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Report and Accounts 2013
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rpsgroup.com
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RPS Group Plc
20 Western Avenue, Milton Park
Abingdon, Oxon OX14 4SH
T +44 (0)1235 863206
rpsgroup.com
Registered in England No. 2087786
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Strategic Review
Key Performance Indicators
Strategy and Business Model
Group Structure
2013 Results
Risk Management
Employees
Corporate Responsibility
Management & Governance
The Board
Report of the Directors
Corporate Governance
Remuneration Report
Report of the Auditors
Notes to the Remuneration Committee Report Policy Statement
Notes to Remuneration Committee Report Annual Statement
Accounts
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Cash Flow Statement
Consolidated Statement of Changes in Equity
Notes to the Consolidated Financial Statements
Parent Company Balance Sheet
Notes to the Parent Company Financial Statements
Five Year Summary
Group Key Performance Indicators
Fee income (£m)
PBTA(1) (£m)
Conversion of profit to cash (%)(2)
Net debt (£m)
2
3
4
5
8
10
12
15
16
19
25
27
77
86
31
31
32
33
34
35
69
70
91
2013
492.1
63.0
96
32.4
2012
478.8
60.1
105
13.5
Notes:
(1) PBTA is profit before tax, amortisation of acquired intangibles and transaction related costs as defined in note 1.
(2) Based on operating profit adjusted for depreciation, share scheme costs, amortisation of acquired intangibles, deferred consideration treated as
remuneration and non-cash transaction related costs.
Statutory reporting
Revenue (£m)
Profit before tax (£m)
2013
567.6
43.6
2012
555.9
40.2
2
Report and Accounts 2013
Strategic Review
Strategy and Business Model
RPS is an international consultancy providing independent advice upon:
n
n
n
the exploration and production of oil and gas and other natural resources, and
the development and management of the built and natural environment
the development of infrastructure to ensure the supply of energy resources to market
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
the world’s need to secure adequate supplies of energy and other natural resources
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 and to
deliver energy to market
n
the need to ensure regulatory compliance and to manage environmental, health and safety risks, including climate change
The markets in which we operate develop rapidly and so our strategy needs to be sufficiently flexible to ensure that we can respond
quickly to changing conditions. Our strategy is to operate in those markets that have sound long term prospects and where we can
potentially achieve leading market positions.
Our key objectives are to:
n
n
focus on delivering value added services which generate high margins;
extend our range of services and geographical cover by bringing high quality specialist companies into the Group and then support
them to achieve further growth, and
n convert profit into cash and manage our balance sheet effectively.
Each year the Board sets a series of priorities consistent with these objectives as well as prevailing conditions and reviews progress
against those priorities on a regular basis. Within that context we seek to improve continuously the range and quality of the services
we offer our clients and where we best can add value to their activities. We are aiming to build a multi-disciplinary business in North
America similar to those we have in Europe and Australia as well as building a presence in the developing world through oil and gas
exploration as well as 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 opportunities for professional growth and advancement as well as by providing competitive remuneration and benefits
packages, and striving to maintain an open, creative and positive culture.
Client retention and the maintenance of longstanding relationships with our clients are at the heart of our success. We achieve this by
seeking to deliver focussed and cost-effective advice on both well understood problems and emerging challenges. We also maintain
an international reputation for meeting the challenges posed by large complex projects and conducting business in an open and
responsible manner.
The scale, increasing diversity and geographical spread of our businesses requires us to monitor continuously and seek to improve
the operational efficiency of our businesses. This entails consideration of management organisation, controls, processes, systems and
support services.
We plan to grow organically and through acquisitions that broaden and deepen the services that we can offer our clients. 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 organic and acquisitive growth there.
During 2013 we successfully completed acquisitions in Australia, Canada, USA, Norway and the United Kingdom. We are seeking
to acquire further high quality businesses in North America, Australia and Europe and the Board will consider larger acquisitions as
well as acquisitions in countries in which we do not currently operate that are consistent with our overall strategy and provide our
international clients with greater local support.
3
rpsgroup.com Our strategy for growth consists of the following elements:
n
n
n
n
n
as global growth picks up we see Energy, Energy Infrastructure and Urban Infrastructure as being strongly positioned;
in Energy we want to continue to strengthen our skill base internationally;
in North America we want to add to our existing portfolio of services, particularly broadening into Built and Natural Environment
as well as building on our energy market presence to capture more of the global energy infrastructure market;
in Europe we see signs of recovery and emerging opportunity;
in AAP after the resources boom the Australian economy is re balancing and will remain our gateway to Asia Pacific.
The Key Performance Indicators the Group employs are those shown on page 2. These are monitored monthly and provide the
means by which the Board measures the success of its strategy.
Group Structure
As indicated above our business is an international consultancy providing independent advice that relates to oil and gas and natural
resources as well as to the built and natural environment. The Group’s services in relation to energy infrastructure draw upon
expertise from within both of these areas.
Energy
This is the advice we provide to our clients upon the exploration and production of oil, gas and other natural resources comprises
technical, commercial and project management support and training in the fields of geoscience, engineering, health, safety and
environment. It is provided on a multi-disciplinary and integrated basis anywhere in the world. We aim to assist clients’ development
of their energy resources across the complete life cycle, combining technical and commercial skills with an extensive knowledge of
environmental and safety issues.
The business has regional offices in the UK, USA, Canada, Australia, Norway, Singapore and Malaysia and undertakes projects in many
other countries.
With the exception of our Australian and Asia Pacific offices they are managed by a single Board supported by a number of operating
Boards. We report the results of the business managed by this single Board as the Energy segment.
Our Australian and Asian offices are managed on a regional basis by a Board that has responsibility for both our Energy and our Built
and Natural Environment offices in this region.
Built and Natural Environment
This is the advice we provide to our clients upon the built and natural environment includes planning, urban design and regeneration,
environmental assessment and management, transport and infrastructure, architecture and landscape, engineering and surveying. We
also provide services in the areas of environmental science, the management of water resources, health safety and risk management,
laboratory testing, asbestos consulting, air quality, noise, property and oceanography. Our advice is provided on a regional basis from
offices in Europe, Australia and North America.
Our regional businesses in Europe and North America are each managed by a single board supported by a number of operating boards.
We present the results of each of these two businesses as separate reporting segments. As noted above and due to the integrated
nature of the environmental and energy infrastructure markets in that area, the Built and Natural Environment business in Australia Asia
Pacific is managed with the Energy business under a single Board. The results of this combined business are presented as single reporting
segment covering all of our operations in Australia Asia Pacific (‘AAP’).
Energy Infrastructure
We provide advice on the development of the infrastructure for generating energy from renewable sources, storing and transporting
hydrocarbons and transmitting energy and power. These components are essential for maintaining energy supply and energy security.
These services combine skills from within our Energy and Built and Natural Environment businesses in order to deliver the required
multi-disciplinary solutions.
Further Information
A sample of the projects and activities that we undertake is described on our website at www.rpsgroup.com.
4
Report and Accounts 2013 Strategic Review
2013 Results
Results
PBTA for the full year was £63.0 million (2012: £60.1 million) in line with market expectations. PBT for the full year was £43.6 million
(2012: £40.2 million). Adjusted basic earnings per share were 20.22 pence (2012: 19.48 pence). At the segment level, as revised in
October 2013, we focus on underlying profit. The contribution from each segment was:
Underlying Profit*
(£m)
Energy
Built and Natural Environment: Europe
Built and Natural Environment: North America
Australia, Asia Pacific
Total
*as defined in note 1(g) to the Consolidated Financial Statements.
2013
37.1
19.2
7.6
10.0
73.9
2012
31.2
18.9
6.3
15.2
71.6
Our Energy activities are conducted on a worldwide basis. In combination with our Built and Natural Environment (“BNE”) business in
North America and our Australia, Asia Pacific (“AAP”) business, we now have about three quarters of our underlying profit generated
outside Europe, providing diversity and robustness. The effect of changes in average foreign exchange rates on the reported profit
growth in 2013 was negligible at Group level. However, sterling appreciated against the Australian, Canadian and US dollars over the
course of the year and PBTA for 2013 converted at the rates of exchange as at 31 December 2013 would have been £2.7m less than
actually reported.
A significant proportion of our Built and Natural Environment and AAP activity relates to projects providing the infrastructure
necessary to process and deliver energy and power resources. Consequently, over two thirds of our underlying profit is now earned
in the global Energy and associated energy infrastructure markets. The Board believes this gives RPS a good position in markets which
are likely to expand significantly in coming years. However, as previously reported, in AAP our resources clients dealt with softening
demand and rising costs by delaying, scaling back and cancelling a significant number of projects. This prevented the Group delivering
the organic growth anticipated, although our acquisition strategy continued to work well enabling Group profits (PBTA) to increase by
5%. These acquisitions were funded entirely with cash using our existing borrowing facilities.
Cash Flow, Funding and Dividend
The Group continued its strong conversion of profit into cash. Adjusted operating cash flow was £72.0 million (2012: £76.0 million). Our
balance sheet remains strong, with no material unfunded pension liabilities. We have bank facilities of £125 million available until July 2016.
These comprise a £90 million committed facility, with an additional £35 million available as required. The cost of these facilities remains
attractive. Net bank borrowings at the year end were £32.4 million (2012: £13.5 million), after paying out £15.0 million in dividends (2012:
£13.0 million) and £46.7 million (2012: £24.2 million) in respect of payments for acquisitions including acquired debt.
The Board continues to be confident about the Group’s financial strength and is recommending a final dividend of 3.84 pence per share
payable on 23 May 2014 to shareholders on the register on 22 April 2014. If approved, the total dividend for the full year would be 7.36
pence per share, an increase of 15% (2012: 6.40 pence per share). Our dividend has increased at about this rate for 20 consecutive years.
We remain well positioned to continue funding the Group’s growth strategy.
Markets and Trading
Energy
We provide internationally recognised consultancy services to the energy sector from our main bases in the UK, USA and Canada.
These act as regional centres for projects undertaken in many other countries. The Energy component of our AAP business with
offices in Perth, Singapore and Kuala Lumpur provides an integral part of the service offering to our international oil and gas clients.
The 2013 results show the growth anticipated, with a strong margin being maintained:
5
rpsgroup.com
Fee income (£m)
Underlying profit* (£m)
Margin %
*as defined in note 1(g) to the Consolidated Financial Statements. Reorganisation costs: 2013 £0.1m; 2012 £nil.
2013
2012
189.5
37.1
19.6
164.4
31.2
19.0
We benefited from good levels of demand in many areas of the world, although, as previously announced, our level of activity relating
to potash extraction reduced significantly in Canada, following disruption of the global market early in the year. Our independent
advice in respect of transactions, asset valuations and reserves reporting continued to be highly valued and our training services
continued to be used extensively by clients. In the final months of the year we noticed clients started to manage expenditure more
tightly in some projects. Nonetheless, the high profile we have in a broad range of markets, combined with our geographical diversity,
enabled us to continue to take advantage of the generally favourable conditions.
We made acquisitions during the course of the year which: strengthened our training business, gave us exposure to the buoyant North
American pipeline construction market and expanded our technical reservoir engineering and specialist geology capabilities. Most
recently we have made a major investment in Norway, where we see significant long term opportunity. We are also well positioned to
benefit from growth in shale gas exploration and production in the UK as that market develops.
Exploration and production spend by oil and gas companies in 2014 will be substantial. As clients are likely to continue focusing on
cost management, we will need to maintain our high level of efficiency in this business. We are still confident of remaining on a positive
growth trajectory
Built and Natural Environment (BNE)
Within this segment we provide a wide range of consultancy services to many aspects of the property and infrastructure development
and management sectors. These include: environmental assessment, the management of water resources, oceanography, health and
safety, risk management, town and country planning, building, landscape and urban design, surveying and transport planning. The energy
infrastructure market continues to be of particular importance to the Group.
BNE: Europe
This business performed well, with an improved margin, despite continuing economic uncertainty.
Fee income (£m)
Underlying profit* (£m)
Margin %
2013
2012
149.3
19.2
12.8
157.2
18.9
12.0
*as defined in note 1(g) to the Consolidated Financial Statements. Reorganisation costs: 2013 £0.5m; 2012 £0.8m.
Our UK commercial development clients, particularly in the house building sector, developed increasing confidence through the year.
Our strategic position in the energy infrastructure market enabled us to continue to win work at rates which reflect our market
leading position. Shifting policy signals in the UK energy market do, however, inevitably delay investment. Our laboratories in the
Netherlands continued to trade strongly following the investment made in 2012. As previously reported, the excellent performance
of our UK water business in 2012, based upon a number of exceptional contracts, could not be repeated. Our health, safety and risk
management businesses are well positioned and continued to perform encouragingly. Despite continuing fee rate pressure in most
businesses in this segment, the improved efficiencies resulting from actions taken previously, sustained a higher level of margin.
Conditions in some of our European markets seem likely to continue to improve. As a result, organic growth looks possible in this
segment. We also believe market conditions are sufficiently stable to consider acquisitions again.
BNE: North America
This business is primarily focussed on the energy infrastructure market and project studies for US government agencies. It has not,
therefore, suffered the market uncertainties seen in Europe and AAP in the property and mining sectors.
Fee income (£m)
Underlying profit* (£m)
Margin %
*as defined in note 1(g) to the Consolidated Financial Statements. Reorganisation costs: 2013 £nil; 2012 £nil.
2013
30.0
7.6
25.3
2012
26.9
6.3
23.2
6
Report and Accounts 2013 Strategic Review
It had an excellent year, with all of its growth being organic. Both the environmental management businesses in Texas and the
oceanographic businesses in Texas, Rhode Island and Washington State performed well. The exceptional margin in recent years
has resulted from a particularly strong performance by our oceanographic businesses. We continue to position this business to take
advantage of the significant market opportunity which is emerging.
Australia Asia Pacific
This business is a combination of the former BNE: AAP and the AAP component of Energy. They have been brought together to take
advantage of the opportunities in the integrated energy and energy infrastructure market and, specifically, help counter the impact of
the slow down in the resources sector on our business. Although the benefits of this have begun to develop, the results for the year
nevertheless showed the expected substantial decline in profit.
Fee income (£m)
Underlying profit* (£m)
Margin %
2013
2012
127.2
10.0
7.9
133.9
15.2
11.3
*as defined in note 1(g) to the Consolidated Financial Statements. Reorganisation costs: 2013 £1.2m; 2012 £0.9m.
Year on year fee income decline was moderated by contributions from the acquisitions completed in the second half of 2012 and
2013. The oceanography business acquired in the second half of 2013 has integrated well. However, the underlying segment profit
declined substantially, reflecting the exceptionally poor conditions in the resources market throughout the year and the weakening of
the Australian dollar. Reorganisation costs also increased from £0.9 million to £1.2 million, as a result of removing significant costs from
the business, in order to maintain operational efficiency.
2013 saw a significant number of natural resources projects, particularly mining and offshore gas, delayed by our clients, as they
reduced their level of capital expenditure materially. In other sectors of the economy, following the change of the Australian Federal
Government in September, some private sector clients, particularly in New South Wales and Victoria, started to consider investments
to take advantage of the weaker Australian dollar and lower interest rates. We also secured a significant inflow of work from public
bodies in New South Wales and Victoria to assist them to plan major new infrastructure projects. As a result of both these trends, our
businesses in Sydney and Melbourne performed well.
In order to reflect this emerging trend we recently completed the acquisition of Whelans Corporation Pty Ltd, a development
consultancy providing surveying, engineering and urban planning services in the Sydney market. The maximum total consideration,
all payable in cash, is A$3.8 million (£2.1 million). A$2.6 million (£1.4 million) was paid at completion with the balance payable in
two equal instalments over the next two years. (Further details of the transaction are given in Note 32 to the Consolidated
Financial Statements).
The ingredients seem to be gradually coming together for a recovery and rebalancing of the Australian economy. As a result we have
begun to benefit from increased client investment in urban development and public sector infrastructure projects. We are, however,
likely to continue to suffer from unpredictable, but generally low levels of capital expenditure in the resources sector for some time.
A weak Australian dollar is also likely to continue to impact our results on consolidation. However, the cost reductions we have made
should help us improve our performance ahead of market recovery.
Group Strategy and Prospects
RPS remains well positioned in markets of importance to the global economy. Our focus on Energy and energy infrastructure markets
underpins the Group’s excellent long term prospects. We remain of the view that our strategy of building multi-disciplinary businesses
in each of the regions in which we operate continues to be both attractive and achievable. We will, therefore, continue to invest
to develop our businesses organically, whilst seeking further acquisition opportunities. Our balance sheet is strong and supports this
strategy, which the Board believes should enable the Group to perform well in 2014.
7
rpsgroup.com 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 managed effectively. 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. An element of this risk management is the maintenance of an appropriate portfolio of insurance policies with suitable
limits of indemnity. These include policies in respect of physical assets as well as liabilities to third parties and employees. Professional
indemnity insurance is also maintained to safeguard against losses arising from litigation associated with any shortfall in performance.
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 could have staff levels that exceed current workload
and therefore incur the cost of unproductive 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. Our contractual order book 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.
We reported last year about the risks associated with operating in the Eurozone, in particular in relation to Group’s businesses in
The Netherlands and Republic of Ireland. These risks appear to have reduced during the year but have been replaced by uncertainty
in Australia due to the slowdown in the natural resources sector there. We remain attuned to potential reductions in workload and
take the necessary cost reducing actions swiftly as and when they are required.
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. No significant events of this nature affected us during the year.
Information Systems
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.
A cyber attack upon our systems could result in loss of data, disruption to operations or direct financial loss. During the year the
Group suffered an attack upon an internet based payment system that it utilises and although the controls in place operated to
prevent any loss, the risks associated with attacks of this nature were highlighted.
Specific additional measures are being taken to enhance security and controls as well as to provide guidance to employees on the
nature of cyber risks and working methods to minimise them.
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 10 and 11 the Group maintains appropriate remuneration and incentive structures which are reviewed on a
regular basis. It also maintains an environment that is supportive of professional development through training and career opportunity.
8
Report and Accounts 2013 Strategic Review
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.
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 engages.
The internal review processes operated by the Group seeks 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.
From time to time the Group receives claims from clients and suppliers. Some of these result in payments to the claimants by the
Group and its insurers. The Board reviews significant claims at all meetings and is currently satisfied that the Group has sufficient
provisions in its balance sheet to meet all uninsured liabilities.
Compliance
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.
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 plans
are developed and monitored to ensure successful integration into the Group and its control framework. The integration of the
acquisitions made in 2013 has been successful thus far.
Funding
The availability of sufficient and appropriate funding through the Group’s bank facilities is important to support the Group’s growth and
in particular to fund acquisitions.
The Group’s facilities will expire in July 2016. The facility currently consists of a committed revolving credit facility with Lloyds Bank for
£90m, together with an additional £35m in the form of an accordion facility that is available upon request by the Group, subject to
credit approval being given by the bank.
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 correctly could expose our employees and these other groups to
dangers as well as exposing the Group to significant potential liabilities and reputational damage.
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 12.
9
rpsgroup.com Employees
The current profile of the Group’s employees presented in accordance with the Group’s revised segmentation and the changes over
the last year are as detailed below.
