Final Results

RNS Number : 1421E

Ricardo PLC

24 September 2008

 



Ricardo plc

Preliminary results for the full year ended 30 June 2008

Ricardo plc is a market leading engineering, management and automotive consultancy, employing over 1700 people worldwide. The company has centres in the UK, USA, Germany, Czech Republic, India, Japan and China and a global client list including the world's major automotive OEMs, Tier 1 suppliers to OEMs, energy companies and governments.

Highlights

• Revenue up 15% to £197.7m (June 2007: £171.5m)

• Profit before tax up 20% to £14.7m (June 2007: £12.2m)

• Order book £99m (June 2007: £92m)

• Net debt reduced to £0.3m (June 2007: £7.2m)

• Basic earnings per share of 24.2p (June 2007: 29.6p, or 19.3p excluding the £5.2m of retrospective R&D tax credits)

• Full year dividend increased by 6% to 10.6p (June 2007: 10.0p)

• Improved performance driven by the right mix of people, products, services and geographic coverage gives confidence for the future

Commenting on the results, Dave Shemmans, Chief Executive said:

'Ricardo's strategy to increase geographic, customer and sector diversification has again delivered improved financial performance and a strong order book. The balance sheet has further strengthened through strong working capital management. This is against a backdrop of increased investment in facilities, technological research and development and expansion into overseas regions, together with an increased dividend to shareholders. With a high quality management team the Group is now well positioned to exploit the global marketplace. It has key technologies to address the increasing demands for CO2 reduction and fuel economy improvement in a variety of markets from passenger car, military, motorsport and off highway to new power generation sectors.

In the year we have made major improvements to our US business, delivering a good turnaround under new leadership, and secured high levels of business from the important German market, where we are establishing a good reputation for technology and delivery. We have continued expansion into the key Asian markets of Japan, China, India and Korea, which has improved utilisation of our supporting UK operations. Additionally this year we have entered the Russian market and gained a good foothold in this developing automotive marketplace. We are also undertaking a small restructuring plan at our exhaust business to improve profitability, which will be largely complete in the first quarter of the new financial year. Our Strategic Consulting business has had a good year of profitable growth.

The new financial year has started well, benefitting from the strong order book and a continued good order intake. We continue to press ahead with our strategy to increase geographic, customer and sector spread, exploiting our research-led innovation and engineering. Despite volatile global economic conditions, our strategy and the good start to the new financial year give us confidence for the future.'

Further enquiries:

Ricardo plc
Dave Shemmans, Chief Executive	Tel:	01273 455611
Geoff Bicknell, Interim Group Finance Director
Website: www.ricardo.com
Gavin Anderson & Company	Tel:	020 7554 1400
Fergus Wylie
Robert Speed

  Review of the year

Trading performance summary

Our strategy to diversify is again demonstrating resilience and delivering overall progress evidenced by revenue growth of 15% to £197.7m (2007: £171.5m) and 20% growth in profit before tax to £14.7m (2007: £12.2m). The order book remains strong at £99m (2007: £92m) and focused cash management has resulted in a reduction of working capital despite a busy period of business growth. Both Technical and Strategic Consulting divisions have delivered business and profit growth in the year.

Technical Consulting trading

Asia has continued to be a strong market in the year, with record order intake levels. UK revenue and profit have grown as a result of this additional work for Asia, together with increased work for Germany and Russia. We are using our UK and Prague facilities to serve customers in other markets where local resources do not currently exist.

The US has also delivered a very pleasing result. New leadership led both to a restructuring of the internal cost base and to a refreshed business development focus. Despite incurring change costs of £0.6m, both revenue and profit growth were delivered in the year. The order book has been increased and a strong platform to exploit new market opportunities in the US has been created, providing some mitigation against the volatile economic environment. 

Our German technical consulting business continues to grow strongly and profitably in this important market. The exhaust business within our German operation suffered from the conclusion of a major series production programme and is being restructured to improve profitability.

Strategic Consulting trading

This division has continued to grow its market offering and client base, and has built up a consulting resource to meet increasing demands for its services. We have secured work from new clients and in particular we have developed our business in Asia and opened a new office in Munich, Germany. This has resulted in increased revenue and operating profit and a strong business platform to maximise future prospects.

