TIDMRCDO
RNS Number : 0387M
Ricardo PLC
12 September 2019
12 September 2019
Ricardo plc
Preliminary results for the full year ended 30 June 2019
Ricardo plc is a global engineering, technical, environmental
and strategic consultancy business, which also manufactures and
assembles low-volume, high-quality and high-performance
products.
HIGHLIGHTS
-- A resilient performance, demonstrating the development of the
business and the success of diversification across sectors and
geographies
-- Strong growth in Performance Products and Energy &
Environment in particular, offset a very challenging year in our
European and US Automotive businesses
-- Order intake robust at GBP386m, compared to GBP413m in FY 2017/18 and GBP366m in FY 2016/17
-- Order book increased to GBP314m, up GBP19m on June 2018
-- Revenue up 2% to GBP384.4m on FY 2017/18
-- Underlying PBT similar to prior year at GBP37.0m (FY 2017/18: GBP37.5m)
-- Record McLaren engine deliveries and ABS production commenced
-- Two Australian acquisitions in Rail and Energy &
Environment (May 2019 and July 2019, respectively)
-- Net debt at GBP47.4m, including GBP22.4m acquisition costs (June 2018 Net debt: GBP26.1m)
-- Dividend increased by 4% to 21.28p from 20.46p
-- Current political and economic uncertainties aside, we are
well positioned for growth from a strong, diversified order book
and pipeline, recurring revenue from long-term production
programmes and the benefit of recent acquisitions
% Change
FY 2018/19 FY 2017/18(*() Reported Organic(3)
Order book (GBPm) 314 295 +6 -4
Order intake (GBPm) 386 413 -7 -7
Revenue (GBPm) 384.4 378.5 +2 +1
Underlying(1)
Profit before tax (GBPm) 37.0 37.5 -1 -3
Basic earnings per share(2)
(p) 53.7 55.1 -3 -4
Statutory
Profit before tax (GBPm) 26.5 27.0 -2 -4
Basic earnings per share (p) 37.1 33.0 +12 +10
Dividend per share (p) 21.28 20.46 +4 n/a
Net debt (GBPm) (47.4) (26.1) -82 n/a
------------------------------- ----------- --------------- --------- -----------
(*) Comparative financial information for FY 2017/18 has been
restated for the transitional impact of adopting IFRS 15 Revenue
from Contracts with Customers from 1 July 2018 and is presented on
a like-for-like basis with FY 2018/19. The impact of the
restatement is a reduction in revenue and profit before tax of
GBP1.5m, basic earnings per share of 2.2p and a GBP7.0m cumulative
increase in order book, as set out in Note 9(a).
(1) Underlying measures exclude the impact on statutory measures
of specific adjusting items as set out in Note 3, comprised of
amortisation of acquired intangible assets of GBP4.0m (FY 2017/18:
GBP4.3m), acquisition-related expenditure of GBP1.8m (FY 2017/18:
GBP1.4m), reorganisation costs of GBP3.4m (FY 2017/18: GBP4.8m) and
the non-recurring impact of the equalisation of Guaranteed Minimum
Pensions ('GMPs') of GBP1.3m (FY 2017/18: derecognition of net
deferred tax assets of GBP2.2m). Underlying measures are considered
to provide a more useful indication of underlying performance and
trends over time.
(2) Underlying earnings also exclude a tax credit to statutory
earnings of GBP1.6m (FY 2017/18: GBP0.9m) for the specific
adjusting items in Footnote 1 and as set out in Note 3.
(3) Excludes the performance of current year acquisitions
(Transport Engineering, see Note 6) from the results of FY 2018/19
and includes the performance of prior year acquisitions (Control
Point Corporation) in the results of FY 2017/18 to give a
like-for-like change in the results.
Commenting on the results, Dave Shemmans, Chief Executive
Officer said:
"In this financial year, Ricardo managed to deliver an increase
in revenue and order book overall, despite a very turbulent
backdrop in Automotive. This was driven by strong growth in
Performance Products and Energy & Environment in particular. We
successfully expanded in Australia, with the acquisition of
Transport Engineering in May 2019 to support our Rail business, and
PLC Consulting in July 2019 to broaden our Environmental consulting
offering. We continue to invest in technologies, services and
digital products to aid our blue-chip clients - together we create
sustainable solutions to address the key issues of climate change,
air quality, global stability and the management of scarce natural
resources.
"We deliver services and products to help build a cleaner, safer
and more sustainable world - in essence, creating a world fit for
the future. The demand for innovative solutions in the markets and
geographies we serve, together with our diverse portfolio of
businesses, gives us confidence in Ricardo's continued
success."
Ricardo plc
Dave Shemmans, Chief Executive
Officer Tel: 01273 455611
Ian Gibson, Chief Financial Officer Website: www.ricardo.com
Newgate Communications LLP Tel: 020 7680 6550
Adam Lloyd / Zoë Sibree / E-mail: ricardo@newgatecomms.com
Ian Silvera / Megan Kovach
FINANCIAL REVIEW
Group results
The Group's overall order intake reduced by 7% to GBP386m in the
year. In Technical Consulting, this reflects a combination of large
multi-year programmes won in the prior year, and lower orders in
both Automotive and Rail this year. In Performance Products order
intake increased through a combination of growth in McLaren engine
volumes and orders for the anti-lock brake and electronic stability
control systems ('ABS brake kits') programme for the US Army. The
closing order book was GBP314m, which includes GBP30m from
Transport Engineering ('TE'), subsequently renamed Ricardo Rail
Australia, a Sydney-based technical rail services provider acquired
on 31 May 2019. The performance of TE has been reported in the
Technical Consulting segment.
Reported Group revenue increased by 2% to GBP384.4m (FY 2017/18:
GBP378.5m(*() ). Organic revenue increased by 1%, after normalising
for the impact of the acquisitions of TE in the current year and
Control Point Corporation ('CPC') in September 2017 of the prior
year. Underlying operating profit, which excludes net finance costs
and specific adjusting items, as set out in more detail in Note 3,
was in line with the prior year at GBP39.6m (FY 2017/18:
GBP39.7m(*() ), with an underlying operating profit margin of 10.3%
(FY 2017/18: 10.5%(*() ). Underlying profit before tax was down 1%
to GBP37.0m (FY 2017/18: GBP37.5m(*() ). On an organic underlying
basis, operating profit and profit before tax reduced by 2% and 3%,
respectively.
Underlying
--------------------------
Profit before Reported
Headline trading performance Reported Operating tax profit before
revenue profit tax
----------------------------------- --------- ---------- -------------- ---------------
FY 2018/19 (GBPm) 384.4 39.6 37.0 26.5
Less: Transport Engineering(1)
(GBPm) (1.4) (0.3) (0.3) (0.3)
----------------------------------- --------- ---------- -------------- ---------------
Organic FY 2018/19 (GBPm) 383.0 39.3 36.7 26.2
----------------------------------- --------- ---------- -------------- ---------------
FY 2017/18(*() (GBPm) 378.5 39.7 37.5 27.0
Add: Control Point Corporation(2)
(GBPm) 2.2 0.2 0.2 0.2
----------------------------------- --------- ---------- -------------- ---------------
Organic FY 2017/18 (GBPm) 380.7 39.9 37.7 27.2
----------------------------------- --------- ---------- -------------- ---------------
Growth (%) 2 - (1) (2)
Organic growth(3) (%) 1 (2) (3) (4)
Constant currency organic
growth(4) (%) - (2) (3) (4)
----------------------------------- --------- ---------- -------------- ---------------
(*) Comparative financial information for FY 2017/18 has been
restated for the transitional impact of adopting IFRS 15 Revenue
from Contracts with Customers from 1 July 2018 and is presented on
a like-for-like basis with FY 2018/19. The impact of the
restatement is set out in Note 9(a).
(1) The organic result for the year excludes the performance of
acquisitions in the year on a like-for-like basis with FY 2017/18.
TE was acquired on 31 May 2019. Excluding TE, revenue for FY
2018/19 would have been GBP1.4m lower. Underlying operating profit
and profit before tax for FY 2018/19 would both have been GBP0.3m
lower.
(2) The organic result for the prior year includes the
performance of acquisitions in the prior year on a like-for-like
basis with FY 2018/19. CPC was acquired on 8 September 2017. Had
CPC been acquired and consolidated from 1 July 2017 such that
results for FY 2017/18 were on a like-for-like basis with FY
2018/19, revenue for FY 2017/18 would have been GBP2.2m higher.
Underlying operating profit and profit before tax for FY 2017/18
would both have been GBP0.2m higher.
(3) Organic growth is calculated as the growth in the result for
the year compared to the organic result for the prior year and
provides an indication of growth on a like-for-like basis with the
prior year.
(4) Constant currency organic growth is calculated by reference
to the result for the year retranslated using prior year foreign
exchange rates and provides an indication of growth on a
like-for-like basis with the prior year, excluding the impact of
foreign exchange.
The Group's underlying performance reflects challenging trading
conditions which have adversely impacted the Automotive businesses
within Technical Consulting; the reduced performance has been
broadly offset by strong growth in Performance Products and Energy
& Environment in particular.
On a reported basis, FY 2018/19 operating profit was GBP29.1m
(FY 2017/18: GBP29.2m(*() ) and profit before tax was GBP26.5m (FY
2017/18: GBP27.0m(*() ), both in line with the prior year. This
includes specific adjusting items of GBP10.5m (FY 2017/18:
GBP10.5m), which comprise amortisation of acquired intangible
assets of GBP4.0m (FY 2017/18: GBP4.3m), acquisition-related
expenditure of GBP1.8m (FY 2017/18: GBP1.4m) and reorganisation
costs of GBP3.4m (FY 2017/18: GBP4.8m) primarily in respect of the
continued restructuring of the Automotive business. The reduction
in reorganisation costs has been predominantly offset by the impact
of equalisation of Guaranteed Minimum Pensions ('GMPs') of
GBP1.3m.
