TIDMRCDO
RNS Number : 2317M
Ricardo PLC
13 September 2023
13 September 2023
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
Report for the year ended 30 June 2023 ("FY 2022/23")
Well positioned to deliver continued strong growth in the near
and long-term
HIGHLIGHTS
-- A year of continued strong growth and transformation,
delivering in line with the Board's expectations.
-- Record order intake up 23% to GBP522m delivering a record year end order book of GBP395m.
-- Revenue from continuing operations increased by 17%,
delivering four consecutive halves of continued growth.
-- Underlying operating profit from continuing operations
increased by GBP6m and is on track to double in the five years from
FY22 to FY27.
-- Environmental and Energy Transition portfolio performed well
delivering double digit revenue growth and margin accretion.
-- Established Mobility portfolio continued to deliver good
order and revenue growth providing resilience and increased
visibility.
-- Structural changes implemented in the Established A&I
business are focused on supporting operating profit performance
improvements in FY 2023/24.
-- Two high growth high margin acquisitions completed.
2023 2022 Growth/ (decline)%
-------------------------------------------- ------ ------ ------ -------------------
Continuing operations
Order intake GBPm 521.5 425.3 22.6
Order book GBPm 395.3 340.0 16.3
Revenue GBPm 445.2 380.2 17.1
Underlying(1)
- Operating profit GBPm 34.0 28.0 21.4
- Operating profit margin % 7.6 7.4 0.2pp
- Profit before tax GBPm 27.9 24.2 15.3
Statutory
- Operating (loss)/profit GBPm (1.9) 16.2 (111.7)
- Operating (loss)/profit margin % (0.4) 4.3 (4.7pp)
- (Loss)/profit before tax GBPm (8.0) 12.4 (164.5)
Total
Underlying(1) cash conversion(2) % 75.3 112.1 (36.8pp)
Cash conversion(2) % 60.4 118.5 (58.1pp)
Basic underlying earnings per share(3) p 33.4 31.2 7.1
Basic reported (loss)/earnings per share p (8.7) 13.8 (163.0)
Closing
Net debt(4) GBPm 62.1 35.4 75.4
Headcount(5) no. 2,919 3,017 (3.2)
Dividend per share (paid and proposed) p 11.96 10.40 15.00
Continuing operations exclude the results of Ricardo Software,
which was sold on 1 August 2022.
References are defined in the glossary of terms below.
Commenting on the results, Graham Ritchie, Chief Executive
Officer, said:
"FY22/23 has been a good year for Ricardo as we continue to
deliver revenue growth, while accelerating our transformation in
line with our five-year strategic ambition.
During the year, we have made significant progress in shaping
our solution portfolios, with our Environmental and Energy
Transition portfolio achieving double-digit growth and margin
accretion, and where we continue to see strong demand across our
service offerings. Our Established Mobility portfolio has continued
to deliver good order and revenue growth and creates true value for
the Group given its long-term contracts and further profitability,
particularly within our Performance Products and Defense operating
segments. The actions that were taken in the Automotive and
Industrial operating segment in the second half will underpin
near-term performance improvements and position it for growth once
again.
We have also continued to enhance the Group's strategic
positioning by bringing the Group ever closer together as 'One
Ricardo'. Through our shared operating model, our aligned functions
enable the Group to scale the business while executing at pace,
thereby achieving Ricardo's full potential.
We enter the new financial year with good momentum on account of
our order intake in FY23 of GBP522m and our record year end order
book. Overall, although we remain prudent in navigating macro
uncertainties, we are confident in the Group's continuing strength
to deliver sustainable profitable growth."
About Ricardo plc
Ricardo plc is a global strategic, environmental, and
engineering consulting company, listed on the London Stock
Exchange. With over 100 years of engineering excellence and circa
3,000 employees in more than 20 countries, we provide exceptional
levels of expertise in delivering innovative cross-sector
sustainable outcomes to support energy transition and environmental
services, together with safe and smart mobility. Our global team of
consultants, environmental specialists, engineers, and scientists
support our clients to solve the most complex and dynamic
challenges to help achieve a safe and sustainable world. Visit
www.ricardo.com
Analyst and investor presentation
There will be a presentation for analysts relating to the
Group's results for the year ended 30 June 2023 at 9:30am on
Wednesday 13 September. A recording of the presentation will be
available online to all investors from Thursday 14 September at
https://ricardo.com/investors/financial-reporting/results-presentations.
Further enquiries:
Ricardo plc
Judith Cottrell Tel: 01273 455611
Natasha Perfect Website: www.ricardo.com
SEC Newgate
Elisabeth Cowell Tel: 020 7680 6882
Ian Silvera 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) Underlying measures exclude the impact on statutory measures
of specific adjusting items as set out in Note 5. Underlying
measures are considered to provide a more useful indication of
underlying performance and trends over time.
(2) 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 and amortisation (EBITDA), expressed as
a percentage.
(3) Underlying earnings also exclude a tax credit to statutory
earnings of GBP2.3m (FY 2021/22: GBP2.3m) for the specific
adjusting items in Note 5.
(4) Net debt, as set out in Note 10, 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.
(5) Headcount is calculated as the number of employees on the
payroll at the reporting date and includes subcontractors on a
full-time equivalent basis.
(6) Constant currency growth/decline is calculated by
translating the result for the prior period using foreign currency
exchange rates applicable to the current period. This provides an
indication of the growth/decline of the business, excluding the
impact of foreign exchange. See also Note 1.
Trading summary
Overall, Ricardo has performed in line with the Board's
expectations in 2022/23. Revenue from continuing operations,
excluding Ricardo Software, which was sold in August 2022, was
GBP445.2m, an increase of 17% on the prior period (14% on a
constant currency basis). Underlying operating profit from
continuing operations was GBP34.0m and underlying profit before tax
from continuing operations was GBP27.9m, representing growth of 21%
and 15% on the prior period respectively (16% and 10% on a
constant-currency basis). The underlying results are reflective of
strong order intake in the year. The Group won GBP521.5m of new
orders from continuing operations, up 23% on the prior period (19%
on a constant-currency basis).
Reported operating loss from continuing operations, after taking
specific adjusting items into consideration, was GBP1.9m (FY
2021/22: profit GBP16.2m) and reported loss before tax from
continuing operations was GBP8.0m (FY 2021/22: profit GBP12.4m).
2022/23 reported operating profit and profit before tax included
GBP23.4m of largely non-cash charges for the impairment of goodwill
and other assets, including decommissioning costs, in the
Automotive and Industrial Established Mobility (A&I
Established) operating segment, stemming from a downturn in
performance in this segment. Restructuring charges totalling
GBP25.1m were booked in A&I Established, Group, Rail and Energy
and Environment (EE). In addition, GBP4.6m of amortisation on
acquired intangibles and GBP6.2m of acquisition related expenditure
were booked in the period. This was partially offset by a GBP7.4m
gain on the disposal of Ricardo Software.
Net debt at 30 June 2023 was GBP62.1m, an increase of GBP26.7m
on the 30 June 2022 position of GBP35.4m. The Group received
GBP13.1m of proceeds (net of cash disposed) for the sale of Ricardo
Software and paid GBP0.8m of fees in relation to the completion of
the transaction in the period. Underlying working capital increased
by GBP12.8m with underlying cash conversion of 75.3%. Reported cash
conversion was 60.4%, after taking into account the cash impact of
specific adjusting items.
Headline trading performance
Underlying(1) Reported
-------------------- -------------------------------
Profit (Loss)/profit
External Operating before Operating before
revenue profit tax profit/(loss) tax
GBPm GBPm GBPm GBPm GBPm
---------------------------------- --------- ---------- -------- --------------- --------------
2023
Total 446.0 34.5 28.4 6.0 (0.1)
Less: discontinued operation (0.8) (0.5) (0.5) (7.9) (7.9)
---------------------------------- --------- ---------- -------- --------------- --------------
Continuing operations (a) 445.2 34.0 27.9 (1.9) (8.0)
Less: performance of acquisitions (4.8) (1.1) (1.1) 4.4 4.4
--------- ---------- -------- --------------- --------------
Continuing operations -
organic (b) 440.4 32.9 26.8 2.5 (3.6)
---------------------------------- --------- ---------- -------- --------------- --------------
2022
Total 387.3 30.1 26.3 17.0 13.2
Less: discontinued operation (7.1) (2.1) (2.1) (0.8) (0.8)
---------------------------------- --------- ---------- -------- --------------- --------------
Continuing operations (a) 380.2 28.0 24.2 16.2 12.4
---------------------------------- --------- ---------- -------- --------------- --------------
Continuing operations at
current year exchange rates 392.2 29.2 25.4 17.0 13.2
---------------------------------- --------- ---------- -------- --------------- --------------
Growth (%) - Total 15 15 8 (65) (101)
Growth (%) - Continuing
operations 17 21 15 (112) (165)
Growth (%) - Continuing
organic 16 18 11 (85) (129)
Constant currency growth(6)
(%) - Continuing operations 14 16 10 (111) (161)
---------------------------------- --------- ---------- -------- --------------- --------------
References in superscript are defined in the glossary of
terms.
(a) Growth from continuing operations excludes the results of
the Software operating segment which was sold on 1 August 2022 (see
Note 2)
(b) Organic growth excludes the performance of current year
acquisitions from the results of 2023 (see Note 8).
During the year Ricardo divested its Software business unit,
Ricardo Software, which contributed GBP0.8m of revenue and GBP0.5m
of underlying operating profit and profit before tax in FY
2022/23.
FY 2022/23 also includes the results of E3-Modelling S.A. (E3M)
and Aither Pty Ltd (Aither) which were acquired in January 2023 and
March 2023 respectively. In the current year E3M contributed
GBP2.0m of revenue and GBP0.7m of operating profit. During FY
2022/23 Aither contributed GBP2.7m of revenue and GBP0.4m of
operating profit.
Operating segment summary
2022 2022
2023 Restated(*) At constant currency(6)
Order Order Order
intake Revenue intake Revenue intake Revenue
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- -------- -------- -------- -------- ------------ ------------
EE 111.5 88.5 74.1 67.2 74.4 67.4
Rail 89.2 73.5 85.0 74.3 87.9 76.7
Automotive and
Industrial - Emerging 84.3 82.3 101.3 69.1 104.6 71.1
Environmental
& Energy Transition 285.0 244.3 260.4 210.6 266.9 215.2
=========================== ======== ======== ======== ======== ============ ============
Defense 85.0 88.6 55.1 45.0 60.9 49.8
PP 115.3 84.7 75.1 73.7 75.1 73.7
Automotive and
Industrial - Established 36.2 27.6 34.7 50.9 37.0 53.5
--------------------------- -------- -------- -------- -------- ------------ ------------
Established Mobility 236.5 200.9 164.9 169.6 173.0 177.0
=========================== ======== ======== ======== ======== ============ ============
Total - continuing
operations 521.5 445.2 425.3 380.2 439.9 392.2
Discontinued operation 0.5 0.8 6.9 7.1 7.6 7.7
--------------------------- -------- -------- -------- -------- ------------ ------------
Total 522.0 446.0 432.2 387.3 447.5 399.9
--------------------------- -------- -------- -------- -------- ------------ ------------
* The A&I Established and A&I Emerging operating
segments were previously reported as the A&I operating segment.
Comparative numbers have been restated. See also Note 3.
2022 2022
2023 Restated(*) At constant currency(6)
Underlying(1) Underlying(1) Underlying(1) Underlying(1) Underlying(1) Underlying(1)
operating operating operating operating operating operating
profit profit profit profit profit profit
margin margin margin
GBPm % GBPm % GBPm %
------------------ -------------- -------------- -------------- -------------- -------------- --------------
EE 16.0 18.1 11.0 16.4 11.0 16.3
Rail 8.0 10.9 9.4 12.7 9.7 12.6
Automotive and
Industrial -
Emerging 10.6 12.9 2.7 3.9 2.8 3.9
Environmental
& Energy
Transition 34.6 14.2 23.1 11.0 23.5 10.9
================== ============== ============== ============== ============== ============== ==============
Defense 13.4 15.1 6.6 14.7 7.2 14.5
PP 9.0 10.6 8.8 11.9 8.8 11.9
Automotive and
Industrial -
Established (5.8) (21.0) 4.9 9.6 5.1 9.5
------------------ -------------- -------------- -------------- -------------- -------------- --------------
Established
Mobility 16.6 8.3 20.3 12.0 21.1 11.9
================== ============== ============== ============== ============== ============== ==============
Operating
segments
- continuing
operations 51.2 11.5 43.4 11.4 44.6 11.4
Plc costs (17.2) (15.4) (15.4)
------------------ -------------- -------------- -------------- -------------- -------------- --------------
Total -
continuing
operations 34.0 7.6 28.0 7.4 29.2 7.4
Discontinued
operation 0.5 62.5 2.1 29.6 2.1 27.3
------------------ -------------- -------------- -------------- -------------- -------------- --------------
Total 34.5 7.7 30.1 7.8 31.3 7.8
------------------ -------------- -------------- -------------- -------------- -------------- --------------
* Prior period results have been restated to reflect the fact
that a share of central plc costs are no longer included in the
operating profit measure for operating segments. This has increased
the operating segment underlying operating profit shown above by
GBP9.8m for FY 2021/22. There is no impact on the Group's operating
profit.
Environmental and Energy Transition portfolio
-- Order intake: up 9% (constant currency: up 7%)
-- Revenue: up 16% (constant currency: up 14%)
-- Underlying operating profit: up 50% (constant currency: up 47%)
-- Underlying operating profit margin: 14.2% (FY 2021/22: 10.9% at constant currency)
Energy and Environment (EE) performed strongly, with order
intake, revenue and underlying operating profit all increasing
compared to the prior period. Growth has been driven by energy and
carbon regulation, climate action planning and transparency, clean
water and air quality services.
