R P S G r o u p P l c R e p o r t & A c c o u n t s 2 0 1 5 Cover Image: Brisbane, Queensland, Australia RPS is working on Brisbane’s largest urban regeneration project. REPORT & ACCOUNTS 2015 REPORT & ACCOUNTS 2015 COVER DESIGN TBC RPS Group Plc 20 Western Avenue, Milton Park Abingdon, Oxon OX14 4SH T +44 (0)1235 863206 rpsgroup.com Registered in England No. 2087786 43694 rpsgroup.com rpsgroup.com 3 5 6 10 13 15 18 19 22 28 30 83 35 35 36 37 38 39 74 75 76 90 Strategic Report Strategy and Business Model Group Activities and Management 2015 Results and Key Performance Indicators Risk Management Employees Corporate Responsibility Management & Governance The Board Report of the Directors Corporate Governance Remuneration Committee Report Report of the Auditor Notes to Remuneration Committee Annual Report 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 Parent Company Statement of Changes in Equity Notes to the Parent Company Financial Statements Five Year Summary 2 Report and Accounts 2015 Strategic Report Strategy RPS is a consultancy focused on providing its clients high quality and added value advice. Our businesses are based primarily in Europe, North America and Australia, although we undertake projects in many other parts of the world. We have developed a range of skills and services which enable us to provide independent advice upon: n n n the development and management of the built and natural environment; the exploration and production of oil and gas and other natural resources; and the development of infrastructure to enable the world’s population to have access to, in particular, appropriate transport, water and power resources. Our experience of trading for over 40 years had enabled us to develop a clear understanding of how to manage technical consultancy businesses successfully. Our key objectives are to: n build on our existing reputation in being recognised as a market leader in a wide range of markets; n n n n focus on delivering value added services which generate good fee levels and margins; grow our existing businesses organically; attract and retain staff capable of attracting projects from our clients and managing them successfully; 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 manage our cash and balance sheet prudently, whilst continuing to provide a growing dividend to shareholders. The Group’s businesses continually focus on understanding how their markets are developing and shifting their activities and marketing accordingly. However, the Board believes there are long term fundamentals underpinning our business. These are: n n n n long term demand for improvement to and extension of the urban fabric of towns and cities; long term demand for oil and gas and other sources of energy/power; long term demand for urban, inter urban, transport, water energy/power and communications infrastructure; the increasing importance of environmental and climate change issues. Our significant market profile and presence in the markets related to these opportunities enables us to benefit from them. Business Model The Group operates in a wide range of markets and offers a broad range of services. However, the approach to metrics which enable our businesses to be managed effectively apply across the Group as a whole. As a result we operate and measure our businesses with a common set of systems focused around annual targets developed from an understanding of market conditions (top down), together with the return expected from the staff complement and overhead structure we employ (bottom up). Most individual offices are separate profit centres with their own targets; larger offices may contain more than one profit centre. Offices are grouped functionally or geographically for management and marketing purposes. Those groupings then form part of the four reported Group segments. Each segment has a Board responsible for its operation and performance. Marketing and business development are devolved to these segment Boards although the Board maintains a Group website and Business Information Unit. IT is managed centrally, with support from local staff around the Group as necessary. Achieving organic growth is a key requirement of each business. The deliverability of this, however, is influenced significantly by economic and market conditions. Acquisitions broaden and deepen the services that we offer our clients. They have played an important part in our growth and will continue to be an important element of our strategy. We endeavour to acquire businesses that are well managed, deliver sound results and enjoy 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 view non-dilutive, acquisitive growth, funded by cash, as being as valuable as organic growth. 3 rpsgroup.com Our acquisition model is structured to operate on a low risk basis. This is achieved through an incremental approach focusing on small to medium sized enterprises which are adjacent and complementary to our existing areas of operation. The emphasis placed upon retention of directors and employees as well as the extent of due diligence undertaken and a clear single brand integration process are also important in keeping risks to a minimum. During 2015 we successfully completed acquisitions in Australia, USA and Norway. Over the long term we will seek to acquire further high quality small to medium sized businesses in North America, Australia and Europe. The Board occasionally considers larger acquisitions and acquisitions in countries in which we do not currently operate. Increasing Group scale and diversity by means of acquisitions leads to greater resilience in the Group’s performance, as demonstrated when the Global Financial Crisis began in 2007 and, in 2015, through the major downturn in the mining and oil and gas industries. As a result of developing the Group over four decades we now have important strong core competences throughout the business: n managing complex, intellectual consultancy businesses; n identifying high value, premium margin markets; n developing and operating businesses internationally; n recruiting and retaining high quality staff; n maintaining good client relationships: n maintaining strong cash flow; and n identifying, delivering and successfully integrating “bolt on” acquisitions. Shareholder Value The Group’s intense focus on converting profit into cash has enabled us to provide our shareholders with significant and predictable returns for over 20 years. In each of the last 22 years we have increased the dividend payable to our shareholders by 15%. Since the Group’s IPO in July 1987 we have raised only £60 million from our shareholders and distributed £145 million in dividends including the recommended 2015 final dividend. Our last fund raising, of £40 million, was in 2001; since then we have paid £140 million in dividends. This has been achieved at the same time as investing in acquisitions and keeping debt at modest levels. We have not diluted the equity base of the business by using shares to make acquisitions. 4 Report and Accounts 2015 Strategic Report Group Activities and Management Our business is an international consultancy providing independent advice that relates to the built and natural environment as well as to oil and gas and other natural resources. The Group’s services in relation to the development of infrastructure draw upon expertise from within both of these areas. The advice we provide to our clients upon the built and natural environment (‘BNE’) includes urban planning, urban design and regeneration, environmental assessment and management, transport and infrastructure, architecture and landscape, project management support, 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 BNE services are provided on a regional basis from offices in Europe, Australia and North America. All BNE activities in Europe are managed by a single Board with the exception of those in Norway which, at present, are managed separately. Following the recent acquisition of the Metier business in Norway its activities are being integrated with those of our existing business in that country. Our regional BNE business in North America is managed by a single Board. We present the results of the European and North American businesses as separate reporting segments. 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 in that region by a single Board. The results of this combined business are presented as a single reporting segment covering all of our operations in Australia Asia Pacific (‘AAP’). We also provide advice to our clients upon the exploration and production of oil, gas and other natural resources. This involves supplying technical, commercial and training experts in the fields of geoscience, engineering, health, safety and environment. This advice may be 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, Singapore and Malaysia and undertakes projects in many other countries. Separate Boards are responsible for the management of our Energy related activities in Europe, the Middle East and Africa (‘EAME’) and those in North America respectively, with their combined results being presented as a single accounting segment. As noted above our Energy activities within AAP are managed and reported together with the BNE business in that region. We operate multi-disciplinary teams drawing on expertise of each of the segments to focus on development of Energy and Urban Infrastructure. In the former we provide advice on the development of infrastructure for developing energy from renewable sources, storing and transporting hydrocarbons and transmitting energy and power. With regard to urban infrastructure we develop projects through planning, design and construction support including hospitals, schools, residential development and manufacturing facilities as well as the planning and design of transport schemes. A sample of the projects and activities that we undertake is described on our website at www.rpsgroup.com. 5 rpsgroup.com 2015 Results Summary of results The Group’s results for the year to 31 December 2015 are summarised in the table below: Business performance Revenue (£m) Fee income (£m) PBTA(1) (£m) Adjusted earnings per share(2) (basic) (p) Total dividend per share (p) Statutory reporting Profit before tax (£m) Earnings per share (basic) (p) Notes 2015 2014 567.0 506.1 51.8 16.57 9.74 572.1 505.0 66.1 22.04 8.47 2014 (constant currency) 554.7 489.6 65.0 21.67 8.47 9.9 3.11 46.3 15.20 45.7 15.03 (1) Profit before tax, amortisation and impairment of acquired intangibles and transaction related costs. (2) Based on earnings before amortisation and impairment of acquired intangibles and transaction related costs. PBTA for the full year was £51.8 million (2014: £66.1 million; £65.0 million on a constant currency basis). This reduction was caused by a significant downturn in our Energy business, resulting from the substantial global contraction in expenditure by our oil and gas clients, responding to a collapse in the oil price. In addition, a provision for doubtful debts totalling £7.0 million was made at the year end in respect of this business, due to the non-payment of debts due from a small number of clients. Primarily as a result of significantly reduced Energy earnings in the UK, the Group tax charge on PBTA increased to 29.6% (2014: 26.9%). Adjusted basic earnings per share were 16.57 pence (2014: 22.04 pence; 21.67 pence on a constant currency basis). We have taken a non-cash impairment charge against the book value of certain intangible assets held on the balance sheet of £20.0 million as a result of the reduced level of activity from oil and gas clients. This reduced PBT for the full year which, as a result, was £9.9 million (2014: £46.3 million; £45.7 million on a constant currency basis). The contribution of the Group’s four segments was: Segment Profit* (£m) Built and Natural Environment: Europe Built and Natural Environment: North America Energy Australia Asia Pacific (“AAP”) Total *after reorganisation costs. 2015 2014 24.9 30.3 10.6 9.1 10.9 35.0 8.2 12.1 77.2 63.9 2014 (constant currency) 23.7 9.5 35.5 7.3 75.9 During the year we experienced a significant change in the mix of our business. Energy contributed 45% of segment profit in 2014. This reduced to 17% in 2015 as a result of the downturn in the oil and gas sector and growth in our other businesses. BNE:Europe, which now includes Norway, has become the Group’s largest business (having grown organically and by acquisition) contributing 47% of segment profit. Following the acquisition of Everything Infrastructure Group Pty Ltd (“EIG”) (October 2015) our non resources businesses in AAP now contribute about 80% of the annualised AAP profit. When we created this segment in 2013 this contribution was about 25%. Both our BNE businesses remain exposed to oil and gas client projects. The oil and gas component in Europe is small (about 5%) and primarily focussed in Norway. In North America the exposure is greater (about 40%); we have in place a strategy to diversify this business further, as has been achieved in AAP. Both, however, remain exposed to further deterioration in the resources market. In recent years our acquisitions in both Norway and Australia have been directed towards project management consultancy, particularly in respect of large scale infrastructure projects. We see this as an important new activity for the Group; it also reduces our dependency on the resources sectors. 6 Report and Accounts 2015 The Group’s key performance indicators are shown below: Fee income (£m) PBTA (£m) Conversion of profit to cash (%)(1) Net debt (£m) Notes Strategic Report 2015 506.1 51.8 140.7 78.8 2014 505.0 66.1 89.0 73.2 2014 (constant currency) 489.6 65.0 89.0 73.2 (1) 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. Cash Flow, Funding and Dividend Our cash flow in the year was excellent. Net cash from operating activities was £75.1 million (2014: £44.0 million). There was a reduction in working capital of £26.8 million (2014: absorption £8.5 million) in part due to the collection of some older debts. Our year end net bank borrowings were £78.8 million (2014: £73.2 million) after paying out £20.0 million in dividends (2014: £17.4 million) and £51.9 million (2014: £64.7 million) in respect of initial and deferred payments for acquisitions, net of acquired cash and debt. Net bank borrowings include £53.1 million of US private placement notes, due for repayment in 2021. In July 2015, we arranged a £150 million committed revolving credit facility with Lloyds Bank Plc and HSBC Bank Plc. This is available until July 2020 and had headroom of about £107.1 million at the year end. As a result of the downturn in the Energy business and its reduced prospects for 2016, we have taken a non-cash impairment charge of £16.6 million against the value of intangible assets on the balance sheet. We have also taken impairment charges in respect of intangible assets of £2.9 million in BNE: North America and £0.5 million in AAP, both in relation to businesses with exposure to the oil and gas sector. The Board is recommending a final dividend of 5.08 pence per share payable on 20 May 2016 to shareholders on the register on 22 April 2016. If approved, the total dividend for the full year would be 9.74 pence per share, an increase of 15% (2014: 8.47 pence per share). The Board intends to continue to grow the dividend in a manner which reflects the performance and needs of the business. Markets and Trading Built and Natural Environment (BNE) BNE: Europe Within this business we provide a wide range of consultancy services to many aspects of the property and infrastructure sectors. It had a successful year achieving growth in fee income, profit and margin. This segment now includes the Group’s Norwegian business, reported last year in Energy. The process of integrating OEC (acquired September 2013) with Metier AS (acquired May 2015) to form Norway’s leading project management consultancy has progressed encouragingly. Fee income (£m) Segment profit* (£m) Margin % *after reorganisation costs: 2015 £0.5m; 2014 £0.3m. 2015 2014 222.4 30.3 13.6 186.3 24.9 13.4 2014 (constant currency) 177.3 23.7 13.3 The acquisitions made in 2014 (Clear and CgMs) have been integrated successfully and assisted the growth of the UK water and planning and development businesses respectively. Those activities which assist clients develop new capital projects, particularly our planning and development business in the UK, continued to benefit both from improving market conditions and client confidence. Those exposed to operational environments, such as providing environment management advice, continued to need to offer an efficient, cost effective service to assist clients in managing tight budgets. However, our water business in the UK, achieved this and, in consequence, performed particularly well in the period. Our business in Norway has a modest direct exposure to the oil and gas market. The other parts of the business traded well, including Metier AS. We currently anticipate this segment of the Group should show further growth this year. 7 rpsgroup.com BNE: North America This business evolved from our North American Energy business and, as a result, still has significant exposure to the provision of environmental services to the oil and gas sector. This has held back progress throughout the year as those clients reduced and delayed expenditure, although both fee income and profit grew helped by the contribution from acquisitions. The acquisition of Klotz Associates Inc. (February 2015) and Iris Environmental (October 2015) continued the process of diversifying into more traditional planning and environmental consultancy activities. These businesses, in conjunction with GaiaTech (acquired in 2014), have enabled the North American business as a whole to secure year on year growth. Once they have been fully integrated we intend to develop further our planning and environmental capability with additional acquisitions. Fee income (£m) Segment profit* (£m) Margin % *after reorganisation costs: 2015 £0.2m; 2014 £nil. 2015 2014 58.7 10.6 18.0 41.3 9.1 22.0 2014 (constant currency) 43.4 9.5 21.9 We currently anticipate further growth in this business in 2016, although this is likely to be driven largely by the recent acquisitions. Energy We provide internationally recognised services to the oil and gas industry from bases in the UK, USA and Canada. These act as regional centres for projects undertaken in many other countries. The business undertakes projects globally and manages its resources internationally. During the course of the year, our experienced management team had to respond to a significant reduction in our clients’ spend and the uncertainty about whether and when specific projects might commence. In these circumstances, the maintenance of a margin well into double figures, before doubtful debt provisions totalling £7.0 million made at the year end, confirms both the quality of this business and its management, as well as the added value it provides to our clients. Fee income (£m) Segment profit* (£m) Margin % *after reorganisation costs: 2015 £0.9m; 2014 £0.2m. 2015 2014 123.0 10.9 8.9 175.5 35.0 19.9 2014 (constant currency) 177.5 35.5 20.0 Our Energy activities can be broadly divided into 2 components: consultancy and operations. Consultancy provides a broad range of advisory and training services and includes the asset evaluation work and training we undertake for clients. It is predominantly an employee based business. The operations business provides technical support to clients in their day to day exploration and production activities. It generates income primarily with the use of sub-consultants. The performance of the business can be seen in the declining trend of fee income for both components: (£m) Consultancy Operations Total H1 34.5 54.3 88.8 2014 H2 34.0 52.7 86.7 Total 68.5 107.0 175.5 H1 26.5 40.8 67.3 2015 H2 23.3 32.4 55.7 Total 49.8 73.2 123.0 In response, the operating costs of the business have been reduced by about £36 million on an annualised basis since the beginning of 2015. This includes about £25 million for the year on year reduction in the cost of sub-consultants, almost entirely related to the operations business. The oil price remains volatile and expenditure by our clients is likely to reduce materially again this year. In consequence, further cost saving measures are being taken. The costs of these will be incurred in the first half, with the benefit of the consequent savings arising largely in the second half. As a result the first half is likely to produce a reduced performance compared with the same period in 2015. Assuming reasonably stable market conditions, the second half should show an improvement over the first half. However, our current expectation is that the full year Energy result for 2016 is likely to show a further decline in both fee income and profit. 