General information

Ricardo plc (the 'Company'), a public company limited by shares, is listed on the London Stock Exchange and incorporated and domiciled in the United Kingdom. The address of its registered office is Shoreham Technical Centre, Shoreham-by-Sea, West Sussex, BN43 5FG, England, United Kingdom, and its registered number is 222915.

This preliminary announcement is based on the audited Annual Report & Accounts 2021, which was approved for issue on 14 September 2021, and which has been prepared in accordance with International Financial Reporting Standards ('IFRS'), IFRS Interpretations Committee ('IFRS-IC') interpretations adopted by the European Union ('EU') and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The financial information herein does not amount to full statutory accounts within the meaning of Section 434 of the Companies Act 2006.

1.   Alternative Performance Measures

Throughout this document the Group presents various alternative performance measures ('APMs') in addition to those reported under IFRS. The measures presented are those adopted by the Chief Operating Decision Maker ('CODM', deemed to be the Chief Executive Officer), together with the main Board, and analysts who follow the Group in assessing the performance of the business. Explanations of how they are calculated and how they are reconciled to an IFRS statutory measure are set out below.

a.   Group profit and earnings measures

Underlying profit before tax ('PBT') and underlying operating profit: These measures are used by the Board to monitor and measure the trading performance of the Group. They exclude certain items which the Board believes distort the trading performance of the Group. These include the amortisation of acquired intangibles, acquisition-related expenditure, reorganisation costs, and other specific adjusting items.

The Group's strategy includes geographic and sector diversification, including targeted acquisitions and disposals. By excluding acquisition-related expenditure from underlying PBT and underlying operating profit, the Board has a clearer view of the performance of the Group and is able to make better operational decisions to support its strategy.

Acquisition-related expenditure includes the costs of acquisitions, deferred and contingent consideration fair value adjustments (including the unwinding of discount factors), transaction-related fees and expenses, and post-deal integration costs.

Reorganisation costs arising from major restructuring activities, profits or losses on the disposal of businesses, and significant impairments of property, plant and equipment, are excluded from underlying PBT and underlying operating profit as they are not reflective of the Group's trading performance in the year, as are any other specific adjusting items deemed to be one-off in nature.

The related tax effects on the above and other tax items which do not form part of the underlying tax rate are also taken into account. Items are treated consistently year-on-year, and these adjustments are also consistent with the way that performance is measured under the Group's incentive plans and its banking covenants. A reconciliation is shown below. Further details of the nature of the specific adjusting items are given in Note 4.

 

 

 

Reconciliation of underlying profit before tax to reported profit/(loss) before tax

 

 

Underlying earnings attributable to the owners of the parent: The Group uses underlying earnings attributable to the owners of the parent as the input to its adjusted EPS measure. This profit measure excludes the amortisation of acquired intangibles, acquisition-related expenditure, reorganisation costs and other specific adjusting items, but is an after-tax measure. The Board considers underlying EPS to be more reflective of the Group's trading performance in the year than reported EPS. A reconciliation between earnings attributable to the owners of the parent and underlying earnings attributable to the owners of the parent is shown in Note 5.

Organic growth/decline: Organic growth/decline is calculated as the growth/decline in the result for the current year compared to the prior year, after adjusting for the impact of acquisitions or disposals, to include the results of those acquisitions or disposals for an equivalent period in each financial year. As set out in Note 13 to the Group financial statements, the Group acquired the entire issued share capital of PLC Consulting Pty Ltd ('PLC Consulting') on 31 July 2019. Had PLC Consulting been acquired and consolidated from 1 July 2019, the impact on the Group would not have been material.

Constant currency growth/decline: The Group generates revenues and profits in various territories and currencies because of its international footprint. Those results are translated on consolidation at the foreign exchange rates prevailing at the time. Constant currency growth/decline is calculated by translating the result for the current year using foreign currency exchange rates applicable to the prior year. This provides an indication of the growth/decline of the business, excluding the impact of foreign exchange.

