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Edited Transcript of RPS.L earnings conference call or presentation 1-Aug-19 8:30am GMT

Half Year 2019 RPS Group PLC Earnings Presentation

London Aug 7, 2019 (Thomson StreetEvents) -- Edited Transcript of RPS Group PLC earnings conference call or presentation Thursday, August 1, 2019 at 8:30:00am GMT

TEXT version of Transcript


Corporate Participants


* Gary Young

RPS Group plc - Finance Director & Executive Director

* John Matheson Douglas

RPS Group plc - CEO & Director


Conference Call Participants


* Christopher Bamberry

Peel Hunt LLP, Research Division - Analyst

* Julian Charles Cater

Numis Securities Limited, Research Division - Analyst

* Katherine Somerville

RBC Capital Markets, LLC, Research Division - Analyst




John Matheson Douglas, RPS Group plc - CEO & Director [1]


All right, folks, we might kick off. Welcome everyone to RPS' half year results presentation for 2019. I always look forward to seeing your happy, smiling faces. But these days, we do this partly for the benefit of the camera. So we'll get people to hold questions till the end. What we'll do is -- we've done quite a few times in the past now.

I'll make a few introductory comments. I'll get Gary Young, our Group Finance Director, to come up and talk to the group financial results. I'll come back and talk to business performance, segment performance. I'll talk about the significant progress we're making against strategic imperatives. And of course, I'll talk about the group outlook. This is a half year presentation that talks about managing volatility. We've had some well-documented volatility, particularly in Australia, that talks about significant progress and talks about our positive outlook.

So in terms of volatility, we've seen a 3% decline in fee income half-on-half, but of course, that was heavily driven by a circa 20% downturn in Australia. We'll show you a capacity match to market. This is a big part of what we do. We'll show you a PBTA of GBP 18.2 million but careful to say that's after rebranding costs of around GBP 1 million that we don't expect to be there in this time next year. We'll show you a strong and improving cash cycle, which, of course, translates through to good cash conversion, and we'll talk about the dividend rebasing, which is part -- but I'm careful to say, only part of disciplined balance sheet management.

I will talk about progress against our imperatives, people, brand, connectivity. We'll quantify things as much as possible. We'll talk about Energy, which is clearly turning around nicely but also talk about our push into renewables. We'll talk about organic growth and a better commitment to very selective acquisition. And finally, we'll talk about our strong competitive position in key markets, what we think of good thematics. Resource scarcity and urbanization may not be good for my kids, but they're not going away, and they're good for our business. And we'll talk about markets, in some cases are unsettled but wherein every case, we think there are positive long-term signs. We did talk in the RNS this morning about rebasing the dividend. The Board's policy after quite a bit of consideration is to pay out 40% of PAT on a half yearly basis. So we think that's a policy that's clearly sustainable. We think that's a policy that's disciplined and because we're investing to drive growth, we also think it's a policy that's progressive.

And in thinking through this policy, the Board was mindful of a whole host of things, very mindful of our long-term and clearly expressed aspiration to get back to 40% payout or 2.5x dividend cover. One of the first things Gary and I did was look at what value-creating firms in our industry do. That's been our long-term aspiration. But of course, recent headwinds in Australia and political uncertainty in the U.K. have forced us to bring forward that decision. And the Board was mindful of that. Very mindful of the need for disciplined balance sheet management. Remain very, very committed to driving organic growth first and very selective acquisition. So dividend movement doesn't reflect a return to overly acquisitive past. And we're also mindful of the fact that the rebased dividend remains healthy in terms of yield. What I want to do very quickly before I hand over to Gary is just remind people of who RPS is.

So first of these days, we're a really well-balanced company. So after the organization changes we announced last year, we've got 6 segments, all of roughly equal size. You'll see that Australia's slipped back a bit in the picking orders you'd expect, and you see Energy has come up as it's grown. And because we've been asked about this a fair bit, we're also showing public and private split. And you see, again, we've got a good mix of private sector and public sector work, and we'll show you what that looks like on a segmental basis as well. We're also well diversified. So we work in property, and our property is itself diversified across geographies. Work in energy, again, hydrocarbons and renewables, water transport, defense and government services and resources. And we do around 12 key service offerings.

And you can see that they're predominantly front end and high end. So you can see that we -- our biggest single activity is project and program management, water services, environment, exploration, advisory. And you can also see the design and development, where we put our hardcore engineering is important to us, but it's also less than 20% of what we do. So we're really a consultant, not an engineer. That's got some really good things in terms of margins and agility. It's also got some less good things in terms of length of order book, but it's important to draw that distinction. We employ engineers, but we're consultants, not an engineering firm. And we are, of course, safe, very committed to being safe because we care because our Board cares because our clients care. You can see a good improving trend. And you can see we benchmark well against sort of outdoors industries, not as well as purely office-based people, and that absolutely reflects where we sit.

So on that note, I'll hand over to Gary.


Gary Young, RPS Group plc - Finance Director & Executive Director [2]


Good morning, everybody. I'm going to talk about the group results. So let's start off with the P&L accounts. And you can see the fee reduction is relatively small, 3%, largely driven by AAP, where we had difficult markets during the course of the first half of the year. Our operating profit has come down by about GBP 8 million, reflects softer performance in AAP as well as a soft first quarter in North America, although I'm careful to say that the second quarter in North America was much stronger than the first quarter.

