'Difficult markets in Australia and slow start in North America, but strong platform for growth; dividend rebased'
RPS, a leading multi-sector global professional services firm, today announces its Half Year Results for the six months ended 30 June 2019 ('H1 2019').
These Results are available in PDF format
01 August 2019
|H1 2019||H1 2018||H1 2018 at
|Fee income (1) (£m)||280.3||289.1||289.1|
|Adjusted earnings per share (1) (diluted) (p)||6.06||8.70||8.70|
|Dividend per share (p)||2.42||4.80||4.80|
|Statutory profit before tax (£m)||13.1||22.6||22.6|
|Statutory earnings per share (diluted) (p)||4.35||7.29||7.29|
Financial key points
- Fee income £280.3m (H1 2018: £289.1m); 3% decline at constant currency
- PBTA £18.2m (H1 2018: £27.4m); 34% reduction at constant currency
- Underlying operating profit return on fees 7.5% (H1 2018: 10.2%)
- EPS (adjusted, diluted) 6.06p (H1 2018: 8.70p)
- Statutory profit before tax £13.1m (H1 2018: £22.6m)
- Cash conversion 50% (H1 2018: 48%); last twelve months cash conversion 98% (June 2018: 85%)
- Net bank borrowings were £101.3m (30 June 2018: £90.5m, 31 December 2018: £73.9m) impacted by Corview acquisition
- Proposed Interim dividend of 2.42p per share (H1 2018: 4.80p), reflecting rebasing of dividend in new, sustainable dividend policy equal to 40% of adjusted earnings
- Norway and Energy segments showing good growth, performing well
- Results significantly impacted by difficult market conditions in Australia and a slow start in North America, now recovering
- Acquisition of Corview, an Australian based transport consultancy, for consideration of £17.3m
- Investment in our People starting to deliver improvement
- New global brand to position the Group for future growth
- Greater connectivity between RPS' businesses leading to cross-selling opportunities
- Refinanced our revolving credit facility
Commenting on the Interim Results, John Douglas, Chief Executive, said: "In our June trading update we anticipated this disappointing set of results, largely due to softness in the Australian market and a weak first quarter in North America. RPS has a strong presence in Australia and we are well placed to benefit as this market recovers. We anticipate a stronger performance from AAP, North America and the Group in total during H2 2019.
Despite a backdrop of volatile markets, we continue to make solid progress in achieving our strategic priorities. As part of a disciplined approach to capital allocation, the Board has decided to rebase the dividend. RPS continues to be a highly cash generative business, well placed with strong market positions in our segments and good underlying fundamentals. The steps taken will support RPS' growth in the medium to long term and improve shareholder returns in the future."
(1) Alternative Performance Measures are used consistently throughout this announcement: these include PBTA, fee income, items prefaced "adjusted" such as adjusted EPS, segment profit, underlying profit, underlying operating profit, rebrand costs, amounts labelled "at constant currency", EBITDAS, conversion of profit into cash, net bank borrowings, leverage. For further details of their purpose, definition and reconciliation to the equivalent statutory measures see note 2.
A meeting for analysts will be held at the office of Buchanan, 107 Cheapside, London, EC2V 6DN commencing at 9.30 a.m. Attendance is strictly limited. A video webcast of the meeting will be available from 12 noon via the following link: https://webcasting.buchanan.uk.com/broadcast/5d2eff5e48a6d52f84f6a4ac
|RPS Group plc|
|John Douglas, Chief Executive||Today: +44 (0) 20 7466 5000|
|Gary Young, Finance Director||Thereafter: +44 (0) 1235 863 206|
|Henry Harrison-Topham / Chris Lane / Tilly Abraham||Tel: +44 (0) 20 7466 5000|
Founded in 1970, RPS is a leading global professional services firm of 5,100 consultants and service providers. Having operated in 125 countries across six continents RPS defines, designs and manages projects that create shared value for a complex, urbanising and resource scarce world.
RPS delivers a broad range of services in six sectors: property, energy, transport, water, defence and government services and resources. Services provided across RPS' six sectors cover twelve service clusters: project and program management, design and development, water services, environment, advisory and management consulting, exploration and development, planning and approvals, health, safety and risk, oceans and coastal, laboratories, training and communication and creative services.
