REG - Ricardo PLC - Interim Results
06/03/2024 07:00
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RNS Number : 7135F Ricardo PLC 06 March 2024
6 March 2024
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
Interim Report for the six months ended 31 December 2023 (HY 2023/24)
Strong Sales Momentum Underpins Confidence for FY 23/24
HIGHLIGHTS
· Record order book of £477m (HY 2022/23: £404m), up 18% on a
constant currency basis
· Strong growth and margin accretion in Energy and Environment (EE),
Rail and Defense, driving Group revenue growth of 9% (HY2022/23: 12% on a
constant-currency basis)
· Recent acquisitions, E3-Modelling and Aither Pty Ltd, performing well
and accelerating growth
· Group operating profit impacted by delayed customer orders in
Automotive and Industrial (A&I) in H1
· Operating profit margin to improve in H2 from accelerating our
operating model transformation
· Excellent cash conversion of 130% (HY 2022/23: 97%)
· Interim dividend of 3.8p up 13%
· With a strong order book, good pipeline visibility and improving
margins the Board remain confident in delivering FY 23/24 profit before tax
market consensus((7))
Growth/ (decline)% Growth/ (decline)%
Reported At constant currency
HY 2023/24 HY 2022/23 HY 2022/23
Continuing operations
Order intake £m 314.3 292.8 7.3 286.0 9.9
Order book £m 477.2 414.4 15.2 404.3 18.0
Revenue £m 224.2 212.7 5.4 206.1 8.8
Underlying((1))
- Operating profit £m 12.0 12.5 (4.0) 12.0 -
- Operating profit margin % 5.4 5.9 (0.5pp) 5.8 (0.4pp)
- Profit before tax £m 7.9 9.9 (20.2) 9.3 (15.1)
Statutory
- Operating profit/(loss) £m 2.0 (9.9) 120.2 (10.1) 119.8
- Operating profit margin % 0.9 (4.7) 5.6pp (4.9) 5.8pp
- Loss before tax £m (2.1) (12.5) (83.2) (12.8) (83.6)
Total
Underlying((1)) cash conversion((3)) % 129.7 97.1 32.6pp n/a n/a
Cash conversion((3)) % 181.2 59.7 121.5pp n/a n/a
Basic underlying earnings per share((1&2)) p 9.2 12.2 (24.6) 11.1 (17.1)
Basic reported loss per share p (5.5) (13.2) (58.3) (13.8) (60.1)
Closing
Net debt((4)) £m 63.3 31.4 101.6 n/a n/a
Headcount((5)) no. 2,978 2,873 3.7 n/a n/a
Dividend proposed per share p 3.80 3.35 13.43 n/a n/a
References are defined in the glossary of terms below.
Commenting on the results, Graham Ritchie, Chief Executive Officer, said:
"We delivered good revenue growth in H1, owing to strong sales momentum in our
Energy and Environment, Rail, and Defense businesses. This is despite delays
in contract orders within Automotive and Industrial, which impacted the
Group's H1 profitability.
We continue to make progress in line with our strategic ambition and have
recently accelerated our transformation to create a sustainable business model
that will support Ricardo's future business mix. By centralising our enabling
functions and streamlining our operations, we can drive improved performance
across the business, with benefits realised both in the near and long term.
Looking ahead, we remain on track to deliver our full-year market consensus.
Our record order book and the strong sales momentum across our growth
solutions underpin our confidence in achieving this. In relation to our
Automotive and Industrial business, with the actions we have taken on
portfolio and market focus, and further refinement of our flexible resourcing
model, we expect improved profitability in H2 and the business to return to
sustainable growth."
About Ricardo plc
Ricardo plc is a global strategic, environmental, and engineering consulting
company, listed on the London Stock Exchange. With over 100 years of
engineering excellence and close to 3,000 employees in more than 20 countries,
we provide exceptional levels of expertise in delivering innovative
cross-sector sustainable outcomes to support energy transition and scarce
resources, environmental services together with safe and smart mobility. Our
global team of consultants, environmental specialists, engineers and
scientists support our customers to solve the most complex and dynamic
challenges to help achieve a safe and sustainable world.
Visit www.ricardo.com (http://www.ricardo.com/)
Analyst and investor presentation
There will be a presentation for analysts relating to the Group's interim
results for the six months ended 31 December 2023 at 9:30am on Wednesday 6
March 2024. A recording of the presentation will be available online to all
investors from Wednesday 6 March 2024 at
https://ricardo.com/investors/financial-reporting/results-presentations
(https://ricardo.com/investors/financial-reporting/results-presentations) .
Further enquiries:
Ricardo plc
Judith Cottrell Tel: 01273 455611
Natasha Perfect Website: www.ricardo.com (http://www.ricardo.com/)
SEC Newgate Tel: 020 7680 6882
Elisabeth Cowell / Ian Silvera E-mail: ricardo@secnewgate.co.uk
Disclaimer statement
This press release contains certain statements that are forward-looking. They
appear in a number of places throughout this press release and include
statements regarding the intentions, beliefs and/or current expectations of
Ricardo plc (the "Company").
By their nature, these statements involve uncertainty since future events and
circumstances can cause results and developments to differ materially from
those anticipated. The forward-looking statements reflect knowledge and
information available at the date of preparation of this presentation and,
unless otherwise required by applicable law, the Company undertakes no
obligation to update or revise these forward-looking statements. Nothing in
this press release should be construed as a profit forecast.
The Company and its Directors accept no liability to third parties.
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 9. Underlying measures are considered to
provide a more useful indication of underlying performance and trends over
time.
(2) Underlying earnings from continuing operations also exclude a tax credit
to statutory earnings of £0.9m (HY 2022/23: £0.5m) for the specific
adjusting items described in Note 9.
(3) 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.
(4) Net debt, as set out in Note 14, is defined as current and non-current
borrowings less cash and cash equivalents, including hire purchase agreements,
but excluding any impact of IFRS 16 lease liabilities. 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.
(5) Headcount is calculated as the number of employees at the reporting date
and includes subcontractors on a full-time equivalent basis.
(6) 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. See also Note 4.
(7) The Company believes Underlying profit before tax market consensus to be
£30.5m.
Trading summary
Ricardo has continued to execute the delivery of its strategic ambition in the
six months to 31 December 2023 (the period). The Group secured £314.3m of
new orders from continuing operations, up 7% on the prior period and 37% on
the six months to 30 June 2023 with growth of 10% and 39% respectively on a
constant currency basis. The order book at 31 December 2023 was £477m,
compared to £395m at 30 June 2023 and £414m at 31 December 2022.
Revenue from continuing operations was £224.2m, an increase of 5% (9% on a
constant-currency basis) on the prior period (HY 2022/23 £212.7m, £206.1m at
constant currency). Underlying operating profit from continuing operations was
£12.0m (HY 2022/23: £12.5m, £12m at constant currency), flat on the prior
period at constant currency. Underlying profit before tax from continuing
operations was £7.9m (HY 2022/23: £9.9m, £9.3m at constant currency).
EE, Rail and Defense delivered good growth and margin accretion in the first
half, while in A&I, performance was lower than expected, due to timing
delays in customer orders. As expected, Performance Products (PP) was impacted
by lower volumes on the McLaren programme.
Ricardo has accelerated its transformation to transition the business in line
with its strategic ambition to deliver improved performance. Actions taken
include ratifying our A&I services portfolio and building a more flexible
resourcing model to increase our resilience to order fluctuations. Across the
business, we are centralising our enabling functions and rightsizing our
operations, so as to improve customer delivery and ease of doing business. The
results of these actions ensure that we are able to underpin the Group's
performance in the near to medium term.
Reported operating profit from continuing operations, after taking specific
adjusting items into consideration, was £2.0m (HY 2022/23: loss £9.9m) and
the reported loss before tax from continuing operations was £2.1m (HY
2022/23: loss £12.5m). HY 2023/24 reported operating profit and loss before
tax included £6.5m of earn out costs arising from acquisitions in prior years
due to achievement of acquisition performance targets, £2.5m non-cash
amortisation of acquired intangible assets, £0.6m reorganisation costs and
£0.3m ERP implementation costs. HY 2022/23 reported operating profit and
profit before tax included £18.3m of largely non-cash charges for the
impairment of goodwill and other assets, including decommissioning costs, in
the Automotive and Industrial Established Mobility (A&I Established)
operating segment, stemming from a downturn in performance in this segment.
Restructuring charges totalling £0.7m were booked in A&I Established and
Rail. In addition, £2.0m of amortisation on acquired intangibles and £1.4m
of acquisition related expenditure were booked in the period. This was
partially offset by a £7.5m gain on the disposal of Ricardo Software.
With increased focus on working capital our cash performance improved
delivering underlying cash conversion of 130% compared with 97% in the six
months to 31 December 2022. Reported cash conversion was 181%, after taking
into account the cash impact of specific adjusting items.
At 31 December 2023, net debt was £63.3m compared to £62.1m at 30 June 2023
with additional payments relating to previous acquisitions and prior year
restructuring being funded by improved cash conversion. As we look forward to
H2, we expect net debt to remain broadly in line with the December 2023 level.
Headline trading performance
Underlying((1)) Reported
External revenue Operating profit Profit before tax Operating profit/loss Loss before tax
£m £m £m £m £m
HY 2023/24
Continuing operations (a) 224.2 12.0 7.9 2.0 (2.1)
Less: performance of acquisitions (6.4) (1.7) (1.7) 5.7 5.7
Continuing operations - organic (b) 217.8 10.3 6.2 7.7 3.6
HY 2022/23
Total 213.5 13.0 10.4 (1.9) (4.5)
Less: discontinued operation (0.8) (0.5) (0.5) (8.0) (8.0)
Continuing operations (a) 212.7 12.5 9.9 (9.9) (12.5)
Less: performance of acquisitions (2.0) (0.5) (0.5) (0.4) (0.4)
Continuing operations - organic (b) 210.7 12.0 9.4 (10.3) (12.9)
Continuing operations at current year exchange rates 206.1 12.0 9.3 (10.1) (12.8)
Growth (%) - Total 5 (8) (24) 205 53
Growth (%) - Continuing operations 5 (4) (20) 120 83
Growth (%) - Continuing organic 3 (14) (34) 175 128
Constant currency growth((6)) (%) - Continuing operations 9 - (15) 120 84
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 6).
(b) Organic growth excludes the current year performance of prior year
acquisitions from results of HY 2023/24.
HY 2023/24 includes the results of E3 - Modelling S.A. (E3M) and Aither Pty
Ltd (Aither), which were acquired on 24 January 2023 and 10 March 2023
respectively. E3M contributed £2.6m of revenue, £1.2m of underlying
operating profit and £1.2m of underlying profit before tax. Aither
contributed £3.8m of revenue, £0.5m of underlying operating profit and
£0.5m of underlying profit before tax.
