Interim Results

15th Sep 2005 07:01

RPS Group PLC15 September 2005 RPS GROUP PLCInterim Results for the six months ended 30 June 2005 RPS Group Plc ("RPS" or "the Group") today announces record results for the sixmonths ended 30 June 2005 with profit before tax up 23% and earnings per shareup 13%. These are the first RPS results to be published under IFRS. 2005 2004 £m £mRevenue (net) 82.3 61.0 +35%Operating profit 11.4 8.6 +32%Profit before taxation 10.2 8.3 +23%Earnings per share (basic) 3.83 3.40 +13% Highlights Financial • revenue, profit before tax and earnings per share all increased significantly; • operating cash flow £9.6 million: (2004 £2.2 million); • operating margins (before share scheme costs) maintained at a high level: 15.0% (2004: 14.5%); • Net debt at £18.6 million. Operational • all Energy markets (oil, gas, renewables and nuclear) remain strong; • acquisition of ECL Group Limited (announced today) an important step in the development of our energy business; • Planning and Development markets in the UK and Ireland also strong; MRP and KMM integrated well; • Environmental Monitoring and Management in UK had an encouraging first half, with good organic growth in both Water Services and Health & Safety with the latter also benefiting from the acquisition of BHC made in July 2005; in the Netherlands business has been stabilised and the integration of BCC is progressing well. Brook Land, Chairman, commenting on the results, said: "The first half of 2005 has been encouraging. Acquisitions made in 2004 havebeen successfully integrated within the Group. The return to the market of ourwater industry clients in the UK has enabled us to grow this part of ourbusiness. Our planning businesses in the UK and Ireland continue to make goodprogress. The energy business has particularly strong prospects, which havebeen enhanced following the acquisition of ECL. We look forward to continuing our unbroken record of growth which stretches backto 1991." 15 September 2005 RPS is an international consultancy providing advice upon the development ofnatural resources, land and property, the management of the environment and thehealth and safety of people. We trade in the UK, Ireland, the Netherlands, USAand Australia and undertake projects in many other parts of the world. ENQUIRIES RPS Group plc Today: 020 7457 2020Dr Alan Hearne, Chief Executive Thereafter: 01235 863206Gary Young, Finance Director College HillJustine Warren Tel: 020 7457 2020Matthew Smallwood CHAIRMAN'S STATEMENT Introduction RPS is an international consultancy providing advice upon the development ofnatural resources, land and property, the management of the environment and thehealth and safety of people and has been listed on the London Stock Exchangesince April 1995. In the 10 years since we became a fully listed company the scale of the Groupand its profits have increased 20 fold. RPS is one of only 14 listed companiesto increase its profits in each of the last 10 years. Our growth reflects boththe increasing importance of the issues with which we deal and the successfulimplementation of a strategy which has delivered growth both organically and byacquisition. The Board believes the Group's strategy remains robust and willcontinue to deliver growth and good returns for our shareholders. Results These are the first results published under IFRS. The previously publishedresults for 2004, prepared under UK GAAP, have been restated and all comparativefigures are in accordance with IFRS. The adjustments to the results for 2004are shown in note 9; the full year adjustments for 2004 have been audited.Profit before tax under IFRS was £10.2 million (2004: £8.3 million). Basicearnings per share were 3.83 pence (2004: 3.40 pence). Operating cash flow was£9.6 million (2004: £2.2 million). The Group had net bank debt of £18.6 millionat 30 June (30 June 2004: £3.7 million). Dividend The Board has increased the interim dividend 14% to 1.15 pence (2004: 1.01pence). This will be paid on 26 October 2005 to shareholders on the register on30 September 2005. Operations and Markets Energy We are significant participants in the international oil and gas, UK wind energyand UK nuclear power consultancy markets. All three of these are currentlyactive, driven both by the particular issues confronting those managing theseresources and also by the global issues of climate change and the security ofenergy supplies. The high oil price has stimulated significant extra activityin exploration and production as well as attracting the interest of the capitalmarkets. As a result we have significant opportunities to grow our oil and gasbusiness. The scale of the opportunity available suggests this area of businesscould become an important engine of growth for the Group in the next few years. We are uniquely qualified to deal with both on and offshore wind energy schemesand have been involved in a number in recent months, including the London Arraywhich is the first of the Round 2 UK offshore wind farm projects to apply forconsent and will be the largest wind farm in the world. As anticipated thecreation of the Nuclear Decommissioning Authority (NDA) in April this year ishaving the effect of clarifying the operation of the decommissioning anddecontamination of nuclear sites. We are beginning to benefit from this andwill undoubtedly see further activity as the NDA moves its programme forward. Planning and Development We are leaders in this consultancy market in both the UK and Ireland, operatingfor blue chip clients in both the public and private sectors. The acquisition,in October 2004, of Kirk McClure Morton in Northern Ireland has proved to beboth timely and successful. Its skills in water engineering and portdevelopment have been particularly useful additions to the Group's portfolio ofservices in Ireland. The Irish Government continues to pursue ambitious plansfor infrastructure development and we benefit from this in both a traditionalconsultancy role and also as promoting authorities increasingly use us incommercial partnership arrangements. Our work in the waste management sectorcontinues to grow. We are also closely involved in the search for new watersupplies for Dublin with a study of the prospects of river abstraction anddesalination and are leading consultants on a number of schemes to replace andextend gas and water distribution mains. Our work on highways projectscontinues at an encouraging level. In the UK all parts of these markets remain active with the limited exception ofretail development. Our profile with leading UK house builders continues togenerate significant revenue. We are working with Persimmon on the Cape HillBrewery site, the largest brownfield site in the Government's "PathfinderInitiative". We also continue to work on some of London's largest regenerationprojects at Southall, Wembley, Kings Cross, Greenwich and Stratford (includingland that is part of the site for the 2012 Olympics). Our planning business isalso able to assist clients in other parts of the Group, for example, in respectof an 85 km pipeline required by Marathon Oil to bring oil ashore for the DragonField west of St David's Head. We are also assisting Essex and Suffolk Water tosecure approval for the raising of levels in the Aberdon Reservoir. Environmental Monitoring and Management The UK market in health & safety consultancy has remained strong, driven,generally, by increasing awareness of the importance of managing these mattersmore carefully and, specifically, by new regulations on the identification andmanagement of asbestos. In July 2005 we extended our range of services in thismarket by the acquisition of Business Healthcare Ltd, which providesoccupational health services such as in-service medicals and sickness absencemanagement to major organisations in the construction, mining, quarrying,engineering, chemical and food sectors. This is a growth market. The economy in the Netherlands has not improved significantly. Nonetheless thesteps we took last year to reduce our exposure to the more vulnerable parts ofthe economy and invest in stable markets are beginning to produce benefit. Highprofile projects such as our involvement in the widening of the Oranje Kanaaland asbestos management for the Dutch Cancer Institute suggest our profile inthe Netherlands is developing. Our business servicing the UK water industry has progressed as anticipated.Following the completion of the Ofwat review at the end of 2004 the watercompanies have returned to the market to find support to implement the programmeof work necessary to meet the environmental targets agreed with the Regulator.Bidding and contract negotiation activity ran at a high level throughout thefirst half. We experienced success involving significant commissions withThames Water, South West Water, Southern Water and Welsh Water. We are able,therefore, to look forward to increased volumes of work in the months to come. Growth Strategy Our strategy is to build leading positions in high value segments of our marketthrough a combination of organic growth and the acquisition of high qualitybusinesses. We operate in highly fragmented markets; our ability to bringtogether successfully a range of complementary businesses has developed into acore skill of the Group. We made a number of significant acquisitions in 2004.Their integration has gone well and is substantially complete; theirbusinesses are all operating successfully. All of our businesses have plans in place to contribute to the Group's futuregrowth. The opportunities currently look particularly attractive in the buoyantenergy sector and we are pleased, therefore, today to be announcing theacquisition of ECL Group Ltd, a major consultancy in the oil/gas sector. Funding the Strategy The RPS balance sheet remains strong. Following the acquisition of BHC and ECL,which together involved an initial cash consideration of £15.0 million, we havemaximum cash commitments in respect of deferred consideration and outstandingloan notes related to acquisitions of £5.3 million in the remainder of 2005,£9.8 million in 2006, £7.8 million in 2007 and £0.7 million in 2008. The Group'soperating cash flow normally funds its working capital requirements. Our cashgeneration, in conjunction with committed and available banking finance and anability to