TIDMRCDO
RNS Number : 6919Q
Ricardo PLC
14 September 2017
14 September 2017
Ricardo plc
Preliminary results for the full year ended 30 June 2017
Ricardo plc is a global engineering, technical, environmental
and strategic consultancy business, which also provides the
manufacture and assembly of niche, high-quality and
high-performance products.
HIGHLIGHTS
-- Record order book at GBP248m, strong order intake at GBP366m and revenue up 6% to GBP352m;
-- Resilient performance across the business with underlying
profit before tax at GBP38.3m in line with expectations, despite
disrupted flow of orders in Automotive;
-- Good performance from Energy & Environment, Rail and Performance Products;
-- Good order flow in Automotive engines and hybrid/EV - with
the latter 17% of Group order intake;
-- Underlying(1) basic earnings per share at 55.7p;
-- Net debt of GBP37.9m after GBP4.4m of net acquisition-related payments;
-- Full year dividend up 7% to 19.3p per share;
-- Acquisition of Exnovo completed in the year, with Control
Point completed post year-end; and
-- Outlook remains positive, good platform for growth.
FY 2016/17 FY 2015/16 % Change
Order book (GBPm) 248 231 +7
Order intake (GBPm) 366 361 +1
Revenue (GBPm) 352.1 332.4 +6
Underlying(1)
Profit before tax (GBPm) 38.3 37.7 +2
Basic earnings per share
(p) 55.7 55.2 +1
Statutory
Profit before tax (GBPm) 32.2 33.0 -2
Basic earnings per share
(p) 46.8 48.6 -4
Dividend per share (p) 19.3 18.1 +7
Net debt (GBPm) (37.9) (34.4) -10
---------------------------- ----------- ----------- ---------
(1) Excludes specific adjusting items, which comprise
amortisation of acquired intangible assets of GBP4.0m (2016:
GBP3.4m), net acquisition-related expenditure of GBP1.7m (2016:
GBP2.8m) and reorganisation costs of GBP0.4m (2016: GBPNil). In the
prior year, non-recurring income of GBP1.5m for claims under the
Research & Development Expenditure Credit ('RDEC') scheme was
also included.
Commenting on the results, Dave Shemmans, Chief Executive
Officer said:
"I am pleased to report another solid year of progress for
Ricardo. Based on the foundation of a diversified strategy and an
increasingly balanced business, we have navigated an uncertain and
volatile year, providing a satisfactory result overall.
"Our Rail and Environmental consultancies delivered strong
results at both revenue and operating profit levels, as did our
Performance Products business. Within Performance Products we were
pleased to deliver our 10,000(th) engine to McLaren and to be
selected to design and produce an advanced hypercar transmission
for Aston Martin.
"Our Automotive business in Europe experienced a disrupted year
of order flows which led to a less efficient business operation,
but the year ended with strong order intake in both the engines and
electrification businesses and we are pleased to see a return to
more normal order intake patterns. With the US business
underperforming, a changing customer dynamic and the increased
emphasis on electrification, we are repositioning the US business
to enhance our electrified and autonomous vehicle service offering,
led from California where many new entrants are based.
"We enter the new financial year with a well balanced business
and welcome the in-year acquisition of Exnovo and the recent
Control Point Corporation acquisition post year-end. We continue to
address and adjust to the changes in our individual markets to
ensure we both mitigate risk and capitalise on the significant
global opportunities which lie ahead. These opportunities, together
with our progress, our people and our technology, in addition to
our record order book, provide a good platform for further growth
in the years to come."
FINANCIAL REVIEW
Group results
The Group has delivered an underlying operating result which is
in line with expectations for the year ended 30 June 2017. Total
Group revenues increased to GBP352.1m, representing a 6% increase
on the prior year (2016: GBP332.4m). Underlying profit before tax,
which excludes specific adjusting items as set out in more detail
in Note 3, increased by 2% to GBP38.3m (2016: GBP37.7m), with the
margin reducing slightly to 10.9% from 11.3% in the prior year.
Using exchange rates consistent with the prior year, revenue and
underlying profit before tax would have been GBP336.9m and
GBP38.2m, respectively, both of which represent growth of 1% on the
prior year. This growth in underlying profit before tax includes an
additional GBP0.1m from the performance of acquisitions on a
like-for-like basis with the prior year.
The financial year ended with another record closing order book
of GBP248m (2016: GBP231m), which is a 7% increase on the prior
year. Our order book comprises the value of all unworked purchase
orders received. The closing order book, together with a very good
pipeline of further opportunities, continues to represent a
diversified spread of orders across market sectors, customers and
geographies.
Reported profit before tax for the year decreased by 2% to
GBP32.2m (2016: GBP33.0m). The decrease is primarily as a result of
a GBP0.6m increase in the amortisation charge on acquired
intangible assets, reorganisation costs of GBP0.4m and a GBP0.7m
increase in net interest payable on borrowings, together with a net
reduction in income from claims under the Research &
Development Expenditure Credit ('RDEC') scheme of GBP0.3m. This
movement is partially offset by a GBP1.1m decrease in net
acquisition-related expenditure and an increase of GBP0.1m in the
profit generated from acquisitions on a like-for-like basis with
the prior year.
The Group results include the acquisition completed during the
year of Motorcycle Engineering Italia s.r.l., which was formed from
the operating assets and employees of Exnovo s.r.l., a vehicle
design house which creates class-leading aesthetics for global
motorcycle and scooter brands. This business was subsequently
renamed Ricardo Motorcycle Italia s.r.l. The performance of the
acquired entity has been reported in the Technical Consulting
segment (see Note 6).
Technical Consulting results
Technical Consulting had revenues and underlying operating
profits of GBP280.5m (2016: GBP267.9m) and GBP32.8m (2016:
GBP32.5m), respectively, with marginal growth in profit on the
prior year.
Our businesses in the Automotive and Commercial Vehicles sectors
in Europe experienced a disrupted flow of orders in the year as
customers evaluated their product plans in light of the unsettled
political climate and change within the industry. This was
particularly evident in the first half of the year. In the second
half, we saw order flow return to normal patterns with orders at
the end of the financial year being slightly ahead of the prior
year. This led to a less efficient business operation during the
year, impacting margins during the period of disrupted order flow.
With a good order book at the end of the year the business is in a
good position to grow.
Elsewhere in the Automotive and Commercial Vehicles sectors, the
business in Asia has become a more profitable operation than it was
in the prior year and continues to make good progress. However, the
market in Detroit remains challenging and our US business ended the
year with a loss. Order intake has been below historical levels in
recent years and we are taking steps to reposition the business and
enhance our electrification and autonomous service offering.
The Rail business is now completely integrated with the rest of
the Group and has performed well, with strong order intake in the
year from a wide geographical spread of customers. Rail's revenue
and operating profit reported in the year also benefited from
favourable foreign exchange translation.
The Energy & Environment business also had a good year, with
good levels of growth in revenue and profitability across its
practice areas. The business has extended its order book heading
into the new financial year by winning a number of multi-year
orders for UK Government programmes, whilst also continuing to
broaden its customer base in the private sector.