Closing net debt increased to GBP47.4m (FY 2017/18: GBP26.1m),
after GBP21.2m of cash consideration paid in respect of the TE
acquisition (GBP18.9m net of cash acquired), GBP3.5m of
acquisition-related payments, which includes deal costs, earn-outs
and retention payments in respect of the CPC acquisition in the
prior year, and a GBP2.5m net cash outflow from restructuring
activities. Net working capital increased by GBP7.3m in the year,
primarily due to the ramp up in the ABS brake kits programme.
Brexit
We have prepared for a range of possibilities for Brexit and any
disruption that may arise around the intended transition date. For
instance, we have secured a European accreditation route for our
Rail business to supplement our existing UKAS accreditation, which
allows us to continue to offer our services across Europe. We have
also assessed inventory holding patterns for our McLaren production
line to prepare for the possibility of European customs
disruption.
We are now bidding our European research funding programmes
through our office in the Netherlands, having worked closely with
the EU to ensure we can continue to be a partner in the provision
of leading-edge technology in the future. We also continue to
closely monitor the potential impact of Brexit and the ongoing
uncertainty around the movement of staff between the UK and the
European Union, and to ensure we have a robust supply chain for any
overseas resources required.
Outlook
Our continued focus is on addressing the core issues created by
increasing global population, industrialisation and urbanisation
through the application and provision of leading-edge consulting,
engineering and product solutions. This is underpinned by our
strategy of diversification in the geographies and markets of the
customers that we serve - all of which gives us confidence for
Ricardo's continued growth and relevance on the world stage.
Current political and economic uncertainties aside, we are well
positioned for growth from a strong, diversified order book and
pipeline, recurring revenue from long-term production programmes
and the benefit of recent acquisitions.
Technical Consulting
Performance
Underlying
Reported operating
revenue profit
------------------------------------------ --------- -----------
FY 2018/19 (GBPm) 270.5 27.7
Less: Transport Engineering(1) (GBPm) (1.4) (0.3)
Organic FY 2018/19 (GBPm) 269.1 27.4
------------------------------------------ --------- -----------
FY 2017/18(*() (GBPm) 286.8 30.4
Add: Control Point Corporation(2) (GBPm) 2.2 0.2
------------------------------------------ --------- -----------
Organic FY 2017/18 (GBPm) 289.0 30.6
------------------------------------------ --------- -----------
Growth (%) (6) (9)
Organic growth(3) (%) (7) (10)
------------------------------------------ --------- -----------
(*) Comparative financial information for FY 2017/18 has been
restated for the transitional impact of adopting IFRS 15 Revenue
from Contracts with Customers from 1 July 2018 and is presented on
a like-for-like basis with FY 2018/19. The impact of the
restatement is set out in Note 9(a).
(1) The organic result for the year excludes the performance of
acquisitions in the year on a like-for-like basis with FY 2017/18.
TE was acquired on 31 May 2019 (see Note 6). Excluding TE, revenue
for FY 2018/19 would have been GBP1.4m lower. Underlying operating
profit and profit before tax for FY 2018/19 would both have been
GBP0.3m lower.
(2) The organic result for the prior year includes the
performance of acquisitions in the prior year on a like-for-like
basis with FY 2018/19. CPC was acquired on 8 September 2017. Had
CPC been acquired and consolidated from 1 July 2017 such that
results for FY 2017/18 were on a like-for-like basis with FY
2018/19, revenue for FY 2017/18 would have been GBP2.2m higher.
Underlying operating profit and profit before tax for FY 2017/18
would both have been GBP0.2m higher.
(3) Organic growth is calculated as the growth in the result for
the year compared to the organic result for the prior year and
provides an indication of growth on a like-for-like basis with the
prior year.
Ricardo's Technical Consulting business generates around 70% of
the Group's revenue and underlying operating profit from its
consultancy businesses working in our global market sectors of
Energy & Environment, Rail, Automotive, Off-Highway &
Commercial Vehicles, and Defence.
Technical Consulting delivered revenue and underlying operating
profit of GBP270.5m (FY 2017/18: GBP286.8m(*() ) and GBP27.7m (FY
2017/18: GBP30.4m(*() ), respectively. After normalising for the
impact of the acquisitions of TE in FY 2018/19 and CPC in FY
2017/18, organic underlying operating profit reduced by 10% to
GBP27.4m (FY 2017/18: GBP30.6m(*() ).
Order intake in the year stood at GBP261m (FY 2017/18: GBP323m).
This was largely due to the award of several large and
non-recurring multi-year programmes in the prior year, combined
with reduced levels of orders in the current year. The lower volume
of orders had an adverse impact on operational efficiency and
underlying operating profit margin, which decreased to 10.2% (FY
2017/18: 10.6%(*() ). New orders were still balanced across all
core regions and with good levels of diversification across
different market sectors.
Ricardo Energy & Environment performed strongly, with
increased order intake and operating profit compared to the prior
year. It has won increased levels of work internationally,
particularly in Australia, with prospects in this region looking
even better following the post year-end acquisition in July 2019 of
PLC Consulting ('PLCC'), subsequently renamed Ricardo Energy
Environment and Planning, a Melbourne-based planning, environmental
and infrastructure consultancy.
It was a mixed year for Ricardo Rail. The business was impacted
by lower volumes in Europe and Asia, resulting in a small decline
in organic underlying profit. However, the successful acquisition
of TE in May 2019 made an immediate impact, offsetting the organic
decline and adding breadth and depth to Ricardo Rail's existing
capabilities.
Our European Automotive business suffered from significantly
lower order intake and revenue in the year, as a result of the
continued uncertain market and difficult trading conditions. The
impact on profitability was marked, but we took quick restructuring
actions, including headcount reductions in the UK, which mitigated
the effect on the business.
Our US Automotive business ended the year with an increased loss
compared to the prior year, as results did not improve in the
second half of the year as anticipated. The business continues to
focus on new-energy vehicle opportunities and realigning its cost
base in order to reduce losses and reposition itself as a more lean
and agile consulting operation.
We saw a good performance in Automotive in China, which has led
to further revenue and profit growth in the year. The order book
and pipeline of opportunities remain strong, although we did see
some evidence of a slowdown in orders towards the end of the
financial year.
The Defence Consulting business performed well, with its
increased order intake driven by strong customer relationships in
the US market.
Our Strategic Consulting business delivered growth in line with
expectations.
Market sector highlights
Energy & Environment
Ricardo Energy & Environment developed further in the UK,
expanded internationally and saw growth across a variety of its
sectors and services.
This year we have seen good growth in Australia where we have
won projects in the waste and resources area, ranging from
strategic circular economy studies to detailed feasibility
assessments for waste-to-energy technology. After the year-end we
completed the acquisition of PLC Consulting, which has strong
technical advisory capability in the full infrastructure and
environmental planning lifecycle, and complements and extends
Ricardo's existing energy and environment capabilities.
International growth elsewhere has been driven by specific
themes in the industry, including international measurement,
reporting and verification work at national and city level, and the
provision of tailored capacity building and technical assistance to
support actions for the mitigation of greenhouse gas ('GHG')
emissions.
Other areas where we have seen robust demand are in energy,
environmental and transport policy, and air quality.
The widely forecasted changes in energy demand, linked to the
significant predicted uptake in electric vehicles ('EVs'), have
seen our energy and transportation specialists win projects to
support the evolution of the energy network and recharging
infrastructure, as well as planning for fleets to utilise EVs.
This year we have also further developed our energy sector
innovation activities and have supported the UK Government's
Department for Business, Energy and Industrial Strategy ('BEIS')
with technical advice for its Energy Innovation Investment
Portfolio.
Our internationally renowned specialists in air quality have
seen growing demand to help design and develop air-quality
strategies and plans that improve health outcomes. This year we
have been involved in delivering a significant project for
air-quality improvements in the Greater Beijing-Tianjin-Hebei
region of China, while in the UK we continued to support central
and local government around clean air zones.
We have also seen strong demand from the European Commission. A
core project has been strengthening the capacity of EU member
states to implement effective national policies for reducing GHG
emissions from sources such as transport, agriculture and
buildings; the work has ranged from the identification of potential
new policy options to the assessment of the impacts realised by
existing policies. Demand for environmental support at airports
also continued to grow in the year.
In addition to our traditional consultancy services, we have
seen growing interest in digital solutions and products to enable
customers to gather greater insight from their data and become
proactive in tackling environmental issues. The combination of our
in-house digital development team and environmental specialists
enables us to create robust market-differentiated solutions.
Our National Chemical Emergency Centre ('NCEC') continued to
perform well. NCEC celebrated its 100(th) customer in China, as
part of its partnership with the Chinese National Registration
Centre for Chemicals. NCEC developed a new crisis management
service, which has achieved traction with customers, including a
contract with the UK Environment Agency to provide training on
incident response to over 1,200 of its employees.
Rail
We acquired TE on 31 May 2019, which not only marks our entry
into Australia's thriving domestic rail market, but it also
reinforces our capabilities within the Asia-Pacific region by
providing additional resources in key technical disciplines such as
safety engineering, 'Reliability, Availability, Maintainability and
Safety' ('RAMS') analysis, systems integration, human factors and
rolling stock testing.
The following major assignments were secured during the
financial year:
-- Ricardo's appointment by the UK-based rolling stock owner,
Porterbrook, to integrate a hybrid powerpack into a Diesel Multiple
Unit ('DMU') to test the vehicle's ability to switch to battery
power when moving through an urban area. This is a first in the UK
rail industry;
-- A new framework agreement with Spain's national rail
infrastructure manager, Adif, to provide assurance services for
planned track and signalling upgrade programmes; and
-- Safety assessment roles on the Seoul Metro system and Singapore's SMRT network.
This year also saw the completion of works for Amsterdam's
North-South metro route, which commenced operations in the summer
of 2018. Ricardo has provided technical support for the programme
for almost a decade, with teams working on rolling stock,
infrastructure and power-supply aspects of the project. The
experience has enhanced the team's reputation within the industry
for applying a systems engineering approach to major
programmes.
The Group also secured the first rail project for the
Ricardo-Roke Digital Resilience collaboration to provide an
in-depth cyber security assessment of Bombardier's Aventra
passenger train, a landmark for the industry. The contract is one
of the first examples of a major train manufacturer seeking to
integrate cyber security assessments into its design and testing
processes. It is also illustrative of how the industry's major
stakeholders are paying closer attention to the risks and
vulnerabilities that will emerge from a more digitally-oriented
rail service, and our teams have been actively recruiting to ensure
that we can continue to support the industry in this growing area
of concern.