Group
Average number of employees
Energy*
Built and Natural Environment – Europe
Built and Natural Environment – Australia Asia Pacific
Built and Natural Environment – North America
Central
Group total
Days absent (%)
Average length of service (years)
Working part time (%)
Retention rate (%)**
Female
Male
Age profile
Employees aged under 25 (%)
Employees aged 25-29 (%)
Employees aged 30-49 (%)
Employees aged 50+ (%)
2013
2012
620
2,403
947
228
108
4,306
2
7
11
82
1,456
2,850
8
15
55
22
513
2,662
1,005
218
109
4,507
2
6
9
81
1,298
3,209
9
16
54
21
*Additionally Energy makes extensive use of associates and sub-consultants which equated to approximately 790 full time equivalent employees in 2013
(2012: 750).
**excluding redundancies
The attraction, retention and motivation of high calibre employees is a strategic imperative for all businesses within the Group.
To achieve this, businesses maintain 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 a framework of structures and systems that are overseen at
Group level. Human resource professionals are employed throughout the Group to support the achievement of this objective.
The Executive Directors have overall accountability for the development of human resource practice within the businesses for which
they are individually responsible.
The gender profile of the Group’s employees is shown above. As noted in the Corporate Governance Report two of the members
of the Group Board, representing 25% of the directors, are female. Of the senior management group that is comprised of directors of
the companies that are included in the Group consolidation, 44 are male and 3 are female.
The Group’s policies in relation to health and safety are described on page 12.
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 use the Group intranet
as a means to communicate the Group’s business developments and achievements as well as policies and procedures. 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.
10
Report and Accounts 2013
Strategic Review
The Group is committed to the training 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 personnel in accordance with our quality management systems. Continuing professional development is of 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. The Group provides training to the oil and gas sector through its Nautilus business, which also assists in providing
technical training within the Group. It has also continued to operate approved structured training schemes for its chartered and water
engineers in the UK as well as for civil engineers in the UK and Ireland. During 2013 RPS continued its long-term practice of supporting
staff in pursuing relevant higher education courses. This involved sponsoring courses at a total of 50 universities and colleges across the
United Kingdom, Ireland, The Netherlands, USA and Australia. Vacant positions within the Group are, wherever possible, filled from
within and our developmental and training programmes support this objective.
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.
rpsgroup.com
11
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 supports the
Board in exercising 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 and where required training in such matters will be
provided to directors.
As noted in the Risk Management section of this review environmental issues are most likely to affect 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
and the adaptation of buildings and infrastructure to anticipate climate change as well as the preparation of Environmental Impact
Assessments across several sectors.
The policies adopted by the Group in relation to employees as well as health and safety are described elsewhere within this review
whilst the risks associated with failures in both of these areas are described in the Risk Management section on pages 8 and 9. 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 FTSE4Good 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 to
which it provides 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 professional roles. 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, as well as giving due regard to the safety and well-being 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.
RPS supports the Universal Declaration of Human Rights as well as the International Labour Organisation’s Declaration on
Fundamental Principles and Rights at Work. We understand our responsibility to respect the human rights of the communities
and workforces with whom we interact and our employees are expected to conduct themselves in a manner that is respectful
of those rights.
Health and Safety
The health and safety of the Group’s employees and others we affect is of paramount importance and we remain committed to
good practice that as a minimum complies with the requirements of law. The Board 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. Where appropriate work activities are assessed for
health and safety risks and appropriate mitigation measures and controls put in place. Employees are trained to ensure that they have
the appropriate skills to carry out their job safely and senior management are trained to ensure that obligations to employees for
whom they are responsible are properly discharged. The Group’s businesses have appropriately qualified health and safety advisors to
develop and implement these systems. Health and safety systems are also subject to regular audit.
Health and safety issues and performance are reported to and reviewed by all operating Boards at each meeting. This incorporates a
system for reporting all near misses, accidents, dangerous occurrences and work-related diseases. All such incidents are investigated
to determine the root cause and wherever possible action is taken to mitigate the risk of recurrence. The Group Board receives and
12
Report and Accounts 2013 Strategic Review
reviews a report at every meeting which summarises health and safety performance across the Group as well as detailing any significant
incidents and emerging issues.
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. 27% 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 2013, the reportable accident rate was 3.0 accidents per 1,000 employees (2012: 2.7). Accidents that do occur
most commonly relate to manual handling activities, slips and falls affecting individuals.
Reportable Accident Rates
Group
Reportable injuries
Reportable injuries incident rate per 1,000 employees
2013
15
3.0
2012
14
2.7
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 2013 the Group and its staff gave or raised £740,000 in charitable contributions (2012: £797,000). Taking into
account the £233,000 spent on academic bursaries and educational initiatives (2012: £168,000), the total contribution of the Group
and its employees to the communities in which it operates was £973,000 (2012: £965,000).
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 to assist some of the poorest communities in sub-Saharan Africa. The Group has continued to
focus its charitable contribution upon its work and is acknowledged as being Tree Aid’s largest corporate sponsor, having contributed
a total of £116,000 towards projects in Ghana and Mali in 2013. In addition to financial support the Group continues to harness the
skills of its employees in providing important technical support for Tree Aid’s work. During the year this has included GIS mapping, a
biodiversity study and a topographical survey as well as training for Tree Aid employees.
We are pleased to continue our association with Tree Aid and grateful for the contribution made by our employees.
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;
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 employ 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. 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 2013 our offices continued to recycle waste paper, spent toner and ink cartridges, obsolete computer
hardware, printers and mobile phones.
rpsgroup.com
13
Greenhouse Gas Reporting
Annual Emissions
For the reporting year to 31 December 2013 we have followed the 2013 UK Government environmental reporting guidance and
used 2013 UK Government’s Conversion Factors for Company Reporting. Greenhouse gas emissions are reported using the following
parameters to determine what is included within the reporting boundaries in terms of RPS energy consumption.
n
Scope 1 – direct emissions includes any gas data and fuel use for company owned vehicles. Fugitive emissions from air conditioning
are included where it is RPS’s responsibility within the tenanted buildings.
n
Scope 2 – indirect energy emissions includes purchased electricity throughout the company operations.
Greenhouse gas emissions (tCO2e) are set out below showing an 8% increase over the year which is attributable to the pattern of
growth within the Group and the inclusion for the first time of data relating to air conditioning within the 2013 direct emissions.
Scope 1: Direct emissions
Scope 2: Indirect emissions
Total
2012
5193
4573
9766
2013
6095
4458
10553
Data has been restated for 2012 reflecting the change in factors under the new reporting guidance.
Targets and Emission Intensity
The specific target set by the Board is to reduce energy consumption per capita by 5% per annum for office energy consumption.
The target was set in 2008 as the base year and since that time there has been some fluctuation in performance with increases shown
in 2009 and 2010 due to expansion in the business and increased data availability. In 2011 there was a reduction of 4.4% followed by
a further reduction of 3% in 2012. For 2013 consumption was equal 3.6 MWh per capita, which represented an increase of 5%. This
was attributable to an improving economic climate in parts of the Group with a related increase in activity as well as the acquisitions
that have recently been completed and headcount reductions in our AAP business. The fluctuations over the five year period
demonstrate the difficulties inherent in sustaining improvement as economic circumstances fluctuate and as the structure of the
Group changes in pursuit of our acquisition strategy. We have therefore concluded that going forward the per capita target should
be based on a five year rolling average reduction of 2.5%.
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.
On behalf of the Board
Alan Hearne
Chief Executive
27 February 2014
14
Report and Accounts 2013 Dr Phil Williams
Executive Director
Aged 61. Phil Williams joined the
Group in 2003 through the acquisition
of Hydrosearch Associates Limited
where he held the position of Managing
Director. Phil had 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 2005.
Robert Miller-Bakewell
Independent Non-Executive Director
Aged 61. Robert joined the Board in
2010 and is serving a second 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 has also served as
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.
The Board
Brook Land
Non-Executive Chairman
Aged 64. 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 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 61. 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, becoming a Director in 1979 and
Chief Executive in 1981. Alan was the plc
Entrepreneur of the Year in 2001, was
made a Companion of the Institute of
Management in 2002. He also became 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 54. 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 2000
and was appointed to the Board later
that year.
Management & Governance
John Bennett
Independent Non-Executive Director
Aged 66. John was appointed to the
Board in 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 third
three-year term. He is Chairman of the
Audit Committee and a member of the
Remuneration Committee.
Louise Charlton
Independent Non-Executive Director
Aged 53. Louise was appointed to the
Board in 2008. She is Group Senior
Partner of Brunswick Group LLP, the
international corporate communications
group of which she was a co-founder.
Louise is also a Director and Trustee of
the Natural History Museum. She is serving
a second three-year term and has agreed
to serve for a third. She is a member
of the Remuneration and Nomination
Committees.
Tracey Graham
Independent Non-Executive Director
Aged 48. Tracey Graham joined the
Board in 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. Tracey is also an independent Non-
Executive Director of Dialight Plc and the
Royal London Group. She chairs the
Remuneration Committee and is a
member of the Audit Committee.
15
rpsgroup.com Report of the Directors
The Directors present their report together with the audited financial statements of RPS Group Plc and its subsidiary undertakings (the
‘Group’) for the year ended 31 December 2013.
Directors
The Directors of the Company as at 31 December 2013 were those listed on page 15. There were no changes in Board membership
during the year. The Directors’ interests in the share capital of the Company are as shown in the Annual Report on Remuneration on
page 87.
None of the Directors was materially interested in any significant contract to which the Company or any of its subsidiaries were party
during the year.
Results and dividend
The Consolidated Income Statement is set out on page 31 and shows the profit for the year. The Directors recommend a final
dividend of 3.84p (2012: 3.34p) per share. This together with the interim dividend of 3.52p (2012: 3.06p) per share paid on
17 October 2013 gives a total dividend of 7.36p (2012: 6.40p) per share for the year ended 31 December 2013.
Strategic Review
The Group’s Strategic Review can be found on pages 2 to 14 and includes information as to the likely future development of the
Group. Financial key performance indicators can be found on page 2. The Directors review performance using these non-statutory
measures as well as segmental and underlying profit, as they consider these to be more meaningful measures of performance. These
performance measures are defined in note 1(g) of the Consolidated Financial Statements. Note 3 includes a ‘Group Reconciliation’ of
the adjusted measures to the statutory results. The Board does not use non-financial key performance indicators to assess the Group
as a whole, although parts of the Group do use non-financial key performance indicators from time to time.
The Strategic 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 Strategic Review includes information as to likely future developments
in the business of the Group. Nothing in the Strategic Review should be construed as a profit forecast.
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.
Corporate Governance
The Directors report on corporate governance can be found on pages 19 to 24 and incorporates other parts of the Report and
Accounts as detailed therein.
Employees
The Group’s policies in relation to employees are disclosed on pages 10 and 11.
Corporate Responsibility
The Group’s corporate responsibility statement is included on pages 12 to 14. This includes the disclosures concerning greenhouse gas
emissions that are required pursuant to part 7 of The Companies Act (Strategic Report and Directors’ Report) Regulations 2013. The
Group made no contribution to political organisations during the year.
Substantial shareholdings
The Company is aware of the following interests in excess of 3% of the ordinary share capital of the Company as at 26 February 2014
Percentage
5.19
5.11
4.58
4.29
3.74
3.51
3.29
3.13
3.09
F & C Asset Management
Aberforth Partners
Kames Capital
Threadneedle Investments
UBS Global Asset Management
Montaro Investment Management
Franklin Templeton Fund Management
Norges Bank Investment Management
Legal and General Investment Management
No. of shares
11,446,819
11,280,945
10,103,822
9,466,393
8,248,360
7,748,101
7,265,000
6,911,735
6,829,065
16
Report and Accounts 2013 Management & Governance
Going concern
The Group’s business activities, a review of the 2013 results together with factors likely to affect its future development and prospects
are set out on pages 5 to 7. Note 16 to the Consolidated Financial Statements sets out the borrowings of the Group and considers
liquidity risk, whilst note 30 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, had a modest amount of net bank debt at the year end and operates
well within the financial covenants applying to the main bank facility. The Group’s banking facilities were renewed in 2012 and do not
expire until July 2016.
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. They therefore continue to adopt the going concern basis of accounting in preparing the annual financial statements.
Directors’ responsibilities statement
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law
and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required
to prepare the group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by
the European Union and Article 4 of the IAS Regulation and have elected to prepare the parent company financial statements in
accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law).
Under company law the directors must not approve the accounts unless they are satisfied that they 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.
Group Financial Statements
In preparing the group financial statements, International Accounting Standard 1 requires that Directors:
n
properly select and apply accounting policies;
n
n
present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial
performance; and
n
make an assessment of the company’s ability to continue as a going concern.
Parent Company Financial Statements
In preparing the parent company financial statements, the Directors are required to:
n select suitable accounting policies and then apply them consistently;
n make judgments and accounting estimates that are reasonable and prudent;
n
n
state whether applicable UK 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.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s
transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that
the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company
and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s
website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Responsibilities pursuant to DTR4
We confirm that to the best of our knowledge:
n
the financial statements, prepared in accordance with the relevant financial reporting framework, 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;
17
rpsgroup.com n
n
the strategic report 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, together with a description of the principal risks and
uncertainties that they face; and
the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company’s performance, business model and strategy.
Financial instruments
Details on the use of financial instruments and financial risk are included in note 16 to the Consolidated Financial Statements.
Post balance sheet events
As detailed in the Strategic Review since the end of the year the Group has acquired the entire issued share capital of Whelans
Corporation for a maximum cash consideration of A$3.8m.
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 2013 the Company’s issued share capital consisted of 220,631,930 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 87. Substantial shareholder interests of which
the Company is aware are shown on page 16.
Annual General Meeting
The Annual General Meeting will be held on 2 May 2014. 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 Deloitte
LLP as the Company’s Auditors.
By order of the Board
Nicholas Rowe
Secretary
27 February 2014
Registered Office:
20 Western Avenue
Milton Park
Abingdon
Oxfordshire OX14 4SH
Registered in England No. 02087786
18
Report and Accounts 2013
Management & Governance
Corporate Governance
Chairman’s Introduction
As Group Chairman, I am pleased again to have the opportunity to report on how the principles relating to the role and effectiveness
of the Board have been applied in our company. We continue to be fully compliant with the provisions of the UK Governance Code
(‘the Code’) and the report below expands on this, as well as the processes and disciplines to which the Board adheres. In more
general terms I am confident that, as a matter of substance, the Board operates in an open, effective and controlled manner. This
enables the risks within the business to be identified and properly managed.
As the biographies on page 15 illustrate, we are fortunate to have a Board which offers a wide range of skill and experience. The
composition of the Board and its Committees has been stable throughout 2013 which has been invaluable in maintaining our cohesion
in what has been another demanding year. The significant progress we have made in the year in developing our acquisition strategy
has been a testament not only to the quality of our executive team but also to the Board as a whole in challenging and supporting the
steps already taken and proposed.
The development of the business has again been complemented by further review and improvement in the controls and systems
necessary within a growing multi-national Group. As part of this process the Board regularly examines the significant risks that we are
facing. The health and safety of our employees also remains a priority and is considered fully at every meeting. In my view, therefore,
the Board’s agenda continues to strike the right balance between strategy, priorities, performance and risk management.
Our Board Committees, supported by external professional advice as appropriate, continue to operate effectively and independently
whilst retaining open and regular dialogue with the Board. I have also had the benefit of a regular and valuable dialogue with the Senior
Independent Director as well as the Chairs of our Audit and Remuneration Committees.
During the year we undertook our first externally evaluated Board review utilising the services of Equity Communications. It was
pleasing to receive independent reassurance that the thoughts I expressed in this report last year are shared by both my executive
and non-executive colleagues. No major issues or concerns emerged from the detailed process that we followed and certain
recommendations have been implemented. In 2014 we plan to encourage Non-Executive Directors to visit our operating companies
in Europe, Australia and North America as well as in the UK, to ensure that they maintain their understanding of the markets these
businesses operate in. In the past two years NEDs have attended Board Meetings in the USA, Canada and Australia in addition to the
UK and the Netherlands.
I am therefore confident that the strengths of the Board reflected in this review will continue as a key driver in sustaining and
improving the Group’s performance.
The Nomination Committee keeps the issue of succession planning under close review and steps will be taken at the appropriate
time to ensure continuity in the executive management of the Group. As I wrote last year, I am personally of the firm view that
over-planning succession accelerates unwanted change which is neither in the interests of the Company, nor its shareholders. Disaster
succession planning is in place and the Chief Executive has recently confirmed to the Board that he has no present intention of retiring
before the age of 65 in 2017. At the present time, therefore I envisage that the Nomination Committee will start the process of
identifying a successor in about 2 years. I will naturally keep shareholders informed of any changes to this plan.
Louise Charlton’s second three year term as a NED comes to an end in May 2014 and Tracey Graham’s first three year term comes
to an end in September 2014. I am very pleased to report that both have agreed to continue for further three year periods. In
addition to serving as a NED, Louise serves on the Nomination and Remuneration Committees whilst Tracey chairs the Remuneration
Committee and sits on the Audit Committee. Louise and Tracey agreeing to extend gives continuity and stability to the constitution of
the Board.
John Bennett, who chairs the Audit Committee, completes 9 years as a NED at the 2015 AGM and will be retiring at that time in
accordance with best practice. Steps are already in hand to identify John’s successor to ensure a suitable hand-over period in this
important role that he has filled outstandingly well.
In accordance with best practice all our Directors (both Executive and Non-Executive), including myself, offer themselves for
re-election at every AGM.
The continuing success and development of our Company could not be achieved without the professionalism and hard work of all our
employees to whom, on behalf of the Board, I am pleased to extend thanks.
Brook Land
Chairman
19
rpsgroup.com 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
and the Group’s environmental policies. The Committee consists of the Chairman, Chief Executive and Company Secretary.
UK Corporate Governance Code
The Board is pleased to report that the Company complied with all provisions of the UK Corporate Governance Code (the ‘Code’)
throughout the year.
Board Responsibilities
The Board has a schedule of matters that are reserved for its decision, including:
n determining the Group’s overall strategy
n
the approval of 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, four Non-Executive Directors and the Chairman. There were no
changes to Board membership during the year. 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 bringing 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, taking account of 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 to meet
the requirements of its clients as well the needs of its employees.
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. Robert Miller-Bakewell acted as the Senior Independent Director throughout the year.
The Board is assisted by the Audit, Remuneration, Nomination and Corporate Governance Committees. 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.
Brook Land
Alan Hearne
Gary Young
Phil Williams
John Bennett
Louise Charlton
Robert Miller-Bakewell
Tracey Graham
Number of meetings held
Full
Board
8
Audit
Committee
–
Remuneration
Committee
–
Nomination
Committee
1
Corporate
Governance
1
8
8
8
8
6
8
7
8
–
–
–
3
–
3
3
3
–
–
–
5
4
–
5
5
–
–
–
–
1
–
–
1
1
–
–
–
–
–
–
1
Board Operations
The Board generally meets on a monthly basis, except during holiday periods, although additional meetings may be held should
circumstances require. The Board agenda gives significant focus to business performance and strategy balanced by consideration of
20
Report and Accounts 2013 Management & Governance
emerging risks and the control environment. Comprehensive papers are circulated well in advance of Board meetings which 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 at each meeting. 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. Outside
of Board meetings the Chairman has regular individual discussions with all Directors.
