Final Results
Ricardo PLC
18 September 2006
18 September 2006
Ricardo plc
Preliminary results for the year ended 30 June 2006
Ricardo plc is the leading UK independent automotive consultancy, employing
1,700 people. The company has technical centres in the UK, USA, Germany, Czech
Republic and offices in Tokyo and Shanghai, the global client list includes the
world's major automotive OEMs and Tier1 suppliers from the passenger car,
commercial vehicle, military, motorsport and related sectors.
HIGHLIGHTS
•Turnover up 9% to £173m (2005: £158m)
•Underlying profit before tax (excluding pensions credit) up 26% to £10.8m
(2005: £8.6m)
•Profit before tax including pensions credit £14.5m (2005: £8.6m)
•Underlying earnings per share (excluding pensions credit) up 27% to
18.8p (2005: 14.8p)
•Proposed final dividend raised to 6.7p, totalling 9.4p for the year
(2005: 9.0p)
•Order book increased 4% to £72.2m (2005: £69.7m), pipeline of prospects
remains strong driven by technology and geographical investments
•Profits up from a broader geographical, sector and client base with
strong results from UK and Strategic Consulting
•Ricardo Germany small operating profit in last 5 months
•Pensions deficit reduced by £11m
Commenting on the results, Dave Shemmans, Chief Executive said:
'I am very pleased with this set of results that again show stronger revenues
and growth in profits. Strategic Consulting had a strong year, and the UK
business delivered good results with increasing margins, not forgetting a new
world diesel powered land speed record. The engineering led recovery in Germany
is underway with a pleasing response from the increasing German customer base.
Overall we have had a satisfactory start to the new year, despite activity being
lower than last year for the US and, as expected, in Strategic Consulting. The
UK and Germany are ahead of prior year and the Group's order prospects in total
continue to build. This together with our strategy of increasing the geographic,
sector and customer spread, gives us confidence for further progress in the new
financial year.'
Further enquiries:
Ricardo plc
Dave Shemmans, CEO Tel: 01273 455611
Andrew Goodburn, Finance Director Tel: 01273 455611
Website: www.ricardo.com
Gavin Anderson & Company
Fergus Wylie/Daniel Hunter Tel: 020 7554 1400
Notes to Editors:
Ricardo is a leading global provider of technology, engineering solutions and
strategic consulting to the world's automotive industries. It is headquartered
in the UK, with international offices in the US, Europe and Asia. It is listed
on the London Stock Exchange ('RCDO.L').
The Group combines business, product and process strategy with fundamental
technical research and the implementation of large-scale new product development
programmes to help its clients with business strategy and restructuring, process
re-engineering, vehicle, electronics & software, engine, transmission and
driveline design, as well as more traditional engineering, testing and systems
integration.
Ricardo serves a wide and balanced customer base represented by the leading
global automakers, vehicle component and system manufacturers, and automotive
regulatory agencies. It also serves other sectors such as motorcycle, heavy-duty
truck, off-road and military vehicles, marine and locomotive propulsion system
manufacturers, as well as leading teams in all forms of motorsport.
Review of the Year
Overall, our profit improvement continues and we are seeing the benefits of our
re-focused strategy to broaden the geographic reach and client base, which has
helped us to deliver a significant profit increase despite poor market
conditions in Germany. Asian clients are contributing strongly, and the
commercial vehicle and military sectors are bringing an improving balance to
Ricardo's business.
Annual Results and Dividend
This is the first set of annual results presented under International Financial
Reporting Standards.
Underlying group profit before tax (which excludes an exceptional pensions
credit of £3.7m) was up 26% to £10.8m (2005: £8.6m) on revenue for the financial
year of £173m (2005: £158m). Earnings per share excluding the pensions credit
was up 27% to 18.8p (2005: 14.8p). There was a cash generation in the year of
£5m and net borrowings reduced to £5.8m, representing a gearing of 12% (2005:
30%).
Despite the continued challenges facing some of the major global car
manufacturers, the Group order book increased year on year to £72.2m from £69.7m
last year, with a strong pipeline of prospects.
