Final Results

Ricardo PLC 22 September 2003 22 September 2003 Ricardo plc Preliminary Results for the twelve months ended 30 June 2003 Ricardo plc is the UK's leading independent automotive consultancy, employing over 1,800 people with technical centres in the UK, USA, Germany and the Czech Republic. The company's client list includes the world's major OEMs. Ricardo is a constituent of the FTSE techMark 100. • Robust results against difficult market environment and after increased pension charge and insurance costs of c. £2m • Profit before tax pre goodwill £16.2m (2002: £16.7m) • Basic earnings per share pre goodwill up 2% 25.5p (2002 : 25.0p) • Order book down year on year as anticipated - reflecting shorter order cover periods highlighted in pre-close statement • Dividend up 4.7% to 9.0p (2002 : 8.6p) • Gemini, Tarragon & German acquisitions provide opportunities for future growth • Strategic Consulting and Japanese collaboration both off to a good start Commenting on the results, Rodney Westhead, Chief Executive said: '2003 saw the toughest trading conditions Ricardo has seen for 10 years. 2004 is expected to be another difficult year as current trends and growing competitive pressures in the automotive industry create greater uncertainty. As a result, order cover is being received for shorter periods and this makes it much more difficult to get a clear picture of how the current year will unfold at the present time. Despite this, Ricardo remains a world class business and the Board remains confident, that with a clear strategy, strong business offering and the opportunities created by recent acquisitions to develop our high value added activities, the Company is well positioned to continue profitable growth when our markets improve.' Further enquiries: Ricardo plc Rodney Westhead, Chief Executive (today) 020 7554 1400 Andrew Goodburn, Finance Director (thereafter) 01273 455611 Gavin Anderson & Company Laura Hickman/Charlotte Stone 020 7554 1400 Website: www.ricardo.com -------------------------- CHAIRMAN'S STATEMENT Review of the year Your Company has achieved reasonable results for the year as a whole, despite having to carry higher costs associated with insurance premia, pension charges and the integration of two acquisitions, Gemini and Tarragon. This achievement has been accomplished in an international automotive market place where the major players, including the car manufacturers themselves, have faced strong competition and mixed demand for their products. Against this background our strategic objective to continue to develop our role as engineering consultants to the industry at large has underpinned performance. Your Company has continued to provide high quality consultancy services to the industry, especially in relation to engine and transmission design and more recently all-vehicle engineering. During the last twelve months we have also extended our services to include the provision of advice on strategic issues which automotive manufacturers now face. Once again all divisions have contributed to this success. Ricardo Consulting Engineers (RCE) has extended its business in the growing electronics field, with the acquisition of Tarragon, details of which appear in the Chief Executive's report. Our American subsidiary, Ricardo Inc., has continued to broaden its customer base and our confidence in that division's future is demonstrated by the opening of the new premises in Detroit, and a commitment to further investment in test facilities in Chicago. The prospects of further growth in the business of Driveline Transmission Systems (DTS) and Ricardo Vehicle Engineering (RVE) have justified our decision to extend the premises there to maximise the office and workshop space in our premises in Leamington. During the last year the business of Gemini Transmissions, acquired on 9 July 2002, has been integrated into DTS and has already justified its acquisition with the opportunities which have emerged in motorsport. Annual results and dividend Profit before tax and goodwill amortisation was £ 16.2m compared with £16.7m last year. Turnover reduced to £136.6m from £143.2m. The year started with a net cash balance of £19.9m, but the resources were used, in the main, to purchase Tarragon Embedded Technology Limited, the PROTOtechnik-IFT group of companies in Germany and the business and assets of Gemini Transmissions Limited. Your Board is recommending an increase in total dividend to 9.0p per share, compared with 8.6p last year. This dividend is covered 2.7 times, compared with 2.9 times last year. Strategy In my report for 2002 I explained our intention to develop a consultancy service to provide advice on strategic issues in