Interim Results

Ricardo PLC 23 February 2004 23 February 2004 Ricardo plc Interim Results for the six months ended 31 December 2003 Ricardo plc is the UK's leading independent automotive consultancy, employing over 1,700 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. • As anticipated, first half result reflects a tough trading environment in the automotive industry • Swift action has been taken to reduce cost base and reorganise UK business - delivering savings of £10m per annum • Balance sheet remains strong • Interim dividend of 2.7p (2002: 2.7p) • Improved order intake in the past two months with pipeline of prospects doubled since June 2003 • Well positioned for market upturn Commenting on the results, Rodney Westhead, Chief Executive said: 'We are encouraged by the improvement in order intake in the past two months and the improved prospects pipeline, although it is too early to be confident that this trend will continue. Short term trading will still take time to recover, however these improvements suggest a return to profits in the UK during 2004. Our international businesses remain profitable and with Ricardo's breadth of expertise in the key global automotive markets and reduced cost base, Ricardo is well placed to exploit opportunities as the market recovers.' 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 OVERVIEW Total turnover for the six months to 31st December 2003 was £76.9m (2002: £64.6m), with the increase due to acquisitions made in the past year. Operating profit before tax, goodwill and interest for the period was £0.1m (2002 profit: £6.8m) before charging exceptional redundancy costs of £1.7m (2002: Nil). The cost of redundancy in the second half will be approximately £1.5m. After acquisitions made in 2003, net borrowings are £9.2m (2002 net cash: £14.3m). However, the balance sheet remains strong with gearing at 15%. The six months to December 2003 represented an unusually severe trading environment with significant order cancellations and a low rate of new order placement coupled with continuing margin pressure. This resulted in the Ricardo UK business moving into loss for the period. However, our businesses in the USA and Germany remained profitable. Our order book at the end of the first half stood at £45.3m reflecting the pressures outlined above. This is a disappointing result, however, we have acted quickly to reduce our cost base by streamlining the UK management structure and decreasing manning levels in line with demand. These actions are now fully complete and have reduced the UK cost base by some £10m per annum. DIVIDEND An interim dividend of 2.7p per share (2002: 2.7p) will be paid on 23 April 2004 to all shareholders on the register at the close of business on 2 April 2004. BUSINESS AND MARKET OVERVIEW UK We have recently re-organised our three UK businesses, engines, transmissions and vehicle engineering, reporting to one UK Managing Director, a newly created position. These changes will ensure better utilisation of UK staff, and a more coordinated and customer focused approach to clients and new business development. During the period 1st July 2003 to 23rd February 2004 our UK head count has been reduced by 225 resulting in an annual payroll reduction of £9m. As demand dictates, capacity will initially be supplemented by recruitment to our operations in Prague and contract staff to maintain a high level of flexibility. Despite the programme cancellations of last year, we do not see a fundamental change in our industry drivers. Legislation for emissions and safety continues to grow. The growth in hybrid vehicle types will continue and with our own hybrid demonstrator, I-MoGen, we are particularly well placed to exploit this developing market. The overall pressure to increase the number and variety of vehicle types as the principal drivers of vehicle sales will remain, as evidenced by the strategies of the profitable car companies. Despite the difficult trading environment, the Autumn of 2003 saw Ricardo involved in two significant vehicle launches; one diesel and one gasoline, the development of two further high performance vehicle transmissions for the Ford GT car and Chrysler ME4-12 car and a wide range of engine developments. We are leading two government sponsored hybrid vehicle research programmes and have started marketing our next major technology demonstrator, a Lean Boost Direct Injection gasoline powered car, which with minimal change in its performance criteria returns a 20% improved fuel consumption and reduced emissions. GERMANY Our recently acquired German subsidiary, PROTOtechnik-IFT is being integrated into the Group. After a thorough review of operations, new management information systems are being introduced and we now have a platform for marketing our capabilities and technical expertise to the German car industry. The business has continued to trade profitability although there has been a slight reduction in profitability in the last six months as the German car industry has seen a slowdown in the pace of