TIDMRCDO
RNS Number : 6123A
Ricardo PLC
13 September 2018
13 September 2018
Ricardo plc
Preliminary results for the full year ended 30 June 2018
Ricardo plc is a global engineering, technical, environmental
and strategic consultancy business, which also manufactures and
assembles low-volume, high-quality and high-performance
products.
HIGHLIGHTS
-- Record order intake at GBP413m, up GBP47m on FY 2016/17;
-- Record year-end order book at GBP288m, up GBP40m on June 2017;
-- Revenue up 8% to GBP380.0m;
-- Underlying PBT up 2% to GBP39.0m on FY 2016/17;
-- Strong performance in Asia and electric vehicle order intake,
with a good mix of orders across our market sectors;
-- Acquisition of Control Point to enhance US defence business;
-- Disposals of Chicago and Southern Germany engine test
facilities, to balance asset mix with the trend towards
electrification;
-- Order flow disruption in the second half and the close out of
some challenging projects impacted performance in our UK Automotive
business. Changes made and swiftly addressed;
-- Strong working capital management has reduced net debt to
GBP26.1m from GBP37.9m at June 2017 (after GBP6m acquisition of
Control Point); and
-- Outlook is positive with a good pipeline - dividend increased by 6% to 20.46p from 19.30p.
% Change
FY 2017/18 FY 2016/17 Reported Organic(3)
Order intake (GBPm) 413 366 +13 +10
Order book (GBPm) 288 248 +16 +14
Revenue (GBPm) 380.0 352.1 +8 +5
Underlying(1)
Profit before tax (GBPm) 39.0 38.3 +2 -1
Basic earnings per share(2) (p) 57.3 55.7 +3 +1
Statutory
Profit before tax (GBPm) 28.5 32.2 -11 -14
Basic earnings per share (p) 35.2 46.8 -25 -27
Dividend per share (p) 20.46 19.30 +6 n/a
Net debt (GBPm) (26.1) (37.9) +31 n/a
---------------------------------- ----------- ----------- --------- -----------
(1) Underlying measures exclude the impact on statutory measures
of specific adjusting items, comprised of amortisation of acquired
intangible assets of GBP4.3m (2017: GBP4.0m), acquisition-related
expenditure of GBP1.4m (2017: GBP1.7m) and reorganisation costs of
GBP4.8m (2017: GBP0.4m). Underlying measures are considered to
provide a more useful indication of underlying performance and
trends over time.
(2) In the current year, underlying earnings also exclude the
impact on statutory earnings of specific adjusting items for
non-recurring tax charges of GBP2.2m, comprised of the
derecognition of net deferred tax assets in Germany as a result of
reorganisation activities during the year.
(3) Excludes the performance of acquisitions (Control Point
Corporation).
Commenting on the results, Dave Shemmans, Chief Executive
Officer said:
"In this financial year, Ricardo saw solid revenue growth and an
increase in the order book to record year-end levels. We also
successfully acquired and integrated Control Point Corporation. Our
global presence and strategy of sector diversification helped the
business to mitigate the continued impact of uncertainty in the UK
market. Our growing order intake, particularly in Asia, reflects
our clients' continued demand for our high-quality products and
services.
"Our test facilities in Chicago and Southern Germany were sold
during the year to ensure we continue to move with the trend
towards electrification. Actions were taken in our UK Automotive
business to respond to issues relating to a disrupted flow of
orders in the second half of the year and a small number of
challenging projects relating to the new WLTP emissions
legislation.
"We enter the new financial year with a more agile business and
a confident and positive outlook. Ricardo's global capabilities and
presence in a number of growing markets, together with its strong
order book, all provide a solid foundation for continued
growth."
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 / Zoƫ Sibree / E-mail: ricardo@newgatecomms.com
Ian Silvera / Imogen Humphreys
FINANCIAL REVIEW
Group results
The Group increased its order intake to GBP413m during the year,
an increase of GBP47m on the prior year. Order intake increased
across both Technical Consulting and Performance Products. Within
Technical Consulting, there was a good mix of orders across all
market sectors, albeit UK Automotive declined compared to the prior
year. The financial year ended with another record closing order
book of GBP288m (2017: GBP248m), a 16% increase on the prior year.
The order book includes GBP5m from Control Point Corporation
('CPC'), a US-based defence engineering, software development and
fleet management organisation, which was acquired in September
2017.
Underlying
--------------------
Reported Operating Profit
revenue profit before
tax
-------------------------------------- --------- ---------- --------
FY 2017/18 (GBPm) 380.0 41.2 39.0
Less performance of acquisitions:
Control Point Corporation (GBPm) (10.3) (1.0) (1.0)
-------------------------------------- --------- ---------- --------
Organic FY 2017/18 (GBPm) 369.7 40.2 38.0
-------------------------------------- --------- ---------- --------
FY 2016/17 (GBPm) 352.1 40.8 38.3
-------------------------------------- --------- ---------- --------
Growth (%) 8 1 2
Organic growth (%) 5 (1) (1)
Constant currency organic growth (%) 6 (1) -
-------------------------------------- --------- ---------- --------
Total Group revenues grew to GBP380.0m, representing an 8%
increase on the prior year (2017: GBP352.1m). Underlying operating
profit, which excludes specific adjusting items as set out in more
detail in Note 3, has increased by 1% to GBP41.2m (2017: GBP40.8m),
with the margin reducing from 11.6% to 10.8%. Underlying profit
before tax increased by 2% to GBP39.0m (2017: GBP38.3m).
Underlying operating profit and profit before tax both include
GBP1.0m from CPC. On an organic basis, underlying operating profit
and profit before tax both reduced by 1% compared to the prior
year. The performance of CPC has been reported in the Technical
Consulting segment.
We have experienced some mixed performance across the Group. We
have seen particularly good results within Performance Products.
Within Technical Consulting, reduced performance in our UK
Automotive and Energy & Environment businesses has been offset
by growth in our other Technical Consulting businesses, together
with a strong performance from CPC.
Reported profit before tax for the year decreased by 11% to
GBP28.5m (2017: GBP32.2m). The decrease is primarily as a result of
GBP4.8m of reorganisation costs, incurred as a result of the
restructuring of the Automotive businesses in the US and Germany.
This was partially offset by a net increase in income from claims
under the Research & Development Expenditure Credit ('RDEC')
scheme of GBP1.4m. Net acquisition-related expenditure in the year
was GBP1.4m (2017: GBP1.7m).
Closing net debt reduced to GBP26.1m from GBP37.9m in the prior
year. This included GBP6.3m of consideration paid in respect of CPC
(GBP4.6m net of cash acquired), GBP1.7m of acquisition-related
payments and a GBP2.3m net cash inflow from restructuring
activities. The strong cash performance was driven by the continued
focus on working capital across the Group.
Outlook
In this financial year, Ricardo continued to grow its order book
and actions were taken to increase the operational efficiency of
our Automotive business. Our global presence and broad portfolio of
products and services helped the business to mitigate the impact of
uncertainty currently in the UK market. Our growing order intake
reflects our clients' continued demand for our high-quality
products and services, and I remain confident in Ricardo's future
progression.
