Interim Results
Ricardo PLC
21 February 2005
21 February 2005
Ricardo plc
Interim Results for the six months ended 31 December 2004
Ricardo plc is a leading UK independent automotive consultancy, employing over
1,580 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.
HIGHLIGHTS
• Profit before tax and goodwill £3.0m (2003: £0.2m)
• Profit before tax and after goodwill £2.5m (2003: loss £2.3m)
• UK, US and German operations all profitable
• Strategic Consulting achieves profit growth earlier than anticipated
• Steady ongoing recovery in order book up 28% to £58m (2003: £45.8m)
• Earnings per share before goodwill up to 5.5p (2003: loss per share
0.6p)
• Earnings per share after goodwill 4.5p (2003: loss per share 5.5p)
• Interim dividend held at 2.7p
• Japanese and Chinese customer interest continues to increase
• New CEO Designate in place for November 2005 to ensure smooth handover
• Recovery continues to make good progress although automotive industry
remains challenging
Commenting on the results, Rodney Westhead, Chief Executive said:
'We are pleased that our order book level has improved significantly and
progress is being made to restore profits back to historic levels. The second
half has started well, and in spite of ongoing challenges in the global
automotive market we continue to remain cautiously optimistic over the outlook
for the full year.'
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
CHIEF EXECUTIVE'S STATEMENT
INTERIM RESULTS AND DIVIDEND
Our recovery in profitability has been stronger than anticipated and we
concluded the first six months with satisfactory results and a much improved
order book. However, large sections of the automotive industry are still
struggling to produce good results and therefore our trading environment will
continue to be challenging for the foreseeable future.
Turnover for the six months to 31 December 2004 was £72.6m (2003: £77.3m) with
the decrease split equally between the UK and US, the latter being further
impacted by the weakening dollar. Profit before tax and goodwill for the period
was £3.0m (2003: £0.2m before exceptionals). Earnings per share before goodwill
increased to 5.5p compared to a loss per share of 0.6p in the prior year. The
order book at 31 December 2004 stood at £58m (2003: £45m) and net borrowings
increased to £15.8m (2003: £9.2m) principally as a result of working capital
returning to more normal levels, however we now expect the Group to be cash
generative going forward. The interim dividend is maintained at 2.7p (2003:
2.7p) and will be paid on 22 April 2005 to all shareholders on the register at
close of business on 1 April 2005.
Business Overview
Overall our recovery continues to make good progress and we are now seeing the
full benefits of both the cost cutting initiatives taken 12 months ago and the
refocusing of our marketing efforts. It is heartening that our order book has
now improved to £60m at the end of January 2005, although areas of weakness
still persist. Our customer base continues to broaden with an increasing
interest from the Far East. Globally both Controls & Electronics and Ricardo
Strategic Consulting businesses have performed strongly. Controls and
Electronics was operating at full capacity at the half year end and for the
first time we were head-count restrained in this area. As Electronics is a
growing part of vehicle development programmes we will continue to grow this
activity and seek appropriate acquisitions. We continue to enlarge our use of
Prague as a lower cost facility and expect further expansion here to support all
areas of our business, both geographic and technical.
UK
Our UK business, now run as one unit comprising engine, transmission and vehicle
engineering returned to profit in the period. Our engines business performed
well with a strengthened order book and increased productivity. However, as
anticipated our transmission and vehicle businesses had a weak period and made
losses, albeit less than expected. The demand for advanced engine technology to
reduce emissions and fuel consumption remains strong. This contrasts with the
demand for transmissions technology which remained weak in the period with
customers showing great interest in new products at a development level but
reluctant to commit to move to full scale application development. However, in
January we received significant manufacturing orders for high performance
transmissions we had previously designed and developed and this will underpin
our transmission manufacturing activities for the next two years. In vehicle
engineering, our order book has been improving, particularly for military
vehicles. For passenger vehicles, competition remains fierce with low cost
competitors providing a cheaper cost option to customers. We continue to believe
that the excellent warranty claims record and on time delivery that Ricardo
offers together with our ability to provide full engine, transmission, vehicle
and electronic integration capability ahead of our competitors will pay
dividends over the medium to longer term.
USA
In the US profits reduced after a very slow start to the year. The order book is
now beginning to pick up with a strong intake in January 2005. However, business
from the US domestic car companies, who make up the bulk of our customers, is
still very competitive. Sales of military vehicles saw further growth and are
likely to provide a good impetus to our performance for the foreseeable future.
The new heavy duty engine test cells in Chicago are now fully operational with a
strong order inflow driven by the stringent 2007 truck (heavy vehicle) emissions
legislation. We are also seeing increasing activity from the Asian car companies
operating in the USA and this is a source of work that is likely to increase.