There was good growth in the Automotive and Industrial Emerging
Mobility (A&I Emerging) business. Whilst order intake was 17%
down on the prior period, revenue and underlying operating profit
both increased, driven by demand for hydrogen and electrification
applications.
Rail revenue and underlying operating profit both declined
period-on-period, as expected, due to the timing of large projects
ending and new project wins and extensions commencing. Order intake
was 5% up on the prior year. GBP1.5m of restructuring costs were
recognised in Rail and EE in the period relation to the ongoing
restructuring of its operating structure, aimed at creating a more
streamlined and client-focused business. These costs were
recognised as specific adjusting items.
Established Mobility portfolio
-- Order intake: up 43% (constant currency: up 37%)
-- Revenue: up 18% (constant currency: up 14%)
-- Underlying operating profit: down 18% (constant currency: down 21%)
-- Underlying operating profit margin: 8.3% (FY 2021/22: 11.9% at constant currency)
Defense performed very strongly in the period, with significant
growth in order intake (up 54%), revenue (up 97%) and underlying
operating profit (up 103%). Revenues of GBP56.5m (USD72.4m) for
anti-lock braking systems/electronic stability control (ABS/ESC)
programme were delivered in the year. Defense delivered 8,707 kits
in 2022/23 (FY 2021/22: 3,602 kits). In addition, there was good
growth in the Technical Solutions consultancy business, including
Field Support Services (the sustainment of ABS/ESC kits in the
field).
Performance Products (PP), excluding the results of Ricardo
Software, won GBP115.3m of orders in FY 2022/23, (up 54% on the
prior period). This reflects a number of new long-term contract
wins in the period. Revenue increased by 15% on the prior period
and underlying operating profit increased by 2% driven by a
combination of supply chain challenges, which led to some
inefficiency, and higher energy and operating costs.
Whilst orders increased by 4%, revenue significantly declined in
the A&I Established business, driven by increased economic
uncertainty and the continuing shift in the technological landscape
in the automotive sector. The business made an underlying operating
loss of GBP5.8m in the period, compared to a GBP4.9m profit in FY
2021/22. Given the performance of the business and the accelerating
technological changes facing the segment, a non-cash impairment
charge of GBP18.7m was recognised in the period in respect of
goodwill, intangible assets, and property, plant and equipment (see
discussion of Specific Adjusting Items below). In addition, GBP4.7m
of costs relating to restructuring were recognised during the
period. A restructuring programme, including headcount reductions
was completed during the year. These actions are focused on
returning the business to profitability. On a reported basis, after
including the impairment charge and restructuring costs, the
operating loss in A&I Established was GBP29.2m.
Cash performance
Net debt: increased GBP26.7m to GBP62.1m (FY 2021/22: GBP35.4m).
The Group had a net cash inflow for the disposal of Ricardo
Software (after current and prior year fees) of GBP11.9m. In
addition, GBP1.1m was paid to external advisors on other M&A
and strategic projects. GBP5.1m was paid out in relation to the
ongoing restructuring actions in A&I Established and GBP1.9m
was paid in relation to the ongoing management restructuring in
Rail & EE. Excluding these specific adjusting items, the Group
had a cash outflow of GBP4.1m. In January 2023 the Group acquired
93% of the issued share capital of E3M for an initial cash
consideration of GBP19.2m (EUR 21.9m). In March 2023 the Group
acquired 90% of the share capital of Aither for an initial
consideration of GBP9.4m (AUD 17.2m) which included an adjustment
for the cash and normalised net working capital of GBP0.1m (AUD
0.1m). The composition of net debt is defined in Note 10.
Basis of preparation
These consolidated financial statements of the Ricardo plc Group
(Group) have been prepared in accordance with UK adopted
international accounting standards. 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(d) to the Group financial
statements.
Reported results represent the Group's overall performance in
accordance with IFRS. The Group also uses a number of alternative
performance measures (APMs) in addition to those reported under
IFRS. Ricardo provides guidance to the investor community based on
underlying results.
The underlying results and other APMs may be considered in
addition to, but not as a substitute for or superior to,
information presented in accordance with IFRS. Explanations of how
they are calculated and how they are reconciled to an IFRS
statutory measure are provided in Note 1.
Underlying results include the benefits of the results of
acquisitions and major restructuring programmes but exclude
significant costs (such as the amortisation of acquired
intangibles, acquisition-related expenditure, reorganisation costs
and other specific adjusting items). Ricardo believes that the
underlying results, when considered together with the reported
results, provide investors, analysts and other stakeholders with
helpful complementary information to better understand the
financial performance and position of the Group.
Specific adjusting items
As set out in more detail in Note 5, the Group's total
underlying profit before tax excludes GBP35.9m of costs incurred
during the period that have been charged to the income statement as
specific adjusting items (FY 2021/22: GBP11.8m). In line with the
Group's policy, these items have been recognised as specific
adjusting items, due to their nature or significance of their
amount, so as to provide further clarity over the financial
performance.
Reconciliation of underlying profit before tax to reported
(loss)/profit before tax
2023 2022
GBPm GBPm
Underlying(1) profit before tax from continuing
operations 27.9 24.2
--------------------------------------------------- ------- -------
Amortisation of acquired intangibles (4.6) (4.5)
Acquisition-related expenditure (6.2) (0.8)
Restructuring costs
- A&I US - Test business change in fair value
of contingent consideration - (0.3)
- A&I - impairment of non-financial assets (18.7) (2.0)
- A&I - reorganisation costs (4.7) (2.9)
- Rail & EE - reorganisation costs (1.5) (1.0)
- Group - reorganisation costs (0.2) -
ERP implementation costs - (0.6)
Revaluation gain - 0.3
--------------------------------------------------- ------- -------
Total specific adjusting items from continuing
operations (35.9) (11.8)
--------------------------------------------------- ------- -------
Reported (loss)/profit before tax from continuing
operations (8.0) 12.4
--------------------------------------------------- ------- -------
SAI recorded in discontinued operation
Disposal of discontinued operation 7.4 (1.3)
--------------------------------------------------- ------- -------
Amortisation of acquired intangibles was GBP4.6m in the year,
compared to GBP4.5m in FY 2021/22.
Acquisition-related costs of GBP6.2m were incurred in the year
(FY 2021/22: GBP0.8m). These included GBP3.2m for deferred
consideration and GBP0.4m of external fees and integration costs in
relation to the acquisition of Aither pty (Aither), acquired in
March 2023, and GBP0.9m for deferred consideration and GBP0.2m of
external fees and integration costs in respect of the acquisition
of E3-Modelling S.A. (E3M, acquired in January 2023), as well as
GBP0.4m of deferred consideration and GBP0.4m of integration costs
in relation to the acquisition of Inside Infrastructure pty (Inside
Infrastructure), acquired in March 2022 and GBP0.7m of external
fees in relation to other M&A and strategic projects. Costs in
the prior period reflected GBP0.4m of fees and integration costs
for Inside Infrastructure and GBP0.3m of fees in relation to other
strategic projects.
Restructuring costs
A&I: Change in fair value of contingent consideration: In
the prior period a charge of GBP0.3m was recognised in relation to
a reduction in the fair value of deferred consideration in respect
of the sale of Ricardo's Detroit engine test business in June 2020.
The reduction in the fair value reflects lower levels of
traditional engine testing work than originally forecast at the
time the business was sold.
A&I: Impairment of non-financial assets: Non-cash goodwill
and asset impairment charges of GBP18.7m were recognised in the
year within the A&I Established operating segment (FY 2021/22:
GBP2.0m). As a result of the performance of this segment in the
year to 30 June 2023, the impact of economic uncertainty and the
continuing technological change in the automotive sector, the
future projections and discounted cash flows for the operating
segment were reassessed. The resulting value in use did not support
the carrying value of the associated assets, resulting in an
impairment of all of the goodwill associated with A&I
Established segment (GBP5.2m), together with GBP1.8m of intangible
assets and GBP11.7m of property, plant and equipment.
A&I: Restructuring costs: GBP4.7m of restructuring costs
were booked in A&I Established in the period (FY 2021/22
GBP2.9m). Of this amount, GBP0.7m of loss on disposal was
recognised during the period for under-utilised engine testing
assets in the UK associated with the restructuring actions above.
In addition to the loss on disposal, redundancy costs of GBP2.5m
were incurred to further right-size the business.
Rail and EE: Restructuring costs: A charge of GBP1.5m was
recognised in Rail and EE in respect of the restructuring of the
senior management structure, which commenced in the second half of
FY 2021/22.
Gain on sale of Ricardo Software (recognised within the
discontinued operation): A net gain of GBP7.4m was recognised in
the current year in relation to the disposal of Ricardo Software,
completed on 1 August 2022. Total consideration for the sale was
GBP14.9m (USD 17.5m), of which GBP14.8m was satisfied in cash in
the current period. GBP7.5m of net assets were disposed of, and
GBP0.9m of cumulative currency gains were reclassified to the
income statement. GBP0.9m of costs directly attributable to the
disposal were incurred in the current period. Per the terms of the
sale, up to a further GBP2.4m (USD 3.0m) is receivable based on
Ricardo Software achieving certain revenue targets in the 12-month
period post-sale. The fair value of this contingent consideration
has been assessed to be nil as it is unlikely that these revenue
targets will be achieved.
Research and Development (R&D) and capital investment
The Group continues to invest in R&D and spent GBP14.6m (FY
2021/22: GBP13.3m) before government grant income of GBP6.8m (FY
2021/22: GBP2.2m). Development costs capitalised in this year were
GBP5.4m (FY 2021/22: GBP7.3m, including development costs
capitalised in Ricardo Software of GBP1.5m), reflecting continued
investment in electrification and hydrogen solutions within the
A&I Emerging segment, together with technology, tools and
processes in the EE segment.
Capital expenditure on property, plant and equipment, excluding
right-of-use assets, was GBP6.2m (FY 2021/22: GBP4.7m), reflecting
targeted investment in our business operations, including hydrogen
and electrical test capability in the A&I Emerging segment.
Net finance costs
Finance income was GBP1.0m (FY 2021/22: GBP0.6m) and finance
costs were GBP7.1m (FY 2021/22: GBP4.4m) for the year, giving net
finance costs of GBP6.1m (FY 2021/22: GBP3.8m). The increase in
costs reflects an increase in the SONIA interest rate during the
current year.
Taxation
The underlying effective tax rate for the year was 26.1% for the
year (FY 2021/22: 26.0%). The reported effective tax rate was
5,100% (FY 2021/22: 35.3%). This unusually high reported effective
rate reflects a number of non-deductible or non-taxable specific
adjusting items, including impairments and the disposal of the
Software business, resulting in a tax expense of GBP5.1m against a
loss before tax of GBP0.1m.
Earnings per share
Basic loss per share was 8.7p (FY 2021/22: earnings 13.8p). The
Directors consider that underlying earnings per share provides a
useful indication of underlying performance and trends over time.
Underlying basic earnings per share for the year was 33.4p (FY
2021/22: 31.2p). 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 6.
Dividend
As set out in more detail in Note 7, the Board has declared a
final dividend of 8.61p per share (FY 2021/22: 5.11p). The dividend
will be paid gross on 24 November 2023 to holders of ordinary
shares on the Company's register of members on 3 November 2023.
Goodwill
At 30 June 2023, the Group had total goodwill of GBP96.1m (FY
2021/22: GBP90.6m). The acquisition of Aither and E3M added
goodwill of GBP5.1m and GBP8.5m respectively to the Ricardo Energy
and Environment cash generating unit (CGU) as synergies from the
acquisition are expected to benefit EE operating segment. The
carrying value of goodwill is fully supported by the value-in-use
calculations for all other operating segments.
Net debt and banking facilities
Net debt at 30 June 2023 comprised cash and cash equivalents of
GBP49.8m (FY 2021/22: GBP50.5m), and borrowing and overdrafts,
including hire purchase liabilities and net of capitalised debt
issuance costs, of GBP111.9m (FY 2021/22: GBP85.9m).
The Group funds its operations via a Revolving Credit Facility
(RCF) of GBP150m, with a GBP50m uncommitted accordion, which
provides funding through to August 2026, alongside the Group's
uncommitted overdraft facilities of GBP16.1m. At 30 June 2023, the
amount undrawn on the RCF was GBP50.0m. This, together with the net
cash held of GBP37.2m, and GBP16.1m of unutilised overdraft
facilities, provided the Group with total cash and liquidity of
GBP103.3m.
The Group's Adjusted Leverage ratio (defined as net debt over
EBITDA for the last 12 months, excluding the impact of specific
adjusting items and IFRS 16 Leases) was 1.4x as at 30 June 2023.
The Adjusted Leverage covenant is a maximum of 3.0x.
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 8.3x at 30 June 2023. The Interest
Cover covenant limit is a minimum of 4.0x.
Further details are provided in Note 10.
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 clients that transact in Euros, US Dollars,
Australian Dollars and Chinese Renminbi.
Had the prior year results been translated at current year
exchange rates, revenue from continuing operations would have been
GBP12.0m (3.2%) higher, underlying operating profit would have been
GBP1.2m (4.9%) higher and underlying profit before tax would have
been GBP0.8m (6.5%) higher.
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 GBP104.6m (FY 2021/22: GBP127.1m) and the present value of the
scheme's obligations was GBP92.0m (FY 2021/22: GBP111.9m). The
value of the scheme's assets reduced over the year due to movements
in the stock market. However, this was partially offset by a
reduction in the scheme's liabilities, due to increases in the
discount rate. The pre-tax surplus, measured in accordance with IAS
19, at 30 June 2023 was GBP12.6m (FY 2021/22: GBP15.2m). Ricardo
paid GBP1.8m of cash contributions into the scheme during the year
(FY 2021/22: GBP3.0m).
