TIDMRCDO
RNS Number : 9746D
Ricardo PLC
25 February 2020
25 February 2020
Ricardo plc
Interim Report for the six months ended 31 December 2019
HIGHLIGHTS
-- Order intake and revenue both up 3% on HY 2018/19 to GBP208.6m and GBP192.9m, respectively;
-- Underlying profit before tax ('PBT') up 5% to GBP16.0m on HY 2018/19;
-- Strong growth in Energy & Environment ('E&E') and
Defense, together with our newly acquired Rail and E&E
businesses in Australia, has more than offset continuing pressures
in the global automotive sector;
-- Acquired businesses have been integrated and are performing well;
-- Good order intake at GBP208.6m, compared to GBP201.9m in HY 2018/19;
-- Order book increased to GBP319.4m, up GBP5.6m on June 2019;
-- Net debt at GBP73.8m (June 2019: GBP47.4m) predominantly
reflecting purchase of the Detroit facility and the acquisition of
PLC Consulting. Underlying cash conversion of 80.8%; and
-- Interim dividend increased by 4% to 6.24p from 6.00p;
-- Full year outlook impacted by further automotive slowdown and Coronavirus.
% Change
=======================
HY 2019/20 HY 2018/19 Growth Organic(6)(7)
=============================== =========== =========== ======= ==============
Order intake (GBPm) 208.6 201.9 3 (20)
Order book (GBPm) 319.4 301.8 6 (29)
Revenue (GBPm) 192.9 188.1 3 (1)
Underlying(1)
- Operating profit margin
(%) 9.3 8.8 6 -
- Profit before tax (GBPm) 16.0 15.3 5 (4)
- Basic earnings per share(2)
(p) 23.0 22.1 4 (7)
- Cash conversion(3) (%) 80.8 85.7 (6) (4)
Statutory
- Operating profit margin
(%) 5.3 6.2 (15) (21)
- Profit before tax (GBPm) 8.3 10.3 (19) (29)
- Basic earnings per share
(p) 11.8 14.6 (19) (31)
- Cash conversion(3) (%) 78.5 81.9 (4) (3)
Net debt(4) (GBPm) (73.8) (27.5) (168) n/a
Dividend per share (p) 6.24 6.00 4 n/a
Headcount(5) (no.) 3,058 2,972 3 (1)
=============================== =========== =========== ======= ==============
References in superscript are defined in the glossary of terms
on page 2.
Commenting on the results, Dave Shemmans, Chief Executive
Officer, said:
"Overall, the Group has achieved a good set of results in the
first half of the year, which is in line with our expectations. The
performance of E&E and Defense has been excellent, underlining
the importance of our strategy of diversification. Our new
acquisitions have been integrated into the Group and are both
performing well. This has helped to offset the continuing
challenges in our automotive sector businesses, particularly in
China, where order intake has suffered from challenging macro
conditions.
As we start the second half of the year, we have seen increased
headwinds in the automotive sector which we anticipate will lead to
suppressed order intake in our US, EMEA and China Automotive
businesses. The Coronavirus outbreak at the start of H2 has already
had an operationally disruptive impact on our Automotive and Rail
operations in China and we anticipate continuing disruption to
client engagement, project delivery and business development in the
coming months in mainland China and surrounding countries. Based on
the issues highlighted above we are anticipating material impact to
our forecast second half profits and thus full year."
About Ricardo plc
Ricardo is a global engineering, technical, environmental and
strategic consultancy business. We also manufacture and assemble
low-volume, high-quality and high-performance products and develop
advanced virtual engineering tools for conventional and electrified
powertrains as well as for complex physical systems.
Our ambition is to be the world's pre-eminent organisation
focused on the design, development and application of solutions to
meet the challenges within the markets of Transport & Security,
Energy, and Scarce Natural Resources & Waste. Our mission is to
create a world fit for the future, and we will achieve this through
the activities of our portfolio of businesses, each of them
underpinned by our talented team of professionals.
Analyst and investor presentation
The analyst and investor presentation of the Group's interim
results for the six months ended 31 December 2019 will be available
online from Tuesday 25(th) February 2020 at
https://ricardo.com/investors/financial-reporting/results-presentations
. There will also be a presentation for analysts and investors at
9:30am GMT in London on Thursday 27(th) February 2020.
Further enquiries:
Ricardo plc
Dave Shemmans, Chief Executive
Officer Tel: 01273 455611
Ian Gibson, Chief Financial Officer Website: www.ricardo.com
Newgate Communications LLP Tel: 020 7680 6550
Adam Lloyd / Ian Silvera / Isabelle E-mail: ricardo@newgatecomms.com
Smurfit
Cautionary Statement
Note: Certain statements in this press release 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 press release, 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.
Glossary of terms - cross-referenced to superscript in the
financial tables and commentary
(1) Underlying measures exclude the impact on statutory measures
of specific adjusting items as set out in Note 6. The notes to the
condensed interim financial statements can be found on pages 17 to
29. Underlying measures are considered to provide a more useful
indication of underlying performance and trends over time.
(2) Underlying earnings also exclude a tax credit to statutory
earnings of GBP1.7m (HY 2018/19: GBP1.0m) for the specific
adjusting items in Note 6.
(3) Statutory cash conversion is calculated as cash generated
from operations divided by earnings before interest, tax,
depreciation and amortisation ('EBITDA'). Underlying cash
conversion is calculated as cash generated from operations,
adjusted for the impact of specific adjusting items on operating
cash, divided by EBITDA, adjusted for the cash impact of specific
adjusting items, as set out in Note 6.
(4) Net debt, as set out in Note 14, is defined as current and
non-current borrowings less cash and cash equivalents, including
hire purchase agreements, but excluding any impact of IFRS 16 lease
liabilities. The transitional impact of the adoption of IFRS 16
Leases is set out in Note 17. Management believes this definition
is the best for monitoring the indebtedness of the Group and is
consistent with the treatment in the Group's banking
agreements.
(5) Headcount is calculated as the number of employees on the
payroll at the reporting date and includes subcontractors on a
full-time equivalent basis.
(6) The organic result for the prior period includes the
performance of acquisitions on a like-for-like basis with HY
2019/20. Transport Engineering (now Ricardo Rail Australia, or
'RRA') was acquired on 31 May 2019. Had RRA been acquired and
consolidated from 1 July 2018 such that results for HY 2018/19 were
on a like-for-like basis with HY 2019/20, revenue for HY 2018/19
would have been GBP6.9m higher. Underlying operating profit for HY
2018/19 would have been GBP1.3m higher and underlying profit before
tax for HY 2018/19 would have been GBP1.1m higher. PLC Consulting
(now Ricardo Energy, Environment and Planning, or 'REEP') was
acquired on 31 July 2019. Had REEP been acquired and consolidated
from 31 July 2018 such that results for HY 2018/19 were on a
like-for-like basis with HY 2019/20, revenue for HY 2018/19 would
have been GBP0.8m higher. Underlying operating profit and profit
before tax for HY 2018/19 would both have been GBP0.3m higher.
(7) Organic growth is calculated as the growth in the result for
the current period compared to the organic result for the prior
period and provides an indication of the growth of the business on
a like-for-like basis with the prior period.
(8) Constant currency organic growth is calculated by reference
to a result for the current period that is retranslated using
foreign currency exchange rates applicable to the prior period and
provides an indication of the growth of the business on a
like-for-like basis with the prior period, excluding the impact of
foreign exchange.
Trading summary
The Group has delivered growth in revenue and underlying profit
before tax in line with the Board's expectations. There has been
strong growth in Defense and E&E. Our recent acquisitions in
E&E and Rail have performed well and in line with plan. This
has more than offset continued challenges in our businesses selling
into the automotive sector, particularly in the US and China, with
China impacted by slowing economic growth and changing government
incentive regimes. Across Europe, our Automotive & Industrial
('A&I') segment continues to be impacted by lower levels of
activity.
Order intake up 3% on HY 2018/19 with closing order book up 2%
on FY 2018/19
Order intake of GBP208.6m, represents growth of 3% on HY
2018/19. The closing order book was up 2% on the prior year-end to
GBP319.4m (FY 2018/19: GBP313.8m). Order intake has been strong in
Rail and E&E. This was partially offset by an expected
reduction in Performance Products ('PP'), and the timing of
Antilock Braking System ('ABS') and Electronic Stability Control
('ESC') system orders in Defense, having received a significant
order in HY 2018/19.
Headline trading performance Underlying(1) Reported
==================== ====================
Profit Profit
Operating before Operating before
Revenue profit tax profit tax
HY 2019/20 (GBPm) 192.9 18.0 16.0 10.3 8.3
====================================== ======== ========== ======== ========== ========
HY 2018/19 (GBPm) 188.1 16.6 15.3 11.6 10.3
Add performance of acquisitions(6)
(GBPm) 7.7 1.6 1.4 1.6 1.4
Organic HY 2018/19(6) (GBPm) 195.8 18.2 16.7 13.2 11.7
====================================== ======== ========== ======== ========== ========
Growth (%) 3 8 5 (11) (19)
Organic growth(7) (%) (1) (1) (4) (22) (29)
Constant currency organic growth(8)
(%) (2) (1) (4) (20) (27)
====================================== ======== ========== ======== ========== ========
References in superscript are defined in the glossary of terms
on page 2.
Revenue up 3% on HY 2018/19
Revenues grew to GBP192.9m, a 3% increase HY 2018/19
(GBP188.1m). Organic revenue was 1% lower, after normalising the
prior period result for the impact of the Transport Engineering
(renamed Ricardo Rail Australia, or 'RRA') and PLC Consulting
(renamed Ricardo Energy, Environment and Planning, or 'REEP')
acquisitions in May 2019 and July 2019 respectively.
Underlying operating profit up 8% on HY 2018/19, with reported
operating profit down 11%
Underlying operating profit, which excludes specific adjusting
items, increased by 8% to GBP18.0m (HY 2018/19: GBP16.6m).
Underlying operating profit margin increased to 9.3% (HY 2018/19:
8.8%), of which 0.3 percentage points (GBP0.6m) reflects the
adoption of IFRS 16 Leases from 1 July 2019. Lease charges that
were previously recognised within operating profit are now replaced
with a combination of interest (recorded below operating profit)
and depreciation costs.
Excluding IFRS 16, E&E, Rail, and Defense all delivered
growth in operating profit and operating profit margin overall.
This growth was partially offset by declines in the A&I and
Strategic Consulting & Software segments. PP showed a marginal
decline, reflecting anticipated reductions in production volumes.
On an organic basis, underlying operating profit declined by 1% (4%
excluding the impact of IFRS 16), reflecting the challenges in
A&I segment, Strategic Consulting & Software and organic
Rail, excluding RRA. HY 2019/20 reported operating profit was
GBP10.3m (HY 2018/19: GBP11.6m), with the reduction driven by an
increase in specific adjusting items, as set out below.
Underlying profit before tax up 5% on HY 2018/19, with reported
profit before tax down 19%
Underlying profit before tax increased by 5% to GBP16.0m (HY
2018/19: GBP15.3m). On an organic underlying basis, profit before
tax declined by 4%. On a constant currency basis, underlying and
organic underlying profit before tax would both have been GBP0.1m
higher. IFRS 16 had no impact on profit before tax.