The reported operating profit and profit before tax from the discontinued
operation of £8.0m in the prior period includes the £7.5m gain recognised on
its sale.
Operating segments summary: Order intake and revenue
HY 2022/23 HY 2022/23
HY 2023/24 Reported (*restated) At constant currency((6))
Order intake Revenue Order intake Revenue Order intake Revenue
£m £m £m £m £m £m
EE 63.0 50.9 57.4 38.2 56.7 37.7
Rail 53.2 38.1 44.8 36.1 43.1 34.6
Automotive and Industrial - Emerging 30.4 29.5 49.0 43.9 47.8 42.5
Environmental & Energy Transition 146.6 118.5 151.2 118.2 147.6 114.8
Defense 113.7 56.6 46.4 41.0 43.6 38.4
PP 41.9 38.2 77.0 38.5 77.0 38.5
Automotive and Industrial - Established 12.1 10.9 18.2 15.0 17.8 14.4
Established Mobility 167.7 105.7 141.6 94.5 138.4 91.3
Total - continuing operations 314.3 224.2 292.8 212.7 286.0 206.1
Discontinued operation - - 0.5 0.8 0.5 0.8
Total 314.3 224.2 293.3 213.5 286.5 206.9
* Subsequent to the 2022/23 interim reporting, a detailed review of project
mapping between each of the business segments was performed resulting in
reallocation of projects between A&I Emerging and A&I Established for
the 2023/24 reporting. To be consistent with those mappings, the 2022/23
comparatives have been restated to reduce A&I Emerging Order intake by
£1.7m and increase A&I Established Order intake by £1.7m.
Operating segments summary: Underlying operating profit
HY 2022/23 HY 2022/23
HY 2023/24 Reported (*restated) At constant currency((6))
Underlying((1)) operating profit Underlying((1)) operating profit Underlying((1)) operating profit Underlying((1)) operating profit Underlying((1)) operating profit Underlying((1)) operating profit
£m margin % £m margin % £m margin %
EE 8.8 17.3 6.4 16.8 6.3 16.7
Rail 4.1 10.8 3.6 10.0 3.5 10.1
Automotive and Industrial - Emerging (1.5) (5.1) 4.7 10.7 4.7 11.1
Environmental & Energy Transition 11.4 9.6 14.7 12.4 14.5 12.6
Defense 10.9 19.3 5.7 13.9 5.4 14.1
PP 2.0 5.2 3.6 9.4 3.6 9.4
Automotive and Industrial - Established (3.5) (32.1) (2.9) (19.3) (2.9) (20.1)
Established Mobility 9.4 8.9 6.4 6.8 6.1 6.7
Operating segments - continuing operations 20.8 9.3 21.1 9.9 20.6 10.0
Plc costs (8.8) - (8.6) - (8.6) -
Total - continuing operations 12.0 5.4 12.5 5.9 12.0 5.8
Discontinued operation - - 0.5 62.5 0.4 50.0
Total 12.0 5.4 13.0 6.1 12.4 6.0
* Subsequent to the 2022/23 interim reporting, a detailed review of project
mapping between each of the business segments was performed resulting in
reallocation of projects between A&I Emerging and A&I Established for
the 2023/24 reporting. To be consistent with those mappings, the 2022/23
comparatives have been restated to reduce A&I Emerging Underlying
operating profit by £1.9m and increase A&I Established Underlying
operating profit by £1.9m.
Environmental and Energy Transition portfolio - strong performance in EE and
Rail, but overall performance impacted by delayed orders in A&I
· Order intake: £146.6m (HY 2022/23: £151.2m) down 3.0%
(constant-currency: £147.6m down 0.7%)
· Revenue: £118.5m (HY 2022/23: £118.2m) flat (constant currency:
£114.8m up 3.2%)
· Underlying operating profit: £11.4m (HY 2022/23 £14.7m) down 22.4%
(constant currency: £14.5m down 21.4%)
· Underlying operating profit margin: 9.6% (HY 2022/23: 12.6% at
constant-currency)
· Energy & Environment (EE) delivered good overall order, revenue
and profit growth and margin accretion. Growth was accelerated by strong
performances in E3 Modelling (E3M) and Aither since they were acquired in the
second half of FY 22/23. Organic revenue growth of 18% was driven by strong
demand for our offerings in Policy, Strategy & Economics and Air Quality
& Environment teams.
· Rail has delivered strong growth in order intake, revenue and profit,
with particularly strong growth in Asia and Australia on the back of some
significant project wins, combined with continuing expansion in North America.
· In A&I Emerging, order intake, revenue and profits fell during
the period largely due to delayed customer orders. Following a change in
leadership and a greater focus on key customers and focused portfolio, we are
seeing improved sales activity and stronger growth in the second quarter of
FY2023/24. This, coupled with accelerating our transition to increase our
flexible resource pool, is providing confidence in an improved performance and
return to profit in the second half.
Established Mobility portfolio - underpinned by significant growth in Defense
· Order intake: £167.7m (HY 2022/23: £141.6m) up 18.4% (constant
currency: £138.4m up 21.1%)
· Revenue: £105.7m (HY 2022/23: £94.5m) up 11.9% (constant currency:
£91.3m up 15.8%)
· Underlying operating profit: £9.4m (HY 2022/23: £6.4m) up 46.9%
(constant currency: £6.1m up 54.1%)
· Underlying operating profit margin: 8.9% (HY 2022/23: 6.7% at
constant-currency)
Defense performed very strongly in the period, with significant growth in
order intake, revenue and underlying operating profit and improved margins.
Defense received £80.5m (USD105.4m) of orders for the Anti-lock braking
systems/electronic stability control (ABS/ESC) retrofit programme in the
period. Together with new vehicle kits, Defense delivered 6,130 kits in HY
2023/24 (HY 2022/23: 3,956 kits). In addition, there was good growth (50%) in
the Technical Solutions consultancy business, including Field Support Services
(the sustainment of ABS/ESC kits in the field).
Performance Products (PP) won £41.9m of orders in HY 2023/24. As anticipated,
Performance Products (PP) revenue declined due to lower volumes on the McLaren
programme.
Due to timing delays, orders in Established A&I were lower than expected,
driving a reduction in performance. There is continued demand for A&I
Established services in marine, defense, heavy duty vehicles and passenger car
markets globally to meet changing legislation and emissions compliance
requirements. Performance is expected to improve in H2 on the back of this
demand which delivered improved order intake in Q2 and a strengthening
pipeline.
Cash performance - strong cash conversion
· Net debt: £63.3m (HY 2022/23: £31.4m), and increase of 1.9%, £1.2m
compared to FY22/23.
The Group had a net cash outflow for the period of £1.2m. A cash inflow of
£2.5m before acquisition and restructuring costs broadly financed payment of
£1.8m Earn-out costs for businesses acquired in the prior year, £0.9m
reorganisation costs, £0.2m ERP implementation costs and £0.8m other
acquisition related expenditure. An increased focus on working capital in the
period generated an underlying cash from operations of £24.9m (FY 2022/23:
£19.9m). Underlying cash conversion was strong at 130% increased from 97%.
The composition of net debt is defined in Note 14.
Specific adjusting items
As set out in more detail in Note 9, the Group's total underlying profit
before tax excludes £10.0m of costs incurred during the period that have been
charged to the income statement as specific adjusting items (HY 2022/23:
£22.4m). In line with the Group's policy, these items have been recognised as
specific adjusting items, due to their nature or significance of their amount,
to provide further clarity over the financial performance.
HY 2023/24 HY 2022/23
£m £m
Underlying((1)) profit before tax from continuing operations 7.9 9.9
Amortisation of acquired intangibles (2.5) (2.0)
Acquisition-related expenditure (6.6) (1.4)
Restructuring costs
- A&I: asset impairment and decommissioning - (18.3)
- Other reorganisation costs (0.6) (0.7)
ERP implementation costs (0.3) -
Total specific adjusting items from continuing operations (10.0) (22.4)
Reported loss before tax from continuing operations (2.1) (12.5)
SAI recorded in discontinued operation
Disposal of discontinued operation - 7.5
References in superscript are defined in the glossary of terms.
Amortisation of acquired intangibles was £2.5m in the period, compared to
£2.0m in HY 2022/23. The current period charge includes £0.9m in relation to
the acquisition of Ricardo Rail Australia Pty Ltd, £0.6m in relation to the
acquisition of E3-Modelling SA, £0.4m each in relation to the acquisition of
Aither Pty Ltd and Ricardo Nederland BV respectively and £0.2m in relation to
the amortisation of customer relationships acquired as part of the Inside
Infrastructure acquisition.
Acquisition-related costs of £6.6m were incurred in the period (HY 2022/23:
£1.4m). These costs include £0.1m strategic projects, £6.2m earn out and
retention costs and £0.3m integration costs relating to the acquisitions of
Inside Infrastructure, E3M and Aither. Costs in the prior period reflected an
accrual of £0.2m for deferred consideration in relation to the acquisition of
Inside Infrastructure (acquired in March 2022), together with £0.2m of
post-deal integration costs, £0.1m of external fees paid in respect of the
acquisition of E3 Modelling S.A. (E3M) and £0.9m of external fees in relation
to other M&A and strategic projects.
Restructuring costs of £0.6m were incurred in the period (HY 2022/23:
£19.0m). In the current period, £0.4m of costs have been recognised in
relation to restructuring of the A&I Established business. Impairment
costs of £17.7m were recognised in the prior period within the A&I
Emerging operating segment. Further details are presented in note 9.
Research and Development (R&D) and capital investment
The Group continues to invest in R&D and spent £6.9m (HY 2022/23: £5.9m)
before government grant income of £1.2m (HY 2022/23: £2.2m). Development
costs capitalised in this period were £3.1m (HY 2022/23: £1.9m), reflecting
continued investment in digital advancement across the business.
Capital expenditure on property, plant and equipment, excluding right-of-use
assets, was £1.6m (HY 2022/23: £2.4m), reflecting targeted investment in our
business operations, including hydrogen and electrical test capability in the
A&I Emerging segment.
Net finance costs
Finance income was £0.7m (HY 2022/23: £0.5m) and finance costs were £4.8m
(HY 2022/23: £3.1m) for the period, giving net finance costs of £4.1m (HY
2022/23: £2.6m). The increase in costs reflects an increase in the SONIA
interest rate during the current period and increased borrowings in H2 FY
2022/23 following the acquisitions of E3M and Aither.
Taxation
The underlying effective tax rate is 26.7% for the period (HY 2022/23: 26.0%).
The reported effective tax rate for the half year is negative 55.65% (HY
2022/23: negative 80%). The reported tax rate at H1 is impacted by the profile
and composition of specific adjusting items and underlying profits which
results in a negative effective tax rate, similar to the impact of the
impairment charge in the previous period. The FY2023/24 full year forecasted
reported effective tax rate is 44.5% (HY 2022/23: 27.5%).
