TIDMRCDO
RNS Number : 3411Z
Ricardo PLC
14 September 2022
14 September 2022
This announcement contains inside information for the purposes
of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it
forms part of UK domestic law by virtue of the European Union
(Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with
the Company's obligations under Article 17 of MAR.
Ricardo plc
Report for the year ended 30 June 2022 (" FY 2021/22 ")
Strong order intake, up 23% on FY 2020/21 , and underlying
operating cash conversion of 112%
HIGHLIGHTS
-- A good set of results for the year, with trading in line with management's expectations and underlying(1) profit before tax up 46%
-- Strong growth in order intake (up 23%) - driven by
accelerating environmental trends and key programmes
-- Improvement in all key metrics - rebound in Automotive and
Industrial (A&I) and continued growth in Energy and Environment
(EE)
-- Net debt(5) reduced to GBP35m, creating opportunities to invest for growth
-- Acquisition of Inside Infrastructure (March 2022) and
disposal of Ricardo Software (after year-end), supporting portfolio
shift to environmental and energy transition solutions
-- Bank facility refinance completed after year-end, providing
committed funding through to July 2026
-- Final dividend of 7.49p per share (total dividend: 10.40p) declare d
Continuing Total Total
------------------------
2022 2022 2021 Total Growth/(decline)%
---------------------------------- ------ ----------- ------ ------ ------------------------
Order intake GBPm 425.3 432.2 352.0 22.8
Order book GBPm 340.0 343.6 293.5 17.1
Revenue GBPm 380.2 387.3 351.8 10.1
Underlying(1)
- Operating profit margin % 7.4 7.8 6.5 1.3pp
- Profit before tax GBPm 24.2 26.3 18.0 46.1
- Basic earnings per
share(3) p 28.5 31.2 22.4 39.3
Statutory
- Operating profit margin % 4.3 4.4 2.4 2.0pp
- Profit before tax GBPm 12.4 13.2 3.9 238.5
- Basic earnings per
share(3) p 13.2 13.8 2.9 375.9
Underlying(1) cash conversion(4) % 112.1 87.0 25.1pp
Cash conversion(4) % 118.5 93.8 24.7pp
Net debt(5) GBPm 35.4 46.9 (24.5)
Dividend per share (paid
and proposed) p 10.40 6.86 51.60
Headcount(6) no. 3,017 2,901 4.0
Continuing operations exclude the results of Ricardo Software,
which was sold on 1 August 2022.
References are defined in the glossary of terms below.
Commenting on the results, Graham Ritchie, Chief Executive
Officer, said:
"We continue to see strong momentum in our priority markets,
underpinned by environmental and energy transition trends. The
macroeconomic outlook around the world is challenging.
Nevertheless, as we enter FY 2022/23 with a strong order book, a
number of high-value contracts and actions already taken to improve
our global operating model and cost base in A&I, I am confident
that we are well prepared to deliver our expectations despite the
uncertainty in the short-term. In addition, we are well positioned
to deliver sustainable growth through the shift in our service
portfolio, aligned to the megatrends, in the longer term."
About Ricardo plc
Ricardo plc is a world-class environmental, engineering and
strategic consulting company listed on the London Stock Exchange.
With over 100 years of engineering excellence, we provide
exceptional levels of expertise in delivering leading edge and
innovative cross sector sustainable products and solutions, helping
our global customers increase efficiencies, achieve growth and
create a cleaner and safer future. Our mission is clear - to create
a safe and sustainable world .
For more information visit www.ricardo.com .
Analyst and investor presentation
There will be a presentation for analysts relating to the
Group's results for the year ended 30 June 2022 at 9:30am on
Wednesday 14 September . A recording of the presentation will be
available online to all investors from Thursday 15 September at
https://ricardo.com/investors/financial-reporting/results-presentations
.
Further enquiries:
Ricardo plc
Ian Gibson, Chief Financial Officer Tel: 01273 455611
Natasha Perfect, Group Marketing Website: www.ricardo.com
and Communications
SEC Newgate Tel: 020 7680 6882
Elisabeth Cowell / Ian Silvera E-mail: ricardo@secnewgate.co.uk
/ Isabelle 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 5. Underlying
measures are considered to provide a more useful indication of
underlying performance and trends over time.
(2) Defense refers to our US-based segment which provides services to the US defence market.
(3) Underlying earnings also exclude a tax credit to statutory
earnings of GBP2.3m (FY 2020/21: GBP2.6m) for the specific
adjusting items in Note 5.
(4) Cash conversion is a key measure of the Group's cash
generation and measures 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.
(5) Net debt, as set out in Note 11, is defined as current and
non-current borrowings less cash and cash equivalents, including
hire purchase agreements, but excluding any impact of IFRS 16 lease
liabilities. Management believes this definition is the most
appropriate for monitoring the indebtedness of the Group and is
consistent with the treatment in the Group's banking
agreements.
(6) Headcount is calculated as the number of employees on the
payroll at the reporting date and includes subcontractors on a
full-time equivalent basis.
(7) Constant currency growth/decline is calculated by
translating the result for the prior period using foreign currency
exchange rates applicable to the current period. This provides an
indication of the growth/decline of the business, excluding the
impact of foreign exchange. In the prior reporting period, constant
currency results were calculated by translating the result for the
current period using foreign currency exchange rates applicable to
the prior period. Using current period rates to restate prior
period results is considered to provide a more useful comparison,
since current period performance remains stated at actual rates.
See also Note 1.
Trading summary
This year, the Group delivered total revenue of GBP387.3m and
underlying profit before tax of GBP26.3m, an increase of 10% and
46% on the prior year, respectively. Revenue and underlying profit
before tax from continuing operations, which excludes the results
of Ricardo Software, held for sale as at 30 June 2022 (see Notes 2
and 10), were GBP380.2m and GBP24.2m, increases of 11% and 54% on
the prior year. Reported profit before tax from continuing
operations, after deducting specific adjusting items, was GBP12.4m
(FY 2020/21: GBP2.0m).
On a constant currency basis, revenue from continuing operations
increased by GBP36.7m (11%) compared to FY 2020/21. Similarly, on a
constant currency basis, underlying operating profit and profit
before tax from continuing operations increased by GBP7.6m (37%)
and GBP8.5m (54%), respectively.
The results were in line with the Board's expectations and
reflect good year-on-year growth across a number of our segments,
particularly Automotive and Industrial (A&I), which has
continued its positive trajectory as it repositions itself as a
global business in a rapidly changing market, and Energy and
Environment (EE), which continues to see high demand for its
decarbonisation services.
Group results
Headline trading performance
Underlying(1) Reported
-------------------- --------------------
Profit Profit
External Operating before Operating before
revenue profit tax profit tax
GBPm GBPm GBPm GBPm GBPm
---------------------------------- --------- ---------- -------- ---------- --------
2022
Total 387.3 30.1 26.3 17.0 13.2
Less: discontinued operation (7.1) (2.1) (2.1) (0.8) (0.8)
---------------------------------- --------- ---------- -------- ---------- --------
Continuing operations
(a) 380.2 28.0 24.2 16.2 12.4
Less: performance of acquisitions (0.9) (0.1) (0.1) (0.1) (0.1)
--------- ---------- -------- ---------- --------
Continuing operations
- organic (b) 379.3 27.9 24.1 16.1 12.3
---------------------------------- --------- ---------- -------- ---------- --------
2021
Total 351.8 22.7 18.0 8.6 3.9
Less: discontinued operation (8.1) (2.3) (2.3) (1.9) (1.9)
---------------------------------- --------- ---------- -------- ---------- --------
Continuing operations (a) 343.7 20.4 15.7 6.7 2.0
---------------------------------- --------- ---------- -------- ---------- --------
Continuing operations at
current year exchange rates 343.5 20.4 15.7 6.8 2.1
---------------------------------- --------- ---------- -------- ---------- --------
Growth (%) - Total 10 33 46 98 238
Growth (%) - Continuing
operations 11 37 54 142 520
Growth (%) - Continuing
organic 10 37 54 140 515
Constant currency growth(7)
(%) - Continuing operations 11 37 54 138 490
---------------------------------- --------- ---------- -------- ---------- --------
References in superscript are defined in the glossary of
terms.
(a) Growth from continuing operations excludes the results of
the Software operating segment which was sold on 1 August 2022 (see
Note 2 )
(b) Organic growth excludes the performance of current year
acquisitions from the results of FY 2021/22 (see Note 8).
On 21 March 2022, we successfully acquired Inside Infrastructure
Pty Ltd (Inside Infrastructure), which specialises in water and
sustainable resource management within Australia. Inside
Infrastructure added GBP0.9m of revenue and GBP0.1m of operating
profit and profit before tax to the Group's results in FY 2021/22
(see Note 8).
Net debt was GBP35.4m at 30 June 2022, compared to GBP46.9m at
30 June 2021. This improvement reflects a strong working capital
performance. Excluding restructuring costs and acquisition-related
payments, working capital reduced by GBP8.2m and the Group
generated more than GBP25m of cash in the year.
Operating segment summary
2021
2022 2021 at constant currency
Underlying Underlying Underlying Underlying Underlying Underlying
operating operating operating operating operating operating
profit profit profit profit profit profit
margin margin margin
GBPm % GBPm % GBPm %
-------------------- ----------- ----------- ----------- ----------- ----------- -----------
EE 9.1 13.5 8.5 14.9 8.5 14.9
Rail 7.7 10.4 8.0 10.3 7.9 10.3
A&I 3.7 3.1 (3.6) (3.6) (3.6) (3.5)
Defense 5.9 13.1 5.4 14.2 5.5 14.4
PP 7.2 9.8 6.7 9.6 6.7 9.6
-------------------- ----------- ----------- ----------- ----------- ----------- -----------
Operating segments
- continuing
operations 33.6 8.8 25.0 7.3 25.0 7.3
Plc costs (5.6) - (4.6) - (4.6) -
-------------------- ----------- ----------- ----------- ----------- ----------- -----------
Total - continuing
operations 28.0 7.4 20.4 5.9 20.4 5.9
Discontinued
operation 2.1 29.6 2.3 28.4 2.3 28.0
-------------------- ----------- ----------- ----------- ----------- ----------- -----------
Total 30.1 7.8 22.7 6.5 22.7 6.5
-------------------- ----------- ----------- ----------- ----------- ----------- -----------
The segmental results are discussed in more detail in the
operating segments section below.
Order intake from continuing operations up 24% (constant
currency: 23%) on FY 2020/21 with closing order book of
GBP340.0m
Order intake from continuing operations of GBP425.3m represents
a 24% increase on the prior year order intake of GBP344.1m
(constant currency: 23%), with growth across all segments. Order
intake includes GBP1.6m from Inside Infrastructure. There were
significant increases in year-on-year order intake in A&I (38%,
constant currency: 37%), driven by increasing demand for
electrification, power electronics and software services, together
with clean sheet engine design for marine applications, and
Performance Products (PP) (31%, excluding Ricardo Software,
constant currency: 31%), which was successful in securing a
multi-year order to continue to supply transmissions for a single
make racing series. EE order intake continued its consistent
year-on-year growth trajectory, with a 16% increase (constant
currency: 16%), with the key driver of growth being the
Sustainability practice. Defense order intake increased by 12%
(constant currency: 10%), which secured USD 34m (GBP27m) of orders
for the Anti-lock braking system/electronic stability control
(ABS/ESC) retrofit programme and Rail order intake grew by 14%
(constant currency: 16%), driven by a number of project extensions
and new wins in North America, which is a key growth market for
Ricardo.
Revenue from continuing operations up 11% (constant currency:
11%) on FY 2020/21
FY 2021/22 revenue from continuing operations was GBP380.2m,
compared to GBP343.7m in the prior year (GBP343.5m on a constant
currency basis). Revenue includes GBP0.9m from Inside
Infrastructure. Revenue increased across all operating segments
with the exception of Rail.
EE revenue grew by 18% (constant currency: 18%), with strong
demand from international governments to support climate
commitments and from private sector clients for sustainability and
net zero support. A&I revenue grew by 19% (constant currency:
18%) as a result of the growth in order intake. Defense revenue
increased by 19% (constant currency: 18%), driven by increased
ABS/ESC volumes and engineering services work. PP revenue increased
by 5% (constant currency: 5%) due to growth in transmission
volumes. Rail revenue declined by 4% (constant currency: 3%) due to
the wind down of a number of projects and delays in starting new
work.
Underlying operating profit from continuing operations of
GBP28.0m, up 37% (constant currency: 37%) with reported operating
profit from continuing operations of GBP16.2m (FY 2020/21:
GBP6.7m)
Underlying operating profit from continuing operations, which
excludes specific adjusting items, increased by 37% (constant
currency: 37%) to GBP28.0m (FY 2020/21: GBP20.4m, GBP20.4m on a
constant currency basis). FY 2021/22 underlying operating profit
includes GBP0.1m from Inside Infrastructure. Underlying operating
profit margin from continuing operations increased to 7.4% from
5.9% (constant currency: 5.9%) in the prior year.
The combination of revenue growth and the implementation of the
global operating model resulted in A&I significantly improving
its underlying operating profit from a loss of GBP3.6m in FY
2020/21 (constant currency: loss of GBP3.6m) to a profit of GBP3.7m
in FY 2021/22. A&I's underlying operating profit margin
improved from negative 3.6% (constant currency: 3.5%) to positive
3.1%. On a reported basis, including costs from reorganisation
activities, A&I's operating loss decreased from GBP9.2m in FY
2020/21 to GBP1.5m in FY 2021/22.
Underlying operating profit improved in EE and Defense, but
margins were lower than the prior year due to increased operating
costs in EE, to support the growth of the business, and the mix of
work in Defense, with higher ABS/ESC material costs . PP underlying
operating profit grew year-on-year and margins were in line with
prior year. Rail underlying operating profit reduced as a result of
the reduction in revenue.
Reported operating profit from continuing operations was
GBP16.2m, growth of 142% (constant currency: 138%) on FY 2020/21.