Tax

In the previous financial year to 30 June 2007 we reported £5.2m of retrospective R&D tax credits, which had a significant impact on our tax charge and resulted in a tax credit to the income statement. The tax charge for this financial year returned to the more usual level for Ricardo. We continue to benefit from annual R&D tax credits resulting in a 16% effective tax rate and a £2.3m charge to the income statement.

Earnings per share

Earnings per share were 24.2p. Once the impact of the retrospective R&D tax credits enjoyed in 2006/07 is adjusted for, earnings per share growth continues, driven by increased profit before tax over a relatively consistent share volume. Last year's earnings per share of 29.6p would have been 19.3p if we had not benefitted from £5.2m of retrospective R&D tax credits included within the income statement. As communicated last year, we did not expect such material taxation benefits in the year to 30 June 2008.

  Dividend

We propose to increase the total dividend to 10.6p per ordinary share (2007: 10.0p) following a year of further earnings growth. This results in a 2.3 times dividend cover. The final proposed dividend of 7.5p (2007: 7.1p) will be paid on 26 November to all shareholders on the register at the close of business on 31 October 2008, subject to approval at the Annual General Meeting on 18 November 2008.

Net assets

Net assets at 30th June 2008 were £67.1m (2007: £61.7m). The increase driven by ordinary trading was offset by an increase in the pension deficit.

Capital expenditure in the year was £10.8m, which included £2.9m for the upgrade to some of the buildings at the Shoreham Technical Centre. The balance of the expenditure was to maintain our engineering capability and capacity. At the end of the year capital commitments were £0.8m.

Looking ahead, we plan to continue a significant level of investment over the next two years to support our business growth. This includes investment in a chassis dynamometer test facility in the US. In Germany we plan to increase the number of test beds to meet customer demand. At the same time we need to invest in business systems across the Group to move them to one common platform. This will facilitate management of multi-site programmes and global resource management, as the business expands its facilities across the globe. 

Working capital

In a busy growth period for the business we have demonstrably managed working capital effectively with a £6.8m reduction (2007: an increase of £3.9m) resulting in a strong balance sheet position. The net debt balance closed at £0.3m compared to £7.2m at 30 June 2007. 

Treasury

At the year end the Group had borrowing facilities of around £41m, which included two Euro loans totalling €17m (£13.5m at the year end rate) repayable over the next three years, which act as a hedge against the net euro investment in the German business.

As some of the work carried out in the UK for European customers is contracted in euros, we have an exposure to the euro, which we hedge as appropriate. Most of the work for our North American customers is undertaken by our US subsidiary. Our exposure to the dollar primarily relates to the translation of our dollar earnings, which we hedge, and the net investment in our US business.

Pensions

The deficit in our defined benefit scheme, as measured in accordance with IAS19 'Employee Benefits', increased from £16.7m to £19.9m, primarily as a result of a drop in the value of equity investments held by the scheme. We continue with our nine year plan, which commenced in 2006, to substantially eliminate the deficit by making additional cash payments. We are currently in the triennial valuation process, which must conclude by July 2009.

  Technical Consulting

UK

The UK business delivers to clients across the world, sharing its capacity with Ricardo's German and US operations, together with business secured from the Company's major markets of the UK, Europe, Russia and Asia. It has world-class competence in engines, hybrids, transmissions, vehicle engineering and electronics and has had a busy year with the growth in CO2-related demand and geographic expansion.

This year's growth has been delivered thanks to increased activity from a variety of sources - in particular the resurgence of our vehicle engineering business as it developed its defence activities, secured interesting work in its special vehicles arena and won sizeable business in India and Japan with major automotive manufacturers targeting new markets.

The engines business has experienced strong demand on both gasoline and diesel programmes for motorcycle, passenger car, commercial, construction and agricultural vehicles. The drivers for growth have been emissions legislation, increased and intensive global focus on CO2 reduction, and geographic expansion. The business is delivering sizeable state-of-the-art passenger car diesel programmes for Japanese and European clients to meet the most stringent US and European legislation, as well as gasoline engine programmes for European, Chinese, Malaysian and Japanese clients and heavy duty engine programmes for Russian, Indian and European clients. Many of the programmes are multi-year, providing good visibility for the future.

