TIDMRCDO
RNS Number : 2188U
Ricardo PLC
28 July 2020
28 July 2020
Ricardo plc
Ricardo plc ("Ricardo") is a global engineering, technical,
environmental and strategic consultancy business, which also
manufactures and assembles niche, high-quality and high-performance
products.
Ricardo is today providing a trading update ahead of its full
year results in respect of the year ended 30 June 2020. Ricardo
plans to announce its full year results in September 2020.
Trading update
As previously announced, COVID-19 has had a negative impact on
performance in the second half of the year, with our Automotive
related businesses being impacted the most with profits
significantly lower than the prior year. Our Energy &
Environment, Defense and Rail businesses were less impacted and all
delivered an increase in profits on the prior year. Overall, we
have seen a delay in orders being placed and some challenges in the
delivery of projects due to customers either temporarily closing
down their operations or working remotely, together with our own
consultants working from home. Whilst revenue has been impacted to
a degree, profit and margins have been impacted more so, due to the
reduced level of efficiency.
In the year to 30 June 2020, order intake was over GBP365m,
compared to GBP386m in the prior year. The order intake includes
GBP16m in respect of Transport Engineering and PLC Consulting which
were acquired on 31 May 2019 and 31 July 2019 respectively. Total
Group revenue in the year ended 30 June 2020 was in excess of
GBP350m, compared to GBP384m in the prior year. This revenue
includes GBP21m in respect of the Transport Engineering and PLC
Consulting acquisitions. The order book at 30 June 2020 was in
excess of GBP310m compared to the prior year of GBP314m.
Given the impact of COVID-19 in the second half of the year, the
Group now expects underlying profit before tax for the year ended
30 June 2020 to be approximately GBP15m to GBP 16m, subject to
audit. The level of profit was a result of the lower revenue, the
time required to reduce headcount in light of the lower revenue,
and the reduced efficiency as referenced above. The Group has taken
significant actions in the year to reduce its costs, and we enter
the new financial year with a reduction in the current cost base of
more than GBP10m per annum.
Given the ongoing uncertainty we do not believe it is
appropriate to provide guidance for the year ending 30 June 2021,
albeit current expectations are that profit and cash performance
will be weighted towards the second half of the new financial
year.
Funding and liquidity
At 30 June 2020, net debt was GBP74m compared to GBP74m at 31
December 2019 and GBP47m at 30 June 2019. We are pleased with the
cash neutral position in the six months ended 30 June 2020 given
the current climate, which has been driven by our continuing strong
focus on working capital. The increase in net debt of GBP27m
compared to 30 June 2019 includes an aggregate of GBP18m in respect
of the acquisitions of the Detroit facility and PLC Consulting in
Australia, both of which occurred in the first half of the
financial year.
On 6 May 2020, we announced action taken to strengthen the
Group's funding position through the exercise of GBP50m of the
accordion option of our banking facilities. This increased the
Revolving Credit Facility (RCF) to GBP200m, providing the Group
with increased committed funding available for the remaining term
through to July 2023. At 30 June 2020 the amount undrawn on the RCF
was GBP70m and we held net liquid cash reserves of GBP56m together
with uncommitted overdraft facilities of GBP16m.
In addition to the increased committed funding available, the
Adjusted Leverage (defined as net debt over underlying EBITDA)
covenant was increased from 3.0x to 3.75x for the two test dates of
30 June 2020 and 31 December 2020. The covenant will return to 3.0x
for the following test date on 30 June 2021. The only other
financial covenant is Interest Cover, which remains at 4.0x for
each test date. There have been no other changes to the terms of
this multi-currency facility, which has a variable interest rate
ranging from 1.4% to 2.2% above LIBOR and varies according to the
Group's Adjusted Leverage.
Operational Update
Trading in our Energy & Environment business has been good
during the year, with year on year growth in revenue, order intake,
and the closing order book. The business has benefited from the
predominant public sector customer base and in particular has seen
a strong performance in each of the environmental evidence and
data; resource efficiency and waste and chemical risk practice
areas. There is a good pipeline of opportunities as we enter the
new financial year.
Our Defense business also had a good year with growth in revenue
driven by a strong year in engineering services together with
additional kits delivered in respect of the Anti-lock Brake
System/Electronic Stability Control (ABS/ESC) project. During the
year, 2,460 ABS/ESC kits were delivered (FY19 1,650 kits). The
pipeline of opportunities in Defense is very good and on 29 June
2020 we were pleased to announce that GM Defense, along with
Ricardo as its strategic partner, had been awarded a $214m
production contract by the US Army to build, field and sustain the
Army's new Infantry Squad Vehicle. Regarding the wider HMMWV fleet
retrofit programme discussions continue within the US Congress
Defense Budget Appropriations Committee. Order intake for Defense
overall is below the prior year due to the profile and timing of
the ABS/ESC order placement.
