Last checked at 27 Feb 2009 07:00
27 February 2009
Ricardo plc
Interim results for the six months ended 31 December 2008
Ricardo plc is a market leading engineering, management, automotive and transportation consultancy, employing over 1700 people worldwide. The company has centres in the UK, USA, Germany, Czech Republic, India, Japan and China and a global client list including the world's major automotive OEMs, Tier 1 suppliers to OEMs, energy companies and governments.
Highlights
Strong order book at £108m (H1 2007: £98m)
Profit before tax up 11% to £6.2m (H1 2007: £5.6m)
Revenue consistent with the same period last year at £96.6m (H1 2007: £95.2m)
Earnings per share up 10% to 10.2p (H1 2007: 9.3p)
Net debt reduced to £7.6m (H1 2007: £8.2m)
Interim dividend increased by 3% to 3.2p (H1 2007: 3.1p)
Improved performance despite the current economic climate, due to the effectiveness of our diversification strategy, a strong order book and a strong balance sheet
Commenting on the results, Dave Shemmans, Chief Executive said:
"We are pleased with the Group's performance in the first six months, with the diversification strategy delivering a strong result, order book and balance sheet. The increasing amount of work we are doing in the government, defence, commercial vehicle and new energy sectors has enabled us to deliver the result despite significant cancellations from the struggling passenger car market. In the current economic climate it is more difficult than usual to forecast the next six months with any degree of certainty and therefore we are actively reducing our cost base in anticipation of the currently difficult market conditions being prolonged. However, in the absence of any further significant cancellations or major deterioration in our markets, we continue to believe that our full year will show some progress compared to last year."
Further enquiries:
| Ricardo plc | ||
| Dave Shemmans, Chief Executive | Tel: | 01273 455611 |
| Paula Bell, Group Finance Director |
| |
| Website: www.ricardo.com | ||
| Kreab Gavin Anderson | Tel: | 020 7554 1400 |
| Fergus Wylie |
| |
| Robert Speed | ||
| Michael Turner |
|
Interim management review
SUMMARY OF RESULTS
Trading performance in the six month period demonstrated further progress for Ricardo. In view of the current turmoil in the global automotive markets, our strategy to broaden the technical and strategic offering to a wider client base was well timed. Diversification into new areas has been successful and, together with robust pricing, improved project delivery and cost savings in anticipation of deteriorating market conditions, operating profit has increased. We are pleased to report an 11% per cent increase in profit before tax to £6.2m compared to £5.6m for the same period last year, and there has been no significant impact on our reported profit before tax as a result of movements in exchange rates. Our order book remains strong at £108m, compared to £98m in December 2007 and £99m in June 2008, and revenue at £96.6m was similar to the same period last year.
| Technical Consulting There has been continued demand for our consulting services to deal with new fuel economy legislation that has been implemented in a number of countries. Revenue has been maintained at a similar level to the same period last year despite significant cancellations. The UK business has benefited from receiving further work from our increasingly established facilities in Japan, China and Europe and our recent market addition, Russia. Due to a strong orderbook at the end of the last financial year, engine and transmission work has continued to grow despite the deteriorating economic climate. However we remain vigilant and continue in earnest our strategy to diversify into new sectors such as new energy. The realignment of our US business has enabled us to widen our customer base and reduce reliance on our traditional US clients. Our exhaust manufacturing business in Germany has been affected by the recent market downturn in vehicle volumes and as a result a significant operating loss was reported in the period. We have significantly reduced operating costs in the business to minimise impacts going forward. However, our technical consulting capability in Germany continues to grow to meet our European clients' technical demands, which are currently delivered by joint UK and German teams. | |
| Strategic Consulting In the first half, our strategy of diversification and continual introduction of new clients has resulted in revenue growth compared to the same period last year. We have increased our global footprint, and maintained operating profit at the same level as reported in the same period last year. In response to the recent market turbulence our clients' requirements are changing and we are now seeing a slow-down in their traditional service requests for corporate strategy and due diligence work. To mitigate this impact we have reduced headcount and adapted our offering to meet demand for cost reduction and operational improvement initiatives. |
Ricardo's net debt at the end of December 2008 was £7.6m, which represents a gearing of only 9% and which is lower than the net debt of £8.2m at the end of December 2007. In the period from the end of June 2008 to the end of December 2008, continued cash management focus has been demonstrated by a working capital increase of only £0.6m in the period. Our net debt increased by £7.3m in the period, however £6.6m of this was due to the effect of exchange rate changes, mainly on our euro borrowings.
