Trading summary

Despite continued market uncertainty, owing to global elections in 2024 and geo-political uncertainty impacting energy transition agendas, Ricardo has delivered a solid underlying profit performance in the first half and at the same time, made positive progress in delivering key strategic milestones.

On 31 December 2024 Ricardo successfully completed the sale of the Defense operating segment for consideration of USD 90.6m (£72.3m). Shortly afterwards, post-period end on 7 January 2025, Ricardo utilised the funds from the disposal to acquire 85% of E3 Advisory Pty Ltd (E3A) for a headline enterprise value of AUD 101.4m (£50.7m), of which AUD 69.0m (£34.5m) was paid on completion. These transactions serve to simplify Ricardo's portfolio, focusing on environment and energy solutions and better positioning the Group for long-term sustainable growth. The acquisition of E3A is immediately margin accretive in the short term. It also increases Ricardo's international strategic advisory capability, creating further scale in energy and transport infrastructure in Australia, which has been a key growth market for the Group in recent years.

Excluding the results of Defense, Ricardo generated revenue from continuing operations of £169.1m, 1.9% up on the prior period on a constant currency basis. This reflects growth in the Established Automotive & Industrial (A&I), Rail and Performance Products (PP) segments, offset by lower revenue in Emerging A&I and Energy & Environment (EE). Underlying operating profit from continuing operations was £8.3m, an increase of £7.3m on the prior period profit of £1.0m (on a constant current basis), driven by an improvement in profitability in the Emerging and Established A&I segments as a result of restructuring actions taken in the prior year and improved utilisation in a number of areas. This was complemented by a reduction in Group-wide indirect costs as a result of the centralisation of enabling functions, also implemented in the prior year. Underlying profit before tax from continuing operations improved from a loss of £3.1m in the prior period (on a constant currency basis) to a profit of £4.1m.

These results represent solid underlying operating profit growth within a challenging macro-economic environment which has caused continued volatility in order intake. This is most prevalent in our Emerging A&I segment, where we have seen continued challenge in automotive sectors. Therefore, we are actively diversifying our sales activity towards off-highway and industrial applications. Overall, the Group order book is robust at £393m (FY 2023/24: £356m, HY 2023/24: £380m at constant currency). EE delivered a record order intake, resulting in its order book growing from £99m at June 2024 to £133m, which demonstrates strong ongoing demand for our energy transition and adaptation services and provides confidence for H2.

Reported operating loss from continuing operations, after taking specific adjusting items into consideration, was £8.2m (HY 2023/24: loss of £8.8m) and reported loss before tax from continuing operations was £12.5m (HY 2023/24: loss of £12.9m). HY 2023/24 reported operating loss and loss before tax included a £14.0m non-cash impairment of goodwill in the Emerging A&I segment, stemming from continuing volatility in order intake and uncertainty over the pace of energy transition noted above, £1.1m of amortisation of acquired intangible assets on previous acquisitions, £0.8m of deferred consideration and retention costs relating to previous acquisitions, and £0.7m of other transaction related costs. In the prior period, £6.2m of earn out costs were incurred, together with £0.3m of other M&A-related costs, £2.5m of amortisation of acquired intangibles, and £0.9m of reorganisation and other one-time costs.

Ricardo Defense contributed £41.0m of revenue, £5.3m of underlying operating profit and £5.3m of underlying profit before tax in the current period (HY 2023/24: revenue of £56.6m, £10.9m of underlying operating profit and £10.9m of underlying profit before tax). FY 2023/24 was a record year for the Defense segment, which benefitted from high volumes on the ABS/ESC programme, hence revenue and profit reduced as expected in the first half of FY 2024/25 as a result of reduced ABS/ESC volumes. The reported operating profit and profit before tax from the discontinued operation in the current period includes a provisional net gain on disposal, after transaction-related costs, of £36.8m, subject to any final completion accounts adjustments.

Net debt at 31 December 2024 was £18.5m, a reduction of £41.1m on the 30 June 2024 position of £59.6m. The Group received £64.3m of net proceeds, after transaction-related costs paid in the period, from the disposal of Defense. This was partially offset by an increase in Group's underlying net working capital of £22.6m, of which £13.2m was in the continuing operations due to a combination of the delay in the HMRC Research and Development Expenditure Credit receipt (RDEC), reduced levels of payments on account in A&I and extended invoicing milestones on projects in Asia and the Middle East. The consideration for E3A was paid following the period end.

Headline trading performance

References in superscript are defined in the glossary of terms.

Operating segments summary: Order intake and revenue

Number references in superscript are defined in the glossary of terms.

