Interim Results

Ricardo PLC 27 February 2006 27 February 2006 Ricardo plc Interim results for the six months ended 31 December 2005 Ricardo plc is the leading UK independent automotive consultancy, employing over 1,800 people. The company has centres in the UK, USA, Germany, Czech Republic and Asia and the client list includes the world's major automotive OEMs. HIGHLIGHTS • Profit before tax up 37% to £4.2m (H1 2005: £3.0m) • Turnover up 20% to £87.2m (H1 2005: 72.6m) • Order book continues to show growth, up 16% to £67m (H1 2005: £58m) • Earnings per share 7.4p (H1 2005: 5.6p) • Interim dividend maintained at 2.7p • Performance improvement driven by growth in Strategic Consulting, UK and US operations • Good start to second half, with growth in all major world-wide markets, particularly Asia, although the Automotive industry in Europe and US remains challenging Commenting on the results, Dave Shemmans, Chief Executive said: 'I am pleased with this significant improvement in performance for the first half. Strategic Consulting, and Ricardo's UK and US operations have done especially well, driven by increasing demand for our technology and strategic advice. The work being done to broaden our customer base and add depth to our product offering world-wide is also reaping rewards, in particular in Asia where our offices in China and Japan are driving the level of demand from customers in this region. 'The second half trading has started well, apart from Germany. Order prospects in the medium term, including those for Germany, continue to build. Although we have not changed our outlook for the full year our confidence continues to grow.' Further enquiries: Ricardo plc Dave Shemmans, Chief Executive (today) Tel: 020 7554 1400 Andrew Goodburn, Finance Director (thereafter) Tel: 01273 455611 Website: www.ricardo.com Gavin Anderson & Company Fergus Wylie / Charlotte Stone Tel: 020 7554 1400 Notes to Editors: Ricardo is a leading global provider of technology, engineering solutions and strategic consulting to the world's automotive industries. It is headquartered in the UK, with international offices in the US, Europe and Asia. It is listed on the London Stock Exchange ('RCDO.L'). The Group combines business, product and process strategy with fundamental technical research and the implementation of large-scale new product development programmes to help its clients with business strategy and restructuring, process re-engineering, vehicle, electronics & software, engine, transmission and driveline design, as well as more traditional engineering, testing and systems integration. Ricardo serves a wide and balanced customer base represented by the leading global automakers, vehicle component and system manufacturers, and automotive regulatory agencies. It also serves other sectors such as motorcycle, heavy-duty truck, off-road and military vehicles, marine and locomotive propulsion system manufacturers, as well as leading teams in all forms of motorsport. INTERIM RESULTS AND DIVIDEND Our improvement in profitability continued as planned, concluding the first six months with satisfactory results and a solid order book from a broader client, geographic and product base. However, large sections of the European and US automotive industry continue to struggle 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 2005 was £87.2m (2004: £72.6m) with the increase driven by our Strategic Consulting Division, UK and US operations. Against this, our German operation, as predicted, has suffered in the period against a weak market. Group profit before tax for the period was £4.2m (2004: £3.0m). Earnings per share increased to 7.4p compared to 5.6p in the prior year. There was a small cash generation in the period and net borrowings reduced to £8.4m. The order book is up 16% albeit with a higher material content. This is the first set of results presented under International Financial Reporting Standards and is consistent with the statement issued on 21 December 2005. The interim dividend is maintained at 2.7p (2004: 2.7p) and will be paid on the 21 April 2006 to all shareholders on the register at close of business on 24 March 2006. BUSINESS OVERVIEW Overall our progress continues and we are seeing the benefits of the strategy to broaden our geographic reach and client base. Asian clients are contributing strongly, and the commercial vehicle and military sectors are bringing an improving balance to Ricardo's business. Controls and electronics continue to operate at full capacity, underpinned by a growth in hybrid programmes, while diesel programmes continue to grow on the back of our low emissions research investments. Despite weaknesses in the German automotive sector and the continued challenges facing some of the major global car manufacturers, we are pleased to see the Group order book increase year on year, to £67m from £58m last year, with an equally pleasing increase in the pipeline of prospects. Strategic Consulting is continuing to develop