards
The tables on pages 17 and 18 set out details of the 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 all participate in Group Money Purchase (defined contribution) pension plans.
An Ordinary Resolution to approve this report will be proposed at the Company’s Annual General Meeting on 4 May 2012.
Signed on behalf of the Board
Tracey Graham
Chair of the Remuneration Committee
7 March 2012
34
Report and Accounts 2011
Report of the Independent Auditors
To the members of RPS Group Plc
We have audited the group and parent financial statements of RPS Group PLC (registered number: 02087786) for the year ended
31 December 2011 which comprise Consolidated Balance Sheet, the Parent Company Balance Sheet, the Consolidated Income
Statement, the Consolidated Statement of Comprehensive Income, 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 the 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 Directors’ responsibilities statement set out on pages 19 and 20, the directors are responsible for the
preparation of the group 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 group 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 Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to the group’s circumstances and have been consistently applied and
adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of
the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material
inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies
we consider the implications for our report.
Opinion on financial statements
In our opinion:
n
n
n
n
the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December
2011 and of the group’s profit for the year then ended;
the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; and
the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the
IAS Regulation.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
n
n
n
the part of the Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and
the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent
with the financial statements; and
the information given in the Corporate Governance Statement set out on pages 21 to 26 with respect to internal control and risk
management systems in relation to financial reporting processes and about share capital structures is consistent with the
financial statements.
rpsgroup.com
35
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:
n
n
n
n
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
the parent company financial statements and the part of the Remuneration Report to be audited are not in agreement with the
accounting records or returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit; or
a Corporate Governance Statement has not been prepared by the company.
Under the Listing Rules we are required to review:
n
n
the directors’ statement, set out on page 18, in relation to going concern; and
the part of the Corporate Governance Statement relating to the company’s compliance with the nine provisions of the June 2010
UK Corporate Governance Code specified for our review; and
n
certain elements of the report to shareholders by the Board on directors’ remuneration.
Kevin Harkin (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
Reading
7 March 2012
36
Report and Accounts 2011
Report of the Independent Auditors continued
Consolidated Income Statement
£000s
Revenue
Recharged expenses
Fee income
Operating profit before amortisation of acquired intangibles
and transaction related costs
Amortisation of acquired intangibles and transaction related costs
Operating profit
Finance costs
Finance income
Profit before tax, amortisation of acquired intangibles
and transaction related costs
Profit before tax
Tax expense
Accounts
Year ended
31 Dec
2011
Year ended
31 Dec
2010
528,710
(75,981)
452,729
461,830
(68,568)
393,262
Note
3
3
3
1(g),3,4,5
53,045
51,833
1(g),4
6
6
(10,361)
42,684
(2,541)
308
(5,524)
46,309
(4,025)
185
50,812
47,993
40,451
42,469
9
(11,340)
(10,733)
Profit for the year attributable to equity holders of the parent
29,111
31,736
Basic earnings per share (pence)
Diluted earnings per share (pence)
Adjusted basic earnings per share (pence)
Adjusted diluted earnings per share (pence)
10
10
10
10
13.49
13.40
16.68
16.56
14.78
14.69
15.79
15.69
Consolidated Statement of Comprehensive Income
£000s
Profit for the year
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 41 to 73 form part of these financial statements.
Year ended
31 Dec
2011
Year ended
31 Dec
2010
29,111
(811)
–
31,736
6,978
85
28,300
38,799
rpsgroup.com
37
Consolidated Balance Sheet
£000s
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 payables
Deferred tax liability
Provisions
Net assets
Equity
Share capital
Share premium
Other reserves
Retained earnings
Total shareholders’ equity
As at
31 Dec
2011
As at
31 Dec
2010
Note
11
12
14
16
18
15
19
16
18
20
19
21
22
329,112
30,070
41
359,223
171,751
25,989
197,740
2,959
10,327
109,496
3,331
3,903
130,016
67,724
46,554
–
1,665
11,594
2,684
62,497
364,450
6,544
103,717
43,299
210,890
364,450
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
These financial statements were approved and authorised for issue by the Board on 7 March 2012.
The notes on pages 41 to 73 form part of these financial statements.
Dr Alan Hearne, Director
Gary Young, Director
On behalf of the Board of RPS Group Plc.
38
Report and Accounts 2011
Consolidated Cash Flow Statement
£000s
Cash generated from operations
Interest paid
Interest received
Income taxes paid
Net cash from operating activities
Cash flows from investing activities:
Purchases of subsidiaries net of cash acquired
Deferred consideration
Purchase of property, plant and equipment
Sale of property, plant and equipment
Dividends received
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issue of share capital
Purchase of own shares
Proceeds / (repayments) of bank borrowings
Payment of finance lease liabilities
Dividends paid
Payment of pre-acquisition dividend
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of exchange rate fluctuations
Cash and cash equivalents at end of year
Cash and cash equivalents comprise:
Cash at bank
Bank overdraft
Cash and cash equivalents at end of year
The notes on pages 41 to 73 form part of these financial statements.
Accounts
Year ended
31 Dec
2011
Year ended
31 Dec
2010
71,053
(2,373)
308
(12,781)
56,207
(17,090)
(8,827)
(9,024)
362
256
(34,323)
179
(356)
2,222
(1,410)
(11,233)
(402)
(11,000)
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)
10,884
889
13,933
(359)
24,458
25,989
(1,531)
24,458
13,691
(647)
13,933
13,933
–
13,933
Note
26
23
26
26
rpsgroup.com
39
Consolidated Statement of Changes in Equity
£000s
As 1 January 2010
Changes in equity during 2010:
Total comprehensive income
Issue of new ordinary shares
Share based payment expense
Dividends paid
At 31 December 2010
Changes in equity during 2011:
Total comprehensive income
Issue of new ordinary shares
Purchase of own shares
Share based payment expense
Tax recognised directly in equity
Dividends paid
At 31 December 2011
Share
capital
6,457
–
59
–
–
6,516
–
28
–
–
–
–
6,544
Share
premium
Retained
earnings
Other
reserves
Total
equity
98,238
169,254
39,519
313,468
–
3,703
–
–
101,941
–
1,776
–
–
–
–
103,717
31,821
(2,036)
1,626
(9,710)
190,955
29,111
(509)
–
2,431
135
(11,233)
210,890
6,978
(916)
–
–
45,581
(811)
(1,115)
(356)
–
–
–
43,299
38,799
810
1,626
(9,710)
344,993
28,300
180
(356)
2,431
135
(11,233)
364,450
An analysis of other reserves is provided in note 22.
The notes on pages 41 to 73 form part of these financial statements.
40
Report and Accounts 2011
Accounts
Notes to the Consolidated Financial Statements
1. Significant accounting policies
RPS Group Plc (the “Company”) is a company domiciled in England. The consolidated financial statements of the Company for the
year ended 31 December 2011 comprise the Company and its subsidiaries (together referred to as the “Group”).
The consolidated financial statements were authorised for issuance on 7 March 2012.
(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.
During 2011 the IASB has issued a variety of IFRIC amendments and interpretations that have no impact on the Group’s reporting.
The Group has augmented its accounting policy in respect of deferred consideration (d) and added policies in respect of negative
goodwill (e ii) and operating profit (g). Otherwise, these financial statements have been prepared using accounting policies set out in
the Report and Accounts 2010.
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 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) Revenue
Revenue is stated net of sales tax. Revenue is recognised only when the outcome of a transaction can be measured reliably and it is
probable that economic benefits will flow to the Group.
i Fees / expenses
Revenue is classified into Fee revenue and Expense revenue. Fee revenue represents the Group’s personnel, subcontractor and
equipment time and expertise sold to clients. Expense revenue is the recharge of costs incidental to fulfilling the Group’s contracts, for
example mileage, flights, subsistence and accommodation.
ii Time and materials
In the case of time and materials projects, revenue represents the fair value of services provided using time spent at agreed rates as
the basis.
iii Fixed price
In the case of fixed price contracts, revenue is recognised 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 the recovery of the consideration due or associated
costs. An expected loss on a contract is recognised immediately in the income statement.
iv Tuition
Tuition fees in respect of courses run by RPS are recognised over the period of instruction.
v Agency agreements
The Group enters into certain agreements with clients where it manages client expenditure. It is obliged to purchase third party
services and recharges those costs, plus a management fee, to the client. In these cases only the management fee is recognised as
revenue. Receivables, payables and cash related to these transactions are included in the consolidated balance sheet.
Accrued revenue is booked as a receivable in the consolidated balance sheet when the amount of revenue recognised on a contract
exceeds the amount invoiced. Where the amount invoiced exceeds the amount of revenue recognised, the difference is booked as a
payable on the balance sheet in deferred income.
rpsgroup.com
41
1. Significant accounting policies continued
(d) Deferred consideration
Deferred consideration arises when settlement of all or part of the cost of a business combination falls due after the date the
acquisition was completed.
i IFRS 3 (2004)
At the date of acquisition, deferred consideration is stated at the fair value of the total consideration outstanding. In these cases
all deferred consideration has been treated as part of the cost of investment. At each balance sheet date deferred consideration
comprises the fair value of the remaining deferred consideration valued at acquisition.
ii IFRS 3 (2008)
Where the payment of deferred consideration is not contingent upon continuing employment of the vendors by the Group, deferred
consideration is treated in the same way as under IFRS 3 (2004).
