21st Feb 2005 07:01
Ricardo PLC21 February 2005 21 February 2005 Ricardo plc Interim Results for the six months ended 31 December 2004 Ricardo plc is a leading UK independent automotive consultancy, employing over1,580 people with technical centres in the UK, USA, Germany and the CzechRepublic. The company's client list includes the world's major OEMs. Ricardo isa constituent of the FTSE techMark 100. HIGHLIGHTS • Profit before tax and goodwill £3.0m (2003: £0.2m) • Profit before tax and after goodwill £2.5m (2003: loss £2.3m) • UK, US and German operations all profitable • Strategic Consulting achieves profit growth earlier than anticipated • Steady ongoing recovery in order book up 28% to £58m (2003: £45.8m) • Earnings per share before goodwill up to 5.5p (2003: loss per share 0.6p) • Earnings per share after goodwill 4.5p (2003: loss per share 5.5p) • Interim dividend held at 2.7p • Japanese and Chinese customer interest continues to increase • New CEO Designate in place for November 2005 to ensure smooth handover • Recovery continues to make good progress although automotive industry remains challenging Commenting on the results, Rodney Westhead, Chief Executive said: "We are pleased that our order book level has improved significantly andprogress is being made to restore profits back to historic levels. The secondhalf has started well, and in spite of ongoing challenges in the globalautomotive market we continue to remain cautiously optimistic over the outlookfor the full year." Further enquiries: Ricardo plcRodney Westhead, Chief Executive (today) 020 7554 1400Andrew Goodburn, Finance Director (thereafter) 01273 455611 Gavin Anderson & CompanyLaura Hickman/Charlotte Stone 020 7554 1400Website: www.ricardo.com CHIEF EXECUTIVE'S STATEMENT INTERIM RESULTS AND DIVIDEND Our recovery in profitability has been stronger than anticipated and weconcluded the first six months with satisfactory results and a much improvedorder book. However, large sections of the automotive industry are stillstruggling to produce good results and therefore our trading environment willcontinue to be challenging for the foreseeable future. Turnover for the six months to 31 December 2004 was £72.6m (2003: £77.3m) withthe decrease split equally between the UK and US, the latter being furtherimpacted by the weakening dollar. Profit before tax and goodwill for the periodwas £3.0m (2003: £0.2m before exceptionals). Earnings per share before goodwillincreased to 5.5p compared to a loss per share of 0.6p in the prior year. Theorder book at 31 December 2004 stood at £58m (2003: £45m) and net borrowingsincreased to £15.8m (2003: £9.2m) principally as a result of working capitalreturning to more normal levels, however we now expect the Group to be cashgenerative going forward. The interim dividend is maintained at 2.7p (2003:2.7p) and will be paid on 22 April 2005 to all shareholders on the register atclose of business on 1 April 2005. Business Overview Overall our recovery continues to make good progress and we are now seeing thefull benefits of both the cost cutting initiatives taken 12 months ago and therefocusing of our marketing efforts. It is heartening that our order book hasnow improved to £60m at the end of January 2005, although areas of weaknessstill persist. Our customer base continues to broaden with an increasinginterest from the Far East. Globally both Controls & Electronics and RicardoStrategic Consulting businesses have performed strongly. Controls andElectronics was operating at full capacity at the half year end and for thefirst time we were head-count restrained in this area. As Electronics is agrowing part of vehicle development programmes we will continue to grow thisactivity and seek appropriate acquisitions. We continue to enlarge our use ofPrague as a lower cost facility and expect further expansion here to support allareas of our business, both geographic and technical. UK Our UK business, now run as one unit comprising engine, transmission and vehicleengineering returned to profit in the period. Our engines business performedwell with a strengthened order book and increased productivity. However, asanticipated our transmission and vehicle businesses had a weak period and madelosses, albeit less than expected. The demand for advanced engine technology toreduce emissions and fuel consumption remains strong. This contrasts with thedemand for transmissions technology which remained weak in the period withcustomers showing great interest in new products at