HY 2019/20 reported profit before tax includes GBP7.7m of costs
relating to specific adjusting items (HY 2018/19: GBP5.0m). The
increase primarily reflects a GBP2.5m impairment charge to write
down the value of the Detroit Technical Center ('DTC') facility to
its fair value following its purchase for GBP14.2m in August 2019.
GBP1.2m of other reorganisation costs were charged in HY 2019/20
(HY 2018/19: GBP1.3m), spread across the A&I segment (GBP0.8m
of redundancy costs and professional fees for business
transformation and asset sale processes) and Rail (GBP0.4m of
redundancy costs incurred as a continuation of the restructuring
process started in the second half of FY 2018/19).
Acquisition-related costs of GBP1.0m were incurred in HY 2019/20
(HY 2018/19: GBP0.5m), with the increase reflecting GBP0.5m of
accruals in relation to earn-out payments, mainly for RRA and REEP.
GBP3.0m of amortisation on acquired intangibles was charged in FY
2019/20 (HY 2018/19: GBP2.0m), with the increase reflecting the RRA
and REEP acquisitions. HY 2018/19 specific adjusting items included
a GBP1.2m charge for the equalisation of Guaranteed Minimum
Pensions.
Taxation
The underlying effective tax rate was broadly in line with the
prior period at 22.5% (HY 2018/19: 22.2%). The reported effective
tax rate was 22.9% (HY 2018/19: 23.3%).
Earnings per share
Basic earnings per share declined by 19% to 11.8p (HY 2018/19:
14.6p). The Directors consider that an underlying earnings per
share provides a more useful indication of underlying performance
and trends over time. Underlying basic earnings per share for the
period increased by 4% to 23.0p (HY 2018/19: 22.1p). Basic earnings
per share, with a reconciliation to an underlying basic earnings
per share, which excludes the net of tax impact of specific
adjusting items, is disclosed in Note 7.
Dividend
As set out in more detail in Note 8, the Board has declared a 4%
increase in the interim dividend to 6.24p per share (HY 2018/19:
6.00p), reflecting the growth in HY 2019/20 underlying profit
before tax and the Board's confidence in the prospects of the
Group. The dividend will be paid on 6 April 2020 to shareholders on
the register at the close of business on 13 March 2020.
Net debt
Closing net debt was GBP73.8m (FY 2018/19: GBP47.4m). The Group
had a net cash outflow for the period of GBP26.4m, driven by the
acquisitions of the DTC facility (GBP14.2m), GBP5.6m of
acquisition-related cash costs (including the purchase of REEP),
and GBP1.2m of restructuring cash costs. The net cash outflow from
working capital was GBP3.4m in the period (GBP3.3m excluding the
impact of specific adjusting items). The composition of net debt is
defined in Note 14.
Research and Development ('R&D') and capital investment
The Group continues to invest in R&D and spent GBP7.2m (HY
2018/19: GBP5.3m) before government grant income of GBP0.7m (HY
2018/19: GBP0.9m). Costs capitalised this period were GBP4.4m (HY
2018/19: GBP2.6m), reflecting our continued investment in our
Software segment, together with new technology, tools and processes
in our A&I and E&E segments. During HY 2019/20, we
successfully completed the sale the Group's CryoPower intellectual
property to FPT Industrial S.p.A.
Capital expenditure on property, plant and equipment, excluding
right-of-use assets was GBP17.7m (HY 2018/19: GBP3.0m). Excluding
the DTC facility purchase capital expenditure was GBP3.5m,
reflecting continued investment in our business operations,
including new and upgraded test cell equipment, machinery and IT
equipment.
Brexit
Across the Group, we have prepared for a range of possibilities
for Brexit and any disruption that may arise. Where possible we are
now contracting with customers directly through our European-based
subsidiaries and we have secured a European accreditation route for
our Rail business to supplement our existing UKAS accreditation,
which will allow us to continue to offer our services across
Europe. We have also assessed inventory holding patterns for our
McLaren production line and have appropriate plans in place to
mitigate any short-term disruption to the supply chain.
Coronavirus ('COVID-19')
The outbreak of Coronavirus resulted in the closure of our and
the majority of our customers' Chinese sites since the Chinese New
Year holiday and travel restrictions on our staff. Our Shanghai,
Hangzhou and Hong Kong offices opened on 24 February, but our
Beijing, Chongqing and Changchun offices remain closed. This has
resulted in a slowdown in both order intake and the progress of
ongoing projects, due to the inefficiencies created through
customer staff and our own staff having to work from home.
Being a people-based business, we have focused our response on
the well-being of our employees to support those in China as well
as those travelling to and from China. Our employees have responded
very well, and we are maximising working from home and
self-isolation for those who return from the extended Chinese New
Year holiday. We are minimising business travel to and from
China.
Work continues to understand the impact on our clients,
contracts and pipeline in our Rail and automotive businesses. This
is an ongoing process. We are also regularly assessing the supply
chain for our Defense and PP businesses.
Although it is not possible at this time to fully assess the
potential impact on the current financial year, we do expect the
impact to be material. Our operations in China accounted for 8% of
the Group's revenue in the first half of the year.
Group Outlook
As we start the second half of the year, we have seen increased
headwinds in the automotive sector which we anticipate will lead to
suppressed order intake in our US, EMEA and China Automotive
businesses. The Coronavirus outbreak at the start of H2 has already
had an operationally disruptive impact on our Automotive and Rail
operations in China and we anticipate continuing disruption to
client engagement, project delivery and business development in the
coming months in mainland China and surrounding countries. Based on
the issues highlighted above we are anticipating material impact to
our forecast second half profits and thus full year.
Operating segments review
From HY 2019/20, in order to provide a better picture of the key
drivers of performance, the Group has changed its segmental
reporting from the historical Technical Consulting and Performance
Products segments, to the six segments set out below.
Underlying(1)
Underlying(1) operating profit
Revenue operating profit margin
For the six months ended
31 December 2019 2018 2019 2018 2019 2018
GBPm GBPm GBPm GBPm % %
============================== ====== ====== ========= ========= ========= =========
Energy & Environment ('E&E') 23.6 20.9 3.0 2.1 12.7 10.0
Rail 38.9 34.1 2.7 1.9 6.9 5.6
Automotive & Industrial
('A&I') 59.0 67.2 5.2 7.4 8.8 11.0
Defense 17.6 8.8 2.9 0.4 16.5 4.5
Performance Products ('PP') 43.2 45.9 4.1 4.3 9.5 9.4
Strategic Consulting &
Software ('other') 10.6 11.2 1.4 2.1 13.2 18.8
============================== ====== ====== ========= ========= ========= =========
Operating segments total 192.9 188.1 19.3 18.2 10.0 9.7
Plc costs - - (1.3) (1.6) - -
=========
Total 192.9 188.1 18.0 16.6 9.3 8.8
============================== ====== ====== ========= =========
References in superscript are defined in the glossary of terms
on page 2.
E&E, Rail, A&I, Defense (excluding the ABS/ESC product),
and the Strategic Consulting element of the Strategic Consulting
& Software ('other') segment, were previously reported within
the Technical Consulting operating segment. PP, the ABS/ESC
product, and the software element of the Strategic Consulting &
Software ('other') segment, were previously reported within the
Performance Products operating segment. Plc costs includes the
costs of running the public limited company. HY 2018/19 segmental
analysis has been reported on a consistent basis to aid
comparability.
eNERGY & eNVIRONMENT ('E&E')
Ricardo's E&E segment helps solve some of the world's most
complex environmental challenges and provides governments, public
agencies and businesses with expertise and advisory services, based
on robust scientific evidence and analysis. E&E's activities
are global and accounted for 12% of the Group's revenue in HY
2019/20. With its team of 550 scientists, economists, consultants
and support staff, E&E expertise spans a wide range of
environmental disciplines, including electricity asset management,
carbon and climate policy, resource efficiency, air quality and
greenhouse gas management, water resources and management of
chemical-related risk.
Financial and operational highlights
Organic(7)
HY 2019/20 HY 2018/19 Growth (%) (%)
================================ =========== =========== =========== ===========
Order intake (GBPm) 24.5 20.1 22 17
Order book (GBPm) 35.6 33.1 8 7
Revenue (GBPm) 23.6 20.9 13 9
Underlying(1) operating profit
(GBPm) 3.0 2.1 43 25
Underlying(1) operating profit
margin (%) 12.7 10.0 27 15
Headcount(5) (no.) 550 470 17 14
================================ =========== =========== =========== ===========
References in superscript are defined in the glossary of terms
on page 2.
During HY 2019/20, E&E's revenue grew by 13% to GBP23.6m (HY
2018/19: GBP20.9m) and underlying operating profit by 43% to
GBP3.0m (HY 2018/19: GBP2.1m). The strongest organic growth in HY
2019/20 came from outside Europe, including Australia, Southern
Africa, South-East Asia, and the Gulf Cooperation Council states,
particularly around air quality and waste.
There is growing demand for E&E's waste and resources
engineering services in the UK, which has developed alongside the
rapid organic and acquisitive growth of E&E's activity in
Australia. Following the acquisition of PLC Consulting (now REEP)
in July 2019, the Melbourne-based team has been performing well in
servicing the waste infrastructure and planning markets in the
Australian state of Victoria. E&E have won numerous circular
economy projects including Materials Flow Analyses ('MFA') in
Queensland and New South Wales.
Demand from the energy sector has also been very strong,
including the impact assessment of renewable energy technologies on
the operations of multi-country power pools in Southern Africa. One
of E&E's biggest wins in the period was the 'DC Share'
Electricity Network Innovation Competition project, which involves
the trial of a novel solution that shares capacity across existing
distribution network substations, enabling more high-power electric
vehicle chargers to be connected at lower cost.
Work with airports also continues to develop, including the
development and implementation of airport sustainability plans.
E&E has also seen high growth in extensive monitoring and
assessment work on perfluoroalkyl and polyfluoroalkyl substances
('PFAS') and winter water and de-icer monitoring programmes.
Market trends and outlook
E&E's expectations for the second half of the year remain
positive, with order book intake showing an increase of 8% on HY
2018/19. It is anticipated that the principal growth areas (waste
& resources, air quality, energy, and chemical risk management)
will continue to develop. E&E also expects new interest from
international institutions, government, cities and businesses
looking to identify what 'net zero' means in order to develop plans
for them and their stakeholders. Ricardo has also received new
interest in our Taskforce on Financial-related Climate Disclosures
('TCFD') initiative offering, which is provided to customers as a
joint package with Ricardo's Strategic Consulting segment.
Rail
Ricardo serves the rail market through two separate businesses:
a consultancy division that provides technical advice and an
independent certification division that performs accredited
assurance services. Both serve a similar geographic footprint
across Europe, Asia-Pacific and the Middle East. Rail supports a
client base that includes rail service operators, infrastructure
managers, regulatory bodies and industry suppliers. Whilst strict
rules determine that each business operates independently, both may
draw resources from our pool of 630 rail engineers, technicians,
auditors and support staff. Rail accounted for 20% of the Group's
revenue in HY 2019/20.
