Final Results

Ricardo PLC 20 September 2004 20 September 2004 Ricardo plc Preliminary Results for the twelve months ended 30 June 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 pre goodwill and redundancy costs £1.8m • Loss before tax £2.8m • Steady increase in order book in H2 • Final dividend held at 6.3p reflecting confidence in future prospects • UK business restructured with savings of £10m per annum to meet lower activity levels • US and German businesses profitable • Good potential in Japan and China • Prospects more encouraging although automotive industry remains challenging Commenting on the results, Rodney Westhead, Chief Executive said: 'Compared to this time last year, I am pleased to report that our prospects are much brighter and we face the new financial year with cautious optimism for a progressively improving performance.' 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 Annual Results and Dividend Following seven years of consecutive earnings growth, the worst trading conditions Ricardo had seen in 10 years resulted in a series of project cancellations in the first half of the financial year which severely affected trading in the UK operations and necessitated a major restructuring. As a result, profit before tax, goodwill amortisation and exceptional costs fell from £16.1m to £1.8m (loss before tax £2.8m). Turnover increased from £136.6m to £146.0m including the benefits of the first full year's trading from the PROTOtechnik-IFT acquisition in Germany. Earnings per share before goodwill and exceptionals were 4.3p (loss per share of 2.6p) compared to 25.4p in the prior year. Following an £11m investment in capital equipment net borrowings at the year end were £10.3m compared with £1.2m in the prior year, however gearing remains at a comfortable level of 18.3%. Capital expenditure in the new financial year and subsequent years is likely to be reduced. However, we start the new financial year on a far more positive note with our order pipeline more than 50% up on the position 12 months ago. In view of confidence in the new financial year and future prospects, the Board has decided to hold the dividend. BUSINESS OVERVIEW As previously announced, Ricardo's 2003/04 financial year was extremely difficult, especially in the UK. In the first half, three sudden programme cancellations impacted order intake levels which were already slowing as a result of the automotive industry downturn. Management acted quickly to restructure the business to the lower demand levels, resulting in a 20% reduction in headcount in the UK and senior management changes to give an improved marketing emphasis and sharper focus to the business. These actions have resulted in a £10m reduction in the cost base, the full benefits which will come through in the current financial year, and have created a much stronger business going forward. In the second half of the year, productivity increased, order intake and total order book grew to £53m and the future prospects for new work steadily improved. However, as highlighted in our pre-close statement low-margin transmission work and tough markets for our vehicle engineering business in 2004 depressed results overall. This low margin work is now coming to an end and we are seeing improving prospects for the transmissions business which is now bidding on a number of major opportunities. Accordingly, we expect our results to be significantly weighted to the second half, assuming we do not experience unforeseen cancellations. The vehicle engineering business remains slow to improve and the uncertainty surrounding the UK car industry gives cause for concern. UK In the UK, a number of management changes have been made to strengthen the focus on productivity and growth. Our engines business had a good last quarter and the order book is improving with a better spread of customers. Our electronics business has remained profitable and continued to develop, but we are disappointed by the slow growth in this business given the high profile of electronics in today's automotive market place. Following the management changes we do now anticipate an improved performance. At the end of the financial year, we moved into new and larger premises in Leamington, enabling us to put our three Midlands businesses on to one site. This was particularly important to motorsport and transmissions which were widely spread. The transmissions business continues to develop the latest transmissions technology which is attracting significant customer interest. I am pleased to note the resolution of our dispute with Rolls-Royce plc. USA In the US, whilst we traded profitably for the year, margins were depressed. The number of bidding opportunities was high but the reluctance of domestic OEM's to commit to orders and the continued pressure on margins has been challenging. There is little sign of this changing in the short