Earnings per share
Basic loss per share was 5.5p (HY 2022/23: loss 13.2p). The Directors consider
that underlying earnings per share provides a more useful indication of
underlying performance and trends over time. Underlying basic earnings per
share for the period was 9.2p (HY 2022/23: 12.2p), the reduction being mainly
due to increased net finance costs. 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 10.
Dividend
As set out in more detail in Note 11, the Board has declared an interim
dividend of 3.8p per share (HY 2022/23: 3.35p). The dividend will be paid
gross on 11 April 2024 to holders of ordinary shares on the Company's register
of members on 15 March 2024.
Banking facilities
Net debt at 31 December 2023 comprised cash and cash equivalents of £46.7m,
and borrowing and overdrafts, including hire purchase liabilities and net of
capitalised debt issuance costs, of £110.0m.
The Group funds its operations via a Revolving Credit Facility (RCF) of
£150m, which provides committed funding through to August 2026, alongside the
Group's uncommitted overdraft facilities of £16m and with a £50m uncommitted
accordion on the RCF. At 31 December 2023, the amount undrawn on the RCF was
£46.0m. This, together with the cash held of £46.7m, and £5.6m of
unutilised overdraft facilities, provided the Group with total cash and
liquidity of £102.7m.
The Group's Adjusted Leverage ratio (defined as net debt over EBITDA for the
last twelve months, excluding the impact of specific adjusting items and IFRS
16 Leases) was 1.5x as at 31 December 2023. The Adjusted Leverage covenant is
a maximum of 3.0x.
The Interest Cover ratio (defined as EBITDA for the last twelve months,
excluding the impact of specific adjusting items and IFRS 16, over net finance
costs), was 6.1x at 31 December 2023. The Interest Cover covenant limit is a
minimum of 4.0x.
Further details are provided in Note 14.
Foreign exchange
On consolidation, revenue and costs are translated at the average exchange
rates for the period. 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. Compared to the
prior period, the average value of the Pound Sterling strengthened by 6%
against the US Dollar, 2% against the Euro, 5% against the Australian Dollar
and weakened by 3% against the Chinese Renminbi. Had the prior period results
been translated at current period exchange rates, revenue from continuing
operations would have been £6.6m (3%) lower, underlying operating profit
would have been £0.5m (4%) lower and underlying profit before tax would have
been £0.6m (7%) lower.
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 period was £111.4m (FY
2022/23: £104.6m) and the present value of the scheme's obligations was
£96.8m (FY 2022/23: £92.0m). The value of the scheme's assets increased over
the period as a result of stock market performance. However, this was
partially offset by an increase in the scheme's liabilities, due to a decrease
in the discount rate. The pre-tax surplus, measured in accordance with IAS 19,
at 31 December 2023 was £14.7m (FY 2022/23: £12.6m). Ricardo paid £0.8m of
cash contributions into the scheme during the period (HY 2022/23: £0.9m).
Group Outlook
The Board remains confident of delivering full year market consensus,
underpinned by our strong order intake in the second quarter of H1, increased
pipeline visibility for the second half of the year and improved profitability
from accelerating our operating model transformation.
Our EE and Rail businesses continue to see strong growth in operating
performance with an expected stronger second half, driven by an increasing
order book with sustained demand across all segments.
We expect to see a recovery in Performance Products driven by improving
volumes in engine orders from McLaren and in Defense, we expect the strong
growth to continue with the advancement of the ABS program.
Following a change in leadership and a greater focus on key customers we are
seeing improved sales activity and stronger growth in the last quarter in
A&I. This, coupled with streamlining our organisation to support the
future business mix in A&I, is providing confidence in a recovery in the
second half.
With growth weighted across all our key end markets in the second half,
accelerated by the transformation actions in right sizing our enabling
functions and implementing our operating model, we expect to deliver improved
operating margins in H2 FY2023/24.
By order of the Board:
Graham Ritchie
Judith Cottrell
Chief Executive Officer
Chief
Financial Officer
5 March 2024
Environmental and Energy Transition Portfolio
ENERGY & ENVIRONMENT (EE)
Energy and Environment (EE) works with clients across a wide variety of
sectors and geographies to provide solutions for their major energy and
environmental challenges. EE has a broad range of environmental skills, plus a
strong energy and carbon capability to support the energy transition.
Financial and operational highlights
Historical rates Constant currency((6))
HY 2023/24 HY 2022/23 Change HY 2022/23 Change
£m £m % £m %
Order intake (£m) 63.0 57.4 9.8 56.7 11.1
Order book (£m) 99.3 74.6 33.1 74.4 33.5
Revenue (£m) 50.9 38.2 33.2 37.7 35.0
Underlying((1)) operating profit (£m) 8.8 6.4 37.5 6.3 39.7
Underlying((1)) operating profit margin (%) 17.3 16.8 0.5pp 16.7 0.6pp
Headcount((5)) (no.) 1,017 800 27.1 800 27.1
References in superscript are defined in the glossary of terms above.
Performance
Headline order intake in EE in HY 2023/24 was £63.0m, 11.1% up on the prior
period on a constant currency basis. HY 2023/24 order intake includes £5.4m
from Aither and E3 Modelling (E3M), which were both acquired in the second
half of FY 2022/23. Organic order intake, excluding the acquisitions, was
£57.6m, 2.0% up on the prior period on a constant currency basis. The organic
order intake included securing renewals and new large-scale policy contracts
with the European Commission and other international governments, delivering
substantial growth in our Policy, Strategy & Economics practice. We also
secured significant long-term contracts in Air Quality and Environment in the
Middle East in the period. At 31 December 2023, the order book was £99.3m, up
33.5% on the prior period on a constant currency basis.
Alongside the strong order intake, we delivered good revenue growth in the
period, driven by the Policy, Strategy & Economics and Air Quality &
Environment practices. This is combined with strong performances in Aither and
E3M, which have both performed in line with our growth expectations since
acquisition. Headline revenue growth was 35.0% on a constant currency basis.
Organic revenue increased by 18.0% on a constant currency basis. Aither and
E3M generated £6.4m of combined revenue in the period.
Underlying operating profit increased by £2.5m on a constant currency basis
compared to the prior period. Organic underlying operating profit increased by
£0.8m (13.0%), with organic underlying operating profit margin reducing from
16.7% to 16.0%. Growth in organic underlying operating profit did not match
the growth in revenue as targeted investments were made in headcount to drive
growth in key markets, particularly in the high-demand areas noted above. In
Policy, Strategy & Economics, we are investing in Europe and expanding in
our key emerging markets across the Middle East and North America. We are also
making investments in our digital offerings where we see opportunities for
transformational growth, complemented by the E3M acquisition. Aither and E3M
contributed £1.7m of underlying operating profit in the period at an
underlying operating profit margin of 27%, enhanced by high margins in E3M.
Since the acquisition of Aither and E3M, we have been able to utilise the
additional expertise to support engagement of existing customers and
identification of new opportunities. Our global water capabilities (which
includes Aither) have been combined into a new practice area and seen new
secured orders with customers in the Middle East and Asia Pacific regions. In
addition, our expanded energy modelling capabilities, through E3M, have
enabled us to offer new services to both our energy decarbonisation and
sustainable transport customers, which includes integrating these services
into supporting governments with national energy decarbonisations plans.
RAIL
Built on a unique foundation of strategic consultancy, complex engineering and
safety assurance, we address critical challenges across every aspect of the
rail industry.
Financial and operational highlights
Historical rates Constant currency((6))
HY 2023/24 HY 2022/23 Change HY 2022/23 Change
£m £m % £m %
Order intake (£m) 53.2 44.8 18.8 43.1 23.4
Order book (£m) 122.2 114.0 7.2 109.0 12.1
Revenue (£m) 38.1 36.1 5.5 34.6 10.1
Underlying((1)) operating profit (£m) 4.1 3.6 13.9 3.5 17.1
Underlying((1)) operating profit margin (%) 10.8 10.0 0.8pp 10.1 0.7pp
Headcount((5)) (no.) 539 533 1.1 533 1.1
References in superscript are defined in the glossary of terms above.
Performance
The Rail results reflect a positive half for the business in HY 2023/24 and
are a continuation of the positive growth delivered in the second half of FY
2022/23. Order intake was strong at £53.2m, up 23.4% on the prior period on a
constant currency basis. As at 31 December 2023, the order book was £122.2m,
an increase of 12.1% over the prior period, on a constant-currency basis.
Growth was delivered across all key geographies. There were significant wins
in Asia as a result of continuing partnership with contractors and suppliers
to the global rail industry. There was also strong growth in Australia, on the
back of Ricardo's work on the Cross River Rail project, a capacity expanding
project in Brisbane in anticipation of the 2032 Olympics. This reflects
positive returns on the investment in business development capability made in
the previous year.
There was continued growth in North America, leveraging key strategic customer
relationships that have been built over the past twelve months, particularly
in Canada, providing credible experience from which to develop new customer
relationships in across the North America region.
In the Middle East, some large long-term contracts were successfully
completed, and we are continuing with investment in regional business
development to build and deliver on our strong sales pipeline.
In the UK and Europe, we successfully grew our partnership with Irish Rail and
we continue to work closely with our long-term national-level rail
infrastructure partner, NS, in the Netherlands.
Revenue was £38.1m, up 10% on the prior period, on a constant-currency basis,
which was as a result of the strong order book secured at the end of the last
financial year. Revenue increased across all our established regions.
With increased revenue driving operational leverage, underlying operating
profit increased by £0.6m or 17.1% on a constant currency basis, with
underlying operating profit margins increasing to 10.8%.
AUTOMOTIVE AND INDUSTRIAL - EMERGING MOBILITY (A&I EMERGING)
Automotive and Industrial Emerging is a trusted engineering partner for the
next generation of mobility. A&I Emerging leverages its expertise in power
electronics and future propulsion systems, software and digital technologies
for connected vehicles and sustainable mobility solutions.
Financial and operational highlights
Historical rates *restated Constant currency((6))
HY 2023/24 HY 2022/23 Change HY 2022/23 Change
£m £m % £m %
Order intake (£m) 30.4 49.0 (38.0) 47.8 (36.4)
Order book (£m) 52.8 62.1 (15.0) 60.5 (12.7)
Revenue (£m) 29.5 43.9 (32.8) 42.5 (30.6)
Underlying((1)) operating profit (£m) (1.5) 4.7 (131.9) 4.7 (131.9)
Underlying((1)) operating profit margin (%) (5.1) 10.7 (15.8pp) 11.1 (16.2pp)
Headcount((5)) (no.) 525 543 (3.3) 543 (3.3)
References in superscript are defined in the glossary of terms above.