a development level butreluctant to commit to move to full scale application development. However, inJanuary we received significant manufacturing orders for high performancetransmissions we had previously designed and developed and this will underpinour transmission manufacturing activities for the next two years. In vehicleengineering, our order book has been improving, particularly for militaryvehicles. For passenger vehicles, competition remains fierce with low costcompetitors providing a cheaper cost option to customers. We continue to believethat the excellent warranty claims record and on time delivery that Ricardooffers together with our ability to provide full engine, transmission, vehicleand electronic integration capability ahead of our competitors will paydividends over the medium to longer term. USA In the US profits reduced after a very slow start to the year. The order book isnow beginning to pick up with a strong intake in January 2005. However, businessfrom the US domestic car companies, who make up the bulk of our customers, isstill very competitive. Sales of military vehicles saw further growth and arelikely to provide a good impetus to our performance for the foreseeable future.The new heavy duty engine test cells in Chicago are now fully operational with astrong order inflow driven by the stringent 2007 truck (heavy vehicle) emissionslegislation. We are also seeing increasing activity from the Asian car companiesoperating in the USA and this is a source of work that is likely to increase. Germany We now have a sound business in Germany that has integrated well into the restof the company and we have won our first mainstream development programme from amajor German OEM. The need to comply with Euro V emissions legislation willcontinue to provide opportunities for Ricardo, however the rate of progress isstill slower than we would like as we strive to penetrate these core domesticmarkets. Significant reorganisation of the manufacturing, testing and accountingfunctions has taken place and the German team is starting to play a full role inthe overall Ricardo business. We are optimistic that our share of the Germanmarket should start to increase. The Far East Our Tokyo office continues to make excellent progress with Japanese orders inthe first six months exceeding the whole of the previous year and nowapproaching 10% of our total order intake. Clearly there is still a long way togo given the size and importance of this market but we now have good contact atall levels with each of the major Japanese car companies. Order intake isgrowing strongly across all our areas of expertise including engine,transmissions, vehicle, electronics, software and motorsport. Our demonstratorvehicles are particularly well received and attract a high level of interestfrom the car companies, especially as they are well in advance of anything ourcompetitors have produced. We will open a representative Chinese office in Shanghai in March 2005 whichwill be staffed by a mix of UK and local Chinese staff, initially only workingas a sales office. We are now working for both wholly domestic companies, manyof whom clearly intend to become major exporters, and also for the Western/Chinese joint venture companies. We expect our activity in China to grow fairlyrapidly and will invest sensibly to ensure we capitalise on opportunities fromthis expanding market. Strategic Consulting Strategic Consulting has achieved strong growth and good profits in the period.Our order book grew threefold and this business is now operating in the UK,Germany, Japan and USA with 29 consultants and approximately 20 technicalconsultants working alongside them. Pass through work referred to our technicalconsulting business is growing and provides good avenues of new work. We are nowworking for an increasing number of global customers and anticipate furtherstrong growth from this business. Research & Development Ricardo continues to apply its key intellectual capital in forecasting andvalidating technology trends in the automotive market. This provides animportant input to future business strategy but also provides a key high valueservice to customers and a planning tool for internal research investment.Global market drivers are dominated by increasing Government interest in reducedcarbon emissions via improved fuel economy in parallel with further reductionsin exhaust emissions. Government targets to improve vehicle safety are alsogaining a higher profile and have triggered some major