term with the traditional domestic customers. However, overseas OEM's investing in the US are starting to place development work with Ricardo. In Chicago we have nearly completed the development of the two heavy duty test cells to meet the requirements of new US, class 8 trucks, emissions legislation due in 2007. Customer interest in this new facility is high. GERMANY In Germany, our PROTOtechnik acquisition completed its first full year of trading. The business was profitable throughout the year and, after bearing the cost of interest on the acquisition price, was earnings enhancing. The German car industry has had a difficult year and held back our own development in this market, order intake remains steady. Systems have been much improved and good progress has been made in integrating the business into Ricardo. Prospects for 2005 are improving as we continue to develop our technical consulting skills and continue to improve the existing exhaust business. FAR EAST In Asia we have now established a Tokyo office with two permanent senior staff members moving from the UK and significant back up from Horiba with whom we are collaborating to build our own business in this market. Our level of activity in Japan is growing steadily as is the volume of work that is being placed with Ricardo by Japanese auto companies in the UK and US. We are actively developing business in the growing Chinese market with both the Chinese domestic auto companies and the Chinese/Western joint venture companies. Business from India, Korea and Malaysia has also been growing at a good pace. STRATEGIC CONSULTING Ricardo Strategic Consulting (RSC) has continued to grow strongly in the year. Although loss making in the period, we expect RSC to move into profit in the first half of the new financial year. Our strategic consultants are now actively involved in the UK, USA, Germany and Japan, this last benefiting from our new local presence. Strategic Consulting not only brings the prospect of good profit contribution from its own activities, it also gives the whole of Ricardo a much improved profile in the automotive industry. RESEARCH & DEVELOPMENT The requirement for further reductions in exhaust emissions and cost effective fuel economy improvements continue whilst the demand to reduce the time and cost required to get new products to market has also driven a range of investments in more sophisticated tools and processes. Government and consumer pressure to improve vehicle safety has continued to gather momentum. To meet these demands, Ricardo has produced a range of demonstration vehicles and software tools that deliver practical solutions to meet these future challenges. These include an innovative cost effective gasoline engine concept called Lean Boost Direct Injection (LBDI) which offers similar fuel economy to a diesel powertrain but with the refinement of a gasoline engine, a very low emissions diesel vehicle using an advanced combustion and gas exchange system and a new approach to driveline control using an electronic differential that distributes torque to each wheel to maximise cornering stability. A range of new design and development tools have also been produced, including a suite of tools and processes to capture accurately and deliver vehicle driveability and feel, consistent with 'brand' characteristics. These demonstration vehicles have become increasingly important in providing tangible examples of Ricardo technology to our key customers. The response to demonstrators from our customers has been excellent and has focused on the breadth and strengths of Ricardo's capabilities in the integration of powertrain, driveline, vehicle engineering and control system capabilities. The first Ricardo demonstration vehicle, i-MoGen, our diesel hybrid and now LBDI, have been driven by all the major automotive companies and have been very well received. As a result of i-MoGen, we are now working on a number of confidential customer contracts as well as two projects part funded by the UK DfT: Hytrans, a Hybrid Ford Transit with in-kind support from Ford, Valeo and Gates; and Efficient 'C', a diesel hybrid vehicle with in-kind support from PSA Peugeot Citroen and QinetiQ. Hybrid contracts continue to grow and we anticipate equal success with LBDI, advanced diesel and torque control. Two vehicle launches in the year were successfully completed namely the Renault Megane Sport and Jaguar X Type diesel, both with significant Ricardo input. In transmissions, two high profile vehicles have been unveiled with transmissions both designed and prototyped by Ricardo. They are the manual Ford GT and the automated manual, dual clutch transmission (DCT) for Chrysler ME412. This vehicle has been described as putting Chrysler in the super car league and the transmission is state of the art engineering. PEOPLE In this, our toughest year in the last ten, I would like to thank