Under IAS19, the deficit in our defined benefit pension scheme reduced from
£34.7m to £23.6m due mainly to a better than anticipated return from the equity
investments in the fund, a slightly improved bond yield in the past twelve
months and the effect of capping pensionable salaries to inflation. The effect
of the capping reduced the deficit by £3.7m, which under IAS19 is reflected in
the income statement as a pensions credit rather than through reserves.
We continue to benefit from research and development government tax incentives
in both the UK and North America, which has resulted in a low tax rate since
April 2002. Whilst we expect these tax incentives to continue, an increasing
proportion of the work we undertake in the UK is for new customers, particularly
in China and India where payments are often subject to withholding taxes, so our
overall tax rate may increase a little.
This year, as we have started to rebuild profitability, we are proposing to
increase the total dividend to 9.4p per share, the first increase for three
years. This gives a dividend cover of two times. The proposed final dividend of
6.7p will be paid on 24 November 2006 to all shareholders on the register at
close of business on 27 October 2006.
Business Overview
With the exception of Germany all areas of the business have shown improved
results with the operating profits in the UK and Strategic Consulting up 55% and
44% respectively. Germany, underpinned by investments in people and facilities,
and with an increased customer base, has returned to a small operating profit
for the last 5 months of the financial year. It is also generating business for
other divisions. The US continued to grow, up 10% on prior year operating
profits, on the back of client diversification.
Our business focus and investments remain targeted at increasing the strength
and robustness of our client base and the delivery of higher value-added
services based on technology and innovation. Control and electronics is
operating at full capacity as we see continued demand in hybrid programmes and
vehicle electronics. Our diesel programmes also continue to grow reflecting the
global demand for fuel economy and emissions control. Our investments into dual
clutch transmissions technology are also being actively exploited with
increasing revenue streams.
The team in Prague has now grown to over 100 as we continue to invest in this
development centre. This expansion has been across the board in our mechanical,
electronic and software capabilities. Prague is proving increasingly successful
as it matures in providing all divisions across the group with a high quality
cost effective engineering resource.
Technical Consulting
Our technical consulting business has well-equipped centres in the UK, North
America, Germany and the Czech Republic, and satellite offices in Japan and
China. With this diversity we are able to draw together the best team available
to service our client needs.
UK
We have significantly increased turnover and profits against the prior year with
a solid balance of engine, transmissions, vehicle and electronics activity from
a diverse customer base in terms of both geography and sector.
Continuing emissions legislation and a growing market share for diesel in both
the passenger car and commercial vehicle sectors is resulting in increasing
demand for technology that has benefited our engines business. Meanwhile, demand
for our gasoline engine activity is being driven by many of our Asian clients,
as they look to establish their own products for both domestic and export
markets.
Over the year we have been involved in some high profile supercar programmes as
well as in the commercial, passenger car and motorsport sectors. This has
resulted in growing demand for engineering expertise that has seen our
transmissions business return to good levels of activity. Following our research
into dual clutch technology and safety-related torque vectoring, we have
received orders from European and Asian clients which are both OEM and Tier 1 in
nature.
The vehicle business has had a much improved period with a good spread of
customers from Europe and Asia, driven by continued activity on established
programmes supporting new passenger car product introductions plus increasing
activity from the commercial vehicle sector driven by emissions legislation,
fuel economy improvement and a drive to reduce product cost. The military
business has had a particularly strong year and continues to grow, driven by
world events and the expansion of the EU.
The significant interest in hybrid technology, both at the research level and
production implementation stage has continued the growth of our controls and
electronics business. We continue to run at high levels of capacity and will
invest accordingly to maintain our position in this key strategic technology,
which we continue to believe will be key to the future of automotive
engineering.
The programme with Shanghai Automotive Industry Corporation ('SAIC') continues
to progress well with new product development being conducted both within
Ricardo 2010 and other parts of Ricardo UK. The relationship continues to
develop and SAIC both through Ricardo 2010 and directly has become a well
established customer for Ricardo. We anticipate that SAIC will exercise its
option to acquire Ricardo 2010 in the coming year (refer to note 3), however we
do not anticipate that the exercise of this option will have any material impact
on our results for the new financial year.