* Subsequent to the 2022/23 interim reporting, a detailed review of project
mapping between each of the business segments was performed resulting in
reallocation of projects between A&I Emerging and A&I Established for
the 2023/24 reporting. To be consistent with those mappings, the 2022/23
comparatives have been restated with order intake reduced in A&I Emerging
by £1.7m and increased for A&I Established by £1.7m; Underlying
operating profit has been restated to reduce A&I Emerging by £1.9m and
increase A&I Established by £1.9m.
Performance
In HY 2023/24, A&I Emerging order intake was £30.4m, a decline of 36.4%
on a constant-currency basis due to delays in customer orders. The prior
period order intake included large wins in hydrogen. As indicated at the year
end, our Emerging A&I business is operating across diversified markets of
marine, aviation, heavy duty vehicles, industrial and passenger cars with new
entrants and evolving customer needs resulting in short-term fluctuations in
order intake but we remain confident in the long-term growth potential.
Revenue dropped by £13.0m (30.6%) on a constant-currency basis, as a result
of lower order intake.
Consequently, HY 2023/24 saw a £6.2m decline in underlying operating profit,
on a constant-currency basis (from a £4.7m profit in the previous period).
The underlying operating profit margin was negative 5.1% in HY 2023/24,
compared to a positive 11.1% in the prior period, on a constant-currency
basis.
The business has refocused on core markets, aligned with defined growth
solutions to meet market demand in electrification, fuel cells, sustainable
fuels and hybrid technologies. Organisation changes started at the end of the
second quarter with its refreshed leadership and will continue in the third
quarter. Key measures were taken to control the direct cost base, accelerating
our transition to a flexible resource model and a rationalisation of key
sites, enabling the business to better manage order fluctuations. As a result,
A&I Emerging should deliver improved order intake and profitability in H2
2023/24.
Established Mobility Portfolio
DEFENSE
Defense has gained significant insights into the needs of armed forces and
provides solutions to meet the challenges our clients face in the integration
of logistics and field support for complex and diverse systems.
Financial and operational highlights
Historical rates Constant currency((6))
HY 2023/24 HY 2022/23 Change HY 2022/23 Change
£m £m % £m %
Order intake (£m) 113.7 46.4 145.0 43.6 160.8
Order book (£m) 91.3 46.7 95.5 44.1 107.0
Revenue (£m) 56.6 41.0 38.0 38.4 47.4
Underlying((1)) operating profit (£m) 10.9 5.7 91.2 5.4 101.9
Underlying((1)) operating profit margin (%) 19.3 13.9 5.4pp 14.1 5.2pp
Headcount((5)) (no.) 233 208 12.0 208 12.0
References in superscript are defined in the glossary of terms above.
Performance
Defense's order intake grew significantly by £70.1m (160.8%) on a
constant-currency basis in HY 2023/24, driven by £80.5m (USD105.4m) of orders
for the Antilock Brake System/Electronic Stability Control (ABS/ESC) kits,
which improve the safety of operation of the US Army's High Mobility
Multi-purpose Wheeled Vehicle (HMMWV) fleet.
Revenue increased by 47.4% on a constant-currency basis. Revenue growth was
driven by increased ABS/ESC volumes - in total, we delivered 6,130 ABS/ESC
kits in HY 2023/24, a record six-months for this programme, compared to 3,956
in the previous period, which included both retrofit kits and kits for new
production vehicles. In addition, revenue from our Services businesses
continues to be strong. Field Support Solutions, anchored by the ABS
installation programme, grew 50.0% from the prior period and has expanded into
support of test and fielding of the Infantry Squad Vehicle (ISV).
Underlying operating profit was £10.9m, an increase of 101.9% on a
constant-currency basis. Underlying operating-profit margin increased 5.2ppt,
to 19.3%, due to achieving economies of scale in ABS/ESC volume and control of
indirect spend.
Defense continues to produce its ABS/ESC system, which integrates a complete
set of solutions to the architecture of the vehicles, thereby ensuring the
safety of both soldiers and operators during critical missions. Additionally,
we are focusing on the development of software that improves energy usage and
fuel management in near real time for the US Department of Defense's
decarbonisation strategy. Furthermore, Defense has applied its existing
software IP to impact climate strategy and strategy integration across the
digital engineering ecosystem.
PERFORMANCE PRODUCTS (PP)
Performance Products (PP) is responsible for the manufacture and assembly of
niche high-quality products, including engines, transmissions, electric
reduction drives and other performance-critical driveline and powertrain
products.
Financial and operational highlights
Historical rates Constant currency((6))
HY 2023/24 HY 2022/23 Change HY 2022/23 Change
£m £m % £m %
Order intake (£m) 41.9 77.0 (45.6) 77.0 (45.6)
Order book (£m) 84.3 89.4 (5.7) 89.4 (5.7)
Revenue (£m) 38.2 38.5 (0.8) 38.5 (0.8)
Underlying((1)) operating profit (£m) 2.0 3.6 (44.4) 3.6 (44.4)
Underlying((1)) operating profit margin (%) 5.2 9.4 (4.2pp) 9.4 (4.2pp)
Headcount((5)) (no.) 347 341 1.8 341 1.8
References in superscript are defined in the glossary of terms above.
Performance
Order intake in HY2023/24 was £41.9m, a reduction of 45.6%. The HY2022/23
order intake included a multi-year contract extension from Bugatti as well as
a new multi-year transmission supply programme to Singer, the California-based
luxury specialist. Excluding these orders, underlying orders are up around
13.0%.
Completing the development, testing and validation activities for this new
programme with Singer has been the key focus of the transmission operation in
the first half of FY2023/24, with series production ramp up planned for the
second half.
Revenue from continuing operations in HY2023/24 was £38.2m, broadly flat on
the prior period. As expected, McLaren engine volumes were lower compared to
the prior period due to quality issues at McLaren, but with a greater
proportion of the new hybrid V6 Artura. Transmission volumes and revenue were
below the prior period due to the timing of customer demand, which is more
heavily weighted towards the second half, and the impact of production
preparations for the Singer programme.
Underlying operating profit was £2.0m, a reduction of 44.4% compared to the
prior period, due to the lower McLaren engine volumes, mix of transmissions
sold and inflationary pressures on input and operating costs. Underlying
operating profit margin was 5.2%, compared to 9.4% in the prior period.
We are continuing to develop our portfolio of existing powertrain (engine) and
drivetrain (transmission) products during the year as well as new projects in
zero-emission propulsion, including electric drive units, industrial
engineering services focussed around niche volume production and concept work
around battery systems and electric machines.
AUTOMOTIVE AND INDUSTRIAL - ESTABLISHED MOBILITY (A&I ESTABLISHED)
With over a century of propulsion design and development, A&I Established
deploys innovative simulation, model and test-based approaches to increase
product efficiency and robustness, whilst reducing development cost and time
for our global clients.
Financial and operational highlights
Historical rates *restated Constant currency((6))
HY 2023/24 HY 2022/23 Change HY 2022/23 Change
£m £m % £m %
Order intake (£m) 12.1 18.2 (33.5) 17.8 (32.0)
Order book (£m) 27.3 27.6 (1.1) 26.9 1.5
Revenue (£m) 10.9 15.0 (27.3) 14.4 (24.3)
Underlying((1)) operating loss (£m) (3.5) (2.9) 20.7 (2.9) 20.7
Underlying((1)) operating profit margin (%) (32.1) (19.3) (12.8pp) (20.1) (12.0pp)
Headcount((5)) (no.) 242 378 (36.0) 378 (36.0)
References in superscript are defined in the glossary of terms above.
* Subsequent to the 2022/23 interim reporting, a detailed review of project
mapping between each of the business segments was performed resulting in
reallocation of projects between A&I Emerging and A&I Established for
the 2023/24 reporting. To be consistent with those mappings, the 2022/23
comparatives have been restated with order intake reduced in A&I Emerging
by £1.7m and increased for A&I Established by £1.7m; Underlying
operating profit has been restated to reduce A&I Emerging by £1.9m and
increase A&I Established by £1.9m.
Performance
A&I Established has faced customer delays in orders, with order intake at
£12.1m, a contraction of 32% on a constant currency basis. Order intake and
revenue improved in Q2 with strong successes in high-efficiency internal
combustion engine (ICE) and tests solutions. This trend is expected to
continue in H2.
Revenue declined by 24% in HY 2023/24, on a constant-currency basis. The
decline in revenue reflected lower demand in the period for traditional ICE
and calibration work as market demand shifts towards decarbonised propulsion
technologies.
Order intake and revenue improved in Q2 with strong successes in
high-efficiency internal combustion engine (ICE) and tests solutions. This
trend is expected to continue in H2.
Despite revenue reducing by £3.5m, underlying operating loss only increased
by £0.6m from £2.9m in HY 2022/23 to £3.5m in HY 2023/24 due to cost
actions taken in H2 2022/23. The underlying operating margin was negative
32.1% in HY 2023/24, compared to negative 20.1% in the prior period, on a
constant-currency basis. The reduction in profitability reflected the decline
in revenue and overcapacity in the engineering workforce.
Key actions taken in H1 include headcount reductions from organisation changes
in the leadership team and focus on building a stronger flexible resource
model, which is planned to continue into H2. There is continued demand for
A&I Established services in marine, defence, heavy duty vehicles and
passenger car markets globally to meet changing legislation and emissions
compliance requirements as mobility transitions to electrified and alternative
fuels. This will deliver improved performance in H2.
Condensed interim financial statements
Condensed consolidated income statement
for the six months ended 31 December (unaudited)
2023 2022
Underlying Specific adjusting Total Underlying Specific adjusting Total
items(*)
items(*)
Note £m £m £m £m £m £m
Continuing operations
Revenue 8 224.2 - 224.2 212.7 - 212.7
Cost of sales (163.7) - (163.7) (152.6) - (152.6)
Gross profit 60.5 - 60.5 60.1 - 60.1
Administrative expenses (48.9) (10.0) (58.9) (47.9) (22.4) (70.3)
Other income 0.4 - 0.4 0.3 - 0.3
Operating profit/(loss) 12.0 (10.0) 2.0 12.5 (22.4) (9.9)
Finance income 0.7 - 0.7 0.5 - 0.5
Finance costs (4.8) - (4.8) (3.1) - (3.1)
Net finance costs (4.1) - (4.1) (2.6) - (2.6)
Profit/(loss) before taxation 7.9 (10.0) (2.1) 9.9 (22.4) (12.5)
Income tax (expense)/credit (2.1) 0.9 (1.2) (2.6) 0.5 (2.1)
Profit/(loss) from continuing operations 5.8 (9.1) (3.3) 7.3 (21.9) (14.6)
Discontinued operation
Profit from discontinued operation, net of tax - - - 0.4 6.1 6.5
Profit/(loss) for the period 5.8 (9.1) (3.3) 7.7 (15.8) (8.1)
Profit/(loss) attributable to:
Continuing operations
- Owners of the parent 5.7 (9.1) (3.4) 7.2 (21.9) (14.7)
- Non-controlling interests 0.1 - 0.1 0.1 - 0.1
5.8 (9.1) (3.3) 7.3 (21.9) (14.6)
Discontinued operation
- Owners of the parent - - - 0.4 6.1 6.5
Total
- Owners of the parent 5.7 (9.1) (3.4) 7.6 (15.8) (8.2)
- Non-controlling interests 0.1 - 0.1 0.1 - 0.1
5.8 (9.1) (3.3) 7.7 (15.8) (8.1)
The accompanying notes are an integral part of these condensed interim
financial statements.