Within continuing operations, the Group recognised costs of
GBP11.8m in respect of specific adjusting items relating to the
amortisation of acquired intangible assets, external project costs,
restructuring actions in A&I and Rail, the recognition of costs
in relation to the implementation of a new cloud-based ERP system
in PP, and a gain on the settlement of a quasi-equity investment in
one of the Group's subsidiaries. A further GBP1.3m of external
costs in relation to the disposal of Ricardo Software, held for
sale at 30 June 2022, have been recognised as specific adjusting
items within the discontinued operation. Specific adjusting items
relating to earn outs for previously completed acquisitions and
restructuring actions in A&I were also recognised in the prior
year. Specific adjusting items are discussed in more detail
below.
Underlying profit before tax from continuing operations of
GBP24.2m, up 54% (constant currency: 54%) on FY 2020/21, with a
reported profit before tax from continuing operations of GBP12.4m
(FY 2020/21: profit of GBP2.0m)
The increase in underlying profit before tax from continuing
operations, from GBP15.7m (constant currency: GBP15.7m) to
GBP24.2m, was primarily driven by the improvement in the underlying
operating profit.
As noted above, the FY 2021/22 reported profit before tax from
continuing operations includes GBP11.8m of costs relating to
specific adjusting items (FY 2020/21: GBP13.7m), discussed in more
detail below.
Net debt down 25% to GBP35.4m (FY 2020/21: GBP46.9m)
Closing net debt was GBP35.4m (FY 2020/21: GBP46.9m). The Group
had a net cash inflow for the period of GBP11.5m. During the year,
the Group acquired the share capital of Inside Infrastructure for
an initial up-front consideration of AUD 10.4m (GBP5.6m), including
AUD 0.9m (GBP0.5m) for net cash and normal working capital. AUD
1.0m (GBP0.6m) of cash was acquired. The Group also paid
acquisition-related earn out and retention costs of GBP4.9m, other
acquisition and disposal-related fees of GBP1.2m, costs for the
exit of the former CEO (GBP0.8m), and reorganisation costs of
GBP2.4m. Excluding these specific adjusting items, the Group
generated more than GBP25m of cash, which was achieved through a
combination of the improved profitability and a continuing strong
focus on working capital management. The composition of net debt is
defined in Note 11.
Sale of Ricardo Software
In line with our strategy, on 1 August 2022 the Group completed
the sale of Ricardo Software, which was previously reported within
the PP reportable operating segment. The maximum cash consideration
receivable is USD 20.5 million (GBP16.7m), of which USD 17.5m
(GBP14.3m) was received on completion and up to a further USD 3.0
million (GBP2.4m) is receivable based on Ricardo Software achieving
certain revenue targets in the twelve-month period post-completion.
The sale further reduces our net debt and provides funds for future
investment. In FY 2021/22, Ricardo Software generated revenue of
GBP9.4m, of which GBP2.3m was from sales to the rest of the Ricardo
Group, and contributed GBP2.1m to the Group's underlying operating
profit (FY 2020/21: revenue of GBP10.3m, of which GBP2.2m was from
sales to Ricardo Group, and underlying operating profit of
GBP2.3m). FY 2021/22 underlying operating profit excludes GBP0.3m
of amortisation which was not charged as Ricardo Software was held
for sale in June 2022.
Specific adjusting items
As set out in more detail in Notes 1 and 5, the Group's
underlying profit before tax from continuing operations for the
year excludes GBP11.8m of costs incurred during the period that
have been charged to the income statement as specific adjusting
items (FY 2020/21: GBP13.7m). Including the discontinued operation,
total specific adjusting items recognised in the year were GBP13.1m
before tax (FY 2020/21: GBP14.1m).
Amortisation of acquired intangible assets was GBP4.5m in the
year, compared to GBP5.0m in FY 2020/21, with the reduction
reflecting the end of the amortisation of intangible assets
acquired as part of the purchase of AEA Ltd in 2012. A charge of
GBP0.1m has been incurred in FY 2021/22 in respect of intangibles
acquired following the acquisition of Inside Infrastructure.
Acquisition-related costs of GBP0.8m were incurred in the year
(FY 2020/21: GBP1.7m). These related to external fees paid in
respect of the Inside Infrastructure acquisition, associated
integration costs, a retention bonus for the former shareholders of
Ricardo Energy Environment and Planning (REEP), acquired in FY
2019/20, and external fees on other strategic projects. The prior
period included GBP1.6m in relation to earn-out and deferred
compensation payments for REEP and Ricardo Rail Australia (RRA),
acquired in FY 2018/19, together with GBP0.1m of external fees in
relation to a strategic project.
Purchases and disposals: A charge of GBP0.3m (USD 0.4m) was
incurred in FY 2021/22 in respect of the reduction in the fair
value of contingent consideration from the sale of the Group's test
operations in Detroit in June 2020. This was a result of a
reduction in the volume of traditional engine test work than
expected at the time of the sale. A similar charge of GBP0.5m was
recognised in FY 2020/21. The prior year also include a charge of
GBP1.5m in respect of the reduction in the fair value of the
Detroit Technology Campus (DTC) as the impact of COVID-19 on the
local property market reduced demand for office space and reduced
prices.
GBP1.3m of costs were recognised in the year in respect of
external fees incurred in the disposal of Ricardo Software (FY
2020/21: GBP0.4m). These costs have been recognised within the
discontinued operation and have been classified as specific
adjusting items as they are incremental costs which are directly
attributable to the sale of the business.
Other reorganisation costs: During the second half of the year,
the Group commenced a major restructuring programme to combine the
three regional A&I businesses in EMEA, US, and China, into one
globally operated business, re-aligned around two key pillars:
emerging technologies, focused on electrified propulsion, vehicle
integration and software and digital services; and established
mobility, focusing on high efficiency internal combustion engines
(ICE) and emissions compliance. This programme has resulted in
GBP5.3m of reorganisation costs in FY 2021/22, relating to:
-- headcount reductions (GBP2.3m), predominantly in senior
management and administrative positions;
-- property downsizings and exits (GBP0.9m), in respect of a
reduction in the footprint in Europe;
-- the impairment of intangible assets (GBP2.0m) in relation to
technologies and services that the business will not focus on going
forwards; and
-- external advisory and legal fees (GBP0.1m) to support the programme.
The cash cost of the actions in the year was GBP0.5m. This
programme will continue into the next financial year, where the
Group expects to incur a similar level of income statement expense.
The total cash cost of the programme is estimated to be in the
region of GBP4.5m.
FY 2021/22 reorganisation costs include a credit of GBP0.4m in
respect of unutilised provisions from the prior year. In FY
2020/21, GBP3.4m of reorganisation costs were incurred in the
A&I business in EMEA, as a result of the challenging trading
conditions and COVID-19, which combined to depress short-term
workable orders and delay projects. This led to in headcount
reductions (GBP2.5m, of which GBP2.1m was utilised in FY 2021/22)
and the exit from sites in Cambridge (GBP0.7m) and Germany
(GBP0.1m), as well as the write off of some equipment in the Santa
Clara Technical Centre, which was exited in June 2020 (GBP0.1m).
The cash cost of the FY 2020/21 actions in FY 2021/22 was
GBP1.6m.
GBP1.0m of reorganisation costs were incurred in Rail in FY
2021/22 as a result of a significant review of its operational
structure, aimed at creating a more flexible and agile business.
Costs incurred related to the exit of a number of senior positions
in the organisation. The review will continue into FY 2022/23. The
cash cost of these actions in FY 2021/22 was GBP0.3m.
ERP system implementation costs: Due to the result of guidance
being issued following a recent IFRS Interpretations Committee
(IFRIC) decision, GBP0.5m of external costs incurred and
capitalised in FY 2020/21 (in line with prevailing practice at the
time), together with GBP0.1m incurred in FY 2021/22, in relation to
the implementation of a new cloud-based ERP system within the PP
operating segment have been expensed in the year. They have been
classified as a specific adjusting item as they are not reflective
of the underlying performance of the business in the period.
Revaluation gain: An intercompany loan from Ricardo plc to
Ricardo Investments Ltd, representing a quasi-equity investment in
one of the Group's subsidiaries, was repaid. The loan was
previously classed as not repayable in the foreseeable future under
IAS 21 with any revaluation of the foreign currency loan recognised
in the statement of Other Comprehensive Income. Following the
repayment of the loan, a gain of GBP0.3m was reclassified from
equity to the income statement, as required under IAS 21, and was
reported as a specific adjusting item.
CEO exit costs: In January 2021, the Board, together with Dave
Shemmans, agreed that Dave would leave his role as Group Chief
Executive after leading the business for sixteen years. Costs of
GBP1.5m were accrued within specific adjusting items in the prior
year, reflecting the terms of his settlement agreement, associated
legal fees and the costs of a search process to appoint his
successor.
GMP equalisation: In order to equalise male and female members'
benefits for the effect of Guaranteed Minimum Pensions (GMP) for
historical transfers out of the pension scheme, a charge of GBP0.1m
in FY 2020/21 was incurred.
Reconciliation of underlying profit before tax to reported
profit before tax
2022 2021
GBPm GBPm
------------------------------------------------------------ ------- -------
Underlying profit before tax from continuing operations 24.2 15.7
------------------------------------------------------------- ------- -------
Amortisation of acquired intangibles (4.5) (5.0)
Acquisition-related expenditure (0.8) (1.7)
Reorganisation costs:
* A&I US - Test business change in fair value of
contingent consideration (0.3) (0.5)
* A&I US - DTC purchase and impairment - (1.5)
------------------------------------------------------------- ------- -------
Asset purchase and disposals (0.3) (2.0)
* A&I - Reorganisation costs (4.9) (3.4)
(1.0) -
* Rail - Reorganisation costs
============================================================ ======= =======
Other reorganisation costs (5.9) (3.4)
ERP implementation costs (0.6) -
FX revaluation 0.3 -
CEO exit costs - (1.5)
GMP equalisation - (0.1)
------------------------------------------------------------- ------- -------
Total specific adjusting items from continuing operations (11.8) (13.7)
------------------------------------------------------------- ------- -------
Reported profit before tax from continuing operations 12.4 2.0
------------------------------------------------------------- ------- -------
SAI recorded in discontinued operation
Ricardo Software external fees (1.3) (0.4)
------------------------------------------------------------- ------- -------
Research and Development (R&D) and capital investment
The Group continues to invest in R&D and spent GBP13.3m (FY
2020/21: GBP10.2m) before government grant income of GBP2.5m (FY
2020/21: GBP1.2m). Development costs capitalised in this period
were GBP7.3m (FY 2020/21: GBP8.5m), reflecting targeted investment
in hydrogen, clean ICE and power electronics technology, together
with technology, tools and processes in EE.
Capital expenditure on property, plant and equipment, excluding
right-of-use assets, was GBP4.7m, (net of government grants),
reflecting investment in our business operations, including
hydrogen and electrical test capability at the Shoreham Technical
Centre (STC). GBP4.3m of capital expenditure on property, plant and
equipment was incurred in FY 2020/21.
Net finance costs
Finance income was GBP0.6m (FY 2020/21: GBP0.8m) and finance
costs were GBP4.4m (FY 2020/21: GBP5.5m) for the year, giving net
finance costs of GBP3.8m (FY 2020/21: GBP4.7m). The reduction in
costs reflects a reduction in the bank loan balance, as well as a
reduction in the applicable interest rates as a result of improved
leverage.
Taxation
The total tax charge for the year, including the results of the
discontinued operation, was GBP4.6m (FY 2020/21: GBP2.2m) and the
total effective tax rate was 34.8% (FY 2020/21: 56.1%). The
underlying effective tax rate for the year was 26.2% (FY 2020/21:
26.9%). The total tax charge from continuing operations was GBP4.2m
(FY 2020/21: GBP1.8m), with a total effective tax rate of 33.9% (FY
2020/21: 90%). The underlying effective tax rate for continuing
operations was 26.9% (FY 2020/21: 28.0%).
Deferred tax assets of GBP9.0m (FY 2020/21: GBP8.3m) include
GBP4.3m (USD 5.7m) (FY 2020/21: GBP4.9m, USD 6.5m) of R&D tax
credits and GBP0.2m of tax losses (FY 2020/21: GBP1.4m), both in
the US. The Group also has deferred tax assets of GBP1.7m in
relation to tax losses in other territories. The Directors have
considered the recoverability of these assets and are satisfied
that it is probable that sufficient taxable profits will be
generated in the foreseeable future, against which the recognised
assets can be utilised.
Deferred tax liabilities of GBP12.7m (FY 2020/21: GBP8.2m)
include GBP3.8m in respect of the defined benefit pension scheme,
has been in surplus throughout the year.
Earnings per share
Basic earnings per share was 13.8p (FY 2020/21: 2.9p). The
Directors consider that underlying earnings per share provides a
more useful indication of underlying performance and trends over
time than reported earnings per share. Underlying basic earnings
per share for the year was 31.2p (FY 2020/21: 22.4p). The
calculation of basic earnings per share, with a reconciliation to
an underlying basic earnings per share, which excludes the impact
(net of tax) of specific adjusting items, is disclosed in Note
6.
Dividend
The Group paid its interim dividend of 2.91p per share (GBP1.8m)
on 8 April 2022 (HY 2020/21: 1.75p, GBP1.1m). The Board has
declared a final dividend of 7.49p per share (GBP4.7m) (FY 2020/21:
5.11p, GBP3.2m), which will be paid on 25 November 2022 to holders
of ordinary shares on the Company's register of members on 4
November 2022.
This reflects the Board's desire to increase the return to
shareholders as the Group continues to recover from the impact of
COVID-19, whilst retaining sufficient funds in the business for
investment.
Goodwill
At 30 June 2022, the Group had total goodwill of GBP90.6m (FY
2020/21: GBP84.7m). The acquisition of Inside Infrastructure added
goodwill of GBP3.8m to the Ricardo Energy and Environment cash
generating unit (CGU) as synergies from the acquisition are
expected to benefit EE operating segment.
The carrying value of goodwill is fully supported by the
value-in-use calculations for all other operating segments. There
are no concerns over the recoverability of the Group's goodwill
balances.
