Creating a
world fit for
the future
Ricardo plc
Annual Report & Accounts 2020/21
At Ricardo, our
vision is to create
a world fit for
the future.
A world where we can all
live sustainable lives, breathe
clean air, access clean water,
use clean energy and travel
safely and sustainably while
conserving resources.
Strategic report
2 Financial highlights
3 Ricardo at a glance
6 Chair’s statement
8 Chief Executive’s review
12 Ricardo’s business model
14 Our strategy
15 Strategic performance
17 Innovation
20 Our people
24 Sustainability and ESG
34 Risk management and internal control
35 Principal risks and uncertainties
38 Viability statement
40 Financial review
45 Operating segments review
46 Energy & Environment
48 Rail
50 Automotive & Industrial
52 Defense
54 Performance Products
Case studies
58 Addressing the UK’s EV battery shortage
62 Riding sunbeams
66 Greener together
70 Steering shipping to sustainability
74 Flying to net zero
Corporate governance
80 Board of Directors
82 Corporate governance statement
88 Our stakeholders
90 Board activity
91 Nomination Committee report
92 Audit Committee report
96 Directors’ remuneration report
122 Directors’ report
125 Statement of Directors’ responsibility
Financial statements
128 Independent auditor’s report
137 Group financial statements
189 Company financial statements
Additional information
196 Corporate information
197 Glossary
Working across multiple transportation sectors, energy and the environment, and
defence, and supported by niche manufacturing, we deliver:
Technologically advanced
solutions that ensure access to
clean air and water
Ricardo provides advice, tools and solutions
that enable the sustainable provision of clean
air and water. We do this by utilising state-of-
the-art quality measurement, modelling and
decision-supporting tools to assess water risk
and resource management. We also develop
strategies and solutions for water providers
to support the improvement of water
availability and quality throughout the water
cycle.
Cross-sector engineering
solutions to accelerate
decarbonised transport
Our solutions offer full lifecycle analysis to
address environmental, manufacturing,
supply and end-of-life performance,
in order to deliver reduced- and zero-
emission transport for both passengers and
goods. We also deliver low-volume, high-
value manufacturing products that support
reductions in greenhouse-gas emissions.
Innovation to support global
net zero and industry agendas
We are a partner of choice in delivering
strategies and solutions to reduce carbon
intensity in energy and promote renewable
sources. We provide lifecycle analysis and
endorsed advice to industries that are
focused on achieving net zero carbon
emissions and are experts in the optimisation
of energy-grid performance and interactions
with static and mobile assets. Our portfolio
of services is designed to manage and abate
climate change.
Comprehensive expertise
in safety, assurance and
certification
As a notified and designated body for new
and modified rail systems, we provide
independent assurance of clients’ safety
processes and implementation. The vehicle
safety systems that we design help to
safeguard both people and infrastructure.
Strategic
report
An introduction
to Ricardo
Ricardo plc is a world-class
environmental, engineering
and strategic consulting
company. We shape the
markets in which we
operate through the
delivery of solutions built on
technological and sustainable
innovation.
With more than 100 years of engineering
excellence, we provide exceptional
levels of technical expertise to deliver
leading-edge innovative and sustainable
cross-sector solutions designed to solve
our clients’ most complex strategic and
operational challenges.
Creating a world fit for the future 1
Strategic report
Financial highlights
Order book
(7)%
FY
2020/21
2019/20
2018/19
2017/18
2016/17
Order intake
(5)%
Revenue
-%
£m
FY
£m
FY
293.5
314.0
314.0
294.6
248.5
2020/21
2019/20
2018/19
2017/18
2016/17
352.1
368.7
386.0
413.4
365.8
2020/21
2019/20
2018/19
2017/18
2016/17
£m
351.8
352.0
384.4
378.5
352.1
Underlying(1) profit
before tax
15%
18.0
15.6
FY
2020/21
2019/20
2018/19
2017/18
2016/17
Underlying(1) basic earnings
per share
5%
Dividend per share
(paid and proposed)
10%
£m
FY
pence
FY
pence
22.4
21.3
2020/21
2019/20
2018/19
2017/18
2016/17
37.0
37.5
38.3
2020/21
6.86
2019/20
6.24
53.7
55.1
55.7
2018/19
2017/18
2016/17
21.28
20.46
19.30
Statutory profit/(loss)
before tax
174%
Statutory basic earnings/
(loss) per share
124%
Net debt(1)
(36)%
3.9
FY
2020/21
2019/20
(5.3)
2018/19
2017/18
2016/17
Underlying(1) cash
conversion(1)
(15.1)pp
pence
FY
pence
FY
£m
2020/21
2019/20
(12.2)
2.9
26.5
27.0
32.2
2018/19
2017/18
2016/17
37.1
33.0
46.8
2020/21
2019/20
(73.4)
2018/19
2017/18
2016/17
(46.9)
(47.4)
(26.1)
(37.9)
Cash conversion(1)
(19.1)pp
Headcount(1)
(3)%
FY
2020/21
2019/20
2018/19
2017/18
2016/17
%
FY
£m
FY
87.0
75.3
102.1
95.3
50.5
2020/21
2019/20
2018/19
2017/18
2016/17
93.8
74.4
95.1
112.9
47.6
2020/21
2019/20
2018/19
2017/18
2016/17
Number
2,901
3,003
2,981
3,061
2,927
(1) Please see the glossary on page 197 for a definition of the above terms.
Comparative Alternative Performance Measures (‘APMs’) prior to FY 2019/20 have not been updated to reflect the adoption of IFRS 16.
2 Ricardo plc Annual Report & Accounts 2020/21
Ricardo at a glance
Strategic report
At Ricardo, our vision is to create a
world fit for the future
We do this by using our diversified expertise to support clients with
technical solutions that create a cleaner and safer tomorrow
Where we operate
We have operations in 21 countries with more than 55 sites reaching key regions and countries across the world. Ricardo
delivers complex technology and engineering projects by combining its global expertise with local knowledge.
UK offices
Shoreham | London | Bristol
Derby | Wantage | Glasgow Harwell |
Manchester | Preston | Sheffield | York
|
| Cambridge
Guildford
UK Technical Centres
Shoreham | Derby
Leicester | Midlands
Michigan
Sterling Heights
Detroit
Troy
Alabama
Huntsville
US Technical Center
Detroit
California
Goleta
San Diego
Pax River
Sweden Gothenburg
Denmark Copenhagen
The Netherlands Utrecht
Czech Republic
Prague
Germany Munich | Schwäbisch Gmünd
Italy Rimini
Spain Madrid
Saudi Arabia Riyadh
UAE
Abu Dhabi
Dubai
Qatar Doha
India Delhi
China
Shanghai
Beijing
Hangzhou
Changchun
South Korea
Seoul
Japan Yokohama
Hong Kong
Taiwan
TECHNICAL CENTRES
KEY OFFICE LOCATIONS
South Africa
Johannesburg
Australia
Sydney
Brisbane
Melbourne
REVENUE BY GEOGRAPHY
ORDER INTAKE BY DESTINATION
3
8
FY 2020/21 (%)
7
FY 2019/20 (%)
3
6
34
7
9
6
17
20
23
35
22
United Kingdom
Europe
North America
China
Rest of Asia
Australia
Rest of World
FY 2020/21 (%)
13
33
1
5
2
7
5
3
4
4
5
6
7
2
1
2
25
8
12
8
11
1
10
5
9
1. Australia
2. China
3. Germany
4. India
5. Japan
6. South Korea
7. Middle East
8. North America (US &
Canada)
9. Netherlands
10. Other Asia
11. Other Europe
12. Rest of the world >1%
13. UK
Creating a world fit for the future 3
Ricardo plc External Order Intake by Market SectorRicardo plc External Order IntakeSegmentsEEAIRailDefenceRSC=SWPPRicardo plc External Order Intake by Geography05101520253035'EOI by Country(cid:31)Ricardo plc External Order Intake by Market SectorRicardo plc External Order IntakeSegmentsEEAIRailDefenceRSC=SWPPRicardo plc External Order Intake by Geography05101520253035'EOI by Country(cid:31) Strategic report
Ricardo at a glance
Our end-markets
Working across four key market sectors, through our five operating segments, we deliver engineering consultancy services
and solutions from the initial concept phase right up to the delivery of our customers’ programmes.