The demand for engine engineering talent is driven by three main factors: the need for additional support as new technology challenges are being faced on a global basis, the success and increasing product portfolio of many Japanese manufacturers, and the development of companies requiring increased technology in Russia, China and India.

The controls and electronics business has again been in demand and growing, with a high level of activity and requests for quotation in the areas of hybrids, emissions control and intelligent vehicles. The controls and electronics business not only serves its own direct customers but also supports the other businesses of engines, transmissions and vehicles as their developments are increasingly centred around electronic innovation. During the year a deal was signed with Delta Electronics to provide a route to manufacture for the electronics designs generated by the business. This relationship is working well and gaining interest, supporting for example one high-profile hybrid programme in China which is close to production launch. On the back of this prior development and world-class talent, our hybrid team is establishing Ricardo as the 'go to' place for independent hybrid support worldwide, including the development of new kinetic energy recovery systems for Formula One.

The transmissions engineering business experienced a less busy year as some contracts have ended and have not been immediately replaced. Marketing the division's innovations, particularly in the area of dual clutch technology and torque vectoring, continues. The breadth of programmes covers contracts or customers in the UK, mainland Europe, Asia and newly secured contracts from Russia, and the order book had increased by the end of the financial year. The range of activity covers the passenger car, motorcycle, commercial vehicle and agricultural sectors. The motorsport transmissions business has had a busy year both in terms of supply, new customer conquests and race wins. It has supplied several top tier race series and supported winners in the US, Europe and Japan in World Rally Championship, open-wheel series and sports cars. The business continues to provide Bugatti with transmissions and is running at high levels of utilisation.

US

The US business had a much improved year, with the managerial and leadership changes generating immediate results. The business is operating at a new heartbeat and has generated increased profits, increased margins and an increased diversity of customer base and sector. This has been achieved even with the absorption of change costs and increased marketing and recruitment efforts.

The cost base was realigned to the prevailing market conditions at the beginning of the year, which provided a good basis from which to move forward. Additional changes were made to the managerial team including internal development and new hires to bring an increased commercial focus to the business. A strategy of customer and sector diversification (along the lines of the Group strategy) was fully embraced. The resulting customer mix for the year is showing a healthy split, with a good list of new customers in the automotive, commercial vehicle, new energy and government sectors. The final part of the strategy was to raise the profile of the Ricardo brand in the US. This has been achieved through marketing campaigns, governmental involvement and targeted Congress participation as keynote speakers. The outcome is a position for the US business at the top table of the industry and government on the key strategic issue of fuel economy.

Energy security, climate change and the massively increased fuel price in North America have brought fuel economy to the centre stage in the US. These are the issues and realities which are now driving governmental, industry and product strategy. Consumers in the US are now also making their purchases with these issues in mind, creating a significant shift in the passenger car product mix.

This rapid change has left many traditional domestic manufacturers with ill-positioned product lines. Manufacturers - especially Asian - with smaller and more fuel-efficient model ranges have been making large market share gains. These changes have created an enormous dynamic in the US as the government pushes through tough fuel economy legislation and manufacturers urgently look to adopt new technologies and change their product balance. This shift has created a significant demand for engineering talent, particularly in the areas of diesel, electronics and hybrids, which Ricardo is well positioned to exploit.

The US business has been very busy, not surprisingly, in the areas of diesel (commercial vehicle and passenger car), hybrids (including plug-in hybrids) and electronics - but also securing strong business in the area of gasoline and transmissions. The US business has also delivered good programmes for Asian clients as they tap into specific expertise on V engines within the US business. We see these relationships as important for the future as, for example, the Chinese players look to the US as a market for export.

Defence and military expenditure in the US remains high as the nature of tactical vehicles and their specifications change. More agile, well protected and fuel-efficient vehicles are being developed and the business is supporting the various departments and forces to develop vehicles fit for future theatre.

The US business has also embraced the new energy sector, with good growth in this area, delivering and securing programmes on wind farms, solar arrays and fuel cell installations. All of this activity falls within our areas of core competence at the engineering level and demonstrates the potential to exploit our automotive heritage, brand, expertise and processes in new markets.

The software business managed from the US, which develops and commercialises leading-edge engineering software for the auto industry, has sustained its position of the prior year despite a reduction in its Formula One customer base as new regulations limit the opportunity for engine design changes. To deliver its growth agenda, a number of new products have been developed and launched during the year. These are being well received.

