TIDMRCDO
RNS Number : 5431Y
Ricardo PLC
10 September 2020
10 September 2020
Ricardo plc
Preliminary results for the full year ended 30 June 2020
HIGHLIGHTS
-- Good performance in H1 with COVID-19 impacting performance in H2;
-- Energy & Environment, Defense and Rail all delivered an increase in profits on the prior year;
-- Automotive-related businesses were significantly impacted with lower profits than prior year;
-- We experienced a delay in some orders being placed and some
challenges in the delivery of projects due to Ricardo and customers
working remotely, leading to reduced levels of efficiency and lower
margins;
-- Automotive-related businesses restructured to provide lower
cost base (c. GBP10m per annum) and realign it to anticipated
demand;
-- Disposal of DTC test business and exit from Santa Clara, in
line with agile and asset-light strategy.
-- Acquired businesses in Australia integrated and performing well;
-- Good cash performance with positive working capital for the
year - net debt was flat for the COVID-19 impacted H2. Cash
resources increased by GBP50m and liquidity of GBP143m at 30 June
2020;
-- Majority of offices and all assembly lines now open and
operational following significant disruption during H2; and
-- Interim dividend of 6.24p paid in April 2020 - no final dividend proposed.
% Change
FY 2019/20 FY 2018/19 (Decline)/growth Organic(6)(7)
================================== =========== =========== =================== ================
Order intake (GBPm) 368.7 386.0 (4) (10)
Order book (GBPm) 314.0 314.0 - -
Revenue (GBPm) 352.0 384.4 (8) (12)
Underlying(1)
- Operating profit margin
(%) 5.7 10.3 (4.6) pp (5.2) pp
- Profit before tax (GBPm) 15.6 37.0 (58) (62)
- Basic earnings per
share(2) (p) 21.3 53.7 (60) (60)
Statutory
- Operating (loss)/profit
margin (%) (0.3) 7.6 (7.9) pp (8.6) pp
- (Loss)/profit before
tax (GBPm) (5.3) 26.5 (120) (118)
- Basic (loss)/earnings
per share (p) (12.2) 37.1 (133) (133)
Underlying(1) cash conversion(3)
(%) 102.1 75.3 26.8 pp 26.1 pp
Cash conversion(3) (%) 112.9 74.4 38.5 pp 37.6 pp
Net debt(4) (GBPm) (73.4) (47.4) (55) n/a
Dividend per share (p) 6.24 21.28 (71) n/a
Headcount(5) (no.) 3,003 2,981 1 -
================================== =========== =========== ============ ===== ========== ====
References in superscript are defined in the glossary of
terms.
Commenting on the results, Dave Shemmans, Chief Executive
Officer, said:
"The pandemic has made this a time of extreme global volatility.
The resilience of our business has helped us weather the storm well
- thanks to the agility and passion of our team and the
underpinning strategy to be active in diverse geographies and
sectors. I couldn't be prouder of our team as they transitioned to
home working and focused on finding solutions in a "new normal" to
deliver products and services to our global clients.
"We enter the new financial year with a good order book and we
secured over GBP70m of new orders in July and August 2020. We have
an agile business that has proven its resilience in a highly
uncertain environment. We continue to see good opportunities for
Ricardo in the markets that we serve, and through the execution of
our strategy we are well positioned to continue to grow our Group
as a sustainable business that delivers value for all of our
stakeholders."
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 automotive, rail,
environmental & planning, resource management and defence. Our
vision 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 preliminary
results for the year ended 30 June 2020 will be available online
from Thursday 10(th) September 2020 at
https://ricardo.com/investors/financial-reporting/results-presentations
. There will also be a presentation for analysts and investors at
9:30am GMT on Thursday 10(th) September 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 2 and Note 4 .
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 GBP3.0m (FY 2018/19: GBP1.6m) for the specific
adjusting items in Note 4.
(3) Cash conversion is a key measure of the Group's cash
generation is the conversion of profit into cash. This is the
reported cash generated from operations (defined as operating cash
flow, less movements in net working capital and defined benefit
pension deficit contributions) divided by earnings before interest,
tax, depreciation and amortisation ('EBITDA'), expressed as a
percentage.
(4) Net debt, as set out in Note 9, 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 10. 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 for an equivalent period to FY 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 FY 2018/19 included RRA for
an equivalent period to FY 2019/20, revenue for FY 2018/19 would
have been GBP14.0m higher. Operating profit for FY 2018/19 would
have been GBP3.2m higher and profit before tax for FY 2018/19 would
have been GBP2.9m 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 FY 2018/19 included REEP for an equivalent period to
with FY 2019/20, revenue for FY 2018/19 would have been GBP2.1m
higher. Operating profit for FY 2018/19 would have been GBP0.8m
higher and profit before tax would have been GBP0.7m.
(7) Organic growth/decline is calculated as the growth/decline
in the result for the current year compared to the prior year,
after adjusting for the performance of acquisitions or disposals,
to include the results of those acquisitions for an equivalent
period in each financial year.
(8) Constant currency organic growth/decline is calculated by
translating the result for the current year using foreign currency
exchange rates applicable to the prior year. This provides an
indication of the growth/decline of the business, excluding the
impact of foreign exchange.
Trading summary
The Group's headline financial results are presented above.
Compared to the prior year, the Group's performance reflects market
challenges in our automotive-related businesses and the COVID-19
outbreak, which had a negative impact on trading in the second half
of the year.
Energy & Environment ('EE') and Defense delivered increases
in profits in the year. Both benefited from buoyant markets and a
largely public sector customer base, which helped to maintain
performance during the COVID-19 crisis. Our Defense operations are
deemed essential by the US Government. The Australian acquisition
in EE performed in line with plan.
Rail delivered an increase in profits, driven by the performance
of its recent acquisition in Australia, which has performed
strongly since its acquisition. This was offset by challenges in
the UK and Asia, with reduced volumes and delays to major projects.
Restructuring actions were completed during the year to realign the
business to match demand.
Our automotive-related businesses were impacted by continuing
challenging market conditions and the COVID-19 crisis. COVID-19
resulted in a slow-down in project delivery, due to customers
either closing down their operations or working remotely due to
various lockdown restrictions. This first impacted our China
operations in late January 2020, before spreading to the US and
Europe in March 2020. Action has been taken to address these
challenges through the restructuring of our automotive-related
activities including the disposal of test facilities and reductions
in the cost base, creating a more agile business, as set out in the
comments on specific adjusting items below.
Performance Products ('PP') delivered a lower volume of
high-performance engines and transmissions than the prior year due
to the closure of some of our customers' production lines as a
result of COVID-19 in the final quarter of the financial year. Our
customers have since returned to production.
The segmental results are discussed in more detail in the
Operating Segments review below.
Order intake down 4% on FY 2018/19 with closing order book at
GBP314.0m
The Group's overall order intake reduced by 4% to GBP368.7m in
the year, reflecting the challenging trading conditions, with
delays in orders being placed during the COVID-19 pandemic. Order
intake averaged GBP27m per month in the second half of the year,
compared to GBP35m in the first half. The closing order book was
GBP314.0m (FY 2018/19: GBP314.0m), demonstrating that the Group
continues to win work during these challenging conditions. Order
intake includes GBP16.3m in respect of Transport Engineering
(renamed Ricardo Rail Australia, or 'RRA') and PLC Consulting
(renamed Ricardo Energy, Environment and Planning, or 'REEP') which
were acquired on 31 May 2019 and 31 July 2019, respectively.
Headline trading performance Underlying(1) Reported
==================== ====================
(Loss)/
Profit Operating profit
Operating before (loss)/ before
Revenue profit tax profit tax
FY 2019/20 (GBPm) 352.0 20.0 15.6 (0.9) (5.3)
==================================== ======== ========== ======== ========== ========
FY 2018/19 (GBPm) 384.4 39.6 37.0 29.1 26.5
Add performance of acquisitions(6)
(GBPm) 16.1 4.0 3.6 4.0 3.6
Organic FY 2018/19(6) (GBPm) 400.5 43.6 40.6 33.1 30.1
==================================== ======== ========== ======== ========== ========
Decline (%) (8) (49) (58) (103) (120)
Organic decline(7) (%) (12) (54) (62) (103) (118)
Constant currency organic
decline(8) (%) (12) (53) (61) (102) (117)
==================================== ======== ========== ======== ========== ========
References in superscript are defined in the glossary of
terms.
Revenue down 8% on FY 2018/19
Against what was a challenging market backdrop, reported Group
revenue reduced by 8% to GBP352.0m (FY 2018/19: GBP384.4m). Revenue
was 12% lower on an organic basis, after normalising the prior year
result for the impact of RRA and REEP.
Underlying operating profit down 49% on FY 2018/19, with a
reported operating loss of GBP0.9m (FY 2018/19: profit of
GBP29.1m)
Underlying operating profit, which excludes net finance costs
and specific adjusting items, as set out in Note 2, decreased by
49% to GBP20.0m (FY 2018/19: GBP39.6m). Underlying operating profit
margin decreased to 5.7% (FY 2018/19: 10.3%), reflecting the lower
order intake and inefficiencies from the slow-down in project
delivery in the second half of the year.
EE, Defense and Rail delivered increased operating profit.
Rail's result reflects a strong performance from RRA since its
acquisition. Operating profit declined in the Automotive &
Industrial ('A&I'), Performance Products and Strategic
Consulting & Software segments. On an organic basis, underlying
operating profit declined by 54%. The FY 2019/20 reported operating
loss was GBP0.9m (FY 2018/19: GBP29.1m), with the reduction driven
by an increase in specific adjusting items, as set out below.
Underlying profit before tax down 58% on FY 2018/19, with a
reported loss before tax of GBP5.3m (FY 2018/19: profit of
GBP26.5m)
Underlying profit before tax decreased by 58% to GBP15.6m (FY
2018/19: GBP37.0m). On an organic underlying basis, profit before
tax declined by 62%.
FY 2019/20 reported profit before tax includes GBP20.9m of costs
relating to specific adjusting items (FY 2018/19: GBP10.5m). FY
2019/20 specific adjusting items include GBP11.9m (FY 2018/19:
GBP3.4m) of reorganisation costs, which reflect actions taken to
restructure the Group and right-size the cost base in the wake of
the challenging market conditions and the economic downturn. It
also included the sale of our engine test business in Detroit in
June 2020, for an initial cash consideration of GBP2.8m and loss on
disposal of GBP2.1m. These are discussed in more detail below.
Net debt up 55% to GBP73.4m
Closing net debt was GBP73.4m (FY 2018/19: GBP47.4m). The
increase in net debt in the year (GBP26.0m) was driven by the
purchase of the Detroit Technology Campus ('DTC') facility
(comprising north and south buildings) in August 2019 for a
consideration of GBP14.2m (see further details below), the purchase
of REEP (GBP3.8m, net of cash acquired), GBP1.3m of other
acquisition-related cash costs, and GBP1.5m of net restructuring
cash costs (net of the GBP2.8m of initial cash consideration
received in relation to the sale of the Detroit engine test
business). The net cash inflow from working capital, excluding
specific adjusting items, was GBP4.5m in the period, reflecting a
strong focus on cash collections combined with lower levels of
trading in the second half of the year. The composition of net debt
is defined in Note 9. Details on the Group's banking facilities are
set out below.
Basis of preparation
The financial statements have been prepared in accordance with
International Financial Reporting Standards ('IFRS') and
International Financial Reporting Standards Interpretations
Committee ('IFRS IC') interpretations adopted by the European Union
('EU') and the Companies Act 2006 applicable to companies reporting
under IFRS. The Group's principal accounting policies are detailed
in Note 1 to the Annual Report & Accounts 2019/20. Those
accounting policies that have been identified as being particularly
sensitive to complex or subjective judgements or estimates are
disclosed in Note 1(c) to the Annual Report & Accounts
2019/20.
New accounting standards
The Group adopted IFRS 16 Leases as of 1 July 2019. The Group
adopted the modified retrospective approach to transition. Under
this approach, the Group has not restated comparative financial
information which remains presented under IAS 17. As set out in
more detail in Note 10, the transitional impact from the
application of IFRS 16 was a reduction to opening reserves as at 1
July 2019 of GBP3.7m after tax. The impact of IFRS 16 on the
Group's underlying operating profit was an increase of GBP0.9m and
there was a GBP0.2m negative impact on the Group's underlying
profit before tax for the year ended 30 June 2020. The impact of
IFRS 16 on the Group's reported operating profit was an increase of
GBP4.8m and there was a GBP3.7m increase in the Group's reported
profit before tax for the year ended 30 June 2020.
Acquisitions and acquired intangibles
As set out in more detail in Note 7, the Group acquired the
entire issued share capital of PLC Consulting Pty Ltd - renamed
Ricardo Energy, Environment and Planning, or 'REEP' - on 31 July
2019 for an initial cash consideration of GBP4.2m (AUD 7.4m), which
included an adjustment of GBP0.3m (AUD 0.4m) for cash and
normalised levels of net working capital, paid in November 2019.