Financial and operational highlights
Organic(7)
HY 2019/20 HY 2018/19 Growth (%) (%)
================================ =========== =========== =========== ===========
Order intake (GBPm) 51.4 28.0 84 35
Order book (GBPm) 115.4 80.4 44 (2)
Revenue (GBPm) 38.9 34.1 14 (5)
Underlying(1) operating profit
(GBPm) 2.7 1.9 42 (16)
Underlying(1) operating profit
margin (%) 6.9 5.6 23 (12)
Headcount(5) (no.) 630 555 14 (3)
================================ =========== =========== =========== ===========
References in superscript are defined in the glossary of terms
on page 2.
In HY 2019/20, Rail order intake was GBP51.4m, a growth of 84%
on HY 2018/19, reflecting two significant multi-year programme wins
in Australia and Korea. Rail delivered revenue of GBP38.9m and
underlying operating profit of GBP2.7m, a growth of GBP4.8m and
GBP0.8m on HY 2018/19 respectively. The first half of the year has
seen mixed fortunes for the consultancy and assurance businesses.
The Middle East, China, Australia and mainland European markets are
buoyant and growing and we have delivered solid performances.
However, consultancy activities in the UK and parts of Asia have
been impacted by market changes that are requiring us to re-profile
our capability to align with market demands, together with some
disruption from the Hong Kong riots.
An early high-profile success was the award of a five-year
contract to provide system engineering and assessment services for
South Korea's Great Train Express (GTX), a new higher-speed
commuter network to serve Seoul and its surrounding regions. Being
a part-tunnelled, new build beneath the densely populated capital
region, the project is similar in scope and complexity to London's
Elizabeth Line ('Crossrail') and Ricardo can provide significant
value and insight from its experience on this project.
Elsewhere, we commenced safety assurance work on the second
stage of Etihad Rail's construction of a national rail network for
the UAE. In northern Europe, we supported the delivery of a complex
metro/freight mix line between Rotterdam and Hoek van Holland and
helped the Danish infrastructure manager, Banedanmark, pass a key
milestone in its long-term programme to upgrade the national
signalling system to the European Railway Traffic Management System
('ERTMS') with its successful launch on a key eastern route.
The industry's increasing adoption of digital technologies -
from communication-based signalling and remote condition monitoring
to complex train management software - has led to the emergence of
cyber security as a high-level concern. This is where Ricardo's
Digital Resilience partnership with Roke has proved to be positive,
enabling us to enter the market quickly with a specialist team
dedicated to the rail sector. Rail's work on Bombardier's Aventra
passenger train was one of the first examples of a major train
manufacturer commissioning cyber security assessments to inform
product design and testing processes, and we are now looking at
opportunities to provide similar services for other aspects of the
industry, such as signalling technologies.
The acquisition in May 2019 of Transport Engineering (now RRA),
a Sydney-based rail consultancy of over 100 people, makes this our
first year with a dedicated team based in the burgeoning Australia
and New Zealand markets. There has been impressive growth in both
pipeline and headcount since acquisition and plans are already in
place to extend the team's capabilities to the wider Asia-Pacific
region, particularly in technical disciplines such as safety
engineering, Reliability, Availability, Maintainability and Safety
('RAMS') analysis, human factors analysis and rolling stock
consultancy.
Market trends and outlook
Looking ahead, Rail is addressing the above-mentioned issues in
the UK and parts of Asia. In addition, the Asia business is
currently responding to the impact arising from the Coronavirus
outbreak. Rail has a strong order book and pipeline of
opportunities. More importantly, its diverse service portfolio -
from system-wide assurance to niche operational concerns such as
remote monitoring and digital resilience - means Ricardo has carved
out a unique position within the industry as a specialist with
expertise in some of its most complex and critical challenges. Work
is underway to bring that model to new territories by emulating our
successful entry into the Australian market.
Automotive & Industrial ('A&I')
Ricardo's A&I segment provides products and services that
span the areas of hybrid and electric systems, electrification,
engines, driveline and transmissions, testing, and vehicle
engineering. A&I serves clients within the automotive,
motorcycle, and off-highway & commercial vehicle sectors,
together with clients in adjacent markets where our core
capabilities apply. It accounted for 31% of the Group's revenue in
HY 2019/20, with 1,180 staff based at both engineering and sales
offices within the UK, US, Europe and Asia, mainly in China.
Financial and operational highlights
Growth
HY 2019/20 HY 2018/19 (%)
======================================= =========== =========== =======
Order intake (GBPm) 68.5 70.1 (2)
Order book (GBPm) 83.9 91.0 (8)
Revenue (GBPm) 59.0 67.2 (12)
Underlying(1) operating profit (GBPm) 5.2 7.4 (30)
Underlying(1) operating profit margin
(%) 8.8 11.0 (20)
Headcount(5) (no.) 1,180 1,270 (7)
======================================= =========== =========== =======
References in superscript are defined in the glossary of terms
on page 2.
Order intake in HY 2019/20 was GBP68.5m (HY 2018/19: GBP70.1m).
The challenging economic and political conditions continued during
the period: China's slowing economic growth, the trade tensions
between the US and China, the Brexit debate together with the UK
General Election, and reduced credit availability in India, all had
an impact on customer activity and orders. Original equipment
manufacturers have also continued to pursue significant
cost-reduction programmes designed to maintain trading performance
whilst protecting new product developments in all aspects of
vehicle electrification, including mild-hybrids to full battery
electric vehicles, and are making greater use of virtual product
development.
Uncertainty in outsourcing trends has continued and the lower
level of order intake had a consequent impact on revenues, which
decreased from GBP67.2m to GBP59.0m, as well as on operational
efficiency. A&I's underlying operating profit decreased from
GBP7.4m to GBP5.2m, and the margin decreased from 11.0% to 8.8%. We
continue with our initiatives to create a more flexible cost base.
Ricardo purchased the DTC facility in August 2019 in order to
extricate ourselves from a long-term lease on the property. The
facility, including the Detroit engine testing assets, is currently
being marketed for sale, with a view to repositioning our US
business as a more operationally efficient consultancy.
During the period, A&I secured a range of programmes across
our services, including vehicle, hybrid and electric systems. The
demand for A&I's services in our off-highway & commercial
vehicles market sector remained at a good level and activity within
our motorcycle business has been particularly strong. Ricardo
completed the sale of the CryoPower intellectual property to FPT
Industrial S.p.A and will continue to assist with their development
of this innovative and high-efficiency combustion engine.
During HY 2019/20, A&I produced a highly versatile and
cost-effective demonstrator for general service defence purposes,
adapted from Ford's iconic Ranger series, Europe's best-selling
pick-up truck. In partnership with Roke, Ricardo launched a digital
resilience assessment service for vehicles. A&I played a
crucial role in the development of JCB's Fastrac tractor, which Guy
Martin was shown powering to a new Guinness World Records' speed
record on the Channel 4 documentary, Guy Martin: The World's
Fastest Tractor.
Market trends and outlook
Carbon dioxide ('CO2') emissions targets continue to drive the
global agenda, with industry increasing its investment in
electrification and alternative energy propulsion, together with
its digitalisation of processes and products. These trends provide
a significant longer-term pipeline of opportunities for A&I
through the provision of innovative solutions for clean, efficient
and secure propulsion, to deliver future revenue and profit
growth.
In the short-term, the prevailing economic uncertainty faced by
the Automotive industry across the globe, together with the impact
of the Coronavirus outbreak on our China operations, pose continued
and additional headwinds to performance.
DefenSe
Defense, a US-based segment, is focused on creating a safe and
secure world fit for the future through delivery of services,
software, and products that protect life, reduce defence programme
costs, and reduce waste. The technical professionals within our
Defense segment work on future mobility challenges, disrupted
communication environments, and improved processes to streamline
the fielding, modification, maintenance and sustainment of complex
systems. Defense delivered 9% of total Group revenue in HY 2019/20
with a headcount of 140.
Financial and operational highlights
Growth
HY 2019/20 HY 2018/19 (%)
======================================= =========== =========== =======
Order intake (GBPm) 13.7 20.3 (33)
Order book (GBPm) 14.7 16.5 (11)
Revenue (GBPm) 17.6 8.8 100
Underlying(1) operating profit (GBPm) 2.9 0.4 625
Underlying(1) operating profit margin
(%) 16.5 4.5 267
Headcount(5) (no.) 140 120 17
======================================= =========== =========== =======
References in superscript are defined in the glossary of terms
on page 2.
In HY 2019/20, operating profit grew significantly in comparison
to the prior period, driven by growth in both the engineering
services business and sales of the ABS/ESC system product. Order
intake reduced from GBP20.3m in HY 2018/19 to GBP13.7m in HY
2019/20, which reflects the timing of ABS/ESC orders from the US
government. Revenue increased to GBP17.6m in HY 2019/20 (HY
2018/19: GBP8.8m) and underlying operating profit increased to
GBP2.9m (HY 2018/19: GBP0.4m), with underlying operating profit
margin increasing from 4.5% to 16.5%. The margin was low in the
prior period as costs were increased in preparation for the
delivery of the secured ABS/ESC orders.
Underpinning our commitment to quality, Defense again achieved
Capability Maturity Model Integration ('CMMI') Level 3
certification for its systems and software development processes
that have earned a reputation for producing safe, reliable,
precise, and cost-effective solutions for our customers. Ricardo
designed, developed and integrated the ABS/ESC kit to address an
ongoing High-Mobility Multipurpose Wheeled Vehicle ('HMMWV', or
Humvee) rollover issue and it has been proven by the US Army to
mitigate vehicle rollover and loss-of-control accidents. To date,
the production team has delivered over 3,000 units to new HMMWV
production vehicles.
The internally developed Mobile Fuel and Energy Management
(MFEM) software provides dynamic visibility and management of
liquid fuel. Through a simple glance at a handheld device, the
system helps facilitate rapid, efficient decision making to ensure
that personnel have the energy resources needed to attain their
objectives. MFEM replaces manual procedures and calculations for
fuel management with a fully automated process resulting in
significantly improved speed, accuracy, and efficiency for field
operations.
Market trends and outlook
The market outlook for Defense is positive. The US President's
fiscal year 2020 Defense Budget of $750bn is $34bn above funds
enacted in 2019. In July 2018, the US Army introduced a new 4-star
Army Futures Command. For the first time, one command is driving
concept development, requirements determination, organisation
design, science and technology research, and solution development.
This provides an opportunity for Defense to support the US Army's
new disruptive acquisition process as Ricardo has a quicker, more
agile approach.
The President's FY21 Defense budget was published in February
2020 and is in the public domain. ABS/ESC installation to HMMWV
fielded fleet is included as part of "modification of in-service
equipment" and the Ricardo National Stock Number is referenced. The
FY21 budget specifies that 5,421 vehicles are included, with a
value for HMMWV ABS/ESC retrofit kits of $71.7m, installation of
$22m and $40m for HMMWV Ambulance upgrades including 871 ABS/ESC
retrofit kits. The budget has been passed to Congress for
consideration, review and potential amendment. This includes review
by the House and Senate Armed Services Committees and Defense
Appropriations subcommittees. The budget is expected to be
finalised and approved in October 2020. Contract awards follows
budget approval.
