TIDMRCDO
RNS Number : 6612M
Ricardo PLC
22 September 2021
The following amendment has been made to the Preliminary Results
announcement released on 15 September 2021 at 07:00 under RNS No
7740L.
The final dividend of 5.11p per share will be paid on 25
November 2021 to holders of ordinary shares on the Company's
register of members on 5 November 2021. The record date was
previously incorrectly listed as 4 November 2021.
All other details remain unchanged.
The full amended text is shown below.
This announcement contains inside information for the purposes
of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it
forms part of UK domestic law by virtue of the European Union
(Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with
the Company's obligations under Article 17 of MAR.
Ricardo plc
Preliminary results for the full year ended 30 June 2021
HIGHLIGHTS
-- The business continues to grow and we are well positioned as markets recover post COVID-19.
-- Positive momentum, with H2 underlying profit before tax of
GBP13.0m, compared to GBP5.0m in H1.
-- All segments, except Automotive & Industrial, increased profitability on the prior year:
o Energy & Environment and Rail performed strongly, with
increased margins
o Defense (1) ABS Retro-Fit deliveries commenced
o In Performance Products, transmission volumes increased
year-on-year and engine volumes increased steadily throughout the
year
o Within Automotive & Industrial, performance improved in
the US and China and declined in EMEA
-- Equity fund raise, together with a strong working capital
performance, enabled the Group to reduce net debt by 36% to
GBP46.9m.
-- Final dividend of 5.11p per share (total dividend of 6.86p per share) declared.
Growth/
(decline)
2021 2020 %
================================== ====== ====== ======= ===========
Order intake GBPm 352.1 368.7 (4.5)
Order book GBPm 293.5 314.0 (6.5)
Revenue GBPm 351.8 352.0 (0.1)
Underlying (2)
- Operating profit margin % 6.5 5.7 0.8 pp
- Profit before tax GBPm 18.0 15.6 15.4
- Basic earnings per share(3) p 22.4 21.3 5.2
Statutory
- Operating profit/(loss)
margin % 2.4 (0.3) 2.7 pp
- Profit/(loss) before tax GBPm 3.9 (5.3) 173.6
- Basic earnings/(loss) per
share p 2.9 (12.2) 123.8
Underlying(2) cash conversion(4) % 87.0 102.1 (15.1 pp)
Cash conversion(4) % 93.8 112.9 (19.1 pp)
Net debt(5) GBPm 46.9 73.4 (36.1)
Dividend per share (paid
and proposed) p 6.86 6.24 10
Headcount(6) no. 2,901 3,003 (3.4)
References in superscript are defined in the glossary of
terms.
Commenting on the results, Dave Shemmans, Chief Executive
Officer, said:
"Over the last eight years we have significantly diversified our
portfolio and, by so doing, Ricardo is now positioned as a
world-class environmental, engineering and strategic consultancy
offering expertise that is supporting global green agendas.
Although we remain in an uncertain world, the resilience of our
operating model and the focused delivery of our strategic
priorities has ensured that we have steered back onto a course that
will guide our business to a position of strength. This has been
made possible thanks to the amazing team that, throughout the
pandemic, has demonstrated its agility, dedication and ingenuity in
continuing to provide excellent service to our customers and
remaining committed to achieving our ambition: to create a world
fit for the future.
I would like to sign off my final review here at Ricardo with a
warm and heartfelt note of thanks. I have had the pleasure of
leading Ricardo for the past sixteen years and would like to thank
all our customers, colleagues and shareholders for their support
during my tenure. This is truly a special Group, with some
amazingly talented people, in which I have enjoyed every moment. I
wish Ricardo all the very best. "
About Ricardo plc
Ricardo plc is a world-class environmental, engineering and
strategic consulting company listed on the London Stock exchange.
We shape the markets in which we operate through the delivery of
solutions built on technological and sustainable innovation. With
more than 100 years of engineering excellence, we provide
exceptional levels of technical expertise to deliver leading-edge
innovative and sustainable cross-sector solutions designed to solve
our clients' most complex strategic and operational challenges. Our
vision is clear - to create a world fit for the future.
For more information visit www.ricardo.com.
Analyst and investor presentation
The analyst and investor presentation of the Group's preliminary
results for the year ended 30 June 2021 will be available online
from Wednesday 15 September 2021 at
https://ricardo.com/investors/financial-reporting/results-presentations.
There will also be a presentation for analysts and investors at
9:30am on Wednesday 15 September 2021.
Further enquiries:
Ricardo plc
Ian Gibson, Chief Financial Officer Tel: 01273 455611
Natasha Perfect, Group Marketing Website: www.ricardo.com
and Communications
SEC Newgate Tel: 020 7680 6882
Elisabeth Cowell / Isabelle Smurfit E-mail: ricardo@secnewgate.co.uk
Cautionary Statement
Note: Certain statements in this press release are
forward-looking. Although these forward-looking statements are made
in good faith based on the information available to the Directors
at the time of their approval of the press release, we can give no
assurance that these expectations will prove to have been correct.
Because these statements involve risks and uncertainties, actual
results may differ materially from those expressed or implied by
these forward-looking statements. We undertake no obligation to
update any forward-looking statements whether as a result of new
information, future events or otherwise.
Glossary of terms - cross-referenced to superscript in the
financial tables and commentary
(1) Defense refers to our US-based segment which provides services to the US defence market.
(2) Underlying measures exclude the impact on statutory measures
of specific adjusting items as set out in Note 4. Underlying
measures are considered to provide a more useful indication of
underlying performance and trends over time.
(3) Underlying earnings exclude a tax credit to statutory
earnings of GBP2.6m (FY 2019/20: GBP3.0m) in relation to the
specific adjusting items in Note 4.
(4) Cash conversion is a key measure of the Group's cash
generation and measures the conversion of profit into cash. This is
the reported cash generated from operations (defined as operating
cash flow, less movements in net working capital and defined
benefit pension deficit contributions) divided by earnings before
interest, tax, depreciation, impairment and amortisation
('EBITDA'), expressed as a percentage.
(5) Net debt, as set out in Note 9, is defined as current and
non-current borrowings less cash and cash equivalents, including
hire purchase agreements, but excluding any impact of IFRS 16 lease
liabilities. Management believes this definition is the most
appropriate for monitoring the indebtedness of the Group and is
consistent with the treatment in the Group's banking
agreements.
(6) Headcount is calculated as the number of employees on the
payroll at the reporting date and includes subcontractors on a
full-time equivalent basis.
(7) Constant currency growth/decline is calculated by
translating the result for the current year using foreign currency
exchange rates applicable to the prior year. This provides an
indication of the growth/decline of the business, excluding the
impact of foreign exchange.
Trading summary
This year, the Group delivered revenue of GBP351.8m, in line
with the prior year, and underlying profit before tax of GBP18.0m,
an increase of 15% on the prior year. On a reported basis, the
Group has returned to profit, delivering profit before tax of
GBP3.9m in the year, compared to a loss of GBP5.3m in the prior
year. The results reflect a positive trajectory for the Group as it
continues to recover from the impact of the COVID-19 pandemic,
which significantly impacted the Group's results in the second half
of FY 2019/20 and the first half of this financial year.
Revenue was stable year-on-year as revenue growth in Energy
& Environment ('EE'), Defense, Rail and Performance Products
was offset by a decline in the Group's Automotive & Industrial
('A&I') segment, which continues to be impacted by challenging
market conditions, particularly in EMEA.
Profit generation was weighted towards the second half of the
year, with the Group delivering an underlying profit before tax of
GBP13.0m in the second half of FY 2020/21, compared to GBP5.0m in
the first half. This reflects a combination of good profit growth
in Defense, EE and Rail, combined with a return to profit in
A&I, which benefitted from restructuring actions taken in EMEA
in the first half of the year, together with improved profitability
in China.
EE performed strongly throughout the year due to increased
Evidence and Policy work with the European Commission, Chemical
Risk services and water-resource management work. Rail performed in
line with our expectations, driven by good growth in Australia and
Asia. The market in the UK and Netherlands remained challenging.
Defense successfully delivered its first ABS/ESC fleet retrofit
kits in the final quarter of the year. Together with ongoing
ambulance retrofit and new vehicle kits, Defense delivered 2,950
ABS/ESC kits in total, an increase of 486 kits on FY 2019/20.
Performance Products also delivered year- on-year growth, as
transmissions volumes increased and the business benefitted from
the mix and pricing of engines sold. The performance of EE and Rail
are particularly pleasing as these segments underpin the Group's
growth and diversification strategy.
Net debt was GBP46.9m at 30 June 2021, compared to GBP73.4m at
30 June 2020. This improvement reflects GBP28.2m of proceeds, net
of fees, from a successful share placing in November 2020, and a
strong working capital performance. Excluding the placing,
restructuring costs and acquisition-related payments, the Group
generated GBP7.4m of cash in the year.
The segmental results are discussed in more detail in the
Operating segments review below.
Order intake down 5% on FY 2019/20 with closing order book of
GBP293.5m
Order intake of GBP352.1m represents a 5% reduction on the prior
year. Order intake increased by 13% in EE, with significant
contributions from the Policy, Water and Sustainability business
units. Defense order intake increased by 70% year-on-year, due to
securing the first USD 10m order for ABS/ESC retrofit units,
combined with significant programme wins in Engineering Services,
including the multi-year Infantry Squad Vehicle ('ISV') programme.
Order intake reduced by 7% in Rail, due to lower orders in the UK
and Netherlands. Australia and the Middle East performed strongly.
Performance Products order intake reduced by 18% year-on-year, in
line with our expectations, with two large transmission orders
received in the prior year. As expected, order intake increased
steadily throughout the financial year. Overall order intake in
A&I declined by 20% year-on-year. It increased in both the US
and China and reduced in EMEA.
Headline trading performance Underlying(2) Reported
Profit Profit/(loss)
Operating before Operating before
Revenue profit tax profit/(loss) tax
============================== ======== ========== ======== =============== ==============
2021 (GBPm) 351.8 22.7 18.0 8.6 3.9
2020 (GBPm) 352.0 20.0 15.6 (0.9) (5.3)
Growth (%) - 14 15 1,056 174
Constant currency growth(7)
(%) 1 14 15 1,056 174
============================== ======== ========== ======== =============== ==============
References in superscript are defined in the glossary of
terms.
Revenue in line with FY 2019/20
FY 2020/21 revenue was GBP351.8m, in line with the prior year.
EE grew by 12% as the business continued to successfully win and
deliver work throughout the COVID-19 pandemic. Defense revenue grew
by 16% year-on-year, driven by the increase in ABS/ESC volumes and
growth in Engineering Services, as noted above. Rail and
Performance Products revenue increased by 3% and 1% respectively.
Similar to the trend in order intake, A&I revenue reduced by
13%, which reflected a decline in EMEA, partially offset by growth
in the US and a stable performance in China year-on-year. On a
constant currency basis, the Group's revenue would have been
GBP356.1m in FY 2020/21, a 1% increase on FY 2019/20 revenue of
GBP352.0m.
Underlying operating profit up 14% on FY 2019/20, with reported
operating profit of GBP8.6m (FY 2019/20: loss of GBP0.9m)
Underlying operating profit, which excludes specific adjusting
items, increased by 14% to GBP22.7m (FY 2019/20: GBP20.0m).
Underlying operating profit margin increased to 6.5% from 5.7%.
Profitability improved throughout the course of the year, with
underlying operating profit margin increasing from 4.5% in H1 FY
2020/21 to 8.2% in H2 FY 2020/21, driven by a combination of
revenue growth across the Group and the benefit of cost reductions
in A&I in the first half of the year.
Reported operating profit increased by GBP9.5m, from a loss of
GBP0.9m in FY 2019/20 to a profit of GBP8.6m in FY 2020/21. The
Group recognised costs of GBP14.1m in respect of specific adjusting
items relating to the amortisation of acquired intangible assets,
earn out costs for acquisitions made in prior years, restructuring
actions in A&I, and the outgoing CEO. Specific adjusting items
in the prior year were GBP20.9m. Specific adjusting items are
discussed in more detail below.
Underlying profit before tax up 15% on FY 2019/20, with a
reported profit before tax of GBP3.9m (FY 2019/20: loss of
GBP5.3m)
Underlying profit before tax increased by 15% to GBP18.0m (FY
2019/20: GBP15.6m), driven by the improvement in underlying
operating profit. There is no change to FY 2020/21 underlying or
reported profit on a constant currency basis.
As noted above, the FY 2020/21 reported profit before tax
includes GBP14.1m of costs relating to specific adjusting items (FY
2019/20: GBP20.9m), discussed in more detail below.
Net debt down 36% to GBP46.9m (FY 2019/20: GBP73.4m)
Closing net debt was GBP46.9m (FY 2019/20: GBP73.4m). The Group
had a net cash inflow for the period of GBP26.5m. During the year,
the Group completed a share placing which raised GBP28.2m, net of
fees, in order to reset the capital structure of the Group, reduce
leverage and repay borrowings to achieve an appropriate level of
balance sheet efficiency and resilience. The Group paid
acquisition-related earn out and retention costs of GBP5.2m,
external project and legal fees of GBP0.7m, and reorganisation
costs of GBP3.4m. In addition, GBP0.2m of contingent consideration
was received in relation to the sale of the DTC test business in
June 2020. Excluding these specific adjusting items, the Group
generated GBP7.4m of cash, which was achieved through a continuing
strong focus on cost control and efficient working capital
management. The composition of net debt is defined in Note 9.
Basis of preparation
These consolidated financial statements of the Ricardo plc Group
('Group') have been prepared in accordance with international
accounting standards in conformity with the requirements of the
Companies Act 2006. The Group's principal accounting policies are
detailed in Note 1 to the Group financial statements. Those
accounting policies that have been identified as being particularly
sensitive to complex or subjective judgements or estimates are
disclosed in Note 1(c) to the Group financial statements.