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.
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. No issues of this nature have arisen during the year.
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 such 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 for appointment 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 strategy and its business model are described on pages 3 and 4.
Board Performance
The Board undertakes an annual appraisal of its performance. During 2013 and for the first time, the exercise was conducted on an
externally facilitated basis. The review considered a wide range of issues relating to the organisation and effectiveness of the Board and
its Committees in relation to which extensive input was obtained from each Director. A detailed report was produced at the end of
this exercise which was circulated to and discussed by the Board. The report indicated that Directors were in general very satisfied
with performance and no major areas of concern were highlighted by the external facilitator. As a result of this report it was agreed
that certain detailed aspects of the Board’s agenda and timetable should be reviewed.
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, auditors and brokers 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
visits to operating companies and attend their Board meetings in order to improve their understanding of the issues facing the
Group’s businesses.
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 letters and enquiries from shareholders and others with an interest in the Group.
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. A detailed 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.
21
rpsgroup.com 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
17 to 18 and 27 to 30 and the statement of the Directors in respect of going concern appears on page 17.
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 the supporting document issued by the Financial Reporting
Council ,“Internal Control: Guidance for Directors on the Combined Code”. The principal risks to which the Group is exposed and
the measures to mitigate such risks are described on pages 8 and 9.
The Board is responsible for the Group’s systems 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 by the Audit Committee and the Board during 2013 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: The Group’s accounting policies, principles and minimum
standards required for effective financial control are communicated to all accounting teams. The Group Finance function undertakes
periodic detailed reviews to ensure compliance and to follow up any weaknesses previously identified.
Capital investment: The Group has clearly defined guidelines for capital expenditure. These include detailed appraisal and review
procedures, levels of authority and due diligence procedures in respect of potential business acquisitions.
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. 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. Deloitte LLP were appointed as Group auditors in June 2012 following a tender process.
At its annual planning meeting in September the Committee reviews and approves plans with the Auditors including the locations
to be audited and the key areas of audit focus. At the conclusion of the audit the Committee reviews the integrity of the Group’s
financial statements and the report and accounts as a whole 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. In respect of the year under review the
Committee considered the following significant issues in relation to the financial statements and in each case addressed these as indicated.
Intangible assets: This classification of assets, which comprises goodwill and other intangible assets, is by far the largest on the Group
balance sheet and therefore receives careful attention from the Audit Committee. The Committee needed to satisfy itself that no
impairment of its carrying value was appropriate. Reliance was placed upon a report from the Group Finance Director including the
results of detailed modelling of the Group’s cash generating units using assumptions and budgets that had been approved by the
Board. Based upon this report the Committee was able to satisfy itself that no impairment was required.
Acquisition accounting: A number of acquisitions were completed in the year and judgements are made with respect to the fair value
of the net assets acquired and the consideration transferred. The Group Finance Director explained to the Committee the valuation
process and the judgements made. The valuation of intangibles uses a spreadsheet model that was constructed with the help of
external valuation experts. Inputs to the model are obtained from the acquired entity and the assumptions used are derived from
recognised sources or using previous experience.
Recoverability of Trade Debtors and Accrued Income: The risk that accrued income and trade debtors may not be collected and
therefore may be overstated in the accounts is discussed and considered by the Board at its regular board meetings when it considers
monthly results. The finance reports prepared for those meetings contain age profile information on debtors and accrued income by
segment. Operational reports presented by Executive Directors’ at those meeting discuss specific issues in more detail as necessary.
22
Report and Accounts 2013 Management & Governance
The Committee also took comfort from a report prepared by the Group Finance Director that considered the level of impairment
provisioning at the year end.
Following the review conducted by the Audit Committee and its own consideration, the Board was able to conclude that the Report
and Accounts for 2013, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders
to assess the Group’s performance, business model and strategy.
The Audit Committee keeps the scope, cost and effectiveness of the external audit under review. The Committee reviews the
performance of the Auditors following completion of the annual audit and prior to making recommendations as to the annual
re-appointment of Auditors. To facilitate this process the Group Finance Director canvasses the views of the Group’s operating
companies on to the conduct of the audit. He then reports this feedback to the Committee as well as the performance of the
Auditors at Group level. The independence of the external auditor is also reviewed each year and audit partners are 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 tax compliance 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
valuation services
n
preparation of financial statements
n
investment advisory, broker and dealing services
n
design and implementation of financial systems
n
general management services
The split between audit and non-audit fees for the year under review appears on page 45. Taxation services undertaken by Deloitte
LLP during the year were handled by a team that was separate and independent from the external audit team and led by a different
senior partner. The Committee was satisfied that appropriate safeguards were in place and that the provision of these additional
services by Deloitte LLP did not affect their independence as external auditor.
The Committee also monitors the effectiveness of the Group’s internal financial controls and risk management processes; this included
assisting the Board in conducting the review of internal controls described above. The Audit Committee regularly reviews the need for
an internal audit function. It remains of the view that at present the financial controls operating throughout the Group and the reviews
undertaken by the Group Finance function are adequate without requiring a dedicated internal audit function.
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. An 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 range of skills and experience offered by the current directors is highlighted in the Chairman’s Statement above and the
Committee is satisfied with the balance and membership of the current Board. The Committee does, however, remain mindful of the
need to ensure its periodic refreshment. The Committee also keeps succession planning under continuous review and has, at all times,
a clear plan which is designed to ensure a smooth transition, whenever that is needed, for all posts.
Account is also taken of the need to ensure that the Non-Executive Directors continue to provide the range and balance of skills
required. The Committee and the Board recognise the importance of diversity. One quarter of the Board as currently constituted is
female which is line with Group’s previously announced 25% target in this regard.
When Directors are appointed to the Board, this is through a formal, rigorous and transparent process. No appointments were
made to the Board during the year although on the last occasion that an appointment was made such a process was followed as fully
reported at that time.
23
rpsgroup.com As noted above, Louise Charlton’s second term as a Non-Executive Director and Tracey Graham’s first term were due to expire in
May 2014 and September 2014 respectively. Following review both have agreed to continue for a further three year term.
Remuneration Committee
The membership and activities of the Remuneration Committee are described in the Remuneration Report on pages 25 to 26
together with the accompanying notes on pages 77 to 90.
Takeover Directive
Disclosures required under the Takeover Directive are included on page 18 and form part of the Group’s Corporate Governance report.
24
Report and Accounts 2013 Management & Governance
Remuneration Committee Report
Annual Statement
I am pleased to present the Remuneration Committee’s report for 2013. As shareholders will be aware this is the first year in which it
has been necessary to report in accordance with the Large and Medium Sized Companies and Groups (Accounts and Reports)
(Amendment) Regulations 2013 (the ‘Regulations’). The report and accompanying notes therefore fully reflects the requirements of
the Regulations and consists of my Annual Statement as well as a Policy Report and an Annual Report both of which are for approval
by shareholders.
The major decision relating to Executive remuneration during the year related to the introduction of the RPS Group Plc Bonus Plan
(the ‘Bonus Plan’) which, as shareholders will know, was approved at our Annual General Meeting in May following a consultation
process with our larger shareholders. The RPS Group Plc Bonus Banking Plan which had operated in the three preceding years had,
in the Committee’s view, operated well in aligning executives’ and shareholders’ interests. Whilst the Bonus Plan differs in a number
of detailed respects it has built upon the success of this previous plan. The detail of the Bonus Plan was set out for shareholders at
the time of its approval and some of this detail is repeated in the report that follows. The Committee also determined the profit
thresholds to apply in the first year of operation of the Plan as well as the separate targets relating to the conversion of profit
into cash.
The Committee has set salaries, benefits and pensions at a level which when taken with on target bonus under the Bonus Plan, can
provide up to median level comparative total reward. To ensure alignment with Group’s key performance indicators and strategy the
Bonus Plan’s main performance condition is profit based with a smaller part of the bonus based upon the conversion of profits into
cash. Part of the bonus is deferred in shares and at risk of forfeiture if minimum profit targets are not met in future years. It is the
Committee’s view that a material deferral of earned shares with a risk of forfeiture effectively aligns executive with shareholder interest
and provides focus on long-term value creation. During the year under review the Group’s PBTA grew to £63m which resulted in a
total contribution to the Bonus Plan of £887,000. The target relating to conversion of profit into cash was not met and no contribution
was made in respect of this element.
The Committee met on five occasions during the year and in addition to the above, considered levels of basic salary and benefits as
well as pension contributions and supplements. There were no major changes in any of these areas. The Committee also had to
consider a number of practical matters regarding the operation of the incentive plans mentioned above as well a number of issues
relating to remuneration in the wider Group. Detailed consideration was also, of course, given to the Regulations in respect of which
we are now reporting. The Committee received professional advice from PricewaterhouseCoopers where appropriate.
I would like to thank my colleagues on the Remuneration Committee for their support and counsel during the year.
Tracey Graham
Chair of the Remuneration Committee
27 February 2014
Policy Report
The Committee focuses on trends and best practices amongst listed companies of similar size in the Support Services sector when
determining remuneration. However the Committee recognises that a number of the Group’s main competitors and therefore
comparators for the purpose of remuneration are not publicly listed companies and needs to take account of this in its deliberations.
The overall 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 and
offering up to medium level comparative total reward. 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 Remuneration Committee also believes that the
most effective remuneration policy is simple and transparent. In particular the use of the Bonus Plan as the sole incentive plan for
Executive Directors provides a simple and transparent mechanism which supports the nature of the Company’s business and its key
strategic objectives.
The detailed information that is required under the Regulations as the policy that shareholders are asked to approve has been included
in the notes 1 to 13 on pages 77 to 85 and which form part of this report. This policy has been operated during the year ended 31
December 2013 and for the purposes of the Regulations will apply from the date of the Company’s 2014 Annual General Meeting for
a three year period.
25
rpsgroup.com Annual Report
Audited Information
The following table sets out the total of the remuneration received by each of the Directors during the year under review.
Director
£000s
Year
Base Salary
or Fees
Benefits
Bonus
Long Term
Incentives
All Employee
Share Plan
Pensions
Total
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
Executive
Alan Hearne
Phil Williams
Gary Young
Non–Executive
Brook Land
John Bennett
Louise Charlton
Robert Miller–Bakewell
Tracey Graham
Total
459
350
239
446
340
232
113
52
36
42
44
110
50
35
41
43
1,335 1,297
20
17
17
–
–
–
–
–
54
19
16
16
–
–
–
–
–
51
287
192
112
689
491
348
–
–
–
–
–
–
–
–
–
–
591 1,528
–
–
–
–
–
–
–
–
–
383
250
268
–
–
–
–
–
901
2
2
2
–
–
–
–
–
6
2
1
2
–
–
–
–
–
5
115
61
36
111
59
35
883 1,650
622 1,157
901
406
–
–
–
–
–
110
113
50
52
35
36
41
42
43
44
205 2,198 3,987
212
The following table shows the relationship between total remuneration received by the Directors and reported Group profits.
£000s
2012
2013
Total Remuneration
3,982
2,198
PBTA
60,099
63,000
Remuneration received as % of PBTA
6.6
3.5
The additional information that is required under the Regulations which form part of the annual report for the year ended 31
December 2013 has been included in notes 1 to 14 on pages 86 to 90. This additional information is unaudited with the exception of
notes 1 to 7.
26
Report and Accounts 2013
Management & Governance
Independent auditor’s report to the members of RPS Group Plc
Opinion on financial statements of RPS Group plc
In our opinion:
n
n
n
n
the financial statements give a true and fair view of the state of the Group’s and the Parent Company’s affairs as at 31 December
2013 and the Group’s profit for the year then ended;
the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union;
the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the
group financial statements, Article 4 of the IAS Regulation.
The financial statements comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the
Consolidated and Parent Company Balance Sheets, the Consolidated Cash Flow Statement, the Consolidated Statement of Changes
in Equity and the related notes 1 to 33 for the Consolidated financial statements and 1 to 13 to the Parent Company financial
statements. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable
law and 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).
Going concern
As required by the Listing Rules we have reviewed the directors’ statement contained within the directors’ report on page [17] that
the Group is a going concern. We confirm that:
n
n
we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is
appropriate; and
we have not identified any material uncertainties that may cast significant doubt on the Group’s ability to continue as a
going concern.
However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s ability to
continue as a going concern.
Our assessment of risks of material misstatement
The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy, the allocation
of resources in the audit and directing the efforts of the engagement team:
Risk
How the scope of our audit responded to the risk
Revenue recognition
focussing on the judgement
involved in determining
the extent of revenue to
recognise on contracts
spanning the year end.
Our audit work assessed the adequacy of the design and implementation of controls over the
recognition of revenue through performing walkthrough procedures. We tested in detail a sample
of contracts by reviewing the contract terms, the related time records and other assumptions used
to determine revenue to be recognised for these contracts. Our testing focused on those contracts
spanning the year end and any contracts which were complex or had unusual terms to check that
revenue had been recognised accurately in the appropriate period.
Accounting for acquisitions,
in particular the judgements
involved in identifying and
measuring the fair value
of acquired assets and
liabilities and measuring
the consideration, including
deferred consideration in
accordance with IFRS 3
continue to have a significant
impact on the consolidated
balance sheet.
We reviewed management’s papers and workings underlying the business combination accounting
for all six acquisitions in the year. We challenged key assumptions and judgements underpinning the
valuations, such as the forecast revenues and margins for existing customers, and obtained support
for the calculated fair values. We also benchmarked the discount rates with external peer group
published rates. Where necessary we involved our own valuations specialists to assist our approach.
In assessing the completeness of assets and liabilities recognised in the business combination, we
reviewed details of the legal agreements in place and challenged management’s assertions. We
assessed the treatment of deferred payment arrangements against the requirements of IFRS 3 to
confirm that they represent consideration rather than remuneration.
27
rpsgroup.com Risk
How the scope of our audit responded to the risk
Assessment of the carrying
value of goodwill and
intangible assets due to
the significance of the
amounts recorded on the
consolidated balance sheet,
the number of judgements
involved in assessing
goodwill and intangible
assets for impairment and
the continued challenging
economic conditions.
Recoverability of trade
receivables and accrued
income due to the material
nature of these balances
and the fact that whilst the
economy is showing signs
of improvement, the Group
remains exposed to the
risk that amounts may not
be recovered.
We evaluated the adequacy and reasonableness of management’s assumptions and the
appropriateness of their judgements and forecasts used as part of their value in use calculations.
This included a specific review and challenge of discount rates, short and long-term growth rates,
which we benchmarked against external peer group published rates, making use of our valuation
experts, as appropriate. We also considered the appropriateness of the level of aggregation of
individual cash generating units and the methodology applied, as well as reviewing the associated
disclosure in note 11.
We assessed the adequacy and reasonableness of the assumptions used in management’s
calculations and the appropriateness of judgements on, the completeness of the provisions against
trade receivables and accrued income. This included a review of the cash received post year end
on a sample of customer debts and a review of ageing analysis for trade receivables and accrued
income by entity and customer, specifically challenging amounts significantly past-due but not
impaired. We also performed audit procedures to understand and assess the movement in the
respective provisioning during the year ended 31 December 2013.
We discussed these notes with the Audit Committee. Their report on those matters that they considered to be significant issues in
relation to the Financial Statements is set out on page 22.
Our audit procedures relating to these matters were designed in the context of our audit of the financial statements as a whole, and
not to express an opinion on individual accounts or disclosures. Our opinion on the financial statements is not modified with respect
to any of the risks described above, and we do not express an opinion on these individual matters.
Our application of materiality
We determined materiality for the Group to be £3 million, which is 5% of adjusted pre-tax profit (profit before tax, amortisation of
acquired intangibles and transaction-related costs), and below 7% of profit before tax and 1% of equity. Pre-tax profit is adjusted as
this is the key performance measure reviewed by the market.
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £60,000, as well as
differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee
on disclosure matters that we identified when assessing the overall presentation of the financial statements.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and
assessing the risks of material misstatement at the Group level. Based on that assessment, we focused our Group audit scope primarily
on the audit work at five locations including the UK, USA, Australia, Ireland and the Netherlands. Within the five locations twenty-one
principal business units, including the UK and Group Head Office, were subject to a full audit. In addition twelve business units were
subject to specified audit procedures with the nature of our testing based on our assessment of the risks of material misstatement and
of the materiality of the Group’s business operations at those locations.
The five locations incorporating the twenty-one principal business units represent the principal business units and account for 92% of
the group’s net assets, 95% of the group’s revenue and 99% of the Group’s profit before tax. They were also selected to provide an
appropriate basis for undertaking audit work to address the risks of material misstatement identified above. Our audit work at the five
locations was executed at levels of materiality applicable to each individual entity which were lower than Group materiality.
At the parent entity level we also tested the consolidation process and carried out analytical procedures to confirm that there were no
significant risks of material misstatement of the aggregated financial information of the remaining components not subject to audit or
audit of specified account balances.
The Senior Statutory Auditor and/or another senior member of the group engagement team visit in-scope overseas components on
a rotational basis. Every year, regardless of whether we have visited or not, we include the component audit partner and other senior
members of the component audit team in our team briefing, direct the scope of their work for the purposes of our Group audit,
discuss their risk assessment and review documentation of the findings from their work.
28
Report and Accounts 2013 Management & Governance
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
n
n
the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies
Act 2006; and
the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements
are prepared is consistent with the financial statements.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
n
n
we have not received all the information and explanations we require for our audit; or
adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been
received from branches not visited by us; or
n
the Parent Company financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration have
not been made or the part of the Directors’ Remuneration Report to be audited is not in agreement with the accounting records and
returns. We have nothing to report arising from these matters.
Corporate Governance Statement
Under the Listing Rules we are also required to review the part of the Corporate Governance Statement relating to the company’s
compliance with nine provisions of the UK Corporate Governance Code. We have nothing to report arising from our review.
Our duty to read other information in the Annual Report
Under International Standards on Auditing (UK and Ireland), we are required to report to you if, in our opinion, information in the
annual report is:
n
n
materially inconsistent with the information in the audited financial statements; or
apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of
performing our audit; or
n
otherwise misleading.
In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the
audit and the directors’ statement that they consider the annual report is fair, balanced and understandable and whether the annual
report appropriately discloses those matters that we communicated to the audit committee which we consider should have been
disclosed. We confirm that we have not identified any such inconsistencies or misleading statements.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the
financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards
require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. We also comply with International Standard
on Quality Control 1 (UK and Ireland). Our audit methodology and tools aim to ensure that our quality control procedures are
effective, understood and applied. Our quality controls and systems include our dedicated professional standards review team, advisory
partner reviews and independent partner reviews.
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.
29
rpsgroup.com Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to the Group’s and the Parent Company’s circumstances and have
been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and
the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual
report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently
materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit.
If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
John Clennett FCA (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor Reading
United Kingdom
27 February 2014
30
Report and Accounts 2013 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
Year ended
31 Dec
2013
Year ended
31 Dec
2012
567,614
(75,493)
492,121
555,863
(77,028)
478,835
Note
3
3
3
1(g),3,4,5
65,305
62,069
1(g),4
6
6
(19,425)
45,880
(2,430)
157
(19,925)
42,144
(2,128)
158
63,032
60,099
43,607
40,174
9
(14,987)
(14,263)
Profit for the year attributable to equity holders of the parent
28,620
25,911
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
13.11
13.05
20.22
20.14
11.94
11.87
19.48
19.36
Consolidated Statement of Comprehensive Income
£000s
Profit for the year
Exchange differences*
Total recognised comprehensive income for the year
attributable to equity holders of the parent
*May be reclassified subsequently to profit or loss in accordance with IFRS.