Germany

Our engineering consulting business in Germany has continued its development with an increasing rate of recruitment and with investment in management, facilities, marketing and brand-building. We have secured good levels of repeat business and new business wins from premium German clients, and in line with the 'One Firm' strategy, the German division is working jointly with the UK division on several of these projects. Indeed, the combination of a tangible German business presence coupled with deep experience in the UK is providing a compelling offering. The investments in the business have provided an effective front end and the challenge now is to increase the critical mass of local engineering talent to ensure that we have a sustainable model which is based on an integrated network within the German automotive industry.

We are taking on talented individuals from established automotive companies who are looking to advance their careers in a more dynamic and diverse environment. We are also increasing the talent pipeline to keep up with the increasing demand. It is evident, however, that during a time of recruitment growth an unavoidable consequence is recruitment charges in the first year of employment of new starters, which inevitably depress the margin locally. As the balance between local demand and supply stabilises, more of the profit will in future be generated locally rather than being passed back to the UK.

The client base this year has included commercial, passenger car and motor cycle companies, including the main leading names from the automaker and Tier 1 sectors. Programmes include gasoline, diesel and transmissions and are often being delivered as part of joint programmes with the UK. The pipeline of opportunities continues to increase, with many multi-million euro opportunities emerging as our reputation for delivery and brand spreads more widely within Germany. The business is building its brand reputation through external technical paper presentations at leading congresses, the continued successful delivery of its own German heavy duty diesel congress (the only one in Germany, now well attended and established as a premium event) and increasing links and presentations to universities.

The exhaust manufacturing business experienced a difficult year as the core series production programme concluded and prototyping projects were unable to fully fill capacity. We are therefore taking the necessary cost reduction actions. Follow-on series production has recently been secured and the business is entering the design stage prior to achieving full production levels towards the end of 2008/09.

Asia

Revenue for our Asian customers, mostly carried out by the UK, has increased by 32% to £36.2m, which is 18% of total revenue, compared to 16% in the prior year.

Japan has been an excellent market for Ricardo this year, with the local operation securing over £20m of business, another record year. Moreover, the client base is increasing and we now have many multi-year turnkey programmes from several different customers covering diesel, gasoline and vehicle technology. Projects for electronics and transmissions are also very popular. This record year is again not just a testament to the reputation for delivery and the technology innovation of Ricardo, but also a reflection of the success of Japanese clients worldwide in capturing market share in new and existing regions, with such expansion stretching their internal development capacity. The adoption of outsourcing by Japanese clients, as anticipated by Ricardo, is underway and we continue to pay close attention to this as we deliver to some of the world's most demanding clients. Relocating our office closer to our clients has increased client interaction and Ricardo now has numerous engineers working on clients' sites delivering programmes. As before, a substantial portion of the work is carried out in the UK.

Ricardo China has undergone further transition this year, with the establishment of a local engineering function delivering to local and overseas clients. Recruitment has been successful, integration has been swift and deployment on programmes has been well received by clients. Our plans are to substantially increase the size of the engineering office. The business has taken on larger premises that will serve our anticipated needs for the next two years.

The local engineering team is delivering technically challenging programmes from a lower cost base and we see this operation supporting the Group's resourcing needs in a similar way to the Prague office - in addition to offering local engineering to the Chinese market. In terms of market development, the business has secured hybrid, transmission and gasoline work, with the first enquiries on diesel for passenger cars materialising. The bulk of the business is passed back to the UK, but wherever possible local content is included to develop the experience of the raw engineering talent available in China.

During the year, an office was established in India to take Ricardo closer to both the domestic market and, in particular, the domestic manufacturers with global aspirations. The ambition of the Indian industrialists has been clear this year with, for example, the acquisition by Tata Motors of Jaguar Land Rover. In addition, many of the global automakers are looking to India as a new market and we are supporting market entries by re-engineering product to meet the Indian requirements and assisting with the localisation of supply chains. India has a history of low-cost innovation, as exemplified by the emergence of a new market segment started by the 1-Lakh Tata Nano vehicle. Many other companies are looking to enter this ultra-low-cost car market and exploit the low-cost practices elsewhere.