Specific adjusting items
As set out in more detail in Note 4, the Group's underlying
profit before tax for the half-year excludes GBP14.1m of costs
incurred during the period that have been charged to the income
statement as specific adjusting items (FY 2019/20: GBP20.9m).
Amortisation of acquired intangibles was GBP5.0m in the year,
compared to GBP6.0m in FY 2019/20, with the reduction reflecting
the end of the amortisation of intangible assets acquired as part
of the purchase of AEA Ltd in 2012.
Acquisition-related costs of GBP2.1m were incurred in the year.
These included GBP1.6m in relation to earn-out and deferred
compensation payments for Transport Engineering Pty Ltd (renamed
Ricardo Rail Australia, or 'RRA') and PLC Consulting Pty Ltd
(renamed Ricardo Energy, Environment and Planning, or 'REEP'),
acquired in May 2019 and July 2019 respectively. GBP0.5m of
external fees were incurred in relation to certain strategic
projects in the year. In the prior year, GBP2.8m of earn out costs
for RRA and REEP were incurred, together with GBP0.4m of
integration costs for these businesses, and GBP0.9m of deal fees on
a number of aborted transaction processes, partially offset by a
GBP1.1m gain on a foreign exchange option contract.
Purchases and disposals: The South office building of the
Detroit Technology Campus ('DTC'), which was held-for-sale at 30
June 2020 and 31 December 2020, was impaired by GBP1.5m in the year
to reflect its current fair value, as the impact of COVID-19 on the
local property market reduced demand for office space and reduced
prices. The building was purchased in August 2019 and impaired by
GBP3.6m, net of the release of a lease liability under IFRS 16, in
the prior year, as it was acquired for a price which reflected
Ricardo as a long-term tenant. Management has decided to continue
to use the building as offers received during the year were lower
than expected. The building continues to be marketed for sale, but
management no longer considers a sale within the next twelve months
to be highly probable and it is therefore no longer presented as
held-for-sale.
A charge of GBP0.5m was incurred in FY 2020/21 as a result of a
reduction in the fair value of contingent consideration arising on
the sale of the DTC test business. The business was sold in June
2020 and a loss on disposal of GBP2.1m was recognised within
specific adjusting items in FY 2019/20.
Other reorganisation costs: GBP2.5m of redundancy costs were
incurred in the A&I business in EMEA. Headcount reductions were
made in H1 FY 2020/21 as the challenging trading environment and
ongoing impact of COVID-19 continued to depress the level of
short-term workable orders in the business. A further round of
restructuring was announced in the final quarter of the year as
further national lockdowns in Spring 2021 led to customer project
delays, which continued to depress order intake levels. As part of
the restructuring actions, management decided to fully exit the
Cambridge Technical Centre ('CaTC'), resulting in an impairment of
the right-of-use asset and associated exit costs of GBP0.7m. In
addition, GBP0.1m has been incurred in the current year in respect
of the impairment of the right-of-use asset in Schwäbisch Gmünd
Technical Centre ('SGTC'), as management was in discussions with
the landlord to surrender the lease at this site at the end of the
financial year (see Note 12), together with the write off of
equipment relating to the Santa Clara Technical Centre ('SCTC'),
which was exited in June 2020 (GBP0.1m).
GBP6.2m of reorganisation costs were recognised in the prior
year, comprising GBP3.3m of costs in our A&I business in EMEA,
including headcount reductions (GBP2.0m), impairment costs in
relation to CaTC (GBP0.6m), and GBP0.7m of incremental contractor
costs and professional fees, incurred as a result of these actions.
In addition, costs of GBP0.9m were incurred in A&I US in
relation to the SCTC exit (GBP0.4m) and redundancies (GBP0.5m,
inclusive of incremental contractor costs). GBP1.4m of redundancy
costs were incurred in Rail, plus GBP0.6m of redundancy costs in
other segments.
In January 2021, the Board, together with Dave Shemmans, agreed
that Dave would leave his role as Group Chief Executive after
leading the business for sixteen years. Costs of GBP1.5m have been
accrued within specific adjusting items, reflecting the terms of
his settlement agreement, associated legal fees and the costs of a
search process to appoint his successor.
In addition, in order to equalise male and female members'
benefits for the effect of Guaranteed Minimum Pensions ('GMP') for
historical transfers out of the pension scheme, a charge of GBP0.1m
in FY 2020/21 was incurred.
GBPm FY 2020/21 FY 2019/20
============================================================ =================== =======================
Underlying(2) profit before tax 18.0 15.6
============================================================ ============ ===== ================ =====
Amortisation of acquired intangibles (5.0) (6.0)
Acquisition-related expenditure (2.1) (3.0)
Reorganisation costs:
* A&I US - DTC purchase and impairment (1.5) (3.6)
* A&I US - Test business change in fair value of
contingent consideration and loss on disposal (0.5) (2.1)
============ ================
Asset purchases and disposals (2.0) (5.7)
* A&I EMEA - reorganisation costs (3.3) (3.3)
* A&I US - exit of SCTC and redundancy (0.1) (0.9)
* Other reorganisation costs - (2.0)
Total other reorganisation costs (3.4) (6.2)
CEO exit costs (1.5) -
GMP equalisation (0.1) -
Reported profit/(loss) before tax 3.9 (5.3)
============================================================ ============ ===== ================ =====
References in superscript are defined in the glossary of
terms.
Research and Development ('R&D') and capital investment
The Group continues to invest in R&D and spent GBP10.2m (FY
2019/20: GBP12.5m) before government grant income of GBP1.2 m (FY
2019/20: GBP1.1m). Development costs capitalised in this period
were GBP8.5m (FY 2019/20: GBP8.0m), reflecting continued investment
in software products in the Performance Products segment, together
with technology, tools and processes in the A&I and EE
segments. Developments in the A&I segment have focused on the
electric vehicle and alternative fuel spaces.
Capital expenditure on property, plant and equipment, excluding
right-of-use assets, was GBP4.5m, reflecting targeted investment in
our business operations, including the completion of a new hybrid
power train test rig at the Shoreham Technical Centre ('STC').
GBP22.0m of capital expenditure on property, plant and equipment
was incurred in FY 2019/20, which included GBP14.2m to purchase the
DTC facility.
The total Research and Development Expenditure Credit ('RDEC')
recognised in the year was GBP5.5m (FY 2019/20: GBP7.7m), with the
reduction reflecting the impact of restructuring in A&I on the
cost base in the UK.
Net finance costs
Finance income was GBP0.8m (FY 2019/20: GBP0.4m) and finance
costs were GBP5.5m (FY 2019/20: GBP4.8m) for the year, giving net
finance costs of GBP4.7m (FY 2019/20: GBP4.4m). The increased
income and costs reflect the Group's decision to draw down on its
Revolving Credit Facility ('RCF') to increase liquidity during the
pandemic.
Taxation
The total tax charge for the year was GBP2.2m (FY 2019/20:
GBP1.1m) and the total effective tax rate was 56.1% (FY 2019/20:
negative at (20.8)%). The underlying effective tax rate for the
year was 26.9% (FY 2019/20: 26.3%). The increase in the reported
rate reflects the impact on deferred tax of the increase in the UK
tax rate from 19% to 25% from 1 April 2023 (impact: GBP1.1m). This
has been partially offset by a GBP0.9m reduction in the Group's
IFRIC 23 provision for uncertain tax treatments, as a result of a
number of positive outcomes for the Group on international tax
matters.
Deferred tax assets of GBP8.3m (FY 2019/20: GBP9.4m) include
GBP4.9m (USD 6.5m) (FY 2019/20: GBP5.1m (USD 6.3m)) of R&D tax
credits in the US, GBP0.9m (FY2019/20: nil) of UK tax losses, and
GBP1.4m of US tax losses (FY2019/20: GBP2.1m). The Directors have
considered the recoverability of these assets and are satisfied
that it is probable that sufficient taxable profits will be
generated in the foreseeable future, against which the recognised
assets can be utilised.
Deferred tax liabilities of GBP8.2m (FY 2019/20: GBP5.6m)
include GBP1.3m in respect of the defined benefit pension scheme,
with moved from a deficit (on which a deferred tax asset of GBP1.2m
was recorded in the prior year) to a surplus (on which a deferred
tax liability of GBP1.3m has been recorded).
Earnings per share
Basic earnings per share was 2.9p (FY 2019/20: loss per share of
12.2p). The Directors consider that underlying earnings per share
provides a more useful indication of underlying performance and
trends over time. Underlying basic earnings per share for the year
was 22.4p (FY 2019/20: 21.3p). The calculation of basic earnings
per share, with a reconciliation to an underlying basic earnings
per share, which excludes the impact (net of tax) of specific
adjusting items, is disclosed in Note 5.
Dividend
The Group paid its interim dividend of 1.75p per share (GBP1.1m)
on 9 April 2021 (HY 2019/20: 6.24p, GBP3.3m). The Board has
declared a final dividend of 5.11p per share (GBP3.2m) (FY 2019/20:
nil), which will be paid on 25 November 2021 to holders of ordinary
shares on the Company's register of members on 5 November 2021.
This reflects the Board's desire to return to paying dividends to
shareholders, balanced with the speed and shape of the economic
recovery as we emerge from the impact of COVID-19.
Share issue
On 11 November 2020, Ricardo plc issued 8,812,030 new ordinary
shares, representing 16.5% of existing issued ordinary share
capital, at a price of 333 pence per share, raising gross proceeds
of GBP29.3m (GBP28.2m net of GBP1.1m of transaction costs).
The issue took place in the three parts; "Placing shares", to
certain existing shareholders and other institutional investors,
via a 'cashbox' mechanism (14.95%); "Subscription shares"
subscribed by certain directors of the Company for cash
consideration (0.05%); and "Retail shares" offered by the Company
for cash consideration (1.5%). The cashbox placing resulted in the
creation of a GBP23.5m distributable merger reserve. Directly
attributable fees were recorded against this merger reserve.
Goodwill
At 30 June 2021, the Group had total goodwill of GBP84.7m. The
three-year plan and discounted cash flow calculations thereon
provide a value in use ('VIU') which supports the carrying value of
goodwill allocated to each cash generating unit ('CGU'), or group
of CGUs, at 30 June 2021, resulting in no impairment for the year
(FY 2019/20: nil). The A&I EMEA group of CGUs, which forms part
of the A&I operating segment, had goodwill of GBP19.6m. A&I
EMEA has faced challenging trading conditions, which have reduced
its profitability. As a result, the excess of its VIU over its
carrying value is limited. The VIU calculations include relevant
cash flows from the RDEC tax credit. Sensitivity analysis indicated
that a reduction of 38% in the projected operating profit levels
used in the VIU calculation each year would result in the value in
use being materially equal to the carrying value. Such a reduction
is deemed reasonably possible due to the current and projected
levels of profit in the three-year plan. If RDEC cash flows were
excluded from the VIU calculation, the goodwill balance would
be
fully impaired. There are no concerns over the recoverability of
the Group's other goodwill balances.
Net debt and banking facilities
Net debt at 30 June 2021 comprised cash and cash equivalents of
GBP42.0m, borrowing and overdrafts, including hire purchase
liabilities and net of capitalised debt issuance costs of GBP88.9m.
Total facilities before borrowings are GBP215.5m. This provided
total cash and liquidity of GBP168.6m as at 30 June 2021.
The Group's facilities are denominated in Pounds Sterling and
have variable rates of interest dependent upon the Group's adjusted
leverage, which range from 1.4% to 2.2% (FY 2019/20: 1.4% to 2.2%)
above LIBOR. On 29 June 2021 the Group made amendments to the
GBP200.0m committed Revolving Credit Facility ("RCF") to
accommodate the forthcoming cessation of LIBOR. The Group has
adopted SONIA as the risk-free rate to replace LIBOR and no other
amendments to the facilities were made. The RCF continues to
provide the Group with committed funding available for the
remaining term through to July 2023.
The Group's Adjusted Leverage ratio (defined as net debt over
EBITDA for the last twelve months, excluding the impact of specific
adjusting items and IFRS 16) was 1.3x as at 30 June 2021. The
Adjusted Leverage covenant was 3.75x at 30 June 2021 and will
reduce to 3.0x from the next test date of 31 December 2021
onwards.
The Interest Cover ratio (defined as EBITDA for the last twelve
months, excluding the impact of specific adjusting items and IFRS
16, over net finance costs), was 9.6x at 30 June 2021. The Interest
Cover covenant is 4.0x.
Further details are provided in Note 24 to the Group financial
statements.
Foreign exchange
On consolidation, revenue and costs are translated at the
average exchange rates for the year. The Group is exposed to
movements in the Pound Sterling exchange rate, principally from
work carried out with customers that transact in Euros, US Dollars,
Australian Dollars and Chinese Renminbi. Compared to the prior
year, the average value of the Pound Sterling strengthened by 7%
against the US Dollar and weakened by 4% against the Australian
Dollar. Sterling strengthened by 1% against the Renminbi and
weakened by 1% against the Euro. On a constant currency basis, the
Group's revenue would have been GBP356.1m in FY 2020/21, a 1%
increase on FY 2019/20 revenue of GBP352.0m. There would have been
no impact on FY 2020/21 underlying and reported profit before
tax.
Pensions
The Group's defined benefit pension scheme operates within the
UK. The fair value of the scheme's assets at the end of the year
was GBP156.1m (FY 2019/20: GBP150.4m). Due to a combination of an
increase in scheme assets and a reduction in liabilities due to
changes in actuarial assumptions, the scheme moved into a pre-tax
surplus, measured in accordance with IAS 19, of GBP6.8m (FY
2019/20: deficit of GBP6.7m). Ricardo paid GBP4.6m of cash
contributions into the scheme during the year.