Germany
We now have a sound business in Germany that has integrated well into the rest
of the company and we have won our first mainstream development programme from a
major German OEM. The need to comply with Euro V emissions legislation will
continue to provide opportunities for Ricardo, however the rate of progress is
still slower than we would like as we strive to penetrate these core domestic
markets. Significant reorganisation of the manufacturing, testing and accounting
functions has taken place and the German team is starting to play a full role in
the overall Ricardo business. We are optimistic that our share of the German
market should start to increase.
The Far East
Our Tokyo office continues to make excellent progress with Japanese orders in
the first six months exceeding the whole of the previous year and now
approaching 10% of our total order intake. Clearly there is still a long way to
go given the size and importance of this market but we now have good contact at
all levels with each of the major Japanese car companies. Order intake is
growing strongly across all our areas of expertise including engine,
transmissions, vehicle, electronics, software and motorsport. Our demonstrator
vehicles are particularly well received and attract a high level of interest
from the car companies, especially as they are well in advance of anything our
competitors have produced.
We will open a representative Chinese office in Shanghai in March 2005 which
will be staffed by a mix of UK and local Chinese staff, initially only working
as a sales office. We are now working for both wholly domestic companies, many
of whom clearly intend to become major exporters, and also for the Western/
Chinese joint venture companies. We expect our activity in China to grow fairly
rapidly and will invest sensibly to ensure we capitalise on opportunities from
this expanding market.
Strategic Consulting
Strategic Consulting has achieved strong growth and good profits in the period.
Our order book grew threefold and this business is now operating in the UK,
Germany, Japan and USA with 29 consultants and approximately 20 technical
consultants working alongside them. Pass through work referred to our technical
consulting business is growing and provides good avenues of new work. We are now
working for an increasing number of global customers and anticipate further
strong growth from this business.
Research & Development
Ricardo continues to apply its key intellectual capital in forecasting and
validating technology trends in the automotive market. This provides an
important input to future business strategy but also provides a key high value
service to customers and a planning tool for internal research investment.
Global market drivers are dominated by increasing Government interest in reduced
carbon emissions via improved fuel economy in parallel with further reductions
in exhaust emissions. Government targets to improve vehicle safety are also
gaining a higher profile and have triggered some major investments by the
automotive industry in 'active' safety technologies that can reduce accidents.
The need to reduce the time and cost required to get new products to market is
also increasing demand for more sophisticated design tools and processes. In
response to these demands, Ricardo has increased its investment in these areas
whilst also developing a range of demonstration vehicles that show Ricardo's
capability in greener, safer vehicles.
In the last year, a very low emissions high performance diesel vehicle has been
completed whilst new patented technologies in active driveline control have
enabled demonstration of Ricardo capability in improved vehicle handling and
stability. These vehicle demonstrators, often enabled by advances in control and
electronics, have been very well received by our customers. They provide
tangible examples of Ricardo technology and enable dialogue with key decision
makers in the automotive industry.
The need for ever increasing effectiveness in research and development has also
created more opportunities for collaborative programmes. Most internally funded
research now attracts collaborative support both from automotive customers and
with government funding in the US, Europe and the UK. To improve effectiveness
Ricado has also introduced a number of metrics to predict and monitor the value
of research investments.
IFRS Conversion
Ricardo will prepare its financial statements under International Financial
Reporting Standards (IFRS) for the year ending 30 June 2006. A company-wide
project with the objective of ensuring compliance with IAS is underway and is
now in the implementation phase.
In the 30 June 2004 Annual Report it was noted that the major areas of impact on
net profit and shareholders' funds would be share based payments, goodwill
amortisation, pensions, financial instruments, development expenditure and
leases and there has been no change from this initial assessment. We have
already adopted the primary segmental analysis required by IFRS.
We recognise that adopting IFRS will change the reporting of the financial
performance of the Group and we understand that meaningful comparisons will be
required. We are planning to communicate this transition to our stakeholders in
a clear and straightforward manner by providing an IFRS compliant set of full
year financial statements for the year ended 30 June 2006 and for our interim
results in December 2005. This will include a restatement of FY 2005 in IFRS
format for comparative purposes.
Conversion to IFRS will not affect the Group's operational prospects or its
ability to generate cash.
People
I am delighted at the announcement of the appointment of Dave Shemmans as the
CEO designate. Dave will replace me when I retire at our AGM in November 2005.