Where the payment of deferred consideration is contingent upon the continuing employment of vendors by the Group, it is treated as
a remuneration expense and accounted for as an employment benefit under IAS 19. A charge is made through the consolidated income
statement as a cost of employment. The cost associated with each payment is accrued over the period it is earned. At each balance sheet
date the contingent deferred consideration balance comprises the accrual for the unsettled remuneration expense to date.
Contingent deferred consideration treated as remuneration is included in the cash flow statement as deferred consideration.
(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. Goodwill represents the difference between the cost of the
acquisition and the fair value of the identifiable assets acquired.
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is tested annually
for impairment.
ii Negative Goodwill
Negative goodwill arises where the purchase price of acquisitions for accounting purposes is less than the fair value of the net assets
acquired and is immediately credited to the consolidated income statement in accordance with IFRS 3 (2008).
iii Other intangible assets
Intangible assets other than goodwill that are acquired by the Group are stated at cost less accumulated amortisation and impairment
losses.
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 or 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.
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
Trade names
Order backlog
Non complete agreements
Software
Intellectual property nights
3 to 15 years
1 to 5 years
1 to 4 years
5 years
10 years
10 years
42
Report and Accounts 2011
Accounts
(f) 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 2011 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.
(g) Operating profit
The Board has disclosed four non statutory performance measures as part of the Consolidated Income Statement. These are
“Operating profit before amortisation of acquired intangibles and transaction related costs”, “Profit before tax, amortisation of acquired
intangibles and transaction related costs”, “Adjusted basic earnings per share” and “Adjusted diluted earnings per share”.
The Board considers these to be more meaningful measures of business performance than the statutory measures “Operating profit”,
“Profit before tax”, “Basic earnings per share” and “Diluted earnings per share”.
The Board has also shown in note 3 segment “underlying profit” which is segment result before reorganisation costs and amortisation
of acquired intangibles and transaction related costs. The Board considers this measure to be a more meaningful measure of
performance than the measure “segment result”.
i Amortisation of acquired intangibles and transaction related costs (note 4)
This classification of income and expense comprises amortisation of acquired intangibles (see note 1 (e) iv), deferred consideration
payments that are contingent on continuing employment and are treated as remuneration (see note 1 (d) ii), negative goodwill
that has been credited to the income statement (see note 1 (e) ii), gain on revaluation to fair value of investment in associate upon
acquisition of all outstanding share capital (note 28) and third party transaction related costs.
ii Reorganisation costs
This classification of income and expense comprises costs arising as a consequence of reorganisation including redundancy costs, profit
or loss on disposal of plant, property and equipment, the costs of consolidating office space and rebranding costs.
An explanation of adjusted earning per share is given in note 10.
(h) Key accounting estimates and judgements
These significant accounting policies also require the use of judgement, in particular when to recognise revenue, the valuation methods
used to ascribe value to intangible assets arising on acquisition and the discount rates and growth rates used when performing
impairment reviews.
rpsgroup.com
43
Notes to the Consolidated Financial Statements continued
2. Other accounting policies
(a) 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.
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.
(b) Property, plant and equipment
i Owned assets
Items of property, plant and equipment are stated at cost less accumulated depreciation (see below) and impairment losses (see
accounting policy 1 (f) above).
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.
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.
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. The estimated useful lives are as follows:
Freehold buildings
Alterations to leasehold premises
Motor vehicles
Fixtures, fittings, IT and equipment
(c) Trade and other receivables
50 years
Life of lease
4 years
3 to 8 years
Trade and other receivables are recognised at cost and carried out at 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.
44
Report and Accounts 2011
Accounts
(d) 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.
(e) Employee benefits
i Defined contribution plans
Obligations for contributions to defined contribution retirement benefit plans are recognised as an expense in the income statement
as incurred.
ii Share-based payments
The Group operates share based payment arrangements with employees. The fair value of equity settled awards for share based
payments is determined at grant and exposed straight line over the period from grant to the date of earliest unconditional exercise.
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”) and Bonus Banking Plan (BBP) 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, BBP 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 release of shares under the SIP are subject to continuity of employment
provisions.
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.
(f) 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.
(g) Trade and other payables
Trade and other payables are stated at cost. Trade payables with a short useful life are not discounted.
(h) Borrowings
Bank overdrafts and interest bearing loans are initially measured at cost. Borrowings are not discounted.
(i) Reserves
The description and purpose of the Group’s reserves are as follows:
rpsgroup.com
45
Notes to the Consolidated Financial Statements continued
2. Other accounting policies continued
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 and 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.
(j) 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 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.
(k) Income tax
Income tax on the income for the periods presented comprises current and deferred tax. Income tax is recognised in the income
statement except to the extent that it relates to items recognised in other comprehensive income or equity, in which case it is
recognised in other comprehensive income or 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.
(l) Dividends
Dividends are recognised when they become legally payable. In the case of 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 Annual General Meeting.
(m) 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. Proceeds from the sale of ESOP shares in excess of the cost of those
shares is not credited to the share premium account.
(n) Accounting standards issued but not adopted
The IASB and the IFRIC have 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
Amendments to IFRS 1: severe hyperinflation and removal of
fixed dates for first time adopters.
n
n
IFRS 9 Financial instruments
IFRS 10 Consolidated financial statements
46
Report and Accounts 2011
Accounts
n
n
n
n
n
IFRS 11 Joint arrangements
IFRS 12 Disclosure of interests in other entities
IFRS 13 Fair value measurement
Amendments to IFRS 7 – Disclosures: offsetting financial assets
and financial liabilities
Amendments to IAS 1 Presentation of items of other
comprehensive income
n
n
n
n
n
Amendments to IAS 12 Deferred tax: Recovery of
underlying assets
Amendments to IAS 32 – Offsetting financial assets and
financial liabilities
IAS 19 Employee benefits (June 2011)
IAS 27 Separate financial statements (May 2011)
IAS 28 Investments in associates and joint ventures
(May 2011)
None of these standards has been endorsed by the EU.
The Group is still assessing the impact that these changes will have on its reporting.
3. Business and geographical segments
Segment information is presented in the financial statements in respect of the Group’s business segments, as reported to the Chief
Operating Decision Maker. 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 November 2011 the Group merged Planning and Development (UK and Ireland) and Environmental Management.
The business segments of the Group are as follows:
Built and Natural Environment (“BNE”) - consultancy services advising on all aspects of the built and natural environment including
the provision of energy infrastructure, planning and development, engineering, design and surveying, environmental assessment and
management and risk management. Consulting services are provided on a regional basis in Europe and Australia Asia Pacific (“AAP”).
Energy - the provision of integrated technical, commercial and project management support in the fields of geo-science, engineering
and health, safety and environment on a global basis to the energy sector.