We were also delighted that our technology and people were key to breaking the
world diesel land speed record with JCB by over 100mph, achieving 350mph this
summer. We have not only demonstrated that we have the world's fastest diesel
technology but have also demonstrated this year one of the world's most
efficient powertrains by way of our 76mpg diesel-hybrid vehicle in conjunction
with PSA.
USA
Our strategy to broaden our client base in the passenger car, commercial vehicle
and military sectors in the US has continued to be successful. Our US business
has delivered increased turnover and profits during a difficult period for the
US automotive industry. We continue to work with all the major passenger car
OEMs, though the market remains highly competitive. Our commercial vehicles
business is performing well, benefiting from a healthy client base and on-going
demand in the marketplace. As manufacturers strive to meet the deadline of the
2007 and 2010 emissions legislation, we continue to see high demand for our new
heavy-duty test bed centre in Chicago. At the same time the North American
market is catching up with the global marketplace and we are seeing increasing
activity in electronics, hybrid, diesel and transmissions which has also led to
good demand of our Detroit based test beds.
We have restructured the development and marketing of our global software
products to report into the US and we are pleased to see the lead product, WAVE,
performing strongly in the market. We have also introduced two new design and
analysis products, FEARCE and SABR, and software sales overall are contributing
well.
Germany
The German automotive industry saw little improvement throughout the year,
however despite the market, the actions we have taken have started to show
results. While we report a small loss for the period this occurred in the first
seven months of the year (excluding £0.2m in respect of a senior management
termination at the end of the financial year). The engineering side of the
business, which has until recently been of a lower value-added nature than the
rest of Ricardo's business and targeted at fewer customers, has made significant
progress in the second half on the back of people and facility based
investments. It has returned to an operating profit for the last 5 months, is
helping develop new German based clients and is starting to win larger high
value-added programmes which not only benefit the German business but also
include pass through work to other divisions.
Our investment in people, tools and facilities such as heavy-duty test cells
continues to increase the level of high value-added capability. By adopting a
more client-focused organisation in line with the rest of the Group and by
adding a much stronger cross-selling team philosophy, we have enhanced the
leadership of the business through structural changes. We are already seeing the
initial results of these investments in terms of test-bed commitment and
increased orders from a broader client base including the commercial vehicle and
other automotive sectors. Whilst we anticipate our German business returning to
profit in the new financial year we remain cautious of the outlook until the
German industry returns to more buoyant levels.
Asia
We continue to expand our capability and staff in this important region.
Following the opening of our office in Shanghai earlier in the year, in the
second half we decided to develop our presence by establishing a modest
Technical Centre, with the encouragement of our growing customer base. Together
with our presence in Japan these offices are the front line to our Asian client
base, which is becoming increasingly important, delivering 21% of our order
intake this year. At the moment the work secured in the Asian regions (including
Japan, China, India, Korea and Malaysia) is primarily fed back to the UK
operations. However, we believe that as our Asian customers increasingly have
global operations, this will positively impact our US, Czech and German
operations in the future.
Strategic Consulting
Our Strategic Consulting operation had a strong year delivering key programmes
for high quality clients globally. It increased turnover and profits from an
expanded client base. Our work has now evolved significantly from Ricardo's
historic automotive practices in terms of the nature of the programmes. We
continue to secure work against more traditional consultancy market leaders,
displacing many incumbent positions.
Automotive-specific, deep-content management consultancy continues to be well
received by clients and contributes well to the group results. Product cost down
and quality improvement remain the core activities by volume. Business
restructuring and turnaround advisory services are also in demand together with
an increasing market for product and technology strategy through to market
introduction strategies. We continue to develop the service offerings in the
business to ensure we remain at the centre of thought leadership in the
industry.
Geographically our highly mobile teams are now operating on a global basis with
customers in the US, Europe and Asia. Moreover, the consulting business has
passed through significant levels of technical consulting business in the year
to the rest of the Group as the customers move from strategy to product
development.
Research and Development
Research and development remains a core element to the continued success of our
business. Our past investment in R&D has enabled us to identify technologies for
hybrids, low emission diesels, next generation transmissions and active safety
as key future directions.