Acquisition of E3-Modelling
On 24 January 2023, the Group acquired a 93% shareholding in
E3-Modelling S.A. (E3M), a consulting company, based in Greece,
that provides advanced empirical modelling services. The maximum
cash consideration is GBP24m, of which GBP19m was paid on
completion. The deferred consideration of GBP5m is based on the
business achieving certain performance targets for the twelve
months ending 31 December 2023 and the retention of key management.
There is a commitment to acquire the remaining 7% stake in January
2025. The minimum cash consideration for the remaining 7% stake is
GBP2m, and is reduced by 50% if the owners are not retained in the
business. Ricardo has acquired full control and voting rights in
E3M.
E3M provides digital modelling capabilities right across the
markets that Ricardo serves, making the acquisition highly
complementary to Ricardo's unique position at the intersection of
the energy, environment and mobility agendas.
Acquisition of Aither
On 13 March 2023, Ricardo acquired a 90% shareholding in Aither
Pty Ltd (Aither) from the founders and co-directors Chris Olszak
and Will Fargher, for a cash consideration of up to GBP17m of which
GBP9.6m was paid on completion. The deferred consideration is based
upon the achievement of certain performance targets for the 10
months ended 31 December 2023 and the retention of the former
owners of the business. The deferred consideration can range from
nil to a maximum of GBP7.4m at an annualised EBITDA multiple of
under 11 times. The remaining 10% shareholding will be acquired on
the second or third anniversary of the Acquisition Closure Date,
using the same EBITDA multiple as the deferred consideration,
subject to a maximum. Ricardo retains full control and voting
rights in Aither.
Board Changes
Ian Gibson is retiring from the Board on 13 September 2023. The
Board thank Ian for his significant contribution as Chief Financial
Officer over the last ten years and wish him the very best in his
future endeavours. We are pleased to welcome Judith Cottrell to the
Board as Chief Financial Officer on 13 September 2023.
Looking forward
As we accelerate our transformation, I appreciate the level of
change across the business and I am profoundly grateful to our
teams across the globe for their commitment in continually
delivering amazing work for our clients. Their hard work and
dedication are delivering both short-term performance and creating
our future growth potential.
With the continued transformation of our portfolio, the global
market drivers of energy transition and climate change, and our
clear focus on execution, Ricardo is confident of delivering
significant value for all our stakeholders.
By order of the Board:
Graham Ritchie Ian Gibson
Chief Executive Officer Chief Financial Officer
12 September 2023
Environmental and Energy Transition portfolio
ENERGY AND ENVIRONMENT
Energy and Environment (EE) works with clients across a wide
variety of sectors and geographies to deliver robust data-driven
solutions to solve complex energy-transition and environmental
challenges. Ricardo's depth of environmental and energy expertise
provides support across the value chain, from policy and strategy
to implementing solutions.
Financial and operational highlights
Historical rates Constant currency(6)
------------------- -----------------------
2023 2022 Change 2022 Change
GBPm GBPm % GBPm %
------------------------- ------ -------- --------- --------- ------------
Order intake (GBPm) 111.5 74.1 50.5 74.4 49.9
Order book (GBPm) 87.6 57.0 53.7 56.7 54.5
Revenue (GBPm) 88.5 67.2 31.7 67.4 31.3
Underlying(1) operating
profit (GBPm) 16.0 11.0 45.5 11.0 45.5
Underlying(1) operating
profit margin (%) 18.1 16.4 1.7pp 16.3 1.8pp
Headcount(5) (no.) 971 795 22.1 795 22.1
-------------------------- ------ -------- --------- --------- ------------
References in superscript are defined in the glossary of terms
above.
*Prior period results have been restated to reflect the fact
that a share of central plc costs are no longer included in the
operating profit measure for operating segments. See Note 3.
Performance
The continued demand for EE solutions has underpinned a very
strong performance in FY 2022/23, with total revenue, including the
results of businesses acquired in the year, up by 31%. Activity
levels remained high throughout the year with a record order
intake, resulting in an order book at 30 June 2023 of GBP88m, an
increase of 54% on a constant currency basis, providing good
visibility into the new financial year, which helps to underpin our
growth strategy execution. On an organic basis, excluding the
results of acquisitions, revenue and underlying operating profit
grew by 20% and 30% (constant currency). The organic growth was
driven by strong demand across multiple services, segments and
geographies. In FY 2022/23 we secured multiple new contracts across
our market-facing growth solutions, including the EU Mission
Implementation Platform for Adaptation to Climate Change
(MIP4Adapt), a significant contract for the European Commission.
Through this contract, Ricardo's climate change experts are helping
to accelerate Europe's transformation to a climate-resilient
future. EE has continued to see substantial growth in the Middle
East, with substantial demand for the environmentally focused
development of digital solutions. This demand is driving high-value
work for nationally critical environmental projects. Our reputation
for managing air quality monitoring networks and modelling complex
data sets also continues to be recognised by clients, with further
substantive contracts.
EE's growth has also included E3-Modelling (E3M) and Aither Pty
Ltd, having acquired the businesses in January and March 2023
respectively. E3M, which provides advanced empirical modelling
services, focuses on the energy-environment nexus and is highly
complementary to Ricardo's unique position at the intersection of
the energy, environment and mobility agendas, providing digital
modelling capabilities right across the Group. Aither Pty Ltd, an
Australia-based natural-resources policy consultancy, strengthens
our regional capabilities and significantly builds EE's global
environmental portfolio in water and advisory services.
Building on the acquisition of Inside Infrastructure Pty Ltd in
March 2022, these latest acquisitions demonstrate Ricardo's
continued commitment to growing its global reach and extending its
portfolio in Clean Energy and Environmental Solutions. Ricardo's
existing water capabilities combined with Aither and Inside
Infrastructure, have already started bidding together with a strong
pipeline of opportunities domestically in Australia, as well as in
the Middle East. E3M and Aither have contributed GBP4.8m of revenue
and GBP1.1m of underlying operating profit in the period since
their acquisitions. Inside Infrastructure contributed GBP3.9m of
revenue (FY 2021/22: GBP0.9m on a constant currency basis) and
GBP0.9m of underlying operating profit (FY 2021/22: GBP0.1m on a
constant currency basis).
RAIL
Built on a unique foundation of strategic consultancy, complex
engineering and safety assurance, we address critical challenges
across every aspect of the rail industry.
Financial and operational highlights
Historical rates Constant currency(6)
------------------- -----------------------
2023 2022 Change 2022 Change
GBPm GBPm % GBPm %
------------------------- ------ -------- --------- --------- ------------
Order intake (GBPm) 89.2 85.0 4.9 87.9 1.5
Order book (GBPm) 108.7 109.1 (0.4) 103.7 4.8
Revenue (GBPm) 73.5 74.3 (1.1) 76.7 (4.2)
Underlying(1) operating
profit (GBPm) 8.0 9.4 (14.9) 9.7 (17.5)
Underlying(1) operating
profit margin (%) 10.9 12.7 (1.8pp) 12.6 (1.7pp)
Headcount(5) (no.) 514 563 (8.7) 563 (8.7)
-------------------------- ------ -------- --------- --------- ------------
References in superscript are defined in the glossary of terms
above.
*Prior period results have been restated to reflect the fact
that a share of central plc costs are no longer included in the
operating profit measure for operating segments. See Note 3.
Performance
An order intake of GBP89.2m represents a 1% increase on FY
2021/22 on a constant currency basis, reflecting sustained demand
for Rail and Mass Transit. The closing order book remains high at
GBP108.7m, in line with the prior year.
During the year, we were successful in winning significant
long-term project extensions across the Middle East and Australia
and in building our business in North America. Nevertheless,
revenue reduced to GBP73.5m and represented a 4% reduction on the
prior year on a constant currency basis - this is in line with
expectations, as some large projects completed in the year and new
projects won have not yet started.
The strong order book, which includes wins in new territories,
provides growth opportunities for FY 2023/24 and beyond. For
example, in Ireland we were awarded Designated Body (DeBo) status
in November 2022, which enables us to offer clients in that market
a broader range of accredited assurance services and access
approximately three times the serviceable market (compared to
non-DeBo status). This aligns with the full portfolio offered in
established markets such as the UK, the Netherlands, Belgium,
Denmark and Spain. In North America, we are helping regional
governments and rail sector organisations to enhance industry
safety standards. This includes securing key strategic and safety
roles with new transit systems in Ottawa, Canada.
Underlying operating profit reduced by GBP1.7m (18%) on a
constant currency basis. Underlying operating margin was 10.9% (FY
2021/22: 12.6% - constant currency). This was driven by the
reduction in revenue, combined with investment in business
development capability to drive order intake in Australia and new
territories.
Following a review of subsidies provided during the pandemic, we
have taken the decision to provide for the return of a GBP0.5m
COVID-related subsidy to the Dutch government.
In addition, GBP0.7m of restructuring costs were recognised in
the year within specific adjusting items (FY 2021/22: GBP1.0m).
This was driven by the simplification of the management structure,
aligned with our focus on core growth opportunities. The cash cost
of the actions, which includes the cash cost of the actions accrued
for at the end of FY 2021/22, was GBP1.1m (FY 2021/22:
GBP0.3m).
EMERGING AUTOMOTIVE AND INDUSTRIAL
Emerging Automotive and Industrial is a trusted partner for the
next generation of sustainable mobility. Leveraging expertise in
power electronic systems and propulsion systems, software and
digital technologies for connected, autonomous vehicles, we deliver
clean, efficient and integrated propulsion and energy solutions to
support our clients in their energy transitions.
Financial and operational highlights
Historical rates Constant currency(6)
------------------- -----------------------
2023 2022 Change 2022 Change
Restated* Restated*
GBPm GBPm % GBPm %
------------------------- ----- ---------- ------- ------------- --------
Order intake (GBPm) 84.3 101.3 (16.8) 104.6 (19.4)
Order book (GBPm) 55.0 55.4 (0.7) 53.3 3.2
Revenue (GBPm) 82.3 69.1 19.1 71.1 15.8
Underlying(1) operating
profit (GBPm) 10.6 2.7 292.6 2.8 278.6
Underlying(1) operating
profit margin (%) 12.9 3.9 9.0pp 3.9 9.0pp
Headcount(5) (no.) 435 542 (19.7) 542 (19.7)
-------------------------- ----- ---------- ------- ------------- --------
References in superscript are defined in the glossary of terms
above
*Prior period results have been restated to reflect the fact
that a share of central plc costs are no longer included in the
operating profit measure for operating segments. See Note 3.
Performance
Emerging Automotive and Industrial built on its return to growth
and delivered a good performance in both revenue and underlying
operating profit in FY 2022/23. Revenue was up 16% and operating
profit increased by 279% on an underlying basis. Headline operating
profit margin was 12.9% up by 9.0pp, with the positive impact of
volumes and the restructuring which was executed in H2.Throughout
the year, we secured a number of significant contracts in both the
US and Europe including Cranfield Aerospace Solutions, Toyota Hilux
and Kalmar.
Order intake declined by 19% year on year, on a constant
currency basis, reflecting the market challenges in the automotive
industry resulting in timing uncertainties in new electrification
and integrated mobility projects. Our order intake was
geographically diverse with c.30% coming from North America, c.60%
from EMEA and c.10% from Asia.
We expect a level of market uncertainty to continue as we move
into Q1 FY 2023/24 but to grow thereafter as new projects become
active and we win new contracts.
Established Mobility portfolio
PERFORMANCE PRODUCTS
Performance Products (PP) is responsible for the manufacture and
assembly of niche high-quality products, including engines,
transmissions and other performance-critical driveline and
powertrain products. We also provide industrial engineering
services for clients around the globe to enable designs to
successfully move from concept to series production.
Financial and operational highlights
Historical rates Constant currency(6)
-------------------- -----------------------
2023 2022 Change 2022 Change
Restated* Restated*
GBPm GBPm % GBPm %
------------------------- ------ ---------- -------- ------------ ---------
Order intake (GBPm) 115.3 75.1 53.5 75.1 53.5
Order book (GBPm) 81.3 51.3 58.5 51.3 58.5
Revenue (GBPm) 84.7 73.7 14.9 73.7 14.9
Underlying(1) operating
profit (GBPm) 9.0 8.8 2.3 8.8 2.3
Underlying(1) operating
profit margin (%) 10.6 11.9 (1.3pp) 11.9 (1.3pp)
Headcount(5) (no.) 355 330 7.6 330 7.6
-------------------------- ------ ---------- -------- ------------ ---------
References in superscript are defined in the glossary of terms
above.
*Prior period results have been restated to reflect the fact
that a share of central plc costs are no longer included in the
operating profit measure for operating segments. See Note 3.
Performance
PP has had a record year for order intake. This reflects a
number of significant contract extensions as well as new clients
attracted to the business. The most significant of these contract
awards was the extension of engine supply to McLaren until 2030,
the extension of transmission supply to the Porsche Cup programme
until 2028, the continuation of transmission supply to Bugatti and
a new multi year transmission supply programme to Singer Vehicles,
based in California.
Revenue from continuing operations in FY 2022/23 was GBP84.7m.
McLaren engine volumes continued to increase in the year with the
launch of the new hybrid V6 Artura. Transmission volumes and
revenue also remained strong, with continuing deliveries to
Bugatti, Porsche, Aston Martin and several top tier motorsport
programmes. In addition, the expected recovery of the aerospace
sector was evident over the year, along with continued success in
supplying industrial engineering consultancy services.
Underlying operating profit from continuing operations was
GBP9.0m, improving marginally on last year's result despite a
number of significant cost increases that impacted the business
during the year, including materials, energy and purchased parts.
Underlying operating profit margin was 10.6% compared to 11.9% in
the prior period.