investments by theautomotive industry in "active" safety technologies that can reduce accidents.The need to reduce the time and cost required to get new products to market isalso increasing demand for more sophisticated design tools and processes. Inresponse to these demands, Ricardo has increased its investment in these areaswhilst also developing a range of demonstration vehicles that show Ricardo'scapability in greener, safer vehicles. In the last year, a very low emissions high performance diesel vehicle has beencompleted whilst new patented technologies in active driveline control haveenabled demonstration of Ricardo capability in improved vehicle handling andstability. These vehicle demonstrators, often enabled by advances in control andelectronics, have been very well received by our customers. They providetangible examples of Ricardo technology and enable dialogue with key decisionmakers in the automotive industry. The need for ever increasing effectiveness in research and development has alsocreated more opportunities for collaborative programmes. Most internally fundedresearch now attracts collaborative support both from automotive customers andwith government funding in the US, Europe and the UK. To improve effectivenessRicado has also introduced a number of metrics to predict and monitor the valueof research investments. IFRS Conversion Ricardo will prepare its financial statements under International FinancialReporting Standards (IFRS) for the year ending 30 June 2006. A company-wideproject with the objective of ensuring compliance with IAS is underway and isnow in the implementation phase. In the 30 June 2004 Annual Report it was noted that the major areas of impact onnet profit and shareholders' funds would be share based payments, goodwillamortisation, pensions, financial instruments, development expenditure andleases and there has been no change from this initial assessment. We havealready adopted the primary segmental analysis required by IFRS. We recognise that adopting IFRS will change the reporting of the financialperformance of the Group and we understand that meaningful comparisons will berequired. We are planning to communicate this transition to our stakeholders ina clear and straightforward manner by providing an IFRS compliant set of fullyear financial statements for the year ended 30 June 2006 and for our interimresults in December 2005. This will include a restatement of FY 2005 in IFRSformat for comparative purposes. Conversion to IFRS will not affect the Group's operational prospects or itsability to generate cash. People I am delighted at the announcement of the appointment of Dave Shemmans as theCEO designate. Dave will replace me when I retire at our AGM in November 2005.Dave has been with Ricardo for six years, first as business development directorfor our engines business and subsequently the Group. Since the end of 2003 hehas been Managing Director of our engines business. As business developmentdirector he was directly responsible for winning some major programmes and, morerecently as Managing Director, has brought significant change, development andimprovement to the engines business, the core of our activity. Dave is an electronics engineer by profession and prior to joining Ricardo wasinvolved in developing electric hybrid vehicles. His direct industry experienceand knowledge of Ricardo make him an excellent successor and is therefore wellsuited to the needs of Ricardo. I wish him every success. Outlook The first half of the year has started on a far more positive note than the lastfinancial year and this appears to have carried on into the second half with astrong January order intake. We still need to improve our activity intransmissions and vehicle in the UK but all other parts of Ricardo areperforming well. Whilst we are pleased with the progress made, the automotiveindustry is still one with well publicised problems and a huge focus on costbase management. Our progress will remain constrained by these factors. However,as these results have demonstrated Ricardo has the capability, knowledge baseand reach to capitalise on the opportunities that are in the market. January has been a good month, however as previously indicated our results forthe year are dependent on a good second half performance. Although our prospectsand confidence continue to grow, we have not changed our view on expectationsfor the full year. Consolidated Profit & Loss AccountInterim Statement for the six months ended 31 December 