Performance Products has been impacted by the closure of some of
our customers' production lines in the final quarter of the year,
as a result of COVID-19, and consequently has delivered a lower
volume of high performance engines compared to the prior year.
Production recommenced in June 2020 and is expected to increase
steadily over the coming months. We continue to pursue new
opportunities together with the extension of existing programmes
and during the second half of the financial year we secured a
GBP12m order relating to two years of transmission supply to a
major European race series - the full value of the programme is
expected to be in the region of GBP30m with deliverables forecasted
out to 2024.
Our Rail business has seen an increase in order intake, revenue
and the closing order book driven by the acquisition of Transport
Engineering on 31 May 2019. Performance across the Rail business
was mixed with the Asia business the first to be impacted by
COVID-19 which followed the disruption to our Hong Kong operations
following the Autumn 2019 demonstrations. Operations in Europe were
impacted in the second half of the year by COVID-19 with temporary
office closures and travel restrictions, but all of our offices are
now open and fully operational. The Rail business enters the new
financial year with a good order book and a strong pipeline.
Our Automotive related businesses in Europe, the US and China
have been impacted by challenging market conditions, both due to
weakness in the Automotive sector overall and as a result of
COVID-19. This has given rise to a delay in orders being placed by
customers and a slow-down in project delivery. Action has been
taken to address these challenges through the restructuring of our
Automotive related activities including the disposal of test
facilities in Detroit and reductions in the cost base creating a
more agile business as set out in the comments on specific
adjusting items below.
In the year, specific adjusting items of cGBP21m have been
incurred which include GBP6m of amortization of acquired
intangibles; GBP3m of earn out costs in respect of previous
acquisitions; and a cGBP3.5m impairment charge taken on the Detroit
Technology Campus ('DTC') test and office buildings following their
purchase in August 2019 for GBP14.3m. The remaining GBP8.5m
reflects major restructuring activities as a result of adverse
market conditions, particularly in the Automotive sector,
exacerbated by the COVID-19 pandemic. Excluding the DTC purchase,
the net cash cost of restructuring actions in the year was GBP2.4m,
with GBP1.5m to come in FY21. The DTC office building remains held
for sale on the balance sheet at June 2020.
Our response to COVID-19
From the beginning of the crisis, we set out a "Healthy people,
healthy business" agenda. This focused on supporting our employees
and their families together with the health and wellbeing of our
clients, suppliers and the communities in which we operate.
Our manufacturing and testing facilities are fully staffed and
delivering client requirements with appropriate social distancing
controls to meet the guidance of governments. Our offices are all
open for employees who wish to return to work and can do so safely.
We are encouraging return for those who can, and supporting those
that cannot yet return so they can fully contribute to the
business. In some locations we have temporary closures as we
respond to local lockdowns which authorities can activate quickly.
Our IT resources are supporting the business well across a mix of
home based and office-based working. Our larger offices are
operating one-way systems and team-based segregation to reduce
transmission risk.
"Digital first" is still the core strategy for client and
supplier communication. Our business travel has been very limited
in recent months. Some travel within Europe, China and US has
commenced. There has been little long-haul travel and we expect
that situation to remain in the coming months.
We completed our face shield programme in May, having donated
and distributed c 10,000 face shields to communities around our
Midlands, Shoreham, Derby and Harwell locations. Colleagues in
other locations have also donated face shields using our rapid
prototyping capabilities as well as personal equipment.
Dave Shemmans, Chief Executive Officer, commented :
In the last six months COVID-19 has brought its challenges and I
am immensely proud of our people who have demonstrated commitment,
loyalty and dedication throughout the period. Ricardo is a people
business and our people have delivered and are continuing to do so
as we move forward.
Our strategy of diversification, together with pro-active
management, has again provided some resilience to the Group. Our
Automotive related businesses reported lower profits than last year
achieving breakeven in the year; Performance Products whilst
delivering a good level of profits, were also lower than the prior
year due to reduced engine volumes; but our Defense, Rail and
Energy & Environment businesses all reported higher profits
than the prior year.
Having navigated the COVID-19 disruption in the second half of
our financial year, we emerged with the same net debt as at 31
December 2019, a good order book in excess of GBP310m, which is at
the same level as June 2019, and a strong pipeline of
opportunities. Given the economic uncertainty, we approach the year
ahead with caution, but we enter the year as a more agile Group
with a reduced cost base and a number of exciting
opportunities.
This announcement contains inside information.
The Ricardo plc LEI number is 213800ZNYAY35F4XB814
Further enquiries:
Ricardo plc
Dave Shemmans, Chief Executive
Officer Tel: 01273 455611
Ian Gibson, Chief Financial Officer
Website: www.ricardo.com
Newgate Communications Tel: 020 7653 9842
Adam Lloyd
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END
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