Automotive
Whilst air quality and CO(2) reduction remained a top global
priority for the sector, the passenger-car market has been impacted
by Brexit and tariff actions from the US administration, which has
resulted in a slowdown in the European market and in China towards
the end of the year. Original equipment manufacturers ('OEMs') have
announced significant cost-reduction programmes designed to
maintain trading performance whilst protecting new product
developments in all aspects of vehicle electrification - everything
from mild hybrids to full battery electric vehicles ('BEVs'),
connected vehicles, vehicles with greater autonomy, and virtual
product development. These changes have led to uncertainty in
outsourcing trends, with reduced levels of orders across our
Automotive business globally.
We have secured a range of programmes across all areas of our
business: in vehicle systems, hybrid and electric systems, advanced
drivelines and in core powertrains, focused on both new and
upgraded products. The application of fuel cell technology into a
wide range of on-road vehicles has become a priority for many in
the industry and has resulted in a significant increase in
opportunities for Ricardo.
Consistent with the industry-wide trend towards increased
electrification, we continue to follow our strategy of reducing
international combustion-focused test facilities to create a more
flexible cost base and we are marketing our test assets in Detroit
for sale.
We have increased the level of investment in developing new
simulation and digital capabilities, with the clear goal of
delivering differentiated solutions to our customers. In the
automotive sector the costs associated with new-vehicle development
programmes can be significantly offset as levels of digitalisation
increase during the development phase. Our goal in deploying such
tools and processes is to halve the development duration and cost
within the next ten years.
In the meantime, we continue to invest in advanced
electrification, internal combustion, transmission solutions and
other key technologies to improve overall vehicle system
efficiency. We also see demand in the development of cyber security
resilience solutions for vehicles and have continued to invest in
them through our collaboration with Roke.
Ricardo Motorcycle continued to deliver complete development
programmes for motorcycles, scooters and urban mobility vehicles.
We have seen growth in demand, driven by tightening emissions
legislation and have been engaged in a number of programmes focused
on electrified and connected products, as well as powertrain
developments for future emissions requirements.
Off-Highway & Commercial Vehicles
Ricardo's wide range of powertrain and system integration
capabilities has enabled the business to meet global customer
demands for enhanced vehicle performance at a lower total cost of
ownership, whilst meeting all existing and predicted legislation.
We are delivering a number of new product programmes for core
engine and transmission systems for clients in Europe and Asia.
Based on our proven track record in platooning technology, we
secured a new contract to develop a demonstration platform for two
Asian OEMs. We also continue our long-term strategic relationship
with Shaanxi Fast Gear, the largest supplier of transmissions for
off-highway and commercial vehicles to the Chinese market. This
collaboration is based at Ricardo's Midlands Technical Centre
('MTC') in the UK, alongside ongoing advanced technology
development programmes being delivered jointly in Xi'an, where Fast
Gear is based.
In the US, we have continued to focus on supporting our key
clients with in-market On-Board Diagnostics ('OBD') compliance
verification and also to work with Toyota in further developments
of its fuel cell technology in the commercial vehicle market. As
fuel cell powertrains once again become an attractive solution due
to the wider availability of renewable energy sources of hydrogen
generation, this unique capability has created wider opportunities
with other clients and in other territories.
Ricardo continues to provide the power generation and marine
markets with services in failure analysis, investigation, and
specialist new product design and development. In these markets we
see increasing demand for high-speed diesel generator sets and main
propulsion systems for marine vessels, as well as the conversion of
engines for gas or dual-fuel operation. We have also seen fresh
opportunities to leverage this core capability into the rail sector
as designers and operators look to hybridise existing diesel
propulsion fleets as a medium-term alternative to full
electrification.
Defence
In the US, Ricardo Defense continues to successfully deliver
wide-ranging engineering programmes across light and heavy land and
sea theatres of operation and is the partner of choice for many
OEMs. The business expertise in defence systems includes the
visualisation, analysis and manipulation of large and complex data
sets used in operational planning. This year Ricardo Defense was
awarded a contract by the United States' National Aeronautics and
Space Administration ('NASA') to develop advanced data analysis and
optimisation software which will be used in the planning of future
deep-space missions.
Ricardo Defense also provides enterprise software which enables
the electronic distribution of technical data with ensured data
integrity and cyber security. The software includes bi-directional
messaging and data synchronisation between network nodes and
provides resilient features for disconnected, intermittent network
environments. Low rate initial production ('LRIP') started with
installation on aircraft carriers and amphibious ships. Full
production for fleetwide application is planned.
During the financial year, our UK Defence business established a
special vehicles team that will support niche engine, driveline and
powerpack programmes for defence vehicles, as well as for other
commercial projects. We are also engaging in discussions on future
hybridisation and electrification projects for new and existing
vehicle fleets.
Performance Products
Performance
Reported Underlying
revenue operating
profit
------------------- --------- -----------
FY 2018/19 (GBPm) 113.9 11.9
FY 2017/18 (GBPm) 91.7 9.3
------------------- --------- -----------
Growth (%) 24 28
------------------- --------- -----------
The Performance Products business accounts for around 30% of the
Group's revenue and underlying operating profit. A large share of
the revenue of the business is generated through the supply of
products and services to a single customer.
Performance Products had an excellent year, increasing revenue
and underlying operating profit by 24% to GBP113.9m (FY 2017/18:
GBP91.7m) and 28% to GBP11.9m (FY 2017/18: GBP9.3m) respectively on
the prior year. Operating profit margins increased to 10.4% (FY
2017/18: 10.1%). Order intake significantly increased by 40% to
GBP125m (FY 2017/18: GBP90m) for the year.
The performance for the year was driven by increased volumes of
engines for McLaren and the ABS brake kits programme for the US
Army, with deliveries ramping up throughout the year in line with
our expectations. Growth in these programmes has been complemented
by the award of the UK MoD Combat Vehicle Reconnaissance (Tracked)
('CVR(T)') programme, and the Bugatti and Porsche transmission
programmes, as well as growth in new software licence sales.
Market sector highlights
High-Performance Vehicles & Motorsport
Demand for the production of McLaren engines has grown in line
with expectations. This year we delivered over 5,200 (FY 2017/18:
4,300) engines across an increased number of engine variants,
including the McLaren 570S Coupé, 570GT, 570S Spider, 720S, 720S
Spider and the Senna.
We manufacture and assemble the world's most advanced
transmissions and have made good progress in the preparations for
the supply contract for the Aston Martin Red Bull Valkyrie hypercar
transmission, which is due to enter production in early 2020. We
also continued to support Bugatti with the supply of the complete
driveline system for the Chiron, and maintained our supply of
transmissions for the Porsche 991 Cup race cars.
Ricardo remains a key supplier to the motorsport sector. This
year the Performance Products business developed upgrades for the
M-Sport World Rally Championship ('WRC') programme and won
contracts to support key manufacturers within the Formula E
Championship for the third consecutive season.
We continued to manufacture for Formula One, the Japanese Super
Formula Championship, Indy Lights and the World Series Formula V8
3.5. We also operated supply programmes for Ricardo-designed
transmissions for BMW, the Multimatic-built Ford GT3, the M-Sport
Ford Fiesta WRC, and the M-Sport Bentley GT customer racing
programme, as well as for other top-flight rally and GT
customers.
Defence
In the US, Ricardo Defense has delivered 1,650 ABS brake kits
for the High-Mobility Multipurpose Wheeled Vehicle ('HMMWV', or
Humvee). Ricardo's ABS brake kit system has also been selected by
Bollinger Motors for series production application on its
fully-electric sport utility truck.
In the UK, Ricardo continues to support the British Army's fleet
of Cougar and Weapons Mount Installation Kit ('WMIK') vehicles with
the supply of spare parts. This year we were also awarded the
contract by the UK MoD to refurbish 700 final drive transmissions
for the CVR(T) Mark 1. The work undertaken will include stripping,
inspecting and manufacturing replacement components, including the
main rotational components of the unit, before reassembly and
testing. Deliveries commenced in the summer of 2019, with the
refurbishment programme expected to be completed over the next two
years.
OTHER FINANCIAL MATTERS
New accounting standards
The Group adopted both IFRS 9 Financial Instruments and IFRS 15
Revenue from Contracts with Customers as of 1 July 2018. The full
retrospective method of transition was adopted for IFRS 15,
resulting in a restatement of comparative financial information.
The net-of-tax reduction to retained earnings as of 1 July 2017 was
GBP4.5m, with a further reduction in FY 2017/18 of GBP1.2m. The
net-of-tax-reduction to retained earnings due to IFRS 9 as of 1
July 2018 was GBP2.7m. Further detail is set out in Notes 9(a) and
9(b), respectively.
We have completed our work to assess the potential impact of
IFRS 16 Leases, which becomes effective to the Group for the year
commencing 1 July 2019. As set out in more detail in Note 9(c), the
expected transitional impact from the application of IFRS 16 is a
reduction to opening reserves as at 1 July 2019 of approximately
GBP5.0m. A reduction to profit before tax for the year ending 30
June 2020 of up to GBP1.0m is also expected, based on the Group's
portfolio of lease contracts as at 30 June 2019.
Acquisitions and acquired intangible assets
As set out in more detail in Note 6, the Group acquired the
entire issued share capital of TE on 31 May 2019 for an initial
cash consideration of GBP21.2m (AUD 38.6m) with a further payment
made in August 2019 of GBP0.5m (AUD 0.9m) to adjust for cash and
normalised levels of net working capital. There is fair value of
contingent cash consideration of GBP5.1m (AUD 9.4m), based upon an
initial probability-weighted assessment of expected earn-out
payments dependent on TE achieving certain post-acquisition
financial performance targets. The maximum cash outflow that could
be required to acquire TE is GBP29.9m (AUD 54.5m).