the automotive industry. Our new Strategic Consulting division has made an excellent start in its first year and has already won several important contracts. You will already be aware of the importance your Board places on the international aspects of Ricardo's business. We have for some time recognised the importance of Germany and the need for Ricardo to establish a significant presence in the largest engineering services market outside North America. On 30 June 2003, we announced the acquisition of the PROTOtechnik-IFT group, a well established group offering services compatible with RCE, which has been given the direct responsibility for its integration into the Ricardo family. People On 1 January 2003 we welcomed to the Board Gerald Andrews and Clive Hickman, Managing Directors of DTS and RVE respectively, as executive directors and on 24 June 2003 Michael Harper, Chief Executive of Kidde PLC, as a non-executive director. Earlier today I announced my intention of retiring from the Board on 31 December 2003. I am delighted that Marcus Beresford has agreed to join the Board with the intention of succeeding me as Chairman and will take my place on each of the Board Committees, details of which are given in the Director's Report. I would like to take this opportunity to thank everybody concerned at Ricardo who have contributed to the success of the last six years. I have thoroughly enjoyed my time with the Company and look forward to watching it grow, albeit from the sidelines. Prospects Although intense competitive pressure within the automotive industry is resulting in shorter order books and short term reductions in new model launches, the need for new and innovative models enables your Board to remain confident that your Company is very well placed to achieve profitable growth when markets improve. CHIEF EXECUTIVE'S REVIEW Market place The year to 30 June 2003 saw the most difficult trading conditions that Ricardo has experienced in the last ten years and at the present time 2004 is unlikely to be any easier. Profit before tax and goodwill amortisation of £16.2m (2002: £16.7m) is arrived at after an increase in pension and insurance costs of nearly £2.0m and a provision for a bad debt of £0.35m which emerged after the year end. However during the year Ricardo also integrated the Gemini acquisition, established Ricardo Strategic Consulting, signed our co-operation agreement with Horiba in Japan, acquired Tarragon Embedded Technology Ltd and acquired a significant subsidiary in the automotive heartland of Germany, whilst continuing to deliver exceptional programmes to the automotive industry world-wide. It is now important that we integrate, consolidate and then grow each of the new developments that we have initiated in the last year, to ensure that we continue to deliver a consistently high quality service to our customers, no matter where they need Ricardo around the world. The problems currently besetting the world's car industry include overcapacity, pressure on margins, increasingly complex technology and associated warranty problems in addition to customers demanding enhanced levels of satisfaction and variety, which all create opportunities for Ricardo. Our capabilities therefore need to recognise these problems and we are working to deliver appropriate solutions. With our growing emphasis on electronics, the delivery of our services at our customers' main geographic centres and strategic consulting particularly aimed at innovation and product development effectiveness, cost reduction and managing down and prevention of warranty costs, Ricardo is able to work with our customers to address these key industry issues. Much of what we do for our customers must remain confidential but one example where we have specific client permission is the Bugatti transmission which represents the world's most advanced transmission available in a car today. The Bugatti transmission and Tarragon electronics, with its capability in safety critical systems, which will assume immense importance with the development of drive-by-wire systems (i.e. brakes, steering and accelerator all activated by electronics signal not direct mechanical connection) typify our determination to maintain our technical lead. Equally, our diesel technology for Europe and North America and our specific vehicle development programmes, which are at the very forefront of technology, meet the vital needs of our customers, the world's largest volume car manufacturers. Business development We are pleased to announce that based on the cost effective fuel consumption benefits demonstrated by the Ricardo I-MoGen mild hybrid diesel vehicle, Ricardo has been awarded a major