Performance Products ('PP')
Ricardo's PP business manufactures and assembles high-quality
prototypes and niche volumes of complex engine, transmission and
vehicle products. It accounted for 22% of the Group's revenue in HY
2019/20. These products are designed either by PP's motorsport
products design team, Ricardo's A&I segment, or by our
customers. Our diverse portfolio of projects covers a number of
clients including McLaren, Bugatti, Porsche, Aston Martin Lagonda,
Moog Aerospace, Rolls Royce, BMW, PSA and a number of high-profile
top-flight motorsport businesses. PP also operates in markets
outside automotive and motorsport including aerospace and defence,
power generation and rail. PPs' 310 staff deliver goods and
services to its global customer base from its UK sites in
Shoreham-by-Sea and Leamington Spa.
Financial and operational highlights
Growth
HY 2019/20 HY 2018/19 (%)
======================================= =========== =========== =======
Order intake (GBPm) 39.7 49.9 (20)
Order book (GBPm) 62.8 70.7 (11)
Revenue (GBPm) 43.2 45.9 (6)
Underlying(1) operating profit (GBPm) 4.1 4.3 (5)
Underlying(1) operating profit margin
(%) 9.5 9.4 1
Headcount(5) (no.) 310 320 (3)
======================================= =========== =========== =======
References in superscript are defined in the glossary of terms
on page 2.
During HY 2019/20, PP delivered revenue of GBP43.2m and an
underlying operating profit of GBP4.1m, a reduction of 6% and 5%
respectively on the prior period. Underlying operating profit
margin was 9.5%, similar to the prior period. Engine supply
continued to McLaren across a broad range of models including
600LT, GT, Senna and Speedtail from our dedicated facility in
Shoreham-by-Sea. The Speedtail is McLaren's first-ever Hyper-GT,
fitted with a Ricardo assembled V8 engine as part of a hybrid
powertrain system that produces more than 1,000 horsepower. It is
McLaren's fastest production car to date. From Leamington Spa,
transmission deliveries continued for motorsport clients in Formula
1, Formula E, WRC, R5, GTE, GT3, Super Formula, Indy Lights and
Heritage formulae. As anticipated, order intake and operating
profit were lower than the prior period due to the phasing of both
engine and transmission supply programmes. Preparations have
continued through the first half of the year for two new
significant transmission programmes that will enter series
production in the later stage of the financial year.
Outside of the core markets of premium automotive and
motorsport, PP delivered its 20,000(th) high precision aerospace
component and began deliveries to the Ministry of Defence for the
Combat Vehicle Reconnaissance (Tracked) ('CVR(T)') final drive
programme.
Market trends and outlook
PP expects current trends to continue into the second half of
the financial year. The PP business has a strong order book with
sight of a good base load of demand over the next two to ten years,
dependent on customer and platform. As our existing customers
continue to invest significantly in new vehicle variants, we see
positive growth in the coming years in our high-performance vehicle
segment including hybrid and electrified powertrains, and we are
well positioned to capitalise on emerging technologies in the
automotive and motorsport market.
The expertise within the PP business, coupled with the synergies
with Ricardo's other segments, gives a firm platform on which to
develop further manufacturing and industrial engineering
consultancy opportunities. In particular, we are working towards
winning further premium automotive, motorsport, defence and
aerospace projects in addition to securing new hardware
opportunities in the rail sector.
Strategic Consulting AND SOFTWARE
Owing to their size, Ricardo Strategic Consulting ('RSC') and
Ricardo Software are combined into a single 'all other segments'
for reporting purposes within Note 4. Combined, these two divisions
account for 6% the Group's revenue and have a headcount of 190.
They are not material enough to require reporting within their own
individual segments. A brief summary has been produced below in
order to provide further understanding of the Group's activities in
the period.
RSC is a leading management consultancy dedicated to serving the
automotive, transportation, and mobility industries. We offer a
comprehensive portfolio of services, advising global leaders on
high-impact strategic issues and resolving operational challenges.
RSC is uniquely positioned within the management consulting
industry. Our professionals intersect the space between traditional
engineering specialists and pure-play strategy consultants,
enabling them to support our clients as technical strategists and
trusted advisors on their most difficult challenges.
Ricardo Software aims to help customers solve problems through
technology exploration and process innovation. We deliver advanced
virtual engineering tools, supported by a team of technical
experts, to global partners across automotive, rail, motorcycle,
off-highway, defence, energy and environment industries. Our
leading-edge simulation software enables users, quickly and
accurately, to create, analyse and optimise complex physical
systems - from initial concept to final design.
Financial and operational highlights
Growth
HY 2019/20 HY 2018/19 (%)
======================================= =========== =========== =======
Order intake (GBPm) 10.7 13.4 (20)
Order book (GBPm) 7.1 10.1 (30)
Revenue (GBPm) 10.6 11.2 (5)
Underlying(1) operating profit (GBPm) 1.4 2.1 (33)
Underlying(1) operating profit margin
(%) 13.2 18.8 (30)
Headcount(5) (no.) 190 180 6
======================================= =========== =========== =======
References in superscript are defined in the glossary of terms
on page 2.
In HY 2019/20, RSC experienced challenging market conditions in
the US and China, but this was partially offset by the team's
greater focus and success in the European market. Political
uncertainty continued to impact the UK with the time taken to
convert project leads lengthening over the previous period.
However, investment in local sales expertise has generated new
growth in the India and Asia markets. Overall, the global RSC order
book remains volatile with both revenue and profitability down on
the prior period's performance.
In HY 2019/20, Software order intake was below the prior period,
driven by lower one-off perpetual license sales particularly in
China due to the slowdown in the Chinese automotive market. License
renewals were similar to the prior period. The order intake for
application engineering and solutions has seen good growth in the
period, which has partially offset the reduced order intake from
one-off perpetual license sales.
Market trends and outlook
In response to changing client requirements, RSC is transforming
itself into a more agile, scalable offering. We launched
Ricardo-TRNTY (https://trnty.ricardo.com) in HY 2019/20, a new
on-line portal. It provides new and existing clients with
quality-checked expertise by drawing on Ricardo's global network of
freelance consultants. This is a great opportunity to capitalise on
shifting market requirements as we respond to the need to
efficiently scale the business. RSC is also on a clear path to
deliver a more balanced revenue model by focusing on digital
knowledge sales via our eStore (https://estore.ricardo.com).
Within Software, the business strategy is focused on simulation
and analysis diversification into other engineering domains whilst
also modernising the Software business. This will include a move to
offering consumption-based licensing models to complement our
traditional annual lease and perpetual license business. The growth
in solutions and application engineering work is also being catered
for with increases in headcount to meet this demand.
Condensed interim financial statements
Condensed consolidated income statement
for the six months ended 31 December (unaudited)
2019 2018
Specific Specific
adjusting adjusting
Underlying items(*) Total Underlying items(*) Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
========================= ===== =========== =========== ======== =========== =========== ========
4 &
Revenue 5 192.9 - 192.9 188.1 - 188.1
Cost of sales (126.6) - (126.6) (123.8) - (123.8)
========================= ===== =========== =========== ======== =========== =========== ========
Gross profit 66.3 - 66.3 64.3 - 64.3
Administrative expenses (48.8) (7.7) (56.5) (48.1) (5.0) (53.1)
Other income 0.5 - 0.5 0.4 - 0.4
========================= ===== =========== =========== ======== =========== =========== ========
Operating profit 4 18.0 (7.7) 10.3 16.6 (5.0) 11.6
Finance income 0.2 - 0.2 0.3 - 0.3
Finance costs (2.2) - (2.2) (1.6) - (1.6)
========================= ===== =========== =========== ======== =========== =========== ========
Net finance costs (2.0) - (2.0) (1.3) - (1.3)
========================= ===== =========== =========== ======== =========== =========== ========
Profit before taxation 16.0 (7.7) 8.3 15.3 (5.0) 10.3
Taxation (3.6) 1.7 (1.9) (3.4) 1.0 (2.4)
========================= ===== =========== =========== ======== =========== =========== ========
Profit for the period 12.4 (6.0) 6.4 11.9 (4.0) 7.9
========================= ===== =========== =========== ======== =========== =========== ========
Profit attributable
to:
- Owners of the parent 12.3 (6.0) 6.3 11.8 (4.0) 7.8
- Non-controlling
interests 0.1 - 0.1 0.1 - 0.1
12.4 (6.0) 6.4 11.9 (4.0) 7.9
========================= ===== =========== =========== ======== =========== =========== ========
Earnings per ordinary share attributable to
owners of the parent during the period
==================================================================== =========== =========== ==========
Basic 7 11.8p 14.6p
Diluted 7 11.8p 14.6p
========================= ===== =========== =========== ======== =========== =========== ========
(*) Specific adjusting items comprise amortisation of acquired
intangible assets, acquisition-related expenditure, reorganisation
costs and non-recurring items that are disclosed separately due to
the significance of their nature or amount. Further details are
given in Note 6.
Condensed consolidated statement of comprehensive income
for the six months ended 31 December (unaudited)
2019 2018
GBPm GBPm
========================================================== ====== ======
Profit for the period 6.4 7.9
========================================================== ====== ======
Other comprehensive income
Items that will not be reclassified to profit or loss:
Remeasurements of the defined benefit pension scheme 0.8 (3.9)
Deferred tax on remeasurements of the defined benefit
pension scheme (0.1) 0.7
Total items that will not be reclassified to profit
or loss 0.7 (3.2)
========================================================== ====== ======
Items that may be subsequently reclassified to profit
or loss:
Currency translation on foreign currency net investments (3.4) 1.1
Fair value gains on foreign currency cash flow hedges (0.9) 0.2
Total items that may be subsequently reclassified to
profit or loss (4.3) 1.3
========================================================== ====== ======
Total other comprehensive loss for the period (net
of tax) (3.6) (1.9)
========================================================== ====== ======
Total comprehensive income for the period 2.8 6.0
========================================================== ====== ======
Attributable to:
- Owners of the parent 2.7 5.9
- Non-controlling interests 0.1 0.1
2.8 6.0
========================================================== ====== ======
The accompanying notes are an integral part of these condensed
interim financial statements.
Condensed consolidated statement of financial position
31 December
2019 30 June 2019
(Unaudited) (Audited)
Note GBPm GBPm
======================================= ===== ============ =============
Assets
Non-current assets
Goodwill 10 84.0 84.2
Other intangible assets 40.2 41.0
Property, plant and equipment 44.9 44.6
Right-of-use assets(*) 11 24.7 -
Investment properties(*) 2.3 -
Deferred tax assets 7.1 6.7
203.2 176.5
======================================= ===== ============ =============
Current assets
Inventories 18.0 14.5
Trade, contract and other receivables 129.3 141.4
Derivative financial assets 13 3.9 0.3
Current tax assets 1.3 -
Cash and cash equivalents 14 39.2 36.3
191.7 192.5
======================================= ===== ============ =============
Non-current assets held for sale 12 11.0 2.9
202.7 195.4
======================================= ===== ============ =============
Total assets 405.9 371.9
======================================= ===== ============ =============
Liabilities
Current liabilities
Borrowings 14 (8.3) (4.0)
Lease liabilities(*) (6.5) -
Trade, contract and other payables (78.2) (84.8)
Current tax liabilities (0.9) (3.5)
Derivative financial liabilities 13 (0.3) (1.2)
Provisions (1.5) (2.2)
(95.7) (95.7)
======================================= ===== ============ =============
Net current assets 107.0 99.7
======================================= ===== ============ =============
Non-current liabilities
Borrowings 14 (104.7) (79.7)
Lease liabilities(*) (23.3) -
Trade, contract and other payables (2.0) (5.1)
Retirement benefit obligations (5.5) (8.5)
Deferred tax liabilities (8.5) (7.3)
Provisions (3.6) (3.7)
(147.6) (104.3)
======================================= ===== ============ =============
Total liabilities (243.3) (200.0)
======================================= ===== ============ =============
Net assets 162.6 171.9
======================================= ===== ============ =============
Equity
Share capital 13.4 13.4
Share premium 14.3 14.3
Other reserves 13.5 16.9
Retained earnings 120.9 126.8
======================================= ===== ============ =============
Equity attributable to owners of the
parent 162.1 171.4
Non-controlling interests 0.5 0.5
======================================= ===== ============ =============
Total equity 162.6 171.9
======================================= ===== ============ =============
(*) The Group has adopted IFRS 16 Leases from 1 July 2019. The
Group followed the modified retrospective transition approach to
IFRS 16 where comparative information is not restated. For further
information please see Note 17.