We enter the new financial year with a more agile business,
although we face an uncertain environment in the UK in the year
ahead. I remain confident in the outlook for the business as
Ricardo's global capabilities and presence in a number of growing
markets, together with its strong order book, all provide a solid
foundation for continued growth.
Technical Consulting
Performance
Underlying
Reported operating
revenue profit
----------------------------------------- ----------- -----------
FY 2017/18 (GBPm) 288.3 31.9
Less performance of acquisitions (GBPm) (10.3) (1.0)
Organic FY 2017/18 (GBPm) 278.0 30.9
----------------------------------------- ----------- -----------
FY 2016/17 (GBPm) 280.5 32.8
----------------------------------------- ----------- -----------
Growth (%) 3 (3)
Organic growth (%) (1) (6)
----------------------------------------- ----------- -----------
Ricardo's Technical Consulting business generates around 80% of
Group revenue and underlying operating profit from its global
sectors including Rail, Automotive, Off-Highway & Commercial
Vehicles, Energy & Environment, and Defence.
Order intake in the year stood at GBP324m (2017: GBP288m) and
there has been a good balance of new orders within Technical
Consulting across all core regions and with good levels of
diversification across different market sectors. Revenue has grown
by 3% to GBP288.3m (2017: GBP280.5m) and underlying operating
profit decreased by 3% to GBP31.9m (2017: GBP32.8m). The underlying
operating profit margin decreased to 11.1% (2017: 11.7%) due to the
mix of orders, an increase in the level of material content and
some disruption in the flow of orders into our UK Automotive
operation, which led to operational inefficiency. In addition, the
delivery of a small number of difficult, complex projects impacted
margins.
Our Rail business delivered another year of strong performance
and won one of its largest ever assurance projects in Taiwan. The
global rail market continues to show positive growth trends, driven
by infrastructure investment to support urban and inter-urban
mobility - particularly in Asia and the Middle East. The rail
industry is striving to exploit new digital technology to improve
operational efficiency, availability and overall cost, and to help
meet the demand for more efficient public transport. Ricardo Rail,
with its extensive engineering consulting and assurance service
offering, is well positioned to benefit from these drivers and
enjoy access to out-of-sector expertise - such as cyber resilience
and autonomous technology - through our other Technical Consulting
businesses.
The Automotive sector is undergoing significant change, driven
firstly by the move towards increased electrification to deliver
the global requirement for CO(2) reduction and, secondly, by the
continued focus on cutting tailpipe emissions to improve quality of
life in urban centres. New European emissions legislation has
resulted in more extensive engine calibration requirements, the
scope and complexity of which is proving challenging for the
industry as a whole. These parallel changes, together with the
opportunity for new entrants to move into the electrified market
without the traditional OEMs' burden of historic capital invested
in combustion engine technology, have created a very unsettled
backdrop to the automotive sector. Our strategic consulting
business has had a busy year assisting its automotive clients
within this changeable market.
We are seeing a strong market in Asia, particularly in China and
Japan. In the year we have acquired new customers on the west coast
of the US: these customers are new to the automotive market and are
focused on rapid product development. We have also worked with
traditional customers in new areas such as electric and hybrid
vehicle development, battery development and systems integration.
We have however also seen some disruption of order flows from some
traditional customers who are looking to navigate the industry
change. This was particularly noticeable in the UK during the
second half of the financial year, when the effects of the
reduction in sales of diesel vehicles were magnified by the
continued uncertainty around Brexit.
This disruption in UK order flows, together with the project
challenges discussed above, led to inefficiency and some
over-capacity in our UK operations, which had an adverse impact on
margins. We were pleased to see a return to more normal levels of
orders towards the end of the year and into the start of the new
financial year.
The US Automotive business improved markedly in the year with a
significantly reduced loss which offset the weakness in the UK
business. The business broke even in the second half of the
year.
Our Automotive business based in China performed well, driven by
a doubling of order intake from China and South East Asia, much of
which was related to electrification and hybridisation.
Consistent with the general industry direction towards increased
electrification, we followed our strategy of reducing international
combustion-focused test facilities to create a more flexible cost
base, disposing of our test facilities in Chicago and Southern
Germany.
Ricardo Energy & Environment continued its focus on
international CO(2) reduction and the future impacts of climate
change, and on climate mitigation plans. Projects included the
preparation of plans for rising sea and river level defence systems
and the protection of residential properties and ecologies in the
UK, as well as applying our strategic consulting expertise to
assist a high-profile wind turbine manufacturer with production
planning and their business improvement plans.
High on the agendas of our governmental, local authority and
industrial clients were real-world emissions monitoring and
air-quality simulations in cities and for shipping. Also important
were future regulations and policies on emissions and the
electrification of transport, which includes the readiness of the
electricity network for the roll-out of vehicle charging
infrastructures.
We have also seen an increased focus on waste and recycling,
with plastics and the reduction of their use becoming a very
productive area of business. Our water consulting activity
benefited from the current Asset Management Planning ('AMP') cycle
in the UK, which ensures water supply and resilience for coming
decades against rising populations and temperatures, and from the
2019 Price Review ('PR19'), driven by the focus of the UK Water
Services Regulation Authority on innovation around leakage
reduction and the resilience of the water network.
We have been exploiting our cross-sector expertise to benefit
our clients in the water sector. One noticeable piece of work is
the application of our complex automotive system modelling
software, IGNITE, to the modelling of Southern Water's network in
the Brighton region in the UK, to assist with capital investment
planning. We believe that this is an innovative piece of software
that can be applied across the water industry and beyond.
Overall order intake for Energy & Environment was similar to
last year, although performance was impacted by recruitment for
higher levels of growth than actually achieved.
Ricardo Defense, a business which now combines the capabilities
of our existing defence business in the US with those of Control
Point Corporation acquired during the year, has won a number of new
contracts across the globe in land defence and in the marine
sector, both surface and sub-surface.
Market sector highlights
Rail
Ricardo Rail delivered a strong performance for the year with
some significant project wins amongst its order intake. The
appointment to provide assurance services for a new metro serving
suburban Taipei in November 2017, for example, was one of the
largest single contracts the business has ever secured and means
Ricardo's expertise will be utilised in the system's construction
through to 2025.
Other notable assignments during the year included providing
technical support for the introduction of bi-mode Hitachi rolling
stock to the UK network, system integration testing of a new tram
system for the city of Utrecht in the Netherlands, and the
approvals for a new rail freight service across Saudi Arabia.
The professionalism of our teams was also evident in our support
for a new high-speed rail link in South Korea that was commissioned
to serve the 2018 Winter Olympics venues around PyeongChang.
Despite the strict deadlines of this high-profile national project,
our assessors skilfully conducted on-site audits to ensure the
signalling technology was compliant with relevant standards,
allowing the line to open on schedule and ahead of the start of the
Games in February 2018.
Ricardo Certification, a separate and independent business of
Ricardo Rail, successfully maintained its multiple accreditations
and appointments, and over the course of the year expanded its
accredited activities into Dubai and Qatar.