Performance Products results
Performance Products had a strong year, as revenues increased on
the prior year by 11% to GBP71.6m (2016: GBP64.5m) and underlying
operating profits increased on the prior year by 13% to GBP8.0m
(2016: GBP7.1m). The current year performance was driven
principally by increased volumes of engines in respect of the
contract for McLaren, together with increased transmissions for
both Bugatti and Porsche. This has been partially offset by lower
application engineering work than the prior year within the
Software business.
Technical Consulting
Performance
Ricardo's Technical Consulting activity accounts for around 80%
of Group revenue and underlying operating profit primarily in the
Automotive, Rail and Environmental consulting markets. We provide
innovation-focused services in engineering, technical and strategic
consulting, together with independent safety assurance services to
private and public sector customers in the rail industry.
As set out in Note 2, revenue has grown by 5% to GBP280.5m
(2016: GBP267.9m) and underlying operating profit increased by 1%
to GBP32.8m (2016: GBP32.5m), impacted by the underperformance of
our US and European Automotive businesses. The underlying operating
profit margin decreased to 11.7% (2016: 12.1%) due to a disrupted
flow of orders which led to operational inefficiency. Order intake
in the year stood at GBP288m (2016: GBP258m) and there has been a
good balance of order intake within Technical Consulting across all
core regions and with good levels of diversification across
different market sectors.
Growth in our Technical Consulting business continues to be
underpinned by the following global trends:
-- The reduction of carbon dioxide emissions, supported by
agreements reached at COP21 and COP22, and the elimination of the
release of noxious pollutants and particulates;
-- Improvements in the efficient use of energy and increasing
diversification of the global energy mix;
-- The rise of global connectivity, the increase of connected
devices in the commercial and industrial sectors and their safety
case;
-- Electrification and automation of vehicles and transport systems; and
-- Increasing levels of urbanisation and resource scarcity.
This year the Automotive business has had mixed
performances.
The Automotive EMEA Division (formerly the European Technical
Consulting ('EUTC')), which includes Ricardo's Automotive
businesses across Europe and certain regions of Asia, including
India, Japan and South Korea, remains the largest business in terms
of profit generation.
The division secured a range of large, multi-year programmes in
the Automotive and Commercial Vehicles sectors and across many
regions during the year. We are particularly pleased that over 15%
of the order intake in the year within Technical Consulting was in
connection with vehicle electrification programmes (17% for the
total Group). Although activity has remained at a good level across
all engineering disciplines, with increasing demand for powertrain
application, calibration, electrical and electronics skills, many
of our customers did delay or put programmes on hold because of the
uncertainty following the UK referendum vote to leave the European
Union, together with the US election.
Trading in the Automotive US business was challenging, where
solid levels of activity in the Commercial Vehicles business,
driven by new legislation requiring in-use compliance testing, did
not compensate for the reduced levels of work we saw primarily in
the Detroit region. This was due to the Detroit automakers
consolidating to fewer powertrain platforms whilst at the same time
increasing in-house test facilities and resources. We believe that
longer term growth opportunities exist in the Commercial Vehicles
business, especially around platooning technologies, and in
autonomous vehicle and connected car technologies and their safety
cases. Our expertise in these areas provides a solid foundation for
the future success of Ricardo's US business and we continue to
develop our presence in Silicon Valley to service the new
automotive clients in California.
China remains a key market for the Technical Consulting business
and this year we secured a number of contracts in the Automotive
sector, some of which are being delivered locally through our
technical centres in Shanghai and Beijing. These contracts have
included a mixture of work for hybrid vehicles, engines and
transmissions.
In the motorcycle and urban mobility business, through two
recent acquisitions, Ricardo Motorcycle has created a unique
complete motorcycle engineering offering. Our projects in this area
encompass styling and concept development, through to detailed
design, engineering, prototype testing and industrialisation.
We have completed the integration of the Rail business into
Ricardo and Ricardo Rail has closed the financial year with its
highest ever order book. The business is well positioned to take
advantage of positive trends within the global rail market, where
we continue to see solid growth.
Ricardo Energy & Environment has continued to grow its base
of international and private sector clients. Our air quality team
has delivered innovative projects, such as the implementation of
new technology to monitor driving emissions at the roadside, both
in the UK and internationally, and we have expanded the offer of
our services to a number of infrastructure businesses outside the
water and energy practice areas.
In the Defence sector, Ricardo Defense Systems has won a number
of new contracts primarily in land defence, including further
contracts to develop safety of the US Army's iconic High Mobility
Multipurpose Wheeled Vehicle ('HMMWV').
Ricardo's Strategic Consulting business continues to operate
well across all geographies. Our teams' multi-industry knowledge,
deep technical expertise and management consulting skills offer a
unique proposition to customers in the sectors that we serve.
Market sector highlights
Automotive
The Automotive sector remains the most significant for
Ricardo.
CO(2) reduction is a top global priority for this sector and is
being driven strongly by consumers. Additionally, the increased
focus on air quality and, in particular, NO(2) emissions, is
resulting in demand for all aspects of vehicle electrification,
from mild hybrids to full battery electric vehicles ('EVs').
Projections suggest that 30% of all new passenger cars will have
electric powertrains (including hybrids and EVs) by 2025.
We have secured a range of programmes in vehicle systems, hybrid
and electric systems, advanced driveline, and in the core
powertrain areas of our business, focused on both new and existing
product upgrades.
We have developed R-Intelect ('Integrated Electrification'); an
integrated approach to electrified vehicle development which
combines a focus upon functional systems engineering, together with
the application of an integrated model-based development toolset.
We continue to invest in advanced combustion and transmission
solutions and other key technologies in areas related to
improvements in overall vehicle efficiency such as lightweighting,
intelligent driveline and vehicle electrification.
The future of mobility solutions, including connected and
autonomous vehicle technology in particular, is attracting
significant interest in North America, along with the associated
challenges of the regulatory environment, safety, assurance and
cyber security of autonomous vehicles. Interest in hybrid and
electric vehicle architectures, battery pack and battery management
system design and vehicle attribute development also feature
strongly as OEMs increasingly look to accelerate the launch of
Plug-in Hybrid Electric Vehicles ('PHEVs') and Battery Electric
Vehicles ('BEVs') based on existing vehicle platforms and also,
increasingly, dedicated hybrid powertrains.
With the Ricardo Motorcycle business, we now have the capability
to deliver for our customers the full development of motorcycles,
scooters and urban mobility vehicles, including their
powertrains.
We see growth in this market driven by tightening emissions
legislation, along with consumer demand for higher capacity
motorcycles in developing markets.
Rail
Ricardo Rail delivered a strong performance throughout the year
and reported a record year-end order book. The business is also
well positioned to take advantage of positive trends within the
global rail market, namely high levels of new-build activity and
the opening up of a once notoriously parochial sector, both of
which are leading to the development of an increasingly globalised
supply chain. This is particularly notable in our relationships
with major international rolling stock manufacturers such as
Hitachi Rail and CRRC, where our established presence in their
domestic markets has led to our involvement supporting the
introduction of their vehicles into the European, North American
and Australasian markets.