Dave has been with Ricardo for six years, first as business development director
for our engines business and subsequently the Group. Since the end of 2003 he
has been Managing Director of our engines business. As business development
director he was directly responsible for winning some major programmes and, more
recently as Managing Director, has brought significant change, development and
improvement to the engines business, the core of our activity.
Dave is an electronics engineer by profession and prior to joining Ricardo was
involved in developing electric hybrid vehicles. His direct industry experience
and knowledge of Ricardo make him an excellent successor and is therefore well
suited to the needs of Ricardo. I wish him every success.
Outlook
The first half of the year has started on a far more positive note than the last
financial year and this appears to have carried on into the second half with a
strong January order intake. We still need to improve our activity in
transmissions and vehicle in the UK but all other parts of Ricardo are
performing well. Whilst we are pleased with the progress made, the automotive
industry is still one with well publicised problems and a huge focus on cost
base management. Our progress will remain constrained by these factors. However,
as these results have demonstrated Ricardo has the capability, knowledge base
and reach to capitalise on the opportunities that are in the market.
January has been a good month, however as previously indicated our results for
the year are dependent on a good second half performance. Although our prospects
and confidence continue to grow, we have not changed our view on expectations
for the full year.
Consolidated Profit & Loss Account
Interim Statement for the six months ended 31 December 2004
Before
goodwill
Six months amortisation
Ended 31 and
Before December exceptional
goodwill Goodwill 2004 redundancy
amortisation amortisation Total costs
£'000 £'000 £'000 £'000
Turnover 72,584 - 72,584 77,287
---------------- --------- --------- --------- ----------
72,584 - 72,584 77,287
Operating profit/(loss) 3,406 (502) 2,904 518
---------------- --------- --------- --------- ----------
Profit/(loss) on ordinary activities 3,406 (502) 2,904 518
before interest Net interest (447) - (447) (365)
---------------- --------- --------- --------- ----------
Profit/(loss) on ordinary activities 2,959 (502) 2,457 153
before taxation
Taxation (183)
---------------- --------- --------- --------- ----------
Profit/(loss) on ordinary activities 2,274
after taxation
Minority interest (25)
---------------- --------- --------- --------- ----------
Profit/(loss) for the financial year 2,249
Non - equity preference
dividends (3)
---------------- --------- --------- --------- ----------
Profit/(loss) attributable to
ordinary shareholders 2,246
Equity ordinary dividends (1,354)
---------------- --------- --------- --------- ----------
Amount transferred to/(from)reserves 892
---------------- --------- --------- --------- ----------
Dividend per ordinary share 2.7p
---------------- --------- --------- --------- ----------
Earnings per ordinary share
- basic 4.5p
- diluted 4.5p
---------------- --------- --------- --------- ----------
Earnings per ordinary share before
goodwill amortisation and
exceptional redundancy costs
- basic 5.5p
- diluted 5.5p
Consolidated Profit & Loss Account
Contd.
Before
Goodwill goodwill Goodwill
amortisation Six months amortisation amortisation Year
and ended and and ended
exceptional 31 December exceptional exceptional 30 June
redundancy 2003 redundancy redundancy 2004
costs Total costs costs Total
£'000 £'000 £'000 £'000 £'000
(restated) (restated)
Turnover - 77,287 146,242 - 146,242
--------------- ------- --------- ------- ------- -------
- 77,287 146,242 - 146,242
Operating profit/(loss) (2,424) (1,906) 2,600 (4,558) (1,958)
--------------- ------- --------- ------- ------- -------
Profit/(loss)on ordinary
activities before interest (2,424) (1,906) 2,600 (4,558) (1,958)
Net interest - (365) (800) - (800)
--------------- ------- --------- ------- ------- -------
Profit/(loss)on ordinary
activities before taxation (2,424) (2,271) 1,800 (4,558) (2,758)
Taxation (366) 515 1,114 1,629
--------------- ------- --------- ------- ------- -------
Profit/(loss)on ordinary
activities after taxation (2,637) 2,315 (3,444) (1,129)
Minority interest (94) (148)
--------------- ------- --------- ------- ------- -------
Profit/(loss)for the financial year (2,731) (1,277)
Non - equity preference dividends (6) (6)
--------------- ------- --------- ------- ------- -------
Profit/(loss)attributable to
ordinary shareholders (2,737) (1,283)
Equity ordinary dividends (1,345) (4,478)
--------------- ------- --------- ------- ------- -------