Coronavirus ('COVID-19')
As the world gradually moves to a recovery phase, we continually
shape our response to the evolving situation. From the outset, our
utmost priority has been the safety and the wellbeing of our
colleagues, ensuring business continuity and supporting both our
customers and the communities where we live and work. These
priorities have remained constant, with our teams working
collaboratively at all levels to make certain that our plans are
fit for purpose at each new entry phase.
From the beginning of FY 2020/21, our manufacturing sites have
been operating and delivering uninterrupted services to our
customers. We have actively managed our operational response to
ensure that our main manufacturing sites remain in production. The
manufacturing teams in the UK and US have been closely aligned,
sharing best practice and actively supporting effective supply
chain management, which has been constantly affected by part
shortages and freight difficulties.
Our offices have also remained open for those who wish to return
to work. As restrictions start to lift, the Group's approach to
returning to office work is both encouraging and welcoming. We want
our colleagues to reintegrate, reconnect, and assist in recharging
the business.
Brexit
On 31 December 2020, the UK's Brexit transition period ended,
which has meant that doing business with Europe has inevitably
changed with new rules being applied. Like other companies, we have
experienced increased paperwork and processing time for both
importation and exportation procedures, resulting in some tasks
taking up to three times as long to complete. Nevertheless, thanks
to our rigorous planning - which included holding extra stock of
priority parts prior to Brexit - the timing has had little impact
on our deployment capabilities.
In general, because of our relentless focus on proactive supply
chain management, we are able to maintain and manage our customer
relationships in the UK, Europe, Asia and America.
Appointment of new Chief Executive Officer
As announced on 26 August 2021, Graham Ritchie will join the
Group as Chief Executive Officer on 1 October 2021. On 30 September
2021, Dave Shemmans steps down from his role as Chief Executive
Officer, having led the Group for the last sixteen years.
Group Outlook
Ricardo is successfully embarking on its route to growth,
focusing on developing its world-class engineering, scientific and
consulting capability and operating in markets that offer long-term
growth prospects and which are driven by the ever-changing nature
of our world.
Our diversified business portfolio, with expertise and
capabilities that are at the intersection between transportation,
energy and environment allows us to deliver a unique proposition.
We are able to advance solutions that ensure access to clean air
and water; we have a deep knowledge of delivering cross-sector
engineering solutions to accelerate decarbonised transportation;
and we most certainly are a partner of choice for innovation to
support global net zero and industry agendas.
As we enter FY 2021/22, we do so with a robust order book and
pipeline. This is a business with a positive outlook and as a Group
we continue to push the boundaries, strengthening our business for
a sustainable future.
By order of the Board:
Dave Shemmans Ian Gibson
Chief Executive Officer Chief Financial Officer
14 September 2021
Operating segments review
From FY 2020/21, due to restructuring within the Group,
Strategic Consulting & Software ('other') is no longer being
separately reported as an operating segment.
The Strategic Consulting element of this segment is now reported
within Automotive & Industrial ('A&I'). This business has a
number of common customers, operates in similar markets to A&I,
and is now run as a business unit within the overall A&I
business. Since the start of FY 2020/21, the A&I EMEA Managing
Director has overall responsibility for the Strategic Consulting
service offering.
The Software element of this segment has been aggregated into
the Performance Products operating segment for the purposes of
segmental reporting. Whilst the Software business continues to be
run as a separate business with its own leadership team, it has a
number of similar characteristics to the Performance Products
manufacturing business, in that it is involved in the development
of niche products, requiring a high level of capital/development
spend, primarily selling to automotive manufacturers.
As a result of this change, the Group is now reporting the five
segments set out below. The FY 2019/20 segmental analysis has been
reported on a consistent basis to aid comparability. Consistent
with the prior period, Plc costs includes the costs of running the
public limited company, including foreign exchange exposure on
intercompany loans.
Underlying(1)
Underlying(1) operating profit
Revenue operating profit margin
For the year ended 30
June 2021 2020(2) 2021 2020(2) 2021 2020(2)
GBPm GBPm GBPm GBPm % %
============================= ====== ======== ======== ========== ======== ==========
Energy & Environment ('EE') 57.1 50.8 8.5 6.3 14.9 12.4
Rail 77.7 75.3 8.0 5.8 10.3 7.7
Automotive & Industrial
('A&I') 102.5 117.2 (1.6) 0.5 (1.6) 0.4
Defense(1) 37.9 32.8 5.4 5.1 14.2 15.5
Performance Products ('PP') 76.6 75.9 6.8 5.1 8.9 6.7
============================= ====== ======== ======== ========== ======== ==========
Operating segments total 351.8 352.0 27.1 22.8 7.7 6.5
Plc costs - - (4.4) (2.8) - -
==========
Total 351.8 352.0 22.7 20.0 6.5 5.7
============================= ====== ======== ========== ==========
(1) Defined in the glossary of terms.
(2) Prior year comparatives have been restated to present the
results of Ricardo Strategic Consulting and Ricardo Software within
Automotive & Industrial and Performance Products, respectively,
in line with the current year.
ENERGY & ENVIRONMENT ('EE')
Our Energy and Environment ('EE') operating segment works across
the value chain: gathering and evaluating evidence, setting policy
measures, and working with our customers, partners, and
stakeholders to support the implementation of a wide range of
solutions. We have more than 40 years of experience in addressing
sustainability issues and customers value our deep understanding of
energy and environmental drivers, policy development, technical
excellence, and the ability to turn challenges into business
opportunities.
Financial and operational highlights
Growth
2020/21 2019/20 (%)
======================================= ======== ======== =======
Order intake (GBPm) 64.1 56.5 13
Order book (GBPm) 47.9 41.7 15
Revenue (GBPm) 57.1 50.8 12
Underlying(2) operating profit (GBPm) 8.5 6.3 35
Underlying(2) operating profit margin
(%) 14.9 12.4 2.5 pp
Headcount(6) (no.) 690 578 19
======================================= ======== ======== =======
References in superscript are defined in the glossary of
terms.
We delivered a strong performance in FY 2020/21. Order intake
for the year was GBP64.1m (FY 2019/20: GBP56.5m), growth of 13% on
the prior year. Revenue and underlying operating profit grew by 12%
and 35%, respectively, and we delivered an underlying operating
profit margin of 14.9%, 2.5pp higher than the prior year,
reflecting strong demand for our services and good utilisation
across the business.
Significant contributions were made by both the Policy business,
due to increased services to the European Commission, and the Water
business, which benefitted from an upsurge in water
resource-management services to the UK water sector. There was also
increased demand for chemical risk-management services, driven by
an increased demand for resources, due to the impact of Brexit and
the associated regulatory deadlines. Within Sustainability,
revenues remained strong for all aspects of net zero, from strategy
development to establishing targets and producing implementation
plans. At the same time, there are growing opportunities to support
technology solutions, particularly in connection with electricity
network engineering, innovation, and the evolution of "e-fuels"
such as green hydrogen.
Contract wins during the year included major UK wins for the
National UK air quality and GHG emissions inventory, the combined
heat and power ('CHP') quality-assurance programme, and project
work for the Gibraltar air-quality programme. Our international
footprint has also continued to grow, on account of its strategic
expansion across multiple locations to support increased
project-based work. In Europe, we secured a significant contract to
deliver consultancy support services for the operation of the
European Road Safety charter. Furthermore, EE has also won a major
project to develop an electric vehicle ('EV') financing tool and
business model to enable the scaling up of EVs in Bangladesh, and
consultancy work to support capacity building for an energy
transition programme in South Africa.
Generally, throughout COVID-19, we have been able to function at
close to normal business operations, due to the early adoption of a
digital-first approach and effective homeworking. Although there
has been minimal disruption, COVID-19 has impacted international
projects, where travel has been severely restricted. While this has
resulted in a decline in consultancy revenues outside of Europe, we
have worked closely with our customers to adopt creative solutions
for the remote delivery of projects.
Outlook
Our business performance generally follows trends within
macro-economic growth drivers focused on global green agendas. Most
relevant environmental trends include infrastructure stimulus
funding (including green-technology solutions across the developed
world), clean-energy solutions for transportation, the development
of innovative electricity network solutions to accommodate
distributed green generation, and the rise in EVs, as well as the
demand for lifecycle assessment studies. Digital transformation -
specifically, the digitisation of processes and solutions - is
driving the development of innovative machine-learning solutions to
prepare and manipulate complex data sets.
Based on these growing global trends, the positive impact on our
markets, and our effective mitigation approach towards COVID-19, we
remain optimistic for the year ahead. Furthermore, as climate
considerations rise higher up the agenda, we are seeing a greater
urgency in actions to combat the impact of climate change. COP26
provides a focal point for actions, both directly from governments
and from corporations, as they seek support in committing to the
delivery of their own journeys to achieve net zero.
The focus in FY 2021/22 will be prioritised toward net-zero
consultancy work across a range of sectors and customers,
incorporating strategic and scientifically skilled advisory
services, from setting policy to project implementation. We plan to
broaden our European work, building on support for the EU Green
Deal, with more activity at the individual member-state level and
with large businesses and trade bodies. We will continue to develop
our project work in supporting governments around the world in
evolving air-quality changes - notably, particulates and ozone - as
well as to expand into additional areas of environmental support
for the water sector. Plans are also in progress to adapt our model
for international working so that it meets our customers'
requirements in full, while travelling less and thereby also
ensuring the reduction of Ricardo's own travel-related climate
impact.
RAIL
Our Rail operating segment serves the global rail market,
delivering technical and engineering consultancy services, with
capabilities in all areas - from rolling stock, signalling and
telecommunications to energy efficiency, safety management and
operational planning. We support a client portfolio that ranges
from some of the world's largest rail administrations to niche
component suppliers. Along with our consultancy unit, we also
operate a separate independent entity - Ricardo Certification -
which performs accredited assurance services. Both divisions draw
upon an international pool of around 600 rail engineers,
technicians, auditors and support teams.
Financial and operational highlights
(Decline)/
growth
2020/21 2019/20 (%)
======================================= ======== ======== ===========
Order intake (GBPm) 74.7 80.7 (7)
Order book (GBPm) 95.3 110.7 (14)
Revenue (GBPm) 77.7 75.3 3
Underlying(2) operating profit (GBPm) 8.0 5.8 38
Underlying(2) operating profit margin
(%) 10.3 7.7 2.6 pp
Headcount(6) (no.) 596 632 (6)
======================================= ======== ======== ===========
References in superscript are defined in the glossary.
We delivered a strong performance throughout FY 2020/21. Despite
COVID-19, revenue increased by GBP2.4m (3%), underlying operating
profit increased by GBP2.2m (38%) and underlying operating profit
margin increased by 2.6pp to 10.3%. Order intake and order book
were down on the prior year by 7% and 14% respectively, reflecting
the timing of large programme wins within each year. Rail delivered
a successful year of revenue and profit growth, but there has been
a contrast in performance at a regional level, demonstrating the
varying challenges experienced in specific countries.
Australia has been a flourishing market for our Rail segment, in
which we have secured several major consultancy and assurance
service contracts with customers in New South Wales and Queensland.
Most notably, we successfully secured a contract to act as the
"Shadow Operator" for the Sydney Metro, where we provide advisory
services on the specific requirements for rail operations to the
constructors of the new driverless extension. This represents a new
service line which has the potential to open up similar
opportunities across the world.
In contrast, the European market has been impacted by
interruptions, delays and cancellations to continuing and new
project work as the industry is forced to revise its priorities in
view of lower passenger levels and government intervention.
Nevertheless, this was counterbalanced in part by the large
portfolio of infrastructure assurance projects, which in several
cases has leveraged the reduced levels of traffic to advance major
schemes - such as the Danish re-signalling programme and the London
Elizabeth Line. This, along with a robust order book for Asia and
the Middle East, where we are adding to its project-based work on
major construction schemes in Riyadh and Doha, has ensured that
Ricardo Certification delivered a good overall performance.
The impact of the pandemic on public transport was
unprecedented. Global passenger numbers fell by 40% on calendar
year 2019 levels, with some commuter services seeing passenger
levels fall by close to 80%. Even freight traffic, which was less
affected, saw a 20% drop in 2020. Operators responded by taking
measures to maintain minimum levels of service to reduce overall
costs. Even so, many of the major capital programmes were
unaffected and rolling-stock orders to replace ageing fleets
suffered only minor delays as manufacturers realigned to
social-distancing measures, while infrastructure projects took
advantage of reduced traffic to complete work.
Outlook
Despite the pandemic's deep impact, the long-term forecasts for
global rail-supply markets remain positive, with annual growth
rates of 2.3%(1) anticipated throughout 2020-2025. We are unlikely
to see significant growth in the European market in the short to
medium term, but other markets continue to expand, notably China,
Taiwan, and Japan which are continuing with major investment
programmes. So too is the South-East Asia region, where priorities
are to continue large-scale activities for both metro and
light-rail projects, and the Middle East, where world-class rail
networks have only started to emerge over the past decade.
Australia is likely to continue to offer further opportunity as
it is in the early stages of a boom in rail construction and is
responding to accelerated growth within its major urban centres.
Furthermore, the USA is expanding its rail footprint and the
federal government has announced plans for significant rail
investment, much of which is connected to its decarbonisation
priorities. Many of the country's commuter routes require
rejuvenation and its stockpile of diesel-powered rail vehicles will
need to be replaced or refurbished. Furthermore, high-speed
railways are finally under construction, potentially opening a vast
new market for what is now very mature technology.
The overall focus for us in the coming year will be prioritised
around organic growth, including benefitting from the growing
opportunities in Australia and South-East Asia's burgeoning market,
as well as building our reputation and capabilities in the North
American market.
(1) - source,
https://www.unife.org/wp-content/uploads/2021/04/Forecast-2020-to-2025.pdf
AUTOMOTIVE & INDUSTRIAL ('A&I')
For over 100 years, our Automotive & Industrial ('A&I')
operating segment has been using engineering and
research-and-development expertise to help global vehicle
manufacturers innovate and improve the efficiency and performance
of their products.