During the half as well, we invested an extra GBP 1.3 million in support services. If you remember that we advised that we were going to spend an extra GBP 2.5 million during the course of this year. Well, we are on track to do that. And we also spent GBP 1 million on rebranding. We've got more rebranding to come in the second half, but it will be lower in total than the GBP 2 million that we advised that we would spend for the full year at the year-end. That is a one-off cost, that rebrand costs. Tax rate at 24.6% is based upon the estimated full year tax rate. It does have the benefit of some prior year adjustments to our credit in the first 6 months of the year. So the full year tax rate is expected to be a little bit higher than that tax rate that we've had for the first half. And as you can see, the dividend has been cut by 50%. Moving on to the operating cash flow, we've had another period of good cash flow, good cash conversion, 50%. It would have been higher but for the fact that July 30 was a Sunday. And we received, therefore, quite a lot of cash from our clients coming in the first week of July, about GBP 4 million came in, which we otherwise might have expected if the period-end had finished on a weekday. Nevertheless, the important thing about this slide is that for the 12 months ended 30th of June, we have cash conversion of 98%, which is really strong, and it's better than the equivalent 12 months' cash conversion ended 30th of June 2018.

Moving further down the cash flow, we've made some disciplined investments. Our CapEx is GBP 10 million for the half. That includes around GBP 2.7 million spent on the new ERP system. There'll be more to come in the second half of the year, and we spent just about GBP 9 million on the Corview acquisition that we made in February. So an outflow of GBP 27 million during the half year, which has led to an increase of debt to about GBP 101 million at the end of June. And that compares to facilities we have now of around GBP 160 million. So there's plenty of headroom. We have deferred consideration of about GBP 8 million, pretty much all to do with Corview.

One of the key reasons that we've got strong and improved operating cash flow is the improved cash cycle. And what this chart shows is the month-on-month lock-up days for 2018 and 2019. 2018 is the top line, 2019 is the bottom line, and you can see, this year, our performance on a monthly basis has been consistently better than last year. You'll also see that from the 1st of January this year to 30th of June, we've gone out by 2 days to 67 days. We would expect to -- that to come back down towards the back end of the year. There is some normal seasonality in our business.

As a consequence of higher debt and lower profits, our leverage has increased to 2x cover at the half year. I should say, for the bankers in this room, 1.99x. Because we have an improving cash cycle and because we rebased the dividends, we are projecting that, that leverage will come down by the end of the year.

Now this is a slide on IFRS 16. I'm not going to go through this in detail, but I want to say that IFRS 16 is putting some assets on our balance sheet, some liabilities on our balance sheet, the liabilities are not going to be taken into account in our leverage calculations for bank covenant purposes. Since the half year, we have refinanced our revolving credit facility. We've entered into a GBP 100 million committed facility with NatWest, Lloyds and HSBC. NatWest [is new] to us as a bank. So we're thankful for them coming on board as part of our banking syndicate. We've entered a 3-year committed facility, with the possibility of extending for another 2 years. It's $100 million committed, and there is $60 million accordion facility that we might be able to draw around as we need it in future. And in addition to the RCF, we still have, of course, the private placement notes provided by Pricoa, which extend to 2021. That's the group overview.

I'm now going to hand back to John for the segment progress.


John Matheson Douglas, RPS Group plc - CEO & Director [3]


Thanks, Gary. Has a quite range of stories in our segmental performance. In Energy, we'll show you good profit growth, and we'll show you a good push into renewables. In Consulting, we'll show you very strong growth in Ireland. But in the U.K. and in London, in particular, we're seeing the impact of some Brexit uncertainty. Netherlands is growing on previous investment as expected. The AMP cycle is impacting us in this last year as expected. Norway is growing following the integration as expected. In North America, we've had some well-documented, self-inflicted wins. As Gary said, we had a better half than the preceding half and a much better quarter than the preceding quarter. Still a very strong market, still enduring the downside of a strong market, which is pressure on employees. In Australia/Asia Pacific, we had an unholy trinity of a federal election impacting defense procurement, state elections impacting transport procurement and also a property downturn. And for a range of reasons, I think we are bottoming those problems quite comprehensively.

If you look at the fee income, again, by segment, you can see some interesting things here. Energy grew more modestly than some people might have expected. Our operations business is growing strongly. Renewables is growing strongly, but the high-end consulting is a bit subdued still, and I think that reflects where we are in the cycle. People are collecting data, but -- particularly MetOcean data but not always doing the detailed field studies that they used to do. Our consulting business grew around 4%. I'll show you, dramatically driven by Ireland. Our Services business came back a tad, absolutely on the back of the AMP cycle. Norway grew around 6%, which was good. You can see North America came back, which was self-inflicted, and we'll talk about that. And you can see that Australia/Asia Pacific came back around 20%.

The other thing you can't see on here is that intercompany eliminations went up around 30%. It's a small number, but I draw your attention to it because it's just a tangible sign that we are doing more together. And of course, profits in -- profits are down, our profits are particularly down in Australia/Asia Pacific because, of course, if you lose 20% of your revenue and have to restructure your workforce as a consequence, that has quite profound impact on the half just gone. You can see in other parts, Energy down 6%. That's misleading. We didn't have a bad debt. We actually had a really good bad debt recovery in '18. But of course, the half-on-half comparison, once you remove that bad debt recovery, we're up around 16%. Consulting and Services are down a bit. That pretty much reflects some mix changes but also the investment that we said we'd make for future growth. Norway is up strongly as we anticipated, and America is down for all the reasons we talked about.