development and new product prototyping. We are confident that IFT is a key strategic platform from which to develop Ricardo's position at the heart of the European automotive industry. USA In the USA we also continue to trade profitably, but aggressive competition and a decline in the order book are putting pressure on margins. We are involved in a number of significant engine programmes and have a growing list of new business opportunities, turning these into profitable new programmes remains our major challenge. The major non-USA car companies continue to grow their presence in the USA and these offer Ricardo new opportunities for growth as does the burgeoning defence expenditure with particular interest in highly developed diesel engines and vehicles developed from hybrid technology. STRATEGIC CONSULTING During the last six months, we have set up Strategic Consulting in the USA to complement our European Strategic Consulting arm. Initial signs in the USA are encouraging. The current global market for Strategic Consulting remains difficult with clients very slow to commit to new assignments and this resulted in a loss for the six months. We continue to take a growing volume of work from our well-established rivals and remain confident that our combination of strategic and technical expertise gives us a competitive edge which is increasingly attractive to our clients and will develop into a sustainable and profitable business. MOTORSPORT Our motorsport activities continue to perform well, currently we are particularly successful with Mitsubishi where we provided the transmission for the Pajero Evo which won the gruelling Paris Dakar rally for the second consecutive year. We are increasingly involved in Formula One, with world rally championship teams and many other aspect of motor sport. Our motor sport order intake in December 2003 was our best month ever. CLAIM A trial of seven preliminary issues has been held in respect of the claim received, in November 2003, from Rolls Royce. The claim against Ricardo was dismissed and Rolls Royce was ordered to pay a contribution towards Ricardo's costs. Although leave to appeal the decision was refused Rolls Royce has applied directly to the Court of Appeal for permission to appeal. We will not know the outcome of this application until later in the year. If it is granted, it is unlikely that the appeal hearing will be heard before autumn 2004. If that appeal is successful a full court hearing is not expected until winter 2005/6. The Directors remain confident that the claim will continue to be successfully defended. STRATEGY Our strategy is to provide technical consulting services covering all high added value aspects of the vehicle including engines, transmissions and vehicle structure and to provide these services in each of the major centres of vehicle development. We now provide complete engine, diesel and gasoline, and transmission design and full engine into vehicle integration and related vehicle expertise. We provide this in the UK, USA and Germany and seek to extend this into Japan. Complimentary to these technologies we have developed a significant supporting capability in Controls and Electronics, Software and Motorsport. This phase of our development is nearing completion, subject to developing a full J.V. in Japan. In addition to this we have created a strategic consulting capability in Europe and the USA and seek strong growth from this activity and the establishment of strategic consulting in the Far East based in Japan. We continue to see our future wholly concentratd on the automotive industry. Our main focus will be to develop and exploit our engine and transmission expertise into global markets. It is easy to underrate the wealth of technology and expertise that resides in Ricardo in these sectors. Our recent work on hybrids and advanced transmissions technology is recognised throughout the industry as world class. We will continue to invest in and develop these businesses as our principal focus. In addition, we plan to develop further the scope of our automotive expertise, in particular in three fast developing areas: controls and electronics, vehicle safety and whole vehicle life. The last two areas are new areas of future growth for Ricardo and areas where we believe we can add significant value. Controls and Electronics This market continues to develop and covers every aspect of vehicle technology. In time, it is likely to double as a percentage of the overall vehicle cost. With the acquisition of Tarragon we have established a presence in this growing market. Further acquisitions will be researched but will only be considered if the right opportunity arises to significantly enhance our overall offering. Safety Western governments have stated policies to significantly reduce road traffic injuries and deaths. Both Western Europe and the USA report about 40,000 road traffic deaths every year. The EU has set a major objective to halve this rate by 2010 and to cut the total number of injuries and deaths by 75% in 2025. Product