Strong growth and a positive outlook
RPS, a leading multi-sector global professional services firm, today announces its interim results for the six months ended 30 June 2022 ('H1 2022').
Adjusted operating profit (£m)
Adjusted profit before tax(£m)
Adjusted earnings per share (diluted) (p)
Conversion of profit into cash (1)
Net bank borrowings (£m) (1)
Statutory profit before tax (£m)
Statutory earnings per share (diluted) (p)
A resilient business delivering growth
A business with proven ESG credentials
The good momentum achieved in 2021 has continued into H1 2022 and RPS is a stronger more resilient business, and the outlook remains positive.
With a strong cash position and significant available debt facilities, RPS is well placed to capitalise on the growth opportunities that are clearly available.
The Group's contracted order book at 30 June 2022 was up 15% on June 2021 and up 8% on December 2021. It continues to be supported by the very positive market trends in urbanisation, natural resources, and sustainability and there remain significant growth opportunities in our areas of focus - including offshore wind, project management, flooding and pollution management, transport infrastructure and sustainability.
Following the strong performance in H1 2022 and the growing COB, whilst we are mindful of inflationary pressures and the wider macroeconomics, we expect this momentum to continue in the second half and trading in the first few weeks of H2 2022 remains strong.
Having delivered 13% organic Fee Revenue growth in H1 2022 and increased operating margins to 7%, we remain focused on building a business that can deliver mid-single digit rates of organic revenue growth through the cycle and a double-digit operating margin in the medium term and are confident in our ability to do so.
Commenting on the interim results, John Douglas, Chief Executive of RPS, said:
"We came into FY22 with strong momentum, and this has continued in the first half leading to a financial performance that was ahead of our previous expectations.
"Our continued focus on our core growth markets of natural resources, urbanisation, and sustainability positions us well, with the renewed focus on energy security providing us with significant opportunities. We have built a high quality, profitable and resilient business that solves complex problems for our clients meaning that we continue to see strong demand for our services.
"Our leverage remains below our target range giving us the ability to take advantage of further growth opportunities and deliver value for our shareholders.
"There are several key market drivers in our favour and the hard work we have done means we are well positioned to take advantage of these. I would like to thank all our employees for their excellent work during the first half and look forward to the rest of the year and beyond with great confidence."
(1) Alternative Performance Measures are used consistently throughout this announcement: these include adjusted profit before tax, fee revenue, items prefaced 'adjusted' such as adjusted EPS, segment profit, adjusted operating profit, amounts labelled 'at constant currency', EBITDAS, conversion of profit into cash, net bank borrowings, leverage and contracted order book. For further details of their purpose, definition and reconciliation to the equivalent statutory measures see note 2.
An analyst presentation will be held via live video webcast at 9.30am (UK time) today. To participate please contact Buchanan via [email protected] to request joining details. A recording of the presentation will be available later today at the RPS website, www.rpsgroup.com.
Founded in 1970 and built on a legacy of environmental and social engagement, RPS is a diversified global professional services firm of circa 5,000 consultants, designers, planners, engineers, and technical specialists.
As an established technology enabled consultancy, RPS provides specialist services to government and private sector clients.
RPS creates shared value for all stakeholders. Focusing on Natural Resources, Urbanisation, and Sustainability, RPS concentrates its expertise on the parts of project lifecycles that have the biggest impact on project outcomes. Solving problems that matter in a complex, urbanising, resource-scarce world.
Listed on the Main Market of the London Stock Exchange (LSE: RPS.L), RPS is classified within the Professional Business Support Services subsector.
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.
The above announcement contains inside information for the purpose of Article 7 of the Market Abuse Regulation. The person responsible for arranging the release of this announcement on behalf of RPS is Judith Cottrell, Group Finance Director.
The Group's performance in H1 2022 was very encouraging and ahead of the Board's expectations. Demand for the services we offer remains strong driven by the underlying trends in urbanisation, natural resources and sustainability. Overall, Fee Revenue growth was 13% at constant currency. Fee Revenue continued to improve quarter on quarter and at Group level returned to the 2019 levels in Q2 2022.