You can see, as Gary said, unallocated expenses are there or thereabouts, but the rebrand cost came through this year but won't come through next year. And really importantly, and I'll talk about volatility in this business, if you run these sort of businesses, part of what you're paid to do is match capacity to markets but maintain capability. So you can see our employee numbers have shifted quite a bit from about 5,600 to 5,200. You can see that change comes almost exclusively out of Services, where we've unfortunately had to let people go at the back end of the AMP cycle. And many of those people are on relatively short-term contracts. That's probably our most blue-collar business. And you can also see that the numbers have come down quite a bit in Australia, more than you might think because they're down from sort of 1,000 to 910, that's like a 90 reduction. But of course, we bought in Corview, that's exposed to transport infrastructure. So we've lost around 140 people out of our -- predominantly out of our project businesses -- sorry, our property-exposed businesses. I normally pick this off from top to bottom, but I'm going to work up the page this time because I want to deal with our problem children first.

So we talked a lot about Australia a month ago, but you can see where our work comes from. So Energy, water and resources are all going great. They're all based pretty much in Perth. It's a strong market. But the bulk of our work is in defense, transport and property. And as we discussed, we are seeing some slowdown in the first half in defense procurement. We saw some hiatus in transport infrastructure projects, and we're largely government exposed there as a result of 2 elections, and the property downturn, I think, is well documented elsewhere. You can see the nature of work, public-private split. So when we're fascinated by not 1, not 2, but 3 elections all in the same period, you understand why. And it's worth saying that all the Australian states are not created equal, whatever the constitution says. Victoria and New South Wales make up circa 60% of the GDP. And you can also see what we do, very front-end, high-end project management being by far and away our biggest activity. Design and development in Australia was often survey related because in Australia, survey and town planning are very closely related.

You can see the impact of losing 20% of your revenue, down quite substantially in segment profit. I'll talk about the reasons for this, so I won't rehearse them. But I guess there's some reasons why we might feel optimistic. The Victorian election is completely washed through. The New South Wales election is not completely washed through, but clearly, it's alive, and we expect it to do so. We're seeing -- we expect defense procurement to pick up in the second half. We were delighted to pick up a couple of major multimillion dollar projects since July. So that's a good start.

And then in terms of the property downturn. I've done this long enough not to try and pick cycles. But it feels like we've found a floor. But really importantly, we incurred around GBP 0.5 million of restructuring costs in the half just gone. And in the process, we removed around GBP 2 million worth of cost. So we're not calling the property market back anytime soon. But for all the reasons we showed you, we won't have a reoccurrence of those restructuring costs. And really importantly, we're also going into the second half with a much lower cost base than we went in the first half.

Just on North America, again, you can see some stuff we've shown before, where our work comes from, but we show again the public-private sector split. You can see that we are largely a private sector business in America. Our environmental risk business does a lot of work for private sector, particularly private equity. But you can see the significant public sector work. In this case, at state based, it's largely Texas but not exclusively so. We've talked about the retention, recruitment problems we've had in North America. We've also talked about some sort of revenue delays in the first quarter. I think those revenue delays, in particular, are working through. So that we had a much better quarter for environmental risk. And we also, in our infrastructure business, talked about projects being won but not commenced. That was about delays with the state government in Texas. Head staff is also working through. You can see that the half just gone is better than the half that preceded it. But the quarterly movement is much more pronounced. So we don't publish the quarterly numbers, but it went something like GBP 1.2 million, down to GBP 0.5 million for last quarter of last year, about GBP 0.5 million for the first quarter this year and up to about GBP 1.5 million for the second quarter of this year. So a better half-on-half performance. And if you look at the quarterly numbers, I think an inflection point is clearer as well. And we're selling, which is always a good place to start. The American market fundamentals are good. We never call them down. Demand for services is strong. We expect to do better. But I will say that the ongoing challenge of a really hard economy, and the American economy is a pretty much full employment, is if you're a relatively unknown brand, you are exposed to those retention, recruitment problems. Now we're making headway, but that's going to be an ongoing challenge.

If you turn to our Consulting business, again, you see mix of private-public sector work. That's important because if we have a messy Brexit or a nasty Brexit, then we do have some public sector exposure. You can see the property, transport, water, energy exposure. You can see we did quite a bit of design and development. That's largely based in Ireland. So I will show you the differential growth rates in Ireland and in the U.K. That's important when I show you the next slide. So you see fee income grew at a 4% level. And if I can show you 4% constant currency growth in fees, I normally feel good about life. I'd like 5%, but when I show you some stuff later, you'll see that very heavily came from Ireland. You'll see that the segment profit is down while the fee income's up, so we've had some margin compression. There's 2 reasons for that. One is Ireland, which is an engineering business and has engineering margins is growing much faster than the U.K., which is a Consulting business and has consulting margins. And secondly, for all the reasons we've been talking about now for a year, 1.5 years is we're investing in this business, and investment does hit the P&L. What do we see in '19, good in Ireland but some softening, particularly in London, but London has a very big impact on the U.K. What do we expect going forward? We're seeing no signs of Ireland [weakening]. We really are well positioned to benefit from Brexit resolution, but gee, guys, we'd love to see some resolution.