Russia is a market worthy of note as the next planned geographic target for Ricardo. Progress in this region has already been swift, with the initial market evaluation and deployment of skeleton staff on the ground made early in the year. Significant business has already been secured this year from agricultural and commercial clients. The region looks attractive, with a good pipeline of opportunities building up. We will continue to review the market and if appropriate increase our on-the-ground presence as required.

Strategic Consulting

The year for Ricardo Strategic Consulting has been one of profitable growth across all areas of the business. Established and new entrants to the worldwide automotive industry are looking to develop strategies to grow profitably in the face of the challenge and cost of continually tightening legislation on CO2 emissions. New product offensives in all sectors of the industry continue as all manufacturers strive to increase market share by looking to satisfy increasingly demanding and sophisticated customers in both mature and maturing markets. A major stimulus to demand for our services comes from companies looking towards Asia for growth, as well as from Asian companies looking to invest their domestically generated cash in other growing markets. Against this backdrop the demand for our consulting services has substantially outstripped the growth in the overall management consulting market, and we have taken a number of important steps to satisfy meet this heightened demand.

We continue to invest in our people and our service offerings. We have developed our business in Asia to the next stage, recruiting an experienced leader and putting in place a team in our offices in Shanghai. In other parts of Asia, particularly in Korea and India, we have further increased our client base. In Germany we have opened a second office located in Munich and have increased the size of our German team. The North American and UK-based organisations have both further increased the size of their teams, adding new skills and new consultants. We have put in place a sustainable recruitment activity in all geographies; this is successfully adding to our ranks senior staff, experienced consultants and recently graduated MBA students from some of the best business schools in Europe and North America.

To help us continue to grow the business profitably we have put in place an Advisory Board for the Strategic Consulting business. This group includes experienced advisors who have until recently held senior positions in McKinsey and Co, Boston Consulting Group and Booz Allen Hamilton. The role of this group is to act as a sounding board for the Ricardo Strategic Consulting business and to guide the senior Strategic Consulting team through the next stages of its development. For all consultants we have put in place internal and external training and education programmes to reinforce the core values and skills of our particular brand of 'deep content consulting' as we grow. In addition, we have promoted a number of our existing team members who have grown with the organisation and demonstrated their abilities; this allows us to retain and reinforce our unique approach to consulting.

We continue to see high levels of repeat business from existing clients, with the increasing average project size over the last three years indicating high levels of customer satisfaction. We have extended our client base within vehicle manufacturers, major suppliers and investor groups, as our capacity to serve additional clients increases. In North America we have developed a more diversified portfolio of clients, many of whom are companies either investing in new products and markets and developing growth strategies outside of their traditional areas of activity or looking to profit from entry into new sectors being created by changes to technology.

These sectors include the areas of new energy stimulated by the need to diversify away from traditional energy sources and by the possibilities being opened up by new technologies. In Europe we are working in demanding and high-profile sectors such as Formula One. We are also working in partnership with major manufacturers developing their strategies to enhance penetration into the growing Asian markets for trucks and passenger cars, and with Asian investors considering major inward investments into the European market.

This year we have spread our activity into other associated transportation sectors where organisations have found our capability in market, technology, strategic and operational consulting an asset in addressing a number of strategically important challenges. Two examples are the railway vehicle sector where we are addressing strategic and operational needs, and the successful delivery of a number of phases of support to a significant client in the aerospace sector, where the client used our automotive skills in technology management and operational improvement to good effect.

As a result of our strategy of working with high quality clients on issues of strategic importance, the outlook for Strategic Consulting remains solid despite the uncertainties in many sectors of the market. We continue to take business from the long-established strategic consulting firms and, based upon the high levels of repeat business from many of the most prestigious companies in our industry, we are confident that our brand of consulting is aligned with the needs of many executives in the industries we serve.

Research and development

The increase in global energy demand and the associated rise in oil prices have been the key drivers in much of the Ricardo R&D portfolio. One outcome from the rise in fuel costs has been increased interest in alternatives to conventional fuel-efficiency technologies such as hybrid combustion/electric powertrains. Whilst Ricardo continues to attract much business with its well-planned research and development in hybrid technologies, the demand for more cost-effective alternatives has created real opportunities for innovation by Ricardo engineers.