(a)   From 1 July 2024 the management of Ricardo Strategic Advisory (RSA), historically part of the Emerging A&I segment, was transferred to EE as it was felt that there was closer strategic alignment between the businesses. The results of RSA are now reported to the Group's Chief Operating Decision Maker (the CEO) and the Ricardo plc Board as part of the EE monthly management results. The segmental analysis reflects this new allocation, with the prior period restated. HY 2023/24 order intake and revenue for the Emerging A&I operating segment has decreased by £2.5m and £2.0m respectively (constant currency: £2.4m and £1.9m) with a corresponding increase in the EE segment. RSA generated an underlying operating loss of £0.8m (constant currency: £0.8m) in HY 2023/24. The average headcount for HY 2023/24 in RSA was 56.

 Operating segments summary: Underlying operating profit

Number references in superscript are defined in the glossary of terms. For letter superscript, please refer to the superscript above this table

Environment and Energy Transition portfolio

Robust performance in Rail, but overall performance impacted by delayed orders in A&I and EE

Highlights:

·    Order intake: £159.2m (HY 2023/24: £146.6m) up 8.6% (constant currency: £144.9m up 9.9%)

·    Revenue: £107.6m (HY 2023/24: £118.5m) down 9.2% (constant currency: £117.0m down 8.0%)

·    Underlying operating profit: £12.9m (HY 2023/24 £11.4m) up 13.2% (constant currency: £11.3m up 14.2%)

·    Underlying operating profit margin: 12.0% (HY 2023/24: 9.6%) up 2.4pp (constant currency: 9.7% up 2.3pp)

Energy and Environment (EE) delivered record order intake of £80.8m, a headline increase of 24% compared to the prior period on a constant currency basis. This included the renewal of the National Atmospheric and Greenhouse Gas Inventories programme, a ten-year contract awarded by the UK Government which continues to underpin our global Air Quality services. Normalising for this win, order intake grew by 10% compared to the prior period. Revenue was 4% down on the prior period on a constant currency basis as global election cycles, impacting our Policy, Strategy and Economics practice in particular, combined with continuing challenging market conditions in Water, resulted in order intake being delayed to the end of the period and into the second half. This was partially offset by growth in Energy Infrastructure Transition and Digital Modelling. Underlying operating profit margins reduced to 13.5% (HY 2023/24: 15.0% on a constant currency basis) due to the impact of delayed orders on utilisation. Whilst we see short-term headwinds as a result of geopolitical uncertainties, the resilience of our portfolio of solutions, supported by the strength of the order book, provides confidence in the near to mid-term.

Rail order intake of £57.1m was a record for a six-month period, with notable successes in the Asia region. There was more subdued performance in Australia where we are operating in a more mature market. Revenue increased by 2% on a constant currency basis, with operational efficiencies increasing underlying operating profit margin to 12.1% (HY 2023/24: 10.8% on a constant currency basis). H2 performance will be impacted by our element of the California High Speed Rail being put on hold but we expect continued good performance in Asia and Europe.

We continue to see volatility in the Emerging A&I business and increased demand for internal combustion engines resulting in more activity in Established A&I. Emerging A&I order intake reduced by £6.5m (23%) on a constant currency basis compared to the prior period, with revenue reducing by £8.2m (30%) on a constant currency basis. The short-term volatility has been influenced by delayed customer investment in emerging solutions, particularly in Automotive, supporting our continuing diversification away from the automotive market into off-highway and industrial applications. The restructuring efforts implemented in the second half of FY 2023/24, focused on implementing a more flexible resourcing model and reducing indirect costs, have resulted in an improvement in profitability, with underlying operating profit increasing by £2.1m compared to the prior period on a constant currency basis. Underlying operating profit margin improved to 7.9%, compared to a negative 2.2% in the prior period. Whilst we remain confident over growth in the mid-term, there is volatility in order intake and uncertainties over the pace of technology change. Following a re-assessment of the value-in-use of the segment, goodwill which arose as a result of historic acquisitions was impaired resulting in a charge of £14.0m. This has been recognised within specific adjusting items. No other assets were impaired.