This investment added provisional goodwill of GBP17.9m (AUD
32.7m) to the Ricardo Rail cash-generating unit and provisional
acquired intangible assets of GBP9.7m (AUD 17.8m), which have a net
book value at year-end of GBP9.5m (AUD 17.5m). The amortisation of
these for the post-acquisition period in the financial year of
GBP0.2m (AUD 0.3m) has been charged to the income statement as a
specific adjusting item, together with GBP0.5m of expenditure
incurred in relation to the TE acquisition.
A preliminary exercise to assess the fair value of the
identifiable net assets of TE commenced during the year and will be
finalised by the end of the next financial year. The provisional
assessment of identifiable net assets acquired is GBP8.9m (AUD
16.1m).
Specific adjusting items
As set out in more detail in Note 3, the Group's underlying
profit before tax for the year excludes costs incurred during the
year that have been charged to the income statement as specific
adjusting items of GBP10.5m (FY 2017/18: GBP10.5m), comprised of
amortisation of acquired intangible assets of GBP4.0m (FY 2017/18:
GBP4.3m), acquisition-related expenditure of GBP1.8m (FY 2017/18:
GBP1.4m), reorganisation costs of GBP3.4m (FY 2017/18: GBP4.8m) and
GMP equalisation costs of GBP1.3m.
The acquisition-related expenditure of GBP1.8m included GBP0.5m
of fees to acquire TE, with GBP0.3m related to the remaining cost
incurred on a pro rata basis for the retention of specific
individuals as part of the CPC acquisition in the prior year. Fees
of GBP0.2m were also incurred to complete the post year-end
acquisition of PLCC, as set out in more detail in Note 10(a). The
remainder primarily related to the costs of running an M&A
function, together with fees incurred on aborted acquisition
processes. Of the fees incurred, GBP0.8m remained unpaid at the
year-end.
The Group largely completed its restructuring of the European
Automotive business during the year, which resulted in GBP2.3m of
redundancy-related and dual running costs in the UK and Prague,
together with costs in relation to onerous contracts of GBP0.3m as
well as contractor and professional costs of GBP0.3m. These costs
were paid for during the year, together with GBP1.6m of redundancy
costs accrued at the end of the prior year in relation to the
downsizing of the Group's operations in Germany. Remaining proceeds
of GBP2.5m, held in escrow at the end of FY 2017/18 for the sale of
the Schechingen Technical Centre in Germany, were received as
expected in July 2018. In addition, GBP0.5m of redundancy costs
were incurred in restructuring the Rail business in the Netherlands
in a planned response to a reduction in volumes with its largest
customer.
Following a court ruling in October 2018, companies are now
required to equalise pension benefits to address inequalities in
the calculations of Guaranteed Minimum Pensions ('GMPs') between
men and women. This has resulted in a charge of GBP1.3m for an
increase in the Group's pension liabilities, given the
non-recurring nature and significance of the amount.
Research and Development
The Group continues to invest in R&D and spent GBP13.4m (FY
2017/18: GBP9.5m) before government grant income of GBP2.2m (FY
2017/18: GBP1.6m). Costs capitalised this year in accordance with
IFRS were GBP7.6m (FY 2017/18: GBP5.1m), reflecting our continued
investment in developers in our Software business, together with
new technology, tools and processes in our European Automotive and
Energy & Environment businesses.
The total Research and Development Expenditure Credit ('RDEC')
recognised in the current year is GBP7.1m (FY 2017/18: GBP8.0m).
This comprised an estimated RDEC credit in respect of the current
year of GBP6.9m (FY 2017/18: GBP6.9m), together with GBP0.2m (FY
2017/18: GBP1.1m) arising from the routine amendment of open
applications as a result of further analysis of the qualifying
expenditure incurred.
Net finance costs
Finance income was GBP0.5m (FY 2017/18: GBP0.4m) and finance
costs were GBP3.1m (FY 2017/18: GBP2.6m) for the year, giving net
finance costs of GBP2.6m (FY 2017/18: GBP2.2m). The increase was
primarily due to a higher non-utilisation fee charged on the
GBP150m borrowing facility in place throughout the year, compared
to the GBP75m facility that was in place throughout the prior year,
together with the impact of increased borrowings to finance the
acquisition of TE and other capital investments.
Taxation
The total tax charge for the year was GBP6.6m (FY 2017/18:
GBP9.3m(*() ) and the total effective tax rate reduced to a more
normal level for the Group of 24.9% (FY 2017/18: 34.4%(*() ). Last
year's effective tax rate increased substantially, primarily due to
the one-off derecognition of a remaining net deferred tax asset of
GBP2.2m (EUR2.5m) as part of the restructuring of our activities in
Germany, which was completed that year.
The underlying effective tax rate for the year was 22.2% (FY
2017/18: 21.3%(*() ).
Deferred tax assets of GBP6.7m (FY 2017/18: GBP8.9m(*() )
include GBP4.9m (USD 6.3m) (FY 2017/18: GBP5.5m (USD 7.2m)) of
R&D tax credits in the US which continue to be recognised and
have partially been utilised during the year. The Directors have
considered the recoverability of these assets and 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 increased by 12% to 37.1p (FY 2017/18:
33.0p(*() ). The Directors consider that underlying earnings per
share provides a more useful indication of underlying performance
and trends over time. Underlying basic earnings per share for the
year decreased by 3% to 53.7p (FY 2017/18: 55.1p(*() ).
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 3.
(*) Comparative financial information for FY 2017/18 has been
restated for the transitional impact of adopting IFRS 15 Revenue
from Contracts with Customers from 1 July 2018 and is presented on
a like-for-like basis with FY 2018/19. The impact of the
restatement is set out in Note 9(a).
Dividend
The total dividend for the year has increased by 4% to 21.28p
per ordinary share (FY 2017/18: 20.46p) and amounts to GBP11.4m (FY
2017/18: GBP10.9m), reflecting the Board's continued confidence in
the prospects of the Group. The proposed final dividend of 15.28p
(FY 2017/18: 14.71p) will be paid on 21 November 2019 to
shareholders who are on the register of members at the close of
business on 8 November 2019, subject to approval at the Annual
General Meeting on 14 November 2019.
Capital investment
Cash spend on property, plant and equipment was GBP7.6m (FY
2017/18: GBP7.7m) as we continue to invest in our business
operations. This spend included new and upgraded test cell
equipment, machinery and IT hardware, together with refurbishments
of existing office spaces.
During the year the Group commenced a process to market the
Detroit Technical Center ('DTC') test cell assets for sale. After
the year-end on 21 August 2019, we purchased the freehold property
at DTC for GBP14.2m (USD 17.3m) and immediately marketed it for
sale, together with the DTC test cell assets. This is set out in
Note 10(b).
These activities will have the dual effect of removing the US
Automotive business from its long-term lease commitment and provide
the ability to realign its cost base with its strategy as a more
operationally efficient consultancy.
Net debt
Closing net debt was GBP47.4m (FY 2017/18: GBP26.1m). The Group
had a net cash outflow for the year of GBP21.3m (FY 2017/18:
GBP11.8m), after consideration paid in respect of acquisitions of
GBP21.2m (GBP18.9m net of cash acquired) (FY 2017/18: GBP4.6m),
acquisition-related payments of GBP3.5m (FY 2017/18: GBP1.7m), and
a net cash outflow from restructuring activities of GBP2.5m (FY
2017/18: GBP2.3m inflow). Our restructuring of the Automotive
business has been broadly cash neutral over the last two financial
years, with the FY 2017/18 net cash inflow of GBP2.3m offset by an
outflow of GBP2.0m in FY 2018/19. An additional GBP0.5m was spent
in FY 2018/19 on restructuring the Rail business in the
Netherlands. The composition of net debt is defined in Note 8.
Net working capital increased by GBP7.3m in FY 2018/19, arising
from higher trade receivables and inventory requirements, primarily
due to the ramp up in the ABS brake kits programme.
Banking facilities
At the end of the year, the Group held total banking facilities
of GBP166.4m (FY 2017/18: GBP90.9m), which included committed
facilities of GBP150.0m (FY 2017/18: GBP75.0m). The committed
banking facility consists of a GBP150m multi-currency Revolving
Credit Facility ('RCF') which provides the Group with committed
funding through to July 2023. In addition, the Group has
uncommitted facilities including overdrafts of GBP16.4m (FY
2017/18: GBP15.9m), which mature throughout this and the next
financial year and are renewable annually.
Committed banking facilities of GBP79.1m (FY 2017/18: GBP49.8m),
net of direct issue costs, were drawn primarily to fund
acquisitions and for general corporate purposes. These are
denominated in Pounds Sterling and have variable rates of interest
dependent upon the Group's adjusted leverage, which range from 1.4%
to 2.2% (FY 2017/18: 1.6% to 2.6%) above LIBOR.
Foreign exchange
On consolidation, revenue and costs are translated at the
average exchange rates for the year. 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. Compared to the prior year, the average value
of the Pound Sterling weakened by 4.0% against the US Dollar, but
strengthened by 0.5% against the Euro and 0.7% against the Chinese
Renminbi.
Had the results for the year been stated at exchange rates
consistent with those of the prior year, revenue would have been
GBP2.6m lower and underlying profit before tax and reported profit
before tax would both have been GBP0.1m lower.
Pensions
The Group's defined benefit pension scheme operates within the
UK. The fair value of the scheme's assets at the end of the year
was GBP137.5m (FY 2017/18: GBP131.0m). The accounting deficit
measured in accordance with IAS 19 Employee Benefits was GBP8.5m
before tax (FY 2017/18: GBP4.6m), or GBP7.1m after tax (FY 2017/18:
GBP3.8m).
The GBP3.9m increase in the pre-tax pension accounting deficit
during the year was due to GBP15.8m from changes in financial and
demographic assumptions, GBP1.3m of non-recurring past service
costs as a result of the High Court's ruling on GMP equalisation
and GBP0.1m of net finance costs. These adverse movements were
partially offset by a GBP7.9m return on plan assets, GBP4.3m of
cash contributions paid to the scheme and a GBP1.1m reduction in
liabilities arising from the take-up of member option exercises
during the year.
Ricardo has committed to continue to fund the pension deficit
and increased its contributions to GBP4.6m per annum from 1 July
2019 until 31 July 2022.
