Ricardo’s Trading Update: Strong Revenue Growth. Unclear about Profitability

/ August 5, 2018/ Automotive, Financials, Ricardo, UK

British ER&D vendor Ricardo unveiled its “trading update” to provide some information about its financial performance in FY18 for its revenues, profitability, and bookings.

Ricardo’s full-year FY18 revenues were above £380m, up 7.9% yoy, and up 5.1% yoy at CS (estimated, including £10m in revenues from the Control Point acquisition, in September 2017).

Doing the maths, I estimate revenue growth slowed down sequentially in H2 FY18 to +6.6%, after +9.3% in H1. Taking the fluctuations of the GBP versus other currencies in H2 FY 18, it looks like that Ricardo continued its H1 FY18 (+7.0% at CC/CS) momentum into H2 FY18, thanks to its strong bookings level in H1 FY18, which was an all-time high (¨238m), up by 32% yoy.

On the negative side, Ricardo announced its profit before tax would at the low end of financial analysts’ expectations, due to reduced performance in its U.K. automotive business, and to several challenging projects. Unfortunately, Ricardo did not provide further detail on what the current analyst consensus was, so it is unclear what level of profitability the company will achieve in FY18. The comparables are challeging: in FY17, the adjusted EBIT margin of the company was 11.6%, a high level considering that Ricardo is mostly an onshore business.

Booking performance was good, in spite of poor performance in its core UK automotive Technical Consulting market. Bookings were up 12% to £410m in FY18, thanks to its Asia Technical Consulting successes in rail and automotive. Performance Products, the automotive product business of Ricardo, “performed well.”

Inferring much from Ricardo’s trading update is difficult. One point is worth mentioning: Ricardo is the only firm I can think of that is saying Brexit and delayed decisions for reduced bookings in its UK automotive ER&D unit. Alten, earlier last month, which derives 25% of its revenues from the UK, mentioned a 60% growth in its automotive client base. We will investigate.

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