Established Transport portfolio

Strong performances from PP and Established A&I

Highlights (continuing basis following the disposal of Defense):

·    Order intake: £61.9m (HY 2023/24: £54.0m) up 14.6% (constant currency: £53.9m, up 14.8%)

·    Revenue: £61.5m (HY 2023/24: £49.1m) up 25.3% (constant currency: £49.0m, up 25.5%)

·    Underlying operating profit: £2.4m (HY 2023/24: loss of £1.5m) up 260.0% (constant currency: loss of £1.5m up 260%)

·    Underlying operating profit margin: 3.9% (HY 2023/24: (3.1)% reported and at constant currency, up 7.0pp)

Performance Products (PP) delivered order intake of £42.2m, in line with the prior period. PP secured a six-year extension to a driveline programme with a major European OEM in the period. PP delivered growth in revenue (£2.4m or 6%) and underlying operating profit (£0.8m or 40%), driven by the ramp-up of activities on a significant ten-year driveline and powertrain manufacturing framework agreement, secured in June 2024.

Established A&I order intake was £19.7m in the period, a 64% increase on HY 2023/24 on a constant currency basis. HY 2024/25 order intake includes design and development activities on the ten-year framework agreement mentioned above. In addition, there has been strong demand in high-efficiency ICE for the marine industry and large industrial applications, supporting our continued strategy of transitioning away from traditional automotive markets. Revenue increased by 94% on a constant currency basis to £20.9m. Established A&I also benefitted from the structural changes implemented during the latter half of FY 2023/24. Underlying operating loss reduced from £3.5m in HY 2023/24 to £0.4m in HY 2024/25.

Discontinued operation - disposal of Defense

As anticipated, Defense order intake, revenue and underlying operating profit all reduced in HY 2024/25 compared to the prior period. Defense received £32.1m (USD 43.3m) of orders for ABS/ESC kits in the period, compared to £80.5m (USD 105.4m) in the prior period due to the timing of the release of funding for the programme. Together with new vehicle kits, Defense delivered 3,430 kits in HY 2024/25 (HY 2023/24: 6,130 kits). There was good growth in the Technical Solutions consultancy business, including Field Support Services, being the sustainment of ABS/ESC kits in the field.

Cash performance - inflow from the disposal of Defense

Net debt: £18.5m, a decrease of £41.1m (69.0%) on FY 2023/24.

The Group received £64.3m of net proceeds, after transaction-related costs, from the disposal of Defense. The Group's underlying net working capital increased by £22.6m, split between £13.2m from the continuing operations and £9.4m in Defense. Working Capital for the continuing business has been adversely impacted by the delay in the HMRC Research and Development Expenditure Credit receipt (RDEC) of £6.3m together with reduced levels of payments on account and extended invoicing milestones on projects in Asia and the Middle East. Overall underlying cash conversion was negative 5.8% and positive 13.2% for the continuing operations. Reported cash conversion was negative 4.5%, after taking into account the cash impact of specific adjusting items. We expect improved performance in FY 2024/25.

The composition of net debt is defined in Note 14.

Specific adjusting items

As set out in more detail in Note 10, the Group's underlying profit before tax from continuing operations excludes £16.6m of costs incurred during the period that have been charged to the income statement as specific adjusting items (HY 2023/24: £9.9m). In line with the Group's policy, these items have been recognised as specific adjusting items, due to their nature or significance of their amount, so as to provide further clarity over the financial performance.

References in superscript are defined in the glossary of terms

*Acquisition-related expenditure of £0.1m in the prior period has been re-presented as part of the result of the discontinued operation.

Amortisation of acquired intangibles was £1.1m in the period, compared to £2.5m in HY 2023/24. This has reduced due to the acquired intangibles from historic acquisition becoming fully amortised.

Impairment of goodwill of £14.0m was recognised in the Emerging A&I segment. Due to factors previously mentioned, expected cash flows for the Emerging A&I business have decreased compared to those expected at 30 June 2024, resulting in an impairment of the goodwill in this segment. See Note 9 for further details.

Acquisition-related costs of £1.5m were incurred in the period (HY 2023/24: £6.5m). These included accruals for:

·      deferred consideration and management retention payments in relation to the acquisition of Aither Pty Ltd (Aither), acquired in March 2022 - £0.6m (HY 2023/24: £4.9m, plus £0.2m of post-deal integration costs);

·      deferred consideration in relation to the acquisition of E3 Modelling (E3M), acquired in January 2022 - £0.2m (HY 2023/24: £1.2m plus £0.1m of post-deal integration costs); and

·      incremental M&A costs in relation to the acquisition of E3A, acquired in January 2025 - £0.7m.

The prior period also included £0.1m in respect of retention payments due to the former owners of Inside Infrastructure, acquired March 2022.

Restructuring costs of £0.6m were incurred in the prior period in relation to restructuring of the Established A&I business.