Dave Shemmans Ian Gibson
Chief Executive Officer Chief Financial Officer
11 September 2019
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.
Consolidated income statement
for the year ended 30 June 2019
2019 2018
Restated(1)
Specific Specific
adjusting adjusting
Underlying items(2) Total Underlying items(2) Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ----- ------------- ----------- -------- ------------- ------------ --------
Revenue 2 384.4 - 384.4 378.5 - 378.5
Cost of sales (249.5) - (249.5) (235.8) - (235.8)
--------------------- ----- ------------- ----------- -------- ------------- ------------ --------
Gross profit 134.9 - 134.9 142.7 - 142.7
Administrative
expenses (96.3) (10.5) (106.8) (103.7) (10.5) (114.2)
Other income 1.0 - 1.0 0.7 - 0.7
--------------------- ----- ------------- ----------- -------- ------------- ------------ --------
Operating profit 39.6 (10.5) 29.1 39.7 (10.5) 29.2
Finance income 0.5 - 0.5 0.4 - 0.4
Finance costs (3.1) - (3.1) (2.6) - (2.6)
--------------------- ----- ------------- ----------- -------- ------------- ------------ --------
Net finance costs (2.6) - (2.6) (2.2) - (2.2)
--------------------- ----- ------------- ----------- -------- ------------- ------------ --------
Profit before
taxation 37.0 (10.5) 26.5 37.5 (10.5) 27.0
Taxation (8.2) 1.6 (6.6) (8.0) (1.3) (9.3)
--------------------- ----- ------------- ----------- -------- ------------- ------------ --------
Profit for the
year 28.8 (8.9) 19.9 29.5 (11.8) 17.7
--------------------- ----- ------------- ----------- -------- ------------- ------------ --------
Profit attributable
to:
- Owners of the
parent 28.7 (8.9) 19.8 29.4 (11.8) 17.6
- Non-controlling
interests 0.1 - 0.1 0.1 - 0.1
--------------------- ----- ------------- ----------- -------- ------------- ------------ --------
28.8 (8.9) 19.9 29.5 (11.8) 17.7
--------------------- ----- ------------- ----------- -------- ------------- ------------ --------
Earnings per ordinary share attributable to owners of the parent during
the year
-------------------------------------------------------------------------------
Basic 4 37.1p 33.0p
Diluted 4 36.9p 32.8p
---------------------------- ------- ------------------- -------------------
(1) Comparative information has been restated in accordance with
IFRS 15 Revenue from Contracts with Customers, as set out in Note
9(a). The Group has initially applied IFRS 15 and IFRS 9 Financial
Instruments from 1 July 2018. Under the respective transition
methods chosen, comparative information is restated for IFRS 15 as
at 1 July 2017, but not for IFRS 9. Comparative information has
also been represented to reclassify certain indirect payroll
expenses (GBP4.5m) and depreciation charges (GBP0.8m) from cost of
sales to administrative expenses in a manner that is consistent
with their classification in the current year.
(2) Specific adjusting items comprise amortisation of acquired
intangible assets, acquisition-related expenditure, reorganisation
costs and non-recurring items that and disclosed separately due to
the significance of their nature or amount. Further details are
given in Note 3.
Consolidated statement of comprehensive income
for the year ended 30 June 2019
2019 2018
Restated(1)
GBPm GBPm
--------------------------------------------------- ------ ------------
Profit for the year 19.9 17.7
--------------------------------------------------- ------ ------------
Other comprehensive income
Items that will not be reclassified to profit
or loss:
Remeasurements of the defined benefit pension
scheme (7.9) 13.8
Deferred tax on remeasurements of the defined
benefit pension scheme 1.4 (2.7)
--------------------------------------------------- ------ ------------
Total items that will not be reclassified to
profit or loss (6.5) 11.1
--------------------------------------------------- ------ ------------
Items that may be subsequently reclassified to
profit or loss:
Currency translation on foreign currency net
investments 1.2 0.1
Fair value gains on foreign currency cash flow 0.1 -
hedges
Total items that may be subsequently reclassified
to profit or loss 1.3 0.1
--------------------------------------------------- ------ ------------
Total other comprehensive (loss)/income for the
year (net of tax) (5.2) 11.2
Total comprehensive income for the year 14.7 28.9
--------------------------------------------------- ------ ------------
Attributable to:
- Owners of the parent 14.6 28.8
- Non-controlling interests 0.1 0.1
--------------------------------------------------- ------ ------------
14.7 28.9
--------------------------------------------------- ------ ------------
(1) Comparative information has been restated in accordance with
IFRS 15 Revenue from Contracts with Customers, as set out in Note
9(a). The Group has initially applied IFRS 15 and IFRS 9 Financial
Instruments from 1 July 2018. Under the respective transition
methods chosen, comparative information is restated for IFRS 15 as
at 1 July 2017, but not for IFRS 9.
Consolidated statement of financial position
as at 30 June 2019
2019 2018 1 July 2017
Restated(1) Restated(1)
Note GBPm GBPm GBPm
--------------------------------------- ----- -------- ------------ ------------
Assets
Non-current assets
Goodwill 84.2 65.5 62.0
Other intangible assets 41.0 31.7 32.4
Property, plant and equipment 44.6 45.3 48.0
Deferred tax assets 6.7 8.9 15.3
--------------------------------------- ----- -------- ------------ ------------
176.5 151.4 157.7
--------------------------------------- ----- -------- ------------ ------------
Current assets
Inventories 14.5 13.3 13.9
Trade, contract and other receivables 141.4 135.3 133.1
Derivative financial assets 0.3 0.1 0.9
Current tax assets - 1.3 0.6
Cash and cash equivalents 8 36.3 33.1 27.9
192.5 183.1 176.4
Non-current assets held for
sale 2.9 - 2.8
--------------------------------------- ----- -------- ------------ ------------
195.4 183.1 179.2
--------------------------------------- ----- -------- ------------ ------------
Total assets 371.9 334.5 336.9
--------------------------------------- ----- -------- ------------ ------------
Liabilities
Current liabilities
Borrowings 8 (4.0) (9.4) (6.0)
Trade, contract and other payables (84.8) (83.0) (83.1)
Current tax liabilities (3.5) (6.3) (6.3)
Derivative financial liabilities (1.2) (1.0) (0.7)
Provisions (2.2) (2.8) (1.3)
(95.7) (102.5) (97.4)
--------------------------------------- ----- -------- ------------ ------------
Net current assets 99.7 80.6 81.8
--------------------------------------- ----- -------- ------------ ------------
Non-current liabilities
Borrowings 8 (79.7) (49.8) (59.8)
Trade, contract and other payables (5.1) - -
Defined benefit obligations (8.5) (4.6) (22.2)
Deferred tax liabilities (7.3) (3.9) (5.0)
Provisions (3.7) (2.9) (1.3)
--------------------------------------- ----- -------- ------------ ------------
(104.3) (61.2) (88.3)
--------------------------------------- ----- -------- ------------ ------------
Total liabilities (200.0) (163.7) (185.7)
--------------------------------------- ----- -------- ------------ ------------
Net assets 171.9 170.8 151.2
--------------------------------------- ----- -------- ------------ ------------
Equity
Share capital 13.4 13.4 13.3
Share premium 14.3 14.3 14.3
Other reserves 16.9 15.7 15.6
Retained earnings 126.8 127.0 107.7
--------------------------------------- ----- -------- ------------ ------------
Equity attributable to owners
of the parent 171.4 170.4 150.9
Non-controlling interests 0.5 0.4 0.3
--------------------------------------- ----- -------- ------------ ------------
Total equity 171.9 170.8 151.2
--------------------------------------- ----- -------- ------------ ------------
(1) Comparative information has been restated in accordance with
IFRS 15 Revenue from Contracts with Customers as set out in Note
9(a). The Group has initially applied IFRS 15 and IFRS 9 Financial
Instruments from 1 July 2018. Under the respective transition
methods chosen, comparative information is restated for IFRS 15 as
at 1 July 2017, but not for IFRS 9.
Consolidated statement of changes in equity
for the year ended 30 June 2019
Attributable to owners of the
parent
----------------------------------------------------------
Share Share Other Retained Non-controlling Total
capital premium reserves earnings Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ---------- ---------- ----------- ----------- -------- ---------------- ---------
At 30 June 2017
(previously
reported) 13.3 14.3 15.6 112.2 155.4 0.3 155.7
Adjustment on
retrospective
application of IFRS 15
(net
of tax)(1) - - - (4.5) (4.5) - (4.5)
--------------------------- ---------- ---------- ----------- ----------- -------- ---------------- ---------
At 1 July 2017 (restated) 13.3 14.3 15.6 107.7 150.9 0.3 151.2
Profit for the year
(restated)(1) - - - 17.6 17.6 0.1 17.7
Other comprehensive income
for the year - - 0.1 11.1 11.2 - 11.2
--------------------------- ---------- ---------- ----------- ----------- -------- ---------------- ---------
Total comprehensive income
for the year - - 0.1 28.7 28.8 0.1 28.9
Proceeds from shares
issued 0.1 - - - 0.1 - 0.1
Equity-settled
transactions - - - 1.0 1.0 - 1.0
Tax credit relating to
share
option schemes - - - 0.1 0.1 - 0.1
Ordinary share dividends
(Note 5) - - - (10.5) (10.5) - (10.5)
--------------------------- ---------- ---------- ----------- ----------- -------- ---------------- ---------
At 30 June 2018 (restated) 13.4 14.3 15.7 127.0 170.4 0.4 170.8
--------------------------- ---------- ---------- ----------- ----------- -------- ---------------- ---------
Adjustment on initial
application
of
IFRS 9 (net of tax)(1) - - - (2.7) (2.7) - (2.7)
--------------------------- ---------- ---------- ----------- ----------- -------- ---------------- ---------
At 1 July 2018 (adjusted) 13.4 14.3 15.7 124.3 167.7 0.4 168.1
--------------------------- ---------- ---------- ----------- ----------- -------- ---------------- ---------
Profit for the year - - - 19.8 19.8 0.1 19.9
Other comprehensive
income/(loss)
for the year - - 1.2 (6.4) (5.2) - (5.2)
--------------------------- ---------- ---------- ----------- ----------- -------- ---------------- ---------
Total comprehensive income
for the year - - 1.2 13.4 14.6 0.1 14.7
Equity-settled
transactions - - - 1.0 1.0 - 1.0
Purchases of own shares to
settle awards - - - (0.9) (0.9) - (0.9)
Ordinary share dividends
(Note 5) - - - (11.0) (11.0) - (11.0)
--------------------------- ---------- ---------- ----------- ----------- -------- ---------------- ---------
At 30 June 2019 13.4 14.3 16.9 126.8 171.4 0.5 171.9
--------------------------- ---------- ---------- ----------- ----------- -------- ---------------- ---------
(1) See Note 9(a) for details of the restatements arising from the retrospective
application of IFRS 15 Revenue from Contracts with Customers and Note
9(b) for details of the adjustments arising from the initial application
of IFRS 9 Financial Instruments. The Group has applied IFRS 15 and IFRS
9 from 1 July 2018. Under the respective transition methods chosen, comparative
information is restated for IFRS 15 as at 1 July 2017, but not for IFRS
9.
