Interim Results

Ricardo PLC 21 February 2005 21 February 2005 Ricardo plc Interim Results for the six months ended 31 December 2004 Ricardo plc is a leading UK independent automotive consultancy, employing over 1,580 people with technical centres in the UK, USA, Germany and the Czech Republic. The company's client list includes the world's major OEMs. Ricardo is a constituent of the FTSE techMark 100. HIGHLIGHTS • Profit before tax and goodwill £3.0m (2003: £0.2m) • Profit before tax and after goodwill £2.5m (2003: loss £2.3m) • UK, US and German operations all profitable • Strategic Consulting achieves profit growth earlier than anticipated • Steady ongoing recovery in order book up 28% to £58m (2003: £45.8m) • Earnings per share before goodwill up to 5.5p (2003: loss per share 0.6p) • Earnings per share after goodwill 4.5p (2003: loss per share 5.5p) • Interim dividend held at 2.7p • Japanese and Chinese customer interest continues to increase • New CEO Designate in place for November 2005 to ensure smooth handover • Recovery continues to make good progress although automotive industry remains challenging Commenting on the results, Rodney Westhead, Chief Executive said: 'We are pleased that our order book level has improved significantly and progress is being made to restore profits back to historic levels. The second half has started well, and in spite of ongoing challenges in the global automotive market we continue to remain cautiously optimistic over the outlook for the full year.' Further enquiries: Ricardo plc Rodney Westhead, Chief Executive (today) 020 7554 1400 Andrew Goodburn, Finance Director (thereafter) 01273 455611 Gavin Anderson & Company Laura Hickman/Charlotte Stone 020 7554 1400 Website: www.ricardo.com CHIEF EXECUTIVE'S STATEMENT INTERIM RESULTS AND DIVIDEND Our recovery in profitability has been stronger than anticipated and we concluded the first six months with satisfactory results and a much improved order book. However, large sections of the automotive industry are still struggling to produce good results and therefore our trading environment will continue to be challenging for the foreseeable future. Turnover for the six months to 31 December 2004 was £72.6m (2003: £77.3m) with the decrease split equally between the UK and US, the latter being further impacted by the weakening dollar. Profit before tax and goodwill for the period was £3.0m (2003: £0.2m before exceptionals). Earnings per share before goodwill increased to 5.5p compared to a loss per share of 0.6p in the prior year. The order book at 31 December 2004 stood at £58m (2003: £45m) and net borrowings increased to £15.8m (2003: £9.2m) principally as a result of working capital returning to more normal levels, however we now expect the Group to be cash generative going forward. The interim dividend is maintained at 2.7p (2003: 2.7p) and will be paid on 22 April 2005 to all shareholders on the register at close of business on 1 April 2005. Business Overview Overall our recovery continues to make good progress and we are now seeing the full benefits of both the cost cutting initiatives taken 12 months ago and the refocusing of our marketing efforts. It is heartening that our order book has now improved to £60m at the end of January 2005, although areas of weakness still persist. Our customer base continues to broaden with an increasing interest from the Far East. Globally both Controls & Electronics and Ricardo Strategic Consulting businesses have performed strongly. Controls and Electronics was operating at full capacity at the half year end and for the first time we were head-count restrained in this area. As Electronics is a growing part of vehicle development programmes we will continue to grow this activity and seek appropriate acquisitions. We continue to enlarge our use of Prague as a lower cost facility and expect further expansion here to support all areas of our business, both geographic and technical. UK Our UK business, now run as one unit comprising engine, transmission and vehicle engineering returned to profit in the period. Our engines business performed well with a strengthened order book and increased productivity. However, as anticipated our transmission and vehicle businesses had a weak period and made losses, albeit less than expected. The demand for advanced engine technology to reduce emissions and fuel consumption remains strong. This contrasts with the demand for transmissions technology which remained weak in the period with customers showing great interest in new products at a development level