collaborative research programme, part funded by the Department for Transport (DfT) through the New Vehicle Technology Fund (NVFT). The programme to design, build and demonstrate a hybrid delivery van will be led by Ricardo, working with a major automotive OEM and two European Tier 1 suppliers. Key Ricardo responsibilities include; vehicle modelling and concept definition, control system design, vehicle integration and overall programme management. The programme is designed to demonstrate the commercial and environmental attributes of hybrid technology. Our current R&D programmes include advance transmissions, cleaner diesels and a very fuel efficient petrol-engined vehicle based on the Ford Focus which should be 20% more fuel efficient than existing vehicles. This will be available as a demonstrator car by the end of September 2003, and is an excellent example of innovation, emerging from R&D investment. Our acquisitions and developments in the year have given Ricardo the full global reach that our customers demand and enhance our capability to provide a fuller service to our customers. Gemini has been fully integrated into our existing Midlands transmission business and we have had another record year for this business. The significant contribution that can be made to fuel consumption and emissions reduction by technically advanced transmissions is now wholly recognised and will continue to drive Ricardo forward for the foreseeable future. Strategic Consulting made a tremendous start from a zero base, finishing the year with a profitable business although overall making a small loss for the whole year. Programmes have included assignments for major OEM's and Tier 1 suppliers in Europe. Our plans for 2004 include extending this service to the USA and we are confident it will grow significantly within the new financial year. Tarragon joined Ricardo in February 2003 and was rapidly integrated into our fast growing electronics team. This was of immediate benefit to existing Ricardo programmes and at the same time Tarragon continued to grow its own client base. We expect it will play a major part in further developing our electronics capability which continues to be one of the fastest growth areas in automotive development. Our activity in Japan has continued to grow aided by our agreement to collaborate with Horiba Ltd, the highly respected supplier to the Japanese automotive industry. The joint Horiba Ricardo activity is now starting to generate orders and whilst progress in Japan will naturally be at a cautious pace, we are now confident that we have an enduring presence in this vital market. In Germany our acquisition of the PROTOtechnik-IFT group of companies at the end of June 2003 has delivered the size, technical capability and geographical presence that we have searched for in this vital European market to add to our existing German offices. It is conveniently placed just outside Stuttgart, where we are close to Mercedes, BMW, Porsche and Audi, whilst our existing Wolfsburg office is on the doorstep of VW. The early stages of integrating PROTOtechnik-IFT into Ricardo have gone very well, the initial reaction from customers has been extremely favourable and we remain confident that this acquisition will help drive our growth in Europe. Business review RCE remains at the forefront of diesel engine developments for both Europe and the USA. It has also led the way in vehicle calibration for Jaguar where our highly innovative vehicle calibration on testbed (VCOT) has significantly reduced the need for development vehicles saving both time and money for customers. Test bed engine development work has been carried out using our Global Test Environment (GTE) which essentially places the engine in its test cell on the engineer's desk, via his computer work station, wherever he may be in the world, using a large spectrum of digital communication technologies. The potential savings for a one engine development job are significant, the potential savings across an OEM's entire test and development facility are enormous. DTS stays at the forefront of transmission developments, and is involved in a growing number of European and USA programmes including the Bugatti Veyron, advanced commercial and passenger car programmes and a growing portfolio of Formula One and other race series. RVE has been heavily involved in two vehicle programmes, both of which met stiff technical challenges but were delivered on time and budget to our customers. In today's auto markets, new model launches on time and to budget are by no means certain and achieving this is of significant financial benefit to our customers. The war in the Middle East has also improved our