The notes on pages 35 to 68 form part of these financial statements.
Year ended
31 Dec
2013
Year ended
31 Dec
2012
28,620
(18,200)
25,911
(5,545)
10,420
20,366
31
rpsgroup.comAccounts Consolidated Balance Sheet
£000s
Assets
Non-current assets:
Intangible assets
Property, plant and equipment
Deferred tax asset
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
2013
As at
31 Dec
2012
Note
11
12
20
14
16
18
15
19
16
18
20
19
21
22
375,279
27,785
2,018
405,082
161,741
18,699
180,440
1,465
20,919
103,260
3,058
2,134
130,836
49,604
49,602
14,923
2,471
13,645
2,007
82,648
372,038
6,619
108,307
17,652
239,460
372,038
328,440
30,632
–
359,072
159,381
14,804
174,185
748
7,842
101,921
3,582
2,633
116,726
57,459
27,557
3,543
1,745
8,436
1,436
42,717
373,814
6,587
106,198
36,070
224,959
373,814
These financial statements were approved and authorised for issue by the Board on 27 February 2014.
The notes on pages 35 to 68 form part of these financial statements.
Dr Alan Hearne, Director
Gary Young, Director
On behalf of the Board of RPS Group Plc (company number 2087786).
32
Report and Accounts 2013
Consolidated Cash Flow Statement
£000s
Adjusted cash generated from operations
Deferred consideration treated as remuneration
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
Proceeds from disposal of business
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issue of share capital
Purchase of own shares
Proceeds from / (repayments of) bank borrowings
Payment of finance lease liabilities
Dividends paid
Payment of pre-acquisition dividend
Net cash generated/(used) in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of exchange rate fluctuations
Cash and cash equivalents at end of year
Cash and cash equivalents comprise:
Cash at bank
Bank overdraft
Cash and cash equivalents at end of year
The notes on pages 35 to 68 form part of these financial statements.
Year ended
31 Dec
2013
Year ended
31 Dec
2012
72,030
(7,714)
64,316
(1,991)
157
(19,829)
42,653
(31,174)
(3,466)
(8,034)
523
–
(42,151)
555
–
18,609
(580)
(15,034)
(247)
3,303
76,045
(9,969)
66,076
(2,204)
158
(18,162)
45,868
(9,774)
(4,130)
(9,909)
713
298
(22,802)
240
(400)
(17,409)
(1,350)
(13,007)
(399)
(32,325)
3,805
(9,259)
14,804
(818)
17,791
18,699
(908)
17,791
24,458
(395)
14,804
14,804
–
14,804
Note
26
28
23
26
26
33
rpsgroup.comAccounts Consolidated Statement of Changes in Equity
£000s
At 1 January 2012
Changes in equity during 2012:
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 2012
Changes in equity during 2013:
Total comprehensive income
Issue of new ordinary shares
Share based payment expense
Tax recognised directly in equity
Dividends paid
At 31 December 2013
Share
capital
6,544
–
43
–
–
–
–
6,587
–
32
–
–
–
6,619
Share
premium
103,717
–
2,481
–
–
–
–
106,198
–
2,109
–
–
–
108,307
Retained
earnings
210,890
25,911
(1,000)
–
2,070
95
(13,007)
224,959
28,620
(1,370)
1,938
347
(15,034)
239,460
Other
reserves
43,299
(5,545)
(1,284)
(400)
–
–
–
36,070
(18,200)
(218)
–
–
–
17,652
Total
equity
364,450
20,366
240
(400)
2,070
95
(13,007)
373,814
10,420
553
1,938
347
(15,034)
372,038
An analysis of other reserves is provided in note 22 and details of dividends paid are provided in note 23.
The notes on pages 35 to 68 form part of these financial statements.
34
Report and Accounts 2013
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 2013 comprise the Company and its subsidiaries (together referred to as the “Group”).
The consolidated financial statements were authorised for issuance on 27 February 2014.
(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 the year, the Group has applied IFRS 13 Fair Value measurement, the Annual Improvements to IFRS and IAS 1 (amended)
Presentation of Items of Other Comprehensive Income. The Group has early adopted “Recoverable Amount Disclosures for Non-
Financial Assets” (Amendments to IAS 36). Their adoption has not had a material impact on the disclosures or amounts reported
in these accounts. Otherwise these financial statements have been prepared using the accounting policies set out in the Report and
Accounts 2012.
The accounting policies set out below have been applied consistently to both 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 measured by reference to the milestones achieved or cost incurred as a proportion of the total forecast cost. 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 as an agent. 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.
35
rpsgroup.comAccounts Notes to the Consolidated Financial Statements continued
1. Significant accounting policies continued
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.
(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.
Where the payment of deferred consideration is not contingent upon continuing employment of the vendors by the Group, 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.
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 unsettled remuneration which has been expensed to the
balance sheet date.
(e) Intangible assets
i Goodwill
All business combinations are accounted for by applying the purchase method. Goodwill has been recognised on 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 groups of 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 in proportion to the timing of the benefits derived from the related asset 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 compete agreements
Software
Intellectual property rights
3 to 15 years
1 to 5 years
1 to 4 years
3 years
10 years
10 years
36
Report and Accounts 2013 (f) Impairment of non financial assets
The carrying amounts of the Group’s non financial 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.
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) Non statutory performance measures
The Board uses six non statutory performance measures. 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”, “Adjusted diluted earnings per share”, “Segment profit” and “Underlying profit”.
The Board considers these to be more reflective of the way the business is managed than the statutory measures “Operating profit”,
“Profit before tax”, “Basic earnings per share” and “Diluted earnings per share”.
“Segment profit” is defined as profit before interest, tax, amortisation of acquired intangibles, transaction related costs and
unallocated expenses.
“Underlying profit” is defined as segment profit before reorganisation costs.
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), negative goodwill that has
been credited to the income statement (see note 1 (e) ii), 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
The Group considers that the accounting policies above all require judgement to be exercised.
Judgements that could have a material effect on the Group’s financial statements include the following:
1.
2.
3.
Revenue recognition – judgement is required to identify when it is appropriate to recognise revenue on contracts,
particularly with respect to fixed price contracts.
Acquisition accounting – judgements are made with respect to the fair value of the net assets acquired. See note 28 for
details of the acquisitions completed in 2013.
Impairment of non-financial assets – when impairment reviews of goodwill and intangible assets are undertaken, judgements
are made with respect to the discount rates applicable to the Group’s cash generating units, along with the expected cash
flows of those cash generating units and the growth rates applied to them. Detail of the results of the impairment reviews
performed in 2013 can be found in note 11 along with the judgements applied.
37
rpsgroup.comAccounts
Notes to the Consolidated Financial Statements continued
1. Significant accounting policies continued
4.
Impairment of financial assets – management considers in detail when it is appropriate to recognise impairment reserves
against specific financial assets including debtors and accrued income. This judgement will take into account our previous
experience with the client in question, their particular circumstances and the markets that they work in. Details of the
impairment reserves held for financial assets can be found in note 14.
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 the 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 the income statement
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.
38
Report and Accounts 2013
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 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.
(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 consolidated cash flow statement.
(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 Defined benefits plans
The cost of providing benefits is determined using the Projected Unit Credit Method, with actual valuations being carried out at the
end of each reporting period. The retirement benefit obligation recognised in the Consolidated Balance Sheet represents the deficit in
the Group’s Defined Benefit Scheme.
iii 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 expensed 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.
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. Shareholder 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.
iv 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.
39
rpsgroup.comAccounts Notes to the Consolidated Financial Statements continued
2. Other accounting policies continued
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:
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 equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the
balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary
differences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect
neither accounting nor taxable profit and the differences relating to investments in subsidiaries to the extent that they will probably
not reverse in the foreseeable future. In accordance with IAS12, deferred tax is taken directly to equity to the extent that the intrinsic
value of the outstanding share awards (based on the closing share price) is greater than the share based payment expense already
charged to the income statement. The amount of deferred tax provided is based on the expected manner of realisation or settlement
of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the
asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will
be realised.
(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.
40
Report and Accounts 2013 (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.
(n) Accounting standards issued but not adopted
At the date of authorisation of these financial statements, the following standards and relevant interpretations, which have not been
applied in these financial statements, were in issue but not yet effective (and some of which were pending endorsement by the EU):
n
n
n
n
n
n
IFRS 9 Financial Instruments
IFRS 10 Consolidated Financial Statements
IFRS 10, IFRS 12 and lAS 27 (amended) Investment Entities
IFRS 11 Joint Arrangements
IFRS 12 Disclosure of Interests in Other Entities
lAS 27 (revised) Separate Financial Statements
n
n
n
n
lAS 28 (revised) Investments in Associates and Joint Ventures
lAS 32 (amended) Offsetting Financial Assets and
Financial Liabilities
lAS 39 (amended) Novation of Derivatives and Continuation
of Hedge Accounting
lAS 19 (amended) Defined Benefit Plans:
Employee Contributions
The Directors anticipate that the adoption of these Standards and Interpretations in future periods will not have a material impact on
the financial statements of the Group.
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 in October 2013, the Group now separately reports its Built and Natural Environment business in North America and
now manages its Energy and BNE businesses in AAP under a single regional board. The prior year disclosures have been restated to
reflect these changes.
The business segments of the Group are as follows:
Energy - the provision of integrated technical, commercial and project management support and training in the fields of geoscience,
engineering and health, safety and environment on a global basis to the energy sector.
Built and Natural Environment (“BNE”) - consultancy services to many aspects of the property and infrastructure development and
management sectors. These include: environmental assessment, the management of water resources, oceanography, health and safety,
risk management, town and country planning, building, landscape and urban design, surveying and transport planning. Consulting
services are provided on a regional basis in Europe and North America.
Australia Asia Pacific (“AAP”) - In the AAP region there is a single board that manages the BNE and Energy services we provide in that
region. Accordingly the results of this business are reported as a separate segment.
Central costs - certain central costs are not allocated to the segments because either they predominently relate to the running of the
Group Head Office function or could only be allocated to the 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”.
“Segment profit” and “Underlying profit” are defined in note 1(g)
41
rpsgroup.comAccounts
Notes to the Consolidated Financial Statements continued
3. Business and geographical segments continued
Segment results for the year ended 31st December 2013
Energy
BNE - Europe
BNE - North America
AAP
Group eliminations
Total
£000s
Energy
BNE - Europe
BNE - North America
AAP
Total
Segment results for the year ended 31st December 2012 (restated)
Energy
BNE - Europe
BNE - North America
AAP
Group eliminations
Total
£000s
Energy
BNE - Europe
BNE - North America
AAP
Total
Fees
Expenses
Intersegment
revenue
External
revenue
189,535
149,292
30,044
127,194
(3,944)
492,121
33,803
20,171
4,538
17,380
(399)
75,493
(1,141)
(603)
(1,111)
(1,488)
4,343
–
Underlying
profit
Reorganisation
costs
37,098
19,164
7,592
10,020
73,874
(78)
(487)
–
(1,192)
(1,757)
222,197
168,860
33,471
143,086
–
567,614
Segment
profit
37,020
18,677
7,592
8,828
72,117
Fees
Expenses
Intersegment
revenue
External
revenue
164,363
157,200
26,938
133,888
(3,554)
478,835
29,160
21,433
4,264
22,393
(222)
77,028
(823)
(1,301)
(123)
(1,529)
3,776
–
Underlying
profit
Reorganisation
costs
31,243
18,874
6,252
15,188
71,557
(46)
(754)
–
(946)
(1,746)
192,700
177,332
31,079
154,752
–
555,863
Segment
profit
31,197
18,120
6,252
14,242
69,811
42
Report and Accounts 2013 Group Reconciliation
£000s
Revenue
Recharged expenses
Fees
Underlying profit
Reorganisation costs
Segment profit
Unallocated expenses
Operating profit before amortisation of acquired intangibles and transaction related costs
Amortisation of acquired intangibles and transaction related costs
Operating profit
Finance costs
Profit before tax
Year ended
31 Dec
2013
Year ended
31 Dec
2012
567,614
(75,493)
492,121
73,874
(1,757)
72,117
(6,812)
65,305
(19,425)
45,880
(2,273)
43,607
555,863
(77,028)
478,835
71,557
(1,746)
69,811
(7,742)
62,069
(19,925)
42,144
(1,970)
40,174
£000s
Energy
BNE - Europe
BNE - North America
AAP
Unallocated
Group total
Carrying amount of
segment assets
Year ended
31 Dec
2012
(restated)
Year ended
31 Dec
2013
Segment depreciation
and amortisation
Year ended
31 Dec
2012
(restated)
Year ended
31 Dec
2013
214,631
219,112
27,430
117,769
6,580
585,522
134,928
226,861
28,677
140,466
2,325
533,257
7,128
3,766
2,266
7,670
819
21,649
The table below shows revenue and fees to external customers based upon the country from which billing took place:
Year ended
31 Dec
2013
240,065
131,174
86,135
33,076
31,733
28,349
17,082
567,614
Revenue
Year ended
31 Dec
2012
238,481
144,753
71,506
28,159
32,769
30,917
9,278
555,863
£000s
UK
Australia
USA
Netherlands
Canada
Ireland
Other
Total
£000s
UK
Australia
USA
Canada
Ireland
Netherlands
Norway
Other
Total
Year ended
31 Dec
2013
205,044
114,418
77,594
28,204
27,728
22,083
17,050
492,121
As at
31 Dec
2013
185,341
81,236
31,490
21,019
39,892
17,806
28,244
54
405,082
4,164
3,607
2,816
8,215
784
19,586
Fees
Year ended
31 Dec
2012
204,436
123,782
63,736
24,483
28,658
24,607
9,133
478,835
Carrying amount of
non current assets
As at
31 Dec
2012
174,829
96,433
26,419
4,434
39,064
17,832
–
61
359,072
43
rpsgroup.comAccounts Notes to the Consolidated Financial Statements continued
4. Amortisation of acquired intangibles and transaction related costs
£000s
Amortisation of acquired intangibles
Contingent deferred consideration treated as remuneration
Negative goodwill (see note 28)
Transaction costs
Loss on disposal of business
5. Operating profit - by nature of expense
£000s
Revenue
Staff costs (see note 7)
Subconsultants costs
Other employment related costs
Depreciation of owned assets
Depreciation of assets held under finance leases
Profit on disposal of fixed assets
Operating lease rentals payable - property
Operating lease rentals payable - equipment and motor vehicles
Travel costs
Office costs
Amortisation of acquired intangibles
Other transaction related costs
Other costs
Operating profit
6. Net financing costs
£000s
Finance costs:
Interest on loans, overdraft and finance leases
Interest payable on deferred consideration
Finance income:
Deposit interest receivable
Net financing costs
44
Year ended
31 Dec
2013
Year ended
31 Dec
2012
12,217
6,009
–
1,199
–
19,425
10,636
8,593
(266)
827
135
19,925
Year ended
31 Dec
2013
Year ended
31 Dec
2012
567,614
555,863
(214,317)
(132,788)
(15,609)
(9,219)
(213)
241
(12,562)
(4,469)
(12,909)
(17,220)
(12,217)
(7,208)
(83,244)
45,880
(217,932)
(121,354)
(17,444)
(8,205)
(745)
138
(11,998)
(4,218)
(14,041)
(18,259)
(10,636)
(9,289)
(79,736)
42,144
Year ended
31 Dec
2013
Year ended
31 Dec
2012
(1,593)
(837)
(2,430)
157
(2,273)
(1,583)
(545)
(2,128)
158
(1,970)
Report and Accounts 2013 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
Year ended
31 Dec
2013
Year ended
31 Dec
2012
184,238
17,615
10,526
1,938
214,317
3,370
936
4,306
187,555
17,536
10,771
2,070
217,932
3,583
924
4,507
In addition to statutory staff costs, contingent deferred consideration treated as remuneration amounts to £6,009,000
(2012: £8,593,000).
The Group considers the Directors to be the key management personnel and details of directors’ remuneration are included in the
Remuneration Report from page 26. The share based payment charge in respect of key management personnel was £153,000
(2012: £221,000).
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
Statutory audit of the Company's annual accounts
Statutory audit of the Group's subsidiaries
Total audit fees
Interim review
Total assurance services
Tax compliance services
Tax advisory services
Services in relation to taxation
Other services
Total fees
Year ended
31 Dec
2013
Year ended
31 Dec
2012
47
330
377
35
412
90
12
102
19
533
45
289
334
25
359
68
200
268
–
627
45
rpsgroup.comAccounts
Notes to the Consolidated Financial Statements continued
9. Income taxes
Analysis of tax expense/(credit) in the income statement for the year:
£000s
Current tax:
UK Corporation tax
Overseas tax
Adjustments in respect of prior years
Deferred tax:
Origination and reversal of timing differences
Effect of change in tax rate
Adjustments in respect of prior years
Year ended
31 Dec
2013
Year ended
31 Dec
2012
4,834
10,922
692
16,448
(514)
(490)
(457)
(1,461)
4,596
13,133
618
18,347
(2,932)
(21)
(1,131)
(4,084)
Total tax charge to income for the year
14,987
14,263
Analysis of tax credits in equity for the year:
Current tax
Deferred tax
Total tax credit to equity for the year
–
(347)
(347)
–
(95)
(95)
The effective tax rate for the year on profit before tax is 34.4% (2012: 35.5%). The effective tax rate for the year on profit before tax,
amortisation of acquired intangibles and transaction related costs is 29.9% (2012: 29.7%) as shown in the table below:
£000s
Total tax expense in Income Statement
Add back:
Tax on amortisation of acquired intangibles and transaction related costs
Adjusted tax charge on the profit for the year
Profit before tax, amortisation of acquired intangibles and transaction related costs
Adjusted effective tax rate
Year ended
31 Dec
2013
Year ended
31 Dec
2012
14,987
14,263
3,889
18,876
63,032
29.9%
3,569
17,832
60,099
29.7%
46
Report and Accounts 2013 The UK rate of corporate tax was reduced from 24% to 23% from 1 April 2013. The UK tax expense for the group’s UK companies
is 23.25% (2012: 24.50%) representing the weighted average annual corporate tax rate for the full financial year.
The actual tax expense for 2013 is different from 23.25% (2012: 24.50%) of profit before tax for the reasons set out in the
following reconciliation:
£000s
Profit before tax
Tax at the standard rate of 23.25% (2012: 24.50%)
Effect of:
Effect of overseas tax rates
Non deductible acquisition consideration treated as remuneration
Expenses not deductible for tax purposes
Non taxable income
Effect of change in tax rates
Adjustments in respect of prior years
Total tax charge on the profit for the period
Year ended
31 Dec
2013
Year ended
31 Dec
2012
43,607
40,174
10,139
9,843
3,432
1,401
403
(133)
(490)
235
14,987
2,339
2,105
632
(65)
(78)
(513)
14,263
The UK government has announced a future decrease in the UK corporation tax rate from 23% to 20% from April 2015. This change
has resulted in a deferred tax credit arising from the reduction in the balance sheet carrying value of deferred tax liabilities to reflect the
anticipated rate of tax at which those liabilities are expected to reverse.