The accompanying notes are an integral part of these condensed
interim financial statements.
Condensed consolidated statement of changes in equity
for the six months ended 31 December (unaudited)
Attributable to owners of the
parent
====================================================
Non-
Share Share Other Retained controlling Total
capital premium reserves earnings Total interests equity
===================================
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=================================== ========= ========= ========== ========== ====== ============= ========
At 30 June 2019 (previously
reported) 13.4 14.3 16.9 126.8 171.4 0.5 171.9
Adjustment on initial
application
of IFRS 16 (net of tax)(*) - - - (4.0) (4.0) - (4.0)
=================================== ========= ========= ========== ========== ====== ============= ========
At 1 July 2019 (adjusted) 13.4 14.3 16.9 122.8 167.4 0.5 167.9
=================================== ========= ========= ========== ========== ====== ============= ========
Profit for the period - - - 6.3 6.3 0.1 6.4
Other comprehensive loss
for the period - - (3.4) (0.2) (3.6) - (3.6)
=================================== ========= ========= ========== ========== ====== ============= ========
Total comprehensive income
for the period - - (3.4) 6.1 2.7 0.1 2.8
Equity-settled transactions - - - 0.8 0.8 - 0.8
Purchases of own shares
to settle awards - - - (0.6) (0.6) - (0.6)
Ordinary share dividends - - - (8.2) (8.2) (0.1) (8.3)
=================================== ========= ========= ========== ========== ====== ============= ========
At 31 December 2019 (unaudited) 13.4 14.3 13.5 120.9 162.1 0.5 162.6
=================================== ========= ========= ========== ========== ====== ============= ========
Attributable to owners of the
parent
====================================================
Non-
Share Share Other Retained controlling Total
capital premium reserves earnings Total interests equity
===================================
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=================================== ========= ========= ========== ========== ====== ============= ========
At 30 June 2018 13.4 14.3 15.7 124.4 167.8 0.4 168.2
=================================== ========= ========= ========== ========== ====== ============= ========
Profit for the period - - - 7.8 7.8 0.1 7.9
Other comprehensive income/(loss)
for
the period - - 1.1 (3.0) (1.9) - (1.9)
=================================== ========= ========= ========== ========== ====== ============= ========
Total comprehensive income
for the period - - 1.1 4.8 5.9 0.1 6.0
Equity-settled transactions - - - 0.6 0.6 - 0.6
Purchases of own shares
to settle awards - - - (1.0) (1.0) - (1.0)
Ordinary share dividends - - - (7.9) (7.9) - (7.9)
At 31 December 2018 (unaudited) 13.4 14.3 16.8 120.9 165.4 0.5 165.9
=================================== ========= ========= ========== ========== ====== ============= ========
(*) The Group has adopted IFRS 16 Leases from 1 July 2019. The
Group followed the modified retrospective transition approach to
IFRS 16 where comparative information is not restated. For further
information please see Note 17.
The accompanying notes are an integral part of these condensed
interim financial statements.
Condensed consolidated statement of cash flows
for the six months ended 31 December (unaudited)
2019 2018
Note GBPm GBPm
====================================================== ===== ======= =======
Cash flows from operating activities
Profit before tax 8.3 10.3
Adjustments for:
Share-based payments 0.8 0.6
Fair value losses on derivative financial
instruments (0.3) (1.3)
Profit on disposal of property, plant and
equipment - (0.5)
Net finance costs 2.0 1.3
Depreciation, amortisation and impairment 13.9 7.7
====================================================== ===== ======= =======
Operating cash flows before movements in working
capital 24.7 18.1
(Increase)/decrease in inventories (3.5) 1.2
Decrease/(increase) in trade, contract and
other receivables 12.4 (14.5)
(Decrease)/increase in trade, contract and
other payables (11.5) 12.6
Decrease in provisions (0.8) (0.5)
Defined benefit pension scheme payments in
excess of past service costs (2.3) (1.0)
====================================================== =====
Cash generated from operations 19.0 15.9
Net finance costs (2.0) (1.1)
Tax paid (4.7) (2.6)
====================================================== =====
Net cash generated from operating activities 12.3 12.2
====================================================== ===== ======= =======
Cash flows from investing activities
Acquisitions of subsidiaries, net of cash
acquired (4.3) (1.7)
Purchases of property, plant and equipment (17.9) (3.0)
Proceeds from disposal of property, plant
and equipment 0.1 3.0
Purchases of intangible assets and capitalised
development costs (4.9) (3.2)
====================================================== ===== ======= =======
Net cash used in investing activities (27.0) (4.9)
====================================================== ===== ======= =======
Cash flows from financing activities
Purchases of own shares to settle awards (0.6) (1.0)
Principal element of lease payments (2.3) -
Proceeds from settlement of derivatives 0.7 -
Proceeds from borrowings 14 59.1 15.0
Repayment of borrowings 14 (34.0) (5.8)
Dividends paid to shareholders 8 (8.3) (7.9)
====================================================== ===== =======
Net cash generated from financing activities 14.6 0.3
====================================================== ===== ======= =======
Effect of exchange rate changes on cash and
cash equivalents (1.3) 0.2
====================================================== ===== =======
Net (decrease)/increase in cash and cash equivalents 14 (1.4) 7.8
Net cash and cash equivalents at beginning
of period 32.4 23.8
====================================================== ===== ======= =======
Net cash and cash equivalents at end of period 31.0 31.6
====================================================== ===== ======= =======
The accompanying notes are an integral part of these condensed
interim financial statements.
Notes to the condensed interim financial statements
for the six months ended 31 December 2019 (unaudited)
1 General information
Ricardo plc (the 'Company'), a public company limited by shares,
is listed on the London Stock Exchange and incorporated and
domiciled in the United Kingdom. The address of its registered
office is Shoreham Technical Centre, Shoreham-by-Sea, West Sussex,
BN43 5FG, England, United Kingdom, and its registered number is
222915.
The condensed interim financial statements were approved for
issue by the Board of Directors on 24 February 2020. These
condensed interim financial statements have not been audited, but
they have been subject to an independent review by KPMG LLP
('KPMG'), whose independent review report is included at the end of
this report.
2 Basis of preparation
These condensed interim financial statements of the Company and
its subsidiaries (together, the 'Group') for the six months ended
31 December 2019 do not comprise statutory accounts within the
meaning of Section 434 of the Companies Act 2006. They have been
prepared in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority and IAS 34 Interim Financial Reporting, as adopted by the
European Union.
These condensed interim financial statements should be read in
conjunction with the financial statements for the year ended 30
June 2019 within the Annual Report & Accounts 2018/19, which
were prepared in accordance with International Financial Reporting
Standards ('IFRS'), IFRS Interpretations Committee ('IFRS IC')
interpretations adopted by the European Union and the Companies Act
2006 applicable to companies reporting under IFRS. The Annual
Report & Accounts 2018/19, which was approved by the Board of
Directors on 11 September 2019 and delivered to the Registrar of
Companies. The report of the auditors on those statutory accounts
was unqualified, did not contain an emphasis of matter paragraph
and did not contain any statement under Section 498 of the
Companies Act 2006.
The accounting policies adopted within this Interim Report are
consistent with the Annual Report & Accounts 2018/19 except for
the requirements of IAS 34 Interim Financial Reporting in respect
of income tax and the adoption of IFRS 16 Leases. Taxes on income
in the interim period are accrued using the tax rate that would be
applicable to expected total annual profit or loss. The impact of
the adoption of the new leasing standard and the new accounting
policy are disclosed in Note 17.
At the time of approving these condensed interim financial
statements, and having reassessed the principal risks and
uncertainties of the Group, the Directors considered it appropriate
to adopt the going concern basis of accounting in preparing the
condensed interim financial statements.
3 Seasonality
Management does not consider the Group's business to be highly
seasonal but based upon its experience, higher levels of revenue
and profit are expected in the second half of each financial year.
This is typically due to lower levels of annual leave and a greater
number of chargeable hours, which equates to higher revenues on a
predominantly fixed cost base, and therefore higher profits.
4 Operating segments
The Group's operating segments are being reported based on the
financial information provided to the Chief Operating Decision
Maker who is the Chief Executive Officer. The information reported
includes financial performance but does not include the financial
position of assets and liabilities. The operating segments were
identified by evaluating the Group's products and services,
processes, types of customers and delivery methods. From HY
2019/20, in order to provide more granularity in the key drivers of
performance, the Group has changed its segmental reporting from the
historical Technical Consulting and Performance Products segments,
to the segments set out below:
-- Energy & Environment ('E&E');
-- Rail;
-- Automotive & Industrial ('A&I');
-- Defense; and
-- Performance Products ('PP').
There is also an 'all other segments', which comprises the
Group's Strategic Consulting ('RSC') and Software businesses. The
operating segment section of this Interim Report provides further
detail on the segments' performance.
Measurement of performance
Management monitors the financial results of its operating
segments separately for the purpose of making decisions about
allocating resources and assessing performance. Segmental
performance is measured based on underlying operating profit, as
this measure provides management with an overall view of how the
different operating segments are managing their total cost base
against the revenue generated from their portfolio of contracts.
Included within Plc costs in the following tables are costs arising
from a central Group function, including the costs of running the
public limited company, which are not recharged to the other
operating segments.