A significant number of projects have been approved during the
financial year including:
-- More than 60 (2017: 30) Safety Assessment Reports as an
Assessment Body under the EU Common Safety Method Risk Assessment
and Evaluation Regulations, principally from the UK, the
Netherlands, Denmark and Spain;
-- Over 360 (2017: 80) certificates as a Notified Body or
Designated Body under national regulations that satisfy the
requirements of the EU Interoperability Directive, principally from
the UK, the Netherlands, Denmark and Spain;
-- More than 60 (2017: 50) Accredited Independent Safety
Assessment ('ISA') reports, principally from Spain and China;
and
-- Over 60 (2017: 50) Railway Product Certifications, all from China.
Automotive
During the year, while CO(2) reduction remained a top global
priority for the sector, the public debate shifted the focus of
consumers and governments onto air quality and, in particular,
nitrogen dioxide ('NO(2) ') emissions. This resulted in a continued
increase in the demand for all aspects of vehicle electrification,
from mild hybrids to full battery electric vehicles ('BEVs').
We have secured a range of programmes in vehicle systems, hybrid
and electric systems and advanced drivelines, and in the core
powertrain areas of our business, focused on both new and existing
product upgrades. This year we saw an increase in order intake in
connection with vehicle electrification programmes which accounted
for 26% (2017: 15%) of order intake for Technical Consulting and
21% (2017: 17%) of total Group order intake.
R-Intellect is our integrated approach to electrified vehicle
development and it forms the basis of our differentiated solution
approach for electrified vehicles. We continue to invest in
advanced combustion and transmission solutions and other key
technologies in areas related to improvements in overall vehicle
system efficiency such as lightweighting, intelligent drivelines,
and vehicle electrification. In addition to these areas, the
Ricardo collaboration with Roke to develop cyber security solutions
for vehicles is attracting much interest from new and existing
customers. The collaborative capabilities of both organisations are
also leading to further opportunities in both the rail and energy
sectors.
Ricardo Motorcycle, which delivers complete development of
motorcycles, scooters and urban mobility vehicles, including their
powertrains, has seen growth driven by tightening emissions
legislation, increased consumer demand for higher capacity
motorcycles in developing markets, and growing interest in electric
motorcycles.
Off-Highway & Commercial Vehicles
Growth continued in the medium- and heavy-duty sectors,
particularly in Asia, and we have secured several large engine and
transmission projects across both sectors. Our order book and
pipeline of opportunities across Europe and Asia includes a broad
mix of largely engine and transmission programmes. In the US, there
was continued focus on powertrain and trailer efficiency, emissions
control and the use of hydrogen fuel cells, driven by tighter
standards for the emission of greenhouse gasses and nitrogen oxides
('NOx'). In the medium-duty market, compliance requirements for
in-service On-Board Diagnostics ('OBD') has driven increased engine
test activity.
Commercial vehicle platooning remains an important growth market
and Ricardo has developed a class-leading capability for control
strategy and safety case development.
In the off-highway market, Asia is showing renewed growth -
especially in transmissions and drivelines - and activity is
increasing in Europe. In the medium-term we expect solid customer
demand for our services to meet EU, US and Asian emissions
regulations and 2020 emissions targets. Our focus in the medium-
and long-term is on assisting customers with the introduction of
new technologies for efficiency improvements such as
electrification and autonomy.
Ricardo provides the power generation and marine markets with
services in failure analysis, investigation, and specialist design
and development. In these markets we see increasing demand for
high-speed diesel generator sets and main propulsion systems for
marine vessels, and for the conversion of engines for gas or
dual-fuel operation.
Energy & Environment
This year our Energy & Environment business has seen a
broadening of its client base and offerings. The surge of interest
in plastic and its impact on the environment has created new demand
from customers and we have been working with organisations across
the supply chain to ensure that where plastic needs to be used, the
environmental impact is minimised, and at the end of its life the
plastic is captured and reused or recycled.
We have won a number of projects in the UK to support leading
national organisations in the development and evaluation of
resources efficiency and waste management policies and systems.
Our UK experience has resonated well and our work on waste and
resources has seen growing interest from around the world,
especially in Australia where we have already secured a number of
projects.
We continue to support customers around the world with our
air-quality services and products. In China, we are providing
support to a number of cities to establish long-term,
cost-effective air-quality action plans to bring about significant
improvements in air quality and health whilst maximising
co-benefits such as reductions in greenhouse gas emissions. A key
project, commissioned by the Asian Development Bank ('ADB'), is
providing detailed evaluation of policy options using Ricardo's
RapidAir(R) air quality modelling system and is designed to support
the billion-dollar investments being made by ADB in north-eastern
China.
Africa is urbanising faster than any other region in the world
and by 2050 more than 20% of the world's total urban population is
expected to live in cities in sub-Saharan Africa. The region
contains some of the lowest greenhouse gas emitting countries in
the world, but many are investing in infrastructure to support
population growth and economic development. There is a narrow
window of opportunity to avoid high carbon 'lock-in' and to support
climate-resilient development by factoring climate change into
long-term investments and planning decisions.
Ricardo is working with nine cities in six countries in
sub-Saharan Africa, on behalf of the C40 Cities Climate Leadership
Group, to build capacity within local government and develop common
tools and frameworks. This will enable action planning for
transformational, long-term and low-carbon development, consistent
with limiting the rise in global temperatures to 1.5 degrees
Celsius and achieving sustainable development goals.
In the UK we have seen high demand for our services in air
quality: much of this demand comes through our support of UK cities
which are under intense pressure to accelerate the delivery of
cleaner air to achieve compliance with air-quality standards and
consequent improvements to public health. Our work, in close
partnership with local government leaders, is shaping the design of
'Clean Air Zones' through the identification of targeted options,
tailored to local circumstances, that cut air pollution and public
exposure through locally deliverable action.
We have also seen a steep increase in our work on water resource
management, attributable to the statutory plans that the UK's water
companies are required to produce every five years. These plans set
out the strategy for securing reliable, sustainable water supplies
over the next 25 years and beyond. We have provided strategic
environmental assessment and planning for the delivery of those
plans for 12 water companies, ensuring that they met the stringent
requirements for environmental assessment, including resilience of
the water supply system and ecosystem services assessments.
Our National Chemical Emergency Centre ('NCEC') has further
broadened its offering by using its complimentary skills and
capabilities as the world's leading chemical emergency response
centre to create a service for businesses outside of the chemicals
sector to report different types of incidents - for example, fires,
floods, explosions and break-ins. The business also offers planning
and training on crisis and business continuity. The new offering
has been successful, and the business has seen increasing customer
demand for these new services.
Defence
In the US, our existing Ricardo Defense Systems entity completed
the acquisition of Control Point Corporation, now known as Ricardo
Defense, Inc., which has delivered a strong performance in the
year. The integration of the acquisition is progressing well, and
the combined Ricardo Defense business has won a number of new
contracts and offers an expanding range of services to improve
safety, reduce costs, and minimise risk for defence forces on land
and at sea.