but reluctant to commit to move to full scale application development. However, in January we received significant manufacturing orders for high performance transmissions we had previously designed and developed and this will underpin our transmission manufacturing activities for the next two years. In vehicle engineering, our order book has been improving, particularly for military vehicles. For passenger vehicles, competition remains fierce with low cost competitors providing a cheaper cost option to customers. We continue to believe that the excellent warranty claims record and on time delivery that Ricardo offers together with our ability to provide full engine, transmission, vehicle and electronic integration capability ahead of our competitors will pay dividends over the medium to longer term. USA In the US profits reduced after a very slow start to the year. The order book is now beginning to pick up with a strong intake in January 2005. However, business from the US domestic car companies, who make up the bulk of our customers, is still very competitive. Sales of military vehicles saw further growth and are likely to provide a good impetus to our performance for the foreseeable future. The new heavy duty engine test cells in Chicago are now fully operational with a strong order inflow driven by the stringent 2007 truck (heavy vehicle) emissions legislation. We are also seeing increasing activity from the Asian car companies operating in the USA and this is a source of work that is likely to increase. Germany We now have a sound business in Germany that has integrated well into the rest of the company and we have won our first mainstream development programme from a major German OEM. The need to comply with Euro V emissions legislation will continue to provide opportunities for Ricardo, however the rate of progress is still slower than we would like as we strive to penetrate these core domestic markets. Significant reorganisation of the manufacturing, testing and accounting functions has taken place and the German team is starting to play a full role in the overall Ricardo business. We are optimistic that our share of the German market should start to increase. The Far East Our Tokyo office continues to make excellent progress with Japanese orders in the first six months exceeding the whole of the previous year and now approaching 10% of our total order intake. Clearly there is still a long way to go given the size and importance of this market but we now have good contact at all levels with each of the major Japanese car companies. Order intake is growing strongly across all our areas of expertise including engine, transmissions, vehicle, electronics, software and motorsport. Our demonstrator vehicles are particularly well received and attract a high level of interest from the car companies, especially as they are well in advance of anything our competitors have produced. We will open a representative Chinese office in Shanghai in March 2005 which will be staffed by a mix of UK and local Chinese staff, initially only working as a sales office. We are now working for both wholly domestic companies, many of whom clearly intend to become major exporters, and also for the Western/ Chinese joint venture companies. We expect our activity in China to grow fairly rapidly and will invest sensibly to ensure we capitalise on opportunities from this expanding market. Strategic Consulting Strategic Consulting has achieved strong growth and good profits in the period. Our order book grew threefold and this business is now operating in the UK, Germany, Japan and USA with 29 consultants and approximately 20 technical consultants working alongside them. Pass through work referred to our technical consulting business is growing and provides good avenues of new work. We are now working for an increasing number of global customers and anticipate further strong growth from this business. Research & Development Ricardo continues to apply its key intellectual capital in forecasting and validating technology trends in the automotive market. This provides an important input to future business strategy but also provides a key high value service to customers and a planning tool for internal research investment. Global market drivers are dominated by increasing Government interest in reduced carbon emissions via improved fuel economy in parallel with further reductions in exhaust emissions. Government targets to improve vehicle safety are also gaining a higher profile and have triggered some major investments by the automotive