Net debt and banking facilities
Net debt at 30 June 2022 comprised cash and cash equivalents of
GBP50.5m (of which GBP1.1m was included in the disposal group held
for sale), borrowing and overdrafts, including hire purchase
liabilities and net of capitalised debt issuance costs of GBP85.9m.
Total facilities before borrowings are GBP216.8m. This provided
total cash and liquidity of GBP181.4m as at 30 June 2022.
After the year-end, on 2 August 2022, 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 four years through to July 2026 and
is available for general corporate purposes as well as acquisitions
and strategic investments. The RCF has an option for a GBP50m
accordion and to extend the commitment for a further year through
to July 2027. This multi-currency facility has a variable interest
rate which ranges from 1.65% to 2.45% above SONIA which is
dependent upon the Group's adjusted leverage.
The Group's Adjusted Leverage ratio (defined as net debt divided
by EBITDA for the twelve months to 30 June 2022, excluding the
impact of specific adjusting items and IFRS 16, and adjusted for
the impact of acquisitions and disposals in the year), was 0.8x.
The Adjusted Leverage covenant was 3.0x as at 30 June 2022.
The Interest Cover ratio (defined as EBITDA for the last twelve
months to 30 June 2022, as defined above, divided by net finance
costs excluding pension and IFRS 16 interest), was 13.7x. The
Interest Cover covenant is 4.0x.
There is significant headroom against both covenants. Further
details are provided in Note 11.
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,
Australian Dollars and Chinese Renminbi. Movements in the
year-on-year average exchange rates have had a minimal impact on
the Group's revenue, operating profit or profit before tax.
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 GBP127.1m (FY 2020/21: GBP156.1m). Although asset values
reduced in the year, liabilities also reduced as a result of
changes in actuarial assumptions. The scheme pre-tax surplus,
measured in accordance with IAS 19, increased from GBP6.8m at 30
June 2021 to GBP15.2m at 30 June 2022. Ricardo paid GBP3.0m of cash
contributions into the scheme during the year (FY 2020/21:
GBP4.6m). From November 2021, following completion of the 2020
triennial valuation negotiations with the scheme Trustees, the
level of deficit funding contributions reduced from GBP4.6m per
annum to GBP1.8m per annum through to November 2023.
Chairman of the Board
On 24 February 2022 the Company announced that Sir Terry Morgan
CBE gave notice of his intention to retire from the Board. Sir
Terry will resign from the Board on 17 November 2022 following the
close of the AGM. We are making good progress in the search for his
successor.
Outlook
We continue to see strong momentum in our priority markets,
underpinned by environmental and energy transition trends. The
macroeconomic outlook around the world is challenging.
Nevertheless, as we enter FY 2022/23 with a strong order book, a
number of high-value contracts and actions already taken to improve
our global operating model and cost base in A&I, we are
confident that we are well prepared to deliver our expectations
despite the uncertainty in the short-term. In addition, we are well
positioned to deliver sustainable growth through the shift in our
service portfolio, aligned to the megatrends, in the longer
term.
By order of the Board:
Graham Ritchie Ian Gibson
Chief Executive Officer Chief Financial Officer
13 September 2022
Operating segments review
ENERGY AND ENVIRONMENT
Energy and Environment (EE) works with customers across a wide
variety of sectors and geographies to help address their major
environmental challenges, which are ever closer related to their
strategic imperatives. We have a broad range of environmental
skills, covering everything from air quality and climate through to
waste, water and chemicals, plus a strong energy and carbon
capability to support the energy transition. Added to these skills,
we have excellent data, digital and economics capabilities to
assist our customers in evaluating data, turning complex
information into meaningful policy advice and then support
implementation of projects.
Financial and operational highlights
Historical rates Constant currency(7)
------------------- -----------------------
2022 2021 Change 2021 Change
GBPm GBPm % GBPm %
------------------------- ----- ------- ---------- --------- ------------
Order intake (GBPm) 74.1 64.1 15.6 64.1 15.6
Order book (GBPm) 57.0 47.9 19.0 47.9 19.0
Revenue (GBPm) 67.2 57.1 17.7 57.0 17.9
Underlying(1) operating
profit (GBPm) 9.1 8.5 7.1 8.5 7.1
Underlying(1) operating
profit margin (%) 13.5 14.9 (1.4pp) 14.9 (1.4pp)
Headcount(6) (no.) 803 690 16.4 690 16.4
-------------------------- ----- ------- ---------- --------- ------------
References in superscript are defined in the glossary of terms
above.
Performance
EE delivered a strong performance in FY 2021/22, underpinned by
the strength of our sustainability portfolio and the geographic
expansion into key territories. Order intake for the year was
GBP74.1m, growth of 16% on the prior year on a constant currency
basis. Revenue and underlying operating profit grew by 18% and 7%,
respectively, on a constant currency basis, as a result of strong
demand across multiple services, segments and geographies.
Underlying operating profit margin was 13.5%, a reduction of 1.4
percentage points on the previous year on a constant currency
basis, as a result of a combination of the mix of work performed in
the year and additional operating expenses to deliver the growth in
the revenue and profit.
We have seen a strong drive from the public and private
corporate sector to set sustainability strategies and undertake
net-zero pathway investigations, leading to demand in such services
as Lifecycle Assessment (LCA) and ESG-related reporting support in
areas such as the Taskforce for Finance-related Climate Disclosures
(TCFD). EE's success in securing several new and significant
contracts for sustainability services is supported by a more
defined sector-orientated approach. From our initial customer
engagement right through to the customer delivery, we are creating
value for our customers at each step of the process.
Alongside our clear strength in sustainability services, EE has
also significantly expanded our work on government programmes in
the UK, particularly in providing roll-out projects of technology
incubator programmes.
Developments in air quality have been driven by increased market
demand as Governments around the world tackle challenges of air
pollution. EE can bring its decades of experience to support these
projects.
We have also seen an increase in water consultancy services,
supporting a number of programmes and studies that seek to mitigate
the risk of climate-driven water deficits. An example of the type
of work that we are carrying out in this sector includes a
collaborative project with United Utilities, Severn Trent Water and
Thames Water to consider the feasibility of a River Severn to River
Thames Transfer (STT) scheme which, if progressed, would create
cross-regional water supply connectivity by designing a resilient,
sustainable water resource for future generations.
Growth in our Environmental Policy team is primarily the result
of the high demand for policy analysis from governments, as well as
key corporate players across the chemicals industry in helping them
navigate their way through the business impacts of the European
Commission's new Chemicals Strategy for Sustainability, a key
element of the EU Green Deal. Other elements of the EU Green Deal
relating to air quality, industrial emissions and the circular
economy have also led to increased demand from the European
Commission and its agencies for our Environmental Policy team's
services in policy development and analysis.
Outlook
Our business is closely aligned with major
regulatory/environmental trends and where major investments and
asset developments are evident.
Sustainability will remain a core focus for growth, with demand
forecast across a broad range of sectors, specifically for private
and public corporate listed companies in sectors of high energy use
that have complex supply chains (such as chemical, automotive,
component, food and drink production).
We also expect consistent growth and returns within our highest
performing key segments, namely water and environmental policy.
Carbon trading is gaining prominence and Ricardo is well placed to
support its future expansion - we recently secured a major project
to review carbon trading in Indonesia and anticipate similar
projects in multiple locations.
Furthermore, we anticipate further opportunities resulting from
urbanisation (and the links between climate and air quality and the
need for clean and green infrastructure) the energy transition
(driving new fuels, technologies, and innovation solutions) and the
requirement for smarter and cleaner mobility solutions.
RAIL
Rail provides expert independent assurance and engineering
consultancy services to help our customers navigate the industry's
operational, commercial and regulatory demands. We apply our
expertise to deliver innovative solutions that address
sustainability and safety in rail transportation. With capabilities
in all technical disciplines - from rolling stock, signalling and
telecommunications to energy efficiency, safety and operational
planning - we support customer portfolios that range from the
world's largest rail administrations to niche component suppliers.
Alongside our consultancy segment, we operate a separate
independent entity - Ricardo Certification - which performs
accredited assurance services. Both businesses draw upon a near
600-strong team of dedicated rail engineers, technicians, auditors
and support teams, with experience across the globe.
Financial and operational highlights
Historical rates Constant currency(7)
------------------- -----------------------
2022 2021 Change 2021 Change
GBPm GBPm % GBPm %
------------------------- ------ -------- --------- ---------- -----------
Order intake (GBPm) 85.0 74.7 13.8 73.4 15.8
Order book (GBPm) 109.0 95.3 14.4 100.3 8.7
Revenue (GBPm) 74.3 77.7 (4.4) 76.5 (2.9)
Underlying(1) operating
profit (GBPm) 7.7 8.0 (3.8) 7.9 (2.5)
Underlying(1) operating
profit margin (%) 10.4 10.3 0.1pp 10.3 0.1pp
Headcount(6) (no.) 571 596 (4.2) 596 (4.2)
-------------------------- ------ -------- --------- ---------- -----------
References in superscript are defined in the glossary of terms
above.
Performance
Order intake increased by 16% year-on-year, on a constant
currency basis, driven by a number of new wins and extensions to
existing projects, despite challenging market conditions.
On a constant currency basis, revenue and underlying operating
profit both declined by 3%. This was the result of several
long-term projects nearing completion along with a delay in the
starting up of new contracts, resulting in lower-than-anticipated
utilisation. Operating profit margin was broadly stable on a
constant currency basis at 10.4%. Mitigating actions are already
under way to provide more resilience within Rail's operating model
- this will lead to an improvement in its short-term profitability
while at the same time also ensuring that we are well placed to
secure the future mix of business opportunity that is flexible
towards our customers' changing demands. These actions will
continue into FY 2022/23.
During the year the team made significant strides into a North
American rail market that had previously proven difficult to enter.
In December 2021, our Certification team became the first
organisation to be accredited as a railway Independent Safety
Assessor by the Standards Council of Canada. This was a significant
achievement for Ricardo and was soon followed by our first major
Canadian rail contract, with the team appointed to support the
design stages of the Greater Toronto and Hamilton network
upgrade.
Meanwhile, a contract to provide safety assessment services for
skyTran, a Californian-based maglev technology developer, was not
only the first major win by our US rail team, but also
representative of the technologies now taking hold in this
expansive and rapidly growing market.
Elsewhere, we continued to win a diverse range of projects
across our more established territorial markets. In Asia, for
example, we were assigned a major assurance role for the
construction of a driverless metro route in Taipei. In Europe, we
were chosen to support the transformation of Copenhagen's S-Bane
railway into a fully automated system. Meanwhile, our Middle East
team secured a four-year extension of our role in the development
of Riyadh's mass transit system.
The past year cannot pass without mention of the opening of
London's Elizabeth Line in May. We joined the project in 2012 and
it has been one of the largest independent assessments ever
undertaken by Ricardo Certification. Despite the wider programme's
much publicised difficulties and delays, the result is a truly
world-class railway that, amongst its many legacies, has
transformed how approvals will be managed on major railway projects
in future.
Outlook
Although some markets are recovering faster than others,
passenger and freight revenues around the world are yet to return
to pre-pandemic levels.
Railways are a high-cost business, and the past two years have
seen many networks become increasingly reliant on public funding.
Many systems are being tasked with concentrating on efficiency
gains, such as increased use of digital technologies to improve
operations and maintenance, and practices for extending the service
life of existing assets.
Other networks are looking to increase revenues by attracting
new patronage. This is the mindset in markets such as Australia and
North America, where transit systems that serve major cities are
planning major extensions or upgrades to deliver more reliable
services in more modern environments.
The industry's scope to offer cleaner, sustainable
transportation, whether for cross-border travel or local trips, is
opening up opportunities with potential customers looking to
promote energy efficiency practices or explore low-emission
technologies.
We are well placed to support all aspects of the industry's
re-emergence from the pandemic. The diversity of our service
portfolio - from independent assurance to systems engineering,
decarbonisation and cyber security - means we are fully aligned
with the market's priorities.
AUTOMOTIVE AND INDUSTRIAL
Automotive and Industrial (A&I) is a trusted global
engineering services partner for clean and efficient integrated
propulsion and energy systems. With a customer-centric focus,
A&I leverages digital engineering, systems thinking and its
learning culture to offer a true end-to-end service from the
initial concept phase right through to product execution. Our
experience and history over more than 100 years at the forefront of
mobility innovation enable us to deliver solutions to the most
complex challenges, allowing our customers across all global
transport sectors to achieve a sustainable zero-carbon future.
Financial and operational highlights
Historical rates Constant currency(7)
------------------- -----------------------
2022 2021 Change 2021 Change
Restated* Restated*
GBPm GBPm % GBPm %
------------------------- ------ ---------- ------- ------------- --------
Order intake (GBPm) 136.0 98.4 38.2 99.4 36.8
Order book (GBPm) 82.2 71.4 15.1 74.6 10.2
Revenue (GBPm) 120.0 101.0 18.8 101.7 18.0
Underlying(1) operating
profit/(loss) (GBPm) 3.7 (3.6) 202.8 (3.6) 202.8
Underlying(1) operating
profit margin (%) 3.1 (3.6) 6.7pp (3.5) 6.6pp
Headcount(6) (no.) 1,006 996 1.0 996 1.0
-------------------------- ------ ---------- ------- ------------- --------
References in superscript are defined in the glossary of terms
above.
Performance
A&I delivered good growth in order intake, revenue and
underlying operating profit in FY 2021/22. Order intake grew by 37%
year-on-year, on a constant currency basis. The higher demand
translated into a 18% increase in revenue versus the prior year, on
a constant currency basis. Underlying operating profit was GBP3.7m
(FY 2020/21: loss of GBP3.6m on a constant currency basis). The
underlying operating margin increased from negative 3.5% to
positive 3.1%, on a constant currency basis. On a reported basis,
including costs from reorganisation activities, A&I's operating
loss decreased from GBP9.2m in FY 2020/21 to GBP1.5m in FY
2021/22.
During FY 2021/22, we secured several multimillion-pound
contracts that included fuel cell, power electronics and battery
applications for commercial trucking and electric utility vehicles;
electrified motorcycle design and testing; and clean sheet engine
design for defence and marine applications. Our order intake was
geographically diverse with c.30% coming from North America, c.60%
from EMEA and c.10% from Asia. Order intake was strong in North
America and EMEA compared to the prior year while China continued
to be impacted by COVID 19-related travel and working restrictions.