This year we set up a rail product development team to exploit
opportunities for new technologies within the sector, particularly
in the area of asset optimisation. For example, Ricardo Rail's
pantograph condition monitoring system, which has recently been
approved for use across the UK main line. The Belgian state railway
operator, InfraBel, is also currently trialling the system, with a
view to an eventual certification for its own network.
Ricardo Certification
Since achieving accreditation and to the date of this report,
Ricardo Certification has issued:
-- Over 30 Safety Assessment Reports as an Assessment Body under
the EU Common Safety Method Risk Assessment and Evaluation
Regulations, principally from the UK, Netherlands, Denmark and
Spain;
-- Over 80 certificates as a Notified Body or Designated Body
under national regulations that satisfy the requirements of the EU
Interoperability Directive, principally from the UK, Netherlands,
Denmark and Spain;
-- Over 50 Accredited Independent Safety Assessment ('ISA')
reports, principally from Spain and China; and
-- Over 50 Railway Product Certifications, all from China.
Furthermore, an extension to the scope of accreditation has been
granted for the delivery of Assessment Body services for On-track
Plant and Engineering Change of Rail Vehicles according to RIS1710
and RIS2700, respectively.
Energy & Environment
Ricardo Energy & Environment has continued to deliver
leading work in global climate change, supporting governments
across the world, including Rwanda, India, Nigeria and Thailand,
with the development and implementation of their climate
commitments. For example, in Nigeria, Ricardo Energy &
Environment has advised the Federal Ministry of Environment on how
to take forward its Nationally Determined Contribution ('NDC')
climate action plan under the Paris Agreement, and the team of
national and international experts has supported the development of
sectoral action for the power, transport, agricultural and oil and
gas industries.
We have also seen high demand for our services in the area of
air quality, in which Ricardo Energy & Environment has
demonstrated its innovation capabilities. This is highlighted in
the unique approach established for the collection of marine
emission data on a national scale and the implementation of new
technology in monitoring real-world driving emissions at the
roadside.
The extensive breadth and depth of expertise within our energy
and water practices has contributed to increased private sector
sales, helping to bring these into balance with the traditional
public sector portfolio. Demand has also increased for
cross-discipline environmental services from infrastructure-focused
customers beyond water and energy, such as airports. We believe
this trend will continue, driven by requirements for compliance
with global regulations and more sustainable business growth.
In the renewable energy business our strategic consulting team
is delivering another substantial programme to improve
manufacturing output, efficiency and quality for a world-leading
wind turbine manufacturer.
Off-Highway & Commercial Vehicles
We have seen growth and secured a number of large engine and
transmission projects across the medium- and heavy-duty sectors. We
continue to see interest across Asia, in particular, for Ricardo's
capabilities in the Commercial Vehicles business. The order
pipeline is based around a broad mix of largely engine and
transmission opportunities. In the US, greenhouse gas and low NOx
standards are driving interest in powertrain and trailer
efficiency, emissions control and the use of alternative fuels.
Commercial vehicle platooning is also a fast-growing area of
opportunity.
Strong engagement in this sector has driven increased engine
test activity - especially in North America, where new regulations
requiring in-use compliance are now creating significant demand for
powertrain testing and analysis. We have also seen growing interest
in our fuel cell capabilities at our technical facility in
California. We have focused on developing our product offering in
the areas of ultra-low emissions, fuel economy improvement, system
optimisation, platooning and hybridisation: we see all these as
areas of significant future growth.
In the Off-Highway business, activity remains at a relatively
low level in Europe following the recent implementation of Stage IV
emissions standards, while in Asia the industry is showing renewed
growth, especially in the transmission and driveline area; Ricardo
is securing an increasing number of projects, including large
multi-year programmes. Our focus in the coming years will be on
assisting clients to meet EU, US and Asian emissions regulations
and 2020 emissions targets, together with the introduction of new
technologies for efficiency improvements.
We see increasing demand for high-speed diesel generator sets
and main propulsion systems for marine vessels, and for the
conversion of engines for gas or dual fuel operation. The majority
of our activities in this industry have been based around failure
analysis, investigations, specialist design and development.
Defence
In the US, the Ricardo Defense Systems business has won a number
of new contracts, mainly in the land domain, and is focused on
growth into new areas of the US defence market.
In the UK, we have grown our marine defence business, both
surface and sub-surface. In Europe and Asia, we have secured
contracts to deliver new engine and transmission designs for land
vehicles and are pursuing other large opportunities.
Performance Products
Performance
The Performance Products business accounts for around 20% of
Group revenue, with a large proportion of that revenue generated
through the supply of products and services to a single
customer.
As set out in Note 2, revenue increased by 11% to GBP71.6m
(2016: GBP64.5m) and underlying operating profit increased by 13%
to GBP8.0m (2016: GBP7.1m). Operating profit margins were also up
slightly to 11.2% (2016: 11.0%). Profit performance was higher than
the prior year, primarily due to increased volumes in respect of
the engine supply contract for McLaren and the start of production
of transmissions for the Bugatti Chiron. Order intake in the year
stood at GBP78m (2016: GBP103m), which was lower than last year
when we secured a multi-year transmission supply contract.
The Performance Products business continues to focus on the
development of long-term strategic relationships with customers,
and the consistent achievement of high product quality and on-time
delivery to win new and large contracts.
Market sector highlights
High-Performance Vehicles & Motorsport
The new expanded engine assembly facility is now fully
operational, doubling capacity and generating the capability to
deal with an increased number of engine variants. Production of
engines for the McLaren 540C, 570S, 570GT, 675LT and the McLaren
P1(TM) GTR hypercar continued during the year in line with
expectations, and full production of engines for the new 720S has
been added. We also secured the transmission supply contract for
the Aston Martin Red Bull Valkyrie hypercar, whilst continuing to
support Bugatti with supply of the complete driveline system for
the Chiron.
Ricardo remains a key supplier to the motorsport sector. Ricardo
is now supporting a key manufacturer within the Formula E
Championship with a collaboratively designed and tested product. We
continue to manufacture for Formula One, and we supply products
such as the Ricardo-designed transmissions for BMW and Multimatic
(for Ford) GT3 programmes, the M-Sport World Rally Championship
Ford Fiesta, the Hyundai R5 Rally programme, the Japanese Super
Formula Championship, Indy Lights and the World Series Formula V8
3.5.
Defence
Ricardo continues to supply spare parts to the UK Ministry of
Defence ('MOD') to support the Cougar and Weapons Mount
Installation Kit ('WMIK') vehicle fleets. Ricardo Defense Systems
and Lightweight Innovations For Tomorrow ('LIFT'), a Manufacturing
USA institute, are working together to identify and deploy a new,
robust and reliable solution to documented braking and stability
problems in the current High Mobility Multipurpose Wheeled Vehicle
('HMMWV') configuration.