8 Report and Accounts 2015 Australia Asia Pacific (“AAP”) This business is a combination of the former BNE:AAP and the AAP component of Energy. They were brought together in 2013 to help counter the impact of the slowdown in the resources sector by focusing more upon the buoyant infrastructure sector. This strategy is proving successful. The business grew its profit significantly in 2015 and improved its margin, primarily as a result of this repositioning strategy and, in particular, the acquisition of Point the project management consultancy (September 2014). Strategic Report Fee income (£m) Segment profit* (£m) Margin % *after reorganisation costs: 2015 £0.4m; 2014 £1.4m. 2015 2014 104.2 12.1 11.6 103.6 8.2 7.9 2014 (constant currency) 93.1 7.3 7.8 Following elections in New South Wales, Victoria and Queensland in the first half of 2015, the pace of investment in infrastructure has increased and we are assisting clients develop a number of high profile projects. We also have involvement in a number of large projects for various departments of the Federal Government. Such projects are likely to remain important to the Australian economy, although the reduction in levels of tax revenue from the resources sector is focusing attention on those able to deliver value for money. In order to expand this increasingly important component of our business we acquired EIG, a project management business with a strong involvement in the infrastructure market. (October 2015). We see considerable opportunity in infrastructure related markets and are now well positioned to take advantage of this. Overall, we are currently expecting an improved performance in 2016, although a further contraction in the remaining resources element of the business is, again, likely to moderate the organic growth achievable. Group Prospects and Strategy The acquisitions made in 2015 are integrating well and will make an important contribution this year. The Board is currently expecting a further reduction in Energy profit in 2016. The other three segments are expected to grow. Our strategy of building multi-disciplinary businesses in each of the regions in which we operate continues to be attractive. Our flexible business model, diversity of operations and experienced management enabled us to withstand a substantial contraction in Energy during the year, as well as delivering strong cash flow. We intend to maintain this strategy, securing organic growth where possible and containing costs where not, whilst continuing to seek further acquisition opportunities. 9 rpsgroup.com Risk Management The Group supplies a wide range of consultancy services in many markets and countries. This gives rise to a range of risks that need to be identified, assessed and managed. The Group’s systems of planning, budgeting, performance review and internal control assist with this process. The management of risk is not separated from the business and is treated as an integral part of our culture and the way we operate. Our operating Boards consider the risks to which they are exposed and their mitigation on a continuous basis and at each of their regular meetings. Against the background of reporting from this level, the Group Executive Committee oversees the operational management of the principal risks to which the Group as a whole is exposed. In turn the Group Board receives regular reporting from the Executive Committee in relation to principal risks and their mitigation. In considering and challenging this information the Group Board has undertaken a robust assessment of the principal risks facing the Group including those that would threaten its business model, future performance, solvency or liquidity. Economic Environment The history of the Group demonstrates that by far the greatest negative impact on performance results from external events, normally related to significant economic changes. This was well demonstrated following the “global financial crisis” in 2008 and the international recessions which followed it and currently by the effect of the collapsing oil price and the volume of work available to our Energy businesses. Adverse economic changes may cause clients to cancel, postpone or reduce projects as well as increasing risks associated with the recovery of debt and work-in-progress. Although these macro-economic changes are beyond our control our exposure to a wide range of markets and geographies serves to mitigate overall risk. Economic conditions in our various markets are closely reviewed in order that pre-emptive action can, as far as possible, be taken as circumstances change. Our contracted order book is monitored regularly in comparison to the productive capacity of our fee earning staff and necessary actions are taken to reduce costs as and when required. Retention of Key Personnel Internally, experience shows that the biggest risk we face is from losing the personnel who are responsible for managing both client relationships and teams of staff. 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, affect our ability to meet our clients’ expectations and correspondingly to maintain and develop our business. In addition a failure to anticipate management succession issues adequately may lead to discontinuity in the Group’s operations and a corresponding diminution in performance. As described on pages 13 and 14 the Group maintains competitive remuneration and incentive structures which are reviewed and adjusted on a regular basis. It also maintains an environment that is supportive of professional development through training and career opportunity. Board level succession planning remains under review by the Nomination Committee. Business Acquisitions The development of the Group’s business continues to be supported by acquisitions. The risks here can be of a different nature as was demonstrated in 2015. Acquisitions in the oil and gas sector which had performed well following integration into the Group suffered the effect of the contraction of expenditure by oil gas clients. As this is expected to continue impairments have had to be made to related assets held on the balance sheet. Additionally 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 designed to prevent this. This will include an assessment of the ability to integrate the acquired business within the Group and its control environment. It cannot, however, identify macro events which occur some years later. The integration of the acquisitions made in 2014 has been successful and work in relation to those made during 2015 is proceeding well. The other principal risks faced by the Group, as listed below, are of significantly less importance in terms of the scale of impact they might have on profit. Political Events The change and uncertainty arising from political events may have an impact upon the markets in which we operate and our ability to deliver our services to clients. As previously highlighted our operations in Kurdistan and Iraq have been affected by conflict in the Middle Eastern region, whilst sanctions imposed on the Russian Federation have had an impact on our business in that part of the world. Uncertainties associated with the outcome of the UK general election have, however, been resolved helpfully since the last time of reporting. 10 Report and Accounts 2015 Strategic Report The significant majority of the Group’s services are provided in relatively stable and predictable liberal democracies. This coupled with the range of markets and geographies that we serve operates to limit the impact of adverse political developments in particular countries. In so far as changes can be foreseen, measures can be taken to match costs to anticipated workload. Environmental and Health Risks Adverse occurrences of this type may affect our ability to deliver our services and our clients’ demand for them. Our operations have previously been affected by environmental events such as Macondo oil spill in the Gulf of Mexico. No events of this type have materially affected us in 2015 and the risks associated with the Ebola virus that were identified at last time of reporting have since receded. Whilst it is impossible to predict events of this type, the wide range of geographies and markets that we serve should limit the impact of adverse occurrences in any specific country or region. Information Systems A lengthy failure or discontinuity in our IT systems could 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 disaster 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 of its systems. A cyber-attack upon our systems could result in loss of data, disruption to operations or direct financial loss. The Group has suffered a number of attacks of this nature but has never experienced any significant loss due to the effective operation of the systems and controls in place. These systems as well as guidance given to employees remain under regular review. Health and Safety The Group’s activities require the monitoring and management of the health and safety of its employees as well as 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 potential liabilities and reputational damage. Detailed health and safety policies and procedures are in place throughout the Group which are designed to identify and mitigate risk. These are subject to regular review to ensure that any emerging risks are identified and managed. Policies and procedures incorporate a structured reporting process which aims to ensure that when incidents do occur they are properly investigated and appropriate corrective action taken. The Group’s approach to the management of health and safety is described in more detail on pages 15 and 16. 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 quality control systems, many of which are externally accredited and are designed to enable our employees to provide a consistently high standard of work. Claims and Litigation A failure to deliver our services in accordance with our contractual obligations may lead to a risk of the Group becoming involved in litigation. In addition, as the contracting environment has evolved, clients in some of our businesses have sought to transfer certain risks to the consultants it 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 claims against the Group. Notwithstanding this, from time to time the group receives claims from clients against which appropriate professional indemnity insurance is maintained. The Board reviews claims of significance on a regular basis and is satisfied that adequate financial provision has been made in respect of any uninsured liabilities. Compliance The Group is subject to a range of taxation and legal requirements across the various jurisdictions in which it operates. A failure to comply with these obligations could give rise to regulatory intervention, financial penalty 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. 11 rpsgroup.com Funding The availability of sufficient and appropriate funding through the Group’s bank facilities is important to support the Group’s acquisitions. The Group’s principal bank facility was renegotiated and renewed in July 2015. This now consists of a total committed sum of £150m for a five year period jointly funded by HSBC and Lloyds. The long term private shelf facility with Prudential Investment Management Inc. in the sum of $150m remains in place and against which sums of £30m and US$34.1m, repayable in September 2021, have been drawn. Financial Risk Management In addition to ensuring the availability of sufficient funding the Group faces a number of other financial risks which are fully described in note 30 to the Group Financial Accounts on page 69. Long Term Viability Statement In accordance with the requirements of the UK Governance Code the Board has assessed the long term viability of the Company. This was done over a three year period taking account of the above risks as well as the Company’s current position, its strategy and the Board’s risk appetite. A three year period was chosen as a realistic term over which to assess viability. The Board considered cash flow models based upon a range of assumptions relating to trading performance, expenditure on acquisitions and other outflows including those associated with the principal risks the Group faces; this included severe but reasonable scenarios. These models took account of the possible scale of downturn in the Group’s Energy business over the three year period. Based on this assessment the directors have a reasonable expectation that the Company will continue in operation and be able to meet its liabilities as they fall due over the period to 31 December 2018. 12 Report and Accounts 2015 Employees The current profile of the Group’s employees presented in accordance with the Group’s segmentation during the year and the changes over that period are as detailed below. Strategic Report Group Average number of employees Built and Natural Environment – Europe Built and Natural Environment – North America Energy Australia Asia Pacific Central Group total Employment statistics Days absent (%) Average length of service (years) Working part time (%) Retention rate (%)* Female Male Female (%) Male (%) Age profile Employees aged under 25 Employees aged 25-29 Employees aged 30-49 Employees aged 50+ * Excluding redundancies. 2015 2014 restated 3,045 2,572 445 521 926 117 352 613 882 111 5,054 4,530 3 7 11 83 1,516 3,538 30 70 % 8 14 54 24 2 6 11 81 1,621 2,909 35 65 % 7 15 55 23 The recruitment, retention and motivation of high calibre employees is of strategic importance for the Group and as highlighted above represents an area of principal risk. Each of the Group’s businesses therefore maintains appropriate and flexible 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’ projects These arrangements may differ according to the nature of the specific business but work within an overall framework that is overseen at Group level. Human resource professionals are employed throughout the Group to support the objectives of each business and ensure that best practice is followed wherever possible. 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. 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. We operate largely in sectors which are male dominated. Our ability, therefore, to recruit female fee earning staff is severely curtailed by the employment applications we receive. We do not envisage this changing in the short or medium term and intend to maintain a policy of employing the best available staff regardless of gender. Building an environment in which employees feel engaged with their business and the Group as a whole is of great importance and in particular to ensure the successful integration of newly acquired businesses. The Group intranet is used as a means to communicate developments and achievements from within the group as well as policies and procedures. Corporate newsletters also facilitate this flow of information. New employees receive an induction and staff appraisals facilitate open communication between employer and employee as well as identifying developmental needs. 13 rpsgroup.com 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 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 a personally significant interest in the Company over a number of years. 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. Given the wide range of professional and technical areas in which the Group is engaged this involves supporting training schemes and continuing professional development across a range of disciplines both ‘in-house’ and through professional bodies. Within the UK water business, for example, customer service training is delivered in conjunction with the Institute of Customer Services, whilst a post graduate certificate in urban drainage is supported and accredited through Derby University. In Australia our Infrastructure Solutions business operates a Manager Development Programme aimed at developing broad based project management, business and leadership skills. Our global Energy business also provides training to the oil and gas sector through RPS Training and which also assists in providing technical training within the Group. In addition our project management business in Norway provides both classroom based and e-learning training in all aspects of project management. During 2015 RPS continued its long-term practice of supporting staff in pursuing relevant higher education courses. This involved sponsoring courses at universities and colleges across the United Kingdom, Ireland, The Netherlands, USA and Australia. Vacant positions within the Group are, wherever possible, filled from within. 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. The Group’s policies in relation to health and safety are described on pages 15 and 16. 14 Report and Accounts 2015 Strategic Report Corporate Responsibility Commitment The Group’s corporate governance policies are described in detail elsewhere in this document and provide a framework within which it seeks to achieve attractive levels of return for its shareholders whilst balancing this objective with a recognition of its obligations to its employees, clients and society in general. The Board takes account of any significant environmental, social and governance (‘ESG’) matters in assessing the risks that the Group faces. The Executive Committee supports the Board in exercising general oversight in relation to ESG matters including the assessment of the opportunities to which such issues give rise. Within this framework the Group has adopted a general approach and specific policies in relation to its employees and their health and safety, the standards through which it conducts business, the environment and the wider community. These are outlined below as well as elsewhere within this report and are detailed more fully on the Company’s website. 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. It also the Board’s view that the challenges, risks and opportunities created by ESG issues as outlined herein 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 abuse their position for personal gain; the Group has a clearly stated and zero tolerance policy in relation to 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 such rights. Employment The policies adopted by the Group in relation to employees are described on pages 13 and 14 of this report. The risks associated with failures in this area as well as in relation to the management of health and safety are described in the Risk Management section on page 11. Health and Safety The health and safety of employees and others it may affect is of paramount importance to the Group and it remains 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 review and 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 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. 40% (2014: 30%) of employees across the Group work in offices that now have third party accreditation to the OHSAS 18001 standard. 15 rpsgroup.com During the year neither the Group nor any Group company was prosecuted for the breach of health safety regulations. The reportable accident rate in the year was 2.2 accidents per 1,000 employees (2014: 2.0). Accidents that do occur most commonly relate to field staff and involve manual handling activities, slips and falls. Reportable Accident Rates Group Reportable injuries Reportable injuries incident rate per 1,000 employees 2015 12 2.2 2014 11 2.0 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 2015 the Group and its staff gave or raised £873,000 in charitable contributions (2014: £882,000). Taking into account the £221,000 (2014: £175,000) spent on academic bursaries and educational initiatives, the total contribution of the Group and its employees to the communities in which it operates was £1,094,000 (2014: £1,057,000). At Group level the work of Tree Aid has continued to be the main area of focus. This is in support of Tree Aid’s programme of education, tree planting and woodland conservation programmes to assist some of the poorest communities in sub-Saharan Africa. The Group continues to be this charity’s largest corporate sponsor, having made a direct contribution of £104,000 towards projects in Ghana in 2015. In addition the company’s employees have through their own fund-raising and volunteering contributed a value of approximately £18,000 to Tree Aid. This has continued to include a number of our specialists providing technical support across a number of disciplines on a ‘pro bono’ basis. The Group is pleased to have continued this association and that its employees have contributed in such a direct and positive way. Environmental Management and Climate Change 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 its trading. Whilst given the nature of its activities the Group’s own impact on the environment is comparatively modest, policies, standards and targets are in place which aim to minimise this impact wherever 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. It 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 Group endeavours to: n n comply with all relevant national and regional legislation as a minimum standard; comply with relevant codes of practice and other requirements such as those specified by regulators and our clients; n employ practical energy efficiency and waste minimisation measures; and n provide an inter-office IT network together with communications and video conferencing technology that reduces business travel. To achieve these objectives appropriate training is provided where required to enable activities to be conducted in an environmentally sensitive manner and sufficient management resources are allocated to enable effective implementation of policies. A number of the Group’s operating businesses have achieved ISO14001, the internationally recognised environmental management system standard. During 2015 many of our offices continued to recycle waste paper, spent toner and ink cartridges, obsolete computer hardware, printers and mobile phones. 16 Report and Accounts 2015 Strategic Report Greenhouse Gas Reporting For the reporting year 1 January to 31 December 2015 we have followed the 2015 UK Government environmental reporting guidance and used 2014 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 in the table below. Scope 1: Direct emissions Scope 2: Indirect emissions Total 2015 8,122 4,516 12,638 2014 6,881 4,724 11,605 The increase in Scope 1 emissions is largely attributable to a significant growth in the UK based RPS Water business and a corresponding growth in the size of its vehicle fleet. The Group has set a target to reduce per capita office energy consumption by 2.5% on a five year rolling average basis. Using this approach the five year rolling average up to 2014 was 3.56 MWh per capita which decreased to 3.5 MWh per capita for the five year rolling average to 2015. Although a decrease of 1.1% was achieved this was below the target 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 3 March 2016 17 rpsgroup.com The Board Brook Land Non-Executive Chairman Aged 66. 