use equity in transactions, means that we are able to continue ouracquisition programme. Prospects As our business grows the nature and breadth of opportunities open to us alsoincrease. Our position in the energy sector is particularly encouraging. There are a number of strongly positive factors driving the markets we operatein (oil and gas, renewable and nuclear) notably the high oil price, Governmentsupport for renewables, the global warming debate, which, in turn, bring theprospect of new nuclear power stations into sharp focus. Property developmentaspirations in the public and private sector currently remain at high levels andenvironmental management issues continue to increase in importance. The Board ofRPS looks forward to announcing good progress for 2005 as a whole and insubsequent years. Brook Land Chairman 15 September 2005Condensed consolidated interim income statement Notes six months six months ended year ended 31 ended 30 June 30 June December 2005 2004 2004 unaudited unaudited audited £000's £000's £000's Revenue Total revenue 97,788 72,270 168,189 Less: recharged expenses (15,446) (11,229) (23,197)Net revenue 82,342 61,041 144,992 Operating profit 2 11,398 8,625 19,766 Net financing costs (1,159) (284) (1,341) Profit before tax 10,239 8,341 18,425 Tax expense 3 (2,713) (1,773) (4,584) Profit for the period attributable to the shareholders ofthe parent 7,526 6,568 13,841 Basic earnings per share (pence) 6 3.83 3.40 7.12 Diluted earnings per share (pence) 6 3.79 3.37 7.05 Condensed consolidated interim statement of recognised income and expense Notes six months six months year ended 30 June ended 30 June ended 31 December 2005 2004 2004 unaudited unaudited audited £000's £000's £000's Exchange differences on translation of foreign (2,515) (1,915) 464 operations recognised in translation reserveReduction in revaluation reserve - - (5)Actuarial loss on defined benefit pension scheme 8 (230) (129) (945)Income and expense recognised directly in equity (2,745) (2,044) (486) Profit for the period 7,526 6,568 13,841 Total recognised income and expense for the periodattributable to equity holders of the parent 4,781 4,524 13,355 Condensed consolidated interim balance sheet Notes As at As at As at 30 June 30 June 31 December 2005 2004 2004 unaudited unaudited audited £000's £000's £000's Assets Intangible assets 131,607 121,296 133,233 Property, plant and equipment 17,375 14,860 17,719 Deferred tax assets 1,181 1,035 1,027Total non-current assets 150,163 137,191 151,979 Work in progress 15,440 13,254 13,955 Trade and other receivables 51,456 43,737 51,562 Cash at bank 6,133 5,206 4,982Total current assets 73,029 62,197 70,499Total assets 223,192 199,388 222,478 Equity Share capital 5 5,938 5,873 5,933 Share premium 5 87,563 84,795 87,308 Employee trust shares (2,081) (1,805) (1,867) Share schemes reserve 1,354 540 859 Translation reserve (2,077) (1,941) 438 Retained earnings 51,290 41,642 46,128Total equity 141,987 129,104 138,799 Liabilities Deferred consideration 6,700 10,848 10,209 Bank loans 245 - 311 Employee benefits 8 1,997 761 1,731 Provisions 2,755 2,562 2,941Total non-current liabilities 11,697 14,171 15,192 Bank loans and overdrafts 24,535 8,858 20,890 Trade and other payables 29,840 27,896 32,640 Corporation tax liabilities 3,741 3,827 3,950 Deferred consideration 9,614 14,078 10,080 Employee benefits 8 1,778 1,454 927 Total current liabilities 69,508 56,113 68,487Total liabilities 81,205 70,284 83,679Total equity and liabilities 223,192 199,388 222,478 Condensed consolidated interim statement of cash flows Notes six months six months year ended ended ended 30 June 30 June 31 December 2005 2004 2004 unaudited unaudited audited £000's £000's £000's Cash flows from operating activitiesProfit before tax 10,239 8,341 18,425Adjustments for: Net financing costs 1,159 284 1,341 Depreciation 1,892 1,591 3,687 Goodwill impairment - - 2,221 Share based payment expense 931 196 825 Increase in trade and other receivables (906) (5,487) (7,958) Increase in work in progress (1,808) (2,205) (1,543) Decrease in trade payables (1,956) (548) (1,135)Cash generated from operations 9,551 2,172 15,863 Interest (expense)/ income (749) 54 (558) Income taxes paid (2,925) (2,012) (4,411)Net cash generated from operating activities 5,877 214 10,894 Net cash used in investing activitiesPurchases of subsidiary undertakings and businesses in - (19,896) (30,905)current period net of cash acquiredProceeds from sale of property, plant & equipment 136 37 113Deferred consideration (4,369) (1,904) (10,554)Purchase of property, plant and equipment 4 (1,991) (1,255) (2,636) Net cash used in investing activities (6,224) (23,018) (43,982) Cash flows from financing activitiesProceeds from issue of share capital 45 34 65Proceeds from bank borrowings 1,947 8,000 20,472Payment of finance lease liabilities (33) (67) (100)Dividends paid (2,125) (1,808) (3,780)Purchase of own shares - - (176)Net cash used in financing activities (166) 6,159 16,481 Net decrease in cash and cash equivalents (513) (16,645) (16,607) Cash and cash equivalents at beginning of period 4,701 21,678 21,678 Effect of exchange rate fluctuations (18) (485) (370) Cash and cash equivalents at end of period 4,170 4,548 4,701 Cash and cash equivalents comprise: Cash at bank 6,133 5,206 4,982 Bank overdraft (1,963) (658) (281)Cash and cash equivalents at end of period 7 4,170 4,548 4,701 Notes to the condensed consolidated interim financial statements 1. Significant accounting policies RPS Group Plc (the "Company") is a company domiciled in England. The condensedconsolidated interim financial statements of the Company for the six monthsended 30 June 2005 comprises the Company and its subsidiaries (together referredto as the "Group"). The condensed consolidated interim financial statements were authorised forissuance on 15 September 2005. (a) Basis of preparation Prior to 2005, the Group prepared its audited annual financial statements andunaudited interim results under UK Generally Accepted Accounting Principles (UKGAAP). From 1 January 2005, the Group is required under European Unionregulation 1606/2002 to prepare its annual financial statements in accordancewith International Financial Reporting Standards (IFRSs) as endorsed by theEuropean Union and implemented in the UK. These condensed consolidated interim financial statements have been prepared onthe basis of IFRSs that are effective or available for early adoption at theGroup's first IFRS annual reporting date, 31 December 2005. Based on theseIFRSs, the Board of Directors have made assumptions about the accountingpolicies expected to be adopted when the first IFRS annual financial statementsare prepared for the year ended 31 December 2005. These are the Group's first IFRS condensed consolidated interim financialstatements for part of the period covered by the first IFRS annual financialstatements and IFRS 1 First-time Adoption of International Financial ReportingStandards has been applied that includes allowable exemptions. The condensedconsolidated interim financial statements do not include all of the informationrequired for full annual financial statements and do not comply with all thedisclosures in IAS 34 Interim Financial Reporting and are, therefore, not infull compliance with IFRS. An explanation of how the transition to IFRSs has affected the reportedfinancial position and financial performance of the Group is provided in note 9.The restated figures are based on current interpretations of IFRSs which maybe subject to change as industry practice develops. This note includesreconciliations of equity and profit or loss for comparative periods reportedunder UK GAAP (previous GAAP) to those reported for those periods under IFRSs. No adjustments have been made for any changes in estimates made at the time ofapproval of the UK GAAP financial statements for the year ended 31 December 2004or the interim statements for the period ended 30 June 2004 on which the IFRSfinancial information is based, as required by IFRS 1. The condensed financial statements are presented in pounds sterling, rounded tothe nearest thousand. They are prepared on the historical cost basis. The IFRSs that will be effective or available for voluntary early adoption inthe financial statements for the period ended 31 December 2005 are still subjectto change and to the issue of additional interpretation(s) and therefore cannotbe determined with certainty. Accordingly, the accounting policies for thatannual period that are relevant to this interim financial information will bedetermined only when the first IFRS financial statements are prepared at 31December 2005. The preparation of the condensed consolidated interim financial statements inaccordance with IFRSs resulted in changes to the accounting polices comparedwith the most recent annual financial statements prepared under previous GAAP.The accounting policies set out below have been applied consistently to allperiods presented in these condensed consolidated interim financial statements.They have also been applied in preparing an opening IFRS balance sheet at 1January 2004 for the purposes of transition to IFRSs, as required by IFRS 1. Theimpact of the transition from previous GAAP to IFRSs is explained in note 9. The interim statement is unaudited but has been reviewed by the Company'sauditors who concluded that they were not aware of any material modificationsthat should be made to the financial information. The results for the year end 31 December 2004 and the balance sheet as at thatdate are abridged from the Company's Annual Report and Financial Statements 2004(after adjustment for IFRS conversion) which have been delivered to theRegistrar of Companies. The auditors' report on those accounts was unqualifiedand did not contain a statement under Section 237(2) or (3) of the Companies Act1985. These abridged results as restated for IFRS conversion have been auditedand a Special Purpose Audit Report is attached to this interim statement. The interim statement does not constitute full accounts within the meaning ofSection 240 of the Companies Act 1985. (b) Basis of consolidation Subsidiaries are entities controlled by the Company. Control exists when theCompany has the power, directly or indirectly to govern the financial andoperating policies