Ricardo Regulatory News (RCDO)

17 Sep 2007 07:01

Ricardo PLC17 September 2007 17th September 2007 Ricardo plc Preliminary results for the Full Year ended 30 June 2007 Ricardo plc is the leading UK independent automotive consultancy, employing over1,600 people worldwide. The company has centres in the UK, USA, Germany, CzechRepublic and Asia, and has a client list that includes the world's leadingautomotive OEMs. Highlights • Continued improvement in business mix and operational efficiency resulting in increased underlying operating margin • Revenue level at £171.5m (June 2006: £171.9m) - strong growth in the UK business driven by increased Technical Consulting content from Asia and Germany, offset by expected reduction in Strategic Consulting and the slow start in the US in the first half • Underlying profit before tax up 13% to £12.2m after US management change costs of £0.4m (June 2006: £10.8m, excluding a £3.7m pensions credit) • Profit before tax £12.2m (June 2006: £14.5m) • Order book up 28% to £92m (June 2006: £72m) • Basic earnings per share up 23% to 29.6p (June 2006: 24.0p, underlying 18.8p) significantly benefiting from retrospective R&D tax allowances resulting in an overall tax credit • Full year dividend (paid and proposed) increased by 6.4% to 10.0p (June 2006: 9.4p) • The broader geographical, sector and client base combined with additions to the senior management team, positions the business for further growth in the current year Commenting on the results, Dave Shemmans, Chief Executive Officer said: "This year Ricardo finished with a strong order book, increased managementstrength and an exciting pipeline of technology. Trading performance was in linewith expectations despite restructuring costs in the US and weaker performancein our US and Strategic Consulting operations overall. Our strategy to broadenthe business mix and concentrate on margins, for the work that we undertake hasresulted in continued development of the profitability of the business. "The global automotive industry is active with new product offensives driven bystringent emissions legislation, desire to improve fuel economy and the need toreduce CO2 emissions. Ricardo is benefiting by having the strategy, technologyand presence to exploit these growing demands and global industry drivers. "We have had a satisfactory start to the new financial year, benefiting from thestrong order book and continued good order intake. The continuing delivery ofour strategy to increase geographic, customer and sector spread, together withthe implementation of a US business improvement plan, gives us confidence forcontinued progress in the new financial year." Further enquiries: Ricardo plcDave Shemmans, Chief Executive Tel: 01273 455611Paula Bell, Group Finance DirectorWebsite: www.ricardo.com Gavin Anderson & Company Tel: 020 7554 1400Fergus WylieMichael Turner Review of the Year Trading Performance Delivering against our strategic objectives which include broadening ourcustomer and geographic reach has resulted in continued profit growth, improvedmargins and a strong closing order book at £92m, which was up 28% on last year.The content of the order book now includes orders spanning more than 12 monthsunderpinning longer term business growth. Revenue for the financial year to 30 June 2007 was level at £171.5m (2006:£171.9m). Strong business growth in the UK was offset by an expected revenuereduction for Strategic Consulting as a result of the completion of three majorcontracts in the previous year, and a slower start to the year in the USbusiness. Underlying operating profit increased to £13.2m (2006: £12.1mexcluding the pensions credit of £3.7m), representing a 7.7% operating margin onrevenue (2006: 7.0%). This increase was underpinned by a trend of improvedbusiness mix and efficiency in the UK. Underlying Group profit before tax was £12.2m, which was 13% up on last year(2006: £10.8m). Tax Ricardo has been claiming UK R&D tax credits since they were introduced in 2002.As we highlighted at the half year, we have examined the basis for calculatingthe UK R&D claim resulting in increased claims for 2004 to 2006. In addition, weundertook a major project to prepare an R&D tax claim in respect of our USbusiness. This claim covers the period 2000 to 2006. This has resulted in anoverall tax credit for the financial year. Excluding these significant benefitsof £5.2m from our tax charge this year, and a related small impact last year of£0.7m, the tax charge is normalised at 19%, compared to 18% for the prior year. Earnings per share The basic earnings per share has significantly benefited from the overall taxcredit this financial year and has increased to 29.6p (2006: 24.0p, 18.8pexcluding the pensions credit). However, we do not expect to benefit to the sameextent in future periods from significant retrospective R&D tax allowances,which