27th Feb 2006 07:01
Ricardo PLC27 February 2006 27 February 2006 Ricardo plc Interim results for the six months ended 31 December 2005 Ricardo plc is the leading UK independent automotive consultancy, employing over1,800 people. The company has centres in the UK, USA, Germany, Czech Republicand Asia and the client list includes the world's major automotive OEMs. HIGHLIGHTS • Profit before tax up 37% to £4.2m (H1 2005: £3.0m) • Turnover up 20% to £87.2m (H1 2005: 72.6m) • Order book continues to show growth, up 16% to £67m (H1 2005: £58m) • Earnings per share 7.4p (H1 2005: 5.6p) • Interim dividend maintained at 2.7p • Performance improvement driven by growth in Strategic Consulting, UK and US operations • Good start to second half, with growth in all major world-wide markets, particularly Asia, although the Automotive industry in Europe and US remains challenging Commenting on the results, Dave Shemmans, Chief Executive said: "I am pleased with this significant improvement in performance for the firsthalf. Strategic Consulting, and Ricardo's UK and US operations have doneespecially well, driven by increasing demand for our technology and strategicadvice. The work being done to broaden our customer base and add depth to ourproduct offering world-wide is also reaping rewards, in particular in Asia whereour offices in China and Japan are driving the level of demand from customers inthis region. "The second half trading has started well, apart from Germany. Order prospectsin the medium term, including those for Germany, continue to build. Although wehave not changed our outlook for the full year our confidence continues to grow." Further enquiries: Ricardo plcDave Shemmans, Chief Executive (today) Tel: 020 7554 1400Andrew Goodburn, Finance Director (thereafter) Tel: 01273 455611Website: www.ricardo.com Gavin Anderson & CompanyFergus Wylie / Charlotte Stone Tel: 020 7554 1400 Notes to Editors: Ricardo is a leading global provider of technology, engineering solutions andstrategic consulting to the world's automotive industries. It is headquarteredin the UK, with international offices in the US, Europe and Asia. It is listedon the London Stock Exchange ("RCDO.L"). The Group combines business, product and process strategy with fundamentaltechnical research and the implementation of large-scale new product developmentprogrammes to help its clients with business strategy and restructuring, processre-engineering, vehicle, electronics & software, engine, transmission anddriveline design, as well as more traditional engineering, testing and systemsintegration. Ricardo serves a wide and balanced customer base represented by the leadingglobal automakers, vehicle component and system manufacturers, and automotiveregulatory agencies. It also serves other sectors such as motorcycle, heavy-dutytruck, off-road and military vehicles, marine and locomotive propulsion systemmanufacturers, as well as leading teams in all forms of motorsport. INTERIM RESULTS AND DIVIDEND Our improvement in profitability continued as planned, concluding the first sixmonths with satisfactory results and a solid order book from a broader client,geographic and product base. However, large sections of the European and USautomotive industry continue to struggle to produce good results and thereforeour trading environment will continue to be challenging for the foreseeablefuture. Turnover for the six months to 31 December 2005 was £87.2m (2004: £72.6m) withthe increase driven by our Strategic Consulting Division, UK and US operations.Against this, our German operation, as predicted, has suffered in the periodagainst a weak market. Group profit before tax for the period was £4.2m (2004:£3.0m). Earnings per share increased to 7.4p compared to 5.6p in the prior year.There was a small cash generation in the period and net borrowings reduced to£8.4m. The order book is up 16% albeit with a higher material content. This is the first set of results presented under International FinancialReporting Standards and is consistent with the statement issued on 21 December2005. The interim dividend is maintained at 2.7p (2004: 2.7p) and will be paid on the21 April 2006 to all shareholders on the register at close of business on 24March 2006. BUSINESS OVERVIEW Overall our progress continues and we are seeing the benefits of the strategy tobroaden our geographic reach and client base. Asian clients are contributingstrongly, and the commercial vehicle and military sectors are bringing animproving balance to Ricardo's business. Controls and electronics continue to operate at full capacity, underpinned by agrowth in hybrid programmes, while diesel programmes continue to grow on theback of our low emissions research investments. Despite weaknesses in the German automotive sector and the continued challengesfacing some of the major global car manufacturers, we are pleased to see theGroup order book increase year on year, to £67m from £58m last year, with anequally pleasing