In the UK, we are delivering contracts to develop new engine and
transmission designs for land vehicles for an overseas
customer.
Performance Products
Performance
Underlying
Reported operating
revenue profit
------------------- ----------- -----------
FY 2017/18 (GBPm) 91.7 9.3
FY 2016/17 (GBPm) 71.6 8.0
------------------- ----------- -----------
Growth (%) 28 16
------------------- ----------- -----------
The Performance Products business accounts for around 20% of
Group revenue and underlying operating profit. A large proportion
of the revenue is generated through the supply of products and
services to a single customer.
Revenue increased by 28% to GBP91.7m (2017: GBP71.6m) and
underlying operating profit increased by 16% to GBP9.3m (2017:
GBP8.0m). Operating profit margins reduced to 10.1% (2017: 11.2%).
Profit was higher than the prior year, primarily due to increased
volumes in respect of the engine supply contract for McLaren, a
full year of production of transmissions for the Bugatti Chiron and
an increased demand for Porsche Cup transmissions. Order intake in
the year increased by 14% to GBP89m (2017: GBP78m), with the Aston
Martin order received in the prior year being more than offset by
the increased demand in this financial year from McLaren, Bugatti
and Porsche.
The business continues to focus on the development of long-term
strategic relationships with customers, and the consistent
achievement of high-quality and on-time delivery of our products in
order to win new and large contracts.
Market sector highlights
High-Performance Vehicles & Motorsport
Demand for the production of McLaren engines continues to grow
in line with expectations: this year we delivered over 4,300
engines across an increased number of engine variants, including
the McLaren 540C, 570S CoupƩ, 570GT, 570S Spider, 720S and
Senna.
We manufacture and assemble the world's most advanced
transmissions and we made good progress in the preparations for the
supply contract for the Aston Martin Red Bull Valkyrie hypercar
transmission. We also continued to support Bugatti with the supply
of the complete driveline system for the Chiron, together with the
supply of transmissions for the Porsche 991 Cup race cars.
Ricardo remains a key supplier to the motorsport sector. This
year the Performance Products business developed the transmission
for the M-Sport Bentley GT customer racing programme and continued
to support key manufacturers within the Formula E Championship for
the second consecutive season.
We continue to manufacture for Formula One, the Japanese Super
Formula Championship, Indy Lights and the World Series Formula V8
3.5. We also operate supply programmes of Ricardo-designed
transmissions for BMW, the Multimatic-built Ford GT3, the M-Sport
World Rally Championship Ford Fiesta and the Hyundai R5 Rally
car.
Defence
In the UK, Ricardo supports the British Army's fleet of Cougar
and Weapons Mount Installation Kit ('WMIK') vehicles with the
supply of spare parts.
In the US, Ricardo Defense has received its first orders and
started production of our bespoke anti-lock brake and electronic
stability control system for the High-Mobility Multipurpose Wheeled
Vehicle ('HMMWV', or Humvee). The system is proven to be effective
at reducing loss of control and the occurrence of single-vehicle
crashes, saving the lives of its occupants as a result. We continue
to work closely with both the U.S. Army and major suppliers to
deliver this important technology onto the vehicles.
OTHER FINANCIAL MATTERS
Acquisitions and acquisition-related intangible assets
As set out in more detail in Note 6, the Group acquired the
entire issued share capital of CPC on 8 September 2017, for a total
consideration, including expected earn out payments, of GBP8.0m
($10.5m). This investment added goodwill of GBP3.4m ($4.4m) to a
new Ricardo Defense cash-generating unit. Acquisition-related
intangible assets were identified, with a net book value at
year-end of GBP1.9m ($2.5m).
The Group incurred net acquisition-related expenditure of
GBP1.4m (2017: GBP1.7m) during the year, GBP0.8m of which was in
respect of CPC, with the remainder primarily relating to fees
incurred on an aborted transaction and integration costs in respect
of prior acquisitions. The acquisition-related expenditure and
amortisation of acquisition-related intangible assets have been
charged to the Consolidated Income Statement as specific adjusting
items.
Restructuring activities
During the year the Group completed the sale of its Chicago
Technical Centre ('CTC') and Schechingen Technical Centre ('SchTC')
in Germany, and significantly reduced its footprint in SchwƤbisch
GmĆ¼nd.
The sale of CTC was completed in April 2018 for a consideration
of GBP4.1m ($5.5m), generating a profit on sale of the assets of
GBP1.4m ($1.9m). In addition, GBP0.7m ($0.9m) of professional fees,
contractors, and redundancy costs were incurred as a result of the
asset sale and wider restructuring process in the US.
The sale of SchTC was completed by year-end for a total
consideration of GBP4.4m (EUR5.0m), generating a profit on disposal
of GBP0.2m (EUR0.2m). Of the total proceeds, GBP2.5m (EUR2.8m) for
the land and buildings was held in escrow at year-end and received
post year-end following approval from the German land registry.
Redundancy costs of GBP0.3m were also incurred.
Redundancy costs of GBP2.7m (EUR3.0m) were incurred in relation
to the downsizing of our footprint in SchwƤbisch GmĆ¼nd, of which
GBP1.8m (EUR2.0m), in addition to the SchTC redundancy costs,
remained unpaid as at 30 June 2018, as these were paid during or at
the end of notice periods. Professional fees and other costs of
GBP1.8m (EUR2.0m) were incurred due to the activities in
Germany.
Certain back-office functions were migrated from the Shoreham
Technical Centre ('STC') to the newly set up Prague shared service
centre. Redundancy, contractor and other transition costs of
GBP0.5m were incurred. Redundancy costs of GBP0.4m were also
incurred in the UK for members of the senior management team as a
result of the restructuring of the business.
The combined cost of these activities was GBP4.8m in the year,
with a net cash inflow of GBP2.3m.
Research and Development
The Group continues to invest in R&D and spent GBP9.5m
(2017: GBP9.5m) before government grant income of GBP1.6m (2017:
GBP2.4m). Costs capitalised this year in accordance with IFRS were
GBP5.1m (2017: GBP3.0m) and reflect the impact of investment in
developers in our Software business, and new technology, tools and
processes in our European Automotive and Energy & Environment
businesses.
The total Research and Development Expenditure Credit ('RDEC')
recognised in the current year is GBP8.0m (2017: GBP6.6m). This
comprises an estimated RDEC credit in respect of the current year
of GBP6.9m (2017: GBP5.2m), together with GBP1.1m (2017: GBP1.4m)
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 (2017: GBP0.2m). Finance costs were
broadly in line with the prior year at GBP2.6m (2017: GBP2.7m),
giving net finance costs of GBP2.2m (2017: GBP2.5m).
Taxation
The total tax charge for the year was GBP9.6m (2017: GBP7.4m),
with the total effective rate of tax being 33.7% (2017: 23.0%). The
increase reflects the impact of improved performance in our US
operations, combined with the derecognition of a GBP2.2m net
deferred tax asset, relating to historic losses in Germany, due to
the restructuring activities completed in the year (2017:
GBP1.5m).
