Interim Management Statement

03 November 2011

Good third quarter trading; two acquisitions in the US.

After a good third quarter the Group remains on track to deliver an improved performance in the second half. This should enable market expectations for the current year to be met.

Energy: this business has continued to make good progress. The integration of both EHI (acquired in February) and Nautilus (acquired in March) has progressed positively. The build up of activity in the Gulf of Mexico has been relatively slow, but this has been compensated for by increased activity in other global markets, including unconventional oil and gas projects.

Planning and Development: although the level of commercial development activity across Australia remains subdued, we are benefiting from expenditure by clients developing infrastructure to serve gas, coal and coal seam gas projects. In the UK and Ireland, following the recent poor economic and financial news, our clients remain cautious, limiting our opportunities. Again we are benefiting from our involvement in energy infrastructure projects, but these are on a smaller scale than in Australia.

Environmental Management: our businesses in both the UK and the Netherlands continued to trade well; the activity in our water business in the UK was particularly good, reflecting the strong market position our team has built in recent years.

Debt and Funding: our balance sheet remains strong. Net bank debt at the end of September was £35.9 million (30 June 2011: £35.8 million), after investing £5.3 million in deferred consideration for prior acquisitions during the quarter. Our revolving credit facility of £125 million with Lloyds Banking Group remains in place until July 2013.

Acquisitions

The Group is moving forward with its acquisition strategy and the Board is pleased to report further expansion in our US business involving:

1) the acquisition of the entire share capital of Espey Consultants Incorporated ("Espey"), a US based consulting firm, for a maximum consideration of US $6.0 million (£3.8 million). Founded in 1993, Espey operates from its headquarters in Austin and other offices in Texas. It provides services to a broad range of complex engineering projects in water resource management.

In the year ended 31 December 2010 Espey had revenues of US$12.5 million (£7.9 million) and profit before tax of US$0.9 million (£0.6 million), after adjustment for non-recurring items. Net assets at 31 December 2010 were US$1.4 million (£0.9 million), after adjusting for assets excluded from the transaction. On the same basis, gross assets at 31 December 2010 were US$2.4 million (£1.5 million).

Consideration paid at completion was US $3.6 million (£2.3 million.) Subject to certain operational conditions being met, two further capital sums of US $1.2 million (£0.75 million), will be paid on the first and second anniversaries of the transaction. The five vendors of the business are directors of Espey; they, and the other 34 Espey staff, are remaining with RPS.

The acquisition of Espey marks a step change in our capabilities in water resource management in the south west states of the USA at a time when access to adequate water resources in the region is becoming of increasing concern.

2) the acquisition of the entire share capital of Applied Science Associates Inc ("ASA"), a US based oceanographic consulting firm, for a maximum consideration of US $13.5 million (£8.6 million). Founded in 1979, ASA operates in the US and other parts of the world from its headquarters in Rhode Island. It provides oceanographic and marine environment consulting and modelling services. The skills within ASA complement the oceanographic measurement services provided by Evans Hamilton Inc, which was acquired earlier this year, and those of our oceanographic business in Australia.

In the year ended 31 December 2010 ASA had revenues of US $9.7 million (£6.2 million) and profit before tax of US $2.3, million (£1.45 million), after adjustment for non-recurring items. Net assets at 31 December 2010 were US $2.9 million (£1.8 million), after adjusting for assets excluded from the transaction. On the same basis, gross assets at 31 December 2010 were US$ 6.3 million (£4.0 million).

Consideration paid at completion was US $6.75 million (£4.3 million). Subject to certain operational conditions being met, three further capital sums of US $2.7 million (£1.7 million), $2.7 million (£1.7 million) and $1.35 million (£0.9 million) will be paid on the first, second and third anniversaries of the transaction. The nine vendors of the business and the other 50 ASA staff, are remaining with RPS.

The extensive oceanographic capabilities that RPS now has globally places us in a strong position to serve oil and gas, LNG, ports and harbours and offshore renewable energy projects by helping clients predict oceanic and near-shore conditions in respect of wind, waves, tides and currents. By combining this expertise with our offshore engineering and environmental experience we offer a comprehensive consulting service in these specialist, high profile areas.

The Board's strategy remains to diversify the Group activities geographically and by activity. Further acquisitions are being pursued.

Organisation and Segmentation: the Board believes that our level of activity in Europe should benefit from greater integration of our existing businesses. We have, therefore, merged Planning and Development (UK and Ireland) and Environmental Management. As a result we will, in future, report the results of 2 primary segments:

  • Energy; and
  • Built and Natural Environment ("Environment")

There have been no changes in the composition or management of Energy, other than in respect of recent acquisitions announced above. This business will continue to advise and support the oil and gas and offshore renewables industries on a global basis.

"Environment" is the amalgamation of the former "Planning and Development" and "Environmental Management" segments. It will have two sub segments "Australia Asia Pacific", which was formerly the sub segment "Planning and Development (Australia)" and "Europe", which comprises the former sub-segment "Planning and Development (UK and Ireland)" and "Environmental Management". We are well advanced in the process of reorganising the activity streams in this business to make our marketing and management more effective.

The results of the Group will be presented in this new reporting structure starting with the 2011 full year results. In order to allow proper comparison with previous results the Group results for 2010 and the first half of 2011 are restated into these segments and sub segments in Note 2. It can be seen from this that in the first half of 2011 the two primary segments made a similar contribution: Energy made an underlying profit of £14.3 million and "Environment" £13.7 million.