We continue to develop our portfolio of existing powertrain
(engine) and drivetrain (transmission) products during the year as
well as new projects in the zero emission propulsion space,
including electric drive units, industrial engineering services in
EV production and concept work around battery systems and electric
machines.
The after-effects of COVID-19, and subsequently the conflict in
Ukraine, remained a source of some disruption in the supply chain.
However, our rigorous process management and tools ensured that
client deliveries were protected.
DEFENSE
Defense continues to provide solutions to meet the challenges
our clients face in the integration of logistics and field support
for complex and diverse systems. The demand for our services has
increased as a result of escalating world conflict and the
challenges arising in a contested logistic environment. 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 the US Navy. We also
specialise in niche manufacturing, adapting commercial industry
products to deliver innovative sector applications that protect
people and infrastructure.
Financial and operational highlights
Historical rates Constant currency(6)
------------------- -----------------------
2023 2022 Change 2022 Change
GBPm GBPm % GBPm %
------------------------- ----- -------- --------- --------- ------------
Order intake (GBPm) 85.0 55.1 54.3 60.9 39.6
Order book (GBPm) 35.2 40.5 (13.1) 38.7 (9.0)
Revenue (GBPm) 88.6 45.0 96.9 49.8 77.9
Underlying(1) operating
profit (GBPm) 13.4 6.6 103.0 7.2 86.1
Underlying(1) operating
profit margin (%) 15.1 14.7 0.4pp 14.5 0.6pp
Headcount(5) (no.) 223 190 17.4 190 17.4
-------------------------- ----- -------- --------- --------- ------------
References in superscript are defined in the glossary of terms
above.
*Prior period results have been restated to reflect the fact
that a share of central plc costs are no longer included in the
operating profit measure for operating segments. See Note 3.
Performance
Defense's order intake grew by GBP24.1m on a constant currency
basis in FY 2022/23. Over the year, we received $50m of orders from
the US Army to provide antilock brake system/electronic stability
control (ABS/ESC) retrofit kits to improve the safety of operation
of the US Army's high mobility multi-purpose wheeled vehicle
(HMMWV). Two contracts were extended beyond the original end date
to ensure the continuance of Ricardo Defense in maintaining and
updating Army mobility systems. Significant programmes included
transitioning a commercial vehicle to the Army's inventory and
providing an extended data-management enabler across the Navy's
primary communications fleet.
Revenue increased by 78% year-on-year on a constant currency
basis. Revenue growth was driven by increased ABS/ESC volumes - in
total, we delivered 8,707 ABS/ESC kits in FY 2022/23 compared to
3,602 the previous year, including both retrofit kits and kits for
new production vehicles - and a rise in orders for our technical
and field support solutions.
Underlying operating profit of GBP13.4m was an increase of 86%
compared to FY 2021/22 on a constant currency basis. Underlying
operating profit margin increased by 0.6 basis points to 15.1%.
With the establishment of our digital acquisition framework -
which enables an integrated management of US Army technical
procurement initiatives - we can provide integrated solutions to
our clients that cover the entire procurement life cycle for their
vehicle platforms, from concept design and development through to
production and sustainment through-life support.
Ricardo Defense continues to work with the US Marine Corps to
develop and demonstrate capabilities to improve the management of
energy supplies and better secure energy resources to reduce the US
DoD's overall carbon footprint. Ricardo has expanded the work scope
to develop an energy utilising dashboard to augment and deploy a
metering and monitoring system. This enables the US Marine Corps to
analyse changing electrical demand and logistical fuel constraints
so that operators can make better informed command-and-control
decisions on fuel and energy resiliency.
ESTABLISHED AUTOMOTIVE AND INDUSTRIAL
Established Automotive and Industrial is a trusted partner for
OEMs and tier one suppliers across the transportation industry.
With over 100 years of engineering experience in the design,
building and testing of conventional powertrains, it is helping
global clients with bridging technologies to support the shift to
decarbonised transport solutions. Demand for Established A&I
services is driven by global decarbonisation targets and compliance
with emissions standards, especially in heavy duty and defence
markets.
Financial and operational highlights
Historical rates Constant currency(6)
------------------- -----------------------
2023 2022 Change 2022 Change
GBPm GBPm % GBPm %
------------------------- ------- ------- ---------- -------- -------------
Order intake (GBPm) 36.2 34.7 4.3 37.0 (2.2)
Order book (GBPm) 27.5 26.8 2.6 25.7 7.0
Revenue (GBPm) 27.6 50.9 (45.8) 53.5 (48.4)
Underlying(1) operating
(loss)/profit (GBPm) (5.8) 4.9 (218.4) 5.1 (213.7)
Underlying(1) operating
profit margin (%) (21.0) 9.6 (30.6pp) 9.5 (30.5pp)
Headcount(5) (no.) 339 449 (24.5) 449 (24.5)
-------------------------- ------- ------- ---------- -------- -------------
References in superscript are defined in the glossary of terms
above.
*Prior period results have been restated to reflect the fact
that a share of central plc costs are no longer included in the
operating profit measure for operating segments. See Note 3.
Performance
Established Automotive and Industrial order intake was GBP36.2m,
a decrease of 2% on a constant currency basis in FY 2022/23.
Significant programmes included a highly customised fleet of
vehicles for London's Metropolitan Police, driveline systems
development for defence vehicle applications in Asia Pacific as
well as engine calibration work for off-highway machines and
passenger car vehicles to ensure compliance with future emissions
legislation.
Revenue decreased by 48% year-on-year on a constant currency
basis. Revenue decline was driven by the reduced demand for
services in this area which led to management implementing the
structural changes announced in the first half and carried out in
the second half.
Underlying operating loss was GBP5.8m, a decrease of 214%
compared to FY 2021/22 on a constant currency basis. Underlying
operating profit margin decreased by 31pp. Operating profit
performance is expected to improve in FY 2023/24, due to the
significant restructuring actions taken in order to rebase the
business appropriately.
Condensed financial statements
Condensed consolidated income statement
for the year ended 30 June
2023 2022 - Restated*
Specific adjusting Specific adjusting
Underlying items(**) Total Underlying items(**) Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ----- ----------- ------------------- -------- ----------- ------------------- --------
Continuing operations
Revenue 4 445.2 - 445.2 380.2 - 380.2
Cost of sales (318.9) - (318.9) (260.7) - (260.7)
----------------------- ----- ----------- ------------------- -------- ----------- ------------------- --------
Gross profit 126.3 - 126.3 119.5 - 119.5
Administrative
expenses (91.7) (35.9) (127.6) (90.8) (11.8) (102.6)
Impairment losses on
trade receivables and
contract assets (1.8) - (1.8) (1.2) - (1.2)
Other income 1.2 - 1.2 0.5 - 0.5
----------------------- ----- ----------- ------------------- -------- ----------- ------------------- --------
Operating
profit/(loss) 34.0 (35.9) (1.9) 28.0 (11.8) 16.2
Finance income 1.0 - 1.0 0.6 - 0.6
Finance costs (7.1) - (7.1) (4.4) - (4.4)
----------------------- ----- ----------- ------------------- -------- ----------- ------------------- --------
Net finance costs (6.1) - (6.1) (3.8) - (3.8)
----------------------- ----- ----------- ------------------- -------- ----------- ------------------- --------
Profit/(loss) before
taxation 27.9 (35.9) (8.0) 24.2 (11.8) 12.4
Income tax
(expense)/credit (7.3) 3.3 (4.0) (6.5) 2.3 (4.2)
----------------------- ----- ----------- ------------------- -------- ----------- ------------------- --------
Profit/(loss) from
continuing operations 20.6 (32.6) (12.0) 17.7 (9.5) 8.2
----------------------- ----- ----------- ------------------- -------- ----------- ------------------- --------
Discontinued operation
Profit from
discontinued
operation, net of tax 0.4 6.4 6.8 1.7 (1.3) 0.4
----------------------- ----- ----------- ------------------- -------- ----------- ------------------- --------
Profit/(loss) for the
year 21.0 (26.2) (5.2) 19.4 (10.8) 8.6
----------------------- ----- ----------- ------------------- -------- ----------- ------------------- --------
Profit/(loss)
attributable to:
Continuing operations
- Owners of the parent 20.4 (32.6) (12.2) 17.7 (9.5) 8.2
- Non-controlling
interests 0.2 - 0.2 - - -
20.6 (32.6) (12.0) 17.7 (9.5) 8.2
----------------------- ----- ----------- ------------------- -------- ----------- ------------------- --------
Discontinued operation
- Owners of the parent 0.4 6.4 6.8 1.7 (1.3) 0.4
----------------------- ----- ----------- ------------------- -------- ----------- ------------------- --------
Total
- Owners of the parent 20.8 (26.2) (5.4) 19.4 (10.8) 8.6
- Non-controlling
interests 0.2 - 0.2 - - -
21.0 (26.2) (5.2) 19.4 (10.8) 8.6
----------------------- ----- ----------- ------------------- -------- ----------- ------------------- --------
2023 2022
Earnings per share - basic and diluted
(Note 6) pence pence
------------------------------------------- ------------------- -------- ----------- ------------------- --------
(Loss)/earnings per
share (8.7) 13.8
Underlying earnings
per share 33.4 31.2
(Loss)/earnings per share from continuing
operations (19.3) 13.2
Earnings per share from discontinued
operation 10.9 0.6
------------------------------------------- ------------------- -------- ----------- ------------------- --------
The accompanying notes are an integral part of these condensed
financial statements.
* Previously certain costs, such as engineering software
licenses and subscriptions and running costs related to testing and
manufacturing facilities, have been allocated to administrative
costs. These costs have been allocated to cost of sales in the
current year as they are considered to directly relate to the
delivery of revenue. Comparative amounts have been restated to
allocate the costs on a consistent basis. As a result, cost of
sales have increased by GBP10.0m, impairment losses on trade
receivables and contract assets have increased by GBP1.2m, and
administrative expenses have reduced by GBP11.2m. There is no
impact on profit for the year or EPS.
** Specific adjusting items are disclosed separately in the
condensed interim 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 5.
Condensed consolidated statement of comprehensive income
for the year ended 30 June
2023 2022
GBPm GBPm
------------------------------------------------------ ------- ------
(Loss)/profit for the year (5.2) 8.6
------------------------------------------------------- ------- ------
Other comprehensive (expense)/income
Items that will not be reclassified to profit
or loss:
Remeasurements of the defined benefit pension
scheme (5.0) 5.2
Deferred tax on remeasurements of the defined
benefit pension scheme 1.2 (1.6)
-------------------------------------------------------
Total items that will not be reclassified
to profit or loss (3.8) 3.6
------------------------------------------------------- ------- ------
Items that are, or may be, subsequently reclassified
to profit or loss:
Currency translation on foreign currency net
investments (6.4) 6.5
Reclassification of foreign currency differences (0.9) -
on disposal of foreign operation
Total items that may be subsequently reclassified
to profit or loss (7.3) 6.5
------------------------------------------------------- ------- ------
Total other comprehensive (expense)/income
for the year (net of tax) (11.1) 10.1
------------------------------------------------------- ------- ------
Total comprehensive (expense)/income for
the year (16.3) 18.7
------------------------------------------------------- ------- ------
Comprehensive (expense)/income attributable
to:
- Owners of the parent (16.5) 18.7
- Non-controlling interests 0.2 -
------------------------------------------------------ ------- ------
(16.3) 18.7
------------------------------------------------------ ------- ------
The accompanying notes are an integral part of these condensed
financial statements.
Condensed consolidated statement of financial position
As at 30 June
2023 2022
Note GBPm GBPm
--------------------------------------------------------------- ----- ------ ------
Assets
Non-current assets
Goodwill 9 96.1 90.6
Other intangible assets 35.4 23.1
Property, plant and equipment 35.3 47.0
Right-of-use assets 20.7 18.3
Retirement benefit surplus 12.6 15.2
Other receivables 2.4 2.5
Deferred tax assets 8.5 9.0
--------------------------------------------------------------- -----
211.0 205.7
--------------------------------------------------------------- ----- ------ ------
Current assets
Inventories 29.5 21.0
Trade, contract and other receivables 153.5 128.7
Derivative financial assets 2.3 0.8
Current tax assets 2.7 3.6
Cash and cash equivalents 10 49.8 49.4
Assets held for sale - 9.6
---------------------------------------------------------------
237.8 213.1
--------------------------------------------------------------- ----- ------ ------
Total assets 448.8 418.8
--------------------------------------------------------------- ----- ------ ------
Liabilities
Current liabilities
Borrowings 10 12.7 11.2
Lease liabilities 5.7 5.0
Trade, contract and other payables 105.0 78.2
Current tax liabilities 2.6 4.2
Derivative financial liabilities 1.0 5.1
Provisions 2.6 5.1
Liabilities directly associated with the assets held for sale - 3.4
---------------------------------------------------------------
129.6 112.2
--------------------------------------------------------------- ----- ------ ------
Net current assets 108.2 100.9
--------------------------------------------------------------- ----- ------ ------
Non-current liabilities
Borrowings 10 99.2 74.7
Lease liabilities 19.4 18.3
Trade, contract and other payables 4.8 -
Deferred tax liabilities 15.5 12.7
Provisions 3.7 3.3
--------------------------------------------------------------- -----
142.6 109.0
--------------------------------------------------------------- ----- ------ ------
Total liabilities 272.2 221.2
--------------------------------------------------------------- ----- ------ ------
Net assets 176.6 197.6
--------------------------------------------------------------- ----- ------ ------
Equity
Share capital 15.6 15.6
Share premium 16.8 16.8
Other reserves 37.2 44.5
Retained earnings 106.6 120.5
--------------------------------------------------------------- ----- ------ ------
Equity attributable to owners of the parent 176.2 197.4
Non-controlling interests 0.4 0.2
--------------------------------------------------------------- ----- ------ ------
Total equity 176.6 197.6
--------------------------------------------------------------- ----- ------ ------
The accompanying notes form an integral part of these condensed
financial statements.
