Ricardo continues to suffer in its core UK automotive market

/ January 27, 2019/ Financials, Ricardo, UK, Unknown

British ER&D service vendor Ricardo provided a “trading update” that suggested a soft performance in H1FY19, the period ending December 31, 2018.

As always with trading updates, the level of information is minimal: “revenue was slightly ahead of the prior period”. In the service division, the US and UK automotive markets were “challenging”. Performance was “good” in the Performance Products division as well as in other units of the service division, and in particular Energy & Environment, China Automotive and Strategic Consulting.

Ricardo continues to shift its portfolio mix in its automotive units towards EVs. In FY18, EVs accounted for 59% of the firm’s automotive contract bookings. This suggests that EVs account for ~50% of automotive revenues.

Ricardo is feeling the pain in its core UK automotive operations, wherein FY18, it was impacted by the drop in diesel vehicle sales and by uncertainty around Brexit. In the country, Ricardo has a background around light vehicle test procedures. We are guessing that Ricardo is still some way behind in its EV capabilities and scale in the UK, compared to its other geographies. Obviously, Brexit and Dieselgate are not helping.

The bad news came that Ricardo also suffered in its US automotive business. Ricardo had restructured the business in FY18, selling a testing bed in Chicago, and gone back to break-even point in H2 FY18.

A final point, Ricardo had an order intake of £200m in H1 FY19 (-16% yoy) and its backlog was flat to £300m. Roughly two-thirds of Ricardo’s backlog is converted in revenue within 12 months and therefore tends to fuel revenue growth quickly. This suggests H2 FY19 should be soft too. Ricardo will be publishing its H1 FY19 results in one month. We look forward to it and gaining details about the company’s performance

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