With digital engineering, efficiency and effectiveness at our
core, we are able to solve the most complex mobility challenges,
offering a true end-to-end service to create clean, efficient,
integrated energy and propulsion systems for the future. We are
recognised as a thought leader in clean propulsion, electrification
and renewable fuels and we apply our experience, processes and
insights to drive innovation, from the initial concept design right
through to product execution.
Financial and operational highlights
(Decline)/
growth
2020/21 2019/20 (%)
======================================= ======== ======== ===========
Order intake (GBPm) 99.8 124.6 (20)
Order book (GBPm) 71.4 79.2 (10)
Revenue (GBPm) 102.5 117.2 (13)
Underlying(2) operating (loss)/profit
(GBPm) (1.6) 0.5 (420)
Underlying(2) operating profit margin
(%) (1.6) 0.4 (2.0) pp
Headcount(6) (no.) 996 1,195 (17)
======================================= ======== ======== ===========
References in superscript are defined in the glossary of
terms.
During the year, we have undertaken significant strategic and
structural changes to focus our portfolio on higher-growth services
and markets, such as electrification, software, control and
calibration and hydrogen. The changes reflect the global shift
within the automotive industry which has been heavily impacted by
COVID-19, seeing a temporary halt to passenger car purchases and
deliveries across the world, as well as ongoing US-China tensions
and border tariffs.
Order intake was down by 20% year-on-year, due to customers
delaying critical programme decisions. The lower demand
significantly affected revenue and operational efficiency. Revenue
decreased by 13% compared to the prior year. The underlying
operating loss was GBP1.6m (FY 2019/20: profit of GBP0.5m). The
underlying operating margin decreased from 0.4% to negative
1.6%.
The impact of the above was felt more strongly by the EMEA
business. In the first half of the year, we took the difficult
decision to reduce headcount in the period to align the cost base
to forecast demand, an extension of the process enacted in the
second half of FY 2019/20. The actions taken helped to return our
EMEA business to profitability in the second half of the year, but
as the challenging market conditions continued, exacerbated by
further national COVID-19 related lockdowns in Spring 2021, it
became apparent that the order intake levels would not return to
forecast levels as quickly as anticipated. This resulted in the
announcement of further headcount reductions, to be enacted in the
first half of FY 2021/22. We also fully exited our site in
Cambridge in June 2020, with staff moving to other UK locations.
The total cash cost of these actions was GBP2.3m (FY 2019/20:
GBP2.9m).
Order intake and revenue both increased year-on-year in our US
business, This, together with the positive impact from the
restructuring actions at the end of FY 2019/20, including the
closure of facilities and the sale of the Detroit test business,
resulted in a significant reduction in losses.
In China, order intake and profitability both improved
year-on-year, indicating that the China market is starting to
recover from the impact of the pandemic.
Despite the notable impacts suffered across the automotive
industry, we are continuing to secure contract wins in all our key
markets. Within EMEA, major contract wins from automotive original
equipment manufacturers ('OEMs') included a wide range of
electrification programmes including battery-pack design, systems
integration and e-motor and power-electronics projects. We secured
a multi-year engineering programme with WorldAutoSteel to deliver
its Steel E-Motive future vehicle concepts, which are exploring the
use of steel innovation for sustainable mobility vehicles. We have
won contracts with new customers across defence, marine, and
aerospace, including development of hydrogen fuel-cells for
aviation with Cranfield Aerospace Solutions and electrified
propulsion units with the Blue Bears consortium. In China, cost and
time to market have been a key focus for OEMs, resulting in us
successfully securing numerous virtual calibration contracts using
our own software and tool chain to deliver these programmes. We
have also secured a contract with a key OEM to develop an Automated
Manual Transition ('AMT') for commercial vehicles. In the US,
several strategic contract wins have been secured, including
design, development and integration services to support a major
motorcycle company with its new portfolio of electrified vehicles.
Our US business has also been working with the world's
second-largest carmaker to lead the adaptation and integration of
its zero-carbon emissions hydrogen fuel-cell technology into medium
range heavy-duty trucks.
Outlook
The COVID-19 pandemic has severely impacted our business and our
customers across the world, but it has also accelerated changes
across the automotive and transportation industry. Many of our
customers have been forced to rationalise product plans and
accelerate a number of cost savings. While markets remain depressed
in many modes of transport, we now have greater clarity of
legislative direction from the world's leading transport markets,
which will shape A&I's future in supporting the proliferation
of clean, intelligent vehicle technologies.
Our global focus within A&I will be to deliver innovative,
sustainable mobility solutions to customers across the world and
build resilience through continued expansion across all transport
sectors. Through geographic diversification, we will ensure
customer intimacy and volume supported and delivered by our network
of global technical centres. Priority is to be given to four key
areas for our customers across all mobility sectors:
electrification, software and control, digital and advanced
analytics, and hydrogen and de-fossilised fuels. This will be
supported by our technology roadmap, world-leading research and
development, and sustainable, high-value intellectual property.
Nevertheless, in the short term, we will continue to support our
customers in their journey to develop environmentally sustainable
products and maintain commercially sustainable businesses. We will
drive innovation in the development of cleaner, more efficient
conventional engines and electric-based propulsion systems,
expanding the use of virtual tools and the integration of systems
with digital services and software. The transport industry is
changing more rapidly, and in more dimensions, than ever before.
Our longstanding and intimate understanding of the segment, coupled
with its clear focus on the future, mean we are ideally positioned
to capitalise on this near-term volatility and drive growth in the
segment.
DEFENSE
Our Defense operating segment has gained significant insights
into the needs of armed forces and provides solutions to meet the
challenges facing our customers in the integration of logistics and
field support for complex and diverse systems. Our wide range of
engineering and software solutions provides system-integration
engineering for the US Army's ground inventory and we are the
data-replication agent for everything in the air, on the sea and
under the surface for the US Navy. Connected to this, we also
specialize in niche manufacturing, adapting commercial industry
products to deliver innovative sector applications that protect
people and infrastructure.
Financial and operational highlights
Growth/
(Decline)
2020/21 2019/20 (%)
======================================= ======== ======== ===========
Order intake (GBPm) 49.4 29.0 70
Order book (GBPm) 25.7 15.6 65
Revenue (GBPm) 37.9 32.8 16
Underlying(2) operating profit (GBPm) 5.4 5.1 6
Underlying(2) operating profit margin
(%) 14.2 15.5 (1.3) pp
Headcount(6) (no.) 185 166 11
======================================= ======== ======== ===========
References in superscript are defined in the glossary of
terms.
Our Defense segment delivered a good performance in the year,
with order intake of GBP49.4m (up 70% on the prior year), revenue
of GBP37.9m (up 16% on the prior year), and underlying operating
profit of GBP5.4m (up 6% on the prior year). Underlying operating
profit margin decreased from 15.5% to 14.2%.
The growth in order intake reflected the receipt of the first
USD 10m order from the USD 89m award of the three-year Anti-lock
braking system/electronic stability control ('ABS/ESC') retrofit
contract to provide critical safety upgrades for the US Army's
fleet of High-Mobility Multipurpose Wheeled Vehicles ('HMMWV'). In
addition, we won a significant multi-year production contract from
General Motors to produce and field the US Army's new Infantry
Squad Vehicle ('ISV'), together with increased work on the US Navy
Systems Engineering Support contract.
Revenue growth was driven by increased ABS/ESC volumes and
continuing growth in Engineering Services. Including both retrofit
and kits for new production vehicles, we delivered a total of 2,950
ABS/ESC kits in FY 2020/21, compared to 2,464 in the prior year.
Our Engineering Services business continued to grow in the year,
driven by the new wins above and complex system engineering and
design work on various US military contracts. ABS/ESC volumes were
weighted towards the second half of the financial year. This led to
lower levels of profitability in the first half of the year which
resulted in an overall reduction in underlying operating margins
between FY 2019/20 and FY 2020/21.
In Defense we have a deep legacy of partnering the with US
military in the transition of innovative technologies from science
to application. Key development projects in FY 2020/21 included the
design and build of a wireless intercom integration system for
secure onboard vehicle communications and advancing the development
of a fielded electronic backbone to be used for present systems
diagnostics, expanding into future autonomy requirements for the US
Army. As global niche specialists in designing vehicle engineering
solutions that improve safety and significantly reduce fuel usage
and carbon emissions, we have been working closely with the US
military on the application of a breakthrough, ultra-compact
auxiliary power unit to greatly reduce vehicle main-engine use and
to reduce fuel consumption as a common solution across US Army
platforms. What is more, we are leveraging the application of the
ABS/ESC system to significantly reduce brake drag and improve fuel
efficiency for thousands of US Government fleet vehicles, which is
resulting in a reduction of up to 20% in fuel consumption.
Additionally, we have collaborated with the University of Michigan
and Epic Games on DARPA research to provide innovations in
simulation technologies that can either significantly reduce the
cost of off-road autonomy development or help bridge the gap from
simulation to the real world. In conjunction with this, we have
also supported the US Army's robotic vehicle science and research
by integrating innovative subsystems into surrogate vehicles in
advance of final vehicle development.
As a critical supplier to the US Government, we have continued
to provide services throughout the pandemic.
Outlook
With a growing emphasis on the environment, the US
administration's focus is to prioritise progress on climate change,
environmental, and energy policies. As a result, the US Department
of Defense ('DoD') is shifting its priorities and funding within
all its activities and risk assessments towards climate-change
considerations. Growth in digital applications will also be a focus
to ensure the continued security and safety of its networks,
systems, and infrastructure as well as offering improved
efficiencies throughout its operations.
Ricardo is well positioned to continue to support the challenges
facing our customers through our services and solutions and we
remain positive towards FY 2021/22.
PERFORMANCE PRODUCTS ('PP')
Our Performance Products segment includes both the Performance
Products Manufacturing ('PP') and Software business units. Our PP
segment is responsible for the manufacture and assembly of niche
high-quality components, prototypes, and complex products,
including engines, transmission, and other precision and
performance-critical products. Moreover, we provide industrial
engineering services to enable products to move from concept to
production for customers around the globe. Our Software business
delivers advanced virtual-engineering tools and leading-edge
simulation software, and delivers solutions that help our customers
reduce costs, resources, and time to market, while efficiently
managing complexity and safety.
Financial and operational highlights
(Decline)/
growth
2020/21 2019/20 (%)
======================================= ======== ======== ===========
Order intake (GBPm) 64.0 78.0 (18)
Order book (GBPm) 53.3 66.7 (20)
Revenue (GBPm) 76.6 75.9 1
Underlying(2) operating profit (GBPm) 6.8 5.1 33
Underlying(2) operating profit margin
(%) 8.9 6.7 2.2 pp
Headcount(6) (no.) 421 420 0
======================================= ======== ======== ===========
References in superscript are defined in the glossary of
terms.
Revenue and operating profit both grew in FY 2020/21, by 1% and
33%, respectively. Underlying operating profit margin increased
from 6.7% to 8.9%.
FY 2020/21 order intake was GBP64.0m, a reduction of GBP14.0m on
the prior year. This reflects the timing of engine orders from
McLaren and the recognition of the multi-year Porsche 992 Cup
transmission order in FY 2019/20.
In line with expectations, McLaren engine volumes increased
steadily during the course of FY 2020/21. Overall engine volumes
were lower than FY 2019/20, driven by higher volumes in the
pre-COVID first half of the prior year.
Transmission volumes increased year-on-year. Volumes sold to
Bugatti (Chiron hyper-car), Porsche (992 Cup programme), and the UK
Ministry of Defence (CVR(T) gearbox refurbishment) were in line
with expectations. In June, PP delivered its first transmission
units to Aston Martin for the Valkyrie hyper-car.
Software perpetual license sales increased in the year, driven
by some large new wins in India, China and Japan. Software renewal
rates remain high.
Operating profit margin improved year-on-year due to the mix and
pricing of products sold.
As one of the leading specialists in designing and delivering
solutions for the motorsport sector, Ricardo secured several key
contracts over the year, including being selected to support
Hyundai Motorsport in the development of the all-new hybrid
four-wheel drive ('4WD') transmission for its new generation World
Rally Championship ('WRC') car to be used in the competition from
the 2022 season, while also renewing the existing agreement under
which Ricardo supplies drivelines for the current generation i20
WRC car. Our new product-introduction programmes for hydrogen
fuel-cell, traction battery, and E-machine solutions are supporting
increased growth in sales across our entire customer base and the
demand for perpetual software licences is leading to greater
returns across Asia. We secured a significant contract win in India
for a large-scale engine programme and were also awarded various
virtual-calibration programmes for customers in China.
From the onset of COVID-19, our PP division has executed a
comprehensive response plan which has minimised disruption of our
supply chain to maintain business continuity and to serve our
customers. Nevertheless, there were still several delays to
projects, programmes, and anticipated order awards in H1 which then
improved significantly with uptake in H2 FY 2020/21. Brexit was
also a contributing factor, affecting the supply chain because of
administration difficulties as countries struggled with new
processes and systems. This has settled down slightly with
noticeable improvements to delivery schedules and transit periods
coming into and out of the EU.
Outlook
The forthcoming year will see a considerable increase in output
at our main UK manufacturing sites - the Shoreham Technical Centre
and the Midlands Technical Centre - as demand for high-performance
vehicles and from the motorsport sectors continue to recover. The
priority for FY 2021/22 is to ensure the successful ramp-up of
operations to deliver previously contracted work following delays
in orders and programmes during the pandemic.
The core automotive markets for our software solutions will
remain challenging in the next financial year because of continuing
delays to new business orders as a result of COVID-19. The focus
will be on sector diversification and moving to cloud-based
solutions and consumption-based licencing models to complement the
traditional on-premises annual lease and perpetual-licence
business.