will therefore impact on the future earnings per share comparisons. Dividend We are proposing to increase the total dividend (paid and proposed) to 10.0p perordinary share (2006: 9.4p) following a year of further earnings growth. Thedividend cover will be almost three times. The proposed final dividend of 7.1p,(2006: 6.7p) will be paid on 23 November 2007 to all shareholders on theregister at the close of business on 26 October 2007, subject to approval at theAnnual General Meeting on 9 November 2007. Net Assets Net assets at 30 June 2007 were £61.7m, compared with £50.1m a year earlier.This increase is primarily driven by ordinary trading, the reduction in ourpension deficit and reduction in our tax liabilities resulting from R&Dallowances. Capital expenditure in the year was £9.5m, which included £4.1m to upgrade testcells to satisfy the increasing demand to meet new emissions legislation. As alease expired at one of our German properties we chose to acquire the buildingfor £1.2m as a more cost effective option. The balance of the capitalexpenditure was necessary to maintain our facilities and keep our informationtechnology systems up to date. At the year end our capital commitments totalled£0.5m. Work is under way to upgrade our office buildings at Shoreham-by-Sea some ofwhich have become rather dated. Our capital expenditure is likely to increasemarginally as a result, as we continue to invest in our test and IT softwaresystems to support our growth agenda. Working Capital We continuously manage and monitor the level and quality of debts and work inprogress as we deliver our customer diversification strategy. In the full year,working capital grew by £3.9m reflecting our growing order book which hasincreasing content from Asia where client's payments tend to be slower. The netdebt balance has more than halved since the half year, to £7.2m, whichrepresents only a small increase since June 2006 of £1.4m. Pensions The deficit in our defined benefit pension scheme as measured in accordance withIAS 19 Employee Benefits, reduced from £23.6m to £16.7m due mainly to a betterthan anticipated return from the equity investments in the fund, an improvedbond yield and additional cash payments into the fund. The reduction was despitethe adverse impact of assuming current mortality factors. We continue with our 9year plan to substantially eliminate the deficit by making additional cashpayments. Technical Consulting UK Our UK business, which includes engine, transmission, electronic and vehicleengineering, increased its order intake, order book, revenue and profits againstthe prior year. The area showing the strongest growth was the engines andtransmission businesses, driven by activity from European and Asian clients. Inresponse, we have increased the size and capacity of our engineering teams inthe UK and the Czech Republic engineering centre which supports it. The engines business benefited from an increase in demand for advanced dieseltechnology in both the commercial and passenger car sectors, driven heavily bythree principal factors: pending emissions legislation, the global drive forfuel economy and the emergence of the US as a new market for diesel passengercars. The commercial vehicle sector was also strong in our Asian markets,particularly India, driven by legislation and fuel economy improvements. We havealso entered the Russian market and secured two good size programmes in thediesel engineering sector and see more opportunities in this developing market. The gasoline engine business continued to benefit from our reputation and trackrecord for on-time, production-ready, high quality delivery capability, withbusiness in passenger car, motorcycle and power generation markets. The controls & electronics business has continued to grow and is underpinned byinterest in hybrid vehicles and pending global legislation in the areas ofon-board diagnostics and emissions. Control and Electronics is central to thedelivery of low-emissions, fuel-economic engine and transmission technologyaimed at meeting worldwide legislative and consumer demands. We continue to seegrowth in this area with sustained recruitment of skilled control andelectronics engineers in the UK and the Czech Republic remaining a key priority. The transmissions business continues to enjoy success on a global basis, withsustained growth in the demand for advanced, fuel-efficient andperformance-enhancing technologies. The portfolio of projects continues toexpand across a wider range of sectors and now includes off-highway, militaryand commercial vehicle applications in addition to the traditional automotiveproducts. Research investment remains focused on advanced dual clutch technologyand advanced safety performance utilising torque vectoring, a technique whichincreases driving performance and safety by sharing torque between the fourwheels in real