Interim Management Statement

28 October 2010

RPS remains well positioned in markets of fundamental importance to the global economy; these continue to have significant long term potential. As developed countries around the world plan for the next stage of their growth, attention is being focussed on rebuilding economic activity in an efficient, sustainable way, powered by energy resources from safe, secure and environmentally acceptable sources. These trends play to RPS's core strengths.

Our trading in the third quarter indicated that, unless there is another global economic downturn, the worst effects of recession on the Group are probably over and full year market expectations remain achievable. However, uncertainties remain for a number of our clients and, consequently, for us.(1)

The nature of recovery in our clients' activities continued to vary between regions and markets. On the back of growing demand for natural resources the Australian economy continued to expand. This opened up further opportunities for us, particularly in relation to gas, coal seam gas and minerals projects and the infrastructure they all require. Our services are attractive to clients investing in these major projects, as they can utilise our planning, environmental and energy skills in an integrated way. Property development activity remained subdued, but is now showing signs of improvement in parts of the country. We retain confidence in the prospects of our Australian business as a whole.

Our Energy business continued to experience improving conditions, although demand has yet to expand to a level which would relieve pricing pressure. We have secured good volumes of work from NOC's, whilst also benefitting from IOC's increased E&P activity. Our transaction work was also encouraging in terms of both volume and client profile. However, in recent months we have felt the full effect of the drilling moratorium in the Gulf of Mexico. This offset our progress elsewhere, but should unwind as activity in the Gulf re-builds gradually during 2011. There are also signs we could secure more risk management work, both safety and environmental, as a result of increased regulation and changing operator systems in respect of offshore operations internationally.

Our increasing focus on infrastructure projects funded by the private sector, particularly in the energy supply market, helped support our Planning and Development business in Britain. We have limited direct exposure to public sector expenditure in Britain. However, the recent spending review undoubtedly delayed investment decisions by some of our private sector property development clients. This, in combination with changes to the development planning system introduced by the new Government, slowed the flow of new commissions. It is likely to take some time for our clients to work through the full effects of both these factors. Clients in the retail sector have, however, shown more confidence and progressed schemes for their own occupation through all phases of the planning and development cycle.

Our Environmental Management businesses in the UK benefited from stable levels of activity. Work in regulated health and safety markets remained at encouraging levels and we are possibly approaching the point at which our water sector clients will begin to commit the major investment necessary to meet their obligations in the new regulatory period. In the Netherlands, our private sector clients appear to have remained cautious about economic prospects and concerned about political uncertainty. Public sector activity seems to have begun to be affected by the fiscal consolidation recently put in place by the new Dutch Government. The full effects of this are difficult to predict at this early stage.

The recession in the Republic of Ireland ended in the first quarter of 2010, but the economy shrank again in the second quarter and has been under significant pressure from the financial markets since. Our business has done remarkably well to maintain positive trading against this backdrop. Although further downsizing has been necessary, we remain market leaders and continue to win significant volumes of new business. The management of the deficit by the Irish Government is likely to continue to constrain investment in the infrastructure projects which support our business, but the scale of next year's capital investment will not be known until public expenditure announcements are made later this year. In Northern Ireland we maintained a good performance.

In order to ensure a robust Planning and Development business we are in the process of merging our British, Irish and Northern Ireland businesses. This will be completed before the year end. It will facilitate more efficient management, marketing and resource allocation and should involve only modest reorganisation costs. From 2011 the GB and Irish Planning and Development segments will be merged and reported as one segment: Planning and Development - UK and Ireland.

Our balance sheet remains strong and we have no defined benefit pension liabilities. Since 30 June we have made payments in respect of deferred consideration, all in cash, of £7.1 million. Net bank debt at the end of September was £47.9 million. Our facility of £125 million with Lloyds Banking Group remains in place until July 2013. The Board believes the Group is well funded to continue to implement its strategy and increased the interim dividend 15% for the seventeenth consecutive year. A similar increase is envisaged at the full year.

On 1 September 2010 we announced the acquisition of Boyd Exploration Consultants Ltd ('Boyd') for a maximum total consideration of C$13.87 million (£8.46 million), payable in cash. Boyd will help develop our oil and gas business in Canada and increases our exposure to the attractive international mining sector. Further 'bolt on' acquisitions are under consideration.

Brook Land, Chairman, commented:

"We indicated in our Interim Results (29 July 2010) that 'modest improvement in the second half remains achievable'. Trading in the third quarter of the year suggests this is still the case and, if delivered, will enable market expectations to be met.

"The diversity of our business, both geographically and functionally, has enabled a robust performance from the Group over the last two years, during a period of exceptionally challenging markets. The flexibility and resourcefulness of our staff has contributed significantly to the way we have positioned ourselves to secure maximum exposure to the best markets available. About two thirds of Group activity is currently focussed on projects related to securing energy supplies, the infrastructure necessary to deliver those supplies and the Australian economy. This, the strength of our balance sheet and the continuation of our acquisition strategy, gives us confidence about our prospects as the global economy improves."

28 October 2010

 

ENQUIRIES
RPS Group plc
Tel: 01235 863206
Dr Alan Hearne, Chief Executive
Gary Young, Finance Director
College Hill
Tel: 020 7457 2020
Justine Warren
Matthew Smallwood

 

Note 1

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 2010 in the year to date are based upon unaudited management accounts for the period to September 2010. The Board considers market expectations for 2010 are best defined by taking the range of forecasts of profit before tax and amortisation for the full year published by analysts who consistently follow the Group. The current range of forecasts of which the Board is aware is £47.2 to £ 49.0 million. Nothing in this announcement should be construed as a profit forecast.

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 and Australia/Asia Pacific and undertake projects in many other parts of the world. The Group is a constituent of both the FTSE 250 and FTSE4Good Indices.