Final Results
Ricardo PLC
22 September 2003
22 September 2003
Ricardo plc
Preliminary Results for the twelve months ended 30 June 2003
Ricardo plc is the UK's leading independent automotive consultancy, employing
over 1,800 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.
• Robust results against difficult market environment and after
increased pension charge and insurance costs of c. £2m
• Profit before tax pre goodwill £16.2m (2002: £16.7m)
• Basic earnings per share pre goodwill up 2% 25.5p (2002 : 25.0p)
• Order book down year on year as anticipated - reflecting shorter order
cover periods highlighted in pre-close statement
• Dividend up 4.7% to 9.0p (2002 : 8.6p)
• Gemini, Tarragon & German acquisitions provide opportunities for
future growth
• Strategic Consulting and Japanese collaboration both off to a good
start
Commenting on the results, Rodney Westhead, Chief Executive said:
'2003 saw the toughest trading conditions Ricardo has seen for 10 years. 2004 is
expected to be another difficult year as current trends and growing competitive
pressures in the automotive industry create greater uncertainty. As a result,
order cover is being received for shorter periods and this makes it much more
difficult to get a clear picture of how the current year will unfold at the
present time.
Despite this, Ricardo remains a world class business and the Board remains
confident, that with a clear strategy, strong business offering and the
opportunities created by recent acquisitions to develop our high value added
activities, the Company is well positioned to continue profitable growth when
our markets improve.'
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
--------------------------
CHAIRMAN'S STATEMENT
Review of the year
Your Company has achieved reasonable results for the year as a whole, despite
having to carry higher costs associated with insurance premia, pension charges
and the integration of two acquisitions, Gemini and Tarragon.
This achievement has been accomplished in an international automotive market
place where the major players, including the car manufacturers themselves, have
faced strong competition and mixed demand for their products. Against this
background our strategic objective to continue to develop our role as
engineering consultants to the industry at large has underpinned performance.
Your Company has continued to provide high quality consultancy services to the
industry, especially in relation to engine and transmission design and more
recently all-vehicle engineering. During the last twelve months we have also
extended our services to include the provision of advice on strategic issues
which automotive manufacturers now face.
Once again all divisions have contributed to this success. Ricardo Consulting
Engineers (RCE) has extended its business in the growing electronics field, with
the acquisition of Tarragon, details of which appear in the Chief Executive's
report. Our American subsidiary, Ricardo Inc., has continued to broaden its
customer base and our confidence in that division's future is demonstrated by
the opening of the new premises in Detroit, and a commitment to further
investment in test facilities in Chicago. The prospects of further growth in the
business of Driveline Transmission Systems (DTS) and Ricardo Vehicle Engineering
(RVE) have justified our decision to extend the premises there to maximise the
office and workshop space in our premises in Leamington. During the last year
the business of Gemini Transmissions, acquired on 9 July 2002, has been
integrated into DTS and has already justified its acquisition with the
opportunities which have emerged in motorsport.
Annual results and dividend
Profit before tax and goodwill amortisation was £ 16.2m compared with £16.7m
last year. Turnover reduced to £136.6m from £143.2m. The year started with a net
cash balance of £19.9m, but the resources were used, in the main, to purchase
Tarragon Embedded Technology Limited, the PROTOtechnik-IFT group of companies in
Germany and the business and assets of Gemini Transmissions Limited. Your Board
is recommending an increase in total dividend to 9.0p per share, compared with
8.6p last year. This dividend is covered 2.7 times, compared with 2.9 times last
year.
Strategy
In my report for 2002 I explained our intention to develop a consultancy service
to provide advice on strategic issues in the automotive industry. Our new
Strategic Consulting division has made an excellent start in its first year and
has already won several important contracts.
You will already be aware of the importance your Board places on the
international aspects of Ricardo's business. We have for some time recognised
the importance of Germany and the need for Ricardo to establish a significant
presence in the largest engineering services market outside North America. On 30
June 2003, we announced the acquisition of the PROTOtechnik-IFT group, a well
established group offering services compatible with RCE, which has been given
the direct responsibility for its integration into the Ricardo family.