During the year our internally funded research and development spend at prime
cost increased by 15% from £3.9m to £4.5m. We will continue to invest in our
intellectual capital as we look to maintain our innovative edge to solve the
automotive industry's key issues, as well as forecast future products and
technologies and industry trends that will enable us to successfully guide our
clients through an increasingly complex and important legislative environment.
At the same time, we have also increased our R&D output by focusing on
leveraging matching R&D funds from clients and government bodies. Areas that we
are concentrating on include next generation diesel technology for commercial
vehicles and passenger cars, future hybrid vehicle technology, fuel efficient
and high performance downsized gasoline engines exploiting 2stroke/4stroke
switching concepts, drive-by-wire for active safety and advanced torque
vectoring transmissions for improved safety and handling. We are also looking at
software systems that are designed to reduce product development time and cost,
while at the same time improving quality.
Strategy
To exploit the opportunities provided by the changing automotive landscape,
Ricardo has put in place a new strategy and direction to firmly establish itself
as the premium global deep content automotive consultancy. Ricardo will
continually review and enhance this strategy together with its technology and
product offerings to retain its position as a natural first choice at the heart
of the sector
It is clear that the global industry faces many challenges, from the strategic
to the specific, from the system to the component, from process to the product
and from the global to the national. Ricardo is positioned to apply its
intellectual capital to these issues and provide profit enhancing solutions to
the global industry. Its mission is to add value through innovation and
technology, with professionalism in all it does.
Uniquely positioned with offerings from blue-chip management consultancy,
strategic consulting, advanced research, model year product development and post
production support, Ricardo can apply itself to solving the most challenging
global strategic and delivery issues, whether at the component/system level (eg.
engine, transmission, driveline, electronics, chassis) or at the whole vehicle
level. Ricardo prides itself on flexibility, innovation, technical excellence
and fast track assured delivery.
The strategy of the business is underpinned by four cornerstones which reflect
the changing and challenging nature of the automotive industry:
• Avoidance of cyclicality and dependency in geography, technology and
customer
• Focused high quality growth
• High value services
• High productivity and value through global operation
People
There have been a number of management changes implemented during the period to
strengthen the operations in Germany, Japan and the UK, to bolster programme
delivery and to move towards a more co-ordinated Group operation where we can
maximise the resources across the Group, improve quality and avoid duplication.
These changes have brought on the best of the internal talent and also attracted
external expertise where necessary. The management team has been strengthened
with the external recruitment of a president for our Japanese operation, Akio
Okomura and a new business development director for the UK, Raul Meyer. Both of
these roles have been filled with experienced automotive industry people who
have spent a major part of their career with blue-chip management consultants.
In addition we have strengthened the technical leadership with the recruitment
of a new head of vehicle engineering, Don Irvine, and a new head of heavy-duty
engines, Peter Heuser. Post the year end, a new US based head of our control and
electronics business ('C&E'), Karina Morley, has been appointed, which will
increase our penetration of the US C&E market and build the business globally.
We look forward to their contribution and impact in the market place. Despite
the skills shortage in some areas we have managed to increase total staff
numbers in the year with high quality staff, mostly into Prague and the Ricardo
Midlands Technical Centre in the UK.
I am pleased to report that Paula Bell has been appointed to join the board of
directors on 9 October 2006 and take over from Andrew Goodburn as Group Finance
Director with effect from the Annual General Meeting on 10 November 2006, before
he retires in January 2007. I would like to thank Andrew for his excellent
service to Ricardo in a vital role, and wish him a long and happy retirement.
Outlook
This year finished slightly ahead of market expectations, albeit against a more
challenging European market than anticipated. The outlook for the global
automotive market remains mixed, with continuing strong activity in Asia offset
by a subdued Europe and the well publicised problems of the US car industry.
Overall we have had a satisfactory start to the new year, despite activity being
lower than last year for the US and, as expected, in Strategic Consulting. The
UK and Germany are ahead of prior year and the Group's order prospects in total
continue to build. This together with our strategy of increasing the geographic,
sector and customer spread, gives us confidence for further progress in the new
financial year.