The maximum contingent cash consideration payable is GBP1.5m (AUD
2.6m), based on a combination of the achievement of certain
performance targets over a two-year period and the continuing
employment of sellers in the business. GBP0.7m (AUD 1.3m),
representing an accrual for the fair value of the expected year-one
earn-out payment, has been recognised in the income statement
within specific adjusting items.
This investment added goodwill of GBP2.6m (AUD 4.6m) to the
Ricardo EE cash-generating unit and acquired intangible assets of
GBP1.3m (AUD 2.4m), which have a net book value at year-end of
GBP0.9m (AUD 1.7m). Amortisation of GBP0.4m (AUD 0.7m) has been
charged to the income statement as a specific adjusting item in the
period since acquisition, together with GBP0.2m (AUD 0.4m) of
expenditure incurred in relation to the post-deal integration of
the business (see Note 4).
In the prior year, the Group acquired the entire share capital
of Transport Engineering Pty Ltd (renamed Ricardo Rail Australia,
or 'RRA') for an initial cash consideration of GBP21.7m (AUD
39.5m), including an adjustment for cash and normalised net working
capital of GBP0.5m (AUD 0.9m), which was paid in August 2019,
together with the accrued provisional fair value of contingent cash
consideration payable of GBP5.1m (AUD 9.4m).
The maximum contingent cash consideration payable is GBP8.1m
(AUD 15.0m), based on the achievement of annual performance targets
across a two-year earn-out period. GBP2.1m (AUD 3.8m has been
accrued within specific adjusting items (see Note 4) in the current
year, reflecting the increase in the fair value of contingent
consideration payable based on RRA's results for the year to 30
June 2020.
Amortisation of GBP1.9m (AUD 3.6m) on acquired intangibles has
been charged to the income statement as a specific adjusting item
in the financial year, together with GBP0.2m of expenditure
incurred in relation to the post-deal integration of the business
(see Note 4).
Specific adjusting items
As set out in more detail in Note 2 and 4, the Group's
underlying profit before tax for the year excludes costs incurred
during the year that have been charged to the income statement as
specific adjusting items of GBP20.9m (FY 2018/19: GBP10.5m).
Reconciliation of underlying profit before tax to reported
(loss)/profit before tax
GBPm FY 2019/20 FY 2018/19
========================================= ============== ===========
Underlying profit before tax 15.6 37.0
========================================= ====== ====== ===========
Amortisation of acquired intangibles (6.0) (4.0)
Acquisition-related expenditure (3.0) (1.8)
Reorganisation costs:
- A&I US - DTC purchase and impairment (3.6) -
- A&I US - Test business loss on (2.1) -
disposal
========================================= ====== ====== ===========
- Asset purchases and disposals (5.7) -
- A&I US - exit of SCTC and other (0.9) -
reorganisation costs
- Other reorganisation costs (5.3) (3.4)
========================================= ====== ====== ===========
- Total other reorganisation costs (6.2) (3.4)
GMP equalisation - (1.3)
Reported (loss)/profit before tax (5.3) 26.5
========================================= ====== ====== ===========
GBP6.0m of amortisation on acquired intangibles was charged in
FY 2019/20. In addition to amortisation in respect of RRA and REEP,
GBP3.7m was charged in respect of acquisitions made in prior
years.
Acquisition-related expenditure of GBP3.0m was incurred in FY
2019/20 (FY 2018/19: GBP1.8m). FY 2019/20 costs include GBP2.8m of
accrued earn-out payments for RRA and REEP. A total of GBP1.3m was
recognised in respect of external transaction fees, acquisition and
post-deal integration costs. In addition, a GBP1.1m gain was
recognised from the settlement of a foreign exchange option
contract, which was taken out to finance an aborted overseas
acquisition. FY 2018/19 costs included GBP0.4m of accrued earn out
costs and GBP1.4m of external deal fees and acquisition costs.
Reorganisation costs include GBP6.6m of costs in relation to the
major restructuring of our US A&I business, in line with our
strategy of realigning its cost base in order to make it a more
operationally efficient business. These costs have been included as
specific adjusting items since they are significant in quantum and
would distort the underlying trading performance if included. In
August 2019, we purchased the freehold property at DTC (comprising
the north test buildings and south office building) for GBP14.2m
(USD 17.3m), thereby removing the US A&I business from its
long-term lease commitment on the property. We immediately marketed
it for sale, together with our DTC test assets, which were held for
sale at the end of the prior financial year, and recognised a
GBP6.7m impairment charge to write down the value of the facility
to its fair value. This was partially offset by the release of a
GBP3.1m lease liability on its purchase.
In June 2020, we sold our test operations in DTC (test assets
together with the DTC north building) for an initial cash
consideration of GBP2.8m (USD 3.5m), which could increase to
GBP4.4m (USD 5.5m) depending on the volume of testing work placed
into the facility by Ricardo over the next two years. A loss of
GBP2.1m was recognised on the sale. In addition, we also exited the
aftertreatment business at our Santa Clara Technical Centre
('SCTC'), incurring GBP0.4m of exit costs and the write off of
equipment. GBP0.5m of redundancy and incremental contractor costs
were incurred in the year in connection with these actions. The DTC
south building continues to be marketed and remains held for
sale.
GBP4.0m of redundancy costs were incurred in FY 2019/20 across
the Group's automotive-related businesses (A&I in Europe,
Performance Products and RSC & Software, totalling GBP2.6m) and
Rail (GBP1.4m). In our automotive-related businesses, these actions
were taken as a result of major restructuring required to
right-size the cost base in these businesses in response to the
challenging trading conditions.
The Rail costs represent the completion of a restructuring
process which commenced in the prior year to realign the business
to market demand. As part of these restructuring actions, a charge
of GBP0.6m was recognised in respect of the vacant portion of the
Cambridge Technical Centre ('CaTC'). GBP0.4m of professional fees
and GBP0.3m of incremental contractor costs were incurred in
relation to the restructuring initiatives in FY 2019/20. The total
costs of these restructuring actions have been included as specific
adjusting items since, together, they are significant in quantum
and would distort the underlying trading performance if included.
In the prior year, GBP2.4m of redundancy costs were incurred in
A&I Europe and Rail, together with GBP0.7m of costs in relation
to onerous contracts and GBP0.3m of incremental contractor costs.
The FY 2018/19 A&I restructuring costs were not linked to the
FY 2019/20 restructuring programme.
Research and Development ('R&D') and capital investment
The Group continues to invest in R&D and spent GBP12.5m (FY
2018/19: GBP13.4m) before government grant income of GBP1.1m (FY
2018/19: GBP2.2m). Costs capitalised in the year were GBP8.0m (FY
2018/19: GBP7.6m), reflecting continued investment in our Software
segment, together with new technology, tools and processes in our
A&I and EE segments. During the year, we successfully completed
the sale the Group's CryoPower intellectual property to FPT
Industrial S.p.A.
Additions to property, plant and equipment, excluding
right-of-use assets, were GBP22.0m (FY 2018/19: GBP7.6m). Excluding
the DTC facility purchase, additions were GBP7.8m, reflecting
continued investment in our business operations, including new and
upgraded test-cell equipment, machinery and IT equipment.
The total Research and Development Expenditure Credit ('RDEC')
recognised in the year was GBP7.6m (FY 2018/19: GBP7.6m). This
comprised an estimated RDEC credit in respect of the current year
of GBP6.6m (FY 2018/19: GBP6.9m), together with GBP1.0m (FY
2018/19: GBP0.2m) arising from the routine amendment of open
applications as a result of further analysis of the qualifying
expenditure incurred.
Net finance costs
Finance income was GBP0.4m (FY 2018/19: GBP0.5m) and finance
costs were GBP4.8m (FY 2018/19: GBP3.1m) for the year, giving net
finance costs of GBP4.4m (FY 2018/19: GBP2.6m). The increase was
primarily due to the adoption of IFRS 16 Leases, which resulted in
the recognition of GBP1.2m of interest costs in relation to leases
brought on to the balance sheet.
Taxation
The total tax charge for the year was GBP1.1m (FY 2018/19:
GBP6.6m) and the total effective tax rate was negative at (20.8)%
(FY 2018/19: positive 24.9%). The underlying effective tax rate for
the year was 26.3% (FY 2018/19: 22.2%), with the increase
reflecting the impact on deferred tax as a result of the UK
Government's decision not to implement a reduction in the tax rate
from 19% to 17%.
Deferred tax assets of GBP9.4m (FY 2018/19: GBP6.7m) include
GBP5.1m (USD 6.3m) (FY 2018/19: GBP4.9m (USD 6.3m)) of R&D tax
credits in the US, which continue to be recognised and have been
partially utilised during the year. The Directors have considered
the recoverability of these assets and remain satisfied that it is
probable that sufficient taxable profits will be generated in the
foreseeable future, against which the recognised assets can be
utilised.
Earnings per share
Basic loss per share was 12.2p (FY 2018/19: earnings per share
37.1p). The Directors consider that underlying earnings per share
provides a more useful indication of performance and trends over
time. Underlying basic earnings per share for the year decreased to
21.3p (FY 2018/19: 53.7p).
Basic earnings per share is disclosed in Note 5, alongside a
reconciliation to underlying basic earnings per share, which
excludes the net-of-tax impact of specific adjusting items.
Dividend
The Group paid its FY 2019/20 interim dividend of 6.24 pence per
share (GBP3.3m) on 6 April 2020. The Group paid a total dividend of
21.28 pence per share (GBP11.5m) in relation to FY 2018/19
performance. Due to the reduced performance experienced by the
Group in the second half of FY 2019/20, after careful
consideration, the Board have decided not to recommend a final
dividend for the year. This difficult decision has been taken to
protect Group's financial position. The Board recognises the
importance of dividends to Shareholders and intends to resume
dividend payments as soon as it is appropriate to do so.
Banking facilities
On 5 May 2020, the Group exercised GBP50m of the accordion
option of its banking facilities, thereby increasing the Revolving
Credit Facility to GBP200m and increasing the amount undrawn and
available to GBP70m. This provides the Group with increased
committed funding available for the remaining term through to July
2023.
In addition to the increased committed funding available, the
Adjusted Leverage (defined as net debt over underlying EBITDA)
covenant was increased from 3.0x to 3.75x for the next two test
dates of 30 June 2020 and 31 December 2020. Following the year end,
on 9 September 2020, the definition of the Adjusted Leverage
covenant for the December 2020 covenant test date was amended to be
based on two times the six months' EBITDA to December 2020. In
addition, the June 2021 covenant was increased to 3.75. The only
other financial covenant is Interest Cover. This remains at 4.0x
for each test date, but with the December 2020 test based on two
times the six months' EBITDA to December 2020.
Net debt of GBP73.4m at 30 June 2020 comprised cash and cash
equivalents of GBP66.3m and borrowing and overdrafts of GBP139.7m
excluding finance leases. Total facilities before borrowings are
GBP216.6m. This provides total cash and liquidity of GBP143.1m as
at 30 June 2020.
The Group's committed facilities are denominated in Pounds
Sterling and have variable rates of interest dependent upon the
Group's adjusted leverage, which range from 1.4% to 2.2% (FY
2018/19: 1.4% to 2.2%) above LIBOR.
The group continues to have good access to liquidity and the
Board remains focused on ensuring that that Group has the
appropriate capital structure to ensure its ability to trade
resiliently in these uncertain times as well as having the ability
to successfully pursue its growth strategy.
Foreign exchange
On consolidation, revenue and costs are translated at the
average exchange rates for the year. The Group is exposed to
movements in the Pound Sterling exchange rate, principally from
work carried out with customers that transact in Euros, US Dollars
and Chinese Renminbi. Compared to the prior year, the average value
of the Pound Sterling weakened by 3% against the US Dollar, and
strengthened marginally against the Euro and the Chinese Renminbi.
On a constant currency basis, underlying and underlying profit
before tax on an organic basis would both have been GBP0.2m
higher.
Pensions
The Group's defined benefit pension scheme operates within the
UK. The fair value of the scheme's assets at the end of the year
was GBP150.4m (FY 2018/19: GBP137.5m). The accounting deficit
measured in accordance with IAS 19 Employee Benefits was GBP6.7m
before tax (FY 2018/19: GBP8.5m).
The GBP1.8m decrease in the pre-tax pension accounting deficit
during the year was due a positive return on plan assets, offset by
a reduction in the discount rate. GBP4.6m of cash contributions
were paid to the scheme in the year. Ricardo continues to fund the
pension at GBP4.6m per annum until 31 July 2022.
