This year, the Group delivered total revenue of £387.3m and underlying profit before tax of £26.3m, an increase of 10% and 46% on the prior year, respectively. Revenue and underlying profit before tax from continuing operations, which excludes the results of Ricardo Software, held for sale as at 30 June 2022 (see Notes 2 and 10), were £380.2m and £24.2m, increases of 11% and 54% on the prior year. Reported profit before tax from continuing operations, after deducting specific adjusting items, was £12.4m (FY 2020/21: £2.0m).

On a constant currency basis, revenue from continuing operations increased by £36.7m (11%) compared to FY 2020/21. Similarly, on a constant currency basis, underlying operating profit and profit before tax from continuing operations increased by £7.6m (37%) and £8.5m (54%), respectively.

The results were in line with the Board's expectations and reflect good year-on-year growth across a number of our segments, particularly Automotive and Industrial (A&I), which has continued its positive trajectory as it repositions itself as a global business in a rapidly changing market, and Energy and Environment (EE), which continues to see high demand for its decarbonisation services.

Group results

Headline trading performance

References in superscript are defined in the glossary of terms.

(a)   Growth from continuing operations excludes the results of the Software operating segment which was sold on 1 August 2022 (see Note 2)

(b)   Organic growth excludes the performance of current year acquisitions from the results of FY 2021/22 (see Note 8).

On 21 March 2022, we successfully acquired Inside Infrastructure Pty Ltd (Inside Infrastructure), which specialises in water and sustainable resource management within Australia. Inside Infrastructure added £0.9m of revenue and £0.1m of operating profit and profit before tax to the Group's results in FY 2021/22 (see Note 8).

Net debt was £35.4m at 30 June 2022, compared to £46.9m at 30 June 2021. This improvement reflects a strong working capital performance. Excluding restructuring costs and acquisition-related payments, working capital reduced by £8.2m and the Group generated more than £25m of cash in the year.

Operating segment summary

The segmental results are discussed in more detail in the operating segments section below.

Order intake from continuing operations up 24% (constant currency: 23%) on FY 2020/21 with closing order book of £340.0m

Order intake from continuing operations of £425.3m represents a 24% increase on the prior year order intake of £344.1m (constant currency: 23%), with growth across all segments. Order intake includes £1.6m from Inside Infrastructure. There were significant increases in year-on-year order intake in A&I (38%, constant currency: 37%), driven by increasing demand for electrification, power electronics and software services, together with clean sheet engine design for marine applications, and Performance Products (PP) (31%, excluding Ricardo Software, constant currency: 31%), which was successful in securing a multi-year order to continue to supply transmissions for a single make racing series. EE order intake continued its consistent year-on-year growth trajectory, with a 16% increase (constant currency: 16%), with the key driver of growth being the Sustainability practice. Defense order intake increased by 12% (constant currency: 10%), which secured USD 34m (£27m) of orders for the Anti-lock braking system/electronic stability control (ABS/ESC) retrofit programme and Rail order intake grew by 14% (constant currency: 16%), driven by a number of project extensions and new wins in North America, which is a key growth market for Ricardo.

Revenue from continuing operations up 11% (constant currency: 11%) on FY 2020/21

FY 2021/22 revenue from continuing operations was £380.2m, compared to £343.7m in the prior year (£343.5m on a constant currency basis). Revenue includes £0.9m from Inside Infrastructure. Revenue increased across all operating segments with the exception of Rail.

EE revenue grew by 18% (constant currency: 18%), with strong demand from international governments to support climate commitments and from private sector clients for sustainability and net zero support.  A&I revenue grew by 19% (constant currency: 18%) as a result of the growth in order intake. Defense revenue increased by 19% (constant currency: 18%), driven by increased ABS/ESC volumes and engineering services work. PP revenue increased by 5% (constant currency: 5%) due to growth in transmission volumes. Rail revenue declined by 4% (constant currency: 3%) due to the wind down of a number of projects and delays in starting new work.