of an entity so as to obtain benefits from its activities. The Group's condensed consolidated interim financial statements incorporate thefinancial statements of the Company together with those of subsidiaries from thedate control commences to the date that control ceases. Intragroup balances, and any unrealised gains and losses or income and expensesarising from intragroup transactions, are eliminated in preparing the condensedinterim financial statements. (c) Foreign currency i Foreign currency transactions Transactions in foreign currency are translated at the foreign exchange rateruling at the date of the transaction. Monetary assets and liabilitiesdenominated in foreign currencies at the balance sheet date are translated topounds sterling at the foreign exchange rate ruling at that date. Foreignexchange differences arising on translation are recognised in profit or loss. ii Financial statements of foreign operations The assets and liabilities of foreign operations, including goodwill and fairvalue adjustments arising on consolidation, are translated to pounds sterling atthe balance sheet date. The revenues and expenses of foreign operations aretranslated to pounds sterling at rates approximating the foreign exchange ratesruling at the dates of the transactions. Foreign exchange differences arising onretranslation are recognised directly in the translation reserve. iii Net investment in foreign operations Exchange differences arising from the translation of the net investment inforeign operations are taken to translation reserve. They are recycled and takento profit or loss upon disposal of the operation. The Company has elected, inaccordance with IFRS 1, that in respect of all foreign operations, anydifferences that have arisen before 1 January 2004 have been set to zero. (d) Property, plant and equipment i Owned assets Items of property, plant and equipment are stated at cost or deemed cost lessaccumulated depreciation (see below) and impairment losses (see accountingpolicy (i)). Certain items of property, plant and equipment that had been revalued to fairvalue on or prior to 1 January 2004, the date of transition to IFRSs, aremeasured on the basis of deemed cost, being the revalued amount at the date ofthat revaluation, an exemption allowed under IFRS 1. ii Leased assets Leases, which contain terms whereby the Group assumes substantially all therisks and rewards incidental to ownership of the leased item are classified asfinance leases. Property acquired under a finance lease is capitalised at theinception of the lease at fair value of the leased property, or if lower, thepresent value of the minimum lease payments. Obligations under finance leases are included in liabilities net of financecosts allocated to future periods. All other leases are classified as operating leases and are not capitalised. Lease payments are accounted for as described in accounting policy note (o). iii Subsequent costs The Group recognises in the carrying amount of an item of property, plant andequipment the cost of replacing part of such an item when that cost is incurredif it is probable that the future economic benefits embodied within the itemwill flow to the Group and the cost of the item can be measured reliably. Allother costs are recognised in profit or loss as incurred. iv Depreciation Depreciation is charged to profit or loss on a straight-line basis over theestimated useful lives of each part of an item of property, plant and equipment.Land is not depreciated. The estimated useful lives are as follows: Buildings 50 yearsAlterations to leasehold premises Life of leaseMotor vehicles 4 yearsFixtures, fittings, IT and equipment 3 to 8 years (e) Intangible assets i Goodwill All business combinations are accounted for by applying the purchase method.Goodwill has been recognised in acquisitions of subsidiaries and the business,assets and liabilities of partnerships. The Board has elected, in accordancewith IFRS 1, that the date from which it applies IFRS 3 shall be 26 June 2002.In respect of business combinations that have occurred since that date, goodwillrepresents the difference between the cost of the acquisition and the fair valueof the identifiable assets acquired. In respect of acquisitions prior to this date, goodwill is included on the basisof its deemed cost, which represents the amount recorded under previous GAAP.The classification and accounting treatment of business combinations thatoccurred prior to 26 June 2002 has not been reconsidered in preparing theGroup's opening IFRS balance sheet at 1 January 2004. Goodwill is stated at cost less any accumulated impairment losses. Goodwill isallocated to cash-generating units and is no longer amortised but is testedannually for impairment (see accounting policy (i)). ii Other intangible assets Intangible assets other than goodwill that are acquired by the Group are statedat cost less accumulated amortisation (see below) and impairment losses (seeaccounting policy (i)). Expenditure on internally generated goodwill and brands is recognised in profitor loss as an expense as incurred. iii Subsequent expenditure Subsequent expenditure on capitalised intangible assets is capitalised only whenit increases the future economic benefits embodied in the specific asset towhich it relates. All other expenditure is expensed as incurred. iv Amortisation Amortisation is charged to profit or loss on a straight-line basis over theestimated useful lives of intangible assets unless such lives are indefinite.Intangible assets with an indefinite useful life are tested systematically forimpairment at each annual balance sheet date. Other intangible assets areamortised from the date that they are available for use. The estimated usefullives are as follows: Intellectual property rights - 1 year, commencing 1 January 2004 (f) Work in progress Work in progress is stated at the lower of cost and net realisable value. Costis calculated as cost of labour, together with attributable overheads based onthe normal level of activity. Net realisable value is based upon estimated selling price in the ordinarycourse of business less further costs expected to be incurred to completion.Regular reviews are undertaken and any impairment provided for. (g) Trade and other receivables Trade and other receivables are stated at their cost less impairment losses (seeaccounting policy (i)). (h) Cash and cash equivalents Cash at bank comprises cash balances and call deposits with an original maturityof three months or less. Bank overdrafts that are repayable on demand and forman integral part of the Group's cash management are included as a component ofcash and cash equivalents for the purposes of the statement of cash flows. (i) Impairment The carrying amount of the Group's assets, other than deferred tax assets arereviewed at each balance sheet date to determine whether there is any indicationof impairment. If any such indication exists, the assets recoverable amount isestimated. For goodwill the recoverable amount is estimated at each annual balance sheetdate. An impairment loss is recognised whenever the carrying amount of an asset or itscash generating unit exceeds its recoverable amount. Impairment losses arerecognised in the income statement unless the asset is recorded at a revaluedamount in which case it is treated as a revaluation decrease to the extent thata surplus has previously been recorded. Impairment losses recognised in respect of cash generating units are allocatedfirst to reduce the carrying value of goodwill allocated to the cash generatingunit and then to reduce the carrying amount of the other assets in the unit on apro-rata basis. Goodwill and other intangible assets were tested for impairment at 1 January2004, the date of transition to IFRSs, and at 31 December 2004. i Calculation of recoverable amount The recoverable amount is the greater of the net selling price and value in use.In assessing value in use, the estimated future cash flows are discounted totheir present value using a pre-tax discount rate that reflects current marketassessments of the time value of money and the risks specific to the asset. ii Reversals of impairment An impairment loss in respect of goodwill is not reversed. In respect of otherassets, an impairment loss is reversed if there has been a change in theestimates used to determine the recoverable amount. An impairment loss isreversed only to the extent that the assets carrying amount does not exceed thecarrying amount that would have been determined, net of depreciation oramortisation, if no impairment loss had been recognised. (j) Employee benefits i Defined contribution plans Obligations for contributions to defined contribution pension plans are recognised as an expense in profit or loss as incurred. ii Defined benefit plans The Group's net obligation in respect of its defined benefit pensionplan is calculated by estimating the amount of future benefit that employeeshave earned in return for their service in the current and prior periods. Thatbenefit is discounted to determine its present value, and the fair value of anyplan assets is deducted. The discount rate is the yield at the balance sheetdate on Euro denominated AA rated corporate bonds on the iBoxx index that havematurity dates approximating the terms of the Group's obligations. Thecalculation is performed by a qualified actuary using the projected unit creditmethod. When the benefits of a plan are improved, the portion of theincreased benefit relating to past service by employees is recognised as anexpense in profit or loss on a straight-line basis over the average period untilthe benefits become vested. To the extent that the benefits vest immediately,the expense is recognised immediately in profit or loss. All actuarial gains and losses at 1 January 2004, the date oftransition to IFRSs, were recognised. The Group recognises actuarial gains andlosses that arise subsequent to 1 January 2004 immediately in equity. iii Share-based payment transactions The Group operates a range of equity settled share option and conditional shareaward schemes for employees. The Company is applying IFRS 2 to all share options and conditional share awardswhich have been granted to employees and have not vested as at 1 January 2005. The fair value of the employee services