D Shemmans
Consolidated Income Statement
for the year ended 30 June 2006
Notes 2006 2005
Continuing operations
Revenue 2 173.1 158.1
--------------------------------------------------------------------------------
Operating profit 2 15.8 10.4
--------------------------------------------------------------------------------
Operating profit excluding pensions credit 12.1 10.4
(underlying)
Pensions credit 3.7 -
-------------------------------------------------------------------------------
Finance income 1.4 0.8
Finance costs (2.7) (2.6)
--------------------------------------------------------------------------------
Profit before taxation 14.5 8.6
--------------------------------------------------------------------------------
Profit before tax excluding pensions credit 10.8 8.6
(underlying)
Pensions credit 3.7 -
-------------------------------------------------------------------------------
Taxation (2.3) (1.1)
--------------------------------------------------------------------------------
Profit for the year 12.2 7.5
--------------------------------------------------------------------------------
Profit for the year excluding pensions 9.6 7.5
credit (underlying)
Pensions credit 2.6 -
--------------------------------------------------------------------------------
Profit attributable to minority interest 0.1 0.1
Profit attributable to equity shareholders 12.1 7.4
--------------------------------------------------------------------------------
Earnings per ordinary share 4
Basic 24.0p 14.8p
Diluted 3.9p 14.8p
--------------------------------------------------------------------------------
Consolidated Statement of Recognised Income and Expense
for the year ended 30 June 2006
2006 2005
£m £m
------------------------------------------------------
Currency translation differences on net investment in
foreign operations (0.2) 0.2
Actuarial gains/(losses) on the
defined benefit pension scheme 6.7 (7.9)
Tax on actuarial gains/(losses) on the
defined benefit pension scheme (2.0) 2.3
--------------------------------------------------------------------------------
Net income and expense recognised
directly in equity 4.5 (5.4)
Profit for the financial year 12.2 7.5
--------------------------------------------------------------------------------
Total recognised income for the year 16.7 2.1
--------------------------------------------------------------------------------
Attributable to minority interest 0.1 0.1
Attributable to equity shareholders of the parent 16.6 2.0
--------------------------------------------------------------------------------
Consolidated Balance Sheet
as at 30 June 2006
Notes 2006 2005
£m £m
-----------------------------------------------------------------
Assets
Non current assets
Goodwill 15.9 15.6
Other intangible assets 1.5 1.0
Property, plant and equipment 45.2 46.7
Deferred tax assets 8.7 8.0
--------------------------------------------------------------------------------
71.3 71.3
--------------------------------------------------------------------------------
Current assets
Inventories 7.0 6.9
Trade and other receivables 47.3 43.1
Current taxation 0.2 1.6
Deferred tax assets 0.6 4.5
Cash and cash equivalents 49.8 28.8
Assets classified as held for sale 3 7.5 2.0
--------------------------------------------------------------------------------
112.4 86.9
--------------------------------------------------------------------------------
Total assets 183.7 158.2
--------------------------------------------------------------------------------
Liabilities
Current liabilities
Bank loans and overdrafts (45.0) (21.5)
Trade and other payables (38.9) (35.4)
Current tax liabilities (2.5) (4.9)
Deferred tax liabilities (0.6) (0.7)
Provisions (0.5) (0.4)
Liabilities directly associated with
non-current assets
classified as held for sale 3 (7.5) (2.0)
--------------------------------------------------------------------------------
(95.0) (64.9)
--------------------------------------------------------------------------------
Net current assets 17.4 22.0
--------------------------------------------------------------------------------
Non current liabilities
Bank loans (10.6) (18.5)
Retirement benefit obligations (23.6) (34.7)
Deferred tax liabilities (4.4) (3.4)
--------------------------------------------------------------------------------
(38.6) (56.6)