Approximately 60% of our order intake in FY 2021/22 came from
emerging technologies, focused on electrified propulsion, vehicle
integration and software and digital services. Approximately 40%
came from established mobility solutions, focusing on
high-efficiency internal combustion engines (ICE) and emissions
compliance.
We have increased revenue through higher rates of staff
utilisation and improved the scale of the business relative to its
cost base. This, together with an improvement in the economic
environment as North America and Europe emerged from the impact of
COVID-19, resulted in an improvement in project margins.
During the year, we have undertaken significant strategic and
structural changes to consolidate our regions into one globally
managed A&I business, which has been organised around the two
key pillars of emerging technologies and established mobility
solutions. This organisation structure better reflects the changing
landscape of our market - which has been heavily impacted by
COVID-19, causing a temporary reduction in global passenger-car
purchases together with increasing concerns over climate change -
and the ever-evolving business models of our customers.
Through the global consolidation of the A&I operating
segment, we have completed a number of actions to gain increased
efficiencies that will support operational effectiveness across the
business. These included a reduction in headcount primarily across
senior management and administrative positions, the downsizing of
and exit from underutilised properties, the impairment of
intangible assets relating to technologies that are no longer part
of our focused strategy, and external advisory and legal fees. The
total restructuring charge recognised in the year in respect of
these actions was GBP5.3m and the cash cost of these actions was
GBP0.5m. This reorganisation process will continue into FY 2022/23,
with a similar level of income statement expense expected and a
total estimated cash cost of GBP4.5m. This will ensure continuous
improvement to deliver increased value for our customers.
Furthermore, we have also gained further operational
efficiencies by advancing our processes in identifying and
acquiring talent and onboarding. By doing this, we can ensure that
we are continuously attracting, retaining and inspiring the very
best talent.
Outlook
Our global focus within A&I will be to deliver innovative,
sustainable mobility solutions to customers across the world and
build resilience through continued expansion across all transport
sectors.
We will prioritise four key areas across all mobility and
industrial sectors: deployment of electrified systems, enablement
of next-generation software and controls, digital development and
modelling as a path to increasing product value, and the deployment
of hydrogen and de-fossilised fuels as a bridge to zero-carbon
transportation. This is supported by our technology roadmap, global
leadership research and development, and sustainable, high-value
intellectual property.
As the transition to zero-carbon will take time, we will
continue to support our customers with their current and transition
bridge business models while accelerating the journey to develop
environmentally sustainable products. We will drive innovation in
the development of cleaner, more efficient conventional engines and
electric-based propulsion systems, using software and digital tools
to fundamentally reimage the product development lifecycle and
accelerate our clients' paths to profit.
DEFENSE
Defense has gained significant insights into the needs of armed
forces and provides solutions to meet the challenges our customers
face in the integration of logistics and field support for complex
and diverse systems. Our wide range of engineering and software
solutions provides system-integration engineering for the US Army's
ground inventory and we are the data-replication agent for
everything in the air, on the sea and under the surface for the US
Navy. We also specialise in niche manufacturing, adapting
commercial industry products to deliver innovative sector
applications that protect people and infrastructure.
Financial and operational highlights
Historical rates Constant currency(7)
------------------- -----------------------
2022 2021 Change 2021 Change
GBPm GBPm % GBPm %
------------------------- ----- ------- ---------- --------- ------------
Order intake (GBPm) 55.1 49.4 11.5 50.0 10.2
Order book (GBPm) 40.5 25.7 57.6 29.2 38.7
Revenue (GBPm) 45.0 37.9 18.7 38.3 17.5
Underlying(1) operating
profit (GBPm) 5.9 5.4 9.3 5.5 7.3
Underlying(1) operating
profit margin (%) 13.1 14.2 (1.1pp) 14.4 (1.3pp)
Headcount(6) (no.) 195 185 5.4 185 5.4
-------------------------- ----- ------- ---------- --------- ------------
References in superscript are defined in the glossary of terms
above.
Performance
Defense's order intake grew by GBP5.1m (10%) on a constant
currency basis in FY 2021/22. In the year, we received USD 34m
(GBP27m) of orders from the United States Army to retrofit Antilock
Brake System/Electronic Stability Control (ABS/ESC) retrofit kits
to improve the safety of operation of the US Army' High Mobility
Multi-purpose Wheeled Vehicle (HMMWV). We have also developed the
framework for guiding new technologies into government applications
and expanded the deployment of our data-management systems to
include more fleet assets for the US Navy.
Revenue increased by 18% year-on-year on a constant currency
basis. Revenue growth was driven by increased ABS/ESC volumes - in
total, we delivered 3,602 ABS/ESC kits in FY 2021/22, compared to
2,950 the previous year, which included both retrofit kits and kits
for new-production vehicles - and a rise in orders for our
engineering services.
Underlying operating profit of GBP5.9m was an increase of 7%
compared to FY 2020/21 on a constant currency basis. Underlying
operating profit margin reduced from 14.4% to 13.1% on a constant
currency basis due to a combination of the changing mix of work
between ABS/ESC and engineering services, delays in the US
Government's approval of the US Department of Defense budget (which
impacted the utilisation of our engineering services team in the
first half of the financial year) and higher supply chain costs in
ABS/ESC.
With the expansion of our field-support solutions business,
which supports the installation and maintenance of vehicles in the
field, we are able to provide a complete offering to our clients,
covering the entire procurement lifecycle for their vehicle
platforms, from concept design and development through to
production and sustainment in the field.
Additionally, with the focus on net-zero planning, we have been
working with the US Marine Corps to develop and demonstrate
capabilities to improve the management of energy supplies and
better secure energy resources to reduce its overall carbon
footprint. Utilising a deployable metering and monitoring system,
the US Marine Corps is now able to analyse changing electrical
demand and logistical fuel constraints so that operators can make
better-informed command and control decisions on fuel and energy
resiliency.
Outlook
The US DoD continues to move away from its traditional
OEM-centred acquisition approach, with a strong focus on
accelerating the transition of innovations to its fleet of vehicles
in the field.
Our market position as a proven system integrator and technical
solution provider disrupts the traditional defence market, as we
can react with speed and flexibility. Our broad portfolio of
engineering services, products such as ABS/ESC, and field-support
solutions, is expected to fulfil the needs of future force design
and spans the entire military-vehicle lifecycle.
Our digital solutions enable highly networked cross-domain
operations between advanced platforms in the air, on land, and at
sea. Our predictive-maintenance data-management software is
enabling efficient naval fleet management and we expect to see that
expand to US Army ground fleets in the coming year.
We also anticipate continued growth in field-support services
with the production fielding of programs we support including
ABS/ESC, Infantry Squad Vehicle (ISV), and other next-generation
advanced platforms.
PERFORMANCE PRODUCTS
Performance Products (PP) is responsible for the manufacture and
assembly of niche high-quality products, including engines,
transmissions, electric drive units and other performance-critical
driveline and powertrain products. We also provide industrial
engineering services to enable designs to successfully move from
concept to series production for customers around the globe. With
decades of experience, our technical experts support customers in
bringing their cutting-edge innovations to market.
Financial and operational highlights
Historical rates Constant currency(7)
------------------- -----------------------
2022 2021 Change 2021 Change
Restated* Restated*
GBPm GBPm % GBPm %
------------------------- ----- ---------- ------- ------------- --------
Order intake (GBPm) 75.1 57.5 30.6 57.5 30.6
Order book (GBPm) 51.3 49.9 2.8 49.9 2.8
Revenue (GBPm) 73.7 70.0 5.3 70.0 5.3
Underlying(1) operating
profit (GBPm) 7.2 6.7 7.5 6.7 7.5
Underlying(1) operating
profit margin (%) 9.8 9.6 0.2pp 9.6 0.2pp
Headcount(6) (no.) 340 325 4.6 325 4.6
-------------------------- ----- ---------- ------- ------------- --------
References in superscript are defined in the glossary of terms
above.
Performance
FY 2021/22 order intake from continuing operations was GBP75.1m,
an increase of GBP17.6m (31%) on the prior year. This reflects the
timing of engine orders from McLaren and securing the next
multi-year Porsche 992 Cup transmission programme.
Revenue and operating profit from continuing operations both
grew in FY 2021/22, by 5% and 7%, respectively. Underlying
operating profit margin was broadly stable with FY 2020/21 at
9.8%.
McLaren engine volumes increased modestly year-on-year, with an
uptick in the last quarter of the financial year in support of the
launch of the new V6-powered Artura.
Transmission programme revenue significantly increased
year-on-year with the start of production of the Aston Martin
Valkyrie, which added to the already well-established Porsche Cup
and Bugatti Chiron programmes. Motorsport, aerospace and defence
component and transmission projects performed in line with our
expectations over the year.
We continued to develop our portfolio of existing powertrain
(engine) and drivetrain (transmission) products during the year as
well as new projects in the zero-emission propulsion space,
including electric drive units, industrial engineering services in
EV production and concept work around battery systems and electric
machines.
Our world class motorsport engineering and manufacturing
capabilities continued to operate at the highest tiers in
motorsport, with a particular focus on next-generation technology.
During the year, we worked with Hyundai (on its hybrid-powered
Rally 1 car), DS (on its the all-electric Formula E race car),
Porsche (in GT racing), and with our long-standing customer in
Formula 1.
We continued to provide the UK Ministry of Defence with key
spares components and precision machined components to the
aerospace industry under our AS9100 certification. The strong
outlook across all our key business areas of high-performance
automotive, motorsport, defence and aerospace were reflected in the
strong order intake for the year.
COVID-19 and subsequently the conflict in Ukraine continued to
cause some disruption in the supply chain. However, our rigorous
process management and tools ensured that client deliveries were
not affected.
Outlook
The forthcoming year will see continued growth in both our
powertrain and driveline businesses. This is driven by growth in
sales of high-performance vehicles and increasing demand for
manufacturing engineering and supply chain consultancy, as many new
customers (particularly in new technologies) take ideas and designs
into production.
The key focus for FY 2022/23 will be to ensure our supply chain
is able to meet the demand and to capitalise on the significant
number of new products coming to market driven by emerging and
green technologies.
Condensed financial statements
Condensed consolidated income statement
for the year ended 30 June
2022 2021 - Restated*
Specific Specific
adjusting adjusting
Underlying items(**) Total Underlying items(**) Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ----- ----------- ----------- -------- ----------- ----------- --------
Continuing operations
Revenue 4 380.2 - 380.2 343.7 - 343.7
Cost of sales (250.7) - (250.7) (230.7) - (230.7)
----------------------------- ----- ----------- ----------- -------- ----------- ----------- --------
Gross profit 129.5 - 129.5 113.0 - 113.0
Administrative expenses (102.0) (11.8) (113.8) (93.8) (13.7) (107.5)
Other income 0.5 - 0.5 1.2 - 1.2
----------------------------- ----- ----------- ----------- -------- ----------- ----------- --------
Operating profit 28.0 (11.8) 16.2 20.4 (13.7) 6.7
Finance income 0.6 - 0.6 0.8 - 0.8
Finance costs (4.4) - (4.4) (5.5) - (5.5)
----------------------------- ----- ----------- ----------- -------- ----------- ----------- --------
Net finance costs (3.8) - (3.8) (4.7) - (4.7)
----------------------------- ----- ----------- ----------- -------- ----------- ----------- --------
Profit before taxation 24.2 (11.8) 12.4 15.7 (13.7) 2.0
Income tax (expense)/credit (6.5) 2.3 (4.2) (4.4) 2.6 (1.8)
----------------------------- ----- ----------- ----------- -------- ----------- ----------- --------
Profit from continuing
operations 17.7 (9.5) 8.2 11.3 (11.1) 0.2
----------------------------- ----- ----------- ----------- -------- ----------- ----------- --------
Discontinued operation
Profit from discontinued
operation, net of
tax 1.7 (1.3) 0.4 1.9 (0.4) 1.5
----------------------------- ----- ----------- ----------- -------- ----------- ----------- --------
Profit for the year 19.4 (10.8) 8.6 13.2 (11.5) 1.7
----------------------------- ----- ----------- ----------- -------- ----------- ----------- --------
Profit/(loss) attributable
to:
Continuing operations
- Owners of the parent 17.7 (9.5) 8.2 11.3 (11.1) 0.2
Discontinued operation
- Owners of the parent 1.7 (1.3) 0.4 1.9 (0.4) 1.5
Total
- Owners of the parent 19.4 (10.8) 8.6 13.2 (11.5) 1.7
- Non-controlling - - - - - -
interests
19.4 (10.8) 8.6 13.2 (11.5) 1.7
----------------------------- ----- ----------- ----------- -------- ----------- ----------- --------
Earnings per ordinary share attributable to owners of the parent
during the year
------------------------------------------------------------------------------------------------------------
Basic 6 13.8 2.9
Diluted 6 13.8 2.9
----------------------------- ----- ----------- ----------- -------- ----------- ----------- --------
Earnings per ordinary share attributable to owners of the parent
during the year - continuing operations
------------------------------------------------------------------------------------------------------------
Basic 6 13.2 0.3
Diluted 6 13.2 0.3
----------------------------- ----- ----------- ----------- -------- ----------- ----------- --------
(*) Comparative information has been re -- presented due to a
discontinued operation. See Note 2 .
(**) Specific adjusting items are disclosed separately in the
condensed interim financial statements where it is necessary to do
so to provide further understanding of the financial performance of
the Group. Further details are given in Note 1 and Note 5.