Coronavirus ('COVID-19')
COVID-19 initially started impacting the business in China in
late January, with the closure of our offices in China, as well as
those of the majority of our customers. The impact spread to Europe
and the US in March and April, resulting in a slow down in order
intake and the progress of ongoing projects, due to the
inefficiencies caused by customer staff and our own staff working
remotely.
From the beginning of the crisis, we set out a "Healthy People,
Healthy Business" agenda. This focused on supporting our employees
and their families, together with the health and wellbeing of our
clients, suppliers and the communities in which we operate.
We took swift action to ensure that an appropriate IT
infrastructure was in place to allow staff to work from home and as
efficiently as possible, with the minimum of disruption to the
business.
We also acted quickly, with the support of our banks, to
increase liquidity and headroom on our banking facilities.
We completed our face shield programme in May, having donated
and distributed approximately 10,000 face shields to communities
around our Midlands, Shoreham, Derby and Harwell locations in the
UK, and 5,000 in the US. Colleagues in other locations also donated
face shields using our rapid prototyping capabilities as well as
personal equipment.
By the end of the year, all of our manufacturing and testing
facilities were operating and delivering client requirements with
appropriate social distancing controls to meet the guidance of
governments. Our offices are all open for employees who wish to
return to work there and can do so safely. We are encouraging
return for those who can and supporting those that cannot yet
return so they can fully contribute to the business. Our IT
resources continue to support the business across a mix of
home-based and office-based working.
"Digital first" is still the core strategy for client and
supplier communication. Our business travel has been very limited
in recent months. Some travel within Europe, China and US has
commenced. There has been little long-haul travel and we expect
that situation to continue in the coming months.
Brexit
Across the Group, we have prepared for a range of possibilities
for the outcome of trade negotiations between the UK and the EU 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.
Group Outlook
Ricardo's diversified business creates and delivers cross-sector
solutions, tools and products which help our clients address some
of the most pressing issues in the areas of decarbonised and secure
transport, clean air and the sustainability of scarce resources. We
enter the new financial year with a good order book, and we secured
over GBP70m of new orders in July and August 2020. We have an agile
business which has proven its resilience in a highly uncertain
environment.
We continue to see good opportunities for Ricardo in the markets
that we serve, and through the execution of our strategy we are
well positioned to continue to grow our Group as a sustainable
business which delivers value for all of our stakeholders.
By order of the Board:
Dave Shemmans Ian Gibson
Chief Executive Officer Chief Financial Officer
9 September 2020
Operating segments review
From 1 July 2019, the Group has reported the following
reportable operating segments: Energy & Environment ('EE),
Rail, Automotive and Industrial ('A&I'), Defense, and
Performance Products ('PP'). There is also an 'all other segments'
segment, which comprises the results of Ricardo Strategic
Consulting & Software, combined due to their size. Neither of
these met the quantitative thresholds for reportable segments in FY
2019/20 or FY 2018/19. This change was driven by successful
acquisitions in Rail and EE, increasing the prominence of these
businesses within the Group, combined with the wish to provide more
granularity into the key drivers of performance within the
Group.
Underlying(1)
Underlying(1) operating profit
Revenue operating profit margin
For the year ended 30
June 2020 2019 2020 2019 2020 2019
GBPm GBPm GBPm GBPm % %
============================= ====== ====== ========= ========= ========= =========
Energy & Environment ('EE') 50.8 44.6 6.3 5.0 12.4 11.2
Rail 75.3 67.4 5.8 5.2 7.7 7.7
Automotive & Industrial
('A&I') 105.9 129.3 0.5 16.1 0.5 12.5
Defense 32.8 25.2 5.1 3.2 15.5 12.7
Performance Products ('PP') 69.0 95.4 5.0 9.9 7.2 10.4
Strategic Consulting &
Software ('other') 18.2 22.5 0.1 3.9 0.5 17.3
============================= ====== ====== ========= ========= ========= =========
Operating segments total 352.0 384.4 22.8 43.3 6.5 11.3
Plc costs - - (2.8) (3.7) - -
=========
Total 352.0 384.4 20.0 39.6 5.7 10.3
============================= ====== ====== ========= =========
References in superscript are defined in the glossary of
terms.
EE, Rail, A&I, Defense (excluding the anti-lock braking
system/electronic stability control ('ABS/ESC') product), and
Strategic Consulting were previously reported within the Technical
Consulting operating segment. PP, the ABS/ESC product, and Software
were previously reported within the Performance Products operating
segment. Plc costs includes the costs of running the public limited
company. FY 2018/19 segmental analysis has been reported on a
consistent basis to aid comparability.
eNERGY & eNVIRONMENT
Ricardo Energy & Environment ('EE') works with clients to
solve some of the world's most complex environmental challenges,
and provides governments, public agencies and businesses with
industry-leading analysis, advice and data.
EE works across the value chain from gathering and evaluating
evidence, setting policy measures, and working with its customers,
partners and stakeholders to support the implementation of a wide
range of solutions. For example, EE assesses the information
impacting air quality within a city, work with stakeholders and
leaders to derive policy options to improve air quality, and then
support the delivery of measures such as vehicle charging zones,
bus retrofits or electric charging infrastructure. EE has over 500
expert consultants, including engineers, scientists, economists and
data specialists operating in over 75 countries.
Financial and operational highlights
Organic(7)
FY 2019/20 FY 2018/19 Growth (%) (%)
================================ =========== =========== =========== ===========
Order intake (GBPm) 56.0 46.1 21 12
Order book (GBPm) 41.7 35.6 17 13
Revenue (GBPm) 50.8 44.6 14 9
Underlying(1) operating profit
(GBPm) 6.3 5.0 26 9
Underlying(1) operating profit
margin (%) 12.4 11.2 1.2 pp -
Headcount(5) (no.) 571 487 17 13
================================ =========== =========== =========== ===========
References in superscript are defined in the glossary of
terms.
In FY 2019/20, EE's revenue grew by 14% to GBP50.8m (FY 2018/19:
GBP44.6m) and underlying operating profit grew by 26% to GBP6.3m
(FY 2018/19: GBP5.0m). FY 2019/20 was a successful year for EE,
with the growth in revenue and operating profit reflecting a
combination of organic growth and the successful acquisition, on 31
July 2019, of PLC Consulting Pty Ltd (renamed Ricardo Energy,
Environment and Planning, or 'REEP'), which focuses on the waste
and planning sectors in Victoria, Australia. On an organic basis,
after normalising for the impact of the REEP acquisition, revenue
and underlying operating profit grew by GBP4.0m (9%) and GBP0.5m
(9%), respectively. Underlying operating profit margin increased
from 11.2% in FY 2018/19 to 12.4% in FY 2019/20, driven by
increased utilisation of staff and leverage of the cost base.
Order intake for FY 2019/20 was GBP56.0m (FY 2018/19: GBP46.1m),
growth of 21%. At 30 June 2020, EE's order book was GBP41.7m (FY
2018/19: GBP35.6m). Of this, GBP0.8m relates to REEP.
International projects have expanded significantly, due to three
principal factors: the acquisition of REEP, increased demand for
our air quality and waste services in the Middle East, and growth
in Europe, driven by economic and policy studies for the European
Commission. EE has also won new projects in previously untapped
territories, including a major air quality project in Lima, Peru,
and a series of sustainable energy opportunities in the
Caribbean.
EE has continued to see steady growth in work with UK
public-sector customers, with increasing demand driven by the
climate emergency and Net Zero agenda, as local authorities seek to
take action in cities and counties across the UK. This has added to
EE's 40-plus year track record in operating a wide range of air
quality/greenhouse gas modelling, inventory and monitoring
projects, delivered on behalf of the UK Government. EE has also won
a four-year extension to the Resource Efficiency Scotland
programme, supporting small businesses in implementing energy and
resource efficiency actions across Scotland.
EE has continued to see growth in UK private-sector work, where
its principal clients are in the water and energy sectors. 2020 has
seen the commencement of the new five-year UK Water Sector Asset
Management Planning ('AMP') cycle. Although there had been a slight
decrease in demand for EE's strategic water resource planning
skills at the conclusion of the previous AMP cycle, EE has secured
a range of new framework contracts, to run for the next five year
AMP cycle with many of the largest water companies - including
Southern Water, United Utilities, Yorkshire Water and Thames Water
- to support them in planning the long-term future for sustainable
water resources.
In the UK Energy sector, EE has won a major innovation project
with Western Power Distribution ('WPD') and Electricity North West
Limited ('ENWL') to trial a novel solution that enables increased
numbers of high-power electric vehicle chargers to be connected to
the electricity network at lower cost.
EE also supports the chemicals sector in the UK, including a
relationship with the UK emergency services that goes back 45
years; the practice also has international relationships with over
600 global chemical clients. This part of the business has seen
revenue grow in this financial year as it sought to broaden its
services to include a wider range of chemical regulatory
consultancy, and work on Poison Centre notifications.
EE was not significantly disrupted by COVID-19, as the business
found innovative solutions by working closely with our clients to
ensure that we could maintain our services during a period of
highly restricted travel. In order to continue to support its
clients, the business adapted quickly to the challenges presented
by remote working and the suspension of international travel.
Outlook
EE ended the financial year with an order book and secured
revenue that were both ahead of the prior year. Although the full
extent of COVID-19 recovery plans and financing mechanisms are not
yet known, EE is confident that economic stimuli will have a
positive impact on its markets in FY 2020/21 and create
opportunities, in particular the potential for re-alignment of UK
and global economies to create a "clean and green" recovery. EE
expects continuing growth across sectors, with recovery-led
infrastructure projects driving the requirement for specialist
input and support across EE disciplines.
Brexit preparedness has continued throughout the year with
additional recruitment into European locations and continued close
working with Ricardo colleagues operating within the EU.
EE's focus for FY 2020/21 will be on enhancing activity across
EE's spectrum of services, from evidence and policy work through to
supporting implementation solutions for clients. EE plans to
continue to grow its air quality and greenhouse gases evidence
expertise as well as developing its policy offerings to include new
environmental topics and additional sectors. EE is already seeing
strong demand in Europe with the implementation of the "Green New
Deal" and expects to see stronger growth in the private sector,
particularly in the UK water sector.
Rail
Ricardo Rail ('Rail') serves the global rail market through two
separate operations: a consultancy unit that provides technical
advice and engineering services, and a separate, independent
entity, Ricardo Certification, that performs accredited assurance
services.
Both have a similar geographic footprint across Europe,
Asia-Pacific and the Middle East, and support a client base that
includes rail operators, infrastructure managers, regulatory bodies
and industry suppliers. Ricardo Rail employs 623 rail engineers,
technicians, auditors and support staff, with key hubs in the UK,
the Netherlands, China and Australia.
Financial and operational highlights
Organic(7)
FY 2019/20 FY 2018/19 Growth (%) (%)
================================ =========== =========== =========== ===========
Order intake (GBPm) 80.7 61.0 32 (2)
Order book (GBPm) 110.7 109.1 1 1
Revenue (GBPm) 75.3 67.4 12 (7)
Underlying(1) operating profit
(GBPm) 5.8 5.2 12 (31)
Underlying(1) operating profit
margin (%) 7.7 7.7 - (2.6) pp
Headcount(5) (no.) 623 636 (2) (2)
================================ =========== =========== =========== ===========
References in superscript are defined in the glossary of
terms.
In FY 2019/20, Rail's revenue grew by 12% to GBP75.3m (FY
2018/19: GBP67.4m) and underlying operating profit grew by 12% to
GBP5.8m (FY 2018/19: GBP5.2m). Underlying operating profit margin
was stable at 7.7%. The growth in revenue and underlying operating
profit was driven by the performance of Ricardo Rail Australia
('RRA'), which was acquired on 31 May 2019, and delivered a very
strong set of results in the current year, in line with plan. The
performance of RRA was offset by challenges in other areas of the
business, in particular the UK, with reduced volumes on major UK
certification projects, and Asia, with delayed mobilisation on
large infrastructure projects. On an organic basis, after
normalising for the impact of the RRA acquisition, revenue and
underlying operating profit declined by GBP6.0m (7%) and GBP2.6m
(31%), respectively.
FY 2019/20 order intake was GBP80.7m (an increase of GBP19.7m on
FY 2018/19). GBP14.0m of the FY 2019/20 order intake was generated
by RRA. The closing order book was GBP110.7m (FY 2018/19:
GBP109.1m), of which GBP26.7m related to RRA (FY 2018/19:
GBP30.1m).
The performance of RRA in its first full year under Ricardo
ownership reflects the success of its established, long-term
relationships with clients such as Transport for New South Wales,
for which it has provided technical support throughout the
introduction of new fleets onto the rail networks. RRA was
successfully integrated into the wider Rail business. Synergies
from complimentary skills have been realised. RRA has supported
Rail's Middle East business, and UK Rail personnel have been
actively involved in supporting major bids for RRA.