time. The motorsport transmissions business has grown itscustomer base with successful programmes in Formula 1 and World Rally Car, andhas made a significant impact in the Japanese motorsport market. The businesscontinues to build and supply Bugatti transmissions. The vehicle engineering business has benefited from growth in the militarysector, with the traditional mainstream activities enjoying the growing andrapidly expanding Asian market. During the year the vehicle engineering businesshas increased its emphasis on providing military vehicle system solutions inresponse to the significant growth in this sector. Following a very successful 20-month period from start-up to the successfulmarket introduction of vehicle and engine product in China under the Roewebrand, the planned sale of Ricardo 2010 was successfully completed on 10 May2007. With Ricardo support Shanghai Automotive Industry Corporation (SAIC) has,in a remarkably short period of time, established a UK technical centre of some250 engineers, situated at our Midlands facility. In parallel, it has developedand introduced high quality products into the Chinese market. Ricardo'srelationship with SAIC is still flourishing, with continued outsourced businessand strategic advice. US (including Ricardo Software) Our US operation was profitable but underperformed in relation to ouraspirations. This was mainly due to a slow start to the year as a result of apoor opening order book. However, major efforts were put into place toreorganise the business to make it more customer focused, more entrepreneurialand better aligned with the organisational structure of the rest of the Group.This has led to an improved second half of the year and a stronger year-endorder book. Towards the end of the year, we implemented a key part of therestructuring - the recruitment of Dean Harlow as the new President of our USbusiness, with a clear focus on innovation-led, value-added growth. Furtherbusiness improvements are currently being implemented. Dean Harlow is anexperienced, entrepreneurial business leader with a proven track record ofinternational business development in the automotive sector. Energy security and climate change have now taken centre stage in the US debate,providing opportunities for Ricardo to leverage its core competencies. PresidentBush's "20 in 10" initiative, a 20 per cent reduction in gasoline consumptionover 10 years, is providing a new impetus for growth and diversification. Wehave seen a significant growth in our US diesel business for US automotivepassenger car markets. In addition, we are seeing good opportunities in thesmall engine sector and in new markets such as alternative fuels and theelectrification of the vehicle - including hybrids, plug-in hybrids and electricvehicles. The controls & electronics business is rapidly expanding in the USwith order intake doubling in the year and we continue to recruit aggressively.This development is due to increased electronics content in vehicles, morecomplex and more efficient powertrains and the expansion into vehicle safetyimprovements. Military spending in the US market remains at record levels, with keyinitiatives to advance the technology and fuel economy of tactical and supportvehicles. We continue to align our operations with military initiatives in aneffort to increase Ricardo's presence and ultimately our market share. Ricardo Software, one of our smaller operations, which develops andcommercialises leading-edge engineering software for the automotive industry,had a very good year, delivering higher levels of revenue and profit growth thanpreviously. These software products reduce time to market while improving designrobustness through accurate and validated simulation. Germany Our operation in Germany continues its turnaround into profitability whilemaintaining its investment in growth through increasing engineering facilitycapability and the recruitment of further high quality engineers. Our orderbook, prospects list and client base continue to grow and develop, withopportunities increasing in size and breadth to match our growing capabilitiesand high value-added services. We continue to invest in people, facilities andthe latest tools and techniques to increase the pace of growth, especially insome key product areas such as controls & electronics, light duty diesel,vehicle engineering and transmissions development. Our more established productareas of commercial vehicle diesel, production/prototyping, gasoline engineeringand testing all continued to perform well in the year as we cement ourreputation in the German market and start to capture market share. Theengineering organisation is now aligned with the group structure and we areachieving good levels of programme sharing and joint delivery with otherdivisions, which improves efficiency and delivery to the demanding German clientbase. During