Condensed interim financial statements
Condensed consolidated income statement (continued)
for the six months ended 31 December (unaudited)
2023 2022
Earnings per share - basic and diluted (Note 10) pence pence
Loss per share (5.5) (13.2)
Underlying earnings per share 9.2 12.2
Loss per share from continuing operations (5.3) (23.6)
Earnings per share from discontinued operation - 10.5
* 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 4 and Note 9.
Condensed consolidated statement of comprehensive income
for the six months ended 31 December (unaudited)
2023 2022
Note £m £m
Loss for the year (3.3) (8.1)
Other comprehensive income/(expense)
Items that will not be reclassified to profit or loss:
Remeasurements of the defined benefit pension scheme 1.0 (3.5)
Deferred tax on remeasurements of the defined benefit pension scheme (0.2) 0.9
Total items that will not be reclassified to profit or loss 0.8 (2.6)
Items that are, or may be, subsequently reclassified to profit or loss:
Currency translation on foreign currency net investments 0.9 0.9
Reclassification of foreign currency differences on disposal of foreign - (0.9)
operation
Movement in fair value of cash flow hedge (0.5) -
Total items that may be subsequently reclassified to profit or loss 0.4 -
Total other comprehensive income/(expense) for the period (net of tax) 1.2 (2.6)
Total comprehensive expense for the period (2.1) (10.7)
Comprehensive expense attributable to:
- Owners of the parent (2.2) (10.8)
- Non-controlling interests 0.1 0.1
(2.1) (10.7)
The accompanying notes are an integral part of these condensed interim
financial statements.
Condensed consolidated statement of financial position
31 December 2023 30 June 2023
Note £m £m
Assets
Non-current assets
Goodwill 13 97.1 96.1
Other intangible assets 13 34.4 35.4
Property, plant and equipment 13 34.6 35.3
Right-of-use assets 19.0 20.7
Retirement benefit surplus 14.7 12.6
Other receivables 2.4 2.4
Deferred tax assets 3.3 8.5
205.5 211.0
Current assets
Inventories 32.9 29.5
Trade, contract and other receivables 140.0 153.5
Derivative financial assets 1.4 2.3
Current tax assets 2.6 2.7
Cash and cash equivalents 14 46.7 49.8
223.6 237.8
Total assets 429.1 448.8
Liabilities
Current liabilities
Borrowings 14 5.6 12.7
Lease liabilities 5.8 5.7
Trade, contract and other payables 99.9 105.0
Current tax liabilities 1.3 2.6
Derivative financial liabilities 1.3 1.0
Provisions 2.3 2.6
116.2 129.6
Net current assets 107.4 108.2
Non-current liabilities
Borrowings 14 104.4 99.2
Lease liabilities 17.5 19.4
Trade, contract and other payables 9.7 4.8
Deferred tax liabilities 8.1 15.5
Provisions 3.9 3.7
143.6 142.6
Total liabilities 259.8 272.2
Net assets 169.3 176.6
Equity
Share capital 15.6 15.6
Share premium 16.8 16.8
Other reserves 37.6 37.2
Retained earnings 98.8 106.6
Equity attributable to owners of the parent 168.8 176.2
Non-controlling interests 0.5 0.4
Total equity 169.3 176.6
The accompanying notes form an integral part of these condensed interim
financial statements.
Condensed consolidated statement of changes in equity
for the six months ended 31 December (unaudited)
Attributable to owners of the parent
Share capital Share premium Other reserves Retained earnings Total Non-controlling interests Total equity
Note £m £m £m £m £m £m £m
At 1 July 2022 15.6 16.8 44.5 120.5 197.4 0.2 197.6
Loss for the period - - - (8.2) (8.2) 0.1 (8.1)
Other comprehensive expense for the period - - - (2.6) (2.6) - (2.6)
Total comprehensive (expense)/income for the period - - - (10.8) (10.8) 0.1 (10.7)
Equity-settled transactions - - - 1.1 1.1 - 1.1
Purchases of own shares to settle awards - - - (0.2) (0.2) - (0.2)
Ordinary share dividends - - - (4.7) (4.7) - (4.7)
At 31 December 2022 15.6 16.8 44.5 105.9 182.8 0.3 183.1
At 1 July 2023 15.6 16.8 37.2 106.6 176.2 0.4 176.6
Loss for the period - - - (3.4) (3.4) 0.1 (3.3)
Other comprehensive income for the period - - 0.4 0.8 1.2 - 1.2
Total comprehensive income/(expense) for the period - - 0.4 (2.6) (2.2) 0.1 (2.1)
Equity-settled transactions - - - 0.7 0.7 - 0.7
Purchases of own shares to settle awards - - - (0.5) (0.5) - (0.5)
Ordinary share dividends - - - (5.4) (5.4) - (5.4)
At 31 December 2023 15.6 16.8 37.6 98.8 168.8 0.5 169.3
The accompanying notes form an integral part of these condensed interim
financial statements.
Condensed consolidated statement of cash flows
for the six months ended 31 December (unaudited)
2023 2022
Note £m £m
Cash flows from operating activities
Loss before taxation (2.1) (4.5)
Adjustments for:
- Share-based payments 0.8 1.0
- Fair value (Gains)/losses on derivative financial instruments (0.2) 0.2
- Gains on disposal of discontinued operation - (7.5)
- Losses on disposal of property, plant and equipment - 0.6
- Net finance costs 4.1 2.6
- Depreciation, amortisation and impairment 9.7 27.2
Defined benefit pension scheme payments in excess of past service costs (0.7) (0.9)
Operating cash flows before movements in working capital 11.6 18.7
Changes in:
- Inventories (3.5) (3.4)
- Trade, contract and other receivables 14.7 (14.4)
- Trade, contract and other payables (1.4) 15.3
- Provisions (0.2) (1.1)
Cash generated from operations 21.2 15.1
Net interest paid (3.9) (3.8)
Income tax paid (5.4) (3.7)
Net cash generated from operating activities 11.9 7.6
Cash flows from investing activities
Purchases of property, plant and equipment (1.7) (2.7)
Proceeds from sale of discontinued operation, net of cash disposed - 13.1
Fees in relation to sale of discontinued operation - (0.8)
Purchases of intangible assets and capitalised development costs (3.6) (2.2)
Net cash (used in)/generated from investing activities (5.3) 7.4
Cash flows from financing activities
Purchases of own shares to settle awards (0.6) (0.2)
Cash inflow/(outflow) from settlement of derivatives 0.7 (4.3)
Principal element of lease payments (2.6) (2.4)
Proceeds from borrowings 57.0 85.0
Repayment of borrowings (52.0) (85.0)
Dividends paid to shareholders (5.4) (4.7)
Net cash used in financing activities (2.9) (11.6)
Effect of exchange rate changes on cash and cash equivalents 0.3 0.1
Net increase in cash and cash equivalents 4.0 3.5
Net cash and cash equivalents at 1 July 37.2 39.4
Net cash and cash equivalents at 31 December 41.2 42.9
At 1 July
Cash and cash equivalents 49.8 49.4
Cash included in disposal group held-for-sale - 1.1
Bank overdrafts (12.6) (11.1)
Net cash and cash equivalents at 1 July 37.2 39.4
At 31 December
Cash and cash equivalents 46.7 52.1
Bank overdrafts (5.5) (9.2)
Net cash and cash equivalents at 31 December 41.2 42.9
The accompanying notes form an integral part of these condensed interim
financial statements.
1. General information
Ricardo plc (the Company), a public company limited by shares, is listed on
the London Stock Exchange and incorporated and domiciled in the United
Kingdom. The address of its registered office is Shoreham Technical Centre,
Shoreham-by-Sea, West Sussex, BN43 5FG, England, United Kingdom, and its
registered number is 222915.
The condensed interim financial statements were approved for issue by the
Board of Directors on 5 March 2024. These condensed interim financial
statements have not been audited, but they have been subject to an independent
review by KPMG LLP (KPMG), whose independent review report is included at the
end of this report.
2. Basis of preparation
These condensed interim financial statements of the Company and its
subsidiaries (together, the Group) for the six months ended 31 December 2023
do not comprise statutory accounts within the meaning of Section 434 of the
Companies Act 2006. They have been prepared in accordance with the Disclosure
Guidance and Transparency Rules of the United Kingdom's Financial Conduct
Authority and IAS 34 Interim Financial Reporting, as adopted for use in the
UK.
These condensed interim financial statements should be read in conjunction
with the financial statements for the year ended 30 June 2023 within the
Annual Report & Accounts 2022/23, which were prepared in accordance with
International Financial Reporting Standards (IFRS), IFRS Interpretations
Committee (IFRS IC) interpretations adopted by the UK and the Companies Act
2006 applicable to companies reporting under IFRS. The Annual Report &
Accounts 2022/23, which was approved by the Board of Directors on 12 September
2023 and delivered to the Registrar of Companies. The report of the auditors
on those statutory accounts was unqualified, did not contain an emphasis of
matter paragraph and did not contain any statement under Section 498 of the
Companies Act 2006.
The accounting policies adopted within this Interim Report are consistent with
the Annual Report & Accounts 2022/23 except for the requirements of IAS 34
Interim Financial Reporting in respect of income tax. Taxes on income in the
interim period are accrued using the tax rate that would be applicable to
expected total annual profit or loss.
The Board of Ricardo plc has undertaken an assessment of the ability of the
Group and Company to continue in operation and meet its liabilities as they
fall due over the period of its assessment. In doing so, the Board considered
events throughout the period of their assessment, including the availability
and maturity profile of the Group's financing facilities and covenant
compliance. These condensed interim financial statements have been prepared on
the going concern basis which the directors consider appropriate for the
reasons set out below. The Group funds its operations through cash generated
and has access to a £150.0m Committed Revolving Credit Facility (RCF) with an
additional uncommitted £50.0m accordion. The facility expires in August 2026
and there are two financial covenants, Interest Cover (defined as EBITDA for
the last twelve months, excluding the impact of specific adjusting items and
IFRS 16 Leases, over net finance costs, excluding IFRS 16 interest), and
Adjusted Leverage Ratio (defined as net debt over EBITDA for the last twelve
months, excluding the impact of specific adjusting items and IFRS 16) both of
which are tested at 30 June and 31 December each year. The threshold for the
Adjusted Leverage Ratio is a maximum of 3.0x for each test date. The threshold
for the Interest Cover is a minimum of 4.0x for each test date.