increase in the pipeline of prospects. Strategic Consulting is continuing to develop well and delivered an excellentresult in the half year underpinned by three significant programmes in Asia andNorth America. It significantly grew its client base, turnover and profitabilitywith major activities in the key areas of quality and cost reduction, thusdelivering profitability improvements to clients. We continue to expand our Prague development centre in size and breadth and itnow covers mechanical, electronic and software capability providing alldivisions across the Group with a cost effective engineering resource. Our business focus and investments remain targeted on increasing the strengthand robustness of our client base and the delivery of higher value addedservices based on technology and innovation. UK Our UK business increased its turnover and profits on prior year with a betterbalance of engine, transmissions, vehicle and electronics activity thanpreviously. The engines business benefited from an increase in demand for dieseltechnology, driven by future emissions legislation and an increasing marketshare for diesel in both passenger car and commercial vehicle sectors. Gasoline engine activity remains low in Europe and continues to be driven by ourAsian clients as many look to establish their own family of products for bothdomestic and export markets. The transmissions business has returned to good levels of activity with somehigh profile new supercar programmes and an increased level of engineeringprogrammes from the commercial, passenger car and motorsport sectors. Ourresearch investments into dual clutch technology and safety related torquevectoring are gaining market interest with orders. The vehicle business has had a much improved period, driven by continuedactivity on established programmes supporting new product introductions plusincreasing activity from the commercial and military sectors. The control and electronics business continues to grow and is running at highlevels of capacity, underpinned by significant hybrid interest and pendingon-board diagnostics and emissions legislation across the globe. We see demandfor professional services in this area continuing to grow in the future. We willinvest accordingly to support this key strategic technology, which is at thevery heart of future automotive engineering. USA Despite the much publicised difficulties of the North American car industry, ourUS operation has delivered increased turnover and profits during the period onthe back of orders from a broader client base in the passenger car, commercialand military segments. We continue to support the major passenger car OEMs withengine development, localisation and cost reduction programmes. Our commercialvehicle engines activities are performing strongly, ahead of pending USemissions legislation. The need for new truck models to meet this legislation isdriving high utilisation in our new heavy duty test bed centre in Chicago inparticular. As in the wider global marketplace, we are also seeing increasedelectronics, hybrid, diesel and transmissions activity in North America. We have restructured our global software business to report into the US and weare pleased to see the lead product "Wave", performing strongly in the marketand the business as a whole contributing well. GERMANY As anticipated, the weakness in the German automotive industry has impactedthose serving the marketplace, including Ricardo, leading to a small loss in theperiod. While the exhaust business held up well in the first half, theengineering side of the business, which has formerly been of a less value addednature than the rest of Ricardo's business and targeted at fewer customers, hassuffered as clients look to control budgets. Our investments in people over the past six months and the new heavy duty testcells will increase the level of value added capability, expand the client basewhen the market begins to recover and create a more client focussed organisationin line with the rest of the Group. We are already seeing the initial results ofthese investments in terms of test bed commitment and increased leads from abroader client base including the commercial vehicle sector. We remain cautiousof the outlook until the German industry returns to more buoyant levels. ASIA As previously announced we have opened offices in Tokyo and Shanghai in the pastyear which operate as the front line access to our increasingly important andgrowing Asian client base, now some 30% of our business. The work secured in theAsian regions (including Japan, China, India, Korea and Malaysia) is primarilyfed back to the UK operations but as our Asian customers increasingly haveglobal operations, this will positively impact the US, Prague and Germanoperations. We continue to expand our capability and staff in the region as we see Asiancustomers providing stability against the difficulties of some US and Europeanmanufacturers, and generating long term