If you kind of look at the U.K.-Netherlands business, this is a Services business and most blue-collar business, you can see the very heavy expose to the water and water services. So when I talk about being impacted by the AMP cycle, you understand why. We show the private-public split here, but we show it a bit differently. So we work in the sort of private sector, by which I mean non-regulated private sector. We work in the public sector, but we also have quite a large exposure to privatized water companies that we describe as private but regulated. The reason I showed this slide is I constantly get asked, "What would happen if the U.K. gets a labor government and the water industry is renationalized?" And my answer is not much, not much at all. We work very comfortably for public sector water. We understand that the private sector clients we've worked with are heavily regulated. We're not particularly daunted by that prospect. If you look at the profitability of this business and the growth, you can again see a very modest downturn in fees, entirely driven by the AMP cycle. I'll show you later the Netherlands is growing very strongly. And you can see the segment profits down. Again, that's partly mix but is really fundamentally driven by the back end of the AMP cycle that tends to lose both revenue and also profitability. You can see we respond to this. We respond pretty aggressively, i.e., absolutely committed to managing volatility, but it's tough stuff. It means you let people go, and people have mortgages on houses and all the rest. So -- but we are absolutely committed to managing that volatility, and you saw earlier that the revenue downturn was matched by [cost on people].

What do we expect looking forward? Second half this year, we would expect more of the same. We don't see any reason for a fundamental change. But clearly, a new AMP cycle starts in 2020. And now history is we have done much better AMP cycle and AMP cycle and AMP cycle. And that's a very predictable event that will take place early next year. If you look at the Norwegian business, this started in Energy, started in offshore oil rigs but these days, largely works in property and government. You can see very big public sector exposure. This is Norway. The public sector is pretty big. And you can see what we do in project and program management. We try in project and program management. We advise in project and program management. But this is a very focused business with a very strong market position and the leading market position.

We said that integration was dragging down profits last year, but we've bounced back this year and has happened. You can see 6% growth in fees and 15% growth in segment profit. We continue to be bullish about the Norwegian economy. Their sovereign wealth fund pretty much makes sure that bad things don't happen. But the one thing we do note, and we're not alone in noting this, is in Scandinavia and Norway, in particular, the wall fatality is pretty profound.

If you look at the Energy business, unsurprisingly work in Energy. We did do a bit of work in resources, and people occasionally ask me what that is. There are some but not many minerals that respond to seismic exploration. So where seismic exploration works, the minerals, we also work in that area. You can see this is clearly a private business. Energy is dominated by private sector investment. You can see what we do: exploration development, ocean and coastal. I'll come back to that because the exploration development work is very much hydrocarbon. The ocean and coastal work, in particular, is very transferable into renewables. And we do a bunch of other things, but they're all related to energy. You can see -- I just laid out in some detail what happened here, the 2% fee income growth. Segment profit went back, but it only went backwards because in the first half of '18, we recovered a whole bunch of bad debt. As the markets start to recover, people rang us up and say, "Could we have data?" And we say, "Yes, we can give you the data when you pay the bills." And so of course, we had some very good recoveries and that distorts the period-on-period comparison. If you strip that out, around 16% improvement in profitability, which is nice to see. Yes, looking back, the business performed despite what I think is a fluctuating oil price. I did touch on earlier quite differential performance, sort of our operations business, site investigation business is running strongly. Our MetOcean business running very strongly. Our Consulting business running less strongly. And clearly, the renewables helped. Looking forward, I've done this for too long to try and predict the oil price. But we will continue to push into renewables, and our expectation is a combination of continued modest growth in hydrocarbons, and some portion renewables will give us growth for the business as a whole. So that's just a very quick candor through our segments. I've got the "Don't slowdown from here" sign from [MS, so] I will keep pushing through. I just want to talk about the progress we've made over the last 1.5 years. So firstly, an almost entirely renewed Board. And I would argue a really good mix of background, a really good mix of skill, a really good mix of geography. This used to be an English business, it no longer is and a really good mix of gender. And also a very strong leadership team, a pleasing mix of old and new. So we've brought in talent, but we've also promoted and, for want of a better phrase, repurposed existing executives. And I've talked a lot about 5 imperatives. And I just want to talk about where we are and, in particular, start to give people some quantified sense of where we are. So firstly, I've talked about turnover problems, and I've carefully not given people data. And I've carefully not given people data because we don't put stuff in public domain until it's robust. Over the last 1.5 years, we've put together a good HR function. We've improved our record keeping. We've done better exit interviews. We've understood the difference between voluntary and involuntary labors. And so we are in a position where we can start to put information in public domain. You can see our June '19 year-to-date numbers, and these are year-to-date numbers, they're not full year numbers, year-to-date numbers. So they are still too high. You can see our voluntary turnover is around 9.7%. Our involuntary is around 8.4%, giving us a total around 18.1%.