Consolidated statement of cash flow
for the year ended 30 June 2019
2019 2018
Note GBPm GBPm
------------------------------------------------ ----- ------- -------
Cash flows from operating activities
Cash generated from operations 7 32.4 44.2
Net finance costs (2.3) (2.1)
Tax paid (4.9) (7.7)
------------------------------------------------ ----- ------- -------
Net cash generated from operating activities 25.2 34.4
------------------------------------------------ ----- ------- -------
Cash flows from investing activities
Acquisitions of subsidiaries, net of cash
acquired 6 (18.9) (4.6)
Purchases of property, plant and equipment (7.6) (7.7)
Proceeds from disposal of property, plant
and equipment 0.7 6.4
Purchases of intangible assets and capitalised
development costs (9.1) (6.5)
Net cash used in investing activities (34.9) (12.4)
------------------------------------------------ ----- ------- -------
Cash flows from financing activities
Proceeds from issuance of ordinary shares - 0.1
Purchases of own shares to settle awards (0.9) -
Proceeds from finance leases 8 0.7 -
Proceeds from borrowings 8 64.0 15.0
Repayments of borrowings 8 (34.8) (25.0)
Dividends paid to shareholders 5 (11.0) (10.5)
Net cash generated from/(used in) financing
activities 18.0 (20.4)
------------------------------------------------ ----- ------- -------
Effect of exchange rate changes on cash and
cash equivalents 0.3 0.2
------------------------------------------------ ----- ------- -------
Net increase in cash and cash equivalents 8 8.6 1.8
Net cash and cash equivalents at 1 July 23.8 22.0
------------------------------------------------ ----- ------- -------
Net cash and cash equivalents at 30 June 32.4 23.8
------------------------------------------------ ----- ------- -------
Notes to the financial statements
for the year ended 30 June 2019
1. General information
Ricardo plc, a public company limited by shares, is listed on
the London Stock Exchange and incorporated and domiciled in the
United Kingdom. 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 & Accounts 2019, which was approved for issue on 11
September 2019, 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
Consulting Products Head Office Total
For the year ended 30 June 2019 GBPm GBPm GBPm GBPm
---------------------------------- ------------ ------------- ------------- -------
Total segment revenue 271.5 118.6 - 390.1
Inter-segment revenue (1.0) (4.7) - (5.7)
---------------------------------- ------------ ------------- ------------- -------
Revenue from external customers 270.5 113.9 - 384.4
---------------------------------- ------------ ------------- ------------- -------
Underlying operating profit 27.7 11.9 - 39.6
Specific adjusting items (7.4) - (3.1) (10.5)
Operating profit 20.3 11.9 (3.1) 29.1
Net finance costs - - (2.6) (2.6)
---------------------------------- ------------ ------------- ------------- -------
Profit before taxation 20.3 11.9 (5.7) 26.5
---------------------------------- ------------ ------------- ------------- -------
Technical Performance
Consulting Products Head Office Total
For the year ended 30 June 2018 GBPm GBPm GBPm GBPm
(restated)(1)
---------------------------------- ------------ ------------- ------------- -------
Total segment revenue 287.1 95.8 - 382.9
Inter-segment revenue (0.3) (4.1) - (4.4)
---------------------------------- ------------ ------------- ------------- -------
Revenue from external customers 286.8 91.7 - 378.5
---------------------------------- ------------ ------------- ------------- -------
Underlying operating profit 30.4 9.3 - 39.7
Specific adjusting items (9.9) - (0.6) (10.5)
Operating profit 20.5 9.3 (0.6) 29.2
Net finance costs - - (2.2) (2.2)
---------------------------------- ------------ ------------- ------------- -------
Profit before taxation 20.5 9.3 (2.8) 27.0
---------------------------------- ------------ ------------- ------------- -------
(1) Comparative information has been restated for IFRS 15
Revenue from Contracts with Customers, all of which relates to the
Technical Consulting operating segment. See Note 9(a) for more
details.
3. Specific adjusting items
2019 2018
GBPm GBPm
------------------------------------------------------ ------ ------
Amortisation of acquired intangible assets 4.0 4.3
Acquisition-related expenditure(1) 1.8 1.4
Reorganisation costs(2) 3.4 4.8
Guaranteed Minimum Pensions ('GMPs') equalisation(3) 1.3 -
------------------------------------------------------ ------ ------
Total before tax 10.5 10.5
Tax impact of specific adjusting items (1.6) (0.9)
Derecognition of net deferred tax assets(4) - 2.2
Total after tax 8.9 11.8
------------------------------------------------------ ------ ------
(1) Acquisition-related expenditure in the current and prior
year comprised the costs of maintaining an internal acquisitions
department which primarily incurred professional fees to effect
acquisition processes that were either successful (see Notes 6 and
10(a)) or unsuccessful, together with integration and employee
retention costs on a pro rata basis in relation to previously
acquired businesses.
(2) Reorganisation costs in the current and prior year comprised
non-recurring expenditure incurred as part of a fundamental
restructuring of the Group's Technical Consulting business,
primarily in Automotive across the UK, Europe and the US. These
costs comprised redundancy-related and dual-running costs in
relation to headcount reductions and the establishment of a shared
service centre. In addition, contractor costs, professional fees,
onerous contract costs and other non-recurring costs associated
with asset disposals in the prior year and the subsequent scaling
down of operations in Germany are also included.
(3) In October 2018, the High Court issued a judgement
confirming that pension schemes are required to equalise male and
female members' benefits for the effect of Guaranteed Minimum
Pensions ('GMPs'). The past service cost due to GMP equalisation in
the current year is considered to be non-recurring in nature and
significant in its amount.
(4) In the prior year a net deferred tax asset which primarily
comprised historical accumulated losses in Germany was
derecognised. Due to the various restructuring actions taken in
Germany during the prior year, it was considered unlikely that
sufficient taxable profits would be available in the foreseeable
future against which the net deferred tax asset could be
utilised.
Amortisation of acquired intangible assets and reorganisation
costs are reported in the Technical Consulting segment. Third party
acquisition-related expenditure and GMP equalisation costs are
reported in the Head Office segment. See Note 2 for further
details.
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. The assumed
proceeds from these is regarded as having been received at the
average market price of ordinary shares during the year.
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.
2019 2018
Restated(1)
GBPm GBPm
----------------------------------------------------- ---------- ------------
Earnings attributable to owners of the parent 19.8 17.6
----------------------------------------------------- ---------- ------------
Add back the net-of-tax impact of:
- Amortisation of acquired intangible assets 3.4 3.5
- Acquisition-related expenditure 1.2 1.4
- Reorganisation costs 3.0 4.7
- Guaranteed Minimum Pensions ('GMPs') equalisation 1.3 -
- Derecognition of net deferred tax assets - 2.2
Underlying earnings attributable to owners of
the parent 28.7 29.4
----------------------------------------------------- ---------- ------------
(1) The prior year has been restated for IFRS 15 Revenue from Contracts
with Customers. See Note 9(a) for more details.
2019 2018
Number of Number of
shares shares
Millions Millions
----------------------------------------------------- ---------- ------------
Basic weighted average number of shares in issue 53.4 53.4
----------------------------------------------------- ---------- ------------
Effect of dilutive potential shares 0.2 0.2
----------------------------------------------------- ---------- ------------
Diluted weighted average number of shares in issue 53.6 53.6
----------------------------------------------------- ---------- ------------
2019 2018
Restated(1)
Earnings per share pence pence
----------------------------------------------------- ---------- ------------
Basic 37.1 33.0
Diluted 36.9 32.8
----------------------------------------------------- ---------- ------------
2019 2018
Restated(1)
Underlying earnings per share Pence pence
----------------------------------------------------- ---------- ------------
Basic 53.7 55.1
Diluted 53.5 54.9
----------------------------------------------------- ---------- ------------
5. Dividends
2019 2018
GBPm GBPm
----------------------------------------------------- ----- -----
Final dividend for the year ended 30 June 2018 of
14.71p (2017: 13.88p) per share 7.8 7.4
Interim dividend for the year ended 30 June 2019 of
6.00p (2018: 5.75p) per share 3.2 3.1
Equity dividends paid 11.0 10.5
----------------------------------------------------- ----- -----
The Directors are proposing a final dividend in respect of the
financial year ended 30 June 2019 of 15.28p per share which will
utilise GBP8.2m of retained earnings. It will be paid on 21
November 2019 to shareholders who are on the register of members at
the close of business on 8 November 2019, subject to approval at
the Annual General Meeting on 14 November 2019.
6. Acquisitions
Acquisitions in the current year - Transport Engineering
On 31 May 2019, the Group acquired the entire issued share
capital of Transport Engineering Pty Ltd ('Transport Engineering')
for initial cash consideration payable of GBP21.7m (AUD 39.5m)
which includes an adjustment for cash and normalised net working
capital of GBP0.5m (AUD 0.9m) paid post year-end, together with the
accrued provisional fair value of contingent cash consideration
payable of GBP5.1m (AUD 9.4m).
Transport Engineering is a leading rail technical services
consultancy based in Australia. It expands upon the Group's
existing capabilities within the growing Asia-Pacific rail market
and provides a footprint for other Ricardo businesses in Australia.