People
On 1 January 2003 we welcomed to the Board Gerald Andrews and Clive Hickman,
Managing Directors of DTS and RVE respectively, as executive directors and on 24
June 2003 Michael Harper, Chief Executive of Kidde PLC, as a non-executive
director.
Earlier today I announced my intention of retiring from the Board on 31 December
2003. I am delighted that Marcus Beresford has agreed to join the Board with the
intention of succeeding me as Chairman and will take my place on each of the
Board Committees, details of which are given in the Director's Report. I would
like to take this opportunity to thank everybody concerned at Ricardo who have
contributed to the success of the last six years. I have thoroughly enjoyed my
time with the Company and look forward to watching it grow, albeit from the
sidelines.
Prospects
Although intense competitive pressure within the automotive industry is
resulting in shorter order books and short term reductions in new model
launches, the need for new and innovative models enables your Board to remain
confident that your Company is very well placed to achieve profitable growth
when markets improve.
CHIEF EXECUTIVE'S REVIEW
Market place
The year to 30 June 2003 saw the most difficult trading conditions that Ricardo
has experienced in the last ten years and at the present time 2004 is unlikely
to be any easier. Profit before tax and goodwill amortisation of £16.2m (2002:
£16.7m) is arrived at after an increase in pension and insurance costs of nearly
£2.0m and a provision for a bad debt of £0.35m which emerged after the year end.
However during the year Ricardo also integrated the Gemini acquisition,
established Ricardo Strategic Consulting, signed our co-operation agreement with
Horiba in Japan, acquired Tarragon Embedded Technology Ltd and acquired a
significant subsidiary in the automotive heartland of Germany, whilst continuing
to deliver exceptional programmes to the automotive industry world-wide.
It is now important that we integrate, consolidate and then grow each of the new
developments that we have initiated in the last year, to ensure that we continue
to deliver a consistently high quality service to our customers, no matter where
they need Ricardo around the world.
The problems currently besetting the world's car industry include overcapacity,
pressure on margins, increasingly complex technology and associated warranty
problems in addition to customers demanding enhanced levels of satisfaction and
variety, which all create opportunities for Ricardo. Our capabilities therefore
need to recognise these problems and we are working to deliver appropriate
solutions.
With our growing emphasis on electronics, the delivery of our services at our
customers' main geographic centres and strategic consulting particularly aimed
at innovation and product development effectiveness, cost reduction and managing
down and prevention of warranty costs, Ricardo is able to work with our
customers to address these key industry issues. Much of what we do for our
customers must remain confidential but one example where we have specific client
permission is the Bugatti transmission which represents the world's most
advanced transmission available in a car today. The Bugatti transmission and
Tarragon electronics, with its capability in safety critical systems, which will
assume immense importance with the development of drive-by-wire systems (i.e.
brakes, steering and accelerator all activated by electronics signal not direct
mechanical connection) typify our determination to maintain our technical lead.
Equally, our diesel technology for Europe and North America and our specific
vehicle development programmes, which are at the very forefront of technology,
meet the vital needs of our customers, the world's largest volume car
manufacturers.
Business development
We are pleased to announce that based on the cost effective fuel consumption
benefits demonstrated by the Ricardo I-MoGen mild hybrid diesel vehicle, Ricardo
has been awarded a major collaborative research programme, part funded by the
Department for Transport (DfT) through the New Vehicle Technology Fund (NVFT).
The programme to design, build and demonstrate a hybrid delivery van will be led
by Ricardo, working with a major automotive OEM and two European Tier 1
suppliers. Key Ricardo responsibilities include; vehicle modelling and concept
definition, control system design, vehicle integration and overall programme
management.
The programme is designed to demonstrate the commercial and environmental
attributes of hybrid technology. Our current R&D programmes include advance
transmissions, cleaner diesels and a very fuel efficient petrol-engined vehicle
based on the Ford Focus which should be 20% more fuel efficient than existing
vehicles. This will be available as a demonstrator car by the end of September
2003, and is an excellent example of innovation, emerging from R&D investment.