received in exchange for the grant ofoptions or conditional share awards is recognised as an expense to the profitand loss account. Fair value has been determined by using IFRS acceptedvaluation methodologies (see below). The amount expensed to the profit and lossaccount over the vesting period is determined by reference to the fair value ofthe options and conditional share awards, excluding the impact of any non-marketvesting conditions. Non-market vesting conditions are included in assumptionsabout the number of options and conditional share awards that are expected tovest. At each balance sheet date the Group revises its estimates of the numberof options and conditional share awards that are expected to vest. The impactof the revision of original estimates, if any, is recognised in the profit andloss account, with a corresponding adjustment to equity, over the remainingvesting period. The fair value of options granted under the Executive Share Option Scheme ("ESOS") and Save As You Earn ("SAYE") scheme have been calculated using a binomialmodel taking into account the following inputs:- - the exercise price of the option;- the life of the option;- the market price on the date of grant of the option;- the expected volatility of the share price;- the dividends expected on the shares; and- the risk free interest rate for the life of the option. The fair value of conditional share awards have been calculated using the marketvalue of the shares on the date of grant adjusted for any non-entitlement todividends over the vesting period and market based performance conditions suchas total shareholder return. iv Accrued holiday pay Provision is made at each balance sheet date for holidays accrued but not takenat the salary of the relevant employee at that date. (k) Provisions A provision is recognised in the balance sheet when the Group has a presentlegal or constructive obligation as a result of a past event, and it is probablethat an outflow of economic benefits will be required to settle the obligation.If the effect is material, provisions are determined by discounting the expectedfuture cash flows at a pre-tax rate that reflects current market assessments ofthe time value of money and, when appropriate, the risks specific to theliability. A provision for onerous contracts is recognised when the expected benefits to bederived by the Group from a contract are lower than the unavoidable cost ofmeeting its obligations under the contract. (l) Trade and other payables Trade and other payables are stated at cost. (m) Deferred consideration Deferred consideration arises when settlement of all or any part of the cost ofa business combination is deferred. It is stated at fair value at the date ofacquisition, which is determined by discounting the amount due to present valueat that date. Interest is imputed on the fair value of deferred consideration atthe discount rate and expensed within net financing costs. At each balance sheetdate deferred consideration comprises the remaining deferred considerationvalued at acquisition plus interest imputed on such amounts from acquisition tothe balance sheet date. (n) Revenue Revenue from services rendered is recognised in profit or loss in proportion tothe stage of completion of the transaction at the balance sheet date. No revenueis recognised if there are significant uncertainties regarding recovery of theconsideration due or associated costs. An expected loss on a contract isrecognised immediately in profit or loss. Total revenue includes revenue generated by recharging to clients expenses, suchas mileage, accommodation, planning applications, counsels' fees and fees fromsub-consultants charged on at low margin. Net revenue, being total revenue lessrecharged expenses is considered to be a better measure of the revenue fromwhich operating profit is generated than total revenue. (o) Expenses i Operating lease payments Payments made under operating leases are recognised in profit or loss on astraight-line basis over the term of the lease. Lease incentives received arerecognised in profit or loss as an integral part of the total lease expense. ii Finance lease payments Minimum lease payments are apportioned between the finance charge and thereduction of the outstanding liability. The finance charge is allocated to eachperiod during the lease term so as to produce a constant periodic rate ofinterest on the remaining balance of the liability. iii Net financing costs Net financing costs comprise interest payable on bank overdrafts and loans,interest receivable on funds invested and interest imputed on deferredconsideration (see accounting policy m). (p) Income tax Income tax on the profit or loss for the periods presented comprisescurrent and deferred tax. Income tax is recognised in profit or loss except tothe extent that it relates to items recognised directly in equity, in which caseit is recognised in equity. Current tax is the expected tax payable on the taxable income forthe year, using tax rates enacted or substantially enacted at the balance sheetdate, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method,providing for temporary differences between the carrying amounts of assets andliabilities for financial reporting purposes and the amounts used for taxationpurposes. The following temporary differences are not provided for: goodwill notdeductible for tax purposes, the initial recognition of assets or liabilitiesthat affect neither accounting nor taxable profit, and the differences relatingto investments in subsidiaries to the extent that they will probably not reversein the foreseeable future. The amount of deferred tax provided is based on theexpected manner of realisation or settlement of the carrying amount of asset andliabilities, using tax rates enacted or substantively enacted at the balancesheet date. A deferred tax asset is recognised only to the extent that it isprobable that future taxable profits will be available against which the assetcan be utilised. Deferred tax assets are reduced to the extent that it is nolonger probable that the related tax benefit will be realised. Additional income taxes that arise from the distribution ofdividends are recognised at the same time as the liability to pay the relateddividend. 2. Segment reporting Segment information is presented in the condensed interim financial statementsin respect of the Group's business segments, which are the primary basis ofsegment reporting. The business segment reporting format reflects the Group'smanagement and internal reporting structure. Inter-segment pricing is determined on an arm's length basis. Segment resultsinclude items directly attributable to a segment as well as those that can beallocated on a reasonable basis. Business segments The Group is comprised of the following main business segments: Planning and Development - consultancy services in the UK and Ireland relatedto town and country planning, urban design, transport planning and highwaydesign, environmental impact assessment and provision of water and wasteutilities. Environmental Monitoring and Management - in the UK and the Netherlands fieldservices, information management and consultancy related to health, safety andrisk management; in the UK field services, information management andconsultancy related to the management of water services. Energy - the provision of consultancy services on an international basis to theoil and gas, renewable energy and nuclear sectors. Business segment results for the six months ended 30 June 2005 Planning and Environmental Energy Eliminations Consolidated Development Monitoring and Management _______________ ________________ _______________ _______________ ______________ 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 £000's £000's £000's £000's £000's £000's £000's £000's £000's £000's Segment revenue 56,892 45,824 21,814 15,305 20,061 11,792 (979) (651) 97,788 72,270Less: recharged (9,917) (7,879) (2,943) (2,459) (2,730) (997) 144 106 (15,446) (11,229) expenses Net revenue 46,975 37,945 18,871 12,846 17,331 10,795 (835) (545) 82,342 61,041 Segment result 8,130 7,393 1,900 857 2,341 1,233 - - 12,371 9,483 Unallocated expenses (973) (858) Operating profit 11,398 8,625 Net financing costs (1,159) (284) Profit before tax 10,239 8,341 Income tax expense (2,713) (1,773) Profit for the period 7,526 6,568 3. Income taxes Six months ended 30 Six months ended Year ended June 2005 30 June 2004 31 December 2004 £000's £000's £000's Current tax UK corporation tax 2,062 1,464 3,471 Foreign tax 704 382 930 2,766 1,846 4,401 Deferred tax (credit)/expense (53) (73) 183 2,713 1,773 4,584 Tax for the interim period is charged at 26.5% representing the best estimate ofthe average annual effective income tax rate for the full financial year. 4. Property, plant and equipment Acquisition and disposals During the six months ended 30 June 2005, the Group acquired assets with a costof £1,991,000 (six months to 30 June 2004: £2,926,000, which includes £1,671,000acquired through business combinations). Assets with a net book value of£121,000 were disposed of during the six months ended 30 June 2005 (six monthsended 30 June 2004 £33,000). 5. Capital and reserves Share capital and share premium The Group recorded the following amounts within shareholder's equity as a resultof the issuance of ordinary shares. Share capital Share premium Six Six Year Six Six Year months months ended 31 months months ended 31 ended 30 ended 30 Dec 04 ended 30 ended 30 Dec 04 June 05 June 04 June 05 June 04 £000's £000's £000's £000's £000's £000's At 1 January 5,933 5,803 5,803 87,308 82,201 82,201Issuance of sharecapital 5 70 130 255 2,594 5,107At period end 5,938 5,873 5,933 87,563 84,795 87,308 Dividends The following dividends were provided by RPS Group Plc: Six Six Year months months ended 31 ended 30 ended 30 Dec 04 June 05 June 04 £000's £000's £000's 1.08 p per share 2,134 - -0.94 p per share - 1,801 1,8011.01p per share - - 1,966 2,134 1,801 3,767 An interim dividend in respect of the six months ended 30 June 2005 of 1.15p pershare, amounting to a total dividend of £2,309,000 was approved by the Directorsof RPS Group Plc on 4 August 2005. These condensed consolidated interimaccounts do not reflect this dividend payable. Employee trust shares During the six months ended 30 June 2005 of the total shares issued by theGroup, as noted above, shares with a market value of £214,000 were allocated tothe employee trust (six months ended 30 June 2004: nil; year ended 31 December2004: £62,000). 