OTHER FINANCIAL MATTERS
Acquisitions and acquisition-related intangible assets
As set out in more detail in Note 6, the Group acquired the
entire issued share capital of Motorcycle Engineering Italia s.r.l.
on 29 July 2016, a business that was formed from the operating
assets and employees of Exnovo s.r.l., for consideration of GBP1.9m
(EUR2.2m).
This investment added goodwill of GBP3.2m to the Ricardo
Motorcycle cash-generating unit which has subsequently been
reallocated as a result of the integration of the Motorcycle
business into Automotive EMEA (formerly Europe Technical
Consulting). Acquisition-related intangible assets have also been
identified, with a net book value at year-end of GBP0.2m.
An exercise to assess the fair value of the identifiable net
assets as a result of this acquisition has been completed during
the year. In addition, the preliminary assessment made in the prior
year of the provisional fair value of identifiable net assets in
respect of the Chinese joint venture operation acquired from the
Lloyd's Register Group on 1 March 2016 has been finalised during
the year, which added GBP0.2m of goodwill to the Ricardo Rail
cash-generating unit. Total goodwill at 30 June 2017 is GBP62.0m
(2016: GBP57.0m), which includes retranslation of goodwill
denominated in foreign currencies of GBP1.6m.
Amortisation of acquisition-related intangible assets has
increased to GBP4.0m (2016: GBP3.4m), charged primarily on the
intangible assets from the Rail acquisition, which are
predominantly denominated in Euros. The Group also incurred net
acquisition-related expenditure of GBP1.7m (2016: GBP2.8m) during
the year, GBP0.8m of which was in respect of the acquisition
completed in the year. The acquisition-related expenditure and
amortisation of acquisition-related intangible assets have been
charged to the Consolidated Income Statement as specific adjusting
items. Further detail is disclosed in Note 3.
After the reporting date, the Group also acquired the entire
issued share capital of Control Point Corporation on 8 September
2017, for initial consideration of GBP5.3m ($7.0m), rising to
GBP7.8m ($10.2m) subject to post-acquisition performance and
retention of specific individuals. The provisional assessment of
identifiable net assets acquired is GBP3.3m ($4.3m), together with
provisional goodwill and other acquisition-related intangible
assets of GBP2.0m ($2.7m). Given the proximity of the acquisition
to the date of approval of the financial statements, a preliminary
fair value exercise has yet to be performed. This is disclosed in
Note 9.
Research and Development
The Group continues to invest in Research and Development
('R&D'), and spent GBP9.5m (2016: GBP9.4m) before government
grant income of GBP2.4m (2016: GBP1.3m). This includes costs
capitalised in accordance with IFRS of GBP3.1m (2016: GBP3.2m) in
respect of continued development expenditure on a range of product
developments around the Group and reflects our continued focus on
development activity within Europe and the US.
The total Research and Development Expenditure Credit ('RDEC')
recognised in the current year is GBP6.6m (2016: GBP6.9m). This is
comprised of an estimated RDEC credit in respect of the current
year of GBP5.2m (2016: GBP5.4m), together with GBP1.4m arising from
the routine amendment of open applications as a result of further
analysis of the qualifying expenditure incurred. In the prior year,
an additional non-recurring credit of GBP1.5m was recognised within
specific adjusting items for claims made on transition to the new
regime in respect of the open periods between the substantive
enactment of the RDEC scheme by the UK Government and its
subsequent adoption by the Group.
Net finance costs
Finance income was GBP0.2m (2016: GBP0.3m), which is similar to
the prior year, and finance costs were GBP2.7m (2016: GBP2.2m),
giving net finance costs of GBP2.5m (2016: GBP1.9m). Finance costs
were higher as a result of interest payments on the Group's loan
facilities drawn throughout the year, partially offset by a
slightly favourable shift in respect of the interest charge on the
defined benefit pension scheme.
Taxation
The total tax charge for the year was GBP7.4m (2016: GBP7.4m),
with the total effective rate of tax being 23.0% (2016: 22.4%).
Regarding the Group's deferred tax assets of GBP14.3m (2016:
GBP13.0m), the Directors have considered the recoverability of the
net deferred tax assets of GBP2.4m (2016: GBP3.6m) and GBP5.9m
(2016: GBP4.9m) which primarily relate to the expected utilisation
of historic losses in Germany and R&D tax credits in the US,
respectively.
In Germany, GBP1.5m of the deferred tax asset relating to
historic losses has been derecognised to ensure that the expected
period of utilisation remains reasonable. Consistent with the prior
year, a deferred tax asset has not been recognised for the current
year tax losses within the consolidated tax group controlled by
Ricardo GmbH, within which Ricardo Deutschland GmbH is the primary
trading entity.
The Directors remain satisfied that it is probable that
sufficient taxable profits will be generated in the foreseeable
future, against which the recognised assets can be utilised.
Earnings per share
Basic earnings per share decreased by 4% to 46.8p (2016: 48.6p).
The Directors consider that an underlying earnings per share
provides a more useful indication of underlying performance and
trends over time. Underlying basic earnings per share for the year
increased by 1% to 55.7p (2016: 55.2p).
Basic earnings per share, with a reconciliation to an underlying
basic earnings per share, which excludes the net-of-tax impact of
specific adjusting items, is disclosed in Note 4.
Dividend
The total (paid and proposed) dividend for the year has
increased by 7% to 19.3p per ordinary share (2016: 18.1p) and
amounts to GBP10.3m (2016: GBP9.5m). The proposed final dividend of
13.88p (2016: 13.03p) will be paid on 17 November 2017 to
shareholders who are on the register of members at the close of
business on 27 October 2017, subject to approval at the Annual
General Meeting on 8 November 2017.
Capital investment
Cash expenditure on property, plant and equipment was GBP6.3m
(2016: GBP8.5m) as we continue to invest in our business
operations. This expenditure included new and upgraded test cell
equipment and IT hardware, together with continued spend to
finalise the construction of the Centenary Innovation Centre at our
Shoreham Technical Centre in the UK.
During the year we commenced a process to market the test cell
facilities and related equipment situated at the Group's Chicago
Technical Centre for sale. We continue to review the management and
usage of our other test facilities outside the UK, in light of
changes in the market and our desire to increase operational
effectiveness.
In addition, having been approached by the landlord of leased
premises at our Midlands Technical Centre, an agreement was reached
to sell and lease back a property which had been built on the site,
together with an extension in the term of the overall lease. The
profit on disposal arising from this transaction was GBP0.7m.
Net debt
Closing net debt was GBP37.9m (2016: GBP34.4m). The Group had a
net cash outflow of GBP3.5m (2016: GBP48.7m), after GBP1.9m (2016:
GBP45.4m) of consideration paid in respect of acquisitions net of
cash acquired, and GBP4.4m (2016: GBP3.4m) of acquisition-related
payments. The composition of net debt is defined in Note 8.
The Group continues to focus on its management of working
capital, which increased during the year primarily within our
Automotive EMEA and Energy & Environment businesses. This was
as a result of a number of factors, including revenue growth, an
increasing mix of customers in the Middle East and Asia where
payment terms have been longer, together with the phasing of
revenue towards the fourth quarter as a result of a disrupted flow
of orders. We also continued to invest in our major long-term
assembly programme.