Segment results for the year ended 31st December 2011
£000s
Built and Natural Environment:
Europe
AAP
Intra BNE eliminations
Total BNE
Energy
Group eliminations
Total
£000s
Built and Natural Environment:
Europe
AAP
Total BNE
Energy
Total
Fees
Recharged
expenses
Intersegment
revenue
External
revenue
178,215
90,992
(89)
269,118
186,117
(2,506)
452,729
24,548
15,451
–
39,999
36,619
(637)
75,981
(1,935)
(945)
89
(2,791)
(352)
3,143
–
Underlying
profit
Reorganisation
costs
Amortisation
of acquired
intangibles and
transaction
related costs
18,002
11,017
29,019
32,099
61,118
(1,572)
(103)
(1,675)
(77)
(1,752)
(1,365)
(4,769)
(6,134)
(4,227)
(10,361)
200,828
105,498
–
306,326
222,384
–
528,710
Segment
result
15,065
6,145
21,210
27,795
49,005
rpsgroup.com
47
Notes to the Consolidated Financial Statements continued
3. Business and geographical segments continued
Segment results for the year ended 31st December 2010
£000s
Built and Natural Environment:
Europe
AAP
Intra BNE eliminations
Total BNE
Energy
Group eliminations
Total
£000s
Built and Natural Environment:
Europe
AAP
Total BNE
Energy
Total
Group Reconciliation
£000s
Revenue
Recharged expenses
Fees
Underlying profit
Reorganisation costs (note 1(g))
Unallocated expenses
Operating profit before amortisation of acquired intangibles and transaction related costs (note 1(g))
Amortisation of acquired intangibles and transaction related costs (note 1(g))
Operating profit
Fees
Recharged
expenses
Intersegment
revenue
External
revenue
172,873
76,032
(76)
248,829
146,754
(2,321)
393,262
26,836
12,096
–
38,932
30,252
(616)
68,568
Underlying
profit
Reorganisation
costs
(1,902)
(951)
76
(2,777)
(160)
2,937
–
Amortisation
of acquired
intangibles and
transaction
related costs
20,156
12,826
32,982
25,263
58,245
86
(1,161)
(1,075)
(192)
(1,267)
(1,224)
(2,513)
(3,737)
(1,787)
(5,524)
197,807
87,177
–
284,984
176,846
–
461,830
Segment
result
19,018
9,152
28,170
23,284
51,454
Year ended
31 Dec
2011
Year ended
31 Dec
2010
528,710
(75,981)
452,729
61,118
(1,752)
(6,321)
53,045
(10,361)
42,684
461,830
(68,568)
393,262
58,245
(1,267)
(5,145)
51,833
(5,524)
46,309
(2,233)
(3,840)
40,451
42,469
Carrying amount of
segment assets
As at
31 Dec
2010
As at
31 Dec
2011
Segment depreciation
and amortisation
As at
31 Dec
2010
As at
31 Dec
2011
237,335
120,029
357,364
195,362
4,237
556,963
245,787
100,938
346,725
165,373
3,776
515,874
3,927
10,297
14,224
4,109
538
18,871
4,333
4,626
8,959
3,658
463
13,080
Finance costs
Profit before tax
£000s
Built and Natural Environment
Europe
Australia
Total BNE
Energy
Unallocated
Group total
48
Report and Accounts 2011
The table below shows revenue and fees to external customers based upon the country from which billing took place:
Accounts
Year ended
31 Dec
2011
Revenue
Year ended
31 Dec
2010
Year ended
31 Dec
2011
Fees
Year ended
31 Dec
2010
234,344
44,365
129,501
46,573
28,092
38,285
7,550
528,710
210,444
49,527
110,712
35,019
25,867
26,718
3,543
461,830
198,884
37,050
110,561
41,993
24,393
32,454
7,394
452,729
180,224
40,690
93,152
32,349
22,918
20,422
3,507
393,262
£000s
UK
Ireland
Australia
USA
Netherlands
Canada
Other
Total
£000s
UK
Ireland
Australia
USA
Netherlands
Canada
Other
Total
4. Amortisation of acquired intangibles and transaction related costs
£000s
Amortisation of acquired intangibles
Contingent deferred consideration treated as remuneration
Negative goodwill
Revaluation of investment in associate
Acquisition costs
Carrying amount of
non curent segment assets
As at
31 Dec
2010
As at
31 Dec
2011
170,190
48,942
86,967
30,618
17,322
5,097
87
359,223
161,033
50,310
91,389
12,325
17,943
10,122
53
343,175
Year ended
31 Dec
2011
Year ended
31 Dec
2010
10,839
9,256
(9,067)
(1,490)
823
10,361
5,524
–
–
–
–
5,524
rpsgroup.com
49
Notes to the Consolidated Financial Statements continued
5. Operating profit - by nature of expense
£000s
Revenue
Recharged expenses
Fee income
Staff costs
Depreciation of owned assets
Depreciation of assets held under finance leases
Amortisation
(Loss) / profit on disposal of fixed assets
Operating lease rentals payable - property
Operating lease rentals payable - equipment and motor vhicles
Other operating costs
Operating profit
6. Net financing costs
£000s
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
Year ended
31 Dec
2011
Year ended
31 Dec
2010
528,710
(75,981)
452,729
(216,206)
(7,281)
(751)
(10,839)
(40)
(12,258)
(4,312)
(158,358)
42,684
461,830
(68,568)
393,262
(194,430)
(6,635)
(921)
(5,524)
1,529
(10,465)
(3,955)
(126,552)
46,309
Year ended
31 Dec
2011
Year ended
31 Dec
2010
(1,710)
(190)
(641)
(2,541)
308
(2,233)
(3,079)
(241)
(705)
(4,025)
185
(3,840)
50
Report and Accounts 2011
7. Employee benefit expense
£000s
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:
Fee earning staff
Support staff
Accounts
Year ended
31 Dec
2011
Year ended
31 Dec
2010
186,943
16,927
9,905
2,431
216,206
3,799
887
4,686
168,477
15,343
8,983
1,627
194,430
3,551
821
4,372
In addition to statutory staff costs, contingent deferred consideration treated as remuneration amounts to £9,256,000 (2010: £nil).
The Group considers the Directors to be the key management personnel and details of directors’ remuneration are included in the
Remuneration Report from page 27. The share based payment charge in respect of key management personnel was £325,000
(2010: (£495,000)).
8. 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:
£000s
Principal auditors:
Audit services
Statutory audit of the Group's annual accounts
Statutory audit of the Group's subsidiaries
Other services
Network firms of principal auditors:
Audit services
Statutory audit of the Group's subsidiaries
Other services
Other auditors:
Audit services
Statutory audit
Other services
Year ended
31 Dec
2011
Year ended
31 Dec
2010
60
75
20
195
75
–
–
425
74
83
23
156
35
64
13
448
rpsgroup.com
51
Notes to the Consolidated Financial Statements continued
9. Income taxes
Analysis of tax expense in the income statement for the year:
£000s
Current tax:
UK corporation tax
Foreign tax
Deferred tax:
Origination and reversal of timing differences
Effect of change in tax rate
Tax expense for the year
Tax credit in equity for the year
Year ended
31 Dec
2011
Year ended
31 Dec
2010
4,679
8,524
13,203
(1,687)
(176)
(1,863)
5,706
5,092
10,798
20
(85)
(65)
11,340
10,733
(135)
(85)
The tax expense for the year can be reconciled to the profit as shown in the consolidated income statement as follows:
£000s
Profit before tax
Tax at the UK effective rate of 26.5% (2010: 28%)
Expenses not deductible for tax purposes
Revaluation of investment not taxable
Negative goodwill not taxable
Acquisition consideration treated as remuneration 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
Year ended
31 Dec
2011
Year ended
31 Dec
2010
40,451
10,720
627
(395)
(2,403)
2,453
1,123
(249)
(238)
(298)
11,340
42,469
11,891
259
–
–
–
659
(85)
(1,754)
(237)
10,733
The Group’s effective rate of tax reduced to 26.5% in 2011 as the UK rate of corporation tax reduced from 28% to 26% on
1 April 2011.
Tax Law Amendment (2010 Measures No. 1) Act 2010 was enacted in Australia during July 2010 and amends the tax treatment of
certain assets acquired in business combinations. The 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 2011 is reduced by £238,000 (2010: £1,754,000) in relation to the impact of this legislation.
The Budget announced by the Chancellor of the Exchequer on 23 March 2011 included changes to the main rates of tax for UK
companies. The main rate of corporation tax will reduce to 25% from 1 April 2012. The reduction to 25% is included in the Finance
(No.3) Bill 201-11. This change of rate became substantively enacted for the purposes of IAS12 - ‘Income Taxes’ on 5 July 2011 when
the bill received its third reading in the House of Commons. The group has remeasured its UK deferred tax assets and liabilities at the
end of the reporting period at 25%. This has resulted in recognition of a deferred tax credit of £176,000 in the income statement and
recognition of a deferred tax credit of £216,000 in equity.
The Chancellor has also announced his intention to reduce the rate of corporation tax by 1% per year to 23% by 1 April 2014. As
these changes have not been substantively enacted at 31 December 2011 they have not been recognised in the financial statements.
Had these changes been enacted, the cumulative effects would have been credits to the income statement of £91,000 (24%), or
£182,000 (23%), and credits to equity of £179,000 (24%) or £358,000 (23%).
52
Report and Accounts 2011
Accounts
10. 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:
£000s/000s
Profit attributable to ordinary shareholders
Weighted average number of ordinary shares for the purposes of basic earnings per share
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
2011
Year ended
31 Dec
2010
29,111
31,736
215,727
1,547
217,274
13.49
13.40
214,737
1,311
216,048
14.78
14.69
The directors consider that earnings per share before amortisation of acquired intangible and transaction related costs and the effect of
the change in Australian tax law 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, transaction related costs and the tax thereon and the change in Australian tax law as shown in the table below:
£000s
Profit attributable to ordinary shareholders
Amortisation of acquired intangibles and transaction related costs (note 4)
Tax on amortisation of acquired intangibles and transaction related costs
Change in Australian tax law (note 9)
Adjusted profit attributable to ordinary shareholders
Adjusted basic earnings per share (pence)
Adjusted diluted earnings per share (pence)
Year ended
31 Dec
2011
Year ended
31 Dec
2010
29,111
10,361
(3,256)
(238)
35,978
16.68
16.56
31,736
5,524
(1,598)
(1,754)
33,908
15.79
15.69
rpsgroup.com
53
Notes to the Consolidated Financial Statements continued
11. Intangible assets
£000s
Intellectual
property
rights
Customer
relationships
Order
backlog
Trade
names
Non
compete
agreements
Software
Goodwill
Total
Cost:
At 1 January 2011
Additions
Deferred consideration treated as remuneration
Reduction in deferred consideration payable
Adjustment to prior year estimates
Foreign exchange differences
At 31 December 2011
Aggregate amortisation and impairment losses:
At 1 January 2011
Amortisation
Foreign exchange differences
At 31 December 2011
Net book value at 31 December 2011
201
2,501
–
–
–
80
2,782
201
84
–
285
2,497
44,404
22,229
–
–
–
580
67,213
10,554
7,039
101
17,694
49,519
3,094
3,105
–
–
–
68
6,267
1,891
3,285
39
5,215
1,052
1,547
812
–
–
–
8
2,367
1,160
259
7
1,426
941
–
547
–
–
–
14
561
–
153
3
156
405
–
1,121
–
–
–
37
1,158
–
19
–
19
1,139
291,402
3,094
(7,439)
(334)
(162)
(781)
285,780
340,648
33,409
(7,439)
(334)
(162)
6
366,128
12,221
–
–
12,221
273,559
26,027
10,839
150
37,016
329,112
Intangible asset additions that are recorded in 2011 have been recognised at their provisional fair values (see note 28).
Acquisitions in 2010 were originally stated at provisional values. These fair values have now been finalised and no adjustments have
been made to the prior year balance sheet on grounds of immateriality in accordance with IAS 8.