6. Earnings per share The calculations of basic and diluted earnings per share were based on theprofit attributable to ordinary shareholders and a weighted average number ofordinary shares outstanding during the related period as shown in the tablesbelow: Six months Six months Year ended 31 ended 30 June ended 30 June Dec 2005 2004 2004 £000's £000's £000's Profit attributable to ordinary shareholders 7,526 6,568 13,841 Weighted average number of ordinary shares Six months Six months Year ended 31 ended 30 June ended 30 June Dec 2005 2004 2004 000's 000's 000's Issued shares at 1 January 197,732 193,385 193,385Effect of own shares held (1,187) (1,083) (1,088)Effect of shares issued in January 1 1 1Effect of shares issued in February - 11 14Effect of shares issued in March 28 1 2Effect of shares issued in April 54 801 1,559Effect of shares issued in May - 2 5Effect of shares issued in June 4 - 6Effect of shares issued in July - - 247Effect of shares issued in September - - 117Effect of shares issued in October - - 238Effect of shares issued in November - - 3Effect of shares issued in December - - 2Weighted average number of ordinary shares 196,632 193,118 194,491 Effect of shares to be issued as deferred consideration 387 1,282 408Effect of employee shares schemes 1,795 653 1,522Weighted average number of ordinary shares (diluted) 198,814 195,053 196,421 7. Analysis of changes in net debt The table below provides an analysis of net debt, comprising cash and cashequivalents, interest bearing loans and finance leases, during the six monthsended 30 June 2005. At 31 Dec 2004 Change in Cash flow Foreign exchange At 30 June loans and 2005 finance leases £000's £000's £000's £000's £000's Cash and cash equivalents 4,701 - (513) (18) 4,170Bank loans (20,869) (1,947) - 17 (22,799)Finance lease creditor (51) 33 - - (18)Net debt (16,219) (1,914) (513) (1) (18,647) 8. Employee benefits Details of total employee benefits are provided below: As at As at As at 30 June 30 June 31 December 2005 2004 2004 £000's £000's £000'sDefined benefit pension plan obligationsPresent value of obligations 4,833 4,243 4,295Fair value of plan assets 2,836 3,482 2,564Recognised liability for defined benefit obligations 1,997 761 1,731 Liability for accrued leave 1,778 1,454 927 Total employee benefits 3,775 2,215 2,658 Pension plans The Group provides employee benefits through a number of pension schemes of thedefined benefit type in the UK and overseas. The Group operates one definedbenefit scheme that is closed to new members. The details of this scheme aredisclosed in the most recent annual financial statements. Expense recognised in the consolidated interim statement in respect of thedefined benefit plan The expense recognised in the consolidated interim income statement in respectof the Group's defined benefit pension plan consists of the current servicecosts, interest on the obligation for employee benefits and the expected returnon plan assets. For the six months ended 30 June 2005, the Group recognisedexpense of £249,000 (six months ended 30 June 2004: £143,000). Liability for defined benefits obligations Principal actuarial assumptions at the date of the most recent actuarialvaluations: 30 June 2005 30 June 31 December 2004 2004 % % % Discount rate 4.30% 5.25% 4.50%Expected return on plan assets 6.07% 6.85% 6.07%Future salary increases 4.00% 4.00% 4.00%Future pension increases 2.50% 2.50% 2.50% Recognised actuarial gains / losses The table below shows, in respect of the Group's defined benefit plan, therecognised actuarial losses and the reserves they were taken directly to. Six months Six months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004 £000's £000's £000's Actuarial loss 260 147 1,117Deferred tax (32) (18) (140) 228 129 977 Translation reserve (2) - 32Retained earnings 230 129 945 228 129 977 Share based payments In accordance with IFRS 2, the Group has recognised an expense to the profit andloss account representing the fair value of outstanding equity settled sharebased payment awards to employees which have not vested as at 1 January 2005 forthe period ended 30 June 2005. The Group has calculated the fair market value of options using a binomial modeland for whole share awards the fair value has been based on the market value ofthe shares at the date of grant adjusted to take into account some of the termsand conditions upon which the shares were granted. Those fair values were charged to the profit and loss account over the relevantvesting period adjusted to reflect actual and expected vesting levels. It should be noted that the Group has not relied on the exemption afforded underIFRS 2 to exclude instruments granted before 7 November 2002. Prior to 2004, the Group granted options and super options to employees underthe Executive Share Option Scheme ("ESOS") and Save as You Earn ("SAYE")scheme. Under the ESOS share options are granted at the market price on thedate of grant with the exercise of options subject to the satisfaction ofcorporate performance conditions and continuity of employment provisions. For SAYE options, share options are granted at the market price on the date ofgrant. Employees can exercise the SAYE option at the end of their savingscontract. Since 2004 the Group has incentivised and motivated employees through the grantof conditional share awards under the Long Term Incentive Plan ("LTIP") forExecutive Directors and other senior directors; the Performance Share Plan ("PSP"), for senior managers and staff, and the Share Incentive Plan ("SIP"),available to staff. Under these arrangements shares are granted at no cost tothe employee. The release of shares granted under the LTIP and PSP are subjectto the satisfaction of corporate performance conditions and continuity ofemployment provisions. The release of shares under the SIP are subject tocontinuity of employment provisions. The following table sets out details of share schemes activity over the sixmonth period from 1 January 2005: Share Options Number Number WeightedYear of Outstanding Outstanding Average Vesting conditionsgrant 31 Dec 04 Exercised Lapses 30 June 05 Exercise price 1998 81,000 (6,000) - 75,000 53p 3 or 5 years1999 448,662 (36,150) (9,000) 403,512 74p 3 or 5 years2000 914,340 (12,000) (82,500) 819,840 128p 3 or 5 years2001 665,509 - (252,084) 413,425 156p 3 or 5 years2002 1,234,646 - (182,178) 1,052,468 149p 3 or 5 years2003 1,671,769 - (122,090) 1,549,679 114p 3 or 5 years2004 5,250 - - 5,250 118p 3 years 5,021,176 (54,150) (647,852) 4,319,174 SAYE Number NumberYear of Outstanding New grants Lapses Outstanding Exercise Vestinggrant price conditions 31 Dec 04 30 June 05 2003 338,563 - (105,176) 233,387 147p 3 or 5 years 338,563 - (105,176) 233,387 LTIP Date of Number Number Vestinggrant conditions Outstanding Outstanding 31 Dec 04 New grants Releases Forfeits 30 June 0501-Sep-04 551,619 - - - 551,619 3 years18-May-05 - 407,194 - - 407,194 3 years 551,619 407,194 - - 958,813 PSP Date of Number Number Vestinggrant Outstanding Early Grants Outstanding conditions 31 Dec 04 New grants releases replaced Forfeits 30 June 0513-Oct-04 1,023,888 - (239,863) 233,681 (74,350) 943,356 3 years01-Jan-05 - 102,466 - (11,823) 90,643 3 years11-Mar-05 - 1,551 - - 1,551 3 years01-Apr-05 - 1,668 - - 1,668 3 years07-Jun-05 - 3,283 - 3,283 3 years 1,023,888 108,968 (239,863) 233,681 (86,173) 1,040,501 SIP Date of Number Number Vestinggrant conditions Outstanding Outstanding 31 Dec 04 New grants Releases Forfeits 30 June 0529-Oct-04 26,345 - (601) (1,095) 24,649 3 years30-Nov-04 28,182 - (635) (1,086) 26,461 3 years23-Dec-04 28,882 - (637) (1,087) 27,158 3 years01-Feb-05 - 29,154 (565) (825) 27,764 3 years28-Feb-05 - 27,048 (516) (540) 25,992 3 years31-Mar-05 - 29,194 (329) (455) 28,410 3 years29-Apr-05 - 30,437 (256) (209) 29,972 3 years31-May-05 - 26,800 - (82) 26,718 3 years30-Jun-05 - 25,269 - - 25,269 3 years 83,409 167,902 (3,539) (5,379) 242,393 The fair values of the above equity instruments have been determined using thefollowing criteria: Share options and SAYE Options Share Options SAYE Share price on grant 111 - 171p 147pExpected volatility 26.8% - 27.5% 26.3% - 28.5%Expected life 5 years 3 or 5 yearsExpected dividend yield 1.45% 1.45%Risk-free interest rate 4.1% - 4.5% 4.1% - 4.5%Fair value at measurement date 33.01p - 46.26p 43.51p - 54.83pWeighted fair value 39.18p 50.13p The volatility has been based on the annualised average of the standarddeviations of the daily historical continuously compounded returns of theGroup's share price over the most appropriate period from the date of grant. The risk-free rate of interest was assumed to be the yield to maturity on a UKGilt strip with the term to maturity equal to the expected life of the option. The expected dividend yield is an estimate of the dividend yield at the date ofgrant for the duration of the option's life. LTIP For LTIP Awards with a total shareholder return ("TSR") performance condition,the fair value has been calculated as the market value of the shares on the dateof grant adjusted to reflect some of the terms and conditions upon which theshares were awarded. The Group took into account the market based TSR conditionand the fact that a participant is not entitled to receive dividends over thethree year performance period. For LTIP Awards with an Earnings per Share performance condition, the fair valuehas been calculated as the market value of the shares on the date of grantadjusted to reflect the fact that a participant is not entitled to receivedividends over the three year performance period. LTIP awards Fair value at measurement date 52.22p - 133.12pWeighted fair value 86.58pHolding period 3 yearsExpected dividend yield 1.45% PSP For the purposes of calculating the fair value of conditional shares awardedunder the PSP the fair value was calculated as the market value of the shares atthe date of grant adjusted to reflect the fact that a participant is notentitled to receive dividends over the performance period. PSP awardsFair value at measurement date 131.65p - 145.77pWeighted fair value 132.91 pHolding period 3 