safety has become a significant market and an issue for Vehicle Manufacturers. Achievement of a 5 star NCAP ( New Car Assessment Programme) rating is now a fundamental requirement for future vehicles. The use of control and sensor technology in preventative or active safety is the next step in collision avoidance. OEM's & Tier 1 suppliers are actively developing sensors, imaging systems and X-by-wire actuators to enable implementation of active safety systems. Ricardo's knowledge of whole vehicle function and systems integration will be of great importance in bringing these systems together in the vehicle. This will be equally true for legislation driven requirements and for OEM's seeking to add attractive new benefits for consumers. Whole Vehicle Life Currently the vast majority of our work ceases at the point where a vehicle goes into production. Over half of the profits flowing from a vehicle sale are derived after the point of sale, a factor increasingly recognised by the Car Manufacturers as they seek to buy back and regain control of their dealer networks. Much of what takes place within the dealer network has a direct result on subsequent vehicle development through the gathering, analysis and understanding of data from warranty claims, repairs, service, crash repair and ultimately vehicle scrapping and replacement. We believe that a new opportunity for Ricardo can be developed by our understanding of the whole vehicle life, fully encompassing the role played by the retailers and making full use of the information that they have available. This may be achieved by our developing partnerships with current advisors in this area, the acquisition of such organisations or organic development. Intellectual Property As we noted in our January 2004 trading statement we have secured our first contract for a project involving a Ricardo patented carburettor for the hand held gasoline powered two stroke tools market. This includes chain saws, strimmers, hedgecutters etc and in total is some 18 million units per annum worldwide. Whilst the tools market is outside our core activity the reduction of emissions for gasoline engines is central to our capability and the patents we have in the area stem naturally from our main stream activity. The emissions legislation for this market comes into force progressively from 2007 through to 2011 when full compliance is demanded. Work on projects for 2007 are commencing now although there will be no significant volumes for at least two years. The average cost of a carburettor for this market is approximately €10. Also resulting from this work is the potential for further patents and projects for the small motor scooter market where 2 stroke engines are used. In much of the third world, emissions are starting to become an issue and patent protection is slowly improving. BOARD At the 31 December 2003, Sir Noel Davies retired as a Member of the Board having been chairman for 6 years. We would like to pay tribute to Sir Noel's leadership and to the growth in both our geographic, technical scope and profits that took place under Sir Noel's stewardship. We wish him a long happy retirement. We are also delighted to welcome Marcus Beresford as the new Chairman of Ricardo, we look forward to his leadership of the Board and wish him well in this new role. TRADING UPDATE & OUTLOOK The growth of our North American activities, the acquisition of PROTOtechnik-IFT in Germany, our alliance with Horiba in Japan as well as the continuing growth of our controls and electronics and strategic consulting activities all combine to position us at the heart of the major global auto industry development centres with a full engine, transmissions and vehicle capability. We have seen an improvement in order intake and bidding opportunities in the last two months, although it is too early to be confident that this trend will continue and short term trading will take time to recover as new orders are delivered. However, actions taken to strengthen our business by restructuring the UK business and to reduce our cost base together with a clear strategic focus means we are well placed to exploit an upturn in market conditions. Rodney Westhead Chief Executive 23 February 2004 CONSOLIDATED PROFIT AND LOSS ACCOUNT (Part 1 of 2) Interim Statement for the six months ended 31 December 2003 Before goodwill Goodwill Six months Before amortisation amortisation ended goodwill and exceptional and exceptional 31 December amortisation redundancy redundancy 2003 costs costs Total £'000 £'000 £'000 £'000 Turnover Continuing operations 76,861 - 76,861 64,645 -------------------------- --------- --------- --------- --------- 76,861 - 76,861 64,645 Operating (loss)/profit Continuing operations 92 (2,424) (2,332) 6,784 -------------------------- --------- --------- --------- --------- (Loss)/profit on ordinary 92 (2,424) (2,332) 6,784 activities before interest Net interest (365) - (365) 307 -------------------------- --------- --------- --------- (Loss)/profit on ordinary (273) (2,424) (2,697) 7,091 