Condensed consolidated statement of comprehensive income
for the year ended 30 June
2022 2021
GBPm GBPm
--------------------------------------------------- ------ ------
Profit for the year 8.6 1.7
---------------------------------------------------- ------ ------
Other comprehensive income
Items that will not be reclassified to profit
or loss:
Remeasurements of the defined benefit pension
scheme 5.2 9.1
Deferred tax on remeasurements of the defined
benefit pension scheme (1.6) (2.0)
---------------------------------------------------- ------ ------
Total items that will not be reclassified
to profit or loss 3.6 7.1
---------------------------------------------------- ------ ------
Items that are, or may be, subsequently
reclassified to profit or loss:
Currency translation on foreign currency
net investments 6.5 (2.9)
---------------------------------------------------- ------ ------
Total items that may be subsequently reclassified
to profit or loss 6.5 (2.9)
---------------------------------------------------- ------ ------
Total other comprehensive income for the
year (net of tax) 10.1 4.2
---------------------------------------------------- ------ ------
Total comprehensive income for the year 18.7 5.9
---------------------------------------------------- ------ ------
Comprehensive income attributable to:
- Owners of the parent 18.7 5.9
- Non-controlling interests - -
--------------------------------------------------- ------ ------
18.7 5.9
--------------------------------------------------- ------ ------
The accompanying notes are an integral part of these condensed
interim financial statements.
Condensed consolidated statement of financial position
As at 30 June
2022 2021
Note GBPm GBPm
--------------------------------------------- ----- ------ ------
Assets
Non-current assets
Goodwill 9 90.6 84.7
Other intangible assets 23.1 33.9
Property, plant and equipment 47.0 46.9
Right-of-use assets 18.3 19.5
Retirement benefit surplus 15.2 6.8
Other receivables 2.5 2.3
Deferred tax assets 9.0 8.3
--------------------------------------------- ----- ------ ------
205.7 202.4
--------------------------------------------- ----- ------ ------
Current assets
Inventories 21.0 16.9
Trade, contract and other receivables 128.7 126.9
Derivative financial assets 0.8 0.9
Current tax assets 3.6 1.5
Cash and cash equivalents 11 49.4 42.0
Assets held for sale 10 9.6 -
---------------------------------------------
213.1 188.2
--------------------------------------------- ----- ------ ------
Total assets 418.8 390.6
--------------------------------------------- ----- ------ ------
Liabilities
Current liabilities
Borrowings 11 11.2 12.8
Lease liabilities 5.0 5.5
Trade, contract and other payables 78.2 76.6
Current tax liabilities 4.2 1.4
Derivative financial liabilities 5.1 1.0
Provisions 5.1 4.0
Liabilities directly associated with the
assets held for sale 10 3.4 -
---------------------------------------------
112.2 101.3
--------------------------------------------- ----- ------ ------
Net current assets 100.9 86.9
--------------------------------------------- ----- ------ ------
Non-current liabilities
Borrowings 11 74.7 76.1
Lease liabilities 18.3 18.8
Deferred tax liabilities 12.7 8.2
Provisions 3.3 3.4
--------------------------------------------- ----- ------ ------
109.0 106.5
--------------------------------------------- ----- ------ ------
Total liabilities 221.2 207.8
--------------------------------------------- ----- ------ ------
Net assets 197.6 182.8
--------------------------------------------- ----- ------ ------
Equity
Share capital 15.6 15.6
Share premium 16.8 16.8
Other reserves 44.5 38.0
Retained earnings 120.5 112.2
--------------------------------------------- ----- ------ ------
Equity attributable to owners of the parent 197.4 182.6
Non-controlling interests 0.2 0.2
--------------------------------------------- ----- ------ ------
Total equity 197.6 182.8
--------------------------------------------- ----- ------ ------
The accompanying notes form an integral part of these condensed
interim financial statements.
Condensed consolidated statement of changes in equity
for the year ended 30 June
Attributable to owners of
the parent
----------------------------------------------------
Share Share Other Retained Non-controlling Total
capital premium reserves earnings Total interests equity
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ----- --------- --------- ---------- ---------- ------ ---------------- --------
At 1 July 2020 13.4 14.3 17.4 103.5 148.6 0.5 149.1
Profit for the year - - - 1.7 1.7 - 1.7
Other comprehensive
(expense)/income for
the year - - (2.9) 7.1 4.2 - 4.2
----------------------------- ----- --------- --------- ---------- ---------- ------ ---------------- --------
Total comprehensive
(expense)/income for
the year - - (2.9) 8.8 5.9 - 5.9
Issue of ordinary share
capital 2.2 2.5 23.5 - 28.2 - 28.2
Reduction in share
capital - - - - - (0.2) (0.2)
Equity-settled transactions - - - 1.0 1.0 - 1.0
Ordinary share dividends 7 - - - (1.1) (1.1) (0.1) (1.2)
----------------------------- --------- --------- ---------- ---------- ------ ----------------
At 30 June 2021 15.6 16.8 38.0 112.2 182.6 0.2 182.8
----------------------------- ----- --------- --------- ---------- ---------- ------ ---------------- --------
At 1 July 2021 15.6 16.8 38.0 112.2 182.6 0.2 182.8
Profit for the year - - - 8.6 8.6 - 8.6
Other comprehensive
income for the year - - 6.5 3.6 10.1 - 10.1
----------------------------- ----- --------- --------- ---------- ---------- ------ ---------------- --------
Total comprehensive
income for the year - - 6.5 12.2 18.7 - 18.7
Equity-settled transactions - - - 1.6 1.6 - 1.6
Tax credit relating
to share option schemes - - - (0.3) (0.3) - (0.3)
Purchases of own shares
to settle awards - - - (0.2) (0.2) - (0.2)
Ordinary share dividends 7 - - - (5.0) (5.0) - (5.0)
----------------------------- ----- --------- --------- ---------- ---------- ------ ---------------- --------
At 30 June 2022 15.6 16.8 44.5 120.5 197.4 0.2 197.6
----------------------------- ----- --------- --------- ---------- ---------- ------ ---------------- --------
The accompanying notes form an integral part of these condensed
interim financial statements.
Condensed consolidated statement of cash flows
for the year ended 30 June
2022 2021
Note GBPm GBPm
------------------------------------------------ ----- ------- -------
Cash flows from operating activities
Profit/(loss) before taxation 13.2 3.9
Adjustments for:
- Share-based payments 1.3 1.4
- Unrealised foreign exchange (gains)/losses (1.0) 0.7
- Losses/(gains) on disposal of property,
plant and equipment 0.1 (0.3)
- Net finance costs 3.8 4.7
- Depreciation, amortisation and impairment 25.1 26.6
Defined benefit pension scheme payments
in excess of past service costs (3.0) (4.6)
------------------------------------------------ ----- ------- -------
Operating cash flows before movements in
working capital 39.5 32.4
Changes in:
- Inventories (3.6) 2.9
- Trade, contract and other receivables 4.6 (7.5)
- Trade, contract and other payables 8.5 4.1
- Provisions 0.9 1.1
Cash generated from operations 49.9 33.0
Net interest paid (3.5) (4.2)
Income tax paid (2.8) (2.9)
-----
Net cash generated from operating activities 43.6 25.9
------------------------------------------------ ----- ------- -------
Cash flows from investing activities
Acquisitions of subsidiaries, net of cash
acquired (9.9) (5.2)
Purchases of property, plant and equipment (6.1) (4.5)
Proceeds from disposal of property, plant
and equipment 0.1 0.3
Purchases of intangible assets and capitalised
development costs (8.0) (8.9)
Net cash used in investing activities (23.9) (18.3)
------------------------------------------------ ----- ------- -------
Cash flows from financing activities
Proceeds from issuance of ordinary shares - 28.2
Purchases of own shares to settle awards (0.2) -
Principal element of lease payments (4.5) (6.5)
Principal element of lease receivables - 0.2
Proceeds from borrowings 11 13.0 5.0
Repayment of borrowings 11 (15.0) (57.9)
Dividends paid to shareholders 7 (5.0) (1.4)
Net cash used in financing activities (11.7) (32.4)
------------------------------------------------ ----- ------- -------
Effect of exchange rate changes on cash
and cash equivalents 2.1 (1.7)
------------------------------------------------ ----- ------- -------
Net increase/(decrease) in cash and cash
equivalents 10.1 (26.5)
Net cash and cash equivalents at 1 July 29.3 55.8
Net cash and cash equivalents at 30 June 39.4 29.3
------------------------------------------------ ----- ------- -------
At 1 July
Cash and cash equivalents 42.0 66.3
Bank overdrafts (12.7) (10.5)
Net cash and cash equivalents at 1 July 29.3 55.8
------------------------------------------------ ----- ------- -------
At 30 June
Cash and cash equivalents 11 49.4 42.0
Cash included in disposal group held-for-sale 11 1.1 -
Bank overdrafts 11 (11.1) (12.7)
Net cash and cash equivalents at 30 June 39.4 29.3
------------------------------------------------ ----- ------- -------
The accompanying notes form an integral part of these condensed
interim financial statements.
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 2022, which was approved for issue on 13
September 2022, and which has been prepared in accordance with
UK-adopted international accounting standards and applicable law.
The financial information herein does not amount to full statutory
accounts within the meaning of Section 434 of the Companies Act
2006.
1. 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. Ricardo provides
guidance to the investor community based on underlying results.
Explanations of how they are calculated and how they are reconciled
to an IFRS statutory measure are set out below.
The underlying results and other APMs may be considered in
addition to, but not as a substitute for or superior to,
information presented in accordance with IFRS.
(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. Underlying results include
the benefits of the results of acquisitions and major restructuring
programmes but exclude significant costs (such as the amortisation
of acquired intangibles, acquisition-related expenditure,
reorganisation costs and other specific adjusting items). Ricardo
believes that the underlying results, when considered together with
the reported results, provide investors, analysts and other
stakeholders with helpful complementary information to better
understand the financial performance and position of the Group.
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 5.
Reconciliation of underlying profit to reported profit
2022 2021 - Restated*
---------------------------------
Specific Specific
adjusting adjusting
Underlying items Total Underlying items Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ----------- ----------- -------- ----------- ----------- --------
Revenue 380.2 - 380.2 343.7 - 343.7
Cost of sales (250.7) - (250.7) (230.7) - (230.7)
--------------------------------- ----------- ----------- -------- ----------- ----------- --------
Gross profit 129.5 - 129.5 113.0 - 113.0
Administrative expenses
and other income (101.5) - (101.5) (92.6) - (92.6)
Amortisation of acquired
intangibles - (4.5) (4.5) - (5.0) (5.0)
Acquisition-related expenditure - (0.8) (0.8) - (1.7) (1.7)
Reorganisation costs - (6.2) (6.2) - (5.4) (5.4)
ERP implementation costs - (0.6) (0.6) - - -
CEO exit costs - - - - (1.5) (1.5)
Other - 0.3 0.3 - (0.1) (0.1)
--------------------------------- ----------- ----------- -------- ----------- ----------- --------
Operating profit from
continuing operations 28.0 (11.8) 16.2 20.4 (13.7) 6.7
Net finance costs (3.8) - (3.8) (4.7) - (4.7)
--------------------------------- ----------- ----------- -------- ----------- ----------- --------
Profit before taxation
from continuing operations 24.2 (11.8) 12.4 15.7 (13.7) 2.0
Income tax (expense)/credit (6.5) 2.3 (4.2) (4.4) 2.6 (1.8)
--------------------------------- ----------- ----------- -------- ----------- ----------- --------
Profit for the year from
continuing operations 17.7 (9.5) 8.2 11.3 (11.1) 0.2
Profit for the year from
discontinued operation,
net of tax 1.7 (1.3) 0.4 1.9 (0.4) 1.5
Profit for the year 19.4 (10.8) 8.6 13.2 (11.5) 1.7
--------------------------------- ----------- ----------- -------- ----------- ----------- --------
* Comparative information has been re -- presented due to a
discontinued operation. See Note 2 .
Underlying earnings attributable to the owners of the
parent/earnings per share: 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 6.
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 impact of acquisitions or
disposals, to include the results of those acquisitions or
disposals for an equivalent period in each financial year. As set
out in Note 8, the Group acquired the entire issued share capital
of Inside Infrastructure Pty Ltd (Inside Infrastructure) on 21
March 2022. The current year results include GBP0.9m of revenue,
GBP0.1m of operating profit and GBP0.1m of profit before tax from
Inside Infrastructure.
Constant currency 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 growth/decline is calculated by translating the
result for the prior year using foreign currency exchange rates
applicable to the current year. This provides an indication of the
growth/decline of the business, excluding the impact of foreign
exchange. In the prior year, constant currency results were
calculated by translating the result for the current year using
foreign currency exchange rates applicable to the prior year. Using
current year rates to restate prior year results is considered to
provide a more useful comparison, since current year performance
remains stated at actual rates.
Headline trading performance
Underlying Reported
-------------------- --------------------
Profit Profit
External Operating before Operating before
revenue profit tax profit tax
GBPm GBPm GBPm GBPm GBPm
---------------------------------- --------- ---------- -------- ---------- --------
2022
Total 387.3 30.1 26.3 17.0 13.2
Less: discontinued operation (7.1) (2.1) (2.1) (0.8) (0.8)
---------------------------------- --------- ---------- -------- ---------- --------
Continuing operations 380.2 28.0 24.2 16.2 12.4
Less: performance of acquisitions (0.9) (0.1) (0.1) (0.1) (0.1)
Continuing operations
- organic 379.3 27.9 24.1 16.1 12.3
---------------------------------- --------- ---------- -------- ---------- --------
2021
Total 351.8 22.7 18.0 8.6 3.9
Less: discontinued operation (8.1) (2.3) (2.3) (1.9) (1.9)
---------------------------------- --------- ---------- -------- ---------- --------
Continuing operations 343.7 20.4 15.7 6.7 2.0
---------------------------------- --------- ---------- -------- ---------- --------
Continuing operations
at current year exchange
rates 343.5 20.4 15.7 6.8 2.1
---------------------------------- --------- ---------- -------- ---------- --------
Growth (%) - Total 10% 33% 46% 98% 238%
Growth (%) - Continuing
operations 11% 37% 54% 142% 520%
Growth (%) - Continuing
organic 10% 37% 54% 140% 515%
Constant currency growth
(%) - Continuing operations 11% 37% 54% 138% 490%
---------------------------------- --------- ---------- -------- ---------- --------
Segmental underlying operating profit: This is presented in the
Group's 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 0 .
(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.