Banking facilities
At the end of the financial year, the Group held total
facilities of GBP91.1m (2016: GBP90.9m), which included committed
facilities of GBP75.0m (2016: GBP75.0m). Of the committed
facilities, a GBP35.0m facility is available until September 2019
and GBP40.0m is available until April 2020. In addition, the Group
has uncommitted facilities including overdrafts of GBP16.1m (2016:
GBP15.9m), which mature throughout the next financial year and are
renewable annually.
Committed facilities of GBP59.7m (2016: GBP54.5m) net of direct
issue costs were drawn primarily to fund acquisitions. These are
denominated in Pounds Sterling and have variable rates of interest
dependent upon the Group's adjusted leverage, which range from 1.6%
to 2.35% above LIBOR and are repayable in the year ending 30 June
2020.
Foreign exchange
On consolidation, income and expense items are translated at the
average exchange rates for the period. The Group is exposed to
movements in the Pound Sterling exchange rate, principally from
work carried out with customers that transact in Euros, US Dollars
and Chinese Renminbi. The average value of Pound Sterling was
significantly lower against the Euro (13.1%), US Dollar (14.5%) and
Chinese Renminbi (9.5%) during the year compared to the previous
financial year. This was as a result of the UK referendum vote to
leave the EU on 23 June 2016, which had a favourable impact on
revenue during the year, but a marginal impact on profit.
Had the current year results been stated at constant exchange
rates, revenue would have been GBP15.2m lower and reported profit
before tax would have been GBP0.3m higher. The impact on reported
profit before tax is due to the effect of foreign exchange on the
amortisation of acquired intangible assets denominated in foreign
currencies. Significant resulting exposures are hedged through
foreign currency contracts.
Pensions
The Group's defined benefit pension scheme operates within the
UK. The accounting deficit measured in accordance with IAS 19
'Employee Benefits' was GBP22.2m before tax, or GBP18.0m after tax
(2016: GBP21.5m and GBP17.4m, respectively).
The GBP0.7m increase in the pre-tax pension deficit was
primarily due to both a reduction in the discount rate assumption
to 2.6% (2016: 2.95%) and an increase in inflation to 3.2% (2016:
2.8%), offset by the use of an updated set of demographic
assumptions and return on plan assets of GBP6.9m, together with
GBP4.3m of cash contributions paid to the scheme during the
financial year.
Ricardo remains committed to paying GBP4.3m each year until
January 2021 to fund the pension deficit. The next triennial
actuarial valuation, which will assess the level of Ricardo's
future annual contributions, is currently in progress.
OUTLOOK
We enter the new financial year with a well balanced business
and welcome the in-year acquisition of Exnovo and the recent
Control Point Corporation acquisition post year-end. We continue to
address and adjust to the changes in our individual markets to
ensure we both mitigate risk and capitalise on the significant
global opportunities which lie ahead. These opportunities, together
with our progress, our people and our technology, in addition to
our record order book, provide a good platform for further growth
in the years to come.
Dave Shemmans Ian Gibson
Chief Executive Officer Chief Financial Officer
13 September 2017
Note: Certain statements in this press release are
forward-looking. Although these forward-looking statements are made
in good faith based on the information available to the Directors
at the time of their approval of the press release, we can give no
assurance that these expectations will prove to have been correct.
Because these statements involve risks and uncertainties, actual
results may differ materially from those expressed or implied by
these forward-looking statements. We undertake no obligation to
update any forward-looking statements whether as a result of new
information, future events or otherwise.
Further enquiries:
Ricardo plc
Dave Shemmans, Chief Executive
Officer Tel: 01273 455611
Ian Gibson, Chief Financial Website: www.ricardo.com
Officer
Newgate Communications
LLP Tel: 020 7680 6550
Adam Lloyd / Zoë Pocock E-mail: ricardo@newgatecomms.com
/ Ed Treadwell
Consolidated income statement
for the year ended 30 June 2017
2017 2016
Specific Specific
adjusting adjusting
Underlying items(1) Total Underlying items(1) Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ----- ------------- ----------- -------- ------------- ----------- --------
Revenue 2 352.1 - 352.1 332.4 - 332.4
Cost of sales (219.2) - (219.2) (202.6) - (202.6)
--------------------- ----- ------------- ----------- -------- ------------- ----------- --------
Gross profit 132.9 - 132.9 129.8 - 129.8
Administrative
expenses (92.6) (6.1) (98.7) (90.7) (6.2) (96.9)
Other income 0.5 - 0.5 0.5 1.5 2.0
--------------------- ----- ------------- ----------- -------- ------------- ----------- --------
Operating profit 40.8 (6.1) 34.7 39.6 (4.7) 34.9
Finance income 0.2 - 0.2 0.3 - 0.3
Finance costs (2.7) - (2.7) (2.2) - (2.2)
--------------------- ----- ------------- ----------- -------- ------------- ----------- --------
Net finance
costs (2.5) - (2.5) (1.9) - (1.9)
--------------------- ----- ------------- ----------- -------- ------------- ----------- --------
Profit before
taxation 38.3 (6.1) 32.2 37.7 (4.7) 33.0
Taxation (8.8) 1.4 (7.4) (8.6) 1.2 (7.4)
--------------------- ----- ------------- ----------- -------- ------------- ----------- --------
Profit for the
year 29.5 (4.7) 24.8 29.1 (3.5) 25.6
--------------------- ----- ------------- ----------- -------- ------------- ----------- --------
Profit attributable
to:
Owners of the
parent 29.5 (4.7) 24.6 29.1 (3.5) 25.6
Non-controlling - - - - - -
interests
--------------------- ----- ------------- ----------- -------- ------------- ----------- --------
29.5 (4.7) 24.8 29.1 (3.5) 25.6
--------------------- ----- ------------- ----------- -------- ------------- ----------- --------
Earnings per ordinary share attributable to the owners
of the parent during the year
--------------------------------------------------------------
Basic 4 46.8p 48.6p
Diluted 4 46.4p 48.1p
--------------------- ----- --------------- ---------------
(1) Specific adjusting items comprise amortisation of acquired
intangible assets, acquisition-related expenditure and
reorganisation costs. In the prior year, non-recurring income for
claims under the Research and Development Expenditure Credit
('RDEC') scheme in respect of previous years was also included.
Further details are given in Note 3.