The Dutch consultancy team won several major assignments with
Nederlandse Spoorwegen ('NS'), the principal passenger railway
operator in the Netherlands, underlining the team's position as the
pre-eminent engineering consultancy in Dutch rolling stock.
The UK consulting team had a challenging year with reduced
volumes and personnel changes. COVID-19 also had some impact in the
last quarter. Restructuring actions were completed during the year
to align the business to market demand.
Performance in Asia was also mixed. This was the first region to
be widely affected by the COVID-19 pandemic, with the Hong Kong
operations already having experienced significant disruption as the
office had been forced to close on several occasions during the
autumn 2019 demonstrations. By way of a positive contrast, in
Taiwan and Korea, the technical teams were engaged in some of the
largest systems engineering projects of recent years.
The performance of Ricardo Certification remained resolute. The
China team has a strong order book; the Middle East team secured
notable wins in Qatar; whilst in Europe the team continues to
support London's Crossrail and the re-signalling of the Danish rail
network, and awaits the commencement of several rolling stock
projects.
Outlook
Looking ahead, the Rail segment has a healthy and varied
portfolio of projects. These include projects in new areas such as
digital resilience and vehicle decarbonisation, as well as
traditional assurance projects such as Seoul's Great Train eXpress
and Beijing Metro Line 17. As a result, Rail enters FY 2020/21 with
one of its largest ever order books.
Due to its presence in a number of European Union countries and
having moved quickly to organise the necessary accreditations in
Denmark and the Netherlands, Ricardo Rail is well positioned to
continue consulting projects and certification work in the EU
without disruption after Brexit.
Whilst there is no doubt that the COVID-19 pandemic will
continue to impact travel habits over the short and medium term,
there is little to suggest any serious long-term ramifications for
the rail sector. Rail, whether in the form of rapid transport
systems in major city centres or as national networks of high-speed
routes, remains an essential component of sustainable travel
policies. As well as new builds to support growing urban centres,
we expect to see continued investment in the modernisation of
mature networks to seek continued improvement in safety, efficiency
and performance.
Automotive & Industrial
Ricardo Automotive & Industrial ('A&I') serves as a
trusted global engineering design and development partner for the
provision of clean, efficient, integrated propulsion and energy
solutions across the areas of hybrid and electric systems,
electrification, engines, driveline and transmissions, testing, and
vehicle engineering. Customers span the transportation and
industrial markets, including automotive, aerospace, defence,
energy, off-highway and commercial, marine, motorcycle and
light-personal transport, and rail.
A&I has 1,154 staff, operating from engineering centres and
sales offices within the UK, Europe, US, and Asia (primarily in
China).
Financial and operational highlights
(Decline)/ growth
FY 2019/20 FY 2018/19 (%)
======================================= =========== =========== ==================
Order intake (GBPm) 115.3 123.6 (7)
Order book (GBPm) 77.5 75.2 3
Revenue (GBPm) 105.9 129.3 (18)
Underlying(1) operating profit (GBPm) 0.5 16.1 (97)
Underlying(1) operating profit margin
(%) 0.5 12.5 (12) pp
Headcount(5) (no.) 1,154 1,218 (5)
======================================= =========== =========== ==================
References in superscript are defined in the glossary of
terms.
A&I was impacted by continuing challenging economic and
political conditions during the year. China's slowing economic
growth, trade tensions between the US and China, reduced credit
availability in India, Brexit and the UK General Election all had
an impact on customer activity and orders. This was compounded by
the impact of COVID-19 in the second half of the year, initially
within China and then Europe and the US. With populations in
lockdown, customers responded by temporarily shutting down their
operations, implementing part-time working, mothballing
manufacturing facilities, and implementing significant
cost-reduction measures.
Order intake held up relatively well, reducing by 7% from
GBP123.6m in FY 2018/19 to GBP115.3m in FY 2019/20. The economic
circumstances had a more significant impact on revenue and
operational efficiency as a number of customers delayed
non-business critical projects. Revenue decreased from GBP129.3m in
FY 2018/19 to GBP105.9m in FY 2019/20, and underlying operating
profit decreased from GBP16.1m in FY 2018/19 to GBP0.5m in FY
2019/20, with underlying operating margin decreasing from 12.5% to
0.5%. Within this, our business in Europe remained profitable. Our
US business continued to be loss-making and has taken significant
steps to restructure its operations, as set out below. Our China
business ended the year with a small loss.
New Managing Directors joined A&I's European and US
operations during the year. Both have had, and continue to have, a
focus on strategy and business development, whilst continuing to
ensure that the resources within the engineering teams are suitably
matched with client needs and market opportunities.
A&I has continued with its strategy to create a more
flexible cost base and become an operationally efficient
consultancy. In August 2019, the Detroit Technology Campus ('DTC'),
comprising its engine testing and office buildings, was purchased
in order to extricate the business from a long-term lease on the
property. In June 2020, the Detroit engine testing business
(together with the DTC engine testing building) was sold to a
non-competitive strategic partner for an initial cash consideration
of GBP2.8m (USD 3.5m), with up to GBP1.6m (USD 2.0m) deferred,
reducing A&I's fixed cost base and allowing A&I to continue
to offer test services locally in its overall offering to
customers. The DTC office building is currently being marketed and
is held-for-sale on the June 2020 balance sheet. In June 2020, we
also exited our Santa Clara Technical Centre ('SCTC') and
aftertreatment business and set up new premises in Southern
California, in order to develop new market opportunities aligned
with the business' strategic goals.
Subsequent to the opening of the Southern California site,
A&I strengthened the US team with a senior appointment to lead
the transformation of engineering operations, particularly in the
areas of electrification and software. The team in Southern
California recently secured a GBP3.2m win with the US Department of
Energy to advance the development of high efficiency silicon
carbide inverters for electric vehicle applications.
As the COVID-19 pandemic developed and lockdown hit the various
parts of the business, A&I responded immediately. Almost
overnight, those who could work from home did, whilst those who
were not able to work from home continued supporting the business
and client projects on-site, with the business ensuring staff were
able to work safely by amending working practices in-line with
safety guidelines. A&I also re-evaluated its strategy and made
the difficult decisions required to quickly reduce the cost base
and help protect our employees, including some use of local
furlough schemes.
Over the course of the year, A&I secured and delivered a
range of successful customer programmes across the transportation
and industrial markets, which included: supporting CNH Industrial
with the development of a biomethane-powered tractor; selling its
CryoPower clean engine intellectual property to FPT Industrial
S.p.A whilst continuing to assist in their development of this
innovative and high-efficiency combustion engine; delivering a
highly versatile and cost-effective vehicle demonstrator for
general service defence purposes, adapted from Ford's iconic Ranger
series, Europe's best-selling pick-up truck; partnering with
Nexperia to produce a technology demonstrator for an EV inverter
based gallium nitride technology; and delivering safety-critical
transmission control software for China Euro Vehicle Technology AB
for a 7-speed dual clutch transmission in a compact luxury
crossover SUV. In addition, A&I also played a crucial role in
the development of JCB's Fastrac tractor, in which Guy Martin set a
new Guinness World Records' speed record, as shown on the Channel 4
documentary, Guy Martin: The World's Fastest Tractor.
During the COVID-19 lockdown period, A&I has focused on how
to support its customers in innovative ways. A&I implemented a
'world first' in virtual vehicle certification, whereby customers
and certification bodies could observe tests via a secure, live
3-way feed to the automation and data management systems of
A&I's advanced UK test facilities. Reflecting the needs of
global customers working from home, but still wanting to access our
thought leadership and interact with our technical experts, A&I
prioritised digital engagement. A&I subject matter experts
delivered 14 webinars (3 with Automotive World, 11 our own label
Ricardo Technology Webinars) which saw us engage with just over
6,000 contacts on key industry challenges where we offer
world-leading technical solutions such as preparing for Euro 7,
fuel cells for heavy duty trucks, off-highway electrification, xEV
holistic thermal management, and the road to zero carbon. As part
of its digital first strategy, A&I also focused on LinkedIn as
a primary engagement channel for customers, and broader audiences
across industry, media, government, academia and communities across
the world. The A&I corporate presence on LinkedIn attracted
particularly strong engagement in relation to content posts about
its design, assembly and delivery of PPE, and grew its community of
followers to just over 50,000.
Outlook
Carbon dioxide ('CO(2) ') 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. Whilst COVID-19 may
affect some markets in the coming year, the global agenda still
continues to provide a significant longer-term pipeline of
opportunities to A&I for the provision of innovative clean,
efficient, integrated propulsion and energy solutions for customers
within our transportation and industrial markets.
DefenSe
Ricardo Defense ('Defense') is focused on the delivery of
services, software and products that protect life and reduce
defence programme costs and waste. Defense delivers wide-ranging
engineering programmes across light and heavy land and sea theatres
of operation, supporting clients to improve processes to streamline
the fielding, modification, maintenance and support of complex
systems, used in operational planning. This includes providing
enterprise software to enable the electronic distribution of
technical data, ensuring data integrity and cyber security across
disrupted communication environments. Defense also provides
anti-lock braking system/electronic stability control ('ABS/ESC')
systems for all new production High Mobility Multipurpose Wheeled
Vehicles ('HMMWV' or 'Humvee') for the US Army and National
Guard.
Our staff of 162 technical professionals is based across the US,
including major centres in Michigan and California.
Financial and operational highlights
(Decline)/ growth
FY 2019/20 FY 2018/19 (%)
======================================= =========== =========== ==================
Order intake (GBPm) 29.0 39.0 (26)
Order book (GBPm) 15.6 20.3 (23)
Revenue (GBPm) 32.8 25.2 30
Underlying(1) operating profit (GBPm) 5.1 3.2 59
Underlying(1) operating profit margin
(%) 15.5 12.7 2.8 pp
Headcount(5) (no.) 162 138 17
======================================= =========== =========== ==================
References in superscript are defined in the glossary of
terms.
Defense delivered strong growth in FY 2019/20, with revenue
increasing by 30% to GBP32.8m (FY 2018/19: GBP25.2m) and underlying
operating profit increasing by 59% to GBP5.1m (FY 2018/19:
GBP3.2m). Underlying operating profit margin increased from 12.7%
in FY 2018/19 to 15.5% in FY 2019/20. Growth was driven by
increased activity in the engineering services business and sales
of the ABS/ESC product. The underlying operating profit margin was
low in the prior period as costs were increased in preparation for
the delivery of ABS/ESC units.
Order intake reduced by 26% to GBP29.0m (FY 2018/19: GBP39.0m):
this reflects the timing of ABS/ESC orders, with Defense having
secured a large order from the US Government in the prior year,
delivering these units in FY 2019/20. The FY 2019/20 closing order
book was GBP15.6m (FY 2018/19: GBP20.3m), with the reduction
reflecting the timing of ABS/ESC orders.
Defense designed, developed and integrated the ABS/ESC kit to
address an ongoing HMMWV rollover issue. The system has been proven
by the US Army to mitigate vehicle rollover and loss-of-control
accidents. Defense delivered 2,464 ABS/ESC kits for new HMMWVs
production vehicles in FY 2019/20 (FY 2018/19: 1,650). This
includes the first shipments of retrofit kits to a non-US country
to upgrade the safety, performance, and reliability of their
HMMWVs.
Underpinning our commitment to quality, Defense again achieved
Capability Maturity Model Integration ('CMMI') Level 3
certification for its systems and software development processes.
Defense is supporting the US Army and Marine Corps in the
integration of a wireless, dismounted communication system solution
for ground support vehicles; the system enhances the safety and
situational awareness for combat personnel conducting dismounted
operations on or around vehicle platforms. Through operational user
testing, integration and sustainment planning, and cybersecurity
strategy, Ricardo Defense uses commercial-off-the-shelf solutions
to provide mission-ready, cost-effective solutions that protect
lives and enhance communication in a rapid and efficient
manner.
As the US Department of Defense seeks more agile development and
deployment of enhanced technologies, Defense is providing solutions
for designing, acquiring, integrating and sustaining future systems
through model-based system engineering methodologies. These
methodologies enable rapid and robust analysis, configuration,
change management, and integration of emerging disruptive
technologies. By creating "digital twins" of vehicle systems,
Defense supports the US military in developing, fielding,
maintaining and effectively using the most capable equipment in
order to maximise the safety of serving personnel.
COVID-19 has not had a significant impact on Defense, which has
been designated by the US Government as critical to US
infrastructure. During the COVID-19 pandemic, the majority of
Defense's employees continued delivering programmes safely and
securely through remote work-from-home during the US "Stay Safe,
Stay at Home" mandate.
Outlook
The market outlook for our Defense business is positive. The US
President's FY21 Defense Budget reflects funding priorities of USD
740 billion for national defence. The proposed budget includes a
mix of funding for the procurement and deployment of the ABS/ESC
retrofit kit and additional new production kit orders. Accordingly,
Defense has expanded its ABS/ESC operations to meet anticipated
demand for the coming year.