Amount transferred
to/(from)reserves (4,082) (5,761)
--------------- ------- --------- ------- ------- -------
Dividend per ordinary share 2.7p 9.0p
--------------- ------- --------- ------- ------- -------
Earnings per ordinary share
- basic (5.5)p (2.6)p
- diluted (5.5)p (2.6)p
--------------- ------- --------- ------- ------- -------
Earnings per ordinary share
before goodwill amortisation
and exceptional redundancy costs
- basic (0.6)p 4.3p
- diluted (0.6)p 4.3p
Consolidated Balance Sheets
Interim Statement for the six months to 31 December 2004
As at As at As at
31 December 31 December 30 June
2004 2003 2004
£'000 £'000 £'000
(restated) (restated)
Fixed assets
Intangible assets 16,365 25,925 16,161
Tangible assets 48,995 50,876 50,944
-------------------- ----------- --------- ---------
65,360 76,801 67,105
-------------------- ----------- --------- ---------
Current assets
Stocks 7,786 8,781 6,285
Debtors 42,635 44,320 36,525
Cash deposit - 340 -
Cash at bank and in hand 6,352 4,838 11,119
-------------------- ----------- --------- ---------
56,773 58, 279 53, 929
Creditors - amounts falling due
within one year (58,844) (57, 958) (57, 253)
-------------------- ----------- --------- ---------
Net current (liabilities)/assets (2,071) 321 (3,324)
-------------------- ----------- --------- ---------
Total assets less current liabilities 63,289 77,122 63,781
Creditors - amounts falling due after
more than one year (2,903) (13,680) (3,782)
Provisions for liabilities and charges (3,840) (5,361) (3,843)
-------------------- ----------- --------- ---------
Net assets 56,546 58,081 56,156
-------------------- ----------- --------- ---------
Capital and reserves
Called up share capital 12,477 12,471 12,474
Share premium account 12,085 12,061 12,076
Capital redemption reserve 40 40 40
Merger reserve 967 967 967
Long term incentive plan reserve 165 162 -
Profit and loss account 30,315 31,862 30,106
-------------------- ----------- --------- ---------
Total shareholders' funds 56,049 57,563 55,663
-------------------- ----------- --------- ---------
Equity minority interests 497 518 493
-------------------- ----------- --------- ---------
Capital employed 56,546 58,081 56,156
-------------------- ----------- --------- ---------
Consolidated Cash Flow Statement
Interim Statement for the six months ended 31 December 2004
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2004 2003 2004
£'000 £'000 £'000
(restated) (restated)
Net cash inflow from operating activities 1,302 4,702 12,143
Net cash outflow from returns on
investment and servicing of finance (490) (628) (950)
--------------------- ---------- ------------ ----------
Taxation 702 (3,116) (3,531)
Capital expenditure and financial
investment (2,902) (5,805) (11,016)
--------------------- ---------- ------------ ----------
Equity and non equity dividends paid (3,149) (3,131) (4,482)
--------------------- ---------- ------------ ----------
Management of liquid resources - - (340)
--------------------- ---------- ------------ ----------
Cash flow before use of financing (4,537) (7,978) (8,176)
--------------------- ---------- ------------ ----------
Net cash outflow from financing (1,037) (1,529) (1,939)
--------------------- ---------- ------------ ----------
Decrease in cash (5,574) (9,507) (10,115)
--------------------- ---------- ------------ ----------
Notes to the Consolidated Cash Flow Statement
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2004 2003 2004
£'000 £'000 £'000
(restated) (restated)
Reconciliation of net cash flow to
movement in net debt
Decrease in cash (5,574) (9,507) (10,115)
Movement in debt 1,049 1,538 1,966
--------------------- ----------- ---------- ----------
Change in net debt from cash flows (4,525) (7,969) (8,149)
Translation difference (1,004) (26) (916)
--------------------- ----------- ---------- ----------
Movement in net debt in period (5,529) (7,995) (9,065)
Net debt at beginning of period (10,257) (1,192) (1,192)
Net debt at end of period (15,786) (9,187) (10,257)
--------------------- ----------- ---------- ----------
Reconciliation of operating profit/(loss)
to net cash inflow from operating activities
Operating profit/(loss) 2,904 (1,906) (1,958)
Depreciation charges 4,605 4,868 9,518
Goodwill amortisation 502 724 985
Profit on sale of tangible fixed assets (1) (4) (7)
Long term incentive plan charge/(credit) 165 (42) (204)
(Increase)/decrease in working capital (6,873) 1,062 3,809
--------------------- ----------- ---------- ----------
1,302 4,702 12,143
----------- ---------- ----------
Segmental reporting
The Group operates in 3 main geographical areas. In addition, our strategic
consulting business('RSC' ) operates on a global basis. Its figures have
therefore been shown separately.