 

Segmental underlying operating profit: This is presented in the Group's segmental disclosures and reflects the underlying trading of each segment, as assessed by the main Board. This excludes segment-specific amortisation of acquired intangibles, acquisition-related expenditure and other specific adjusting items, such as reorganisation costs. It also excludes unallocated Plc costs, which represent the costs of running the public limited company and specific adjusting items which are outside of the control of segment management. A reconciliation between segment underlying operating profit, the Group's underlying operating profit and operating profit is presented in Note 2.

b.  Cash flow measures

Cash conversion: A key measure of the Group's cash generation is the conversion of profit into cash. This is the reported cash generated from operations (defined as operating cash flow, less movements in net working capital and defined benefit pension deficit contributions) divided by earnings before interest, tax, depreciation, impairment and amortisation ('EBITDA'), expressed as a percentage.

Underlying cash conversion: This is underlying cash generated from operations (defined as reported cash generated from operations, adjusted for the cash impact of specific adjusting items) divided by underlying EBITDA (defined as reported EBITDA, adjusted for the impact of specific adjusting items). A reconciliation between the two is shown below.

 

Net debt: is defined as current and non-current borrowings less cash and cash equivalents, including hire purchase agreements, but excluding any impact of IFRS 16 lease liabilities. Management believes this definition is the most appropriate for monitoring the indebtedness of the Group and is consistent with the treatment in the Group's banking agreements.

c.   Tax measures

Underlying effective tax rate ('ETR'): The Group reports one adjusted tax measure, which is the tax rate on underlying profit before tax. This is the tax charge applicable to underlying profit before tax expressed as a percentage of underlying profit before tax.

 

 

2.  Financial performance by segment

The Group's operating segments are being reported based on the financial information provided to the Chief Operating Decision Maker who is the Chief Executive Officer. The information reported includes financial performance but does not include the financial position of assets and liabilities. The operating segments were identified by evaluating the Group's products and services, processes, types of customers and delivery methods.

From FY 2020/21, due to restructuring within the Group, Strategic Consulting & Software ('other') is no longer being separately reported as an operating segment.

The Strategic Consulting element of this segment is now reported within Automotive & Industrial ('A&I'). This business has a number of common customers, operates in similar markets to A&I, and is now run as a business unit within the overall A&I business. Since the start of FY 2020/21, the A&I EMEA Managing Director has overall responsibility for the Strategic Consulting service offering.

The Software element of this segment has been aggregated into the Performance Products operating segment for the purposes of segmental reporting. Whilst the Software business continues to be run as a separate business with its own leadership team, it has a number of similar characteristics to the Performance Products manufacturing business, in that it is involved in the development and sale of niche products, requiring a high level of capital/development spend, primarily selling to automotive manufacturers.

As a result of this change, the Group is now reporting the following five segments:

·      Energy & Environment ('EE');

·      Rail;

·      Automotive & Industrial ('A&I');

·      Defense; and

·      Performance Products ('PP').

 

Prior year comparatives have been restated to present the results of Ricardo Strategic Consulting and Ricardo Software within Automotive & Industrial and Performance Products, respectively, in line with the current year. Consistent with the prior period, Plc costs includes the costs of running the public limited company, including foreign exchange exposure on intercompany loans.

Measurement of performance

Management monitors the financial results of its operating segments separately for the purpose of making decisions about allocating resources and assessing performance. Segmental performance is measured based on underlying operating profit, as this measure provides management with an overall view of how the different operating segments are managing their total cost base against the revenue generated from their portfolio of contracts.

There are varying levels of integration between the segments. The segments use EE for their specialist environmental knowledge. A&I and PP have various shared projects. There are also shared service costs between the segments. Inter-segment transactions are eliminated on consolidation. Inter‑segment pricing is determined on an arm's length basis in a manner similar to transactions with third parties.

Included within Plc costs in the following tables are costs arising from a central Group function, including the costs of running the public limited company, which are not recharged to the other operating segments. Comparative figures for the year ended 30 June 2020 have been restated, reflecting the impact of the changes the Group made to its operating segments during the year ended 30 June 2021.

 

 

 

 

 