Underlying operating profit from continuing operations of £28.0m, up 37% (constant currency: 37%) with reported operating profit from continuing operations of £16.2m (FY 2020/21:  £6.7m)

Underlying operating profit from continuing operations, which excludes specific adjusting items, increased by 37% (constant currency: 37%) to £28.0m (FY 2020/21: £20.4m, £20.4m on a constant currency basis). FY 2021/22 underlying operating profit includes £0.1m from Inside Infrastructure. Underlying operating profit margin from continuing operations increased to 7.4% from 5.9% (constant currency: 5.9%) in the prior year.

The combination of revenue growth and the implementation of the global operating model resulted in A&I significantly improving its underlying operating profit from a loss of £3.6m in FY 2020/21 (constant currency: loss of £3.6m) to a profit of £3.7m in FY 2021/22. A&I's underlying operating profit margin improved from negative 3.6% (constant currency: 3.5%) to positive 3.1%. On a reported basis, including costs from reorganisation activities, A&I's operating loss decreased from £9.2m in FY 2020/21 to £1.5m in FY 2021/22.

Underlying operating profit improved in EE and Defense, but margins were lower than the prior year due to increased operating costs in EE, to support the growth of the business, and the mix of work in Defense, with higher ABS/ESC material costs . PP underlying operating profit grew year-on-year and margins were in line with prior year. Rail underlying operating profit reduced as a result of the reduction in revenue.

Reported operating profit from continuing operations was £16.2m, growth of 142% (constant currency: 138%) on FY 2020/21. Within continuing operations, the Group recognised costs of £11.8m in respect of specific adjusting items relating to the amortisation of acquired intangible assets, external project costs, restructuring actions in A&I and Rail, the recognition of costs in relation to the implementation of a new cloud-based ERP system in PP, and a gain on the settlement  of a quasi-equity investment in one of the Group's subsidiaries. A further £1.3m of external costs in relation to the disposal of Ricardo Software, held for sale at 30 June 2022, have been recognised as specific adjusting items within the discontinued operation. Specific adjusting items relating to earn outs for previously completed acquisitions and restructuring actions in A&I were also recognised in the prior year. Specific adjusting items are discussed in more detail below.

Underlying profit before tax from continuing operations of £24.2m, up 54% (constant currency: 54%) on FY 2020/21, with a reported profit before tax from continuing operations of £12.4m (FY 2020/21: profit of £2.0m)

The increase in underlying profit before tax from continuing operations, from £15.7m (constant currency: £15.7m) to £24.2m, was primarily driven by the improvement in the underlying operating profit.

As noted above, the FY 2021/22 reported profit before tax from continuing operations includes £11.8m of costs relating to specific adjusting items (FY 2020/21: £13.7m), discussed in more detail below.

Net debt down 25% to £35.4m (FY 2020/21: £46.9m)

Closing net debt was £35.4m (FY 2020/21: £46.9m). The Group had a net cash inflow for the period of £11.5m. During the year, the Group acquired the share capital of Inside Infrastructure for an initial up-front consideration of AUD 10.4m (£5.6m), including AUD 0.9m (£0.5m) for net cash and normal working capital. AUD 1.0m (£0.6m) of cash was acquired. The Group also paid acquisition-related earn out and retention costs of £4.9m, other acquisition and disposal-related fees of £1.2m, costs for the exit of the former CEO (£0.8m), and reorganisation costs of £2.4m. Excluding these specific adjusting items, the Group generated more than £25m of cash, which was achieved through a combination of the improved profitability and a continuing strong focus on working capital management. The composition of net debt is defined in Note 11.

Sale of Ricardo Software

In line with our strategy, on 1 August 2022 the Group completed the sale of Ricardo Software, which was previously reported within the PP reportable operating segment. The maximum cash consideration receivable is USD 20.5 million (£16.7m), of which USD 17.5m (£14.3m) was received on completion and up to a further USD 3.0 million (£2.4m) is receivable based on Ricardo Software achieving certain revenue targets in the twelve-month period post-completion. The sale further reduces our net debt and provides funds for future investment. In FY 2021/22, Ricardo Software generated revenue of £9.4m, of which £2.3m was from sales to the rest of the Ricardo Group, and contributed £2.1m to the Group's underlying operating profit (FY 2020/21: revenue of £10.3m, of which £2.2m was from sales to Ricardo Group, and underlying operating profit of £2.3m). FY 2021/22 underlying operating profit excludes £0.3m of amortisation which was not charged as Ricardo Software was held for sale in June 2022.