47
rpsgroup.comAccounts Notes to the Consolidated Financial Statements continued
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 table 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
2013
Year ended
31 Dec
2012
28,620
25,911
218,355
909
219,264
13.11
13.05
216,980
1,313
218,293
11.94
11.87
The directors consider that earnings per share before amortisation of acquired intangible and transaction related costs provides a more
meaningful measure of the Group’s performance than statutory earnings per share. The calculations of adjusted earnings per share
were based on the number of shares as above and are 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 (note 9)
Adjusted profit attributable to ordinary shareholders
Adjusted basic earnings per share (pence)
Adjusted diluted earnings per share (pence)
Year ended
31 Dec
2013
Year ended
31 Dec
2012
28,620
19,425
(3,889)
44,156
20.22
20.14
25,911
19,925
(3,569)
42,267
19.48
19.36
48
Report and Accounts 2013 11. Intangible assets
£000s
Cost:
At 1 January 2013
Additions
Foreign exchange differences
At 31 December 2013
Aggregate amortisation and impairment losses:
At 1 January 2013
Amortisation
Foreign exchange differences
At 31 December 2013
Net book value at 31 December 2013
Intellectual
property
rights
Customer
relationships
Order
backlog
Trade
names
Non
compete
agreements
Software
Goodwill
Total
2,673
425
(120)
2,978
559
311
(42)
828
2,150
68,479
28,992
(6,211)
91,260
6,954
4,262
(599)
10,617
25,242
9,333
(2,220)
32,355
58,905
6,806
1,382
(372)
7,816
2,801
2,322
2,787
(300)
4,809
1,719
774
(138)
2,355
2,454
548
–
(5)
543
335
186
(8)
513
30
1,107
499
(70)
1,536
293,368
38,505
(11,906)
319,967
375,451
75,470
(19,211)
431,710
129
231
(17)
343
1,193
12,221
–
–
12,221
307,746
47,011
12,217
(2,797)
56,431
375,279
Intangible asset additions that are recorded in 2013 have been recognised at their provisional fair values (see note 28).
Acquisitions in 2012 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 IFRS 3.
£000s
Intellectual
property
rights
Customer
relationships
Order
backlog
Trade
names
Non
compete
agreements
Software
Goodwill
Total
Cost:
At 1 January 2012
Additions
Reduction due to disposal
Reduction in deferred consideration payable
Adjustment to prior year estimates
Foreign exchange differences
At 31 December 2012
Aggregate amortisation and impairment losses:
At 1 January 2012
Amortisation
Foreign exchange differences
At 31 December 2012
Net book value at 31 December 2012
2,782
–
–
–
–
(109)
2,673
285
283
(9)
559
2,114
67,213
2,993
–
–
–
(1,727)
68,479
17,694
8,023
(475)
25,242
43,237
6,267
839
–
–
–
(152)
6,954
5,215
1,700
(109)
6,806
148
2,367
–
–
–
–
(45)
2,322
1,426
333
(40)
1,719
603
561
–
–
–
–
(13)
548
156
184
(5)
335
213
1,158
–
–
–
–
(51)
1,107
285,780
12,357
(1,135)
(107)
232
(3,759)
293,368
366,128
16,189
(1,135)
(107)
232
(5,856)
375,451
19
113
(3)
129
978
12,221
–
–
12,221
281,147
37,016
10,636
(641)
47,011
328,440
Goodwill
Goodwill acquired in a business combination is allocated at acquisition to the groups of cash generating units (CGUs) that are
expected to benefit from that business combination. Due to the Group’s change in segmentation, as announced in October 2013, the
Group has reallocated goodwill between the Energy, BNE North America and AAP segments. In 2012, the AAP (Energy) and BNE
North America CGU groups were included within the Energy (global) CGU grouping. In 2012 there were four CGU groups. In 2013
there are seven. The carrying amount of goodwill has been allocated as follows:
49
rpsgroup.comAccounts Notes to the Consolidated Financial Statements continued
11. Intangible assets continued
£000s
BNE: Europe (UK and Ireland)
BNE: Europe (Netherlands)
BNE: North America
AAP (BNE)
AAP (Energy)
Energy (global)
Energy (Norway)
As at
31 Dec
2013
141,855
9,702
11,194
56,266
4,703
66,753
17,273
307,746
As at
31 Dec
2012
140,870
9,574
11,406
64,220
5,561
49,516
–
281,147
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 CGU
groups 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 are in the range 10.3% to 11.7% (2012: 10.8% to 12.0%).
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.
The long term growth rate applied to the perpetuity calculations was between 2.0% and 2.5% per annum (2012: 2.1%) reflecting the
average long term EBIT growth rates of the economies in which the CGUs are based.
The assumptions used for the most significant groups of CGUs are as follows:
BNE: E (UK and Ireland)
AAP (BNE)
Energy (global)
Summary of results
Post tax discount rate
Medium term real growth rate
excluding inflation
Long term growth rate
10.9%
11.3%
11.5%
3.0%
3.0%
3.0%
2.2%
2.5%
2.2%
During the year, all goodwill was tested for impairment with no impairment charge resulting (2012: £nil).
The BNE: Europe UKI CGU grouping has the lowest percentage headroom. An increase in the discount rate of 160bps, a 2014 budget
miss of 19% or a reduction in the medium term growth rate of 600bps would reduce the headroom to zero. The AAP (BNE) CGU
grouping has the next lowest percentage headroom. An increase in the discount rate of 230bps, a 2014 budget miss of 29% or a
reduction in the medium term growth rate of 1900bps would reduce the headroom to zero.
50
Report and Accounts 2013 12. Property, plant and equipment
£000s
Cost:
At 1 January 2013
Additions
Disposals
Additions through acquisition
Foreign exchange differences
At 31 December 2013
Depreciation:
At 1 January 2013
Charge for the year
Disposals
Foreign exchange differences
At 31 December 2013
Net book value at 31 December 2013
Freehold
land and
buildings
Alterations
to leasehold
premises
8,396
31
–
–
214
8,641
2,229
191
–
57
2,477
6,164
7,598
602
(162)
66
(668)
7,436
2,554
1,209
(158)
(327)
3,278
4,158
Fixtures,
fittings,
IT and
equipment
61,091
6,816
(5,845)
588
(2,726)
59,924
44,176
7,200
(5,645)
(1,481)
44,250
15,674
Motor
vehicles
4,198
503
(694)
–
(538)
3,469
1,692
832
(616)
(228)
1,680
1,789
Total
81,283
7,952
(6,701)
654
(3,718)
79,470
50,651
9,432
(6,419)
(1,979)
51,685
27,785
At 31 December 2013 the Group held under finance lease contracts alterations to leasehold properties and equipment with net book
values of £406,000 and £18,000 respectively.
£000s
Cost:
At 1 January 2012
Additions
Disposals
Additions through acquisition
Foreign exchange differences
At 31 December 2012
Depreciation:
At 1 January 2012
Charge for the year
Disposals
Foreign exchange differences
At 31 December 2012
Net book value at 31 December 2012
Freehold
land and
buildings
Alterations
to leasehold
premises
9,071
4
(450)
–
(229)
8,396
2,242
239
(208)
(44)
2,229
6,167
6,373
1,632
(251)
–
(156)
7,598
1,822
1,012
(230)
(50)
2,554
5,044
Fixtures,
fittings,
IT and
equipment
55,671
7,089
(1,652)
844
(861)
61,091
39,253
6,883
(1,466)
(494)
44,176
16,915
Motor
vehicles
3,718
1,218
(641)
18
(115)
4,198
1,446
816
(522)
(48)
1,692
2,506
Total
74,833
9,943
(2,994)
862
(1,361)
81,283
44,763
8,950
(2,426)
(636)
50,651
30,632
At 31 December 2012 the Group held under finance lease contracts alterations to leasehold properties, motor vehicles and equipment
with net book values of £711,000, £40,000 and £262,000 respectively.
51
rpsgroup.comAccounts Notes to the Consolidated Financial Statements continued
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 73.
14. Trade and other receivables
£000s
Trade receivables
Provision for impairment
Trade receivables net
Accrued income
Provision for impairment
Accrued income net
Prepayments
Other receivables
As at
31 Dec
2013
122,267
(4,665)
117,602
35,692
(5,557)
30,135
9,530
4,474
161,741
As at
31 Dec
2012
126,920
(8,820)
118,100
35,576
(5,621)
29,955
7,503
3,823
159,381
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 age 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
2013
13,784
13,515
27,299
As at
31 Dec
2012
10,535
11,341
21,876
52
Report and Accounts 2013
14. Trade and other receivables continued
Movements in impairment
£000s
As at 1 January 2013
Impairment charge
Receivables written off during the year as uncollectible
Recoveries
Additions through acquisitions
Foreign exchange
As at 31 December 2013
As at 1 January 2012
Impairment charge
Receivables written off during the year as uncollectible
Recoveries
Additions through acquisitions
Foreign exchange
As at 31 December 2012
Trade receivables Accrued income
8,820
1,108
(2,996)
(2,116)
22
(173)
4,665
8,228
4,180
(2,159)
(1,591)
51
111
8,820
5,621
3,083
(2,437)
(133)
–
(577)
5,557
6,496
4,105
(3,715)
(1,146)
–
(119)
5,621
31 Dec
2013
53,911
28,290
37,007
6,700
24,283
8,671
2,879
161,741
Total
14,441
4,191
(5,433)
(2,249)
22
(750)
10,222
14,724
8,285
(5,874)
(2,737)
51
(8)
14,441
31 Dec
2012
56,399
23,760
29,697
14,449
31,797
890
2,389
159,381
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
Norwegian Krone
Other
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
Deferred income
Creditors for taxation and social security
Other payables
As at
31 Dec
2013
26,893
32,779
19,236
15,064
9,288
103,260
As at
31 Dec
2012
31,174
30,932
20,386
13,779
5,650
101,921
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.
53
rpsgroup.comAccounts
Notes to the Consolidated Financial Statements continued
16. Borrowings
£000s
Bank loans
Bank overdraft
Finance lease creditor
As at
31 Dec
2013
49,637
908
522
51,067
As at
31 Dec
2012
27,098
–
1,207
28,305
£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 2013
as at 31 December 2012
Bank
loans and
overdraft
Finance
lease
creditor
967
–
49,578
50,545
(967)
49,578
498
24
–
522
(498)
24
Bank
loans and
overdraft
Finance
lease
creditor
158
70
26,870
27,098
(158)
26,940
590
588
29
1,207
(590)
617
Total
1,465
24
49,578
51,067
(1,465)
49,602
Total
748
658
26,899
28,305
(748)
27,557
The principal features of the Group’s borrowings 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 credit facility of £125,000,000 with Lloyds Bank plc, the Group’s principal bank, expiring in 2016. This comprises of
a £90,000,000 committed facility, with an additional £35,000,000 available as required, subject to credit approval. 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 £49,578,000 (2012: £26,870,000) at 31 December 2012.
The facility is guaranteed by the Company and certain subsidiaries but no security over the Group’s assets exists.
(b) Australian Dollar denominated loans of AUD 111,000. 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 £1,352,000 (2012: £3,594,000) drawn against a £10,000,000 ancillary facility with Lloyds Bank Plc.
The carrying amounts of short term borrowings approximate their fair values, as the impact of discounting is not significant.
The carrying amounts of our long term borrowings also approximate fair value.
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
2013
1,196
1,133
50,711
53,040
2012
693
594
27,389
28,676
The liquidity risk profile above shows the expected cashflows in respect of the Group’s loan facilities comprising payments of capital
and interest 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.
54
Report and Accounts 2013
17. Obligations under finance leases
Amounts payable under finance leases:
£000s
Within one year
In two to five years
as at 31 December 2013
Present
value of
minimum
lease
payments
Less
future
interest
charges
Minimum
lease
payments
527
25
552
(29)
(1)
(30)
498
24
522
as at 31 December 2012
Present
value of
minimum
lease
payments
Less
future
interest
charges
(80)
(35)
(115)
590
617
1,207
Minimum
lease
payments
670
652
1,322
For the year ended 31 December 2013, the average effective borrowing rate was 9%. Interest rates are fixed at the contract date.
All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.
The Group’s obligations under finance leases are secured by interlocking guarantees between certain Group entities, the lessors’ rights
over the leased assets and a letter of credit provided by Lloyds 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
Total deferred consideration payable
As at
31 Dec
2013
20,919
14,923
35,842
As at
31 Dec
2012
7,842
3,543
11,385
The amount due within one year as at 31 December 2013 includes contingent deferred consideration treated as remuneration expense
accrued but not paid totalling £2,457,000 (31 December 2012: £4,157,000). See note 33 for detail of the commitment in respect of
contingent deferred consideration treated as remuneration.
55
rpsgroup.comAccounts Notes to the Consolidated Financial Statements continued
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 one year.
Warranty
This provision is in respect of contractual obligations and is expected to be utilised within one to five years.
Dilapidations
The dilapidations provision is in respect of reinstatement obligations related to leasehold properties and will be utilised within 12 years.
£000s
As at 1 January 2013
Additional provision in the year
Utilised in year
Arising on acquisition of subsidiary
Exchange difference
At 31 December 2013
£000s
Due as follows:
Within one year
After more than one year
Property
Warranty
Dilapidations
599
175
(491)
127
(33)
377
1,419
415
(250)
–
16
1,600
2,051
635
(460)
35
(97)
2,164
As at
31 Dec
2013
2,134
2,007
4,141
Total
4,069
1,225
(1,201)
162
(114)
4,141
As at
31 Dec
2012
2,633
1,436
4,069
The carrying value of the provisions disclosed above is a reasonable approximation of their fair value.
56
Report and Accounts 2013 20. Deferred taxation
£000s
At 1 January 2012
Credit to income for the year
(Charge)/credit to income due to change in tax rate
Credit to equity for the year
Owned by subsidiaries acquired
Exchange differences
At 31 December 2012
(Charge)/credit to income for the year
(Charge)/credit to income due to change in tax rate
Credit to equity for the year
Owned by subsidiaries acquired
Exchange differences
At 31 December 2013
Disclosed within liabilities
Disclosed within assets
Fixed asset
timing
differences
Goodwill
and
intangible
assets
Foreign
exchange
on
investments
Employment
benefits
Share based
payments
Provisions
and other
timing
differences
(883)
26
(80)
–
(32)
48
(921)
399
(122)
–
(26)
(68)
(738)
208
(946)
(12,121)
2,284
183
–
(1,150)
244
(10,560)
2,190
638
–
(5,961)
454
(13,239)
(15,649)
2,410
(528)
–
–
–
–
–
(528)
528
–
–
–
–
–
–
–
2,800
147
(15)
–
(117)
2,815
(665)
(8)
–
84
140
2,366
2,237
129
88
41
3
95
–
–
227
(111)
4
347
–
–
467
10
457
(950)
1,565
(70)
–
–
(14)
531
(1,371)
(21)
–
300
78
(483)
(451)
(32)
Total
(11,594)
4,063
21
95
(1,182)
161
(8,436)
970
491
347
(5,603)
604
(11,627)
(13,645)
2,018
The balances at 1 January 2012 and 31 December 2012 were disclosed within liabilities.
No deferred tax liability is recognised on temporary differences of £34,953,000 (2012: £21,309,000) relating to the unremitted
earnings of overseas subsidiaries as the group is able to control the timing of the reversal of these temporary differences and it is
not probable that they will reverse in the foreseeable future. The temporary differences at 31 December 2013 represent only the
unremitted earnings of those overseas subsidiaries where remittance to the UK of those earnings may result in a tax liability, principally
as a result of dividend withholding taxes levied by the overseas tax jurisdictions in which they operate.
57
rpsgroup.comAccounts
Notes to the Consolidated Financial Statements continued
21. Share capital
Ordinary shares of 3p each
240,000,000
7,200
240,000,000
7,200
as at 31 December 2013
Authorised
£000s
Authorised
Number
as at 31 December 2012
Authorised
£000s
Authorised
Number
Issued and fully paid
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
At 31 December
Number
Ordinary shares held by the ESOP Trust
Ordinary shares held by the SIP Trust
Number
219,566,269
352,252
382,630
330,779
220,631,930
2013
£000s
6,587
11
11
10
6,619
Number
218,138,273
193,905
579,283
654,808
219,566,269
2012
£000s
6,544
6
17
20
6,587
As at
31 Dec
2013
2,021,707
3,592,678
As at
31 Dec
2012
2,340,216
3,602,403
The ESOP Trust has elected to waive any dividend on the unallocated ordinary shares held.
The table below shows options outstanding at 31 December 2013:
Period exercisable
2007 - 2014
2011 - 2018
2013 - 2020
2014 - 2021
Number
750
165,000
60,000
175,000
400,750
Exercise price (p)
118
295
195
212
58
Report and Accounts 2013
22. Other reserves
£000s
At 1 January 2012
Exchange differences
Issue of new shares
Purchase of own shares
At 31 December 2012
Exchange differences
Issue of new shares
At 31 December 2013
23. Dividends
£000s
Merger
reserve
21,256
–
–
–
21,256
–
–
21,256
Amounts recognised as distributions to equity holders during the year:
Final dividend for the year ended 31 December 2012 of 3.34p (2011: 2.90p) per share
Interim dividend for the year ended 31 December 2013 of 3.52p (2012: 3.06p) per share
Employee
trust
Translation
reserve
(7,375)
–
(1,284)
(400)
(9,059)
–
(218)
(9,277)
29,418
(5,545)
–
–
23,873
(18,200)
–
5,673
Year
ended
31 Dec
2013
7,308
7,726
15,034
Total
43,299
(5,545)
(1,284)
(400)
36,070
(18,200)
(218)
17,652
Year
ended
31 Dec
2012
6,325
6,682
13,007
Proposed final dividend for the year ended 31 December 2013 of 3.84p (2012: 3.34p) per share
8,463
7,317
The proposed final dividend for the year ended 31 December 2013 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 2013 the Group’s total remaining commitments as lessee under non-cancellable operating leases were as follows:
£000s
Within one year
In two to five years
After five years
as at 31 December 2013
Other
Property
as at 31 December 2012
Other
Property
12,202
29,176
6,225
47,603
2,263
2,750
2
5,015
10,063
24,528
3,199
37,790
3,004
3,947
6
6,957
59
rpsgroup.comAccounts Notes to the Consolidated Financial Statements continued
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.
The Group considers the Directors to be the key management personnel. There were no transactions within the year in which the
Directors had any interest. The Remuneration Report contains details of Board emoluments.
26. Notes to the Consolidated Cash Flow Statement
£000s
Operating profit
Adjustments for:
Depreciation
Amortisation of acquired intangible assets
Contingent consideration treated as remuneration
Share based payment expense
Negative goodwill
Profit on sale of property, plant and equipment
Loss on disposal of business
Decrease in trade and other receivables
Decrease in trade and other payables
Adjusted cash generated from operations
Year ended
31 Dec
2013
Year ended
31 Dec
2012
45,880
42,144
9,432
12,217
6,009
1,938
–
(241)
–
75,235
8,838
(12,043)
72,030
8,950
10,636
8,593
2,070
(266)
(119)
135
72,143
12,491
(8,589)
76,045
Adjusted cash generated from operations is before payment of deferred consideration treated as remuneration.