For the six months All
ended other
31 December 2019 E&E Rail A&I Defense PP segments Plc Total
========================
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
======================== ====== ====== ====== ======== ====== ========== ====== ======
Total segment revenue 25.1 39.0 60.5 17.6 44.2 11.2 - 197.6
Inter-segment revenue (1.5) (0.1) (1.5) - (1.0) (0.6) - (4.7)
======================== ====== ====== ====== ======== ====== ========== ====== ======
Revenue from external
customers 23.6 38.9 59.0 17.6 43.2 10.6 - 192.9
======================== ====== ====== ====== ======== ====== ========== ====== ======
Segment underlying
operating profit 3.0 2.7 5.2 2.9 4.1 1.4 - 19.3
Plc costs - - - - - - (1.3) (1.3)
======================== ====== ====== ====== ======== ====== ========== ====== ======
Underlying operating
profit 3.0 2.7 5.2 2.9 4.1 1.4 (1.3) 18.0
Specific adjusting
items(*) (0.8) (2.7) (3.3) (0.2) - - (0.7) (7.7)
======================== ====== ====== ====== ======== ====== ========== ====== ======
Operating profit 2.2 - 1.9 2.7 4.1 1.4 (2.0) 10.3
Net finance costs (2.0)
======================== ====== ====== ====== ======== ====== ========== ====== ======
Profit before taxation 8.3
======================== ====== ====== ====== ======== ====== ========== ====== ======
For the six months All
ended other
31 December 2018 E&E Rail A&I Defense PP segments Plc Total
========================
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
======================== ====== ====== ====== ======== ====== ========== ====== ======
Total segment revenue 21.3 34.2 70.6 8.8 48.2 11.7 - 194.8
Inter-segment revenue (0.4) (0.1) (3.4) - (2.3) (0.5) - (6.7)
======================== ====== ====== ====== ======== ====== ========== ====== ======
Revenue from external
customers 20.9 34.1 67.2 8.8 45.9 11.2 - 188.1
======================== ====== ====== ====== ======== ====== ========== ====== ======
Segment underlying
operating profit 2.1 1.9 7.4 0.4 4.3 2.1 - 18.2
Plc costs - - - - - - (1.6) (1.6)
======================== ====== ====== ====== ======== ====== ========== ====== ======
Underlying operating
profit 2.1 1.9 7.4 0.4 4.3 2.1 (1.6) 16.6
Specific adjusting
items(*) (0.5) (1.2) (1.4) (0.2) - - (1.7) (5.0)
======================== ====== ====== ====== ======== ====== ========== ====== ======
Operating profit 1.6 0.7 6.0 0.2 4.3 2.1 (3.3) 11.6
Net finance costs (1.3)
======================== ====== ====== ====== ======== ====== ========== ====== ======
Profit before taxation 10.3
======================== ====== ====== ====== ======== ====== ========== ====== ======
(*) See Note 6 for specific adjusting items, which represent a
reconciliation between underlying performance and statutory
performance.
5 Revenue
Disaggregation of revenue for the six months ended
31 December: 2019 2018
====================================================
GBPm GBPm
==================================================== ====== ======
a) Revenue stream
Services provided under:
- fixed price contracts 99.6 104.3
- time and materials contracts 36.1 32.4
- Subscription and software support contracts 3.2 3.7
Goods supplied:
- manufactured or assembled products 49.2 44.0
- software products 3.8 3.7
Intellectual property 1.0 -
==================================================== ====== ======
Total 192.9 188.1
==================================================== ====== ======
b) Customer location
United Kingdom 69.1 77.3
Europe 42.4 46.3
North America 33.8 25.9
China 13.6 16.1
Rest of Asia 16.9 16.7
Australia 10.2 0.7
Rest of the World 6.9 5.1
==================================================== ====== ======
Total 192.9 188.1
==================================================== ====== ======
(c) Timing of recognition
Over time 142.4 143.4
At a point in time 50.5 44.7
==================================================== ====== ======
Total 192.9 188.1
==================================================== ====== ======
6 Specific adjusting items
For the six months ended 31 December 2019 2018
=====================================================
GBPm GBPm
===================================================== ====== ======
Amortisation of acquired intangible assets(1) 3.0 2.0
Acquisition-related expenditure(2) 1.0 0.5
Reorganisation costs(3) 3.7 1.3
Guaranteed Minimum Pensions ('GMP') equalisation(4) - 1.2
===================================================== ====== ======
Total before tax 7.7 5.0
Tax credit on specific adjusting items (1.7) (1.0)
===================================================== ====== ======
Total after tax 6.0 4.0
===================================================== ====== ======
(1) Amortisation of acquired intangible assets have been
classified as specific adjusting items due to their size and
nature, being acquisition-related expenditure. On acquisition of a
business, the purchase price is allocated to assets such as
customer contracts and relationships. Amortisation occurs on a
straight-line basis over its useful economic life, which is between
3 and 9 years. The increase in the period is due to the two recent
acquisitions (see Note 9).
(2) Acquisition-related expenditure in the current and prior
periods comprised earn-out and employee retention costs, accrued on
a pro-rata basis, in relation to recently acquired businesses (see
Note 9), together with integration costs and the costs of
maintaining an internal acquisitions department.
(3) Reorganisation costs in the current period includes a net
charge of GBP2.5m relating to the impairment, net of the
extinguishment of an associated IFRS 16 lease liability, of the
Detroit Technical Center ('DTC'). The freehold property, located at
40000 Ricardo Drive, Van Buren Township, Detroit, Michigan,
48111-1641, United States, was purchased for GBP14.2m (USD 17.3m)
on 21 August 2019. The purchase of the facility removes the Group
from its long-term lease commitment to October 2037 and the
purchase price was predicated on its tenancy. The impairment,
together with the extinguishment of the lease liability, has been
classified as specific adjusting items due to the size and
non-recurring nature of the transaction.
Since its purchase, DTC has been marketed for sale, together
with the DTC engine test assets, which were held for sale as at 30
June 2019 (see Note 12).
Other reorganisation costs in the current period included
external fees and contractor costs incurred in relation to the
marketing of the DTC assets and transformation of the A&I
operations in the UK. In addition, redundancy costs were incurred
in relation to the completion of the fundamental restructuring of
the A&I business (which accounted for all of the reorganisation
costs in the prior period) and the ongoing restructuring operations
in Rail.
(4) In October 2018, the High Court issued a judgement
confirming that pension schemes are required to equalise male and
female members' benefits for the effect of Guaranteed Minimum
Pensions ('GMP'). The past service cost due to GMP equalisation is
considered to be non-recurring in nature and significant in its
amount.
7 Earnings per share
For the six months ended 31 December 2019 2018
====================================================
GBPm GBPm
==================================================== =========== ===========
Earnings attributable to owners of the parent 6.3 7.8
Add back the net-of-tax impact of:
- Amortisation of acquired intangible assets 2.4 1.6
- Acquisition-related expenditure 0.8 0.4
- Reorganisation costs 2.8 1.0
- Guaranteed Minimum Pensions ('GMP') equalisation - 1.0
==================================================== =========== ===========
Underlying earnings attributable to owners of
the parent 12.3 11.8
==================================================== =========== ===========
For the six months ended 31 December 2019 2018
====================================================
Number Number
of shares of shares
millions millions
==================================================== =========== ===========
Basic weighted average number of shares in issue 53.4 53.4
Effect of dilutive potential shares - 0.2
==================================================== =========== ===========
Diluted weighted average number of shares in issue 53.4 53.6
==================================================== =========== ===========
2019 2018
Earnings per share pence pence
==================================================== =========== ===========
Basic 11.8 14.6
Diluted 11.8 14.6
==================================================== =========== ===========
2019 2018
Underlying earnings per share pence pence
==================================================== =========== ===========
Basic 23.0 22.1
Diluted 23.0 22.0
==================================================== =========== ===========
Underlying earnings per share is also shown because the
Directors consider that this provides a more useful indication of
underlying performance and trends over time.
8 Dividends
For the six months ended 31 December 2019 2018 2019 2018
======================================
pence/share pence/share GBPm GBPm
====================================== ============ ============ ===== =====
Amounts distributed in the period
for FY 2018/19 15.28p 14.71p 8.2 7.9
Interim dividend declared for FY
2019/20 6.24p 6.00p 3.3 3.2
====================================== ============ ============ ===== =====
The Directors have declared an interim dividend of 6.24p per
share, which will be paid on 6 April 2020 to shareholders who are
on the register of members at the close of business on 13 March
2020.
A dividend of GBP0.1m was issued during the period to a
non-controlling interest.
9 Acquisitions
(a) Acquisitions in the current period - PLC Consulting
On 31 July 2019, the Group acquired the entire issued share
capital of PLC Consulting Pty Ltd ('PLC Consulting') for initial
cash consideration of GBP4.2m (AUD 7.4m), which includes an
adjustment for cash and normalised net working capital of GBP0.3m
(AUD 0.4m), paid in November 2019.
PLC Consulting is an Australian firm with a strong technical
advisory capability across the project life cycle in
infrastructure, environment and planning, including supporting the
environmental requirements of master-planning, business cases,
procurement, design, construction and operation. PLC Consulting was
renamed Ricardo Energy Environment and Planning ('REEP') on 5
August 2019. The following tables set out the provisional fair
value of cash consideration payable to acquire PLC Consulting,
together with the provisional assessment of the fair value of net
assets acquired.
Provisional fair value of cash consideration GBPm
================================================================ ======
Initial cash consideration 4.2
================================================================ ======
Total provisional fair value of cash consideration 4.2
================================================================ ======
Provisional assessment of the fair value of identifiable GBPm
net assets acquired
================================================================ ======
Customer contracts and relationships 1.3
Trade, contract and other receivables 0.5
Cash and cash equivalents 0.4
Trade, contract and other payables (0.2)
Deferred tax liabilities (0.4)
================================================================ ======
Total provisional assessment of the fair value of identifiable
net assets acquired 1.6
Goodwill 2.6
================================================================ ======
Total provisional fair value of cash consideration 4.2
================================================================ ======
The maximum contingent cash payable is GBP1.4m (AUD 2.6m). The
amounts payable will be based on the achievement of a range of
annual performance targets measured against the earnings before
interest, tax, depreciation and amortisation of PLC Consulting
across a two-year earn-out period. These payments are dependent
upon the continuing employment of the sellers in the business and
are not considered to be consideration. GBP0.2m (AUD 0.4m),
representing a pro-rata accrual for the fair value of the expected
year one payment, has been accrued within specific adjusting items
(see Note 6).
Provisional adjustments have been made for the recognition of
customer-related intangible assets separable from goodwill
amounting to GBP1.3m (AUD 2.4m), but have not yet been made to
other identifiable net assets acquired to reflect their fair value.
The provisional assessment of net assets acquired is based upon
available financial information and may be adjusted in future in
accordance with the requirements of IFRS 3 Business Combinations
and the sale and purchase agreement.
The provisional assessment of goodwill arising on acquisition
can be ascribed to the existence of a skilled, active workforce,
developed expertise and processes and the opportunities to obtain
new contracts and develop the business. None of these meet the
criteria for recognition as intangible assets separable from
goodwill. None of the goodwill recognised on consolidation is
expected to be deductible for tax purposes.
The provisional assessment of net assets acquired of GBP1.6m
(AUD 3.0m) includes trade receivables of GBP0.5m (AUD 0.9m), all of
which is expected to be collectible.
The revenue included in the income statement in relation to the
acquired business was GBP1.2m. The underlying operating profit over
the same period was GBP0.4m. This is reported in the E&E
segment in Note 4.
Had PLC Consulting been acquired and consolidated from 1 August
2018, revenue and operating profit in the prior period income
statement would have been GBP0.9m and GBP0.3m higher,
respectively.
(b) Acquisitions in the prior year - Transport Engineering
On 31 May 2019, the Group acquired the entire issued share
capital of Transport Engineering Pty Ltd ('Transport Engineering')
for initial cash consideration payable of GBP21.7m (AUD 39.5m)
which includes an adjustment for cash and normalised net working
capital of GBP0.5m (AUD 0.9m) paid in August 2019, together with
the accrued provisional fair value of contingent cash consideration
payable of GBP5.1m (AUD 9.4m).