The net pension deficit of £19.3m compares to £19.9m in June 2008 and £17.4m in December 2007. A cash contribution plan to substantially reduce the deficit over a nine-year period commenced in 2006.
Ricardo continues to enjoy R&D tax credits bringing the effective tax rate to 16%. Basic earnings per share for the first half increased by 10% to 10.2p from 9.3p in the same period last year.
We are declaring an interim dividend of 3.2p, an increase of 3% on the prior year interim dividend of 3.1p. The dividend will be paid on 17 April 2009 to all shareholders on the register at the close of business on 27 March 2009.
Regarding the seasonality affecting half year performance compared to full year performance, the second half of the financial year is normally subject to less annual leave, both at our clients and amongst the Ricardo team, and is therefore normally more profitable. This financial year is expected to show a similar pattern.
The principal risks and uncertainties for the remaining six months of the financial year remain as reported in the 2008 Annual Report and Accounts on pages 25 and 26. In particular, at this time of acute market turbulence, delivery of the increased profits in the second half depends on the conversion of a good pipeline of prospects into orders, effective delivery to our customers and our customers remaining solvent and holding to their plans. Our contract terms are such that cancellations of projects by our customers do not normally lead to adverse financial consequences provided there are alternative projects in the order book for the team involved.
During the period we saw significant volatility in exchange rates and reviewed our policy regarding the hedging of the exchange rate risk relating to the translation of both the net investments in and the profits from our overseas businesses. As a result, we have increased the level of net investment hedging for our US and German businesses and, with effect from the start of our next financial year, we will stop our current policy of hedging the translation of the profits of our overseas businesses, where hedge accounting cannot be applied.
The Board of Directors continue to have confidence that the Company and the Group have adequate resources and banking facilities to continue in operational existence for the foreseeable future.
MARKET & STRATEGY UPDATE
In the first half of the financial year we undoubtedly witnessed a very turbulent automotive industry. At the start of the financial year we saw record high oil prices driving significant changes in the industry as customers moved towards smaller, fuel efficient vehicles and away from larger SUVs to try to protect their market shares. The industry shifted its new product development strategy to address the consumer change and to meet the challenges of new fuel economy legislation and the increased need for energy security. During the summer of 2008 the industry was charging ahead to meet the future fuel efficiency agenda.
In September, with the sudden collapse of the financial markets, the volume of vehicle sales dropped significantly as both consumers and businesses were unable to raise finance to purchase new vehicles and were affected by the fear of recession. This decline in automotive sales across the board, irrespective of manufacturer or geography, led to the adoption of extreme operating practices as the manufacturers sought to hold on to cash wherever possible. This led to product and project cancellations affecting the supply base and leading to a further deterioration in the automotive industry. In December, we saw Governments intervene to offer liquidity to the manufacturers and their financing arms, to assist with working capital and stimulate the market. We fully expect 2009 to be a year of major change for the global automotive markets as we are likely to witness significant restructuring and widespread changes within this 100 year old industry.
Ricardo's strategy to broaden its technical and strategic offering, together with client, sector and geographical diversification, was well timed. The progress to date in implementing the strategy, addressing the challenges of meeting CO2 reduction targets across the globe for a wide variety of automotive, commercial vehicle and power generation markets, has largely enabled the Group to weather the storm and maintain a growth trajectory in a very volatile market place. Commercial vehicle and government business has grown, replacing many of the cancellations from the passenger car sector. Our activity in the new energy sector has introduced emerging clients with a growing number of projects of increasing scale. Our geographical diversity has introduced a robustness to the business, with revenue being delivered from many regions in the US, Europe and Asia.
The order book for the Group has increased on the prior year despite a near total collapse of business with the traditional North American automotive manufacturers. We are running the business with a high level of vigilance and flexibility, in order to respond swiftly to both opportunities and challenges presented by the current global economic climate, with continued focus on utilisation and business development activities.