yearsExpected dividend yield 1.45% SIP For the purposes of calculating the fair value of conditional shares awardedunder the SIP the fair value was calculated as the market value of the shares atthe date of grant. Participants are entitled to receive dividends over thethree year holding period so no adjustment was made to the market value. SIP awardsFair value at measurement date 135.5p - 159.5pWeighted fair value 146.20pHolding period 3 years During the six months ended 30 June 2005, the Group recognised expense of£931,000 related to the fair value of the share based payment arrangements (sixmonths ended 30 June 2004 : £196,000). In determining the charge to the profit and loss account the Group made thefollowing assumptions with regard to annual lapse rates as at the date of grant: Share scheme Annual lapse rateESOS 13%SAYE 5%LTIP 0%PSP 5%SIP 5% In addition, the Group estimated that all non-market based performanceconditions would be satisfied in full. 9. Explanation of transition to IFRSs As stated in note 1(a) these are the Group's first condensed consolidatedinterim financial statements for part of the period covered by the first IFRSannual consolidated financial statements prepared in accordance with IFRSs. The accounting policies in note 1 have been applied in preparing the condensedconsolidated interim financial statements for the six months ended 30 June 2005,the comparative information for the six months ended 30 June 2004, the financialstatements for the year ended 31 December 2004 and the preparation of an openingIFRS balance sheet at 1 January 2004 (the Group's date of transition). In preparing the opening balance sheet, comparative information for the sixmonths ended 30 June 2004 and financial statements for the year ended 31December 2004, the Group has adjusted amounts previously reported in financialstatements prepared in accordance with previous GAAP. IFRS 1 - First-time Adoption of International Financial Reporting Standardspermits or requires certain exemptions from the general principle ofretrospective application. Where permitted, the Group has utilised exemptionswhen retrospective application would result in little or no added usefulness interms of the information presented and where retrospective application wouldrequire the use of hindsight, which is specifically precluded by IFRS 1. The following summarises the Group's application of the IFRS 1 exemptions: Business combinations IFRS 1 exempts a first-time adopter from the retrospective application of IFRS 3- Business Combinations for acquisitions prior to the date of transition butallows retrospective application as long as all acquisitions from the date ofthe first acquisition are also included. The Board has elected that the datefrom which it applies IFRS 3 shall be 26 June 2002. Consequently, businesscombinations that occurred prior to this date have not been restated. Cumulative translation differences IAS 21 - The Effects of Changes in Foreign Exchange Rates requires theclassification of translation differences arising in connection with foreignoperations to be classified as a separate component of equity. IFRS 1 exempts afirst-time adopter from the retrospective application of IAS 21. The Group hasapplied this exemption, with the effect that cumulative translation differencesfor all foreign operations as at the date of transition are deemed to be nil. Fair value or revaluation as deemed cost IFRS 1 allows a first-time adopter to elect to use a previous GAAP revaluationof an item of property, plant and equipment at, or before, the date oftransition to IFRS as deemed cost at the date of revaluation. The group hasapplied this exemption to previously revalued property, plant and equipment. The transition to IFRS from previous GAAP has not had any cash effect or anymaterial effects on the reporting of cash flows. An explanation of how thetransition to IFRSs has affected the Group's financial position and financialperformance is set out in the following tables and notes. Reconciliation of equity 1 January 2004 30 June 2004 31 December 2004 £000's Note Previous Effect of IFRS Previous Effect of IFRS Previous Effect of IFRS GAAP transition GAAP transition GAAP transition to IFRS to IFRS to IFRSAssets Intangible 87,911 878 88,789 119,725 1,571 121,296 129,729 3,504 133,233assets a,b,c,d,f,iProperty, plant 13,727 - 13,727 14,860 - 14,860 17,719 - 17,719and equipmentDeferred tax m - 890 890 - 1,035 1,035 - 1,027 1,027assetsTotal non current 101,638 1,768 103,406 134,585 2,606 137,191 147,448 4,531 151,979assets Work in progress 9,456 - 9,456 13,254 - 13,254 13,955 - 13,955Trade & other 36,350 - 36,350 44,311 (574) 43,737 51,562 - 51,562receivablesDeferred tax l 707 (707) - - - - 696 (696) -assetsCash at bank 21,678 - 21,678 5,206 - 5,206 4,982 - 4,982Total current 68,191 (707) 67,484 62,771 (574) 62,197 71,195 (696) 70,499assetsTotal assets 169,829 1,061 170,890 197,356 2,032 199,388 218,643 3,835 222,478 EquityShare capital 5,803 - 5,803 5,873 - 5,873 5,933 - 5,933Share premium 82,201 - 82,201 84,795 - 84,795 87,308 - 87,308Shares to be i 1,625 (1,625) - 1,617 (1,617) - 598 (598) -issuedRevaluation l 37 (37) - 37 (37) - 32 (32) -reserveEmployee trust (1,805) - (1,805) (1,805) - (1,805) (1,867) - (1,867)sharesShare schemes j - 344 344 - 540 540 100 759 859reserveTranslation b,c,e,k - (26) (26) - (1,941) (1,941) - 438 438reserveRetained earnings n 34,468 2,536 37,004 36,965 4,677 41,642 42,468 3,660 46,128Total equity 122,329 1,192 123,521 127,482 1,622 129,104 134,572 4,227 138,799attributable toequity holders ofthe parent LiabilitiesDeferred c,i 3,461 376 3,837 11,326 (478) 10,848 11,205 (996) 10,209considerationEmployee benefits e - 688 688 - 761 761 - 1,731 1,731Bank loans - - - - - - 311 - 311Provisions e 1,315 (1,140) 175 2,941 (379) 2,562 3,313 (372) 2,941Total non current 4,776 (76) 4,700 14,267 (96) 14,171 14,829 363 15,192liabilities Bank loans and 217 - 217 8,858 - 8,858 20,890 - 20,890overdraftsTrade & other g,h,j,l 28,579 (1,489) 27,090 29,698 (1,802) 27,896 34,705 (2,065) 32,640payablesEmployee benefits f,l - 611 611 - 1,454 1,454 - 927 927Corporation tax 3,729 - 3,729 3,827 - 3,827 3,950 - 3,950liabilitiesDeferred c,i 10,199 823 11,022 13,224 854 14,078 9,697 383 10,080considerationTotal current 42,724 (55) 42,669 55,607 506 56,113 69,242 (755) 68,487liabilities Total liabilities 47,500 (131) 47,369 69,874 410 70,284 84,071 (392) 83,679Total equity and 169,829 1,061 170,890 197,356 2,032 199,388 218,643 3,835 222,478liabilities Notes to the reconciliation of equity The impact on deferred tax of the adjustments below is set out in note m. a. Goodwill The Group has applied IFRS 3 to all business combinations that have occurredsince 1 January 2004 (the date of transition to IFRSs). The Group has alsoapplied IFRSs retrospectively to all business combinations that occurred between26 June 2002 and the date of transition to IFRSs. Goodwill amortisation charge was written back by £2,007,000 for the periodbetween acquisition and 31 December 2003 in respect of business combinationsacquired since 26 June 2002. Goodwill amortisation charge was written back by £2,783,000 for the six monthsended 30 June 2004 and by £6,340,000 for the year ended 31 December 2004. The impairment review undertaken in respect of a cash generating unit inNetherlands at 31 December 2004 resulted in an impairment of £2,221,000 beingrecorded in administrative expenses for the year ended 31 December 2004. Goodwill is therefore increased by £2,007,000 at 1 January 2004, by £4,790,000at June 2004 and by £6,126,000 at 31 December 2004. b. Goodwill held in local currency Under IAS 21 The Effects of Changes in Foreign Exchange Rates any goodwillarising on acquisition of a foreign operation shall be treated as an asset ofthe foreign operation. Thus the goodwill is translated at the rate of exchangeat the balance sheet date rather than at the date at acquisition. The effect isto reduce goodwill and translation reserve by £906,000 at 30 June 2004 andincrease goodwill and translation reserve by £357,000 at 31 December 2004. c. Business combinations (i) Fair value of deferred consideration at acquisition In accordance with IFRS 3 deferred consideration payable in cash foracquisitions made since 26 June 2002 has been stated at fair value bydiscounting it to its present value at the date of acquisition. The effects, including the effect of foreign exchange translation, are to reducedeferred consideration and goodwill by £1,038,000 at 1 January 2004. Interest imputed for the period from acquisition until 31 December 2003 was£570,000 and this together with the effect of foreign exchange translation of£26,000 have been taken to reserves and have increased deferred consideration by£596,000 at 1 January 2004. The effects at 30 June 2004 are to reduce deferred consideration and goodwill by£2,159,000. Interest imputed and expensed for the period from 1 January 2004 to30 June 2004 was £338,000. The cumulative effect of imputed interest togetherwith the effect of foreign exchange translation have increased deferredconsideration at 30 June 2004 by £913,000. The effects at 31 December 2004 are to reduce deferred consideration andgoodwill by £2,597,000. Interest imputed and expensed for the year was £783,000.The cumulative effect of imputed interest together with the effect of foreignexchange translation have increased deferred consideration at 31 December 2004by £1,386,000. (ii) Fair values of assets at acquisition The fair values of certain assets at acquisition have been revised. In respectof business combinations during the six months ended 30 June 2004 the effectsare: to increase accrued income by £244,000 and reduce work in progress atacquisition by £147,000; to reduce revenue by £244,000 and reduce operatingprofit by £97,000 during the six months ended 30 June 2004. The post-tax effectis to reduce goodwill at 30 June 2004 by £68,000. In respect of business combinations during the year ended 31 December 2004 theeffects are: to increase accrued income by £1,735,000 and reduce work inprogress at acquisition by £1,273,000; to reduce revenue by £1,735,000 andincrease cost of sales by £1,273,000 during the year ended 31 December 2004. Thepost-tax effect is to reduce goodwill at 31 December 2004 by £323,000. d. Other intangible assets