the year we have significantly broadened our penetration into the Germanmotor industry, with a growing client base within the premium OEMs and Tier 1players in all automotive industry sectors (motorcycle, off-highway, commercialvehicle, marine and passenger car). We are now a well recognised and acceptedpart of the high-end engineering services sector, increasingly bidding for, andwinning, complete turnkey multi-million Euro projects. Asia Japan: Business for Technical Consulting from the globally important andsuccessful Japanese client base continues to grow as a result of our increasedpresence through our Japanese office. In the year we have secured sizeableturnkey outsourced programmes from highly demanding clients as they move to amodel of increased outsourcing. In a market which is led by relationship,innovation and delivery, it is pleasing to see that investments over many yearsin terms of technology and local presence have built us a good platform fromwhich to exploit this significant move. Transmissions, diesel and electronics were particularly successful areas thisyear, with order intake tripling compared to the orders we saw last fiscal year.To further increase our support to the clients we have relocated our Japaneseoffice to gain better access to our customers' R&D facilities and to improve ourservice levels. The core of the work was conducted in the UK and US. China: In the year we have transitioned from a sales to an engineering officeand have moved into larger premises as we recruit local engineering talent. Thetechnical centre in Shanghai has been well received by clients and we are nowdelivering engineering services from this WOFE (Wholly Owned ForeignEnterprise). In addition to the Chinese domestic brand companies we are nowdemonstrating the benefit of our presence to our established Western customersas they look to engineer systems either for China or with their Chinesepartners. Several new companies have joined the Ricardo client base this year,yet we are also seeing high levels of follow on business from existingcustomers, seeking to become truly world class by accessing leading-edgetechnology and realise the value that Ricardo offers. Gasoline engineering andhybrid technology remain key activities in China; however, we have also addedvehicle and transmissions programmes to the portfolio. India: We have increased our business levels and presence on the ground and willbe formally opening an office in November 2007. Strategic Consulting Following two years of very rapid growth, as anticipated, the year startedslowly as we successfully completed and ramped down major projects from theprior year and focused on building more diversified business streams. As aresult, a number of new high quality clients were added to our customerportfolio whilst our work in support of our existing clients continued. Ourservices for business strategy, acquisition support, business turnaround andbusiness performance improvement continue to be valued and in demand byinvestors, vehicle manufacturers and suppliers. We have extended our client base in both diversity and geographic reach, addingmajor commercial vehicle manufacturers in Europe and Asia as well as off-highwaymanufacturers and suppliers in North America. In the year we have undertaken ourfirst strategic projects for clients in China and Korea whilst adding additionalclients to our customer portfolio in the expanding market in India. As the ownership structure of the automotive industry changes particularly inthe supply base, our strategy consultants have become very active in providingconsulting services to companies and institutional investors in Europe and NorthAmerica both pre and post acquisition. Our deep knowledge of the industry makesus an ideal partner for evaluation of companies and improving their businessespost acquisition. In addition our activity in support of Asian investors lookingtowards growth in more mature markets continues to increase. We continue to invest in our service offerings to ensure that we remain at theforefront of thought leadership in the industry and have the solutions toaddress some of the industry's most critical issues. As a result, our serviceofferings have now been extended to fuels and oils companies together withestablished companies as well as new investors looking at the impacts of newenergy on the industry. We see this interest as a growing driver of new activityin the sector. The offering of deep-content management consultancy focused upon deliveringtangible results is well received and valued by our clients and remains unique.We continue to take business from the more traditional management consultingfirms and this, together with the diversification of our clients and serviceofferings, will generate growing demand. Research and Development Research planning is a key element in Ricardo business