industry in 'active' safety technologies that can reduce accidents. The need to reduce the time and cost required to get new products to market is also increasing demand for more sophisticated design tools and processes. In response to these demands, Ricardo has increased its investment in these areas whilst also developing a range of demonstration vehicles that show Ricardo's capability in greener, safer vehicles. In the last year, a very low emissions high performance diesel vehicle has been completed whilst new patented technologies in active driveline control have enabled demonstration of Ricardo capability in improved vehicle handling and stability. These vehicle demonstrators, often enabled by advances in control and electronics, have been very well received by our customers. They provide tangible examples of Ricardo technology and enable dialogue with key decision makers in the automotive industry. The need for ever increasing effectiveness in research and development has also created more opportunities for collaborative programmes. Most internally funded research now attracts collaborative support both from automotive customers and with government funding in the US, Europe and the UK. To improve effectiveness Ricado has also introduced a number of metrics to predict and monitor the value of research investments. IFRS Conversion Ricardo will prepare its financial statements under International Financial Reporting Standards (IFRS) for the year ending 30 June 2006. A company-wide project with the objective of ensuring compliance with IAS is underway and is now in the implementation phase. In the 30 June 2004 Annual Report it was noted that the major areas of impact on net profit and shareholders' funds would be share based payments, goodwill amortisation, pensions, financial instruments, development expenditure and leases and there has been no change from this initial assessment. We have already adopted the primary segmental analysis required by IFRS. We recognise that adopting IFRS will change the reporting of the financial performance of the Group and we understand that meaningful comparisons will be required. We are planning to communicate this transition to our stakeholders in a clear and straightforward manner by providing an IFRS compliant set of full year financial statements for the year ended 30 June 2006 and for our interim results in December 2005. This will include a restatement of FY 2005 in IFRS format for comparative purposes. Conversion to IFRS will not affect the Group's operational prospects or its ability to generate cash. People I am delighted at the announcement of the appointment of Dave Shemmans as the CEO designate. Dave will replace me when I retire at our AGM in November 2005. Dave has been with Ricardo for six years, first as business development director for our engines business and subsequently the Group. Since the end of 2003 he has been Managing Director of our engines business. As business development director he was directly responsible for winning some major programmes and, more recently as Managing Director, has brought significant change, development and improvement to the engines business, the core of our activity. Dave is an electronics engineer by profession and prior to joining Ricardo was involved in developing electric hybrid vehicles. His direct industry experience and knowledge of Ricardo make him an excellent successor and is therefore well suited to the needs of Ricardo. I wish him every success. Outlook The first half of the year has started on a far more positive note than the last financial year and this appears to have carried on into the second half with a strong January order intake. We still need to improve our activity in transmissions and vehicle in the UK but all other parts of Ricardo are performing well. Whilst we are pleased with the progress made, the automotive industry is still one with well publicised problems and a huge focus on cost base management. Our progress will remain constrained by these factors. However, as these results have demonstrated Ricardo has the capability, knowledge base and reach to capitalise on the opportunities that are in the market. January has been a good month, however as previously indicated our results for the year are dependent on a good second half performance. Although our prospects and confidence continue to grow, we have not changed our view on expectations for the full year. Consolidated Profit & Loss Account Interim Statement for the six months ended 31 December 2004 Before goodwill Six months amortisation