I'm really careful to say that the H1 numbers tend to be higher than the second half because we do performance appraisals at the end of the year, and we set bonus -- we give out bonuses and set salaries in April. So a number of you might be in industries where people get paid bonuses, and surprisingly enough, very few people leave before the bonus is paid, but a surprising number of people leave afterwards. So we do have a front-half skew. But nonetheless, these numbers are too high, and they remain too high. People will ask me immediately, "How does that compare with '18?" And I will say immediately, "If I had the '18 numbers, I would have shown them to you." I don't, so I haven't, but we think the voluntary turnover is broadly in line. We don't think it's going up or down. The involuntary turnover is clearly a lot higher. It's clearly a lot higher because of the tough things we've had to do with the AMP cycle and the tough things we've had to do around the Australian property market. One thing I do want to do is to give people a sense of what's changed behind the scenes. So in 2017, close to half our people had not received a decent performance discussion with their boss, and I just want to let that sit for a professional services firm that is dependent on quality of people, around a half of our people in 2017 had not got a decent discussion with their boss. In 2018, we lifted that number to 80%. It should be 100% unequivocally, but it takes a while to train managers and give them the confidence to talk to people. But you can see we ended up around 18% -- around 80% in 2018. Around 6% of our people were rated as underperformance. That's not a very tough marking regime. But we're new to this stuff, and we're getting good at it, but it takes a while to get people comfortable. Around 10% of our voluntary labors were underperformers. And I think the number's higher. There are people who got a good rating but shouldn't have and they knew it, and around 30% of our involuntary labors were underperformers. Now why do I show you this because even though the turnover numbers are not where I want them yet, you can see that we're engaging with our workforce much more aggressively than we were. And what's more, we're managing our workforce so that the leavers are what we want, not so what we get.

I want to talk about brand. So we've got a bold brand. It's a bottom-up brand, and it was delivered incredibly efficiently. And by efficiently, I mean quickly and by efficiently, I mean cost effectively. To go from nothing to something, you've got to define sectors and services. You've got to have a really solid discussion with your people about the purpose of the company. You've got to talk about the client promise, and you've got to talk with people about it, you can't impose, it has got to come from the brand up, and you've got to talk to staff about behaviors. And this stuff matters profoundly to millennials. One of the issues I sometimes have is you talk to baby boomers about this stuff, and their eyes roll back in the head, it matters profoundly to millennials. And you have to tell your story in a compelling way to attract good staff. Yes, we've clearly done -- we've broken the back of that. As Gary said, there'll be a bit of cost in the second half, but it won't be reoccurring this time next year. And we're starting to see measurable impact. What I mean by measurable impact, 50% uplift in site visits, million page views. But this is the only thing I really care about, which is around 2,000 web service inquiries. People occasionally buy cars off the Internet, people buy clothes off the Internet, my daughter's buying extraordinary number of shoes off the Internet, but very few people buy professional services off the Internet. But the critical thing that our website does is there's 2 or 3 clicks to an expert. The way you sell work off the web in a professional services business is you've got an inquiry, you have a look, and I make it easy for you to talk to me. So those 2 or 3 -- those [2,000] web inquiries translate to meaningful uplifts in actionable inquiries. I want to talk about connectivity. I showed you a very crude measure that -- earlier, which is the intercompany numbers are starting to creep up. I just want to show you an example. So this is something that I like because it touches on 2 big strategic drivers for us. One is, let's collaborate where we can. Let's extract synergy where it exists but not waste time where it doesn't. This was some intellectual property developed in our Norwegian project management business. All of their intellectual property is available in English, it's all high-quality English. We used one of their platforms to sell work in Australia. It was a worthwhile work, AUD 4 million. We think we'll get more off the back of that. We don't think we would have won that work without the offering. And what we offer is exactly what we aspire to offer these days, is something more than just expertise, right? So the offering there was very much a platform where we took client data and took that client data, added our own expertise and fed it back to them in a much more engaging client experience. And for us, that's very much the sweet spot of digital transformation, and this was just a very real example of both collaboration across segments but also delivering something that we want to deliver.

Of course, the real gains in collaboration are not intersegmental. When we did that major reorganization a year ago, and when we went to market and bought in people like John Chubb, that was very much about driving collaboration, not across segments but inside segments. So this is just a very nice little example as well, a piece of work bid out of our project management business. Originally, a worthwhile but not incredibly exciting job, GBP 60,000 worth of project management. But as we start to incentivize people to cross-sell and incentivize people on the performance of sister businesses, we're starting to see different behaviors. And ultimately, here we saw 13 separate disciplines [in -- and] what we call 20 priced activities.

Importantly, yes, that resulted in literally in order of magnitude uplift in the value of the work. So just a very small [vignette] but an example of increasing collaboration inside segments as well as across segments. And the other thing we talked about on the connectivity is the ERP. And I keep saying 2 things: it's modular, and it's on track. And what do I mean by that? It's modular. So we pick a piece off, and we deal with it, and then we pick the next piece off. Global design finished in June on budget. The global construction was underway. The first go-live will be in AAP in November and also in Netherlands in November. So we'll go live with the European business and the Australian business. The need is greatest in Australia. The need is profound in Australia, but we're going live in the Netherlands, which is a business that's well positioned to adapt to because we want this to be a global system, not an Australian system. And then we will finish Australia in March 2020, then we're in a position to go live with the big step, which is our U.K., Ireland, and Norway business, and we have the potential but not the necessity to go to North America. There is no outside potential but not necessity as North America has probably the most modern systems of anywhere in RPS at the moment.