Specific adjusting items

As set out in more detail in Notes 1 and 5, the Group's underlying profit before tax from continuing operations for the year excludes £11.8m of costs incurred during the period that have been charged to the income statement as specific adjusting items (FY 2020/21: £13.7m). Including the discontinued operation, total specific adjusting items recognised in the year were £13.1m before tax (FY 2020/21: £14.1m).

Amortisation of acquired intangible assets was £4.5m in the year, compared to £5.0m in FY 2020/21, with the reduction reflecting the end of the amortisation of intangible assets acquired as part of the purchase of AEA Ltd in 2012. A charge of £0.1m has been incurred in FY 2021/22 in respect of intangibles acquired following the acquisition of Inside Infrastructure.

Acquisition-related costs of £0.8m were incurred in the year (FY 2020/21: £1.7m). These related to external fees paid in respect of the Inside Infrastructure acquisition, associated integration costs, a retention bonus for the former shareholders of Ricardo Energy Environment and Planning (REEP), acquired in FY 2019/20, and external fees on other strategic projects. The prior period included £1.6m in relation to earn-out and deferred compensation payments for REEP and Ricardo Rail Australia (RRA), acquired in FY 2018/19, together with £0.1m of external fees in relation to a strategic project.

Purchases and disposals: A charge of £0.3m (USD 0.4m) was incurred in FY 2021/22 in respect of the reduction in the fair value of contingent consideration from the sale of the Group's test operations in Detroit in June 2020. This was a result of a reduction in the volume of traditional engine test work than expected at the time of the sale. A similar charge of £0.5m was recognised in FY 2020/21. The prior year also include a charge of £1.5m in respect of the reduction in the fair value of the Detroit Technology Campus (DTC) as the impact of COVID-19 on the local property market reduced demand for office space and reduced prices.

£1.3m of costs were recognised in the year in respect of external fees incurred in the disposal of Ricardo Software (FY 2020/21: £0.4m). These costs have been recognised within the discontinued operation and have been classified as specific adjusting items as they are incremental costs which are directly attributable to the sale of the business.

Other reorganisation costs: During the second half of the year, the Group commenced a major restructuring programme to combine the three regional A&I businesses in EMEA, US, and China, into one globally operated business, re-aligned around two key pillars: emerging technologies, focused on electrified propulsion, vehicle integration and software and digital services; and established mobility, focusing on high efficiency internal combustion engines (ICE) and emissions compliance. This programme has resulted in £5.3m of reorganisation costs in FY 2021/22, relating to:

●      headcount reductions (£2.3m), predominantly in senior management and administrative positions;

●      property downsizings and exits (£0.9m), in respect of a reduction in the footprint in Europe;

●      the impairment of intangible assets (£2.0m) in relation to technologies and services that the business will not focus on going forwards; and

●      external advisory and legal fees (£0.1m) to support the programme.

The cash cost of the actions in the year was £0.5m. This programme will continue into the next financial year, where the Group expects to incur a similar level of income statement expense. The total cash cost of the programme is estimated to be in the region of £4.5m.

FY 2021/22 reorganisation costs include a credit of £0.4m in respect of unutilised provisions from the prior year. In FY 2020/21, £3.4m of reorganisation costs were incurred in the A&I business in EMEA, as a result of the challenging trading conditions and COVID-19, which combined to depress short-term workable orders and delay projects. This led to in headcount reductions (£2.5m, of which £2.1m was utilised in FY 2021/22) and the exit from sites in Cambridge (£0.7m) and Germany (£0.1m), as well as the write off of some equipment in the Santa Clara Technical Centre, which was exited in June 2020 (£0.1m). The cash cost of the FY 2020/21 actions in FY 2021/22 was £1.6m.

£1.0m of reorganisation costs were incurred in Rail in FY 2021/22 as a result of a significant review of its operational structure, aimed at creating a more flexible and agile business. Costs incurred related to the exit of a number of senior positions in the organisation. The review will continue into FY 2022/23. The cash cost of these actions in FY 2021/22 was £0.3m.