Our acquisitions and developments in the year have given Ricardo the full global
reach that our customers demand and enhance our capability to provide a fuller
service to our customers. Gemini has been fully integrated into our existing
Midlands transmission business and we have had another record year for this
business. The significant contribution that can be made to fuel consumption and
emissions reduction by technically advanced transmissions is now wholly
recognised and will continue to drive Ricardo forward for the foreseeable
future.
Strategic Consulting made a tremendous start from a zero base, finishing the
year with a profitable business although overall making a small loss for the
whole year. Programmes have included assignments for major OEM's and Tier 1
suppliers in Europe. Our plans for 2004 include extending this service to the
USA and we are confident it will grow significantly within the new financial
year. Tarragon joined Ricardo in February 2003 and was rapidly integrated into
our fast growing electronics team. This was of immediate benefit to existing
Ricardo programmes and at the same time Tarragon continued to grow its own
client base. We expect it will play a major part in further developing our
electronics capability which continues to be one of the fastest growth areas in
automotive development.
Our activity in Japan has continued to grow aided by our agreement to
collaborate with Horiba Ltd, the highly respected supplier to the Japanese
automotive industry. The joint Horiba Ricardo activity is now starting to
generate orders and whilst progress in Japan will naturally be at a cautious
pace, we are now confident that we have an enduring presence in this vital
market.
In Germany our acquisition of the PROTOtechnik-IFT group of companies at the end
of June 2003 has delivered the size, technical capability and geographical
presence that we have searched for in this vital European market to add to our
existing German offices. It is conveniently placed just outside Stuttgart, where
we are close to Mercedes, BMW, Porsche and Audi, whilst our existing Wolfsburg
office is on the doorstep of VW. The early stages of integrating
PROTOtechnik-IFT into Ricardo have gone very well, the initial reaction from
customers has been extremely favourable and we remain confident that this
acquisition will help drive our growth in Europe.
Business review
RCE remains at the forefront of diesel engine developments for both Europe and
the USA. It has also led the way in vehicle calibration for Jaguar where our
highly innovative vehicle calibration on testbed (VCOT) has significantly
reduced the need for development vehicles saving both time and money for
customers. Test bed engine development work has been carried out using our
Global Test Environment (GTE) which essentially places the engine in its test
cell on the engineer's desk, via his computer work station, wherever he may be
in the world, using a large spectrum of digital communication technologies. The
potential savings for a one engine development job are significant, the
potential savings across an OEM's entire test and development facility are
enormous.
DTS stays at the forefront of transmission developments, and is involved in a
growing number of European and USA programmes including the Bugatti Veyron,
advanced commercial and passenger car programmes and a growing portfolio of
Formula One and other race series.
RVE has been heavily involved in two vehicle programmes, both of which met stiff
technical challenges but were delivered on time and budget to our customers. In
today's auto markets, new model launches on time and to budget are by no means
certain and achieving this is of significant financial benefit to our customers.
The war in the Middle East has also improved our military vehicle opportunities
which broadens our client base for this otherwise potentially volatile business.
The growth of our Midlands based businesses, DTS and RVE, now joined by RSC, has
necessitated the development of a new 45,000 sq. ft. building on our existing
site near Leamington. This will be completed in June 2004 and will allow both
expansion of our current site activities and the move of the Gemini business to
the site from Brackley.
In the USA it has been a year of steady progress. Following a tough first half,
the business improved steadily through the second half. The new 77,000 sq. ft.
building was completed and the whole business is once again housed on one
campus. During the year, close co-operation with the RCE diesel team has raised
our profile in this fledgling market and close co-operation with the DTS team
has resulted in four major transmission programmes for US customers, although
the majority of the work is being carried out in the UK. In Chicago, work on
extending our heavy duty engine test facility has started to enable Ricardo to
meet the increasing demands of USA truck emissions standards for 2007 and
beyond. The launch of WAVE 5.0, our latest engine simulation software, has
ensured that this aspect of our business remains up to date and competitive.