The Group has continued to improve efficiency and has been successful in ensuring pricing keeps pace with inflation. With growing revenues and strong management of costs our adjusted operating profit margin improved by 120bps to 6.9%.
Adjusted Profit Before Tax (Adjusted PBT) for the six months to 30 June 2022 increased by 58% to £16.1 million (H1 2021: £9.8 million, £10.2 million at constant currency), on Fee Revenue 13% higher at £267.4 million (H1 2021: £233.5 million, £235.9 million at constant currency). The Group generated a statutory PBT of £11.1 million (H1 2021: £7.1 million, £7.5 million at constant currency), after exceptional items of £3.4 million (H1 2021: £0.6 million).
The effective tax rate for the period on Adjusted PBT has returned to pre COVID-19 levels and is estimated to be 28.0% (H1 2021: 28.6%).
Adjusted diluted earnings per share (EPS) rose 57% to 4.17p (H1 2021: 2.54p, 2.65p at constant currency). Statutory diluted earnings per share was 2.73p (H1 2021: 1.78p, 1.89p at constant currency).
Movements in foreign currency exchange rates have positively impacted the performance in H1 2022. Fee Revenue in H1 2022 would have been £1.4 million lower and Adjusted PBT would have been £0.2 million lower had 2021 exchange rates been repeated in 2022. The impact of retranslating H1 2021 results at H1 2022 rates was an increase of £2.4 million on Fee Revenue and an increase of £0.4 million on Adjusted PBT.
Contracted order book up 15% on 2021, well positioned for continued growth
Strong market drivers and increased demand for our services resulted in the total contracted order book (COB) being up 15% on June 2021 at constant currency, with good growth in five out of six segments. The exception being Services UK & Netherlands which saw a COB reduction in the Water Asset Survey & Inspection business where the business operates through long-term contracts and hence COB increases when new contracts are awarded and reduces as these contracts are worked. Elsewhere in the segment COB is growing.
COB growth, coupled with an 8% increase in FTEs compared to June 2021, ensures we are well positioned to deliver further Fee Revenue growth
Strong growth in Fee Revenue, up 13% on H1 2021
Fee Revenue of £267.4 million was up 13% (at constant currency) on H1 2021. With strong demand for our services and growing order books, Fee Revenue continued to grow quarter on quarter with Fee Revenue now back at 2019 levels in all segments except Services UK & Netherlands and North America. In these segments we exited less profitable projects during 2020 and 2021 hence reducing the overall level of Fee Revenue but improving the profitability of the business.
Urbanisation trends continue to drive strong demand for our services in Consulting UK & Ireland, Norway, North America and Australia Asia Pacific. Government spending on national security, urbanisation and transport infrastructure projects, alongside increased private sector confidence, and a buoyant property market in the UK and Australia has delivered strong Fee Revenue growth in Consulting UK & Ireland, Norway and Australia Asia Pacific.
Demand for natural resources is supporting growth in our Energy and Services UK & Netherlands segments, and within Ocean Science in North America. In Energy, Fee Revenue from renewables grew by 32% and increased focus on energy security resulted in good growth in Fee Revenue from conventional energy, with further upside to come. The UK AMP cycle has continued to ramp up and underpinned Fee Revenue growth in the Services UK business. Whilst demand remains strong for our service offerings in Netherlands, increased COVID-19 restrictions in early 2022 continued to impact our property and laboratory businesses.
Strong market drivers of sustainability and ESG are underpinning activity in our North American Environmental Risk business, Australia Asia Pacific and Consulting UK & Ireland.
Adjusted Operating Profit up 37% on 2021, margin improving
At constant currency, Segment profit increased by 21% to £23.5 million (H1 2021: £19.1 million, £19.5 million constant currency) and segment profit margin improved from 8.2% in 2021 to 8.8%.