well and delivered an excellent result in the half year underpinned by three significant programmes in Asia and North America. It significantly grew its client base, turnover and profitability with major activities in the key areas of quality and cost reduction, thus delivering profitability improvements to clients. We continue to expand our Prague development centre in size and breadth and it now covers mechanical, electronic and software capability providing all divisions across the Group with a cost effective engineering resource. Our business focus and investments remain targeted on increasing the strength and robustness of our client base and the delivery of higher value added services based on technology and innovation. UK Our UK business increased its turnover and profits on prior year with a better balance of engine, transmissions, vehicle and electronics activity than previously. The engines business benefited from an increase in demand for diesel technology, driven by future emissions legislation and an increasing market share for diesel in both passenger car and commercial vehicle sectors. Gasoline engine activity remains low in Europe and continues to be driven by our Asian clients as many look to establish their own family of products for both domestic and export markets. The transmissions business has returned to good levels of activity with some high profile new supercar programmes and an increased level of engineering programmes from the commercial, passenger car and motorsport sectors. Our research investments into dual clutch technology and safety related torque vectoring are gaining market interest with orders. The vehicle business has had a much improved period, driven by continued activity on established programmes supporting new product introductions plus increasing activity from the commercial and military sectors. The control and electronics business continues to grow and is running at high levels of capacity, underpinned by significant hybrid interest and pending on-board diagnostics and emissions legislation across the globe. We see demand for professional services in this area continuing to grow in the future. We will invest accordingly to support this key strategic technology, which is at the very heart of future automotive engineering. USA Despite the much publicised difficulties of the North American car industry, our US operation has delivered increased turnover and profits during the period on the back of orders from a broader client base in the passenger car, commercial and military segments. We continue to support the major passenger car OEMs with engine development, localisation and cost reduction programmes. Our commercial vehicle engines activities are performing strongly, ahead of pending US emissions legislation. The need for new truck models to meet this legislation is driving high utilisation in our new heavy duty test bed centre in Chicago in particular. As in the wider global marketplace, we are also seeing increased electronics, hybrid, diesel and transmissions activity in North America. We have restructured our global software business to report into the US and we are pleased to see the lead product 'Wave', performing strongly in the market and the business as a whole contributing well. GERMANY As anticipated, the weakness in the German automotive industry has impacted those serving the marketplace, including Ricardo, leading to a small loss in the period. While the exhaust business held up well in the first half, the engineering side of the business, which has formerly been of a less value added nature than the rest of Ricardo's business and targeted at fewer customers, has suffered as clients look to control budgets. Our investments in people over the past six months and the new heavy duty test cells will increase the level of value added capability, expand the client base when the market begins to recover and create a more client focussed organisation in line with the rest of the Group. We are already seeing the initial results of these investments in terms of test bed commitment and increased leads from a broader client base including the commercial vehicle sector. We remain cautious of the outlook until the German industry returns to more buoyant levels. ASIA As previously announced we have opened offices in Tokyo and Shanghai in the past year which operate as the front line access to our increasingly important and growing Asian client base, now some 30% of our business. The work secured in the Asian regions (including Japan, China, India, Korea and Malaysia) is primarily fed back to the UK operations but as our Asian customers increasingly have global operations, this will positively impact the US, Prague and German operations. We continue to expand our capability and staff in the region as we see Asian customers providing stability against the difficulties of some US and European manufacturers, and generating long term growth potential based around technology and