ENERGY &
ENVIRONMENT
With over 40 years’ experience, our
Energy & Environment operating
segment works across the value
chain to deliver insights, policy
development and technical
expertise to meet today’s energy and
environmental challenges. Key market
sectors include air quality, climate
action, policy, water, waste and
chemical resources.
AUTOMOTIVE
Customers put their trust in our
consulting, design, engineering
and niche manufacturing capability
services in key market sectors
including: passenger, light and
heavy duty commercial and off-
highway vehicles; motorcycles; and
motorsports. This sector is served
by our Automotive & Industrial and
Performance Products operating
segments.
4 Ricardo plc Annual Report & Accounts 2020/21
RAIL & MASS
TRANSIT
We are experts in all technical railway
disciplines, with the proven skills
required to deliver sustainable rail
and mass-transit projects. With more
than 20 locations worldwide, our Rail
operating segment serves the global
rail and mass-transit market.
AEROSPACE,
MARINE & DEFENCE
Working in partnership with our clients,
we deliver wide-ranging consulting,
design and engineering programmes
across the civil and commercial marine,
aerospace and defence industries.
These markets are served by our
Automotive & Industrial, Energy &
Environment and Performance
Products operating segments. Our
Defense operating segment serves the
US military including civil aerospace,
marine and defence.
Strategic report
Ricardo at a glance
Our people
EMPLOYEES WORLDWIDE
2,901
Our people are at the heart of Ricardo.
We have close to three thousand dedicated and
talented people working on projects worldwide.
UNITED IN OUR
Shared values
Ricardo’s shared values – respect, integrity, innovation and
passion – actively guide our behaviours and are reflected
in how we work together. The Ricardo culture is rooted in
these values and behaviours and includes a commitment
to delivering diversity and inclusion.
Our rankings and awards
Our rankings and awards demonstrate our commitment to delivering the best environmental, engineering and strategic-consulting
expertise for our customers. We are honoured to be recognised for the great work we strive to deliver every day.
FINANCIAL TIMES
• UK’s leading management consultants 2021:
- Silver media for our Energy & Environment team
- Bronze medal for our Automotive & Industrial team
FORBES
• Included in Forbes’ America’s Best Management Consulting Firms 2016, 2017 & 2020
BRITISH ENGINEERING
• Excellence Awards 2020: Design Consultancy of the Year and Grand Prix winner
THE ENGINEER
• ‘Collaborate to Innovate’ Award 2020
ENVIRONMENTAL ANALYST
• UK’s No.1 consultancy for air quality
• UK’s No.2 consultancy for sustainability and ESG
• UK’s No.4 consultancy for waste management/circular economy, government and agencies
work, environmental risk and due diligence
• UK’s No.5 consultancy for climate change and energy-sector consulting
Creating a world fit for the future 5
Strategic report
Sir Terry Morgan CBE
Chair
Chair’s statement
“During the pandemic, Ricardo’s clear purpose and values have been instrumental in
allowing the business to continue to deliver customer-service excellence.
I am deeply grateful to our colleagues across the Group for their hard work and continued
support - this has ensured that we have delivered in the year and allowed us to make further
strategic progress.”
Results
Overall, the Board has been pleased at how Ricardo has been
able to continue to deliver a robust set of results despite the
challenging market conditions.
For the year ended 30 June 2021, the Group delivered revenue
of £351.8m, together with underlying profit before tax of £18.0m
and underlying basic earnings per share of 22.4 pence. On a
reported basis, the Group delivered a profit before tax of £3.9m
and the basic earnings per share was 2.9 pence.
As ever, we remain committed to paying a dividend to our
shareholders. The Board has recommended a final dividend of
5.11 pence per share. This, together with the interim dividend of
1.75p per share, which was paid on 9 April 2021, results in a total
dividend of 6.86p per share for the year.
Strategy
Ricardo’s purpose is to create a world fit for the future. And we
do this by using our diversified expertise to support customers
with technical solutions that create a cleaner and safer
tomorrow.
Our purpose – combined with our values of respect, integrity,
innovation and passion – has been even more important in
guiding us through the pandemic.
To make sure that we remain focused on the right issues
beyond the pandemic, the Board commissioned an extensive
strategic review to assess the Group’s priorities and strategic
direction. This review will ensure that Ricardo can continue to
6 Ricardo plc Annual Report & Accounts 2020/21
execute effectively in line with its purpose and values. Following
the review, the Board has approved various recommendations
to accelerate growth through organic and inorganic expansion,
including a focused approach to disposals and acquisitions.
Our people, culture and diversity
Our talented teams spanning the globe have proven to be the
backbone to our business. Thanks to their dedication, we have
ensured that Ricardo has continued to run flawlessly, delivering
service excellence throughout this challenging time.
Prominent achievements for this financial year included
being named Design Consultancy of the Year for 2020 in the
British Engineering Excellence Awards, which celebrate design
excellence, in recognition of our innovative consultancy services.
We also received a double recognition in the fourth
Financial Times annual rating of the UK’s leading management
consultants: a silver and a bronze medal. The silver medal was
awarded to our Energy & Environment team for its expertise
in the sustainability sector, while the bronze was awarded to
our Automotive & Industrial team for its expertise in strategic
consulting within the automotive sector.
These awards are testament to Ricardo’s unfailing
commitment to delivering the very best environmental,
engineering, and strategic consulting expertise for our
customers and we are honoured to be recognised for the great
work that our teams deliver every day.
As a board, we understand the importance of building
Strategic report
Chair’s statement
“Ricardo is certainly on the road to recovery and, through a
more focused strategy, we aim to continue to accelerate our
position in growing markets.”
engagement and a good corporate culture. It was pleasing to
see a slight improvement in our recent employee engagement
score and that our colleagues take great pride in working for
Ricardo. We regularly monitor the company culture and seek
opportunities throughout the year to engage with colleagues
across the Group.
To encourage more diversity across the Group, the Board
continues to focus on improving gender balance across senior
management. We are making progress within our senior
management team with the recent appointments of both
our Group Marketing Director and our Group People, Teams &
Organisation Director. We are now actively working to improve
both gender and ethnic diversity across all levels of the business.
Environmental, Social and Governance (‘ESG’)
Being a sustainable company in practice is not about just one
or two things – it is at the heart of everything that we do and
the solutions we deliver. As an international company, we are
part of a larger effort that is guided by the UN’s Sustainable
Development Goals (‘SDGs’) and, as part of this, Ricardo is
committed to achieving net zero by 2030.