Consolidated statement of comprehensive income
for the year ended 30 June 2017
2017 2016
GBPm GBPm
--------------------------------------------- ------ ------
Profit for the year 24.8 25.6
--------------------------------------------- ------ ------
Items that will not be reclassified
to profit or loss:
Remeasurements of the defined benefit
scheme (4.4) (4.4)
Deferred tax on remeasurements of
the defined benefit scheme 0.8 0.7
--------------------------------------------- ------ ------
Total items that will not be reclassified
to profit or loss (3.6) (3.7)
--------------------------------------------- ------ ------
Items that may be subsequently reclassified
to profit or loss:
Currency translation on foreign currency
net investments 3.0 8.7
Total items that may be subsequently
reclassified to profit or loss 3.0 8.7
--------------------------------------------- ------ ------
Total other comprehensive (loss)/income
for the year (net of tax) (0.6) 5.0
Total comprehensive income for the
year 24.2 30.6
--------------------------------------------- ------ ------
Attributable to:
Owners of the parent 24.2 30.6
Non-controlling interests - -
--------------------------------------------- ------ ------
24.2 30.6
--------------------------------------------- ------ ------
Consolidated statement of financial position
as at 30 June 2017
2017 2016
Note GBPm GBPm
---------------------------------- ----- -------- --------
Assets
Non-current assets
Goodwill 62.0 57.0
Other intangible assets 32.4 35.3
Property, plant and equipment 48.0 53.6
Deferred tax assets 14.3 13.0
---------------------------------- ----- -------- --------
156.7 158.9
---------------------------------- ----- -------- --------
Current assets
Inventories 13.9 11.0
Trade and other receivables 137.6 114.3
Derivative financial assets 0.9 0.4
Current tax assets 0.6 1.2
Cash and cash equivalents 8 27.9 23.7
180.9 150.6
---------------------------------- ----- -------- --------
Non-current assets held for sale 2.8 -
---------------------------------- ----- -------- --------
183.7 150.6
---------------------------------- ----- -------- --------
Total assets 340.4 309.5
---------------------------------- ----- -------- --------
Liabilities
Current liabilities
Borrowings 8 (6.0) (3.4)
Trade and other payables (82.1) (72.5)
Current tax liabilities (6.3) (9.0)
Derivative financial liabilities (0.7) (2.5)
Provisions (1.3) (1.3)
(96.4) (88.7)
---------------------------------- ----- -------- --------
Net current assets 87.3 61.9
---------------------------------- ----- -------- --------
Non-current liabilities
Borrowings 8 (59.8) (54.7)
Retirement benefit obligations (22.2) (21.5)
Deferred tax liabilities (5.0) (3.6)
Provisions (1.3) (1.5)
---------------------------------- ----- -------- --------
(88.3) (81.3)
---------------------------------- ----- -------- --------
Total liabilities (184.7) (170.0)
---------------------------------- ----- -------- --------
Net assets 155.7 139.5
---------------------------------- ----- -------- --------
Equity
Equity attributable to owners
of the parent
Share capital 13.3 13.2
Share premium 14.3 14.3
Other reserves 15.6 12.6
Retained earnings 112.2 99.4
---------------------------------- ----- -------- --------
155.4 139.5
---------------------------------- ----- -------- --------
Non-controlling interests 0.3 -
---------------------------------- ----- -------- --------
Total equity 155.7 139.5
---------------------------------- ----- -------- --------
Consolidated statement of changes in equity
for the year ended 30 June 2017
Attributable to owners
of the parent
----------------------------------------------------------
Non-controlling
Share Share Other Retained interest Total
capital premium reserves earnings Total equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ---------- ---------- ----------- ----------- -------- ---------------- ---------
At 1 July 2016 13.2 14.3 12.6 99.4 139.5 - 139.5
Profit for the year - - - 24.8 24.8 - 24.8
Other comprehensive
income/(loss) for
the year - - 3.0 (3.6) (0.6) - (0.6)
----------------------------- ---------- ---------- ----------- ----------- -------- ---------------- ---------
Total comprehensive
income for the year - - 3.0 21.2 24.2 - 24.2
Reclassification of
non-controlling interests - - - (0.3) (0.3) 0.3 -
Equity-settled transactions - - - 1.6 1.6 - 1.6
Tax credit relating
to share option schemes - - - 0.1 0.1 - 0.1
Proceeds from shares
issued 0.1 - - - 0.1 - 0.1
Ordinary share dividends
(Note 5) - - - (9.8) (9.8) - (9.8)
----------------------------- ---------- ---------- ----------- ----------- -------- ---------------- ---------
At 30 June 2017 13.3 14.3 15.6 112.2 155.4 0.3 155.7
----------------------------- ---------- ---------- ----------- ----------- -------- ---------------- ---------
At 1 July 2015 13.1 14.3 3.9 84.7 116.0 - 116.0
Profit for the year - - - 25.6 25.6 - 25.6
Other comprehensive
income/(loss) for
the year - - 8.7 (3.7) 5.0 - 5.0
Total comprehensive
income for the year - - 8.7 21.9 30.6 - 30.6
Equity-settled transactions - - - 1.5 1.5 - 1.5
Tax credit relating
to share option schemes - - - 0.2 0.2 - 0.2
Proceeds from shares
issued 0.1 - - - 0.1 - 0.1
Ordinary share dividends
(Note 5) - - - (8.9) (8.9) - (8.9)
----------------------------- ---------- ---------- ----------- ----------- -------- ---------------- ---------
At 30 June 2016 13.2 14.3 12.6 99.4 139.5 - 139.5
----------------------------- ---------- ---------- ----------- ----------- -------- ---------------- ---------
Consolidated statement of cash flow
for the year ended 30 June 2017
2017 2016
Note GBPm GBPm
--------------------------------------- ----- ------ -------
Cash flows from operating activities
Cash generated from operations 7 24.3 29.0
Net finance costs (1.4) (1.1)
Tax paid (7.6) (4.5)
--------------------------------------- ----- ------ -------
Net cash generated from operating
activities 15.3 23.4
--------------------------------------- ----- ------ -------
Cash flows from investing activities
Acquisitions of subsidiaries,
net of cash acquired 6 (1.9) (45.4)
Purchases of property, plant and
equipment (6.3) (8.5)
Proceeds from sale of property, 4.0 -
plant and equipment
Purchases of intangible assets (5.6) (6.2)
Net cash used in investing activities (9.8) (60.1)
--------------------------------------- ----- ------ -------
Cash flows from financing activities
Proceeds from issuance of ordinary
shares 0.1 0.1
Net proceeds from borrowings 5.1 9.4
Dividends paid to shareholders 5 (9.8) (8.9)
Net cash (used in)/generated from
financing activities (4.6) 0.6
--------------------------------------- ----- ------ -------
Effect of exchange rate changes
on cash and cash equivalents 0.7 (3.2)
--------------------------------------- ----- ------ -------
Net increase/(decrease) in cash
and cash equivalents 1.6 (39.3)
Cash and cash equivalents at 1
July 8 20.4 59.7
--------------------------------------- ----- ------ -------
Net cash and cash equivalents
at 30 June 8 22.0 20.4
--------------------------------------- ----- ------ -------
Notes to the financial statements
for the year ended 30 June 2017
1. General information
Ricardo plc is a public limited company, incorporated and
domiciled in the United Kingdom and with a premium listing on the
London Stock Exchange. The address of its registered office is
Shoreham Technical Centre, Shoreham-by-Sea, West Sussex, BN43 5FG,
England, United Kingdom, and its registered number is 222915.