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 a member of the Nomination Committee. Dr Alan Hearne Chief Executive Aged 63. 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 and 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 56. 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. Dr Phil Williams Executive Director Aged 63. 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 63. 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 Chairman of the Nomination Committee and the Remuneration Committee, a member of the Audit Committee and Senior Independent Director. Louise Charlton Independent Non-Executive Director Aged 55. Louise was appointed to the Board in 2008 and is serving a third three-year term. She is Vice-Chairman of Brunswick Group LLP, the international corporate communications group of which she was a co-founder. Louise also serves on the Board of Brunswick Arts, an international strategic communications consultancy specialising in the cultural sector and Merchant Cantos, a leading creative communications agency. She has also served as a Director and Trustee of the Natural History Museum. She is a member of the Remuneration and Nomination Committees. Andrew Page Independent Non-Executive Director Aged 57. Andrew Page joined the Board in September 2014. He retired as Chief Executive Officer of the Restaurant Group plc in September 2014 having spent over thirteen years with that company. Prior to that he held a number of senior positions in the leisure and hospitality industry, including as Senior Vice President with InterContinental Hotels and as Senior Independent Director of Arena Leisure plc. Andrew qualified as a Chartered Accountant with KPMG and then spent several years with Kleinwort Benson’s Corporate Finance division. He is currently Chairman of Northgate plc, and Senior Independent Director of Carpetright plc as well as being a director of The Schroder UK Mid Cap Fund plc and The JP Morgan Emerging Markets Investment Trust plc. Andrew is Chairman of the Audit Committee and a member of the Remuneration Committee. 18 Report and Accounts 2015 Management & Governance 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 2015. Directors The Directors of the Company as at 31 December 2015 were those listed on page 18. John Bennett retired as a Director on 1 May 2015 and Tracey Graham resigned on 3 September 2015; there were no other changes to the Board during the year. The Directors’ interests in the share capital of the Company are as shown in the Annual Report on Remuneration on page 86. 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 35 and shows the profit for the year. The Directors recommend a final dividend of 5.08p (2014: 4.42p) per share. This together with the interim dividend of 4.66p (2014: 4.05p) per share paid on 15 October 2015 gives a total dividend of 9.74p (2014: 8.47p) per share for the year ended 31 December 2015. Strategic Report The Group’s Strategic Report can be found on pages 3 to 17 and includes information as to the likely future development of the Group. Financial key performance indicators can be found on page 7. 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 such indicators from time to time. The Strategic Report 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 Report includes information as to likely future developments in the business of the Group. Nothing in the Strategic Report 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 Group’s subsidiary undertakings are listed in note 6 to the Parent Company Financial Statements. Corporate Governance The Directors’ report on corporate governance can be found on pages 22 to 27 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 13 and 14. Corporate Responsibility The Group’s corporate responsibility statement is included on pages 15 to 17. 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 1 March 2016. Aberforth Partners Schroder Investment Management UBS Global Investment Management Newton Investment Management Montanaro Investment Managers No. of shares 17,956,375 17,445,965 12,284,548 9,108,803 7,750,000 Percentage 8.08 7.85 5.53 4.10 3.49 19 rpsgroup.com Going concern The Group’s business activities, a review of the 2015 results together with factors likely to affect its future development and prospects are set out on pages 6 to 9. 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 a diverse range of businesses in a spread of geographies which serve to limit the overall impact of adverse conditions in any particular market. In this regard and notwithstanding the possible scale of the downturn in the Group’s Energy business, the Group continues to enjoy strong cash flow and operates well within the financial covenants applying to its main bank facility. The Group’s bank facilities were renewed during 2015 and will not expire until July 2020. 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. The Group’s Long Term Viability Statement is shown on page 12. Directors’ responsibilities statement The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Each of the persons who is a director at the time of this report confirms that so far as he or she is aware there is no relevant audit information of which the Company’s auditor is unaware and that he or she has taken all the steps that he or she ought to make himself or herself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. 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 n n properly select and apply accounting policies; 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 20 Report and Accounts 2015 Management & Governance Responsibilities pursuant to DTR4 We confirm that to the best of our knowledge: n n 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; 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 and note 30 to the Consolidated Financial Statements. Post balance sheet events There are no significant post balance sheet events to report. Takeover Directive The following additional information is provided for shareholders pursuant to the requirement of the Takeover Directive. As at 31 December 2015 the Company’s issued share capital consisted of 222,234,251 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 86. Substantial shareholder interests of which the Company is aware are shown on page 19. Listing Rule 9.8.4C The following disclosure is required pursuant to listing rule 9.8.4C. An arrangement is in place whereby the trustee of the Company’s employee benefit trust has agreed to waive present and future dividend rights in respect of certain shares that it holds. There are no other matters requiring disclosure required pursuant to this listing rule. Annual General Meeting The Annual General Meeting will be held on 26 April 2016. 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 Auditor. By order of the Board Nicholas Rowe Secretary 3 March 2016 Registered Office: 20 Western Avenue Milton Park Abingdon Oxfordshire OX14 4SH Registered in England No. 02087786 21 rpsgroup.com Corporate Governance Chairman’s Introduction As Group Chairman I am reporting on the role and effectiveness of the Board during 2015. This is the first year in respect of which we have reported under the revised version of the UK Governance Code (‘the Code’) as published in September 2014. In June 2015 the Company ceased to be a member of the FTSE 250, following which some restructuring took place and our complement of Non-Executive Directors reduced by one. We have, however, remained in full compliance with the Code throughout the year and now satisfy its requirements as applicable to smaller market capitalisation companies. Notwithstanding this change, the processes and disciplines to which our Board adheres, as well as its generally open and co-operative style have remained unchanged. The Group has faced significant challenges particularly in relation to the market conditions that have led to a significant downturn in our Energy business. I believe that the Board remains well equipped to face these challenges, as well as the other key issues and risks that we face. Notwithstanding the reduction in our complement, I believe that the Board possesses an appropriate balance of skills and experience drawn from the corporate, City and professional worlds. The Chairmanship of both our Audit and Remuneration Committees has changed during the year, but in each case has brought fresh thought and approach. In particular, the common Chairmanship of our Nomination and Remuneration Committees is assisting with the succession process to which I refer below. All of our Committees operate with independence and with the benefit of professional advice where required and report on a regular basis to the Board as a whole. Our Nomination Committee led by our Senior Independent Director has continued to develop our succession planning. This is well advanced as far as the Group Board is concerned, but also extends to our next tier of senior management. The revised segment Boards have been in operation throughout 2015. Dr Phil Williams who heads up our energy business intends to retire by 30 September 2016. Since the acquisition of Hydrosearch in 2003, Phil has spearheaded the dynamic growth of our energy business as well as having Board level responsibility for other activities. RPS owes a very great deal to Phil; his experience and unflappability will be much missed by us all when he finally steps down. I would like to thank Phil publicly for his hard work in developing the RPS energy business over the last twelve years. During the year the Board has devoted attention to developing our corporate management structure to make it more robust and flexible. Following Phil’s retirement the Chief Executive, Dr Alan Hearne, will take over his Board responsibilities in conjunction with an enlarged Executive Committee which will include the regional business leaders. We believe that this will strengthen Group decision making. As previously reported Alan has indicated his intention to remain in office until at least the end of 2017. I am satisfied that we now have the plans in place to deal with senior management succession in the future. In recognition of the increasing overlap between the Remuneration and Nomination Committees, we decided to move to a single Chairman of these committees. Robert Miller-Bakewell, the Senior Independent Director, has taken on these roles. This summer we will consult shareholders on the executive remuneration package for 2017 onwards. During the year we undertook our normal annual performance review. This consisted of a questionnaire encompassing key areas of the effectiveness of our Board and its Committees which our directors completed. Although no major issues arose, one or two detailed areas were identified for attention. As a small market capitalisation company we are no longer required to undertake an externally facilitated review every three years and I anticipate that we will utilise our internal review system again in 2016, when an external review would otherwise have been due. In line with additional obligations now imposed by the Code, but also as a means to enhance our performance, the Audit Committee and Board have overseen the development and formalisation of the way in which we review and report risks and internal control issues within the Group. These issues have always been on the Board’s agenda but are now considered more regularly and in a more structured manner. We also continue to prioritise health and safety issues and review this topic at every Board meeting. Robert Miller-Bakewell’s second three year term as a Non-Executive Director will expire in April 2016 and I am pleased to report that he has agreed to serve another three year term. As Senior Independent Director as well as being Chairman of the Nomination and Remuneration Committees, Robert has a key role in the management transition to which I refer above. In accordance with best practice, all our directors, including myself, offer themselves for re-election at every AGM. As previously announced Andrew Page has informed the Company he is not seeking re-election and will leave the Board at this AGM. We are a people based business and notwithstanding the challenges we have faced in parts of the Group, our employees continue to respond very well. I am pleased to thank all of them for their important contributions to RPS Group. Brook Land Chairman 22 Report and Accounts 2015 Management & Governance 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. In May 2015 the Company ceased to be a member of the FTSE 250 Index and since that time has complied with the provisions of the Code as applicable to a small market capitalisation company. Corporate governance has previously been considered by a separate Corporate Governance Committee, but the activities of this Committee have now been absorbed by the other Board Committees with the Board as a whole maintaining an overall responsibility for this subject. Board Responsibilities The Board has a schedule of matters that are reserved for its decision, including: n determining the Group’s overall strategy n n the approval of annual targets and financial reporting including annual and half year results and interim management statements the recommendation and approval of dividends and other capital distributions n n n n n the approval of significant acquisitions and disposals the approval of policies and systems for risk management and assurance the appointment of key advisers to the Group the approval of major items of capital expenditure the settlement of major litigation. Board Structure At the date of this report the Board comprised three Executive Directors, three Non-Executive Directors and the Chairman. John Bennett retired as a Non-Executive Director in May 2015 and Tracey Graham ceased to be a Non-Executive Director in September 2015. 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 and to ensure that all Directors are properly briefed in order to take a full and constructive part in Board discussions. The Chairman also meets regularly with major shareholders and in order to understand their views and seek their input on specific matters. 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 and 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 and Nomination 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 Andrew Page Number of meetings held * served for part year only Full Board 7 8 8 8 4 * 7 8 5 * 8 8 Audit Committee – – – – 3 * – 4 4 * 5 5 Remuneration Committee – – – – 2 * 4 2 * 2 * 4 4 Nomination Committee 2 – – – – 2 2 – – 2 23 rpsgroup.com Board Operations The Board generally meets eight times annually, although additional meetings may be held should circumstances require. The Board agenda gives significant focus to business performance and strategy balanced by consideration of 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 the Chief Executive, the Finance Director and the Company Secretary. These regular reports and other matters of immediate importance are discussed at each meeting. 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 Committee, which consists of the three Executive Directors supported by the Company Secretary, meets at least once a month and has overall responsibility for all operational matters within the Group, subject to those matters that remain reserved for the Board. As outlined on page 22, during 2016 the Executive Committee will be enlarged to include the regional business leaders. The minutes of all 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 matters 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 previously 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 2015 directors were asked to complete a review relating to the general operation and effectiveness of the Board and its Committees, following which results were reviewed with the Chairman. No major issues arose. The Non-Executive Directors hold meetings with the Chairman without the Executives present at least twice a year and the Non-Executives, led by the Senior Non-Executive Director, meet on an annual basis to appraise the Chairman’s performance. On appointment directors receive 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 periodically 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 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. An investor relations report is presented at all regular Board meetings to ensure that the Board is kept aware of the views of larger shareholders and the investment community generally. The Chairman of each of the Board Committees attends the Annual General Meeting and is available to answer questions. 24 Report and Accounts 2015 Management & Governance Audit and internal controls The respective responsibilities of the Directors and the independent auditors in connection with the accounts are explained on pages 20 to 21 and 33 and the statement of the Directors in respect of going concern appears on page 20. The long term viability statement is set out on page 12. 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 ‘Guidance on Risk Management , Internal Control and Related Financial and Business Reporting”. The principal risks to which the Group is exposed and the measures to mitigate such risks are described on pages 10 to 12. 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. This subject is kept under ongoing review and the Board receives and considers regular reports relating to the Group’s system of risk management and internal control. In addition a detailed review of the Group’s system of internal control and risk management was undertaken by the Audit Committee during the year, the outcome of which was reported to and discussed with the Board. The Audit Committee and the Board were satisfied that the systems in place remained appropriate and effective. 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 at each Board meeting. 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 at key centres within the Group to ensure that policies and procedures are being followed as well as to identify any control weaknesses or failings. Capital investment: The Group has clearly defined guidelines for capital expenditure. These include detailed appraisal and review procedures as well as 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. Delegated Authorities: A system of delegated authorities, whereby the incurring of expenditure and assumption of contractual commitment can only be approved by specified individuals and within pre-defined limits, is in place throughout the Group. Review and reporting: Internal controls and in particular any failures are reported to and reviewed at Group and operating Board meetings in order that changes to systems can be implemented where required. In addition the Audit Committee maintains a brief to keep the overall systems of internal control under review. Audit Committee The Audit Committee comprises two Independent Non-Executive Directors; Andrew Page and Robert Miller-Bakewell. John Bennett and Tracey Graham both ceased to be Committee members upon leaving the Group. 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 both members of the Committee have experience that is relevant to the role, during the year under review Andrew Page, who is a Chartered Accountant, was the member of the Committee specifically identified as having recent and relevant financial experience. At its annual planning meeting in September the Committee reviews and approves plans with the Auditors including the locations to be audited as well as the scope and 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 category of assets, which comprises goodwill and other intangible assets is by far the largest on the Group balance sheet. It therefore receives careful attention from the Committee which needs to be satisfied that its carrying value is appropriate. As part of its year end procedures the Group Finance function performed a detailed impairment review of other intangible assets based upon approved targets. A number of businesses that hold other intangible assets have been affected by the downturn in oil and gas markets which has in turn reduced their prospects. This review indicated that impairments totalling £20.0m were necessary. The Audit Committee considered papers prepared by the Group Finance Director that included details of the testing 25 rpsgroup.com undertaken and the assumptions used. The Committee agreed that it was appropriate to provide this impairment charge. The Audit Committee also received reports from the Group Finance Director on the appropriateness of cash generating units for the purposes of goodwill impairment testing and on the goodwill impairment testing undertaken. The modelling performed was based on approved targets and indicated that no impairment of goodwill was required. The report explained the cash flow modelling undertaken, the assumptions used and the conclusions reached. The Committee agreed that no impairment of goodwill was necessary. 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 presented the valuation process and judgements made to the Committee. 