For the year ended 30 June 2021	EE	Rail	A&I	Defense(1)	PP	Plc	Total
	£m	£m	£m	£m	£m	£m	£m
Total segment revenue	57.9	77.7	105.7	37.9	78.5	-	357.7
Inter-segment revenue	(0.8)	-	(3.2)	-	(1.9)	-	(5.9)
Revenue from external customers	57.1	77.7	102.5	37.9	76.6	-	351.8
Segment underlying operating profit/(loss)	8.5	8.0	(1.6)	5.4	6.8	-	27.1
Plc costs	-	-	-	-	-	(4.4)	(4.4)
Underlying(1) operating profit/(loss)	8.5	8.0	(1.6)	5.4	6.8	(4.4)	22.7
Specific adjusting items (*)	(0.9)	(3.6)	(5.6)	(0.4)	-	(3.6)	(14.1)
Operating profit/(loss)	7.6	4.4	(7.2)	5.0	6.8	(8.0)	8.6
Net finance costs							(4.7)
Profit before taxation							3.9
Depreciation and amortisation	3.3	6.1	10.2	1.8	3.9	1.3	26.6
Capital expenditure:
- Other intangible assets	1.4	-	3.6	0.5	3.1	0.3	8.9
- Property, plant and equipment	0.4	0.2	2.3	0.6	0.8	-	4.3
- Right-of-use assets	0.2	0.8	0.6	0.8	-	-	2.4
For the year ended 30 June 2020(2)	EE	Rail	A&I	Defense(1)	PP	Plc	Total
	£m	£m	£m	£m	£m	£m	£m
Total segment revenue	51.7	75.4	119.8	32.8	78.3	-	358.0
Inter-segment revenue	(0.9)	(0.1)	(2.6)	-	(2.4)	-	(6.0)
Revenue from external customers	50.8	75.3	117.2	32.8	75.9	-	352.0
Segment underlying operating profit	6.3	5.8	0.5	5.1	5.1	-	22.8
Plc costs	-	-	-	-	-	(2.8)	(2.8)
Underlying(1) operating profit/(loss)	6.3	5.8	0.5	5.1	5.1	(2.8)	20.0
Specific adjusting items (*)	(1.7)	(5.5)	(10.4)	(0.5)	(0.3)	(2.5)	(20.9)
Operating profit/(loss)	4.6	0.3	(9.9)	4.6	4.8	(5.3)	(0.9)
Net finance costs							(4.4)
Loss before taxation							(5.3)
Depreciation and amortisation	3.7	6.5	14.1	1.4	3.3	1.3	30.3
Capital expenditure:
- Other intangible assets	0.9	0.1	3.6	0.5	3.4	0.7	9.2
- Property, plant and equipment	0.3	0.2	19.8	0.3	1.0	0.4	22.0
- Right-of-use assets	-	0.1	4.5	0.4	0.1	-	5.1

(*) See Note 4.

(1) Defined in the glossary of terms.

(2) Prior year comparatives have been restated to present the results of Ricardo Strategic Consulting and Ricardo Software within Automotive & Industrial and Performance Products, respectively, in line with the current year.

 

 

 

3.  Revenue

4.  Specific adjusting items

Specific adjusting items are disclosed separately in the financial statements where it is necessary to do so to provide further understanding of the financial performance of the Group. These items comprise the amortisation of acquired intangible assets, acquisition-related expenditure, reorganisation costs and other non-recurring items that are included due to the significance of their nature or amount. Acquisition-related expenditure includes the costs of acquisitions, deferred and contingent consideration fair value adjustments (including the unwinding of discount factors), transaction-related fees and expenses, and post-deal integration costs. Reorganisation costs include costs arising from major restructuring activities, profits or losses on the disposal of businesses, and significant impairments of property, plant and equipment, and other items deemed to be one-off in nature.

 

Amortisation of acquired intangible assets

On acquisition of a business, the purchase price is allocated to assets such as customer contracts and relationships. Amortisation occurs on a straight-line basis over its useful economic life, which is between 3 and 9 years. During the year, certain "customer contracts and relationships" intangible assets reached the end of their economic life, resulting in a decrease in amortisation charges compared to the prior period.

Acquisition-related expenditure

The current year acquisition-related expenditure comprises £1.6m (2020: £2.8m) of earn-out and employee retention costs, accrued in relation to Transport Engineering Pty Ltd (now Ricardo Rail Australia - 'RRA'), acquired in May 2019, and PLC Consulting Pty Ltd (now Ricardo Energy Environment and Planning - 'REEP'), acquired in July 2019. Further details are provided in Note 13 to the Group financial statements. The current year charge also includes £0.5m of external fees incurred in relation to two strategic projects in the year.

The prior period charge included £0.4m of costs incurred in relation to the post-deal integration of RRA and REEP, and £0.9m costs incurred on acquisition processes (including REEP and other aborted processes), comprising external fees and the costs of running an internal acquisitions department to effect the acquisition processes. Offsetting these, £1.1m of income was recognised in relation to a gain on a foreign exchange option contract, which was taken out to hedge an aborted overseas transaction.