Condensed financial statements
Condensed consolidated income statement
for the year ended 30 June
2021 2020
Specific Specific
adjusting adjusting
Underlying items(*) Total Underlying items(*) Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
============================= ===== =========== =========== ======== =========== =========== ========
2 &
Revenue 3 351.8 - 351.8 352.0 - 352.0
Cost of sales (234.1) - (234.1) (236.9) - (236.9)
============================= ===== =========== =========== ======== =========== =========== ========
Gross profit 117.7 - 117.7 115.1 - 115.1
Administrative
expenses (96.2) (14.1) (110.3) (96.4) (20.9) (117.3)
Other income 1.2 - 1.2 1.3 - 1.3
============================= ===== =========== =========== ======== =========== =========== ========
Operating profit/(loss) 2 22.7 (14.1) 8.6 20.0 (20.9) (0.9)
Finance income 0.8 - 0.8 0.4 - 0.4
Finance costs (5.5) - (5.5) (4.8) - (4.8)
============================= =========== =========== ======== =========== =========== ========
Net finance costs (4.7) - (4.7) (4.4) - (4.4)
Profit/(loss)
before taxation 18.0 (14.1) 3.9 15.6 (20.9) (5.3)
Income tax (expense)/credit (4.8) 2.6 (2.2) (4.1) 3.0 (1.1)
Profit/(loss)
for the year 13.2 (11.5) 1.7 11.5 (17.9) (6.4)
============================= ===== =========== =========== ======== =========== =========== ========
Profit/(loss)
attributable to:
- Owners of the
parent 13.2 (11.5) 1.7 11.4 (17.9) (6.5)
- Non-controlling
interests - - - 0.1 - 0.1
13.2 (11.5) 1.7 11.5 (17.9) (6.4)
============================= ===== =========== =========== ======== =========== =========== ========
Earnings/(loss) per ordinary share attributable to owners
of the parent during the year
================================================================================================== ========
Basic 5 2.9p (12.2)p
Diluted 5 2.9p (12.2)p
============================= ===== =========== =========== ======== =========== =========== ========
(*) Specific adjusting items are disclosed separately in the
condensed financial statements where it is necessary to do so to
provide further understanding of the financial performance of the
Group. Further details are given in Note 1 and Note 4.
Condensed consolidated statement of comprehensive income
for the year ended 30 June
2021 2020
GBPm GBPm
=================================================== ====== ======
Profit/(loss) for the year 1.7 (6.4)
==================================================== ====== ======
Other comprehensive Income/(expense)
Items that will not be reclassified to profit
or loss:
Remeasurements of the defined benefit pension
scheme 9.1 (2.7)
Deferred tax on remeasurements of the defined
benefit pension scheme (2.0) 1.1
Total items that will not be reclassified to
profit or loss 7.1 (1.6)
==================================================== ====== ======
Items that may be subsequently reclassified
to profit or loss:
Currency translation on foreign currency net
investments (2.9) 0.5
Fair value losses on foreign currency cash flow
hedges - (0.1)
Total items that may be subsequently reclassified
to profit or loss (2.9) 0.4
==================================================== ====== ======
Total other comprehensive income/(expense) for
the period (net of tax) 4.2 (1.2)
Total comprehensive income/(expense) for the
year 5.9 (7.6)
==================================================== ====== ======
Income/(expense) attributable to:
- Owners of the parent 5.9 (7.7)
- Non-controlling interests - 0.1
5.9 (7.6)
=================================================== ====== ======
The accompanying notes are an integral part of these financial
statements.
Condensed consolidated statement of financial position
2021 2020
Note GBPm GBPm
============================================= ===== ====== ======
Assets
Non-current assets
Goodwill 7 84.7 87.8
Other intangible assets 33.9 39.9
Property, plant and equipment 46.9 45.4
Right-of-use assets 19.5 23.9
Retirement benefit surplus 6.8 -
Other receivables 2.3 3.2
Deferred tax assets 8.3 9.4
202.4 209.6
============================================= ===== ====== ======
Current assets
Inventories 16.9 20.1
Trade, contract and other receivables 126.9 115.6
Derivative financial assets 0.9 3.9
Current tax assets 1.5 5.7
Cash and cash equivalents 9 42.0 66.3
188.2 211.6
============================================= ===== ====== ======
Non-current assets held for sale 8 - 5.3
============================================= =====
188.2 216.9
============================================= ===== ====== ======
Total assets 390.6 426.5
============================================= ===== ====== ======
Liabilities
Current liabilities
Borrowings 9 12.8 10.6
Lease liabilities 5.5 6.7
Trade, contract and other payables 76.6 72.0
Current tax liabilities 1.4 7.5
Derivative financial liabilities 1.0 6.5
Provisions 4.0 3.2
101.3 106.5
============================================= ===== ====== ======
Net current assets 86.9 110.4
============================================= ===== ====== ======
Non-current liabilities
Borrowings 9 76.1 129.1
Lease liabilities 18.8 22.6
Trade, contract and other payables - 3.6
Retirement benefit obligations - 6.7
Deferred tax liabilities 8.2 5.6
Provisions 3.4 3.3
106.5 170.9
============================================= ===== ====== ======
Total liabilities 207.8 277.4
Net assets 182.8 149.1
============================================= ===== ====== ======
Equity
Share capital 10 15.6 13.4
Share premium 10 16.8 14.3
Other reserves 10 38.0 17.4
Retained earnings 112.2 103.5
Equity attributable to owners of the parent 182.6 148.6
Non-controlling interests 0.2 0.5
Total equity 182.8 149.1
============================================= ===== ====== ======
Condensed consolidated statement of changes in equity
for the year ended 30 June
Attributable to owners of the
parent
-----------------------------------------------------
Share Share Other Retained Non-controlling Total
capital premium reserves earnings Total interests equity
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================ ===== ========= ========= ========== ========== ======= ================ ========
At 1 July 2019 13.4 14.3 16.9 123.1 167.7 0.5 168.2
============================ ===== ========= ========= ========== ========== ======= ================ ========
Loss for the year - - - (6.5) (6.5) 0.1 (6.4)
Other comprehensive
income/(expense)
for the year - - 0.5 (1.7) (1.2) - (1.2)
=================================== ========= ========= ========== ========== ======= ================ ========
Total comprehensive
income/(expense)
for the year - - 0.5 (8.2) (7.7) 0.1 (7.6)
Equity-settled transactions - - - 0.6 0.6 - 0.6
Purchases of own shares
to settle awards - - - (0.5) (0.5) - (0.5)
Ordinary share dividends - - - (11.5) (11.5) (0.1) (11.6)
At 30 June 2020 13.4 14.3 17.4 103.5 148.6 0.5 149.1
============================ ===== ========= ========= ========== ========== ======= ================ ========
At 1 July 2020 13.4 14.3 17.4 103.5 148.6 0.5 149.1
============================ ===== ========= ========= ========== ========== ======= ================ ========
Profit for the year - - - 1.7 1.7 - 1.7
Other comprehensive
(expense)/income
for the year - - (2.9) 7.1 4.2 - 4.2
=================================== ========= ========= ========== ========== ======= ================ ========
Total comprehensive
(expense)/income
for the year - - (2.9) 8.8 5.9 - 5.9
Issue of ordinary
share capital 10 2.2 2.5 23.5 - 28.2 - 28.2
Reduction in share capital
6 - - - - - (0.2) (0.2)
Equity-settled transactions - - - 1.0 1.0 - 1.0
Ordinary share dividends 6 - - - (1.1) (1.1) (0.1) (1.2)
At 30 June 2021 15.6 16.8 38.0 112.2 182.6 0.2 182.8
============================ ===== ========= ========= ========== ========== ======= ================ ========
Condensed consolidated statement of cash flows
for the year ended 30 June
2021 2020
Note GBPm GBPm
================================================ ===== ======= =======
Cash flows from operating activities
Profit/(loss) before taxation 3.9 (5.3)
Adjustments for:
- Share-based payments 1.4 0.6
- Fair value losses on derivative financial
instruments 0.7 0.3
- Profit on disposal of property, plant
and equipment (0.3) (1.0)
- Net finance costs 4.7 4.4
- Depreciation, amortisation and impairment 26.6 30.3
================================================ =====
Operating cash flows before movements in
working capital 37.0 29.3
Changes in:
- Inventories 2.9 (5.6)
- Trade, contract and other receivables (7.5) 25.4
- Trade, contract and other payables 4.1 (12.3)
- Provisions 1.1 1.0
Defined benefit pension scheme payments
in excess of past service costs (4.6) (4.6)
Cash generated from operations 33.0 33.2
Net interest paid (4.2) (4.2)
Income tax paid (2.9) (5.3)
Net cash from operating activities 25.9 23.7
================================================ ===== ======= =======
Cash flows from investing activities
Acquisitions of subsidiaries, net of cash
acquired (5.2) (4.3)
Purchases of property, plant and equipment (4.5) (22.0)
Proceeds from disposal of property, plant
and equipment 0.3 2.8
Purchases of intangible assets and capitalised
development costs (8.9) (9.2)
Net cash used in investing activities (18.3) (32.7)
================================================ ===== ======= =======
Cash flows from financing activities
Proceeds from issuance of ordinary shares 28.2 -
Purchases of own shares to settle awards - (0.6)
Principal element of lease payments (6.5) (5.6)
Principal element of lease receivables 0.2 0.2
Proceeds from borrowings 9 5.0 140.3
Repayment of borrowings 9 (57.9) (90.7)
Dividends paid to shareholders and return
of capital 6 (1.4) (11.6)
Net cash (used in)/from financing activities (32.4) 32.0
================================================ ===== ======= =======
Effect of exchange rate changes on cash
and cash equivalents (1.7) 0.4
================================================ ===== ======= =======
Net (decrease)/increase in cash and cash
equivalents (26.5) 23.4
Net cash and cash equivalents at 1 July 55.8 32.4
Net cash and cash equivalents at 30 June 9 29.3 55.8
================================================ ===== ======= =======
At 1 July
Cash and cash equivalents 66.3 36.3
Bank overdrafts (10.5) (3.9)
Net cash and cash equivalents at 1 July 55.8 32.4
================================================ ===== ======= =======
At 30 June
Cash and cash equivalents 9 42.0 66.3
Bank overdrafts 9 (12.7) (10.5)
Net cash and cash equivalents at 30 June 29.3 55.8
================================================ ===== ======= =======
The accompanying notes form an integral part of these condensed
interim financial statements.
General information
Ricardo plc (the 'Company'), a public company limited by shares,
is listed on the London Stock Exchange and incorporated and
domiciled in the United Kingdom. The address of its registered
office is Shoreham Technical Centre, Shoreham-by-Sea, West Sussex,
BN43 5FG, England, United Kingdom, and its registered number is
222915.
This preliminary announcement is based on the audited Annual
Report & Accounts 2021, which was approved for issue on 14
September 2021, and which has been prepared in accordance with
International Financial Reporting Standards ('IFRS'), IFRS
Interpretations Committee ('IFRS-IC') interpretations adopted by
the European Union ('EU') and those parts of the Companies Act 2006
applicable to companies reporting under IFRS. The financial
information herein does not amount to full statutory accounts
within the meaning of Section 434 of the Companies Act 2006.
1. Alternative Performance Measures
Throughout this document the Group presents various alternative
performance measures ('APMs') in addition to those reported under
IFRS. The measures presented are those adopted by the Chief
Operating Decision Maker ('CODM', deemed to be the Chief Executive
Officer), together with the main Board, and analysts who follow the
Group in assessing the performance of the business. Explanations of
how they are calculated and how they are reconciled to an IFRS
statutory measure are set out below.
a. Group profit and earnings measures
Underlying profit before tax ('PBT') and underlying operating
profit: These measures are used by the Board to monitor and measure
the trading performance of the Group. They exclude certain items
which the Board believes distort the trading performance of the
Group. These include the amortisation of acquired intangibles,
acquisition-related expenditure, reorganisation costs, and other
specific adjusting items.
The Group's strategy includes geographic and sector
diversification, including targeted acquisitions and disposals. By
excluding acquisition-related expenditure from underlying PBT and
underlying operating profit, the Board has a clearer view of the
performance of the Group and is able to make better operational
decisions to support its strategy.
Acquisition-related expenditure includes the costs of
acquisitions, deferred and contingent consideration fair value
adjustments (including the unwinding of discount factors),
transaction-related fees and expenses, and post-deal integration
costs.
Reorganisation costs arising from major restructuring
activities, profits or losses on the disposal of businesses, and
significant impairments of property, plant and equipment, are
excluded from underlying PBT and underlying operating profit as
they are not reflective of the Group's trading performance in the
year, as are any other specific adjusting items deemed to be
one-off in nature.
The related tax effects on the above and other tax items which
do not form part of the underlying tax rate are also taken into
account. Items are treated consistently year-on-year, and these
adjustments are also consistent with the way that performance is
measured under the Group's incentive plans and its banking
covenants. A reconciliation is shown below. Further details of the
nature of the specific adjusting items are given in Note 4.