Transport Engineering is a leading rail technical services
consultancy based in Australia. It expands the Group's existing
capabilities within the growing Asia-Pacific rail market and
provides a footprint for other Ricardo businesses in Australia.
Transport Engineering was renamed Ricardo Rail Australia ('RRA') on
11 June 2019. The following tables set out the provisional fair
value of cash consideration payable to acquire Transport
Engineering, together with the provisional assessment of the fair
value of net assets acquired.
Provisional fair value of cash consideration GBPm
================================================================ ======
Initial cash consideration 21.7
Provisional fair value of contingent cash consideration 5.1
================================================================ ======
Total provisional fair value of cash consideration 26.8
================================================================ ======
Provisional assessment of the fair value of identifiable GBPm
net assets acquired
================================================================ ======
Customer contracts and relationships 9.7
Property, plant and equipment 0.1
Trade, contract and other receivables 2.3
Cash and cash equivalents 2.3
Trade, contract and other payables (1.7)
Current tax liabilities (0.9)
Deferred tax liabilities (2.9)
================================================================ ======
Total provisional assessment of the fair value of identifiable
net assets acquired 8.9
Goodwill 17.9
================================================================ ======
Total provisional fair value of cash consideration 26.8
================================================================ ======
The Group also acquired all of Transport Engineering's
shareholding in its associate, Wamarragu Transport Services Pty
Ltd, the financial results of which are immaterial to the
Group.
The cash impact of the acquisition in the prior year was
GBP18.9m (AUD 34.4m), being the initial cash consideration of
GBP21.2m (AUD 38.6m) paid on completion, less cash acquired of
GBP2.3m (AUD 4.2m). GBP0.5m (AUD 0.9m) was paid for cash and
normalised net working capital in the current period. The maximum
contingent cash consideration payable is GBP8.1m (AUD 15.0m). The
amounts payable will be based on the achievement of annual
performance targets measured against the profit before tax of
Transport Engineering across a two-year earn-out period. Each
earn-out is only payable in full if the performance target is
achieved. GBP0.2m has been accrued within specific adjusting items
(see Note 6) in the current period reflecting the unwind of the
discount applied to the fair value of the deferred
consideration.
Provisional adjustments have been made to identifiable net
assets acquired to reflect their fair value. These include the
recognition of customer-related intangible assets separable from
goodwill amounting to GBP9.7m (AUD 17.8m). The provisional fair
values of contingent cash consideration and identifiable net assets
acquired may be adjusted in future in accordance with the
requirements of IFRS 3 Business Combinations and the sale and
purchase agreement.
The provisional assessment of goodwill arising on acquisition
can be ascribed to the existence of a skilled, active workforce,
developed expertise and processes and the opportunities to obtain
new contracts and develop the business. None of these meet the
criteria for recognition as intangible assets separable from
goodwill. None of the goodwill recognised on consolidation is
expected to be deductible for tax purposes.
The provisional assessment of the fair value of trade, contract
and other receivables acquired of GBP2.3m (AUD 4.2m) included trade
receivables of GBP0.3m (AUD 0.6m) and amounts recoverable on
contracts of GBP1.8m (AUD 3.2m), all of which have been
collected.
Had Transport Engineering been acquired and consolidated from 1
July 2018, revenue and underlying operating profit in the income
statement in the prior period would be GBP6.9m and GBP1.3m higher,
respectively.
10 Goodwill
31 December 30 June
2019 2019
Movement in goodwill GBPm GBPm
================================== ============ ========
At 1 July 84.2 65.5
Acquisition of business (Note 9) 2.6 17.9
Exchange adjustments (2.8) 0.8
================================== ============ ========
At period end 84.0 84.2
================================== ============ ========
31 December 30 June
2019 2019
Goodwill by operating segment GBPm GBPm
================================== ============ ========
Energy & Environment ('E&E') 15.8 13.3
Rail 44.3 46.0
Automotive & Industrial ('A&I') 19.4 20.3
Defense 3.4 3.5
Performance Products ('PP') 1.1 1.1
================================== ============ ========
At period end 84.0 84.2
================================== ============ ========
11 Right-of-use assets
The Group adopted IFRS 16 Leases from 1 July 2019. This requires
the recognition of right-of-use assets, which are leased assets the
Group has the right to use for the term of the respective lease.
This does not include hire purchase assets, which continue to be
recognised within plant, property and equipment. For further
information please see Note 17.
Fixtures,
fittings
Plant and and
Property machinery equipment Total
GBPm GBPm GBPm GBPm
============================== ========= ========== ========== =======
Cost
At 30 June 2019 - - - -
Impact on adoption of IFRS
16 (Note 17) 52.6 0.8 0.3 53.7
============================== ========= ========== ========== =======
At 1 July 2019 52.6 0.8 0.3 53.7
Additions - 0.1 - 0.1
Disposals (20.3) - - (20.3)
============================== ========= ========== ========== =======
At 31 December 2019 32.3 0.9 0.3 33.5
============================== ========= ========== ========== =======
Accumulated depreciation and
impairment
At 30 June 2019 - - - -
Impact on adoption of IFRS
16 (Note 17) 15.9 - - 15.9
============================== ========= ========== ========== =======
At 1 July 2019 15.9 - - 15.9
Charge for the period 2.5 0.2 - 2.7
Disposals (9.8) - - (9.8)
============================== ========= ========== ========== =======
At 31 December 2019 8.6 0.2 - 8.8
============================== ========= ========== ========== =======
Net book value
============================== ========= ========== ========== =======
At 31 December 2019 23.7 0.7 0.3 24.7
============================== ========= ========== ========== =======
At 1 July 2019 36.7 0.8 0.3 37.8
At 30 June 2019 - - - -
The disposal of the right-of-use asset for leased property arose
from to the Group's purchase of the freehold property at DTC, as
set out in Notes 6 and 12.
12 Non-current assets held for sale
31 December 30 June
2019 2019
GBPm GBPm
============================= ============ ========
Freehold land and buildings 7.9 -
Plant and machinery 3.1 2.9
============================= ============ ========
At period end 11.0 2.9
============================= ============ ========
In January 2019, the Directors made a decision to commence a
process to market actively the test cell assets at DTC for sale,
which had a net book value of GBP2.9m (USD 3.7m).
As explained in Note 6, on 21 August 2019, the Group purchased
the freehold property of DTC for GBP14.2m (USD 17.3m).
Subsequently, the Group commenced a process to market the newly
acquired freehold property together with the DTC test assets that
were previously held for sale at 30 June 2019 as a single disposal
group. During the period the Group continued to invest in these
test cell assets to improve their desirability, increasing the held
for sale net book value to GBP3.1m (USD 4.1m). The freehold
property was assessed for impairment as part of being classified as
held for sale and impaired to GBP8.6m (USD 10.5m). The value at 31
December 2019 was GBP7.9m (USD 10.5m) due to foreign exchange.
The disposal of these assets will provide the flexibility to
realign the cost base of the A&I segment in the US with its
strategy to become a more operationally efficient consultancy.
13 Fair value of financial assets and liabilities
There are no differences between the fair value of financial
assets and liabilities included within the following categories in
the Condensed Consolidated Statement of Financial Position and
their carrying value:
-- Trade, contract and other receivables;
-- Derivative financial assets;
-- Cash and cash equivalents;
-- Trade, contract and other payables; and
-- Derivative financial liabilities
Derivative financial assets of GBP3.9m (30 June 2019: GBP0.3m)
and derivative financial liabilities of GBP0.3m (30 June 2019:
GBP1.2m) relate to foreign exchange forward and swap contracts,
which are Level 2 of the fair value hierarchy within IFRS 13 Fair
Value Measurement. The Group use derivative financial instruments
primarily to manage currency risk on its US Dollar, Euro, Chinese
Renminbi, Japanese Yen, Hong Kong Dollar and Australian Dollar
denominated receivables and payables from its subsidiaries, in
addition to managing transactional exposures relating to customer
contracts denominated in foreign currencies. It is the Group's
policy not to undertake any speculative currency transactions.
14 Net debt
Net debt is defined as current and non-current borrowings less
cash and cash equivalents, including hire purchase agreements, but
excluding any impact of IFRS 16 lease liabilities. Management
believe this definition is the best for monitoring the indebtedness
of the Group and is consistent with the treatment in the Group's
banking agreements.
31 December 30 June
2019 2019
Analysis of net debt GBPm GBPm
==================================================== ============ ==========
Current assets - cash and cash equivalents:
- Cash and cash equivalents 39.2 36.3
==================================================== ============ ==========
Total 39.2 36.3
==================================================== ============ ==========
Current liabilities - borrowings:
- Bank overdrafts repayable on demand (8.2) (3.9)
- Hire purchase lease liabilities maturing within
one year (0.1) (0.1)
==================================================== ============ ==========
- Other loans maturing within one year - -
==================================================== ============ ==========
Total (8.3) (4.0)
==================================================== ============ ==========
Non-current liabilities - borrowings:
- Hire purchase lease liabilities maturing after
one year (0.5) (0.6)
- Bank loans maturing after one year (104.2) (79.1)
==================================================== ============ ==========
Total (104.7) (79.7)
==================================================== ============ ==========
At period end (73.8) (47.4)
==================================================== ============ ==========
31 December 30 June
2019 2019
Movement in net debt GBPm GBPm
==================================================== ============ ==========
Net debt at beginning of period (47.4) (26.1)
(Decrease)/increase in cash and cash equivalents,
and bank overdrafts (1.4) 8.6
Repayments of/(proceeds from) hire purchase lease 0.1 (0.7)
Proceeds from bank loans (59.1) (64.0)
Repayments of bank loans 34.0 34.8
==================================================== ============ ========
At period end (73.8) (47.4)
==================================================== ============ ========
Net debt at 31 December 2019 was GBP73.8m (FY 2018/19:
GBP47.4m). As reported to the Board on a monthly basis, there is
sufficient headroom in our banking facilities. At 31 December 2019
the Group held total facilities of GBP165.9m (FY 2018/19:
GBP166.4m), which included committed facilities of GBP150.0m, which
provides the Group with sufficient funding through to July 2023 to
support future acquisitions, strategic investments and new
projects, as well as the Group's ongoing working capital
requirements. As at 31 December 2019, GBP104.2m of the committed
facilities were drawn (FY 2018/19: GBP79.1m).
15 Contingent liabilities
In the ordinary course of business, the Group has GBP7.6m (30
June 2019: GBP7.3m) of possible obligations for bonds, guarantees
and counter-indemnities placed with our banking institutions
primarily relating to performance under contracts with customers.
These possible obligations are contingent on the outcome of
uncertain future events which are considered unlikely to occur. The
Group is also involved in commercial disputes and litigation with
some customers, which is also in the normal course of business.
Whilst the result of such disputes cannot be predicted with
certainty, the ultimate resolution of these disputes is not
expected to have a material effect on the Group's financial
position or results.
In July 2013, a guarantee was provided to the Ricardo Group
Pension Fund ('RGPF') of GBP2.8m in respect of certain contingent
liabilities that may arise, which have been secured on specific
land and buildings. The outcome of this matter is not expected to
give rise to any material cost to the Group.