Deferred consideration treated as remuneration
Where contingent deferred consideration is now treated as remuneration for acquisitions completed in 2010 there is a reduction in
goodwill brought forward of £7,439,000. This adjustment is not considered to be material and so the prior year balance sheet has not
been restated in accordance with IAS 8 (see note 28).
£000s
Cost:
At 1 January 2010
Additions
Reduction in deferred consideration
Adjustment to prior year estimates
Foreign exchange differences
At 31 December 2010
Aggregate amortisation and impairment losses:
At 1 January 2010
Amortisation
Foreign exchange differences
At 31 December 2010
Net book value at 31 December 2010
Intellectual
property
rights
Customer
relationships
Order
backlog
Trade
names
Goodwill
Total
201
–
–
–
–
201
201
–
–
201
–
35,390
5,662
–
–
–
44,404
5,610
4,431
513
10,554
33,850
1,872
1,103
–
–
–
3,094
988
895
8
1,891
1,203
1,383
50
–
–
–
1,547
915
198
47
1,160
387
275,032
7,854
(32)
(1,366)
1,887
291,402
313,878
14,669
(32)
(1,366)
1,887
340,648
12,221
–
–
12,221
279,181
19,935
5,524
568
26,027
314,621
54
Report and Accounts 2011
Goodwill
Goodwill acquired in a business combination is allocated at acquisition to the cash generating units that are expected to benefit from
that business combination. The Group reorganised its management structure during 2011 and has reflected this in new reportable
segments as disclosed in note 3. The Group has reviewed and represented the allocation of goodwill to CGUs as a result of this
reorganisation. The carrying amount of goodwill has been allocated as follows:
Accounts
£000s
Built and Natural Environment
UK and Ireland
Netherlands
Europe
Australia Asia Pacific
Energy
As at
31 Dec
2011
As at
31 Dec
2010
142,910
9,723
152,633
54,060
206,693
66,866
273,559
143,843
9,856
153,699
40,895
194,594
84,587
279,181
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 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 11% to 13%.
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 three 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 Europe business
announced on 3rd November 2011.
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.
Summary of results
During the year, all goodwill was tested for impairment with no impairment charge resulting (2010: £nil).
In the Directors’ view, the results are most sensitive to the discount rate used and 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.
rpsgroup.com
55
Notes to the Consolidated Financial Statements continued
12. Property, plant and equipment
£000s
Cost:
At 1 January 2011
Additions
Disposals
Additions through acquisition
Transfers
Foreign exchange differences
At 31 December 2011
Depreciation:
At 1 January 2011
Charge for the year
Disposals
Foreign exchange differences
At 31 December 2011
Net book value at 31 December 2011
Freehold
land and
buildings
Alterations
to leasehold
premises
Motor
vehicles
Fixtures,
fittings,
IT and
equipment
9,392
23
–
–
(140)
(204)
9,071
2,089
194
–
(41)
2,242
6,829
5,300
761
(218)
353
140
37
6,373
1,203
827
(213)
5
1,822
4,551
3,023
1,087
(429)
4
–
33
3,718
1,099
606
(271)
12
1,446
2,272
50,189
7,187
(2,673)
1,042
–
(74)
55,671
35,406
6,405
(2,447)
(111)
39,253
16,418
Total
67,904
9,058
(3,320)
1,399
–
(207)
74,833
39,797
8,032
(2,931)
(135)
44,763
30,070
At 31 December 2011 the Group held under finance lease contracts alterations to leasehold properties, motor vehicles and equipment
with net book values of £894,000, £435,000 and £812,000 respectively.
£000s
Cost:
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
Alterations
to leasehold
premises
Motor
vehicles
Fixtures,
fittings,
IT and
equipment
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
2,793
498
(617)
-
349
3,023
1,069
505
(536)
61
1,099
1,924
49,868
4,511
(5,983)
412
1,381
50,189
34,892
6,226
(5,894)
182
35,406
14,783
Total
67,365
6,913
(8,785)
422
1,989
67,904
39,139
7,556
(7,170)
272
39,797
28,107
At 31 December 2010 the Group held under finance lease contracts alterations to leasehold properties, motor vehicles and equipment
with net book values of £1,272,000, £819,000 and £1,537,000 respectively.
56
Report and Accounts 2011
13. 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 78.
Accounts
14. Trade and other receivables
£000s
Trade receivables
Provision for impairment of trade receivables
Trade receivables net
Accrued income
Provision for impairment of accrued income
Accrued income net
Prepayments
Other receivables
As at
31 Dec
2011
130,528
(8,228)
122,300
45,984
(6,496)
39,488
6,590
3,373
171,751
As at
31 Dec
2010
113,525
(6,580)
106,945
46,571
(5,996)
40,575
6,963
4,283
158,766
All amounts shown under trade and other receivables fall due within one year.
The carrying value of trade and other receivables is considered a reasonable approximation of fair value due to their short term nature
and the provisions for impairment recorded against them. The individually impaired balances mainly relate to items under discussion
with customers.
Certain trade receivables are past due but have not been impaired. These relate to customers where we have no history of default and
no concerns over their financial situation. The ages of financial assets past due but not impaired is as follows:
£000s
Not more than three months
More than three months
As at
31 Dec
2011
11,778
13,468
25,246
As at
31 Dec
2010
12,559
13,433
25,992
rpsgroup.com
57
Notes to the Consolidated Financial Statements continued
14. Trade and other receivables continued
Movements in impairment
£000s
As at 1 January 2011
Income statement charge
Receivables written off during the year as uncollectible
Additions through acquisitions
Foreign exchange
As at 31 December 2011
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
The carrying amounts of the Group’s trade and other receivables are denominated as follows:
£000s
UK Pound Sterling
Euro
US Dollar
Canadian Dollar
Australian Dollar
Other
Trade receivables Accrued income
Total
6,580
3,585
(2,477)
209
331
8,228
5,281
1,640
(773)
382
50
6,580
5,996
3,191
(2,662)
–
(29)
6,496
4,005
2,198
(1,598)
1,032
359
5,996
31 Dec
2011
59,521
28,256
31,336
14,892
35,607
2,139
171,751
12,576
6,776
(5,139)
209
302
14,724
9,286
3,838
(2,371)
1,414
409
12,576
31 Dec
2010
68,082
25,645
14,672
13,009
35,691
1,667
158,766
The maximum exposure to credit risk at the reporting date is the carrying amount of each class of receivable mentioned above.
15. Trade and other payables
£000s
Trade payables
Accruals
Creditors for taxation and social security
Deferred income
Other payables
As at
31 Dec
2011
31,371
37,402
14,223
21,041
5,459
109,496
As at
31 Dec
2010
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.
58
Report and Accounts 2011
16. Borrowings
£000s
Bank loans
Bank overdraft
Finance lease creditor
Accounts
As at
31 Dec
2011
45,705
1,531
2,277
49,513
As at
31 Dec
2010
41,816
–
3,654
45,470
£000s
The borrowings are repayable as follows:
On demand or in not more than one year
In the second year
In the third to fifth years inclusive
Less amount due for settlement within 12 months
Amount due for settlement after 12 months
as at 31 December 2011
as at 31 December 2010
Bank
loans and
overdraft
Finance lease
creditor
1,728
45,345
163
47,236
(1,728)
45,508
1,231
524
522
2,277
(1,231)
1,046
Bank
loans and
overdraft
Finance
lease
creditor
322
196
41,298
41,816
(322)
41,494
1,422
1,211
1,021
3,654
(1,422)
2,232
Total
2,959
45,869
685
49,513
(2,959)
46,554
Total
1,744
1,407
42,319
45,470
(1,744)
43,726
The principal features of the Group’s bank loans and overdrafts are as follows:
(i) An uncommitted £1,000,000 bank overdraft facility, repayable on demand.
(ii) An uncommitted Australian Dollar denominated overdraft facility of AUD 3,000,000 repayable on demand.
(iii) The Group has two principal bank loans:
(a) A revolving multi currency 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 £45,272,000 (2010: £41,064,000) at 31 December 2011.
The facility is guaranteed by the Company and certain subsidiaries but no security over the Group’s assets has been given.
(b) Australian Dollar denominated loans of AUD 660,000. The loans are guaranteed by interlocking guarantees between the acquired
company’s entities and fixed and floating charges over its assets.
(iv) Bonding facility utilisation of £4,725,000 (2010: £6,735,000) drawn against a £12,000,000 ancillary facility with Lloyds TSB Bank plc.
The carrying amounts of short and long term borrowings approximate their fair values.
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.
Loan liquidity risk profile
£000s
<1 year
1-2 years
>2 but <5 years
2011
856
45,783
79
46,719
2010
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 and foreign exchange rates remain constant at the rates existing at the year end.
The Group intends to renew or replace its main borrowing facility during 2012.
rpsgroup.com
59
Notes to the Consolidated Financial Statements continued
17. Obligations under finance leases
Amounts payable under finance leases:
£000s
Within one year
In two to five years
as at 31 December 2011
Present
value of
minimum
lease
payments
Less
future
interest
charges
(147)
(95)
(242)
1,231
1,046
2,277
Present
value of
Minimum
lease
payments
1,684
2,471
4,155
as at 31 December 2010
Present
value of
minimum
lease
payments
Less
future
interest
charges
(262)
(239)
(501)
1,422
2,232
3,654
Minimum
lease
payments
1,378
1,141
2,519
For the year ended 31 December 2011, the average effective borrowing rate was 9.0%. 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.