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 trade debtors and accrued income may not be collected and therefore may be overstated in the accounts is considered by the Board at its regular meetings when it reviews business performance. The reports prepared for those meetings contain age profile information on debtors and accrued income by segment and consider specific issues in more detail as necessary. During the second half of the year in particular it became apparent that certain Energy clients were missing payment promises and that exposure to them was increasing. The Group Finance Director prepared a paper for the Audit Committee in September that considered the recoverability of trade debtors and accrued income. No provision was considered appropriate at that time, although the difficulty of collecting from some clients was noted. The situation did not improve by the year-end or thereafter. Following the year-end The Group Finance Director prepared reports for the Board and Audit Committee that considered the recoverability of trade debtors and accrued income at the year-end. The Board and Committee confirmed it appropriate to impair the carrying value of trade debtors in the Energy segment by £7.0m as at the year-end. Attempts to recover the debts will continue. Following the review conducted by the Audit Committee and its own consideration, the Board was able to conclude that the Report and Accounts for 2015, taken as a whole, is fair, balanced and understandable as well as providing the information necessary for shareholders to assess the Group’s performance, business model and strategy. In reaching this conclusion the Board was satisfied that the Group’s performance across its segments, as well as its business model, strategy and the key risks that it faces are clearly explained in the relevant sections of the Report and Accounts. The Audit Committee keeps the scope, cost and effectiveness of the external audit under review. The Committee reviews the effectiveness of the annual audit 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 the conduct of the audit. He then reports this feedback to the Committee as well as the performance of the Auditors at Group level. Deloitte LLP was appointed as Group Auditors in June 2012 following a tender process. The independence of the external auditor is also reviewed each year and audit partners are rotated at least every five years. The Company’s policy is that Group auditors should remain in office for no more than ten 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 n n bookkeeping services preparation of financial statements design and implementation of financial systems n n n valuation services investment advisory, broker and dealing services general management services The split between audit and non-audit fees for the year under review appears in note 8 on page 50. Certain limited scope compliance work undertaken by Deloitte LLP during the year was handled by teams that were separate and independent from the external audit team and were led by different senior partners. 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. Advisory work is undertaken by other firms. 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. In conjunction with this exercise the Committee also reviewed the possible need to establish an internal audit function. In considering this point the Committee was cognisant of the detailed review work undertaken by members of the Group Finance Department whilst visiting various parts of the Group’s operations and that the volume of such work increased during the year. Taking account of this and its general level of confidence in the Group’s systems of internal control it concluded that the establishment of an internal audit department was not appropriate at this time but that this will be kept under regular review. 26 Report and Accounts 2015 Management & Governance 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 they 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 and comprises the Non-executive Chairman, Brook Land and two Independent Non-Executive Directors, Louise Charlton and Robert Miller-Bakewell. At the start of the year Robert Miller-Bakewell assumed the Chairmanship of the Committee in place of Brook Land. 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 Nomination Committee led by its Chairman who is also Senior Independent Director has responsibility for the succession process referred to in the Chairman’s Introductory Statement on page 22 and has a detailed plan in place to deliver this. 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. The Group’s previously announced target is that a minimum of 25% of the members of the Board should be female, although following changes to the structure of the Board during the year this target is not at present being met. Robert Miller Bakewell’s second three year term will expire in April 2016 and following careful review by the Committee and the Board it was concluded that, subject to shareholder approval, his tenure as Non-Executive Director should be extended for a further three year period. Remuneration Committee The membership and activities of the Remuneration Committee are described in the Remuneration Committee Report on pages 28 and 29 together with the accompanying notes on pages 83 to 89. Takeover Directive Disclosures required under the Takeover Directive are included on page 21 and form part of the Group’s Corporate Governance report. 27 rpsgroup.com Remuneration Committee Report Annual Statement I am pleased to present the Remuneration Committee Report for 2015, which consists of two parts. In my Annual Statement I outline the links between remuneration and the Company’s strategy as well as summarising the main decisions made by the Committee during the year. The Annual Report on Remuneration which consists of the information on page 29 and notes 1 to 13 on pages 83 to 89 incorporates the remuneration disclosures required in respect of the year. The Company’s Directors’ Remuneration Policy (the “Policy”) was approved by shareholders at the 2014 Annual General Meeting for a period of three years and is not, therefore, presented on this occasion. The principal terms of the Policy together with any planned changes to their implementation in 2015 are, however, set out in notes 1 and 2 on pages 83 and 84. The full Policy was set out in the 2013 Report and Accounts, a copy of which is available on the Company’s website. Strategy, Performance and Remuneration outcomes for 2015 The Company’s strategy is set out in detail on pages 3 and 4 of the Strategic Report. The success of this strategy is partly measured by reference to the Company’s key performance indicators as detailed on page 7. The key performance indicators include PBTA and conversion of profit to cash. The RPS Group Plc Bonus Plan (the ‘Plan’) has continued to be the only incentive arrangement for the Executive Directors in respect of which for 2015, the main financial performance condition was PBTA and the secondary conditions were cash conversion and personal objectives. No bonus can be earned under the Plan unless a minimum PBTA threshold is achieved. Notwithstanding good performance in relation to conversion of profit to cash and the achievement of a number of personal objectives, as the PBTA for the year at £51.8 was below the minimum PBTA threshold of £63m set for the Plan in 2015, no bonus was payable in respect of the year. The forfeiture threshold, which is the level of Group PBTA below which some or all of the awards previously deferred in the form of shares under the Plan may be forfeited was set at £59m for 2015. At the level of reported PBTA for the year and as more fully detailed in note 3 to the Annual Report on Remuneration, all of those deferred share awards will be forfeited. Other Remuneration Decisions The Executive Directors’ salaries were all increased by 2% with effect from 1 January 2015. The more significant difference between the base salaries paid in 2014 and 2015 as shown in the table on page 29, reflect the fact that increases in base salaries awarded during 2014 were implemented with effect from 1 July in that year. In respect of 2016, the Executive Directors’ salaries will be unchanged. It is our intention to consult with shareholders with regard a new remuneration policy to take effect in 2017 and seek formal approval for such a policy during the course of this year. Robert Miller-Bakewell Chair of the Remuneration Committee 3 March 2016 28 Report and Accounts 2015 Management & Governance 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 Executive Alan Hearne Phil Williams Gary Young Non–Executive Brook Land John Bennett † Louise Charlton Robert Miller–Bakewell * Tracey Graham † Andrew Page Total Base Salary or Fees Benefits Bonus Long Term Incentives Pensions All Employee Share Plan Total 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 581 428 289 526 392 264 136 18 43 64 36 50 130 53 41 63 51 13 1,645 1,533 19 16 16 – – – – – – 51 19 16 16 – – – – – – 51 – – – – – – – – – – 243 157 91 – – – – – – 491 – – – – – – – – – – – – – – – – – – – – 145 75 43 – – – – – – 263 132 69 40 – – – – – – 241 3 3 3 – – – – – – 9 2 2 2 748 522 351 922 636 413 130 136 – 53 18 – 41 43 – 63 64 – 51 36 – – 13 50 6 1,968 2,322 *The fees payable to Robert Miller-Bakewell included a sum of £15,000 in addition to the regular fee and in respect of additional work in connection with succession planning. †The fees payable to John Bennett and Tracey Graham in 2015 were for part of the year only. The following table shows the relationship between total remuneration received by the Directors and reported Group profits. £000s 2014 2015 Total Remuneration 2,322 1,968 PBTA 66,100 51,800 Remuneration received as % of PBTA 3.5 3.8 The additional information that is required under the Regulations which form part of the annual report for the year ended 31 December 2015 has been included in notes 1 to 13 on pages 83 to 89. This additional information is unaudited with the exception of notes 3 to 7. 29 rpsgroup.com 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 of the parent company’s affairs as at 31 December 2015 and of 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, including FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”; 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, the Parent Company Reconciliation of Movement in Shareholders’ Funds and the related notes 1 to 32. 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), including FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”. Going concern and the directors’ assessment of the principal risks that would threaten the solvency or liquidity of the group As required by the Listing Rules we have reviewed the directors’ statement regarding the appropriateness of the going concern basis of accounting contained within the directors report on page 20 and the directors’ statement on the longer-term viability of the group contained within the strategic report on page 12. We have nothing material to add or draw attention to in relation to: n n n n the directors’ confirmation on page 10 that they have carried out a robust assessment of the principal risks facing the group, including those that would threaten its business model, future performance, solvency or liquidity; the disclosures on pages 10-12 that describe those risks and explain how they are being managed or mitigated; the directors’ statement in the directors report about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them and their identification of any material uncertainties to the group’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements; the director’s explanation on page 12 as to how they have assessed the prospects of the group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. We agree with the directors’ adoption of the going concern basis of accounting and we did not identify any such material uncertainties. 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. Independence We are required to comply with the Financial Reporting Council’s Ethical Standards for Auditors and we confirm that we are independent of the group and we have fulfilled our other ethical responsibilities in accordance with those standards. We also confirm we have not provided any of the prohibited non-audit services referred to in those standards. 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. 30 Report and Accounts 2015 Risk Revenue recognition The Group is engaged in the provision of consultancy services through contractual arrangements with its customers. Accordingly, the risk in revenue recognition focusses on the judgment involved in determining the extent of revenue to be recognised on contracts open at year end. There is significant management judgement in determining the revenue to be recognised and in particular in estimating the stage of completion of, and the costs to complete, open contracts at the balance sheet date. The Group’s revenue recognition policy is disclosed in note 1(c) and is also included in the key accounting estimates and judgements in note 1(h). Accounting for acquisitions There were four acquisitions in the year with a total consideration of £61.3m. Details of the acquisitions are disclosed in note 28 to the accounts. The Audit Committee has included their assessment of this risk on page 26 and it is also included in the key accounting estimates and judgements in note 1 (h). The key judgements in respect of the Group’s accounting for acquisitions are the measurement of the fair value of acquired intangible assets and the measurement of the consideration, including deferred consideration. In determining the fair value of intangible assets acquired management use a valuation model based on assumptions in respect of forecast revenues, margins and discount rates. These acquisition accounting judgements are key as the fair values are included in the balance sheet and the residual goodwill balance is not amortised. Assessment of the carrying value of goodwill and intangible assets At 31 December 2015, the net book value of goodwill and intangible assets was £415m (2014: £405m) after impairments. The associated disclosure is included in note 11 and the accounting policy is disclosed in note 1(e). The Audit Committee has included their assessment of this risk on page 25 and it is also included in the key accounting estimates and judgements in note 1 (h). Assessment of the carrying value of goodwill and intangible assets is a significant risk due to the quantum of the balance, the number of judgements involved in assessing impairment, and the continuing challenging economic conditions particularly in those businesses with significant exposure to the oil and gas market. The Group’s assessment of the carrying values of goodwill and intangible assets is based on assumptions of future segmental cash flows, including assumptions on short and long-term revenue and profit growth growth rates and the selection of appropriate discount rates. The Group determined that, as a result of current trading conditions, particularly in the Energy segment, that an impairment of £20m was required largely in respect of customer relationship intangible assets at 31 December 2015. Management & Governance How the scope of our audit responded to the risk Our audit work assessed the adequacy of the design and implementation of controls over the recognition of revenue for all full scope components. We tested in detail a sample of contracts, by comparing them to the signed contract terms, agreeing inputs to the related time records, and understanding and challenging the estimated costs to complete. Based on our findings from this, we recalculated the stage of completion to determine the revenue recognised for these contracts. Our audit work assessed the adequacy of the design and implementation of controls over management’s review of the accounting for acquisitions, by reviewing management’s papers which set out their approach to determining the fair value of the acquired businesses. We used our internal valuation specialists to challenge and review the valuation method and discount rates applied to value each intangible asset. We considered and, where necessary challenged, management’s key assumptions and judgements underpinning the valuations, such as the forecast revenues and margins used to determine the value of acquired customer relationships. We benchmarked the discount rates applied to the forecast by management with external peer group published rates and we compared the estimated future customer revenues and margins with the historical performance of the respective businesses. We considered the treatment of deferred payment arrangements against the requirements of IFRS 3 to determine whether they represent consideration rather than remuneration. Our audit work assessed the adequacy of the design and implementation of controls over management’s review of the goodwill and intangible asset impairment process. Our work focused on challenging management’s assumptions including specifically the determination of cash-generating units, the forecast cash flow projections for each cash-generating unit and the discount rates. We considered management’s revenue forecasts in the light of current trading conditions. We compared management’s forecasts against current and historical results with particular focus on the oil and gas sector. We used our valuation specialists to calculate an acceptable range of discount rates both for CGUs and for individual intangible assets and compared our range with that determined by management. We examined the short term growth rates by using market data and a review of historical growth rates. We benchmarked the long-term growth rates against external peer group published rates and market data. We also performed sensitivity analysis on the amount and timing of cash flows and considered the adequacy of the associated disclosure of both the approach to the impairment review and the resulting impairment charge. 31 rpsgroup.com Recoverability of trade receivables and accrued income At 31 December 2015 trade receivables were £113m (2014: £131m) net of the provision for impairment. At 31 December 2015 accrued income was £29m (2014: £26m) net of the provision for impairment. The trade receivables provision for impairment was £10.9m (2014: £4.5m) and the accrued income provision for impairment was £3.6m (2014: £4.1m). Recoverability of trade receivables and accrued income is a significant risk due to the material nature of these balances and the economic and political instability in certain geographic locations where the Group is exposed to the risk of bad debt. The movements in the impairment provisions for trade receivables and accrued income are disclosed in note 14. In 2015, there has been an increase to the provision of £7m in the Energy business, due to the risk of bad debts from oil and gas clients. The Audit Committee has included their assessment of this risk on page 26. Our audit work assessed the adequacy of the design and implementation of controls over management review of aged trade receivables and accrued income. We assessed the assumptions used in management’s calculations and the appropriateness of judgements on the completeness of the provisions against trade receivables and accrued income by reviewing cash received post year end on a sample of customer debts and the overall ageing analysis for trade receivables and accrued income by entity and customer. In additions, we challenged specific balances which were significantly past-due but not impaired and reviewed for cash received post year end. The description of risks above should be read in conjunction with the significant issues considered by the Audit Committee discussed on pages 25-26. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Our application of materiality We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work. We determined materiality for the group to be £2.5m (2014: £3.3m), which is 5% (2014: 5%) of profit before tax, amortisation and impairment of acquired intangible assets and transaction related costs (PBTA) and below 1% (2014: 1%) of equity. This has reduced year on year due to the reduction in underlying results. We chose this measure as it is the Group’s key profit performance indicator. We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £125,000 (2014: £66,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. This is a change from the prior year where we said we would report all misstatements above £66,000 following us reassessing what we consider to be clearly inconsequential. 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 and work on the business units at 7 locations (2014: 7). Within the 7 locations, 24 (2014:22) business units were subject to a full audit, whilst the remaining 12 (2014: 13) were subject to specified audit procedures where the extent of our testing was based on our assessment of the risks of material misstatement and of the materiality of the group’s operations at those locations. These locations, incorporating those covered by specified audit procedures, account for 92% (2014: 94%) of the group’s net assets, 93% (2014: 93%) of the group’s revenue and 93% (2014: 92%) of the group’s profit before tax, amortisation and transaction-related costs. 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 7 locations was executed at levels of materiality applicable to each individual entity which were lower than group materiality and ranged from £0.1 to £1.25m (2014: £0.1m to £1.4m). At the parent entity level we also tested the consolidation process and carried out analytical procedures to confirm our conclusion 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 group audit team continued to follow a programme of planned visits that has been designed so that the Senior Statutory Auditor and or a senior member of the group audit team visits 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, discuss their risk assessment and review documentation of the findings from their work. 32 Report and Accounts 2015 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 we have not received all the information and explanations we require for our audit; or n adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or n the parent company financial statements 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 part of the Corporate Governance Statement relating to the company’s compliance with certain 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 n n n 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: 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). 