TECHNICAL CONSULTING
UK
The UK technical consulting business continued to grow through the first half, driven strongly by the ongoing requirements for, and extensions to, long term projects running through the business. These projects have been for Asian and Russian customers as well as for customers in mainland Europe. In addition we have seen new projects, particularly in the control and electronics and commercial vehicle sectors. We have increased our capacity with a particular focus on the recruitment of control and electronics staff at our Cambridge and Shoreham technical centres in the UK and at our Prague facility in the Czech Republic.
Towards the end of the first half we saw clear signs of the weakening market through the project and purchasing decisions of our passenger car customers, including some project cancellations. The effects of this have been mitigated by cost reduction activities and further diversification.
We have been working to expand our presence in the new energy sector and have secured contracts in both the wind and tidal power markets. We have further strengthened our team through a number of new recruits, as well as commissioning internal research to enhance our capability in this emerging market.
We have also strongly promoted and developed our hybrid vehicle capability, with the formation of a new Hybrids Product Group to spearhead further growth. We have a strong track record of achievement in hybrids, with the Chery Olympic vehicle used at the Beijing games being a particular showcase this year. We exhibited much of our good work in this area at the launch of our Innovation and Sustainable Transport Centre at Shoreham in October opened by His Royal Highness the Duke of York.
The engines business has grown, particularly in diesel engine development. The continuing technical requirements from emissions regulation and fuel economy improvements have meant that our capability and technology are in demand. The commercial vehicle team, which includes large power generation and marine diesels, have secured good project wins, including a new gasoline engine development contract for Hyundai Heavy Industries, which will underpin their performance going forward. The gasoline sector continued to perform to plan with a variety of projects in Europe and Asia.
The transmissions and driveline business has continued to win new projects and make substantial investment in new technology. The high performance transmissions business has secured an extension to our contract to supply the Bugatti Veyron. The McLaren F1 team, one of Ricardo's customers for driveline components, had a successful season winning the world championship. Also, Nissan won the Japanese Super GT series in their first season using a new Ricardo transmission.
The vehicle engineering business has grown through the first half. We have continued to work on projects in Asia where our technology and presence have given us the capability to deliver a unique capability to customers. In addition, our military business has increased, driven by the demand from the UK Ministry of Defence for enhanced capability and armoured vehicles.
The Prague Technical Centre continues to develop as a major engineering centre managed by the UK operations. We now have over 150 engineers working in software, design, simulation, analysis and electronics. The capability of the centre is such that, in addition to being an integral part of projects led by our other engineering centres, we are now locating project teams in Prague and leading the delivery of some of our programmes from there.
GERMANY
The German automotive market continued to outsource large engineering programmes despite the decline we have seen in automotive sales in the period. The main drivers are the need for improved fuel economy and the requirement to meet emissions legislation across a large number of applications. The German business continues to secure its share of these large programmes, working closely with the UK business to deliver many of them. We now have a broad spread of customers in the passenger car, motorcycle, commercial vehicle and most recently the large engine industry.
The order book for the German technical consulting business increased during the period, and looking forward there is a strong pipeline of opportunities.
We have recently invested in testing facilities which are now well established. Recruitment in Germany continues with a significant year-on-year increase in our German-based engineering capability and is no longer the issue it was in prior years. The Ricardo brand has gained local recognition and the breadth and technical depth of secured programmes has increased to a level attractive to German engineers.
Exhaust manufacturing, the business unit within the Ricardo portfolio which has the closest link to volume sales by our clients, was, unsurprisingly, strongly affected by the economic crisis and saw a rapid decline in business in the first half with many OEM's and Tier 1 suppliers stopping the outsourcing of prototypes as they faced significant downturns. As a consequence a further cost reduction programme has been initiated and the business is now focused on the delivery of exhaust systems for niche premium passenger cars.
US
The prior year reorganisation of our US operations, an aggressive diversification strategy and better commercial trading terms have been instrumental in driving improved performance, which arose despite considerable challenges in the automotive passenger car sector.
Faced with the greatest economic downturn since the Great Depression, tightening credit markets and unprecedented volatility in fuel prices, US passenger car demand plummeted, pushing the Detroit 3 of General Motors, Ford and Chrysler, into a liquidity crisis that brought outsourced product development programs to a virtual standstill.
