Ricardo to offload defence business

(Sharecast News) - Ricardo announced its intention to divest its defence business on Monday, as part of its broader strategy to focus on environmental and energy transition consulting.

The London-listed firm said the divestment would mark a step in its five-year plan, launched in May 2022, which aimed to position the company as a leader in strategic and engineering consultancy at the intersection of transport, energy, and global climate challenges.

It said its defence business, within its 'Established Mobility' portfolio, had recently performed strongly.

A significant $385m contract extension for the antilock brake system (ABS) awarded in September last year had boosted its financial performance, with deliveries expected to continue through September 2027.

Additionally, the defence unit was involved in a number of new pilot programs for the US Army, receiving initial funding for those initiatives.

Ricardo acknowledged that divesting the defence business could be dilutive to earnings per share in the short term.

However, the company said it was considering reinvestment options aligned with its strategy, including potential acquisitions in the environmental consulting sector, which would support its shift towards a higher-growth, higher-margin, and lower-capital intensive business model.

The group emphasised that there was no certainty around the completion of the divestment or any subsequent acquisitions.

"The proposed sale of the group's defence business will enhance Ricardo's focus on growing as a leader in environmental and energy transition markets, whilst allowing for defence to realise its full potential through new programme development, following the successful award of the ABS programme," said chief executive officer Graham Ritchie.

At 1041 BST, shares in Ricardo were up 1.99% at 427.35p.

Reporting by Josh White for Sharecast.com.