The above items have been classified as specific adjusting items as they meet the Group's definition of acquisition-related expenditure. The prior year gain on the option contract was classified as a specific adjusting item due to its non-recurring nature and the significance of the amount.

Reorganisation costs

Purchases and disposals

The current year charge includes a £1.5m impairment charge as a result of a decrease in the fair value of the Detroit Technology Campus ('DTC') South building, reflecting its market value at the balance sheet date. The property has been held-for-sale since its purchase in August 2019. It was purchased to remove the business from a long-term lease commitment which ran to October 2037 and comprised a North building, which housed testing operations, and a South office building. The campus was originally purchased for £14.2m (USD 17.3m), and immediately written down, resulting in an impairment charge of £2.5m (net of the extinguishment of an associated IFRS 16 lease liability) in the prior year as the purchase price was predicated on its tenancy. The North building and its associated test assets were sold in the second half of FY 2019/20 (see below) and the South building was impaired by a further £1.1m (USD 1.3m). The current year impairment charge reflects the impact of COVID-19 on the property market, with a significantly lower demand for office space depressing prices in the DTC area. These costs have been classified as specific adjusting items as they are significant in value and would distort the underlying trading performance of the Group if included. On 18 January 2021, as offers received were lower than expected, management decided to retain the use of the property. The property is continuing to be marketed for sale, but management no longer considers a sale within the next twelve months to be highly probable - see Note 18 to the Group financial statements..

The DTC North building and its associated test assets were sold on 3 June 2020 for up-front consideration of £2.8m (USD 3.5m), with up to an additional £1.5m (USD 2.0m) contingent on volume of testing work placed into the facility by Ricardo over the next two years. A loss of £2.1m (USD 2.7m), after taking into account the fair value of contingent consideration, was recognised on the disposal in the prior year. A charge of £0.5m (USD 0.8m) has been recognised in the current year, representing a reduction in the fair value of contingent consideration based on management's latest assessment of the testing volumes to be placed into the facility over the next twelve months. Ricardo received £0.2m (USD 0.3m) of contingent consideration in FY 2020/21.

Other reorganisation costs

Redundancy costs: The current period charge reflects a total of £2.5m of redundancy costs from headcount reductions in the Group's A&I business in EMEA. This was caused by a continuation of the challenging trading conditions seen throughout the year and the impact of COVID-19 on order intake levels as clients reduced levels of outsourcing and delayed major programmes. The A&I EMEA business previously incurred £2.0m of costs from headcount reductions in the second half of FY 2019/20, driven by impact of the outbreak of COVID-19 on trading conditions. Due to the continuing depressed economic conditions and various national lockdowns in Autumn 2020,  further heads were removed from the business in the first half of this year at a cost of £1.3m. Order intake showed signs of improvement in the third quarter of the financial year, but further national lockdowns in Spring 2021 led to more project delays, which contributed to a decline in order intake in the fourth quarter. In June 2021, management announced a plan to take additional heads out of the business, recognising a £1.2m redundancy provision. These actions are deemed necessary to right-size the business based on current order intake levels and realign capabilities with changing customer demands. These costs have been included within specific adjusting items as they are significant in quantum and would otherwise distort the underlying trading performance of the Group.

In the prior year, in addition to the £2.0m of redundancy costs for A&I in EMEA, £1.4m of redundancy costs were incurred in Rail (the completion of a process which commenced in FY 2018/19), together with £1.0m of redundancy costs across A&I US, Performance Products, Software and Strategic Consulting (now part of A&I EMEA). £0.8m of incremental professional fees and external, non-revenue generating contractor costs were incurred, directly linked to the restructuring actions taken.

Property exit costs: As part of the restructuring actions, A&I in EMEA announced its decision to fully exit the Cambridge Technical Centre ('CaTC') at the end of June 2021, recognising a charge of £0.7m in respect of impairment of the lease right-of-use asset and leasehold improvements, dilapidations costs, and service fees through to the break date of June 2022. The treatment of these costs as specific adjusting items is consistent with the prior year, when an element of the building was vacated due to a reduction in headcount, resulting in a charge of £0.6m. In addition, £0.1m has been incurred in the current year in respect of the impairment of the right-of-use asset in Schwäbish Gmünd Technical Centre ('SGTC'), as management was in discussions with the landlord to surrender the lease at this site (on which Ricardo has a very limited presence) at the year-end (see Note 38 to the Group financial statements), together with £0.1m for the write off of equipment relating to the Santa Clara Technical Centre ('SCTC'), which was exited in June 2020. A charge of £0.4m was recognised in the prior year in respect of right-of-use and other asset impairments at SCTC and incremental contractor costs.