strategy. A sophisticatedprocess is used to guide and analyse internal investments to create added-valuetechnologies with clear benefits. This process has proved popular with ourcustomers, creating a premium service that can support research and productroadmap planning. The key global driver for the majority of Ricardo research has been the demandfor lower carbon emissions; a demand which directly translates into improvedfuel efficiency. The European Commission has recently announced plans to mandatelower fleet average fuel consumption from passenger cars sold in member states.A similar pattern is emerging in the United States, where the government is alsonow proposing a more regulated approach to lower fuel consumption in roadtransport. Japan, too, has set targets for improved fuel economy by 2010 and hasalso been the first to introduce fuel economy legislation for heavy-dutyvehicles. Another key driver that has been growing in priority for a number of years hasbeen safety and security. Around 30-40,000 people are killed in road trafficaccidents in both Europe and the US every year. Even more fatalities occur indeveloping countries such as China and India. There is no simple solution toimproved safety: however, an integrated approach to driver training, road designand vehicle technology is emerging as the most likely approach to deliver realimprovements. This has driven a need for so-called smart vehicles that caninteract more intelligently with the driver and surrounding infrastructure andtraffic, reducing travel times caused by congestion and also reducing the riskof collisions. Most internally funded research at Ricardo now attracts collaborative supportfrom automotive customers and sometimes involves additional government grantfunding from the United States, Europe or the UK. The combined R&D programme atRicardo is organised into a portfolio of Technology Platforms. These platformsalign with key product areas and allow a more integrated approach. They havedelivered some excellent results during the past year: • Following on from initial single-cylinder tests, our low-NOx heavy duty diesel engine programme has now delivered emissions from a prototype multi-cylinder engine consistent with the Euro 6 requirements scheduled for 2013, using a very advanced, flexible fuel injection system. • Our programme to develop an advanced light duty diesel combustion system compatible with the Tier 2 emissions requirements in the US has also made very good progress and has now been implemented in a driveable vehicle. This combines an innovative gas exchange system and advanced combustion and after treatment systems to deliver the minimum-cost solution for US Tier 2 standards. This programme has proved to be a key factor in developing customer programmes in this field. • Our fuel-efficient gasoline programme includes a switching 2-stroke to 4-stroke boosted gasoline engine targeting a 25 per cent improvement in vehicle fuel consumption. This has been implemented in a 2-litre V6 configuration with a camless, Ricardo-designed electro-hydraulic valve actuation system and specially modified engine management hardware. A collaborative programme with Robert Bosch in the United States has also delivered a downsized boosted twin-turbocharged direct injection V6 engine installed in a Cadillac CTS. This has delivered a 10 per cent improvement in fuel economy compared with a conventional powertrain. • Our process to production platform includes a programme to create a virtual engineering tool set for low-emissions diesel vehicles. This collaborative programme has enabled the release of the first version of software that links analysis process together into a more seamless system. The first release of our engine simulation model that can run in real time as an engine controller has also been completed. • The first year of our collaborative European-funded programme to support planning of future hydrogen communities has also been completed. This has included analysis of hydrogen and fuel cell research drivers and funding sources in collaboration with the European Investment Bank. • Our integrated safety platform has delivered a new active torque vectoring unit, varying the torque from left to right rear wheels under electronic control in an Audi A6 demonstration vehicle. This patented technology has been very successfully demonstrated to customers and has created very good opportunities for Ricardo in this market. People With the prime purpose of supporting Ricardo's strategic goals over the next fewyears, a number of senior management changes occurred in the last year.Decisions are taken on the basis of continually reviewing the quality ofexisting management and making changes where improvement is necessary, where newskills are required or when increasing resource is necessary through growth.Internal development is the