Ricardo is delivering on its commitments to increase the
visibility of reporting its ESG agenda. This has included greater
transparency regarding the Group’s sustainability initiatives, such
as reporting on electricity sourcing from renewable sources,
defining targets for operational decarbonisation, publishing
carbon emissions attributable to air and rail travel, and
communicating the company’s approach to the achievement
of net zero carbon from its operations. This is testament to our
commitment to the highest standards of corporate governance,
which ultimately builds a better business and supports long-
term performance.
Group Chief Executive Officer
In January 2021, the Board, together with Dave Shemmans,
agreed that he would leave his role as Group Chief Executive
Officer. Subsequent to the announcement, the Board initiated
a thorough and rigorous process to recruit a successor who
can continue to deliver on the strategy of the Group, and I was
delighted to announce on 26 August 2021 the appointment of
Graham Ritchie.
Graham will join the Group on 1 October 2021. Graham has
a proven track record in leading large divisions within listed
companies and is well placed to ensure the strong execution
of Ricardo’s strategy. I am excited by Graham’s vision for the
Group along with his passion in driving operational efficiency
and accelerating growth for the business. The Board and I look
forward to working with him to ensure the next steps in the
advancement of Ricardo’s strategic ambition.
On 30 September 2021, Dave steps down from his role as
Ricardo’s Chief Executive Officer, having led the Group for the
last sixteen years. I would like to take the opportunity to thank
Dave for his contributions over the years and wish him every
success in the future.
Future prospects
As a Group, we are in a unique position to harness our expertise
to support the global shifts that are changing the way we live
and do business. This provides us with a solid foundation that
will allow us to emerge from the pandemic and benefit from
sustainable growth.
Ricardo is certainly on the road to recovery and, through a
more focused strategy, we aim to continue to accelerate our
position in growing markets.
I would like to end by once again giving a huge ‘thank you’ to
our teams across the globe for their unfailing commitment to
Ricardo and wishing all our stakeholders a safe and healthy year
ahead.
Sir Terry Morgan CBE
Chair
Creating a world fit for the future 7
Strategic report
Dave Shemmans
Chief Executive Officer
Chief Executive’s review
”Over the last eight years we have significantly diversified our portfolio
and, by so doing, Ricardo is now positioned as a world-class environmental, engineering
and strategic consultancy offering expertise that is supporting global green agendas.
Although we remain in an uncertain world, the resilience of our operating model and the
focused delivery of our strategic priorities has ensured that we have steered back onto a
course that will guide our business to a position of strength. This has been made possible
thanks to the amazing team that, throughout the pandemic, has demonstrated its agility,
dedication and ingenuity in continuing to provide excellent service to our customers
and remaining committed to achieving our ambition: to create a world fit for the future.’’
Strategy update
Ricardo operates in five key operating segments: Energy &
Environment (‘EE’), Rail, Defense, Performance Products (‘PP’) and
Automotive & Industrial (‘A&I’). All segments achieved positive
results against a backdrop of COVID-19, with the exception
of A&I. Although we are seeing signs of recovery in A&I, with
increased order intake in the US and China, it is likely to be some
time before we can expect a to see a full global automotive
industry recovery.
At the same time, the increasing focus on climate change
and green recovery stimulus programmes is driving significant
opportunities. As a Group, we are in a unique position where we
can harness our expertise to support the global shifts that are
changing the way we live and do business.
Ricardo is well placed – both technologically and
operationally – to be able to deliver sustainable solutions
into this world. The Group has no single dependency on any
market, customer or geography and is able to take advantage
of the intersection between transportation, energy and
environment to deliver a unique proposition around
8 Ricardo plc Annual Report & Accounts 2020/21
environment, energy and clean transportation.
The change in emphasis towards the energy and
environmental sector, together with expansion into
rail and other key transportation sectors, has proven to
have been prescient and has been very important in
delivering our improved performance in FY 2020/21. Our Rail,
EE and Defense segments, which benefit from government
spending, together with the longer-cycle PP business, have
provided robust revenues through the economic cycle, which
have counterbalanced the challenges in A&I.
We continue to deliver against our strategic plan, making sure
that we take the most appropriate actions and invest in areas
that will accelerate our growth and deliver a sustainable future
for the Group.
Growth through both organic and inorganic investment
will be focused on decarbonisation and net zero, from policy
development to engineering solutions in the transport and
energy market sectors. Furthermore, we plan to extend
our portfolio into clean-energy solutions with a focus on
Strategic report
Chief Executive’s review
Ricardo is part of the Cranfield Aerospace Solutions-led
Project Fresson delivering the world’s first truly green
passenger carrying airline services using hydrogen
fuel-cell technology.
electrification and hydrogen while continuing to support the
transition from fossil fuel-based internal combustion engines.
Strengthening our market position by leveraging our key
differentiator around the intersection between transportation,
energy and environment is crucial to our success both today and
tomorrow.
Performance highlights
We delivered an improved performance in FY 2020/21, with the
business recovering from the impact of COVID-19. Overall, we
closed the year with a robust order intake and saw growth across
all our operating segments, with the exception of A&I which has
suffered from the continuing market challenges exacerbated by
the pandemic.
EE and Rail delivered strong performances in the year, with
both increasing revenue and operating profit compared to the
prior year. Defense delivered strong revenue growth, driven
by an expansion in our engineering services and the receipt of
the first USD 10m order from a significant USD 89m three-year
contract to provide up to 9,480 critical safety-improvement
Antilock Brake Systems/Electronic Stability Control retrofit kits for
the US Army’s High Mobility Multipurpose Wheeled Vehicle.
PP returned to growth, driven by increased transmission
volumes year-on-year and steadily increasing engine volumes
throughout the year, together with perpetual software licenses.
A&I, particularly within the EMEA region, was impacted
by the difficult operating conditions affecting the global
automotive industry. This altered demand over the
year. Structural changes and a shift in approach to focus
on renewable energy sources and higher-growth end-
markets ensure that the segment is well positioned for future
growth.
Throughout the year, we have remained committed to
delivering innovative and sustainable solutions driven by our
ingenuity and agility in solving customers’ problems. This, in
turn, has led to several influential green strategic partnerships
and contract wins for the Group, including working with the UK
consortium, led by Cranfield Aerospace Solutions, to deliver the
world’s first truly green passenger-carrying airline service using
hydrogen fuel-cell technology. We are also jointly developing a
next-generation battery-management system with Singapore-
based Orient Technology and have formulated an alliance with
AFC Energy to collaborate on innovative hydrogen-power
applications that will accelerate global efforts to decarbonise
energy and infrastructures in support of carbon-neutral
measures. Similarly, we are leading a consortium that has won
funding to design a community-scale greenhouse-gas removal
system. Ricardo’s technology will use sustainable forestry waste
to remove greenhouse gases and provide local communities
with renewable heat and electricity.
Operationally, our priorities during the year have been focused
on effective execution, our digital agenda and our people plan,
which have allowed us to continue to function with minimal
disruptions.
Our digital-first agenda is about embedding digital into our
operational structures, our processes and our digital customer
experiences and solutions. It has enabled us to drive best
practice right across the Group and has been instrumental
Creating a world fit for the future 9
Strategic report
Chief Executive’s review
Ricardo’s new Electrified Propulsion Research
Centre at Shoreham Technical Centre is enabling the
research and development of the next generation of
electrified vehicles.
throughout the pandemic. We have proven to be both
innovative and agile in our approach and have developed
a range of virtual solutions – including testing facilities and
multiple software applications – to allow us to maintain output
towards customers’ programmes and ensure the efficient and
timely delivery of ongoing projects.