 

CEO exit costs

In January 2021, the Board announced that CEO Dave Shemmans will be leaving the Group, after sixteen years in the role. Costs of £1.5m have been accrued, covering his settlement, external legal fees, and external recruitment fees to find a successor. The costs have been recognised as specific adjusting items due to their non-recurring nature and quantum.

Guaranteed Minimum Pensions ('GMP') equalisation

In October 2018, the High Court issued a judgement confirming that pension schemes are required to equalise male and female members' benefits for the effect of Guaranteed Minimum Pensions ('GMP'), which resulted in a £1.3m charge in FY 2018/19. A further ruling in November 2020 confirmed that historical transfers out of the scheme, between May 1990 and October 2018 would also need to be equalised for GMP. This has resulted in an additional £0.1m charge in the current year, which has been classified as a specific adjusting items due to it being non-recurring in nature. The treatment is consistent with the treatment of the original GMP equalisation charge.

Tax charge on prior year specific adjusting items

During FY 2019/20, a tax charge of £0.3m was recognised in relation to adjustments to the prior year tax charge arising on the sale of the Germany test business in June 2018.

 

 

5.  Earnings per share

 

Underlying earnings per share is also shown because the Directors consider that this provides a more useful indication of underlying performance and trends over time.

 

 

6.  Dividends

	2021	2020
	£m	£m
Final dividend for prior period: 0.00p per share (2020: 15.28p) per share	-	8.2
Interim dividend for current period: 1.75p per share (2020: 6.24p) per share	1.1	3.3
Equity dividends paid	1.1	11.5

 

A dividend of £0.1m (2020: £0.1m) was issued during the year by a subsidiary of the Group to a non-controlling party of that subsidiary. A return of capital of £0.2m (2020: Nil) was made during the year by a subsidiary of the Group to a non-controlling party of that subsidiary.

 

 

7.  Goodwill

 

The carrying value of goodwill and the key assumptions used in determining the recoverable amount of each CGU, or group of CGUs, are as follows:

 

(1)     As described in Note 2, the Strategic Consulting unit of what was previously the Strategic Consulting and Software segment is now run as a service line within the A&I EMEA business, with the A&I EMEA Managing Director having overall responsibility for the Strategic Consulting service offering. As such the strategic consulting business is considered to form part of the group of CGUs to which A&I EMEA goodwill is allocated.

(2)    As set out in further detail in Note 13(a) to the Group financial statements, the Group acquired PLC Consulting Pty Ltd on 31 July 2019, adding goodwill of £2.6m to the EE CGU.  PLC Consulting is an Australian firm with a strong technical advisory capability across the project life cycle in infrastructure, environment and planning, including supporting the environmental requirements of master-planning, business cases, procurement, design, construction and operation.

*See key assumptions below.

Key assumptions

The three-year plan and discounted cash flow calculations thereon provide a value-in-use which supports the carrying value of the goodwill allocated to each CGU, or group of CGUs, at 30 June 2021, resulting in no impairment for the year (2020: Nil). The three-year cashflow forecasts are based on the budget for the following year (year one) and the business plans for years two and three (the three-year plan). The three-year plan is prepared by management, and is reviewed and approved by the Board. The three-year plan reflects past experience, management's assessment of the current contract portfolio, contract wins, contract retention, price increases, gross margin, as well as future expected market trends (including the impact of COVID-19), adjusted to meet the requirements of IAS 36 Impairment of Assets.

Cash flows beyond year three are projected into perpetuity using a long-term growth rate, which is determined as being the lower of the planned compound annual growth rate in each CGU, or group of CGU,'s three-year plan and external third party forecasts of the prevailing inflation and economic growth rates for each of the territories in which each CGU, or group of CGUs, primarily operates. A&I EMEA (part of the A&I operating segment) cashflows were analysed into cashflows expected to arise directly from internal combustion engine ('ICE') related revenues and those related to non-ICE technologies. Due to regulatory and other changes in the market relating to ICE, a long-term decrease of 15% p.a. has been applied to ICE-related cashflows, and a long-term growth rate of 4.3% p.a., based on prevailing inflation and economic growth by territory, has been applied to the remaining non-ICE cashflows.

