Final Results

Ricardo PLC 18 September 2000 18 September 2000 Ricardo plc Preliminary results for the year to 30 June 2000 HIGHLIGHTS Ricardo plc is the UK's leading independent automotive consultancy with technical centres in the UK, USA, Germany and the Czech Republic employing over 1,300 people. The company's client list includes all the world's major OEMs. Ricardo is a constituent of the FTSE techMark 100. - Record profits for the third consecutive year - Profit before tax up 23% to £12.8m - Turnover up 27% to £121.1m - Basic earnings per share up 22% to 18.9p (1999: 15.5p) - Total dividend of 7.4p per share (1999: 7.0p) - Order book up 19% at 30 June - Contract for the new MINI from BMW awarded July 2000 Commenting on the results, Sir Noel Davies, Chairman said: 'We remain optimistic about the future. We believe that Ricardo is well placed to take advantage of opportunities emerging from the global automotive industry and expect to maintain profitable growth for the foreseeable future.' Further enquiries: Ricardo plc ) (today) 020 7457 2345 Rodney Westhead, Chief Executive ) (thereafter) 01273 455611 Andrew Goodburn, Finance Director ) Gavin Anderson & Company Marc Popiolek/Laura Hickman/ 020 7457 2345 Charlotte Stone Website: www.ricardo.com CHAIRMAN'S STATEMENT Review of the Year The year has seen further progress on the initiatives I reported last year. In the United Kingdom, Ricardo Consulting Engineers has continued to extend its customer base and develop its resources to better match the forward workload. Of particular importance was the award of the contract from BMW for the new MINI project. Ricardo MTC is already fully using the facilities acquired in 1999. Further investment on that site has been authorised in the form of test cells and additional office and workshop space needed to cope with the forecast growth in the business. Ricardo Test Automation has recovered from a poor start to the year and now has an improved order book. In the USA, Ricardo Inc. continues to strengthen its position within the Group. The office in Germany has made a slower start than we had planned but we remain confident of the prospects for Ricardo GmbH. Financial Results and Dividend Profit before tax was £12.8 million compared with £10.4 million last year. There have been no exceptional items in any of the last three years. Turnover increased to £121.1 million from £95.5 million. Earnings per share increased by 22 per cent. to 18.9p from 15.5p. A small outflow of cash resulted in our gearing improving to 11.6% from 12.4%. Your Board is recommending an increase in total dividend to 7.4p per ordinary share compared with 7.0p last year, which is covered 2.5 times compared with 2.2 times in 1999. Strategy We remain confident that the focus on automotive consulting represents the optimum strategy for the company. Over recent years we have set a pattern of investments in people, facilities and research and development which will be continued on all sites where the investment can be justified by real opportunities for the international automotive industry. Simultaneously we are responding to the demands of our global customers, who are increasingly expecting the supplier to provide high quality, cost effective, single source consulting services. People On behalf of your Board, I would like to thank all our employees for the contribution they have made to the achievements of the past year. Having made some adjustments during the year to balance specialist resources with current demands, the company has continued with its recruitment programme and the development of a working environment which maximises job satisfaction and career opportunities. At the end of the AGM Bill Foreman, who joined us as a non-executive director in 1992, retires from the Board. Bill has made a valuable contribution to the affairs of your company, especially as Chairman of the Audit Committee. We shall miss his wise counsel. On 1st July 2000 we welcomed Professor Ian Percy. Ian Percy is a non-executive director of the Weir Group and a number of financial institutions. He has broad and relevant experience in commerce and industry and will succeed Bill Foreman as Chairman of the Audit Committee. Prospects We remain optimistic about the future. We believe that your company is well placed to take advantage of opportunities emerging from the global automotive industry and expect to maintain profitable growth for the foreseeable future. CHIEF EXECUTIVE'S REVIEW Our Market Place Another highly successful year for Ricardo and another year of extraordinary change in the automotive industry. These changes will continue to provide opportunities and challenges for Ricardo. Links now being forged