18. Deferred consideration
£000s
Amount due within one year
Amount due between one and two years
Amount due between two and five years
Total deferred consideration payable
Less amount due for settlement within 12 months
Amount due for settlement after 12 months
As at
31 Dec
2011
10,327
–
–
10,327
(10,327)
–
As at
31 Dec
2010
9,873
7,530
1,131
18,534
(9,873)
8,661
The amount due as at 31 December 2011 includes contingent deferred consideration remuneration expense accrued but not paid
totalling £5,697,000 (31 December 2010: £nil).
60
Report and Accounts 2011
Accounts
19. Provisions
Property
The provision for property costs relates to onerous operating lease rentals and related costs on vacated property and will be utilised
within 14 years.
Warranty
This provision is in respect of contractual obligations and will be utilised within two years.
Dilapidations
The dilapidations provision is in respect of reinstatement obligations related to leasehold properties and will be utilised within 14 years.
£000s
Property
Warranty
Dilapidations
Total
As at 1 January 2011
Additional provision in the year
Utilised in year
Arising on acquisition of subsidiary
Exchange difference
At 31 December 2011
£000s
Due as follows:
Within one year
After more than one year
2,063
–
(597)
–
(13)
1,453
631
2,056
(30)
–
(8)
2,649
2,251
374
(147)
6
1
2,485
As at
31 Dec
2011
3,903
2,684
6,587
4,945
2,430
(774)
6
(20)
6,587
As at
31 Dec
2010
1,768
3,177
4,945
The carrying value of the provisions disclosed above is a reasonable approximation of their fair value.
20. Deferred taxation
The movement for the year in the Group’s net deferred tax position was as follows:
£000s
2011
2010
Net deferred tax asset / (liability) at 1 January
Credit / (charge) to income for the year
Credit to equity for the year
Effect of change in tax rate
Liability acquired on acquisition of subsidiary
Fair value adjustments to prior year acquisitions
Exchange differences
Net deferred tax asset / (liability) at 31 December
(11,291)
1,687
117
176
(2,435)
75
77
(11,594)
(9,791)
(20)
62
85
(1,747)
1,061
(941)
(11,291)
rpsgroup.com
61
Notes to the Consolidated Financial Statements continued
20. Deferred taxation continued
Deferred tax assets
£000s
At 1 January 2010
(Charge) / credit to income for the year
Charge to equity for the year
Effect of change in tax rate
Asset / (liability) acquired on acquisition of subsidiary
Exchange differences
At 1 January 2011
Reclassification to deferred tax liabilities
(Charge) / credit 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 2011
Deferred tax liabilities
£000s
At 1 January 2010
(Charge) / credit to income for the year
Charge to equity for the year
Effect of change in tax rate
Liablility acquired on acquisition of subsidiary
Fair value adjustments to prior year acquisitions
Exchange differences
At 1 January 2011
Reclassification from deferred tax assets
(Charge) / credit to income for the year
Credit to equity for the year
Effect of change in tax rate
Asset / (liability) acquired on acquisition of subsidiary
Fair value adjustments to prior year acquisitions
Exchange differences
At 31 December 2011
Depreciation
in excess of
capital
allowances
Employment
benefits
Share based
payments
830
(195)
–
(40)
(2)
(9)
584
(584)
–
–
–
–
–
–
–
1622
262
–
(9)
250
283
2,408
–
(27)
–
(17)
292
89
55
2,800
470
(399)
(3)
3
–
–
71
–
121
(103)
1
–
–
(2)
88
Intangible
Foreign assets and tax
deductible
goodwill
exchange on
investments
Capital
allowances
in excess of
depreciation
Provisions
and other
timing
differences
(885)
279
–
22
–
–
–
(584)
–
56
–
–
–
–
–
(528)
(10,332)
795
65
140
(1,977)
–
(746)
(12,055)
–
2,265
220
330
(2,876)
–
(5)
(12,121)
–
–
–
–
–
–
–
–
584
(1,297)
–
(76)
(54)
(14)
(26)
(883)
(1,496)
(762)
–
(31)
(18)
1,061
(469)
(1,715)
–
569
–
(62)
203
–
55
(950)
Total
2,922
(332)
(3)
(46)
248
274
3,063
(584)
94
(103)
(16)
292
89
53
2,888
Total
(12,713)
312
65
131
(1,995)
1,061
(1,215)
(14,354)
584
1,593
220
192
(2,727)
(14)
24
(14,482)
62
Report and Accounts 2011
21. Share capital
Ordinary shares of 3p each
240,000,000
7,200
240,000,000
7,200
as at 31 December 2011
Authorised
£000s
Authorised
Number
as at 31 December 2010
Authorised
£000s
Authorised
Number
Accounts
Ordinary shares of 3p each
At 1 January
Issued under share option 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
At 31 December
Number
Ordinary shares held by the ESOP Trust
Ordinary shares held by the SIP Trust
as at 31 December 2011
Issued and fully paid
as at 31 December 2010
Issued and fully paid
Number
£000s
Number
£000s
217,218,591
136,670
523,766
259,246
–
–
218,138,273
6,516
4
16
8
–
–
6,544
215,247,277
185,303
745,667
378,202
347,987
314,155
217,218,591
As at
31 Dec
2011
6,457
6
22
12
10
9
6,516
As at
31 Dec
2010
1,982,771
3,339,807
1,582,690
3,085,882
The ESOP Trust has elected to waive any dividend on the unallocated ordinary shares held.
The table below shows options outstanding at 31 December 2011:
Period exercisable
2005 - 2012
2006 - 2013
2007 - 2014
2008 - 2015
2011 - 2018
2013 - 2020
2014 - 2021
Number
Exercise price (p)
69,536
136,651
39,567
193,685
205,000
215,000
205,000
1,064,439
125 - 149
111 - 171
149
111 - 147
295
195
212
rpsgroup.com
63
Notes to the Consolidated Financial Statements continued
22. Other reserves
£000s
At 1 January 2010
Changes in equity during 2010:
Exchange differences
Issue of new shares
At 31 December 2010
Changes in equity during 2011:
Exchange differences
Issue of new shares
Purchase of own shares
At 31 December 2011
23. Dividends
£000s
Merger
reserve
Employee
trust
Translation
reserve
20,687
(4,419)
23,251
–
569
21,256
–
–
–
21,256
–
(1,485)
(5,904)
–
(1,115)
(356)
(7,375)
Total
39,519
6,978
(916)
45,581
(811)
(1,115)
(356)
43,299
Year
ended
31 Dec
2010
4,722
4,988
9,710
5,461
6,978
–
30,229
(811)
–
–
29,418
Year
ended
31 Dec
2011
5,460
5,773
11,233
6,319
Amounts recognised as distributions to equity holders during the year:
Final dividend for the year ended 31 December 2010 of 2.52p (2009: 2.19p) per share
Interim dividend for the year ended 31 December 2011 of 2.66p (2010: 2.31p) per share
Proposed final dividend for the year ended 31 December 2011 of 2.90p (2010: 2.52p) per share
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.
24. Operating lease arrangements
At 31 December 2011 the Group’s total remaining commitments as lessee under non-cancellable operating leases were as follows:
Commitments
£000s
Within one year
In two to five years
After five years
as at 31 December 2011
Other
Property
as at 31 December 2010
Other
Property
11,178
26,067
10,742
47,987
2,929
4,322
–
7,251
10,731
25,467
15,675
51,873
2,857
3,720
–
6,577
64
Report and Accounts 2011
25. Related party transactions
Related parties, following the definitions within IAS 24, are the subsidiary companies and members of the Board and their families.
Transactions between the Company and its subsidiaries have been eliminated on consolidation and are not disclosed in this note.
There were no transactions within the year in which the Directors had any interest. The Remuneration Report contains details of
Board emoluments.
Accounts
26. Notes to the Consolidated Cash Flow Statement
£000s
Operating profit
Adjustments for:
Depreciation
Amortisation of acquired intangibles
Negative goodwill
Contingent consideration treated as remuneration
Share based payment expense
Loss / (profit) on sale of property, plant and equipment
Share of profit of associates
Revaluation of investment in associate
Increase in trade and other receivables
Increase in trade and other payables
Cash generated from operations
Year ended
31 Dec
2011
Year ended
31 Dec
2010
42,684
46,309
8,032
10,839
(9,067)
9,256
2,431
27
(24)
(1,490)
62,688
(3,924)
12,289
71,053
7,556
5,524
–
–
1,626
(1,579)
(335)
–
59,101
(7,981)
6,754
57,874
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 2011.
£000s
Cash and cash equivalents
Bank loans
Finance lease creditor
At
31 Dec 2010
13,933
(41,816)
(3,654)
(31,537)
Cash flow
Acquisitions
Foreign
Exchange
At
31 Dec 2011
10,884
(2,222)
1,410
10,072
–
(1,239)
–
(1,239)
(359)
(428)
(32)
(819)
24,458
(45,705)
(2,276)
(23,523)
The cash balance includes £3,304,000 (2010: £1,079,000) that is restricted in its use.