The cash flows are discounted at a pre-tax discount rate, which is derived from externally sourced data and reflects the current market assessment of the Group's time value of money and risks specific to each CGU.

Research and Development Expenditure Credits ('RDEC') cashflows are included in the value-in-use calculations for A&I EMEA, PP and EE. They are material to the A&I EMEA group of CGUs and have been included on the basis that there is no indication that the UK government will change this benefit.

Sensitivities

The value-in-use calculations were are assessed for sensitivity to reasonably possible changes to these estimates. With the exception of A&I EMEA, the sensitivities assessed include a 10% reduction in planned operating pro-fit, a 10% increase in planned working capital movements, a 1% increase in the pre-tax discount rate and a 1% decrease in the long-term growth rate, together with a further scenario whereby all sensitivities were combined together. The above changes in key estimates do not cause the recoverable amount for any CGU or group of CGUs to be materially lower than the carrying amount.

Within the A&I operating segment, the A&I EMEA CGU has faced challenging trading conditions in the current and prior financial years, which have significantly reduced its profitability. The A&I EMEA three-year plan projects growth in revenue and operating profit, which is to be delivered through a combination of diversification into new innovative green technologies and markets, together with improving efficiency as a result of restructuring actions, including those which started to be implemented at the end of FY 2020/21. For goodwill allocated to the A&I EMEA CGU, at 30 June 2021, the recoverable amount exceeds the carrying value of the CGU by £35.8m. Sensitivities determined were as follows:

·      A reduction of 38% in the operating profit levels would result in the recoverable amount being materially equal to the carrying value. A reduction in operating profit of this magnitude is considered reasonably possible, given the current and projected levels of profitability in the plan.

·      If RDEC cash flows were excluded from the value-in-use calculation, then the goodwill balance would be fully impaired

·      Individually, a 2% increase in the pre-tax discount rate, a 2% decrease in the long-term growth rate, a 10% increase in planned working capital movements do not cause the recoverable amount for the group of CGUs to be materially lower than the carrying amount.

·      A scenario with a combination of a 1% increase in the pre-tax discount rate, a 1% decrease in the long-term growth rate, a 10% decrease in operating profit and a 10% increase in working capital movement does not cause the recoverable amount for the group of CGUs to be materially lower than the carrying amount.

·      A scenario with a combination a 2% increase in the pre-tax discount rate, a 2% decrease in the long-term growth rate, a 10% decrease in operating profit and a 10% increase in working capital movement would result in an impairment of £10.0m.

 

 

8.  Non-current assets held for sale

 

Freehold land and buildings held for sale above consist of the DTC freehold property.

The DTC north building was sold on 3 June 2020, as discussed below. As at 30 June 2020, the DTC south building was still being marketed and remained held for sale. On 18 January 2021, it was reclassified to property, plant and equipment. Consistent with the treatment in the prior year, the impairment charge of £1.5m was recognised within specific adjusting items. It was included within the A&I segment and within administrative expenses in the reported result. See Note 16 to the Group financial statements for further details.

Plant and machinery: In January 2019, the Directors made a decision to commence a process to market actively its test cell assets at DTC for sale, which had a net book value of £2.9m (USD 3.7m) at 1 July 2019. During the prior year, the Group continued to invest in these assets to improve their desirability, increasing the held for sale net book value to £4.0m (USD 4.9m). These assets were sold on 3 June 2020, as discussed below.

 

Detroit test cell business and north building of Detroit Technology Campus
				£m
Fair value of cash consideration
Initial cash consideration				2.8
Provisional fair value of contingent cash consideration:
- Less than one year				0.5
- More than one year				0.7
Total fair value of cash consideration				4.0
Carrying value of property, plant and equipment disposed
Leasehold property				(2.1)
Plant and machinery				(4.0)
Total carrying value of property, plant and equipment disposed				(6.1)
Loss on disposal before tax				(2.1)

 

 

In June 2020, the Group sold the test cell assets and the DTC north building to a non-competitive strategic partner for an initial cash consideration of £2.8m (USD 3.5m), which could increase to a maximum of £4.3m (USD 5.5m), depending on the volume of testing work placed into the facility by Ricardo over the next two years. The total fair value of cash consideration was £4.0m (USD 4.9m), which included the accrued provisional fair value of contingent cash consideration payable of £1.2m (USD 1.5m). A loss of £2.1m (USD 2.6m) was recognised on the sale. Due to the nature and significance of the amount, the loss on disposal was recognised in the income statement within specific adjusting items.