Reconciliation of underlying profit before tax to reported
profit/(loss) before tax
2021 2020
Specific Specific
adjusting adjusting
Underlying items Total Underlying items Total
GBPm GBPm GBPm GBPm GBPm GBPm
================================= =========== =========== ======== =========== =========== ========
Revenue 351.8 - 351.8 352.0 - 352.0
Cost of sales (234.1) - (234.1) (236.9) - (236.9)
================================= =========== =========== ======== =========== =========== ========
Gross profit 117.7 - 117.7 115.1 - 115.1
Administrative expenses
and other income (95.0) - (95.0) (95.1) - (95.1)
Amortisation of acquired
intangibles - (5.0) (5.0) - (6.0) (6.0)
Acquisition-related expenditure - (2.1) (2.1) - (3.0) (3.0)
Reorganisation costs - (5.4) (5.4) - (11.9) (11.9)
CEO exit costs - (1.5) (1.5) - - -
GMP equalisation - (0.1) (0.1) - - -
================================= =========== =========== ======== =========== =========== ========
Operating profit/(loss) 22.7 (14.1) 8.6 20.0 (20.9) (0.9)
Net finance expense (4.7) - (4.7) (4.4) - (4.4)
Profit/(loss) before taxation 18.0 (14.1) 3.9 15.6 (20.9) (5.3)
Income tax (expense)/credit (4.8) 2.6 (2.2) (4.1) 3.0 (1.1)
Profit/(loss) for the year 13.2 (11.5) 1.7 11.5 (17.9) (6.4)
================================= =========== =========== ======== =========== =========== ========
Underlying earnings attributable to the owners of the parent:
The Group uses underlying earnings attributable to the owners of
the parent as the input to its adjusted EPS measure. This profit
measure excludes the amortisation of acquired intangibles,
acquisition-related expenditure, reorganisation costs and other
specific adjusting items, but is an after-tax measure. The Board
considers underlying EPS to be more reflective of the Group's
trading performance in the year than reported EPS. A reconciliation
between earnings attributable to the owners of the parent and
underlying earnings attributable to the owners of the parent is
shown in Note 5.
Organic growth/decline: Organic growth/decline is calculated as
the growth/decline in the result for the current year compared to
the prior year, after adjusting for the impact of acquisitions or
disposals, to include the results of those acquisitions or
disposals for an equivalent period in each financial year. As set
out in Note 13 to the Group financial statements, the Group
acquired the entire issued share capital of PLC Consulting Pty Ltd
('PLC Consulting') on 31 July 2019. Had PLC Consulting been
acquired and consolidated from 1 July 2019, the impact on the Group
would not have been material.
Constant currency growth/decline: The Group generates revenues
and profits in various territories and currencies because of its
international footprint. Those results are translated on
consolidation at the foreign exchange rates prevailing at the time.
Constant currency growth/decline is calculated by translating the
result for the current year using foreign currency exchange rates
applicable to the prior year. This provides an indication of the
growth/decline of the business, excluding the impact of foreign
exchange.
Headline trading performance Underlying Reported
Profit Profit/(loss)
Operating before Operating before
Revenue profit tax profit/(loss) tax
============================== ======== ========== ======== =============== ==============
2021 (GBPm) 351.8 22.7 18.0 8.6 3.9
2020 (GBPm) 352.0 20.0 15.6 (0.9) (5.3)
Growth (%) - 14 15 1,056 174
Constant currency growth (%) 1 14 15 1,056 174
============================== ======== ========== ======== =============== ==============
Segmental underlying operating profit: This is presented in the
Group's segmental disclosures and reflects the underlying trading
of each segment, as assessed by the main Board. This excludes
segment-specific amortisation of acquired intangibles,
acquisition-related expenditure and other specific adjusting items,
such as reorganisation costs. It also excludes unallocated Plc
costs, which represent the costs of running the public limited
company and specific adjusting items which are outside of the
control of segment management. A reconciliation between segment
underlying operating profit, the Group's underlying operating
profit and operating profit is presented in Note 2.
b. Cash flow measures
Cash conversion: A key measure of the Group's cash generation is
the conversion of profit into cash. This is the reported cash
generated from operations (defined as operating cash flow, less
movements in net working capital and defined benefit pension
deficit contributions) divided by earnings before interest, tax,
depreciation, impairment and amortisation ('EBITDA'), expressed as
a percentage.
Underlying cash conversion: This is underlying cash generated
from operations (defined as reported cash generated from
operations, adjusted for the cash impact of specific adjusting
items) divided by underlying EBITDA (defined as reported EBITDA,
adjusted for the impact of specific adjusting items). A
reconciliation between the two is shown below.
2021 2020
Specific Specific
adjusting adjusting
Underlying items Total Underlying items Total
GBPm GBPm GBPm GBPm GBPm GBPm
============================ =========== =========== ====== =========== =========== =======
Operating profit/(loss) 22.7 (14.1) 8.6 20.0 (20.9) (0.9)
Depreciation, amortisation
and impairment 19.7 1.9 21.6 17.6 6.7 24.3
Amortisation of acquired
intangibles - 5.0 5.0 - 6.0 6.0
============================ =========== =========== ====== =========== =========== =======
EBITDA 42.4 (7.2) 35.2 37.6 (8.2) 29.4
Movement in working
capital (2.3) 2.9 0.6 4.5 4.0 8.5
Pension deficit payments (4.6) - (4.6) (4.6) - (4.6)
Profit on disposal of
assets (0.3) - (0.3) - (1.0) (1.0)
Share based payments 1.0 0.4 1.4 0.6 - 0.6
Fair value losses on
derivative financial
instruments 0.7 - 0.7 0.3 - 0.3
============================ ====== =========== =======
Cash generated from/(used
in) operations 36.9 (3.9) 33.0 38.4 (5.2) 33.2
============================ =========== =========== ====== =========== =========== =======
Cash conversion 87.0% 93.8% 102.1% 112.9%
============================ =========== =========== ====== =========== =========== =======
Net debt: is defined as current and non-current borrowings less
cash and cash equivalents, including hire purchase agreements, but
excluding any impact of IFRS 16 lease liabilities. Management
believes this definition is the most appropriate for monitoring the
indebtedness of the Group and is consistent with the treatment in
the Group's banking agreements.
c. Tax measures
Underlying effective tax rate ('ETR'): The Group reports one
adjusted tax measure, which is the tax rate on underlying profit
before tax. This is the tax charge applicable to underlying profit
before tax expressed as a percentage of underlying profit before
tax.
2. Financial performance by segment
The Group's operating segments are being reported based on the
financial information provided to the Chief Operating Decision
Maker who is the Chief Executive Officer. The information reported
includes financial performance but does not include the financial
position of assets and liabilities. The operating segments were
identified by evaluating the Group's products and services,
processes, types of customers and delivery methods.
From FY 2020/21, due to restructuring within the Group,
Strategic Consulting & Software ('other') is no longer being
separately reported as an operating segment.
The Strategic Consulting element of this segment is now reported
within Automotive & Industrial ('A&I'). This business has a
number of common customers, operates in similar markets to A&I,
and is now run as a business unit within the overall A&I
business. Since the start of FY 2020/21, the A&I EMEA Managing
Director has overall responsibility for the Strategic Consulting
service offering.
The Software element of this segment has been aggregated into
the Performance Products operating segment for the purposes of
segmental reporting. Whilst the Software business continues to be
run as a separate business with its own leadership team, it has a
number of similar characteristics to the Performance Products
manufacturing business, in that it is involved in the development
and sale of niche products, requiring a high level of
capital/development spend, primarily selling to automotive
manufacturers.
As a result of this change, the Group is now reporting the
following five segments:
-- Energy & Environment ('EE');
-- Rail;
-- Automotive & Industrial ('A&I');
-- Defense; and
-- Performance Products ('PP').
Prior year comparatives have been restated to present the
results of Ricardo Strategic Consulting and Ricardo Software within
Automotive & Industrial and Performance Products, respectively,
in line with the current year. Consistent with the prior period,
Plc costs includes the costs of running the public limited company,
including foreign exchange exposure on intercompany loans.
Measurement of performance
Management monitors the financial results of its operating
segments separately for the purpose of making decisions about
allocating resources and assessing performance. Segmental
performance is measured based on underlying operating profit, as
this measure provides management with an overall view of how the
different operating segments are managing their total cost base
against the revenue generated from their portfolio of
contracts.
There are varying levels of integration between the segments.
The segments use EE for their specialist environmental knowledge.
A&I and PP have various shared projects. There are also shared
service costs between the segments. Inter-segment transactions are
eliminated on consolidation. Inter--segment pricing is determined
on an arm's length basis in a manner similar to transactions with
third parties.
Included within Plc costs in the following tables are costs
arising from a central Group function, including the costs of
running the public limited company, which are not recharged to the
other operating segments. Comparative figures for the year ended 30
June 2020 have been restated, reflecting the impact of the changes
the Group made to its operating segments during the year ended 30
June 2021.
For the year ended
30 June 2021 EE Rail A&I Defense(1) PP Plc Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
========================== ====== ====== ======= =========== ====== ====== =======
Total segment revenue 57.9 77.7 105.7 37.9 78.5 - 357.7
Inter-segment revenue (0.8) - (3.2) - (1.9) - (5.9)
Revenue from external
customers 57.1 77.7 102.5 37.9 76.6 - 351.8
Segment underlying
operating profit/(loss) 8.5 8.0 (1.6) 5.4 6.8 - 27.1
Plc costs - - - - - (4.4) (4.4)
========================== ====== ====== ======= =========== ====== ====== =======
Underlying (1) operating
profit/(loss) 8.5 8.0 (1.6) 5.4 6.8 (4.4) 22.7
Specific adjusting
items (*) (0.9) (3.6) (5.6) (0.4) - (3.6) (14.1)
========================== ====== ====== ======= =========== ====== ====== =======
Operating profit/(loss) 7.6 4.4 (7.2) 5.0 6.8 (8.0) 8.6
Net finance costs (4.7)
Profit before taxation 3.9
Depreciation and
amortisation 3.3 6.1 10.2 1.8 3.9 1.3 26.6
Capital expenditure:
- Other intangible
assets 1.4 - 3.6 0.5 3.1 0.3 8.9
- Property, plant
and equipment 0.4 0.2 2.3 0.6 0.8 - 4.3
- Right-of-use assets 0.2 0.8 0.6 0.8 - - 2.4
========================== ====== ====== ======= =========== ====== ====== =======
For the year ended
30 June 2020 (2) EE Rail A&I Defense(1) PP Plc Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
========================== ====== ====== ======= =========== ====== ====== =======
Total segment revenue 51.7 75.4 119.8 32.8 78.3 - 358.0
Inter-segment revenue (0.9) (0.1) (2.6) - (2.4) - (6.0)
Revenue from external
customers 50.8 75.3 117.2 32.8 75.9 - 352.0
Segment underlying
operating profit 6.3 5.8 0.5 5.1 5.1 - 22.8
Plc costs - - - - - (2.8) (2.8)
========================== ====== ====== ======= =========== ====== ====== =======
Underlying (1) operating
profit/(loss) 6.3 5.8 0.5 5.1 5.1 (2.8) 20.0
Specific adjusting
items (*) (1.7) (5.5) (10.4) (0.5) (0.3) (2.5) (20.9)
========================== ====== ====== ======= =========== ====== ====== =======
Operating profit/(loss) 4.6 0.3 (9.9) 4.6 4.8 (5.3) (0.9)
Net finance costs (4.4)
Loss before taxation (5.3)
Depreciation and
amortisation 3.7 6.5 14.1 1.4 3.3 1.3 30.3
Capital expenditure:
- Other intangible
assets 0.9 0.1 3.6 0.5 3.4 0.7 9.2
- Property, plant
and equipment 0.3 0.2 19.8 0.3 1.0 0.4 22.0
- Right-of-use assets - 0.1 4.5 0.4 0.1 - 5.1
========================== ====== ====== ======= =========== ====== ====== =======
(*) See Note 4.
(1) Defined in the glossary of terms.
(2) Prior year comparatives have been restated to present the
results of Ricardo Strategic Consulting and Ricardo Software within
Automotive & Industrial and Performance Products, respectively,
in line with the current year.
3. Revenue
Disaggregation of revenue 2021 2020
GBPm GBPm
=============================================== ====== ======
a) Revenue stream
Service provided under:
- fixed price contracts 210.8 189.5
- time and materials contracts 65.9 73.3
- subscription and software support contracts 6.6 6.7
Goods supplied:
- manufactured and assembled products 61.8 74.3
- software products 6.7 7.2
Intellectual property - 1.0
Total 351.8 352.0
=============================================== ====== ======
b) Customer location
United Kingdom 118.9 124.6
Europe 76.2 80.4
North America 69.5 59.9
China 24.1 22.6
Rest of Asia 25.7 31.4
Australia 27.3 21.4
Rest of the World 10.1 11.7
Total 351.8 352.0
=============================================== ====== ======
c) Timing of recognition
Over time 289.6 276.4
At a point in time 62.2 75.6
Total 351.8 352.0
=============================================== ====== ======
4. Specific adjusting items
Specific adjusting items are disclosed separately in the
financial statements where it is necessary to do so to provide
further understanding of the financial performance of the Group.
These items comprise the amortisation of acquired intangible
assets, acquisition-related expenditure, reorganisation costs and
other non-recurring items that are included due to the significance
of their nature or amount. Acquisition-related expenditure includes
the costs of acquisitions, deferred and contingent consideration
fair value adjustments (including the unwinding of discount
factors), transaction-related fees and expenses, and post-deal
integration costs. Reorganisation costs include costs arising from
major restructuring activities, profits or losses on the disposal
of businesses, and significant impairments of property, plant and
equipment, and other items deemed to be one-off in nature.
For the year ended 30 June 2021 2021 2020
GBPm GBPm
================================================== ====== ======
Amortisation of acquired intangibles 5.0 6.0
Acquisition-related expenditure 2.1 3.0
Reorganisation costs
- Purchases and disposals 2.0 5.7
- Other reorganisation costs 3.4 6.2
CEO exit costs 1.5 -
Guaranteed Minimum Pensions ('GMP') equalisation 0.1 -
Total before tax 14.1 20.9
================================================== ====== ======
Tax credit on specific adjusting items (2.6) (3.3)
Tax charge on prior year specific adjusting item - 0.3
Total after tax 11.5 17.9
================================================== ====== ======
Amortisation of acquired intangible assets
On acquisition of a business, the purchase price is allocated to
assets such as customer contracts and relationships. Amortisation
occurs on a straight-line basis over its useful economic life,
which is between 3 and 9 years. During the year, certain "customer
contracts and relationships" intangible assets reached the end of
their economic life, resulting in a decrease in amortisation
charges compared to the prior period.