Following impairment reviews undertaken in respect of the intellectual propertyrights included within intangible assets the value of intangible assets andretained reserves at 1 January 2004, 30 June 2004 and 31 December 2004 werereduced by £138,000 and the remaining amortisation period reduced to 1 year from1 January 2004. e. Employee benefits - defined benefit pension scheme Under previous GAAP the balance sheet at 1 January, 30 June and 31 December 2004included a provision for unfunded pension liability. The movement on thisprovision was recognised in the profit and loss account during the year andcertain pension obligations were recognised in the profit and loss account undera cash basis. Under IFRS 1 the deficit on the scheme existing at 1 January 2004 amounting to£688,000 was recognised in reserves at this date. The balance on the provisionfor unfunded pension liability at 1 January 2004 of £1,140,000 was alsorecognised in reserves on this date. This resulted in a reduction in operatingprofit of £761,000 in the six months ended 30 June 2004 and a charge of £768,000within cost of sales for the year ended 31 December 2004. Provisions forliabilities and charges have reduced by £1,140,000 at 31 December 2003, £379,000at 30 June 2004 and £372,000 at 31 December 2004. The pension service cost recognised under IAS 19 was £41,000 less than thecharge made under previous GAAP within cost of sales in the income statement forthe six months ended 30 June 2004; and £72,000 less for the year ended 31December 2004. Actuarial losses recognised in reserves in the six months to 30 June 2004together with the effect of foreign exchange translation have increased thecreditor for employee benefits at 30 June 2004 by £114,000. The effect for theyear ended 31 December 2004 was to increase the creditor for employee benefitsby £1,117,000. f. Employee benefits - holiday pay accrued but not taken Under previous GAAP holidays accrued but not taken were not providedfor whereas IAS 19 Employee Benefits requires employers to accrue the obligationfor paid absence if the obligation both relates to employees' past services andit accumulates. This has resulted in an increase of £464,000 in the liability for employeebenefits at 31 December 2003 which has been taken to reserves at this date. Afurther increase of £44,000 represents the liability to be recognised uponacquisition and the post tax effect £31,000 has resulted in an increase ingoodwill at 1 January 2004. During the six months ended 30 June 2004 a charge of £688,000 was made inrespect of the increased accrual required at 30 June. A further increase of£16,000 represents the liability to be recognised upon acquisition has resultedin an increase in goodwill at 30 June 2004. In the year ended 31 December 2004 a charge of £87,000 was made tocost of sales in respect of the increase in the accrual required at theyear-end. A further increase of £62,000 represents the liability to berecognised upon acquisition and the post tax effect £48,000 has resulted in anincrease in goodwill at 31 December 2004. g. Lease incentive During the year ended 31 December 2003 a lease incentive was received andcredited to profit and loss. Under SIC-15 Operating Leases - Incentives theincentive should be spread over the term of the lease. The adjustment made at 1January 2004 was to reduce reserves and increase trade and other payables by£415,000. During the six months ended 30 June 2004 £9,000 has been credited to operatingprofit and during the twelve months ended 31 December 2004 £18,000 has beencredited to cost of sales. Hence trade and other payable have increased by£406,000 at 30 June 2004 and £397,000 at 31 December 2004. h. Dividends Under previous GAAP dividends were provided for when proposed even if this wasafter the balance sheet date. Under IAS 10 Events after the Balance Sheet Datethis is no longer allowed. Accordingly, trade and other payables at 1 January2004 have reduced by £1,801,000. The dividend was taken to reserves during thesix months ended 30 June 2004. Trade and other payables at 30 June 2004 have reduced by £1,966,000 being theinterim dividend proposed after the balance sheet date and at 31 December 2004by £2,134,000 being the final dividend for 2004. i. Shares to be issued Deferred consideration payable in the form of shares was, under previous GAAP,included within equity. Under IAS 32 Financial Instruments : Disclosure andPresentation where the amount of deferred consideration payable is fixed at theacquisition date and the number of shares issued to satisfy that considerationvaries according to the market price of the shares at the date the considerationis issued the consideration payable is shown as a financial liability and hasbeen included within deferred consideration and not within equity. This hasresulted in a reduction in shares to be issued and increase in deferredconsideration of £1,625,000 at 1 January 2004, £1,617,000 at 30 June 2004 and£598,000 at 31 December 2004. j. Share based payments Under previous GAAP the Group accounted for the all its share schemearrangements, other than share option schemes, at intrinsic value. This has beenadjusted to fair value to be consistent with Group policies. The Group has applied IFRS 2 Share-based Payment to all its share-based paymentarrangements including share options not accounted for under previous GAAP. Thisincludes share options granted prior to 7 November 2002. The effect of accounting for equity settled share based payment transactions atfair values is to reduce retained reserves at 1 January 2004 by £344,000,increase cost of sales by £196,000 in the six months ended 30 June 2004 and by£415,000 for the year ended 31 December 2004. The effect on the balance sheet isto increase share scheme reserve by £344,000 at 1 January 2004, by £540,000 at30 June 2004 and by £759,000 at 31 December 2004. Under previous GAAP the early release of PSP grants was accounted for within therelated performance period. Under IFRS 2 this cost is spread over the vestingperiod, being the period between grant of award and final vesting. The effect isto reduce cost of sales by £58,000 in the year ended 31 December 2004. k. Foreign exchange translation of results of overseas operations Under IFRS the exchange gain or loss arising from the translation of the resultsand assets and liabilities of overseas entities is accounted for within aseparate component of equity, the translation reserve. Prior to the date oftransition such exchange movements were included within retained earnings. Theeffect is to increase retained reserves and reduce translation reserve at 30June 2004 by £1,063,000, and reduce retained reserves and increase translationreserve at 31 December 2004 by £144,000. l. Reclassifications In accordance with IAS 12 Income Taxes deferred tax assets previously includedwithin current assets have been re-classified as non-current assets. Liabilities in respect of employee benefits held within other categories ofcurrent liability have been reclassified within employee benefits. These amountto £103,000 at 1 January 2004, of £242,000 at 30 June 2004 and £270,000 at 31December 2004 The balance on revaluation reserve recognised under previous GAAP at 1 January2004 and 30 June 2004 of £37,000 and at 31 December 2004 of £32,000 has beenreclassified as retained earnings. The amounts represent the balance onrevaluation reserve at 1 January 2004 in respect of assets that are measured atdeemed cost under IFRS. m. Deferred tax The changes noted above have increased (decreased) the deferred tax asset asfollows: 1 Jan 2004 30 June 2004 31 Dec 2004 £000's note Goodwill amortisation a - (79) (319)Other intangible assets d 41 41 41Employee benefits - defined benefit pension scheme e (259) (15) 103Employee benefits - holiday pay accrued but not taken f 114 275 151Lease incentive g 52 51 50Share based payments j 235 188 305Total adjustment attributable to equity holders of the 183 461 331parent n. The effect of the above adjustments on retained earnings is as follows: 1 Jan 2004 30 June 2004 31 Dec 2004 £000's note Goodwill amortisation a 2,007 4,711 5,807Business combinations - fair value of deferred c(i) (570) (908) (1,353)considerationBusiness combinations - fair values on acquisition c(ii) - (68) (323)Other intangible assets d (97) (97) (97)Employee benefits - defined benefit pension scheme e 193 (430) (1,226)Employee benefits - holiday pay accrued but not taken f (363) (890) (427)Lease incentive g (363) (355) (347)Dividends h 1,801 1,966 2,134Revaluation reserve l 37 37 32Share based payments j (109) (352) (396)Foreign currency translation k - 1,063 (144)Total adjustment attributable to equity holders of the 2,536 4,677 3,660parent Reconciliation of profit for 2004 For the six months ended For the year ended 30 June 2004 31 December 2004 Note Previous Effect of IFRS Previous Effect of IFRS transition transition £000's GAAP to IFRS GAAP to IFRS Revenue- continuing operations o 72,514 (244) 72,270 165,884 (1,735) 164,149- acquisitions 4,040 - 4,040 Revenue 72,514 (244) 72,270 169,924 (1,735) 168,189 Cost of sales o,q,r,s,t (107,808) 151 (107,657) Gross profit 62,116 (1,584) 60,532 Administrative expense a,p (44,885) 4,119 (40,766) Operating profit beforegoodwill amortisation - continuing operations a,o,q,r,s,t 10,317 (1,692) 8,625 22,980 (3,805) 19,175 - acquisitions 591 - 591 Goodwill amortisation p (2,783) 2,783 - (6,340) 6,340 - Operating profit before 7,534 1,091 8,625 17,231 2,535 19,766financing costs Net financing costs u 54 (338) (284) (558) (783) (1,341) Profit before tax 7,588 753 8,341 16,673 1,752 18,425 Tax expense v (2,062) 289 (1,773) (4,717) 133 (4,584) Profit for the period 5,526 1,042 6,568 11,956 1,885 13,841 o. Business combinations - revision of fair values at acquisition In respect of business combinations during the six months ended 30 June 2004 theeffects of revising certain fair values at acquisition are to reduce revenue by£244,000 and reduce operating profit by £97,000 during the six months ended 30June 2004. In respect of business combinations during the year ended 31 December 2004 theeffects are: to reduce revenue by £1,735,000 and increase cost of sales by£1,273,000 during the year ended 31 December 2004. p. Goodwill Goodwill amortisation charge was written back by £2,783,000 for the six