RPS stands out for its clients by using its deep expertise to solve problems that matter, making them easy to understand. Making complex easy.
RPS' London Stock Exchange ticker is RPS.L. For further information, please visit www.rpsgroup.com
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 many factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. Nothing in this announcement should be construed as a profit forecast.
PBTA was £18.2m, (H1 2018: £27.4m, £27.4m at constant currency), on fee income of £280.3m (H1 2018: £289.1m, £289.1m at constant currency). Profit before tax was £13.1m (H1 2018: £22.6m, £22.6m at constant currency). The effective tax rate for the period on PBTA is estimated to be 24.6% (H1 2018: 28.7%). Adjusted diluted EPS was 6.06p (H1 2018: 8.70p, 8.70p at constant currency). Statutory diluted earnings per share was 4.35p (H1 2018: 7.29p, 7.29p at constant currency). The impact of currency movements between H1 2019 and H1 2018 was negligible.
|£m||H1 2019||H1 2018||H1 2018
|Consulting - UK and Ireland||7.1||8.1||8.1|
|Services - UK and Netherlands||6.1||6.8||6.8|
|Total segment profit||25.9||33.5||33.5|
|Underlying operating profit||21.1||29.4||29.4|
Fees for the period were slightly lower by £8.8m and segment profit lower by £7.5m. Segment profit margin was 9.3% (H1 2018: 11.6%), largely resulting from the initial underutilisation of staff in AAP, an issue that has been subsequently addressed and a slow start in NA. The overall segment results include the effect of the investments made by the Group in people, brand and connectivity to drive future growth. Norway performed well and Energy grew its profitability after taking account of bad debt recoveries in the comparable period (adjusted profit H1 2019: £4.4m; H1 2018: £3.7m). Services was impacted by reduced activity due to the regulatory cycle effects on the GB water business. The results of Consulting have been affected by political uncertainty in UK. In North America we had a slow first quarter, but a much better second quarter. Our business in AAP suffered from subdued markets. Unallocated costs are lower this year as a result of reduced bonus and long-term incentive costs. The rebrand costs incurred are part of a programme that will be completed in H2 2019 and are one off costs.
Borrowings and cash flow
Net bank borrowings were £101.3m (30 June 2018: £90.5m; 31 Dec 2018: £73.9m). Net cash inflow from operating activities was £6.8m (H1 2018: £9.1m). Our conversion of profit into operating cash flow was 50% (H1 2018: 48%) whilst for the last twelve months was 98% (12 months ended June 18: 85%). This reflects our focus this year to increase the speed of conversion of work into invoices and collections from clients relative to last year. Net cash used in investing activities was £18.4m (H1 2018: £6.5m) including the acquisition of Corview at £8.6m (see note 9) and the purchase of property plant and equipment at £10.0m, including investment in ERP of £2.7m. The amount paid in respect of dividends was £11.4m (H1 2018: £11.4m).
Deferred consideration outstanding at 30 June 2019 was £7.8m (30 June 2018: £0.7m; 31 December 2018: £0.3m). Our leverage (being net bank debt plus deferred consideration expressed as a ratio of adjusted EBITDA) calculated in accordance with our bank's financial covenants was 2.0x at the period end (30 June 2018: 1.4x; 31 December 2018: 1.3x) and is projected to be somewhat lower at the year end.
Net finance costs were £2.9m (H1 2018: £2.0m), which includes £0.9m interest relating to leases, which are now accounted for under the new standard IFRS16.
Since the period end, the Group has successfully refinanced its revolving credit facility. We have arranged a committed £100.0m facility and an uncommitted £60.0m accordion facility. The facilities have a three year term with the possibility of extending by another two years, with NatWest joining Lloyds Bank and HSBC who provided the original facility.