preferred route to appointments: externalappointments are only made where there is a lack of suitable internalcandidates. Paula Bell joined Ricardo in October 2006, took up her appointment as GroupFinance Director in November 2006 and has strengthened the finance function witha number of external Finance Director appointments to support UK divisions,Germany and Asia. In the USA it was felt necessary to make a change in leadership to furtherenhance its business development focus. Dean Harlow was appointed externally inMay 2007 to replace Jeremy Holt, who left the company at the same time. To reinforce the significance of IT to Ricardo's strategy, a new Group ITDirector, Manvinder Singh, was appointed externally in May. Malcolm Greenslade,Group HR Director, will be retiring in September 2007 and Sarah Murphy joined inAugust as his replacement. To provide greater co-ordination of Ricardo's GlobalProduct Groups, Mark Garrett was appointed Group Engineering and ProductsDirector after successfully managing the Ricardo 2010 project. In Germany, Detlev Baudach, who had been Managing Director for seven years,resigned for personal reasons and to take up another appointment; he has beenreplaced by Dr Peter Heuser, who has successfully grown our Heavy Duty Dieselbusiness and has been a catalyst for growth in Germany. Conclusion/Outlook This year Ricardo finished with a strong order book, increased managementstrength and an exciting pipeline of technology. Trading performance was in linewith expectations despite restructuring costs in the US and weaker performancein our US and Strategic Consulting operations overall. Our strategy to broadenthe business mix and concentrate on margins, not just revenue, for the work thatwe undertake has resulted in continued development of the profitability of thebusiness. The global automotive industry is active with new product offensives driven bystringent emissions legislation, desire to improve fuel economy and the need toreduce CO2 emissions. Ricardo is benefiting by having the strategy, technologyand presence to exploit these regions' growing demands and global industrydrivers. We have had a satisfactory start to the new financial year, benefiting from thestrong order book and continued good order intake. The continuing delivery ofour strategy to increase geographic, customer and sector spread, together withthe implementation of a US business improvement plan, gives us confidence forcontinued progress in the new financial year. Dave ShemmansChief Executive Officer17 September 2007 Consolidated Income Statementfor the year ended 30 June 2007 2007 2006Continuing operations Notes £m £m--------------------------------------------------------------------Revenue 2 171.5 171.9Operating profit 2 13.2 15.8--------------------------------------------------------------------Operating profit excludingpensions credit (underlying) 13.2 12.1Pensions credit - 3.7-------------------------------------------------------------------- Finance income 2.0 1.4Finance costs (3.0) (2.7) --------------------------------------------------------------------Profit before taxation 12.2 14.5---------------------------------------------------------------------Profit before tax excludingpensions credit (underlying) 12.2 10.8Pensions credit - 3.7--------------------------------------------------------------------- Taxation 2.9 (2.3)--------------------------------------------------------------------- Profit for the year 15.1 12.2---------------------------------------------------------------------Profit for the year excludingpensions credit (underlying) 15.1 9.6Pensions credit - 2.6--------------------------------------------------------------------- Profit attributable to minority interest 0.1 0.1Profit attributable to equity shareholders 15.0 12.1---------------------------------------------------------------------Earnings per ordinary shareBasic 3 29.6p 24.0pDiluted 29.5p 23.9p--------------------------------------------------------------------- Consolidated Statement of Recognised Income and Expensefor the year ended 30 June 2007 2007 2006 £m £m--------------------------------------------------------------------Currency translation differences on net investmentin foreign operations (1.5) (0.2) Fair value gain/(loss) on net investment hedge 0.4 (0.4)Actuarial gains on the defined benefit pension scheme 4.2 6.7Tax on actuarial gains on the defined benefit pension scheme (1.7) (2.0)--------------------------------------------------------------------Net income and expense recognised directly in equity 1.4 4.1Profit for the financial year 15.1 12.2--------------------------------------------------------------------Total recognised income and expense for the year 16.5 16.3--------------------------------------------------------------------Attributable to minority interest 0.1 0.1Attributable to equity shareholders 