This preliminary announcement is based on the audited Annual
Report and Accounts 2017, which was approved for issue on 13
September 2017, and which has been prepared in accordance with
International Financial Reporting Standards ('IFRS'), IFRS
Interpretations Committee ('IFRS-IC') interpretations adopted by
the European Union ('EU') and those parts of the Companies Act 2006
applicable to companies reporting under IFRS. The financial
information herein does not amount to full statutory accounts
within the meaning of Section 434 of the Companies Act 2006.
2. Operating segments
Technical Performance
2017 Consulting Products Head Office Total
GBPm GBPm GBPm GBPm
---------------------------------- ------------ ------------- ------------- -------
Total segment revenue 280.6 73.3 - 353.9
Inter-segment revenue (0.1) (1.7) - (1.8)
---------------------------------- ------------ ------------- ------------- -------
Revenue from external customers 280.5 71.6 - 352.1
---------------------------------- ------------ ------------- ------------- -------
Underlying operating profit 32.8 8.0 - 40.8
Specific adjusting items (5.0) - (1.1) (6.1)
Operating profit 27.8 8.0 (1.1) 34.7
Net finance costs - - (2.5) (2.5)
---------------------------------- ------------ ------------- ------------- -------
Profit before taxation 27.8 8.0 (3.6) 32.2
---------------------------------- ------------ ------------- ------------- -------
Technical Performance
2016 Consulting Products Head Office Total
GBPm GBPm GBPm GBPm
---------------------------------- ------------ ------------- ------------- -------
Total segment revenue 269.0 65.1 - 334.1
Inter-segment revenue (1.1) (0.6) - (1.7)
---------------------------------- ------------ ------------- ------------- -------
Revenue from external customers 267.9 64.5 - 332.4
---------------------------------- ------------ ------------- ------------- -------
Underlying operating profit 32.5 7.1 - 39.6
Specific adjusting items (4.4) 0.2 (0.5) (4.7)
Operating profit 28.1 7.3 (0.5) 34.9
Net finance costs - - (1.9) (1.9)
---------------------------------- ------------ ------------- ------------- -------
Profit before taxation 28.1 7.3 (2.4) 33.0
---------------------------------- ------------ ------------- ------------- -------
3. Specific adjusting items
2017 2016
GBPm GBPm
-------------------------------------------- ----- ------
Amortisation of acquisition-related
intangible assets 4.0 3.4
Acquisition-related expenditure associated
with LR Rail(1) 0.1 1.6
Other acquisition-related expenditure(2) 1.6 1.2
Reorganisation costs(3) 0.4 -
Non-recurring income for RDEC claims
in respect of prior years(4) - (1.5)
-------------------------------------------- ----- ------
Total 6.1 4.7
-------------------------------------------- ----- ------
(1) The expenditure associated with the Lloyd's Register Rail
('LR Rail') acquisition comprises costs incurred in the years ended
30 June 2017 and 30 June 2016 associated with the integration of
the LR Rail businesses subsequent to their acquisition, together
with dual-running costs incurred during a transitional services
period with Lloyd's Register. In the current year, expenditure has
been incurred of GBP0.5m, offset by GBP0.4m of fair value
provisions recognised on acquisition which have been released
within specific adjusting items where those risks will not
crystallise as originally anticipated.
(2) Other acquisition-related expenditure primarily comprises
costs incurred in the years ended 30 June 2017 and 30 June 2016 for
services rendered to, and consumed by, the Group to effect the
Motorcycle Engineering Italia (Exnovo) and Control Point
Corporation acquisitions (see Notes 6 and 9, respectively),
together with the Cascade acquisition in the previous financial
year. The expenditure also comprises costs associated with the
integration of the Motorcycle Engineering Italia (Exnovo) and
Cascade businesses subsequent to their acquisition. In addition,
the costs of the associated earn-out arrangements of the Motorcycle
Engineering Italia (Exnovo) acquisition, together with the Cascade,
Power Planning Associates and Vepro acquisitions made in prior
years are also included.
(3) Reorganisation costs relate to expenditure incurred as a
result of the formation of the new Global Automotive structure from
the operations of the Group's Automotive technical centres across
Europe, China and North America. The costs incurred in the year
comprised initial planning activities undertaken to implement a
reorganisation of Europe Technical Consulting into Automotive EMEA
in order to align with the new Global Automotive structure for
which a detailed formal plan has now been announced. In addition,
activities were also undertaken during the year to prepare the test
cell and related assets at the Group's technical centre in Chicago
for disposal.
(4) On 2 July 2013, legislation was enacted to allow UK
companies to elect for the Research and Development Expenditure
Credit ('RDEC') on qualifying expenditure incurred since 1 April
2013, instead of the 'super-deduction' rules, which were abolished
from 1 April 2016. Management elected to adopt the RDEC regime as
of 1 July 2015, which also permitted claims to be made on
qualifying expenditure under RDEC in excess of the tax relief
received under the legacy scheme since 1 July 2013. The credit in
the prior year related to claims made for the excess in RDEC over
the tax relief received under the legacy scheme in the two years
between enactment and adoption. The credit was recorded as other
income and classified as a specific adjusting item on the basis
that it was non-recurring and there was no corresponding
expenditure against which these credits could be offset.
4. Earnings per share
Basic earnings per share is calculated by dividing the earnings
attributable to ordinary shareholders by the weighted average
number of shares outstanding during the year, excluding those held
by an employee benefit trust for the Long-Term Incentive Plan
('LTIP') and by the Share Incentive Plan ('SIP') for the free share
scheme 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. These include potential awards
of LTIP shares and options granted to employees where the exercise
price is less than the market price of the Company's ordinary
shares at year-end.
Reconciliations of the earnings and the weighted average number
of shares used in the calculations are set out below. Underlying
earnings per share is also shown because the Directors consider
that this provides a more useful indication of underlying
performance and trends over time.
2017 2016
GBPm GBPm
---------------------------------------------- ------------ ------------
Earnings attributable to owners of
the parent 24.8 25.6
Add back amortisation of acquisition-related
intangible assets (net of tax) 3.1 2.7
Add back acquisition-related expenditure
associated with LR Rail (net of tax) 0.1 1.3
Add back other acquisition-related
expenditure (net of tax) 1.2 1.0
Add back reorganisation costs (net 0.3 -
of tax)
Less non-recurring income for RDEC
claims in respect of prior years - (1.5)
---------------------------------------------- ------------ ------------
Underlying earnings attributable to
owners of the parent 29.5 29.1
---------------------------------------------- ------------ ------------
Number Number
of shares of shares
millions millions
---------------------------------------------- ------------ ------------
Basic weighted average number of shares
in issue 53.0 52.7
Effect of dilutive potential shares 0.4 0.5
---------------------------------------------- ------------ ------------
Diluted weighted average number of
shares in issue 53.4 53.2
---------------------------------------------- ------------ ------------
Earnings per share pence pence
---------------------------------------------- ------------ ------------
Basic 46.8 48.6
Diluted 46.4 48.1
---------------------------------------------- ------------ ------------
Underlying earnings per share pence pence
---------------------------------------------- ------------ ------------
Basic 55.7 55.2
Diluted 55.2 54.7
---------------------------------------------- ------------ ------------
5. Dividends
2017 2016
GBPm GBPm
----------------------------------------- ----- -----
Final dividend for the year ended 30
June 2016 of 13.03p (2015: 11.95p) per
share 6.9 6.3
Interim dividend for the year ended 30
June 2017 of 5.42p (2016: 5.07p) per
share 2.9 2.6
Equity dividends paid 9.8 8.9
----------------------------------------- ----- -----
The Directors are proposing a final dividend in respect of the
financial year ended 30 June 2017 of 13.88p per share which will
utilise GBP7.4m of retained earnings. It will be paid on 17
November 2017 to shareholders who are on the register of members at
the close of business on 27 October 2017, subject to approval at
the Annual General Meeting on 8 November 2017.
