Ricardo Interim Results

Ricardo have now released their interim results, the income statement is below:

The profit for the half year is £800K higher than the same period last year at £5.4M, which is quite pleasing given the higher tax payment.  There is a mixed performance from the various different divisions.  UK and German technical consulting have both had a good period up £2.1M and £3.1M respectively but the USA technical consulting business suffered and is £2.5M down on last year at £13.5M.  Both the Strategic consulting and Performance Product business also did worse than last year, albeit only slightly.  Apparently strategic consulting is suffering as clients shift towards smaller more operationally focused projects.  In addition the people investment in this area has not resulted in larger revenues.  In fact the US Technical consulting division and the Strategic consulting division both made a loss in the period.  (500K and 300K respectively).

The cost of sales have reduced by £6.3M but the admin expenses are up £7.9M so overall costs are up slightly.  Admin expenses were increased as the group look to strengthen business development teams and have undertaken upgrades to some facilities.  We also see that there was a bad movement in the value of the pension scheme – it is £6.5M worse off, which, when combines with the unfavourable currency translation on foreign net investments of £1.3M has caused the total income to be negative, at -£800K.

The assets look like this:

The net tangible assets are down £4.5 on the same period of last year.  The assets themselves have remained flat, with total tangible assets at £142.7M. Within this, we see that cash has reduced by £2.1M to £7.8M and inventories have increased by £3.4M to £8.6M.  I would suggest the two are connected and I would have thought this is an indication of a large project being undertaken in the Performance Product sector.

The Liabilities have increased by £4.8M to give a figure just short of £80M.  The main driver of this has been the increase in pension obligations, which have gone up £5M to £18.4M.  This is a bit of a shame as at the end of last year they seemed to have quite a good handle on the pension deficit.  Other wise the only differences are a reduction of £2.9M in bank loans and the same increase in payables.

Next, the cash flow.

The cash flow here is negligible, £5.5M down on the same period of last year but looking closer at the figures, we see that Ricardo benefited from a new increase in borrowings of £5.9M last year which does not reoccur this year so discounting this we see that the cash flow is on a par with last year.

Some other figures of interest are the fact that an increase in payables and inventories is balanced by a decrease in receivables.  I guess this suggests a transition in the cycle of sales where the group is stocking up before sales to a customer.  There is an increase in pension costs of £500K that pushes the cash from operations to a slightly lower amount than last year.  This is then counterbalanced by £600K less in pension finance costs (I will not pretend to understand exactly what is going on with that..).  There is also less tax paid counter balanced with higher dividends.  The figures last year also benefited from a one off £1.4M inflow of cash from the sale of the German exhaust subsidiary.  All this leads me to be fairly pleased with this reported cash flow.

NET DEBT	HI 2012		H2 2011
CASH	7,800,000	-2,100,000	9,900,000
BANK OVERDRAFT	-3,300,000	2,200,000	-5,500,000
BANK LOANS MATURING IN 1 YEAR	-2,000,000	700,000	-2,700,000
BANK LOANS MATURING AFTER 1 YEAR	-100,000	100,000	-200,000
NET CASH	2,400,000	900,000	1,500,000

 

I have come to realise that the way cash flow impacts net debt is very important.  Here we can see that debts have reduced across the board and in fact Ricardo has a net cash position that increased by nearly £1M in the first half.  This is quite encouraging.

The group have stated that passenger car work has continued to progress with manufacturers looking to increase efficiency in their vehicles.  The motorsport sector seems to be going well too with a Peugeot car running with Ricardo transmission winning the Le Mans cup title. Emissions compliance regulation is also driving progress in securing business in the commercial vehicle and off road sectors.

Ricardo are making progress on a number of new products including a next generation efficient spray guided gasoline combustion system, a highspeed flywheel energy storage system for buses and a downsized gasoline engine with intelligent electrification.  All very technical sounding stuff that I hope will keep Ricardo going.

Overall this is an encouraging set of results in difficult market conditions.  The profit is up somewhat to £5.4M, although there is a mixed performance in the different market areas.  The balance sheet looks fine, although the pension valuation is causing a few problems.  The cash flow is fairly negligible but the dividends have been increased to 3.7 for the interim and there is a pleasing reduction in net debt.

The board have stated that the order book is strong, at a higher level than the end of last year and having just purchased some more of these after the last update I am going to hold on to the shares.

 

On 16th May 2012, the group released a management statement.  The orders for the year so far are comparable to last year, but orders for the last 4 months are lower than the same period of last year.  New work has included engine design work for agricultural vehicles, an engine programme for power generation, further work with a German motorcylce manufacturer and a rail transmission design programme for a Malaysian client.

Revenues for the period was 3% up on last year and the order book at the end of April is at the same level as last year.  The Technical consulting business has flat revenues but delivered better operating margins with the UK division doing well, offsetting slow trade elsewhere.  Germany has been difficult and revenues in the second half of the year are likely to be lower.  Trading performance in the US has also remained challenging despite some order intake from the defence and commercial sector.  Revenues in Strategic Consulting have been static but cost cutting has improved margins here.    The Performance Products segment seems to be doing well, being very busy.

Apparently the net cash balance remains positive, which is an advantage.

This statement seems to be a little disappointing overall.  It seems that total profits will be similar to last year but the lack of progress in the US and Germany is a little disappointing, especially considering the latter has not been that badly affected by the recession.   Hold.