innovation. Our focus in these regions is to develop long-term relationships with the prime clients, as evidenced by the Shanghai Automotive programme, which continues to develop well in the UK and China. STRATEGIC CONSULTING Our Strategic Consulting operation has made an excellent start to the year with increased turnover, profits and client base. Our work has now evolved significantly from Ricardo's historic automotive practices in terms of the nature of programmes. We continue to secure programmes against more traditional consultancy market leaders. The offering of automotive-specific 'deep content' management consultancy, continues to be well received by clients and contributes well to the Group results. Product cost down and quality improvement remain the core activities by volume, however business restructuring and turnaround advisory services are also in demand. Geographically our highly mobile teams are now operating on an increasingly global basis with customers mainly from the passenger car and commercial vehicle sectors. Moreover the consulting business has passed through significant levels of engineering business in the year to the rest of the Group. RESEARCH & DEVELOPMENT Ricardo continues to apply its intellectual capital and investment in forecasting, validating and delivering technology and innovation to solve the automotive industry's key issues. Our proven and industry validated technology roadmapping process forecasts future products and technologies against the backdrop of legislation and industry trends, and enables us to target our investments and guide our clients. This process over the past years has enabled us to highlight technologies for hybrids, low emission diesels, next generation transmissions and active safety as key future directions. During the period our client funded activities increased in all these key areas across the Group as we move through to the exploitation phase of our demonstrators. Moreover we have also increased our focus on leveraging our internal research funds by obtaining matching funds from clients and government bodies, which increases our R&D output without additional expenditure. We continue to develop the next generation diesel technology for commercial vehicles and passenger cars, future hybrid vehicle technology, fuel efficient and high performance downsized gasoline engines exploiting 2stroke/4stroke switching concepts, drive-by-wire for active safety and advanced torque vectoring transmissions for improved safety and handling. Together with these major technology advances we are also developing software tools and processes to reduce product development cost and timescales while increasing quality through improved validation and simulation. PEOPLE There have been a number of management changes implemented during the period to strengthen the operations in Germany, Japan and the UK, bolster programme delivery and move towards a more co-ordinated group operation where we can maximise the resources across the group, improve quality and avoid duplication. These changes have brought on the best of the internal talent and also attracted external expertise where necessary. The management team has been strengthened with the external recruitment of a president for our Japanese operation and a new business development director for the UK. Both of these roles have been filled with experienced automotive industry people who have spent a major part of their career with blue chip management consultants. In addition we have strengthened the technical leadership with recruitment of a new head of vehicle engineering and head of heavy duty engines. We look forward to their contribution. Andrew Goodburn, who has been Group Finance Director since 1997, reaches the age of 60 next January and has indicated his wish to retire from the Board early next year. A process to identify his successor has started. OUTLOOK The first half year progressed in line with management expectations, albeit against a more challenging European market than anticipated. This solid performance emphasises the value of our increasing geographic and customer spread. The outlook for the global automotive market remains mixed with continuing strong activity in Asia offset by a subdued Europe and the well publicised problems of the US car industry. The second half trading has started well, apart from Germany. Order prospects in the medium term, including those for Germany continue to build. Although we have not changed our outlook for the full year our confidence continues to grow. Dave Shemmans Chief Executive 27th February 2006 CONSOLIDATED INCOME STATEMENT for the six months ended 31 December 2005 (unaudited) Six months Six months Year ended ended ended 31 December 31 December 30 June 2005 2004 2005 Restated* Restated* All from continuing activities Notes £'000 £'000 £'000 ------------------------------------------------------------------------------------------------ Revenue 3 87,206 72,584 159,920 Cost of sales (63,292) (50,520) (113,241) ------------------------------------------------------------------------------------------------ Gross profit 23,914 22,064 46,679 Administrative expenses (19,006) (18,070) (36,611) ------------------------------------------------------------------------------------------------ Operating profit 3 4,908 3,994 10,068 Finance income 890 387 774 Finance costs (1,646) (1,351) (2,605) ------------------------------------------------------------------------------------------------ Profit before taxation 4 4,152 3,030 8,237 Taxation (442) (226) (992) ------------------------------------------------------------------------------------------------ Profit for the period 3,710 2,804 7,245 ================================================================================================ Profit attributable to minority interest 25 25 82 Profit attributable to equity shareholders 3,685 2,779 7,163 ------------------------------------------------------------------------------------------------ 3,710 2,804 7,245 ================================================================================================ Earnings per share 5 Basic 7.4p 5.6p 14.3p Diluted 7.3p 5.6p 14.3p ------------------------------------------------------------------------------------------------ The ordinary dividend for the period is stated in note 2. CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE for the six months ended 31 December 2005 (unaudited) Six months Six months Year ended ended ended 31 December 31 December 30 June 2005 2004 2005 Restated* Restated* £'000 £'000 £'000 ----------------------------------------------------------------------------------------------- Profit for the period 3,710 2,804 7,245 Actuarial gains / (losses) on the defined benefit pension scheme 440 (4,977) (7,892) Tax on items taken directly to equity (132) 1,493 2,367 ----------------------------------------------------------------------------------------------- Net gains / (losses) not recognised in the income statement 308 (3,484) (5,525) ----------------------------------------------------------------------------------------------- Total recognised income / (expense) for the period 4,018 (680) 1,720 =============================================================================================== Attributable to minority interest 25 25 82 Attributable to equity shareholders 3,993 (705) 1,638 ----------------------------------------------------------------------------------------------- * As restated for the adoption of International Financial Reporting Standards - see note 1 CONSOLIDATED BALANCE SHEET as at 31 December 2005 (unaudited) 31 December 31 December 30 June 2005 2004 2005 Restated* Restated* £'000 £'000 £'000 ---------------------------------------------------------------------------------------- Assets Non current assets Goodwill 15,860 16,857 15,637 Other Intangible assets 1,185 699 1,126 Property, plant and equipment 45,259 48,296 46,746 Deferred tax assets 10,570 9,828 11,268 ---------------------------------------------------------------------------------------- 72,874 75,680 74,777 ---------------------------------------------------------------------------------------- Current assets Inventories 7,667 7,786 6,918 Trade and other receivables 50,429 39,031 43,138 Current tax assets 268 2,060 1,603 Cash and cash equivalents 11,850 6,363 8,815 ---------------------------------------------------------------------------------------- 70,214 55,240 60,474 ---------------------------------------------------------------------------------------- Liabilities Current liabilities Bank overdrafts and loans (2,596) (19,235) (1,536) Trade and other payables (42,794) (34,548) (35,472) Current tax liabilities (3,493) (3,777) (4,866) Short term provisions (129) (221) (391) ---------------------------------------------------------------------------------------- (49,012) (57,781) (42,265) ----------------------------------------------------------------------------------------- Net current assets / (liabilities) 21,202 (2,541) 18,209 ---------------------------------------------------------------------------------------- Non current liabilities Bank loans (17,635) (2,903) (18,531) Retirement benefit obligations (34,165) (32,075) (34,710) Deferred tax liabilities (2,473) (2,698) (2,883) Long term provisions (650) (660) (124) ----------------------------------------------------------------------------------------- (54,923) (38,336) (56,248) ----------------------------------------------------------------------------------------- Net assets 39,153 34,803 36,738 ======================================================================================== Shareholders' equity Ordinary shares 12,617 12,477 12,504 Share premium 12,932 12,085 12,201 Other reserves 1,946 549 1,256 Retained earnings 11,123 9,195 10,283 ----------------------------------------------------------------------------------------- Total shareholders' equity 38,618 34,306 36,244 Minority interest in