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 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. 33 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, UK 3 March 2016 34 Report and Accounts 2015 Report of the Independent Auditors continued Consolidated Income Statement £000s Revenue Recharged expenses Fee income Year ended 31 Dec 2015 Year ended 31 Dec 2014 566,972 (60,862) 506,110 572,126 (67,167) 504,959 Note 3 3 3 Operating profit before amortisation and impairment of acquired intangibles and transaction related costs 1(g),3,4,5 56,845 70,244 Amortisation and impairment of acquired intangibles and transaction related costs Operating profit Finance costs Finance income Profit before tax, amortisation and impairment of acquired intangibles and transaction related costs Profit before tax Tax expense 1(g),4 6 6 (41,940) 14,905 (5,232) 182 (19,842) 50,402 (4,242) 112 51,795 66,114 9,855 46,272 9 (3,013) (12,925) Profit for the year attributable to equity holders of the parent 6,842 33,347 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 3.11 3.09 16.57 16.47 15.20 15.12 22.04 21.92 Consolidated Statement of Comprehensive Income £000s Profit for the year Actuarial gains and losses on remeasurement of defined benefit pension scheme Tax on remeasurement of defined benefit provision liability Exchange differences* Total recognised comprehensive (loss)/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 39 to 73 form part of these financial statements. Year ended 31 Dec 2015 Year ended 31 Dec 2014 6,842 234 (63) (9,181) 33,347 (601) 112 (4,602) (2,168) 28,256 35 rpsgroup.comAccountsReport and Accounts 2015 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 2015 As at 31 Dec 2014 Note 11 12 20 14 16 18 15 19 16 18 20 19 21 22 416,658 26,504 4,281 447,443 157,430 17,801 175,231 525 20,383 112,309 4,014 1,161 138,392 36,839 96,055 9,890 2,162 10,043 1,642 119,792 364,490 6,667 112,026 1,149 244,648 364,490 404,996 27,371 4,043 436,410 170,905 17,521 188,426 542 17,170 101,825 2,213 1,206 122,956 65,470 90,159 9,540 2,734 12,874 1,896 117,203 384,677 6,640 110,100 11,551 256,386 384,677 These financial statements were approved and authorised for issue by the Board on 3 March 2016. The notes on pages 39 to 73 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). 36 Report and Accounts 2015 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 Net cash used in investing activities Cash flows from financing activities: Proceeds from issue of share capital Proceeds from bank borrowings Payment of finance lease liabilities Dividends paid Payment of pre-acquisition dividend Net cash generated 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 39 to 73 form part of these financial statements. Year ended 31 Dec 2015 Year ended 31 Dec 2014 92,628 – 92,628 (6,021) 182 (11,737) 75,052 (35,354) (16,568) (7,963) 465 (59,420) – 4,831 (66) (19,973) (169) (15,377) 70,772 (3,635) 67,137 (3,771) 112 (19,503) 43,975 (36,959) (19,722) (7,698) 471 (63,908) 1 36,406 (645) (17,379) – 18,383 255 (1,550) 17,046 21 17,322 17,801 (479) 17,322 17,791 805 17,046 17,521 (475) 17,046 Note 26 28 23 26 26 37 rpsgroup.comAccountsReport and Accounts 2015 Consolidated Statement of Changes in Equity £000s At 1 January 2014 Changes in equity during 2014: Total comprehensive income Issue of new ordinary shares Share based payment expense Tax recognised directly in equity Dividends paid At 31 December 2014 Changes in equity during 2015: Total comprehensive loss Issue of new ordinary shares Share based payment expense Tax recognised directly in equity Dividends paid At 31 December 2015 Share capital 6,619 – 21 – – – 6,640 – 27 – – – 6,667 Share premium 108,307 – 1,793 – – – 110,100 – 1,926 – – – 112,026 Retained earnings 239,460 32,858 (228) 2,027 (352) (17,379) 256,386 7,013 (730) 1,889 63 (19,973) 244,648 Other reserves 17,652 (4,602) (1,499) – – – 11,551 (9,181) (1,221) – – – 1,149 Total equity 372,038 28,256 87 2,027 (352) (17,379) 384,677 (2,168) 2 1,889 63 (19,973) 364,490 An analysis of other reserves is provided in note 22 and details of dividends paid are provided in note 23. The notes on pages 39 to 73 form part of these financial statements. 38 Report and Accounts 2015 Notes to the Consolidated Financial Statements 1. Significant accounting policies RPS Group Plc (the “Company”) is a company domiciled in the UK under the Companies Act. The consolidated financial statements of the Company for the year ended 31 December 2015 comprise the Company and its subsidiaries (together referred to as the “Group”). The consolidated financial statements were authorised for issuance on 3 March 2016. (a) Basis of preparation The Group has prepared its annual financial statements in accordance with International Financial Reporting Standards (IFRS) as endorsed by the European Union and implemented in the UK. The financial statements are presented in pounds sterling, rounded to the nearest thousand. The financial statements have been prepared on the historical cost basis. These financial statements have been prepared using the accounting policies set out in the Report and Accounts 2015. During the year, the Group has applied IAS 19 (as amended in 2014) “Employee Benefits” and IAS 27 (as amended in 2014) “Separate Financial Statements”. Their adoption has not had a material impact on the disclosures or amounts reported in these accounts. Otherwise the accounting policies set out below have been applied consistently to both years 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 revenue recognised on 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. 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. 39 rpsgroup.comAccountsReport and Accounts 2015 Notes to the Consolidated Financial Statements continued (d) Deferred consideration Deferred consideration arises when settlement of all or part of the cost of a business combination falls due after the date the acquisition was completed. 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 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. iii 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 Software Intellectual property rights 5 to 10 years 1 to 5 years 1 to 6 years 5 to 10 years 10 years (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. 40 Report and Accounts 2015 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 and impairment of acquired intangibles and transaction related costs”, “Profit before tax, amortisation and impairment 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 and impairment of acquired intangibles and transaction related costs (note 4) This classification of income and expense comprises amortisation of acquired intangibles (see note 1 (e) iii), impairment of acquired intangibles, deferred consideration payments that are contingent on continuing employment and are treated as remuneration (see note 1 (d)), 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, 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. 4. 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 2015. 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 2015 can be found in note 11 along with the judgements applied. 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. 41 rpsgroup.comAccountsReport and Accounts 2015 Notes to the Consolidated Financial Statements continued 2. Other accounting policies (a) Foreign currency i Foreign currency transactions Transactions in foreign currency are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to pounds sterling at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in income. ii Financial statements of foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to pounds sterling at the exchange rate ruling at the balance sheet date. The revenues and expenses of foreign operations are translated to pounds sterling at rates approximating the foreign exchange rates ruling at the dates of the transactions. Foreign exchange differences arising on retranslation are recognised directly in the translation reserve. iii Net investment in foreign operations Exchange differences arising from the translation of the net investment in foreign operations are taken to 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. 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. 42 Report and Accounts 2015 (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 benefit plans The cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at the end of each reporting period. Remeasurement gains and losses are recognised immediately in the balance sheet with a charge or credit to the Statement of Comprehensive income in the period in which they occur. These remeasurement gains and losses are not recycled to the income statement. Defined benefit costs are split into three categories: – – – current service cost, past service cost and gains and losses on curtailments and settlements (recognised in administrative expenses) net interest expense or income (recognised in finance costs); and remeasurement (recognised in other comprehensive income). 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. The Group also incentivises employees through the grant of conditional share awards under the 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 BBP and PSP are subject to the satisfaction of corporate performance conditions and continuity of employment provisions. The release of shares under the SIP are subject to continuity of employment provisions. 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. 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. 43 rpsgroup.comAccountsReport and Accounts 2015 Notes to the Consolidated Financial Statements continued 2. Other accounting policies continued (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. (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. 44 Report and Accounts 2015 (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 IAS 12 (amended) “Recognition of Deferred Tax Asset for Unrealised Losses”” IFRS 16 “Leases” IFRS 10 (amended), IFRS 12 (amended) and IAS 28 “Investment Entities: Applying the Consolidation Exception” lAS 1 (amended) “Disclosure Initiatives” n Annual improvements to IFRSs: 2012-2014 Cycle n n n lFRS 9 “Financial Instruments” lFRS 15 “Revenue from Contracts” lAS 16 (amended) and IAS 38 (amended) “Depreciation and Amortisation” n lFRS 11 (amended) “Joint Operations” A full assessment of the impact of these standards has not been undertaken yet. It is not practical to provide a reasonable estimate of their impact until a detailed review has been completed. The Group is undertaking a detailed review of the potential impact of IFRS 15. At this stage we do not believe this standard will significantly affect the Group’s revenue recognition. 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 The segment results for the year ended 31 December 2014 were restated following the transfer of the Group’s Norwegian business into the BNE Europe segment from the Energy segment as noted in the Group’s April Trading Update. The business segments of the Group are as follows: 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. 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. 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. Certain central costs are not allocated to the segments because they predominantly relate to the stewardship of the Group. They include the costs of the main board, and the Group finance and marketing functions and related IT costs. These costs are included in the category “unallocated expenses”. “Segment profit” and “Underlying profit” are defined in note 1(g) 45 rpsgroup.comAccountsReport and Accounts 2015 Notes to the Consolidated Financial Statements continued 3. Business and geographical segments continued Segment results for the year ended 31 December 2015 £000s BNE - Europe BNE - North America Energy AAP Group eliminations Total £000s BNE - Europe BNE - North America Energy AAP Segment results for the year ended 31 December 2014 (restated) £000s BNE - Europe BNE - North America Energy AAP Group eliminations Total £000s BNE - Europe BNE - North America Energy AAP Total Fees Expenses Intersegment revenue External revenue 222,437 58,672 122,971 104,153 (2,123) 506,110 30,503 7,713 13,931 9,045 (330) 60,862 (808) (343) (938) (364) 2,453 – Underlying profit Reorganisation costs 30,871 10,741 11,810 12,539 65,961 (549) (166) (904) (409) (2,028) 252,132 66,042 135,964 112,834 – 566,972 Segment profit 30,322 10,575 10,906 12,130 63,933 Fees Expenses Intersegment revenue External revenue 186,288 41,322 175,504 103,615 (1,770) 504,959 22,274 5,916 28,953 10,557 (533) 67,167 (817) (639) (680) (167) 2,303 – Underlying profit Reorganisation costs 25,170 9,112 35,131 9,639 79,052 (253) – (167) (1,419) (1,839) 207,745 46,599 203,777 114,005 – 572,126 Segment profit 24,917 9,112 34,964 8,220 77,213 46 Report and Accounts 2015 Group Reconciliation £000s Revenue Recharged expenses Fees Underlying profit Reorganisation costs Segment profit Unallocated expenses Operating profit before amortisation and impairment of acquired intangibles and transaction related costs Amortisation and impairment of acquired intangibles and transaction related costs Operating profit Net finance costs Profit before tax Year ended 31 Dec 2015 Year ended 31 Dec 2014 566,972 (60,862) 506,110 65,961 (2,028) 63,933 (7,088) 56,845 (41,940) 14,905 (5,050) 9,855 572,126 (67,167) 504,959 79,052 (1,839) 77,213 (6,969) 70,244 (19,842) 50,402 (4,130) 46,272 £000s BNE - Europe BNE - North America Energy AAP Unallocated Group total Year ended 31 Dec 2015 Carrying amount of segment assets Year ended 31 Dec 2014 (restated) Year ended 31 Dec 2015 Segment depreciation and amortisation Year ended 31 Dec 2014 (restated) 298,159 74,821 114,440 131,009 4,245 622,674 247,633 52,276 190,203 126,890 7,834 624,836 8,848 6,355 5,219 7,354 816 28,592 The table below shows revenue and fees to external customers based upon the country from which billing took place: Year ended 31 Dec 2015 231,094 106,167 102,290 48,587 28,955 23,766 18,516 7,597 566,972 Revenue Year ended 31 Dec 2014 247,516 106,786 91,783 30,082 31,600 24,518 31,413 8,428 572,126 £000s UK Australia USA Norway Netherlands Ireland Canada Other Total £000s UK Australia USA Ireland Norway Canada Netherlands Other Total Year ended 31 Dec 2015 198,876 97,317 93,180 47,255 24,231 20,186 17,637 7,428 506,110 As at 31 Dec 2015 190,772 96,477 56,684 36,169 38,741 11,628 16,960 12 447,443 7,812 3,540 6,690 7,231 790 26,063 Fees Year ended 31 Dec 2014 212,045 96,909 83,987 29,543 27,190 20,502 26,922 7,861 504,959 Carrying amount of non current assets As at 31 Dec 2014 200,775 92,113 47,071 37,701 22,272 18,284 18,155 39 436,410 47 rpsgroup.comAccountsReport and Accounts 2015 Notes to the Consolidated Financial Statements continued 4. Amortisation and impairment of acquired intangibles and transaction related costs £000s Amortisation of acquired intangibles Impairment of acquired intangibles Contingent deferred consideration treated as remuneration Adjustments to consideration payable Transaction costs Year ended 31 Dec 2015 Year ended 31 Dec 2014 20,491 20,040 – 249 1,160 41,940 17,605 – 1,077 – 1,160 19,842 The impairment of acquired intangibles arose in the following segments as a result of reduced prospects of businesses with exposure to the oil and gas sector: £000s Energy BNE - North America AAP Total Year ended 31 Dec 2015 Year ended 31 Dec 2014 16,612 2,927 501 20,040 – – – – The charge is in respect of customer relations, intellectual property, software and brand. We have used the higher of the value in use or fair value less costs to sell to estimate the recoverable amounts of the assets. Where these assets are domiciled in the UK or Australia, fair value less costs to sell gives a higher recoverable amount. Our FVLCTS model is based on discounted cash flows and the key inputs are the Group’s targets for 2016, the estimated remaining lives of the assets and the discount rates applied (which are in the range 16% -18% depending on the asset and territory). Where the assets are domiciled in the USA or Canada, value in use gives a higher recoverable amount. The discount rates used for these tests was 12%. 5. Operating profit - by nature of expense £000s Revenue Staff costs (see note 7) Subconsultant costs Other employment related costs Depreciation of owned assets Depreciation of assets held under finance leases (Loss)/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 Impairment of acquired intangibles Adjustments to consideration payable Bad debt provision Other transaction related costs Other costs Operating profit 48 Year ended 31 Dec 2015 Year ended 31 Dec 2014 566,972 572,126 (248,296) (127,660) (18,621) (8,086) (15) (151) (12,339) (4,636) (12,411) (18,101) (20,491) (20,040) (249) (8,329) (1,160) (51,482) 14,905 (233,169) (129,483) (16,815) (8,396) (62) 249 (11,990) (4,386) (12,560) (17,582) (17,605) – – (807) (2,237) (66,881) 50,402 Report and Accounts 2015 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 7. Employee benefit expense £000s Wages and salaries Social security costs Pension costs - defined contribution plans Pension costs - defined benefits plans Share based payment expense - equity settled Average number of employees (including Executive Directors) was: Fee earning staff Support staff Year ended 31 Dec 2015 Year ended 31 Dec 2014 (4,146) (1,086) (5,232) 182 (5,050) (3,107) (1,135) (4,242) 112 (4,130) Year ended 31 Dec 2015 Year ended 31 Dec 2014 214,977 20,847 10,303 280 1,889 248,296 4,094 960 5,054 201,592 18,981 10,281 288 2,027 233,169 3,573 957 4,530 In addition to statutory staff costs, contingent deferred consideration treated as remuneration amounts to £nil (2014: £1,077,000). The Group considers the Directors to be the key management personnel and details of directors’ remuneration are included in the Remuneration Committee Report from page 28. The share based payment credit in respect of key management personnel was £245,000 (2014: charge of £167,000). 49 rpsgroup.comAccountsReport and Accounts 2015 Notes to the Consolidated Financial Statements continued 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 Other services Total assurance services Tax compliance services Tax advisory services Services in relation to taxation Other services Total fees 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 2015 Year ended 31 Dec 2014 50 461 511 27 27 565 61 – 61 4 630 47 372 419 27 – 446 104 6 110 24 580 Year ended 31 Dec 2015 Year ended 31 Dec 2014 1,656 11,300 (364) 12,592 (9,332) (826) 579 (9,579) 5,359 11,564 230 17,153 (3,276) – (952) (4,228) Total tax charge to income for the year 3,013 12,925 Analysis of tax expense/(credit) not included in income for the year: Current tax Deferred tax charge/(credit) in other comprehensive income Deferred tax (credit)/charge in equity for the year – 63 (63) – (112) 352 50 Report and Accounts 2015 The effective tax rate for the year on profit before tax is 30.6% (2014: 27.9%). The effective tax rate for the year on profit before tax, amortisation and impairment of acquired intangibles and transaction related costs is 29.6% (2014: 26.9%) as shown in the table below: £000s Total tax expense in Income Statement Add back: Tax on amortisation and impairment of acquired intangibles and transaction related costs Adjusted tax charge on the profit for the year Profit before tax, amortisation and impairment of acquired intangibles and transaction related costs Adjusted effective tax rate Year ended 31 Dec 2015 Year ended 31 Dec 2014 3,013 12,925 12,304 15,317 51,795 29.6% 4,838 17,763 66,114 26.9% The UK rate of corporate tax was reduced from 21% to 20% from 1 April 2015. The UK tax rate for the group’s UK companies is 20.25% (2014: 21.5%) representing the weighted average annual corporate tax rate for the full financial year. The actual tax expense for 2015 is different from 20.25% (2014: 21.5%) of profit before tax for the reasons set out in the following reconciliation: £000s Profit before tax Tax at the standard rate of 20.25% (2014: 21.5%) 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 2015 Year ended 31 Dec 2014 9,855 1,996 1,370 – 1,156 (768) (769) 28 3,013 46,272 9,948 3,534 247 673 (755) – (722) 12,925 At Summer Budget 2015, the government announced legislation setting the corporation tax main rate at 19% for the year starting April 2017, 2018 and 2019 and at 18% for the year starting April 2020. 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. 