2004 Before goodwill Six months amortisation Ended 31 and Before December exceptional goodwill Goodwill 2004 redundancy amortisation amortisation Total costs £'000 £'000 £'000 £'000 Turnover 72,584 - 72,584 77,287---------------- --------- --------- --------- ---------- 72,584 - 72,584 77,287 Operating profit/(loss) 3,406 (502) 2,904 518---------------- --------- --------- --------- ----------Profit/(loss) on ordinary activities 3,406 (502) 2,904 518before interest Net interest (447) - (447) (365)---------------- --------- --------- --------- ----------Profit/(loss) on ordinary activities 2,959 (502) 2,457 153before taxationTaxation (183)---------------- --------- --------- --------- ----------Profit/(loss) on ordinary activities 2,274after taxationMinority interest (25)---------------- --------- --------- --------- ----------Profit/(loss) for the financial year 2,249Non - equity preferencedividends (3)---------------- --------- --------- --------- ----------Profit/(loss) attributable toordinary shareholders 2,246Equity ordinary dividends (1,354)---------------- --------- --------- --------- ----------Amount transferred to/(from)reserves 892---------------- --------- --------- --------- ----------Dividend per ordinary share 2.7p---------------- --------- --------- --------- ----------Earnings per ordinary share- basic 4.5p- diluted 4.5p---------------- --------- --------- --------- ----------Earnings per ordinary share beforegoodwill amortisation andexceptional redundancy costs- basic 5.5p- diluted 5.5p Consolidated Profit & Loss AccountContd. Before Goodwill goodwill Goodwill amortisation Six months amortisation amortisation Year and ended and and ended exceptional 31 December exceptional exceptional 30 June redundancy 2003 redundancy redundancy 2004 costs Total costs costs Total £'000 £'000 £'000 £'000 £'000 (restated) (restated) Turnover - 77,287 146,242 - 146,242--------------- ------- --------- ------- ------- ------- - 77,287 146,242 - 146,242 Operating profit/(loss) (2,424) (1,906) 2,600 (4,558) (1,958)--------------- ------- --------- ------- ------- -------Profit/(loss)on ordinaryactivities before interest (2,424) (1,906) 2,600 (4,558) (1,958)Net interest - (365) (800) - (800)--------------- ------- --------- ------- ------- -------Profit/(loss)on ordinaryactivities before taxation (2,424) (2,271) 1,800 (4,558) (2,758)Taxation (366) 515 1,114 1,629--------------- ------- --------- ------- ------- -------Profit/(loss)on ordinaryactivities after taxation (2,637) 2,315 (3,444) (1,129)Minority interest (94) (148)--------------- ------- --------- ------- ------- -------Profit/(loss)for the financial year (2,731) (1,277)Non - equity preference dividends (6) (6)--------------- ------- --------- ------- ------- -------Profit/(loss)attributable to ordinary shareholders (2,737) (1,283)Equity ordinary dividends (1,345) (4,478)--------------- ------- --------- ------- ------- -------Amount transferredto/(from)reserves (4,082) (5,761)--------------- ------- --------- ------- ------- ------- Dividend per ordinary share 2.7p 9.0p--------------- ------- --------- ------- ------- -------Earnings per ordinary share- basic (5.5)p (2.6)p- diluted (5.5)p (2.6)p--------------- ------- --------- ------- ------- -------Earnings per ordinary sharebefore goodwill amortisationand exceptional redundancy costs- basic (0.6)p 4.3p- diluted (0.6)p 4.3p Consolidated Balance SheetsInterim Statement for the six months to 31 December 2004 As at As at As at 31 December 31 December 30 June 2004 2003 2004 £'000 £'000 £'000 (restated) (restated) Fixed assetsIntangible assets 16,365 25,925 16,161Tangible assets 48,995 50,876 50,944-------------------- ----------- --------- --------- 65,360 76,801 67,105-------------------- ----------- --------- ---------Current assets Stocks 7,786 8,781 6,285Debtors 42,635 44,320 36,525Cash deposit - 340 -Cash at bank and in hand 6,352 4,838 11,119-------------------- ----------- --------- --------- 56,773 58, 279 53, 929Creditors - amounts falling duewithin one year (58,844) (57, 958) (57, 253)-------------------- ----------- --------- ---------Net current (liabilities)/assets (2,071) 321 (3,324)-------------------- ----------- --------- --------- Total assets less current liabilities 63,289 77,122 63,781Creditors - amounts falling due aftermore than one year (2,903) (13,680) (3,782)Provisions for liabilities and charges (3,840) (5,361) (3,843)-------------------- ----------- --------- ---------Net assets 56,546 58,081 