At the reporting date, the Group had an adjusted leverage of 1.5x and interest
cover was 6.1x. As at the date of approval of these condensed interim
financial statements, the amount of the RCF undrawn and available to the Group
was £46m, with total borrowing, including overdrafts and hire purchase
liabilities, of £110m and cash and cash equivalents of £46.7m.
The Directors have prepared a cash flow forecast which covers at least 12
months from the date of approval of these condensed interim financial
statements. In this forecast, the directors have considered the impact of
known risks on the Group's results, operations and financial position,
including pace of technological change in the mobility and industrial sectors,
driven by climate change, which continues to rapidly shift away from the
traditional internal combustion engine towards more renewable propulsion
methods. A severe but plausible downside scenario has been prepared, which
models the impact of lower gross margins and higher costs across the operating
segments to account for global inflationary pressures, ongoing order
volatility in the A&I operating segment, lower growth rates in higher
performing segments, delays in starting new projects and the removal of new,
as yet unproven, revenue streams. This scenario models the Group's underlying
EBITDA in FY 2023/24 to be broadly flat on FY 2022/23, increasing by 4% in FY
2024/25 and 10% in FY 2025/26. The downside scenario also includes higher net
working capital days over the period. The modelled downside scenario
incorporates some mitigating actions which are within the control of the
Group, such as the appropriate reversal of discretionary bonus payments and
setting appropriate levels of dividends based on the sensitised results of the
operating segments. Although headroom under the Group's banking covenants is
reduced under this downside scenario, the Group (and Company) is expected to
operate within its committed facilities and covenant requirements during the
forecast period.
Consequently, the directors are confident that the Group and Company will have
sufficient funds to continue to meet its liabilities as they fall due for at
least 12 months from the date of approval of the condensed interim financial
statements and therefore have prepared the condensed interim financial
statements on a going concern basis.
3. Seasonality
Based upon management's experience, higher levels of revenue and profit are
expected in the second half of each financial year. This is typically due to
lower levels of annual leave and a greater number of chargeable hours, which
equates to higher revenues on a predominantly fixed cost base, and therefore
higher profits.
4. Alternative Performance Measures
Throughout this document the Group presents various alternative performance
measures (APMs) in addition to those reported under IFRS. The measures
presented are those adopted by the Chief Operating Decision Maker (CODM,
deemed to be the Chief Executive Officer), together with the main Board, and
analysts who follow us in assessing the performance of the business.
Explanations of how they are calculated and how they are reconciled to an IFRS
statutory measure are set out below.
(a) Group profit and earnings measures
Underlying profit before tax (PBT) and underlying operating profit: These
measures are used by the Board to monitor and measure the trading performance
of the Group. They exclude certain items which the Board believes distort the
trading performance of the Group. These include the amortisation of acquired
intangible assets, acquisition-related expenditure, costs related to
implementation and configuration of purchased software services, restructuring
costs, and other specific adjusting items.
The Group's strategy includes geographic and sector diversification, including
targeted acquisitions and disposals. By excluding acquisition-related
expenditure from underlying PBT and underlying operating profit, the Board has
a clearer view of the performance of the Group and is able to make better
operational decisions to support its strategy.
Acquisition-related expenditure includes the costs of acquisitions, deferred
and contingent consideration fair value adjustments (including the unwinding
of discount factors), transaction-related fees and expenses, and post-deal
integration costs.
Costs related to implementation and configuration of purchased software
services are excluded from underlying PBT and operating profit as they are not
considered to be reflective of the Group's trading performance in the year.
The costs relate to software which is expected to be utilised over multiple
years.
Restructuring costs arising from major reorganisation activities, profits or
losses on the disposal of businesses, and significant impairments of
intangible assets and 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. These adjustments
are 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 9.
Reconciliation of underlying profit before tax to reported profit before tax
2023 2022
Underlying Specific adjusting Total Underlying Specific adjusting Total
items
items
£m £m £m £m £m £m
Revenue 224.2 - 224.2 212.7 - 212.7
Cost of sales (163.7) - (163.7) (152.6) - (152.6)
Gross profit 60.5 - 60.5 60.1 - 60.1
Administrative expenses, impairment losses on trade receivables and contract (48.5) - (48.5) (47.6) - (47.6)
assets, and other income
Amortisation of acquired intangibles - (2.5) (2.5) - (2.0) (2.0)
Acquisition-related expenditure - (0.4) (0.4) - (1.4) (1.4)
Earn-out and employee retention costs - (6.2) (6.2) - - -
Reorganisation costs - (0.6) (0.6) - (19.0) (19.0)
ERP implementation costs - (0.3) (0.3) - - -
Operating profit/(loss) from continuing operations 12.0 (10.0) 2.0 12.5 (22.4) (9.9)
Net finance costs (4.1) - (4.1) (2.6) - (2.6)
Profit/(loss) before taxation from continuing operations 7.9 (10.0) (2.1) 9.9 (22.4) (12.5)
Income tax (expense)/credit (2.1) 0.9 (1.2) (2.6) 0.5 (2.1)
Profit/(loss) for the period from continuing operations 5.8 (9.1) (3.3) 7.3 (21.9) (14.6)
Profit for the year from discontinued operation, net of tax - - - 0.4 6.1 6.5
Profit/(loss) for the period 5.8 (9.1) (3.3) 7.7 (15.8) (8.1)
Underlying earnings attributable to the owners of the parent: The Group uses
underlying earnings attributable to the owners of the parent as the input to
its adjusted EPS measure. This profit measure excludes the amortisation of
acquired intangibles, acquisition-related expenditure, restructuring 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 than reported EPS. 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 10.
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 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.
Headline trading performance
Underlying Reported
External revenue Operating profit Profit before tax Operating profit Profit before tax
£m £m £m £m £m
HY 2023/24
Continuing operations 224.2 12.0 7.9 2.0 (2.1)
Less: performance of acquisitions (6.4) (1.7) (1.7) 5.7 5.7
Continuing operations - organic 217.8 10.3 6.2 7.7 3.6
HY 2022/23
Total 213.5 13.0 10.4 (1.9) (4.5)
Less: discontinued operation (0.8) (0.5) (0.5) (8.0) (8.0)
Continuing operations 212.7 12.5 9.9 (9.9) (12.5)
Less: performance of acquisitions (2.0) (0.5) (0.5) (0.4) (0.4)
Continuing operations - organic 210.7 12.0 9.4 (10.3) (12.9)
Continuing operations at current year exchange rates 206.1 12.0 9.3 (10.1) (12.8)
Growth (%) - Total 5 (8) (24) 205 53
Growth (%) - Continuing operations 5 (4) (20) 120 83
Growth (%) - Continuing organic 3 (14) (34) 175 128
Constant currency growth (%) - Continuing operations 9 - (15) 120 84
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 restructuring 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
7.
(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.
Cash conversion
2023 2022
Underlying Specific adjusting Total Underlying Specific adjusting Total
items
items
£m £m £m £m £m £m
Operating profit/(loss) from continuing operations 12.0 (10.0) 2.0 12.5 (22.4) (9.9)
Operating profit from discontinued operation - - - 0.5 7.5 8.0
Operating profit/(loss) 12.0 (10.0) 2.0 13.0 (14.9) (1.9)
Depreciation, amortisation and impairment 7.2 - 7.2 7.5 17.7 25.2
Amortisation of acquired intangibles - 2.5 2.5 - 2.0 2.0
EBITDA 19.2 (7.5) 11.7 20.5 4.8 25.3
Movement in working capital 5.8 3.8 9.6 (0.9) (2.7) (3.6)
Pension deficit payments (0.7) - (0.7) (0.9) - (0.9)
Gain on disposal of discontinued operation - - - - (7.5) (7.5)
Losses on disposal of assets - - - - 0.6 0.6
Share based payments 0.8 - 0.8 1.0 - 1.0
Unrealised exchange (gains)/losses (0.2) - (0.2) 0.2 - 0.2
Cash generated from operations 24.9 (3.7) 21.2 19.9 (4.8) 15.1
Cash conversion 129.7% 181.2% 97.1% 59.7%
Net debt: is defined as current and non-current borrowings less cash and cash
equivalents, including hire purchase agreements, but excluding any impact of
IFRS 16 lease liabilities. Management 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.
(c) Tax measures
Reported effective tax rate (ETR): which is the tax rate on reported profit
before tax. This is the tax charge applicable to reported profit before tax
expressed as a percentage of reported before tax.
Underlying effective tax rate (UETR): We report one adjusted tax measure,
which is the tax rate on underlying profit before tax. This is the tax charge
applicable to underlying profit before tax expressed as a percentage of
underlying profit before tax.
5. Critical judgements and key sources of estimation uncertainty
Critical judgements: allocation of assets to cash-generating units (CGUs)
Certain property, plant and equipment and right-of-use assets are shared by
the A&I Established and A&I Emerging businesses. These include the
Shoreham, Detroit and Prague offices. The shared assets are allocated, and
tested for impairment, at the level of the A&I Established and A&I
Emerging group of CGUs. This judgement impacts the result of the impairment
review, and if assets were allocated directly to the A&I Established
segment, it is likely that additional impairment would be recognised. These
assets have a carrying value of £9.0m.
See Note 13 for further discussion.
Key sources of estimation uncertainty: Revenue recognition on fixed price
contracts
As set out in Note 1d to the Group annual financial statements 2022/23,
management undertakes a process to assess the risks on inception of all fixed
price contracts, then monitors and reviews the risks and performance of
contracts as they progress to completion. The highest value, highest risk,
most technically complex and financially challenging contracts to deliver, as
measured against a number of quantitative and qualitative factors, are
categorised as 'Red Category 4' contracts, which are subject to more frequent
and senior levels of management review.
As at 31 December 2023, four contracts (30 June 2023: eight) were
risk-categorised as Red Category 4. At 31 December 2023, £4.7m (30 June 2022:
£2.8m) of revenue had been recognised in respect of work performed on these
contracts where outcomes were subject to negotiation with customers. An
additional contract was also included due to risk of recoverability with a
debt value of £1.1m. Management has made a specific judgement over the
ability to recover each of the amounts under negotiation and has recognised
provisions of £0.8m (30 June 2022: £0.7m) against the at risk amounts of
£1.1m, resulting in a net exposure of £0.3m (30 June 2022: £0.6m).
The possible financial outcomes from these negotiations range from an upside
of £5.8m, if management recovers the full £5.8m of revenue and potential
negotiation upside, to a downside of £0.3m, if management is unsuccessful in
recovering any of the £1.1m.