In addition, Defense expects growth in its software business as
well as significant growth in its established capability areas of
system life cycle management, field support services, and
condition-based maintenance. Ricardo Defense is firmly embedded in
nearly every end-to-end architecture node of the U.S. Army's
fielding strategy. Defense's systems engineers, software
developers, and logisticians provide integrated life cycle support
services that will improve the operational readiness of US and
allied assets worldwide.
Performance Products
Ricardo Performance Products ('PP') manufactures and assembles
niche high-quality components, prototypes and complex products,
including engines, transmissions and other precision and
performance-critical products. PP also provides manufacturing and
supply-chain services to enable products to move from concept to
production for customers around the globe. PP manages the complete
process, from establishing a robust supply chain, to the efficient
delivery of the tested end-product to its prestigious customer
base. These products are either designed by the motorsport products
design team, other Ricardo divisions or by PP customers. PP serves
customers manufacturing low-volume, high-performance products in
markets such as motorsport, automotive, aerospace, defence and
rail.
PP employs 311 staff, with specialist capabilities in product
design and development, production and operations management,
supply-chain development, industrial engineering and skilled
production, all based in the UK. PP is backed by Ricardo's global
support network with technical and engineering centres around the
world.
Financial and operational highlights
(Decline)/ growth
FY 2019/20 FY 2018/19 (%)
======================================= =========== =========== ==================
Order intake (GBPm) 71.1 96.2 (26)
Order book (GBPm) 62.8 66.5 (6)
Revenue (GBPm) 69.0 95.4 (28)
Underlying(1) operating profit (GBPm) 5.0 9.9 (49)
Underlying(1) operating profit margin
(%) 7.2 10.4 (3.2) pp
Headcount(5) (no.) 311 307 1
======================================= =========== =========== ==================
References in superscript are defined in the glossary of
terms.
In FY 2019/20, PP's revenue reduced by 28% to GBP69.0m (FY
2018/19: GBP95.4m) and underlying operating profit declined by 49%
to GBP5.0m (FY 2018/19: GBP9.9m). Underlying operating profit
margin decreased from 10.4% in FY 2018/19 to 7.2% in FY 2019/20.
Order intake was GBP71.1m in FY 2019/20, a reduction of GBP25.1m
compared to order intake of GBP96.2m in FY 2018/19. As at 30 June
2020, the order book was GBP62.8m (FY 2018/19: GBP66.5m).
The reductions across the key metrics were primarily due to a
reduced volume of engines supplied to McLaren. In the first half of
the financial year, engine output was lower than the previous six
months, in line with an agreed production plan. In the second half
of the year, output was significantly disrupted due to the effects
of the COVID-19 lockdown, with McLaren suspending vehicle
production from March onwards. The volume of engines delivered in
FY 2019/20 was approximately 40% lower than the prior year. Over
this period, two new engine variants entered production, including
the latest vehicle in McLaren's Ultimate Series, the "Speedtail".
The engine for this vehicle, code-named P23, sits at the heart of
an advanced hybrid powertrain and powers the car to over 250mph
(400 km/h), making this the fastest McLaren ever produced. FY
2019/20 also saw the completion of significant pre-production
activities in readiness for the new engine variant to be launched
in FY 2020/21.
FY 2019/20's results were also impacted by the scheduled end of
the Porsche 991 Cup transmission programme in FY 2018/19. During
the year, PP was successful in securing a replacement programme of
an equivalent size and duration (which is reflected in the FY
2019/20 order intake). Deliveries to this programme are on track to
start in the first half of FY 2020/21.
A programme to supply transmissions for the Aston Martin
Valkyrie, which was expected to go into production in 2020, is now
confirmed for the FY 2020/21 business year. A significant number of
prototypes for this programme were delivered in FY 2019/20 to
support the successful testing and validation of this advanced
hybrid hypercar. PP continues to support Bugatti with the supply of
the complete driveline system for the Chiron hypercar. Demand for
Bugatti transmissions continued in line with expectations.
PP's contract with the Ministry of Defence, to refurbish
gearboxes for their Combat Vehicle Reconnaissance (Tracked)
('CVR(T)') vehicle, successfully started in FY 2019/20 and remains
on track to be completed ahead of customer expectations in December
2020.
PP remains a key supplier into the motorsport sector, with
effective cost of ownership solutions for the customer racing
market and the ability to adapt to the ever-changing regulations in
all forms of factory racing to deliver a competitive advantage to
customers. PP remains ever present at the top tier of world
motorsport and has manufactured transmissions components to teams
competing in F1, Formula E, GT3, R5, Super Formula and Indy Lights.
PP's customers have secured world championships and key victories
in Formula E, WRC and GTE. During the year, PP extended its
collaboration with DS Performance, building on an incredible 2019
season, in which PP designed and supplied transmissions for the
team which won both the drivers' and teams' championships.
Outlook
McLaren engine production resumed in July 2020, with a planned
gradual ramp-up of output through the year as part of its plans to
initially focus on limited-series models (predominately the
'Ultimate' and 'Super Sports' series of cars).
Although PP's transmission manufacturing capabilities were not
significantly impacted by COVID-19 during FY 2019/20, and
production continued throughout the outbreak under carefully
controlled manufacturing conditions, the pandemic has created
delays and cancellations of multiple races and championships, with
the potential to impact some of PP's motorsport clients.
PP will continue to focus its efforts on established markets
such as high-performance automotive, motorsport and aerospace;
additional focus will be applied to both the defence and the rail
markets, where significant contract opportunities exist. These
opportunities are enhanced by PP's ability to utilise the in-depth
design capabilities of Ricardo's engineering consulting divisions,
providing a comprehensive set of solutions across all PP's targeted
markets.
With both customers and suppliers in the EU, PP has established
processes and procedures to address a variety of potential Brexit
scenarios. These capabilities were successfully deployed in both
2018 and 2019 in readiness for possible hard exits from the
European Union and remain in place for 2020 onwards.
Strategic Consulting & SOFTWARE
Ricardo Strategic Consulting ('RSC') is a leading management
consultancy dedicated to serving the automotive, transportation,
and mobility industries. It offers a comprehensive portfolio of
services, advising global leaders on high-impact strategic issues
and resolving operational challenges. RSC provides both corporate
and strategic business advice which spans the full product life
cycle, including product development, manufacturing and supply
chain management, procurement, sales, marketing and distribution,
and integrated cost reduction.
Software helps customers solve problems through technology
exploration and process innovation. It also delivers advanced
virtual engineering tools and solutions, supported by a team of
technical experts, to global customers across the automotive, rail,
motorcycle, off-highway, defence, energy and environment
industries. Software's leading-edge simulation software provides
customer solutions to reduce cost, resources and time to market,
while efficiently managing complexity and safety.
Combined, RSC and Software employ 182 staff, based across the
UK, continental Europe, and the US.
Financial and operational highlights
FY 2019/20 FY 2018/19 Decline (%)
======================================= =========== =========== ============
Order intake (GBPm) 16.6 20.2 (18)
Order book (GBPm) 5.7 7.1 (20)
Revenue (GBPm) 18.2 22.5 (19)
Underlying(1) operating profit (GBPm) 0.1 3.9 (97)
Underlying(1) operating profit margin
(%) 0.5 17.3 (16.8) pp
Headcount(5) (no.) 182 195 (7)
======================================= =========== =========== ============
References in superscript are defined in the glossary of
terms.
Strategic Consulting & Software revenue reduced to GBP18.2m
in FY 2019/20 from GBP22.5m in FY 2018/19. Underlying operating
profit reduced from GBP3.9m to GBP0.1m in the same period.
Underlying operating profit margin fell to 0.5% from 17.3%. The
declines seen over the period reflect a combination of challenging
trading conditions in the automotive market and the impact of
customers reducing spending during the COVID-19 pandemic in the
second half of FY 2019/20.
During FY 2019/20, RSC delivered growth in order intake in
Europe and Asia following the investment in its regional sales
teams. However, in the second half of the year there was a
reduction in orders across the business, as long-running programmes
came to an end and new order intake became challenging. RSC was
immediately impacted by COVID-19, with the pandemic leading to the
postponement of certain projects and delays in client
decisions.
A softening in the US market has impacted profits, but the
strong relationship with Ford has continued. In addition to
long-running integrated cost reduction programmes, RSC supported
them in managing distressed supplier scenarios, which has become a
key area of growth.
In FY 2019/20, Software order intake was below the prior year,
driven by lower one-off perpetual licence sales, particularly in
China, due to the slowdown in the Chinese automotive market and
impact of COVID-19. The pandemic led to some delays in new business
wins, due to travel restrictions and the closure of some customer
sites. Licence renewals were also below the prior year driven by
some customers reducing the number of licence seats they hold.
There has been good growth in order intake for application
engineering and solutions in the year, which has partially offset
the reduced order intake from one-off perpetual licence sales and
renewals.
Outlook
Strategic Consulting & Software's core automotive markets
are expected to remain challenging over the next financial year.
RSC is focusing on diversification into new sectors and service
lines, which has progressed with the development of the TRNTY
online consulting platform and Ricardo Knowledge (RSC's digital
channel) products. These products provide an efficient route to
market to commercialise Ricardo's expertise. The investment made in
the year in these new product offerings will begin to deliver
revenue growth in the new financial year. In addition, RSC, in
partnership with Ricardo EE, have combined environmental expertise
with strategic advice to offer a unique external Taskforce on
Climate-related Financial Disclosures ('TCFD') service offering,
aimed at improving business resilience in the face of climate
change.
Software's strategy is focused on building an integrated
market-leading portfolio of products and solutions that work across
different engineering domains to provide value to customers. In the
year ahead, this will include a move to offering web- and
consumption-based licensing models to complement its traditional
on-premise annual lease and perpetual licence business. As travel
restrictions are expected to persist, Software will maximise local
regional resources and digital technology to win new business.
Condensed financial statements
Consolidated income statement
for the year ended 30 June
2020 2019
Specific Specific
adjusting adjusting
Underlying items(1) Total Underlying items(1) Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
============================ ===== =========== =========== ======== =========== =========== ========
Revenue 3 352.0 - 352.0 384.4 - 384.4
Cost of sales (236.9) - (236.9) (249.5) - (249.5)
============================ ===== =========== =========== ======== =========== =========== ========
Gross profit 115.1 - 115.1 134.9 - 134.9
Administrative expenses (96.4) (20.9) (117.3) (96.3) (10.5) (106.8)
Other income 1.3 - 1.3 1.0 - 1.0
============================ ===== =========== =========== ======== =========== =========== ========
Operating profit/(loss) 3 20.0 (20.9) (0.9) 39.6 (10.5) 29.1
Finance income 0.4 - 0.4 0.5 - 0.5
Finance costs (4.8) - (4.8) (3.1) - (3.1)
============================ ===== =========== =========== ======== =========== =========== ========
Net finance costs (4.4) - (4.4) (2.6) - (2.6)
============================ ===== =========== =========== ======== =========== =========== ========
Profit/(loss) before taxation 15.6 (20.9) (5.3) 37.0 (10.5) 26.5
Tax expense (4.1) 3.0 (1.1) (8.2) 1.6 (6.6)
Profit/(loss) for
the year 11.5 (17.9) (6.4) 28.8 (8.9) 19.9
============================ ===== =========== =========== ======== =========== =========== ========
Profit/(loss) attributable
to:
- Owners of the parent 11.4 (17.9) (6.5) 28.7 (8.9) 19.8
- Non-controlling
interests 0.1 - 0.1 0.1 - 0.1
11.5 (17.9) (6.4) 28.8 (8.9) 19.9
============================ ===== =========== =========== ======== =========== =========== ========
(Loss)/earnings per ordinary share attributable to owners
of the parent during the year
================================================================================================= ==========
Basic 5 (12.2)p 37.1p
Diluted 5 (12.2)p 36.9p
============================ ===== =========== =========== ======== =========== =========== ========
(1) Specific adjusting items are disclosed separately in the
financial statements where it is necessary to do so to provide
further understanding of the financial performance. Further details
are given in Note 2 and Note 4.
