Q2-2020 Trading Update
21 July 2020
‘Diversified and resilient global offering will enable a return to sustainable growth in FY-2021’
RPS, a leading multi-sector global professional services firm, provides the following trading update for the three months ended 30 June 2020 (‘Q2-2020’), ahead of the announcement of the Group’s half year results for the six months ended 30 June 2020 (‘H1-2020’) which, as previously announced, is scheduled to be issued by early September 2020.
Q2-2020 Trading Update
Fee Revenue in Q2-2020 was £107.0 million (Q2-2019: £131.7 million; £130.6 million at constant currency). RPS generated over 55% of Fee Revenue from government or quasi-government organisations, which is providing some resilience to the impact of COVID-19. The lower Fee Revenue of 18% (at constant currency) in Q2-2020, compared to the same quarter in 2019, is in line with management’s COVID-19 impact modelling undertaken in March 2020.
Commentary on RPS’ business segments during Q2-2020 is as follows:
- Energy – against a COVID-19-driven backdrop of reduced demand for fossil fuels and the consequent impact on the oil price, we continued to increase our exposure to renewables, thereby reducing the segment’s dependence on oil. The focus on renewables and offshore wind has been supported in-house with existing expertise, where the skills are easily transferrable. Our Energy operations and training businesses have been significantly affected by COVID-19 due to the global travel restrictions. However, our flexible associate-based employee model has enabled us to reduce costs as fee revenue has reduced. In addition, we have restructured our technical advisory business in Q2-2020, which will provide the segment with increased flexibility and resilience to offset revenue fluctuations from H2-2020 onwards
- Consulting UK & Ireland – strong performances in Ireland and Northern Ireland, both of which are benefitting from their high public sector exposure. The greater exposure to private sector work and the property sector, which have been significantly affected by COVID-19, has impacted performance in the remainder of the business. RPS is developing innovative services to operate during the pandemic, and to help our clients emerge – this will put us in a stronger position for any ‘new normal’
- Services UK & Netherlands – key worker status was applied to several of our contracts in the UK Water business, minimising the impact of COVID-19. In addition, RPS is well positioned to win work as the new AMP cycle progresses in H2-2020. Health and Laboratories and Netherlands have experienced some short-term impact of COVID-19, caused by the impact of lock-down and travel restrictions on our markets and specific client contracts. We expect these markets to return in H2-2020 as restrictions are eased
- Norway – notwithstanding the pressure on the economy due to COVID-19 and its exposure to oil, Norway delivered a solid performance in Q2-2020. Whilst revenue from private sector clients declined, it was partially offset by an increasing exposure to the public sector, with good and growing investment levels. The segment is well placed to benefit from a future recovery due to its strong public sector exposure as well as its leading market position within Project and Program Management
- North America – although we had seen improved trading in Q1-2020, Q2-2020 was affected by the pandemic with trading being mixed. The government exposed infrastructure and oceans and coastal businesses performed well in Q2-2020. In the environmental risk business, subdued private equity activity impacted overall Fee Revenue
- Australia Asia Pacific (AAP) – the significant exposure to the public sector (80%), as well as the early implementation of several cost measures, has enabled the segment to deliver solid growth on the prior year. Defence and transport infrastructure were strong, and the Group is well placed to benefit from the ongoing increase in government spending in both sectors. Although the COVID-19 pandemic has affected the Australian residential property sector, we expect this market to start to recover in H2-2020 as a result of government stimulus
The Group’s performance in H2-2020 will be somewhat protected by our exposure to government and quasi-government work and in addition we are starting to see potential opportunities as markets begin to emerge from COVID-19. As stated on 16 June 2020, RPS will not be providing guidance for FY-2020 until the duration and extent of the impact of the COVID-19 pandemic on the Group and its markets becomes clearer.
As stated in previous trading updates, RPS has taken prudent and proactive steps to reduce costs and contain cash outflows while still matching capacity to market activity and retaining our operating capability. This has resulted in some COVID-19 related restructuring of the business and impairment of goodwill and other assets, after taking into account a more cautious view due to the market uncertainty. These will be reflected as exceptional items in the H1-2020 results. H1-2020 exceptional items total circa £35.0 million, of which circa £31.0 million are non-cash.
Net bank borrowings at 30 June 2020 were £57.8 million (30 June 2019: £101.3 million; 31 March 2020: £102.8 million). This represents financial leverage of 1.7x Net Debt/EBITDA. The reduction in net bank borrowings in Q2-2020 was due to unwinding working capital, the impact of COVID-19 government support mechanisms (including tax deferrals) and tight cost control measures.
The further £60.0 million of Revolving Credit Facility (‘RCF’), available for 12 months and announced on 27 April 2020, was secured as an insurance policy, should RPS require further financial flexibility. To date, RPS has not had to draw down these funds due to the proactive management actions that the Group has taken. The headroom in respect of committed bank facilities at 30 June 2020 was £142.3 million, which is in addition to cash available at 30 June 2020 of £16.7 million. Lock up day performance has continued to be strong.
John Douglas, Chief Executive of RPS, commented:
“We continue to effectively manage the business through this period of market uncertainty created by the COVID-19 pandemic. The actions we have taken to date have had a positive effect on our trading performance and I would like to thank our employees for their continued commitment and contribution during this time. Our exposure to government and quasi-government work, which will be a tailwind as governments invest in large scale infrastructure projects to kick start economies, helps to limit further downside risk, and positions us well for the future.
The Board’s belief is that the disruption to markets caused by the COVID-19 pandemic will last for longer, with a slower than expected recovery in H2-2020. This means 2020 will no longer be the year that RPS returns to solid organic growth, as we had previously anticipated. 2020 is instead a period where we are demonstrating the resilience of our business and our ability to manage uncertainty, and we will come through it ready to take advantage of the opportunities that will present themselves. Our ongoing focus on our people, clients and connectivity remains central to our strategy and the Group has also benefitted from some of the investments that we have made. The diverse nature of our business, coupled with our global reach, puts us in a strong position to prosper as and when market conditions improve, as we have already started to see in AAP, and as such the Board remains confident about our longer term prospects.”
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.
The above announcement contains inside information for the purpose of Article 7 of the Market Abuse Regulation.
For further information:
|RPS Group plc|
|David Gormley, Company Secretary||Tel: +44 (0) 1235 863 206
|Henry Harrison-Topham / Chris Lane /Tilly Abraham||Tel: +44 (0) 20 7466 5000|
Notes to Editors
Founded in 1970, RPS is a leading global professional services firm of 5,000 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 programme 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 communications, creative & digital 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.