Testing volumes were lower than anticipated in FY 2020/21, with £0.2m (USD 0.3m) of contingent consideration received in the year. Based on testing work placed into the facility in the year, management's order book and the latest probability-weighted pipeline, a charge of £0.5m (USD 0.7m), representing a reduction in the fair value of contingent consideration, was recognised in the income statement in the year. In line with the Group's policy, this charge has been recognised within specific adjusting items.

 

 

9.  Net debt

 

Analysis of net debt		2021	2020
		£m	£m
Current assets - cash and cash equivalents
- Cash and cash equivalents		42.0	66.3
Total cash and cash equivalents		42.0	66.3
Current liabilities - borrowings
- Bank overdrafts repayable on demand		(12.7)	(10.5)
- Hire purchase liabilities maturing within one year		(0.1)	(0.1)
Total current borrowings		(12.8)	(10.6)
Non-current liabilities - borrowings
- Hire purchase liabilities maturing after one year		(0.3)	(0.4)
- Bank loans maturing after one year		(75.8)	(128.7)
Total non-current borrowings		(76.1)	(129.1)
At 30 June		(46.9)	(73.4)
Total cash and cash equivalents at 30 June		42.0	66.3
Total borrowings at 30 June		(88.9)	(139.7)
At 30 June		(46.9)	(73.4)
Movement in net debt		2021	2020
		£m	£m
At 1 July		(73.4)	(47.4)
Net (decrease)/increase in cash and cash equivalents and bank overdrafts		(26.5)	23.4
Repayments of hire purchase		0.1	0.2
Proceeds from bank loans		(5.0)	(140.3)
Repayments of bank loans		57.9	90.7
At 30 June		(46.9)	(73.4)

 

At the year-end, the Group had current hire-purchase liabilities of £0.1m and non-current hire-purchase liabilities of £0.3m. This hire-purchase agreement has an implicit rate of interest of 2.4%. The future undiscounted minimum lease payments due within one year is £0.1m and due after one year is £0.3m.

At the year-end, the Group held total banking facilities of £215.5m (2020: £216.6m), which included committed facilities of £200.0m (2020: £200.0m). The committed facility consists of a £200.0m multi-currency Revolving Credit Facility ('RCF') which provides the Group with committed funding through to July 2023. In addition, the Group has uncommitted facilities including overdrafts of £15.5m (2020: £16.6m), which mature throughout this and the next fi-nancial year and are renewable annually.

Non-current bank loans comprise committed facilities of £75.8m (2020: £128.7m), net of direct issue costs, which were drawn primarily to fund acquisitions and general corporate purposes. These are denominated in Pounds Sterling and have variable rates of interest dependent upon the Group's adjusted leverage, which range from 1.4% to 2.2% (2020: 1.4% to 2.2%) above LIBOR. On 29 June 2021 the Group made amendments to the £200.0m committed Revolving Credit Facility ("RCF") to accommodate the forthcoming cessation of LIBOR.  The Group has adopted SONIA as the risk-free rate to replace LIBOR. No other amendments to the facilities were made.

Adjusted leverage is defined in the Group's banking documents as being the ratio of total net debt to adjusted EBITDA. Adjusted EBITDA is further defined as being operating profit before interest, tax, depreciation, impairment and amortisation, excluding the impact of IFRS 16, adjusted for any one-off, non-recurring, exceptional costs and acquisitions or disposals during the relevant period. At the reporting date, the Group has an adjusted leverage of 1.3x, which attracts a rate of interest of LIBOR plus 1.8% (2020: LIBOR plus 1.4%). The Group has banking facilities for its UK companies which together have a net overdraft limit, but the balances are presented on a gross basis in the financial statements.

10. Issue of share capital

On 11 November 2020, Ricardo plc issued 8,812,030 new ordinary shares of 25 pence, representing 16.5% of the existing issued ordinary share capital of the Company. They were issued at a price of 333 pence per share, being a discount of 9.76 per cent to the closing mid-price on 10 November 2020, raising gross proceeds of £29.3m. Associated transaction costs of £1.1m were incurred, including £0.7m brokerage fees and £0.4m of other directly attributable professional fees. The issue was carried out in order to reduce leverage, strengthen the balance sheet and provide adequate working capital for the business.