Unallocated costs were lower in H1 2022 due to phasing of IT costs.
Higher Fee Revenue, pricing keeping pace with inflation increases, improving gross margins and leveraging of fixed overheads are all contributing to improving margins across all segments except Norway and Energy. In Norway, whilst we are leveraging overheads, operating margins are flat due to an increase in Fee Revenue from associates, where our gross margins are lower. In Energy, an increase in Fee Revenue from associates and increased investment in offshore wind has driven a small reduction in operating margin which will reverse as growth in Fee Revenue continues.
Fee Revenue was up 21% (at constant currency) on H1 2021. As our clients and the market transition to sustainable energy and a low carbon environment this is creating significant opportunities for the business. Fee Revenue from renewables, at £8.3 million, grew by 32% compared to the same period in 2021, including some notable strategic wins with new and existing energy clients including major projects in the recent ScotWind leasing round. The increased focus on energy security has led to good growth in Fee Revenue from conventional energy. Energy security will continue to be an incredibly important issue, presenting further opportunities for the Group.
Segment profit margin has reduced in the period compared to H1 2021 due to increased investment in growing offshore wind.
Our total COB is up 41% on June 2021, and the pipeline is growing for both renewables and conventional energy.
Consulting - UK & Ireland
Fee Revenue was up 12% (at constant currency) on H1 2021, with good growth across all parts of the business. Strong public sector demand for transport infrastructure projects and continued positive sentiment in the private sector, especially in relation to property, are driving demand for all our services.
Improving gross profit margins as pricing keeps pace with inflationary cost pressures and further right sizing in our consultancy pyramid has increased the segment profit margin to 8.4% (H1 2021: 7.9%).
Total COB has grown significantly, up 27% on June 2021. The attraction and retention of talent is key to ongoing growth, and a talent attraction and retention strategy that focuses on sustainability, career development and showcases our high-profile projects is delivering results.
Services - UK & Netherlands
Fee Revenue growth of 4% at constant currency was principally driven by increased activity in our UK Health & Laboratories business as we secured contracts with new clients and by the UK Water Technical business as the AMP7 cycle continued to ramp up. Conditions in the Netherlands were more challenging as a result of lockdown restrictions and this impacted Fee Revenue in Q1 2022. However, performance did improve in Q2 2022 as these restrictions eased.
Increased Fee Revenue and good cost control saw the segment profit margin increasing to 7.9% (H1 2021: 6.8%).
The segment maintains a strong COB with good growth in Netherlands, Health & Laboratories, and Water Technical, despite the total COB being down 16% on June 2021 due to Water Asset Survey & Inspection where work is won under five-year framework agreements. The business is currently working these frameworks and hence the order book is reducing as expected.
Fee Revenue growth was 20% (at constant currency). The business has retained its leading market position within Project and Program Management in Norway and is increasing market share in the private sector whilst growing in the public sector in line with the market. As activity continues to normalise post COVID-19 the business has experienced a slow recovery in the training and project management software parts of the business, but this is more than offset by very strong growth in management consultancy and project management for construction and digital projects.
Segment profit margin was marginally lower as a result of an increased proportion of associates where gross margins are lower.
Total COB has grown by 55% as activity and investment levels remain strong in the public sector, where there is growth within digitalisation and large capital projects investments, and as private sector activity increases. We are well-placed to capitalise on new opportunities arising in emerging markets such as renewables and green technology.
Fee Revenue was down 4% (at constant currency) on H1 2021. However, there has been an improving fee trajectory during H1 2022, with Q2 2022 Fee Revenue up on Q2 2021 and Q1 2022. There remains strong demand for our services and our Ocean Science business achieved growth in Fee Revenue as activity in offshore wind and conventional energy increased. The Infrastructure business continues to be challenged by a slow start in Q1 to activation of transport infrastructure projects, but projects did start to be activated in Q2 2022. Whilst there remain strong drivers for ESG and sustainability, our Environmental Risk business was impacted by wider macroeconomic factors leading to reduced activity in mid-market private equity transactions.