all the staff who have worked so hard through very difficult times. It is worth noting that we have confirmed our commitment to our pension schemes and whilst this has meant some minor reductions to the final salary scheme, there have been improvements to the money purchase scheme. The conclusion of the last AGM saw the departure of Sir Noel Davies our former Chairman, and the appointment of Marcus Beresford as the new Chairman. I would like to thank Sir Noel for his support and guidance over the past six years and wish him a happy retirement. OUTLOOK The new financial year has started on a far more positive note, although the car industry is still far from healthy overall. We start the year with reasonable prospects spread across a greater number of customers, less reliance on the major US car companies and a much leaner organisation. Ricardo Germany is now a solid part of the group, RSC continues to grow and RCE, our engines business and for many years the bedrock of Ricardo, is in very good shape. Despite problems of over capacity in the car industry, there is no slow down in the rate of vehicle development, the roll out of ever more stringent emission legislation, nor the public's love affair with the car. This is backed up by huge potential markets in Asia and a determination by the Asian countries to develop their own automotive industries. Ricardo is well placed to help them achieve this ambition. Overall, we are cautiously optimistic that the more encouraging outlook and prospects for our business and the improved profitability seen in the second half of our last financial year should continue and that we remain on track for a progressively improving performance in the current financial year. Consolidated Profit & Loss Account For the year ended 30 June 2004 Before goodwill Goodwill amortisation amortisation 2003 and and 2004 Before £'000 exceptional exceptional £'000 goodwill Goodwill Total Notes costs costs Total amortisation amortisation (restated) Turnover 2 146,242 - 146,242 136,608 - 136,608 ---------------- ---- -------- -------- ------ -------- -------- ------- Operating (loss)/profit 2,600 (4,558) (1,958) 15,554 (281) 15,273 ---------------- ---- -------- -------- ------ -------- -------- ------- (Loss)/profit on ordinary activities before interest 2,600 (4,558) (1,958) 15,554 (281) 15,273 Net interest (800) - (800) 565 - 565 ---------------- ---- -------- -------- ------ -------- -------- ------- (Loss)/profit on ordinary activities before taxation 3 1,800 (4,558) (2,758) 16,119 (281) 15,838 Tax on (loss)/ profit on ordinary activities 515 1,114 1,629 (3,460) - (3,460) ---------------- ---- -------- -------- ------ -------- -------- ------- (Loss)/profit on ordinary activities after taxation 2,315 (3,444) (1,129) 12,659 (281) 12,378 Minority interest (148) (194) ---------------- ---- -------- -------- ------ -------- -------- ------- (Loss)/profit for the financial year (1,277) 12,184 Non - equity preference dividends (6) - ---------------- ---- -------- -------- ------ -------- -------- ------- (Loss)/profit attributable to ordinary shareholders (1,283) 12,184 Equity ordinary dividends 4 (4,478) (4,483) ---------------- ---- -------- -------- ------ -------- -------- ------- Retained (loss)/profit transferred (from)/to reserves (5,761) 7,701 ================ ==== ======== ======== ====== ======== ======== ======= Earnings per ordinary share -basic 5 (2.6)p 24.8p -diluted 5 (2.6)p 24.6p Earnings per ordinary share before goodwill amortisation and exceptional redundancy costs -basic 5 4.3p 25.4p -diluted 5 4.3p 25.1p ---------------- ---- -------- -------- ------ -------- -------- ------- 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. All of the above activities are continuing. Consolidated and Company Balance Sheets as at 30 June 2004 Group Company 2004 2003 2004 2003 Notes £'000 £'000 £'000 £'000 (restated) (restated) Fixed assets Intangible assets 16,161 26,339 - - Tangible assets 50,944 50,452 10,463 6,332 Investments - - 20,333 22,122 -------------------- ------ ------- ------- ------- ------- 67,105 76,791 30,796 28,454 ==================== ====== ======= ======= ======= ======= Current assets Stocks 6,285 7,173 - - Debtors 36,525 52,769 164,726 180,506 Cash deposit - 340 - - Cash at bank and in hand 11,119 6,052 13,227 18,105 -------------------- ------ ------- ------- ------- ------- 53,929 66,334 177,953 198,611 Creditors - amounts falling due within one year (56,247) (58,567) (23,255) (37,059) -------------------- ------ ------- ------- ------- ------- Net current (liabilities)/assets (2,318) 7,767 154,698 161,552 -------------------- ------ ------- ------- ------- ------- Total assets less current liabilities 64,787 84,558 185,494 190,006 Creditors - amounts falling due (4,788) (15,832) - (939) after more than one year Provisions for liabilities and charges (3,843) (5,276) (392) (130) -------------------- ------ ------- ------- ------- ------- Net assets 56,156 63,450 185,102 188,937 ==================== ====== ======= ======= ======= ======= Capital and reserves Called up share capital 12,474 12,469 12,474 12,469 Share premium account 12,076 12,054 12,076 12,054 Capital redemption reserve 40 40 40 40 Merger reserve 967 967 - - Long term incentive plan reserve - 204 - 204 Profit and loss account 30,106 37,126 160,512 164,170 -------------------- ------ ------- ------- ------- ------- Total shareholders' funds 55,663 62,860 185,102 188,937 -------------------- ------ ------- ------- ------- ------- Equity minority interests 493 590 - - -------------------- ------ ------- ------- ------- ------- Capital employed 56,156 63,450 185,102 188,937 -------------------- ------ ------- ------- ------- ------- Consolidated Cash Flow Statement for the year ended 30 June 2004 2004 2003 Notes £'000 £'000 £'000 £'000 Net cash inflow from operating activities 6 12,037 19,490 Returns on investments and servicing of finance Interest received 919 1,260 Interest paid (1,662) (636) Interest element of finance rental payments - (62) Dividend paid to minority shareholder (207) - ---------------------- ------ ------- ------- ------- ------- Net cash (outflow)/inflow from returns on investment and servicing of finance (950) 562 Taxation (3,531) (3,921) Capital expenditure and financial investment Purchase of tangible fixed assets (11,091) (8,260) Sale of tangible fixed assets 75 64 ---------------------- ------ ------- ------- ------- ------- (11,016) (8,196) Acquisitions and disposals Purchase of subsidiary undertakings - (18,862) Acquisition expenses - (459) Net cash acquired with subsidiary undertakings - 123 --------------------- ------ ------- ------- ------- ------- - (19,198) Equity and non equity dividends paid (4,482) (4,275) --------------------- ------ ------- ------- ------- ------- Management of liquid resources Loan note repaid (340) - --------------------- ------ ------- ------- ------- ------- (340) - --------------------- ------ ------- ------- ------- ------- Cashflow before use of financing (8,282) (15,538) Financing Issue of ordinary share capital 27 929 Capital elements of finance lease rental payments - (940) Loans repaid (585) (6,462) Shares purchased for LTIP - (381) --------------------- ------ ------- ------- ------- ------- (558) (6,854) --------------------- ------ ------- ------- ------- ------- Decrease in cash 8 (8,840) (22,392) ===================== ====== ======= ======= ======= ======= 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 2004. The change in accounting policy arising from the implementation of Amendment to FRS5 'Reporting the substance of transactions' 'Revenue recognition' ('Application Note G') and the adoption of UITF 38, Accounting for ESOP trusts, has resulted in the figures for 2003 being restated. 2. Turnover & Segmental Reporting The directors consider that the Group operates in one business segment, serving the global automotive market. The areas of operation continue to be the provision of engineering and technological services and strategic consulting to industry, commerce and other agencies. TURNOVER BY DESTINATION 2004 2003 £'000 £'000 (restated) Europe 94,284 87,572 North America 40,830 41,775 Pacific Basin 5,529 5,622 Rest of the World 5,599 1,639 ------------------- ---------- 146,242 136,608 ------------------- ---------- The Group now operates in three main geographical areas. In addition our strategic consulting business ('RSC') operates on a global basis. Its figures have therefore been shown separately. Segmental analysis for the year ended 30 June 2004 UK North Germany RSC Rest of World Total £'000 America £'000 £'000 £'000 £'000 £'000 Turnover by origin 89,344 31,560 22,954 2,351 33 146,242 ------------------- ------ ------- -------- ------ ------ ------- Operating profit/ (loss)before goodwill amortisation 875 1,160 1,980 (1,222) (193) 2,600 Operating profit/ (loss)after goodwill amortisation 560 1,149 1,321 (1,222) (193) 1,615 ------------------ ------- ------- -------- ------- ------ ------- Net operating assets 42,775 9,564 17,557 599 (239) 70,256 Group borrowings falling due within one year (5,469) Group borrowings falling due after more than (4,788) one year Provisions for liabilities and charges (3,843) ------------------ ------- ------- -------- ------- ------ ------- Net assets 56,156 ------------------ ------- ------- -------- ------- ------ ------- Segmental analysis for the year ended 30 June 2003 UK North Germany RSC Rest of World Total £'000 America £'000 £'000 £'000 £'000 £'000 Turnover by origin 101,626 33,430 519 1,033 - 136,608 ------------------ ------- ------- -------- ------ ------ ------- Operating profit/ (loss)before goodwill amortisation 14,026 1,902 (139) (225) (10) 15,554 Operating profit/ (loss)after goodwill amortisation 13,758 1,889 (139) (225) (10) 15,273 ----------------- ------- ------- -------- ------ ------ ------- Net operating assets 55,804 10,467 13,490 442 (25) 80,178 Group cash balance 4,380 Group borrowings falling (5,572) due within one year Group borrowings falling due after more than (10,260) one year Provisions for liabilities and (5,276) charges ----------------- ------- ------- -------- ------ ------ ------- Net assets 63,450 ----------------- ------- ------- -------- ------ ------ ------- 3. (Loss)/profit on ordinary activities before taxation Profit on ordinary activities before taxation is after charging research and development of £4,421,000 (2003: £5,120,000) goodwill of £985,000 (2003: £281,000) and depreciation of £9,518,000 (2003: £9,495,000). 4. Dividends The final dividend is 6.3p (2003: 6.3p). This is payable on 19 November 2004 to ordinary shareholders on the register on 22 October 2004. 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 the purposes of the calculation. 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 2004, the performance criteria for the vesting of awards under the plans maturing on 30 June 2005 and 30 June 2006 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. The calculation of basic earnings per ordinary share and diluted earnings per ordinary share have been calculated in accordance with FRS14. 2004 2003 Number of Per Number Per share Share of amount Earnings shares amount Earnings shares Pence £'000 '000 Pence £'000 '000 Basic EPS (Loss)/Profit attributable to ordinary shareholders (1,283) 49,770 (2.6) 12,184 49,059 24.8 Effect of dilutive securities: Options - * - 438 LTIP - * - 118 -------------- -------- ------- ------ ------- -------- ------- Diluted EPS Adjusted earnings (1,283) 49,770 (2.6) 12,184 49,615 24.6 -------------- -------- ------- ------ ------- -------- ------- Supplementary earnings per share to exclude goodwill amortisation and exceptional redundancy costs ('goodwill and redundancy'). Basic EPS (1,283) 49,770 (2.6) 12,184 49,059 24.8 Effect of goodwill and redundancy 3,444 - 281 - -------------- -------- -------- ------ ------- -------- ------- Basic EPS excluding goodwill amortisation 2,161 49,770 4.3 12,465 49,059 25.4 -------------- -------- -------- ------ ------- -------- ------- Diluted EPS (1,283) 49,770 (2.6) 12,184 49,615 24.6 Effect of goodwill and redundancy 3,444 - 281 - Effect of dilutive securities: Options - 271 - - -------------- -------- -------- ------ ------- -------- ------- Diluted EPS excluding goodwill and redundancy 2,161 50,041 4.3 12,465 49,615 25.1 -------------- -------- -------- ------ ------- -------- ------- * No dilution due to loss in the year. The weighted average number of shares in issue may be reconciled to the number used in the earnings per share calculation as follows: 2004 2003 Weighted average number: '000 '000 Ordinary shares in issue 49,889 49,188 Shares held by Employee Share Ownership Trust (67) (67) Shares held by Long Term Incentive Plan Trustee (52) (62) -------------------------- ----------- ----------- 49,770 49,059 -------------------------- ----------- ----------- 6. Net cash inflow from operating activities 2004 2003 £'000 £'000 (restated) Operating (loss)/profit (1,958) 15,273 Depreciation Charges 9,518 9,495 Goodwill amortisation 985 281 Profit on sale of tangible fixed assets (7) (15) Long term incentive plan charge (204) (9) Increase in stock (1,632) (257) Decrease in debtors 15,642 2,228 Decrease in creditors (10,307) (7,506) ------------------------ --------- -------- Net cash inflow from operating activities 12,037 19,490 ------------------------ --------- -------- 7. Reconciliation of net cash flow to movement in net debt 2004 2003 £'000 £'000 Decrease in cash (8,840) (22,392) Movement in debt 691 6,462 Movement in finance leases - 940 -------------------------- ------------ ---------- Change in net (debt)/funds from cash flows (8,149) (14,990) Loans and finance leases acquired with subsidiaries - (6,210) Translation difference (916) 70 -------------------------- ------------ ---------- Movement in net (debt)/funds in year (9,065) (21,130) Net funds at 1 July (1,192) 19,938 -------------------------- ------------ ---------- Net debt at 30 June (10,257) (1,192) -------------------------- ------------ ---------- 8. Analysis of net debt At 1 July Cash Exchange At 30 June 2003 flow movement 2004 £'000 £'000 £'000 £'000 Cash in hand 6,052 5,238 (171) 11,119 Overdrafts (1,672) (14,078) (838) (16,588) ----------------- --------- -------- -------- -------- Sub total 4,380 (8,840) (1,009) (5,469) Debt due after 1 year (5,572) 691 93 (4,788) ----------------- --------- -------- -------- -------- Total (1,192) (8,149) (916) (10,257) ----------------- --------- -------- -------- -------- This information is provided by RNS The company news service from the London Stock Exchange

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