6. Discontinued operation
On 23 May 2022, the Group classified its Software segment 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 in the prior
period and it was sold on 1 August 2022, the business was sold to a third
party.
Total consideration for the sale was £14.9m, of which £14.8m was satisfied
in cash in the previous period. The remaining £0.1m is reflected in other
receivables. Additional consideration of up to £2.4m has not been recognised
as performance conditions are not expected to be met. £7.5m of net assets
were disposed of, and £0.9m of cumulative currency gains were reclassified to
the income statement. £0.8m of costs directly attributable to the disposal
were incurred in the prior period.
Effect of disposal on the financial position of the group at 31 December 2022
£m
Other intangible assets (7.2)
Property, plant and equipment (0.1)
Trade, other and contract receivables (1.6)
Cash and cash equivalents (1.7)
Trade, other and contract payables 3.2
Net assets and liabilities (7.4)
Consideration received, satisfied in cash 14.8
Cash and cash equivalents disposed of (1.7)
Directly attributable fees (0.8)
Net cash inflows 12.3
Result from discontinued operation
2023 2022
£m £m
External revenue - 0.8
External expenses - (0.3)
Underlying profit from operating activities - 0.5
Income tax on underlying result - (0.1)
Underlying profit from operating activities, net of tax - 0.4
Specific adjusting items - 7.5
Income tax on specific adjusting items - (1.4)
Profit from discontinued operation, net of tax - 6.5
2023 2022
Cash from discontinued operation £m £m
Net cash from operating activities - 0.5
Net cash from investing activities - 12.2
* Subsequent to the disposal, the Group has continued to purchase software
licenses from the disposed entity and recharged the business for space in its
Prague office.
Cash from discontinued operation
2023 2022
Cash from discontinued operation £m £m
Net cash from operating activities - 0.5
Net cash from investing activities - 12.2
- 12.7
7. Financial performance by segment
The Group's operating segments are being reported based on the financial
information provided to the Chief Operating Decision Maker (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.
The Group reports the following segments: Energy & Environment (EE); Rail;
Automotive and Industrial Emerging (A&I Emerging); Automotive and
Industrial Established (A&I Established); Defense; and Performance
Products (PP).
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 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.
Revenue
HY 2023/24 HY 2022/23
Total segment revenue Inter-segment revenue Revenue from external customers Total segment revenue Inter-segment revenue Revenue from external customers
£m £m £m £m £m £m
Energy & Environment 51.0 (0.1) 50.9 38.7 (0.5) 38.2
Rail 38.3 (0.2) 38.1 36.5 (0.4) 36.1
A&I - Emerging 29.5 - 29.5 43.9 - 43.9
Defense 56.6 - 56.6 41.0 - 41.0
Performance Products 38.3 (0.1) 38.2 38.8 (0.3) 38.5
A&I - Established 10.9 - 10.9 15.3 (0.3) 15.0
Total continuing operations 224.6 (0.4) 224.2 214.2 (1.5) 212.7
Discontinued operation - - - 0.8 - 0.8
Total 224.6 (0.4) 224.2 215.0 (1.5) 213.5
Underlying operating profit/(loss)
HY 2023/24 HY 2022/23 *restated
Underlying operating profit/(loss) Specific adjusting items (*) Operating profit/(loss) Underlying operating profit/(loss) Specific adjusting items (*) Operating profit/(loss)
£m £m £m £m £m £m
Energy & Environment 8.8 (1.6) 7.2 6.4 (0.4) 6.0
Rail 4.1 (1.4) 2.7 3.6 (2.0) 1.6
A&I - Emerging (1.5) (0.4) (1.9) 4.7 - 4.7
Defense 10.9 - 10.9 5.7 (0.1) 5.6
Performance Products 2.0 - 2.0 3.6 - 3.6
A&I - Established (3.5) - (3.5) (2.9) (18.7) (21.6)
Plc (8.8) (6.6) (15.4) (8.6) (1.2) (9.8)
Total continuing operations 12.0 (10.0) 2.0 12.5 (22.4) (9.9)
Discontinued operation - - - 0.5 7.5 8.0
Total operating profit 12.0 (10.0) 2.0 13.0 (14.9) (1.9)
Net finance costs (4.1) (2.6)
Total loss before tax (2.1) (4.5)
* Subsequent to the 2022/23 interim reporting, a detailed review of project
mapping between each of the business segments was performed resulting in
reallocation of projects between A&I Emerging and A&I Established for
the 2023/24 reporting. To be consistent with those mappings, the 2022/23
comparatives have been restated to reduce A&I Emerging Underlying
operating profit by £1.9m and increase A&I Established Underlying
operating profit by £1.9m.
8. Revenue
Continuing operations Discontinued operations Total
2023 2022 2023 2022 2023 2022
£m £m £m £m £m £m
Revenue stream
Service provided under:
- fixed price contracts 102.8 99.7 - - 102.8 99.7
- time and materials contracts 37.8 45.5 - - 37.8 45.5
- subscription and software support contracts 3.0 2.7 - 0.1 3.0 2.8
Goods supplied: - -
- manufactured and assembled products 79.9 64.2 - - 79.9 64.2
- software products 0.7 0.5 - 0.7 0.7 1.2
Intellectual property - 0.1 - - - 0.1
Total 224.2 212.7 - 0.8 224.2 213.5
Customer location
United Kingdom 65.6 64.0 - 0.3 65.6 64.3
Europe 37.3 35.2 - 0.1 37.3 35.3
North America 78.7 68.8 - 0.2 78.7 69.0
Rest of Asia 18.0 15.4 - 0.2 18.0 15.6
Australia 10.4 11.2 - - 10.4 11.2
China 4.4 10.0 - - 4.4 10.0
Rest of the World 9.8 8.1 - - 9.8 8.1
Total 224.2 212.7 - 0.8 224.2 213.5
Timing of recognition
Over time 144.1 148.0 - 0.8 144.1 148.8
At a point in time 80.1 64.7 - - 80.1 64.7
Total 224.2 212.7 - 0.8 224.2 213.5
9. Specific adjusting items
Specific adjusting items are disclosed separately in the financial statements
where it is necessary to do so in order to provide further understanding of
the financial performance of the Group. These items comprise the amortisation
and impairment of acquired intangible assets and goodwill, acquisition-related
expenditure, costs related to implementation and configuration of purchased
software services, restructuring costs and other non-recurring items that are
included due to the significance of their nature or amount.
Acquisition-related expenditure is incurred by the Group to effect a business
combination, including the costs associated with the integration of acquired
businesses. Costs related to implementation and configuration of purchased
software services are excluded as they relate to software which is expected to
be utilised over multiple years. Restructuring costs relate to non-recurring
expenditure incurred as part of fundamental restructuring activities,
significant impairments of intangible assets and property, plant and
equipment, and other items deemed to be one-off in nature.
2023 2022
£m £m
Continuing operations
Amortisation of acquired intangibles 2.5 2.0
Acquisition-related expenditure 0.4 1.4
Earn-out and employee retention costs 6.2 -
Reorganisation costs
- Other reorganisation costs 0.6 19.0
ERP implementation costs 0.3 -
Total specific adjusting items from continuing operations before tax 10.0 22.4
Tax credit on specific adjusting items (0.9) (0.5)
Total specific adjusting items from continuing operations after tax 9.1 21.9
Specific adjusting items from discontinued operations
Disposal of discontinued operation - (7.5)
Tax on specific adjusting items from discontinued operation - 1.4
Total specific adjusting items after tax 9.1 15.8
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 the asset's useful economic life, which is between
two to nine years. During the prior period, certain intangible assets were
acquired as part of the acquisitions of E3M and Aither, resulting in an
overall increase in amortisation charges during the current period when
compared to the prior period.
Acquisition-related expenditure
The current period acquisition-related expenditure comprises £6.6m incurred
in the period (HY 2022/23: £1.4m). These costs include £0.1m strategic
projects, £6.2m earn out and retention costs and £0.3m integration costs
relating to the acquisitions of Inside Infrastructure, E3M and Aither. Costs
in the prior period reflected an accrual of £0.2m for deferred consideration
in relation to the acquisition of Inside Infrastructure (acquired in March
2022), together with £0.2m of post-deal integration costs, £0.1m of external
fees paid in respect of the acquisition of E3 Modelling S.A. (E3M) and £0.9m
of external fees in relation to other M&A and strategic projects.
Restructuring costs
Other restructuring costs
In the current period, £0.4m of costs have been recognised in relation to
restructuring of the A&I Established business. In the prior period, £1.2m
of costs were recognised in relation to the restructuring of the A&I
Established business, including £0.7m loss on disposal of non-current assets,
£0.4m relating to redundancy costs and related decommissioning costs and
£0.2m of external consultancy fees. A further £0.2m of costs in relation to
restructuring of the Group, EE and Rail businesses have been recognised in the
period. These major restructuring activities will continue into the second
half of FY 2023/24 with further costs expected.
Impairment costs of £17.7m were recognised in the prior period within the
A&I Established operating segment - see Note 13. No further impairment
costs were recognised in the current period.
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
In the current period, £0.3m of external costs in relation to the planning
activities to implement a new ERP system were 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 be utilised by the Group
for at least five years.
Disposal of discontinued operation
In the prior period, a gain on the disposal of the discontinued Software
business of £7.5m was recognised (see Note 6).
10. Earnings per share
2023 2022
£m £m
Loss attributable to owners of the parent (3.4) (8.2)
Add back the net-of-tax impact of:
- Amortisation of acquired intangibles 1.8 1.7
- Acquisition-related expenditure 6.6 1.3
- Other reorganisation costs and impairment 0.4 18.9
- ERP implementation costs 0.3 -
- Discontinued operations - (6.1)
Underlying earnings attributable to owners of the parent 5.7 7.6
2023 2022
Number Number
of shares
of shares
millions
millions
Basic weighted average number of shares in issue 62.2 62.2
Effect of dilutive potential shares - -
Diluted weighted average number of shares in issue 62.2 62.2
2023 2022
Earnings per share - basic and diluted (Note 10) pence pence
Loss per share (5.5) (13.2)
Underlying earnings per share 9.2 12.2
Loss per share from continuing operations (5.3) (23.6)
Earnings per share from discontinued operation - 10.5
Underlying earnings per share is shown in addition to reported earnings per
share because the Directors consider that this provides a more useful
indication of underlying performance and trends over time than reported
earnings per share alone.
There are no potentially dilutive shares (HY 2023/24: Nil).
11. Dividends
2023 2022
£m £m
Final dividend for prior period: 8.61p per share (2022: 7.49p) per share 5.4 4.7
On 27 February 2024 the Directors declared an interim dividend of 3.8p per
share, which will be paid gross on 11 April 2024 to holders of ordinary shares
on the Company's register of members on 15 March 2024.