between Western, Japanese and Korean car companies should help our continuing efforts to gain more business from the Far East. However, North American and European mergers and the consequent consolidation of platform and engine families does reduce the overall number of potential customers. This year has seen major component suppliers seeking Ricardo's technology, methodologies and systems integration skills as customers in their own right. This growing demand coupled with the increase of niche vehicles based on common platforms should further fuel Ricardo's growth potential. Industry consolidation is creating a need for the new larger groups to look critically at their often overlapping engine families and to develop rationalisation plans. These plans are further influenced by the continuing need for greater fuel efficiency and reduced emissions which can be achieved only from new engine designs. This is all good news for Ricardo as we have both the technical skills, project management skills and staff resources to meet these needs. This should sustain double digit growth. During the year, Ricardo Consulting Engineers delivered two important engine prototype programmes in record time, a significant contribution as customers strive to take time out of their development programmes. The ability of Ricardo to shorten time scales thereby reducing customer cost is an important part of our role in this market place. The ways in which we carry out our business will change significantly in the next few years. In addition to the Tier One component suppliers becoming major customers, our existing customers are likely to change the way they work with us. We are likely to take on more large-scale projects, with dedicated project offices adjacent to customers sites involving mixed teams from Ricardo, the customer and component suppliers. We may also be involved in running customer facilities where these are of a research or development nature with financing provided by a third party. Investments The investments made in the past year totalling £15 million have been at a record level, in particular four new test cells in Detroit in support of a major customer order, a further addition to the Ricardo Consulting Engineers Design Centre for 100 people, a facility for engine and vehicle refinement studies, and high precision equipment to support our racing programmes at our Midlands Technical Centre. We are opening two offices in Germany to take our skills to the German car manufacturers and opened an office in Prague to take advantage of high quality lower cost staff available in the former Eastern Europe. Brighton Automotive Conference The UK is recognised as a centre of excellence for automotive engineering, but has never hosted a conference for the benefit of the professional engineers. This year saw the first 'Brighton Automotive Conference' which was organised and hosted by Ricardo. Following the success of the conference this is likely to be an annual event. The quality of the speakers, their papers and the delegates were both excellent and fully representative of our global industry. The whole event was a tribute to the esteem in which your company is held by the automotive industry. BMW MINI Contract It is very rare that we can write about the work we carry out, at the time that we win contracts, so it is pleasing that we were able to announce the award of the BMW MINI contract to Ricardo for the completion of the powertrain development and installation. This is a major contract, but not our largest, for a major new model introduction. It has involved the creation of a new office at our Midlands Technical Centre for over 100 Ricardo Staff, including Ex-Rover Staff and customer staff. The work covers both engine and transmission development and enabled Ricardo to recruit over fifty highly experienced engineers from Rover who we are delighted to welcome to Ricardo. As a result of the BMW MINI contract we are now able to offer engine and transmission design and development capability to the Midlands based Jaguar, Land Rover and Rover business from our Midlands site. Racing Of course it is also a great pleasure to be able to report our part in the remarkable Audi achievement at the Le Mans 24 hours endurance race where cars equipped with Ricardo designed, developed and manufactured transmissions came 1st, 2nd and 3rd, only the third time that this feat has been achieved in the long history of this race. As a result of over twenty two thousand gear changes per car per race, the transmission is probably the most stressed part of the car. Its faultless performance was a fitting tribute to Audi and Ricardo engineers. Information technology and E-commerce As a