56,156-------------------- ----------- --------- --------- Capital and reservesCalled up share capital 12,477 12,471 12,474Share premium account 12,085 12,061 12,076Capital redemption reserve 40 40 40Merger reserve 967 967 967Long term incentive plan reserve 165 162 -Profit and loss account 30,315 31,862 30,106-------------------- ----------- --------- ---------Total shareholders' funds 56,049 57,563 55,663-------------------- ----------- --------- ---------Equity minority interests 497 518 493-------------------- ----------- --------- ---------Capital employed 56,546 58,081 56,156-------------------- ----------- --------- --------- Consolidated Cash Flow StatementInterim Statement for the six months ended 31 December 2004 Six months Six months Year ended ended ended 31 December 31 December 30 June 2004 2003 2004 £'000 £'000 £'000 (restated) (restated)Net cash inflow from operating activities 1,302 4,702 12,143Net cash outflow from returns oninvestment and servicing of finance (490) (628) (950)--------------------- ---------- ------------ ---------- Taxation 702 (3,116) (3,531) Capital expenditure and financialinvestment (2,902) (5,805) (11,016)--------------------- ---------- ------------ ----------Equity and non equity dividends paid (3,149) (3,131) (4,482)--------------------- ---------- ------------ ----------Management of liquid resources - - (340)--------------------- ---------- ------------ ----------Cash flow before use of financing (4,537) (7,978) (8,176)--------------------- ---------- ------------ ----------Net cash outflow from financing (1,037) (1,529) (1,939)--------------------- ---------- ------------ ----------Decrease in cash (5,574) (9,507) (10,115)--------------------- ---------- ------------ ---------- Notes to the Consolidated Cash Flow Statement Six months Six months Year ended ended ended 31 December 31 December 30 June 2004 2003 2004 £'000 £'000 £'000 (restated) (restated) Reconciliation of net cash flow tomovement in net debt Decrease in cash (5,574) (9,507) (10,115)Movement in debt 1,049 1,538 1,966--------------------- ----------- ---------- ----------Change in net debt from cash flows (4,525) (7,969) (8,149)Translation difference (1,004) (26) (916)--------------------- ----------- ---------- ---------- Movement in net debt in period (5,529) (7,995) (9,065) Net debt at beginning of period (10,257) (1,192) (1,192)Net debt at end of period (15,786) (9,187) (10,257)--------------------- ----------- ---------- ---------- Reconciliation of operating profit/(loss)to net cash inflow from operating activities Operating profit/(loss) 2,904 (1,906) (1,958)Depreciation charges 4,605 4,868 9,518Goodwill amortisation 502 724 985Profit on sale of tangible fixed assets (1) (4) (7)Long term incentive plan charge/(credit) 165 (42) (204)(Increase)/decrease in working capital (6,873) 1,062 3,809--------------------- ----------- ---------- ---------- 1,302 4,702 12,143 ----------- ---------- ---------- Segmental reporting The Group operates in 3 main geographical areas. In addition, our strategicconsulting business("RSC" ) operates on a global basis. Its figures have therefore been shown separately. 6 months ended UK North America Germany Rest of the RSC Total World31 December 2004 £'000 £'000 £'000 £'000 £'000 £'000Turnover by origin 39,298 15,347 14,885 239 2,815 72,584------------------ ------ ------- ------- -------- -------- --------Operating profit/(loss)before goodwill amortisation 2,002 548 793 (86) 149 3,406Operating profit/(loss)after goodwill amortisation 1,850 543 448 (86) 149 2,904------------------ ------ ------- ------- -------- -------- --------Net operating assets 40,648 15,481 21,732 (621) (1,068) 76,172Group borrowings falling duewithin 1 year (12,883)Group borrowings falling dueafter more than one year (2,903)Deferred consideration -Provisions for liabilitiesand charges (3,840)------------------ ------ ------- ------- -------- -------- --------Net assets 56,546------------------ ------ ------- ------- -------- -------- -------- UK North America Germany Rest of the RSC Total6 months ended World31 December 2003 £'000 £'000 £'000 £'000 £'000 £'000Turnover by origin 45,137 19,808 11,820 - 522 77,287------------------ ------ ------- ------- -------- -------- --------Operating profit/(loss)before goodwill amortisation 29 713 487 - (711) 518Operating profit/(loss)after goodwill amortisation (191) 708 (11) - (711) (205)------------------ ------ ------- ------- -------- -------- --------Net operating assets 39,514 11,923 30,132 (25) 313 