equity 535 497 494 ---------------------------------------------------------------------------------------- Total equity 39,153 34,803 36,738 ======================================================================================== These accounts were approved by the Board of Directors on 27 February 2006. * As restated for the adoption of International Financial Reporting Standards - see note 1 CONSOLIDATED CASH FLOW STATEMENT for the six months ended 31 December 2005 (unaudited) Six months Six months Year ended ended ended 31 December 31 December 30 June 2005 2004 2005 Restated* Restated* £'000 £'000 £'000 -------------------------------------------------------------------------------------------------- Cash flows from operating activities Cash generated from operations (note 6) 8,671 1,816 11,209 Interest received 890 387 774 Interest paid (1,646) (1,394) (2,684) Tax (paid)/refunded (451) 702 271 -------------------------------------------------------------------------------------------------- Net cash from operating activities 7,464 1,511 9,570 -------------------------------------------------------------------------------------------------- Cash flows from investing activities Proceeds of sale of property, plant and equipment 71 2 158 Purchases of non current assets (2,849) (2,904) (6,264) -------------------------------------------------------------------------------------------------- Net cash used in investing activities (2,778) (2,902) (6,106) -------------------------------------------------------------------------------------------------- Cash flows from financing activities Net proceeds from issue of ordinary share capital 844 12 155 Own shares redeemed - - 99 Net proceeds from issue of new bank loan 269 2,553 13,855 Repayment of borrowings (162) (1,049) (14,526) Dividends paid to shareholders (3,153) (3,146) (4,493) Dividends paid to minority interests - - (85) -------------------------------------------------------------------------------------------------- Net cash used in financing activities (2,202) (1,630) (4,995) -------------------------------------------------------------------------------------------------- Effects of exchange rate changes 570 (1,840) (258) -------------------------------------------------------------------------------------------------- Net increase / (decrease) in cash and cash equivalents 3,054 (4,861) (1,789) Cash and cash equivalents at beginning of period** 8,784 10,573 10,573 -------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period** 11,838 5,712 8,784 -------------------------------------------------------------------------------------------------- * As restated for the adoption of International Financial Reporting Standards - see note 1 ** Net of bank overdrafts NOTES TO THE INTERIM ACCOUNTS for the six months ended 31 December 2005 (unaudited) 1. Basis of preparation As a UK Listed company Ricardo plc has been required to adopt International Financial Reporting Standards ('IFRS') with effect from 1 July 2005. The results for the six months ended 31 December 2005 represent the group's first interim financial statements prepared in accordance with its accounting policies under IFRS. The group's first IFRS Annual Report and Accounts will be for the year ending 30 June 2006. Previously the group reported using UK generally accepted accounting principles ('UK GAAP'). Detailed UK GAAP to IFRS reconciliations of equity for the date of transition (1 July 2004), 31 December 2004 and 30 June 2005, and of profit and recognised income and expense for the six months ended 31 December 2004 and the year ended 30 June 2005 were issued on 21 December 2005 and are available by using the link on the home page of the group's website at www.ricardo.com. These interim financial statements have been prepared by the group in accordance with the disclosure requirements of the Listing Rules and using those reporting standards it expects to be endorsed and applicable when the accounts are prepared for the year ending 30 June 2006. IFRS is currently being applied in the UK and in a large number of other countries almost simultaneously for the first time, and practice is continuing to evolve. Therefore, at this preliminary stage, the full financial effect of reporting under IFRS as it will be applied and reported on in the group's first full IFRS financial statements for the year ending 30 June 2006 may be subject to change. The financial information herein does not amount to full statutory accounts within the meaning of Section 240 of the Companies Act 1985 (as amended). The figures for the year to 30 June 2005 and at 31 December 2004 have been extracted from the IFRS restatements issued on 21 December 2005 which were themselves based on the Annual Report and Accounts 2005 which has been filed with the Registrar of Companies and on which the auditors gave an unqualified audit report and did not include a statement under section 237(2) or (3) of the Companies Act 1985. 