growth potential based around technologyand innovation. Our focus in these regions is to develop long-term relationships with the primeclients, as evidenced by the Shanghai Automotive programme, which continues todevelop well in the UK and China. STRATEGIC CONSULTING Our Strategic Consulting operation has made an excellent start to the year withincreased turnover, profits and client base. Our work has now evolvedsignificantly from Ricardo's historic automotive practices in terms of thenature of programmes. We continue to secure programmes against more traditionalconsultancy market leaders. The offering of automotive-specific 'deep content' management consultancy,continues to be well received by clients and contributes well to the Groupresults. Product cost down and quality improvement remain the core activities byvolume, however business restructuring and turnaround advisory services are alsoin demand. Geographically our highly mobile teams are now operating on anincreasingly global basis with customers mainly from the passenger car andcommercial vehicle sectors. Moreover the consulting business has passed throughsignificant levels of engineering business in the year to the rest of the Group. RESEARCH & DEVELOPMENT Ricardo continues to apply its intellectual capital and investment inforecasting, validating and delivering technology and innovation to solve theautomotive industry's key issues. Our proven and industry validated technologyroadmapping process forecasts future products and technologies against thebackdrop of legislation and industry trends, and enables us to target ourinvestments and guide our clients. This process over the past years has enabledus to highlight technologies for hybrids, low emission diesels, next generationtransmissions and active safety as key future directions. During the period our client funded activities increased in all these key areasacross the Group as we move through to the exploitation phase of ourdemonstrators. Moreover we have also increased our focus on leveraging ourinternal research funds by obtaining matching funds from clients and governmentbodies, which increases our R&D output without additional expenditure. Wecontinue to develop the next generation diesel technology for commercialvehicles and passenger cars, future hybrid vehicle technology, fuel efficientand high performance downsized gasoline engines exploiting 2stroke/4strokeswitching concepts, drive-by-wire for active safety and advanced torquevectoring transmissions for improved safety and handling. Together with thesemajor technology advances we are also developing software tools and processes toreduce product development cost and timescales while increasing quality throughimproved validation and simulation. PEOPLE There have been a number of management changes implemented during the period tostrengthen the operations in Germany, Japan and the UK, bolster programmedelivery and move towards a more co-ordinated group operation where we canmaximise the resources across the group, improve quality and avoid duplication.These changes have brought on the best of the internal talent and also attractedexternal expertise where necessary. The management team has been strengthenedwith the external recruitment of a president for our Japanese operation and anew business development director for the UK. Both of these roles have beenfilled with experienced automotive industry people who have spent a major partof their career with blue chip management consultants. In addition we havestrengthened the technical leadership with recruitment of a new head of vehicleengineering and head of heavy duty engines. We look forward to theircontribution. Andrew Goodburn, who has been Group Finance Director since 1997, reaches the ageof 60 next January and has indicated his wish to retire from the Board earlynext year. A process to identify his successor has started. OUTLOOK The first half year progressed in line with management expectations, albeitagainst a more challenging European market than anticipated. This solidperformance emphasises the value of our increasing geographic and customerspread. The outlook for the global automotive market remains mixed withcontinuing strong activity in Asia offset by a subdued Europe and the wellpublicised problems of the US car industry. The second half trading has started well, apart from Germany. Order prospects inthe medium term, including those for Germany continue to build. Although we havenot changed our outlook for the full year our confidence continues to grow. Dave ShemmansChief Executive27th February 2006 CONSOLIDATED INCOME STATEMENTfor the six months ended 31 December 2005 (unaudited) Six months Six months Year ended ended ended 31 December 31 December 30 June 2005 2004 2005 Restated* Restated*All from continuing activities Notes £'000 £'000 £'000------------------------------------------------------------------------------------------------ Revenue 3 87,206 72,584 159,920 Cost