Outlook
2003 was a tough year and 2004 is likely to be even more competitive. Order
cover is now being received for shorter periods than has previously been
experienced and a number of projects won in the year were cancelled after the
year end, before hitting the order book, as OEM's reviewed the economic
viability of their programmes. It is, therefore, increasingly difficult to
predict forward orders in the current climate. We continue to concentrate on
high added value activity and the development of our skills in the world-wide
automotive market place. Our R&D programmes focus on meeting our customers'
major challenges and concerns and we remain encouraged by our ability to provide
sound advice and advanced technology.
2004 is expected to be a difficult year for the whole automotive industry,
including Ricardo, however we continue to see rising demand for sophisticated
technology covering emissions, fuel economy, safety and telematics, a growing
demand for more vehicle derivatives and the need to bring programmes to fruition
on time and budget. There is also continuing pressure to outsource, which all
plays to Ricardo's growing spread of capabilities, supplied wherever our clients
may need them. Therefore we remain confident in our future success.
I would like to thank everybody in Ricardo who has helped to make 2003 a good
year in the face of huge pressures. With recent acquisitions adding to our
growing high value international activities, we are well positioned for the
future despite continuing market uncertainty.
Consolidated Profit & Loss Account
For the year ended 30 June 2003
Before 2003 2002
goodwill Goodwill £'000 Before Goodwill £'000
Notes amortisation amortisation Total goodwill amortisation Total
Turnover 2
Continuing 135,246 - 135,246 143,178 - 143,178
operations
Acquisitions 1,394 - 1,394 - - -
--------------- ----- -------- -------- ------- ------- -------- -------
136,640 - 136,640 143,178 - 143,178
Operating
profit
Continuing 15,453 (281) 15,172 16,508 (13) 16,495
operations
Acquisitions 133 - 133 - - -
--------------- ----- -------- -------- ------- ------- -------- -------
15,586 (281) 15,305 16,508 (13) 16,495
Net interest 565 - 565 164 - 164
--------------- ----- -------- -------- ------- ------- -------- -------
Profit on 3 16,151 (281) 15,870 16,672 (13) 16,659
ordinary
activities
before
taxation
Taxation (3,460) (4,506)
--------------- ----- -------- -------- ------- ------- -------- -------
Profit on
ordinary
activities after
taxation 12,410 12,153
--------------- ----- -------- -------- ------- ------- -------- -------
Minority
interest
(including
non-equity
interest) (194) (92)
--------------- ----- -------- -------- ------- ------- -------- -------
Profit for the 12,216 12,061
financial year
Dividends 4 (4,483) (4,207)
--------------- ----- -------- -------- ------- ------- -------- -------
Retained profit 7,733 7,854
for the year
--------------- ----- -------- -------- ------- ------- -------- -------
Earnings per
ordinary share
-basic 5 24.9p 24.9p
-diluted 5 24.6p 24.5p
Earnings per
ordinary share
excluding
goodwill
amortisation
-basic 5 25.5p 25.0p
-diluted 5 25.2p 24.6p
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 and Company Balance Sheets
as at 30 June 2003
Group Company
2003 2002 2003 2002
£'000 £'000 £'000 £'000
Fixed assets
Intangible assets 26,339 35 - -
Tangible assets 50,452 45,195 6,332 6,231
Investments 99 331 19,733 16,499
----------------------- -------- -------- -------- -------
76,890 45,561 26,065 22,730
----------------------- -------- -------- -------- -------
Current assets
Stocks 7,173 1,667 - -
Debtors 52,569 46,322 180,405 20,270
Cash deposit 340 340 - -
Cash at bank and in hand 6,052 28,090 18,105 24,214
----------------------- -------- -------- -------- -------
66,134 76,419 198,510 44,484
Creditors - amounts falling due (56,978) (53,166) (35,409) (30,861)
within one year -------- -------- -------- -------
-----------------------
Net current assets 9,156 23,253 163,101 13,623
----------------------- -------- -------- -------- -------
Total assets less current 86,046 68,814 189,166 36,353
liabilities
Creditors - amounts falling due (15,832) (6,840) - (5,200)
after more than one year
Provisions for liabilities and (5,276) (5,783) (130) (125)
charges
----------------------- -------- -------- -------- -------