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 2013.
£000s
Cash and cash equivalents
Overdrafts
Bank loans
Finance lease creditor
At 31 Dec
2012
14,804
–
(27,098)
(1,207)
(13,501)
Cash flow
4,831
(1,026)
(18,609)
580
(14,224)
Acquisition
debt
Foreign
Exchange
At 31
Dec 2013
–
–
(4,353)
–
(4,353)
(936)
118
423
105
(290)
18,699
(908)
(49,637)
(522)
(32,368)
The cash balance at 31 December 2013 includes £6,028,000 (2012: £3,566,000) that is restricted in its use either as security or
client deposits.
27. Major non-cash transactions
Major non cash transactions during the year are as follows:
£000s
Depreciation
Amortisation of acquired intangibles
Share based payment expense
Negative goodwill
60
Year ended
31 Dec
2013
Year ended
31 Dec
2012
9,432
12,217
1,938
–
23,587
8,950
10,636
2,070
(266)
21,390
Report and Accounts 2013
28. Acquisitions
During 2013 the Group completed six acquisitions. Each of them broadens and strengthens the services the Group offers.
Entity acquired
Date of acquisition
Place of
incorporation
Percentage
of entity
acquired
Petroleum Institute of Continuing Education Ltd 16th January 2013
Knowledge Reservoir Group LLC
Asia Pacific ASA Pty Ltd
HMA Ltd
Ichron Ltd
OEC Group
18th April 2013
17th July 2013
16th August 2013
25th September 2013 UK
7th November 2013 Norway
Canada
USA
Australia
Canada
100%
100%
100%
100%
100%
100%
Nature of business acquired
Training
Oil and gas consultancy
Oceanographic consultancy
Linear infrastructure consultancy
Oil and gas consultancy
Project management
The Group has allocated provisional fair values to the net assets of these acquisitions as it did not have complete information at the
balance sheet date. Detail 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:
£000s
Intangible assets:
Order book
Customer relations
Trade names
Intellectual property
Software
PPE
Cash
Other assets
Borrowings
Other liabilities
Net assets acquired
PEICE
KR
APASA
HMA
Ichron
OEC
Total
126
4,423
183
–
499
1
612
60
–
(2,034)
3,870
745
6,314
719
425
–
88
1,956
4,779
–
(2,439)
12,587
79
1,901
127
–
–
102
2,070
1,034
–
(2,391)
2,922
1,337
2,234
285
–
–
202
2,306
2,006
(4,353)
(4,401)
(384)
620
4,660
260
–
–
113
2,610
1,693
–
(2,921)
7,035
1,355
9,460
1,213
–
–
148
4,297
9,131
–
(12,979)
12,625
4,262
28,992
2,787
425
499
654
13,851
18,703
(4,353)
(27,165)
38,655
Satisfied by:
Initial cash consideration
Fair value of deferred consideration
Total consideration
3,637
3,576
7,213
9,774
4,327
14,101
2,650
2,470
5,120
2,039
5,196
7,235
6,650
5,923
12,573
20,025
10,893
30,918
44,775
32,385
77,160
Goodwill
3,343
1,514
2,198
7,619
5,538
18,293
38,505
Goodwill arising represents the value of the workforce acquired, potential synergies, future contracts and access to markets. There is
no tax deductible goodwill.
The total fair value of receivables acquired was £15,481,000. The breakdown between gross received and amounts estimated
irrecoverable is as follows:
£000s
PEICE
KR
APASA
HMA
Ichron
OEC
Gross
receivables
Estimated
irrecoverable
Fiar value of
assets acquired
3,066
83
1,099
1,923
1,400
7,972
15,543
(25)
–
–
(25)
–
(12)
(62)
3,041
83
1,099
1,898
1,400
7,960
15,481
The vendors of the acquired companies have entered into warranty agreements with the Group. The total undiscounted cash flow
that could be receivable by the Group is between £nil and £18,164,000. The Group does not expect that these warranties will
become receivable and therefore has not recognised an indemnification asset on acquisition.
61
rpsgroup.comAccounts Notes to the Consolidated Financial Statements continued
28. Acquisitions continued
The Group incurred acquisition related costs of £1,199,000 which have been expensed through the income statement and are
included within amortisation of acquired intangibles and transaction related expenses.
The contribution of the acquisitions to the Group’s results for the year is given below:
£000s
PEICE
KR
APASA
HMA
Ichron
OEC
Segment
Energy
Energy
AAP
Energy
Energy
Energy
Revenue Operating profit
4,167
8,955
2,050
3,199
2,632
4,720
25,723
83
366
378
359
1,386
(83)
2,489
HMA is currently managed as part of the Energy segment, but since the year end HMA has worked closely with BNE NA business
and we are anticipating that it may transfer under the management of the BNE NA board. HMA’s results will be included in the
BNE NA segment in that case. HMA’s contribution to Energy in 2013 comprised revenue of £3,199,000, fees of £2,620,000 and
operating profit before amortisation of intangibles and transaction related costs of £695,000. The proforma Group revenue and
operating profit assuming that all of the acquisitions had been completed on the first day of the year would have been £621,272,000
and £50,928,000 respectively.
A reconciliation of the goodwill movement in 2013 in respect of acquisitions made in 2012 and 2013 is given in the table below:
£000s
Goodwill at 1 January 2013
Additions through acquisition
Foreign exchange gains and losses
Goodwill at 31 December 2013
PEICE
–
3,343
(336)
3,007
KR
APASA
–
1,514
(115)
1,399
–
2,198
(243)
1,955
HMA
–
7,619
(622)
6,997
Ichron
OEC
MR
–
5,538
–
5,538
–
18,293
(1,020)
17,273
11,943
–
(1,842)
10,101
There were no accumulated impairment losses at the beginning or end of the period.
In 2012, negative goodwill in respect of the acquisition of ASA was recognised and credited to the income statement. No negative
goodwill was recognised in 2013.
29. Defined benefit pension scheme
On 7 November 2013, RPS acquired 100% of the issued share capital of the OEC Consulting Group. This company has a defined
benefit pension scheme. The defined benefit pension scheme assets and liabilities were valued by a qualified actuary at acquisition.
Since the acquisition was completed so close to the year end, a further valuation of the scheme assets and liabilities has not been
undertaken on the grounds of immateriality.
The principal assumptions used for the purposes of actuarial valuation were as follows:
Discount rate
Expected rate of salary increase
Expected rate of pension increase
Inflation
Mortality assumptions
The assumed life expectations on retirement at age 65 are:
Retiring today:
Males
Females
62
4.10%
3.75%
0.60%
1.75%
20.4
23.2
Report and Accounts 2013 Since the pension scheme was acquired by the Group late in the year, there has been no impact on the Group income statement for
2013 resulting from this pension scheme. The amount included in the balance sheet arising from the Group’s obligations in respect of
its defined benefit pension scheme is as follows:
£000s
Present value of defined benefit obligations
Fair value of scheme assets
Net liability arising from defined benefit obligation
The only movement in the present value of the scheme recognised since acquisition relates to foreign exchange since this is a
foreign scheme whose functional currency is Norwegian Krone.
The major categories and fair values of scheme assets at the end of the reporting period were:
Shares
Other investments
Short term bonds
Money market
Term bonds
Property
Other
(3,937)
2,931
(1,006)
6.8%
3.5%
17.0%
22.0%
35.3%
14.3%
1.1%
30. 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 the
consolidated balance sheet and 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 committed £90 million multi currency revolving credit facility that provides a high degree of flexibility. An additional
£35 million is available as required subject to credit approval. There are two financial covenants related to this facility; interest cover
must be no less than 400% and the ratio of group net borrowings (including deferred consideration) to EBITDA should be no greater
than 250%. These covenants are tested regularly and were not breached during the year and have not been since the year end.
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.
(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.
63
rpsgroup.comAccounts Notes to the Consolidated Financial Statements continued
30. Financial Risk Management continued
£000s
Cash
Trade receivables
Financial assets
Borrowings
Deferred consideration
Trade and other payables
Financial liabilities
As at
31 Dec
2013
18,699
147,737
166,436
51,067
35,842
75,572
162,481
As at
31 Dec
2012
14,804
148,055
162,859
28,305
11,385
73,570
113,260
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 and Norwegian Krone 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
instant access deposit accounts earning floating rate interest.
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
Norwegian Krone
Other
At 31 December
Floating rate
2012
2013
2013
Fixed rate
2012
Non interest bearing
2012
2013
568
94
192
–
40
14
–
908
–
–
–
–
–
–
–
–
24,680
–
5,867
7,987
24,721
21,630
–
84,885
5,239
–
8,767
361
25,323
–
–
39,690
30,647
9,228
12,631
7,750
9,550
6,050
832
76,688
27,907
9,009
14,379
12,135
9,856
–
284
73,570
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
2012
2013
2013
Fixed rate
2012
Non interest bearing
2012
2013
908
–
–
908
–
–
–
–
20,360
10,864
53,661
84,885
8,590
4,201
26,899
39,690
72,210
1,084
3,394
76,688
70,389
985
2,196
73,570
2013
55,895
9,322
18,690
15,737
34,311
27,694
832
162,481
2013
93,478
11,948
57,055
162,481
Total
2012
33,146
9,009
23,146
12,496
35,179
–
284
113,260
Total
2012
78,979
5,186
29,095
113,260
64
Report and Accounts 2013
The weighted average interest rate and term for interest bearing financial liabilities is shown below:
Sterling
Australian Dollar
Canadian Dollar
US Dollar
Norwegian Krone
Fixed and floating rate
financial liabilities
Weighted average interest rate %
2012
2013
Fixed rate
financial liabilities
Weighted average period for
which rate is fixed – months
2012
2013
2.6
4.6
4.0
2.2
3.7
3.0
2.6
4.8
1.0
1.8
–
2.6
4
10
13
3
7
5
1
13
8
1
4
4
Cash balances are held in either non-interest bearing current accounts or instant access deposit accounts earning 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 2016 where interest costs are fixed at the
time drawings are made. During 2013, the Group had an uncommitted overdraft facility, 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 2 years but not more than 5 years
Interest rate sensitivity
As at
31 Dec
2013
40,422
As at
31 Dec
2012
48,130
A 1.0% decrease in interest rates would increase Group profit before tax by £529,000. A 1.0% increase in interest rates would
decrease Group profit before tax by £529,000.
(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 the majority of its transactional foreign currency exposures, the sensitivity of the results to transactional foreign
currency risk is not material.
65
rpsgroup.comAccounts
Notes to the Consolidated Financial Statements continued
30. Financial Risk Management continued
(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
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.
31. Share-based payments
Share scheme costs
£000s
Share Incentive Plan (“SIP”)
Performance Share Plan (“PSP”)
Share Option Plan
Bonus Plan
Year ended
31 Dec
2013
Year ended
31 Dec
2012
1,142
684
55
57
1,938
1,097
663
94
216
2,070
The following tables set out details of material share schemes activity:
SIP
Year of grant
2010
2011
2012
2013
Year of grant
2009
2010
2011
2012
Number
outstanding
31 Dec 2012
492,285
478,090
510,663
–
1,481,038
Number
outstanding
31 Dec 2011
460,278
543,057
541,159
–
1,544,494
New grants
–
–
–
510,366
510,366
New grants
–
–
–
541,850
541,850
Releases
(476,513)
(14,639)
(14,172)
(6,675)
(511,999)
Releases
(442,542)
(19,645)
(18,111)
(12,940)
(493,238)
Forfeits
(15,772)
(28,316)
(32,467)
(19,068)
(95,623)
Forfeits
(17,736)
(31,127)
(44,958)
(18,247)
(112,068)
Number
outstanding
31 Dec 2013
–
435,135
464,024
484,623
1,383,782
Number
outstanding
31 Dec 2012
–
492,285
478,090
510,663
1,481,038
Vesting
conditions
3 years
3 years
3 years
3 years
Vesting
conditions
3 years
3 years
3 years
3 years
66
Report and Accounts 2013
PSP
Year of grant
2006
2007
2009
2010
2011
2012
2013
Year of grant
2006
2007
2009
2010
2011
2012
Number
outstanding
31 Dec 2012
2,148
4,343
309,827
8,987
405,773
419,276
–
1,150,354
Number
outstanding
31 Dec 2011
2,148
5,129
1,026,659
31,124
450,772
–
1,515,832
New grants
–
–
–
–
–
–
351,742
351,742
New grants
–
–
–
–
–
426,403
426,403
Releases
–
–
(176,631)
(6,434)
(146,891)
(823)
–
(330,779)
Releases
–
(786)
(650,310)
–
(3,712)
–
(654,808)
Lapses
–
–
(1,456)
(2,553)
(32,715)
(21,065)
(7,811)
(65,600)
Lapses
–
–
(66,522)
(22,137)
(41,287)
(7,127)
(137,073)
Number
outstanding
31 Dec 2013
2,148
4,343
131,740
–
226,167
397,388
343,931
1,105,717
Number
outstanding
31 Dec 2012
2,148
4,343
309,827
8,987
405,773
419,276
1,150,354
Vesting
conditions
2 or 3 years
1, 2 or 3 years
3 years
3 years
3 years
3 years
3 years
Vesting
conditions
2 or 3 years
1, 2 or 3 years
3 years
3 years
3 years
3 years
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
160.20p - 310.50p
227.21p
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).
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 - 288.75p
211.11p
3 years
0.99% - 2.44%
67
rpsgroup.comAccounts
Notes to the Consolidated Financial Statements continued
32. Events after the balance sheet date
On 5th February the Group completed the acquisition of the entire share capital of Whelan’s Corporation Pty Ltd trading as “lnSites”,
a consultancy with about 50 staff providing surveying and spatial services primarily within the residential land development and urban
planning sectors in New South Wales, Australia. Total consideration is AUD 3,839,000 (c. £2,100,000) inclusive of interest at market
rate, payable entirely in cash. Consideration paid at completion was AUD 2,639,000 (c. £1,440,000) and a further AUD 600,000 (c.
£330,000) inclusive of interest will be paid on both the first and second anniversaries of completion. In the year to 30th June 2013
Whelan’s generated revenue of AUD 9,560,000 (c £5,220,000), fees of AUD 8,548,000 (c. £4,670,000) and profit before tax of AUD
800,000 (c. £440,000).
Due to the proximity of the acquisition date to the date of approval of the Report and Accounts, it is impracticable to provide
further information.
33. Commitments and contingencies
The Group completed a number of acquisitions between 1st January 2010 and 31 December 2011 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 considers it probable that the remaining deferred consideration payments will
be settled.
The Group retains a cash commitment of £3,603,000 and an estimated remuneration charge to be expensed in 2014 of £1,146,000.
These values assure constant foreign exchange rates.
The cash commitment due in 2014 includes contingent deferred consideration expense accrued, but not paid, totalling £2,457,000 as
referred to in note 18.
68
Report and Accounts 2013 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:
Borrowings
Deferred consideration
Trade creditors
Amounts due to subsidiary undertakings
Other creditors
Accruals and deferred income
Net current assets
Total assets less current liabilities
Borrowings
Deferred consideration
Other payables
Provision for liabilities
Net assets
Capital and reserves
Called up share capital
Share premium account
Profit and loss reserve
Merger reserve
Employee trust shares
Other reserve
Total shareholders’ equity
Notes
3
4
5
6
7
9,10
10
10
10
10
2,10
As at
31 Dec
2013
As at
31 Dec
2012
580
2,100
415,426
418,106
41,117
1,800
2,373
45,290
–
45,290
1,409
2,322
1,869
16,850
548
3,010
26,008
19,282
437,388
49,578
1,675
47
321
385,767
6,619
108,307
116,141
21,256
(9,277)
142,721
385,767
646
2,554
246,154
249,354
33,759
1,816
1,529
37,104
–
37,104
2,556
–
1,139
19,005
476
3,640
26,816
10,288
259,642
26,870
–
–
205
232,567
6,587
106,198
107,585
21,256
(9,059)
–
232,567
These financial statements were approved and authorised for issue by the Board on 27 February 2014.
The notes on pages 70 to 76 form part of these financial statements.
Dr Alan Hearne, Director
Gary Young, Director
On behalf of the Board of RPS Group Plc (company number: 2087786).
69
rpsgroup.comAccounts
Notes to the Parent Company Financial Statements continued
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.
70
Report and Accounts 2013 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.
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
Year
ended
31 Dec
2013
Year
ended
31 Dec
2012
Profit for the year attributable to the shareholders of the Parent Company,
20,714
dealt with in the accounts of the Parent Company
Of the profit recognised in 2013, £142,721,000 relates to the disposal of the Company’s investment in the USA subgroup to another
Group company. As such, this represents non distributable profit (included in other reserve).
165,743
The remuneration of the auditors for the statutory audit of the Company was £46,000 (2012: £45,000).
71
rpsgroup.comAccounts
Notes to the Parent Company Financial Statements continued
3. Intangible Assets
£000s
Cost
At 1 January 2013 and at 31 December 2013
Amortisation
At 1 January 2013
Charge for the year
At 31 December 2013
Net book value at 31 December 2013
Net book value at 31 December 2012
4. Tangible Assets
£000s
Cost or valuation
At 1 January 2013
Additions
Disposals
At 31 December 2013
Depreciation
At 1 January 2013
Provided for the year
Disposals
At 31 December 2013
Net book value at 31 December 2013
Net book value at 31 December 2012
Goodwill
2,134
1,488
66
1,554
580
646
Total
7,067
365
(125)
7,307
4,513
819
(125)
5,207
2,100
2,554
Alterations
to leasehold
premises
Fixtures,
fittings,
IT and
equipment
1,020
4
–
1,024
256
199
–
455
569
764
6,047
361
(125)
6,283
4,257
620
(125)
4,752
1,531
1,790
72
Report and Accounts 2013 5. Investments
£000s
Subsidiary undertakings
Cost
At 1 January
Additions
Disposals
At 31 December
Provisions
At 1 January and 31 December
Net book value at 31 December
2013
2012
246,992
184,134
(14,862)
416,264
235,097
11,895
–
246,992
838
415,426
838
246,154
During 2013, RPS Group PLC invested £14,100,000 in the acquisition of Knowledge Reservoir Group Inc, a reservoir engineering and
geosciences consulting firm based in the USA. It also restructured its USA sub group which led to £157,583,000 being recognised in
additions and £14,862,000 in disposals to investments. A further £12,451,000 was invested in the Australian sub group. During 2012
RPS Group Plc invested a further £11,895,000 in RPS Consultants Pty Ltd to fund the acquisition of Manidis Roberts Pty Ltd.
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.