military vehicle opportunities which broadens our client base for this otherwise potentially volatile business. The growth of our Midlands based businesses, DTS and RVE, now joined by RSC, has necessitated the development of a new 45,000 sq. ft. building on our existing site near Leamington. This will be completed in June 2004 and will allow both expansion of our current site activities and the move of the Gemini business to the site from Brackley. In the USA it has been a year of steady progress. Following a tough first half, the business improved steadily through the second half. The new 77,000 sq. ft. building was completed and the whole business is once again housed on one campus. During the year, close co-operation with the RCE diesel team has raised our profile in this fledgling market and close co-operation with the DTS team has resulted in four major transmission programmes for US customers, although the majority of the work is being carried out in the UK. In Chicago, work on extending our heavy duty engine test facility has started to enable Ricardo to meet the increasing demands of USA truck emissions standards for 2007 and beyond. The launch of WAVE 5.0, our latest engine simulation software, has ensured that this aspect of our business remains up to date and competitive. Outlook 2003 was a tough year and 2004 is likely to be even more competitive. Order cover is now being received for shorter periods than has previously been experienced and a number of projects won in the year were cancelled after the year end, before hitting the order book, as OEM's reviewed the economic viability of their programmes. It is, therefore, increasingly difficult to predict forward orders in the current climate. We continue to concentrate on high added value activity and the development of our skills in the world-wide automotive market place. Our R&D programmes focus on meeting our customers' major challenges and concerns and we remain encouraged by our ability to provide sound advice and advanced technology. 2004 is expected to be a difficult year for the whole automotive industry, including Ricardo, however we continue to see rising demand for sophisticated technology covering emissions, fuel economy, safety and telematics, a growing demand for more vehicle derivatives and the need to bring programmes to fruition on time and budget. There is also continuing pressure to outsource, which all plays to Ricardo's growing spread of capabilities, supplied wherever our clients may need them. Therefore we remain confident in our future success. I would like to thank everybody in Ricardo who has helped to make 2003 a good year in the face of huge pressures. With recent acquisitions adding to our growing high value international activities, we are well positioned for the future despite continuing market uncertainty. Consolidated Profit & Loss Account For the year ended 30 June 2003 Before 2003 2002 goodwill Goodwill £'000 Before Goodwill £'000 Notes amortisation amortisation Total goodwill amortisation Total Turnover 2 Continuing 135,246 - 135,246 143,178 - 143,178 operations Acquisitions 1,394 - 1,394 - - - --------------- ----- -------- -------- ------- ------- -------- ------- 136,640 - 136,640 143,178 - 143,178 Operating profit Continuing 15,453 (281) 15,172 16,508 (13) 16,495 operations Acquisitions 133 - 133 - - - --------------- ----- -------- -------- ------- ------- -------- ------- 15,586 (281) 15,305 16,508 (13) 16,495 Net interest 565 - 565 164 - 164 --------------- ----- -------- -------- ------- ------- -------- ------- Profit on 3 16,151 (281) 15,870 16,672 (13) 16,659 ordinary activities before taxation Taxation (3,460) (4,506) --------------- ----- -------- -------- ------- ------- -------- ------- Profit on ordinary activities after taxation 12,410 12,153 --------------- ----- -------- -------- ------- ------- -------- ------- Minority interest (including non-equity interest) (194) (92) --------------- ----- -------- -------- ------- ------- -------- ------- Profit for the 12,216 12,061 financial year Dividends 4 (4,483) (4,207) --------------- ----- -------- -------- ------- ------- -------- ------- Retained profit 7,733 7,854 for the year --------------- ----- -------- -------- ------- ------- -------- ------- Earnings per ordinary share -basic 5 24.9p 24.9p -diluted 5 24.6p 24.5p Earnings per ordinary share excluding goodwill amortisation -basic 5 25.5p 25.0p -diluted 5 25.2p 24.6p There is no material difference between the profit on ordinary activities before taxation and the profit for the financial year, stated above, and their historical cost equivalents Consolidated and Company Balance Sheets as at 30 June 2003 Group Company 