The early termination of several automotive projects has been mitigated by significant success with customers in other markets including off-highway, construction, agricultural, military and government sectors. Cancellations aside, the underlying order intake showed strength and resilience as our core capabilities in emissions technology, vehicle simulation and powertrain development proved to be in demand elsewhere.
Key programs in the period included heavy duty diesel engine calibration and development work, computer simulation activity designed to optimise military vehicle performance for the Army's Fuel Economy Demonstrator ("FED") program, research and development of a new combat vehicle for the US Department of Defense, various studies for government agencies related to CO2 and Corporate Average Fuel Economy ("CAFE") and an environmentally-friendly product solution for a global energy company.
In addition, the performance of our US-based global software business has met expectations in spite of an equally difficult business environment. Both the recent hire of a new dedicated Global Software Director and new product releases, including our ground-breaking real-time engine performance simulation product, WAVE-RT, are expected to serve as catalysts for greater penetration into developing markets and continued long term growth.
STRATEGIC CONSULTING
The strategic consulting business has continued to benefit from our diversification strategy. A geographically well spread client base from across the automotive, off-highway, transportation and most recently, the new energy sectors, has helped to counter the effects of the global economic slowdown. The business is now firmly established in Asia with clients in China, South Korea, India and Japan.
In recent months the business has had to adapt to a rapid change in the demand profile driven by the global credit crisis. Demand for traditional services such as corporate strategy, due diligence, organisation and process consulting has slowed, while the demand for cost reduction, operational performance improvement and CO2 technology strategy-related projects has grown. Our employee recruitment and development activity reflects this change in emphasis and is focused on further strengthening our capabilities in these growth areas.
The business continues to work closely with the technical consulting business and there is an increasing demand for support to enhance the R&D capabilities of emerging market companies. We are actively engaged on a number of such assignments and are exploring further opportunities with both vehicle manufacturers and suppliers.
ASIA
JAPAN
The Japanese market is also facing an increasingly difficult economic situation. Japanese clients reacted rapidly to large drops in profitability leading to budget cuts in R&D outsourcing. Orders from Japan have continued to contribute to the Ricardo order book, and our business development team in Japan continues to collaborate with the engineering teams in the UK to meet the Japanese standards and to secure our position in arguably one of the world's most demanding markets.
CHINA
Many Chinese manufacturers are continuing to develop key fuel economy and emissions reduction technologies. Most notably, client interest in gasoline hybrid technologies remains high, aligning well with our core product offerings. Ambitions by Chinese auto makers to develop domestic dual clutch transmission products are also becoming more apparent, providing further significant opportunities for Ricardo.
Our organisation in China continues to evolve and grow as we deliver increasing project content locally. A key milestone was the successful transfer to a new facility located in central Shanghai late in the summer of 2008. This new technical centre, which includes purpose built customer project offices, will accommodate the next phase of expansion of both technical and strategic consulting. Our structured recruitment, training and deployment process now includes engagement with the top Chinese engineering universities as our recruitment needs broaden. Alongside this, co-operation is now well established with other Ricardo divisions, to ensure consistency in technical skills and delivery quality.
SOUTH KOREA
Against a challenging economic backdrop, the South Korean market has grown for Ricardo over the last year with the non-automotive sectors of shipbuilding, rail and military providing the business with new projects and opportunities for both the technical and strategic consulting businesses. The medium and large industrial diesel engine market in particular has shown growth in terms of new engine design requirements and gasoline engine conversions. Whilst trading conditions are expected to remain difficult, the pipeline of opportunities indicates that order intake will continue to track to plan.
INDIA
Ricardo continues to deliver a significant number of large programmes into the sub-continent with a number of engine projects in the prototype development phase. The Indian market has experienced decreasing passenger car and commercial vehicle sales as a result of the declining global economic conditions. However, Ricardo has been successful at securing project work from Indian Government bodies in the transport sector, and has some positive leads for defence applications.
RESEARCH
Our clients' future needs continue to include fuel efficiency, cost efficiency and enhanced product characteristics. Leveraged collaborative research funding from customers together with grants from Governments in the UK, Europe and the US are key enablers for our R&D portfolio.