A further key driver for research has been the related demands for improved safety, vehicle journey efficiency and maximised road utilisation to control congestion. Ricardo has been very active in creating technologies that can interact more intelligently with the driver and surrounding infrastructure and traffic, reducing travel times caused by congestion and also reducing the risk of collisions.

Most internally funded research at Ricardo now attracts collaborative support from automotive customers and frequently also involves additional government funding from either the United States, Europe or the UK. The combined R&D programme at Ricardo is organised into a portfolio of Technology Platforms. These platforms align with key product areas and allow a more integrated approach; they have delivered some excellent results during the past year:

• Our programme to develop an advanced light duty diesel vehicle that can cost-effectively achieve the very severe Tier 2 emissions requirements in the US has made some major breakthroughs this year. Our prototype vehicle has achieved the emissions targets, whilst maintaining or even improving fuel economy. This programme has been a key factor in the substantial growth of our light duty diesel business.

• Our switching 2-stroke to 4-stroke boosted gasoline engine also achieved a significant milestone in the year with successful experimental demonstration of seamless switching between modes. This concept enables very aggressive downsizing, allowing the use of a smaller engine with lower friction losses. Initial simulation has shown the potential for a 27 per cent reduction in fuel consumption compared with a conventional engine of the same power output. This programme has now progressed to the start of a collaborative vehicle demonstration programme, partly supported by the UK's Technology Strategy Board.

• We have successfully implemented a new and innovative low-energy clutch and gear change actuation system on a demonstrator vehicle. This technology offers major benefits compared with conventional electro-mechanical or hydraulic systems and is proving of great interest to our customers.

• We have also integrated a steer-by-wire system, along with our active torque-vectoring unit, in a premium demonstrator vehicle. The compact torque vectoring unit is capable of varying the torque from left to right rear wheels via electronic control, whilst the steer-by-wire system offers the potential to combine this with intelligent steering, delivering safer driving but with more sports-oriented handling characteristics. This programme has focused extensively on the issues surrounding safety-critical software and failure mode analysis, an area of increasing interest from our customers.

• The second year of the Roads2HyCom project has been completed. This project is a study of technological and socio-economic issues related to the commercialisation of fuel cells and hydrogen in the stationary and transport energy sectors. Ricardo is leading a partnership of 29 leading industrial and academic organisations in the field, with support from the European Commission's Framework Six programme. The project has now published a number of key reports, covering the landscape and state-of-the-art in fuel cell and hydrogen technologies, the nature of sustainable energy resources and infrastructures for distributing hydrogen, and the socio-economic characteristics of the growing number of community initiatives that are adopting these technologies with local government support. The project has played a key role in supporting the creation of the new Joint Technology Initiative in Fuel Cells and Hydrogen, launched by the European Commission this year.

People

The core strength of Ricardo is its people. It is they who develop the technology, seek out new markets, spot opportunities, spread and reinforce the brand, deliver customer excellence, provide a platform for the future and deliver value to shareholders and clients alike.

In a market where engineers and effective business leaders are short in supply, it is imperative that the Company continues to bring in the best and bring on the best by providing a stimulating environment, good career development and an attractive collaborative culture. Appropriate retention mechanisms and excellence in recruitment and branding are further attractions of the Ricardo working environment. We are also focused on continuing to develop the right culture and remuneration mechanisms to encourage an effective 'One Firm' culture where Group success is the key success.

Across the Group we have recruited additional senior talent on the technical and operational levels. The retirement of the previous Group HR Director brought the opportunity to recruit Sarah Murphy, who joined Ricardo from Microsoft in August 2007 as the new Group HR Director. We have attracted new recruits for our Strategic Consulting division in China as well as recruiting a growing engineering team there. In Germany the pace of recruitment has also increased this year following the recruitment of a dynamic and experienced HR director. 

In addition, under our new Group HR Director, we have created the specific function of Group Talent Management to ensure that, once attracted into Ricardo, top talent thrives in our corporate environment. Our recruitment activities now span many countries and regions within the US, Europe and Asia. Recruiting talent is a key activity in enabling us to respond to the demand being generated as a result of the success of our global and technology strategy.

Our business is all about talent.