51 rpsgroup.comAccountsReport and Accounts 2015 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 2015 Year ended 31 Dec 2014 6,842 33,347 220,166 1,269 221,435 3.11 3.09 219,399 1,135 220,534 15.20 15.12 The directors consider that earnings per share before amortisation and impairment 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 and impairment of acquired intangibles and transaction related costs (note 4) Tax on amortisation and impairment 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 2015 Year ended 31 Dec 2014 6,842 41,940 (12,304) 36,478 16.57 16.47 33,347 19,842 (4,838) 48,351 22.04 21.92 52 Report and Accounts 2015 11. Intangible assets £000s Cost: At 1 January 2015 Additions Adjustments to prior year estimates Exchange differences At 31 December 2015 Aggregate amortisation and impairment losses: At 1 January 2015 Amortisation Impairment Exchange differences At 31 December 2015 Net book value at 31 December 2015 Intellectual property rights Customer relationships Order backlog Trade names Non compete agreements Software Goodwill Total 3,128 – – 141 3,269 1,172 333 1,672 80 3,257 12 105,660 13,990 – (2,142) 117,508 43,239 12,999 18,077 (566) 73,749 43,759 14,661 3,689 – (469) 17,881 11,308 4,371 – (210) 15,469 2,412 6,328 2,347 – (274) 8,401 4,749 2,316 181 (150) 7,096 1,305 560 – – 16 576 560 – – 16 576 – 1,592 1,362 – (136) 2,818 346,896 40,580 92 (7,844) 379,724 478,825 61,968 92 (10,708) 530,177 580 472 110 (11) 1,151 1,667 12,221 – – – 12,221 367,503 73,829 20,491 20,040 (841) 113,519 416,658 Intangible asset additions in 2015 have been recognised at their provisional fair values (see note 28). Acquisitions in 2014 were originally stated at provisional values. These fair values have now been finalised. £000s Cost: At 1 January 2014 Additions Adjustments to prior year estimates Exchange differences At 31 December 2014 Aggregate amortisation and impairment losses: At 1 January 2014 Amortisation Exchange differences At 31 December 2014 Net book value at 31 December 2014 Intellectual property rights Customer relationships Order backlog Trade names Non compete agreements Software Goodwill Total 2,978 – – 150 3,128 828 305 39 1,172 1,956 91,260 15,326 – (926) 105,660 32,355 10,957 (73) 43,239 62,421 10,617 4,332 – (288) 14,661 7,816 3,552 (60) 11,308 3,353 4,809 1,704 – (185) 6,328 2,355 2,543 (149) 4,749 1,579 543 – – 17 560 513 30 17 560 – 1,536 – – 56 1,592 343 218 19 580 1,012 319,967 32,723 (41) (5,753) 346,896 431,710 54,085 (41) (6,929) 478,825 12,221 – – 12,221 334,675 56,431 17,605 (207) 73,829 404,996 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. The carrying amount of goodwill has been allocated as follows: 53 rpsgroup.comAccountsReport and Accounts 2015 Notes to the Consolidated Financial Statements continued 11. Intangible assets continued £000s BNE: Europe (UK and Ireland) BNE: Europe (Netherlands) BNE: Europe (Norway) BNE: North America AAP Energy (global) As at 31 Dec 2015 149,116 9,118 27,361 40,064 76,523 65,321 367,503 As at 31 Dec 2014 150,725 9,358 15,277 23,865 68,925 66,525 334,675 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 pre-tax discount rate on its weighted average cost of capital (WACC). The inputs to this calculation are derived from market and industry data. The discount rates applied to the CGUs are in the range 10.4% to 13.6% (2014: 10.6% to 12.3%). Growth rates The growth rates applied reflect management’s judgement regarding the potential future performance of the business. These incorporate the effects of the decline in the Energy sector, the expected recovery of the CGUs affected and the past experience of the Group as it emerged from previous recessions. The medium term comprises the years 2017 to 2020. The average real growth rate used during this period is between 0% and 3.0%, although particular years may be higher or lower than this rate reflecting market conditions. The long term growth rate applied to the perpetuity calculations was between 2.0% and 2.5% per annum (2014: 2.0% and 2.5%) 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 by amount of goodwill are as follows: BNE: E (UK and Ireland) AAP Energy (global) Summary of results Post tax discount rate Medium term real growth rate excluding inflation Long term growth rate 10.9% 13.6% 12.3% 3.0% 0.0% 0.0% 2.1% 2.5% 2.2% During the year, all goodwill was tested for impairment with no impairment charge resulting (2014: £nil). The Energy CGU grouping has the lowest percentage headroom. An increase in the discount rate of 3%, a 2016 target miss of 23% or a reduction in the medium term growth rate of 10% would reduce the headroom to zero. The AAP CGU grouping has the next lowest percentage headroom. An increase in the discount rate of 3%, a 2016 target miss of 29% or a reduction in the medium term growth rate of 11% would reduce the headroom to zero. 54 Report and Accounts 2015 12. Property, plant and equipment £000s Cost: At 1st January 2015 Additions Disposals Transfers Additions through acquisition Foreign exchange differences At 31 December 2015 Depreciation: At 1st January 2015 Charge for the year Disposals Transfers Foreign exchange differences At 31 December 2015 Net book value at 31 December 2015 Freehold land and buildings Alterations to leasehold premises 9,576 14 (220) – – (453) 8,917 2,600 194 (175) – (105) 2,514 6,403 7,114 621 (285) 375 64 (306) 7,583 3,735 1,078 (282) 150 (180) 4,501 3,082 Fixtures, fittings, IT and equipment 61,401 6,844 (5,685) (375) 632 (1,536) 61,281 45,630 6,283 (5,181) (150) (1,103) 45,479 15,802 Motor vehicles 2,906 630 (593) – 17 (136) 2,824 1,661 546 (530) – (70) 1,607 1,217 At 31 December 2015 the Group held under finance lease contracts equipment with a net book value of £27,000. £000s Cost: At 1 January 2014 Additions Disposals Additions through acquisition Foreign exchange differences At 31 December 2014 Depreciation: At 1 January 2014 Charge for the year Disposals Foreign exchange differences At 31 December 2014 Net book value at 31 December 2014 Freehold land and buildings Alterations to leasehold premises 8,641 1,552 – – (617) 9,576 2,477 259 – (136) 2,600 6,976 7,436 222 (490) 129 (183) 7,114 3,278 1,034 (489) (88) 3,735 3,379 Fixtures, fittings, IT and equipment 59,924 5,704 (4,354) 1,291 (1,164) 61,401 44,250 6,489 (4,189) (920) 45,630 15,771 Motor vehicles 3,469 143 (702) 64 (68) 2,906 1,680 676 (656) (39) 1,661 1,245 At 31 December 2014 the Group held under finance lease contracts equipment with a net book value of £45,000. Total 80,997 8,109 (6,783) – 713 (2,431) 80,605 53,626 8,101 (6,168) – (1,458) 54,101 26,504 Total 79,470 7,621 (5,546) 1,484 (2,032) 80,997 51,685 8,458 (5,334) (1,183) 53,626 27,371 55 rpsgroup.comAccountsReport and Accounts 2015 Notes to the Consolidated Financial Statements continued 13. Subsidiaries A list of the Group’s subsidiaries, including the name, country of incorporation and proportion of ownership interests is given in Note 6 to the Parent Company’s financial statements on page 79. 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 2015 123,593 (10,875) 112,718 32,105 (3,572) 28,533 10,716 5,463 157,430 As at 31 Dec 2014 135,563 (4,464) 131,099 30,481 (4,062) 26,419 9,117 4,270 170,905 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 2015 11,407 9,009 20,416 As at 31 Dec 2014 14,140 22,278 36,418 56 Report and Accounts 2015 Movements in impairment £000s As at 1 January 2015 Impairment charge Receivables written off during the year as uncollectible Recoveries Additions through acquisitions Exchange differences As at 31 December 2015 As at 1 January 2014 Impairment charge Receivables written off during the year as uncollectible Recoveries Additions through acquisitions Exchange differences As at 31 December 2014 Trade receivables Accrued income 4,464 8,838 (2,081) (509) 146 17 10,875 4,665 1,532 (1,180) (725) 214 (42) 4,464 4,062 2,878 (1,681) (1,711) 175 (151) 3,572 5,557 3,360 (4,017) (916) 95 (17) 4,062 31 Dec 2015 50,107 40,455 23,538 24,578 5,376 11,598 1,778 157,430 Total 8,526 11,716 (3,762) (2,220) 321 (134) 14,447 10,222 4,892 (5,197) (1,641) 309 (59) 8,526 31 Dec 2014 58,788 42,952 30,019 24,767 7,068 5,107 2,204 170,905 The carrying amounts of the Group’s trade and other receivables are denominated as follows: £000s UK Pound Sterling US Dollar Euro Australian Dollar Canadian 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 2015 30,375 36,781 20,597 15,695 8,861 112,309 As at 31 Dec 2014 27,986 32,647 17,543 15,705 7,944 101,825 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. 57 rpsgroup.comAccountsReport and Accounts 2015 Notes to the Consolidated Financial Statements continued 16. Borrowings £000s Bank loans US loan notes Bank overdraft Finance lease creditor As at 31 Dec 2015 42,902 53,116 479 83 96,580 As at 31 Dec 2014 38,227 51,849 475 150 90,701 £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 Over five years Less amount due for settlement within 12 months Amount due for settlement after 12 months as at 31 December 2015 as at 31 December 2014 Bank loans, notes and overdraft Finance lease creditor 479 – 42,902 53,116 96,497 (479) 96,018 46 37 – – 83 (46) 37 Bank loans and overdraft Finance lease creditor 475 38,227 – 51,849 90,551 (475) 90,076 67 46 37 – 150 (67) 83 Total 525 37 42,902 53,116 96,580 (525) 96,055 Total 542 38,273 37 51,849 90,701 (542) 90,159 The principal features of the Group’s borrowings are as follows: (i) An uncommitted £3,000,000 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 one principal bank loan: a revolving credit facility of £150,000,000 with Lloyds Bank plc, the Group’s principal bank and HSBC Bank plc, expiring in 2020. Term loans drawn down under this facility carry interest fixed for the term of the loan equal to LIBOR plus a margin determined by reference to the total bank borrowing of the Group. There were loans drawn totalling £42,902,000 (2014: £38,227,000) at 31 December 2015. The facility is guaranteed by the Company and certain subsidiaries but no security over the Group’s assets exists. (iv) In addition, the Group has drawn seven year US private placement notes of $34,070,000 and £30,000,000 with fixed interest chargeable at 3.84% and 3.98% respectively. These notes were drawn on 30 September 2014 and are repayable on 30 September 2021. The notes are guaranteed by the Company and certain subsidiaries but no security over the Group’s assets exists. The carrying amounts of short term borrowings approximate their fair values, as the impact of discounting is not significant. The carrying amounts of our long term borrowings approximate fair value. 58 Report and Accounts 2015 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 >5 years 2015 2,849 2,849 51,083 54,667 111,448 2014 3,029 40,789 6,099 55,398 105,315 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. 17. Obligations under finance leases Amounts payable under finance leases: £000s Within one year In two to five years as at 31 December 2015 Present value of minimum lease payments Less future interest charges Minimum lease payments as at 31 December 2014 Present value of minimum lease payments Less future interest charges Minimum lease payments 50 38 88 (4) (1) (5) 46 37 83 75 88 163 (8) (5) (13) 67 83 150 For the year ended 31 December 2015, the average effective borrowing rate was 6.82%. 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 Amount due between two and five years Total deferred consideration payable As at 31 Dec 2015 20,383 9,708 182 30,273 As at 31 Dec 2014 17,170 9,540 – 26,710 59 rpsgroup.comAccountsReport and Accounts 2015 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 11 years. £000s As at 1 January 2015 Additional provision in the year Utilised in year Released Arising on acquisition of subsidiary Exchange difference As at 31 December 2015 £000s Due as follows: Within one year After more than one year Property Warranty Dilapidations 102 – (53) – – – 49 823 394 (702) – – (29) 486 2,177 436 (187) (140) 33 (51) 2,268 As at 31 Dec 2015 1,161 1,642 2,803 Total 3,102 830 (942) (140) 33 (80) 2,803 As at 31 Dec 2014 1,206 1,896 3,102 The carrying value of the provisions disclosed above is a reasonable approximation of their fair value. 60 Report and Accounts 2015 20. Deferred taxation £000s At 1 January 2014 Credit/(charge) to income for the year Credit to equity for the year Owned by subsidiaries acquired Exchange differences At 31 December 2014 Disclosed within liabilities Disclosed within assets Credit/(charge) to income for the year (Charge)/credit to income due to change in tax rate (Charge)/credit to equity for the year Owned by subsidiaries acquired Exchange differences At 31 December 2015 Disclosed within liabilities Disclosed within assets Fixed asset timing differences Goodwill and intangible assets Employment benefits Share based payments Provisions and other timing differences (738) 760 – 21 (316) (273) 620 (893) 201 (77) – 12 (31) (168) 678 (846) (13,239) 3,167 – (2,509) 710 (11,871) (16,188) 4,317 9,676 990 – (6,993) 1,003 (7,195) (13,314) 6,119 2,366 (59) – – 92 2,399 2,305 94 (166) (21) – 216 (164) 2,264 2,235 29 467 4 (352) – (1) 118 (157) 275 (230) 16 63 – – (33) (33) – (483) 356 112 980 (169) 796 546 250 (728) (82) (63) (620) 67 (630) 391 (1,021) Total (11,627) 4,228 (240) (1,508) 316 (8,831) (12,874) 4,043 8,753 826 – (7,385) 875 (5,762) (10,043) 4,281 No deferred tax liability is recognised on temporary differences of £36,964,000 (2014: £40,428,000) related 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 probable that they will not reverse in the foreseeable future. The temporary differences as at 31 December 2015 represent only the unremitted earnings of those overseas subsidiaries where remittance to the UK of these earnings may result in a tax liability, principally as a result of dividend withholding taxes levied by the overseas tax jurisdiction in which they operate. The amount of tax that would be payable on the unremitted earnings is £7,370,000 (2014: £6,930,000). Deferred income tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the fiscal authority. 61 rpsgroup.comAccountsReport and Accounts 2015 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 2015 Authorised £000s Authorised Number as at 31 December 2014 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 221,347,707 – 552,368 334,176 222,234,251 2015 £000s 6,640 – 17 10 6,667 Number 220,631,930 750 546,329 168,698 221,347,707 2014 £000s 6,619 – 5 16 6,640 As at 31 Dec 2015 2,211,269 4,103,643 As at 31 Dec 2014 2,104,690 3,823,034 The ESOP Trust has elected to waive any dividend on the unallocated ordinary shares held. The table below shows options outstanding at 31 December 2015: Period exercisable 2011 - 2018 2013 - 2020 2014 - 2021 Number 165,000 60,000 175,000 400,000 Exercise price (p) 295.25 194.60 212.01 62 Report and Accounts 2015 22. Other reserves £000s At 1 January 2014 Exchange differences Issue of new shares At 31 December 2014 Exchange differences Issue of new shares At 31 December 2015 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 2014 of 4.42p (2013: 3.84p) per share Interim dividend for the year ended 31 December 2015 of 4.66p (2014: 4.05p) per share Employee trust Translation reserve (9,277) – (1,499) (10,776) – (1,221) (11,997) 5,673 (4,602) – 1,071 (9,181) – (8,110) Year ended 31 Dec 2015 9,668 10,305 19,973 Total 17,652 (4,602) (1,499) 11,551 (9,181) (1,221) 1,149 Year ended 31 Dec 2014 8,453 8,926 17,379 Proposed final dividend for the year ended 31 December 2015 of 5.08p (2014: 4.42p) per share 11,260 9,766 The proposed final dividend for the year ended 31 December 2015 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 2015 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 2015 Other Property as at 31 December 2014 Other Property 10,500 19,148 4,268 33,916 2,102 3,189 6 5,297 11,872 23,470 4,498 39,840 2,807 3,338 6 6,151 63 rpsgroup.comAccountsReport and Accounts 2015 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 Committee 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 Impairment of acquired intangibles Consideration fair value adjustments Contingent consideration treated as remuneration Share based payment expense Loss/(profit) on sale of property, plant and equipment Decrease in trade and other receivables Decrease in trade and other payables Adjusted cash generated from operations Year ended 31 Dec 2015 Year ended 31 Dec 2014 14,905 50,402 8,101 20,491 20,040 249 – 1,889 151 65,826 29,320 (2,518) 92,628 8,458 17,605 – – 1,077 2,027 (249) 79,320 2,956 (11,504) 70,772 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 2015. £000s Cash at bank Overdrafts Cash and cash equivalents Bank loans and notes Finance lease creditor At 31 Dec 2014 17,521 (475) 17,046 (90,076) (150) (73,180) Cash flow Acquisition Foreign Exchange At 31 Dec 2015 (4,281) (17) (4,298) (4,831) 66 (9,063) 4,553 – 4,553 – – 4,553 8 13 21 (1,111) 1 (1,089) 17,801 (479) 17,322 (96,018) (83) (78,779) The cash balance at 31 December 2015 includes £3,640,000 (2014: £4,139,000) 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 Impairment of acquired intangibles Share based payment expense 64 Year ended 31 Dec 2015 Year ended 31 Dec 2014 8,101 20,491 20,040 1,889 50,521 8,458 17,605 – 2,027 28,090 Report and Accounts 2015 28. Acquisitions During 2015 the Group completed four acquisitions. Each of these broadens and strengthens the services the Group offers. Entity acquired Date of acquisition Place of incorporation Percentage of entity acquired Nature of business acquired 13 February 2015 Klotz Associates Inc. 29 April 2015 Metier Holding AS 14 October 2015 Iris Environmental Everything Infrastructure Group Pty Ltd 28 October 2015 USA Norway USA Australia 100% 100% 100% 100% Water and transportation consultancy Project management and training services Environmental due dilligence 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, the fair value of consideration and the resulting goodwill are as follows: £000s Intangible assets: Order book Customer relations Trade names Software PPE Cash Other assets Other liabilities Net assets acquired Satisfied by: Initial cash consideration Fair value of deferred consideration Total consideration Klotz Metier Iris EIG Total 1,767 3,423 611 – 63 1,354 4,643 (5,340) 6,521 1,122 4,945 1,193 1,362 449 817 9,293 (12,372) 6,809 11,106 4,490 15,596 14,384 7,795 22,179 – 2,495 176 – 53 1,355 1,406 (2,069) 3,416 5,277 3,369 8,646 800 3,127 367 – 148 1,027 2,229 (3,698) 4,000 3,689 13,990 2,347 1,362 713 4,553 17,571 (23,479) 20,746 9,140 5,765 14,905 39,907 21,419 61,326 Goodwill 9,075 15,370 5,230 10,905 40,580 Goodwill arising represents the value of the workforce acquired, potential synergies, future contracts and access to new markets. There is no tax deductible goodwill. The total fair value of receivables acquired was £11,374,000. The breakdown between gross receivables and amounts estimated irrecoverable was as follows: £000s Klotz Metier Iris EIG Gross receivables Estimated irrecoverable Fair value of assets acquired 2,532 6,232 883 2,114 11,761 (99) (116) (126) (46) (387) 2,433 6,116 757 2,068 11,374 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 £15,947,000. The Group does not expect that these warranties will become receivable and therefore has not recognised an indemnification asset on acquisition. The Group incurred acquisition related costs of £1,160,000 which have been expensed through the income statement and are included within amortisation of acquired intangibles and transaction related expenses. 65 rpsgroup.comAccountsReport and Accounts 2015 Notes to the Consolidated Financial Statements continued 28. Acquisitions continued The contribution of the acquisitions to the Group’s results for the year is given below. £000s Klotz Metier Iris EIG Segment Revenue BNE: NA BNE: Europe BNE: NA AAP 17,493 23,102 1,447 2,659 44,701 Operating Profit before Amortisation Operating profit 3,035 1,950 296 503 5,784 822 (81) 129 257 1,127 Fees 17,439 22,580 1,392 2,429 43,840 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 £598,418,000 and £15,274,000 respectively. A reconciliation of the goodwill movement in 2015 in respect of acquisitions made in 2014 and 2015 is given in the table below. £000s Whelans Clear GaiaTech CgMs Delphi Point Klotz Metier Iris EIG Goodwill at 1 January 2015 Additions through acquisition Adjustments to prior year estimates Foreign exchange movement Goodwill at 31 December 2015 741 3,240 11,975 7,623 439 8,946 – – – – – – – – – – 9,075 15,370 5,230 10,905 55 (67) – (152) 12 244 – – – – (50) – 694 – (48) (560) 297 (1,708) 216 526 746 3,173 12,669 7,471 403 8,630 9,372 13,662 5,446 11,431 There were no accumulated impairment losses at the beginning or end of the period. No negative goodwill was recognised in 2014 or 2015. 