Reconciliation of underlying cash conversion to reported cash
conversion
2022 2021
------------------------------------
Specific Specific
adjusting adjusting
Underlying items Total Underlying items Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ ----------- ----------- ------- ----------- ----------- ------
Operating profit from continuing
operations 28.0 (11.8) 16.2 20.4 (13.7) 6.7
Operating profit from discontinued
operation 2.1 (1.3) 0.8 2.3 (0.4) 1.9
------------------------------------ ----------- ----------- ------- ----------- ----------- ------
Operating profit 30.1 (13.1) 17.0 22.7 (14.1) 8.6
Depreciation, amortisation
and impairment 18.6 2.0 20.6 19.7 1.9 21.6
Amortisation of acquired
intangibles - 4.5 4.5 - 5.0 5.0
------------------------------------ ----------- ----------- ------- ----------- ----------- ------
EBITDA 48.7 (6.6) 42.1 42.4 (7.2) 35.2
Movement in working capital 8.2 2.2 10.4 (2.3) 2.9 0.6
Pension deficit payments (3.0) - (3.0) (4.6) - (4.6)
Losses/(gains) on disposal
of assets 0.1 - 0.1 (0.3) - (0.3)
Share based payments 1.3 - 1.3 1.0 0.4 1.4
Unrealised exchange (gains)/losses (0.7) (0.3) (1.0) 0.7 - 0.7
------------------------------------ ----------- ------- ----------- ------
Cash generated from operations 54.6 (4.7) 49.9 36.9 (3.9) 33.0
------------------------------------ ----------- ----------- ------- ----------- ----------- ------
Cash conversion 112.1% 118.5% 87.0% 93.8%
------------------------------------ ----------- ----------- ------- ----------- ----------- ------
The movement in working capital in relation to specific
adjusting items for the current year includes accruals of GBP1.6m
and provisions of GBP2.2m in relation to specific adjusting items
recognised as an expense during the current year which had not been
paid at 30 June 2022. This was offset by the payment of GBP2.4m of
amounts related to specific adjusting items included in trade and
other payables and provisions at the prior year end. In addition
GBP0.5m of prepayments relating to an ERP implementation were
recognised in operating profit in the current year, and a
receivable of GBP0.3m a reduction in the fair value of contingent
consideration arising from the disposal of the Group's test
facilities in Detroit was recognised to operating profit (see Note
5).
Net debt: is defined as current and non-current borrowings less
cash and cash equivalents, including hire purchase agreements, but
excluding any impact of other IFRS 16 lease liabilities. Management
believes this definition is the most appropriate for monitoring the
indebtedness of the Group and is consistent with the treatment in
the Group's banking agreements. Further details are provided in
Note 11.
(c) Tax measures
Underlying effective tax rate (ETR): The Group reports 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.
(d) Other measures
Order book: The value of all unworked purchase orders and
contracts received from customers at the reporting date, providing
an indication of revenue that has been secured and will be
recognised in future accounting periods - see Note 23 to the Group
Financial Statements. Management do not consider there to be a
closely equivalent GAAP measure.
Order intake: The value of purchase orders and contracts
received from customers during the period. The order intake for the
current year was GBP432.2m (2021: GBP352.1m), including results of
the discontinued operation. Management do not consider there to be
a closely equivalent GAAP measure.
Headcount: Headcount is calculated as the number of colleagues
on the payroll at the reporting date and includes subcontractors on
a full-time equivalent basis. The number of employees disclosed in
Note 33 to the Group Financial Statements is the average for the
year, and is not adjusted for full-time equivalency.
2. Discontinued operation
On 23 May 2022, the Group classified its Software segment as
held for sale following agreement of terms with a potential buyer,
as a result of a strategic decision to focus on core lines of
business. The results of the Software business have been presented
as a discontinued operation and the prior year results restated to
reflect this presentation. On 1 August 2022, the business was sold
to a third party. See Notes 10 and 13 .
Subsequent to the disposal, the Group has continued to purchase
software licenses from the discontinued operation and recharge the
business for space in its Prague office. Although intra-group
transactions have been fully eliminated in the consolidated
financial results, management has elected to attribute the
elimination of transactions between the continuing operations and
the discontinued operation before the disposal in a way that
reflects the continuance of these transactions subsequent to the
disposal, because management believes this is useful to the users
of the financial statements.
2022 2021
Result from discontinued operation GBPm GBPm
--------------------------------------------- ------ ------
Revenue 9.4 10.3
Inter-segment revenue (1) (2.3) (2.2)
--------------------------------------------- ------ ------
External revenue 7.1 8.1
--------------------------------------------- ------ ------
Expenses (4.1) (4.8)
Elimination of inter-segment revenue net of
recoverable expenses(1) 2.0 1.9
Amortisation of intangible assets(2) (2.9) (2.9)
External expenses (5.0) (5.8)
--------------------------------------------- ------ ------
Underlying profit from operating activities 2.1 2.3
Specific adjusting items (1.3) (0.4)
--------------------------------------------- ------ ------
Profit from operating activities 0.8 1.9
Income tax (0.4) (0.4)
--------------------------------------------- ------ ------
Profit from discontinued operation, net of
tax 0.4 1.5
--------------------------------------------- ------ ------
2022 2021
Cash from discontinued operation GBPm GBPm
--------------------------------------------- ------ ------
Net cash from operating activities 4.5 5.1
Net cash used in investing activities (3.2) (3.1)
1.3 2.0
--------------------------------------------- ------ ------
(1) Inter-segment revenue and expenses are presented in the
discontinued operation to the extent that they are expected to
continue after the disposal of the operation.
(2) The amortisation of intangible assets was ceased at 23 May
when the Software disposal group was classified as held for sale.
If amortisation had been charged for the full financial year an
additional GBP0.3m would have recognised within administrative
expenses within the discontinued operation.
The earnings per share related to the discontinued operation are
shown in Note 6 .
3. Financial performance by segment
The segmental analysis helps explain the business in the way
that it is monitored by management.
The Group's operating segments are being reported based on the
financial information provided to the Chief Operating Decision
Maker who is the Chief Executive Officer. The information reported
includes financial performance but does not include the financial
position of assets and liabilities. The operating segments were
identified by evaluating the Group's products and services,
processes, types of customers and delivery methods.
During the current year the Software segment, previously
reported within Performance Products, is classified as
held-for-sale. Comparative amounts are restated to reflect this
classification. Due to a reorganisation of the operating segments
within the Group, the Automotive and Industrial segment (A&I)
now consists of one operating segment, rather than representing the
aggregation of the A&I EMEA, A&I China and A&I US
operating segments. This reflects the revised organisational
structure and operating model of the operating segment.
The following summarises the operations in each of the Group's
reportable segments:
-- Energy and Environment (EE) - EE generates revenue from the
provision of environmental consultancy services to customers across
the world. Customers include governments, public agencies and
private businesses;
-- Rail - Rail generates revenue from 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;
-- Automotive and Industrial (A&I) - A&I generates
revenue through the provision of engineering, strategic consulting,
and design, development and testing services, focused on hybrid and
electric systems, electrification, engines, driveline and
transmissions, testing, and vehicle engineering. Customers include
businesses in the automotive, aerospace, defence, energy,
off-highway and commercial, marine, motorcycle and light-personal
transport, and rail markets;
-- Defense - Defense provides engineering services, software and
products to customers in the US defence market, aimed and
protecting life and improving the operation, maintenance and
support of complex systems; and
-- Performance Products (PP) - PP manufactures, assembles and
develops niche high-quality components, prototypes and complex
products, including engines, transmissions and other precision and
performance-critical products. Its customers manufacture
low-volume, high-performance products in markets such as
motorsport, automotive, aerospace, defence and rail.
The operations of the Group have been categorised into these
segments due to the nature of their services, market sectors,
client bases and distribution channels and operating across markets
requiring adherence to regulatory frameworks that are similar in
nature.
Measurement of performance
Management monitors the financial results of its operating
segments separately for the purpose of making decisions about
allocating resources and assessing performance. Segmental
performance is measured based on underlying operating profit, as
this measure provides management with an overall view of how the
different operating segments are managing their total cost base
against the revenue generated from their portfolio of
contracts.
There are varying levels of integration between the segments.
The segments use EE for their specialist environmental knowledge.
A&I and PP have various shared projects. There are also shared
service costs between the segments. Inter-segment transactions are
eliminated on consolidation. Inter -- segment pricing is determined
on an arm ' s length basis in a manner similar to transactions with
third parties.
Included within Plc costs in the following tables are costs
arising from a central Group function, including the costs of
running the public limited company, which are not recharged to the
other operating segments. Comparative figures for the year ended 30
June 2021 have been restated, reflecting the impact of the changes
the Group made to its operating segments during the year ended 30
June 2022. The operating segment section above provides further
detail on the segments' performance.
For the year ended 30 June 2022
Total
Continuing Discontinued
EE Rail A&I Defense PP Plc Operations Operation Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ------ ------ ------ -------- ------ ------ ------------ ------------- -------
Total segment
revenue 68.2 74.6 123.2 45.1 75.0 - 386.1 9.4 395.5
Inter-segment
revenue (1.0) (0.3) (3.2) (0.1) (1.3) - (5.9) (2.3) (8.2)
Revenue from
external customers 67.2 74.3 120.0 45.0 73.7 - 380.2 7.1 387.3
------------------------- ------ ------ ------ -------- ------ ------ ------------ ------------- -------
Segment underlying
operating profit 9.1 7.7 3.7 5.9 7.2 - 33.6 2.1 35.7
Plc costs - - - - - (5.6) (5.6) - (5.6)
------------------------- ------ ------ ------ -------- ------ ------ ------------ ------------- -------
Underlying operating
profit/(loss) 9.1 7.7 3.7 5.9 7.2 (5.6) 28.0 2.1 30.1
Specific adjusting
items (*) (0.6) (4.4) (5.2) (0.4) (0.6) (0.6) (11.8) (1.3) (13.1)
------------------------- ------ ------ ------ -------- ------ ------ ------------ ------------- -------
Operating profit/(loss) 8.5 3.3 (1.5) 5.5 6.6 (6.2) 16.2 0.8 17.0
Net finance
costs (3.8) - (3.8)
------ ------ ------ -------- ------ ------ ------------ ------------- -------
Profit before
taxation 12.4 0.8 13.2
------------------------- ------ ------ ------ -------- ------ ------ ------------ ------------- -------
Depreciation,
amortisation
and impairment 3.2 4.8 9.8 1.7 0.8 1.9 22.2 2.9 25.1
Capital expenditure:
- Other intangible
assets 1.9 - 2.5 0.4 (0.1) - 4.7 3.2 7.9
- Property,
plant and equipment 0.7 1.1 2.2 0.1 0.6 - 4.7 - 4.7
- Right-of-use
assets - 4.2 0.5 - - - 4.7 - 4.7
------------------------- ------ ------ ------ -------- ------ ------ ------------ ------------- -------
For the year ended 30 June 2021 (Restated*)
Total
Continuing Discontinued
EE Rail A&I Defense PP Plc Operations Operation Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ------ ------ ------ -------- ------ ------ ------------ ------------- -------
Total segment
revenue 57.9 77.7 104.2 37.9 70.4 - 348.1 10.3 358.4
Inter-segment
revenue (0.8) - (3.2) - (0.4) - (4.4) (2.2) (6.6)
Revenue from
external customers 57.1 77.7 101.0 37.9 70.0 - 343.7 8.1 351.8
-------------------------- ------ ------ ------ -------- ------ ------ ------------ ------------- -------
Segment underlying
operating profit/(loss) 8.5 8.0 (3.6) 5.4 6.7 - 25.0 2.3 27.3
Plc costs - - - - - (4.6) (4.6) - (4.6)
-------------------------- ------ ------ ------ -------- ------ ------ ------------ ------------- -------
Underlying operating
profit/(loss) 8.5 8.0 (3.6) 5.4 6.7 (4.6) 20.4 2.3 22.7
Specific adjusting
items (*) (0.9) (3.6) (5.6) (0.4) - (3.2) (13.7) (0.4) (14.1)
-------------------------- ------ ------ ------ -------- ------ ------ ------------ ------------- -------
Operating profit/(loss) 7.6 4.4 (9.2) 5.0 6.7 (7.8) 6.7 1.9 8.6
Net finance
costs (4.7) - (4.7)
------ ------ ------ -------- ------ ------ ------------ ------------- -------
Profit before
taxation 2.0 1.9 3.9
-------------------------- ------ ------ ------ -------- ------ ------ ------------ ------------- -------
Depreciation
and amortisation 3.3 6.1 10.2 1.8 1.0 1.3 23.7 2.9 26.6
Capital expenditure:
- Other intangible
assets 1.4 - 3.6 0.5 - 0.3 5.8 3.1 8.9
- Property,
plant and equipment 0.4 0.2 2.3 0.6 0.8 - 4.3 - 4.3
- Right-of-use
assets 0.2 0.8 0.6 0.8 - - 2.4 - 2.4
-------------------------- ------ ------ ------ -------- ------ ------ ------------ ------------- -------
* See Note 5
** Prior year amounts have been restated as follows. References
to Software relate to amounts which were previously reported in the
PP aggregated operating segment and are now presented as a
discontinued operation.
-- Revenue from external customers of GBP1.5m transferred from
A&I to the discontinued operation, relating to revenue invoiced
by A&I for Software products, not expected to continue to be
generated by the Group after the sale of the business.
Inter-segment revenue from Software has been reduced by this
amount.
-- A&I underlying operating loss increased, and Software
profit increased, by GBP2.0m to reflect costs that will not be
charged to the Software business on an ongoing basis. Software
revenue has been grossed up by GBP2.2m to reflect intragroup
recharges to A&I previously net off against these expenses.
-- Plc costs increased by GBP0.2m and Software operating profit
increased by GBP0.2m to reflect costs which were previously
recharged to the Software business, for which there is no mechanism
to recharge after the sale of the business.
Revenue from one customer represents approximately 11% (2021:
12%) of the Group's external revenue, which is primarily reported
in the PP segment.