Consolidated statement of comprehensive income
for the year ended 30 June
2020 2019
GBPm GBPm
=================================================== ====== ======
(Loss)/profit for the year (6.4) 19.9
==================================================== ====== ======
Other comprehensive (expense)/income
Items that will not be reclassified to profit
or loss:
Remeasurements of the defined benefit pension
scheme (2.7) (7.9)
Deferred tax on remeasurements of the defined
benefit pension scheme 1.1 1.4
Total items that will not be reclassified to
profit or loss (1.6) (6.5)
==================================================== ====== ======
Items that may be subsequently reclassified
to profit or loss:
Currency translation on foreign currency net
investments 0.5 1.2
Fair value gains on foreign currency cash flow
hedges (0.1) 0.1
Total items that may be subsequently reclassified
to profit or loss 0.4 1.3
==================================================== ====== ======
Total other comprehensive expense for the year
(net of tax) (1.2) (5.2)
Total comprehensive (expense)/income for the
year (7.6) 14.7
==================================================== ====== ======
(Expense)/income attributable to:
- Owners of the parent (7.7) 14.6
- Non-controlling interests 0.1 0.1
(7.6) 14.7
=================================================== ====== ======
C onsolidated statement of financial position
as at 30 June
2020 2019
Note GBPm GBPm
============================================= ===== ======== ========
Assets
Non-current assets
Goodwill 87.8 84.2
Other intangible assets 39.9 41.0
Property, plant and equipment 45.4 44.6
Right-of-use assets 23.9 -
Other receivables 3.2 -
Deferred tax assets 9.4 6.7
209.6 176.5
============================================= ===== ======== ========
Current assets
Inventories 20.1 14.5
Trade, contract and other receivables 115.6 141.4
Derivative financial assets 3.9 0.3
Current tax assets 5.7 -
Cash and cash equivalents 9 66.3 36.3
211.6 192.5
============================================= ===== ======== ========
Non-current assets held for sale 8 5.3 2.9
216.9 195.4
============================================= ===== ======== ========
Total assets 426.5 371.9
============================================= ===== ======== ========
Liabilities
Current liabilities
Borrowings 9 (10.6) (4.0)
Lease liabilities (6.7) -
Trade, contract and other payables (72.0) (84.8)
Current tax liabilities (7.5) (3.5)
Derivative financial liabilities (6.5) (1.2)
Provisions (3.2) (2.2)
(106.5) (95.7)
============================================= ===== ======== ========
Net current assets 110.4 99.7
============================================= ===== ======== ========
Non-current liabilities
Borrowings 9 (129.1) (79.7)
Lease liabilities (22.6) -
Trade, contract and other payables (3.6) (5.1)
Retirement benefit obligations (6.7) (8.5)
Deferred tax liabilities (5.6) (7.3)
Provisions (3.3) (3.7)
(170.9) (104.3)
============================================= ===== ======== ========
Total liabilities (277.4) (200.0)
Net assets 149.1 171.9
============================================= ===== ======== ========
Equity
Share capital 13.4 13.4
Share premium 14.3 14.3
Other reserves 17.4 16.9
Retained earnings 103.5 126.8
============================================= ===== ======== ========
Equity attributable to owners of the parent 148.6 171.4
Non-controlling interests 0.5 0.5
Total equity 149.1 171.9
============================================= ===== ======== ========
Consolidated statement of changes in equity
for the year ended 30 June
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 1 July 2018 13.4 14.3 15.7 124.3 167.7 0.4 168.1
================================== ========= ========= ========== ========== ======= ============= ========
Profit for the year - - - 19.8 19.8 0.1 19.9
Other comprehensive
income/(expense)
for the year - - 1.2 (6.4) (5.2) - (5.2)
================================== ========= ========= ========== ========== ======= ============= ========
Total comprehensive
income for the year - - 1.2 13.4 14.6 0.1 14.7
Equity-settled transactions - - - 1.0 1.0 - 1.0
Purchases of own shares
to settle awards - - - (0.9) (0.9) - (0.9)
Ordinary share dividends - - - (11.0) (11.0) - (11.0)
At 30 June 2019 13.4 14.3 16.9 126.8 171.4 0.5 171.9
================================== ========= ========= ========== ========== ======= ============= ========
Adoption of IFRS 16
(net of tax) - - - (3.7) (3.7) - (3.7)
================================== ========= ========= ========== ========== ======= ============= ========
At 1 July 2019 (adjusted) 13.4 14.3 16.9 123.1 167.7 0.5 168.2
================================== ========= ========= ========== ========== ======= ============= ========
Loss for the year - - - (6.5) (6.5) 0.1 (6.4)
Other comprehensive
income/(expense)
for the year - - 0.5 (1.7) (1.2) - (1.2)
================================== ========= ========= ========== ========== ======= ============= ========
Total comprehensive
income/(expense)
for the year - - 0.5 (8.2) (7.7) 0.1 (7.6)
Equity-settled transactions - - - 0.6 0.6 - 0.6
Purchases of own shares
to settle awards - - - (0.5) (0.5) - (0.5)
Ordinary share dividends - - - (11.5) (11.5) (0.1) (11.6)
At 30 June 2020 13.4 14.3 17.4 103.5 148.6 0.5 149.1
================================== ========= ========= ========== ========== ======= ============= ========
C onsolidated statement of cash flows
for the year ended 30 June
2020 2019
Note GBPm GBPm
================================================ ===== ======= =========
Cash flows from operating activities
(Loss)/profit before tax (5.3) 26.5
Adjustments for:
Share-based payments 0.6 1.0
Fair value losses/(gains) on derivative
financial instruments 0.3 (0.8)
Loss on disposal of property, plant and
equipment (1.0) (0.7)
Net finance costs 4.4 2.6
Depreciation, amortisation and impairment 30.3 15.4
================================================= ===== ======= =========
Operating cash flows before movements in
working capital 29.3 44.0
Increase in inventories (5.6) (1.2)
Decrease/(increase) in trade, contract and
other receivables 25.4 (5.2)
Decrease in trade, contract and other payables (12.3) (1.1)
Increase in provisions 1.0 0.2
Defined benefit pension scheme payments in excess
of past service costs (4.6) (4.3)
========================================================
Cash generated from operations 33.2 32.4
Net finance costs (4.2) (2.3)
Income tax paid (5.3) (4.9)
================================================= =====
Net cash generated from operating activities 23.7 25.2
================================================= ===== ======= =========
Cash flows from investing activities
Acquisitions of subsidiaries, net of cash
acquired 7 (4.3) (18.9)
Purchases of property, plant and equipment (22.0) (7.6)
Proceeds from disposal of property, plant
and equipment 2.8 0.7
Purchases of intangible assets and capitalised
development costs (9.2) (9.1)
================================================= ===== ======= =========
Net cash used in investing activities (32.7) (34.9)
================================================= ===== ======= =========
Cash flows from financing activities
Purchases of own shares to settle awards (0.6) (0.9)
Principal element of lease payments (5.6) -
Principal element of lease receivables 0.2 -
Proceeds from borrowings 9 140.3 64.7
Repayment of borrowings 9 (90.7) (34.8)
Dividends paid to shareholders 6 (11.6) (11.0)
================================================= ===== =======
Net cash generated from financing activities 32.0 18.0
================================================= ===== ======= =========
Effect of exchange rate changes on cash
and cash equivalents 0.4 0.3
================================================= ===== =========
Net increase in cash and cash equivalents 23.4 8.6
Net cash and cash equivalents at 1 July 32.4 23.8
Net cash and cash equivalents at 30 June 9 55.8 32.4
================================================= ===== ======= =========
At 1 July
Cash and cash equivalents 36.3 33.1
Bank overdrafts (3.9) (9.3)
Net cash and cash equivalents at 1 July 32.4 23.8
================================================= ===== ======= =========
At 30 June
Cash and cash equivalents 66.3 36.3
Bank overdrafts (10.5) (3.9)
Net cash and cash equivalents at 30 June 55.8 32.4
================================================= ===== ======= =========
Notes to the financial statements
for the year ended 30 June
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.
This preliminary announcement is based on the audited Annual
Report & Accounts 2020, which was approved for issue on 9
September 2020, and which has been prepared in accordance with
International Financial Reporting Standards ('IFRS'), IFRS
Interpretations Committee ('IFRS-IC') interpretations adopted by
the European Union ('EU') and those parts of the Companies Act 2006
applicable to companies reporting under IFRS. The financial
information herein does not amount to full statutory accounts
within the meaning of Section 434 of the Companies Act 2006.
2) Alternative Performance Measures
Throughout this document the Group presents various alternative
performance measures ('APMs') in addition to those reported under
IFRS. The measures presented are those adopted by the Chief
Operating Decision Maker ('CODM', deemed to be the Chief Executive
Officer), together with the main Board, and analysts who follow us
in assessing the performance of the business. Explanations of how
they are calculated and how they are reconciled to an IFRS
statutory measure are set out below.
a) Group profit and earnings measures
Underlying profit before tax ('PBT') and underlying operating
profit: These measures are used by the Board to monitor and measure
the trading performance of the Group. They exclude certain items
which the Board believes distort the trading performance of the
Group. These include the amortisation of acquired intangibles,
acquisition-related expenditure, reorganisation costs, and other
specific adjusting items.
The Group's strategy includes geographic and sector
diversification, including targeted acquisitions and disposals. By
excluding acquisition-related expenditure from underlying PBT and
underlying operating profit, the Board has a clearer view of the
performance of the Group and is able to make better operational
decisions to support its strategy.
Acquisition-related expenditure includes the costs of
acquisitions, deferred and contingent consideration fair value
adjustments (including the unwinding of discount factors),
transaction-related fees and expenses, and post-deal integration
costs.
Reorganisation costs arising from major restructuring
activities, profits or losses on the disposal of businesses, and
significant impairments of property, plant and equipment, are
excluded from underlying PBT and underlying operating profit as
they are not reflective of the Group's trading performance in the
year, as are any other specific adjusting items deemed to be
one-off in nature.
The related tax effects on the above and other tax items which
do not form part of the underlying tax rate are also taken into
account. Items are treated consistently year-on-year, and these
adjustments are also consistent with the way that performance is
measured under the Group's incentive plans and its banking
covenants. A reconciliation is shown below. Further details of the
nature of the specific adjusting items are given in Note 4.
Reconciliation of underlying profit before tax to
reported (loss)/profit before tax
2020 2019
Specific Specific
adjusting adjusting
Underlying items Total Underlying items Total
GBPm GBPm GBPm GBPm GBPm GBPm
========================== =========== =========== ======== =========== =========== ========
Revenue 352.0 - 352.0 384.4 - 384.4
Cost of sales (236.9) - (236.9) (249.5) - (249.5)
========================== =========== =========== ======== =========== =========== ========
Gross profit 115.1 - 115.1 134.9 - 134.9
Administrative expenses
and other income (95.1) - (95.1) (95.3) - (95.3)
Amortisation of acquired
intangibles - (6.0) (6.0) - (4.0) (4.0)
Acquisition-related
expenditure - (3.0) (3.0) - (1.8) (1.8)
Reorganisation costs - (11.9) (11.9) - (3.4) (3.4)
GMP equalisation - - - - (1.3) (1.3)
========================== =========== =========== ======== =========== =========== ========
Operating profit/(loss) 20.0 (20.9) (0.9) 39.6 (10.5) 29.1
Net finance costs (4.4) - (4.4) (2.6) - (2.6)
========================== =========== =========== ======== =========== =========== ========
Profit/(loss) before
tax taxation 15.6 (20.9) (5.3) 37.0 (10.5) 26.5
Tax expense (4.1) 3.0 (1.1) (8.2) 1.6 (6.6)
Profit/(loss) for the
year 11.5 (17.9) (6.4) 28.8 (8.9) 19.9
========================== =========== =========== ======== =========== =========== ========
The FY 2019/20 results include the impact of IFRS 16 Leases,
which was adopted on 1 July 2019. The impact of IFRS 16 on the
Group's underlying operating profit was an increase of GBP0.9m and
there was a GBP0.2m negative impact on the Group's underlying
profit before tax for the year ended 30 June 2020. The impact of
IFRS 16 on the Group's reported operating profit was an increase of
GBP4.8m and there was a GBP3.7m increase in the Group's reported
profit before tax for the year ended 30 June 2020. Comparative APMs
have not been updated to reflect the adoption of IFRS 16. In the
year ended 30 June 2019, as IAS 17 charge of GBP8.5m was
incurred.
Underlying earnings attributable to the owners of the parent:
The Group uses underlying earnings attributable to the owners of
the parent as the input to its adjusted EPS measure. This profit
measure excludes the amortisation of acquired intangibles,
acquisition-related expenditure, reorganisation costs and other
specific adjusting items, but is an after-tax measure. The Board
considers underlying EPS to be more reflective of the Group's
trading performance in the year. A reconciliation between earnings
attributable to the owners of the parent and underlying earnings
attributable to the owners of the parent is shown in Note 5.
Organic growth/decline: Organic growth/decline is calculated as
the growth/decline in the result for the current year compared to
the prior year, after adjusting for the performance of acquisitions
or disposals, to include the results of those acquisitions for an
equivalent period in each financial year.
Constant currency organic growth/decline: The Group generates
revenues and profits in various territories and currencies because
of its international footprint. Those results are translated on
consolidation at the foreign exchange rates prevailing at the time.