The underlying effective tax rate was 21.3% (2017: 23.0%), with
the decrease on the prior year driven by a change in the mix of
profits across the territories in which the Group operates and
reduction in the tax rates globally.
A deferred tax asset of GBP5.5m ($7.2m) relating to R&D tax
credits in the US continues to be recognised. The Directors have
considered the recoverability of this asset 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 earnings per share decreased by 25% to 35.2p (2017:
46.8p). The Directors consider that an underlying earnings per
share provides a more useful indication of underlying performance
and trends over time. Underlying basic earnings per share for the
year increased by 3% to 57.3p (2017: 55.7p).
Basic earnings per share, with a reconciliation to an underlying
basic earnings per share, which excludes the net-of-tax impact of
specific adjusting items, is disclosed in Note 4.
Dividend
The total (paid and proposed) dividend for the year has
increased by 6% to 20.46p per ordinary share (2017: 19.3p) and
amounts to GBP10.9m (2017: GBP10.3m). The proposed final dividend
of 14.71p (2017: 13.88p) will be paid on 23 November 2018 to
shareholders who are on the register of members at the close of
business on 9 November 2018, subject to approval at the Annual
General Meeting on 15 November 2018.
Capital investment
Cash expenditure on property, plant and equipment was GBP7.8m
(2017: GBP6.3m) as we continue to invest in our business
operations. This expenditure included new and upgraded test cell
equipment and IT hardware.
Net debt
Closing net debt was GBP26.1m (2017: GBP37.9m). The Group had a
net cash inflow of GBP11.8m (2017: GBP3.5m), after GBP4.6m (2017:
GBP1.9m) of consideration paid in respect of acquisitions, net of
cash acquired, GBP1.7m acquisition-related payments (2017:
GBP0.8m), and a GBP2.3m net cash inflow (2017: GBP0.4m) from
restructuring activities. The composition of net debt is defined in
Note 8.
The Group's focus on the management of working capital has
driven the reduction in net debt in the year. Significant progress
has been made across the Group in ensuring timely billing and cash
collection throughout the year.
Banking facilities
At the end of the financial year, the Group held total
facilities of GBP90.9m (2017: GBP91.1m), which included committed
facilities of GBP75.0m (2017: GBP75.0m). Of the committed
facilities, a GBP35.0m facility is available until September 2019
and GBP40.0m is available until April 2020. In addition, the Group
has uncommitted facilities including overdrafts of GBP15.9m (2017:
GBP16.1m), which mature throughout the next financial year and are
renewable annually.
Committed facilities of GBP49.8m (2017: GBP59.7m) net of direct
issue costs were drawn primarily to fund acquisitions. These are
denominated in Pounds Sterling and have variable rates of interest
dependent upon the Group's adjusted leverage, which range from 1.6%
to 2.6% above LIBOR and are repayable in the year ending 30 June
2020.
After the year-end on 20 July 2018, the Group completed a
refinance of its banking facilities, entering into a new GBP150m
Revolving Credit Facility ('RCF') which provides the Group with
committed funding for the next five years through to July 2023
primarily for acquisitions and strategic investments. This
multi-currency facility has a variable interest rate which ranges
from 1.4% to 2.2% above LIBOR and is dependent upon the Group's
adjusted leverage.
Foreign exchange
On consolidation, income and expense items are translated at the
average exchange rates for the period. The roup 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 previous financial year, the
average value of Pound Sterling strengthened against the US Dollar
(6.3%) and Chinese Renminbi (1.5%). The marginal negative impact on
profit from this was partially offset by Sterling weakening against
the Euro (3.0%).
Had the current year results been stated at constant exchange
rates, revenue would have been GBP3.1m higher and underlying profit
before tax would have been GBP0.3m higher. Reported profit before
tax would have been GBP0.4m higher.
Pensions
The Group's defined benefit pension scheme operates within the
UK. The accounting deficit measured in accordance with IAS 19
'Employee Benefits' was GBP4.6m before tax (2017: GBP22.2m), or
GBP3.8m after tax (2017: GBP18.1m).
The GBP17.6m reduction in the pre-tax pension deficit since the
prior year was due to the positive return on plan assets of
GBP2.1m, and the effect of using updated census data giving a gain
of GBP7.0m, together with GBP4.3m of cash contributions paid to the
scheme during the financial year. There was also a further
favourable movement of GBP7.7m primarily from an increase in the
discount rate assumption to 2.85% (2017: 2.60%), offset by GBP3.0m
from the use of an updated set of mortality assumptions and GBP0.5m
of net interest cost on the scheme. The value of the scheme's
assets at year-end was GBP131.0m, in line with the prior year
(2017: GBP131.0m).
Ricardo has committed to continue to pay GBP4.3m throughout the
next financial year to fund the pension deficit, increasing to
GBP4.6m per annum from July 2019 until September 2022.
Appointment of independent auditors
Subsequent to a detailed audit tender process, the Board has
recommended the appointment of KPMG LLP as the Group's external
auditors for the year ending 30 June 2019. A resolution to approve
the Board's recommendation will be proposed to shareholders at the
Annual General Meeting on 15 November 2018.
Dave Shemmans Ian Gibson
Chief Executive Officer Chief Financial Officer
12 September 2018
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.
Consolidated income statement
for the year ended 30 June 2018
2018 2017
Specific Specific
adjusting adjusting
Underlying items(1) Total Underlying items(1) Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ----- ------------- ----------- -------- ------------- ----------- --------
Revenue 2 380.0 - 380.0 352.1 - 352.1
Cost of sales (241.1) - (241.1) (219.2) - (219.2)
------------------------- ----- ------------- ----------- -------- ------------- ----------- --------
Gross profit 138.9 - 138.9 132.9 - 132.9
Administrative expenses (98.4) (10.5) (108.9) (92.6) (6.1) (98.7)
Other income 0.7 - 0.7 0.5 - 0.5
------------------------- ----- ------------- ----------- -------- ------------- ----------- --------
Operating profit 41.2 (10.5) 30.7 40.8 (6.1) 34.7
Finance income 0.4 - 0.4 0.2 - 0.2
Finance costs (2.6) - (2.6) (2.7) - (2.7)
------------------------- ----- ------------- ----------- -------- ------------- ----------- --------
Net finance costs (2.2) - (2.2) (2.5) - (2.5)
------------------------- ----- ------------- ----------- -------- ------------- ----------- --------
Profit before taxation 39.0 (10.5) 28.5 38.3 (6.1) 32.2
Taxation (8.3) (1.3) (9.6) (8.8) 1.4 (7.4)
------------------------- ----- ------------- ----------- -------- ------------- ----------- --------
Profit for the year 30.7 (11.8) 18.9 29.5 (4.7) 24.8
------------------------- ----- ------------- ----------- -------- ------------- ----------- --------
Profit attributable
to:
- Owners of the
parent 30.6 (11.8) 18.8 29.5 (4.7) 24.6
- Non-controlling
interests 0.1 - 0.1 - - -
------------------------- ----- ------------- ----------- -------- ------------- ----------- --------
30.7 (11.8) 18.9 29.5 (4.7) 24.8
------------------------- ----- ------------- ----------- -------- ------------- ----------- --------
Earnings per ordinary share attributable to the owners of the parent
during the year
------------------------------------------------------------------------------------
Basic 4 57.3p (22.1)p 35.2p 55.7p (8.9)p 46.8p
Diluted 4 57.1p (20.0)p 35.1p 55.2p (8.8)p 46.4p
------------- --- --------- ------------ -------- -------- --------- --------
(1) Specific adjusting items comprise amortisation of acquired
intangible assets, acquisition-related expenditure, reorganisation
costs and derecognition of related net deferred tax assets. Further
details are given in Note 3.