I just want to talk about Energy. I won't rehearse what I showed earlier. The business is clearly growing, and the business is clearly growing its profitability faster. And I guess one of my first decisions was, did we keep the Energy business? And of course, we're delighted we did. I just want to talk a bit about offshore wind. It's growing like Topsy. I've got investors, not in the room but certainly on the call, who are otherwise invested in offshore wind, and they understand the growth. It's a circa 5 trillion industry, which sounds exciting. Of course, the amount available to us is a lot smaller, but it's still a $1 billion industry. And why is this important? Because we are really, really well positioned to take advantage of that. Our MetOcean business, our ocean science business is absolutely in a sweet spot as [they are] consenting businesses, as our site investigation business, as unbelievably as our unexploded ordinance business because a number of wind farms offshore are sites of previous novel engagements. We do survey support, we do due diligence, we do health safety, and we, of course, do data management. So all of these things are absolutely in a sweet spot. This is not hypothetical. It's real. We're selling real projects. I show a couple here: Hornsea for Ørsted, GBP 8.3 million; Equinor all over the world, data collection using LiDAR, again, GBP 5 million. Good real projects that reflect us taking expertise developed in oil and taking it across to offshore wind.

[In small]. We're still a hydrocarbon business, that's why I worry about oil price. But importantly, the renewables is growing much, much faster. It's around 8% of what we do, and we expect it to become an increasing large percentage of our Energy business. And I'm really careful to say, of course, that this is just Energy. We do a poultice of work in renewables outside the Energy business. So I've talked previously about the hot and wind -- the hot and solar farm in Tasmania, there's clearly renewables with a bunch of work.

I just want to talk about organic growth and very selective acquisition. We have rebased dividend that does not reflect the fact that we're returning to a previously overly acquisitive approach. We are very committed to organic growth. You can see we're generating very strong growth in some areas: 22% in Ireland in Consulting; 9% in Services, Netherlands; 6% in Norway. You can see Energy more modest, although for reasons I talked about, some parts, including renewables, are showing really, really solid growth. Consulting in the U.K. is flat, and that very much reflects that sort of Brexit resolution issue. Our service in the U.K. is down, but you'd expect that with the AMP cycle unequivocally. North America is down, which it shouldn't be, it's a good economy. And AAP is down for all the reasons I talked about.

Committed to very selective acquisition. It's got to add density, not further diversification. It's got to be value creative. It's got to be congruent with brand and culture, and it's got to add data and expertise. Corview met all of those criteria. It's been comprehensively integrated. We integrated early. We're selling work out of Corview. And really importantly, we're selling other consulting work out of Corview, and we're selling consulting services from other businesses. So very pleased with the strategic logic behind Corview.

And finally, just turning to group outlook. I'm going to say upfront something that I've said to everyone in this room and certainly said to every one of our investors at some stage. We've consistently showed you a slide that says our business is a front-end to high-end business, and engineering is important to us but typically around 20% of our business. That's got a whole bunch of good things. Typically, margins are higher in those consulting businesses. Typically, the more agile businesses. Typically, you don't get tracked in big money-losing contracts. So there's a bunch of very positive things about that. But there are also some challenging things about that, which is the order book tends to be shorter. And if you think about it, if you're providing design support for major motorway, that can run for 2 years. If you're doing the planning approvals, that could be a much shorter period. So our order book in some of our businesses is typically around 3 months. What does that mean? The first thing it means is we are absolutely close to our customers. If you're in the short order book business, as you talk to your customers all the time, you're building up your internal order book. We're good at that, but we can get better. And certainly, we're good at that on a personal level, but we're not as good as that on a systematized basis as we should be. We absolutely have to match capacity to markets while holding capability. It's a core skill in these businesses. We're good at that. RPS has always been good at that. RPS has always had the right level of ruthlessness. We have to manage cash tightly. But I'm careful to say, we're good at that, and we'll continue to be good, and we'll get better. We manage cash tightly. Again, it's always been an RPS skill, but you can see that we're getting better. You can see our cash cycle tightening up again and again. We maintain a very balance -- disciplined balance sheet. Gary and I went to different schools but were united in the fact that these businesses run with 1 and 2. And really importantly, we've always talked to markets 4 times a year. So we've always said from day 1, we will talk at the half year, the full year, we'll talk at the AGM, and we'll give an October update because, of course, if you think you've got 3-month order book, things can change a lot in 3 months.

Our competitive position. We think we've got good positions. Our Energy business is so strong, I've not bought competitors. It's so strong, I've sat there and said, "Gee, if I bought that competitor, my clients would rebel," very strong position. Our consulting brand in the U.K., very strong. Our brand in water, very strong. Our brand in Netherlands, top 5. Our brand in Norway, incredibly strong. Our position in Australia, very strong. Clearly, in North America, 400 people in a market that size, we don't have the competitive position, which in our industry often means brand recognition we'd like to have. But good positions. And in all those markets, we have real reasons for optimism. We -- who knows where the oil price is going, but we expect to see ongoing modest growth in Energy, in hydrocarbons, and we expect to see a continued push in renewables. In Consulting, Ireland's running strongly. You saw that. We'd love a Brexit resolution. We're well positioned to benefit from it. In Services, there will be a new AMP cycle. The back end of this year may be tough. There will be a new AMP cycle next year. In Norway, a very good economy. In North America, a robust economy and improving business and Australia/Asia Pacific, for all the reasons I talked about, the government issues are largely resolving themselves. And the property market, we have taken a lot of restructuring costs, and we also have an expectation that the lower cost base will yield.