ERP implementation costs of £0.3m were incurred in the prior period for initial feasibility studies in relation to the proposed implementation of a new Group-wide ERP system. No costs were incurred in the current period due to this project being paused.

Disposal of discontinued operation: The Defense business was sold on 31 December 2024 for a total consideration of USD 90.6m (£72.3m), of which £68.5m was received in cash in the period and £3.8m was received in early January 2025. The consideration included an initial estimate of closing net debt and working capital. Transaction-related costs of £7.9m were incurred in the period. The value of net assets disposed was £27.6m, resulting in a profit on disposal of £36.8m. A true up of the consideration and gain on disposal for the final completion net debt and working capital will take place in the second half of FY 2024/25.

Research and Development (R&D) and capital investment

The Group continues to invest in R&D and spent £3.6m (HY 2023/24: £6.9m) before government grant income of £0.1m (HY 2023/24: £1.2m). Development costs capitalised in this period were £3.0m (HY 2023/24: £3.1m), reflecting continued investment in electrification and alternative fuels technology within the Emerging A&I segment, together with technology, tools and processes in the EE segment.

Capital expenditure on property, plant and equipment, excluding right-of-use assets, was £1.9m (HY 2023/24: £1.6m), reflecting targeted investment in our business operations, including hydrogen and electrical test capability in the Emerging A&I segment.

Net finance costs

Total finance income was £1.2m (HY 2023/24: £0.7m) and finance costs were £5.5m (HY 2023/24: £4.8m) for the period, giving net finance costs of £4.3m (HY 2023/24: £4.1m). The small increase in net costs reflects higher levels of net debt during the current period, partially offset by a slight reduction in the SONIA interest rate compared to the prior period.

Taxation

The underlying effective tax rate on continuing operations was 29.3% for the period (HY 2023/24: tax credit of 20.0%). The reported effective tax rate on continuing operations was negative 7.2% (HY 2023/24: tax credit of 11.6%). The reported rate was impacted by the profile and composition of specific adjusting items and underlying profits which results in a negative effective tax rate.

For the total Group the underlying effective tax rate was 27.7% for the period (HY 2023/24: 26.6%). The total reported effective tax rate was 7.8% (HY 2023/24: negative 57.1%).

Earnings per share

Basic loss per share from continuing operations was 21.5p (HY 2023/24: loss of 18.5p). The Directors consider that underlying earnings per share provides a more useful indication of underlying performance and trends over time. Underlying basic earnings per share from continuing operations for the period was 4.7p (HY 2023/24: loss per share 4.0p). The calculation of basic loss per share, with a reconciliation to underlying basic earnings per share, which excludes the impact (net of tax) of specific adjusting items, is disclosed in Note 11.

Dividend

As set out in more detail in Note 12, the Board has declared an interim dividend of 1.7p per share (HY 2023/24: 3.8p). The dividend will be paid gross on 11 April 2025 to holders of ordinary shares on the Company's register of members on 14 March 2025.

Goodwill

At 31 December 2024, the Group had total goodwill of £76.0m (FY 2023/24: £96.0m), with the reduction in the period reflecting the impairment of the goodwill in the Emerging A&I segment (£14.0m) and disposal of Defense (£3.5m) with the remainder reflecting movements in the foreign exchange rate period on period. The carrying value of goodwill in the remaining operating segments is fully supported by their recoverable amounts.

Banking facilities

Net debt at 31 December 2024 comprised cash and cash equivalents, excluding restricted cash, of £111.7m, and borrowing and overdrafts, including hire purchase liabilities and net of capitalised debt issuance costs, of £130.2m.

The Group funds its operations via a Revolving Credit Facility (RCF) of £150m, with a £50m accordion, which provides committed funding through to August 2026, alongside the Group's uncommitted overdraft facilities of £16.1m. At 31 December 2024, the amount undrawn on the RCF was £38.3m. This, together with the cash held, net of £12.9m of off-settable overdrafts, of £98.8m, and £10.5m of unutilised overdraft facilities, provided the Group with total cash and liquidity of £147.6m. The high cash balance at 31 December 2024 reflects the proceeds received from the Defense sale. A portion of these proceeds was used to acquire E3A in January 2025, as discussed below.

The Group's Adjusted Leverage ratio (defined as net debt over EBITDA for the last twelve months, excluding the results of Ricardo Defense and the impact of specific adjusting items and IFRS 16 Leases) was 0.61x as at 31 December 2024. The Adjusted Leverage covenant is a maximum of 3.0x.