4. Revenue
Continuing Discontinued
operations operation Total
2022 2021 2022 2021 2022 2021
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ------ ------ ------- ------ ------ ------
Revenue stream
Service provided under:
- fixed price contracts 217.9 210.8 - - 217.9 210.8
- time and materials
contracts 64.5 65.9 - - 64.5 65.9
- subscription and software
support contracts 5.2 5.1 0.6 1.5 5.8 6.6
Goods supplied:
- manufactured and assembled
products 90.7 61.8 - - 90.7 61.8
- software products 1.2 0.1 6.5 6.6 7.7 6.7
Intellectual property 0.7 - - - 0.7 -
Total 380.2 343.7 7.1 8.1 387.3 351.8
------------------------------- ------ ------ ------- ------ ------ ------
Customer location
United Kingdom 134.5 118.7 0.2 0.2 134.7 118.9
Europe 72.7 75.0 1.3 1.2 74.0 76.2
North America 88.3 67.6 1.9 1.9 90.2 69.5
Rest of Asia 30.7 22.2 2.8 3.5 33.5 25.7
Australia 22.2 27.2 - 0.1 22.2 27.3
China 20.9 22.9 0.9 1.2 21.8 24.1
Rest of the World 10.9 10.1 - - 10.9 10.1
Total 380.2 343.7 7.1 8.1 387.3 351.8
------------------------------- ------ ------ ------- ------ ------ ------
Timing of recognition
Over time 289.0 283.2 5.5 6.4 294.5 289.6
At a point in time 91.2 60.5 1.6 1.7 92.8 62.2
Total 380.2 343.7 7.1 8.1 387.3 351.8
------------------------------- ------ ------ ------- ------ ------ ------
ee
5. 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 items that are included due to their significance,
non-recurring 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.
2022 2021
Restated*
GBPm GBPm
------------------------------------------------ ------ ----------
Continuing operations
Amortisation of acquired intangibles 4.5 5.0
Acquisition-related expenditure 0.8 1.7
Reorganisation costs
- Purchases and disposals 0.3 2.0
- Other reorganisation costs 5.9 3.4
ERP implementation costs 0.6 -
CEO exit costs - 1.5
Revaluation gain (0.3) -
Guaranteed Minimum Pensions (GMP) equalisation - 0.1
------------------------------------------------ ------ ----------
Total specific adjusting items from continuing
operations before tax 11.8 13.7
Tax credit on specific adjusting items (2.3) (2.6)
Total specific adjusting items from continuing
operations after tax 9.5 11.1
Specific adjusting items from discontinued
operation
Purchases and disposals 1.3 0.4
Total specific adjusting items after tax 10.8 11.5
------------------------------------------------ ------ ----------
* Comparative information has been re -- presented due to a
discontinued operation. See Note 2.
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 2 and 9 years. During the year, certain "customer
contracts and relationships" intangible assets reached the end of
their economic life, resulting in a decrease in amortisation
charges compared to the prior period. The current year charge
includes GBP0.1m in respect of the amortisation of intangibles,
predominantly customer relationships, acquired as part of the
purchase of Inside Infrastructure Pty Ltd (Inside Infrastructure)
in March 2022
Acquisition-related expenditure
Current year acquisition-related expenditure comprises GBP0.4m
of external fees, earn out accruals and post-deal integration costs
in respect of the acquisition of Inside Infrastructure. In
addition, it includes a GBP0.1m retention amount paid to the former
owners of PLC Consulting Pty Ltd, now Ricardo Energy Environment
and Planning (REEP), which was acquired in July 2019, in accordance
with the terms of the purchase agreement, and GBP0.3m of external
fees in relation to other strategic projects.
The prior year charge comprises GBP1.6m of earn-out and employee
retention costs, accrued in relation to Transport Engineering Pty
Ltd (now Ricardo Rail Australia - 'RRA'), acquired in May 2019, and
REEP (see Note 8). In addition, GBP0.1m of fees were incurred on
strategic projects in the year.
The above items have been classified as specific adjusting items
as they meet the Group's definition of acquisition-related
expenditure.
Reorganisation costs
Purchases and disposals
The current year charge of GBP0.3m (USD 0.4m) represents a
reduction in the fair value of contingent consideration arising
from the disposal of the Group's test facilities in Detroit in June
2020, in accordance with the treatment of the original proceeds.
The test facilities were sold for up-front consideration of GBP2.8m
(USD 3.5m), with up to an additional GBP1.5m (USD 2.0m) contingent
on volume of testing work placed into the facility by Ricardo over
a two-year period to 30 June 2022. The charge reflects a lower
level of traditional engine test work than expected at the time of
the sale. A similar charge of GBP0.5m (USD 0.8m) was recognised in
the prior year. Ricardo received less than GBP0.1m (USD 0.1m) of
contingent consideration in the year (2021: GBP0.2m (USD
0.3m)).
The prior year charge also included a GBP1.5m impairment charge
as a result of a decrease in the fair value of the Detroit
Technology Campus (DTC) South building, reflecting its market value
at the balance sheet date. The impairment charge reflected the
impact of COVID-19 on the property market at the time, with a
significantly lower demand for office space depressing prices in
the DTC area. The impairment was classified as a specific adjusting
item as it was significant in value and would have distorted the
underlying trading performance of the Group.
GBP1.3m of costs were recognised in the year in respect of
external fees incurred in the disposal of Ricardo Software (2021:
GBP0.4m). These costs have been recognised within the discontinued
operation and have been classified as specific adjusting items as
they are incremental costs which are directly attributable to the
sale of the business.
Other reorganisation costs
A&I reorganisation costs GBP4.9m (2021: GBP3.4m): The
current year charge reflects the commencement of a major
restructuring programme to combine the three regional A&I
businesses in EMEA, US, and China, into one globally operated
business, re-aligned around two key pillars: emerging technologies,
focused on electrified propulsion, vehicle integration and software
and digital services; and established mobility, focusing on high
efficiency internal combustion engines (ICE) and emissions
compliance. This programme has resulted in GBP5.3m of
reorganisation costs in FY 2021/22, relating to:
-- Headcount reductions (GBP2.3m): These redundancies have
focused on senior management and administrative positions in the UK
and China, as a result of the implementation of a more streamlined
organisation structure. All redundancy costs relate to those staff
members notified by 30 June 2022.
-- Property downsizings and exits (GBP0.9m): The business has
reduced its footprint in the Prague Technical Centre, with one
floor being vacated, resulting in an impairment of the lease asset
and the recognition of an onerous contract provision in relation to
the ongoing service charges through to the end of the lease term in
February 2027.
-- The impairment of intangible assets (GBP2.0m): Following a
detailed review of the asset base against the future strategy,
assets relating to technologies and areas that the A&I business
will no longer focus on or invest in were identified and impaired,
with no significant further economic benefits expected to arise
from these assets.
-- External advisory and legal fees (GBP0.1m): External costs to
support the programme.
The cash cost of the actions in the year was GBP0.5m. This
programme will continue into the next financial year, where the
Group expects to incur a similar level of income statement expense.
The total cash cost of the programme is estimated to be in the
region of GBP4.5m.
Current year reorganisation costs include a credit of GBP0.4m in
respect of unutilised provisions from the prior year. During the
prior year, GBP3.4m of reorganisation costs were incurred in the
A&I business in EMEA, as a result of the challenging trading
conditions and COVID-19, which combined to depress short-term
workable orders and delay projects. This led to in headcount
reductions (GBP2.5m, of which GBP2.1m was utilised in FY 2021/22),
the exit from sites in Cambridge (GBP0.7m) and Germany (GBP0.1m),
and the write off of equipment in the Santa Clara Technical Centre,
which was exited in June 2020 (GBP0.1m). The cash cost of these of
these actions in FY 2021/22 was GBP1.6m.
These costs have been included within specific adjusting items
as they are significant in quantum and would otherwise distort the
underlying trading performance of the Group.
Rail reorganisation costs GBP1.0m (2021: nil): The current year
charge reflects the result of a significant review of the
operational structure of the Rail business, aimed at creating a
more flexible and agile business. Costs incurred related to the
exit of a number of senior positions in the organisation, including
associated legal and external fees. The review will continue into
FY 2022/23. The cash cost of these actions in FY 2021/22 was
GBP0.3m.
These costs have been included within specific adjusting items
as they are significant in quantum and would otherwise distort the
underlying trading performance of the Group.
ERP implementation costs
As a result of an IFRS Interpretations Committee (IFRIC)
decision in March 2021, GBP0.5m of external costs incurred in the
prior year in relation to the implementation of a new cloud-based
ERP system within the PP segment have been expensed in the current
period, together with GBP0.1m of expenditure in the current year.
The prior year costs were previously capitalised in line with
prevailing practice at the time the costs were incurred. They have
been classified as a specific adjusting item as they are not
reflective of the underlying performance of the business in the
period. The ERP system is expected to have a useful life of at
least five years.
CEO exit costs
In January 2021, the Board announced that CEO Dave Shemmans will
be leaving the Group, after sixteen years in the role. Costs of
GBP1.5m were accrued in the prior year, covering his settlement,
external legal fees, and external recruitment fees to find a
successor. The costs were recognised as specific adjusting items
due to their non-recurring nature and quantum.
Revaluation gain
During the current year, an intercompany loan from Ricardo plc
to Ricardo Investments Ltd, representing a quasi-equity investment
in one of the Group's subsidiaries, was repaid. The loan was
previously classed as not repayable in the foreseeable future under
IAS 21 with any revaluation of the foreign currency loan recognised
in the statement of Other Comprehensive Income. Following the
repayment of the loan, a gain of GBP0.3m was reclassified from
equity to the income statement, as required under IAS 21, and was
reported as a specific adjusting item.
Guaranteed Minimum Pensions (GMP) equalisation
In the prior period, a charge of GBP0.1m was incurred in order
to equalise male and female members' benefits for the effect of for
historical transfers out of the Group's defined benefit pension
scheme. The treatment of this cost as a specific adjusting item is
consistent with the treatment of similar costs in prior years.
6. Earnings per share
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 useful indication of underlying performance
and trends over time.
There are no potentially dilutive shares (2021: Nil) .
2022 2021
GBPm GBPm
-------------------------------------------------- ------ -----
Earnings attributable to owners of the
parent 8.6 1.7
Add back the net-of-tax impact of:
- Amortisation of acquired intangibles 3.2 3.9
- Acquisition-related expenditure 0.8 1.6
- Asset purchases and disposals 0.3 1.5
- Other reorganisation costs 4.9 2.7
- ERP implementation costs 0.5 -
- Revaluation gain (0.2) -
- CEO exit costs - 1.3
- Guaranteed Minimum Pensions (GMP) equalisation - 0.1
- Discontinued operation 1.3 0.4
Underlying earnings attributable to owners
of the parent 19.4 13.2
--------------------------------------------------- ------ -----
2022 2021
Number Number
of shares of shares
millions millions
------------------------------------------- ----------- -----------
Basic weighted average number of shares
in issue 62.2 58.9
Effect of dilutive potential shares - -
Diluted weighted average number of shares
in issue 62.2 58.9
-------------------------------------------- ----------- -----------
2022 2021
Earnings per share pence pence
------------------------------------------------ ------ ------
Basic 13.8 2.9
Diluted 13.8 2.9
------------------------------------------------- ------ ------
2022 2021
Underlying earnings per share pence pence
------------------------------------------------ ------ ------
Basic 31.2 22.4
Diluted 31.2 22.4
------------------------------------------------- ------ ------
2022 2021
Earnings per share from continuing operations pence pence
------------------------------------------------ ------ ------
Basic 13.2 0.3
Diluted 13.2 0.3
------------------------------------------------- ------ ------
2022 2021
Earnings per share from discontinued operation pence pence
------------------------------------------------ ------ ------
Basic 0.6 2.5
Diluted 0.6 2.5
------------------------------------------------- ------ ------
7. Dividends
2022 2021
GBPm GBPm
------------------------------------------------------------------------------ ----- -----
Final dividend for prior period: 5.11p per share (2021: 0.00p) per share 3.2 -
Interim dividend for current period: 2.91p per share (2021: 1.75p) per share 1.8 1.1
Equity dividends paid 5.0 1.1
------------------------------------------------------------------------------- ----- -----
A dividend of GBPnil (2021: GBP0.1m) was issued during the year
by a subsidiary of the Group to a non-controlling party of that
subsidiary. A return of capital of GBPnil (2021: GBP0.2m) was made
during the year by a subsidiary of the Group to a non-controlling
party of that subsidiary.
8. Acquisition
On 21 March 2022, the Group acquired the entire issued share
capital of Inside Infrastructure Pty Ltd (Inside Infrastructure)
for cash consideration of GBP5.6m (AUD 10.4m), which included an
adjustment for cash and normalised net working capital of GBP0.5m
(AUD 0.9m), paid during FY 2021/22.
Inside Infrastructure is an Australian technical advisory firm
which specialises in water and sustainable resource management. The
following tables set out the fair value of cash consideration
payable to acquire Inside Infrastructure, together with the fair
value of net assets acquired.
GBPm
------------------------------------------------ ------
Fair value of cash consideration
Cash consideration 5.6
------------------------------------------------ ------
Total fair value of cash consideration 5.6
------------------------------------------------ ------
Fair value of identifiable net assets acquired
Customer contracts 2.0
Property, plant and equipment - right of use 0.4
Trade, contract and other receivables 0.3
Cash and cash equivalents 0.6
Trade, contract and other payables (0.5)
Lease liabilities (0.4)
Deferred tax liabilities (0.6)
------------------------------------------------ ------
Fair value of identifiable net assets acquired 1.8
Goodwill 9 3.8
------------------------------------------------ ------
Total fair value of cash consideration 5.6
------------------------------------------------ ------
The maximum contingent cash payable is GBP0.6m (AUD 1.0m). The
amounts payable will be based on the achievement of annual
performance targets measured against the earnings before interest,
tax, depreciation and amortisation of Inside Infrastructure during
FY 2022/23. These payments are dependent upon the continuing
employment of the sellers in the business, and are not considered
to form part of the consideration for the acquisition. GBP0.1m (AUD
0.2m) has been recognised within specific adjusting items in order
to reflect an accrual for the fair value of the expected service
received during the current year (see Note 5).