Net assets 64,938 56,191 189,036 31,028
----------------------- -------- -------- -------- -------
Capital and reserves
Called up share capital 12,469 12,247 12,469 12,247
Share premium account 12,054 9,767 12,054 9,767
Capital redemption reserve 40 40 40 40
Merger reserve 967 967 - -
Long term incentive plan reserve 204 594 204 594
Profit and loss account 38,614 32,293 164,269 8,380
----------------------- -------- -------- -------- -------
Total shareholders' funds 64,348 55,908 189,036 31,028
----------------------- -------- -------- -------- -------
Minority interest (including 590 283 - -
non-equity interest) -------- -------- -------- -------
-----------------------
----------------------- -------- -------- -------- -------
Capital employed 64,938 56,191 189,036 31,028
----------------------- -------- -------- -------- -------
Consolidated Cash Flow Statement
for the year ended 30 June 2003
2003 2002
Notes £'000 £'000 £'000 £'000
Net cash inflow from 6 19,490 30,242
operating activities
Returns on investments and
servicing of finance
Interest received 1,260 727
Interest paid (636) (541)
Interest element of finance (62) -
rental payments
Dividend paid to minority - (141)
shareholder
----- ------ ------- ------ -------
Net cash inflow from returns
on
investment and servicing of 562 45
finance
Taxation (3,921) (3,204)
Capital expenditure and
financial investment
Purchase of tangible fixed (8,260) (5,967)
assets
Sale of tangible fixed assets 64 332
Shares purchased for LTIP (381) -
-------------------------- ----- ----- ------- ------ -------
Net cash outflow from capital (8,577) (5,635)
expenditure and financial
investment
Acquisitions
Purchase of subsidiary (18,863) -
undertakings
Acquisition expenses (458) -
Net cash acquired with 123 -
subsidiary undertakings
-------------------------- ----- ------ ------- ------ -------
Net cash outflow from (19,198) -
acquisitions
Equity dividends paid (4,275) (3,829)
-------------------------- ----- ----- ------- ------ -------
Cash flow before use of (15,919) 17,619
financing
Financing
Issue of ordinary share 929 345
capital
Amount received in respect of - 49
ESOP shares
Capital elements of finance (940) (1)
lease rental payments
Loans repaid (6,462) (1,209)
-------------------------- ----- ----- ------- ------ -------
Net cash outflow from (6,473) (816)
financing
-------------------------- ----- ----- ------- ------ -------
(Decrease)/increase in cash (22,392) 16,803
-------------------------- ----- ----- ------- ------ -------
NOTES TO THE ACCOUNTS
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 2003.
2. Turnover
2003 2002
£'000 £'000
Europe 87,554 87,699
North America 41,825 46,912
Pacific Basin 5,622 7,046
Rest of the World 1,639 1,521
----------- ------------
136,640 143,178
----------- ------------
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. As a consequence, it is not
meaningful to show separately its turnover, operating results or net assets by
origin or geographical location.
3. Profit on ordinary activities before taxation
Profit on ordinary activities before taxation is after charging for research and
development of £5,120,000 (2002: £4,636,000) goodwill of £281,000 (2002:
£13,000) and depreciation of £9,495,000 (2002: £9,117,000).
4. Dividends
The final dividend is 6.3p (2002: 6.0p). This is payable on 21 November 2003 to
ordinary shareholders on the register on 24 October 2003.
5. Earnings per share
Basic earnings per share is calculated by dividing the earnings attributable to
ordinary shareholders by the weighted average number of shares in issue during
the year, excluding those held in the ESOP and those held by the LTIP which are
treated as cancelled.
For diluted earnings per share, the weighted average number of ordinary shares
in issue is adjusted to assume conversion of all dilutive potential ordinary
shares. The Group has two classes of dilutive potential ordinary shares: those
options granted to employees where the exercise price is less than the market
price of the Company's ordinary shares during the year and the contingently
issuable shares under the Group's LTIP. At 30 June 2003, the performance
criteria for the vesting of awards under the plans maturing on 30 June 2004 and
30 June 2005 had not been met and consequently the shares in question are
excluded from the diluted earnings per share computation.
