Chief Executive Officer to step down after a successor is recruited, trading in line with the Board’s expectations.
Ricardo is today providing a trading update in respect of the six months ended 31 December 2020 and is also announcing the details of its management succession plan. Ricardo plans to announce its half year results on 25 February 2021.
Management succession plan
The Board of Ricardo and Dave Shemmans have jointly agreed that Dave Shemmans will be leaving his role as Ricardo’s Chief Executive Officer in due course, after more than 15 years in the role. The board will shortly initiate a process to recruit a successor who can continue to deliver on the strategy of the company. It is expected that Dave Shemmans will continue in his current role until such time as a successor is in place, contributing to a smooth transition. The board will make further announcements on this process in due course as appropriate.
Terry Morgan, Chairman, said:
“Dave has had a very successful 15 years as Chief Executive of Ricardo and on behalf of the Board I would like to thank him for his substantial contribution. The Company has grown and diversified significantly under Dave’s leadership and he will be leaving the Company with a strong underlying business and plenty of opportunities for further profitable growth.”
Dave Shemmans, Chief Executive said:
“I have thoroughly enjoyed being part of Ricardo’s success story and am pleased that the Group is well placed to deliver on its growth strategy. Following my departure, I will be leaving behind a team of highly able and experienced people leading a high quality business."
In the six months to 31 December 2020, Ricardo has traded in line with the Board’s expectations with the business recovering from the impact of COVID-19. Whist order intake, revenue and operating profit are lower than the six months to 31 December 2019 (“the prior period”), they have all increased compared to the six months to 30 June 2020.
In the six months to 31 December 2020, order intake was good at £181m, down 13% on the six months to 31 December 2019 and up 13% on the six months to 30 June 2020. The order book at 31 December 2020 was in excess of £315m, compared to £314m at 30 June 2020 and £319m at 31 December 2019.
Energy & Environment (‘EE’) continues to perform well with £28m of orders received, up 15% on the prior period. Strong growth has continued within the Evidence and Policy Business Unit where a wide range of policy and strategy related services have been delivered, particularly in relation to the European Union’s Green Deal. Topic areas have included greenhouse gas reduction (‘GHG’) targets for the EU; GHG emissions targets for new cars and vans; policy measures in relation to sustainable renewable aviation fuels and strengthening legislation on air quality. The water team have also seen continued growth in orders following the commencement of the new asset management planning cycle (‘AMP7’) in April 2020 and EE is currently working with eleven water companies within the UK.
In January 2021, EE was pleased to announce our collaboration with AFC Energy in respect of Innovative hydrogen power applications. This partnership will accelerate global efforts to decarbonise transport, energy and nationally critical infrastructure through the design and delivery of high-quality hydrogen technologies, supporting carbon neutral measures. The focus will be on the joint creation of hydrogen fuel cell product and service offerings, initially on marine, rail and stationary power generation.
Rail received orders of £44m which, although down £7m (14%) on the prior period, is a good level of orders in the current climate. Order intake continues to be strong in Australia, Asia and the Middle East, while customers remain cautious in the Netherlands and the UK. In Europe, this caution has been balanced by a strong order book for Certification work, notably the significant appointment of Rail by Siemens Mobility to provide compliance assessments for 30 new high-speed intercity express trains for Germany's national operator, Deutsche Bahn.
Defense secured £22m of orders, up 60% on the prior period. Order intake was good in both the Engineering Services part of the business and the High Mobility Multipurpose Wheeled Vehicles (‘HMMWV’) anti-lock braking system/electronic stability control (‘ABS/ESC’) project for the US Army and National Guard. Engineering Services orders included a significant multi-year production contract from GM to produce and field the Army’s new Infantry Squad Vehicle (‘ISV’), together with increased work on the Navy Systems Engineering Support contract. ABS/ESC orders in the period exceeded the prior period due to an increase in orders for kits in respect of new production vehicles.
In the period, Defense secured an ABS/ESC retrofit contract to improve the safety of existing HMMWV ambulances. Delivery of these life-saving ambulance retrofit kits will begin in the second half of this financial year. In addition, $34.5m first-year funding has been approved in the US Government’s FY21 national defense budget to procure and install Ricardo’s ABS/ESC retrofit kit to vehicles not addressed during new production. The ABS/ESC fleet retrofit contract award and first delivery order is anticipated in the quarter ending 31 March 2021, with follow-on orders anticipated over three years. Ricardo’s kits will be installed at regional centres throughout the United States by Red River Army Depot in partnership with Ricardo’s field support representatives.
Performance Products, including our Software business, received orders of £28m, down 37% on the prior period. This reduced level of orders is in line with expectations and primarily reflects fewer orders from McLaren following the shut-down of its manufacturing plant in the quarter ended 30 June 2020. Production re-commenced in July 2020 and has increased month on month with over 800 engines supplied in the period. Engine and transmission deliveries across all customers during the period have broadly been in line with the Board’s expectations.