of sales (63,292) (50,520) (113,241)------------------------------------------------------------------------------------------------Gross profit 23,914 22,064 46,679 Administrative expenses (19,006) (18,070) (36,611)------------------------------------------------------------------------------------------------Operating profit 3 4,908 3,994 10,068 Finance income 890 387 774Finance costs (1,646) (1,351) (2,605)------------------------------------------------------------------------------------------------Profit before taxation 4 4,152 3,030 8,237 Taxation (442) (226) (992)------------------------------------------------------------------------------------------------Profit for the period 3,710 2,804 7,245================================================================================================ Profit attributable to minority interest 25 25 82Profit attributable to equity shareholders 3,685 2,779 7,163 ------------------------------------------------------------------------------------------------ 3,710 2,804 7,245================================================================================================ Earnings per share 5 Basic 7.4p 5.6p 14.3pDiluted 7.3p 5.6p 14.3p------------------------------------------------------------------------------------------------ The ordinary dividend for the period is stated in note 2. CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEfor the six months ended 31 December 2005 (unaudited) Six months Six months Year ended ended ended 31 December 31 December 30 June 2005 2004 2005 Restated* Restated* £'000 £'000 £'000-----------------------------------------------------------------------------------------------Profit for the period 3,710 2,804 7,245 Actuarial gains / (losses) on the defined benefit pension scheme 440 (4,977) (7,892)Tax on items taken directly to equity (132) 1,493 2,367-----------------------------------------------------------------------------------------------Net gains / (losses) not recognised inthe income statement 308 (3,484) (5,525)-----------------------------------------------------------------------------------------------Total recognised income / (expense) forthe period 4,018 (680) 1,720===============================================================================================Attributable to minority interest 25 25 82Attributable to equity shareholders 3,993 (705) 1,638----------------------------------------------------------------------------------------------- * As restated for the adoption of International Financial Reporting Standards - see note 1 CONSOLIDATED BALANCE SHEETas at 31 December 2005 (unaudited) 31 December 31 December 30 June 2005 2004 2005 Restated* Restated* £'000 £'000 £'000----------------------------------------------------------------------------------------Assets Non current assets Goodwill 15,860 16,857 15,637 Other Intangible assets 1,185 699 1,126 Property, plant and equipment 45,259 48,296 46,746 Deferred tax assets 10,570 9,828 11,268---------------------------------------------------------------------------------------- 72,874 75,680 74,777----------------------------------------------------------------------------------------Current assets Inventories 7,667 7,786 6,918 Trade and other receivables 50,429 39,031 43,138 Current tax assets 268 2,060 1,603 Cash and cash equivalents 11,850 6,363 8,815---------------------------------------------------------------------------------------- 70,214 55,240 60,474----------------------------------------------------------------------------------------Liabilities Current liabilities Bank overdrafts and loans (2,596) (19,235) (1,536) Trade and other payables (42,794) (34,548) (35,472) Current tax liabilities (3,493) (3,777) (4,866) Short term provisions (129) (221) (391)---------------------------------------------------------------------------------------- (49,012) (57,781) (42,265)----------------------------------------------------------------------------------------- Net current assets / (liabilities) 21,202 (2,541) 18,209----------------------------------------------------------------------------------------Non current liabilities Bank loans (17,635) (2,903) (18,531) Retirement benefit obligations (34,165) (32,075) (34,710) Deferred tax liabilities (2,473) (2,698) (2,883) Long term provisions (650) (660) (124)----------------------------------------------------------------------------------------- (54,923) (38,336) (56,248)-----------------------------------------------------------------------------------------Net assets 39,153 34,803 36,738======================================================================================== Shareholders' equity Ordinary shares 12,617 12,477 12,504Share premium 12,932 12,085 12,201Other reserves 1,946 549 1,256Retained earnings 11,123 9,195 10,283 -----------------------------------------------------------------------------------------Total shareholders' equity 38,618 34,306 36,244 Minority interest in equity 535 497 