Acquisition-related expenditure
The current year acquisition-related expenditure comprises
GBP1.6m (2020: GBP2.8m) of earn-out and employee retention costs,
accrued in relation to Transport Engineering Pty Ltd (now Ricardo
Rail Australia - 'RRA'), acquired in May 2019, and PLC Consulting
Pty Ltd (now Ricardo Energy Environment and Planning - 'REEP'),
acquired in July 2019. Further details are provided in Note 13 to
the Group financial statements. The current year charge also
includes GBP0.5m of external fees incurred in relation to two
strategic projects in the year.
The prior period charge included GBP0.4m of costs incurred in
relation to the post-deal integration of RRA and REEP, and GBP0.9m
costs incurred on acquisition processes (including REEP and other
aborted processes), comprising external fees and the costs of
running an internal acquisitions department to effect the
acquisition processes. Offsetting these, GBP1.1m of income was
recognised in relation to a gain on a foreign exchange option
contract, which was taken out to hedge an aborted overseas
transaction.
The above items have been classified as specific adjusting items
as they meet the Group's definition of acquisition-related
expenditure. The prior year gain on the option contract was
classified as a specific adjusting item due to its non-recurring
nature and the significance of the amount.
Reorganisation costs
Purchases and disposals
The current year charge includes a GBP1.5m impairment charge as
a result of a decrease in the fair value of the Detroit Technology
Campus ('DTC') South building, reflecting its market value at the
balance sheet date. The property has been held-for-sale since its
purchase in August 2019. It was purchased to remove the business
from a long-term lease commitment which ran to October 2037 and
comprised a North building, which housed testing operations, and a
South office building. The campus was originally purchased for
GBP14.2m (USD 17.3m), and immediately written down, resulting in an
impairment charge of GBP2.5m (net of the extinguishment of an
associated IFRS 16 lease liability) in the prior year as the
purchase price was predicated on its tenancy. The North building
and its associated test assets were sold in the second half of FY
2019/20 (see below) and the South building was impaired by a
further GBP1.1m (USD 1.3m). The current year impairment charge
reflects the impact of COVID-19 on the property market, with a
significantly lower demand for office space depressing prices in
the DTC area. These costs have been classified as specific
adjusting items as they are significant in value and would distort
the underlying trading performance of the Group if included. On 18
January 2021, as offers received were lower than expected,
management decided to retain the use of the property. The property
is continuing to be marketed for sale, but management no longer
considers a sale within the next twelve months to be highly
probable - see Note 18 to the Group financial statements..
The DTC North building and its associated test assets were sold
on 3 June 2020 for up-front consideration of GBP2.8m (USD 3.5m),
with up to an additional GBP1.5m (USD 2.0m) contingent on volume of
testing work placed into the facility by Ricardo over the next two
years. A loss of GBP2.1m (USD 2.7m), after taking into account the
fair value of contingent consideration, was recognised on the
disposal in the prior year. A charge of GBP0.5m (USD 0.8m) has been
recognised in the current year, representing a reduction in the
fair value of contingent consideration based on management's latest
assessment of the testing volumes to be placed into the facility
over the next twelve months. Ricardo received GBP0.2m (USD 0.3m) of
contingent consideration in FY 2020/21.
Other reorganisation costs
Redundancy costs: The current period charge reflects a total of
GBP2.5m of redundancy costs from headcount reductions in the
Group's A&I business in EMEA. This was caused by a continuation
of the challenging trading conditions seen throughout the year and
the impact of COVID-19 on order intake levels as clients reduced
levels of outsourcing and delayed major programmes. The A&I
EMEA business previously incurred GBP2.0m of costs from headcount
reductions in the second half of FY 2019/20, driven by impact of
the outbreak of COVID-19 on trading conditions. Due to the
continuing depressed economic conditions and various national
lockdowns in Autumn 2020, further heads were removed from the
business in the first half of this year at a cost of GBP1.3m. Order
intake showed signs of improvement in the third quarter of the
financial year, but further national lockdowns in Spring 2021 led
to more project delays, which contributed to a decline in order
intake in the fourth quarter. In June 2021, management announced a
plan to take additional heads out of the business, recognising a
GBP1.2m redundancy provision. These actions are deemed necessary to
right-size the business based on current order intake levels and
realign capabilities with changing customer demands. These costs
have been included within specific adjusting items as they are
significant in quantum and would otherwise distort the underlying
trading performance of the Group.
In the prior year, in addition to the GBP2.0m of redundancy
costs for A&I in EMEA, GBP1.4m of redundancy costs were
incurred in Rail (the completion of a process which commenced in FY
2018/19), together with GBP1.0m of redundancy costs across A&I
US, Performance Products, Software and Strategic Consulting (now
part of A&I EMEA). GBP0.8m of incremental professional fees and
external, non-revenue generating contractor costs were incurred,
directly linked to the restructuring actions taken.
Property exit costs: As part of the restructuring actions,
A&I in EMEA announced its decision to fully exit the Cambridge
Technical Centre ('CaTC') at the end of June 2021, recognising a
charge of GBP0.7m in respect of impairment of the lease
right-of-use asset and leasehold improvements, dilapidations costs,
and service fees through to the break date of June 2022. The
treatment of these costs as specific adjusting items is consistent
with the prior year, when an element of the building was vacated
due to a reduction in headcount, resulting in a charge of GBP0.6m.
In addition, GBP0.1m has been incurred in the current year in
respect of the impairment of the right-of-use asset in Schwäbish
Gmünd Technical Centre ('SGTC'), as management was in discussions
with the landlord to surrender the lease at this site (on which
Ricardo has a very limited presence) at the year-end (see Note 38
to the Group financial statements), together with GBP0.1m for the
write off of equipment relating to the Santa Clara Technical Centre
('SCTC'), which was exited in June 2020. A charge of GBP0.4m was
recognised in the prior year in respect of right-of-use and other
asset impairments at SCTC and incremental contractor costs.
CEO exit costs
In January 2021, the Board announced that CEO Dave Shemmans will
be leaving the Group, after sixteen years in the role. Costs of
GBP1.5m have been accrued, covering his settlement, external legal
fees, and external recruitment fees to find a successor. The costs
have been recognised as specific adjusting items due to their
non-recurring nature and quantum.
Guaranteed Minimum Pensions ('GMP') equalisation
In October 2018, the High Court issued a judgement confirming
that pension schemes are required to equalise male and female
members' benefits for the effect of Guaranteed Minimum Pensions
('GMP'), which resulted in a GBP1.3m charge in FY 2018/19. A
further ruling in November 2020 confirmed that historical transfers
out of the scheme, between May 1990 and October 2018 would also
need to be equalised for GMP. This has resulted in an additional
GBP0.1m charge in the current year, which has been classified as a
specific adjusting items due to it being non-recurring in nature.
The treatment is consistent with the treatment of the original GMP
equalisation charge.
Tax charge on prior year specific adjusting items
During FY 2019/20, a tax charge of GBP0.3m was recognised in
relation to adjustments to the prior year tax charge arising on the
sale of the Germany test business in June 2018.
5. Earnings per share
2021 2020
GBPm GBPm
====================================================== =========== ===========
Earnings/(loss) attributable to owners of the parent 1.7 (6.5)
Add back the net-of-tax impact of:
- Amortisation of acquired intangibles 3.9 4.5
- Acquisition-related expenditure 2.0 2.9
- Asset purchases and disposals 1.5 4.8
- Other reorganisation costs 2.7 5.4
- CEO exit costs 1.3 -
- Guaranteed Minimum Pensions ('GMP') equalisation 0.1 -
- Tax charge on prior year specific adjusting item - 0.3
Underlying earnings attributable to owners of the
parent 13.2 11.4
====================================================== =========== ===========
2021 2020
Number Number
of shares of shares
millions millions
====================================================== =========== ===========
Basic weighted average number of shares in issue 58.9 53.4
Effect of dilutive potential shares - -
Diluted weighted average number of shares in issue 58.9 53.4
====================================================== =========== ===========
2021 2020
Earnings/(loss) per share pence pence
====================================================== =========== ===========
Basic 2.9 (12.2)
Diluted 2.9 (12.2)
====================================================== =========== ===========
2021 2020
Underlying earnings per share pence pence
====================================================== =========== ===========
Basic 22.4 21.3
Diluted 22.4 21.3
====================================================== =========== ===========
Underlying earnings per share is also shown because the
Directors consider that this provides a more useful indication of
underlying performance and trends over time.
6. Dividends
2021 2020
GBPm GBPm
================================================== ===== =====
Final dividend for prior period: 0.00p per share
(2020: 15.28p) per share - 8.2
Interim dividend for current period: 1.75p per
share (2020: 6.24p) per share 1.1 3.3
Equity dividends paid 1.1 11.5
================================================== ===== =====
A dividend of GBP0.1m (2020: GBP0.1m) was issued during the year
by a subsidiary of the Group to a non-controlling party of that
subsidiary. A return of capital of GBP0.2m (2020: Nil) was made
during the year by a subsidiary of the Group to a non-controlling
party of that subsidiary.
7. Goodwill
2021 2020
GBPm GBPm
========================= ====== =====
Movement in goodwill
At 1 July 87.8 84.2
Acquisition of business - 2.6
Exchange adjustments (3.1) 1.0
At 30 June 84.7 87.8
========================== ====== =====
The carrying value of goodwill and the key assumptions used in
determining the recoverable amount of each CGU, or group of CGUs,
are as follows:
Pre-tax discount Long-term growth
Carrying value rate rate
2021 2020 2021 2020 2021 2020
GBPm GBPm % % % %
============================= ======== ======= ========= ======== ========= ========
Rail 44.9 46.6 10.8% 13.0% 3.6% 4.0%
Automotive and Industrial
('A&I') - EMEA (1) 19.6 20.6 13.2% 12.0% * 3.0%
Energy and Environment
('EE') (2) 15.9 15.9 12.5% 13.0% 4.7% 2.0%
Defense 3.2 3.6 14.3% 13.0% 3.4% 4.0%
Performance Products ('PP') 1.1 1.1 12.9% 12.0% 0.4% 2.0%
At 30 June 84.7 87.8
============================= ======== ======= ========= ======== ========= ========
(1) As described in Note 2, the Strategic Consulting unit of
what was previously the Strategic Consulting and Software segment
is now run as a service line within the A&I EMEA business, with
the A&I EMEA Managing Director having overall responsibility
for the Strategic Consulting service offering. As such the
strategic consulting business is considered to form part of the
group of CGUs to which A&I EMEA goodwill is allocated.
(2) As set out in further detail in Note 13(a) to the Group
financial statements, the Group acquired PLC Consulting Pty Ltd on
31 July 2019, adding goodwill of GBP2.6m to the EE CGU. PLC
Consulting is an Australian firm with a strong technical advisory
capability across the project life cycle in infrastructure,
environment and planning, including supporting the environmental
requirements of master-planning, business cases, procurement,
design, construction and operation.
*See key assumptions below.
Key assumptions
The three-year plan and discounted cash flow calculations
thereon provide a value-in-use which supports the carrying value of
the goodwill allocated to each CGU, or group of CGUs, at 30 June
2021, resulting in no impairment for the year (2020: Nil). The
three-year cashflow forecasts are based on the budget for the
following year (year one) and the business plans for years two and
three (the three-year plan). The three-year plan is prepared by
management, and is reviewed and approved by the Board. The
three-year plan reflects past experience, management's assessment
of the current contract portfolio, contract wins, contract
retention, price increases, gross margin, as well as future
expected market trends (including the impact of COVID-19), adjusted
to meet the requirements of IAS 36 Impairment of Assets.
Cash flows beyond year three are projected into perpetuity using
a long-term growth rate, which is determined as being the lower of
the planned compound annual growth rate in each CGU, or group of
CGU,'s three-year plan and external third party forecasts of the
prevailing inflation and economic growth rates for each of the
territories in which each CGU, or group of CGUs, primarily
operates. A&I EMEA (part of the A&I operating segment)
cashflows were analysed into cashflows expected to arise directly
from internal combustion engine ('ICE') related revenues and those
related to non-ICE technologies. Due to regulatory and other
changes in the market relating to ICE, a long-term decrease of 15%
p.a. has been applied to ICE-related cashflows, and a long-term
growth rate of 4.3% p.a., based on prevailing inflation and
economic growth by territory, has been applied to the remaining
non-ICE cashflows.
The cash flows are discounted at a pre-tax discount rate, which
is derived from externally sourced data and reflects the current
market assessment of the Group's time value of money and risks
specific to each CGU.
Research and Development Expenditure Credits ('RDEC') cashflows
are included in the value-in-use calculations for A&I EMEA, PP
and EE. They are material to the A&I EMEA group of CGUs and
have been included on the basis that there is no indication that
the UK government will change this benefit.
Sensitivities
The value-in-use calculations were are assessed for sensitivity
to reasonably possible changes to these estimates. With the
exception of A&I EMEA, the sensitivities assessed include a 10%
reduction in planned operating pro-fit, a 10% increase in planned
working capital movements, a 1% increase in the pre-tax discount
rate and a 1% decrease in the long-term growth rate, together with
a further scenario whereby all sensitivities were combined
together. The above changes in key estimates do not cause the
recoverable amount for any CGU or group of CGUs to be materially
lower than the carrying amount.
Within the A&I operating segment, the A&I EMEA CGU has
faced challenging trading conditions in the current and prior
financial years, which have significantly reduced its
profitability. The A&I EMEA three-year plan projects growth in
revenue and operating profit, which is to be delivered through a
combination of diversification into new innovative green
technologies and markets, together with improving efficiency as a
result of restructuring actions, including those which started to
be implemented at the end of FY 2020/21. For goodwill allocated to
the A&I EMEA CGU, at 30 June 2021, the recoverable amount
exceeds the carrying value of the CGU by GBP35.8m. Sensitivities
determined were as follows:
-- A reduction of 38% in the operating profit levels would
result in the recoverable amount being materially equal to the
carrying value. A reduction in operating profit of this magnitude
is considered reasonably possible, given the current and projected
levels of profitability in the plan.