Ended 31 and Before December exceptional goodwill Goodwill 2004 redundancy amortisation amortisation Total costs £'000 £'000 £'000 £'000 Turnover 72,584 - 72,584 77,287 ---------------- --------- --------- --------- ---------- 72,584 - 72,584 77,287 Operating profit/(loss) 3,406 (502) 2,904 518 ---------------- --------- --------- --------- ---------- Profit/(loss) on ordinary activities 3,406 (502) 2,904 518 before interest Net interest (447) - (447) (365) ---------------- --------- --------- --------- ---------- Profit/(loss) on ordinary activities 2,959 (502) 2,457 153 before taxation Taxation (183) ---------------- --------- --------- --------- ---------- Profit/(loss) on ordinary activities 2,274 after taxation Minority interest (25) ---------------- --------- --------- --------- ---------- Profit/(loss) for the financial year 2,249 Non - equity preference dividends (3) ---------------- --------- --------- --------- ---------- Profit/(loss) attributable to ordinary shareholders 2,246 Equity ordinary dividends (1,354) ---------------- --------- --------- --------- ---------- Amount transferred to/(from)reserves 892 ---------------- --------- --------- --------- ---------- Dividend per ordinary share 2.7p ---------------- --------- --------- --------- ---------- Earnings per ordinary share - basic 4.5p - diluted 4.5p ---------------- --------- --------- --------- ---------- Earnings per ordinary share before goodwill amortisation and exceptional redundancy costs - basic 5.5p - diluted 5.5p Consolidated Profit & Loss Account Contd. Before Goodwill goodwill Goodwill amortisation Six months amortisation amortisation Year and ended and and ended exceptional 31 December exceptional exceptional 30 June redundancy 2003 redundancy redundancy 2004 costs Total costs costs Total £'000 £'000 £'000 £'000 £'000 (restated) (restated) Turnover - 77,287 146,242 - 146,242 --------------- ------- --------- ------- ------- ------- - 77,287 146,242 - 146,242 Operating profit/(loss) (2,424) (1,906) 2,600 (4,558) (1,958) --------------- ------- --------- ------- ------- ------- Profit/(loss)on ordinary activities before interest (2,424) (1,906) 2,600 (4,558) (1,958) Net interest - (365) (800) - (800) --------------- ------- --------- ------- ------- ------- Profit/(loss)on ordinary activities before taxation (2,424) (2,271) 1,800 (4,558) (2,758) Taxation (366) 515 1,114 1,629 --------------- ------- --------- ------- ------- ------- Profit/(loss)on ordinary activities after taxation (2,637) 2,315 (3,444) (1,129) Minority interest (94) (148) --------------- ------- --------- ------- ------- ------- Profit/(loss)for the financial year (2,731) (1,277) Non - equity preference dividends (6) (6) --------------- ------- --------- ------- ------- ------- Profit/(loss)attributable to ordinary shareholders (2,737) (1,283) Equity ordinary dividends (1,345) (4,478) --------------- ------- --------- ------- ------- ------- Amount transferred to/(from)reserves (4,082) (5,761) --------------- ------- --------- ------- ------- ------- Dividend per ordinary share 2.7p 9.0p --------------- ------- --------- ------- ------- ------- Earnings per ordinary share - basic (5.5)p (2.6)p - diluted (5.5)p (2.6)p --------------- ------- --------- ------- ------- ------- Earnings per ordinary share before goodwill amortisation and exceptional redundancy costs - basic (0.6)p 4.3p - diluted (0.6)p 4.3p Consolidated Balance Sheets Interim Statement for the six months to 31 December 2004 As at As at As at 31 December 31 December 30 June 2004 2003 2004 £'000 £'000 £'000 (restated) (restated) Fixed assets Intangible assets 16,365 25,925 16,161 Tangible assets 48,995 50,876 50,944 -------------------- ----------- --------- --------- 65,360 76,801 67,105 -------------------- ----------- --------- --------- Current assets Stocks 7,786 8,781 6,285 Debtors 42,635 44,320 36,525 Cash deposit - 340 - Cash at bank and in hand 6,352 4,838 11,119 -------------------- ----------- --------- --------- 56,773 58, 279 53, 929 Creditors - amounts falling due within one year (58,844) (57, 958) (57, 253) -------------------- ----------- --------- --------- Net current (liabilities)/assets (2,071) 321 (3,324) -------------------- ----------- --------- --------- Total assets less current liabilities 63,289 77,122 63,781 Creditors - amounts falling due after more than one year (2,903) (13,680) (3,782) Provisions for liabilities and charges (3,840) (5,361) (3,843) -------------------- ----------- --------- --------- Net assets 56,546 58,081 56,156 -------------------- ----------- --------- --------- Capital and reserves Called up share capital 12,477 12,471 12,474 Share premium account 12,085 12,061 12,076 Capital redemption reserve 40 40 40 Merger reserve 967 967 967 Long term incentive plan reserve 165 162 - Profit and loss account 30,315 31,862 30,106 -------------------- ----------- --------- --------- Total shareholders' funds 56,049 57,563 55,663 -------------------- ----------- --------- --------- Equity minority interests 497 518 493 -------------------- ----------- --------- --------- Capital employed 56,546 58,081 56,156 -------------------- ----------- --------- --------- Consolidated Cash Flow Statement Interim Statement for the six months ended 31 December 2004 Six months Six months Year ended ended ended 31 December 31 December 30 June 2004 2003 2004 £'000 £'000 £'000 (restated) (restated) Net cash inflow from operating activities 1,302 4,702 12,143 Net cash outflow from returns on investment and servicing of finance (490) (628) (950) --------------------- ---------- ------------ ---------- Taxation 702 (3,116) (3,531) Capital expenditure and financial investment (2,902) (5,805) (11,016) --------------------- ---------- ------------ ---------- Equity and non equity dividends paid (3,149) (3,131) (4,482) --------------------- ---------- ------------ ---------- Management of liquid resources - - (340) --------------------- ---------- ------------ ---------- Cash flow before use of financing (4,537) (7,978) (8,176) --------------------- ---------- ------------ ---------- Net cash outflow from financing (1,037) (1,529) (1,939) --------------------- ---------- ------------ ---------- Decrease in cash (5,574) (9,507) (10,115) --------------------- ---------- ------------ ---------- Notes to the Consolidated Cash Flow Statement Six months Six months Year ended ended ended 31 December 31 December 30 June 2004 2003 2004 £'000 £'000 £'000 (restated) (restated) Reconciliation of net cash flow to movement in net debt Decrease in cash (5,574) (9,507) (10,115) Movement in debt 1,049 1,538 1,966 --------------------- ----------- ---------- ---------- Change in net debt from cash flows (4,525) (7,969) (8,149) Translation difference (1,004) (26) (916) --------------------- ----------- ---------- ---------- Movement in net debt in period (5,529) (7,995) (9,065) Net debt at beginning of period (10,257) (1,192) (1,192) Net debt at end of period (15,786) (9,187) (10,257) --------------------- ----------- ---------- ---------- Reconciliation of operating profit/(loss) to net cash inflow from operating activities Operating profit/(loss) 2,904 (1,906) (1,958) Depreciation charges 4,605 4,868 9,518 Goodwill amortisation 502 724 985 Profit on sale of tangible fixed assets (1) (4) (7) Long term incentive plan charge/(credit) 165 (42) (204) (Increase)/decrease in working capital (6,873) 1,062 3,809 --------------------- ----------- ---------- ---------- 1,302 4,702 12,143 ----------- ---------- ---------- Segmental reporting The Group operates in 3 main geographical areas. In addition, our strategic consulting business('RSC' ) operates on a global basis. Its figures have therefore been shown separately. 6 months ended UK North America Germany Rest of the RSC Total World 31 December 2004 £'000 £'000 £'000 £'000 £'000 £'000 Turnover by origin 39,298 15,347 14,885 239 2,815 72,584 ------------------ ------ ------- ------- -------- -------- -------- Operating profit/(loss) before goodwill amortisation 2,002 548 793 (86) 149 3,406 Operating profit/(loss) after goodwill amortisation 1,850 543 448 (86) 149 2,904 ------------------ ------ ------- ------- -------- -------- -------- Net operating assets 40,648 15,481 21,732 (621) (1,068) 76,172 Group borrowings falling due within 1 year (12,883) Group borrowings falling due after more than one year (2,903) Deferred consideration - Provisions for liabilities and charges (3,840) ------------------ ------ ------- ------- -------- -------- -------- Net assets 56,546 ------------------ ------ ------- ------- -------- -------- -------- UK North America Germany Rest of the RSC Total 6 months ended World 31 December 2003 £'000 £'000 £'000 £'000 £'000 £'000 Turnover by origin 45,137 19,808 11,820 - 522 77,287 ------------------ ------ ------- ------- -------- -------- -------- Operating profit/(loss) before goodwill amortisation 29 713 487 - (711) 518 Operating profit/(loss) after goodwill amortisation (191) 708 (11) - (711) (205) ------------------ ------ ------- ------- -------- -------- -------- Net operating assets 39,514 11,923 30,132 (25) 313 81,857 Group