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 2021 15.6 16.8 38.0 112.2 182.6 0.2 182.8
Profit for the
year - - - 8.6 8.6 - 8.6
Other
comprehensive
income for the
year - - 6.5 3.6 10.1 - 10.1
------------------ ----- ----------- ----------- ----------- ----------- ------- ---------------- ------------
Total
comprehensive
income for the
year - - 6.5 12.2 18.7 - 18.7
Equity-settled
transactions - - - 1.6 1.6 - 1.6
Purchases of own
shares to settle
awards - - - (0.2) (0.2) - (0.2)
Tax relating to
share option
schemes - - - (0.3) (0.3) - (0.3)
Ordinary share
dividends 7 - - - (5.0) (5.0) - (5.0)
------------------ ----------- ----------- ----------- ----------- ------- ----------------
At 30 June 2022 15.6 16.8 44.5 120.5 197.4 0.2 197.6
------------------ ----- ----------- ----------- ----------- ----------- ------- ---------------- ------------
At 1 July 2022 15.6 16.8 44.5 120.5 197.4 0.2 197.6
Loss for the year - - - (5.4) (5.4) 0.2 (5.2)
Other
comprehensive
expense for the
year - - (7.3) (3.8) (11.1) - (11.1)
------------------ ----- ----------- ----------- ----------- ----------- ------- ---------------- ------------
Total
comprehensive
(expense)/income
for the year - - (7.3) (9.2) (16.5) 0.2 (16.3)
Equity-settled
transactions - - - 1.4 1.4 - 1.4
Tax relating to
share option
schemes - - - 0.7 0.7 - 0.7
Purchases of own
shares to settle
awards - - - (0.1) (0.1) - (0.1)
Ordinary share
dividends 7 - - - (6.7) (6.7) - (6.7)
------------------ ----- ----------- ----------- ----------- ----------- ------- ---------------- ------------
At 30 June 2023 15.6 16.8 37.2 106.6 176.2 0.4 176.6
------------------ ----- ----------- ----------- ----------- ----------- ------- ---------------- ------------
The accompanying notes form an integral part of these condensed
financial statements.
Condensed consolidated statement of cash flows
for the year ended 30 June
2023 2022
Note GBPm GBPm
------------------------------------------------------------------------- ----- -------- -------
Cash flows from operating activities
(Loss)/profit before taxation (0.1) 13.2
Adjustments for:
- Share-based payments 1.3 1.3
- Unrealised foreign exchange losses/(gains) 1.2 (1.0)
- Gains on disposal of discontinued operation 2 (7.4) -
- Losses on disposal of property, plant and equipment 0.7 0.1
- Net finance costs 6.1 3.8
- Depreciation, amortisation and impairment 37.4 25.1
Defined benefit pension scheme payments in excess of past service costs (1.8) (3.0)
------------------------------------------------------------------------- ----- -------- -------
Operating cash flows before movements in working capital 37.4 39.5
Changes in:
- Inventories (9.0) (3.6)
- Trade, contract and other receivables (27.9) 4.6
- Trade, contract and other payables 27.7 8.5
- Provisions (2.0) 0.9
Cash generated from operations 26.2 49.9
Net interest paid (7.5) (3.5)
Income tax paid (4.6) (2.8)
-----
Net cash generated from operating activities 14.1 43.6
------------------------------------------------------------------------- ----- -------- -------
Cash flows from investing activities
Acquisitions of subsidiaries, net of cash acquired (24.5) (9.9)
Purchases of property, plant and equipment (4.9) (6.1)
Proceeds from disposal of property, plant and equipment - 0.1
Proceeds from sale of discontinued operation, net of cash disposed 3 13.1 0.1
Fees in relation to sale of discontinued operation 3 (0.8) -
Purchases of intangible assets and capitalised development costs (5.7) (8.0)
Net cash used in investing activities (22.8) (23.8)
------------------------------------------------------------------------- ----- -------- -------
Cash flows from financing activities
Purchases of own shares to settle awards (0.2) (0.2)
Payments to settle derivatives (4.2) -
Principal element of lease payments (5.1) (4.6)
Proceeds from borrowings 10 128.0 13.0
Repayment of borrowings 10 (103.0) (15.0)
Dividends paid to shareholders 7 (6.7) (5.0)
Net cash generated from/(used in) financing activities 8.8 (11.8)
------------------------------------------------------------------------- ----- -------- -------
Effect of exchange rate changes on cash and cash equivalents (2.3) 1.9
------------------------------------------------------------------------- ----- -------- -------
Net (decrease)/increase in cash and cash equivalents (2.2) 10.1
Net cash and cash equivalents at 1 July 39.4 29.3
Net cash and cash equivalents at 30 June 37.2 39.4
------------------------------------------------------------------------- ----- -------- -------
At 1 July
Cash and cash equivalents 49.4 42.0
Cash included in disposal group held-for-sale 1.1 -
Bank overdrafts (11.1) (12.7)
Net cash and cash equivalents at 1 July 39.4 29.3
------------------------------------------------------------------------- ----- -------- -------
At 30 June
Cash and cash equivalents 10 49.8 49.4
Cash included in disposal group held-for-sale 10 - 1.1
Bank overdrafts 10 (12.6) (11.1)
Net cash and cash equivalents at 30 June 37.2 39.4
------------------------------------------------------------------------- ----- -------- -------
The accompanying notes form an integral part of these condensed
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 2023, which was approved for issue on 12
September 2023, and which has been prepared in accordance with
UK-adopted international accounting standards and applicable law.
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 us
in assessing the performance of the business. Ricardo provides
guidance to the investor community based on underlying results.
Explanations of how they are calculated and how they are reconciled
to an IFRS statutory measure are set out below.
The underlying results and other APMs may be considered in
addition to, but not as a substitute for or superior to,
information presented in accordance with IFRS.
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. Underlying results include
the benefits of the results of acquisitions and major restructuring
programmes but exclude significant costs (such as the amortisation
of acquired intangibles, acquisition-related expenditure,
reorganisation costs and other specific adjusting items). Ricardo
believes that the underlying results, when considered together with
the reported results, provide investors, analysts and other
stakeholders with helpful complementary information to better
understand the financial performance and position of the Group.
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 5.
Reconciliation of underlying profit to reported
(loss)/profit
2023 2022 - Restated*
----------------------------------
Specific Specific
adjusting adjusting
Underlying items Total Underlying items Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- ----------- ----------- -------- ----------- ----------- --------
Revenue 445.2 - 445.2 380.2 - 380.2
Cost of sales (318.9) - (318.9) (260.7) - (260.7)
---------------------------------- ----------- ----------- -------- ----------- ----------- --------
Gross profit 126.3 - 126.3 119.5 - 119.5
Administrative expenses,
impairment losses on trade
receivables and contract
assets, and other income (92.3) - (92.3) (91.5) - (91.5)
Amortisation of acquired
intangibles - (4.6) (4.6) - (4.5) (4.5)
Acquisition-related expenditure - (6.2) (6.2) - (0.8) (0.8)
Impairment of non-financial
assets - (18.7) (18.7) - (2.0) (2.0)
Reorganisation costs - (6.4) (6.4) - (4.2) (4.2)
ERP implementation costs - - - - (0.6) (0.6)
Other - - - - 0.3 0.3
---------------------------------- ----------- ----------- -------- ----------- ----------- --------
Operating profit/(loss)
from continuing operations 34.0 (35.9) (1.9) 28.0 (11.8) 16.2
Net finance costs (6.1) - (6.1) (3.8) - (3.8)
---------------------------------- ----------- ----------- -------- ----------- ----------- --------
Profit/(loss) before taxation
from continuing operations 27.9 (35.9) (8.0) 24.2 (11.8) 12.4
Income tax (expense)/credit (7.3) 3.3 (4.0) (6.5) 2.3 (4.2)
---------------------------------- ----------- ----------- -------- ----------- ----------- --------
Profit/(loss) for the
year from continuing operations 20.6 (32.6) (12.0) 17.7 (9.5) 8.2
Profit for the year from
discontinued operation,
net of tax 0.4 6.4 6.8 1.7 (1.3) 0.4
Profit/(loss) for the
year 21.0 (26.2) (5.2) 19.4 (10.8) 8.6
---------------------------------- ----------- ----------- -------- ----------- ----------- --------
* Costs of GBP10m have been reallocated from administrative
expenses to cost of sales in the comparative period. See the Income
Statement for further details.
Underlying earnings attributable to the owners of the
parent/earnings per share: 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. 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 6.
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. See Note
8 for details of acquisitions during the year.
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 prior year using foreign currency exchange rates
applicable to the current year. This provides an indication of the
growth/decline of the business, excluding the impact of foreign
exchange. In the prior year, constant currency results were
calculated by translating the result for the current year using
foreign currency exchange rates applicable to the prior year. Using
current year rates to restate prior year results is considered to
provide a more useful comparison, since current year performance
remains stated at actual rates.
Headline trading performance
Underlying Reported
------------------------------------- --------------------------------------
Operating (Loss)/profit
External revenue Operating profit Profit before tax profit/(loss) before tax
GBPm GBPm GBPm GBPm GBPm
------------------ ----------------- ----------------- ------------------ ------------------ ------------------
2023
Total 446.0 34.5 28.4 6.0 (0.1)
Less:
discontinued
operation (0.8) (0.5) (0.5) (7.9) (7.9)
------------------ ----------------- ----------------- ------------------ ------------------ ------------------
Continuing
operations 445.2 34.0 27.9 (1.9) (8.0)
Less: performance
of acquisitions (4.8) (1.1) (1.1) 4.4 4.4
Continuing
operations -
organic 440.4 32.9 26.8 2.5 (3.6)
------------------ ----------------- ----------------- ------------------ ------------------ ------------------
2022
Total 387.3 30.1 26.3 17.0 13.2
Less:
discontinued
operation (7.1) (2.1) (2.1) (0.8) (0.8)
------------------ ----------------- ----------------- ------------------ ------------------ ------------------
Continuing
operations 380.2 28.0 24.2 16.2 12.4
Continuing
operations at
current year
exchange rates 392.2 29.2 25.4 17.0 13.2
------------------ ----------------- ----------------- ------------------ ------------------ ------------------
Growth (%) -
Total 15% 15% 8% (65%) (101%)
Growth (%) -
Continuing
operations 17% 21% 15% (112%) (165%)
Growth (%) -
Continuing
organic 16% 18% 11% (85%) (129%)
Constant currency
growth (%) -
Continuing
operations 14% 16% 10% (111%) (161%)
------------------ ----------------- ----------------- ------------------ ------------------ ------------------
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 3.
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 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.
Cash conversion
2023 2022
--------------------------------
Specific adjusting Specific adjusting
Underlying items Total Underlying items Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- ----------- ------------------- ------- ----------- ------------------- -------
Operating profit/(loss) from
continuing operations 34.0 (35.9) (1.9) 28.0 (11.8) 16.2
Operating profit from
discontinued operation 0.5 7.4 7.9 2.1 (1.3) 0.8
-------------------------------- ----------- ------------------- ------- ----------- ------------------- -------
Operating profit 34.5 (28.5) 6.0 30.1 (13.1) 17.0
Depreciation, amortisation and
impairment 14.1 18.7 32.8 18.6 2.0 20.6
Amortisation of acquired
intangibles - 4.6 4.6 - 4.5 4.5
-------------------------------- ----------- ------------------- ------- ----------- ------------------- -------
EBITDA 48.6 (5.2) 43.4 48.7 (6.6) 42.1
Movement in working capital (12.8) 1.6 (11.2) 8.2 2.2 10.4
Pension deficit payments (1.8) - (1.8) (3.0) - (3.0)
Gain on disposal of
discontinued operation - (7.4) (7.4) - - -
Losses on disposal of assets 0.1 0.6 0.7 0.1 - 0.1
Share based payments 1.3 - 1.3 1.3 - 1.3
Unrealised exchange
losses/(gains) 1.2 - 1.2 (0.7) (0.3) (1.0)
-------------------------------- ------------------- ------- ------------------- -------
Cash generated from operations 36.6 (10.4) 26.2 54.6 (4.7) 49.9
-------------------------------- ----------- ------------------- ------- ----------- ------------------- -------
Cash conversion 75.3% 60.4% 112.1% 118.5%
-------------------------------- ----------- ------------------- ------- ----------- ------------------- -------
The movement in working capital in relation to specific
adjusting items for the current year includes trade and other
payables of GBP5.3m and provisions of GBP0.1m in relation to
specific adjusting items recognised as an expense during the
current year which had not been paid at 30 June 2023, compared to
GBP3.8m at the prior year end (see Note 5).
Net debt: is defined as current and non-current borrowings less
cash and cash equivalents, including hire purchase agreements, but
excluding any impact of other 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. Further details are provided in
Note 10.
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.
d) Other measures
Order book: The value of all unworked purchase orders and
contracts received from customers at the reporting date, providing
an indication of revenue that has been secured and will be
recognised in future accounting periods. Management do not consider
there to be a closely equivalent GAAP measure.
Order intake: The value of purchase orders and contracts
received from customers during the period. The order intake for the
current year was GBP522.0m (2022: GBP432.2m ), including results of
the discontinued operation. Management do not consider there to be
a closely equivalent GAAP measure.
Headcount: Headcount is calculated as the number of colleagues
on the payroll at the reporting date and includes subcontractors on
a full-time equivalent basis. T he number of employees disclosed in
Note 33 to the Group Financial Statements is the average for the
year.