27. Major non-cash transactions
Major non cash transactions during the year are as follows:
£000s
Depreciation
Amortisation of acquired intangibles
Negative goodwill
Share based payment expense
Share of profit of associates
Revaluation of investment in associate
Year ended
31 Dec
2011
Year ended
31 Dec
2010
8,032
10,839
(9,067)
2,431
(24)
(1,490)
10,721
7,556
5,524
–
1,626
(335)
–
14,371
rpsgroup.com
65
Notes to the Consolidated Financial Statements continued
28. Acquisitions
The Group has completed the following acquisitions to strengthen and broaden the skill base of the Group during 2011:
Entity acquired
Evans Hamilton Inc
Nautilus Group
Terranean Mapping Technology Pty
Espey Consultants Inc
Applied Science Associates Inc
Date of
acquisition
Place of
Percentage of
incorporation entity acquired
Nature of business acquired
17 Feb
1 Mar
31 Mar
12 Oct
27 Oct
USA
UK/USA
Australia
USA
USA
100%
100%
50%
100%
100%
Oceanographic consultancy
Training
Surveying
Water consultancy
Oceanographic consultancy
The Group has allocated provisional fair values to the net assets of its acquisitions as it did not have complete information at the date
of approval of these accounts. Details of the carrying values of the acquired net assets, the provisional fair values assigned to them by
the Group and the fair value of consideration are as follows:
£000’s
Intangible assets:
Order book
Customer relationships
Intellectual property
Trade names
Non compete agreements
Software
PPE
Cash
Other assets
Borrowings
Other liabilities
Net assets acquired
Positive goodwill
Negative goodwill
Consideration treated as capital
Satisfied by:
Fair value of original investment
Initial cash consideration
Deferred consideration
Consideration treated as capital
Contingent deferred consideration treated as remuneration
Total consideration
EHI
TMT
Nautilus
Espey
ASA
Total
287
2,618
–
–
–
–
448
473
1,015
(1,168)
(2,263)
1,410
1,462
–
2,872
–
2,872
–
2,872
2,530
5,402
129
832
303
–
–
–
175
239
479
(42)
(916)
1,199
1,632
–
2,831
1,699
1,132
–
2,831
567
3,398
2,163
15,954
–
704
547
–
82
2,640
3,919
–
(10,322)
15,687
–
(5,137)
10,550
–
10,550
–
10,550
8,061
18,611
165
1,268
–
108
–
–
135
103
1,907
(29)
(984)
2,673
–
(391)
2,282
–
2,282
–
2,282
1,501
3,783
361
1,557
2,198
–
–
1,121
559
494
3,520
–
(2,468)
7,342
–
(3,139)
4,203
–
4,203
–
4,203
4,203
8,406
3,105
22,229
2,501
812
547
1,121
1,399
3,949
10,840
(1,239)
(16,953)
28,311
3,094
(8,667)
22,738
1,699
21,039
–
22,738
16,862
39,600
Positive goodwill arising of £3,094,000 represents the value of the accumulated workforce associated with these acquisitions. There is
tax deductible goodwill of £3,467,000.
The total fair value of receivables acquired was £8,570,000. The gross contractual receivables acquired were £8,736,000 and £166,000
was estimated unreceivable.
The vendors of the acquired companies have entered into warranty arrangements with the Group. The total undiscounted cash flow
that could be receivable by the Group is between £nil and £8,570,000. The Group does not expect that these warranties will become
receivable and therefore has not recognised an indemnification asset on acquisition.
The Group previously held a 50% investment in TMT and has acquired the remaining 50% in 2011. The gain recognised on the
revaluation to fair value of RPS’s original 50% holding in Terranean Mapping was £1,490,000. This is included within “amortisation of
acquired intangibles and transaction related costs”.
The Group incurred acquisition related costs of £823,000, which have been expensed through the consolidated income statement and
included within “amortisation of acquired intangibles and transaction related expenses” In 2010, acquisition costs of £324,000 were
incurred and included within “reorganisation costs”.
66
Report and Accounts 2011
The contribution of the acquisitions to the Group’s results for the year is given below:
£000’s
EHI
Nautilus
TMT
Espey
ASA
Accounts
Revenue
Operating profit
3,628
12,645
2,513
1,221
1,142
21,149
(62)
531
277
60
98
904
The proforma Group revenue and operating profit assuming all acquisitions were completed on the first day of the year would have
been £542,193,000 and £38,289,000 respectively.
IFRS 3 (2008) “Business Combinations” became applicable to the Group with effect from 1st January 2010. The Group reviewed the
requirements of this standard and determined that deferred consideration could continue to be treated as consideration for the
acquisition and therefore capitalised. In 2011 the Group’s new auditors, who interpret this standard differently, advised the Group that
the deferred consideration that was contingent on continuing employment should be recognised as a remuneration charge through the
Consolidated Income Statement rather than be capitalised.
This revised treatment of deferred consideration impacts the Group accounts in the following ways:
1.
2.
3.
In respect of 2010 acquisitions the Group has derecognised the deferred consideration payable that was previously shown in the
balance sheet on the date of acquisition of subsidiaries. The value of goodwill has been reduced by a corresponding amount since
deferred consideration is no longer considered part of the cost of investment;
For those acquisitions in 2010 and 2011 where the fair value of the net assets acquired is greater than the consideration
transferred, the Group has recognised negative goodwill through the consolidated income statement; and
A remuneration charge has been recognised through the consolidated income statement and a corresponding accrual has been
recognised in the balance sheet under “deferred consideration”.
The Group has calculated the impact of this revised treatment on the 2010 accounts and has determined that it is not material as omitting
that information from the comparative results in the Report and Accounts for 2011 would not influence the decisions that users make
about the Group. Therefore the 2010 accounts have not been restated and the impact has been included in the 2011 accounts.
A reconciliation of goodwill in respect of acquisitions in 2010 and 2011 is given in the table below.
£000’s
Goodwill at 1 January 2011
Additions through acquisition
Adjustments to opening balance sheet
Reclassification of deferred consideration
Foreign exchange gains and losses
Goodwill at 31 December 2011
HIB
Aquaterra
Boyd
EHI
379
–
3
(169)
–
213
4,409
–
(295)
(3,550)
(408)
156
3,720
–
–
(3,720)
–
–
–
1,462
–
–
47
1,509
TMT
–
1,632
–
–
37
1,669
There were no accumulated impairment losses at the beginning or the end of the period.
The total reduction to goodwill as a result of the reclassification of deferred consideration in respect of the 2010 acquisitions, HIB, Boyd
and Aquaterra is £7,439,000 (note 11).
The negative goodwill recognised on 2011 acquisitions was £8,667,000 and together with the negative goodwill recognised on Boyd of
£400,000 the total credit to the Consolidated Income Statement in respect of negative goodwill in 2011 was £9,067,000.
rpsgroup.com
67
Notes to the Consolidated Financial Statements continued
29. Financial Risk Management
(a) Capital management
The capital of the Group consists of debt, which includes the borrowings and facilities disclosed in note 16, cash and cash equivalents
and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in notes
21 and 22. The Group manages its capital to support its strategy, and there were no changes in approach to capital management
during the year.
The borrowings are managed centrally and funds are onward lent to operating subsidiaries as required. The main borrowing facility
of the Group is a £125 million multi currency revolving credit facility that provides a high degree of flexibility. There are two financial
covenants related to this facility, interest cover (being group profit before interest and tax as a percentage of interest paid and payable)
must be no less than 400% and the ratio of group net borrowings to EBITDA of the Group should be no greater than 325%. These
covenants are tested regularly and were not breached during the year and have not been since.
The Group’s businesses provide a good level of cash generation which helps fund future growth. The Group seeks to minimise
borrowings by utilising cash generated by operations that is surplus to the immediate operating needs of the business and an objective
is to maintain a minimum level of cash at bank. At the year end the balance is higher than the average month end balance during the
year due to good cash collections toward the end of December.
(b) Financial instruments
The Group’s financial assets comprise cash and trade and other receivables. The Group’s financial liabilities comprise bank loans,
deferred consideration and trade and other payables. It is, and has been throughout the period under review, the Group’s policy that
no trading in financial instruments shall be undertaken.
Fair values
The fair value of the financial assets and liabilities of the Group are considered to be materially equivalent to their book value. The
classification of financial instruments is shown in the table below.
£000s
Cash
Trade and other receivables
Financial assets
Borrowings
Deferred consideration
Trade and other payables
Financial liabilities
As at
31 Dec
2011
25,989
171,751
197,740
49,513
10,327
111,161
171,001
As at
31 Dec
2010
13,933
158,766
172,699
45,470
18,534
88,023
152,027
Interest rate and currency risk are the most significant aspects for the Group in the area of financial instruments. It is exposed to a
lesser extent to liquidity risk that is reviewed in note 16. The Board reviews and agrees policies for managing each of these risks and
they are summarised below.
(c) Interest rate risk
The Group draws down term loans, typically between one and three months, against its revolving credit facility in US Dollars, GB
Pounds, Australian Dollars, Canadian Dollars and Euro at fixed rates of interest for the term of the loan. The Group has not entered
any contracts to fix interest rates beyond the period of the term loans but will consider doing so if borrowings becomes significantly
larger and longer term. 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.