2. Ordinary Dividends Six months Six months Six months Six months ended ended ended ended 31 December 31 December 31 December 31 December 2005 2004 2005 2004 pence/share pence/share £'000 £'000 ---------------------------------------------------------------------------------------------- Amounts distributed in the period 6.3p 6.3p 3,153 3,146 Proposed interim dividend 2.7p 2.7p 1,362 1,354 ---------------------------------------------------------------------------------------------- 3. Segmental reporting (a) by business segment, with revenue reflecting sales to external customers -------------------- -------------- ----------- Engineering and Strategic Total Technology Consulting Services ------------------- -------------- ----------- £'000 £'000 £'000 6 months ended 31 December 2005 Revenue 76,959 10,247 87,206 Operating result 3,465 1,443 4,908 ---------------------------------------------------------------------------------------------- 6 months ended 31 December 2004 Restated* Revenue 68,757 3,827 72,584 Operating result 3,850 144 3,994 ---------------------------------------------------------------------------------------------- Year ended 30 June 2005 Restated* Revenue 148,517 11,403 159,920 Operating result 8,556 1,512 10,068 ---------------------------------------------------------------------------------------------- (b) by operating unit reflecting the revenue and profit generated by the staff in those businesses Engineering and Technology Services Strategic Total Consulting North Rest of UK America Germany the World Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 ----------------------------------------------------------------------------------------------------- 6 months ended 31 December 2005 Revenue 45,668 20,476 12,425 276 78,845 8,361 87,206 Operating result 2,913 1,202 (184) (466) 3,465 1,443 4,908 ----------------------------------------------------------------------------------------------------- 6 months ended 31 December 2004 Restated* Revenue 38,513 16,132 14,885 239 69,769 2,815 72,584 Operating result 2,390 753 793 (86) 3,850 144 3,994 ----------------------------------------------------------------------------------------------------- Year ended 30 June 2005 Restated* Revenue 86,984 34,086 29,660 249 150,979 8,941 159,920 Operating result 5,471 1,977 1,626 (518) 8,556 1,512 10,068 ----------------------------------------------------------------------------------------------------- * As restated for the adoption of International Financial Reporting Standards - see note 1 4. Taxation Six months Six months Year ended ended ended 31 December 31 December 30 June 2005 2004 2005 Restated* Restated* £'000 £'000 £'000 --------------------------------------------------------------------------------------------- UK (74) (167) (704) Overseas 516 393 1,696 --------------------------------------------------------------------------------------------- Tax charge on profit 442 226 992 ============================================================================================= 5. Earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity shareholders of £3,685,000 (31 December 2004: £2,779,000; 30 June 2005: £7,163,000) by the weighted average number of shares in issue of 50,089,893 (31 December 2004: 49,898,222; 30 June 2005: 49,937,985), after deducting the shares held by the Long Term Incentive Plan ('LTIP') Trustee. For diluted earnings per share, the weighted average number of shares in issue is adjusted for the effects of dilutive options and LTIP awards, and is accordingly 50,483,695 (31 December 2004: 50,022,008; 30 June 2005: 50,201,985). 6. Cash generated from operations Six months Six months Year ended ended ended 31 December 31 December 30 June 2005 2004 2005 Restated* Restated* £'000 £'000 £'000 ------------------------------------------------------------------------------------------------ Continuing operations Profit from operations 4,908 3,994 10,068 Adjustments for: Share-based payments 118 9 118 Depreciation 4,661 4,605 9,298 (Profit)/loss on disposal of property, plant and equipment (4) (1) 5 ------------------------------------------------------------------------------------------------ Operating cash flows before movements in working capital 9,683 8,607 19,489 (Increase)/decrease in inventory (688) (1,501) (604) (Increase)/decrease in trade and other receivables (7,201) (5,806) (10,173) Increase/(decrease) in payables 6,718 158 2,909 Increase/(decrease) in provisions 264 556 66 Increase/(decrease) in pension obligation (105) (198) (478) --------------------------------------------------------------------------------------------------- Cash generated from operations 8,671 1,816 11,209 ================================================================================================ * As restated for the adoption of International Financial Reporting Standards - see note 1 This information is provided by RNS The company news service from the London Stock Exchange

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