The Board recognises that an appropriate dividend policy should be sustainable and progressive and reflect future strategy. Accordingly, we feel it is appropriate to rebase our policy and from now on will pay dividends equal, in total, to 40% of the adjusted earnings (being profit after tax before amortisation of intangibles and transaction related costs and tax thereon) for the financial year with an appropriate split between the interim and the final dividend. We are therefore intending to pay an interim dividend of 40% of earnings for the first half of the year and a final dividend of 40% of earnings for the second half of the year. This new dividend policy will apply for 2019 and the Board is confident it will be progressive and is in the interests of all shareholders to reset the existing level, in order to invest and deliver sustainable future returns. The proposed interim dividend is 2.42p (H1 2018: 4.80p) and will be paid on 11 October 2019 to shareholders on the register of members at the close of business on 13 September 2019.
Markets and trading
|H1 2019||H1 2018||H1 2018 at
|Fee income (£m)||50.5||48.6||49.3|
|Segment profit * (£m)||4.5||4.7||4.8|
* after reorganisation costs: 2019 £nil, 2018 £0.4m; including IFRS 16 adjustment 2019 £0.1m, 2018 £nil
The demand for our Exploration and Development, Oceans and Coastal and Training services grew although there remains pressure on rates, whilst demand for our Consulting services was subdued. Performance in H1 2019 benefitted from £0.1m of bad debt provision reversals (H1 2018: £1.0m). Our work advising clients on renewables is gaining momentum and we are confident it will provide a strong revenue stream in the future. The oil and gas industry is still recovering and although the recent weakness in the oil price has had some impact, management is confident that the segment will grow year on year.
Consulting - UK and Ireland
|H1 2019||H1 2018||H1 2018 at
|Fee income (£m)||63.4||61.0||60.8|
|Segment profit * (£m)||7.1||8.1||8.1|
* after reorganisation costs: 2019 £nil, 2018 £0.1m; including IFRS 16 adjustment 2019 £0.2m, 2018 £nil
Demand for our consulting services in the Republic of Ireland was strong, leading to good fee growth. In Northern Ireland, despite political uncertainty, high public sector investment is helping to create demand for our services also growing fees. In the rest of the United Kingdom, market conditions continue to be affected by political uncertainty which is impacting clients' investment decisions affecting our higher margin business units and led to a flat fee performance. We anticipate that once the Brexit uncertainty is resolved market demand may improve, which we would be well positioned to capitalise on. Our strong market position gives us confidence in the prospects for this business.
Services - UK and the Netherlands
|H1 2019||H1 2018||H1 2018 at
|Fee income (£m)||53.3||54.4||54.3|
|Segment profit * (£m)||6.1||6.8||6.8|
* after reorganisation costs: 2019 £nil, 2018 £0.1m; including IFRS 16 adjustment 2019 £0.1m, 2018 £nil
We are in the last year of the Ofwat AMP 6 cycle and this, as usual, is affecting the demand for our water services in England and Wales as the sector prepares for the new AMP cycle that will commence in April 2020. The Netherlands business is performing well and is benefitting from the organic investments we made last year. Our health and safety business in the UK under performed during the period. We have strong market presence in both the UK and the Netherlands and are confident that this segment is capable of good growth once the new AMP 7 cycle commences.
|H1 2019||H1 2018||H1 2018 at constant
|Fee income (£m)||36.2||35.0||34.2|
|Segment profit * (£m)||3.7||3.3||3.2|
* after reorganisation costs: 2019 £nil, 2018 £nil; including IFRS 16 adjustment 2019 £0.1m, 2018 £nil
Our range of project management services remain very attractive in a stable economy, supported by a strong sovereign wealth fund. The co-location of our teams in Oslo has been completed and we are benefitting from working as a fully integrated business. We have a high share of the Norwegian project management market and an excellent reputation. We are exploring the opportunity to develop our on-line training to other parts of RPS where we already offer project management services such as Australia and the UK. This is an exciting opportunity and we are confident that our project and program management businesses will grow and have a bright future.
|H1 2019||H1 2018||H1 2018 at
|Fee income (£m)||29.8||29.8||31.5|
|Segment profit * (£m)||2.0||3.4||3.7|
* after reorganisation costs: 2019 £0.1m, 2018 £nil; including IFRS 16 adjustment 2019 £0.1m, 2018 £nil
Client delays in the commencement of work in infrastructure, and a slower start to the environmental due diligence market, impacted North America's Q1 2019 results. Conditions got better during Q2 2019 and performance improved significantly. The US economy remains strong and performance in H2 2019 is expected to be at a good level, although results will be impacted by the departure of a small team from the environmental risk business.