Adjustments have been made for the recognition of
customer-related intangible assets separable from goodwill
amounting to GBP2.0m (AUD 3.6m). The fair value of the contingent
cash consideration and provisional identifiable net assets acquired
were identified in accordance with the requirements of IFRS 3
Business Combinations and the sale and purchase agreement. The
provisional fair values of identifiable net assets acquired may be
adjusted in future in accordance with the requirements of IFRS 3
Business Combinations. Further work is required to quantify the
value of long-term employee benefits due to the complex nature
these calculations. Adjustments may be required to trade and other
payables or to provisions as a result of this work. The amount of
the adjustment is not expected to be significant.
The provisional goodwill arising on acquisition can be ascribed
to the existence of a skilled assembled workforce, developed
expertise and processes within the existing 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 GBP1.8m (AUD 3.3m) included trade
receivables of GBP0.3m (AUD 0.6m), all of which have been
subsequently collected.
9. Goodwill
2022 2021
----------------------------
Movement in goodwill GBPm GBPm
---------------------------- ----- ------
At 1 July 84.7 87.8
Acquisition of business(1) 3.8 -
Exchange adjustments 2.1 (3.1)
At 30 June 90.6 84.7
---------------------------- ----- ------
The carrying value of goodwill and the key assumptions used in
determining the recoverable amount of each CGU, or group of CGUs,
are as follows:
Carrying value Pre-tax discount rate Long-term growth rate
2022 2021 2022 2021 2022 2021
Scheme movements GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------------- -------- ------- ----------- ----------- -------------- --------
Rail 46.2 44.9 12.3% 10.8% 3.1% 3.6%
Automotive and Industrial - Established(2) 5.0 - 13.1% N/a (10.0%) N/a
Automotive and Industrial - Emerging(2) 14.6 - 13.3% N/a 3.0% N/a
Automotive and Industrial - EMEA(2) - 19.6 N/a 13.2% N/a *
Energy and Environment(1) 20.0 15.9 13.8% 12.5% 2.8% 4.7%
Defense 3.7 3.2 13.8% 14.3% - 3.4%
Performance Products 1.1 1.1 14.0% 12.9% 1.7% 0.4%
----------- ----------- -------------- --------
At 30 June 90.6 84.7
-------------------------------------------- -------- -------
(1) As set out in further detail in Note 8, the Group acquired
Inside Infrastructure on 21 March 2022, adding goodwill of GBP3.8m
to the Energy and Environment CGU.
(2) During the year, the Group reorganised its Automotive and
Industrial business from a regional to a global structure (see
Notes 0 and 5). The five-year plan for this segment has been
prepared based on established mobility and emerging technologies,
and this distinction is expected to be reflected in the operating
segments in future years. Goodwill was allocated to these groups of
CGUs using a relative value approach, and the review of goodwill
for impairment was carried out at this level
*See key assumptions below.
Key assumptions
The five-year plan and discounted cash flow calculations thereon
provide a value in use which supports the carrying value of the
goodwill allocated to each CGU, or group of CGUs, at 30 June 2022,
resulting in no impairment for the year (2021: Nil). The five-year
cashflow forecasts are based on the budget for the following year
(year one) and the business plans for years two to five. The
five-year plan is prepared by management, and is reviewed and
approved by the Board. The five-year plan reflects past experience,
management's assessment of the current contract portfolio, contract
wins, contract retention, price increases, gross margin, as well as
future expected market trends (including the impact of climate
change, where relevant), adjusted to meet the requirements of IAS
36 Impairment of Assets.
The risks associated with climate change which have been
incorporated into the five-year planning process include the known
and expected increased regulation in relation the use of the
internal combustion engine (ICE) and the impact that will have on
our customers operating in this market. The five-year planning
process takes into account the requirement to adapt our product and
service portfolios in response to megatrends influenced by climate
change. Some risks, such as the risk of sea level rise (see
discussion of Principal Risks on page 58 of the Annual Report) are
expected to arise outside of the timeline of the five-year plan and
are not considered sufficiently quantifiable to include in the
longer-term element of the value-in-use calculation. No other
individually significant key financial risks or expenditures have
been identified and any additional costs of meeting our net zero
objective are not expected to be significant.
Cash flows beyond year five are projected into perpetuity using
a long-term growth rate, which is determined as being the lower of
the planned compound annual growth rate in each CGU's, or group of
CGU's, five-year plan and external third party forecasts of the
prevailing inflation and economic growth rates for each of the
territories in which each CGU, or group of CGUs, primarily
operates.
Global A&I cashflows were analysed into cashflows expected
to arise directly from revenues related to established mobility,
such as fossil fuel internal combustion engines, and those related
to emerging technologies, such as electrification. Due to
regulatory and other changes in the market relating to ICE, a
long-term decrease of 10% p.a. has been applied to established
mobility cashflows, and a long-term growth rate of 3% p.a., based
on prevailing inflation and economic growth by territory, has been
applied to the emerging technologies cashflows.
The cash flows are discounted at a pre-tax discount rate, which
is derived from externally sourced data and reflects the current
market assessment of the Group's time value of money and risks
specific to each CGU.
Research and Development Expenditure Credits (RDEC) cashflows
are included in the value-in-use calculations for A&I -
Established, A&I - Emerging, Performance Products and Energy
and Environment. They are material to the A&I Established, and
A&I Emerging groups of CGUs and have been included, taking into
account known changes to legislation, on the basis that there is no
indication that the UK government will withdraw this benefit.
Sensitivities
The value-in-use calculations were assessed for sensitivity to
reasonably possible changes to assumptions. The change in pre-tax
discount rate, growth rate, operating profit and working capital
which would cause the unit's (or group of units') carrying amount
to exceed its recoverable amount was identified and an assessment
made as to whether that change was considered reasonably possible.
The following changes in assumptions, resulting in carrying amount
exceeding the recoverable amount of goodwill, were identified:
-- A&I Established: A reduction of 19% in operating profit
levels.. A reduction in operating profit of this magnitude is
considered reasonably possible, given the current and projected
levels of profitability in the plan.
-- Rail: An increase in the pre-tax discount rate of 2.1%. An
increase in discount rates of this magnitude is considered
reasonably possible given the current macroeconomic
uncertainty.
No other reasonably possible changes to individual assumptions
were identified which would cause the carrying amount of a unit's
(or group of units') goodwill to exceed its recoverable amount.
In addition, a scenario was modelled combining each of a 10%
reduction in operating profit, a 10% increase in working capital
movement, a 2% increase in the pre-tax discount rate and a 2%
decrease in the long-term growth rate. The combined scenario would
result in an impairment of GBP0.7m to A&I Established goodwill,
GBP1.5m to Performance Products goodwill, and GBP21.3m to Rail. No
impairment would be recognised against other goodwill balances.
A scenario was calculated excluding the benefits arising from
RDEC. This scenario did not result in an impairment of any goodwill
balance.
10. Disposal group held for sale
The Group's software business was classified as held for sale at
30 June 2022. An offer had been agreed with a buyer and was subject
to National Security and Investment Act (NSIA) clearance. Clearance
was received on 26 July 2022, and the sale completed on 1 August
2022 - see Note 13.
The fair value less costs to dispose of the disposal group is
considered to exceed its carrying value immediately prior to its
classification as held for sale. No impairment loss was therefore
recognised on reclassification of the disposal group as held for
sale.
The value of assets and liabilities included in the disposal
group are as follows:
2022 2021
GBPm GBPm
-------------------------------------- ----- -----
Other intangible assets 7.0 -
Property, plant and equipment 0.1 -
Trade, contract and other receivables 1.4 -
Cash and cash equivalents 1.1 -
-------------------------------------- ----- -----
Assets held for sale 9.6 -
-------------------------------------- ----- -----
Trade, contract and other payables 3.4 -
Liabilities held for sale 3.4 -
-------------------------------------- ----- -----
Other reserves includes GBP1.0m in other reserves relating to
exchange impacts in relation to the disposal group which were
historically recognised via other comprehensive income.
11. Net debt
The objectives when managing capital are to safeguard the
ability to continue as a going concern in order to provide returns
for shareholders, benefits for other stakeholders and to maintain
an optimal capital structure to reduce the cost of capital. Capital
is monitored on the basis of the gearing ratio, which is calculated
as net debt divided by total capital.
The majority of the Group's cash is held in bank deposits. The
Group's sources of borrowing for funding and liquidity purposes
come from the Group's GBP200.0m multi-currency revolving credit
facility and through short-term overdraft facilities.
The disclosures in this note include certain Alternative
Performance Measures (APMs). For more information on the APMs used
by the Group, including definitions, please refer to Note 1.
(a) Gearing ratio
2022 2021
GBPm GBPm
--------------- ------ ------
Net debt 35.4 46.9
Total equity 197.6 182.8
Total capital 233.0 229.7
---------------- ------ ------
At 30 June 15.2% 20.4%
---------------- ------ ------
(b) Net debt
2022 2021
Analysis of net debt GBPm GBPm
----------------------------------------------- ------- -------
Current assets - cash and cash equivalents
Cash and cash equivalents 49.4 42.0
Cash included in disposal group held-for-sale 1.1 -
Total cash and cash equivalents 50.5 42.0
------------------------------------------------ ------- -------
Current liabilities - borrowings
Bank overdrafts repayable on demand (11.1) (12.7)
Hire purchase liabilities maturing within
one year (0.1) (0.1)
Total current borrowings (11.2) (12.8)
------------------------------------------------ ------- -------
Non-current liabilities - borrowings
Hire purchase liabilities maturing after
one year (0.2) (0.3)
Bank loans maturing after one year (74.5) (75.8)
Total non-current borrowings (74.7) (76.1)
------------------------------------------------ ------- -------
At 30 June (35.4) (46.9)
------------------------------------------------ ------- -------
Total cash and cash equivalents at 30 June 50.5 42.0
Total borrowings at 30 June (85.9) (88.9)
At 30 June (35.4) (46.9)
------------------------------------------------ ------- -------
2022 2021
Movement in net debt GBPm GBPm
------------------------------------------ ------- -------
At 1 July (46.9) (73.4)
Net increase/(decrease) in cash and cash
equivalents and bank overdrafts 10.1 (26.5)
Repayments of hire purchase 0.1 0.1
Proceeds from bank loans (13.0) (5.0)
Repayments of bank loans 15.0 57.9
Amortisation of bank loan fees (0.7) -
At 30 June (35.4) (46.9)
------------------------------------------- ------- -------
At the year-end, the Group had current hire-purchase liabilities
of GBP0.1m and non-current hire-purchase liabilities of GBP0.2m.
This hire-purchase agreement has an implicit rate of interest of
2.4%. The future undiscounted minimum lease payments due within one
year is GBP0.1m and due after one year is GBP0.2m.
At the year-end, the Group held total banking facilities of
GBP216.8 (2021: GBP215.5m), which included committed facilities of
GBP200.0m (2021: GBP200.0m). The committed facility consists of a
GBP200.0m multi-currency Revolving Credit Facility (RCF) which
provides the Group with committed funding through to July 2023. In
addition, the Group has uncommitted facilities including overdrafts
of GBP16.8m (2021: GBP15.5m), which mature throughout this and the
next financial year and are renewable annually.
Non-current bank loans comprise committed facilities of GBP74.5m
(2021: GBP75.8m), net of direct issue costs, which were drawn
primarily to fund acquisitions and general corporate purposes.
These 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% above SONIA (2021: 1.4% to 2.2% above LIBOR).
Adjusted leverage is defined in the Group's banking documents as
being the ratio of total net debt to adjusted EBITDA. Adjusted
EBITDA is further defined as being earnings before interest, tax,
depreciation, impairment and amortisation, excluding the impact of
IFRS 16, adjusted for any one-off, non-recurring, exceptional costs
and acquisitions or disposals during the relevant period. At the
reporting date, the Group has an adjusted leverage of 0.8x, which
attracts a rate of interest of SONIA plus 1.4% (2021: LIBOR plus
1.8%). The Group has banking facilities for its UK companies which
together have a net overdraft limit, but the balances are presented
on a gross basis in the financial statements.
After the reporting date, the Group completed a refinance of its
banking facilities - see Note 13.
12. Contingent liabilities
In the ordinary course of business, the Group has GBP11.4m
(2021: GBP13.0m) of possible obligations for bonds, guarantees and
counter-indemnities placed with the Group's banking and other
financial institutions, primarily relating to performance under
contracts with customers. These possible obligations are contingent
on the outcome of uncertain future events which are considered
unlikely to occur. The Group is also involved in commercial
disputes and litigation with some customers, which is also in the
normal course of business. Whilst the result of such disputes
cannot be predicted with certainty, the ultimate resolution of
these disputes is not expected to have a material effect on the
Group's financial position or results.
In July 2013, a guarantee was provided to the Ricardo Group
Pension Fund (RGPF) of GBP2.8m in respect of certain contingent
liabilities that may arise, which have been secured on specific
land and buildings. The outcome of this matter is not expected to
give rise to any material cost to the Group. In October 2018, a
further guarantee was provided to the RGPF for an amount that shall
not exceed the employers' liability were a debt to arise under
Section 75 of the Pensions Act 1995. In November 2021 the guarantee
was extended for a further 3 years and will now terminate on 5
April 2026. The outcome of this matter is not expected to give rise
to any material cost to the Group on the basis that the Group
continues as a going concern.
13. Events after the reporting date
On 2 August 2022, 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 committed RCF of GBP200m. The RCF
is committed for 4 years to August 2026 with an uncommitted option
to extend for a further year and with an additional uncommitted
GBP50m accordion. The interest rate of the facility ranges from
1.65% to 2.45% above SONIA and is dependent upon the Group's
adjusted leverage. All other terms of the facility remain
materially the same. The refinanced banking facilities will provide
the Group with sufficient funding to support future acquisitions,
strategic investments and new projects, and will also be used for
general corporate purposes.
On 1 August 2022, the Group completed the sale of its Software
business, which was classified as held for sale at the 30 June
2022, and presented as a discontinued operation. Initial
consideration was GBP14.3m (USD 17.5m), and variable deferred
consideration was between GBP0.8m and GBP2.4m (USD 1.0m to USD
3.0m), resulting in an estimated gain on disposal of GBP9m
excluding transaction fees (see Note 10).
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