2003 2002 2003 2002 £'000 £'000 £'000 £'000 Fixed assets Intangible assets 26,339 35 - - Tangible assets 50,452 45,195 6,332 6,231 Investments 99 331 19,733 16,499 ----------------------- -------- -------- -------- ------- 76,890 45,561 26,065 22,730 ----------------------- -------- -------- -------- ------- Current assets Stocks 7,173 1,667 - - Debtors 52,569 46,322 180,405 20,270 Cash deposit 340 340 - - Cash at bank and in hand 6,052 28,090 18,105 24,214 ----------------------- -------- -------- -------- ------- 66,134 76,419 198,510 44,484 Creditors - amounts falling due (56,978) (53,166) (35,409) (30,861) within one year -------- -------- -------- ------- ----------------------- Net current assets 9,156 23,253 163,101 13,623 ----------------------- -------- -------- -------- ------- Total assets less current 86,046 68,814 189,166 36,353 liabilities Creditors - amounts falling due (15,832) (6,840) - (5,200) after more than one year Provisions for liabilities and (5,276) (5,783) (130) (125) charges ----------------------- -------- -------- -------- ------- Net assets 64,938 56,191 189,036 31,028 ----------------------- -------- -------- -------- ------- Capital and reserves Called up share capital 12,469 12,247 12,469 12,247 Share premium account 12,054 9,767 12,054 9,767 Capital redemption reserve 40 40 40 40 Merger reserve 967 967 - - Long term incentive plan reserve 204 594 204 594 Profit and loss account 38,614 32,293 164,269 8,380 ----------------------- -------- -------- -------- ------- Total shareholders' funds 64,348 55,908 189,036 31,028 ----------------------- -------- -------- -------- ------- Minority interest (including 590 283 - - non-equity interest) -------- -------- -------- ------- ----------------------- ----------------------- -------- -------- -------- ------- Capital employed 64,938 56,191 189,036 31,028 ----------------------- -------- -------- -------- ------- Consolidated Cash Flow Statement for the year ended 30 June 2003 2003 2002 Notes £'000 £'000 £'000 £'000 Net cash inflow from 6 19,490 30,242 operating activities Returns on investments and servicing of finance Interest received 1,260 727 Interest paid (636) (541) Interest element of finance (62) - rental payments Dividend paid to minority - (141) shareholder ----- ------ ------- ------ ------- Net cash inflow from returns on investment and servicing of 562 45 finance Taxation (3,921) (3,204) Capital expenditure and financial investment Purchase of tangible fixed (8,260) (5,967) assets Sale of tangible fixed assets 64 332 Shares purchased for LTIP (381) - -------------------------- ----- ----- ------- ------ ------- Net cash outflow from capital (8,577) (5,635) expenditure and financial investment Acquisitions Purchase of subsidiary (18,863) - undertakings Acquisition expenses (458) - Net cash acquired with 123 - subsidiary undertakings -------------------------- ----- ------ ------- ------ ------- Net cash outflow from (19,198) - acquisitions Equity dividends paid (4,275) (3,829) -------------------------- ----- ----- ------- ------ ------- Cash flow before use of (15,919) 17,619 financing Financing Issue of ordinary share 929 345 capital Amount received in respect of - 49 ESOP shares Capital elements of finance (940) (1) lease rental payments Loans repaid (6,462) (1,209) -------------------------- ----- ----- ------- ------ ------- Net cash outflow from (6,473) (816) financing -------------------------- ----- ----- ------- ------ ------- (Decrease)/increase in cash (22,392) 16,803 -------------------------- ----- ----- ------- ------ ------- NOTES TO THE ACCOUNTS 1. Accounting policies This preliminary announcement has been prepared on the basis of the accounting policies as set out in the annual financial statements for the year ended 30 June 2003. 2. Turnover 2003 2002 £'000 £'000 Europe 87,554 87,699 North America 41,825 46,912 Pacific Basin 5,622 7,046 Rest of the World 1,639 1,521 ----------- ------------ 136,640 143,178 ----------- ------------ The directors consider that the Group operates in one business segment, serving the global automotive market. The United Kingdom is the principal location for operating profits and the net assets of the Group. As a consequence, it is not meaningful to show separately its turnover, operating results or net assets by origin or geographical location. 3. Profit on ordinary activities before taxation Profit on ordinary activities before taxation is after charging for research and development of £5,120,000 (2002: £4,636,000) goodwill of £281,000 (2002: £13,000) and depreciation of £9,495,000 (2002: £9,117,000). 4. Dividends The final dividend is 6.3p (2002: 6.0p). This is payable on 21 November 2003 to ordinary shareholders on the register on 24 October 2003. 