-- If RDEC cash flows were excluded from the value-in-use
calculation, then the goodwill balance would be fully impaired
-- Individually, a 2% increase in the pre-tax discount rate, a
2% decrease in the long-term growth rate, a 10% increase in planned
working capital movements do not cause the recoverable amount for
the group of CGUs to be materially lower than the carrying
amount.
-- A scenario with a combination of a 1% increase in the pre-tax
discount rate, a 1% decrease in the long-term growth rate, a 10%
decrease in operating profit and a 10% increase in working capital
movement does not cause the recoverable amount for the group of
CGUs to be materially lower than the carrying amount.
-- A scenario with a combination a 2% increase in the pre-tax
discount rate, a 2% decrease in the long-term growth rate, a 10%
decrease in operating profit and a 10% increase in working capital
movement would result in an impairment of GBP10.0m.
8. Non-current assets held for sale
Freehold
land and Plant and
Movement in held for sale buildings machinery Total
GBPm GBPm GBPm
====================================== =========== =========== ======
At 1 July 2019 - 2.9 2.9
Transferred from property, plant and
equipment 8.6 1.1 9.7
Disposals (2.1) (4.0) (6.1)
Impairment loss (1.1) - (1.1)
Exchange rate adjustments (0.1) - (0.1)
At 30 June 2020 5.3 - 5.3
======================================= =========== =========== ======
At 1 July 2020 5.3 - 5.3
Impairment loss (1.5) - (1.5)
Transferred to property, plant and
equipment (3.3) - (3.3)
Exchange rate adjustments (0.5) - (0.5)
At 30 June 2021 - - -
======================================= =========== =========== ======
Freehold land and buildings held for sale above consist of the
DTC freehold property.
The DTC north building was sold on 3 June 2020, as discussed
below. As at 30 June 2020, the DTC south building was still being
marketed and remained held for sale. On 18 January 2021, it was
reclassified to property, plant and equipment. Consistent with the
treatment in the prior year, the impairment charge of GBP1.5m was
recognised within specific adjusting items. It was included within
the A&I segment and within administrative expenses in the
reported result. See Note 16 to the Group financial statements for
further details.
Plant and machinery: In January 2019, the Directors made a
decision to commence a process to market actively its test cell
assets at DTC for sale, which had a net book value of GBP2.9m (USD
3.7m) at 1 July 2019. During the prior year, the Group continued to
invest in these assets to improve their desirability, increasing
the held for sale net book value to GBP4.0m (USD 4.9m). These
assets were sold on 3 June 2020, as discussed below.
Detroit test cell business and north building of
Detroit Technology Campus
GBPm
========================================================== ======
Fair value of cash consideration
Initial cash consideration 2.8
Provisional fair value of contingent cash consideration:
- Less than one year 0.5
- More than one year 0.7
Total fair value of cash consideration 4.0
============================================================= ======
Carrying value of property, plant and equipment
disposed
Leasehold property (2.1)
Plant and machinery (4.0)
Total carrying value of property, plant and
equipment disposed (6.1)
============================================================= ======
Loss on disposal before tax (2.1)
============================================================= ======
In June 2020, the Group sold the test cell assets and the DTC
north building to a non-competitive strategic partner for an
initial cash consideration of GBP2.8m (USD 3.5m), which could
increase to a maximum of GBP4.3m (USD 5.5m), depending on the
volume of testing work placed into the facility by Ricardo over the
next two years. The total fair value of cash consideration was
GBP4.0m (USD 4.9m), which included the accrued provisional fair
value of contingent cash consideration payable of GBP1.2m (USD
1.5m). A loss of GBP2.1m (USD 2.6m) was recognised on the sale. Due
to the nature and significance of the amount, the loss on disposal
was recognised in the income statement within specific adjusting
items.
Testing volumes were lower than anticipated in FY 2020/21, with
GBP0.2m (USD 0.3m) of contingent consideration received in the
year. Based on testing work placed into the facility in the year,
management's order book and the latest probability-weighted
pipeline, a charge of GBP0.5m (USD 0.7m), representing a reduction
in the fair value of contingent consideration, was recognised in
the income statement in the year. In line with the Group's policy,
this charge has been recognised within specific adjusting
items.
9. Net debt
Analysis of net debt 2021 2020
GBPm GBPm
====================================================== ======= ========
Current assets - cash and cash equivalents
- Cash and cash equivalents 42.0 66.3
Total cash and cash equivalents 42.0 66.3
======================================================= ======= ========
Current liabilities - borrowings
- Bank overdrafts repayable on demand (12.7) (10.5)
- Hire purchase liabilities maturing within
one year (0.1) (0.1)
Total current borrowings (12.8) (10.6)
======================================================= ======= ========
Non-current liabilities - borrowings
- Hire purchase liabilities maturing after one
year (0.3) (0.4)
- Bank loans maturing after one year (75.8) (128.7)
Total non-current borrowings (76.1) (129.1)
======================================================= ======= ========
At 30 June (46.9) (73.4)
======================================================= ======= ========
Total cash and cash equivalents at 30 June 42.0 66.3
Total borrowings at 30 June (88.9) (139.7)
At 30 June (46.9) (73.4)
======================================================= ======= ========
Movement in net debt 2021 2020
GBPm GBPm
====================================================== ======= ========
At 1 July (73.4) (47.4)
Net (decrease)/increase in cash and cash equivalents
and bank overdrafts (26.5) 23.4
Repayments of hire purchase 0.1 0.2
Proceeds from bank loans (5.0) (140.3)
Repayments of bank loans 57.9 90.7
At 30 June (46.9) (73.4)
======================================================= ======= ========
At the year-end, the Group had current hire-purchase liabilities
of GBP0.1m and non-current hire-purchase liabilities of GBP0.3m.
This hire-purchase agreement has an implicit rate of interest of
2.4%. The future undiscounted minimum lease payments due within one
year is GBP0.1m and due after one year is GBP0.3m.
At the year-end, the Group held total banking facilities of
GBP215.5m (2020: GBP216.6m), which included committed facilities of
GBP200.0m (2020: GBP200.0m). The committed facility consists of a
GBP200.0m multi-currency Revolving Credit Facility ('RCF') which
provides the Group with committed funding through to July 2023. In
addition, the Group has uncommitted facilities including overdrafts
of GBP15.5m (2020: GBP16.6m), which mature throughout this and the
next fi-nancial year and are renewable annually.
Non-current bank loans comprise committed facilities of GBP75.8m
(2020: GBP128.7m), net of direct issue costs, which were drawn
primarily to fund acquisitions and general corporate purposes.
These are denominated in Pounds Sterling and have variable rates of
interest dependent upon the Group's adjusted leverage, which range
from 1.4% to 2.2% (2020: 1.4% to 2.2%) above LIBOR. On 29 June 2021
the Group made amendments to the GBP200.0m committed Revolving
Credit Facility ("RCF") to accommodate the forthcoming cessation of
LIBOR. The Group has adopted SONIA as the risk-free rate to replace
LIBOR. No other amendments to the facilities were made.
Adjusted leverage is defined in the Group's banking documents as
being the ratio of total net debt to adjusted EBITDA. Adjusted
EBITDA is further defined as being operating profit before
interest, tax, depreciation, impairment and amortisation, excluding
the impact of IFRS 16, adjusted for any one-off, non-recurring,
exceptional costs and acquisitions or disposals during the relevant
period. At the reporting date, the Group has an adjusted leverage
of 1.3x, which attracts a rate of interest of LIBOR plus 1.8%
(2020: LIBOR plus 1.4%). The Group has banking facilities for its
UK companies which together have a net overdraft limit, but the
balances are presented on a gross basis in the financial
statements.
10. Issue of share capital
On 11 November 2020, Ricardo plc issued 8,812,030 new ordinary
shares of 25 pence, representing 16.5% of the existing issued
ordinary share capital of the Company. They were issued at a price
of 333 pence per share, being a discount of 9.76 per cent to the
closing mid-price on 10 November 2020, raising gross proceeds of
GBP29.3m. Associated transaction costs of GBP1.1m were incurred,
including GBP0.7m brokerage fees and GBP0.4m of other directly
attributable professional fees. The issue was carried out in order
to reduce leverage, strengthen the balance sheet and provide
adequate working capital for the business.
The issue took place in the three parts; "Subscription shares"
subscribed for by certain directors of the company for cash
consideration; "Placing shares" placed via Liberum Capital Limited
and Investec Bank plc, to certain existing shareholders and other
institutional investors, in exchange for preference shares in
Project Star Funding Limited; and "Retail shares" offered by the
Company for cash consideration.
The number of shares issued in each category, and the associated
proceeds, are as follows:
Number Percentage
of shares of total shares GBPm
========================================= =========== ================= ======
Subscription shares 29,128 0.05% 0.1
Placing shares 7,981,809 14.95% 26.6
Retail shares 801,093 1.50% 2.6
========================================= =========== ================= ======
Total shares issued/proceeds 8,812,030 16.50% 29.3
Directly attributable transaction costs (1.1)
Net proceeds 28.2
========================================= =========== ================= ======
Subscription shares
The subscription shares were subscribed by the following
directors:
Number of
shares GBPk
================== ========== =====
Ian Gibson 7,507 25
Dave Shemmans 3,003 10
Russell King 5,105 17
William Spencer 2,402 8
Sir Terry Morgan 11,111 37
Net proceeds 29,128 97
=================== ========== =====
The proceeds of GBP0.1m resulted in share capital of GBPnil and
a share premium balance of GBP0.1m. There were no fees allocated to
this element of the issue.
Placing shares
The placing shares were issued via a 'cashbox' structure,
whereby Ricardo plc shares were issued in exchange for preference
shares in Project Star Funding Limited, a special purpose vehicle.
Section 565 of the Companies Act 2006 allows new shares to be
issued for non-cash consideration under exception from the
pre-emption requirements of section 561 of the Companies Act
2006.
Project Star Funding Limited ('PSFL') was incorporated in Jersey
on 4 September 2020. Prior to the placing, Ricardo plc held 89% of
the ordinary share capital of PSFL, with the other 11% held by
Liberum Capital Limited.
On 11 November 2020 PSFL issued preference share capital of
GBP26.6m (with no par value) to Liberum Capital Limited. Liberum
Capital Limited and Investec Bank plc placed shares to certain
existing shareholders and other institutional investors, the
proceeds of which were used to settle the consideration for the
preference share capital. Ricardo plc allotted new ordinary shares
in consideration for the transfer of all of Liberum Capital
Limited's preference and ordinary shares in PFSL. The issue created
an additional GBP2.0m of share capital. The premium on issuance of
these shares was GBP23.5m, net of directly attributable costs of
GBP1.0m. Since the premium arose from an issuance the purpose of
which was to acquire more than 90% of the equity of PSFL, under
s612 of the Companies Act 2006 the associated premium is therefore
accounted for as a merger reserve.
On the 18 November, PSFL redeemed its preference shares, and
PSFL was dissolved on 24 November 2020.
Retail shares
In order to provide retail and other interested investors the
opportunity to participate in the offer, shares were made available
via PrimaryBid.com, a platform that facilitates discounted equity
offerings for publicly listed companies. Due to its size, the issue
fell within the exemption set out in section 86(1)(e) and 86(4) of
the Financial Services and Markets Act 2000, as amended, and the
company was not required to publish a prospectus.
The GBP2.6m proceeds (net of directly attributable fees of
GBP0.1m) resulted in additional share capital of GBP0.2m and a
share premium balance of GBP2.5m.
Treatment of proceeds
The total net proceeds were accounted for as follows:
GBPm
=================================================== =====
Share capital: at 25p per share 2.2
Share premium: premium on retail and subscription
share issue, net of directly attributable
costs 2.5
Merger reserve: premium on placing share
issue, net of directly attributable costs 23.5
Net proceeds 28.2
===================================================== =====
11. Contingent liabilities
In the ordinary course of business, the Group has GBP13.0m
(2020: GBP9.4m) of possible obligations for bonds, guarantees and
counter-indemnities placed with the Group's banking and other
financial institutions and primarily relating to performance under
contracts with customers. These possible obligations are contingent
on the outcome of uncertain future events which are considered
unlikely to occur. The Group is also involved in commercial
disputes and litigation with some customers, which is also in the
normal course of business. Whilst the result of such disputes
cannot be predicted with certainty, the ultimate resolution of
these disputes is not expected to have a material effect on the
Group's -financial position or results.
In July 2013, a guarantee was provided to the Ricardo Group
Pension Fund ('RGPF') of GBP2.8m in respect of certain contingent
liabilities that may arise, which have been secured on specific
land and buildings (see Note 16 to the Group financial
statements.). The outcome of this matter is not expected to give
rise to any material cost to the Group. In October 2018, a further
guarantee was provided to the RGPF for an amount that shall not
exceed the employers' liability were a debt to arise under Section
75 of the Pensions Act 1995. The guarantee will terminate on 5
April 2023. The outcome of this matter is not expected to give rise
to any material cost to the Group on the basis that the Group
continues as a going concern.
12. Events after the reporting date
On 31 July 2021, the Group terminated its lease for the
Schwäbish Gmünd Technical Centre, incurring a termination fee of
GBP0.3m (EUR0.4m). At this date, the related right-of-use asset of
GBP1.1m was derecognised, GBP0.1m of leasehold improvements were
impaired, the GBP1.5m lease liability balance was released. The net
impact to the income statement was nil.
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END
FR SEUFIEEFSESU
(END) Dow Jones Newswires
September 22, 2021 11:17 ET (15:17 GMT)
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