12. Fair value of financial assets and liabilities
There are no differences between the fair value of financial assets and
liabilities included within the following categories in the Condensed
Consolidated Statement of Financial Position and their carrying value:
• Trade, contract and other receivables;
• Investments;
• Derivative financial assets;
• Cash and cash equivalents;
• Trade, contract and other payables; and
• Derivative financial liabilities
Derivative financial assets of £1.4m (30 June 2023: £2.3m) and derivative
financial liabilities of £1.3m (30 June 2023: £1.0m) relate to foreign
exchange forward and swap contracts, which are Level 2 of the fair value
hierarchy within IFRS 13 Fair Value Measurement. The Group use derivative
financial instruments primarily to manage currency risk on its US Dollar,
Euro, Chinese Renminbi, Japanese Yen, Hong Kong Dollar and Australian Dollar
denominated receivables and payables from its subsidiaries, in addition to
managing transactional exposures relating to customer contracts denominated in
foreign currencies. It is the Group's policy not to undertake any speculative
currency transactions.
13. Impairment of non-financial assets
At 31 December 2023, as required by IAS 36, an assessment was carried out to
identify whether any indicators existed that the goodwill, finite life
intangibles, and property plant and equipment balances held by the Group may
be impaired. An indicator of impairment was considered to exist in the A&I
Emerging business. No other indicators of impairment existed, nor an indicator
that the previous impairment to the A&I Established segment should be
reversed.
As explained in the segmental review, due to the nature of the new technology
it is the expectation that orders will be volatile. However, in addition we
have experienced delays in receiving customer orders in this half resulting in
performance below our expectation.
The recoverable amount of the CGU was based on its value in use, determined by
discounting the future cash flows expected to be generated from the continuing
use of the CGU. Expected cash flows for the A&I Emerging business
decreased compared to those expected at 30 June 2023. However, these
discounted cashflows are still significantly above the carrying amount of the
CGU and therefore it was determined that no impairment would be required. The
short-term challenges are not expected to impact the long-term performance.
In addition, an estimate of recoverable value for the combined A&I
Established and A&I Emerging businesses was calculated in order to assess
the carrying value of the assets shared between these CGUs. The carrying value
of the shared assets, and the A&I Emerging assets were supported by this
calculation with significant headroom.
During HY2022/23, an impairment charge of £17.7m was recognised to
administrative expenses within specific adjusting items for the A&I
Established operating segment following an impairment review. The £17.7m of
assets written off include £5.2m of goodwill, £1.8m of intangible assets
(primarily development costs, including calibration tools), and £10.7m of
property, plant and equipment (including £2.8m of buildings and £5.2m of
test assets). After recognising the impairment, the carrying value of
non-current assets allocated to this CGU was £nil.
HY2022/23
£m
Goodwill 5.2
Other intangible assets 1.8
Property, plant and equipment 10.7
Total impairment 17.7
Value in use
Cash flow assumptions
The cashflow forecasts used to calculate the value in use are based on the
forecast for the remainder of the current year (year one) and the business
plan for years two to five. The business plan was prepared by management and
reviewed and approved by the Board. The business 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.
Other key assumptions
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 CGUs, or group of CGUs, 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. Due to regulatory and other changes in the market relating to ICE, a
long-term decrease of 10% p.a. has been applied to A&I Established
business.
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.
Pre-tax discount rate Long-term growth rate
31 December 2023 30 June 2023 31 December 2023 30 June 2023
£m £m £m £m
Automotive and Industrial - Emerging 14.6% 14.9% 3.9% 3.9%
Automotive and Industrial - Established n/a 14.9% n/a (10.0%)
14. Net debt
Net debt is defined as current and non-current borrowings less cash and cash
equivalents, including hire purchase agreements, but excluding any impact of
IFRS 16 lease liabilities. Management 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.
31 December 2023 30 June 2023
Analysis of net debt £m £m
Current assets - cash and cash equivalents
Cash and cash equivalents 46.7 49.8
Total cash and cash equivalents 46.7 49.8
Current liabilities - borrowings
Bank overdrafts repayable on demand (5.5) (12.6)
Hire purchase liabilities maturing within one year (0.1) (0.1)
Total current borrowings (5.6) (12.7)
Non-current liabilities - borrowings
Bank loans maturing after one year (104.4) (99.2)
Total non-current borrowings (104.4) (99.2)
At 31 December (63.3) (62.1)
Total cash and cash equivalents at 31 December 46.7 49.8
Total borrowings at 31 December (110.0) (111.9)
At 31 December (63.3) (62.1)
31 December 2023 30 June 2023
Movement in net debt £m £m
At 1 July (62.1) (35.4)
Net increase/(decrease) in cash and cash equivalents and bank overdrafts 4.0 (2.2)
Repayments of hire purchase - 0.2
Proceeds from bank loans (57.0) (128.0)
Repayments of bank loans 52.0 103.0
Amortisation of bank loan fees (0.2) 0.3
At 31 December (63.3) (62.1)
Net debt at 31 December 2023 was £63.3m (FY 2022/23: £62.1m). As reported to
the Board on a monthly basis, there is sufficient headroom in our banking
facilities. At 31 December 2023 the Group held total facilities of £166.0m
(FY 2021/22: £166.1m). The committed facility consists of a £150.0m
multi-currency Revolving Credit Facility (RCF) with an additional uncommitted
£50.0m accordion which provides the Group with committed funding through to
August 2026. In addition, the Group has uncommitted facilities including
overdrafts of £16.0m (FY 2021/22: £16.1m), which mature throughout this and
the next financial year, and are renewable annually.
Non-current bank loans comprise committed facilities of £104.4m (FY 2022/23:
99.2m), 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 1.65% to 2.45% above SONIA (FY 2022/23:
1.65% to 2.45% above SONIA).
Adjusted Leverage is defined in the Group's banking documents as being the
ratio of total net debt to adjusted EBITDA for the last twelve months,
excluding IFRS 16 Leases. Adjusted EBITDA is further defined as being
operating profit before interest, tax, depreciation and amortisation, adjusted
for any one-off, non-recurring, exceptional costs and acquisitions or
disposals during the relevant period. The Adjusted Leverage covenant is 3.0x
for each test date. At the reporting date, the Group has an Adjusted Leverage
of 1.5x (FY 2022/23: 0.8x) which gives rise to an applicable interest rate of
SONIA plus 2.05% (FY 2022/23: SONIA plus 1.85%). The only other financial
covenant is Interest Cover (defined as adjusted EBITDA over net finance costs,
excluding pension and IFRS 16 interest, for the last twelve months over),
which is set at 4.0x for each test date. At the reporting date, the Group has
Interest Cover of 6.1x.
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
condensed interim financial statements.
15. Contingent liabilities
In the ordinary course of business, the Group has £14.4m (FY 2022/23:
£13.1m) of possible obligations for bonds, guarantees and counter-indemnities
placed with our 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 £2.8m 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 employer's liability were a debt to arise under Section
75 of the Pensions Act 1995. The guarantee will 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.
16. Principal risks and uncertainties
The Board regularly reviews its principal risks and uncertainties. To ensure
our risk process drives continuous improvement across the business, we monitor
the ongoing status and progress of key action plans against each risk on a
half-yearly basis. Risk is a key consideration of the Board in all strategic
decisions. In the most recent risk review cycle, risks were reviewed which
relate to customers and markets; contracts; people; cyber and information
security; technology; compliance with laws and regulations; and financing. The
approach to mitigation of these principal risks is discussed on pages 104 to
108 of the Group's Annual Report & Accounts 2022/23, and the Directors
have concluded that the disclosure remains appropriate. These principal risks
and uncertainties should be read in conjunction with the Trading Summary and
Operating Segments Review for the six months ended 31 December 2023 included
within this Interim Report.
17. Events after the reporting date
There were no events to report after the reporting date.
Statement of Directors' responsibilities
The Directors confirm that to the best of their knowledge:
· the condensed interim financial statements, which have been prepared
in accordance with International Accounting Standard (IAS) 34 Interim
Financial Reporting as adopted for use in the UK, give a true and fair view of
the assets, liabilities, financial position and profit or loss of the Group.
· the highlights, trading summary and operating segments review within
this Interim Report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the condensed interim financial
statements; and a description of the principal risks and uncertainties for the
remaining six months of the financial year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being
related party transactions that have taken place in the first six months of
the financial year and that have materially affected the financial position or
performance of the Group during that period and any changes in the related
party transactions described in the last annual report that could do so.
By order of the Board:
Graham
Ritchie
Judith
Cottrell
Chief Executive Officer Chief
Financial Officer
5 March 2024
Independent review report to Ricardo plc
Conclusion
We have been engaged by the company to review the condensed set of financial
statements in the Interim Report for the six months ended 31 December 2023,
which comprise the condensed consolidated income statement, the condensed
consolidated statement of comprehensive income, the condensed consolidated
statement of financial position, the condensed consolidated statement of
changes in equity, the condensed consolidated statement of cash flows and the
related explanatory notes.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the Interim Report
for the six months ended 31 December 2023 is not prepared, in all material
respects, in accordance with IAS 34 Interim Financial Reporting as adopted for
use in the UK and the Disclosure Guidance and Transparency Rules ("the DTR")
of the UK's Financial Conduct Authority ("the UK FCA").
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity ("ISRE (UK) 2410") issued for use in the
UK. A review of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures. We read the other
information contained in the Interim Report and consider whether it contains
any apparent misstatements or material inconsistencies with the information in
the condensed set of financial statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an
audit opinion.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the 'Basis of conclusion' section of this report,
nothing has come to our attention that causes us to believe that the directors
have inappropriately adopted the going concern basis of accounting, or that
the directors have identified material uncertainties relating to going concern
that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410. However, future events or conditions may cause the group to
cease to continue as a going concern, and the above conclusions are not a
guarantee that the group will continue in operation.
Directors' responsibilities
The Interim Report is the responsibility of, and has been approved by, the
directors. The directors are responsible for preparing the Interim Report in
accordance with the DTR of the UK FCA.
As disclosed in note 2, the annual financial statements of the group are
prepared in accordance with UK-adopted international accounting standards.
The directors are responsible for preparing the condensed set of financial
statements included in the Interim Report in accordance with IAS 34 as adopted
for use in the UK.
In preparing the condensed set of financial statements, the directors are
responsible for assessing the group's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the group or to cease operations, or have no realistic alternative
but to do so.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed
set of financial statements in the Interim Report based on our review. Our
conclusion, including our conclusions relating to going concern, are based on
procedures that are less extensive than audit procedures, as described in the
'Basis for conclusion' section of this report.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the company in accordance with the terms of our
engagement to assist the company in meeting the requirements of the DTR of the
UK FCA. Our review has been undertaken so that we might state to the company
those matters we are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company for our review work, for this
report, or for the conclusions we have reached.
Jeremy Hall
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
5 March 2024
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