--------------------------------------------------------------------------------
Total liabilities (133.6) (121.5)
--------------------------------------------------------------------------------
Net assets 50.1 36.7
--------------------------------------------------------------------------------
Shareholders' equity
Ordinary shares 12.7 12.5
Share premium 13.3 12.2
Other reserves 0.6 1.2
Retained earnings 22.9 10.3
--------------------------------------------------------------------------------
Total shareholders' equity 49.5 36.2
Minority interest in equity 0.6 0.5
--------------------------------------------------------------------------------
Total equity 50.1 36.7
--------------------------------------------------------------------------------
Consolidated Cash Flow Statement
for the year ended 30 June 2006
Notes 2006 2005
£m £m
-----------------------------------------------------------------
Cash flows from operating activities
Cash generated from operations 5 20.0 11.2
Interest received 1.4 0.8
Interest paid (2.7) (2.6)
Tax (paid)/refunded (1.4) 0.3
--------------------------------------------------------------------------------
Net cash from operating activities 17.3 9.7
--------------------------------------------------------------------------------
Cash flows from investing activities
Proceeds of sale of property, plant and equipment 0.3 0.2
Purchase of intangible assets (1.1) (0.9)
Purchase of property, plant and equipment (7.3) (5.4)
--------------------------------------------------------------------------------
Net cash used in investing activities (8.1) (6.1)
--------------------------------------------------------------------------------
Cash flows from financing activities
Net proceeds from issue of ordinary share capital 1.3 0.2
Net proceeds from issue of new bank loan - 15.5
Repayment of borrowings (0.5) (17.2)
Dividends paid to shareholders (4.6) (4.6)
Dividends paid to minority interests - (0.1)
--------------------------------------------------------------------------------
Net cash used in financing activities (3.8) (6.2)
--------------------------------------------------------------------------------
Effects of exchange rate changes (0.5) (0.2)
--------------------------------------------------------------------------------
Net increase / (decrease) in cash and cash equivalents 4.9 (2.8)
Cash and cash equivalents at 1 July 7.8 10.6
--------------------------------------------------------------------------------
Cash and cash equivalents at 30 June 12.7 7.8
--------------------------------------------------------------------------------
At 1 July
Cash and cash equivalents 28.8 25.5
Bank overdrafts (21.0) (14.9)
--------------------------------------------------------------------------------
7.8 10.6
--------------------------------------------------------------------------------
At 30 June
Cash and cash equivalents 49.8 28.8
Bank overdrafts (37.1) (21.0)
--------------------------------------------------------------------------------
12.7 7.8
--------------------------------------------------------------------------------
Notes
1. Basis of preparation
This preliminary announcement has been prepared on the basis of the accounting
policies as set out in the financial statements for the year ended 30 June 2006,
which have been prepared for the first time in accordance with International
Financial Reporting Standards ('IFRS'). The financial information herein does
not amount to full statutory accounts within the meaning of section 240 of the
Companies Act 1985 (as amended). The figures for the year to 30 June 2005 have
been extracted from the unaudited IFRS restatements issued on 21 December 2005,
subject to certain minor adjustments and reclassifications, which were
themselves based on the Annual Report and Accounts 2005 which has been filed
with the Registrar of Companies and on which the auditors gave an unqualified
audit report and did not include a statement under section 237(2) or (3) of the
Companies Act 1985. In our press release of 21 December 2005 we disclosed the
impact of IFRS on our accounting policies.
Underlying results such as underlying operating profit, profit before tax,
profit for the year and earnings per share exclude the impact of exceptional one
off profits and losses such as those arising from pension curtailments,
exceptional levels of redundancies and impairments.