Board Composition: as previously announced, Tracey Graham joined the Board as a non-executive director on 12 September and Peter Dowen retired on 30 September after 22 years service on the board. The board is fully compliant with all corporate governance code requirements. It has also met its own diversity objective of females comprising at least a quarter of board members. No further appointments are planned.

Brook Land, Chairman, commented:

"RPS remains in a strong position financially. Our strategy of investing in markets less affected by economic turbulence, whilst managing carefully in markets where client expenditure is subdued, continues to be successful. As a result the Group remains on course to meet market expectations this year and deliver further growth in 2012. The pace of that growth remains, in part, dependant on global economic circumstances. The acquisitions made this year have continued our international diversification. This is a trend we anticipate will continue, further strengthening our prospects."

3 November 2011

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, the United States, Canada, Brazil, the Middle East 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 FTSE 4 Good Indices.

 

ENQUIRIES
RPS Group plc Tel: 01235 863 206
Dr Alan Hearne, Chief Executive
Gary Young, Group 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 inevitable increases the risks to which the Group is exposed. Statements in respect of the Group's performance in 2011 in the year to date are based upon unaudited management accounts for the period January to September 2011. The Board considers market expectations for 2011 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 £49.1 to £53.7 million. Nothing in this announcement should be construed as a profit forecast.

Note 2: Starting with the 2011 Full Year Results the results of the Group will be presented in two primary segments, with one of those being divided into 2 sub-segments. The results for the year ended 31 December 2010 and the half year ended 30 June 2011 are shown below in those segments and sub-segments:

 

Segmental results as reported for the year ended 31 December 2010 as restated

£'000 Fees Recharged expenses Inter-segment revenue External revenue
Europe
Australia
Eliminations
172,873
76,032
(76)
26,836
12,096
-
(1,902)
(951)
76
197,807
87,177
-
Built and Natural Environment
Energy
Group eliminations
248,829
146,754
(2,321)
38,932
30,252
(616)
(2,777)
(160)
2,937
284,984
176,846
-
Total 393,262 68,568 - 461,830

 

£'000 Underlying Profit Reorganisation costs Amortisation of acquired intangibles Segment
result
Europe
Australia
20,156
12,826
86
(1,161)
(1,224)
(2,513)
19,018
9,152
Built and Natural Environment
Energy
32,982
25,263
(1,075)
(192)
(3,737)
(1,787)
28,170
23,284
Total 58,245 (1,267) (5,524) 51,454

 

Segment results for the year ended 31 December 2010 as previously reported

£'000 Fees Recharged expenses Inter-segment revenue External revenue
UK and Ireland
Australia
Eliminations
105,150
76,032
(6)
18,118
12,096
-
(1,985)
(951)
6
121,283
87,177
-
Planning and Development
Energy
Environmental Management
Group eliminations
181,176
146,754
68,521
(3,189)
30,214
30,252
8,807
(705)
(2,930)
(160)
(804)
3,894
208,460
176,846
76,524
-
Total 393,262 68,568 - 461,830

 

£'000 Underlying Profit Reorganisation costs Amortisation of acquired intangibles Segment
Results
UK and Ireland
Australia
10,442
12,826
384
(1,161)
(837)
(2,513)
9,989
9,152
Planning and Development
Energy
Environmental Management
23,268
25,263
9,714
(777)
(192)
(298)
(3,350)
(1,787)
(387)
19,141
23,284
9,029
Total 58,245 (1,267) (5,524) 51,454

 

Segmental results the 6 months ended 30 June 2011 as restated

£'000 Fees Recharged expenses Inter-segment revenue External revenue
Europe
Australia
Eliminations
86,319
42,165
(31)
12,049
8,890
0
(763)
(334)
31
97,605
50,721
0
Built and Natural Environment
Energy
Group eliminations
128,453
85,503
(1,101)
20,939
17,882
(158)
(1,066)
(193)
1,259
148,326
103,192
-
Total 212,855 38,663 0 251,518

 

£'000 Underlying Profit Reorganisation costs Amortisation of acquired intangibles Segment
Result
Europe
Australia
8,978
4,680
(986)
1,371
(612)
(1,388)
7,380
4,663
Built and Natural Environment
Energy
13,658
14,324
385
(488)
(2,000)
(2,844)
12,043
10,992
Total 27,982 (103) (4,844) 23,035

 

Segment results the 6 months ended 30th June 2011 as previously reported

£'000 Fees Recharged expenses Inter-segment revenue External revenue
UK and Ireland
Australia
Eliminations
45,335
42,165
(4)
7,846
8,890
0
(1,347)
(334)
4
51,834
50,721
0
Planning and Development
Energy
Environmental Management
Group eliminations
87,496
85,503
41,284
(1,428)
16,736
17,882
4,797
(752)
(1,677)
(193)
(310)
2,180
102,555
103,192
45,771
0
Total 212,855 38,663 0 251,518

 

£'000 Underlying Profit Reorganisation costs Amortisation of acquired intangibles Segment
Result
UK and Ireland
Australia
3,326
4,680
(853)
1,371
(418)
(1,388)
2,055
4,663
Planning and Development
Energy
Environmental Management
8,006
14,324
5,652
518
(488)
(133)
(1,806)
(2,844)
(194)
6,718
10,992
5,325
Total 27,982 (103) (4,844) 23,035