The Interest Cover ratio was 6.2x at 31 December 2024. The Interest Cover covenant limit is a minimum of 4.0x. Under the terms of the RCF, interest cover is defined as EBITDA for the last twelve months, excluding discontinued operations and the impact of specific adjusting items, divided by net interest costs for the last twelve months, excluding pension and IFRS 16 interest costs. An amendment to the covenant definition for the 31 December 2024 and 30 June 2025 covenant test dates was agreed with the lending banks to calculate interest cover inclusive of the results of Ricardo Defense for the last twelve months. The covenant will return to its original definition at 31 December 2025. Further details are provided in Note 14.

Foreign exchange

On consolidation, revenue and costs are translated at the average exchange rates for the period. The Group is exposed to movements in the Pound Sterling exchange rate, principally from work carried out with customers that transact in US Dollars, Euros, Australian Dollars and Chinese Renminbi. Compared to the prior period, the average value of the Pound Sterling weakened by 3% against the US Dollar, 3% against the Euro, 2% against the Australian Dollar and 2% the Chinese Renminbi. Had the prior period results been translated at current period exchange rates, revenue from continuing operations would have been £1.6m (1%) lower, underlying operating profit would have been £0.1m (9%) lower and underlying profit before tax would have been £0.1m (3%) lower.

Pensions

The Group's defined benefit pension scheme operates within the UK. The fair value of the scheme's assets at the end of the period was £100.1m (FY 2023/24: £105.4m) and the present value of the scheme's obligations was £92.7m (FY 2023/24: £97.5m). The value of the scheme's assets decreased over the period as a result of stock market performance. However, this was partially offset by a decrease in the scheme's liabilities, due to an increase in the discount rate. The pre-tax surplus, measured in accordance with IAS 19, at 31 December 2024 was £7.4m (FY 2023/24: £7.9m). In line with the last triennial valuation and agreed funding plan, Ricardo did not pay any cash contributions into the scheme during the period (HY 2023/24: £0.8m).

Acquisition of E3 Advisory

Following the period end, on 7 January 2025, the Group acquired an 85% shareholding in E3 Advisory Pty Limited (E3A). E3A is a consulting company, based in Australia, which advises both governments and private clients through the infrastructure project lifecycle, with particular expertise in transport, infrastructure, clean energy, water, and mining and resources. E3A provides enhanced strategic advisory services to complement Ricardo's existing technical service capabilities.

The undiscounted value of consideration for the 85% interest is AUD 101.4m (£50.7m), including payments for an initial estimate of net cash on completion, of which AUD 69.0m (£34.5m) was paid on completion, with AUD 32.4m (£16.2m) payable in instalments over the next two years.

The holders of the remaining 15% of equity can exercise a put option for Ricardo to acquire their shares after the third anniversary from completion. The value of the remaining 15% shareholding is based on the future earnings before interest, tax and depreciation (EBITDA) performance of the business in the twelve months to 31 December 2027 at a 9x EBITDA multiple. In the event that management have not exercised their options on the third anniversary of completion of the Acquisition, the Option Price will decrease over time. Ricardo Australia may also elect to mandatorily acquire these shares in certain other circumstances.

Re-based financial targets

Following the sale of Defense and recent volatility, we are re-basing our medium-term financial targets. We now expect Group organic revenue growth in the mid-single digit per annum, with the Group trending towards 10% underlying operating profit margin.

Outlook for the year ending FY 2024/25

Despite a challenging macro-economic environment, we expect to see double digit underlying operating profit growth for the continuing Group as a result of the good order book, the benefits from our proactive cost actions, and the benefit from E3 Advisory. With a focus on working capital management and collection of the delayed RDEC receipt we expect an improved cash performance in H2.

In our EE business we expect improved revenue and profit performance in H2 on the back of a strong six-month order book and expected wins in the second half. However, due to the delay in orders in H1, revenue and profit will be broadly flat for the full year. Within Rail, H2 performance will be impacted by our element of the California High Speed Rail being put on hold, but with continued strong performance in Asia and Europe. With continued delays in orders for emerging technology solutions, we anticipate a lower order mix for our Emerging A&I business. At the same time, we are winning more contracts in Established A&I owing to a sustained interest in developing cleaner and more efficient internal combustion solutions. In terms of our PP business, we expect operating performance to be broadly stable but with higher capital expenditure in FY 2025/26 as we invest for growth, ahead of the commencement of production for our largest ever single framework contract.

The Group has made positive progress in delivering key strategic milestones in the first half and we remain confident in our mid-term portfolio transition strategy.

By order of the Board:

Graham Ritchie                                  Judith Cottrell

Chief Executive Officer                       Chief Financial Officer

4 March 2025