494----------------------------------------------------------------------------------------Total equity 39,153 34,803 36,738======================================================================================== These accounts were approved by the Board of Directors on 27 February 2006. * As restated for the adoption of International Financial Reporting Standards -see note 1 CONSOLIDATED CASH FLOW STATEMENTfor the six months ended 31 December 2005 (unaudited) Six months Six months Year ended ended ended 31 December 31 December 30 June 2005 2004 2005 Restated* Restated* £'000 £'000 £'000-------------------------------------------------------------------------------------------------- Cash flows from operating activities Cash generated from operations (note 6) 8,671 1,816 11,209 Interest received 890 387 774 Interest paid (1,646) (1,394) (2,684) Tax (paid)/refunded (451) 702 271--------------------------------------------------------------------------------------------------Net cash from operating activities 7,464 1,511 9,570--------------------------------------------------------------------------------------------------Cash flows from investing activities Proceeds of sale of property, plant and equipment 71 2 158 Purchases of non current assets (2,849) (2,904) (6,264)--------------------------------------------------------------------------------------------------Net cash used in investing activities (2,778) (2,902) (6,106)--------------------------------------------------------------------------------------------------Cash flows from financing activities Net proceeds from issue of ordinary share capital 844 12 155 Own shares redeemed - - 99 Net proceeds from issue of new bank loan 269 2,553 13,855 Repayment of borrowings (162) (1,049) (14,526) Dividends paid to shareholders (3,153) (3,146) (4,493) Dividends paid to minority interests - - (85) --------------------------------------------------------------------------------------------------Net cash used in financing activities (2,202) (1,630) (4,995)--------------------------------------------------------------------------------------------------Effects of exchange rate changes 570 (1,840) (258)--------------------------------------------------------------------------------------------------Net increase / (decrease) in cash andcash equivalents 3,054 (4,861) (1,789) Cash and cash equivalents at beginning of period** 8,784 10,573 10,573--------------------------------------------------------------------------------------------------Cash and cash equivalents at end of period** 11,838 5,712 8,784-------------------------------------------------------------------------------------------------- * As restated for the adoption of International Financial Reporting Standards - see note 1 ** Net of bank overdrafts NOTES TO THE INTERIM ACCOUNTSfor the six months ended 31 December 2005 (unaudited) 1. Basis of preparation As a UK Listed company Ricardo plc has been required to adopt InternationalFinancial Reporting Standards ("IFRS") with effect from 1 July 2005. The resultsfor the six months ended 31 December 2005 represent the group's first interimfinancial statements prepared in accordance with its accounting policies underIFRS. The group's first IFRS Annual Report and Accounts will be for the yearending 30 June 2006. Previously the group reported using UK generally acceptedaccounting principles ("UK GAAP"). Detailed UK GAAP to IFRS reconciliations ofequity for the date of transition (1 July 2004), 31 December 2004 and 30 June2005, and of profit and recognised income and expense for the six months ended31 December 2004 and the year ended 30 June 2005 were issued on 21 December 2005and are available by using the link on the home page of the group's website atwww.ricardo.com. These interim financial statements have been prepared by the group in accordancewith the disclosure requirements of the Listing Rules and using those reportingstandards it expects to be endorsed and applicable when the accounts areprepared for the year ending 30 June 2006. IFRS is currently being applied inthe UK and in a large number of other countries almost simultaneously for thefirst time, and practice is continuing to evolve. Therefore, at this preliminarystage, the full financial effect of reporting under IFRS as it will be appliedand reported on in the group's first full IFRS financial statements for the yearending 30 June 2006 may be subject to change. The financial information herein does not amount to full statutory accountswithin the meaning of Section 240 of the Companies Act 1985 (as amended). Thefigures for the year to 30 June 2005 and at 31 December 2004 have been extractedfrom the IFRS restatements issued on 21 December 2005 which were themselvesbased on the Annual Report and Accounts 2005 which has been filed with theRegistrar of Companies and on which the auditors gave an unqualified auditreport and did not include a statement under section 237(2) or (3) of theCompanies Act 1985. 