ERP system implementation costs: Due to the result of guidance being issued following a recent IFRS Interpretations Committee (IFRIC) decision, £0.5m of external costs incurred and capitalised in FY 2020/21 (in line with prevailing practice at the time), together with £0.1m incurred in FY 2021/22, in relation to the implementation of a new cloud-based ERP system within the PP operating segment have been expensed in the year. They have been classified as a specific adjusting item as they are not reflective of the underlying performance of the business in the period.

Revaluation gain: An intercompany loan from Ricardo plc to Ricardo Investments Ltd, representing a quasi-equity investment in one of the Group's subsidiaries, was repaid. The loan was previously classed as not repayable in the foreseeable future under IAS 21 with any revaluation of the foreign currency loan recognised in the statement of Other Comprehensive Income. Following the repayment of the loan, a gain of £0.3m was reclassified from equity to the income statement, as required under IAS 21, and was reported as a specific adjusting item.

CEO exit costs: In January 2021, the Board, together with Dave Shemmans, agreed that Dave would leave his role as Group Chief Executive after leading the business for sixteen years. Costs of £1.5m were accrued within specific adjusting items in the prior year, reflecting the terms of his settlement agreement, associated legal fees and the costs of a search process to appoint his successor.

GMP equalisation: In order to equalise male and female members' benefits for the effect of Guaranteed Minimum Pensions (GMP) for historical transfers out of the pension scheme, a charge of £0.1m in FY 2020/21 was incurred.

Reconciliation of underlying profit before tax to reported profit before tax

Research and Development (R&D) and capital investment

The Group continues to invest in R&D and spent £13.3m (FY 2020/21: £10.2m) before government grant income of £2.5m (FY 2020/21: £1.2m). Development costs capitalised in this period were £7.3m (FY 2020/21: £8.5m), reflecting targeted investment in hydrogen, clean ICE and power electronics technology, together with technology, tools and processes in EE.

Capital expenditure on property, plant and equipment, excluding right-of-use assets, was £4.7m, (net of government grants), reflecting investment in our business operations, including hydrogen and electrical test capability at the Shoreham Technical Centre (STC). £4.3m of capital expenditure on property, plant and equipment was incurred in FY 2020/21.

Net finance costs

Finance income was £0.6m (FY 2020/21: £0.8m) and finance costs were £4.4m (FY 2020/21: £5.5m) for the year, giving net finance costs of £3.8m (FY 2020/21: £4.7m). The reduction in costs reflects a reduction in the bank loan balance, as well as a reduction in the applicable interest rates as a result of improved leverage.

Taxation

The total tax charge for the year, including the results of the discontinued operation, was £4.6m (FY 2020/21: £2.2m) and the total effective tax rate was 34.8% (FY 2020/21: 56.1%). The underlying effective tax rate for the year was 26.2% (FY 2020/21: 26.9%). The total tax charge from continuing operations was £4.2m (FY 2020/21: £1.8m), with a total effective tax rate of 33.9% (FY 2020/21: 90%). The underlying effective tax rate for continuing operations was 26.9% (FY 2020/21: 28.0%).

Deferred tax assets of £9.0m (FY 2020/21: £8.3m) include £4.3m (USD 5.7m) (FY 2020/21: £4.9m, USD 6.5m) of R&D tax credits and £0.2m of tax losses (FY 2020/21: £1.4m), both in the US. The Group also has deferred tax assets of £1.7m in relation to tax losses in other territories. The Directors have considered the recoverability of these assets and are satisfied that it is probable that sufficient taxable profits will be generated in the foreseeable future, against which the recognised assets can be utilised.

Deferred tax liabilities of £12.7m (FY 2020/21: £8.2m) include £3.8m in respect of the defined benefit pension scheme, has been in surplus throughout the year.

Earnings per share

Basic earnings per share was 13.8p (FY 2020/21: 2.9p). The Directors consider that underlying earnings per share provides a more useful indication of underlying performance and trends over time than reported earnings per share. Underlying basic earnings per share for the year was 31.2p (FY 2020/21: 22.4p). The calculation of basic earnings per share, with a reconciliation to an underlying basic earnings per share, which excludes the impact (net of tax) of specific adjusting items, is disclosed in Note 6.