Conclusion and outlook

Ricardo's strategy to increase geographic, customer and sector diversification has again delivered improved financial performance and a strong order book. The balance sheet has further strengthened through strong working capital management. This is against a backdrop of increased investment in facilities, technological research and development and expansion into overseas regions, together with an increased dividend to shareholders. With a high quality management team the Group is now well positioned to exploit the global marketplace. It has key technologies to address the increasing demands for CO2 reduction and fuel economy improvement in a variety of markets from passenger car, military, motorsport and off highway to new power generation sectors.

In the year we have made major improvements to our US business, delivering a good turnaround under new leadership, and secured high levels of business from the important German market, where we are establishing a good reputation for technology and delivery. We have continued expansion into the key Asian markets of Japan, China, India and Korea, which has improved utilisation of our supporting UK operations. Additionally this year we have entered the Russian market and gained a good foothold in this developing automotive marketplace. We are also undertaking a small restructuring plan at our exhaust business to improve profitability, which will be largely complete in the first quarter of the new financial year. 

The new financial year has started well, benefitting from the strong order book and a continued good order intake. We continue to press ahead with our strategy to increase geographic, customer and sector spread, exploiting our research-led innovation and engineering. Despite volatile global economic conditions, our strategy and the good start to the new financial year give us confidence for the future.

Dave Shemmans

Chief Executive

24 September 2008

Note: Certain statements in this report 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 report, 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.

  Consolidated income statement

for the year ended 30 June 2008

		2008	2007
Continuing operations	Notes	£m	£m
Revenue	2	197.7	171.5
Cost of sales		(128.5)	(114.0)
Gross profit		69.2	57.5
Administration expenses		(53.3)	(44.3)
Operating profit	2	15.9	13.2
Finance income		1.5	2.0
Finance costs		(2.7)	(3.0)
Profit before taxation		14.7	12.2
Taxation		(2.3)	2.9
Profit for the year		12.4	15.1
Profit attributable to minority interest		0.1	0.1
Profit attributable to equity shareholders		12.3	15.0
Earnings per share
Basic	3	24.2p	29.6p
Diluted	3	23.9p	29.5p

  Consolidated statement of recognised income and expense

for the year ended 30 June 2008

	2008	2007
	£m	£m
Currency translation differences on net investment in foreign operations	3.8	(1.5)
Fair value (loss)/gain on net investment hedge	(2.0)	0.4
Cash flow hedges: - net fair value losses   - recycled and reported in net profit	(1.5) 1.1	- -
Actuarial (loss)/gain on the defined benefit pension scheme	(5.7)	4.2
Tax on items recognised directly in equity	1.8	(1.7)
Net (expense)/income recognised directly in equity	(2.5)	1.4
Profit for the year	12.4	15.1
Total recognised income and expense for the year	9.9	16.5
Attributable to minority interest	0.1	0.1
Attributable to equity shareholders	9.8	16.4

  Consolidated balance sheet

as at 30 June 2008

		2008	2007
		£m	£m
Assets
Non current assets
Goodwill		17.9	15.6
Other intangible assets		2.1	1.9
Property, plant and equipment		48.0	44.5
Deferred tax assets		12.2	11.6
		80.2	73.6
Current assets
Inventories		9.1	7.5
Trade and other receivables		54.2	55.6
Current tax assets		1.1	0.5
Cash and cash equivalents		37.3	15.4
		101.7	79.0
Total assets		181.9	152.6
Liabilities
Current liabilities
Bank loans and overdrafts		(27.7)	(9.1)
Trade and other payables		(49.7)	(43.9)
Current tax liabilities		(2.9)	(2.1)
Provisions		(0.8)	(0.5)
		(81.1)	(55.6)
Net current assets		20.6	23.4
Non current liabilities
Bank loans		(9.9)	(13.5)
Retirement benefit obligations		(19.9)	(16.7)
Deferred tax liabilities		(3.9)	(5.1)
		(33.7)	(35.3)
Total liabilities		(114.8)	(90.9)
Net assets		67.1	61.7
Shareholders' equity
Share capital		12.9	12.7
Share premium		13.7	13.3
Other reserves		0.9	(0.5)
Retained earnings		39.2	35.7
Total shareholders' equity		66.7	61.2
Minority interest in equity		0.4	0.5
Total equity		67.1	61.7