2. Discontinued operation
On 1 August 2022, the Group sold its Software business to a
third party. At 30 June 2022, the Group had classified this
business as held for sale following agreement of terms with a
potential buyer, as a result of a strategic decision to focus on
core lines of business. The results of the Software business have
been presented as a discontinued operation.
Total consideration for the sale was GBP14.9m, of which GBP14.8m
was satisfied in cash during the current year. The remaining
GBP0.1m is reflected in other receivables. Additional consideration
of up to GBP2.4m has not been recognised as performance conditions
are not expected to be met. GBP7.5m of net assets were disposed of,
and GBP0.9m of cumulative currency gains were reclassified to the
income statement. GBP0.9m of costs directly attributable to the
disposal were incurred during the current year.
Effect of disposal on the financial position of the Group
GBPm
------------------------------------------- ------
Other intangible assets (7.2)
Property, plant and equipment (0.1)
Trade, other and contract receivables (1.6)
Cash and cash equivalents (1.7)
Trade, other and contract payables 3.2
-------------------------------------------- ------
Net assets and liabilities (7.4)
-------------------------------------------- ------
Consideration received, satisfied in cash 14.8
Cash and cash equivalents disposed of (1.7)
Directly attributable fees (0.8)
-------------------------------------------- ------
Net cash inflows 12.3
-------------------------------------------- ------
Result from discontinued operation
2023 2022
GBPm GBPm
------------------------------------------------------------------ ------ ------
Revenue 0.8 9.4
Inter-segment revenue* - (2.3)
------------------------------------------------------------------ ------ ------
External revenue 0.8 7.1
------------------------------------------------------------------ ------ ------
Expenses (0.3) (4.1)
Elimination of inter-segment revenue net of recoverable expenses - 2.0
Amortisation of intangible assets - (2.9)
External expenses (0.3) (5.0)
------------------------------------------------------------------ ------ ------
Underlying profit from operating activities 0.5 2.1
Income tax on underlying result (0.1) (0.4)
------------------------------------------------------------------ ------ ------
Underlying profit from operating activities, net of tax 0.4 1.7
Specific adjusting items 7.4 (1.3)
Income tax on specific adjusting items (1.0) -
------------------------------------------------------------------ ------ ------
Profit from discontinued operation, net of tax 6.8 0.4
------------------------------------------------------------------ ------ ------
* Subsequent to the disposal, the Group has continued to
purchase software licenses from the discontinued operation and
recharge the business for space in its Prague office. Although
intra-group transactions have been fully eliminated in the
consolidated financial results, management has elected to attribute
the elimination of transactions between the continuing operations
and the discontinued operation before the disposal in a way that
reflects the continuance of these transactions subsequent to the
disposal. Management believes this information to be useful to the
users of the financial statements.
Cash from discontinued operation
2023 2022
Cash from discontinued operation GBPm GBPm
---------------------------------------------- ----- ------
Net cash from operating activities 0.5 4.5
Net cash from/(used in) investing activities 12.2 (3.2)
12.7 1.3
---------------------------------------------- ----- ------
The earnings per share related to the discontinued operation is
shown in Note 6.
3. Financial performance by segment
The segmental analysis helps explain the business in the way
that it is monitored by management.
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.
During the current year, the Automotive and Industrial segment
(A&I) has been disaggregated into Automotive and Industrial -
Emerging Mobility and Automotive and Industrial - Established
Mobility . This split is reported to the CODM and reflects the
revised organisational structure and operating model of the
business unit.
The following summarises the operations in each of the Group's
reportable segments:
-- Energy and Environment (EE) - EE generates revenue from the
provision of environmental consultancy services to customers across
the world. Customers include governments, public agencies and
private businesses;
-- Rail - Rail generates revenue from through two separate
operations: a consultancy unit that provides technical advice and
engineering services; and a separate, independent entity, Ricardo
Certification, that performs accredited assurance services;
-- Automotive and Industrial - Emerging - A&I Emerging
generates revenue through the provision of engineering, strategic
consulting, and design, development and testing services, focused
on in the design, building and testing of conventional powertrains.
Customers include businesses in the automotive, aerospace, defence,
off-highway and commercial, marine, and rail markets;
-- Automotive and Industrial - Established - A&I Established
generates revenue through the provision of engineering, strategic
consulting, and design, development and testing services, focused
on in power electronic systems and propulsion systems, software and
digital technologies. Customers include businesses in the
automotive, aerospace, defence, energy, off-highway and commercial,
marine, motorcycle and light-personal transport, and rail
markets;
-- Defense - Defense provides engineering services, software and
products to customers in the US defence market, aimed and
protecting life and improving the operation, maintenance and
support of complex systems; and
-- Performance Products (PP) - PP manufactures, assembles and
develops niche high-quality components, prototypes and complex
products, including engines, transmissions and other precision and
performance-critical products. Its customers manufacture
low-volume, high-performance products in markets such as
motorsport, automotive, aerospace, defence and rail.
The operations of the Group have been categorised into these
segments due to the nature of their services, market sectors,
client bases and distribution channels and operating across markets
requiring adherence to regulatory frameworks that are similar in
nature.
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 2022 have been restated, reflecting the impact of the changes
the Group made to its operating segments during the year ended 30
June 2023. The operating segment section above provides further
detail on the segments' performance.
2023
----------------------------------------------------------------------------------------------------
Total segment Inter-segment Revenue from Underlying Specific Operating
revenue revenue external operating adjusting profit
customers profit items (*)
GBPm GBPm GBPm GBPm GBPm GBPm
--------------- --------------- --------------- --------------- --------------- ---------------
Energy &
Environment 89.6 (1.1) 88.5 16.0 (2.4) 13.6
Rail 74.1 (0.6) 73.5 8.0 (4.1) 3.9
Automotive and
Industrial -
Emerging 83.0 (0.7) 82.3 10.6 - 10.6
Defense 88.7 (0.1) 88.6 13.4 (0.1) 13.3
Performance
Products 85.2 (0.5) 84.7 9.0 - 9.0
Automotive and
Industrial -
Established 28.6 (1.0) 27.6 (5.8) (23.4) (29.2)
Plc - - - (17.2) (5.9) (23.1)
--------------- --------------- --------------- --------------- --------------- ---------------
Total
continuing
operations 449.2 (4.0) 445.2 34.0 (35.9) (1.9)
Discontinued
operation 0.8 - 0.8 0.5 7.4 7.9
Total 450.0 (4.0) 446.0 34.5 (28.5) 6.0
--------------- --------------- --------------- --------------- ---------------
Net finance
costs (6.1)
Total loss
before tax (0.1)
---------------
2023
----------------------------------------------------------------------------------------
Depreciation, Capital expenditure
amortisation and
impairment
------------------------------------------------------------------
Other intangible Property, plant and Right-of-use assets
assets equipment
GBPm GBPm GBPm GBPm
-------------------- --------------------- --------------------- --------------------
Energy & Environment 4.2 0.6 0.6 0.5
Rail 4.5 0.3 0.3 0.7
Automotive and
Industrial - Emerging 3.3 2.7 3.1 1.0
Defense 1.8 0.4 0.4 -
Performance Products 0.9 0.6 0.6 -
Automotive and
Industrial -
Established 21.0 0.7 1.2 1.6
Plc 1.7 - - 0.1
-------------------- --------------------- --------------------- --------------------
Total continuing
operations 37.4 5.3 6.2 3.9
Discontinued operation - 0.2 - -
Total 37.4 5.5 6.2 3.9
-------------------- --------------------- --------------------- --------------------
2022 - Restated**
----------------------------------------------------------------------------------------------------
Total segment Inter-segment Revenue from Underlying Specific Operating
revenue revenue external operating adjusting profit
customers profit items (*)
GBPm GBPm GBPm GBPm GBPm GBPm
--------------- --------------- --------------- --------------- --------------- ---------------
Energy &
Environment 68.2 (1.0) 67.2 11.0 (0.6) 10.4
Rail 74.6 (0.3) 74.3 9.4 (4.4) 5.0
Automotive and
Industrial -
Emerging 69.1 - 69.1 2.7 - 2.7
Defense 45.1 (0.1) 45.0 6.6 (0.4) 6.2
Performance
Products 75.0 (1.3) 73.7 8.8 (0.6) 8.2
Automotive and
Industrial -
Established 54.1 (3.2) 50.9 4.9 (5.2) (0.3)
Plc - - - (15.4) (0.6) (16.0)
--------------- --------------- --------------- --------------- --------------- ---------------
Total
continuing
operations 386.1 (5.9) 380.2 28.0 (11.8) 16.2
Discontinued
operation 9.4 (2.3) 7.1 2.1 (1.3) 0.8
Total 395.5 (8.2) 387.3 30.1 (13.1) 17.0
--------------- --------------- --------------- --------------- ---------------
Net finance
costs (3.8)
Total profit
before tax 13.2
---------------
2022 - Restated**
----------------------------------------------------------------------------------------
Depreciation, Capital expenditure
amortisation and
impairment
------------------------------------------------------------------
Other intangible Property, plant and Right-of-use assets
assets equipment
GBPm GBPm GBPm GBPm
-------------------- --------------------- --------------------- --------------------
Energy & Environment 3.2 1.9 0.7 -
Rail 4.8 - 1.1 4.2
Automotive and
Industrial - Emerging - 2.0 1.4 -
Defense 1.7 0.4 0.1 -
Performance Products 0.8 (0.1) 0.6 -
Automotive and
Industrial -
Established 9.8 0.5 0.8 0.5
Plc 1.9 - - -
-------------------- --------------------- --------------------- --------------------
Total continuing
operations 22.2 4.7 4.7 4.7
Discontinued operation 2.9 3.2 - -
Total 25.1 7.9 4.7 4.7
-------------------- --------------------- --------------------- --------------------
* See Note 5
** Prior year results and capital expenditure have been restated
as follows:
-- Remove plc management charge : Previously the costs of
running the Group function, such as finance, IT, HR, marketing and
legal, were allocated to the business units on the basis of revenue
and headcount. These costs are no longer allocated as part of the
operating segment underlying operating profit, reflecting the way
that the results are reviewed by the CEO and the Board. Comparative
results have been restated to reflect a change in the allocation of
central costs.
-- Revised A&I operating segments: For the year ended 30
June 2022, the Automotive and Industrial operating segment results
were reported to the CEO (the Chief Operating Decision Maker) in
total. For the year ended 30 June 2023 the results were reported
separately to the CEO for Established A&I and Emerging A&I.
Prior year comparative amounts have been restated to reflect this
analysis.
The impact of these restatements on the underlying profit of the
operating segments is shown below.
Underlying operating Remove plc management Revised A&I operating Underlying operating
profit: originally charge segments profit: Restated
reported
GBPm GBPm GBPm GBPm
--------------------- ---------------------- ---------------------- ----------------------
EE 9.1 1.9 - 11.0
Rail 7.7 1.7 - 9.4
A&I - Total 3.7 3.9 (7.6) -
A&I - Emerging - - 2.7 2.7
Defense 5.9 0.7 - 6.6
PP 7.2 1.6 - 8.8
A&I - Established - - 4.9 4.9
Plc (5.6) (9.8) (15.4)
--------------------- ---------------------- ---------------------- ----------------------
Continuing operations 28.0 - - 28.0
Discontinued operation 2.1 - - 2.1
Total operating profit 30.1 - - 30.1
--------------------- ---------------------- ---------------------- ----------------------
4. Revenue
Continuing operations Discontinued operations Total
2023 2022 2023 2022 2023 2022
Restated* Restated*
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------------- --------- ------------- ------------ ------------ ------ ----------
Revenue stream
Service provided under:
- fixed price contracts 216.9 198.5 - - 216.9 198.5
- time and materials contracts 81.1 83.9 - - 81.1 83.9
- subscription and software support
contracts 5.4 5.2 0.1 0.6 5.5 5.8
Goods supplied: - -
- manufactured and assembled products 140.5 90.7 - - 140.5 90.7
- software products 1.3 1.2 0.7 6.5 2.0 7.7
Intellectual property - 0.7 - - - 0.7
Total 445.2 380.2 0.8 7.1 446.0 387.3
------------------------------------------ --------- ------------- ------------ ------------ ------ ----------
Customer location
United Kingdom 137.4 134.5 0.3 0.2 137.7 134.7
Europe 78.5 72.7 0.1 1.3 78.6 74.0
North America 139.4 88.3 0.2 1.9 139.6 90.2
Rest of Asia 30.1 30.7 0.2 2.8 30.3 33.5
Australia 23.4 22.2 - - 23.4 22.2
China 16.4 20.9 - 0.9 16.4 21.8
Rest of the World 20.0 10.9 - - 20.0 10.9
Total 445.2 380.2 0.8 7.1 446.0 387.3
------------------------------------------ --------- ------------- ------------ ------------ ------ ----------
Timing of recognition
Over time 304.6 289.0 0.8 5.5 305.4 294.5
At a point in time 140.6 91.2 - 1.6 140.6 92.8
Total 445.2 380.2 0.8 7.1 446.0 387.3
------------------------------------------ --------- ------------- ------------ ------------ ------ ----------
5. 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 items that are included due to their significance,
non-recurring nature or amount. Acquisition-related expenditure is
incurred by the Group to effect a business combination, including
the costs associated with the integration of acquired businesses.
Reorganisation costs relate to non-recurring expenditure incurred
as part of fundamental restructuring activities, significant
impairments of property, plant and equipment, and other items
deemed to be one-off in nature.