Consolidated statement of comprehensive income
for the year ended 30 June 2018
2018 2017
GBPm GBPm
--------------------------------------------------- ------ ------
Profit for the year 18.9 24.8
--------------------------------------------------- ------ ------
Items that will not be reclassified to profit
or loss:
Remeasurements of the defined benefit pension
scheme 13.8 (4.4)
Deferred tax on remeasurements of the defined
benefit scheme (2.7) 0.8
--------------------------------------------------- ------ ------
Total items that will not be reclassified to
profit or loss 11.1 (3.6)
--------------------------------------------------- ------ ------
Items that may be subsequently reclassified to
profit or loss:
Currency translation on foreign currency net
investments 0.1 3.0
Total items that may be subsequently reclassified
to profit or loss 0.1 3.0
--------------------------------------------------- ------ ------
Total other comprehensive income/(loss) for the
year (net of tax) 11.2 (0.6)
Total comprehensive income for the year 30.1 24.2
--------------------------------------------------- ------ ------
Attributable to:
- Owners of the parent 30.0 24.2
- Non-controlling interests 0.1 -
--------------------------------------------------- ------ ------
30.1 24.2
--------------------------------------------------- ------ ------
Consolidated statement of financial position
as at 30 June 2018
2018 2017
Note GBPm GBPm
--------------------------------------------- ----- -------- --------
Assets
Non-current assets
Goodwill 65.5 62.0
Other intangible assets 31.7 32.4
Property, plant and equipment 45.3 48.0
Deferred tax assets 7.6 14.3
--------------------------------------------- ----- -------- --------
150.1 156.7
--------------------------------------------- ----- -------- --------
Current assets
Inventories 13.3 13.9
Trade and other receivables 141.8 137.6
Derivative financial assets 0.1 0.9
Current tax assets 1.3 0.6
Cash and cash equivalents 8 33.1 27.9
189.6 180.9
--------------------------------------------- ----- -------- --------
Non-current assets held for sale - 2.8
--------------------------------------------- ----- -------- --------
189.6 183.7
--------------------------------------------- ----- -------- --------
Total assets 339.7 340.4
--------------------------------------------- ----- -------- --------
Liabilities
Current liabilities
Borrowings 8 (9.4) (6.0)
Trade and other payables (82.5) (82.1)
Current tax liabilities (6.3) (6.3)
Derivative financial liabilities (1.0) (0.7)
Provisions (2.8) (1.3)
(102.0) (96.4)
--------------------------------------------- ----- -------- --------
Net current assets 87.6 87.3
--------------------------------------------- ----- -------- --------
Non-current liabilities
Borrowings 8 (49.8) (59.8)
Retirement benefit obligations (4.6) (22.2)
Deferred tax liabilities (3.9) (5.0)
Provisions (2.9) (1.3)
--------------------------------------------- ----- -------- --------
(61.2) (88.3)
--------------------------------------------- ----- -------- --------
Total liabilities (163.2) (184.7)
--------------------------------------------- ----- -------- --------
Net assets 176.5 155.7
--------------------------------------------- ----- -------- --------
Equity
Share capital 13.4 13.3
Share premium 14.3 14.3
Other reserves 15.7 15.6
Retained earnings 132.7 112.2
--------------------------------------------- ----- -------- --------
Equity attributable to owners of the parent 176.1 155.4
--------------------------------------------- ----- -------- --------
Non-controlling interests 0.4 0.3
--------------------------------------------- ----- -------- --------
Total equity 176.5 155.7
--------------------------------------------- ----- -------- --------
Consolidated statement of changes in equity
for the year ended 30 June 2018
Attributable to owners of
the parent
----------------------------------------------------------
Non-controlling
Share Share Other Retained interests Total
capital premium reserves earnings Total equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ---------- ---------- ----------- ----------- -------- ---------------- ---------
At 1 July 2017 13.3 14.3 15.6 112.2 155.4 0.3 155.7
Profit for the year - - - 18.8 18.8 0.1 18.9
Other comprehensive income
for the year - - 0.1 11.1 11.2 - 11.2
----------------------------- ---------- ---------- ----------- ----------- -------- ---------------- ---------
Total comprehensive income
for the year - - 0.1 29.9 30.0 0.1 30.1
Equity-settled transactions - - - 1.0 1.0 - 1.0
Tax credit relating to share
option schemes - - - 0.1 0.1 - 0.1
Proceeds from shares issued 0.1 - - - 0.1 - 0.1
Ordinary share dividends
(Note 5) - - - (10.5) (10.5) - (10.5)
----------------------------- ---------- ---------- ----------- ----------- -------- ---------------- ---------
At 30 June 2018 13.4 14.3 15.7 132.7 176.1 0.4 176.5
----------------------------- ---------- ---------- ----------- ----------- -------- ---------------- ---------
At 1 July 2016 13.2 14.3 12.6 99.4 139.5 - 139.5
Profit for the year - - - 24.8 24.8 - 24.8
Other comprehensive
income/(loss)
for the year - - 3.0 (3.6) (0.6) - (0.6)
Total comprehensive income
for the year - - 3.0 21.2 24.2 - 24.2
Reclassification of
non-controlling
interests - - - (0.3) (0.3) 0.3 -
Equity-settled transactions - - - 1.6 1.6 - 1.6
Tax credit relating to share
option schemes - - - 0.1 0.1 - 0.1
Proceeds from shares issued 0.1 - - - 0.1 - 0.1
Ordinary share dividends
(Note 5) - - - (9.8) (9.8) - (9.8)
----------------------------- ---------- ---------- ----------- ----------- -------- ---------------- ---------
At 30 June 2017 13.3 14.3 15.6 112.2 155.4 0.3 155.7
----------------------------- ---------- ---------- ----------- ----------- -------- ---------------- ---------
Consolidated statement of cash flow
for the year ended 30 June 2018
2018 2017
Note GBPm GBPm
---------------------------------------------- ----- ------- -------
Cash flows from operating activities
Cash generated from operations 7 44.3 24.3
Net finance costs (2.2) (1.4)
Tax paid (7.6) (7.6)
---------------------------------------------- ----- ------- -------
Net cash generated from operating activities 34.5 15.3
---------------------------------------------- ----- ------- -------
Cash flows from investing activities
Acquisitions of subsidiaries, net of cash
acquired 6 (4.6) (1.9)
Purchases of property, plant and equipment (7.8) (6.3)
Proceeds from sale of property, plant and
equipment 6.4 4.0
Purchases of intangible assets (6.6) (5.6)
Net cash used in investing activities (12.6) (9.8)
---------------------------------------------- ----- ------- -------
Cash flows from financing activities
Proceeds from issuance of ordinary shares 0.1 0.1