In October 2018, a further guarantee was provided to the RGPF
for an amount that shall not exceed the employers' liability were a
debt to arise under Section 75 of the Pensions Act 1995. The
guarantee will terminate on 5 April 2023. The outcome of this
matter is not expected to give rise to any material cost to the
Group on the basis that the Group continues as a going concern.
16 Principal risks and uncertainties
The Board regularly reviews its principal risks and
uncertainties, including those relating to Brexit. To ensure our
risk process drives continuous improvement across the business, we
monitor the ongoing status and progress of key action plans against
each risk on a half-yearly basis. Risk is a key consideration of
the Board in all strategic decisions. In the most recent risk
review cycle, risks were reviewed which relate to customers and
markets; contracts; people; technology; compliance with laws and
regulations; the defined benefit pension scheme; financing; and
cyber risk, and these included the continued consideration of the
potential impact of Brexit. The approach to mitigation of these
principal risks is discussed on pages 45 and 46 of the Group's
Annual Report & Accounts 2018/19, and the Directors have
concluded that the disclosure remains appropriate. These principal
risks and uncertainties should be read in conjunction with the
highlights, trading summary and operating segments review for the
six months ended 31 December 2019 included within this Interim
Report.
17 Changes in significant accounting policies
IFRS 16 Leases
This note explains the impact of the adoption of IFRS 16 Leases
on the Group's financial statements, the transition method and also
discloses the new accounting policies, critical judgements and key
estimates that have been applied from 1 July 2019.
IFRS 16 Leases replaces IAS 17 Leases and provides a single
model for lessees which recognises a right-of-use asset and an
associated lease liability for future lease payments for all leased
assets for periods longer than one year or which are not classified
as low value. The distinction between operating and finance leases
is removed.
Transition method
The Group adopted the modified retrospective approach to
transition, with the option being taken to recalculate the value of
eight materially significant leased property assets while
recognising the remaining leased assets at an amount equal to the
liability on transition, adjusted for any prepaid or accrued lease
expenses. Under this approach the Group has not restated
comparative financial information, which remains presented under
IAS 17. For the eight leased property assets which have been
recalculated, the Group has elected to measure the right-of-use
asset as if IFRS 16 had been applied since the start of the lease,
but using the incremental borrowing rate at 1 July 2019, with the
difference between the right-of-use asset and the lease liability
taken to retained earnings on transition.
The Group has elected to adopt the following practical
expedients on transition:
-- not to capitalise a right-of-use lease asset or related lease
liability where the lease expires before 30 June 2020;
-- not to reassess contracts to determine if the contract
contains a lease nor to separate lease and non-lease
components;
-- to use hindsight in determining the lease term;
-- to exclude initial direct costs from the measurement of the right -- of -- use asset; and
-- to apply the portfolio approach where a group of leases has similar characteristics.
Accounting policy
The Group's accounting policy for leases under IAS 17 Leases was
disclosed in Note 1(j) to the financial statements in the Annual
Report & Accounts 2018/19.
The Group's policy for leases as of 1 July 2019 under IFRS 16 L
eases, is as follows:
Definition of a lease
Under IFRS 16, a contract is, or contains, a lease if the
contract conveys a right to control the use of an identified asset
for a period of time in exchange for consideration.
Lessee accounting
At the lease commencement date, a right-of-use asset is
recognised for the leased item with a corresponding lease liability
for any payments due. The right-of-use asset is initially measured
at cost, being the present value of the lease payments paid or
payable (net of any incentives received from the lessor), plus any
initial direct costs and/or restoration costs.
Right-of-use assets is depreciated on a straight-line basis from
the commencement date of the lease to the earlier of the end of the
asset's useful life or the end of the lease term. The lease term is
the non-cancellable period of the lease plus any periods for which
the Group is 'reasonably certain' to exercise any extension
options. If right-of-use assets are considered to be impaired, the
carrying value is reduced accordingly.
The lease liability is initially measured at the value of future
lease payments, discounted using the interest rate implicit in the
lease. Where this rate is not determinable, the Group's incremental
borrowing rate is used, which is then adjusted to reflect an
estimate of the interest rate the Group would have to pay to borrow
the amount necessary to obtain an asset of similar value, in a
similar economic environment, and with similar terms and
conditions.
After initial recognition, the lease liability is recorded at
amortised cost using the effective interest method. It is
remeasured when there is a change in future lease payments arising
from a change in an index or rate (e.g. an inflation related
increase) or if the Group's assessment of the lease term changes.
Any change in the lease liability as a result of these changes also
results in a corresponding change in the recorded right-of-use
asset.
Payments in respect of short-term and/or low-value leases
continue to be charged to the income statement on a straight-line
basis over the lease term.
For assets where the lessor transfers ownership of the
underlying asset to the Group by the end of the lease term, or
where the lease contains a purchase option at a nominal/notional
value, then these assets will be initially classified as property,
plant and equipment, and subsequently follow the depreciation rules
set out in Note 1(p) to the financial statements in the Annual
Report & Accounts 2018/19).
Lessor accounting
The Group determines at inception of the lease whether the lease
is a finance or an operating lease. When a lease transfers
substantially all the risks and rewards of ownership of the
underlying asset then the lease is a finance lease; otherwise, the
lease is an operating lease. Where the Group is an intermediate
lessor, the interest in the head lease and the sub-lease is
accounted for separately and the lease classification of a
sub-lease (finance or operating) is determined by reference to the
right-of-use asset arising from the head lease, not with reference
to the underlying asset. This is the only substantive change for
lessor accounting from IAS 17 to IFRS 16.
This resulted in one significant operating lease being
reclassified as a finance lease. This is presented in investment
properties and measured at fair value on transition to IFRS 16. The
other sub-leased assets are all classified as operating leases,
where payments received (net of any incentives granted by the
Group) are recognised in the income statement on a straight-line
basis over the lease term.
Critical judgements and key estimates
The Group exercises judgement in determining the likelihood of
exercising break or extension options in determining the lease
term. This impacts the size of the right-of-use asset and
corresponding lease liability.
The discount rate used to calculate the lease liability is the
rate implicit in the lease, if it can be readily determined, or the
lessee's incremental borrowing rate if not. The Group uses the
incremental borrowing rate for all leases. The incremental
borrowing rate is calculated as the sum of the risk-free rate based
on government bond rates, a credit risk adjustment for Ricardo and
an asset specific adjustment.
Adjustment to the financial statements
Consolidated statement of financial position (extract)
IFRS 16 Adjusted
Previously transitional under IFRS
As at 1 July 2019 reported adjustment 16
GBPm GBPm GBPm
======================================= =========== ============== ============
Assets
Non-current assets
Right-of-use assets - 37.8 37.8
Investment properties - 2.3 2.3
Deferred tax assets 6.7 1.0 7.7
Total non-current assets 176.5 41.1 217.6
======================================= =========== ============== ============
Current assets
Trade, contract and other receivables 141.4 (1.5) 139.9
======================================= =========== ============== ============
Total current assets 192.5 (1.5) 191.0
======================================= =========== ============== ============
Total current assets and non-current
assets held for sale 195.4 (1.5) 193.9
======================================= =========== ============== ============
Total assets 371.9 39.6 411.5
======================================= =========== ============== ============
Liabilities
Current liabilities
Lease liabilities - (4.6) (4.6)
Trade, contract and other payables (84.8) 2.1 (82.7)
Total current liabilities (95.7) (2.5) (98.2)
======================================= =========== ============== ============
Net current assets 99.7 (4.0) 95.7
======================================= =========== ============== ============
Non-current liabilities
Lease liabilities - (41.1) (41.1)
Total non-current liabilities (104.3) (41.1) (145.4)
======================================= =========== ============== ============
Total liabilities (200.0) (43.6) (243.6)
======================================= =========== ============== ============
Net assets 171.9 (4.0) 167.9
======================================= =========== ============== ============
Equity
Retained earnings 126.8 (4.0) 122.8
======================================= =========== ============== ============
Equity attributable to owners of the
parent 171.4 (4.0) 167.4
======================================= =========== ============== ============
Total equity 171.9 (4.0) 167.9
======================================= =========== ============== ============
Reconciliation between operating lease commitments and lease
liabilities
The following table explains the differences between the
operating lease commitments disclosed applying IAS 17 at 30 June
2019 and the lease liabilities recognised on transition to IFRS 16
on 1 July 2019.
GBPm
============================================================ =======
Total operating lease commitments under IAS 17 at 30 June
2019 61.2
Discounting (12.9)
Exempt lease payments (0.8)
Non-lease component payments (1.8)
Lease liabilities recognised on transition to IFRS 16 at 1
July 2019 45.7
============================================================ =======
Statement of Directors' responsibilities
The Directors confirm that to the best of their knowledge:
-- the condensed interim financial statements have been prepared
in accordance with International Accounting Standard 34 Interim
Financial Reporting as adopted by the EU;
-- the highlights, trading summary and operating segments review
within this Interim Report includes a fair review of the
information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules
, being an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed interim financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the financial year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules
, being related party transactions that have taken place in the
first six months of the financial year and that have materially
affected the financial position or performance of the Group during
that period and any changes in the related party transactions
described in the last annual report that could do so.
By order of the Board:
Dave Shemmans Ian Gibson
Chief Executive Officer Chief Financial Officer
24 February 2020
Independent review report to Ricardo plc
Conclusion
We have been engaged by Ricardo plc (the 'Company') to review
the condensed interim financial statements for the six months ended
31 December 2019, which comprise the condensed consolidated income
statement, the condensed consolidated statement of comprehensive
income, the condensed consolidated statement of financial position,
the condensed consolidated statement of changes in equity, the
condensed consolidated statement of cash flows and the related
explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed interim financial
statements for the six months ended 31 December 2019 are not
prepared, in all material respects, in accordance with
International Accounting Standard ('IAS') 34 Interim Financial
Reporting as adopted by the European Union (the 'EU') and the
Disclosure Guidance and Transparency Rules (the 'DTR') of the
United Kingdom's Financial Conduct Authority (the 'UK FCA').
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the UK. A review of interim financial information consists of
making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures. We read the other information contained in the Interim
Report and consider whether it contains any apparent misstatements
or material inconsistencies with the information in the condensed
interim financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
The impact of uncertainties due to the UK exiting the European
Union on our review
Uncertainties related to the effects of Brexit are relevant to
understanding our review of the condensed interim financial
statements. Brexit is one of the most significant economic events
for the UK, and its effects are subject to unprecedented levels of
uncertainty of outcomes, with the full range of possible effects
unknown. An interim review cannot be expected to predict the
unknowable factors or all possible future implications for a
company and this is particularly the case in relation to
Brexit.
Directors' responsibilities
The Interim Report is the responsibility of, and has been
approved by, the Directors. The Directors are responsible for
preparing the Interim Report in accordance with the DTR of the UK
FCA. As disclosed in Note 2, the annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards as adopted by the EU. The Directors are
responsible for preparing the condensed interim financial
statements in accordance with IAS 34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed interim financial statements based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the Company in accordance with the
terms of our engagement to assist the Company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the Company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company for our
review work, for this report, or for the conclusions we have
reached.
Michael Harper
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
24 February 2020
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR DBGDDGSDDGGS
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February 25, 2020 02:00 ET (07:00 GMT)
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