6 months ended UK North America Germany Rest of the RSC Total
World
31 December 2004 £'000 £'000 £'000 £'000 £'000 £'000
Turnover by origin 39,298 15,347 14,885 239 2,815 72,584
------------------ ------ ------- ------- -------- -------- --------
Operating profit/(loss)
before goodwill amortisation 2,002 548 793 (86) 149 3,406
Operating profit/(loss)
after goodwill amortisation 1,850 543 448 (86) 149 2,904
------------------ ------ ------- ------- -------- -------- --------
Net operating assets 40,648 15,481 21,732 (621) (1,068) 76,172
Group borrowings falling due
within 1 year (12,883)
Group borrowings falling due
after more than one year (2,903)
Deferred consideration -
Provisions for liabilities
and charges (3,840)
------------------ ------ ------- ------- -------- -------- --------
Net assets 56,546
------------------ ------ ------- ------- -------- -------- --------
UK North America Germany Rest of the RSC Total
6 months ended World
31 December 2003 £'000 £'000 £'000 £'000 £'000 £'000
Turnover by origin 45,137 19,808 11,820 - 522 77,287
------------------ ------ ------- ------- -------- -------- --------
Operating profit/(loss)
before goodwill amortisation 29 713 487 - (711) 518
Operating profit/(loss)
after goodwill amortisation (191) 708 (11) - (711) (205)
------------------ ------ ------- ------- -------- -------- --------
Net operating assets 39,514 11,923 30,132 (25) 313 81,857
Group borrowings falling due
within 1 year (4,735)
Group borrowings falling due
after more than one year (4,112)
Deferred consideration (9,568)
Provisions for liabilities
and charges (5,361)
------------------ ------ ------- ------- -------- -------- --------
Net assets(restated) 58,081
------------------ ------ ------- ------- -------- -------- --------
UK North America Germany Rest of the RSC Total
12 months ended World
30 June 2004 £'000 £'000 £'000 £'000 £'000 £'000
Turnover by origin 84,677 36,365 23,390 32 1,778 146,242
------------------ ------ -------- -------- -------- ------- --------
Operating profit/(loss)
before goodwill amortisation 1,869 1,026 1,181 (185) (1,291) 2,600
Operating profit/(loss)
after goodwill amortisation 1,554 1,015 522 (185) (1,291) 1,615
------------------ ------ -------- -------- -------- ------- --------
Net operating assets 42,775 9,564 17,557 (239) 599 70,256
Group borrowings falling due
within 1 year (6,475)
Group borrowings falling due
after more than one year (3,782)
Deferred consideration -
Provisions for liabilities
and charges (3,843)
------------------ ------ -------- -------- -------- ------- --------
Net assets (restated) 56,156
------------------ ------ -------- -------- -------- ------- --------
Notes to the accounts
1. This Interim Statement should be read in conjunction with the Report and
Accounts for the year ended 30 June 2004. The Interim Statements for the six
months ended 31 December 2004 and 31 December 2003 respectively are neither
audited nor reviewed. The abridged financial statements for the year ended 30
June 2004 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 £183,000 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 have been calculated by
dividing the profit attributable to ordinary shareholders of £2,246,000 (2003 -
loss (restated) £2,737,000) by the weighted average number of shares in issue of
49,898,222 (2003 - 49,718,134). The calculation of the average number of shares
in issue has been made having deducted the shares held by 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 except that the
profit attributable to ordinary shareholders has been increased by goodwill
amortisation of £502,000 (2003 - goodwill amortisation £723,000 and exceptional
redundancy costs of £1,701,000) to £2,748,000 (2003 - loss (restated) £313,000).
4.Restatement of comparative figures
The same accounting policies are followed in this Interim Statement as in the
Report & Accounts for the year ended 30 June 2004, except as noted below:
(a) The implementation of Amendment to FRS 5 'Reporting the substance of
transactions': 'Revenue recognition' ('Application Note G') represents a change
in accounting policy. Therefore the profit and loss and balance sheet for the
2003 comparative figures have been restated resulting in turnover and operating
profit being increased by £426,000, creditors falling due within one year being
increased by £1,107,000, due to the deferral of software income, and reserves
being reduced by the same amount.
(b) At 31 December 2003 and 30 June 2004, bank loans and overdrafts in a
subsidiary have been reclassified from creditors - amounts falling due after
more than one year to creditors - amounts falling due within one year by
£530,000 and £1,006,000 respectively. The Consolidated Cash Flow Statement has
been restated accordingly.
(c) To provide a better understanding of the profit and turnover generated in
the businesses, the segmental analysis for the year to 30 June 2004 has been
restated for goodwill and to reflect the turnover and profit generated by the
staff of those businesses.
These accounts were approved by the Board of Directors on 21 February 2005.
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.
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