Dividend

The Group paid its interim dividend of 2.91p per share (£1.8m) on 8 April 2022 (HY 2020/21: 1.75p, £1.1m). The Board has declared a final dividend of 7.49p per share (£4.7m) (FY 2020/21: 5.11p, £3.2m), which will be paid on 25 November 2022 to holders of ordinary shares on the Company's register of members on 4 November 2022.

This reflects the Board's desire to increase the return to shareholders as the Group continues to recover from the impact of COVID-19, whilst retaining sufficient funds in the business for investment.

Goodwill

At 30 June 2022, the Group had total goodwill of £90.6m (FY 2020/21: £84.7m). The acquisition of Inside Infrastructure added goodwill of £3.8m to the Ricardo Energy and Environment cash generating unit (CGU) as synergies from the acquisition are expected to benefit EE operating segment.

The carrying value of goodwill is fully supported by the value-in-use calculations for all other operating segments. There are no concerns over the recoverability of the Group's goodwill balances.

Net debt and banking facilities

Net debt at 30 June 2022 comprised cash and cash equivalents of £50.5m (of which £1.1m was included in the disposal group held for sale), borrowing and overdrafts, including hire purchase liabilities and net of capitalised debt issuance costs of £85.9m. Total facilities before borrowings are £216.8m. This provided total cash and liquidity of £181.4m as at 30 June 2022.

After the year-end, on 2 August 2022, the Group completed a refinance of its banking facilities, entering into a new £150m Revolving Credit Facility (RCF) which provides the Group with committed funding for the next four years through to July 2026 and is available for general corporate purposes as well as acquisitions and strategic investments. The RCF has an option for a £50m accordion and to extend the commitment for a further year through to July 2027.  This multi-currency facility has a variable interest rate which ranges from 1.65% to 2.45% above SONIA which is dependent upon the Group's adjusted leverage.

The Group's Adjusted Leverage ratio (defined as net debt divided by EBITDA for the twelve months to 30 June 2022, excluding the impact of specific adjusting items and IFRS 16, and adjusted for the impact of acquisitions and disposals in the year), was 0.8x. The Adjusted Leverage covenant was 3.0x as at 30 June 2022.

The Interest Cover ratio (defined as EBITDA for the last twelve months to 30 June 2022, as defined above, divided by net finance costs excluding pension and IFRS 16 interest), was 13.7x. The Interest Cover covenant is 4.0x.

There is significant headroom against both covenants. Further details are provided in Note 11.

Foreign exchange

On consolidation, revenue and costs are translated at the average exchange rates for the year. The Group is exposed to movements in the Pound Sterling exchange rate, principally from work carried out with customers that transact in Euros, US Dollars, Australian Dollars and Chinese Renminbi. Movements in the year-on-year average exchange rates have had a minimal impact on the Group's revenue, operating profit or profit before tax.

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 year was £127.1m (FY 2020/21: £156.1m). Although asset values reduced in the year, liabilities also reduced as a result of changes in actuarial assumptions. The scheme pre-tax surplus, measured in accordance with IAS 19, increased from £6.8m at 30 June 2021 to £15.2m at 30 June 2022. Ricardo paid £3.0m of cash contributions into the scheme during the year (FY 2020/21: £4.6m). From November 2021, following completion of the 2020 triennial valuation negotiations with the scheme Trustees, the level of deficit funding contributions reduced from £4.6m per annum to £1.8m per annum through to November 2023.

Chairman of the Board

On 24 February 2022 the Company announced that Sir Terry Morgan CBE gave notice of his intention to retire from the Board. Sir Terry will resign from the Board on 17 November 2022 following the close of the AGM. We are making good progress in the search for his successor.

Outlook

We continue to see strong momentum in our priority markets, underpinned by environmental and energy transition trends. The macroeconomic outlook around the world is challenging.  Nevertheless, as we enter FY 2022/23 with a strong order book, a number of high-value contracts and actions already taken to improve our global operating model and cost base in A&I,  we are confident that we are well prepared to deliver our expectations despite the uncertainty in the short-term.  In addition, we are well positioned to deliver sustainable growth through the shift in our service portfolio, aligned to the megatrends, in the longer term.

By order of the Board:

Graham Ritchie                                                                  Ian Gibson

Chief Executive Officer                                                    Chief Financial Officer

13 September 2022