Automotive & Industrial (‘A&I’) received orders of £59m, a reduction of 21% on the prior period. Across the Group, A&I received a higher level of orders in the US, a similar level in China and a lower level in EMEA. The automotive market overall is still challenging as customers continue to place orders at a slow pace. However, the pipeline remains good and A&I has focused on its ‘digital first’ agenda to drive faster time-to-market, more agile project management, virtual working and product development. In addition, the A&I EMEA has largely completed its significant investment in a hybrid powertrain development facility in the UK, which will be available to clients in the second half of this financial year.
The operating business generated positive net cash inflow of approximately £3 million in the period and for the whole of the COVID-19 impacted 2020 calendar year. At 31 December 2020, net debt was £50m compared to £73m at 30 June 2020 and £74m at 31 December 2019. During the period we completed a share placing which raised £28m, net of fees, to reset the capital structure of the Group, reducing leverage and repaying borrowings to achieve an appropriate level of balance sheet efficiency and resilience. In the period, we paid acquisition related costs of £5m and exceptional redundancy costs of £3m. This has been achieved by our continuing strong focus on cost control and efficient working capital management.
The Revolving Credit Facility (‘RCF’) of £200m continues to provide the Group with committed funding available for the remaining term through to July 2023. At 31 December 2020, the amount undrawn on the RCF was £94m and we held net liquid cash reserves of £54m together with uncommitted overdraft facilities of £15m.
Across the Ricardo Group, we have continued to work hard to minimise the disruption caused by COVID-19, while at the same time acting responsibly to do what we can to prevent the further spread of the virus. Our digital-first strategy has provided us with the flexibility to work remotely and has enabled us to deliver innovations such as virtual certification, remote audits and inspections. Together with the use of virtual conferencing tools, we have been able to use this approach to continue our business processes largely unimpeded. The most recent lockdowns around Europe have made little difference in our ability to operate and we have built on the experience of the original lockdowns in the Spring of 2020.
As we enter 2021 with more stringent restrictions placed on many cities, regions and countries around the world, our focus on the safety of our employees remains as important as ever. The guiding perspective of ‘Healthy People, Healthy Business’ remains the business as usual focus for Ricardo, and we currently have no voluntary closures of any of our international network of offices and technical centres.
We have been preparing for Brexit for some time and have robust plans in place to ensure that we can both contract and operate without customer risk. Our technical and commercial bases in many cities within the European Union give us the necessary trading flexibility, and we are already contracting from these locations for engineering, consulting and certification projects.
The key division impacted at this time is Performance Products and I am pleased to say that we have been exporting and importing goods since 1 January 2021 without major disruption. The experience to date has been a significant increase in paperwork and increased vigilance at borders, resulting in some delays but goods continue to flow. Our preparation included an increase in stock to cater for such delays and training staff in new customs procedures.
Dave Shemmans, Chief Executive Officer, commented:
We have traded in line with the Board’s expectations and continue to navigate the COVID-19 backdrop with all key financial metrics improving well on the preceding six-month period. Order intake has been good and this has resulted in a healthy order book at the end of December 2020, providing confidence for further improvement moving forward.
EE, Rail and Defense continue perform well with strong demand. We welcomed the signing of the US Defense budget and look forward to the completion of procurement negotiations with the US Army in the coming weeks with regards to the ABS Fleet retrofit programme. Performance Products volumes are ramping back up. A&I has recovered to pre COVID-19 normality in China, the US business has improved its run-rate performance and we are seeing improved orders in EMEA, albeit still at a lower level than the six months to 30 June 2020.
The economic outlook continues to be uncertain and we continue with cautious optimism based on our order book and pipeline. We have established a firm and diversified platform for our business based around the global environmental agenda and looking forward I remain confident of the prospects for the group.
About Ricardo plc
Ricardo plc is a global engineering, technical, environmental and strategic consultancy business. We also manufacture and assemble low-volume, high-quality and high-performance products and develop advanced virtual engineering tools for conventional and electrified powertrains as well as for complex physical systems.
Our ambition is to be the world's pre-eminent organisation focused on the design, development and application of solutions to meet the challenges within the markets of automotive, rail, environmental & planning, resource management and defence. Our vision is to create a world fit for the future, and we will achieve this through the activities of our portfolio of businesses, each of them underpinned by our talented team of professionals. The Ricardo plc LEI number is 213800ZNYAY35F4XB814.
This announcement is released by Ricardo plc and contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with the Company's obligations under Article 17 of MAR.
For the purposes of MAR and Article 2 of Commission Implementing Regulation (EU) 2016/1055 (as amended by the FCA pursuant to Technical Standards (Market Abuse Regulation) (EU Exit)
Instrument 2019), the person responsible for releasing this announcement is Patricia Ryan, Company Secretary of Ricardo plc.
Notes for Editors
Mr Shemmans’ full departure terms will be confirmed closer to his final date of service and these terms will be consistent with Ricardo’s approved Directors Remuneration Policy. It is expected that Mr. Shemmans will be treated as a good leaver for these purposes. Mr Shemmans will continue to receive his normal remuneration whilst he remains an employee of Ricardo.
Dave Shemmans, Chief Executive Officer
Ian Gibson, Chief Financial Officer
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