Reconciliations of the earnings and the weighted average number of shares used
in the calculations are set out below:
2003 2002
Weighted
average
Weighted
average number Number of Per share
of shares
Per share
Earnings shares amount Earnings shares amount
£'000 '000 Pence £'000 '000 pence
Basic EPS
Profit 12,216 49,059 24.9 12,061 48,352 24.9
attributable to
ordinary
shareholders
Effect of
dilutive
securities:
Options - 438 - 678
LTIP - 118 - 120
-------------- -------- -------- ------- ------- ------- -------
Diluted EPS
Adjusted 12,216 49,615 24.6 12,061 49,150 24.5
earnings
-------------- -------- -------- ------- ------- ------- -------
Supplementary earnings per share to exclude goodwill amortisation
Basic EPS 12,216 49,059 24.9 12,061 48,352 24.9
Goodwill 281 13
amortisation
--------------- ------- -------- ------- ------- ------- -------
Basic EPS
excluding
goodwill
amortisation 12,497 49,059 25.5 12,074 48,352 25.0
-------------- -------- -------- ------- ------- ------- -------
Diluted EPS 12,216 49,615 24.6 12,061 49,150 24.5
Goodwill 281 13
amortisation -------- -------- ------- ------- ------- -------
--------------
Diluted EPS
excluding
goodwill
amortisation 12,497 49,615 25.2 12,074 49,150 24.6
-------------- -------- -------- ------- ------- ------- -------
The weighted average number of shares in issue may be reconciled to the number
used in the earnings per share calculation as follows:
2003 2002
Weighted average number: '000 '000
Ordinary shares in issue 49,188 46,648
Shares held by ESOP (67) (189)
Shares held by LTIP (62) (107)
-------------------------- ----------- -----------
49,059 48,352
-------------------------- ----------- -----------
6. Net cash inflow from operating activities
2003 2002
£'000 £'000
Operating profit 15,305 16,495
Depreciation Charges 9,495 9,117
Goodwill amortisation 281 13
Profit on sale of tangible fixed assets (15) (14)
Long term incentive plan (9) 455
Increase in stock (257) (195)
Decrease/(increase) in debtors 2,228 (3,531)
(Decrease)/Increase in creditors (7,538) 7,902
-------------------------- ------- ---------
Net cash inflow from operating activities 19,490 30,242
-------------------------- ------- ---------
7. Reconciliation of net cash flow to movement in net debt
2003 2002
£'000 £'000
(Decrease)/Increase in cash (22,392) 16,803
Movement in debt 6,462 1,210
Movement in finance leases 940 -
-------------------------- ------------ ----------
Change in net (debt)/funds from cash flows (14,990) 18,013
Loans and finance leases acquired with subsidiaries (6,210) -
Translation difference 70 637
-------------------------- ------------ ----------
Movement in net (debt)/funds in year (21,130) 18,650
Net funds at 1 July 19,938 1,288
-------------------------- ------------ ----------
Net (debt)/funds at 30 June (1,192) 19,938
-------------------------- ------------ ----------
8. Analysis of net debt
At 1 July Cash Non cash Exchange At 30 June
2002 flow movement movement 2003
£'000 £'000 £'000 £'000 £'000
Cash in hand 28,090 (21,932) - (106) 6,052
Overdrafts (1,312) (460) - 100 (1,672)
------------ -------- --------- -------- -------- --------
Sub total 26,778 (22,392) - (6) 4,380
Debt due after 1 (6,840) 6,462 (5,270) 76 (5,572)
year
Finance leases - 940 (940) - -
------------ -------- --------- -------- -------- --------
Total 19,938 (14,990) (6,210) 70 (1,192)
------------ -------- --------- -------- -------- --------
The non cash movement relates to finance lease obligations acquired on the
purchase of the business and assets of Gemini Transmissions Limited and debt
acquired on the acquisition of the PROTOtechnik - IFT group of companies. Part
of the consideration for the purchase of Tarragon Embedded Technologies limited
comprised shares.
This information is provided by RNS
The company news service from the London Stock Exchange