16.4 16.2-------------------------------------------------------------------- Consolidated Balance Sheetas at 30 June 2007 2007 2006 £m £m------------------------------------------------------------------AssetsNon current assetsGoodwill 15.6 15.9Other intangible assets 1.9 1.5Property, plant and equipment 44.5 45.2Deferred tax assets 9.9 8.7------------------------------------------------------------------ 71.9 71.3------------------------------------------------------------------Current assetsInventories 7.5 7.0Trade and other receivables 55.6 47.3Current taxation 0.5 0.2Deferred tax assets 1.7 0.6Cash and cash equivalents 15.4 49.8Assets classified as held for sale -- 7.5------------------------------------------------------------------ 80.7 112.4------------------------------------------------------------------Total assets 152.6 183.7------------------------------------------------------------------ LiabilitiesCurrent liabilitiesBank loans and overdrafts (9.1) (45.0)Trade and other payables (43.9) (38.9)Current tax liabilities (2.1) (2.5)Deferred tax liabilities (0.4) (0.6)Provisions (0.5) (0.5)Liabilities directly associated withassets classified as held for sale - (7.5)------------------------------------------------------------------ (56.0) (95.0)------------------------------------------------------------------Net current assets 24.7 17.4------------------------------------------------------------------ Non current liabilitiesBank loans (13.5) (10.6)Retirement benefit obligations (16.7) (23.6)Deferred tax liabilities (4.7) (4.4)------------------------------------------------------------------ (34.9) (38.6)------------------------------------------------------------------Total liabilities (90.9) (133.6)Net assets 61.7 50.1------------------------------------------------------------------ Shareholders' equityShare capital 12.7 12.7Share premium 13.3 13.3Other reserves (0.5) 0.6Retained earnings 35.7 22.9------------------------------------------------------------------Total shareholders' equity 61.2 49.5Minority interest in equity 0.5 0.6------------------------------------------------------------------Total equity 61.7 50.1------------------------------------------------------------------ Consolidated Cash Flow Statementfor the year ended 30 June 2007 2007 2006 Notes £m £m--------------------------------------------------------------------Cash flows from operating activitiesCash generated from/(used by) operations 4 15.6 20.0Interest received 2.0 1.4Interest paid (3.0) (2.7)Tax (paid)/refunded (1.6) (1.4)--------------------------------------------------------------------Net cash from operating activities 13.0 17.3-------------------------------------------------------------------- Cash flows from investing activitiesProceeds of sale of property, plant and equipment - 0.3Purchase of intangible assets (1.0) (1.1)Purchase of property, plant and equipment (8.5) (7.3)Intra group transfers of fixed assets - ---------------------------------------------------------------------Net cash (used)/received in investing activities (9.5) (8.1)-------------------------------------------------------------------- Cash flows from financing activitiesNet proceeds from issue of ordinary share capital - 1.3Net proceeds from issue of new bank loan 3.9 -Repayment of borrowings (2.1) (0.5)Dividends paid to shareholders (4.9) (4.6)Dividends paid to minority interests (0.1) ---------------------------------------------------------------------Net cash (used)/received in financing activities (3.2) (3.8)-------------------------------------------------------------------- Effects of exchange rate changes (0.3) (0.5)--------------------------------------------------------------------Net increase/(decrease) in cash and cash equivalents - 4.9Cash and cash equivalents at 1 July 12.7 7.8--------------------------------------------------------------------Cash and cash equivalents at 30 June 12.7 12.7-------------------------------------------------------------------- At 1 JulyCash and cash equivalents 49.8 28.8Bank overdrafts (37.1) (21.0)-------------------------------------------------------------------- 12.7 7.8-------------------------------------------------------------------- At 30 JuneCash and cash equivalents 15.4 49.8Bank overdrafts (2.7) (37.1)-------------------------------------------------------------------- 12.7 12.7-------------------------------------------------------------------- Notes to the financial statementsfor the year ended 30 June 2007 1 Basis of preparation This preliminary announcement has been prepared on the basis of the accountingpolicies as set out in the financial statements for the year ended 30 June 2007,which have been prepared in accordance with International Financial ReportingStandards ("IFRS") and International Financial Reporting InterpretationsCommittee ("IFRIC") interpretations endorsed by the European Union ("EU") andwith those parts of the Companies Act 1985 applicable to companies reportingunder IFRS. The financial information herein does not amount to full statutoryaccounts within the meaning of section 240 of the Companies Act 1985 (asamended). 