Country of
registration and operation
Proportion of
ordinary share capital held
The Environmental Consultancy Limited
RPS Environmental Management Limited (formerly RPS Consultants (UK) Limited)
RPS Energy Limited
RPS Health in Business Limited
Nautilus Limited
Ichron Limited
RPS Energy Consultants Limited
RPS Ireland Limited
RPS bv
RPS Advies-en ingenieursbureau bv
RPS Analyse bv
RPS Detachering bv
OEC Consulting AS
Hospitalitet AS
RPS Group Limited
RPS Engineering Services Limited
RPS Consulting Engineers Limited
RPS Consultants Pty Limited
RPS Energy Pty Limited
RPS Environment Pty Limited
MetOcean Engineers Pty Limited
RPS Australia East Pty Limited
Aquaterra Consulting Pty Limited
Manidis Roberts Pty Ltd
Asia - Pacific ASA Pty Ltd
Cambrian Consultants America Inc
RPS JD Consulting Inc
Nautilus World Limited
Evans Hamilton Inc
Espey Consultants Inc
England
England
England
England
England
England
England
Northern Ireland
Netherlands
Netherlands
Netherlands
Netherlands
Norway
Norway
Ireland
Ireland
Ireland
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
USA
USA
USA
USA
USA
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% *
100% *
73
rpsgroup.comAccounts Notes to the Parent Company Financial Statements continued
Knowledge Reservoir Group LLC
RPS Energy Canada Limited
Geoprojects Canada Limited
Boyd Exploration Consultants Limited
Petroleum Institute for Continuing Education Ltd
HMA Land Services Ltd
6. Borrowings
£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 2013
Additional provision in the year
Utilised in the year
As at 31 December 2013
This provision is expected to be utilised as follows:
£000s
Within one year
After more than one year
Country of
registration and operation
Proportion of
ordinary share capital held
USA
Canada
Canada
Canada
Canada
Canada
100% *
100% *
100% *
100% *
100% *
100% *
31 Dec
2013
31 Dec
2012
49,578
26,870
–
49,578
49,578
–
26,870
26,870
Property
Dilapidations
71
175
(70)
176
134
36
(25)
145
As at
31 Dec
2013
205
116
321
Total
205
211
(95)
321
As at
31 Dec
2012
85
120
205
The provision booked during the year relates to an onerous operating lease and related costs on vacated property and will be utilised
within 4 years.
74
Report and Accounts 2013
8. Deferred taxation
The movement on deferred taxation in the year was as follows:
£000s
Net asset at beginning of year
(Charge) / Credit 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
Deferred tax is included within other debtors in the balance sheet.
As at
31 Dec
2013
281
(141)
140
As at
31 Dec
2013
44
96
140
As at
31 Dec
2012
267
14
281
As at
31 Dec
2012
165
116
281
9. Share capital
Ordinary shares of 3p each
At 1 January 2013
At 31 December 2013
Authorised
Value
£000s
Number
Allotted and fully paid
Value
£000s
Number
240,000,000
240,000,000
7,200
7,200
219,566,269
220,631,930
6,587
6,619
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
£000s
At 1 January 2012
Issue of new shares
Purchase of own shares
Share-based payment expense
Retained profit for the year
Transfer
Dividend paid
At 31 December 2012
Issue of new shares
Share-based payment expense
Non distributable profit
Retained profit for the year
Dividend paid
At 31 December 2013
Share
capital
Share
premium
Merger
reserve
Revaluation
reserve
Employee
trust shares
Profit and
loss reserve
Other
reserve
6,544
43
–
–
–
–
–
6,587
32
–
–
–
–
6,619
103,717
2,481
–
–
–
–
–
106,198
2,109
–
–
–
–
108,307
21,256
–
–
–
–
–
–
21,256
–
–
–
–
–
21,256
32
–
–
–
–
(32)
–
–
–
–
–
–
–
–
(7,375)
(1,284)
(400)
–
–
–
–
(9,059)
(218)
–
–
–
–
(9,277)
98,776
(1,000)
–
2,070
20,714
32
(13,007)
107,585
(1,370)
1,938
–
23,022
(15,034)
116,141
–
–
–
–
–
–
–
–
–
–
142,721
–
–
142,721
Total
222,950
240
(400)
2,070
20,714
–
(13,007)
232,567
553
1,938
142,721
23,022
(15,034)
385,767
75
rpsgroup.comAccounts
Notes to the Parent Company Financial Statements continued
11. Dividends
Full details of dividends paid by the Company are disclosed in Note 23 of the Consolidated Financial Statements.
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
Land and buildings
31 Dec
2012
31 Dec
2013
1,005
1,666
2,671
–
1,002
1,002
31 Dec
2013
107
104
211
Other
31 Dec
2012
–
107
107
13. Directors’ interests in transactions
There were no transactions during the year in which the Directors had any interest.
76
Report and Accounts 2013 Notes to the Remuneration Committee Report Policy Statement
1. Element of Remuneration: Salary
How it supports the Company’s Short and Long–Term Strategic Objectives
The Committee’s overall policy is to set total on target reward at up to median level compared with the Company’s comparator
groups. Salaries are set as part of this policy and to achieve this objective. The Company is required to provide a basic salary at this
level in order to be competitive and to maintain its ability to recruit and retain executive directors.
For the purpose of benchmarking salaries and other remuneration the principal grouping used by the Company consists of
companies within the FTSE 250 with a range of capitalisations such that the company sits within the middle of that grouping.
The Committee wishes to ensure that fixed costs are minimised and that total actual payments to executives will only exceed the
median level within the company’s comparator groups through the operation of the performance related element of the package.
As described below the performance elements of total reward are directly linked to the achievement of the Company’s strategy.
Operation
An Executive Director’s basic salary is considered by the Committee on appointment and normally reviewed once a year or when
there is a significant change to role or responsibility.
When making a determination as to the appropriate remuneration, the Committee where it is relevant, benchmarks the
remuneration against the Company’s comparator groups.
The results of benchmarking will, however only be one of a number factors taken into account by the Remuneration Committee
and which will include:
n
n
n
n
the individual performance and experience of the Executive Director;
pay and conditions for employees across the Group;
the general performance of the Company; and
the economic environment.
Opportunity
The Remuneration Committee policy in relation to salary is:
n
n on promotion up to the median salary for the new role.
up to median salary on appointment depending on the experience and background of the new Executive Director;
The salaries for the Executive Directors are:
Alan Hearne
Phil Williams
Gary Young
2014
2013
Review Date
£482,370
£364,210
£245,860
£459,400
£350,200
£238,700
1 January
1 January
1 January
The Committee is satisfied that the salaries conform to its strategy, whilst remaining competitive against similar roles within the
relevant comparator groups
Performance Metrics
There are no performance conditions attached to the payment of salary although there are a number of performance based factors
both at the individual and Company level that influence the level of salaries provided to Executive Directors.
77
rpsgroup.com
Notes to the Remuneration Committee Report Policy Statement continued
2. Element of Remuneration: Non–Executive Director Fees
How it supports the Company’s Short and Long–Term Strategic Objectives
The Company’s policy is to set fees at up to median level and at a level necessary to attract and retain experienced and skilled Non–
Executive Directors with the necessary experience and expertise to advise and assist in establishing and monitoring the strategic
objectives of the Company. Fees also reflect the time commitment and responsibilities of the roles.
An additional fee is paid for Chairmanship of a Board Committee and to the Senior Independent Director.
Operation
Non–Executive Directors have specific terms of engagement provided in formal letters of appointment. Their remuneration is
determined by the Board within the limits set by the Articles of Association and based on equivalent roles in FTSE 250 companies
and the comparator groups used for Executive Directors. The fees for Non–Executive Directors are considered each year. The
Non–Executive Directors are appointed for a three year term, subject to annual re–election by the shareholders, at the Company’s
Annual General Meeting.
Non–Executive Directors do not receive any bonus, do not participate in awards under the Company’s share plans, and are not
eligible to join the Company’s pension scheme
Opportunity
The Company’s policy is to set fees at up to median on appointment depending on the experience and background of the new
Non–Executive Director.
The fees payable to the Chairman and the Non-Executive Directors are as detailed below. In each case the fees paid take account
of responsibilities in acting as Chairman of a Board Committee or as Senior Independent Director.
2014
2013
Review Date
Brook Land
John Bennett
Louise Charlton
Robert Miller–Bakewell
Tracey Graham
£116,460
£113,400
£52,950
£37,075
£43,400
£45,550
£51,550
£36,100
£42,250
£44,350
1 January
1 January
1 January
1 January
1 January
The fees for the Non–Executive Directors were reviewed on 1 January 2014 and the decision taken to increase these fees by 2.7 %.
The Committee is satisfied that the level of fees conform to its strategy, whilst remaining competitive against similar roles within the
relevant peer groups.
Performance Metrics
There are no performance conditions attached to the payment of fees
78
Report and Accounts 2013
3. Element of Remuneration: Benefits
How it supports the Company’s Short and Long–Term Strategic Objectives
The Committee’s policy is to provide a benefits package with a value up to median level within the comparator group and in line
with market practice.
The Company is required to provide this benefits package in order to be competitive and to maintain its ability to recruit and retain
Executive Directors.
Operation
The Executive Directors receive the following benefits:
n healthcare;
n
n disability schemes; and
n company car or car allowance.
life assurance and dependents’ pensions;
In addition they participate in the all–employee HMRC 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.
Opportunity
This is the cost of providing those benefits detailed above which in 2013 was as follows:
Name
Alan Hearne
Phil Williams
Gary Young
Performance Metrics
Benefits Cost
£20,000
£17,000
£17,000
There are no performance conditions attached to the payment of benefits.
4. Element of Remuneration: Pension
How it supports the Company’s Short and Long–Term Strategic Objectives
It is the Committee’s policy to provide pension benefits in line with market practice.
The Company is required to provide pension benefits in order to be competitive and to ensure its ability to recruit and retain
Executive Directors.
Operation
The Executive Directors are eligible to participate in defined contribution pension schemes, or receive a salary supplement or a
combination of the two.
Other than basic salary, no element of the Directors’ remuneration is pensionable. Salary supplements are not included in base salary
to calculate other benefits and incentive opportunities.
Opportunity
The maximum employer contribution either to a pension scheme or provided as a salary supplement (where the amount exceeds
the annual effective tax contribution) is 25% of basic salary. The contribution for each director in 2014 is set out below.
Name
Alan Hearne
Phil Williams
Gary Young
Performance Metrics
None.
Contribution %
25
17.5
15
79
rpsgroup.com Notes to the Remuneration Committee Report Policy Statement continued
5. Element of Remuneration: The RPS Group plc Bonus Plan (the ‘Bonus Plan’)
How it supports the Company’s Short and Long–Term Strategic Objectives
The Committee’s policy is to provide a level of bonus as part of a target total reward of up to median level. The Bonus Plan,
which was approved by shareholders at the 2013 Annual General Meeting, supports the Company’s strategic objectives in a
number of ways as detailed below.
n
n
It provides a direct link between the level of profit and cash generated by the Company and the total incentive cost.
It supports a positive relationship between the changes to profits, dividends and Executive Director pay by linking two of the
elements directly (profit and Executive Director pay through the Bonus Plan); in particular:
n the Bonus Plan provides a direct link between the level of profit generated by the Company and the total incentive cost;
n there will be no Company contribution unless a minimum threshold profit is achieved;
n there is a risk adjustment mechanism built in to the operation of the Plan with a claw back of contributions if the minimum
threshold profit is not met for any financial year during the Plan period. This adjustment mechanism ensures that:
n profit performance must be maintained over the Plan period; and
n if there is a material deterioration in performance there is a claw back of part or all of the unvested but earned deferred
elements (Element B Awards).
n
It directly supports the achievement of two of the key financial KPIs of the Company, PBTA and cash generation.
n There is an alignment of participants’ interests with shareholders:
n shareholders receive a minimum level of profit prior to any incentive payments to participants;
n participants are encouraged to maximise consistent levels of profit (or lose through the risk adjustment mechanism) as they
have a linear interest in every additional pound of profit generated; and
n there is a long term alignment with the interests of shareholders as a substantial proportion of bonus earned is in the form of
deferred equity (Element B Awards).
n
It allows a close tailoring by the Remuneration Committee of the performance condition to the budget and performance of the
Company for each Plan Year. This allows the Remuneration Committee to recognise when setting targets that a large element
of the Company’s business is cyclical and therefore at certain points in the cycle maintaining profits and revenues (or minimising
their decline) is a legitimate outcome. However, while providing this flexibility the design of the Plan should give shareholders
comfort that the participants are focused on longer term sustainable risk adjusted performance because of:
n the annual risk of partial forfeiture of earned deferred elements (unvested Element B Awards) if the annually set forfeiture
threshold is not met and;
n the fact that deferred elements are in shares allows part of the bonus earned for a given financial year to reflect whether the
performance delivered flows through to longer term shareholder value.
n
The use of the Bonus Plan as the sole incentive plan for Executive Directors provides a simple and transparent mechanism which
supports the nature of the Company’s business and its key strategic objectives.
Operation
Key features of the Plan
n
The Maximum Annual Contribution by the Company for a Participant in respect of a Plan Year is 200% of salary p.a.
n
n
No Company contribution is made to a Participant’s Plan Account unless the terms and conditions set by the Company for a
contribution are met. The main terms and conditions are described below.
Primary performance conditions must be satisfied before any contribution is made to the plan and in respect of which the
Remuneration Committee sets profit thresholds for each year. If these are met they will result in a percentage of the profit
being conditionally allocated to the Plan, with the maximum percentage of profit capable of being allocated set at 3%. The
Remuneration Committee also sets a minimum threshold profit for each Plan Year. If this minimum is not met the cumulative
value of Participants’ unvested deferred share awards (Element B as shown below) is reduced by 15% of the difference between
the actual profit for the Plan Year and the minimum threshold profit. Any adjustment will be in proportion to the Participant’s
Maximum Annual Contribution payable as proportion of the aggregate of all Participants’ Maximum Annual Contributions.
80
Report and Accounts 2013 Key features of the Plan (continued)
n
The Remuneration Committee is also able to set Secondary Performance Conditions to determine how much of the profit
conditionally allocated to the Plan in accordance with (a) above is actually allocated. For the 2013 operation of the Bonus Plan
the Committee determined to include condition relating to the conversion of profit to cash.
n
The Company contribution is split into two elements for each Plan Year and for the purposes of illustration it has been assumed
that the Company contribution is the Maximum Annual Contribution.
n
n
Element A which is 50% of the Maximum Annual Contribution (i.e. 100% of salary) is paid at the end of that Plan Year 1.
Element B which is the other 50% of the Maximum Annual Contribution (i.e. 100% of salary) is deferred for two years
and paid in Shares at the end of Plan Year 3 . The vesting of Element B is subject to (i) continued employment of the
Participant by a Group Company to the end of Plan Year 3 (other than where cessation is prior to the end of this period
and the participant is a “good leaver”) and (ii) risk adjustment through forfeiture of part or all of subsisting unvested
Element B Awards if the Threshold Profit set for Plan Year 2 and/or Plan Year 3 is not met.
The table below shows the profile of payments over a four year period.
Plan Years
Plan Year 1
Plan Year 2
Plan Year 3
Plan Year 4
TOTAL
Plan Year 1
(%age of Salary)
100% (Element A)
Plan Year 2
(%age of Salary)
100% (Element A)
Plan Year 3
(%age of Salary)
100% (Element B)
100% (Element A)
100%
100%
200%
Plan Year 4
(%age of Salary)
100% (Element B)
100% (Element A)
200%
The above explanation of the payment of the two elements relates to the ongoing operation of the Bonus Plan. As detailed below
for the first two years of the Bonus Plan’s operation the split between Element A and Element B will be 2/3 and 1/3.
Forfeiture Threshold
The forfeiture condition for each year of deferral of Element B is based on the bonus targets set for the relevant financial year and
will be disclosed in full retrospectively with the associated bonus targets and their level of satisfaction for the year under review.
Transitional Operation of the Plan
The Remuneration Committee considered the transition between the 2012 operation of the old Bonus Plan and the changes to the
payment profile under the new Bonus Plan operating in 2013. Under the operation of the old Bonus Plan the annual bonus payment
which could be earned was 50% of the cumulative balance in a Participant’s Plan Account over a fixed three year period with the
final balance being paid at the end of 2012. However, the payment profile for the new Bonus Plan is on a rolling basis with 50%
of the bonus earned in respect of the year paid and 50% deferred in shares for an additional two years and at risk of forfeiture. A
straightforward change between the payment profile under the old Bonus Plan and the payment profile under the new Bonus Plan
would result in the annual bonus paid in 2013 and 2014 dropping by up to 50%. This anomaly corrects itself in 2015 when the first
deferred elements in shares are capable of vesting. The Committee was concerned about this timing issue and the impact it may
have on the incentive effect for Executives in 2013 and 2014.
When seeking shareholder approval for the Plan, the Committee therefore, did so on the basis that for 2013 and 2014 only the
balance between Element A (immediate) and Element B (deferred) would change from 50:50 to 2/3rds Element A and 1/3rd
Element B.
Opportunity
The maximum annual contribution that may at the discretion of the Committee be paid to any director under the Bonus Plan
is 200% of salary. The maximum contribution that may be payable to each director for 2014 is as set out below. The Company
intends to seek shareholder approval to increase the maximum opportunity under the Bonus Plan.
Name
Alan Hearne
Phil Williams
Gary Young
Maximum Contribution
200%
175%
150%
81
rpsgroup.com
Notes to the Remuneration Committee Report Policy Statement continued
Performance Metrics
PBTA
Up to 3% of the total PBTA for the financial year may be contributed to the Bonus Plan for the Executive Directors provided that
the threshold profit is met or exceeded. The Remuneration Committee considers a 3% maximum contribution to be appropriate
based on the historical incentives costs of the Executive Directors of the Company and their counterparts in the other constituents
of their comparator groups. The contribution paid to the Bonus Plan for 2013 was £887,000 which is 1.41% of PBTA for that year.
If the actual PBTA for the financial year is less than the threshold profit, 15% of the difference will be deducted from the deferred
value held in the Plan provided that this value cannot be less than zero.
Cash Collection
There is a secondary performance condition based on the conversion of profit into cash where additional contributions to the Plan
can be earned subject to the overall Maximum Annual Contribution.
In the Committee’s view advance and detailed disclosure of the Bonus Plan’s performance targets for future financial years is
commercially sensitive. The targets are based on profit projections for the year ahead which are price sensitive and would provide
the Company’s competitors with a potential commercial advantage. The Committee, will, however provide full retrospective
disclosure of the performance conditions and targets at the end of each financial year.
6. Employment Conditions elsewhere in the Company
In considering changes to the Remuneration of the Executive Directors the Committee is mindful of pay and conditions in the wider
Group. The general salary increase for employees for 2013 is shown in the table at note 10 on page 89. Whilst the Group operates
a range of bonus plans appropriate to its various businesses the main drivers of these plans is, in common with the Bonus Plan, are
profit and growth in profit. The Committee has not expressly sought the views of employees and no remuneration comparison
measurements were used when drawing up the Directors’ remuneration policy. Through the Board, however, the Committee is
updated as to employees views on remuneration generally.
In the event that an employee is promoted to the Board that individual would be allowed to retain any pre-existing incentive
entitlement that had not vested at that time.
7. Employee Share Schemes
The Company operates a range of share schemes including for all employees in the United Kingdom an HMRC 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 share purchased. Similar arrangements are in place in respect of the Group’s overseas employees.
8. Dilution Limits
The Company operates its share plans within the dilution limits issued by the Association of British Insurers.
82
Report and Accounts 2013 9. Recruitment policy
The following table sets out the Company’s policy on recruitment of new Executive Directors for each element of the
remuneration package.
Remuneration
element
Base Salary
Benefits
Pension
Bonus Plan
Maximum
Variable Pay
“Buy Outs”
Policy on Recruitment
The Remuneration Committee will offer salaries up to a level necessary to provide a median target total reward
for comparative roles in line with its policy for existing Executive Directors.