Transport Engineering was renamed Ricardo Rail Australia on 11 June
2019.
The following tables set out the provisional fair value of cash
consideration payable to acquire Transport Engineering, together
with the provisional assessment of the fair value of net assets
acquired.
Provisional fair value of cash consideration GBPm
---------------------------------------------------------------- ------
Initial cash consideration 21.7
Provisional fair value of contingent cash consideration 5.1
Total provisional fair value of cash consideration 26.8
---------------------------------------------------------------- ------
Provisional assessment of the fair value of identifiable net
assets acquired GBPm
---------------------------------------------------------------- ------
Customer contracts and relationships 9.7
Property, plant and equipment 0.1
Trade, contract and other receivables 2.3
Cash and cash equivalents 2.3
Trade, contract and other payables (1.7)
Current tax liabilities (0.9)
Deferred tax liabilities (2.9)
---------------------------------------------------------------- ------
Total provisional assessment of the fair value of identifiable
net assets acquired 8.9
Goodwill 17.9
---------------------------------------------------------------- ------
Total provisional fair value of cash consideration 26.8
---------------------------------------------------------------- ------
The cash impact of the acquisition in the year was GBP18.9m (AUD
34.3m), being the initial cash consideration of GBP21.2m (AUD
38.6m) paid on completion, less cash acquired of GBP2.3m (AUD
4.3m).
The maximum contingent cash consideration payable is GBP8.2m
(AUD 15.0m). The amounts payable will be based on the achievement
of annual performance targets measured against the profit before
tax of Transport Engineering across a two year earn-out period.
Each earn-out is only payable in full if the performance target is
achieved.
Provisional adjustments have been made to identifiable net
assets acquired to reflect their fair value. These include the
recognition of customer-related intangible assets separable from
goodwill amounting to GBP9.7m (AUD 17.8m). The provisional fair
values of contingent cash consideration and identifiable 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 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 on consolidation is
expected to be deductible for tax purposes.
The provisional assessment of the fair value of trade, contract
and other receivables acquired of GBP2.3m (AUD 4.2m) includes trade
receivables of GBP0.3m (AUD 0.6m) and amounts recoverable on
contracts of GBP1.8m (AUD 3.2m), all of which is expected to be
collectible.
Acquisition-related expenditure of GBP0.5m has been charged to
the income statement for the year ended 30 June 2019 and is
included as a specific adjusting item in Note 3.
The revenue included in the income statement in relation to the
acquired business was GBP1.4m. The underlying operating profit over
the same period was GBP0.3m. This is reported in the Technical
Consulting segment in Note 2.
Had Transport Engineering been acquired and consolidated from 1
July 2018, revenue and underlying operating profit in the income
statement would be GBP14.0m and GBP3.2m higher, respectively, based
on available information for the period from 1 July 2018 to the
acquisition date.
7. Cash generated from operations
2019 2018
Restated(1)
GBPm GBPm
------------------------------------------------------- ------ ------------
Profit before tax 26.5 27.0
Adjustments for:
Share-based payments 1.0 1.0
Fair value (gains)/losses on derivative financial
instruments (0.8) 1.1
Profit on disposal of property, plant and equipment (0.7) (1.6)
Net finance costs 2.6 2.2
Depreciation and amortisation 15.4 15.9
------------------------------------------------------- ------ ------------
Operating cash flows before movements in working
capital 44.0 45.6
(Increase)/decrease in inventories (1.2) 0.6
(Increase)/decrease in trade, contract and other
receivables (5.2) 4.9
Decrease in trade, contract and other payables (1.1) (5.6)
Increase in provisions 0.2 3.1
Defined benefit pension scheme payments (4.3) (4.4)
------------------------------------------------------- ------ ------------
Cash generated from operations 32.4 44.2
------------------------------------------------------- ------ ------------
(1) The prior year has been restated for IFRS 15 Revenue from Contracts
with Customers. See Note 9(a) for more details.
8. Net debt
Net debt is defined by the Group as net cash and cash
equivalents less borrowings. Net cash and cash equivalents is
defined by the Group as cash and cash equivalents less bank
overdrafts.
2019 2018
Analysis of net debt GBPm GBPm
------------------------------------------------- ------- -------
Current assets - cash and cash equivalents:
- Cash and cash equivalents 36.3 33.1
------------------------------------------------- ------- -------
Total 36.3 33.1
------------------------------------------------- ------- -------
Current liabilities - borrowings:
- Bank overdrafts repayable on demand (3.9) (9.3)
- Finance lease liabilities maturing within one (0.1) -
year
- Other loans maturing within one year - (0.1)
Total (4.0) (9.4)
------------------------------------------------- ------- -------
Non-current liabilities - borrowings:
- Finance lease liabilities maturing after one (0.6) -
year
- Bank loans maturing after one year (79.1) (49.8)
------------------------------------------------- ------- -------
Total (79.7) (49.8)
At 30 June (47.4) (26.1)
------------------------------------------------- ------- -------
2019 2018
Movement in net debt GBPm GBPm
------------------------------------------------- ------- -------
At beginning of year (26.1) (37.9)
Increase in net cash and cash equivalents 8.6 1.8
Proceeds from finance leases (0.7) -
Proceeds from borrowings (64.0) (15.0)
Repayments of borrowings 34.8 25.0
At 30 June (47.4) (26.1)
------------------------------------------------- ------- -------
9. Changes in significant accounting policies
(a) IFRS 15 Revenue from Contracts with Customers
Restatement of comparative financial statements
Consolidated income statement and statement of comprehensive
income (extract)
for the year ended 30 June 2018
Performance obligations
-------------------------------------
Previously Distinct Indistinct
Reported - separation(1) - combination(2) Restated
GBPm GBPm GBPm GBPm
--------------------------------------- ----------------- ----------------- ------------------ -----------
Revenue 380.0 (0.3) (1.2) 378.5
--------------------------------------- ----------------- ----------------- ------------------ -----------
Gross profit(3) 138.9 (0.3) (1.2) 137.4
--------------------------------------- ----------------- ----------------- ------------------ -----------
Operating profit:
- Underlying 41.2 (0.3) (1.2) 39.7
- Total 30.7 (0.3) (1.2) 29.2
--------------------------------------- ----------------- ----------------- ------------------ -----------
Profit before taxation:
- Underlying 39.0 (0.3) (1.2) 37.5
- Total 28.5 (0.3) (1.2) 27.0
--------------------------------------- ----------------- ----------------- ------------------ -----------
Taxation:
- Underlying (8.3) 0.1 0.2 (8.0)
- Total (9.6) 0.1 0.2 (9.3)
--------------------------------------- ----------------- ----------------- ------------------ -----------
Profit for the year:
- Underlying 30.7 (0.2) (1.0) 29.5
- Total 18.9 (0.2) (1.0) 17.7
--------------------------------------- ----------------- ----------------- ------------------ -----------
Profit for the year attributable to owners
of the parent:
- Underlying 30.6 (0.2) (1.0) 29.4
- Total 18.8 (0.2) (1.0) 17.6
--------------------------------------- ----------------- ----------------- ------------------ -----------
Total comprehensive income for the period attributable
to:
- Owners of the parent 30.0 (0.2) (1.0) 28.8
--------------------------------------- ----------------- ----------------- ------------------ -----------
Earnings per ordinary share attributable to owners of the parent during
the year:
--------------------------------------------------------------------------------------------------------------
- Basic 35.2p (0.4)p (1.8)p 33.0p
- Diluted 35.1p (0.4)p (1.9)p 32.8p
--------------------------------------- ----------------- ----------------- ------------------ -----------
Consolidated statement of financial position (extract)
as at 30 June 2018
Transition on Year ended 30
1 July 2017 June 2018
------------------------------------ ------------------------------------
Performance obligations Performance obligations
Previously Distinct Indistinct Distinct Indistinct
reported - separation(1) - combination(2) - separation(1) - combination(2) Restated
GBPm GBPm GBPm GBPm GBPm GBPm
------------------ ----------- ----------------- ----------------- ----------------- ----------------- ---------
Non-current
assets
Deferred tax
assets 7.6 0.4 0.6 0.1 0.2 8.9
------------------ ----------- ----------------- ----------------- ----------------- ----------------- ---------
150.1 0.4 0.6 0.1 0.2 151.4
------------------ ----------- ----------------- ----------------- ----------------- ----------------- ---------
Current assets
Trade, contract
and other
receivables(4) 141.8 (2.0) (2.5) (0.4) (1.6) 135.3
------------------ ----------- ----------------- ----------------- ----------------- ----------------- ---------
189.6 (2.0) (2.5) (0.4) (1.6) 183.1
------------------ ----------- ----------------- ----------------- ----------------- ----------------- ---------
Total assets 339.7 (1.6) (1.9) (0.3) (1.4) 334.5
------------------ ----------- ----------------- ----------------- ----------------- ----------------- ---------
Current
liabilities
Trade, contract
and other
payables(4) (82.5) (0.3) (0.7) 0.1 0.4 (83.0)
------------------ ----------- ----------------- ----------------- ----------------- ----------------- ---------
(102.0) (0.3) (0.7) 0.1 0.4 (102.5)
------------------ ----------- ----------------- ----------------- ----------------- ----------------- ---------
Net current
assets 87.6 (2.3) (3.2) (0.3) (1.2) 80.6
------------------ ----------- ----------------- ----------------- ----------------- ----------------- ---------
Net assets 176.5 (1.9) (2.6) (0.2) (1.0) 170.8
------------------ ----------- ----------------- ----------------- ----------------- ----------------- ---------
Equity
Retained earnings 132.7 (1.9) (2.6) (0.2) (1.0) 127.0
Equity
attributable to
owners of the
parent 176.1 (1.9) (2.6) (0.2) (1.0) 170.4
Total equity 176.5 (1.9) (2.6) (0.2) (1.0) 170.8
------------------ ----------- ----------------- ----------------- ----------------- ----------------- ---------
Consolidated cash flow statement (extract)
for the year ended 30 June 2018
Performance obligations
-------------------------------------
Previously Distinct Indistinct
Reported - separation(1) - combination(2) Restated
GBPm GBPm GBPm GBPm
--------------------------------------- ----------- ----------------- ------------------ -----------
Profit before tax 28.5 (0.3) (1.2) 27.0
--------------------------------------- ----------- ----------------- ------------------ -----------
Operating cash flows before movements
in working capital 47.1 (0.3) (1.2) 45.6
Decrease in trade, contract and other
receivables 2.9 0.4 1.6 4.9
Decrease in trade, contract and other
payables (5.1) (0.1) (0.4) (5.6)
--------------------------------------- ----------- ----------------- ------------------ -----------
Cash generated from operations 44.2 - - 44.2
--------------------------------------- ----------- ----------------- ------------------ -----------
(1) Separation of distinct performance obligations
Under IAS 11, the Group recognised revenue over time on certain
Technical Consulting contracts for a similar programme of annual
services to be performed over a number of years. The total
programme of services for the duration of each contract were
proposed as a package and were not subject to separate negotiation.