2. Segmental reporting
Business Segments
Continuing operations -
revenue and results Technical Consulting Strategic Consulting Total
2006 2005 2006 2005 2006 2005
£m £m £m £m £m £m
-------------------------------------------------------------------------------------------------
Revenue earned 159.2 149.2 13.9 8.9 173.1 158.1
Adjustment for
inter-segmental revenue (3.8) (2.5) 3.8 2.5 - -
-------------------------------------------------------------------------------------------------
Revenue from third parties 155.4 146.7 17.7 11.4 173.1 158.1
-------------------------------------------------------------------------------------------------
Segment result (before
pensions credit) 9.5 8.6 2.6 1.8 12.1 10.4
Pensions credit 3.7 -
-------------------------------------------------------------------------------------------------
Operating profit 15.8 10.4
Finance income 1.4 0.8
Finance costs (2.7) (2.6)
-----------------
Profit before tax 14.5 8.6
Tax (2.3) (1.1)
-----------------
Profit for the year 12.2 7.5
-----------------
Divisional results
By operating unit reflecting the revenue and profit generated by the staff in
those businesses:
Revenue earned Operating profit
2006 2005 2006 2005
£m £m £m £m
--------------------------------------------
Technical Consulting
UK 98.6 85.2 8.5 5.5
North America 35.4 34.1 2.2 2.0
Germany 24.1 29.7 (0.5) 1.6
Rest of the world 1.1 0.2 (0.7) 0.5
--------------------------------------------------------------------------------
159.2 149.2 9.5 8.6
Strategic Consulting 13.9 8.9 2.6 1.8
--------------------------------------------------------------------------------
173.1 158.1 12.1 10.4
--------------------------------------------------------------------------------
3. Ricardo 2010 (Consultants) Limited
In May 2005, Ricardo signed an agreement with Shanghai Automotive Industry
Corporation ('SAIC') to set up a UK research and development centre for them at
our Leamington premises. A new wholly owned subsidiary named Ricardo 2010
(Consultants) Limited ('2010') recruited a team of approximately 150 engineers
(mainly ex-Rover). Ricardo derives its income from this contract by charging
2010 fees for managing and administering the R&D centre plus a service charge
for the facility provided. 2010 is also a customer for normal Ricardo services.
Under the terms of the agreement, SAIC has an option to acquire 2010 for £1 and
can give three months notice to exercise this option from 1 July 2006. As we
fully expect this option to be exercised within our new financial year ended 30
June 2007, we have treated 2010 as an asset held for sale within the financial
statements for the year ended 30 June 2006. SAIC have indicated to us that after
exercising their option they intend to remain at our Leamington premises for the
foreseeable future and Ricardo will continue to provide administrative services.
We also undertake significant engineering projects for SAIC in the core
business.
4. 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 in the ESOP and those held by the LTIP
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. The group has one class 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. Where it is not possible
to determine whether or not the performance criteria for the award to vest have
been met until the end of the performance period, the shares are excluded from
the calculation.
Reconciliations of the earnings and the weighted average number of shares used
in the calculations are set out below.
2006 2005
Continuing Operations Number* of Per Share Number* of Per Share
Earnings shares amount Earnings shares amount
£m millions pence £m millions pence
--------------------------------------------------------------------------------
Basic EPS
Profit attributable
to ordinary
shareholders 12.1 50.4 24.0 7.4 49.9 14.8
Effect of dilutive
securities:
Options 0.1 0.1
--------------------------------------------------------------------------------
Diluted EPS 12.1 50.5 23.9 7.4 50.0 14.8
--------------------------------------------------------------------------------
* weighted average
The above earnings per share is significantly affected by a pensions credit of
£3.7m (£2.6m net of tax) being included in earnings. The table below therefore
shows underlying basic and diluted earnings per share excluding this impact.
Continuing 2006 Per 2005 Per
Operations Underlying Number* of share Underlying number* of share
Earnings Shares amount Earnings shares amount
£m millions pence £m millions pence
------------------------------------------------------------------------------
Basic underlying EPS
Profit attributable
to ordinary shareholders
excluding pensions
credit 9.5 50.4 18.8 7.4 49.9 14.8
Effect of
dilutive
securities:
Options 0.1 0.1
--------------------------------------------------------------------------------
Diluted underlying
EPS 9.5 50.5 18.8 7.4 50.0 14.8
--------------------------------------------------------------------------------
* weighted average
5. Cash flow from operating activities
2006 2005
£m £m
---------------------------------------------------------
Continuing operations
Profit from operations before pensions credit 12.1 10.4
Adjustments for:
Share based payments 0.3 0.1
Depreciation and amortisation 9.0 9.3
-------------------------------------------------------------------------------
Operating cash flows before movements in working capital 21.4 19.8
(Increase)/decrease in inventory - (0.6)
(Increase)/decrease in trade and other receivables (4.3) (10.5)
Increase/(decrease) in payables 3.5 2.9
Increase/(decrease) in provisions 0.1 0.1
Pension payments in excess of pension costs (0.7) (0.5)
-------------------------------------------------------------------------------
Cash generated by operations 20.0 11.2
-------------------------------------------------------------------------------
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