borrowings falling due within 1 year (4,735) Group borrowings falling due after more than one year (4,112) Deferred consideration (9,568) Provisions for liabilities and charges (5,361) ------------------ ------ ------- ------- -------- -------- -------- Net assets(restated) 58,081 ------------------ ------ ------- ------- -------- -------- -------- UK North America Germany Rest of the RSC Total 12 months ended World 30 June 2004 £'000 £'000 £'000 £'000 £'000 £'000 Turnover by origin 84,677 36,365 23,390 32 1,778 146,242 ------------------ ------ -------- -------- -------- ------- -------- Operating profit/(loss) before goodwill amortisation 1,869 1,026 1,181 (185) (1,291) 2,600 Operating profit/(loss) after goodwill amortisation 1,554 1,015 522 (185) (1,291) 1,615 ------------------ ------ -------- -------- -------- ------- -------- Net operating assets 42,775 9,564 17,557 (239) 599 70,256 Group borrowings falling due within 1 year (6,475) Group borrowings falling due after more than one year (3,782) Deferred consideration - Provisions for liabilities and charges (3,843) ------------------ ------ -------- -------- -------- ------- -------- Net assets (restated) 56,156 ------------------ ------ -------- -------- -------- ------- -------- Notes to the accounts 1. This Interim Statement should be read in conjunction with the Report and Accounts for the year ended 30 June 2004. The Interim Statements for the six months ended 31 December 2004 and 31 December 2003 respectively are neither audited nor reviewed. The abridged financial statements for the year ended 30 June 2004 do not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985 and are an extract from the latest published accounts which have been delivered to the Registrar of Companies and on which the auditors gave an unqualified audit report. 2.Taxation The tax charge of £183,000 for the period comprises foreign taxes payable on overseas profits. 3.Earnings per share The calculations of basic earnings per ordinary share and diluted earnings per ordinary share have been made in accordance with FRS14. The basic and diluted earnings per ordinary share have been calculated by dividing the profit attributable to ordinary shareholders of £2,246,000 (2003 - loss (restated) £2,737,000) by the weighted average number of shares in issue of 49,898,222 (2003 - 49,718,134). The calculation of the average number of shares in issue has been made having deducted the shares held by the Long Term Incentive Plan Trustee. The same basis has been used to calculate the basic and diluted earnings per ordinary share before goodwill amortisation except that the profit attributable to ordinary shareholders has been increased by goodwill amortisation of £502,000 (2003 - goodwill amortisation £723,000 and exceptional redundancy costs of £1,701,000) to £2,748,000 (2003 - loss (restated) £313,000). 4.Restatement of comparative figures The same accounting policies are followed in this Interim Statement as in the Report & Accounts for the year ended 30 June 2004, except as noted below: (a) The implementation of Amendment to FRS 5 'Reporting the substance of transactions': 'Revenue recognition' ('Application Note G') represents a change in accounting policy. Therefore the profit and loss and balance sheet for the 2003 comparative figures have been restated resulting in turnover and operating profit being increased by £426,000, creditors falling due within one year being increased by £1,107,000, due to the deferral of software income, and reserves being reduced by the same amount. (b) At 31 December 2003 and 30 June 2004, bank loans and overdrafts in a subsidiary have been reclassified from creditors - amounts falling due after more than one year to creditors - amounts falling due within one year by £530,000 and £1,006,000 respectively. The Consolidated Cash Flow Statement has been restated accordingly. (c) To provide a better understanding of the profit and turnover generated in the businesses, the segmental analysis for the year to 30 June 2004 has been restated for goodwill and to reflect the turnover and profit generated by the staff of those businesses. These accounts were approved by the Board of Directors on 21 February 2005. This announcement is being circulated to all shareholders of the Company, and copies will be available to the public at the Company's Registered Office at Bridge Works, Shoreham-by-Sea, West Sussex, BN43 5FG. This information is provided by RNS The company news service from the London Stock Exchange

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