activities before taxation Taxation (238) -------------------------- --------- --------- --------- --------- (Loss)/profit on ordinary (2,935) activities after taxation Minority interest (94) -------------------------- --------- --------- --------- --------- (Loss)/profit for the (3,029) financial year Non - equity preference (6) dividends -------------------------- --------- --------- --------- --------- (Loss)/profit attributable (3,035) to ordinary shareholders Equity ordinary dividends (1,345) -------------------------- --------- --------- --------- --------- Amount transferred (from)/ (4,380) to reserves -------------------------- --------- --------- --------- --------- Dividend per ordinary 2.7p share Earnings per ordinary share - basic (6.10)p - diluted (6.10)p Earnings per ordinary share before goodwill amortisation and exceptional redundancy costs - basic (1.23)p - diluted (1.23)p CONSOLIDATED PROFIT AND LOSS ACCOUNT (Part 2 of 2) Interim Statement for the six months ended 31 December 2003 Goodwill Six months Before goodwill Goodwill Year ended 30 amortisation ended amortisation amortisation June 2003 31 December Total 2002 Total £'000 £'000 £'000 £'000 £'000 Turnover Continuing - 64,645 136,640 - 136,640 operations ------------------- -------- --------- --------- --------- --------- - 64,645 136,640 - 136,640 Operating (loss)/ profit Continuing (87) 6,697 15,586 (281) 15,305 operations -------------------- --------- --------- --------- --------- ---------- (Loss)/profit on (87) 6,697 15,586 (281) 15,305 ordinary activities before interest Net interest - 307 565 - 565 ------------------- --------- --------- --------- (Loss)/profit on (87) 7,004 16,151 (281) 15,870 ordinary activities before taxation Taxation (1,891) (3,460) ------------------- --------- --------- --------- --------- --------- (Loss)/profit on 5,113 12,410 ordinary activities after taxation Minority interest (67) (194) ------------------- -------- --------- --------- --------- (Loss)/profit for 5,046 12,216 the financial year Non - equity - - preference dividends ------------------ --------- --------- --------- --------- ---------- (Loss)/profit 5,046 12,216 attributable to ordinary shareholders Equity ordinary (1,346) (4,483) dividends ------------------- -------- --------- --------- --------- --------- Amount transferred 3,700 7,733 (from)/to reserves ------------------- -------- --------- --------- --------- --------- Dividend per 2.7p 9.0p ordinary share Earnings per ordinary share - basic 10.3p 24.9p - diluted 10.2p 24.6p Earnings per ordinary share before goodwill amortisation and exceptional redundancy costs - basic 10.5p 25.5p - diluted 10.4p 25.2p Notes: 1.This Interim Statement has been prepared on the basis of the accounting policies used in the Report and Accounts for the year ended 30 June 2003, with the exception of the adoption of UITF 38 (see note 4) and should be read in conjunction with the Report and Accounts for that year. The accounts for the six months ended 31 December 2003 and 31 December 2002 respectively are neither audited nor reviewed. The abridged accounts for the year ended 30 June 2003 do not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985 and are an extract from the latest published accounts which have been delivered to the Registrar of Companies and on which the auditors gave an unqualified audit report. 2.Taxation The tax charge of £238,000 for the period comprises foreign taxes payable on overseas profits. 3.Earnings per share The calculations of basic earnings per ordinary share and diluted earnings per ordinary share have been made in accordance with FRS14. The basic and diluted earnings per ordinary share has been calculated by dividing the loss attributable to ordinary shareholders of £3,035,000 (2002 -profit £5,046,000) by the weighted average number of shares in issue of 49,718,134 (2002 - 48,871,789). The calculation of the average number of shares in issue has been made having deducted the shares held by the Employee Share Ownership Trust and the Long Term Incentive Plan Trustee. The same basis has been used to calculate the basic and diluted earnings per ordinary share before goodwill amortisation and exceptional redundancy costs except that the loss attributable to ordinary shareholders has been reduced by goodwill amortisation of £723,000 and exceptional redundancy costs of £1,701,000 to £611,000 (2002 - profit £5,133,000). 