provider of high technology solutions and services to our customers we regard investment in IT and web enabled technologies as vital to the future growth of the Group. During the year we have been active in several fields of e-commerce. Internally we have developed extensive intranets to manage and share our specialist knowledge across the Group and to facilitate for efficient and timely delivery of projects to our clients. Externally, we have continued to update our website (www.ricardo.com) and have been heavily involved in establishing with other Automotive partners the new European Network Exchange which will enable secure transfer of data throughout the European automotive industry. We also announced earlier in the year our investment in developing a European auto supplier E-commerce portal. Ricardo intend to be the engineering information supplier to users who will consist of the major component suppliers and similar opportunities will exist outside Europe and with the OEMs. We do consider Ricardo should be positioned as the leading information supplier to the automotive industry building on the reputation we have developed over 80 years prior to the e-commerce arena. People Our investment in people has continued with a significant increase in our level of graduate recruitment, and all staff training to ensure that we fully understand and exploit the changes taking place in our industry. The level of change is unprecedented and this can be unsettling for people. However, the challenge of change is invigorating and provides great opportunities. Our recruitment of professional engineers from around the world continues with senior appointments from Germany, the United States, France, Italy, Japan and the United Kingdom. These indicate both the international nature of our customers and our determination to make Ricardo an International Business and not just a business which trades internationally. This is vital to fulfil our customers' expectations of their suppliers. Increasing staff mobility is vital as customers demand local support. Teams of engineers have been seconded to the USA, Germany and France from the UK and Ricardo Consulting Engineers based staff seconded to the Ricardo Midlands Technical Centre, all in support of major programmes. This is in addition to the many individual support assignments that take place every year. I would like to thank all members of staff for the efforts, energy and success in the year and the serious sacrifices that they make to their personal lives in helping Ricardo to succeed. CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 30 June 2000 Notes 2000 1999 £'000 £'000 Turnover 2 121,107 95,489 --------- --------- Operating profit 3 13,141 10,882 Net interest (341) (457) --------- --------- Profit on ordinary activities before 12,800 10,425 taxation (3,860) (3,206) Taxation on profit on ordinary activities --------- --------- Profit on ordinary activities after taxation 8,940 7,219 Equity minority interest (17) - --------- --------- Profit for the financial year 8,923 7,219 Non-equity preference dividends (4) (3) --------- --------- Profit attributable to ordinary 8,919 7,216 shareholders Equity ordinary dividends 4 (3,534) (3,261) --------- --------- Amount transferred to reserves 5,385 3,955 --------- --------- Basic earnings per ordinary share 5 18.9p 15.5p Diluted earnings per ordinary share 5 18.4p 14.9p All results relate to continuing activities. There is no material difference between the profit on ordinary activities before taxation and the profit for the financial year, stated above, and their historical cost equivalents. CONSOLIDATED BALANCE SHEET as at 30 June 2000 2000 1999 £'000 £'000 Fixed assets Intangible assets 59 - Tangible assets 44,219 35,198 Investment properties 490 980 Investments 491 493 --------- --------- 45,259 36,671 --------- ---------- Current assets Stocks 2,397 2,789 Debtors 37,127 31,981 Cash deposit 340 340 Cash at bank and in hand 10,147 5,651 --------- ---------- 50,011 40,761 Creditors - amounts falling due within one year (43,610) (39,649) --------- --------- Net current assets 6,401 1,112 Total assets less current liabilities 51,660 37,783 Creditors - amounts falling due after more than one year (8,678) (1,826) Provisions for liabilities and charges (4,809) (4,579) --------- --------- Net assets 38,173 31,378 --------- ---------- Capital and reserves Called up share capital 12,029 11,831 Share premium account 6,309 4,564 Merger reserve 967 967 Long term incentive plan reserve 467 635 Profit and loss account 18,160 13,381 --------- --------- Ricardo shareholders' funds (including non-equity 37,932 31,378 interests) Equity minority interest 241 - -------- --------- Total