5. Earnings per share Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of shares in issue during the year, excluding those held in the ESOP and those held by the LTIP which are treated as cancelled. 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. The Group has two classes of dilutive potential ordinary shares: those options granted to employees where the exercise price is less than the market price of the Company's ordinary shares during the year and the contingently issuable shares under the Group's LTIP. At 30 June 2003, the performance criteria for the vesting of awards under the plans maturing on 30 June 2004 and 30 June 2005 had not been met and consequently the shares in question are excluded from the diluted earnings per share computation. Reconciliations of the earnings and the weighted average number of shares used in the calculations are set out below: 2003 2002 Weighted average Weighted average number Number of Per share of shares Per share Earnings shares amount Earnings shares amount £'000 '000 Pence £'000 '000 pence Basic EPS Profit 12,216 49,059 24.9 12,061 48,352 24.9 attributable to ordinary shareholders Effect of dilutive securities: Options - 438 - 678 LTIP - 118 - 120 -------------- -------- -------- ------- ------- ------- ------- Diluted EPS Adjusted 12,216 49,615 24.6 12,061 49,150 24.5 earnings -------------- -------- -------- ------- ------- ------- ------- Supplementary earnings per share to exclude goodwill amortisation Basic EPS 12,216 49,059 24.9 12,061 48,352 24.9 Goodwill 281 13 amortisation --------------- ------- -------- ------- ------- ------- ------- Basic EPS excluding goodwill amortisation 12,497 49,059 25.5 12,074 48,352 25.0 -------------- -------- -------- ------- ------- ------- ------- Diluted EPS 12,216 49,615 24.6 12,061 49,150 24.5 Goodwill 281 13 amortisation -------- -------- ------- ------- ------- ------- -------------- Diluted EPS excluding goodwill amortisation 12,497 49,615 25.2 12,074 49,150 24.6 -------------- -------- -------- ------- ------- ------- ------- The weighted average number of shares in issue may be reconciled to the number used in the earnings per share calculation as follows: 2003 2002 Weighted average number: '000 '000 Ordinary shares in issue 49,188 46,648 Shares held by ESOP (67) (189) Shares held by LTIP (62) (107) -------------------------- ----------- ----------- 49,059 48,352 -------------------------- ----------- ----------- 6. Net cash inflow from operating activities 2003 2002 £'000 £'000 Operating profit 15,305 16,495 Depreciation Charges 9,495 9,117 Goodwill amortisation 281 13 Profit on sale of tangible fixed assets (15) (14) Long term incentive plan (9) 455 Increase in stock (257) (195) Decrease/(increase) in debtors 2,228 (3,531) (Decrease)/Increase in creditors (7,538) 7,902 -------------------------- ------- --------- Net cash inflow from operating activities 19,490 30,242 -------------------------- ------- --------- 7. Reconciliation of net cash flow to movement in net debt 2003 2002 £'000 £'000 (Decrease)/Increase in cash (22,392) 16,803 Movement in debt 6,462 1,210 Movement in finance leases 940 - -------------------------- ------------ ---------- Change in net (debt)/funds from cash flows (14,990) 18,013 Loans and finance leases acquired with subsidiaries (6,210) - Translation difference 70 637 -------------------------- ------------ ---------- Movement in net (debt)/funds in year (21,130) 18,650 Net funds at 1 July 19,938 1,288 -------------------------- ------------ ---------- Net (debt)/funds at 30 June (1,192) 19,938 -------------------------- ------------ ---------- 8. Analysis of net debt At 1 July Cash Non cash Exchange At 30 June 2002 flow movement movement 2003 £'000 £'000 £'000 £'000 £'000 Cash in hand 28,090 (21,932) - (106) 6,052 Overdrafts (1,312) (460) - 100 (1,672) ------------ -------- --------- -------- -------- -------- Sub total 26,778 (22,392) - (6) 4,380 Debt due after 1 (6,840) 6,462 (5,270) 76 (5,572) year Finance leases - 940 (940) - - ------------ -------- --------- -------- -------- -------- Total 19,938 (14,990) (6,210) 70 (1,192) ------------ -------- --------- -------- -------- -------- The non cash movement relates to finance lease obligations acquired on the purchase of the business and assets of Gemini Transmissions Limited and debt acquired on the acquisition of the PROTOtechnik - IFT group of companies. Part of the consideration for the purchase of Tarragon Embedded Technologies limited comprised shares. This information is provided by RNS The company news service from the London Stock Exchange

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