We are now nearing the completion of a major diesel engine programme demonstrating a very cost effective route to improve fuel consumption by up to eight per cent whilst reducing exhaust emissions to near zero. Our programme to design and develop a unique premium gasoline engine has also made good progress and we have now commenced the vehicle implementation phase. This concept delivers over 25% improvement in fuel economy through downsizing but with the torque of a diesel engine, enabled through seamless switching between 2 and 4 stroke operation. We are also active with a portfolio of intelligent vehicle programmes, based on vehicle-to-vehicle and vehicle-to-infrastructure communications. As part of a consortium funded through the UK centre of excellence in Intelligent Transport Systems, we have built a hybrid vehicle demonstrator that uses three dimensional map data via GPS, traffic information and mobile communication systems to optimise control of the vehicle powertrain to improve fuel economy. This work has shown that information-enabled vehicle and powertrain control can improve fuel economy by between five and ten per cent.
PEOPLE
During the period Ian Percy retired from the Group Board following nine years of tremendous support and dedicated service. He was replaced by Ian Lee as a Non-Executive Director and Chairman of the Audit Committee. Mark Garrett took up the Group Board position of Engineering & Products Director, and Geoff Bicknell assumed the role of Interim Group Finance Director while Paula Bell was on maternity leave. Paula Bell has now returned and we would like to thank Geoff Bicknell for his invaluable support.
Markus Dörr stepped up to lead the strategic consulting division enabling Steve Parker to focus his efforts on the diversification of the Group by directing the new energy business and projects for a number of key clients.
OUTLOOK
We are pleased with the Group's performance in the first six months, with the diversification strategy delivering a strong result, order book and balance sheet. The increasing amount of work we are doing in the government, defence, commercial vehicle and new energy sectors has enabled us to deliver the result despite significant cancellations from the struggling passenger car market. In the current economic climate it is more difficult than usual to forecast the next six months with any degree of certainty and therefore we are actively reducing our cost base in anticipation of the currently difficult market conditions being prolonged. However, in the absence of any further significant cancellations or major deterioration in our markets, we continue to believe that our full year will show some progress compared to last year.
Dave Shemmans
Chief Executive
27 February 2009
Notes:
(a) Related-party transactions are disclosed in Note 8.
(b) Certain statements in this interim management review are forward-looking. Although these forward-looking statements are made in good faith based on the information available to the directors at the time of their approval of the report, we can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. We undertake no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.
Consolidated income statement
for the six months ended 31 December 2008 (unaudited)
| | Six months ended 31 December 2008 | Six months ended 31 December 2007 | Year ended 30 June 2008 | ||
| Notes | £m | £m | £m | ||
| Revenue | 4 | 96.6 | 95.2 | 197.7 | |
| Cost of sales | (61.3) | (63.9) | (128.5) | ||
| Gross profit | 35.3 | 31.3 | 69.2 | ||
| Administration expenses | (28.9) | (25.2) | (53.3) | ||
| Operating profit | 4 | 6.4 | 6.1 | 15.9 | |
| Finance income | 1.4 | 0.8 | 1.5 | ||
| Finance costs | (1.6) | (1.3) | (2.7) | ||
| Profit before taxation | 6.2 | 5.6 | 14.7 | ||
| Taxation | 5 | (1.0) | (0.9) | (2.3) | |
| Profit for the period | 5.2 | 4.7 | 12.4 | ||
| Profit attributable to minority interest | - | - | 0.1 | ||
| Profit attributable to equity shareholders | 5.2 | 4.7 | 12.3 | ||
| Earnings per share | 6 | ||||
| Basic | 10.2p | 9.3p | 24.2p | ||
| Diluted | 10.1p | 9.2p | 23.9p |
Consolidated statement of recognised income and expense
for the six months ended 31 December 2008 (unaudited)
| Six months ended 31 December 2008 | Six months ended 31 December 2007 | Year ended 30 June 2008 | |
| | £m | £m | £m | |
| Currency translation differences on net investment in foreign operations | 6.8 | 2.1 | 3.8 | |