shareholders' funds 38,173 31,378 --------- ---------- CONSOLIDATED CASH FLOW STATEMENT for the year ended 30 June 2000 2000 1999 Notes £'000 £'000 £'000 £'000 Net cash inflow from operating activities 6 17,668 18,218 Returns on investments and servicing of finance Interest received 379 204 Interest paid (883) (549) Interest element of finance lease rental payments (10) (21) Dividends paid on non-equity shares (4) (3) ------- -------- Net cash outflow from returns on investment and servicing of finance (518) (369) Taxation (1,460) (1,700) Capital expenditure and financial investment Purchase of tangible and intangible fixed assets (14,952) (13,279) Sale of tangible fixed assets 493 178 ------- -------- Net cash outflow for capital expenditure and financial investment (14,459) (13,101) Equity dividends paid (3,340) (3,114) --------- --------- Net cash outflow before use of financing (2,109) (66) Financing Issue of ordinary share capital 1,315 311 Proceeds from ESOP share options - 127 Purchase of own shares - (328) Capital elements of finance lease rental payments (119) (102) Loans taken out 3,766 - Loans repaid (2,008) (192) Issue of shares to minority shareholder 212 - ------- -------- 3,166 (184) ------- -------- Increase/(decrease) in cash 7 1,057 (250) ------- -------- NOTES 1. Accounting policies This preliminary announcement has been prepared on the basis of the accounting policies as set out in the annual financial statements for the year ended 30 June 2000. 2. Turnover 2000 1999 £'000 £'000 Geographical Analysis Europe 75,032 69,459 North America 40,167 19,294 Pacific Basin 4,557 3,806 Rest of World 1,351 2,930 --------- -------- 121,107 95,489 --------- -------- The directors consider that the Group operates in one business segment, serving the global automotive market. The United Kingdom is the principal location for operating profits and the net assets of the Group. The only significant overseas operation is in the USA, which is an integral part of the UK operation. As a consequence, it is not meaningful to show its turnover, operating results or net assets separately. 3. Profit on ordinary activities before taxation Profit on ordinary activities before taxation is after charging for research and development of £5.2 million (1999: £4.7 million) and depreciation of £6.4 million (1999: £5.0 million). 4. Dividends The final dividend is 5.0p (1999: 4.7p). This is payable on 24 November 2000 to ordinary shareholders on the register on 27 October 2000. 5. Earnings per share The calculation of basic earnings per ordinary share and diluted earnings per ordinary share have been calculated in accordance with FRS14 and is based on the weighted average number of shares. Weighted average number of shares 2000 1999 '000 '000 Basic eps 47,105 46,442 Diluted eps 48,567 48,329 6. Net cash inflow from operating activities 2000 1999 £'000 £'000 Operating profit 13,141 10,882 Depreciation charges 6,432 5,047 (Profit)/loss on sale of tangible fixed assets and investment (23) 2 properties Long term incentive plan charge 460 623 Quest contributions - written off (870) - to reserves Provision for diminution in value of investment properties 200 235 Decrease/(increase) in stocks 395 (81) Increase in debtors (4,219) (712) Increase in creditors 2,152 2,222 -------- -------- 17,668 18,218 -------- -------- 7. Reconciliation of net cash flow to movement in net debt 2000 1999 £'000 £'000 Increase/(decrease) in cash 1057 (250) Decrease in debt and lease (1,639) (55) financing -------- -------- Change in net debt from cash (582) (305) flows - (18) New finance leases 69 295 Exchange movement ------- --------- Movement in net debt in year (513) (28) ------- --------- - Net debt at 1 July (3,899) (3,871) Net debt at 30 June (4,412) (3,899) -------- --------- - 8. Analysis of net debt Non At 1 July Cash Cashflow Exchange At 30 June 1999 flow Movements Movement 2000 £'000 £'000 £'000 £'000 £'000 Cash in hand 5,651 4,339 - 157 10,147 Overdrafts (2,656) (3,282) - 109 (5,829) -------- -------- --------- --------- ------ 2,995 1,057 - 266 4,318 Debt due after 1 year (1,775) (3,766) 2,939 (197) (8,677) Debt due within 1 year (4,947) 2,008 (2,939) - - Finance leases (172) 119 - - (53) ------- ------ ------- ------ -------- Total (3,899) (582) - 69 (4,412) --------- ------- ------- ------ --------- 9. The figures for the year ended 30 June 2000 are an extract from the Group's statutory accounts, which will be delivered to the Registrar of Companies following the Annual General Meeting. The auditors' report on these accounts was unqualified and does not contain any statement under section 237 of the Companies Act 1985.

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