81,857Group borrowings falling duewithin 1 year (4,735)Group borrowings falling due after more than one year (4,112)Deferred consideration (9,568)Provisions for liabilitiesand charges (5,361)------------------ ------ ------- ------- -------- -------- --------Net assets(restated) 58,081------------------ ------ ------- ------- -------- -------- -------- UK North America Germany Rest of the RSC Total12 months ended World30 June 2004 £'000 £'000 £'000 £'000 £'000 £'000Turnover by origin 84,677 36,365 23,390 32 1,778 146,242------------------ ------ -------- -------- -------- ------- --------Operating profit/(loss)before goodwill amortisation 1,869 1,026 1,181 (185) (1,291) 2,600Operating profit/(loss)after goodwill amortisation 1,554 1,015 522 (185) (1,291) 1,615------------------ ------ -------- -------- -------- ------- --------Net operating assets 42,775 9,564 17,557 (239) 599 70,256Group borrowings falling duewithin 1 year (6,475)Group borrowings falling dueafter more than one year (3,782)Deferred consideration -Provisions for liabilities and charges (3,843)------------------ ------ -------- -------- -------- ------- --------Net assets (restated) 56,156------------------ ------ -------- -------- -------- ------- -------- Notes to the accounts 1. This Interim Statement should be read in conjunction with the Report andAccounts for the year ended 30 June 2004. The Interim Statements for the sixmonths ended 31 December 2004 and 31 December 2003 respectively are neitheraudited nor reviewed. The abridged financial statements for the year ended 30June 2004 do not constitute statutory accounts within the meaning of section 240of the Companies Act 1985 and are an extract from the latest published accountswhich have been delivered to the Registrar of Companies and on which theauditors gave an unqualified audit report. 2.Taxation The tax charge of £183,000 for the period comprises foreign taxes payable onoverseas profits. 3.Earnings per share The calculations of basic earnings per ordinary share and diluted earnings perordinary share have been made in accordance with FRS14. The basic and diluted earnings per ordinary share have been calculated bydividing the profit attributable to ordinary shareholders of £2,246,000 (2003 -loss (restated) £2,737,000) by the weighted average number of shares in issue of49,898,222 (2003 - 49,718,134). The calculation of the average number of sharesin issue has been made having deducted the shares held by the Long TermIncentive Plan Trustee. The same basis has been used to calculate the basic anddiluted earnings per ordinary share before goodwill amortisation except that theprofit attributable to ordinary shareholders has been increased by goodwillamortisation of £502,000 (2003 - goodwill amortisation £723,000 and exceptionalredundancy costs of £1,701,000) to £2,748,000 (2003 - loss (restated) £313,000). 4.Restatement of comparative figures The same accounting policies are followed in this Interim Statement as in theReport & Accounts for the year ended 30 June 2004, except as noted below: (a) The implementation of Amendment to FRS 5 'Reporting the substance oftransactions': 'Revenue recognition' ('Application Note G') represents a changein accounting policy. Therefore the profit and loss and balance sheet for the2003 comparative figures have been restated resulting in turnover and operatingprofit being increased by £426,000, creditors falling due within one year beingincreased by £1,107,000, due to the deferral of software income, and reservesbeing reduced by the same amount. (b) At 31 December 2003 and 30 June 2004, bank loans and overdrafts in asubsidiary have been reclassified from creditors - amounts falling due aftermore than one year to creditors - amounts falling due within one year by£530,000 and £1,006,000 respectively. The Consolidated Cash Flow Statement hasbeen restated accordingly. (c) To provide a better understanding of the profit and turnover generated inthe businesses, the segmental analysis for the year to 30 June 2004 has beenrestated for goodwill and to reflect the turnover and profit generated by thestaff of those businesses. These accounts were approved by the Board of Directors on 21 February 2005. This announcement is being circulated to all shareholders of the Company, andcopies will be available to the public at the Company's Registered Office atBridge Works, Shoreham-by-Sea, West Sussex, BN43 5FG. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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