| Fair value loss on net investment hedges | (0.6) | (1.1) | (2.0) | |
| Cash flow hedges: - net fair value losses - recycled and reported in net profit | (2.2) 1.4 | (0.3) 0.1 | (1.5) 1.1 | |
| Actuarial loss on the defined benefit pension scheme | (0.4) | (2.1) | (5.7) | |
| Tax on items recognised directly in equity | 0.3 | 0.9 | 1.8 | |
| Net income and expense recognised directly in equity | 5.3 | (0.4) | (2.5) | |
| Profit for the period | 5.2 | 4.7 | 12.4 | |
| Total recognised income and expense for the period | 10.5 | 4.3 | 9.9 | |
| Attributable to minority interest | - | - | 0.1 | |
| Attributable to equity shareholders | 10.5 | 4.3 | 9.8 |
Consolidated balance sheet
as at 31 December 2008 (unaudited)
| | 31 December 2008 | 31 December 2007 | 30 June 2008 | ||
| £m | £m | £m | |||
| Assets | |||||
| Non current assets | |||||
| Goodwill | 21.3 | 16.8 | 17.9 | ||
| Other intangible assets | 2.4 | 2.0 | 2.1 | ||
| Property, plant and equipment | 55.0 | 45.8 | 48.0 | ||
| Deferred tax assets | 12.0 | 12.2 | 12.2 | ||
| 90.7 | 76.8 | 80.2 | |||
| Current assets | |||||
| Inventories | 10.2 | 9.5 | 9.1 | ||
| Trade and other receivables | 64.2 | 63.8 | 54.2 | ||
| Current tax assets | 0.8 | 0.9 | 1.1 | ||
| Cash and cash equivalents | 42.2 | 16.2 | 37.3 | ||
| 117.4 | 90.4 | 101.7 | |||
| Total assets | 208.1 | 167.2 | 181.9 | ||
| Liabilities | |||||
| Current liabilities | |||||
| Bank loans and overdrafts | (33.9) | (12.1) | (27.7) | ||
| Trade and other payables | (57.5) | (55.4) | (49.7) | ||
| Current tax liabilities | (3.0) | (1.9) | (2.9) | ||
| Provisions | (0.7) | (0.6) | (0.8) | ||
| (95.1) | (70.0) | (81.1) | |||
| Net current assets | 22.3 | 20.4 | 20.6 | ||
| Non current liabilities | |||||
| Bank loans | (15.9) | (12.3) | (9.9) | ||
| Retirement benefit obligations | (19.3) | (17.4) | (19.9) | ||
| Derivative financial liabilities | (2.1) | - | - | ||
| Deferred tax liabilities | (1.5) | (5.2) | (3.9) | ||
| (38.8) | (34.9) | (33.7) | |||
| Total liabilities | (133.9) | (104.9) | (114.8) | ||
| Net assets | 74.2 | 62.3 | 67.1 | ||
| Shareholders' equity | |||||
| Share capital | 12.9 | 12.7 | 12.9 | ||
| Share premium | 13.8 | 13.5 | 13.7 | ||
| Other reserves | 6.3 | 0.6 | 0.9 | ||
| Retained earnings | 41.2 | 35.1 | 39.2 | ||
| Total shareholders' equity | 74.2 | 61.9 | 66.7 | ||
| Minority interest in equity | - | 0.4 | 0.4 | ||
| Total equity | 74.2 | 62.3 | 67.1 |
Consolidated cash flow statement
for the six months ended 31 December 2008 (unaudited)
| Six months ended 31 December 2008 | Six months ended 31 December 2007 | Year ended 30 June 2008 | |
| | £m | £m | £m | |
| Cash flows from operating activities | | | | |
| Cash generated by operations (note 9) | 9.9 | 11.0 | 29.3 | |
| Interest received | 1.4 | 0.8 | 1.6 | |
| Interest paid | (1.6) | (1.3) | (2.8) | |
| Tax paid | (0.9) | (1.0) | (2.0) | |
| Net cash generated by operating activities | 8.8 | 9.5 | 26.1 | |
| Cash flows from investing activities | | | | |
| Proceeds of sale of property, plant and equipment | - | - | 0.1 | |
| Disposal of subsidiary | 0.2 | - | - | |
| Purchases of intangible assets | (0.5) | (0.5) | (1.0) | |
| Purchases of property, plant and equipment | (5.8) | (4.3) | (9.8) | |
| Net cash used by investing activities | (6.1) | (4.8) | (10.7) | |
| Cash flows from financing activities | | | | |
| Net proceeds from issue of new share capital | 0.1 | 0.2 | 0.5 | |
| Net proceeds from issue of new bank loan | 0.3 | 0.8 | 1.1 | |
| Repayment of borrowings | (4.2) | (2.1) | (2.4) | |
| Dividends paid to shareholders | (3.8) | (3.6) | (5.2) | |
| Dividends paid to minority interests | - | (0.1) | (0.2) | |
| Net cash used by financing activities | (7.6) | (4.8) | (6.2) | |
| Effect of exchange rate changes | (2.4) | (0.4) | (0.5) | |
| Net (decrease)/increase in cash and cash equivalents | (7.3) | (0.5) | 8.7 | |
| Net cash and cash equivalents at beginning of period | 21.4 | 12.7 | 12.7 | |
| Net cash and cash equivalents at end of period | 14.1 | 12.2 | 21.4 |
Notes to the interim financial statements
for the six months ended 31 December 2008 (unaudited)
1. General information
Ricardo plc is a public limited company incorporated in the UK with a primary listing on the London Stock Exchange. The company's registered office is at the Ricardo Shoreham Technical Centre, Shoreham-by-Sea, West Sussex, BN43 5FG, and its registered number is 222915.