Profit margins have improved, driven by improving gross profit margins as price increases keep pace with inflation and costs are controlled.
Total COB is up 4% on June 2021 and is expected to strengthen further in H2 2022.
Strong government spending in defence and transport infrastructure, and an active residential property market have enabled 20% growth in Fee Revenue at constant currency. We are also seeing the renewable growth initiative starting to yield benefits in Australia and across Southeast Asia.
Improving gross profit margins as pricing keeps pace with inflationary cost pressures and further right sizing in our consultancy pyramid has increased the segment profit margin to 12.0% (H1 2021: 10.5%).
Total COB is up 15% on June 2021 and the business is well positioned to continue to win new Federal and state government infrastructure work as well as supporting the infrastructure projects that will be driven by Queensland hosting the 2032 Olympics.
Exceptional items of £3.4 million have been recognised in the period (H1 2021: £0.6 million), an increase on H1 2021 due to increased legal fees but a reduction on H2 2021. The exceptional items are detailed in note 5 and include:
As at 30 June 2022, net bank borrowings were £34.4 million (30 June 2021: £27.8 million; 31December 2021: £13.5 million), with the increase reflecting investment in growth and the usual H1 cyclical trends where cash outflows are higher in H1 due to payment of bonuses, the final dividend, and annual supplier arrangements.
Cash from operations of £5.4 million (H1 2021: £2.3 million) gives a conversion of profit into operating cash flow of 23% (H1 2021: 10%) reflecting increased working capital due to fee growth, usual H1 cyclical trends and spend on exceptional items. Lock up days of 58 days at 30 June 2022 were excellent and below the industry average of 60 to 65 days (30 June 2021: 60 days, December 2021: 49 days). Over the last twelve months cash conversion remained strong at 77% (June 2021: 90%).
With strong cash management and lower rates on long term borrowings net finance costs were £2.4 million (H1 2021: £3.3 million), which includes £0.5 million (H1 2021: £0.9 million) of interest relating to IFRS 16 leases. Tax payments increased to £6.3 million (H1 2021: £2.1 million) on the back of improved profitability in 2021 and 2022. Net cash outflow from operating activities for the six months to June 2022 was £3.2 million (H1 2021: £2.9 million).
Net cash used in investing activities was £10.9 million (H1 2021: £6.6 million) including deferred consideration of £2.3 million in respect of the Corview acquisition (H1 2021: £2.5 million). The net purchase of property, plant, equipment, and intangible assets was £8.6 million (H1 2021: £4.1 million) as we invest in growing our Fee Revenue. This includes investment in ERP of £1.0 million (H1 2021: £0.1 million). The amount paid in respect of dividends was £1.2 million (H1 2021: £nil).
Deferred consideration outstanding at 30 June 2022 was £0.4 million (30 June 2021: £3.2 million; 31December 2021: £2.6 million).
Our leverage (as defined in note 2) calculated in accordance with our bank's financial covenants was 0.9x at the period end (30 June 2021: 1.0x; 31 December 2021: 0.6x). The bank covenant limit that applies to all our facilities is 3.0x.
In light of the opportunities to invest in organic and inorganic growth and the wider macroeconomic position, the Board is proposing an interim dividend of 0.45p per ordinary share (H1 2021: 0.26p per ordinary share). This is in line with the dividend policy announced at the November 2021 Capital Markets Day. It will be paid on 11 October 2022 to shareholders on the register of members at the close of business on 16 September 2022.
Board of Directors RPS Group plc 9 August 2022
Condensed consolidated statement of comprehensive income
Condensed consolidated cash flow statement
Condensed consolidated statement of changes in equity
Notes to the condensed consolidated financial statements
The notes are available in the printable pdf of the results. To download it, please click here.
RPS Group plc published this content on 09 August 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 09 August 2022 09:35:02 UTC.