The issue took place in the three parts; "Subscription shares" subscribed for by certain directors of the company for cash consideration; "Placing shares" placed via Liberum Capital Limited and Investec Bank plc, to certain existing shareholders and other institutional investors, in exchange for preference shares in Project Star Funding Limited; and "Retail shares" offered by the Company for cash consideration.

The number of shares issued in each category, and the associated proceeds, are as follows:

 

Subscription shares

The subscription shares were subscribed by the following directors:

 

 

The proceeds of £0.1m resulted in share capital of £nil and a share premium balance of £0.1m. There were no fees allocated to this element of the issue.

Placing shares

The placing shares were issued via a 'cashbox' structure, whereby Ricardo plc shares were issued in exchange for preference shares in Project Star Funding Limited, a special purpose vehicle. Section 565 of the Companies Act 2006 allows new shares to be issued for non-cash consideration under exception from the pre-emption requirements of section 561 of the Companies Act 2006.

Project Star Funding Limited ('PSFL') was incorporated in Jersey on 4 September 2020. Prior to the placing, Ricardo plc held 89% of the ordinary share capital of PSFL, with the other 11% held by Liberum Capital Limited.

On 11 November 2020 PSFL issued preference share capital of £26.6m (with no par value) to Liberum Capital Limited. Liberum Capital Limited and Investec Bank plc placed shares to certain existing shareholders and other institutional investors, the proceeds of which were used to settle the consideration for the preference share capital. Ricardo plc allotted new ordinary shares in consideration for the transfer of all of Liberum Capital Limited's preference and ordinary shares in PFSL. The issue created an additional £2.0m of share capital. The premium on issuance of these shares was £23.5m, net of directly attributable costs of £1.0m. Since the premium arose from an issuance the purpose of which was to acquire more than 90% of the equity of PSFL, under s612 of the Companies Act 2006 the associated premium is therefore accounted for as a merger reserve.

On the 18 November, PSFL redeemed its preference shares, and PSFL was dissolved on 24 November 2020.

Retail shares

In order to provide retail and other interested investors the opportunity to participate in the offer, shares were made available via PrimaryBid.com, a platform that facilitates discounted equity offerings for publicly listed companies. Due to its size, the issue fell within the exemption set out in section 86(1)(e) and 86(4) of the Financial Services and Markets Act 2000, as amended, and the company was not required to publish a prospectus.

The £2.6m proceeds (net of directly attributable fees of £0.1m) resulted in additional share capital of £0.2m and a share premium balance of £2.5m.

Treatment of proceeds

The total net proceeds were accounted for as follows:

 

 

 

 

11.  Contingent liabilities

In the ordinary course of business, the Group has £13.0m (2020: £9.4m) of possible obligations for bonds, guarantees and counter-indemnities placed with the Group's banking and other financial institutions and primarily relating to performance under contracts with customers. These possible obligations are contingent on the outcome of uncertain future events which are considered unlikely to occur. The Group is also involved in commercial disputes and litigation with some customers, which is also in the normal course of business. Whilst the result of such disputes cannot be predicted with certainty, the ultimate resolution of these disputes is not expected to have a material effect on the Group's -financial position or results.

In July 2013, a guarantee was provided to the Ricardo Group Pension Fund ('RGPF') of £2.8m in respect of certain contingent liabilities that may arise, which have been secured on specific land and buildings (see Note 16 to the Group financial statements.). The outcome of this matter is not expected to give rise to any material cost to the Group. In October 2018, a further guarantee was provided to the RGPF for an amount that shall not exceed the employers' liability were a debt to arise under Section 75 of the Pensions Act 1995. The guarantee will terminate on 5 April 2023. The outcome of this matter is not expected to give rise to any material cost to the Group on the basis that the Group continues as a going concern.

12. Events after the reporting date

On 31 July 2021, the Group terminated its lease for the Schwäbish Gmünd Technical Centre, incurring a termination fee of £0.3m (€0.4m). At this date, the related right-of-use asset of £1.1m was derecognised, £0.1m of leasehold improvements were impaired, the £1.5m lease liability balance was released. The net impact to the income statement was nil.