Our people are pivotal to our success. It is a testament
to their hard work, agility and relentless focus in delivering
service excellence that we have been able to maintain levels of
output even in times of uncertainty. The pandemic has taught
us how important it is to work collaboratively at all levels of
the organisation, and our shared values – respect, integrity,
innovation and passion – reflect how we work together
internally and how we treat our customers. As a business, we
share a commitment to delivering a diverse and inclusive
environment in which we support our colleagues to be the
very best they can be. Every year we make further strides in
improving engagement and I am so pleased that this year has
been no different, with percentage improvements shown across
our employee-engagement survey results.
As a business, we are duty bound to operate in a
responsible and sustainable way and we make sure
that sustainability is at the core of all that we do. An
organisation such as ours that offers and delivers
commercial solutions in support of global sustainability
agendas understands the importance of achieving net zero. In
light of this, we have set ourselves a critical target: a commitment
to realise net zero by 2030.
10 Ricardo plc Annual Report & Accounts 2020/21
We are making great progress toward this goal and already
delivering and/or exceeding expectations, according to our
exacting annual initiatives.
COVID-19
As the world gradually moves to a recovery phase, we
continually shape our response to the evolving situation. From
the outset, our utmost priority has been the safety and the
wellbeing of our colleagues, ensuring business continuity
and supporting both our customers and the communities where
we live and work. These priorities have remained constant, with
our teams working collaboratively at all levels to make certain
that our plans are fit for purpose at each new entry phase.
From the beginning of FY 2020/21, our manufacturing sites
have been operating and delivering uninterrupted services
to our customers. We have actively managed our operational
response to ensure that our main manufacturing sites remain
in production. The manufacturing teams in the UK and US
have been closely aligned, sharing best practice and actively
supporting effective supply-chain management, which
has been constantly affected by part shortages and freight
difficulties.
Our offices have also remained open for those who
wish to return to work. As restrictions start to lift, the
Group’s approach to returning to office work is both
encouraging and welcoming. We want our colleagues to
reintegrate, reconnect, and assist in recharging the business.
Strategic report
Chief Executive’s review
to clean air and water; we have a deep knowledge of delivering
cross-sector engineering solutions to accelerate decarbonised
transportation; and we most certainly are a partner of choice for
innovation to support global net zero and industry agendas.
As we enter FY 2021/22, we do so with an robust order book
and pipeline . This is a business with a positive outlook and as a
Group we continue to push the boundaries, strengthening our
business for a sustainable future.
Closing statement
I would like to sign off my final review here at Ricardo with a
warm and heartfelt note of thanks. I have had the pleasure of
leading Ricardo for the past sixteen years and would like to
thank all our customers, colleagues and shareholders for their
support during my tenure. This is truly a special Group, with
some amazingly talented people, in which I have enjoyed every
moment.
I wish Ricardo all the very best.
Dave Shemmans
Chief Executive Officer
Brexit
On 31 December 2020, the UK’s Brexit transition period ended,
which has meant that doing business with Europe has inevitably
changed with new rules being applied. Like other companies,
we have experienced increased paperwork and processing
time for both importation and exportation procedures, resulting
in some tasks taking up to three times as long to complete.
Nevertheless, thanks to our rigorous planning – which included
holding extra stock of priority parts prior to Brexit – the timing
has had little impact on our deployment capabilities.
In general, because of our relentless focus on proactive supply
chain management, we are able to maintain and manage our
customer relationships in the UK, Europe, Asia and America.
Looking ahead
Ricardo is successfully embarking on its route to growth,
focusing on developing its world-class engineering, scientific
and consulting capability and operating in markets that offer
long-term growth prospects and which are driven by the ever-
changing nature of our world.
Our diversified business portfolio - with expertise and
capabilities that are at the intersection between transportation,
energy and environment - allows us to deliver a unique
proposition. We are able to advance solutions that ensure access
Ricardo Certification is providing Notified Body services
for the supply of high-speed intercity express trains for
German national operator, Deutsche Bahn.
Creating a world fit for the future 11
Ricardo’s business model
Our diversified business model allows us to leverage our key differentiator of operating at
the intersection of transportation, energy and environment. In this way, we are able to respond to
changing opportunities and risks in all the markets in which we operate and ensure that we continuously
deliver value for our stakeholders.
What we do
Ricardo’s global team of experts – comprising engineers, scientists, economists, technical specialists and management
consultants – bring the very best of their diverse experience to deliver innovative solutions that solve our customers’ toughest strategic
and operational challenges. We invest in physical and digital assets that support tool-chain validation, final-product certification and
real-time data capture. As a Group, we have significant research and development capability to address the mobility, energy and
sustainability challenges of the future.
CONSULTING AND
ADVISORY SERVICES
We operate across various geographies and key markets,
offering award-winning management and strategic
consulting and advisory services through a wide range of
technical and environmental disciplines that solve customers’
ever-evolving challenges.
DESIGN AND
ENGINEERING
SERVICES
From transforming the environmental, energy and
transportation sectors with next-generation, clean-energy
solutions to supporting the transition from fossil fuel-based
internal combustion engines, our customers rely on our deep
knowledge and trusted experience in design, integration and
system engineering.
PROJECT-
MANAGEMENT
SERVICES
TEST AND
CERTIFICATION
SERVICES
Our value to customers comes from our belief in the
approach of ‘whole system’ projects. Whether this is
managing entire programmes, integrating complex
systems, handling lifecycle logistics or providing support for
product development and delivery, our experts offer deep
knowledge not only of their own discipline but also of how
this combines seamlessly within the wider operations.
We provide a range of independent assurance services,
primarily for the rail sector. In addition, we deliver
certification, emissions and regulatory compliance, and
validation services across multiple sectors as well as
providing vehicle-testing programmes that are tailored to
help customers optimise the performance and durability of
propulsion systems throughout their development.
NICHE
MANUFACTURING
CAPABILITIES
We deliver high-performance, niche-volume manufacturing
for precision and electromechanical products, advanced
assembly, and special-vehicle retrofit services across the
transportation and defence sectors.
12 Ricardo plc Annual Report & Accounts 2020/21
Strategic report Ricardo’s business
framework model
Sustainability, transport and energy
policy & strategy development
Supply chain, assembly
& manufacturing
Engineering
& design
Data
exploitation
Digital
development
Strategic
Consulting
Technical
advice, asset
optimisation &
benchmarkting
Customer
Complex
system
integration
Decision
support &
deployment
automation
Virtual product
development
Testing, assurance
& certification
Environmental services, climate
risk & resource management
Strategic report
Ricardo’s business model
Our model is underpinned by enablers that provide customer
value at each stage of service delivery
Ricardo’s culture is embedded in shared values
that guide our way of work. Respect, Integrity,
Innovation and Passion drive us forward as
an organisation and bind us together as a
community. At Ricardo, we believe that building
a diverse and inclusive culture supports growth
and is essential for delivering a sustainable future.
Being responsible and acting ethically is
fundamental to Ricardo. Focusing on responsible
business practices across all our markets, we work
systematically to improve both our approach and
our obligations towards our shareholders and the
broader stakeholder group. Our commitment is
underpinned by Ricardo’s governance framework
and codes of conduct.
E
R
U
T
L
U
C
E
C
N
A
N
R
E
V
O
G
At Ricardo, we take a proactive and engaged
approach to maintaining safe, efficient and
sustainable operations. We do this through
continuous and rigorous improvement of
our processes and systems to ensure that our
customers’ expectations are consistently met.
