Ricardo: Performance Products Saves the Day
Ricardo announced its full-year FY 18 results, which were in line with its trading update of August 5. Revenues were up 7.9%, and up 6% at CC/CS, to £380m. The EBIT margin of the company reached 8.1%, and its adjusted EBIT was 10.8%.
Performance Products continued to drive the growth: revenues were up 28% to £92m, representing 24% of total revenues. The division is strategic for Ricardo for its growth patterns, and good profitability level (10.1%), similar to that of Technical Consulting. Performance Products suffers from a heavy client concentration, with 70% of its FY18 contract bookings coming from one client; in all likelihood McLaren, for which Ricardo manufacturers 4-liter engines for the McLaren 720 S car.
Technical Consulting had a more difficult year: revenue growth was 2.8%, to £288m, and declined slightly at CS. The division suffered in the UK market, impacted by fewer orders than expected and by several “challenging” projects in the automotive sector.
The division’s priority is to shift its portfolio mix to electric vehicles (with 59% of overall automotive bookings now related to electric cars), to expand in other geographies, and to other sectors. The shift has been going for several years now, with success, with other sectors now representing 39% of the revenues of Technical Consulting. The U.K. still is the largest geography of the firm, but its share of revenues is now below 38%. The diversification has not a smooth ride though: performance in its two largest non-automotive sectors had different sucess: bookings in rail were up by 12% in FY18, while those in energy & environment were down 6%.
Technical Consulting is adjusting its delivery organization too within automotive: in FY18, the division divested two test facilities (in Germany and in Chicago) for a combined £8m. It also ramping up its presence nearshore by relocating work done in Germany to Prague, Czechia.
Acquisitions are back to being a priority, after a FY18 focused on integrating recent acquisitions. The company has the financial capability to do so, with a net debt limited to £26m. Expect M&As in anything by the automotive market in the UK.