The Remuneration Committee will offer the Company’s standard benefit package.
Maximum contribution will be set in line with the Company’s policy for existing Executive Directors.
The maximum annual contribution will be set in line with the Company’s policy for Executive Directors and
cannot exceed 200% of salary p.a.
In the year of recruitment the maximum variable pay is 200% of salary.
The Remuneration Committee’s does not have an automatic policy to buy out subsisting incentives granted
by an Executive’s previous employer which would be forfeited on cessation. Should, however, the Committee
determine that is appropriate to do so it will apply the following approach.
n The fair value of these incentives will be calculated taking into account the following:
n the proportion of the performance period completed on the date of an Executive’s cessation of
employment;
n the performance conditions attached to the vesting of these incentives and the likelihood of them being
satisfied; and
n any other terms and condition having a material effect on their value.
n The Remuneration Committee may then grant up to the same fair value where possible under the
Company’s incentive plans (subject to the annual limits under these plans). The Committee, however, retains
the discretion to provide the fair value under specific arrangements in relation to the recruitment of the
particular individual.
10. Service Contracts
Details of the Executive Directors’ service agreements are shown below.
Term
Date of Contract
Notice Period in Months
Alan Hearne
February 1997
12
Phil Williams
November 2005
12
Gary Young
September 2000
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. 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. The Company’s policy in respect of payment for loss office is
described below. The Company’s general policy is to provide contracts to Executive Directors with no greater than 12 months notice.
Details of the terms of appointment of the Non–Executives are shown below.
Term
Brook Land
John Bennett
Louise Charlton Robert Miller–Bakewell Tracey Graham
Initial Date of Contract
September 1997
June 2006
May 2008
May 2010
August 2011
Unexpired Term
as at 31.12.13
Annual Review
19 months
5 months
31 months
8 months
The service contracts and letters of appointment are available for inspection at the Company’s registered office. All Directors are
subject to annual re-election by shareholders.
83
rpsgroup.com Notes to the Remuneration Committee Report Policy Statement continued
11. Application of Remuneration Policy
The composition and value of the Executive Directors’ remuneration packages for 2014 at, threshold, target and maximum scenarios
are set out in the charts below.
1,600
1,400
1,200
1,000
800
600
400
200
0
20%
41%
18%
36%
100%
46%
39%
Minimum
In line with
expectations
Alan Hearne
Maximum
Long term variable remuneration
Annual variable remuneration
Fixed remuneration
17%
35%
20%
39%
100%
48%
41%
18%
37%
45%
Maximum
Minimum
Maximum
In line with
expectations
Phil Williams
100%
Minimum
16%
32%
52%
In line with
expectations
Gary Young
As explained in detail in the Remuneration Policy statement the Committee seeks to ensure that a significant proportion of the
Executive Director’s remuneration is performance related and that performance targets are aligned with the Group’s business
objectives. The minimum remuneration shown for each Executive Director in the above table consists of basic salary, benefits and
pension contribution or allowance. These elements of remuneration are fixed and are therefore the same in the three scenarios
shown. The scenarios showing payments in line with expectations for each Executive Director consist of these fixed elements
plus achievement of target under the Bonus Plan which, in respect of 2014 as a transitional year, is equal to 75% of the maximum
contribution. The scenarios showing payments at maximum for each Executive Director consist of the fixed elements plus achievement
of the Maximum Annual Contribution for each Executive Director. As explained above 2/3 of contributions under the Bonus Plan are
immediately payable in cash and this part is shown as annual variable remuneration. The remaining 1/3 of contributions are deferred
for two years and are accordingly shown as long term variable remuneration.
12. Payment for Loss of Office
Service contracts do not contain liquidated damages clauses. If a contract is to be terminated the Committee will determine such
mitigation as it considers fair and reasonable in each case. In determining any compensation it will take into account the best practice
provisions of the UK Corporate Governance Code as well as published guidance from recognised institutional investor bodies. It
will also take legal advice on the Company’s liability to pay compensation and the quantum of any such compensation. There are no
contractual arrangements that would guarantee a pension with limited or no abatement on severance or early retirement. There is no
agreement between the Company and its Directors, or employees, providing for compensation for loss of office or employment that
occurs because of a takeover bid
On loss of office occurring salary, benefits and pension contributions would normally be paid over the notice period, although the
Company has discretion to make a lump sum payment on termination equal to the value of these elements of remuneration. In all
cases and in accordance with the above policy the Company will seek to apply mitigation to any payments due. Payments under the
Bonus Plan would be in accordance with the rules of that plan. In the case of a good leaver and in respect of the year of cessation a
participant would receive an immediate award in cash based upon the level of satisfaction of the performance conditions set and pro–
rated to the amount of the year that has been completed. In addition all outstanding Element B awards would vest to good leaver. A
bad leaver would have no entitlement to receive any payment in respect of the year of cessation and outstanding Element B awards
would be forfeited. For the purposes of the Bonus Plan a participant will be a good leaver if his cessation of employment is the result
of certain specified events such as injury, disability, ill health, retirement, redundancy, death or where the Committee so determines.
An explanation of any discretion exercised would be provided to shareholders.
The Committee reserves the right to make additional payments where they are made in good faith in discharge of an existing
obligation (or by way of damages for breach of such an obligation) or by way of settlement or compromise of any claim arising in
connection with the termination of a Director’s office or employment.
84
Report and Accounts 2013 13. Consideration of Shareholder Views
During the year under review the Remuneration Committee consulted extensively with 15 of the Company’s main shareholders (who
accounted for over 50% of the Company’s issued share capital), as well as the main shareholder representative bodies the ABI and
ISS on the renewal of Bonus Plan and the associated remuneration policy. The shareholder consultation process consisted of briefing
letters, discussions and in a number of cases meetings with the Chairman of the Remuneration Committee. The comments and views
received were taken into account in finalising the design of the Bonus Plan
Shareholders confirmed their support for the Company’s approach at the end of the consultation process and the Bonus Plan was
approved by shareholders at the Company’s last Annual General Meeting at which over 93% of votes cast were in favour. This
report further describes the main features of the Bonus Plan and explains how it has operated during its first year. The Remuneration
Committee therefore believes that the Report and its contents should have shareholder support.
85
rpsgroup.com Notes to Remuneration Committee Report Annual Statement
1. Bonus payments for year under review
The bonus payment included within the single figure of total remuneration has been calculated as set out in the following tables. These
show the performance conditions for 2013, their level of satisfaction and the corresponding level of bonus earned by each of the
Executive Directors.
Profit & contribution thresholds for year under review
Level
PBTA Threshold
PBTA is net of all bonus costs including the bonus costs
under the Plan for this financial year
Company Contribution Percentage to Bonus Pool
Bonus Pool Deduction Percentage
Forfeiture*
Threshold
–
–
–
Level 1
£60m
Level 2
£72m
Actual
£63m
1%
3%
1.41%
*There is no forfeiture condition in the first year of the Bonus Plan
Cash collection targets for year under review
Level
Cash Collection Percentage
Additional Bonus earned (%age of Salary)
Forfeiture
Threshold
85%
zero
Threshold
Maximum
Bonus
100%
zero
120%
20%
1% of salary for each
percentage point above 100%
Actual
96%
–
*In the event that conversion of profit to cash is below 85% a deduction equal to 10% of the profit contribution is made.
Contributions to participant’s plan accounts for year under review
Executive
Alan Hearne
Phil Williams
Gary Young
Percentage of PBTA
Bonus Pool Allocated
Value of PBTA Based
Contribution
48.6%
32.5%
18.9%
£431,000
£288,000
£168,000
As indicated above no contribution was made in respect of the cash collection target.
Bonus payments & awards for year under review
Total Value of Company Contribution
to Participant’s Plan Account
Element A Paid
Element B Awarded
£431,000
£288,000
£168,000
£287,333
£192,000
£112,000
£143,667
£96,000
£56,000
Executive
Alan Hearne
Phil Williams
Gary Young
Notes:
1. Element A is paid following the year end and the sign–off of the level of satisfaction of the performance conditions.
2. Element B is awarded following the year end and the sign–off of the level of satisfaction of the performance conditions.
3.
Element B is awarded in the form of deferred shares with a risk of performance based forfeiture over the two year period of deferral and in
accordance with the Regulations is not included in the bonus total.
2. Benefits for the year under review
The value for benefits shown in the single figure of total remuneration is comprised of a company car or company car allowance and
private medical insurance.
3. Long term incentives
There were no payments of multi-year performance awards made in the year under review.
86
Report and Accounts 2013 4. Incentive grants to executive directors made during the year
The following table sets out the details of the incentive grants that will be made to the Executive Directors under the RPS Group Plc
Bonus Plan in respect of 2013.
Executive Director
Alan Hearne
Phil Williams
Gary Young
Award
Bonus Plan Element B
Bonus Plan Element B
Bonus Plan Element B
%age of Salary
Awarded
Nature of Interest
Face Value
of Award £
Performance Conditions
31%
27%
23%
Nil Cost Shares
143,667
Forfeiture Threshold
Nil Cost Shares
Nil Cost Shares
96,000
56,000
Forfeiture Threshold
Forfeiture Threshold
An Element B award of shares equal to the face value shown above will be made under the Bonus Plan shortly after publication of the
Company’s results for the year–ended 31 December 2013 and based upon the market price of the Company’s shares at that time.
This award will be held conditionally, subject to the rules of the Bonus Plan and the performance conditions described in the Policy
Report above.
The following table sets out the number and value of matching and dividend shares that were awarded to the Executive Directors
under the all employee Share Incentive Plan during 2013.
Executive Director
Alan Hearne
Phil Williams
Gary Young
Number of shares
Value of shares £
899
991
831
2,219
2,446
2,053
5. Payments to past directors
There were no payments made to past Directors of the Company in respect of the year under review.
6. Payment for loss of office
There were no payments for loss of office made to Directors of the Company in respect of the year under review.
7. Total shareholding of directors
The table below shows the total shareholding for each Director.
Director
Executive
Executive
Alan Hearne
Phil Williams
Gary Young
Non–Executive
Brook Land
John Bennett
Louise Charlton
Robert Miller–Bakewell
Tracey Graham
Unconditional Shares
Conditional Matching Shares
under the SIP
Total Shares
Number of Shares
held at 31/12/13
Number of Shares
held at 25/02/14
Number of Shares
held at 31/12/13
Number of Shares
held at 25/02/14
Number at
31/12/13
Number at
25/02/14
113,117
323,157
96,509
30,000
–
–
5,000
5,000
113,154
323,194
96,546
5,137
4,060
6,568
–
–
–
–
–
–
–
–
–
–
5,174
4,097
6,605
–
–
–
–
–
118,254
327,217
103,077
118,328
327,291
103,151
30,000
30,000
–
–
5,000
5,000
–
–
5,000
5,000
Unconditional shares include partnership and dividend shares held under the Share Incentive Plan as well as matching shares that have
been held for longer than three years and are no longer conditional.
87
rpsgroup.com
Notes to Remuneration Committee Report Annual Statement continued
The following table sets out the details of vested options exercised during the year:
Number of
Shares subject
to Option on 1
January 2013
62,500
28,157
13,720
Exercised
During the
Year
62,500
28,157
13,720
Number of
Shares subject
to Option on
31 December
2013
–
–
–
Executive
Alan Hearne
Alan Hearne
Gary Young
Exercise Price
Share Price on
Exercise
111p
146.5p
146.5p
246.5p
259.2p
259.2p
Gain on
Exercise
£84,687
£31,733
£15,462
Number
of Shares
Retained
Expiry Date
14,000
20/3/2013
5,463
12/8/2013
–
12/8/2013
The number of shares retained is after sale of the required number of shares in order to fund the exercise price and to settle the tax
due on exercise.
The table below shows the shareholding guideline for each Executive Director and the extent to which that guideline is met.
Alan Hearne
Phil Williams
Gary Young
Guideline % salary
150
100
100
Value of
shareholding
required £
723,555
364,210
245,860
Value of
unconditional
shares £
379,734
1,084,383
323,981
Value of
conditional
shares £
17,245
13,629
22,049
Value to be
awarded £
143,667
96,000
56,000
Total £
540,646
1,194,012
402,030
The value shown for conditional and unconditional shares is based upon the Company’s share price as at 31 December 2013.
The value of shares to be awarded relates to the conditional shares that will be awarded under the RPS Group Plc Bonus Plan shortly
after announcement of the Company’s results for the year ended 31 December 2013 as detailed in note 4 above.
8. Total Shareholder Return Performance
The Company has selected the FTSE All Share and the FTSE All Share Support Services as the broad equity market indices against
which to compare the Company’s total shareholder return performance as the Company has been a constituent member of these
indices throughout the five year period.
Total shareholder return from 1st January 2009
RPS Group
FTSE AllShare
FTSE AllShare
Support Services
300
250
200
£
150
100
50
0
Source: Thomson Datastream
2009
2010
2011
2012
2013
88
Report and Accounts 2013 9. CEO Remuneration
Element
Total Remuneration
(single figure for the Year - £000s)
Annual Bonus
(%age of Maximum Opportunity)
Long–Term Incentives
(%age of Maximum Number
of Shares capable of vesting)
2009
636
zero
100%
2010
608
46%
zero
2011
793
54%
13%
2012
1,650
77%
100%
2013
883
47%
zero
It should be noted that the single figure for 2012 includes the payment of deferred balances under the previous bonus banking plan
from 2010 and 2011. These balances were earned during these years but subject to deferral until the end of 2012 and at risk of
performance based forfeiture.
10. Percentage Change in Remuneration of CEO
The following table shows the percentage change in the CEO’s salary, benefits and annual bonus between financial years compared to
the percentage change for all employees.
Element
Salary
Taxable Benefits
Annual Bonus
Percentage Change from 2012 Financial Year to 2013 Financial Year
CEO
3%
1%
-58%
Employees
2%
4%
7%
11. Relative Importance of Spend on Pay
The chart below shows the total remuneration paid to or receivable by all employees of the Company and total distributions to
shareholders by way of dividends for the current and previous financial years:
£000
250000
200000
150000
100000
50000
0
Total employee pay
-1.7%
Profit before tax
and amortisation
+4.9%
Dividend
+15.6%
2012
2013
Profit before tax and amortisation is a key performance indicator for the Group and the principal performance measure used under
the RPS Plc Bonus Plan.
12. Implementation of Policy
Remuneration policy in 2014 will be operated in accordance with the Company’s stated policies, the Executive Directors’ salaries
having been reviewed and adjusted at 1 January 2014 as detailed in the Policy Statement.
89
rpsgroup.com Notes to Remuneration Committee Report Annual Statement continued
The Committee and its Advisors
Role of the Remuneration Committee (“Committee”)
The Committee is responsible for setting policies relating to remuneration for the Executive Directors as well as determining their
specific remuneration packages. It also monitors the level and structure of remuneration for the Group’s senior management as well
as overseeing the operation of the Group’s share plans. The Committee’s agreed terms of reference are available on the Company’s
website and on request from the Company Secretary.
The Board determines the remuneration of the Non–Executive Directors. No director plays a part in any decision about their
own remuneration.
Committee members
The members of the Committee are Tracey Graham (Chairman), John Bennett and Louise Charlton all of whom are independent
Non–Executive Directors. The Chief Executive of the Company attends meetings by invitation and where this is pertinent to
the matters under discussion, but will never be present when his own remuneration is under discussion. Representatives of
PricewaterhouseCoopers LLP (‘PwC’) also attend some meetings of the Committee. The Company Secretary acts as secretary to
the Committee.
None of the members of the Committee has any personal financial interest (other than as shareholders), or conflicts of interests arising
from other directorships or day–to–day involvement in running the business of the Company.
Further information on meetings and attendance by the Committee members is disclosed in the Corporate Governance report on
page 20.
13. External advice
The Committee received external advice in 2013 from PwC. The Committee appointed and agreed the fees for the advice provided
to it in relation to executive remuneration.
During the year PwC advised the Committee in relation to the design, drafting and approval of the Bonus Plan as well as in relation
to preparation of the Remuneration Committee report, taxation of incentive plans and general governance matters relating to
remuneration. The total fees paid to PwC in the year amounted to £77,000. This fee was comprised of an annual retainer to
cover certain standard advice and payment for additional services in respect of which fees were agreed on a case by case basis.
No contingent fee arrangements were operated. The Committee has satisfied itself that the advice received from PwC was objective
and independent. PwC provides no other services to the Group as well as being a signatory to and following the provisions of the
Remuneration Consultants Code.
14. Statement of Shareholder voting
The Remuneration Report for 2012 and the new Bonus Plan were both approved at the Company’s 2013 Annual General Meeting.
The proxy votes cast for each resolution are shown below.
Votes
Remuneration Committee Report
Bonus Plan
For as % of
Votes Cast
94.35
85.74
Against as % of
Votes Cast
At Discretion as % of
Votes Cast
Withheld as % of
Votes Cast
5.6
6.14
0.03
0.03
0.02
8.09
Given the strength of voting for these resolutions the Committee concluded that no action to amend remuneration policy
was required.
90
Report and Accounts 2013 Five Year Summary
£000s
2013
2012
2011
2010
2009
Revenue
Fee income
PBTA
Net bank debt
Net assets
Adjusted cash generated from operating activities
Average number of employees
Dividend per share
Adjusted basic EPS
Adjusted diluted EPS
567,614
492,121
63,032
(32,368)
372,038
72,030
4,306
7.36p
20.22p
20.14p
555,863
478,835
60,099
(13,501)
373,814
76,045
4,507
6.40p
19.48p
19.36p
528,710
452,729
50,812
(23,523)
364,450
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
The Five Year Summary does not form part of the audited financial statements.
91
rpsgroup.comAccounts 92
Report and Accounts 2013 Strategic Review
Key Performance Indicators
Strategy and Business Model
Group Structure
2013 Results
Risk Management
Employees
Corporate Responsibility
Management & Governance
The Board
Report of the Directors
Corporate Governance
Remuneration Report
Report of the Auditors
Notes to the Remuneration Committee Report Policy Statement
Notes to Remuneration Committee Report Annual Statement
Accounts
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Cash Flow Statement
Consolidated Statement of Changes in Equity
Notes to the Consolidated Financial Statements
Parent Company Balance Sheet
Notes to the Parent Company Financial Statements
Five Year Summary
Group Key Performance Indicators
Fee income (£m)
PBTA(1) (£m)
Conversion of profit to cash (%)(2)
Net debt (£m)
2
3
4
5
8
10
12
15
16
19
25
27
77
86
31
31
32
33
34
35
69
70
91
2013
492.1
63.0
96
32.4
2012
478.8
60.1
105
13.5
Notes:
(1) PBTA is profit before tax, amortisation of acquired intangibles and transaction related costs as defined in note 1.
(2) Based on operating profit adjusted for depreciation, share scheme costs, amortisation of acquired intangibles, deferred consideration treated as
remuneration and non-cash transaction related costs.
Statutory reporting
Revenue (£m)
Profit before tax (£m)
2013
567.6
43.6
2012
555.9
40.2
2
Report and Accounts 2013
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RPS Group Plc
20 Western Avenue, Milton Park
Abingdon, Oxon OX14 4SH
T +44 (0)1235 863206
rpsgroup.com
Registered in England No. 2087786
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