29. Defined benefit pension scheme The Group has two defined benefit pension schemes, arising from the acquisition in 2013 of the OEC Group. These schemes are closed to new entrants. The schemes are administered by a fund that is legally separated from the company. The trustees of the pension fund are required by law to act in the interest of the fund and of all relevant stakeholders in the scheme. The trustees are responsible for the investment policy with regard to the assets of the fund. Under the plans, the employees are entitled to post-retirement yearly instalments amounting to 66% of pensionable salary on attainment of a retirement age of 67. The pensionable salary is the difference between the current salary of the employee and the state retirement benefit. The schemes expose the company to actuarial risks such as: investment risk, interest rate risk, longevity risk and salary risk. 66 Report and Accounts 2015 The most recent full actuarial valuations of the plans’ assets and present value of the defined benefit liabilities were carried out in September 2015 for the two schemes by a qualified actuary. The principal assumptions used for the purposes of actuarial valuation were as follows: Discount rate Expected rate of salary increase Inflation 2015 2.50% 2.50% 2.50% 2014 3.00% 3.25% 3.00% There are two defined benefit schemes in Norway; with the exception of the rates of pension increase in 2014 all principal assumptions are the same for both schemes. In 2015 both schemes have assumptions of 3.0% (2014: 3.0% and 0.1%). The assumed life expectations on retirement at age 65 are: Years Retiring today: Males Females This is based on Norway’s standard mortality table with modifications to reflect expected changes in mortality. Amounts recognised in income in respect of these defined benefit schemes are as follows: £000s Current service cost Net Interest Expense Components of defined benefit costs recognised in profit or loss 2015 21.8 25.0 2015 280 25 305 2014 21.8 25.0 2014 288 27 315 The service charge for the year of £280,000 has been included in the income statement in administrative expenses. The net interest expense has been included within finance costs and the remeasurement of the net defined benefit liability is included in the statement of comprehensive income. Amounts recognised in the statement of comprehensive income are as follows: £000s Actuarial (gains)/losses arising from: Changes in financial assumptions Movements in payroll tax Remeasurement of the net defined benefit liability 2015 2014 (205) (29) (234) 540 61 601 The amount included in the balance sheet arising from the group’s obligations in respect of its defined benefit retirement benefit schemes is as follows: £000s Present value of defined benefit obligations Fair value of plan assets Net liability arising from the defined benefit obligations 2015 (3,553) 2,888 (665) 2014 (4,158) 2,930 (1,228) 67 rpsgroup.comAccountsReport and Accounts 2015 Notes to the Consolidated Financial Statements continued 29. Defined benefit pension scheme continued Movements in the present value of defined benefit obligations in the year were as follows: £000s Defined benefit obligation at 1 January Current service cost Interest cost Remeasurement (gains)/losses: Actuarial gains arising from changes in demographic assumptions Actuarial (gains) and losses arising from changes in financial assumptions Exchange differences Benefits paid Defined benefit obligation at 31 December Movements in the fair value of plan assets in the year were as follows: Plan assets at 1 January Remeasurement gain/(losses): The return on plan assets (excluding amounts included in net interest expense) Actuarial losses arising from changes in demographic assumptions Actuarial losses arising from changes in financial assumptions Exchange differences Contributions from the employer Benefits paid Administration costs Plan assets at 31 December The major categories and fair values of scheme assets at the end of the reporting period were: Shares Other investments Short term bonds Term bonds Property Total 2015 4,158 280 112 (9) (405) (522) (61) 3,553 2015 2,930 87 – (181) (323) 442 (61) (6) 2,888 2015 9.8% 2.0% 35.4% 38.0% 14.8% 100.0% 2014 3,937 288 155 (9) 462 (632) (43) 4,158 2014 2,931 128 (73) (12) (421) 427 (43) (7) 2,930 2014 9.4% 3.9% 35.8% 35.9% 15.0% 100.0% 68 Report and Accounts 2015 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. There are two main borrowing facilities. First, the Group has a committed £150 million multi currency revolving credit facility that provides a high degree of flexibility. 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 300%. These covenants are tested regularly and were not breached during the year and have not been since the year end. Secondly, the Group has a $150m, seven year US private placement shelf facility. Seven year notes with principal of £30.0 million were drawn in September 2014 bearing fixed interest at 3.98% per annum. Seven year notes with principal of $34.1 million were drawn at the same time bearing fixed interest at 3.84% per annum. There are two financial covenants associated with this facility; interest cover must be no less than 400% and leverage must be no greater than 300%. These loan notes represent the Group’s core debt. 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. £000s Cash Trade and other receivables Financial assets Borrowings Deferred consideration Trade and other payables Financial liabilities As at 31 Dec 2015 17,801 146,714 164,515 96,580 30,273 80,982 207,835 As at 31 Dec 2014 17,521 157,518 175,039 90,701 26,710 74,413 191,824 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. 69 rpsgroup.comAccountsReport and Accounts 2015 Notes to the Consolidated Financial Statements continued 30. Financial Risk Management continued Interest rate risk and profile of financial liabilities The interest rate risk profile of the Group’s financial liabilities at 31 December was as follows: £000s Sterling Euro Australian Dollar Canadian Dollar US Dollar Norwegian Krone Other At 31 December Floating rate 2014 2015 2015 Fixed rate 2014 Non interest bearing 2014 2015 479 – – – – – – 479 – – 475 – – – – 475 69,927 – 9,084 868 31,261 15,234 – 126,374 59,484 – 6,618 4,056 30,784 14,838 – 115,780 31,006 6,093 14,403 4,849 13,761 10,445 425 80,982 32,707 6,643 12,520 5,970 11,837 5,265 627 75,569 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 Over five years Floating rate 2014 2015 2015 Fixed rate 2014 Non interest bearing 2014 2015 479 – – – 479 475 – – – 475 20,429 9,745 43,084 53,116 126,374 16,081 47,813 36 51,850 115,780 77,178 1,191 1,472 1,141 80,982 70,939 1,482 1,764 1,384 75,569 The weighted average interest rate and term for interest bearing financial liabilities is shown below: 2015 101,412 6,093 23,487 5,717 45,022 25,679 425 207,835 2015 98,086 10,936 44,556 54,257 207,835 Total 2014 92,191 6,643 19,613 10,026 42,621 20,103 627 191,824 Total 2014 87,495 49,295 1,800 53,234 191,824 Fixed and floating rate financial liabilities Weighted average interest rate % 2014 2015 Fixed rate financial liabilities Weighted average period for which rate is fixed – months 2014 2015 Sterling Australian Dollar Canadian Dollar US Dollar Norwegian Krone Cash balances at year end: £000s Sterling Euro US Dollar Australian Dollar Canadian Dollar Norwegian Krone Malaysian Ringgit Other 2.7 3.9 4.0 3.9 3.1 3.2 3.3 4.2 4.0 3.5 3.8 3.5 36 14 8 53 6 35 As at 31 Dec 2015 161 1,189 5,391 2,968 3,285 3,273 906 628 17,801 44 14 9 58 4 40 As at 31 Dec 2014 1,654 733 4,015 2,245 4,935 2,608 836 495 17,521 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. 70 Report and Accounts 2015 Borrowing facilities The Group has an undrawn revolving credit facility that expires in 2020. The amount undrawn under this facility at 31 December 2015 was £107,098,000 (2014: £86,773,000). The Group also has an uncommitted overdraft facility carrying floating rate interest. Interest rate sensitivity The Group is mainly exposed to interest rate sensitivity in respect of its revolving credit facility. A 1.0% decrease in interest rates would increase Group profit before tax by £607,000. A 1.0% increase in interest rates would decrease Group profit before tax by £607,000. (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, Australia and Norway 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 and GB pound to US Dollar. 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 using a risk based approach. 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. (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 has a broad range of clients, the largest being multi-national oil companies, national oil companies or substantial utility companies. Infrequently (and generally for administrative reasons) there may be a build up of unpaid invoices. The credit risk for cash and cash equivalents is considered negligible, since the counterparties are reputable banks with high quality external credit ratings. 71 rpsgroup.comAccountsReport and Accounts 2015 Notes to the Consolidated Financial Statements continued 31. Share-based payments Share scheme costs £000s Share Incentive Plan (“SIP”) Performance Share Plan (“PSP”) Share Option Plan Bonus Plan The following tables set out details of material share schemes activity: SIP Year of grant 2012 2013 2014 2015 Year of grant 2011 2012 2013 2014 PSP Year of grant 2006 2007 2009 2011 2012 2013 2014 2015 Number outstanding 31 Dec 2014 400,986 419,442 494,934 – 1,315,362 Number outstanding 31 Dec 2013 435,135 464,024 484,623 – 1,383,782 Number outstanding 31 Dec 2014 2,148 1,828 105,248 88,112 375,219 325,706 414,778 – 1,313,039 New grants – – – 674,260 674,260 New grants – – – 521,051 521,051 New grants – – – – – – – 523,380 523,380 Releases (385,033) (24,285) (24,633) (12,618) (446,569) Releases (409,317) (19,705) (16,835) (6,042) (451,899) Releases (2,148) (1,828) (10,777) (14,009) (287,811) (10,362) (6,187) (1,054) (334,176) Forfeits (15,953) (30,797) (35,909) (24,243) (106,902) Forfeits (25,818) (43,333) (48,346) (20,075) (137,572) Lapses – – (9,444) (3,465) (1,276) (5,862) (2,110) (11,343) (33,500) Year ended 31 Dec 2015 Year ended 31 Dec 2014 1,220 918 – (249) 1,889 1,067 787 10 163 2,027 Number outstanding 31 Dec 2015 – 364,360 434,392 637,399 1,436,151 Number outstanding 31 Dec 2014 – 400,986 419,442 494,934 1,315,362 Number outstanding 31 Dec 2015 – – 85,027 70,638 86,132 309,482 406,481 510,983 1,468,743 Vesting conditions 3 years 3 years 3 years 3 years Vesting conditions 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 3 years 1, 2 or 3 years 72 Report and Accounts 2015 Year of grant 2006 2007 2009 2011 2012 2013 2014 Number outstanding 31 Dec 2013 2,148 4,343 131,740 226,167 397,388 343,931 – 1,105,717 New grants – – – – – – 446,646 446,646 Releases – (2,515) (26,492) (137,949) (1,742) – – (168,698) Lapses – – – (106) (20,427) (18,225) (31,868) (70,626) Number outstanding 31 Dec 2014 2,148 1,828 105,248 88,112 375,219 325,706 414,778 1,313,039 Vesting conditions 2 or 3 years 1, 2 or 3 years 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 188.20p - 342.69p 244.98p 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 - 318.65p 228.55p 1, 2 or 3 years 0.99% - 3.92% 32. Events after the balance sheet date There were no events arising after the balance sheet date requiring adjustment to the year end results or disclosure. 73 rpsgroup.comAccountsReport and Accounts 2015 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 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 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 4 5 6 7 8 10 10 10 10 10 10 As at 31 Dec 2015 448 1,121 397,435 399,004 59,077 1,916 3,203 64,196 179 – 572 20,694 549 2,096 24,090 40,106 439,110 96,018 257 342,835 6,667 112,026 115,459 21,256 (11,997) 99,424 342,835 As at 31 Dec 2014 514 1,570 429,309 431,393 61,121 1,771 2,093 64,985 527 1,779 1,352 19,713 435 2,794 26,600 38,385 469,778 90,076 231 379,471 6,640 110,100 109,530 21,256 (10,776) 142,721 379,471 These financial statements were approved and authorised for issue by the Board on 3 March 2016. The notes on pages 76 to 82 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). 74 Report and Accounts 2015 Parent Company Statement of Changes in Equity £000s At 1 January 2014 Issue of new shares Share-based payment expense Retained profit for the year Dividend paid (note 11) At 31 December 2014 Issue of new shares Share-based payment expense Retained profit for the year Non-distributable loss Dividend paid (note 11) At 31 December 2015 Share capital Share premium Merger reserve Employee trust shares Profit and loss reserve Other reserve 6,619 21 – – – 6,640 27 – – – – 6,667 108,307 1,793 – – – 110,100 1,926 – – – – 112,026 21,256 – – – – 21,256 – – – – – 21,256 (9,277) (1,499) – – – (10,776) (1,221) – – – – (11,997) 116,141 (228) 2,027 8,969 (17,379) 109,530 (730) 1,889 24,743 – (19,973) 115,459 142,721 – – – – 142,721 – – – (43,297) – 99,424 Total 385,767 87 2,027 8,969 (17,379) 379,471 2 1,889 24,743 (43,297) (19,973) 342,835 The notes on pages 76 to 82 form part of these financial statements. 75 rpsgroup.comAccountsReport and Accounts 2015 Notes to the Parent Company Financial Statements continued Notes to the Parent Company Financial Statements 1. Accounting policies RPS Group Plc (the “Company”) is a company domiciled in the UK under the Companies Act. The address of the registered office is given on page 21. The nature of the Company’s operations and its principal activities are set out in the strategic report on pages 3 to 17. The financial statements have been prepared under the historical cost convention, modified to include certain items at fair value, and in accordance with Financial Reporting Standard 102 (FRS 102) issued by the Financial Reporting Council. The prior year financial statements were reviewed for material adjustments on adoption of FRS 102 in the current year. For more information see note 14. The functional and presentational currency of RPS Group Plc is considered to be pounds sterling. RPS Group Plc meets the definition of a qualifying entity under FRS 102 and has therefore taken advantage of the disclosure exemptions available to it in respect of its financial statements. Exemptions have been taken in relation to share-based payments, financial instruments, presentation of a cash flow statement, intra-group transactions and remuneration of key management personnel. 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 and is written off on a straight line basis over its useful economic life of up to 20 years. Provision is made for any impairment. 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, net of depreciation and any provision for impairment. Depreciation is provided on all tangible fixed assets at rates calculated to write off the cost, less estimated residual value of each asset on a straight line basis over its expected useful lives as follows: Alterations to leasehold premises Fixtures, fittings, IT and equipment Life of lease 3 to 8 years All tangible fixed assets are expected to have nil residual value. Operating leases Rentals under operating leases are charged on a straight-line basis over the lease term, even if the payments are not made on such a basis. Benefits received and receivable as an incentive to sign an operating lease are similarly spread on a straight-line basis over the lease term. Finance leases Assets held under finance leases, hire purchase contracts and other similar arrangements, which confer rights and obligations similar to those attached to owned assets, are capitalised as tangible fixed assets at the fair value of the leased asset (or, if lower, the present value of the minimum lease payments as determined at the inception of the lease) and are depreciated over the shorter of the lease terms and their useful lives. The capital elements of future lease obligations are recorded as liabilities, while the interest elements are charged to the profit and loss account over the period of the leases to produce a constant periodic rate of interest on the remaining balance of the liability. 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. 76 Report and Accounts 2015 Share based employee remuneration The Company’s employees may benefit from a Group operated share based payment arrangement. 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. 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 all 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. Unrelieved tax losses and other deferred tax assets are recognised only to the extent that, 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 measured using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date that are expected to apply to the reversal of the timing difference. Where items recognised in other comprehensive income or equity are chargeable to or deductible for tax purposes, the resulting current or deferred tax expense or income is presented in the same component of comprehensive income or equity as the transaction or other event that resulted in the tax expense or income. Employee Share Ownership Plan (ESOP) 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. i 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. ii 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. Key accounting estimates and judgements The Company considers that the accounting policies above all require judgement to be exercised. Judgements that could have a material effect on the Company’s financial statements include the following: 1. Impairment of non-financial assets – when impairment reviews of goodwill and investments are undertaken, judgements are made with respect to the discount rates applicable to the cash generating units, along with the expected cash flows of those cash generating units and the growth rates applied to them. 77 rpsgroup.comAccountsReport and Accounts 2015 Notes to the Parent Company Financial Statements continued 3. Profit attributable to shareholders No profit and loss account is disclosed by the Parent Company as allowed by Section 408 of the Companies Act 2006. £000s Profit for the year attributable to the shareholders of the Parent Company, dealt with in the accounts of the Parent Company The remuneration of the auditors for the statutory audit of the Company was £50,000 (2014: £47,000). Year ended 31 Dec 2015 Year ended 31 Dec 2014 24,743 8,969 Goodwill 2,134 1,620 66 1,686 448 514 Total 7,553 368 (2) 7,919 5,983 816 (1) 6,798 1,121 1,570 Alterations to leasehold premises Fixtures, fittings, IT and equipment 1,027 41 – 1,068 654 206 – 860 208 373 6,526 327 (2) 6,851 5,329 610 (1) 5,938 913 1,197 4. Intangible Assets £000s Cost At 1 January 2015 and at 31 December 2015 Amortisation At 1 January 2015 Charge for the year At 31 December 2015 Net book value at 31 December 2015 Net book value at 31 December 2014 5. Tangible Assets £000s Cost or valuation At 1 January 2015 Additions Disposals At 31 December 2015 Depreciation At 1 January 2015 Provided for the year Disposals At 31 December 2015 Net book value at 31 December 2015 Net book value at 31 December 2014 78 Report and Accounts 2015 6. Investments £000s Subsidiary undertakings Cost At 1 January Additions At 31 December 2015 Provisions At 1 January Impairment At 31 December 2015 Net book value at 31 December 2015 2015 2014 430,147 25,523 455,670 838 57,397 58,235 397,435 416,264 13,883 430,147 838 – 838 429,309 During 2015 £25,523,000 was invested in the USA sub group to fund the acquisition of Klotz Associates Inc. and Iris Environmental. As a result of the downturn in the oil and gas sector, the Group’s investment in its US business has been impaired by £57,397,000. £43,297,000 reverses part of the gain the Group generated on reorganisation in 2013 and has been booked against the non-distributable reserve. £14,100,000 has been booked to retained profit. Subsidiary undertakings The majority of our trading subsidiaries provide consulting services, although we also provide training and laboratory testing. The following were the 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. C & B Plant Pty Ltd Conics (Brisbane) Pty Ltd Conics (Brisbane) Unit Trust Ltd Conics (Cairns) Pty Limited Conics (Gold Coast) Pty Ltd Conics (Mackay) Pty Ltd Conics (Mining & Infrastructure) Pty Ltd Conics (Sunshine Coast) Pty Ltd Conics (Sunshine Coast) Unit Trust Conics (Sydney) Pty Ltd Conics (Townsville) Pty Ltd Conics Positioning Pty Ltd Conics Pty Ltd ECL DM Pty Ltd ECL Drilling Management Pty Limited ECL Pty Ltd EHA Pty Ltd Everything Infrastructure Consulting Pty Ltd Everything Infrastructure Group Pty Ltd Everything Infrastructure Services Pty Ltd Geo Mapping Technologies Pty Ltd Intelligent Infrastructure Pty Ltd Manidis Roberts Employee Benefits Pty Ltd Massie Cosgrove Pty Ltd Natural Solutions Environmental Consultants Pty Ltd Newco (Brisbane) Pty Ltd Newco (Sunshine Coast) Pty Ltd Pioneer Surveys Pty Ltd PMM Global Surveys Pty Ltd PMM Holdings Pty Ltd PMM Sydney Pty Ltd Point Project Management Pty Ltd RPS APASA Pty Ltd Country of registration and operation Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Proportion of ordinary share capital held 100% * RPS Aquaterra Pty Ltd 100% * RPS Australia East Pty Ltd 100% * RPS Consultants Pty Ltd 100% * RPS ECOS Pty Ltd 100% * RPS Energy Pty Ltd 100% * RPS Energy Services Pty Ltd 100% * RPS Environment and Planning Pty Ltd 100% * RPS Harper Somers O’Sullivan Pty Ltd 100% * RPS HSO Subco Pty Ltd 100% * RPS Manidis Roberts Pty Ltd 100% * RPS Metocean Pty Ltd 100% * Rudall Blanchard Associates Pty Limited 100% * Terranean Mapping Technologies Pty Ltd 100% * Troy Ikoda Australasia Pty Ltd 100% * Urban Blueprint Pty Ltd 100% * Vivo Design Pty Ltd 100% * Whelans Corporation Pty Limited 100% * Whelans Insites Pty Limited 100% * Petroleum Institute for Continuing Education Ltd 100% * Boyd Exploration Consultants Ltd 100% * HMA Land Services Ltd 100% * Maverick Land Consultants 2012 Ltd 100% * Roland Resources 2012 Inc 100% * RPS Canada Ltd 100% * RPS Energy Canada Ltd 100% * Aquaterra International Ltd 100% * Aquaterra UK Limited 100% * Basicshare Limited 100% * Burks Green & Partners Limited 100% * Cambrian Consultants America Limited 100% * Cambrian Consultants Limited 100% * Canadian GaiaTech, B.C. ULC 100% * CgMs Holdings Limited Country of registration and operation Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Canada Canada Canada Canada Canada Canada Canada England England England England England England England England Proportion of ordinary share capital held 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% * 100% * 100% * 100% * 79 rpsgroup.comAccountsReport and Accounts 2015 Notes to the Parent Company Financial Statements continued CgMs Limited Clear Environmental Consultants Limited ECL Group Limited ECL Resources Management Limited ECL Technology Limited Emulous Group Limited Emulous Ltd Energy Innovations Limited Exploration Consultants Limited Flow Control (Water Conservation) Limited Geocon Group Services Limited Geophysical Consultants Limited Geophysical Safety Resources Limited Hydrosearch Associates Limited Ichron Limited Isochrone Holdings Limited Knowledge Reservoir (UK) Ltd Martindale Holdings Limited Nautilus (SEAA) Limited Nautilus Limited Net Admin Limited Nigel Moor Associates plc Oil Experience Limited Paras Consulting Limited Paras Limited Probablistic Risk Assessments Limited Quad Engineering Limited R W Gregory Limited RPS Business Healthcare Limited RPS Chapman Warren Limited RPS Consultants Ltd RPS Design Ltd RPS Ecoscope Limited RPS Energy Consultants Limited RPS Energy Limited RPS Energy Services Limited RPS Environmental Management Limited RPS Group US Holdings Limited RPS Health in Business Limited RPS Laboratories Limited RPS Mountainheath Limited RPS Planning & Development Limited RPS Timetrax Limited RPS Trustees Limited RPS US Holdings Limited RPS Utilities Limited RPS Water Services Limited Rudall Blanchard Associates Group Limited Rudall Blanchard Associates Limited Safety and Reliability Consultants Limited Scott Pickford Limited Sherwood House Properties Limited SRC (Consultants) Limited The Environmental Consultancy Ltd Town Planning Consultancy Limited TPK Consulting Limited Troy Ikoda Limited Country of registration and operation England England England England England England England England England England England England England England England England England England England England England England England England England England England England England England England England England England England England England England England England England England England England England England England England England England England England England England England England England 80 Proportion of ordinary share capital held 100% * Troy-Ikoda Management Limited 100% * Utility Technical Services Limited 100% WTW & Associates Limited 100% * X-IPEC Limited 100% * Metier Academy GmbH Geocon Asia Limited 100% 100% RPS Consulting Engineers Limited 100% * RPS Engineering Services Limited 100% * RPS Environmental Consultancy Limited 100% 100% 100% * RPS Planning & Environment Limited 100% * RPS Properties Limited 100% RPS Group Limited RPS MMA Limited Country of registration and operation England England England England Germany Gibraltar Ireland Ireland Ireland Ireland Ireland Ireland Ireland Malaysia Proportion of ordinary share capital held 100% * 100% 100% 100% * 100% * 100% * 100% * 100% * 100% 100% * 100% * 100% * 100% * 100% * Malaysia 100% * 100% * Metier Vest AS Metier Holding AS Cambrian Consultants Asia Sdn. Bhd Knowledge Reservoir Geoscience & Engineering Sdn. Bhd 100% RPS Consultants Sdn Bhd 100% * Aquaterra East Asia LLC 100% * RPS advies-en ingenieursbureau bv 100% * RPS Analyse BV 100% * RPS BV 100% * RPS Detachering BV 100% * RPS Ireland Limited 100% * Delphi AS 100% * Knowledge Reservoir Holding AS 100% * Metier AS 100% 100% * Metier Trondheim AS 100% 100% OEC Gruppen AS 100% * RPS Norway AS 100% * Point Project Management (PNG) Ltd 100% OceanFix International Limited 100% 100% 100% 100% 100% 100% 100% * Espey Consultants, Inc. 100% 100% * GaiaTech Canada, LLC 100% GaiaTech Holdings, Inc 100% * GaiaTech, Inc 100% Houston Geoscan Inc 100% * Hydrosearch USA Inc Iris Environmental 100% * 100% Klotz Associates Inc. 100% * Knowledge Reservoir Group Inc 100% * Knowledge Reservoir, LLC 100% 100% * Nautilus World LP 100% * Petroleum Institute for Continuing Education USA Inc 100% * RPS America Group Inc RPS Group, Inc. 100% RPS JDC Inc. 100% 100% The Geocet Group LLC 100% * The Scotia Group Inc Malaysia Mongolia Netherlands Netherlands Netherlands Netherlands Northern Ireland Norway Norway Norway Norway Norway Norway Norway Norway Papua New Guinea Scotland Scotland Sweden Sweden USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA RPS Occupational Health Limited Metier AB Metier Academy AB APA USA, Inc Applied Science Associates Inc. Cambrian Consultants America Inc. Nautilus Holdings LLC Evans Hamilton, Inc. 