Proceeds from borrowings 15.0 31.5
Repayments of borrowings (25.0) (26.4)
Dividends paid to shareholders 5 (10.5) (9.8)
Net cash used in financing activities (20.4) (4.6)
---------------------------------------------- ----- ------- -------
Effect of exchange rate changes on cash and
cash equivalents 0.3 0.7
---------------------------------------------- ----- ------- -------
Net increase in cash and cash equivalents 8 1.8 1.6
Net cash and cash equivalents at 1 July 22.0 20.4
---------------------------------------------- ----- ------- -------
Net cash and cash equivalents at 30 June 8 23.8 22.0
---------------------------------------------- ----- ------- -------
Notes to the financial statements
for the year ended 30 June 2018
1. General information
Ricardo plc is a public limited company, limited by shares,
which 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 2018, which was approved for issue on 12
September 2018, 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. Operating segments
Technical Performance
Consulting Products Head Office Total
Year ended 30 June 2018 GBPm GBPm GBPm GBPm
---------------------------------- ------------ ------------- ------------- --------
Total segment revenue 288.6 95.8 - 384.4
Inter-segment revenue (0.3) (4.1) - (4.4)
---------------------------------- ------------ ------------- ------------- --------
Revenue from external customers 288.3 91.7 - 380.0
---------------------------------- ------------ ------------- ------------- --------
Underlying operating profit 31.9 9.3 - 41.2
Specific adjusting items (9.9) - (0.6) (10.5)
Operating profit 22.0 9.3 (0.6) 30.7
Net finance costs - - (2.2) (2.2)
---------------------------------- ------------ ------------- ------------- --------
Profit before taxation 22.0 9.3 (2.8) 28.5
---------------------------------- ------------ ------------- ------------- --------
Technical Performance
Consulting Products Head Office Total
Year ended 30 June 2017 GBPm GBPm GBPm GBPm
---------------------------------- ------------ ------------- ------------- --------
Total segment revenue 280.6 73.3 - 353.9
Inter-segment revenue (0.1) (1.7) - (1.8)
---------------------------------- ------------ ------------- ------------- --------
Revenue from external customers 280.5 71.6 - 352.1
---------------------------------- ------------ ------------- ------------- --------
Underlying operating profit 32.8 8.0 - 40.8
Specific adjusting items (5.0) - (1.1) (6.1)
Operating profit 27.8 8.0 (1.1) 34.7
Net finance costs - - (2.5) (2.5)
---------------------------------- ------------ ------------- ------------- --------
Profit before taxation 27.8 8.0 (3.6) 32.2
---------------------------------- ------------ ------------- ------------- --------
3. Specific adjusting items
2018 2017
GBPm GBPm
------------------------------------------------ ------ ------
Amortisation of acquisition-related intangible
assets 4.3 4.0
Acquisition-related expenditure(1) 1.4 1.7
Reorganisation costs(2) 4.8 0.4
------------------------------------------------ ------ ------
Total before tax 10.5 6.1
Derecognition of net deferred tax assets(3) 2.2 -
Tax impact of specific adjusting items(4) (0.9) (1.4)
Total after tax 11.8 4.7
------------------------------------------------ ------ ------
(1) Acquisition-related expenditure in the current year
comprised GBP0.1m (2017: GBP0.3m) of costs incurred for services
rendered to, and consumed by, the Group to effect the Control Point
Corporation acquisition (see Note 6), together with GBP0.2m on its
subsequent integration into the Ricardo Group and GBP0.5m of
associated earn-out arrangements. Costs of GBP0.4m (2017: GBP0.5m)
were also incurred to finalise the integration of the LR Rail and
Motorcycle Engineering Italia (Exnovo) businesses into the Ricardo
Group, together with GBP0.2m of professional fees incurred in
relation to due diligence of a subsequently aborted acquisition
process. The prior year also included GBP0.2m of professional fees
and GBP0.7m of earn-out costs in relation to acquisitions completed
previously.
(2) Reorganisation costs relate to non-recurring expenditure
incurred as part of a fundamental restructuring of the Group's
Automotive businesses across Europe and North America. These costs
included:
-- The sale of the test assets at the Chicago Technical Centre
('CTC') in the US was completed on 2 April 2018 for cash
consideration of GBP4.1m ($5.5m), which generated a profit on
disposal of GBP1.4m ($1.9m). In addition, GBP0.7m ($0.9m) (2017:
GBP0.2m ($0.2m)) of professional fees, contractor costs, and
redundancy costs were incurred as a result of the asset sale and
wider restructuring process;
-- The sale of the Schechingen Technical Centre ('SchTC') in
Germany was completed on 30 June 2018 for cash consideration of
GBP4.4m (EUR5.0m), which generated a profit on disposal of GBP0.2m
(EUR0.2m). Redundancy costs of GBP0.3m were also incurred;
-- Redundancy costs of GBP2.7m (EUR3.0m) in relation to the
downsizing of our footprint in SchwƤbisch GmĆ¼nd, Germany;
-- Additional costs of GBP1.8m (EUR2.0m) were incurred as a
result of our downsizing activities in Germany, including
professional fees, contractors, and the recognition of an onerous
lease provision for the SchwƤbisch GmĆ¼nd premises;
-- Costs incurred of GBP0.5m in relation to the set-up of our
new Shared Service Centre in Prague, Czech Republic, including
dual-running costs for the transition of the transactional finance
team from our Shoreham Technical Centre, together with associated
costs for travel, redundancy and retention payments for staff made
redundant following the transition, and contractor costs to
backfill the roles of employees that managed the transition (2017:
GBP0.2m); and
-- UK senior management redundancy payments of GBP0.4m, as a
result of the restructuring activities.
(3) A net deferred tax asset of GBP2.2m (EUR2.5m) which
primarily comprised GBP2.4m (EUR2.7m) of historical losses incurred
in the consolidated tax group controlled by Ricardo GmbH, partially
offset by GBP0.2m (EUR0.2m) of deferred tax liabilities, was
brought forward from the prior year. Due to the various
restructuring actions taken in Germany during the year, the
Directors now consider it unlikely that sufficient relevant future
taxable profits will be available in the foreseeable future,
against which the carrying value of the brought forward deferred
tax asset can be utilised. Consequently, this brought forward
deferred tax asset was derecognised during the year.
(4) The tax impact on amortisation of acquisition-related
intangible assets, acquisition-related expenditure and
reorganisation costs.
4. 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.