This interim report was approved for issue by the Board of Directors on 26 February 2009. It has not been audited, but it has been subject to an independent review by PricewaterhouseCoopers LLP, whose independent review report is included on page 23.
This interim report does not comprise statutory accounts within the meaning of Section 240 of the Companies Act 1985. The figures for the year to 30 June 2008 have been extracted from the 2008 Annual Report and Accounts, which was approved by the Board of Directors on 23 September 2008 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 237 of the Companies Act 1985.
The consolidated income statement relates to the results from continuing activities other than an immaterial amount that arose from the trading and disposal of the Group's interest in Ricardo MEDA Technical Services, LLC. The profit on disposal was nil. The consolidated cash flow statement also reflects continuing activities with the exception of this disposal.
2. Basis of preparation
This interim report for the six months ended 31 December 2008 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and IAS 34, 'Interim Financial Reporting' as adopted by the European Union. This interim report should be read in conjunction with the Annual Report and Accounts for the year ended 30 June 2008, which has been prepared in accordance with IFRSs as adopted by the European Union.
3. Accounting policies
The accounting policies adopted are consistent with those of the financial statements for the year ended 30 June 2008, as described in those financial statements, with the exception of the tax accounting policy. Taxes on income in the interim period are accrued using the rate that is expected to be applicable to income reported in the financial statements for the financial year.
The following new standards, amendments to standards or interpretations are mandatory for the first time for the financial year ending 30 June 2009, none of which have had any impact on these financial statements.
IFRIC 12 Service Concession Arrangements
IFRIC 13 Customer loyalty programmes
IFRIC 14 IAS19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction
4. Segmental reporting
| (a) by business segment, with revenue reflecting sales to external customers | ||||||||
|
| Revenue |
|
Operating profit | |||||
| Six months ended 31 December 2008 | Six months ended 31 December 2007 | Year ended 30 June 2008 | Six months ended 31 December 2008 | Six months ended 31 December 2007 | Year ended 30 June 2008 | |||
| £m | £m | £m | £m | £m | £m | |||
| Technical Consulting | 90.1 | 88.7 | 185.3 | 5.8 | 5.5 | 14.1 | ||
| Strategic Consulting | 6.5 | 6.5 | 12.4 | 0.6 | 0.6 | 1.8 | ||
|
| 96.6 | 95.2 | 197.7 | 6.4 | 6.1 | 15.9 | ||
| (b) reflecting the revenue and profit generated by the staff in the business units (non-GAAP measure) | ||||||||
|
| Revenue |
|
Operating profit | |||||
| Six months ended 31 December 2008 | Six months ended 31 December 2007 | Year ended 30 June 2008 | Six months ended 31 December 2008 | Six months ended 31 December 2007 | Year ended 30 June 2008 | |||
| £m | £m | £m | £m | £m | £m | |||
| Technical Consulting |
| |||||||
| UK | 59.7 | 54.3 | 116.0 | 6.6 | 4.4 | 12.3 | ||
