Interim Management Statement
29 October 2009
Market leadership, together with sector and geographical diversity, underpin a satisfactory performance
As the financial crisis and economic recession have played out during the course of the year, the diversity of our business has become increasingly valuable. Most recently we have been able to take advantage of the more encouraging prospects for the Australian economy with the strategic acquisition of Conics Ltd ("Conics"). Elsewhere, thanks to a high level of commitment, effort and expertise from our staff, we have continued to manage successfully through difficult times. The Board anticipates that the Group is likely to deliver results for the full year in line with market expectations.
Conics: strategic acquisition in Australia; a platform for future growth
On 30 July 2009 RPS completed the acquisition of Conics, a multi-disciplinary consultancy based on the East coast of Australia, primarily in Queensland. At a maximum consideration of A$64.4 million (£32.2 million, at completion), this represented the Group's largest investment to date and transformed the nature and scale of our business in Australia. We are now operating substantially and successfully in Australia in all three of the Group's business segments and are leaders in a number of attractive markets.
The integration of Conics with the Group's existing Australian operations has begun successfully. Market opportunities for joint working identified prior to completion of the transaction are developing as anticipated. We are, for example, well positioned to secure involvement in the substantial and long term development of gas and associated port and LNG facilities in Queensland.
The RPS board remains confident the Australian economy will perform well in the coming years. We believe that it should be possible to achieve continued growth in our Australian business, in part through bolt on acquisitions.
Energy: market in Q3 similar to Q2; more positive signs recently
We are one of the world's leading suppliers of independent technical and commercial advice to the oil and gas industry and work globally on many large scale, long term exploration and production projects. Despite the relatively high oil price, a significant number of our clients became progressively cautious during the second quarter about initiating expenditure on new projects and also exerted pricing pressure. This remained generally the case in the third quarter, although major investments in Australia were committed. In recent weeks we have seen some signs that caution is easing and increased levels of investments are under active consideration.
Work undertaken for National Oil Companies has been relatively unaffected by the general market slowdown, as has our input to many deep water drilling projects. We continue with the strategy of developing our activities in Brazil, West Africa and the Arctic region, areas which are emerging as material petroleum provinces and will become increasingly important in the development of our business in the medium term.
Environmental Management: a solid performance overall
Our business in the Netherlands has continued to trade successfully. The Dutch economy has suffered a serious recession, but we have been well positioned to benefit from increased Government expenditure related to water and transport infrastructure. Our other Environmental Management businesses progressed as anticipated. Activities related to the oil and gas industry in Australia were buoyant; elsewhere the slowing of investment had an impact. As expected, our UK water activities have become subdued as the attention and activity of our clients shifts to the new investment cycle which begins in April 2010. We are well placed in respect of this new round of investment. Our nuclear safety activities continued to trade well.
Planning and Development: stability in Britain; continuing challenges in Ireland; encouraging prospects in Australia
Limited confidence has returned to the commercial property sector in Britain, although it may take further economic progress before activity levels increase materially. We continue to focus, therefore, on the opportunities available to become involved in infrastructure projects, particularly those funded privately, such as in the energy, transport and health sectors. This business has dealt with difficult trading conditions in an effective way and now seems to be in a stable position.
The economy in the Republic of Ireland has contracted significantly over the last year and seems likely to shrink further in 2010. We have indicated previously that it has not yet been possible to anticipate how this will impact financing of public sector infrastructure projects, a key driver of our business. This uncertainty will remain at least until the Irish Government produces its next budget in December 2009. However, we have experienced further tightening of project budgets, pressure on fee rates and slower payments from our clients. We are responding by continuing to reduce our cost base and focussing even more closely on working capital management. Our business in Northern Ireland remains better positioned.
Performance and prospects in Australia remain encouraging. Recent announcements about substantial investment in the gas fields off the North West coast appear to have stimulated the Western Australian economy and are likely to be beneficial to all our Perth based activities. With the addition of the Conics team we now have a substantial presence on both the East and West coasts and expect these businesses to perform well as they integrate further.
Balance sheet remains in good shape: further acquisitions being considered
At 30 June the Group had net bank borrowing of £14.4 million. £21.1 million was paid to the vendors of Conics at completion of the transaction. During the third quarter £5.5 million was paid in deferred consideration in respect of acquisitions made in previous years. Conversion of profit into cash has continued at a good level since the end of the half year, although some bad debts have been experienced and this may continue until economic recovery is established. Net bank borrowings at the end of September were £38.3 million. The strength of our cash flow and balance sheet will enable the Group to extend our activities with further acquisitions.
Brook Land, Group Chairman, commented:
Our clients continue to be cautious and cost conscious. It is hard to envisage this changing quickly and so we remain focussed on improving the efficiency of our businesses, enabling us to offer our clients the increased value for money they require. As a result of our leadership in a diverse range of markets with long term attractions, and our strong balance sheet, we remain well positioned to take advantage of opportunities to expand our activities as they arise, such as the acquisition of Conics. A number of these opportunities are likely to relate to the globally important issues of energy security and supply and climate change.
29 October 2009
|RPS Group plc|
|Dr Alan Hearne, Chief Executive||Tel: 01235 863 206|
|Gary Young, Finance Director|
|Justine Warren/Matthew Smallwood||Tel: 020 7457 2020|
RPS is an international consultancy providing advice upon the development of natural resources, land and property, the management of the natural and built environments and the health and safety of people. We have offices in the UK, Ireland, the Netherlands, North America, South East Asia and Australia and undertake projects in many other parts of the world. The Group is a constituent of both the FTSE 250 and FTSE 4 Good Indices.
Forward looking statements
This announcement contains certain forward-looking statements with respect to the financial condition, results of operations and businesses of RPS Group plc. These statements involve risk and uncertainty because they relate to events and depend upon circumstances that will 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 continuing uncertainty in global economic outlook inevitably increases the risks to which the Group is exposed. Statements in respect of the Group's performance in 2009 in the year to date and for the full year are based upon unaudited management accounts for the period January to September 2009 and the board's view of likely trading results in October to December 2009. The Board considers market expectations for 2009 are best defined by taking the range of forecasts of profit before tax and amortisation for the full year published by analysts who follow the Group. Nothing in this announcement should be construed as a profit forecast.