6. Acquisitions
Motorcycle Engineering Italia s.r.l. acquisition
On 29 July 2016 the Group acquired the entire issued share
capital of Motorcycle Engineering Italia s.r.l., which was
subsequently renamed Ricardo Motorcycle Italia s.r.l., for total
cash consideration of GBP1.9m (EUR2.2m). This business was formed
from the operating assets and employees of Exnovo s.r.l., a vehicle
design house, which creates class-leading aesthetics for global
motorcycle and scooter brands.
The following table sets out the consideration paid for
Motorcycle Engineering Italia s.r.l., together with the fair value
of the assets acquired and liabilities assumed:
GBPm
--------------------------------------------- ------
Cash consideration 1.9
--------------------------------------------- ------
Fair value of identifiable assets acquired
and liabilities assumed
Customer contracts and relationships 0.2
Other intangible assets 0.1
Trade and other receivables 0.9
Trade and other payables (2.4)
Provisions (0.1)
--------------------------------------------- ------
Total fair value of identifiable net assets (1.3)
Goodwill 3.2
--------------------------------------------- ------
Total 1.9
--------------------------------------------- ------
All of the cash consideration of GBP1.9m was paid in the
year.
Adjustments have been made to identifiable assets and
liabilities on acquisition to reflect their fair value. These
include the recognition of customer-related intangible assets
amounting to GBP0.2m. The fair values of net assets acquired were
identified following a valuation exercise in accordance with the
requirements of IFRS 3 'Business Combinations'.
The goodwill arising on acquisition can be ascribed to the
existence of a skilled, active workforce, developed expertise and
processes and the opportunities to obtain new contracts and develop
the business. None of these meet the criteria for recognition as
intangible assets separable from goodwill. None of the goodwill
recognised is expected to be deductible for tax purposes.
The fair value of trade and other receivables of GBP0.9m
includes net trade receivables of GBP0.4m and amounts recoverable
on contracts of GBP0.2m, all of which is expected to be
collectible.
Acquisition-related expenditure of GBP0.8m has been charged to
the Consolidated Income Statement for the year ended 30 June 2017
and is disclosed as a specific adjusting item in Note 3.
The revenue included in the Consolidated Income Statement in
relation to the acquired business was GBP3.0m. The underlying
operating profit over the same period was GBPNil. This is reported
in the Technical Consulting segment.
Had Motorcycle Engineering Italia s.r.l. been acquired and
consolidated from 1 July 2016, revenue and underlying operating
profit in the Consolidated Income Statement would be GBP0.3m higher
and GBP0.1m lower, respectively, based on available information for
the month from 1 July 2016 to the acquisition date.
7. Cash generated from operations
2017 2016
GBPm GBPm
----------------------------------------- ------- -------
Profit before tax 32.2 33.0
Adjustments for:
Share-based payments 1.6 1.5
Cash flow hedges (3.2) 2.3
Profit on disposal of property, plant (0.7) -
and equipment
Net finance costs 2.5 1.9
Depreciation and amortisation 16.3 13.9
----------------------------------------- ------- -------
Operating cash flows before movements
in working capital 48.7 52.6
Increase in inventories (2.9) (3.2)
Increase in trade and other receivables (15.5) (13.1)
Decrease in trade and other payables (1.1) (4.0)
(Decrease)/increase in provisions (0.5) 1.1
Defined benefit payments (4.4) (4.4)
----------------------------------------- ------- -------
Cash generated from operations 24.3 29.0
----------------------------------------- ------- -------
8. Net debt
Net debt is defined by the Group as net cash and cash
equivalents less borrowings.
2017 2016
Analysis of net debt GBPm GBPm
--------------------------------------- ------- -------
Cash and cash equivalents (current
assets) 27.9 23.7
Bank overdrafts (current liabilities) (5.9) (3.3)
--------------------------------------- ------- -------
Net cash and cash equivalents 22.0 20.4
Borrowings maturing within one year (0.1) (0.1)
Borrowings maturing after one year (59.8) (54.7)
At 30 June (37.9) (34.4)
--------------------------------------- ------- -------
9. Events after the reporting date
Control Point Corporation acquisition
On 8 September 2017 the Group acquired the entire issued share
capital of Control Point Corporation ('CPC') for initial cash
consideration of GBP5.3m ($7.0m), rising to total cash
consideration of GBP7.8m ($10.2m), subject to any adjustment to
reflect normalised levels of working capital, the achievement of
certain financial performance targets and the retention of specific
individuals. CPC is a US-based full-service engineering firm which
operates principally in the defence sector and has expertise in
distributed software-based systems, fleet management technologies
and the acquisition expands upon the Group's vehicle engineering
capabilities.
The following table sets out the consideration paid for CPC,
together with the provisional assessment of the net assets
acquired:
GBPm
---------------------------------------------------- -----
Initial cash consideration 5.3
---------------------------------------------------- -----
Provisional assessment of identifiable net
assets acquired 3.3
Provisional goodwill and other acquisition-related
intangible assets 2.0
---------------------------------------------------- -----
Total 5.3
---------------------------------------------------- -----
All of the initial cash consideration of GBP5.3m ($7.0m) was
paid after the year-end in September 2017. The acquisition was
completed on a cash-free and debt-free basis, subject to normal
levels of working capital.
Adjustments have not yet been made to identifiable net assets on
acquisition to reflect their fair value, including the recognition
of customer-related intangible assets separable from the goodwill
arising on acquisition. It is expected that the remaining value of
goodwill will be ascribed to the existence of a skilled, active
workforce, developed expertise and processes and the opportunities
to obtain new contracts and develop the business. The goodwill
recognised is expected to be deductible for tax purposes.
Given the proximity of the completed acquisition of CPC to the
date of approval of these financial statements, the provisional
assessment of net assets acquired is based upon available financial
information.
The provisional value for initial consideration and provisional
assessment of net assets acquired may be adjusted in future in
accordance with the requirements of IFRS 3 'Business Combinations'
and the sale and purchase agreement.
The provisional assessment of net assets of GBP3.3m ($4.3m)
includes net trade receivables of GBP2.4m ($3.1m) and amounts
recoverable on contracts of GBP0.4m ($0.6m), all of which is
expected to be collectible.
Acquisition-related expenditure of GBP0.3m has been charged to
the Consolidated Income Statement for the year ended 30 June 2017
and is disclosed as a specific adjusting item in Note 3.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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