|H1 2019||H1 2018||H1 2018 at
|Fee income (£m)||49.3||62.1||60.7|
|Segment profit * (£m)||2.6||7.1||7.0|
* after reorganisation costs: 2019 £0.5m, 2018 £0.1m; including IFRS 16 adjustment 2019 £0.1m, 2018 £nil
Public sector work accounts for the majority of our work in Australia, where infrastructure spend has been affected by recent state elections in Victoria and in NSW. The recent Federal election also resulted in a slower than normal release of major defence projects which affected our project management business However, following a lull due to these elections, we expect public expenditure to increase in H2 2019 and encouragingly we have secured two major defence contracts since the period end. The integration of Corview, which largely services public sector infrastructure markets, is progressing well. Our private sector work in AAP is focused on a property sector which is currently subdued. However, the Federal election result has produced more property sector friendly policies and a recent interest rate cut will also be helpful. We expect performance in H2 2019 to improve, due, in part, to capacity reductions we have made to match capacity to markets while retaining capability. Looking further ahead we are confident that our strong presence will benefit us as the Australian market recovers.
RPS is transitioning from a conglomerate of small consulting and service businesses to becoming a leading mid-sized global firm that uses its combined expertise to deliver professional services around the world. We have made significant progress in respect of each of our strategic priorities:
- People: We have a complete and settled Board and management team with all senior position filled. Our HR function has been updated and the necessary process improvements to support a modern workforce are in place. We are starting to see signs that this investment will lead to lower staff turnover
- Brand: Our new brand has been built, is being delivered and will be completed by the end of this year. A new website, designed to attract new talent and retain existing clients and staff, has sent a strong signal externally of RPS' transformation and is attracting more traffic
- Connectivity: Fostering greater connectivity within and between segments and across the Group is progressing, enabling the transfer of ideas within the Group helping to win more work. The substantial investment that we are making in our new ERP system will provide a platform that will allow greater connectivity and collaboration in the future. We are also mindful of the impact of technology in the markets we operate in and we will continue to respond as appropriate
- Energy: We have successfully revitalised the Energy business after the oil market collapse in 2014 and 2015 and performance of this business, which is the largest independent global consultancy in this sector, is steadily improving. Whilst much of our business is in oil and gas we are growing our services in renewables
- Organic growth and selective acquisition: We generated organic fee growth in Norway, Energy, in our Consulting business in Ireland and in our Services business in Netherlands whilst our Consulting business in the UK was steady. Services in UK reduced due to the temporary effect of the Ofwat AMP 6 cycle. In North America fees declined due to a slow start to the year and in AAP due to difficult markets. We are committed to very selective acquisitions that add density, not greater diversity, that are value accretive and congruent with our brand. We are particularly keen on acquiring businesses that involve data provision and expertise. The acquisition of Corview is a good example of the successful achievement of this priority.
The H1 2019 results are very disappointing largely due to softness in the Australia market. However, RPS has a strong presence in this market and we are well placed to benefit as it recovers, which is expected in H2 2019.
We have strong competitive positions in Energy, Consulting - UK and Ireland, Services - UK and the Netherlands, Norway and AAP and we have substance in North America. The outlook for each of our business segments, is positive. The Board anticipates a stronger overall Group performance during H2 2019 with operating profit margin expansion, improved operating cash flow and lower debt.
Despite a backdrop of tougher markets, we continue to make solid progress in achieving our strategic priorities. As part of a disciplined approach to capital allocation, the Board has decided to rebase the dividend. RPS continues to be a highly cash generative business, well placed with strong market positions in our segments and good underlying fundamentals. The steps taken will support RPS' growth in the medium to longer term and improve shareholders returns in the future.