2 Segmental reporting a) By business segment, with revenue reflecting sales to external customers All from continuing Technical Strategic Totaloperations Consulting Consulting 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £m-------------------------------------------------------------------------------Revenue earned 163.6 158.0 7.9 13.9 171.5 171.9Adjustment forinter-segmental revenue (0.6) (3.8) 0.6 3.8 - -------------------------------------------------------------------------------- Revenue from third parties 163.0 154.2 8.5 17.7 171.5 171.9------------------------------------------------------------------------------- Segment result (beforepensions credit) 11.9 9.5 1.3 2.6 13.2 12.1 Pensions credit - 3.7-------------------------------------------------------------------------------Operating profit 13.2 15.8Finance income 2.0 1.4Finance costs (3.0) (2.7)-------------------------------------------------------------------------------Profit before tax 12.2 14.5Tax 2.9 (2.3)-------------------------------------------------------------------------------Profit for the year 15.1 12.2------------------------------------------------------------------------------- b) By division, reflecting the revenue and profit generated by the staff inthose businesses Revenue earned Operating profit (1) 2007 2006 2007 2006 £m £m £m £m-------------------------------------------------------------------------------Technical ConsultingUK (2) 102.0 95.0 9.8 7.8US (2) 37.4 38.9 1.2 2.2Germany 24.2 24.1 0.9 (0.5)------------------------------------------------------------------------------- 163.6 158.0 11.9 9.5Strategic Consulting 7.9 13.9 1.3 2.6------------------------------------------------------------------------------- 171.5 171.9 13.2 12.1------------------------------------------------------------------------------- (1) Excluding a pensions credit of £3.7m in the year ended 30 June 2006 (2) Restated to include within the UK the overseas offices serving the UK, and for the re-classification of an immaterial subsidiary 3 Earnings per share Basic earnings per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of shares outstandingduring the year, excluding those held by an employee benefit trust for the LTIPwhich are treated as cancelled for the purposes of the calculation. For diluted earnings per share, the weighted average number of ordinary sharesin issue is adjusted to assume conversion of all dilutive potential ordinaryshares. The Company has one class of dilutive potential ordinary shares: thoseoptions granted to employees where the exercise price is less than the marketprice of the Company's ordinary shares during the year. Where it is not possibleto determine whether or not the performance criteria for the award to vest havebeen met until the end of the performance period, the shares are excluded fromthe calculation. Reconciliations of the earnings and the weighted average number of shares usedin the calculations are set out below. 2007 2006 £m £m Earnings 15.0 12.1Pensions credit - (2.6)-----------------------------------------------------------------Underlying earnings 15.0 9.5----------------------------------------------------------------- Average number of shares in issue Number of Number of shares shares millions millions 50.7 50.4Effect of dilutive options 0.1 0.1-----------------------------------------------------------------Diluted average number of shares in issue 50.8 50.5----------------------------------------------------------------- Per Share Per Share amount amount pence pence Earnings per shareBasic 29.6 24.0Diluted 29.5 23.9Underlying earnings per shareBasic 29.6 18.8Diluted 29.5 18.8----------------------------------------------------------------- 4 Cash flow from operating activities 2007 2006 £m £m----------------------------------------------------------------------Continuing operationsProfit from operations before pensions credit 13.2 12.1Adjustments for:Share based payments adjustment 0.2 0.3Depreciation and amortisation 8.8 9.0---------------------------------------------------------------------- Operating cash flows before movements in working capital 22.2 21.4Increase in inventory (0.5) -Increase in trade and other receivables (9.3) (4.3)Increase in payables 5.9 3.5Increase in provisions - 0.1Pension payments in excess of pension costs (2.7) (0.7)----------------------------------------------------------------------Cash generated by operations 15.6 20.0---------------------------------------------------------------------- This information is provided by RNS The company news service from the London Stock Exchange