Constant currency organic growth/decline is calculated by
translating the result for the current year using foreign currency
exchange rates applicable to the prior year. This provides an
indication of the growth/decline of the business, excluding the
impact of foreign exchange.
Headline trading performance Underlying Reported
==================== ====================
(Loss)/
Profit Operating profit
Operating before (loss)/ before
Revenue profit tax profit tax
FY 2019/20 (GBPm) 352.0 20.0 15.6 (0.9) (5.3)
================================= ======== ========== ======== ========== ========
FY 2018/19 (GBPm) 384.4 39.6 37.0 29.1 26.5
Add performance of acquisitions
(GBPm) 16.1 4.0 3.6 4.0 3.6
Organic FY 2018/19 (GBPm) 400.5 43.6 40.6 33.1 30.1
================================= ======== ========== ======== ========== ========
Decline (%) (8) (49) (58) (103) (120)
Organic decline (%) (12) (54) (62) (103) (118)
Constant currency organic
decline (%) (12) (53) (61) (102) (117)
================================= ======== ========== ======== ========== ========
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 FY 2018/19 included RRA for
an equivalent period to FY 2019/20, revenue for FY 2018/19 would
have been GBP14.0m higher. Operating profit for FY 2018/19 would
have been GBP3.2m higher and profit before tax for FY 2018/19 would
have been GBP2.9m 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 FY 2018/19 included REEP for an equivalent period to
with FY 2019/20, revenue for FY 2018/19 would have been GBP2.1m
higher. Operating profit for FY 2018/19 would have been GBP0.8m
higher and profit before tax would have been GBP0.7m.
Segmental underlying operating profit: This is presented in our
segmental disclosures and reflects the underlying trading of each
segment, as assessed by the main Board. This excludes
segment-specific amortisation of acquired intangibles,
acquisition-related expenditure and other specific adjusting items,
such as reorganisation costs. It also excludes unallocated Plc
costs, which represent the costs of running the public limited
company and specific adjusting items which are outside of the
control of segment management. A reconciliation between segment
underlying operating profit, the Group's underlying operating
profit and operating profit is presented in Note 3.
b) Cash flow measures
Cash conversion: A key measure of the Group's cash generation is
the conversion of profit into cash. This is the reported cash
generated from operations (defined as operating cash flow, less
movements in net working capital and defined benefit pension
deficit contributions) divided by earnings before interest, tax,
depreciation and amortisation ('EBITDA'), expressed as a
percentage.
Underlying cash conversion: This is underlying cash generated
from operations (defined as reported cash generated from
operations, adjusted for the cash impact of specific adjusting
items) divided by underlying EBITDA (defined as reported EBITDA,
adjusted for the impact of specific adjusting items). A
reconciliation between the two is shown below.
2020 2019
Specific Specific
adjusting adjusting
Cash conversion Underlying items Total Underlying items Total
GBPm GBPm GBPm GBPm GBPm GBPm
=============================== =========== =========== ======= =========== =========== ======
Operating profit/(loss) 20.0 (20.9) (0.9) 39.6 (10.5) 29.1
Depreciation and amortisation 17.6 6.7 24.3 11.4 - 11.4
Amortisation of acquired
intangibles - 6.0 6.0 - 4.0 4.0
=============================== =========== =========== ======= =========== =========== ======
EBITDA 37.6 (8.2) 29.4 51.0 (6.5) 44.5
Movement in working capital 4.5 4.0 8.5 (7.8) 0.5 (7.3)
Pension deficit payments (4.6) - (4.6) (4.3) - (4.3)
Loss/(profit) on disposal
of assets - (1.0) (1.0) (0.7) 0.7 0.0
Share based payments 0.6 - 0.6 1.0 - 1.0
Fair value losses/(gains)
on derivative financial
instruments 0.3 - 0.3 (0.8) - (0.8)
=============================== =========== =========== ======= =========== =========== ======
Cash generated from/(used
in) operations 38.3 (5.2) 33.1 38.4 (5.3) 33.1
Cash conversion 101.9% 112.6% 75.3% 74.4%
=============================== =========== =========== ======= =========== =========== ======
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. The transitional
impact of the adoption of IFRS 16 Leases is set out in Note 10.
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.
c) Tax measures
Underlying effective tax rate ('ETR'): We report one adjusted
tax measure, which is the tax rate on underlying profit before tax.
This is the tax charge applicable to underlying profit before tax
expressed as a percentage of underlying profit before tax.
3) Operating segments
For the year ended All other
30 June 2020 EE Rail A&I Defense PP segments Plc Total
=========================
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
========================= ====== ====== ======= ======== ====== ========== ====== =======
Total segment revenue 51.7 75.4 108.8 32.8 70.7 19.1 - 358.5
Inter-segment revenue (0.9) (0.1) (2.9) - (1.7) (0.9) - (6.5)
========================= ====== ====== ======= ======== ====== ========== ====== =======
Revenue from external
customers 50.8 75.3 105.9 32.8 69.0 18.2 - 352.0
========================= ====== ====== ======= ======== ====== ========== ====== =======
Segment underlying
operating profit 6.3 5.8 0.5 5.1 5.0 0.1 - 22.8
Plc costs - - - - - - (2.8) (2.8)
========================= ====== ====== ======= ======== ====== ========== ====== =======
Underlying operating
profit 6.3 5.8 0.5 5.1 5.0 0.1 (2.8) 20.0
Specific adjusting
items(*) (1.7) (5.5) (10.1) (0.5) (0.1) (0.5) (2.5) (20.9)
========================= ====== ====== ======= ======== ====== ========== ====== =======
Operating profit/(loss) 4.6 0.3 (9.6) 4.6 4.9 (0.4) (5.3) (0.9)
Net finance costs (4.4)
Loss before taxation (5.3)
========================= ====== ====== ======= ======== ====== ========== ====== =======
For the year ended All other
30 June 2019 EE Rail A&I Defense PP segments Plc Total
=========================
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
========================= ====== ====== ======= ======== ====== ========== ====== =======
Total segment revenue 45.1 67.5 131.7 25.5 99.3 23.7 - 392.8
Inter-segment revenue (0.5) (0.1) (2.4) (0.3) (3.9) (1.2) - (8.4)
========================= ====== ====== ======= ======== ====== ========== ====== =======
Revenue from external
customers 44.6 67.4 129.3 25.2 95.4 22.5 - 384.4
========================= ====== ====== ======= ======== ====== ========== ====== =======
Segment underlying
operating profit 5.0 5.2 16.1 3.2 9.9 3.9 43.3
Plc costs - - - - - - (3.7) (3.7)
========================= ====== ====== ======= ======== ====== ========== ====== =======
Underlying operating
profit 5.0 5.2 16.1 3.2 9.9 3.9 (3.7) 39.6
Specific adjusting
items(*) (1.1) (2.9) (2.9) (0.5) - - (3.1) (10.5)
========================= ====== ====== ======= ======== ====== ========== ====== =======
Operating profit 3.9 2.3 13.2 2.7 9.9 3.9 (6.8) 29.1
Net finance costs (2.6)
Profit before taxation 26.5
========================= ====== ====== ======= ======== ====== ========== ====== =======
* - See Note 4
4) Specific adjusting items
Specific adjusting items are disclosed separately in the
financial statements where it is necessary to do so to provide
further understanding of the financial performance of the Group.
These items comprise the amortisation of acquired intangible
assets, acquisition-related expenditure, reorganisation costs and
other non-recurring items that are included due to the significance
of their nature or amount. Acquisition-related expenditure is
incurred by the Group to effect a business combination, including
the costs associated with the integration of acquired businesses.
Reorganisation costs relate to non-recurring expenditure incurred
as part of fundamental restructuring activities, significant
impairments of property, plant and equipment, and other items
deemed to be one-off in nature.
2020 2019
==================================================
GBPm GBPm
================================================== ====== ======
Amortisation of acquired intangible assets 6.0 4.0
Acquisition-related expenditure 3.0 1.8
Reorganisation costs
- Purchases and disposals 5.7 -
- Other reorganisation costs 6.2 3.4
Guaranteed Minimum Pensions ('GMP') equalisation - 1.3
================================================== ====== ======
Total before tax 20.9 10.5
Tax credit on specific adjusting items (3.3) (1.6)
Tax charge on prior year specific adjusting item 0.3 -
Total after tax 17.9 8.9
================================================== ====== ======
Amortisation of acquired intangible assets
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 year is due to
the acquisition of Transport Engineering Pty Ltd on 31 May 2019 and
PLC Consulting Pty Ltd on 31 July 2019 (see Note 7(a)).
Acquisition-related expenditure
The current year charge comprises GBP2.8m of earn out and
employee retention costs, accrued in relation to the two
acquisitions detailed in Note 7). In addition, GBP0.4m of costs
were incurred in relation to the post-deal integration of these
businesses. GBP0.8m of costs were incurred on acquisition processes
in the year (including the acquisition of PLC Consulting Pty Ltd
and other aborted processes), comprising external professional fees
and the costs of running an internal acquisitions department to
effect acquisition processes.
Partially offsetting these, GBP1.1m of income was recognised in
relation to a gain on the settlement of a foreign exchange option
contract, which was taken out to hedge an aborted overseas
acquisition. This has been classified as a specific adjusting item
due to the non-recurring nature and significance of the amount. The
prior year charge included GBP0.4m of earn-out costs and GBP1.4m of
acquisition-related fees and costs.
Reorganisation costs
Purchases and disposals
Major restructuring actions were taken in the year to address
performance issues in the A&I US business and realign the cost
base to make it more operationally efficient. The charge in the
current year comprises GBP6.7m (GBP5.6m in property, plant and
equipment and GBP1.1m in non-current assets held for sale (see Note
8)) of impairments and GBP3.1m of income from the release of a
lease liability following the acquisition of the freehold property
of the Detroit Technology Campus ('DTC') on 21 August 2019, in
order to remove the business from a long term lease commitment on
the property. In addition, the current year charge includes a loss
on disposal of GBP2.1m in relation to the sale of Ricardo's Detroit
test cell assets on 3 June 2020. These items have been included as
specific adjusting items as they are significant in quantum and
would distort the underlying trading performance if included. See
Note 8 for further details on the disposal of the test cell
assets.
Other reorganisation costs
In addition to the actions taken above, as part of the A&I
US major restructuring actions in FY 2019/20, Ricardo exited the
aftertreatment business at our Santa Clara Technical Centre
('SCTC'), incurring GBP0.4m of exit costs and the write off of
equipment. GBP0.3m of redundancy costs and GBP0.2m of incremental
contractor costs were incurred in the year in connection with the
management of these restructuring actions. These contractors are
incremental to the business and non-revenue generating.
GBP2.6m of redundancy costs were incurred in FY 2019/20 across
the Group's automotive-related businesses (A&I in Europe,
Performance Products, RSC & Software). These actions were taken
as a result of major restructuring required to right-size the cost
base in these businesses in response to the unforeseen challenging
trading conditions and customer plant shut-downs in the second half
of the financial year. As part of these restructuring actions, a
charge of GBP0.6m was recognised in respect of the vacant portion
of the Cambridge Technical Centre ('CaTC') due to a reduction in
headcount at this site as a result of restructuring actions taken.
GBP0.5m of professional fees and GBP0.1m of contractor costs were
incurred. These fees and contractor costs were incremental to the
business and directly related to the restructuring actions taken,
being a combination of professional advice taken and management of
the restructuring process.
In the prior year, GBP2.0m of redundancy costs, together with
GBP0.7m of costs in relation to onerous contracts and GBP0.3m of
incremental contractor costs, were incurred in A&I Europe in
relation to the completion of a programme to re-set the global
automotive business in response to a fundamental shift in market
dynamics. The FY 2019/20 actions were not linked to those taken in
FY 2018/19.
GBP1.4m of redundancy costs were incurred in Rail in FY 2019/20.
The Rail costs represent the completion of a restructuring process
which commenced in the prior year to realign the business to market
demand. GBP0.5m of redundancy costs were incurred in relation to
this process, which straddled the prior year end.
The total costs of these restructuring actions have been
included as specific adjusting items since, together, they are
significant in quantum and would distort the underlying trading
performance if included.
Guaranteed Minimum Pensions ('GMP') equalisation
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.
Tax charge on prior year specific adjusting items
During FY 2019/20, a tax charge was recognised in relation to
adjustments to the prior year tax charge arising on the sale of the
Germany test business in June 2018.
5) Earnings per share
Basic earnings per share is calculated by dividing the earnings
attributable to ordinary shareholders by the weighted average
number of shares outstanding during the year, excluding those held
by an employee benefit trust for the Long-Term Incentive Plan
('LTIP') and by the Share Incentive Plan ('SIP') for the free share
scheme which are treated as cancelled for the purposes of the
calculation.