E
V
I
T
C
E
F
F
E
S
N
O
I
T
A
R
E
P
O
The value that we create
We create value for our customers, colleagues and shareholders, the communities in which we operate, and our suppliers.
CUSTOMER
BENEFITS
Our customers include privately and publicly owned businesses of different sizes; major transportation
original equipment manufacturers (‘OEMs’) and operators; governments; public authorities; and inter-
governmental and international agencies. We support our customers by addressing their key challenges,
aiding growth and increasing the efficiency of their operations.
EMPLOYEE
ENGAGEMENT
Ricardo is a diverse global community of people with different backgrounds, practices and thinking.
Our values guide our organisation, driving employee engagement and a sense of belonging. Our
overall employee-engagement score slightly increased in FY21 (3.9 out of 5 compared to 3.8 in 2020),
supporting our ambition to create an inclusive working environment.
SHAREHOLDER
RETURNS
With more than 100 years of engineering excellence and trusted expertise, we have a long history of
creating value for our shareholders. Our diversified business is well positioned to continue to deliver
sustainable growth and shareholder value.
COMMUNITY
SUPPORT
We contribute positively to the global communities in which we operate, recognising and mitigating
our impact on people and the environment. This involves providing employment opportunities and
community involvement through our charitable and STEM (science, technology, engineering and
maths) education programmes, particularly during the pandemic.
SUPPLIER
COMMITMENT
We work in close partnership with our suppliers to ensure that our supply chain is effective, efficient,
ethically transparent and sustainable.
Creating a world fit for the future 13
Our strategy
Our strategy and operating model defines our values, how we work together and our
ambition. Being part of Ricardo means sharing our commitment to these key elements that
shape our future.
O u r s t rategic objectives
Decarbonised
transport
Rapid
urbanisation
Safety and
assurance
Air quality and
climate change
Energy security
and natural
resource scarcity
s
r
e
v
i
r
d
t
e
k
r
a
m
l
a
b
o
l
G
Access
to clean
air and
water
Our vision
To create a world
fit for the future
Our mission
We deliver innovative
cross-sector sustainable solutions
that help our customers to create
a cleaner and safer future
Sustainably
positioned
and asset light
Global niche
specialists
Our business chara c t e r
s
c
i
t
i s
Net zero
energy and
industry
Digitally
driven
Shared values
Core value of respect
along with integrity,
innovation and passion
H
o
w
w
e
w
o
r
k
t
o
g
e
t
h
er
Common
operating model
Lean corporate centre
offering common services
and empowered P&L
businesses
Aligned approach
Partnership and
collaborative cross divisional
activities to support
global expansion
Our Strategic Principles
1 SUSTAINABLE
BUSINESS
GROWTH
Ricardo delivers profitable and sustainable growth by investing effectively in our
business. With a clear focus on market demands – driven by customer needs, technology
advancements, and future policies and regulations – we will grow organically and by
acquisition to support us in strengthening our overall market position.
2
RISK
MITIGATION
We mitigate business cyclicality and aim to avoid external dependency, whether related to
any specific geography, technology or sector. By focusing on risk mitigation and by building
our expertise and services that are at the intersection of transport, energy and environment
agendas across the globe, we aim to improve overall business performance and deliver
enhanced customer and shareholder value.
VALUE
3 CUSTOMER
4 WORLD-CLASS
TALENT
We deploy our know-how, experience and application expertise within our key market
sectors and draw upon our core cross-sector capabilities to provide greater insights and
synergies. We employ R&D to provide leading technologies and innovation to our customers.
At the heart of Ricardo are our people. We are committed to attracting and developing talent
from a broad range of disciplines to contribute towards our mission. Our high performance
and innovative culture ensures that we consistently motivate our skilled and agile workforce
to be the very best that they can be.
5 OPERATIONAL
EXCELLENCE
To maintain an efficient and effective organisation and to keep up with the rate of
technological change, we develop and invest in digital business models that allow us to
leverage data and bring existing processes into a virtual environment. This supports our
overall productivity and reduces the environmental impact of our business as we progress to
our net zero objective.
14 Ricardo plc Annual Report & Accounts 2020/21
Strategic report
Strategic performance
We use a range of performance metrics to provide a consistent measure of our underlying
performance. This is monitored by the board regularly to ensure that our performance
indicators are aligned with our strategic priorities.
1 SUSTAINABLE BUSINESS
GROWTH
Key performance indicators
Comments
We closed the year with an order book of £293.5m, which is 7% below the prior
year. The Group’s order intake reduced by 5% to £352.1m in the year reflecting
challenging trading conditions, with delays in orders being placed and the
continuing effects of the COVID-19 pandemic. Further details of the performance
of each of the segments are provided on pages 45 to 55.
Principal risk
Customers and markets
COVID-19
Climate change
Reported Group revenue was in line with the previous year. Energy &
Environment, Rail, Defense and Performance Products delivered increased
revenues compared to the prior year. Automotive & Industrial revenue reduced.
Further details are provided in the Financial review section on pages 40 to 44
and in the operating segments review on pages 45 to 55.
Contracts
Customers and markets
COVID-19
The Group reduced its net debt by £26.5m. This improvement reflects £28.2m
of proceeds, net of fees, from a successful share placing in November 2020
and a strong working capital performance. Excluding the placing, restructuring
costs and acquisition-related payments, the Group generated £7.4m of cash in
the year.
Contributions of £4.6m were paid into the defined benefit pension scheme.
Contracts
Financing
Defined benefit pension
scheme
Key performance indicators
Comments
All five of our operating segments exceeded 10% of revenue, demonstrating
that the Group is well diversified across all segments.
Segment diversity for FY 2019/20 and FY 2018/19 has been estimated in line
with the move to reporting on five segments in the current year. Performance
by segment is discussed on pages 45 to 55.
Principal risk
Customers and markets
Climate change
Technology
Supply chain
The number of customers with revenue above 5% is low. Revenue for the
largest customer was 12%, the other two customers were both 6%.
While we retain a small number of key relationships, we continue to have a
diverse customer base across segments and geographies.
Customers and markets
Supply chain
COVID-19
Creating a world fit for the future 15
293.5
314.0
314.0
351.8
352.0
384.4
Order book
£m
2020/21
2019/20
2018/19
Revenue
£m
2020/21
2019/20
2018/19
Net debt
£m
2020/21
(46.9)
2019/20
(73.4)
2018/19
(47.4)
2 RISK
MITIGATION
Segment diversity
Number of segments exceeding 10%
of revenue
2020/21
2019/20
2018/19
5
4
4
Customer dependency
Number of customers exceeding 5%
of revenue
2020/21
2019/20
2018/19
1
2
3
Strategic report Strategic report
Strategic performance
3 CUSTOMER
VALUE
Key performance indicators
Comments
Research and development
spend
£m
2020/21
2019/20
2018/19
10.2
12.5
13.4
R&D spend was lower in the current year as some long-running programmes
completed in the year. Our R&D spend focused on research on innovative science
and engineering, including the development of new tools, technology and
processes in our Automotive & Industrial and Energy & Environment segments.
Further details of our R&D projects are given on pages 17 to 19.
Principal risk
Technology
Customers and markets
Climate change
Customer satisfaction %
Ratings using the net promoter
method
Customer satisfaction has improved over the last three years, as has the number
of scores that we receive. The net promoter system which we use gives us greater
insight from the feedback.