68
Report and Accounts 2011
(c) Interest rate risk continued
Interest rate risk and profile of financial liabilities
The interest rate risk profile of the Group’s financial liabilities at 31 December was as follows:
£000s
Sterling
Euro
Australian Dollar
Canadian Dollar
US Dollar
Other
At 31 December
Floating rate
2010
2011
2011
Fixed rate
2010
Non interest bearing
2010
2011
–
–
3,902
–
–
–
3,902
–
–
7,560
–
–
–
7,560
4,778
–
5,951
514
44,695
–
55,938
17,219
249
12,129
4,452
22,395
–
56,444
40,941
21,558
17,157
17,401
13,575
529
111,161
37,502
21,319
15,559
7,897
5,080
666
88,023
The maturity profile of financial liabilities at 31 December was as follows:
£000s
Within one year
In one to two years
In two to five years
Floating rate
2010
2011
2011
Fixed rate
2010
Non interest bearing
2010
2011
3,902
–
–
3,902
3,837
3,723
–
7,560
9,383
45,948
607
55,938
7,780
5,214
43,450
56,444
109,497
1,590
74
111,161
86,971
1,052
–
88,023
The weighted average interest rate and term for interest bearing financial liabilities is shown below:
Accounts
2011
45,719
21,558
27,010
17,915
58,270
529
171,001
2011
122,782
47,538
681
171,001
Total
2010
54,721
21,568
35,248
12,349
27,475
666
152,027
Total
2010
98,588
9,989
43,450
152,027
Sterling
Euro
Australian Dollar
Canadian Dollar
US Dollar
Fixed and floating rate
financial liabilities
Weighted average interest rate %
2010
2011
Fixed rate
financial liabilities
Weighted average period for
which rate is fixed – months
2010
2011
2.4
–
7.1
1.0
1.3
2.3
2.0
3.6
6.4
1.1
1.4
3.1
2
–
9
8
2
3
1
11
17
18
1
6
rpsgroup.com
69
Notes to the Consolidated Financial Statements continued
29. Financial Risk Management continued
Cash balances at year end
£000s
Sterling
Euro
US Dollar
Australian Dollar
Canadian Dollar
Mongolian Tugrik
Other
At 31 December
As at
31 Dec
2011
3,042
1,249
6,300
3,990
8,864
1,567
927
25,989
As at
31 Dec
2010
3,571
1,409
2,322
3,718
1,672
379
862
13,933
Cash balances are held in either non-interest bearing current accounts or instant access deposit accounts bearing floating rate interest.
There are no interest bearing trade and other receivables.
Borrowing facilities
The Group’s undrawn borrowing facilities comprise revolving credit facilities that expire in 2013 where interest costs are fixed at the
time drawings are made. During 2011, the Group had an overdraft facility expiring within one year, carrying floating rate interest.
The Group has the following undrawn committed borrowing facilities available in respect of which all conditions precedent had
been met.
£000s
Expiring in more than one year but not more than 2 years
Expiring in more than 2 years but not more than 5 years
Interest rate sensitivity
As at
31 Dec
2011
79,728
–
As at
31 Dec
2010
83,936
A 1.0% decrease in interest rates would increase Group profit before tax by £365,000. A further 1.0% increase in interest rates would
decrease Group profit before tax by £365,000.
(d) Foreign currency risk
The Group, which is based in the UK and reports in sterling, has significant investments in overseas operations in the Netherlands,
Ireland, USA, Canada and Australia that have functional currencies other than sterling. As a result the Group’s balance sheet and
income statement can be affected by movement in the exchange rate between sterling and the functional currencies of overseas
operations. The most important exchange rates as far as the Group is concerned is the GB Pound to 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.
A number of the Group’s operations transact in currencies other than their functional currency. This creates a foreign currency exposure
that is monitored and hedged centrally.
Foreign currency sensitivity
Since the Group hedges its transactional foreign currency, the sensitivity of the results to transactional foreign currency risk is
not material.
(e) Credit Risk
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. The Group’s exposure to credit risk is limited to the carrying amount of financial
assets recognised at the balance sheet date. The directors consider the Group’s financial assets that are not impaired to be of good
70
Report and Accounts 2011
credit quality including those that are past due. See note 14 for further detail on receivables that are past due. The group’s financial
assets are not secured by collateral advanced by counterparties. In respect of trade and other receivables, the group is not exposed
to any significant credit risk exposure to any single counterparty or any group of counterparties with similar characteristics. The credit
risk for cash and cash equivalents is considered negligible, since the counterparties are reputable banks with high quality external
credit ratings.
Accounts
30. Share-based payments
Share scheme costs
£000s
Share Incentive Plan (“SIP”)
Performance Share Plan (“PSP”)
Long Term Incentive Plan
Share Option Plan
Bonus Plan
The following tables set out details of material share schemes activity:
Year ended
31 Dec
2011
Year ended
31 Dec
2010
1,126
866
–
118
321
2,431
1,064
909
(653)
144
163
1,627
PSP
Year of grant
2006
2007
2008
2009
2010
2011
Year of grant
2005
2006
2007
2008
2009
2010
Number
outstanding
31 Dec 2010
4,296
54,098
58,796
1,288,603
38,453
–
1,444,246
Number
outstanding
31 Dec 2009
–
12,044
430,191
100,901
1,494,634
–
2,037,770
New grants
Grants
replaced
Releases
Lapses
Number
outstanding
31 Dec 2011
Vesting
conditions
–
–
–
–
–
485,118
485,118
New grants
–
–
–
–
–
38,453
38,453
–
–
–
–
–
–
–
(2,148)
(48,969)
(56,285)
(148,149)
–
(3,695)
(259,246)
–
–
(2,511)
(113,795)
(7,329)
(30,651)
(154,286)
2,148
5,129
–
3 years
3 years
2 or 3 years
1,026,659 1, 2 or 3 years
3 years
3 years
31,124
450,772
1,515,832
Grants
replaced
9,443
–
–
–
–
–
9,443
Releases
Lapses
(9,443)
(7,748)
(336,467)
(9,048)
(15,496)
–
(378,202)
–
–
(39,626)
(33,057)
(190,535)
–
(263,218)
Number
outstanding
31 Dec 2010
Vesting
conditions
3 years
–
3 years
4,296
54,098
2 or 3 years
58,796 1, 2 or 3 years
3 years
3 years
1,288,603
38,453
1,444,246
rpsgroup.com
71
Notes to the Consolidated Financial Statements continued
30. Share-based payments continued
SIP
Year of grant
2008
2009
2010
2011
Year of grant
2006
2007
2008
2009
2010
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
New grants
Releases
Forfeits
–
–
–
566,108
566,108
(462,262)
(33,069)
(29,517)
(10,880)
(535,728)
(26,900)
(34,144)
(36,078)
(14,069)
(111,191)
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)
Number
outstanding
31 Dec 2011
(3,060)
463,338
543,057
541,159
1,544,494
Number
outstanding
31 Dec 2010
–
–
486,102
530,551
608,652
1,625,305
Vesting
conditions
3 years
3 years
3 years
3 years
Vesting
conditions
3 years
3 years
3 years
3 years
3 years
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 that participants are not entitled to receive dividends over the performance
period.
Fair value at measurement date
Weighted fair value
Holding period
Expected dividend yield
PSP awards
130.01p - 202.58p
164.42p
3 years
1.83% - 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 as participants are entitled to receive dividends over the three year holding period.
Fair value at measurement date
Weighted fair value
Holding period
SIP awards
129.50p - 255.71p
196.56p
3 years
The Group assumed a 5% annual lapse rated as at the date of grant for the above schemes and all non-market based performance
conditions would be satisfied in full (see accounting policy 2(e)ii).
72
Report and Accounts 2011
31. Events after the balance sheet date
Since the year end the Group has exchanged contracts to dispose of that part of Built and Natural Environment Europe, which
provides facilities management support to clients in Ireland. The consideration for the goodwill and contracts is €1,500,000. Certain
other assets of the business will be sold at net book value whilst trade receivables will be retained and certain liabilities will be assumed
by the acquirer. All staff engaged directly in this business are expected to transfer to the acquirer. Subject to a TUPE process, this
disposal will complete in late March.
Accounts
32. Commitments and contingencies
The Group has completed a number of acquisitions since 1st January 2010 where deferred consideration payments to vendors are
contingent on the vendors’ continued employment with the Group and so are recognised as employment costs over the deferred
consideration period. The Group consider it probable that these deferred consideration payments will be paid.
The total cash commitments in respect of contingent deferred consideration treated as remuneration that the Group expects to settle
and the estimated remuneration charge for each financial year assuming exchange rates remain constant are disclosed in the table below:
£000s
2012
2013
2014
Cash
commitment
Remuneration
charge
10,341
7,760
3,563
21,664
8,879
5,962
1,126
15,967
The balance sheet at 31st December 2011 includes, within deferred consideration amount due within one year, contingent deferred
consideration remuneration expense accrued but not paid totalling £5,697,000.
rpsgroup.com
73
Parent Company Balance Sheet
£000s
Fixed assets:
Intangible assets
Tangible assets
Investments
Current assets:
Debtors:
Amounts due from subsidiary undertakings
Other debtors
Prepayments and accrued income
Cash at bank and in hand
Current liabilities:
Creditors: amounts falling due within one year:
Trade creditors
Amounts due to subsidiary undertakings
Other creditors
Accruals and deferred income
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
Merger reserve
Revaluation reserve
Employee trust shares
Notes
3
4
5
As at
31 Dec
2011
712
2,437
234,259
237,408
44,602
544
1,152
46,298
371
46,669
363
13,247
377
1,714
15,701
30,968
As at
31 Dec
2010
778
1,241
234,259
236,278
45,400
833
1,892
48,125
273
48,398
1,154
23,094
349
1,389
25,986
22,412
268,376
258,690
6
7
45,272
154
41,064
75
222,950
217,551
9,10
10
10
10
10
10
6,544
103,717
98,776
21,256
32
(7,375)
222,950
6,516
101,941
93,710
21,256
32
(5,904)
217,551
These financial statements were approved and authorised for issue by the Board on 7 March 2012.