2023 2022
GBPm GBPm
---------------------------------------------------------------------- ------ ------
Continuing operations
Amortisation of acquired intangibles 4.6 4.5
Acquisition-related expenditure 6.2 0.8
Reorganisation costs
- Purchases and disposals - 0.3
- Impairment of non-financial assets 18.7 2.0
- Other reorganisation costs 6.4 3.9
ERP implementation costs - 0.6
Revaluation gain - (0.3)
---------------------------------------------------------------------- ------ ------
Total specific adjusting items from continuing operations before tax 35.9 11.8
Tax credit on specific adjusting items (3.3) (2.3)
Total specific adjusting items from continuing operations after tax 32.6 9.5
Specific adjusting items from discontinued operations
Disposal of discontinued operation (7.4) 1.3
Tax on specific adjusting items from discontinued operation 1.0 -
Total specific adjusting items after tax 26.2 10.8
---------------------------------------------------------------------- ------ ------
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 the asset's useful economic
life, which is between two to nine years . During the year, certain
"customer contracts and relationships" intangible assets reached
the end of their economic life, resulting in an overall decrease in
amortisation charges compared to the prior year. This was offset by
GBP0.8m of amortisation of customer relationships and modelling
tools acquired as part of the acquisition of E3M and Aither (see
Note 8).
Acquisition-related expenditure
The current year acquisition-related expenditure comprises:
-- GBP0.4m of integration costs and an accrual for GBP0.4m of
deferred consideration following the acquisition of Inside
Infrastructure (2022: GBP0.4m),
-- GBP0.2m of external fees and integration costs and an accrual
for GBP0.9m of deferred consideration following the acquisition of
E3 Modelling S.A. (see Note 8) (2022: GBPnil),
-- GBP0.4m of external fees and integration costs and an accrual
for GBP3.2m of deferred consideration following the acquisition of
Aither pty. (see Note 8) (2022: GBPnil); and
-- GBP0.7m of external fees in respect of other strategic
projects (2022: GBP0.4m, including GBP0.1m retention amount paid to
the former owners of PLC Consulting Pty Ltd).
Reorganisation costs
Purchases and disposals
During the prior year a charge of GBP0.3m was recognised in
relation to a reduction in the fair value of deferred consideration
in respect of the sale of Ricardo's Detroit engine test business on
3 June 2020. The reduction in the fair value reflected lower levels
of traditional engine testing work than originally forecast at the
time the business was sold.
Impairment of non-financial assets
Impairment costs of GBP18.7m (2022: GBP2.0m) were recognised
during the year - see Note 9.
Other reorganisation costs
Reorganisation costs include the following amounts:
-- GBP4.7m (2022: GBP2.9m) in relation to the restructuring of
the A&I Established business, including:
o GBP1.1m (2022: GBPnil) loss on disposal of non-current assets
and related decommissioning costs.
o GBP0.2m of property exit costs (2022: GBP0.9m).
o GBP1.0m (2022: GBP0.1m) of other costs in relation to the
transformation of the A&I business, including the cost of
contractors and other external fees, in addition to GBP2.4m of
associated redundancy costs (2022: GBP2.3m, less GBP0.4m prior year
credit).
This activity concluded in the current year.
-- GBP1.5m (2022: GBP1.0m) in relation to the Rail and EE
business. The current and prior year costs have been paid in the
current year. This reflects the result of a significant review of
the operational structure of the business, aimed at creating a more
flexible and agile business, as the teams move towards working
together as a combined Clean Energy and Environmental Services
business. Costs incurred related to the exit of a number of senior
positions in the organisation, including associated legal and
external fees.
This activity concluded in the current year.
-- GBP0.2m of central costs were incurred in relation to the
restructuring of the Group. Future costs will be expected as part
of the functional alignment across the Group.
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.
ERP implementation costs
As a result of an IFRS Interpretations Committee (IFRIC)
decision in March 2021, GBP0.6m of external costs incurred in the
year ended 30 June 2022 in relation to the implementation of a new
cloud-based ERP system within the PP segment were expensed in the
comparative year. These costs were previously capitalised in line
with prevailing practice at the time the costs were incurred. They
have been classified as a specific adjusting item as they are not
reflective of the underlying performance of the business in the
year. The ERP system is expected to be utilised by the Group for at
least five years.
Disposal of discontinued operation
During the current year, a gain on the disposal of the
discontinued Software business of GBP7.4m was recognised (see Note
2). In the prior year, GBP1.3m of external fees related to the
efforts to sell this business were recognised.
6. Earnings per share
Basic earnings per share is calculated by dividing the earnings
attributable to ordinary shareholders by the weighted average
number of shares outstanding during the year, excluding those held
by an employee benefit trust for the Long-Term Incentive Plan
(LTIP) and by the Share Incentive Plan (SIP) for the free share
scheme which are treated as cancelled for the purposes of the
calculation.
For diluted earnings per share, the weighted average number of
ordinary shares in issue is adjusted to assume conversion of all
dilutive potential ordinary shares. These include potential awards
of LTIP shares and options granted to employees. The assumed
proceeds from these is regarded as having been received at the
average market price of ordinary shares during the year.
Reconciliations of the earnings and the weighted average number
of shares used in the calculations are set out below. Underlying
earnings per share is also shown because the Directors consider
that this provides a useful indication of underlying performance
and trends over time.
There are no potentially dilutive shares (2022: Nil).
2023 2022
GBPm GBPm
---------------------------------------------------------- ------ ------
(Loss)/earnings attributable to owners of the parent (5.4) 8.6
Add back the net-of-tax impact of:
- Amortisation of acquired intangibles 3.5 3.2
- Acquisition-related expenditure 6.2 0.8
- Asset purchases and disposals - 0.3
- Other reorganisation costs and impairment 22.9 4.9
- ERP implementation costs - 0.5
- Revaluation gain - (0.2)
- Discontinued operations (6.4) 1.3
Underlying earnings attributable to owners of the parent 20.8 19.4
----------------------------------------------------------- ------ ------
2023 2022
Number Number
of shares of shares
millions millions
---------------------------------------------------- ----------- -----------
Basic weighted average number of shares in issue 62.2 62.2
Effect of dilutive potential shares - -
Diluted weighted average number of shares in issue 62.2 62.2
----------------------------------------------------- ----------- -----------
2023 2022
(Loss)/earnings per share pence pence
------------------------------------------------------ ------- ------
Basic (8.7) 13.8
Diluted (8.7) 13.8
------------------------------------------------------- ------- ------
2023 2022
Underlying earnings per share pence pence
------------------------------------------------------ ------- ------
Basic 33.4 31.2
Diluted 33.4 31.2
------------------------------------------------------- ------- ------
2023 2022
(Loss)/earnings per share from continuing operations pence pence
------------------------------------------------------ ------- ------
Basic (19.3) 13.2
Diluted (19.3) 13.2
------------------------------------------------------- ------- ------
2023 2022
Earnings per share from discontinued operation pence pence
------------------------------------------------------ ------- ------
Basic 10.9 0.6
Diluted 10.9 0.6
------------------------------------------------------- ------- ------
7. Dividends
2023 2022
GBPm GBPm
------------------------------------------------------------------------------ ----- -----
Final dividend for prior period: 7.49p per share (2022: 5.11p) per share 4.6 3.2
Interim dividend for current period: 3.35p per share (2022: 2.91p) per share 2.1 1.8
Equity dividends paid 6.7 5.0
------------------------------------------------------------------------------- ----- -----
On 6 September 2023 the Directors declared a final dividend of
8.61p per share, which will be paid gross on 24 November 2023 to
holders of ordinary shares on the Company's register of members on
3 November 2023 .
8. Acquisitions
The revenue for the Group for the current year would have been
GBP6.5m higher and the loss for the year reduced by GBP0.9m if the
acquisition date for the business combinations in Note 14(a) and
(b) had been 1 July 2022.
a) Acquisition in the year to 30 June 2023 - Aither
On 10 March 2023, the Group acquired 90% of the issued share
capital of Aither Pty Ltd (Aither), a leading Australian water and
natural-resources advisory consultancy. The commitment to purchase
the remaining amount gives rise to a financial liability (see
below), therefore no non-controlling interest is recognised for the
remaining 10% shareholding. Total amounts potentially payable in
relation to the acquisition include the following:
-- Initial cash consideration of GBP9.4m (AUD 17.2m), which
includes an adjustment for cash and normalised net working capital
of GBP0.1m (AUD 0.1m), paid in March 2023 and June 2023
respectively.
-- An earn-out agreement based on the earnings before tax,
depreciation and amortisation (EBITDA) for the ten months ended 31
December 2023 comprising two elements:
o 90% earn-out payment to the vendors of the business, if they
remain employed by the business at the earnout date.
o 10% earn-out bonus to staff employed by the business from
completion date and throughout the earnout period.
This amount is considered to represent post-combination
remuneration, in line with IFRS 3. The minimum value of this
payment is nil and the maximum is GBP7.7m (AUD 14.7m).
An expense of GBP3.1m has been recognised in the current year in
respect of this post-combination remuneration, based on expected
EBITDA for the period ended 31 December 2023.
-- The purchase of the remaining 10% of share capital is
expected to take place on the third anniversary of the acquisition,
or the second anniversary by mutual agreement.
o An amount of GBP0.8m (AUD 1.6m), with a present value of
GBP0.6m (AUD 1.2m), is not linked to the continuing employment of
the vendors or other performance conditions and has been treated as
deferred consideration
o A further amount is based on the EBITDA of the most recently
completed 12 months ended 31 December at the second-tranche
purchase date. The minimum undiscounted value of this payment is
GBP1.1m (AUD 2m) and the maximum is GBP4.6m (AUD 8.8m). This
payment is linked to continuing employment of the vendor, and does
not form part of the business combination and is considered to
represent post-combination remuneration. An expense of GBP0.1m has
been recognised in the current year in respect of this
post-combination remuneration, based on expected EBITDA for the
period ended 31 December 2025, and a discount rate of 12.8%.
The following table sets out the fair value of cash
consideration payable to acquire Aither, together with the fair
value of net assets acquired.
Note GBPm
------------------------------------------------ ----- ------
Fair value of consideration
Cash consideration 9.4
Deferred consideration 0.6
------------------------------------------------ ----- ------
Total fair value of consideration 10.0
------------------------------------------------ ----- ------
Fair value of identifiable net assets acquired
Customer contracts 5.9
Property, plant and equipment - Right-of-use 0.5
Trade, contract and other receivables 1.2
Cash and cash equivalents 0.6
Lease liability (0.5)
Trade, contract and other payables (1.0)
Deferred tax liabilities (1.8)
------------------------------------------------ ----- ------
Fair value of identifiable net assets acquired 4.9
Goodwill 9 5.1
------------------------------------------------ ----- ------
Total fair value of consideration 10.0
------------------------------------------------ ----- ------
The fair value of the identifiable net assets acquired were
identified in accordance with the requirements of IFRS 3 Business
Combinations and the sale and purchase agreement. The net assets
acquired included trade receivables with a gross and fair value of
GBP1.2m (AUD 2.2m), all of which are expected to be collected.
Adjustments have been made for the recognition of
customer-related intangible assets separable from goodwill
amounting to GBP5.9m (AUD 10.7m), measured under the multi-period
excess earnings method. The initial fair value reflects the
discounted value of estimated cash flows arising from revenues from
customer contracts and relationships, and reflects management's
estimate of future performance at the point of acquisition. As the
fair value of customer contracts and relationships is based on
unobservable inputs, and the projected outcome is classified as a
level 3 fair value estimate under the IFRS fair value hierarchy.
Key assumptions included in the calculation of the valuation of the
asset include the estimated revenues and associated EBITDA margin,
the weighted average cost of capital used of 12.8%, as well as the
rate of customer attrition over time. The valuation is sensitive to
these assumptions, If revenues or EBITDA margin included in the
valuation calculation were decreased, the weighted average cost of
capital increased, or customer attrition accelerated, the valuation
of the customer contracts intangible assets would be lower. The
expected useful economic life of the asset is seven years. If the
useful economic life was reduced, the amortisation charge for the
year would be increased proportionately.
Goodwill arising on acquisition is considered to relate to the
existence of a skilled assembled workforce, including skilled
water-management consultants, developed expertise and processes,
alongside synergies and growth opportunities in the water
management-sector which can be achieved with the existing Energy
and Environment operating business. These do not meet the criteria
for recognition as intangible assets separable from goodwill.
Goodwill is considered to benefit the entire Energy &
Environment operating segment and therefore it is not considered
possible to be allocated on a non-arbitrary basis below this level.
None of the goodwill recognised on consolidation is expected to be
deductible for tax purposes.
GBP0.3m of external fees in relations to the acquisition were
included in specific adjusting items during the year (see Note 5).
GBP2.7m of revenue and GBP0.1m profit after tax is included in the
consolidated statement of comprehensive income in the current year
in relation to Aither.
b) Acquisition in the year to 30 June 2023 - E3M
On 24 January 2023, the Group acquired 93% of the issued share
capital of E3-Modelling S.A (E3M), an Energy and Environment
consulting company based in Athens. The commitment to purchase the
remaining amount gives rise to a financial liability, no
non-controlling interest is recognised for the remaining 7%
shareholding. Total amounts potentially payable in relation to the
acquisition include the following:
-- Initial cash consideration of GBP19.2m (EUR 21.9m), which
includes an adjustment for cash and normalised net working capital
of GBP0.2m (EUR 0.2m), paid in January 2023 and June 2023
respectively.
-- An earn-out agreement based on the earnings before tax,
depreciation and amortisation (EBITDA) for the twelve months ended
31 December 2023. This amount is considered to represent
post-combination remuneration, in line with IFRS 3. The minimum
value of this payment is nil and the maximum is GBP4.8m (EUR
5.4m).
An expense of GBP0.9m has been recognised in the current year in
respect of this post-combination remuneration, based on expected
EBITDA for the period ended 31 December 2023.