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% * 100% * 100% * 100% 100% * 100% * 100% * 100% * 100% * 100% * 100% * 100% * 100% * Report and Accounts 2015 7. Borrowings £000s Bank loans US loan notes Due as follows: After one year and within two years After two years and within five years Over five years Details of the borrowings are disclosed in note 16 to the consolidated accounts. 8. Provision for liabilities £000s As at 1 January 2015 Additional provision in the year Utilised in the year As at 31 December 2015 This provision is expected to be utilised as follows: £000s Within one year After more than one year 9. Deferred taxation The movement on deferred taxation in the current and prior 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. 31 Dec 2015 42,902 53,116 96,018 – 42,902 53,116 96,018 Property Dilapidations 74 – (26) 48 157 85 (33) 209 As at 31 Dec 2015 172 85 257 As at 31 Dec 2015 228 (106) 122 As at 31 Dec 2015 (46) 168 122 31 Dec 2014 38,227 51,849 90,076 38,227 – 51,849 90,076 Total 231 85 (59) 257 As at 31 Dec 2014 107 124 231 As at 31 Dec 2014 140 88 228 As at 31 Dec 2014 60 168 228 81 rpsgroup.comAccountsReport and Accounts 2015 Notes to the Parent Company Financial Statements continued 10. Share capital and reserves Ordinary shares of 3p each At 1 January 2015 At 31 December 2015 Authorised Value £000s Number Allotted and fully paid Value £000s Number 240,000,000 240,000,000 7,200 7,200 220,631,931 222,234,251 6,619 6,667 Full details of the share capital of the Company are disclosed in Note 21 to the Consolidated Financial Statements. The Company’s other 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 shares Own shares held by the SIP and ESOP trusts. Profit on loss reserve Cumulative net gains and losses recognised in the profit and loss account and statement of changes in equity. Other reserves Non-distributable profit generated on Group reconstruction. 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 Total future minimum lease payments under non-cancellable operating leases are as follows: £000s Within one year Between one and five years Land and buildings 31 Dec 2014 31 Dec 2015 535 302 837 923 733 1,656 31 Dec 2015 79 112 191 Other 31 Dec 2014 85 89 174 13. Directors’ interests in transactions There were no transactions during the year in which the Directors had any interest. 14. Explanation of transition to FRS 102 This is the first year that the Company has presented its financial statements under Financial Reporting Standard 102 (FRS 102) issued by the Financial Reporting Council. The last financial statements under previous UK GAAP were for the year ended 31 December 2014 and the date of transition to FRS 102 was therefore 1 January 2014. As a consequence of adopting FRS 102, a number of accounting policies have changed to comply with that standard. None of the accounting policy changes are material. There have been no changes to the Company’s equity and assets as a result of this conversion. 82 Report and Accounts 2015 Notes to Remuneration Committee Annual Report 1. Approach to Remuneration The overall policy of the Remuneration Committee is to set total on target reward at up to median level compared with the Company’s comparator groups. The Committee wishes to ensure that the fixed element of remuneration is not excessive 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 in the Annual Statement of the Chairman the performance elements of total reward are directly linked to the achievement of the Company’s strategy. 2. Remuneration Policy and Implementation In line with The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2013, the Directors’ Remuneration Policy has not been presented in this report for approval by shareholders as it was approved at the Company’s 2014 Annual General Meeting. For 2016, remuneration policy will be operated in accordance with this previously approved policy as summarised below. The full Directors’ Remuneration Policy is available to view on the Company’s website. Executive Directors The following table sets out the key elements of policy and any changes in its implementation for 2016: Operation of Element Maximum Opportunity Performance Metrics Changes in Implementation for 2016 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. No changes are being made to salary levels for 2016. Salaries therefore remain as follows. • A. Hearne - £581,400 • P. Williams - £428,400 • G. Young - £288,600 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. The Remuneration Committee policy in relation to salary is: • up to median salary on appointment depending on the experience and background of the new Executive Director; • on promotion up to the median salary for the new role. The maximum potential value is the cost of the provision of these benefits. There are no performance conditions attached to the payment of benefits. No change for 2016. Salary 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: • 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. Benefits 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 Executive Directors receive the following benefits: • healthcare; • life assurance and dependants’ pensions; • disability schemes; and • company car or car allowance. 83 rpsgroup.comReport and Accounts 2015 Notes to Remuneration Committee Annual Report continued Pension It is the Committee’s policy to provide pension benefits in line with market practice. Other than basic salary, no element of the Directors’ remuneration is pensionable. The Executive Directors are eligible to participate in defined contribution pension schemes, or receive a salary supplement or a combination of the two. The maximum is 25% of salary. Salary supplements are not included in base salary to calculate other benefits and incentive opportunities. There are no performance conditions attached to the payment of pension. No change for 2016. Bonus Plan The Executive Directors are entitled to participate in the Bonus Plan. At the end of the financial year any bonus earned through the satisfaction of the performance conditions will be paid as follows:- • one half as a cash bonus (Element A); and • one half as a deferred bonus in shares (Element B) which will vest subject to continued employment at the end of a two year vesting period, the operation of malus and clawback provisions and provided the forfeiture threshold is met for each year of the deferral. Maximum is 200% of salary. The Bonus Plan currently has three performance conditions:- • the primary performance condition which is PBTA; • a secondary performance condition which is cash conversion; and • a secondary performance condition which is linked to the achievement of personal objectives. No change for 2016. The Remuneration Committee considers that disclosing precise targets of profit and strategic objectives, which are commercially sensitive, for the Bonus Plan in advance would not be in shareholder interests. Actual targets, performance achieved and awards made will be published at the end of the performance periods where possible without compromising confidential matters so that shareholders can fully assess the basis for any payouts. Non-Executives Directors It is the Company’s policy to set fees at up to median level and at a level necessary to attract and retain experienced and skilled Non-Executive Directors. Following review it was determined that no adjustment would be made to fees payable to Non-Executive Directors in 2016. 3. Single figure remuneration table – Notes for financial year ended 31 December 2015 Benefits and pension The value for benefits for each Executive Director shown in the Single Figure Remuneration on page 29 is comprised of a company car or company car allowance and private medical insurance. The Executive Directors are eligible to participate in defined contribution pension schemes, or receive a salary supplement or a combination of the two, the value of which has been shown in the Single Figure Remuneration for each. Bonus Plan assessment for 2015 For 2015 the Maximum Annual Contributions under the Bonus Plan for Alan Hearne, Phil Williams and Gary Young were 200%, 175% and 150% of salary respectively. The maximum total contribution that can be earned by all participants under the Bonus Plan is limited to 3% of the Group’s PBTA. For each Executive Director, performance was assessed against three measures: PBTA, cash collection and personal objectives. The bonus value included within the Single Figure Remuneration for 2015 has been calculated as set out below. This shows the performance targets for 2015, their level of satisfaction and the corresponding level of bonus earned by each of the Executive Directors. Under the operation of the Bonus Plan in 2015, the Threshold PBTA of £63m had to be achieved before participants were eligible to receive any bonus payment. 84 Report and Accounts 2015 Performance measure PBTA Cash Collection Personal objectives Target Contribution as percentage of Maximum Opportunity Target Contribution as percentage of Maximum Opportunity Target Contribution as percentage of Maximum Opportunity Total Contribution as percentage of Maximum Opportunity Threshold £63m Maximum £75m 0% 85% 0% 70% 110% 20% Actual £51.8m 0% 127% 0% See below See below See below 0% 0% 10% 100% 0% 0% Although the Threshold target in respect of cash collection was exceeded, as the Threshold PBTA target of £63m was not achieved, no contribution was earned in respect of this element. The personal objectives referred to above were specific to each Executive Director and related to the achievement of various corporate priorities. Although these objectives were met in full or in part, as the threshold PBTA target of £63m was not achieved, no contribution was earned in respect of this element. In accordance with the performance assessment summarised above no bonus contribution was earned in respect of 2015. No discretion was exercised when determining the bonus outcomes. In line with the operation of the Bonus Plan, each year the Committee sets a PBTA Forfeiture Threshold. If the PBTA Forfeiture Threshold is not met, the cumulative value of a Participants’ unvested deferred share awards (Element B) is reduced by 15% of the difference between the actual PBTA for the Plan Year and the minimum Threshold PBTA. Any adjustment will be in proportion to the Participants’ Maximum Annual Contribution payable as a proportion of the aggregate of all Participants Maximum Annual Contributions. The PBTA Forfeiture Threshold for 2015 was set at £59m. At the level of the Group’s reported PBTA and in accordance with the above mechanism the Remuneration Committee has determined that all conditional shares previously awarded in relation to the operation of the Bonus Plan in 2013 and 2014 and, as shown in the table below, will be forfeited as at 3 March 2016. Alan Hearne Phil Williams Gary Young Conditional Shares Outstanding 92,589 60,759 35,251 4. Incentive grants to Executive Directors made during the financial year ending 31 December 2015 Bonus Plan awards The following table sets out the details of the Element B incentive awards that were granted to the Executive Directors during 2015 under the RPS Group Plc Bonus Plan in respect of the 2014 Bonus Plan Year. Executive Director Award % of Salary Awarded Face Value of Awards Alan Hearne Phil Williams Gary Young 2014 Bonus Plan Element B 2014 Bonus Plan Element B 2014 Bonus Plan Element B 21% 19% 16% £121,352 £78,404 £45,273 Number of Awards (Nil Cost Options) 50,187 32,425 18,723 The number of shares awarded was calculated by reference to share price of 241.8p which the average over a 30 day period prior to the date of grant on 13 April 2015. Subject to the forfeiture conditions set in respect of the Plan all of these shares would have vested on at 13 April 2017. As noted above the Remuneration Committee has determined that all conditional shares awarded under the Plan are to be forfeited as at 3 March 2016. Share Incentive Plan awards 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 2015. Executive Director Alan Hearne Phil Williams Gary Young Number of shares Value of shares £ 1,260 1,160 1,399 2,854 2,624 3,175 Shares are valued by reference to their price as at date of award. 85 rpsgroup.comReport and Accounts 2015 Notes to Remuneration Committee Annual Report continued 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. Unconditional shares Conditional shares under Executive Bonus Plan Conditional Matching shares under the SIP Total Shares held at 31/12/15 Shares held at 26/02/16 Shares held at 31/12/15 Shares held at 26/02/16 Shares held at 31/12/15 Shares held at 26/02/16 Shares held at 31/12/15 Shares held at 26/02/16 Executive Director Alan Hearne Phil Williams Gary Young Non-Executive Director Brook Land Louise Charlton Robert Miller–Bakewell Andrew Page 119,867 288,652 104,936 119,990 288,776 105,060 92,589 60,759 35,251 92,589* 60,759* 35,251* 30,000 30,000 – 5,000 – – 5,000 – – – – – – – – – 1,805 1,805 1,805 – – – – 1,822 1,823 1,823 214,261 351,216 141,992 214,401 351,358 142,134 – – – – 30,000 30,000 – 5,000 – – 5,000 – Unconditional shares include shares held directly or indirectly by connected persons. They also include shares acquired under the Share Incentive Plan being partnership and dividend shares held as well as matching shares that have been held for longer than three years and are therefore no longer conditional. The table below shows the shareholding guideline for each Executive Director and the extent to which that guideline was met at 31 December 2015. Alan Hearne Phil Williams Gary Young Guideline % salary Value of shareholding required £ Value of unconditional shares £ 150 100 100 872,100 428,400 288,600 284,085 684,105 248,698 Value of conditional shares £ 223,713* 148,277* 87,823* Total (unconditional & conditional shares) £ 507,798 832,382 336,521 The value shown for conditional and unconditional shares is based upon the Company’s share price as at 31 December 2015. *As noted above the Remuneration Committee has determined that the conditional shares held through the Bonus Plan will be forfeited as at 3 March 2016 in accordance with the forfeiture conditions in operation for 2015. 86 Report and Accounts 2015 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 seven year period. Total shareholder return from 1 January 2009 RPS Group FTSE AllShare £ FTSE AllShare Support Services 350 300 250 200 150 100 50 0 Source: Thomson Datastream 2009 2010 2011 2012 2013 2014 2015 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 2010 608 2011 793 2012 1,650 2013 883 2014 922 zero 46% 54% 77% 47% 32% 2015 748 zero 100% zero 13% 100% zero zero 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. 87 rpsgroup.comReport and Accounts 2015 Notes to Remuneration Committee Annual Report continued 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 2014 Financial Year to 2015 Financial Year CEO 10.4% 0% -100% Employees 2.8% 1.0% -50% The percentage increase for the CEO principally reflects the salary increase awarded in respect of 2014 having been implemented as at 1 July in that year. 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: 300,000 250,000 200,000 £000 150,000 100,000 50,000 0 Total employee pay +6.7% PBTA -21.7% Dividend +14.9% 2014 2015 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. 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 current members of the Committee are Robert Miller-Bakewell (Chairman), Louise Charlton and Andrew Page all of whom are independent Non–Executive Directors. During the year Robert Miller-Bakewell joined the Committee and Tracey Graham and John Bennett both ceased to be members. The Chief Executive of the Company attends meetings by invitation and where this is pertinent to the matters under discussion, but is never 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. 88 Report and Accounts 2015 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 23. External advice During 2015 the Committee received external advice in relation to executive remuneration from PwC. PwC are members of the Remuneration Consultants Group and, as such, voluntarily operate under the code of conduct in relation to executive remuneration consulting in the UK. PwC also undertook some limited tax advisory work for the Company during the year. The Committee reviewed the nature of the services provided and was satisfied that no conflict of interest exists or existed in the provision of these services and that the advice the Remuneration Committee received was objective and independent. The total fees paid to PwC in the year for services to the Committee amounted to £79,000. 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. 13. Statement of Shareholder voting The Remuneration Committee’s Annual Report for 2014 was approved at the Company’s 2015 Annual General Meeting. The voting for this resolution is shown below. Annual Report Votes for Votes against Total Witheld Number of Votes Cast % of Votes Cast 98,865,069 33,636,502 132,501,571 37,276,913 74.61 25.39 100 – The Committee understands that the lack of support offered by some shareholders in respect of this resolution related to salary increases awarded to Executive Directors for that year. The Committee considered this position and maintained its view that the salary increases were appropriate. As this matter related to the implementation of the Committee’s policy rather than the policy itself, the Committee concluded that it would not make any changes to policy in respect of 2015. The Company’s remuneration policy was last submitted to shareholders at the 2014 Annual General Meeting at which the voting was as shown below: Policy statement Votes for Votes against Total Witheld Number of Votes Cast % of Votes Cast 166,067,608 9,490,604 175,558,212 2,010,117 94.6 5.4 100 – 89 rpsgroup.comReport and Accounts 2015 Five Year Summary £000s 2015 2014 2013 2012 2011 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 556,972 506,110 51,795 (78,779) 364,490 92,628 5,054 9.74p 16.57p 16.47p 572,126 504,959 66,114 (73,180) 384,677 70,772 4,530 8.47p 22.04p 21.92p 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 The Five Year Summary does not form part of the audited financial statements. 90 Report and Accounts 2015 Report and Accounts 2015 REPORT & ACCOUNTS 2015 R P S G r o u p P l c R e p o r t & A c c o u n t s 2 0 1 5 Cover Image: Brisbane, Queensland, Australia Cover image: Eucalyptus bark at Barrington Tops National Park, Australia. RPS is working on Brisbane’s largest urban regeneration project. RPS has been working on Groundwater Impact Assessments at Barrington Tops National Park, New South Wales. RPS Group Plc RPS Group Plc 20 Western Avenue, Milton Park 20 Western Avenue, Milton Park Abingdon, Oxon OX14 4SH Abingdon, Oxon OX14 4SH T +44 (0)1235 863206 T +44 (0)1235 863206 rpsgroup.com rpsgroup.com Registered in England No. 2087786 Registered in England No. 2087786 43694 43694 rpsgroup.com
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