Board of Directors
RPS Group plc
1 August 2019
|Operating profit before amortisation and impairment of acquired intangibles and transaction related costs||5||21,089||29,410||54,041|
|Amortisation and impairment of acquired intangibles and transaction related costs||6||(5,039)||(4,809)||(9,181)|
|Profit before tax, amortisation and impairment of acquired intangibles and transaction related costs||18,151||27,394||50,162|
|Profit before tax||13,112||22,585||40,981|
|Profit for the period attributable to equity
holders of the parent
|Basic earnings per share (pence)||8||4.39||7.35||13.34|
|Diluted earnings per share (pence)||8||4.35||7.29||13.23|
|Adjusted basic earnings per share (pence)||8||6.12||8.77||16.47|
|Adjusted diluted earnings per share (pence)||8||6.06||8.70||16.34|
|Profit for the period||9,820||16,373||29,741|
|Tax on share schemes||(13)||-||-|
|Re-measurement of net defined benefit liability||-||-||677|
|Tax on re-measurement of defined benefit liability||-||-||(149)|
|Total recognised comprehensive income for the period attributable to equity holders of the parent||10,542||14,129||28,095|
*may be reclassified subsequently to profit or loss in accordance with IFRS.
|Property, plant and equipment||11||38,422||29,475||32,005|
|Right of use assets||41,740||-||-|
|Deferred tax asset||3,450||3,766||3,795|
|Trade and other receivables||12||173,776||183,368||166,418|
|Cash and cash equivalents||20,307||20,430||17,986|
|Trade and other payables||13||109,640||120,927||117,914|
|Net current assets||68,084||73,611||58,089|
|Total shareholders' equity||376,735||373,095||377,572|
|Net cash from operating activities||17||6,805||9,086||44,488|
|Cash flows from investing activities:|
|Purchases of subsidiaries net of cash acquired||(8,592)||(165)||(165)|
|Purchase of property, plant and equipment||(9,975)||(5,197)||(11,872)|
|Proceeds from sale of property, plant and equipment||177||82||222|
|Net cash used in investing activities||(18,441)||(6,458)||(13,426)|
|Cash flows from financing activities:|
|Cost of issue of share capital||-||(9)||(9)|
|Proceeds from/(repayment of) bank borrowings||32,937||11,710||(8,891)|
|Payment of lease liabilities||(3,965)||-||-|
|Net cash used in financing activities||17,566||343||(31,015)|
|Net increase in cash and cash equivalents:||5,930||2,971||47|
|Cash and cash equivalents at beginning of period||15,405||15,376||15,376|
|Effect of exchange rate fluctuations||(1,028)||(1)||(18)|
|Cash and cash equivalents at end of period||20,307||18,346||15,405|
|Cash and cash equivalents comprise:|
|Cash at bank||20,307||20,430||17,986|
|Cash and cash equivalents at end of period||20,307||18,346||15,405|
|At 31 December 2018||6,783||120,400||213,656||21,256||(9,801)||25,278||377,572|
|Effect of changes in accounting standards||-||-||(1,240)||-||-||(52)||(1,292)|
|At 1 January 2019||6,783||120,400||212,416||21,256||(9,801)||25,226||376,280|
|Profit for the period||-||-||9,820||-||-||-||9,820|
|Other comprehensive income||-||-||(13)||-||-||735||722|
|Total comprehensive income for the period||-||-||9,807||-||-||735||10,542|
|Issue of new ordinary shares||13||633||(520)||-||(126)||-||-|
|Share based payment expense||-||-||1,319||-||-||-||1,319|
|Transfer on release of shares||-||-||(435)||-||435||-||-|
|At 30 June 2019||6,796||121,033||211,181||21,256||(9,492)||25,961||376,735|
|At 31 December 2017||6,745||117,790||205,143||21,256||(8,602)||27,452||369,784|
|Effect of changes in accounting standards||-||-||(521)||-||-||-||(521)|
|At 1 January 2018||6,745||117,790||204,622||21,256||(8,602)||27,452||369,263|
|Profit for the period||-||-||16,373||-||-||-||16,373|
|Other comprehensive income||-||-||-||-||-||(2,244)||(2,244)|
|Total comprehensive income for the period||-||-||16,373||-||-||(2,244)||14,129|
|Issue of new ordinary shares||18||1,407||(944)||-||(490)||-||(9)|
|Share based payment expense||-||-||1,070||-||-||-||1,070|
|At 30 June 2018||6,763||119,197||209,763||21,256||(9,092)||25,208||373,095|
Notes to the condensed consolidated financial statements
The notes are available in the printable pdf of the results. To download it, please click here.