2. Ordinary Dividends Six months Six months Six months Six months ended ended ended ended 31 December 31 December 31 December 31 December 2005 2004 2005 2004 pence/share pence/share £'000 £'000----------------------------------------------------------------------------------------------Amounts distributed in the period 6.3p 6.3p 3,153 3,146 Proposed interim dividend 2.7p 2.7p 1,362 1,354---------------------------------------------------------------------------------------------- 3. Segmental reporting (a) by business segment, with revenue reflecting sales to external customers -------------------- -------------- ----------- Engineering and Strategic Total Technology Consulting Services ------------------- -------------- ----------- £'000 £'000 £'0006 months ended 31 December 2005Revenue 76,959 10,247 87,206Operating result 3,465 1,443 4,908----------------------------------------------------------------------------------------------6 months ended 31 December 2004Restated*Revenue 68,757 3,827 72,584Operating result 3,850 144 3,994----------------------------------------------------------------------------------------------Year ended 30 June 2005Restated*Revenue 148,517 11,403 159,920Operating result 8,556 1,512 10,068---------------------------------------------------------------------------------------------- (b) by operating unit reflecting the revenue and profit generated by the staffin those businesses Engineering and Technology Services Strategic Total Consulting North Rest of UK America Germany the World Total £'000 £'000 £'000 £'000 £'000 £'000 £'000-----------------------------------------------------------------------------------------------------6 months ended31 December 2005Revenue 45,668 20,476 12,425 276 78,845 8,361 87,206Operating result 2,913 1,202 (184) (466) 3,465 1,443 4,908-----------------------------------------------------------------------------------------------------6 months ended31 December 2004Restated*Revenue 38,513 16,132 14,885 239 69,769 2,815 72,584Operating result 2,390 753 793 (86) 3,850 144 3,994----------------------------------------------------------------------------------------------------- Year ended30 June 2005Restated*Revenue 86,984 34,086 29,660 249 150,979 8,941 159,920Operating result 5,471 1,977 1,626 (518) 8,556 1,512 10,068----------------------------------------------------------------------------------------------------- * As restated for the adoption of International Financial Reporting Standards -see note 1 4. Taxation Six months Six months Year ended ended ended 31 December 31 December 30 June 2005 2004 2005 Restated* Restated* £'000 £'000 £'000--------------------------------------------------------------------------------------------- UK (74) (167) (704)Overseas 516 393 1,696---------------------------------------------------------------------------------------------Tax charge on profit 442 226 992============================================================================================= 5. Earnings per share Basic earnings per share is calculated by dividing the profit attributable toequity shareholders of £3,685,000 (31 December 2004: £2,779,000; 30 June 2005:£7,163,000) by the weighted average number of shares in issue of 50,089,893 (31December 2004: 49,898,222; 30 June 2005: 49,937,985), after deducting the sharesheld by the Long Term Incentive Plan ("LTIP") Trustee. For diluted earnings pershare, the weighted average number of shares in issue is adjusted for theeffects of dilutive options and LTIP awards, and is accordingly 50,483,695 (31December 2004: 50,022,008; 30 June 2005: 50,201,985). 6. Cash generated from operations Six months Six months Year ended ended ended 31 December 31 December 30 June 2005 2004 2005 Restated* Restated* £'000 £'000 £'000------------------------------------------------------------------------------------------------ Continuing operations Profit from operations 4,908 3,994 10,068 Adjustments for: Share-based payments 118 9 118 Depreciation 4,661 4,605 9,298 (Profit)/loss on disposal of property, plant and equipment (4) (1) 5------------------------------------------------------------------------------------------------ Operating cash flows before movements in working capital 9,683 8,607 19,489 (Increase)/decrease in inventory (688) (1,501) (604)(Increase)/decrease in trade and otherreceivables (7,201) (5,806) (10,173)Increase/(decrease) in payables 6,718 158 2,909 Increase/(decrease) in provisions 264 556 66 Increase/(decrease) in pension obligation (105) (198) (478) --------------------------------------------------------------------------------------------------- Cash generated from operations 8,671 1,816 11,209================================================================================================ * As restated for the adoption of International Financial Reporting Standards -see note 1 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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