-- The purchase of the remaining 7% of share capital is expected
to take place in January 2026.
o An amount of GBP0.9m (EUR 1.0m), with a present value of
GBP0.6m (EUR 0.7m), is not linked to the continuing employment of
the vendors or other performance conditions and has been treated as
deferred consideration.
o A further amount is contingent on the EBITDA for the 12 months
ended 31 December 2025. The minimum undiscounted value of this
payment is GBP0.9m (EUR 1.0m) and the amount is uncapped, This
payment is linked to continuing employment of the vendor, and does
not form part of the business combination and is considered to
represent post-combination remuneration. An expense of GBP0.1m has
been recognised in the current year in respect of this
post-combination remuneration, based on expected EBITDA for the
period ended 31 December 2025, and a discount rate of 15.2%.
The following table sets out the fair value of cash
consideration payable to acquire E3M, together with the fair value
of net assets acquired.
Note GBPm
------------------------------------------------ ----- ------
Fair value of cash consideration
Cash consideration 19.2
Deferred consideration 0.6
------------------------------------------------ ----- ------
Total fair value of consideration 19.8
------------------------------------------------ ----- ------
Fair value of identifiable net assets acquired
Software and technology 12.5
Property, plant and equipment 0.1
Trade, contract and other receivables 0.8
Cash and cash equivalents 3.6
Trade, contract and other payables (2.7)
Deferred tax liabilities (3.0)
------------------------------------------------ ----- ------
Fair value of identifiable net assets acquired 11.3
Goodwill 9 8.5
------------------------------------------------ ----- ------
Total fair value of consideration 19.8
------------------------------------------------ ----- ------
The fair value of the identifiable net assets acquired were
identified in accordance with the requirements of IFRS 3 Business
Combinations and the sale and purchase agreement. The net assets
acquired included trade receivables with a gross and fair value of
GBP0.8m (EUR 0.9m), all of which are expected to be collected.
Adjustments have been made for the recognition of modelling-tool
related intangible assets separable from goodwill amounting to
GBP12.5m (EUR 14.3m), measured under the multi-period excess
earnings method. The initial fair value reflects the discounted
value of estimated cash flows arising from revenues from the use of
the model, and reflects management's estimate of future performance
at the point of acquisition. As the fair value of modelling tools
is based on these unobservable inputs, and the projected outcome is
classified as a level 3 fair value estimate under the IFRS fair
value hierarchy. Key assumptions included in the calculation of the
valuation of the asset include the estimated revenues and
associated operating expenses, the weighted average cost of capital
used of 15.2%, as well as the ten-year period over which revenues
are expected to occur. The valuation is sensitive to these
assumptions, If revenues in the calculation of the valuation were
decreased, operating expenses increased, the weighted average cost
of capital increases, or the revenues maintained for a shorter
period of time, the valuation of the modelling-tool would be lower.
The expected useful economic life of the asset is ten years. If the
useful economic life was reduced, the amortisation charge for the
year would be increased proportionately.
Goodwill arising on acquisition is considered to relate to the
existence of a skilled assembled workforce, including skilled
consultants with expertise in digital modelling, alongside
synergies and growth opportunities in the European energy and
environment sector which can be achieved with the existing Energy
and Environment operating business. These do not meet the criteria
for recognition as intangible assets separable from goodwill.
Goodwill is considered to benefit the entire Energy &
Environment operating segment and therefore it is not considered
possible to be allocated on a non-arbitrary basis below this level.
None of these meet the criteria for recognition as intangible
assets separable from goodwill. None of the goodwill recognised on
consolidation is expected to be deductible for tax purposes.
GBP0.1m of external fees in relation to the acquisition were
included in specific adjusting items during the year (see Note
5).
GBP2.0m of revenue and GBP0.1m profit after tax is included in
the consolidated statement of comprehensive income in the current
year in relation to E3M.
9. Goodwill and impairment of non-financial assets
2023 2022
----------------------------
Movement in goodwill Note GBPm GBPm
------------------------------- ----- ------ -----
At 1 July 90.6 84.7
Acquisition of business(1) 8 13.6 3.8
Impairment(2) (5.2) -
Exchange adjustments (2.9) 2.1
At 30 June 96.1 90.6
------------------------------- ----- ------ -----
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:
Carrying value Pre-tax discount rate Long-term growth rate
2023 2022 2023 2022 2023 2022
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------------- -------- ------- ----------- ----------- ----------- -----------
Rail 44.4 46.2 13.5% 12.3% 2.9% 3.1%
Automotive and Industrial - Established(2) - 5.0 14.9% 13.0% (10.0%) (10.0%)
Automotive and Industrial - Emerging 14.4 14.6 14.9% 13.0% 3.9% 3.0%
Energy and Environment(1) 32.7 20.0 16.9% 13.8% 4.0% 2.8%
Defense 3.5 3.7 14.0% 13.8% 3.3% -
Performance Products 1.1 1.1 15.9% 14.0% 4.4% 1.7%
----------- ----------- ----------- -----------
At 30 June 96.1 90.6
-------------------------------------------- -------- -------
(1) As set out in further detail in Note 8(a) & (b), the
Group acquired Aither and E3M during the current year, adding
goodwill of GBP5.1m and GBP8.5m respectively to the Energy and
Environment CGU. During the prior year, the Group acquired Inside
Infrastructure, adding GBP3.8m of goodwill to the Energy and
Environment CGU.
(2) At 31 December 2022, as required by IAS 36, an assessment
was carried out to identify whether any indicators existed that the
Goodwill balances held by the Group may be impaired. Due to a
significantly more challenging performance than expected in the
Automotive and Industrial - Established Mobility (A&I
Established) segment, an indicator of impairment was considered to
exist and the recoverable amount of the cash-generating unit (CGU)
was estimated.
The recoverable amount of the CGU was based on its value in use,
determined by discounting the future cash flows expected to be
generated from the continuing use of the CGU. Expected cash flows
for the A&I Established business decreased compared to those
expected at 30 June 2022, and the carrying amount of the CGU was
therefore determined to be higher than its recoverable value of
nil. As a result, an impairment charge of GBP17.7m was recognised
to administrative expenses within specific adjusting items for the
A&I Established operating segment. This assessment was updated
at 30 June 2023 and a further GBP1.0m of assets were impaired.
The GBP18.7m of assets written off include GBP5.2m of goodwill,
GBP1.8m of intangible assets (primarily development costs,
including calibration tools), and GBP11.7m of property, plant and
equipment (including GBP2.8m of buildings and GBP5.2m of test
assets). After recognising the impairment, the carrying value of
non-current assets allocated to this CGU was GBPnil.
GBPm
------------------------------- -----
Goodwill 5.2
Other intangible assets 1.8
Property, plant and equipment 11.7
-------------------------------- -----
Total impairment 18.7
-------------------------------- -----
In addition, an estimate of recoverable value for the combined
A&I Established and A&I Emerging businesses was calculated
in order to assess the carrying value of the assets shared between
these CGUs. The carrying value of the shared assets, and the
A&I Emerging assets were supported by this calculation with
significant headroom, and no further impairment was recognised.
Key assumptions
The five-year plan and discounted cash flow calculations thereon
are used to calculate a value in use which is compared to the
carrying value of the goodwill and other non-financial assets
allocated to each CGU, or group of CGUs at 30 June 2023. Impairment
was recognised in relation to A&I Established (see above). No
other impairment was considered necessary (2022: Nil). The
five-year cashflow forecasts are based on the budget for the
following year (year one) and the business plans for years two to
five. The five-year plan is prepared by management, and is reviewed
and approved by the Board. The five-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 climate change, where relevant), adjusted to meet the
requirements of IAS 36 Impairment of Assets.
The risks associated with climate change which have been
incorporated into the five-year planning process include the known
and expected increased regulation in relation the use of the
internal combustion engine (ICE) and the impact that will have on
our customers operating in this market. The five-year planning
process takes into account the requirement to adapt our product and
service portfolios in response to megatrends influenced by climate
change. Some risks, such as the risk of sea level rise (see
discussion of Principal Risks on page 104 of the Annual Report) are
expected to arise outside of the timeline of the five-year plan and
are not considered sufficiently quantifiable to include in the
longer-term element of the value-in-use calculation. No other
individually significant key financial risks or expenditures have
been identified and any additional costs of meeting our net zero
objective are not expected to be significant. Due to regulatory and
other changes in the market relating to ICE, a long-term decrease
of 10% p.a. has been applied to established mobility cashflows.
Cash flows beyond year five 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 CGUs, or group of
CGUs, five-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.
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 -
Established, A&I - Emerging, Performance Products and Energy
and Environment. They are material to the A&I Established and
A&I Emerging groups of CGUs and have been included, taking into
account known changes to legislation, on the basis that there is no
indication that the UK government will withdraw this benefit.
Sensitivities
The value-in-use calculations were assessed for sensitivity to
reasonably possible changes to assumptions. The change in pre-tax
discount rate, growth rate, operating profit and working capital
which would cause the unit's (or group of units') carrying amount
to exceed its recoverable amount was identified and an assessment
made as to whether that change was considered reasonably possible.
In addition, a scenario was modelled for each of a 10% reduction in
operating profit, a 10% increase in working capital movement, a 2%
increase in the pre-tax discount rate and a 2% decrease in the
long-term growth rate, and a scenario with each of these changes
combined.
The following reasonably possible scenarios, resulting in
carrying amount exceeding the recoverable amount of goodwill, were
identified:
-- The Rail group of CGUs recoverable value exceeds its carrying value by GBP6.7m
o An increase in the pre-tax discount rate of 1.0% would result
in the carrying value of the Rail groups of CGUs to exceed its
recoverable value.
o A decrease in the long-term growth rate of 1.1% would result
in the carrying value of the Rail groups of CGUs to exceed its
recoverable value.
o A decrease in operating profit 6% would result in the carrying
value of the Rail groups of CGUs to exceed its recoverable
value.
-- The Performance Products CGU recoverable value exceeds its carrying value by GBP8.5m
o A reduction in operating profit of 9% would result in the
carrying value of performance products CGU exceeding its
recoverable value.
No other reasonably possible changes to individual assumptions
were identified which would cause the carrying amount of a unit's
(or group of units') goodwill to exceed its recoverable amount.
10. Net debt and borrowings
The objectives when managing capital are to safeguard the
ability to continue as a going concern in order to provide returns
for shareholders, benefits for other stakeholders and to maintain
an optimal capital structure to reduce the cost of capital. Capital
is monitored on the basis of the gearing ratio, which is calculated
as net debt divided by total capital.
The majority of the Group's cash is held in bank deposits. The
Group's sources of borrowing for funding and liquidity purposes
come from the Group's GBP150.0m multi-currency revolving credit
facility and through short-term overdraft facilities.
The disclosures in this Note include certain Alternative
Performance Measures (APMs). For more information on the APMs used
by the Group, including definitions, please refer to Note 1.
a) Gearing ratio
2023 2022
GBPm GBPm
--------------- ------ ------
Net debt 62.1 35.4
Total equity 176.6 197.6
Total capital 238.7 233.0
---------------- ------ ------
At 30 June 26.0% 15.2%
---------------- ------ ------
b) Net debt
2023 2022
Analysis of net debt GBPm GBPm
---------------------------------------------------- -------- -------
Current assets - cash and cash equivalents
Cash and cash equivalents 49.8 49.4
Cash included in disposal group held-for-sale - 1.1
Total cash and cash equivalents 49.8 50.5
----------------------------------------------------- -------- -------
Current liabilities - borrowings
Bank overdrafts repayable on demand (12.6) (11.1)
Hire purchase liabilities maturing within one year (0.1) (0.1)
Total current borrowings (12.7) (11.2)
----------------------------------------------------- -------- -------
Non-current liabilities - borrowings
Hire purchase liabilities maturing after one year - (0.2)
Bank loans maturing after one year (99.2) (74.5)
Total non-current borrowings (99.2) (74.7)
----------------------------------------------------- -------- -------
At 30 June (62.1) (35.4)
----------------------------------------------------- -------- -------
Total cash and cash equivalents at 30 June 49.8 50.5
Total borrowings at 30 June (111.9) (85.9)
At 30 June (62.1) (35.4)
----------------------------------------------------- -------- -------
2023 2022
Movement in net debt GBPm GBPm
-------------------------------------------------------------------------- -------- -------
At 1 July (35.4) (46.9)
Net (decrease)/increase in cash and cash equivalents and bank overdrafts (2.2) 10.1
Repayments of hire purchase 0.2 0.1
Proceeds from bank loans (128.0) (13.0)
Repayments of bank loans 103.0 15.0
Amortisation of bank loan fees 0.3 (0.7)
At 30 June (62.1) (35.4)
--------------------------------------------------------------------------- -------- -------
At the year-end, the Group had current hire-purchase liabilities
of GBP0.1m and non-current hire-purchase liabilities of GBPnil.
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 GBPnil.
At the year-end, the Group held total banking facilities of
GBP166.1m (2022: GBP216.8m), which included committed facilities of
GBP150.0m (2022: GBP200.0m). The committed facility consists of a
GBP150.0m multi-currency Revolving Credit Facility (RCF) which
provides the Group with committed funding through to July 2026. In
addition, the Group has uncommitted facilities including overdrafts
of GBP16.1m (2022: GBP16.8m), which mature throughout this and the
next fi-nancial year and are renewable annually.
Non-current bank loans comprise committed facilities of GBP99.2m
(2022: GBP74.5m), 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 1.65% to 2.45% above SONIA (2022: 1.4% to 2.2% above
SONIA).
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 earnings 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 1.4x, which
attracts a rate of interest of SONIA plus 1.85% (2022: SONIA plus
1.65%). 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.
11. Contingent liabilities
In the ordinary course of business, the Group has GBP13.4m
(2022: GBP11.4m) 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. 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. In November 2021 the guarantee
was extended for a further 3 years and will now terminate on 5
April 2026. 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.
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END
FR NKBBNCBKDOCD
(END) Dow Jones Newswires
September 13, 2023 02:01 ET (06:01 GMT)
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