  Consolidated cash flow statement

for the year ended 30 June 2008

	2008	2007
	£m	£m
Cash flows from operating activities
Cash generated by operations (note 4)	29.3	15.6
Interest received	1.6	2.0
Interest paid	(2.8)	(3.0)
Tax paid	(2.0)	(1.6)
Net cash generated by operating activities	26.1	13.0
Cash flows from investing activities
Proceeds of sale of property, plant and equipment	0.1	-
Purchases of intangible assets	(1.0)	(1.0)
Purchases of property, plant and equipment	(9.8)	(8.5)
Net cash used by investing activities	(10.7)	(9.5)
Cash flows from financing activities
Net proceeds from issue of ordinary share capital	0.5	-
Net proceeds from issue of new bank loan	1.1	3.9
Repayment of borrowings	(2.4)	(2.1)
Dividends paid to shareholders	(5.2)	(4.9)
Dividends paid to minority interests	(0.2)	(0.1)
Net cash used by financing activities	(6.2)	(3.2)
Effect of exchange rate changes	(0.5)	(0.3)
Net increase in cash and cash equivalents	8.7	-
Cash and cash equivalents at 1 July	12.7	12.7
Cash and cash equivalents at 30 June	21.4	12.7

  Notes to the financial statements

for the year ended 30 June 2008

1.             General information

Ricardo plc is a limited liability company incorporated in the UK with a primary listing on the London Stock Exchange. The company's registered office is at the Ricardo Shoreham Technical Centre, Shoreham-by-Sea, West Sussex, BN43 5FG, and its registered number is 222915.

This preliminary announcement is based on the audited Annual Report and Accounts 2008, which was approved for issue on 23 September 2008, and which has been prepared in accordance with International Financial Reporting Standards ('IFRS'), International Financial Reporting Interpretations Committee ('IFRIC') interpretations adopted by the European Union ('EU') and those parts of the Companies Act 1985 applicable to companies reporting under 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).

2.             Segmental reporting

a) By business segment, with revenue reflecting sales to external customers

	Technical Consulting		Strategic Consulting		Total
	2008	2007	2008	2007	2008	2007
	£m	£m	£m	£m	£m	£m
Revenue earned	185.3	163.6	12.4	7.9	197.7	171.5
Adjustment for inter-segmental revenue	(0.3)	(0.6)	0.3	0.6	-	-
Revenue from third parties	185.0	163.0	12.7	8.5	197.7	171.5
Operating profit	14.1	11.9	1.8	1.3	15.9	13.2
Finance income					1.5	2.0
Finance costs					(2.7)	(3.0)
Profit before tax					14.7	12.2
Tax					(2.3)	2.9
Profit for the year					12.4	15.1

b)     By division, reflecting the revenue generated by the staff in those businesses

	Revenue earned		Operating profit/(loss)
	2008	2007	2008	2007
	£m	£m	£m	£m
Technical Consulting
UK	116.0	102.0	12.3	9.8
US	39.4	37.4	2.3	1.2
Germany	29.9	24.2	(0.5)	0.9
	185.3	163.6	14.1	11.9
Strategic Consulting	12.4	7.9	1.8	1.3
	197.7	171.5	15.9	13.2

3.             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 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. These include potential awards of LTIP shares and options granted to employees where the exercise price is less than the market price of the Company's ordinary shares during the year.

Reconciliations of the earnings and the weighted average number of shares used in the calculations are set out below.

	2008	2007
	£m	£m
Earnings attributable to equity shareholders	12.3	15.0
	Number of shares	Number of shares
	millions	millions
Basic average number of shares in issue	50.9	50.7
Effect of dilutive potential shares	0.5	0.1
Diluted average number of shares in issue	51.4	50.8
	Per share amount	Per share amount
	pence	pence
Earnings per share Basic	24.2	29.6
Diluted	23.9	29.5

4.             Cash generated by operations

	2008	2007
	£m	£m
Profit from operations	15.9	13.2
Adjustments for:
Share-based payments	0.3	0.2
Depreciation and amortisation	8.8	8.8
Operating cash flows before movements in working capital	25.0	22.2
Increase in inventory	(1.1)	(0.5)
Decrease/(increase) in trade and other receivables	3.0	(9.3)
Increase in payables	4.6	5.9
Increase in provisions	0.3	-
Pension payments in excess of pension costs	(2.5)	(2.7)
Cash generated by operations	29.3	15.6

 

END

 

 

FR ILFVTARIVFIT