The notes on pages 75 to 81 form part of these financial statements.
Dr Alan Hearne, Director
Gary Young, Director
On behalf of the Board of RPS Group Plc.
74
Report and Accounts 2011
Accounts
Notes to the Parent Company Financial Statements
1. Accounting policies
The financial statements have been prepared under the historical cost convention as modified by the revaluation of certain assets and
are in accordance with applicable UK accounting standards. The following principal accounting policies have been applied:
Goodwill
Goodwill arising on the acquisition of businesses, representing any excess of the fair value of the consideration given over the fair value
of the identifiable assets and liabilities acquired, is capitalised. Purchased goodwill is 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 as follows:
Freehold buildings
Alterations to leasehold premises
Motor vehicles
Fixtures, fittings, IT and equipment
50 years
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.
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. Where the Company will be issuing shares to satisfy share awards made by its subsidiaries, the Company makes a change to its
subsidiaries equal to the fair value of the share-based payment incurred.
rpsgroup.com
75
Notes to the Parent Company Financial Statements continued
1. Accounting policies continued
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.
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 financial assets that 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.
Amounts held at amortised cost
Trade creditors and other payables including bank loans are financial liabilities that are recognised at fair value on inception and are
subsequently carried at amortised cost.
76
Report and Accounts 2011
Accounts
2. Profit attributable to shareholders
No profit and loss account is disclosed by the Parent Company as allowed by Section 408 of the Companies Act 2006.
£000s
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 (2010: £33,000).
Year
ended
31 Dec
2011
Year
ended
31 Dec
2010
14,377
17,890
3. Intangible Assets
£000s
Cost
At 1 January 2011 and at 31 December 2011
Amortisation
At 1 January 2011
Charge for the year
At 31 December 2011
Net book value at 31 December 2011
Net book value at 31 December 2010
4. Tangible Assets
£000s
Cost or valuation
At 1 January 2011
Additions
At 31 December 2011
Depreciation
At 1 January 2011
Provided for the year
At 31 December 2011
Net book value at 31 December 2011
Net book value at 31 December 2010
Goodwill
2,134
1,356
66
1,422
712
778
Total
4,871
1,734
6,605
3,630
538
4,168
2,437
1,241
Freehold
land and
buildings
Alterations
to leasehold
premises
Fixtures,
fittings,
IT and
equipment
432
–
432
176
9
185
247
256
12
722
734
12
67
79
655
–
4,427
1,012
5,439
3,442
462
3,904
1,535
985
rpsgroup.com
77
Notes to the Parent Company Financial Statements continued
5. Investments
£000s
Subsidiary undertakings
Cost
At 1 January
Additions
At 31 December
Provisions
At 1 January and 31 December
Net book value at 31 December
2011
2010
235,097
–
235,097
838
234,259
192,970
42,127
235,097
838
234,259
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.
Subsidiary undertakings
The majority of our trading subsidiaries provide consulting services, although we also provide training and laboratory testing.
The following were the principal operating subsidiaries during the year. Shares are held directly by RPS Group Plc except where marked
by an asterisk where they are held by a subsidiary undertaking.
Proportion of
registration and operation ordinary share capital held
Country of
The Environmental Consultancy Limited
RPS Environmental Management Limited (formerly RPS Consultants (UK) Limited)
RPS Energy Limited
RPS Health in Business Limited
Nautilus Limited
RPS Energy Consultants Limited
RPS Ireland Limited
RPS bv
RPS Advies-en ingenieursbureau bv
RPS Analyse bv
RPS Detachering bv
RPS Group Limited
RPS Engineering Services Limited
RPS Planning & Environment Limited
RPS Consulting Engineers Limited
RPS Consultants Pty Limited
RPS Environment Pty Limited
MetOcean Engineers Pty Limited
RPS Australia East Pty Limited
Aquaterra Consulting Pty Limited
Cambrian Consultants America Inc
RPS JD Consulting Inc
Nautilus World Limited
Evans Hamilton Inc
Espey Consultants Inc
Applied Science Associates Inc
RPS Energy Canada Limited
Geoprojects Canada Limited
Boyd Exploration Consultants Limited
England
England
England
England
England
England
Northern Ireland
Netherlands
Netherlands
Netherlands
Netherlands
Ireland
Ireland
Ireland
Ireland
Australia
Australia
Australia
Australia
Australia
USA
USA
USA
USA
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% *
100% *
78
Report and Accounts 2011
6. Creditors: amounts falling due after more than one year
£000s
Bank loans
Due as follows:
After one year and within two years
After two years and within five years
7. Provision for liabilities
£000s
As at 1 January 2011
Additional provision in the year
As at 31 December 2011
£000s
This provision is expected to be utilised as follows:
Within one year
After more than one year
Accounts
31 Dec
2011
31 Dec
2010
45,272
41,064
45,272
–
45,272
–
41,064
41,064
Dilapidations
75
79
154
As at
31 Dec
2010
16
59
75
As at
31 Dec
2011
100
54
154
The provision booked during the year relates to dilapidations which have been identified on several buildings leased by the Company.
8. Deferred taxation
The movement on deferred taxation in the year was as follows:
£000s
Net asset at beginning of year
Charge to income for the year
Net asset at year end
The deferred taxation balances comprise:
£000s
Short term timing differences
Depreciation in excess of capital allowances
Deferred tax asset
As at
31 Dec
2011
460
(193)
267
As at
31 Dec
2011
136
131
267
As at
31 Dec
2010
713
(253)
460
As at
31 Dec
2010
222
238
460
rpsgroup.com
79
Notes to the Parent Company Financial Statements continued
9. Share capital
Ordinary shares of 3p each
At 1 January 2011
At 31 December 2011
Number
Authorised
Value
£000s
Allotted and fully paid
Value
£000s
Number
240,000,000
240,000,000
7,200
7,200
217,218,591
218,138,273
6,516
6,544
Full details of the share capital of the Company are disclosed in Note 21 to the Consolidated Financial Statements.
10. Reconciliation of movements in shareholders’ funds
Share
capital
Share Merger Revaluation
reserve
reserve
premium
trust Profit and
shares loss reserve
Total
Employee
6,457
59
–
–
–
98,238
3,703
–
–
–
6,516 101,941
28
–
–
–
–
1,776
–
–
–
–
6,544 103,717
20,687
569
–
–
–
21,256
–
–
–
–
–
21,256
32
–
–
–
–
32
–
–
–
–
–
32
(4,419)
(1,485)
–
–
–
(5,904)
85,940 206,935
810
(2,036)
1,626
1,626
17,890
17,890
(9,710)
(9,710)
93,710 217,551
(509)
–
2,431
14,377
180
(1,115)
(356)
(356)
2,431
–
–
14,377
– (11,233) (11,233)
98,776 222,950
(7,375)
£000s
At 1 January 2010
Issue of new shares
Share based payment expense
Retained profit for the year
Dividend paid
At 31 December 2010
Issue of new shares
Purchase of own shares
Share-based payment expense
Retained profit for the year
Dividend paid
At 31 December 2011
80
Report and Accounts 2011
11. Dividends
Full details of dividends paid by the Company are disclosed in Note 23 of the Consolidated Financial Statements.
Accounts
12. Commitments under operating leases
The Company had annual commitments under non-cancellable operating leases as set out below:
£000s
Operating leases which expire:
Within one year
In two to five years
After five years
Land and buildings
31 Dec
2010
31 Dec
2011
127
2,450
1,722
4,299
399
870
–
768
31 Dec
2010
17
208
–
225
Other
31 Dec
2009
78
93
–
134
13. Directors’ interests in transactions
There were no transactions during the year in which the Directors had any interest.
rpsgroup.com
81
Five Year Summary
£000s
2011
2010
2009
2008
2007
Revenue
Fee income
PBTA
Net bank debt
Net assets
Cash generated from operating activities
Average number of employees
Dividend per share
Adjusted basic EPS
Adjusted diluted EPS
528,710
452,729
50,812
(23,523)
364,221
71,053
4,686
5.56p
16.68p
16.56p
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
The Five Year Summary does not form part of the audited financial statements.
82
Report and Accounts 2011
Creative People
making a difference
Salamata Bagyan and friends show off their shea nuts
harvest, in Palakaye village, Burkina Faso. Salamata is
planting shea trees to support her shea nut enterprise.
RPS is supporting TREE AID in helping thousands of rural
women like Salamata to set up micro-enterprises and these
sustainable income streams help families pay for healthcare,
education and food.
Energy
The exploration and production
of energy and other natural resources
Environment
The development and management
of the built & natural environment
Report and Accounts 2011
rpsgroup.com
29707 March 2012
Close-up view of an exposed coal seam
from an open cast mine.
29707 R&A Alternative Cover.indd 1
25/01/2012 11:11