4.Accounting for ESOP trusts In December 2003, the Accounting Standards Board issued UITF38, Accounting for ESOP trusts.The group has adopted UITF 38. This represents a change in accounting policy and as a result the prior period balance sheets have been restated, with the company's own shares held through an ESOP trust totalling £99,000 being deducted from the profit and loss reserve as at 31 December 2002 and 30 June 2003 rather than being shown on the balance sheet as an asset. SUMMARISED BALANCE SHEET Interim Statement for the six months ended 31 December 2003 As at As at As at 31 December 31 December 30 June 2003 2003 2002 £'000 £'000 £'000 (Restated) (Restated) Fixed assets 50,876 46,618 50,452 -------------- Intangible assets 25,925 1,590 26,339 ---------------------- ----------- ----------- --------- 76,801 48,208 76,791 ---------------------- ----------- ----------- --------- Stock and debtors 53,101 49,999 59,942 Creditors falling due within one (46,938) (47,780) (55,506) year ----------- ----------- --------- 6,163 2,219 4,436 Cash deposit 340 340 340 Net bank (overdraft)/balance (4,545) 21,255 4,380 ---------------------- ----------- ----------- --------- Net current assets 1,958 23,814 9,156 ---------------------- ----------- ----------- --------- Total assets less current 78,759 72,022 85,947 liabilities Creditors falling due after more than one year Bank borrowings (4,642) (6,234) (5,572) Deferred consideration (9,568) - (10,260) Finance lease obligations - (385) - Provisions for liabilities and (5,361) (5,677) (5,276) charges ---------------------- ----------- ----------- --------- (19,571) (12,296) (21,108) ---------------------- ----------- ----------- --------- Net assets 59,188 59,726 64,839 ---------------------- ----------- ----------- --------- Called up share capital and share premium account 24,532 22,395 24,523 Capital redemption reserve 40 40 40 Long term incentive plan reserve 162 872 204 Reserves 33,936 36,086 39,482 ---------------------- ----------- ----------- --------- Total shareholders' funds 58,670 59,393 64,249 ---------------------- ----------- ----------- --------- Minority interests (including non - 518 333 590 equity interest) ----------- ----------- --------- Capital employed 59,188 59,726 64,839 ---------------------- ----------- ----------- --------- These accounts were approved by the Board of Directors on 23 February 2004. This announcement is being circulated to all shareholders of the Company, and copies will be available to the public at the Company's Registered Office at Bridge Works, Shoreham - by - Sea, West Sussex, BN43 5FG CONSOLIDATED CASH FLOW STATEMENT Interim Statement for the six months ended 31 December 2003 Six months Six months Year ended ended ended 30 June 2003 31 December 31 December 2003 2002 £'000 £'000 £'000 £'000 £'000 £'000 Net cash inflow from operating 4,706 5,274 19,490 activities Net interest (paid)/received (492) 284 562 Dividend paid to minority (136) - - shareholder ------- ------- ------- ------- ------- ------- Net cash (outflow)/inflow from returns on investment and servicing of (628) 284 562 finance Taxation (3,116) (1,999) (3,921) Capital expenditure and financial investment Purchase of subsidiary - (1,999) (19,198) undertakings Purchase of Investment (55) - - Purchase of tangible fixed assets (5,823) (3,914) (8,260) Sale of tangible fixed assets 18 47 64 Shares purchased for LTIP - - (381) --------------------- ------- ------- ------- ------- ------- ------- Net cash outflow from capital expenditure and financial investment (5,860) (5,866) (27,775) Equity dividends paid (3,131) (2,934) (4,275) --------------------- ------- ------- ------- ------- ------- ------- Cash flow before use of financing (8,029) (5,241) (15,919) Financing Issue of ordinary share capital 60 321 929 Capital elements of finance lease rental payments - (223) (940) Loans repaid (1,002) (251) (6,462) --------------------- ------- ------- ------- ------- ------- ------- Net cash outflow from financing (942) (153) (6,473) --------------------- ------- ------- ------- ------- ------- ------- Decrease in cash (8,971) (5,394) (22,392) --------------------- ------- ------- ------- ------- ------- ------- NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT Six months Six months Year ended 30 ended 31 ended June 2003 December 2003 31 December 2002 £'000 £'000 £'000 Reconciliation of net cash flow to movement in net debt Decrease in cash (8,971) (5,394) (22,392) Movement in debt and lease financing 1,002 474 7,402 ---------------------- ----------- ----------- -------- Change in net debt from cash (7,969) (4,920) (14,990) flows Loans and finance leases acquired with - (940) (6,210) subsidiaries Translation difference (26) 226 70 --------------------- ----------- ----------- -------- Movement in net debt in (7,995) (5,634) (21,130) period Net (debt)/funds at beginning of (1,192) 19,938 19,938 period Net (debt)/funds at end of period (9,187) 14,304 (1,192) ---------------------- ----------- ----------- -------- Reconciliation of operating profit to net cash inflow from operating activities Operating (loss)/profit (2,332) 6,697 15,305 Depreciation charges 4,868 4,727 9,495 Goodwill 724 87 281 amortisation Profit on sale of tangible fixed assets (4) (1) (15) Long term incentive plan (credit)/charge (42) 278 (9) Decrease/(increase) in working capital 1,492 (6,514) (5,567) ---------------------------------------- ----------- ----------- -------- 4,706 5,274 19,490 ---------------------------------------- ----------- ----------- -------- This information is provided by RNS The company news service from the London Stock Exchange

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