monthsended 30 June 2004 and by £6,340,000 for the year ended 31 December 2004. q. Employee benefits - defined benefit pension scheme The pension service cost recognised under IAS 19 was £41,000 less than thecharge made under previous GAAP within operating profit in the income statementfor the six months ended 30 June 2004; and £72,000 less than the charge madewithin cost of sales for the year ended 31 December 2004. The adjustment to the movement on unfunded pension fund provision has resultedin a reduction in operating profit of £761,000 in the six months ended 30 June2004 and an increase in cost of sales of £768,000 for the year ended 31 December2004. r. Employee benefits - holiday pay accrued but not taken During the six months ended 30 June 2004 a charge of £688,000 was made in respect of the increased accrual required at 30 June. In the year ended31 December 2004 a charge of £87,000 was made to cost of sales in respect of theincrease in the accrual required at the year-end. s. Lease incentive During the six months ended 30 June 2004 £9,000 was credited to operating profitand during the twelve months ended 31 December 2004 £18,000 was credited to costof sales. t. Share based payments The effect of accounting for equity settled share based payment transactions atfair values is to reduce operating profit by £196,000 in the six months ended 30June 2004 and increase cost of sales by £415,000 for the year ended 31 December2004. Under previous GAAP the early release of PSP grants was accounted for within therelated performance period. Under IFRS 2 this cost is spread over the vestingperiod, being the period between grant of award and final vesting. The effect isto reduce cost of sales by £58,000 in the year ended 31 December 2004. u. Business combinations - discounting deferred consideration The effects of discounting deferred consideration payable in cash to its fairvalue at the date of acquisition (see note c above) are that net financing costshave increased by £338,000 during the six months ended 30 June 2004, and£783,000 during the year ended 31 December 2004. v. Tax expense The reduction or (increase) to tax expense related to the above adjustments arein respect of deferred tax only as follows: Note 6 months to Year ended 31 30 June 2004 December 2004 £000's Business combinations - revision of fair values o 29 139Goodwill amortisation p (79) (319)Employee benefits - defined benefit pension scheme q 226 222Employee benefits - holiday pay accrued but not taken r 161 23Lease incentive s (1) (2)Share based payments t (47) 70Total reduction in tax expense 289 133 Independent review report to RPS Group Plc Introduction We have been instructed by the Company to review the financial information forthe six months ended 30 June 2005 on pages 6 to 37. We have read the otherinformation contained in the interim report and considered whether it containsany apparent misstatements or material inconsistencies with the financialinformation. Our report has been prepared in accordance with the terms of our engagement toassist the Company in meeting the requirements of the Listing Rules of theFinancial Services Authority and for no other purpose. No person is entitled torely on this report unless such a person is a person entitled to rely upon thisreport by virtue of and for the purpose of our terms of engagement or has beenexpressly authorised to do so by our prior written consent. Save as above, we donot accept responsibility for this report to any other person or for any otherpurpose and we hereby expressly disclaim any and all such liability. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures should be consistentwith those applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. As disclosed in note 1(a), the next annual financial statements of the Companywill be prepared in accordance with IFRS as adopted for use in the EU. Thisinterim report has been prepared in accordance with the basis set out in note 1(a). The accounting policies are consistent with those that the directorsintend to use in the next annual financial statements. As explained in note 1(a), there is a possibility that the directors may determine that some changesto those policies are required when preparing the full annual financialstatements for the first time in accordance with IFRS since the IFRS and IFRICinterpretations that will be applicable and adopted for use in the EuropeanUnion at 31 December 2005 are not known with certainty at the time of preparingthis interim financial information. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification ofassets, liabilities and transactions. It is substantially less in scope than anaudit performed in accordance with United Kingdom Auditing Standards andtherefore provides a lower level of assurance than an audit. Accordingly, we donot express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2005. BDO Stoy Hayward LLPChartered AccountantsLondon 15 September 2005 Special Purpose Audit Report of BDO Stoy Hayward LLP to RPS Group Plc on its Preliminary International Financial Reporting Standards("IFRS") Financial Information In accordance with the terms of our engagement letter, we have audited the IFRSfinancial information of RPS Group plc ("the Company") set out within note 9 ofthe interim statement which comprises a reconciliation of equity from UKgenerally accepted accounting principles (UK GAAP) to IFRS of the consolidatedbalance sheets as at 31 December 2004 and 1 January 2004, the relatedreconciliation of profit for the year ended 31 December 2004 and the relatedaccounting policies under IFRS along with the key changes in accounting policiesas a result of adopting IFRS and the basis of preparation as set out in note 1of the interim statement. Respective responsibilities of directors and BDO Stoy Hayward LLP The directors of the Company have accepted responsibility for the preparation ofthe IFRS financial information which has been prepared as part of the Company'sconversion to IFRS. Our responsibilities, as independent auditors, areestablished in the United Kingdom by the Auditing Practices Board, ourprofession's ethical guidance and the terms of our engagement. Under the terms of engagement, we are required to report to you our opinion asto whether the IFRS financial information has been properly prepared, in allmaterial respects, in accordance with the basis of preparation note to the IFRSfinancial information. We also report to you if, in our opinion, we have notreceived all the information and explanations we require for our audit. We readthe other information accompanying the IFRS financial information and considerwhether it is consistent with the IFRS financial information. We consider theimplications for our report if we become aware of any apparent misstatements ormaterial inconsistencies with the IFRS financial information. Our report has been prepared in accordance with the terms of our engagement inconnection with the Company's conversion to IFRS and for no other purpose. Noperson is entitled to rely on this report unless such a person is a personentitled to rely upon this report by virtue of and for the purpose of our termsof engagement or has been expressly authorised to do so by our prior writtenconsent. Save as above, we do not accept responsibility for this report to anyother person or for any other purpose and we hereby expressly disclaim any andall such liability. Basis of audit opinion We conducted our audit having regard to Auditing Standards issued by the UKAuditing Practices Board. An audit includes examination, on a test basis, ofevidence relevant to the amounts and disclosures in the IFRS financialinformation. It also includes an assessment of the significant estimates andjudgements made by the directors in the preparation of the IFRS financialinformation, and of whether the accounting policies are appropriate to theCompany's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information andexplanations which we considered necessary in order to provide us withsufficient evidence to give reasonable assurance that the IFRS financialinformation is free from material misstatement, whether caused by fraud or otherirregularity or error. In forming our opinion we also evaluated the overallpresentation of information in the IFRS financial information. Emphasis of matters Without qualifying our opinion, we draw your attention to the following matters: - The basis of preparation note 1(a) to the interim statement explains why theaccompanying IFRS financial information may require adjustments before theirinclusion as comparative information in the IFRS financial statements for theyear ending 31 December 2005 when the Company prepares its first IFRS financialstatements. - As described in note 1(a) to the interim statement, as part of its conversionto IFRS, the Company has prepared the IFRS financial information for the yearended 31 December 2004 to establish the financial position and results ofoperations of the Company necessary to provide the comparative financialinformation expected to be included in the Company's first complete set of IFRSfinancial statements as at 31 December 2005. The IFRS financial information doesnot itself include comparative financial information for the prior period. - As explained in the basis of preparation note 1(a), no adjustments have beenmade for any changes in estimates made at the time of approval of the UK GAAPfinancial statements on which the IFRS financial information is based, asrequired by IFRS 1. Opinion In our opinion, the accompanying IFRS financial information for the year ended31 December 2004 has been prepared, in all material respects, in accordance withthe basis set out in the basis of preparation note 1(a), and key changes inaccounting policies as a result of adopting IFRS, including the assumptions madeby the directors of the Company about the standards and interpretations expectedto be effective, and the policies expected to be adopted, when they prepare thefirst complete set of consolidated IFRS financial statements of the Company forthe year ending 31 December 2005. BDO Stoy Hayward LLPChartered AccountantsLondon 15 September 2005 This information is provided by RNS The company news service from the London Stock Exchange

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