Contracts
Customers and markets
2020/21
2019/20
2018/19
70
68
60
4 WORLD-CLASS
TALENT
Key performance indicators
Comments
Principal risk
Employee and
knowledge retention
Voluntary employee turnover %
per annum
The level of voluntary attrition remains stable as the labour market recovers.
There is strong competition around the world for our experienced consultants,
engineers and scientists.
Further details of our approach to our people are given on pages 20 to 23.
People
COVID-19
2020/21
2019/20
2018/19
11
11
15
5 OPERATIONAL
EXCELLENCE
Key performance indicators
Comments
Underlying operating
profit margin
%
2020/21
2019/20
2018/19
6.5
5.7
10.3
Environment
tCO2e per employee for scope 1(1)
and scope 2(1) emissions
2020/21
2018/19
2018/19
2.1
3.1
3.8
The increase in the Group’s underlying operating profit margin reflects improved
profitability in Energy & Environment, Rail and Performance Products. Margins
reduced in Defense (due to delays in the timing of orders) and Automotive &
Industrial, due to reducing revenue year-on-year. Further details are described in
the Financial review section described on pages 40 to 44.
Scope 1 emissions vary year on year because of the mix of project work. Our
scope 2 emissions are reducing primarily as a result of the sale of the Detroit
test business at the end of FY 2019/20 and also due to lower office occupancy
resulting from COVID-19 enforced home-based working.
Further details of our carbon footprint and progress towards net zero are
described in pages 24 to 33.
Principal risk
Contracts
Customers and markets
Supply chain
COVID-19
Climate change
Laws and regulations
16 Ricardo plc Annual Report & Accounts 2020/21
Innovation
Strategic report
“Ongoing investment in research and development supports Ricardo’s strategy for growth
and business diversification. We evaluate the benefit to our clients of our latest innovations,
focusing on delivering technology aligned with those enduring market drivers that bring
value in volatile market conditions. This year we have invested more than ever in net zero
technology around electrification and hydrogen.”
Mike Bell
Group Strategy and Transformation Director
In line with Ricardo’s vision and mission, our R&D portfolio
extends across a range of market sectors. As the mobility sector
moves towards a zero-emissions future, the breadth of Ricardo’s
operating businesses offers symbiotic opportunities. The
interdependencies between energy, environment, scarce
resources, waste, security and mobility are increasing. New roles
and responsibilities, collaboration and new digital entrants are
changing the landscape to open up new opportunities for
technological developments.
Our R&D investment is focused on enhancing our
competitiveness and delivering innovative market-
leading services, solutions and software within the context of a
sustainable, global marketplace. The impact of digitisation across
our market sectors is reflected in our current portfolio, with a
wider range of applications planned with particular focus on
the changes being brought about as a result of the COVID-19
pandemic.
Software and data are now playing a critical role in
our research projects - whether in the context of virtual
engineering, modelling or artificial intelligence. The
following sections highlight key R&D projects focused
on measurement, design, simulation and manufacturing
of sustainable customer solutions.
Measurement: air quality
Pervasive air-quality monitoring using low-cost air-quality
sensors is gaining momentum. These sensor systems provide
an opportunity to carry out ‘hyper-local’ monitoring, filling
in the gaps between conventional, expensive monitoring
sites. However, the performance of sensor systems and
resultant data quality is variable, influenced by a wide range
of external factors and further complicated by the fact that
sensor systems provided by different manufacturers often
respond in very different ways. The current process involves
regularly co-locating sensors alongside more accurate
monitoring equipment and calibrating manually. We
are developing machine-learning software that will replace the
time-intensive manual calibration process, avoiding relocation of
monitoring equipment. The solution trains models that help to
characterise the measurements from low-cost sensors at a range
of temperature, humidity and pollutant concentrations. These
models are used alongside our experts, allowing us to manage
larger sensor networks efficiently and cost-effectively as well as
reducing data loss and downtime.
Ricardo has developed a user-friendly, interactive,
web based Scenario Modelling Tool that allows policy
makers and air quality modellers to investigate the
likely impacts of different policy scenarios on air quality
emissions and greenhouse gases.
Creating a world fit for the future 17
Strategic report
Innovation
Ricardo is leading the UK-ALUMOTOR consortium to
establish a supply chain in sustainable electric motors
to kick start the green industrial revolution.
oil-cooling techniques have been developed to achieve a 20%
increase in permanent magnet motor performance. In addition,
the inverter integration has been improved by using deeply
integrated inverter SiC (silicon carbide) switches within the
casing and spray oil cooling. A range of innovative solutions
were assessed including heat pipes and new materials. Finally,
the overall package has been optimised to deliver an 8% mass
reduction and a 13% cost reduction.
Net zero transport: battery health and machine
learning
We have developed a novel approach to applying machine
learning to fleets of battery-based electric vehicles to extract
critical information on usage, battery health and prognostics.
This delivers an 8% to 13% improvement in battery life for the
targeted fleet user and also a 2% increase in vehicle range based
on more accurate battery monitoring. The ConnectedBMS project
applies machine learning to data collected from the battery-
management system and updates the vehicle battery-
Net zero transport: virtual battery design
The HiFi Elements project delivered a virtual toolchain for
the design, development and validation of vehicle
batteries. Critically, it helps achieve up to a 50% reduction
in design process time and up to a 20% development cost-
reduction in the virtual development and validation process. It
also captures battery ageing in the design process and delivers
reduced order models as an output from the modelling tools.
These can be run in real time with the application battery-
management system and provide far more accurate and
responsive management. This helps ensure that peak battery
performance and life is delivered out in the field. This new
toolchain is transforming Ricardo’s delivery capabilities for its
battery-pack project.
Net zero transport: thermal engineering
As battery charge rates increase, the corresponding safety and
performance requirements become more demanding. Ricardo
has developed a weight-efficient, immersion-cooled
battery module system, I-CoBAT, which delivers
significant improvements for the safe, ultra-fast
charging rate of batteries. In addition, the design
improves operational performance including the prevention
of thermal runaway. The project was awarded The
Engineer magazine’s ‘Collaborate to Innovate’ award in
2021. This technology is now being leveraged in our high-
performance battery projects for the aviation and road-
transport sectors.
Thermal management is important for other aspects
of electrification. The DiODE project has focused
on removing heat from high-performance permanent magnet
motors at the very point at which the heat is generated. Direct
18 Ricardo plc Annual Report & Accounts 2020/21
Strategic report
Innovation
management parameters simultaneously to deliver the
improvements as a service. It can also use preventative
maintenance techniques to reduce vehicle downtime.
Net zero transport: hydrogen centre of excellence
Ricardo has invested in a hydrogen development and test facility
at its Shoreham Technical Centre in the UK. While electrification
will be the main technology choice for passenger and light
commercial vehicles, hydrogen offers a solution for ’hard-to-
decarbonise’ applications where electrification does not meet
all requirements – for example, heavy-duty trucks. The particular
focus for the new facility will be a systems-led approach
to vehicle development to deliver tailpipe-free emissions,
integrating our enhanced test capability. The facility will provide
a flexible environment to test engines, fuel cells and balance of
plant for a range of R&D activities.
A Ricardo-designed direct-injection hydrogen engine for
heavy-duty trucks is currently being tested with Brighton
University. This ground-breaking work will validate our
combustion development tools with direct-inject hydrogen
and pave the way for our commercial activities with this exciting
clean, net zero fuel for heavy-duty applications.