2018 2017
GBPm GBPm
-------------------------------------------------- ------------ ------------
Earnings attributable to owners of the parent 18.8 24.8
Add back amortisation of acquisition-related
intangible assets (net of tax) 3.5 3.1
Add back acquisition-related expenditure (net
of tax) 1.4 1.3
Add back reorganisation costs (net of tax) 4.7 0.3
Add back derecognition of deferred tax assets 2.2 -
Underlying earnings attributable to owners of
the parent 30.6 29.5
-------------------------------------------------- ------------ ------------
2018 2017
Number of Number of
shares shares
millions millions
-------------------------------------------------- ------------ ------------
Basic weighted average number of shares in issue 53.4 53.0
Effect of dilutive potential shares 0.2 0.4
-------------------------------------------------- ------------ ------------
Diluted weighted average number of shares in
issue 53.6 53.4
-------------------------------------------------- ------------ ------------
2018 2017
Earnings per share pence pence
-------------------------------------------------- ------------ ------------
Basic 35.2 46.8
Diluted 35.1 46.4
-------------------------------------------------- ------------ ------------
2018 2017
Underlying earnings per share pence pence
-------------------------------------------------- ------------ ------------
Basic 57.3 55.7
Diluted 57.1 55.2
-------------------------------------------------- ------------ ------------
5. Dividends
2018 2017
GBPm GBPm
--------------------------------------------------- ----- -----
Final dividend for the year ended 30 June 2017 of
13.88p (2016: 13.03p) per share 7.4 6.9
Interim dividend for the year ended 30 June 2018
of 5.75p (2017: 5.42p) per share 3.1 2.9
Equity dividends paid 10.5 9.8
--------------------------------------------------- ----- -----
Directors are proposing a final dividend in respect of the
financial year ended 30 June 2018 of 14.71p per share which will
utilise GBP7.8m of retained earnings. It will be paid on 23
November 2018 to shareholders who are on the register of members at
the close of business on 9 November 2018, subject to approval at
the Annual General Meeting on 15 November 2018.
6. Acquisitions
Control Point Corporation
The Group acquired the entire issued share capital of Control
Point Corporation ('CPC'), which was subsequently renamed Ricardo
Defense, Inc. on 8 September 2017 for initial cash consideration of
GBP6.3m ($8.3m) and contingent cash consideration of GBP1.7m
($2.2m), based upon CPC achieving certain financial performance
targets. The acquisition of CPC expands upon the Group's vehicle
engineering capabilities in the Defence sector and adds expertise
in distributed software-based systems and fleet management
technologies.
The following table sets out the cash consideration payable to
acquire CPC, together with the fair value of the assets acquired
and liabilities assumed:
GBPm
------------------------------- -----
Initial cash consideration 6.3
Contingent cash consideration 1.7
Total cash consideration 8.0
------------------------------- -----
Fair value of identifiable assets acquired and liabilities assumed
Customer contracts and relationships 2.0
Software 0.3
Property, plant and equipment 0.1
Trade and other receivables 2.1
Cash and cash equivalents 1.7
Trade and other payables (0.8)
Provisions (0.4)
Deferred tax liabilities (0.4)
-------------------------------------------------------------------- ------
Total fair value of identifiable net assets 4.6
Goodwill 3.4
-------------------------------------------------------------------- ------
Total 8.0
-------------------------------------------------------------------- ------
All of the initial cash consideration of GBP6.3m ($8.3m) was
paid in the year, net of cash acquired of GBP1.7m ($2.2m).
Adjustments have been made to identifiable assets and
liabilities on acquisition to reflect their fair value. These
include the recognition of customer-related intangible assets
amounting to GBP2.0m ($2.6m) and developed software assets of
GBP0.3m ($0.4m). The fair values of net assets acquired were
identified following a valuation exercise in accordance with the
requirements of IFRS 3 'Business Combinations'.
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. The goodwill recognised
is expected to be deductible for tax purposes.
The fair value of trade and other receivables of GBP2.1m ($2.8m)
includes net trade receivables of GBP2.0m ($2.6m) and amounts
recoverable on contracts of GBP0.1m ($0.1m), all of which is
expected to be collectible.
Acquisition-related expenditure of GBP0.8m has been charged to
the Consolidated Income Statement for the year ended 30 June 2018
and is included as a specific adjusting item in Note 3.
The revenue included in the Consolidated Income Statement in
relation to the acquired business was GBP10.3m. The underlying
operating profit over the same period was GBP1.0m. This is reported
in the Technical Consulting segment in Note 2.
Had CPC been acquired and consolidated from 1 July 2017, revenue
and underlying operating profit in the Consolidated Income
Statement would be GBP2.2m and GBP0.2m higher, respectively, based
on available information for the period from 1 July 2017 to the
acquisition date.
7. Cash generated from operations
2018 2017
GBPm GBPm
----------------------------------------------------- ------ -------
Profit before tax 28.5 32.2
Adjustments for:
Share-based payments 1.0 1.6
Cash flow hedges 1.2 (3.2)
Profit on disposal of property, plant and equipment (1.6) (0.7)
Net finance costs 2.2 2.5
Depreciation and amortisation 15.9 16.3
----------------------------------------------------- ------ -------
Operating cash flows before movements in working
capital 47.2 48.7
Decrease/(increase) in inventories 0.6 (2.9)
Decrease/(increase) in trade and other receivables 2.9 (15.5)
Decrease in trade and other payables (5.1) (1.1)
Increase/(decrease) in provisions 3.1 (0.5)
Defined benefit payments (4.4) (4.4)
----------------------------------------------------- ------ -------
Cash generated from operations 44.3 24.3
----------------------------------------------------- ------ -------
8. Net debt
Net debt is defined by the Group as net cash and cash
equivalents less borrowings.
2018 2017
Analysis of net debt GBPm GBPm
-------------------------------------------- ------- -------
Cash and cash equivalents (current assets) 33.1 27.9
Bank overdrafts (current liabilities) (9.3) (5.9)
-------------------------------------------- ------- -------
Net cash and cash equivalents 23.8 22.0
Borrowings maturing within one year (0.1) (0.1)
Borrowings maturing after one year (49.8) (59.8)
At 30 June (26.1) (37.9)
-------------------------------------------- ------- -------
2018 2017
Movement in net debt GBPm GBPm
------------------------------------------- ------- -------
Net debt at start of year (37.9) (34.4)
Net increase in cash and cash equivalents 1.8 1.6
Proceeds from borrowings (15.0) (31.5)
Repayments of borrowings 25.0 26.4
At 30 June (26.1) (37.9)
------------------------------------------- ------- -------
9. Events after the reporting date
On 20 July 2018, the Group completed a refinance of its banking
facilities, entering into a new GBP150.0m committed multi-currency
Revolving Credit Facility ('RCF'). The banking facilities were used
to repay and cancel the previous bi-lateral committed RCFs provided
by HSBC (GBP35.0m) and Lloyds (GBP40.0m). The refinanced banking
facilities will provide the Group with sufficient funding for the
next five years through to July 2023 to support future
acquisitions, strategic investments and new projects, and will also
be used for general corporate purposes. The interest rate of the
facility ranges from 1.4% to 2.2% above LIBOR and is dependent upon
the Group's adjusted leverage.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR LTMFTMBIBBFP
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