So this is just a repeat of what we said in the RNS. I've done this long enough not to show a slide that's different from the RNS. Clearly, disappointed with the downgrade around the Australian softness but talk to all the reasons why we are positive about our position and positive about outlook. And that's probably a good place to start where I started. We are in the business of managing volatility. I think we do it well. We are making progress against all of our strategic imperatives. We had strong strategic positions. We have really good thematics. I talk about the purpose of this company, but we are heavily invested in resource scarcity, energy scarcity, water scarcity and heavily invested in urbanization, which are both really good long-term thematics. And there are some unsettled markets. I'm clearly standing in the middle of one of those. But nonetheless, I think, some positive signs in many of our markets.

So look, that's a good place to stop and take questions. If you do so, can I get somebody to bring you a mic, and we'll...


Questions and Answers


Julian Charles Cater, Numis Securities Limited, Research Division - Analyst [1]


It's Julian Cater from Numis. I've got 2 questions, please. First of all, thank you for sharing the new data on the employee churn. And I just wonder whether you can provide a little bit of context across the group in terms of where the journey is for the strongest performing divisions versus the weaker ones. So that'd be my first question. And my second question is I take your point about the short order book. I guess investors, sell-side analysts could use the employee numbers, which you share on 21 -- Page 21 as a sort of a lead indicator of where you anticipate that fees in the following quarter to be, that's obviously down. So I wonder whether you can provide a bit of context to the sort of work in hand that you might be sitting on now in terms of a leading indicator into Q3, please?


John Matheson Douglas, RPS Group plc - CEO & Director [2]


So they are 2 quite discrete questions, I'll pick them off. So firstly, our turnover is too high, generically not -- it's not that I'm being picked off by one competitor or -- it's -- and it's not that we've got a pattern of leavers that's dramatically different to our competitors. So people leave for a range of reasons, their partner moves, they go back to university, they retire, this whole bunch of things. And millennials turn over much faster than older folk. But what we have is a systemically higher level. And my argument, which I believe to be profoundly true, is that we've just underinvested in people, so we've got a systemically high level. Inevitably, it manifests itself worst in market. If you have a strong brand and a weak market, you don't have a problem. If you have a weak brand and a strong market, you have a bigger problem. So yes, the problem manifests itself most profoundly where our brand is weakest and where the markets are hot. So unsurprisingly, you've heard me talk a lot about turnover in Texas, for example.

Yes, it's also true that the places that are out of the way, like Rhode Island, where we've got a really strong brand in MetOcean in ocean science, and it's a long way from anywhere, we have less turnover problem. We probably have less turnover problem parts of Ireland. So it manifests itself exactly where you'd expect. But there are -- and there are sometimes quite specific things we need to do to address it, and I talked at one stage about just by moving the pay grades of the junior engineers in Ireland. But taken as a whole, I continue to believe, and I think we're seeing data that supports it, that we need to raise the standard of our HR practices fundamentally. Yes. Because yes, I showed you a stat there that would have been acceptable when I came in the workforce 30 years ago, yes, you had a 50% chance of getting a performance appraisal. You try and sell that to my kids in the workforce. Yes, so in many ways, we don't have bad HR practices. We had HR practices that grossly outdated and as we bring them up-to-date, we will see a positive benefit from that. And the second question?


Julian Charles Cater, Numis Securities Limited, Research Division - Analyst [3]


So the second question is looking at the staff numbers in the context of your work in hand and the visibility you might have on Q3?


John Matheson Douglas, RPS Group plc - CEO & Director [4]


Yes. So yes. I mean one of the really tough questions you always go through in this business, and unlikely we are pretty good at managing that volatility, is how long are you going to be down. Because depending on the jurisdiction, our redundancy cost you somewhere between nothing in Texas and 6 months in Netherlands. But if you said something about 3 months on average, you wouldn't be too far off the truth. And then it takes you -- you're going to pay a headhunter to bring somebody in where you're going to spend into the recruitment money, and you're going to train people and get them up-to-date with your system. So you could pretty much argue with 3 months cost on the way out and 3 months cost on the way in, so if you've got a high level of confidence that you'll be using that person in a thoughtful way inside 6 months' time, you shouldn't lose him.

So for example, we've -- in Australia, we looked at the transport infrastructure work and said, "We think that's pretty temporary." So we're hanging on to people. We looked at the defense work, and we said, "We think it's temporary, we're not certain." So we just -- we were a bit tougher in our performance management, but we didn't make wholesale redundancies. And we looked at property and said, "Gee, that could be down for 1.5 years, 2 years," and we really can't carry people for that length of time. So that's a balanced judgment. And I think one of the things you're -- one of the decisions you're making when you buy in this industry is do you back the management team to be good at doing that stuff or not. Sometimes it's much shorter term. Yes, it's not probably particularly fair from a social justice point of view, but a lot of our services people are blue collar, and they have much less protection. They're often weekly paid, we can shift them quite quickly, and we can bring them back in quite quickly. And also because of what they do is less skilled, I'm less worried about retraining.

So again, fairly brutally in our lower-skilled activity, by which, I mean, things like the water industry but also some activities -- surprising activities like marine mammal observers, people who sit on oil rigs and seismic boats and look for marine mammals, we can train them quite fast. And so we're a little bit more ruthless because we can shed people quickly and gain them quickly. So look, it's a lag indicator, not a lead indicator because if I think I'm coming back in 3 months' time, I won't shed people. And one of the tough things you're going to do is get good at deciding when it's going to be a 3-month downturn and when it's going to be a property downturn for 2 years. Okay. So we've...