Under IFRS 15, these annual services are deemed to be separate
performance obligations that are distinct from one another within
the context of the contract. Revenue continues to be recognised on
a percentage of completion basis but based upon these separate and
distinct performance obligations.
(2) Combination of indistinct performance obligations
On a number of Technical Consulting contracts, revenue was
recognised separately for services such as sales commission and
up-front fees to compensate for costs incurred in obtaining and
setting up a contract or other administrative costs. Under IFRS 15,
these activities are not deemed to be costs of the contract as they
do not depict the transfer of services to a customer and therefore
do not satisfy distinct performance obligations in the contract
upon which revenue can be recognised separately. Revenue is
recognised over time and is measured through the consistent use of
a reliable input method based on total contract costs incurred to
date as a percentage of total estimated contract costs to satisfy
each distinct performance obligation.
(3) Reconciliation of restated gross profit to the income statement
In addition, and separately from the impact of IFRS 15, restated
gross profit has been represented on the income statement to
reclassify certain indirect payroll expenses (GBP4.5m) and
depreciation charges (GBP0.8m) from cost of sales to administrative
expenses in a manner that is consistent with their classification
in the current year.
(4) Impact on order book
The cumulative impact of IFRS 15 on contract assets and
liabilities results in a reinstatement of those amounts into the
order book as at 30 June 2018, to be recognised as revenue in
future periods.
(b) IFRS 9 Financial Instruments
Impairment of financial assets
The provision for impairment of trade receivables as at 30 June
2018 reconciles to the opening impairment provision on 1 July 2018
as follows:
Provision for impairment of trade receivables GBPm
----------------------------------------------- -----
At 30 June 2018 - under IAS 39 1.1
IFRS 9 transitional adjustment 2.4
------------------------------------------------ -----
At 1 July 2018 - under IFRS 9 3.5
------------------------------------------------ -----
Adjustment to retained earnings GBPm
----------------------------------- -----
IFRS 9 transitional adjustment 2.4
Deferred tax impact on transition 0.3
------------------------------------ -----
At 1 July 2018 - under IFRS 9 2.7
------------------------------------ -----
The provision for impairment under IFRS 9 was GBP2.8m as at 30
June 2019. The provision for impairment under IAS 39 would have
been GBP1.0m as at 30 June 2019.
Adjustment to financial statements
Consolidated statement of financial position (extract)
as at 1 July 2018
Adjusted
Adjusted IFRS 9 under IFRS
under IFRS transitional 9 and IFRS
15 adjustment 15(1)
GBPm GBPm GBPm
--------------------------------------- ------------ -------------- ------------
Non-current assets
Deferred tax assets 8.9 0.2 9.1
--------------------------------------- ------------ -------------- ------------
151.4 0.2 151.6
--------------------------------------- ------------ -------------- ------------
Current assets
Trade, contract and other receivables 135.3 (2.4) 132.9
--------------------------------------- ------------ -------------- ------------
183.1 (2.4) 180.7
--------------------------------------- ------------ -------------- ------------
Total assets 334.5 (2.2) 332.3
--------------------------------------- ------------ -------------- ------------
Net current assets 80.6 (2.4) 78.2
--------------------------------------- ------------ -------------- ------------
Non-current liabilities
Deferred tax liabilities (3.9) (0.5) (4.4)
--------------------------------------- ------------ -------------- ------------
(61.2) (0.5) (61.7)
--------------------------------------- ------------ -------------- ------------
Net assets 170.8 (2.7) 168.1
--------------------------------------- ------------ -------------- ------------
Equity
Retained earnings 127.0 (2.7) 124.3
Equity attributable to owners of the
parent 170.4 (2.7) 167.7
Total equity 170.8 (2.7) 168.1
--------------------------------------- ------------ -------------- ------------
(1) Under the modified retrospective transition method,
comparative information is not restated for IFRS 9.
(c) IFRS 16 Leases
Summary
IFRS 16 Leases becomes effective to the Group as at 1 July 2019
and replaces IAS 17 Leases. IFRS 16 introduces a single lease
accounting model for lessees, which requires the Group to recognise
assets that represent its right to use underlying leased assets and
liabilities that represent its obligation to make lease payments
for all of the Group's operating leases, other than those that are
short-term or low-value. Operating lease charges in the income
statement will largely be replaced by depreciation charges and
finance costs.
Impact
The Group has assessed the estimated pre-tax impact that the
initial application of IFRS 16 will have on its consolidated
financial statements for the year ending 30 June 2020 based on its
portfolio of lease contracts as at 30 June 2019, as shows
below:
Group
Impact on Consolidated Statement of Financial GBPm
Position as at 1 July 2019
---------------------------------------------------- ------
Net investment in sublet property 2
Right-of-use assets 37
Lease-related prepayments, accruals and provisions 1
Lease liabilities (45)
Retained earnings (5)
----------------------------------------------------- ------
Group
Impact on Consolidated Income Statement for the GBPm
year ending 30 June 2020
---------------------------------------------------- ------
Operating lease charges under IAS 17 8
Operating lease charges under IFRS 16 (1)
Depreciation under IFRS 16 (6)
----------------------------------------------------- ------
Impact on operating profit 1
Finance costs (2)
----------------------------------------------------- ------
Impact on profit before taxation (1)
----------------------------------------------------- ------
Impact of Consolidated Statement of Cash Flows for the year
ending 30 June 2020
There is no overall impact on cash flows from the adoption of
IFRS 16, but a change in presentation will see an improvement in
the Group's cash flows from operating activities and a
corresponding decline in cash flows from financing activities of
approximately GBP5m. The Group does not expect the adoption of IFRS
16 to impact on its ability to comply with its loan covenants.
10. Events after the reporting date
(a) Acquisitions after the reporting date - PLC Consulting
On 31 July 2019, the Group acquired the entire issued share
capital of PLC Consulting Pty Ltd ('PLC Consulting') for initial
cash consideration of GBP3.9m (AUD 7.0m) subject to any adjustment
to reflect normalised levels of working capital.
PLC Consulting is an Australian firm with a strong technical
advisory capability across the project lifecycle in infrastructure,
environment and planning, including supporting the environmental
requirements of master-planning, business cases, procurement,
design, construction and operation. PLC Consulting was renamed
Ricardo Energy Environment and Planning Australia on 5 August
2019.
The following tables set out the provisional fair value of cash
consideration payable to acquire PLC Consulting, together with the
provisional assessment of the fair value of net assets
acquired.
Provisional cash consideration GBPm
---------------------------------------------------------------- ------
Initial cash consideration 3.9
---------------------------------------------------------------- ------
Provisional assessment of the fair value of identifiable net
assets acquired GBPm
---------------------------------------------------------------- ------
Customer contracts and relationships 1.4
Trade, contract and other receivables 0.6
Cash and cash equivalents 0.4
Trade, contract and other payables (0.1)
Deferred tax liabilities (0.4)
---------------------------------------------------------------- ------
Total provisional assessment of the fair value of identifiable
net assets acquired 1.9
Goodwill 2.0
---------------------------------------------------------------- ------
Total provisional cash consideration 3.9
---------------------------------------------------------------- ------
All of the initial cash consideration of GBP3.9m (AUD 7.0m) was
paid after the year-end in July 2019. The acquisition was completed
on a cash-free and debt-free basis, subject to normal levels of
working capital.
The maximum contingent cash payable is GBP5.4m (AUD 9.5m). The
amounts payable will be based on the achievement of a range of
annual performance targets measured against the earnings before
interest, tax, depreciation and amortisation of PLC Consulting
across a two year earn-out period. These payments are dependent
upon the continuing employment of the sellers in the business and
are not considered to be consideration. The expected amounts
payable will be accrued within specific adjusting items on a pro
rata basis.
Provisional adjustments have been made for the recognition of
customer-related intangible assets separable from goodwill
amounting to GBP1.4m (AUD 2.4m), but have not yet been made to
other identifiable net assets acquired to reflect their fair value.
The provisional assessment of net assets acquired is based upon
available financial information and 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 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 on consolidation is
expected to be deductible for tax purposes.
The provisional assessment of net assets acquired of GBP1.9m
(AUD 3.4m) includes trade receivables of GBP0.6m (AUD 1.1m), all of
which is expected to be collectible.
Acquisition-related expenditure of GBP0.2m has been charged to
the income statement for the year ended 30 June 2019 and is
included as a specific adjusting item in Note 3.
(b) Purchase of Detroit Technical Center
On 21 August 2019, the Group purchased the freehold property of
its Detroit Technical Center ('DTC'), located at 40000 Ricardo
Drive, Van Buren Township, Detroit, Michigan, 48111-1641, United
States, for GBP14.2m (USD 17.3m). The purchase of the facility
removes the Group from its long-term lease commitment to October
2037 and the purchase price was predicated on its tenancy. During
the year the Group commenced a process to market the DTC test
assets for sale and the newly acquired freehold property will form
part of this process.
These activities provide the flexibility to realign the cost
base of the Automotive US business with its strategy as a more
operationally efficient consultancy. The freehold property will be
assessed for impairment as part of being classified as held for
sale and any charge will be classified as a specific adjusting item
due to the non-recurring nature of the transaction.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR GGUCABUPBGQG
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