We have invested in our leading-edge fuel-cell integration
and balance-of-plant optimisation toolchain tools. We have
applied these to a variety of projects including Project Fresson,
led by Cranfield Aerospace Solutions Ltd, in which Ricardo is
responsible for fuel-cell selection, balance-of-plant development
and integration.
Sustainable manufacturing: e-motor supply chain
The UK-ALUMOTOR project is focused on the development
of the UK supply chain for a highly sustainable electric
traction-motor concept for a wide range of sector
applications. Ricardo’s patented technology makes
use of synchronous reluctance principles for low noise
and high efficiency. The motor operates without the
need to use permanent magnets, which reduces the
cost significantly, and employs aluminium windings to
support operation under higher temperatures. The novel
rotor construction incorporates composite elements
offering high speed and high-temperature operation. This
technology allows transport OEMs and Tier 1 suppliers to
meet ever more stringent sustainability targets while offering
compelling performance, efficiency and cost targets. As a next
step, we intend to develop a light commercial vehicle variant
of the motor, AlCoVes – (Alumotor for Commercial Vehicles)
funded by Office for Zero Emissions Vehicles. This will continue
our internal work to take it to prototype hardware level,
demonstrating to customers the benefits this technology can
bring to a fast-growing and lucrative sector.
Virtual engineering: digital twin-based design
and optimisation
Ricardo has integrated its electrified systems modelling tools
into a comprehensive toolchain to build models of complex
systems that develop and mature with the system as it passes
from concept to production then to usage in the field. This
project demonstrates that digital twins add value during
product development by reducing time and cost by up to
30% compared to the current state-of-the-art, as well as
when products are in-service, through improving condition
monitoring (state-of-health) by up to 10%.
Creating a world fit for the future 19
Our people
Board members
Senior leadership
All employees
2 (0%)(3)
33%
3
9
Board
members(1)
6
67%
22%
14
64
Senior
leadership
50
78%
(1) Includes Company Secretary
Male
Female
26%
715
2,784
All employees(2)
2,067
74%
(2) Excludes contractors
(3) Prefer not to say
’Respect’ is one of the core values of Ricardo and this year we
made it the focal point of our HR agenda. We celebrated this
value with a suite of activities throughout the year, culminating
in ’Respect Week’ in April. This featured the first meeting of
our newly established global, cross-divisional Diversity Equity
Inclusion (‘DEI’) working group, virtual keynote talks, relevant
online learning, a workshop on inclusive leadership with the
Executive Group and a lot of animated discussions on our online
forums. The highpoint of the week was our Respect Choir, which
brought together colleagues from all regions and divisions,
across all hierarchical levels, literally from placement student to
Managing Director, in a stunning online recorded performance
of ’This is me’ from ‘The Greatest Showman’.
DEI programmes often focus on particular groups of
employees or communities within wider society. For us it is
important that all of our people are treated with respect and
feel cared for, that everybody is valued and recognised for their
strengths and their contribution and that every team member
feels they have a home and a future in Ricardo. We strongly
believe that a diversity of approaches, viewpoints and ideas
feeds the innovative capability that is at the heart of Ricardo’s
success.
Seok-Kyun Shin
Business Manager, Rail Asia
My journey with Lloyd’s Register
and Ricardo started in 2006
as a Reliability, Availability,
Maintainability and Safety (‘RAMS’)
Senior Consultant in the railway
industry. Now I am working as
Business Manager for the Korea,
Japan and Philippines railway
division. For the last 15 years I
have worked in various positions
including technical consultant, sales,
and operations management and
this broad experience has brought
me good insight into the business
along with a solid sense of pride and
responsibility.
We as a business have introduced
and developed RAMS and system
assurance services in the railway
markets of Korea and Japan. We
have continuously tried to educate
local OEMs, operators and research
institutes for Korea this effort could
help to update railway technical
standards to include the relevant
international RAMS standards as
mandatory requirements.
It is truly great to see that Ricardo
Rail Korea has trained many
specialists at various levels
and contributed to
the local industry
with Ricardo values
and become an
industry leader in
the railway safety
of Korea. Korea is a
country with
dynamic
energy and
cutting-edge
technologies;
alongside my
colleagues I
am working
with a strong
sense of
responsibility
to do our best for quality services.
The atmosphere of sound
competitiveness constantly
encourages me to grow.
I personally love to simplify
complicated problems and apply
this rule of simplification and
intuition to my life as well. I am
often described as ‘workaholic’
as I sometimes focus too much
on achieving a target, but I
absolutely enjoy being stimulated
and creating new values with my
fantastic colleagues. As a next step,
I would like to work for
Ricardo on autonomous
driving, exploring
the synergy and
convergence
between the
railway and
automotive
sectors with a
firm principle
of securing
safety.
20 Ricardo plc Annual Report & Accounts 2020/21
Strategic report Strategic report
Our people
Yansong Chen
Vice President Engineering
Services, Automotive &
Industrial US
Joining Ricardo in May 2020 was an
exciting move for me. After a 20-
year career with Delphi Automotive,
a global Tier 1 automotive
supplier, it has been refreshing to
bring my skillset to Ricardo, which
offers a significantly expanded
customer base and offers diversified
technology and solutions. Ricardo’s
reputation for engineering
excellence was impressed upon me
as a customer when I engaged the
company on hybrid-vehicle projects.
Now I have the pleasure of leading
the North American engineering
team, which allows me
to bring my variety of
experience, ranging
from implementation of
infotainment systems
and software to vehicle
electrification. My goal
is to lead Ricardo in
developing future-
proof technology for
our customers.
I particularly enjoy
the Ricardo culture
and passion for
excellence. I came
to Ricardo amid
the pandemic and
on-boarded virtually.
The help from the organisation
was truly impressive, offering
me a tremendous amount of
openness and support, which
resulted in Ricardo North
America being able to grow
quickly in capability and
achieve record high
sustainable engineering
productivity. It has
been a rewarding and
fulfilling experience
to lead the Ricardo
North America
engineering team
and participate in the
organisation’s growth
and improved business
performance.
The promotion of female representation in engineering and
leadership roles continues to be very close to our heart. Our
key KPIs of females in leadership roles (18% in FY 2020/21 vs
17% in FY 2019/20 and 11% in FY 2018/19) and overall female
representation (26% in FY 2020/21 vs 22% in FY 2019/20 and FY
2018/19) are steadily increasing.
The last year has, of course, been very much impacted by
the COVID-19 pandemic. Nobody had expected this to be such
a long journey and we are very conscious that the situation
has affected all our people in many and different ways. As a
company, we have increased our employee assistance offerings,
especially around mental health, bereavement support and
physical health, in order to provide the best support possible for
our people worldwide. It was heart-warming to see, throughout
Finalists for the annual Ricardo Engineering Prize,
which supports talented female engineering students
to take a positive first step in their professional
engineering career.
Creating a world fit for the future 21
Strategic report
Our people
Brandon Macklin
ABS/ESC Program
Manager, Defense
I served as a project manager for
10 years with one of the largest
ground-vehicle combat-system
manufacturers for the United States
Army and Marine Corps, prior to
joining Ricardo Defense in 2017.
The Ricardo Defense Antilock
Braking System/Electronic Stability
Control (‘ABS/ESC’) programme
is extremely diverse and
challenging. It’s a programme
that demands one have the
intestinal fortitude and
strategic business instinct
to successfully deliver our
product to multiple customers and
locations simultaneously.