For diluted earnings per share, the weighted average number of
ordinary shares in issue is adjusted to assume conversion of all
dilutive potential ordinary shares. These include potential awards
of LTIP shares and options granted to employees. The assumed
proceeds from these is regarded as having been received at the
average market price of ordinary shares during the year.
Reconciliations of the earnings and the weighted average number
of shares used in the calculations are set out below. 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.
For the year ended 30 June 2020 2019
=======================================================
GBPm GBPm
======================================================= =========== ===========
(Loss)/ earnings attributable to owners of the parent (6.5) 19.8
Add back the net-of-tax impact of:
- Amortisation of acquired intangible assets 4.5 3.4
- Acquisition-related expenditure 2.9 1.2
- Asset purchases and disposals 4.8 -
- Other reorganisation costs 5.4 3.0
- Guaranteed Minimum Pensions ('GMP') equalisation - 1.3
- Tax charge on prior year specific adjusting item 0.3 -
Underlying earnings attributable to owners of the
parent 11.4 28.7
======================================================= =========== ===========
For the year ended 30 June 2020 2019
=======================================================
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
======================================================= =========== ===========
2020 2019
(Loss)/earnings per share pence pence
======================================================= =========== ===========
Basic (12.2) 37.1
Diluted (12.2) 36.9
======================================================= =========== ===========
2020 2019
Underlying earnings per share pence pence
======================================================= =========== ===========
Basic 21.3 53.7
Diluted 21.3 53.5
======================================================= =========== ===========
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.
6) Dividends
Dividends are one type of shareholder return, historically paid
to our shareholders in April and November.
2020 2019
GBPm GBPm
================================================== ===== =====
Final dividend for the year ended 30 June 2019
of 15.28p (2018: 14.71p) per share 8.2 7.8
Interim dividend for the year ended 30 June 2020
of 6.24p (2019: 6.00p) per share 3.3 3.2
================================================== ===== =====
Equity dividends paid 11.5 11.0
================================================== ===== =====
A dividend of GBP0.1m was issued during the year by a subsidiary
of the Group to a non-controlling party of that subsidiary.
7) 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 fair value of cash
consideration payable to acquire PLC Consulting, together with the
fair value of net assets acquired.
Fair value of cash consideration GBPm
================================================ ======
Initial cash consideration 4.2
Total fair value of cash consideration 4.2
================================================ ======
Fair value of identifiable net assets acquired GBPm
================================================ ======
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)
Fair value of identifiable net assets acquired 1.6
Goodwill 2.6
Total fair value of cash consideration 4.2
================================================ ======
The maximum contingent cash payable is GBP1.4m (AUD 2.5m). 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. GBP0.7m (AUD 1.3m),
representing an accrual for the fair value of the expected year one
payment, has been accrued within specific adjusting items (see Note
4).
Adjustments have been made for the recognition of
customer-related intangible assets separable from goodwill
amounting to GBP1.3m (AUD 2.4m). The fair value of the contingent
cash consideration and identifiable net assets acquired were
identified in accordance with the requirements of IFRS 3 Business
Combinations and the sale and purchase agreement.
The 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 net assets acquired of GBP1.6m (AUD 3.0m) includes trade
receivables of GBP0.5m (AUD 0.9m), all of which have been
collected.
Acquisition-related expenditure of GBP0.2m representing costs
incurred to integrate the business post-acquisition, together with
GBP0.4m of amortisation on acquired intangibles, has been charged
to the income statement for the year ended 30 June 2020 and is
included as a specific adjusting item in Note 4.
The revenue included in the income statement in relation to the
acquired business was GBP3.0m. The underlying operating profit over
the same period was GBP0.9m. This is reported in the EE segment in
Note 3.
Had PLC Consulting been acquired and consolidated from 1 August
2018, revenue and operating profit in the prior period income
statement would have been GBP2.1m and GBP0.8m 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 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 fair
value of cash consideration payable to acquire Transport
Engineering, together with the assessment of the fair value of net
assets acquired.
Fair value of cash consideration GBPm
================================================ ======
Initial cash consideration 21.7
Fair value of contingent cash consideration 5.1
Total fair value of cash consideration 26.8
================================================ ======
Fair value of identifiable net assets acquired GBPm
================================================ ======
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)
Fair value of identifiable net assets acquired 8.9
Goodwill 17.9
Total 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 year. The maximum contingent cash
consideration payable is GBP8.1m (AUD 15.0m). The fair value of the
contingent cash consideration is considered to be Level 3 of the
fair value hierarchy within IFRS 13 Fair Value Measurement. The
fair value is valued based on a financial forecast using the
Group's own data, with a probability applied for the likely
outcome. Significant unobservable inputs are order intake, pipeline
of opportunities and historical performance. The stronger these
inputs, the higher the estimated fair value. 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. GBP2.1m (AUD 3.8m)
(2019: GBP0.2m - AUD 0.4m) has been accrued within specific
adjusting items (see Note 4) in the current year, reflecting the
increase in the fair value of contingent consideration payable
based on RRA's results for the year ended 30 June 2020, together
with the associated unwind in the discount rate. This is included
within non-current liabilities as the amount is not due to be paid
until after 30 June 2021.
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 fair value of the contingent
cash consideration and identifi-able net assets acquired were
identi-fied in accordance with the requirements of IFRS 3 Business
Combinations and the sale and purchase agreement.
The 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 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 GBP14.0m and GBP3.1m higher, respectively.
Acquisition-related expenditure of GBP0.2m (2019: GBP0.5m)
representing costs incurred to integrate the business
post-acquisition, together with GBP1.9m (2019: GBP0.2m) of
amortisation on acquired intangibles, has been charged to the
income statement for the year ended 30 June 2020 and is included as
a specific adjusting item in Note 4. This is reported in the Rail
segment in Note 3.
8) Non-current assets held for sale
Freehold
land and Plant
Movement in held for sale buildings and machinery Total
GBPm GBPm GBPm
================================================ =========== =============== ======
At 30 June 2019 - 2.9 2.9
Transferred from property, plant and equipment 8.6 1.1 9.7
Disposals (2.1) (4.0) (6.1)
Impairment loss (1.1) - (1.1)
Exchange rate adjustments (0.1) - (0.1)
At 30 June 5.3 - 5.3
================================================ =========== =============== ======
In January 2019, the Directors made a decision to commence a
process to market actively its test cell assets at DTC for sale,
which had a net book value of GBP2.9m (USD 3.7m) at 1 July 2019.
During the year, the Group continued to invest in these assets to
improve their desirability, increasing the held for sale net book
value to GBP4.0m (USD 4.9m). These assets were sold on 3 June 2020,
as discussed below.
As explained in Note 4, on 21 August 2019, the Group purchased
the freehold property of DTC, comprising the north building, which
housed the test cell assets, and the south office building, for
GBP14.2m (USD 17.3m). Subsequently, the Group commenced a process
to market the newly acquired freehold property, together with the
DTC test cell assets. The freehold property was immediately written
down to GBP8.6m (USD 10.5m) as part of being classified as held for
sale, as the purchase price was predicated on Ricardo's long-term
tenancy, crystallising an impairment charge of GBP5.6m. The
impairment charge was partially offset by the write-off of a
GBP3.1m (USD 4.0m) net lease liability under IFRS 16. The DTC north
building was sold on 3 June 2020, as discussed below. The DTC south
building is still being marketed and remains held for sale at a
value of GBP5.3m (USD 6.5m), as a further impairment charge of
GBP1.1m (USD 1.3m) was recognised to reflect current market
conditions. Due to the nature and significance of the amount the
impairment charge (together with the balance of the lease
liability) have been recognised in the income statement within
specific adjusting items. They are included within the A&I
segment and within administrative expenses in the reported
result.
Detroit test cell business and north building of Detroit
Technology Campus
Fair value of cash consideration GBPm
========================================================== ======
Initial cash consideration 2.8
Provisional fair value of contingent cash consideration:
- less than one year 0.5
- more than one year 0.7
Total fair value of cash consideration 4.0
========================================================== ======
Carrying value of property, plant and equipment disposed
========================================================== ======
- Leasehold property (2.1)
- Plant and machinery (4.0)
Total carrying value of property, plant and equipment
disposed (6.1)
========================================================== ======
Loss on disposal before tax (2.1)
========================================================== ======
In June 2020, the Group sold the test cell assets and the DTC
north building to a non-competitive strategic partner for an
initial cash consideration of GBP2.8m (USD3.5m), which could
increase to a maximum of GBP4.4m (USD5.5m), depending on the volume
of testing work placed into the facility by Ricardo over the next
two years. The total fair value of cash consideration is GBP4.0m
(USD 4.9m), which includes the accrued provisional fair value of
contingent cash consideration payable of GBP1.2m (USD1.5m). A loss
of GBP2.1m (USD2.6m) was recognised on the sale. Due to the nature
and significance of the amount, the loss on disposal was recognised
in the income statement within specific adjusting items.
9) Net debt
2020 2019
Analysis of net debt GBPm GBPm
============================================== ======== =======
Current assets - cash and cash equivalents:
- Cash and cash equivalents 66.3 36.3
============================================== ======== =======
Total cash and cash equivalents 66.3 36.3
============================================== ======== =======
Current liabilities - borrowings:
- Bank overdrafts repayable on demand (10.5) (3.9)
- Hire purchase liabilities maturing within
one year (0.1) (0.1)
============================================== ======== =======
Total current borrowings (10.6) (4.0)
============================================== ======== =======
Non-current liabilities - borrowings:
- Hire purchase liabilities maturing after
one year (0.4) (0.6)
- Bank loans maturing after one year (128.7) (79.1)
============================================== ======== =======
Total non-current borrowings (129.1) (79.7)
At 30 June (73.4) (47.4)
============================================== ======== =======
Total cash and cash equivalents at 30 June 66.3 36.3
Total borrowings at 30 June (139.7) (83.7)
Total net debt at 30 June (73.4) (47.4)
============================================== ======== =======
2020 2019
Movement in net debt GBPm GBPm
============================================== ======== =======
Net debt at beginning of year (47.4) (26.1)
Increase in cash and cash equivalents, and
bank overdrafts 23.4 8.6
Repayments of/(proceeds from) hire purchase 0.2 (0.7)
Proceeds from bank loans (140.3) (64.0)
Repayments of bank loans 90.7 34.8
At 30 June (73.4) (47.4)
============================================== ======== =======
10) Changes in significant accounting policies - IFRS 16
Leases
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 - 37.1 37.1
Other receivables - 2.3 2.3
Deferred tax assets 6.7 1.1 7.8
Total non-current assets 176.5 40.5 217.0
======================================= =========== ============== ============
Current assets
Trade, contract and other receivables 141.4 (0.5) 140.9
======================================= =========== ============== ============
Total current assets 192.5 (0.5) 192.0
======================================= =========== ============== ============
Total current assets and non-current
assets held for sale 195.4 (0.5) 194.9
======================================= =========== ============== ============
Total assets 371.9 40.0 411.9
======================================= =========== ============== ============
Liabilities
Current liabilities
Lease liabilities - (4.7) (4.7)
Trade, contract and other payables (84.8) 1.4 (83.4)
Total current liabilities (95.7) (3.3) (99.0)
======================================= =========== ============== ============
Net current assets 99.7 (3.8) 95.9
======================================= =========== ============== ============
Non-current liabilities
Lease liabilities - (40.9) (40.9)
Provisions (3.7) 0.5 (3.2)
Total non-current liabilities (104.3) (40.4) (144.7)
======================================= =========== ============== ============
Total liabilities (200.0) (43.7) (243.7)
Net assets 171.9 (3.7) 168.2
======================================= =========== ============== ============
Equity
Retained earnings 126.8 (3.7) 123.1
======================================= =========== ============== ============
Equity attributable to owners of the
parent 171.4 (3.7) 167.7
Total equity 171.9 (3.7) 168.2
======================================= =========== ============== ============
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 (1.9)
Lease liabilities recognised on transition to IFRS 16 at
1 July 2019 45.6
=========================================================== =======
11) Events after the reporting date
On 5 May 2020, the Group exercised GBP50m of the accordion
option of its banking facilities, thereby increasing the Revolving
Credit Facility to GBP200m and increasing the amount undrawn and
available to GBP70m. This provides the Group with increased
committed funding available for the remaining term through to July
2023. In addition to the increased committed funding available, the
Adjusted Leverage (defined as net debt over underlying EBITDA)
covenant was increased from 3.0x to 3.75x for the next two test
dates of 30 June 2020 and 31 December 2020. Following the year end,
on 9 September 2020, the definition of the Adjusted Leverage
covenant for the December 2020 covenant test date was amended to be
based on two times the six months' EBITDA to December 2020. In
addition, the June 2021 covenant was increased to 3.75. The only
other financial covenant is Interest Cover. This remains at 4.0x
for each test date, but with the December 2020 test based on two
times the six months' EBITDA to December 2020.
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END
FR FLFSTAFIAIII
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