Katherine Somerville, RBC Capital Markets, LLC, Research Division - Analyst [5]


Kate Somerville, RBC. Just quickly going back to your staff retention. How quickly can you sort of see improvements coming through, and do you have much visibility on that? Or is it a kind of wait and see? And can you give us an idea of what you think is a sustainable level of staff retention is? And then also following the cut to your dividend, can you remind us of your sort of capital allocation priorities, please?


John Matheson Douglas, RPS Group plc - CEO & Director [6]


Okay. So they're all very fair questions, I think. So in terms of staff turnover. Do I have a lead indicator on it? Not really. I mean if I'm a good boss, I should know if you're thinking of leaving. But if you say to me -- are you going to fill out a form and say, "John, I'm thinking of leaving," you won't. So the best lead indicator you get of staff satisfaction or otherwise is talking to staff. And one of the reasons I was so horrified about that 50% number and so determined to get it up is, what's the best way for me to know if you're satisfied with your current employment? It's actually for me to talk to you on a regular basis. So Kate, are you traveling? Here's some things I think you can improve, but also, what would you like to see improved? Are you satisfied with your career? Do you want to work part time? Do you want to work full time? Do you want to travel?

So there really isn't a substitute for giving our managers the capability to have decent conversations with their staff. And then you asked me a mathematical question, which is what's the right number? I would have said 10 a couple of years ago, and I have said 10 out loud a number of times. I think the millennial group is turning over faster. So I would probably say, I think something close to maybe 12% is where we should get to. But what I've said consistently to analysts and investors is I reckon we're at least 5 percentage points above good. And yes, that view hasn't changed.


Christopher Bamberry, Peel Hunt LLP, Research Division - Analyst [7]


Chris Bamberry, Peel Hunt. A couple of questions if I may. With regard to kind of the pipeline of opportunities, how good is the business in assessing what's kind of achievable and then actually converting that work? Secondly, with the new RCF, how does the margin compare to the previous one? And finally, sorry, third question. You highlighted in the U.K. the impact of investment. Does that mean it's kind of had a disproportionate element of investment of the kind of GBP 1.3 million of support services cost as compared to other parts of the business?


John Matheson Douglas, RPS Group plc - CEO & Director [8]


Okay. So I might grab 1 and 3, but 2 is yours. [So just the one, pass me again].


Christopher Bamberry, Peel Hunt LLP, Research Division - Analyst [9]


Can you just kind of -- how your business been assessing the work [that you're bringing into the pipeline, are you converting that]?


John Matheson Douglas, RPS Group plc - CEO & Director [10]


So in individual cases, very good. So I can talk down -- if I sit down and talk to [Tim Dana], who helps run our project management business. Say, "Tim, talk to me not just about the work you've won, but the proposals you've got out and your expectation of winning them and the projects that are coming up that aren't a proposal yet," but -- so that stuff at an individual level is pretty good. We've got people who are really good at it, but systemically, we're not as good as we could be. So in a previous life, I've had much better quantified pipelines. So I'm used to working with the pipeline where you interrogate your ERP, you upload all of your contracted work.

And then on top of that, you say, "Okay, well, let's load our proposals in there and put a probability on the proposal. We've got a proposal out to Kate. We have won sort of typically everything we've bid with her, so let's put 90% on that one. But we've got another proposal out with (inaudible) pretty hard, so let's put 50% on that one or maybe 20%," right? And then we also go in and we say, "And by the way, Green Square is coming up, that's a huge project. We reckon it could be worth GBP 100 million. We reckon now that there's maybe GBP 10 million of fees for us, and we reckon we've got a 50% chance of that." We don't have that, and in many ways, I often get caught in this trap because I get investors say, "How good is your data," and I have to look them in the eye and say, "I wouldn't be spending GBP 40 million on the ERP if it was good as I liked." So I think I should give you comfort that our people think that way, but we're not capturing it quite as robust as we could be.


Gary Young, RPS Group plc - Finance Director & Executive Director [11]


In terms of the market...


John Matheson Douglas, RPS Group plc - CEO & Director [12]


Yes, yes, yes, [that's for you].


Gary Young, RPS Group plc - Finance Director & Executive Director [13]


It is more expensive now. The previous RCF was set -- pricing was set 4 years ago. However, the committed amount is lower than it was last time. And so overall, the cost of the -- of our borrowings is likely to stay quite similar under the new RCF as it was under the old RCF. In terms of the GBP 1.3 billion of extra central costs, those are support costs throughout the central service functions. They have been incurred by the divisions because they are in support of the segmental performance of each division. They're not held centrally as such, but they are all controlled within the IT function budget, the marketing budget, et cetera.


John Matheson Douglas, RPS Group plc - CEO & Director [14]


But because -- I'm going to make a somewhat majority of Australian comment there. This was an English company that expanded globally. And so for a long time, the cost of central functions and supporting the U.K. were quite mixed up, whereas the costs of supporting Norway or Australia or America were held quite separately. So as we've started to reflect the fact that we are a genuinely international company, and that's not an affectation, it's real. We actually earn more money outside the U.K. than we do inside. So we've got to start to behave like a company that earns more money outside the U.K. than inside. We have, to some extent, had to recognize cost burden incurred. And I think historically, you probably saw central services subsidizing some of the U.K. businesses. And so there's been a little bit of bridging.

Okay. No more questions. We'll wrap there. Really good seeing everyone and look forward to seeing you all in 6 months' time.