| Germany | 12.9 | 15.3 | 29.9 | (1.9) | 0.4 | (0.5) | ||
| US | 18.2 | 20.5 | 39.4 | 1.1 | 0.7 | 2.3 | ||
|
| 90.8 | 90.1 | 185.3 | 5.8 | 5.5 | 14.1 | ||
| Strategic Consulting | 5.8 | 5.1 | 12.4 | 0.6 | 0.6 | 1.8 | ||
|
| 96.6 | 95.2 | 197.7 | 6.4 | 6.1 | 15.9 | ||
5. Taxation
| Six months ended 31 December 2008 | Six months ended 31 December 2007 | Year ended 30 June 2008 | |
| | £m | £m | £m | |
| UK | 0.3 | 0.1 | (0.4) | |
| Overseas | 0.7 | 0.8 | 2.7 | |
| Tax charge on profit | 1.0 | 0.9 | 2.3 |
6. Earnings per share
Basic earnings per share is calculated by dividing the profit attributable to equity shareholders of £5.2m (31 December 2007: £4.7m; 30 June 2008: £12.3m) by the weighted average number of shares in issue of 51.1m (31 December 2007: 50.8m; 30 June 2008: 50.9m), after deducting the shares held by the Long Term Incentive Plan ("LTIP") Trustee. For diluted earnings per share, the weighted average number of shares in issue is adjusted for the effects of dilutive options and LTIP awards, and is accordingly 51.6m (31 December 2007: 51.0m; 30 June 2008: 51.4m).
7. Dividends
| | Six months ended 31 December 2008 | Six months ended 31 December 2007 | Six months ended 31 December 2008 | Six months ended 31 December 2007 | |
| pence/share | pence/share | £m | £m | ||
| Amounts distributed in the period | 7.5p | 7.1p | 3.8 | 3.6 | |
| Proposed interim dividend | 3.2p | 3.1p | 1.6 | 1.6 |
8. Related-party transactions
| Six months ended 31 December 2008 | Six months ended 31 December 2007 | Year ended 30 June 2008 | | |
| | £m | £m | £m | | |
| Compensation for key management personnel | | | | ||
| Salaries and other short-term employee benefits | 1.5 | 1.3 | 2.5 | ||
| Post-employment benefits | 0.2 | 0.2 | 0.3 | ||
| Share-based payments | 0.2 | 0.2 | 0.5 | ||
| | 1.9 | 1.7 | 3.3 | ||
The key management personnel are the Board of Directors and the Managing Directors of the UK, US and German businesses.
9. Cash generated by operations
| Six months ended 31 December 2008 | Six months ended 31 December 2007 | Year ended 30 June 2008 | |
| | £m | £m | £m | |
| Profit from operations | 6.4 | 6.1 | 15.9 | |
| Adjustments for: Share-based payments | 0.7 | (0.2) | 0.3 | |
| Depreciation and amortisation | 4.4 | 4.3 | 8.8 | |
| Operating cash flows before movements in working capital | 11.5 | 10.2 | 25.0 | |
| Increase in inventory | (0.3) | (1.7) | (1.1) | |
| (Increase)/decrease in trade and other receivables | (8.8) | (7.1) | 3.0 | |
| Increase in payables | 8.6 | 10.9 | 4.6 | |
| (Decrease)/increase in provisions | (0.1) | 0.1 | 0.3 | |
| Pension payments in excess of pension costs | (1.0) | (1.4) | (2.5) | |
| Cash generated by operations | 9.9 | 11.0 | 29.3 |
10. Net debt (non-GAAP measure)
Net debt is defined by the Group as net cash and cash equivalents less bank loans.
| 31 December 2008 | 31 December 2007 | 30 June 2008 | |
| | £m | £m | £m | |
| Cash and cash equivalents (current assets) | 42.2 | 16.2 | 37.3 | |
| Bank overdrafts (current liabilities) | (28.1) | (4.0) | (15.9) | |
| Net cash and cash equivalents | 14.1 | 12.2 | 21.4 | |
| Bank loans maturing within one year | (5.8) | (8.1) | (11.8) | |
| Bank loans maturing after one year | (15.9) | (12.3) | (9.9) | |
| Net debt | (7.6) | (8.2) | (0.3) |