This program was created with
the sole purpose of making military
vehicles safe and saving the lives of
US soldiers who use them. I’m proud
to manage a program that delivers
immediate results for combat-
vehicle safety. What we do is greater
than one individual; we help people
make it from the battlefield back
home safely to their families.
the whole year, how much effort our teams and managers put
into staying connected and supporting each other.
The leaders in our business have, in many cases, had to
manage people that are ’out of their sight’ for the first time.
They are emerging from this period as stronger leaders, having
learned to trust and manage performance by outcomes rather
than monitoring every step. Overall, we can only applaud our
teams across all levels in the organisation, for the incredible
adaptability and resilience they show and their continued
commitment to deliver the best possible solution for our clients,
every day, whatever the circumstances.
Home working has become a normality rather than a novelty
for all those whose roles allow them to operate effectively away
from their usual workplace. A lot of thought has gone into the
planning for a post-pandemic world. As a company we have
concluded that we want to continue to be an office-based
business because we do not want to lose the spark of creativity
that ignites when people are together, nor forgo the possibilities
for informal knowledge sharing and support for junior
colleagues that are so much more effective on-site.
The extended period of forced home working in most
countries in which we operate has propelled forward our
Ricardo’s Test team in the Electrified Propulsion Research Centre which
combines physical testing with state-of-the-art digital engineering
techniques and tools, to reduce product development time and cost.
22 Ricardo plc Annual Report & Accounts 2020/21
Strategic report
Our people
thinking around flexible and agile working models. All parts of
our business where on-site work is not absolutely required have
already implemented, or are planning to implement, a hybrid
working model that allows our people to manage their place of
work more freely and accommodate a better work-life balance.
Despite the COVID-19 crisis taking a lot of management
time and attention, we have not lost focus on our ambitions
as an employer. We want all our people to be happy and
engaged throughout their time with us. In addition to a positive,
inclusive and engaging culture and competitive remuneration
and benefits packages, the key is to provide our people with
interesting and challenging work that allows them to learn
and develop on a daily basis, supported by targeted training,
mentoring and coaching activities.
It was particularly important for us to gauge if and how the
very special circumstances and strains of the last 18 months have
impacted our employee engagement. Therefore, for the second
consecutive year, we ran the ’Gallup 12’ employee-engagement
survey. We were very pleased to find that the survey run in
March resulted in a slightly higher overall average score than last
year (3.9 out of 5 in 2021 compared to 3.8 in 2020).
To give some highlights: we improved response results on
the question on overall satisfaction with Ricardo as an employer
(increased from 3.8 to 3.9), on genuine care shown (increased
from an already excellent 4.1 to 4.2) and clarity on expectations
(also increased from 4.1 to 4.2). We acknowledge the effort put in
by managers and HR teams to support our people and keep up
performance despite difficult circumstances.
Analysis of the survey data also confirmed again that across
all divisions our people value their colleagues’ commitment
to quality work and the overarching culture of excellence that
Ricardo stands for (4.2 average score in 2021 compared to 4.1 in
2020). Unsurprisingly, we saw a slight decrease in some of the
responses to questions around development opportunities.
In spite of our best efforts to continue with training and
development measures online, as well as regular manager-
employee conversations, it proved very hard to create a feeling
of continued development while ’stuck at home’ – one of the
main reasons that we will, as a company, not consider moving
to a purely home-based environment. The divisions will now
continue the established process of sharing their best practices
and address joint issues together.
The last year saw the appointment of Malin Persson as the
non-executive director responsible for workforce engagement.
In this capacity, she is now supporting our employee
engagement activities by conducting small group interviews
with representative cross-sections of colleagues in all divisions
and regions, providing an additional route for bottom-up
feedback. This approach is very much appreciated by the
participating team members as it adds another, more personal
and direct element to our existing communication and feedback
processes.
We all hope that the next year will bring our people back
together in our offices to reconnect with each other and to meet
new colleagues for the first time, to reinvigorate our teamwork
and knowledge sharing and to recharge the relationship with
the informal chats we have all missed so much.
Sofia Amaral
Senior Consultant, Energy &
Environment
I am a senior consultant in the
Sustainable Transport team at
Ricardo Energy & Environment.
Since joining Ricardo four years
ago, I have worked on a variety
of projects providing technical
advice and evidence-based policy
analysis to both public and private
sector clients, mostly on transport,
energy and environmental issues.
Highlights include working on a
two year, high-profile study for DG
CLIMA of the European Commission
to develop a methodology for
carrying out lifecycle assessments
of road vehicles supporting the
UK Government to investigate the
availability of hydrogen resources
for producing biofuels for the
aviation sector, and employing
innovative techniques based on
experimental and behavioural
economics to support the European
Commission with the
design of more
effective fuel
economy/ CO2
emissions labels for
light-duty vehicles.
What I’ve
enjoyed the
most over the
four years I
have been at
Ricardo is the
diversity of
people and
experiences
I’m exposed
to. Only
in the
past year, I had the opportunity to
work on projects across different
technical areas (transport, energy,
economics, agriculture and more)
and engage with a range of clients
and stakeholders from around
the world, from smaller private
organisations to the world’s
largest vehicle manufacturers
and international public bodies.
Through these experiences, I have
worked with so many talented
people across Ricardo that
share the same passion for
sustainability. With them,
I have the opportunity
to learn more every
day, while helping
policymakers and
the industry navigate
and tackle the greatest
environmental challenges
that we face today.
Creating a world fit for the future 23
Sustainability and ESG
Our approach to environment, social and corporate governance (‘ESG’)
We understand the increasing importance of recognising and
mitigating our impact on communities and the environment.
Our vision, ’Creating a world fit for the future’, is realised through
a mission which integrates the economic, environmental and
social aspects of sustainable development into our strategy,
operating model and significantly into the work which we
undertake on behalf of our customers. We recognise that
effective management of ESG issues is an integral part of
robust governance and business strategy with a link to financial
performance and long-term business-model resilience. We are
increasing our use of ESG KPIs to aid transparency and measure
our progress quantitatively, especially relating to environmental
impact.
• Cross-sector engineering solutions to accelerate decarbonised
transport;
• Innovation to support global net zero and industry agendas; and
• Comprehensive expertise in safety, assurance and certification
provide the capability to deliver on our ESG agenda.
We support these core activities with R&D to enhance our
capabilities, described on pages 17 to 19. We rely on the innovation,
the talent and the technical and communication skills of our
teams, and we invest in their development for the benefit of all our
stakeholders. Our values and policies are designed to ensure that
we and our suppliers operate ethically and honestly, and that we
meet our human-rights obligations.
Ricardo has a proactive and engaged approach to ESG, which
We have a strong connection with many of the United Nations’
is an essential part of our social value and the delivery of our
strategic objectives outlined on page 14. The environment is at
the heart of our strategy and is embedded in what we do and the
solutions we deliver.
Our core activities of:
• Technologically advanced solutions that ensure access to clean
air and water;
Sustainable Development Goals (‘UN SDGs’), published at
www.un.org/sustainabledevelopment. These connections link to
our core activities, our internal operations and our stakeholders,
particularly the communities within which we operate.
Opposite, we set out the UN SDGs with which we strongly
connect and outline how our core activities respond to each of the
challenges.
Key ESG topics
The table below details a number of key ESG topics and highlights our activities in the area.
ESG topics
Company
Governance and management
of ESG matters
Environmental stewardship and
addressing climate change
Managing our environmental
footprint
Managing ESG-related risks
Customer
Climate change/environmental
projects
Our people
“Healthy People, Healthy
Business”
Human rights
Diversity
Health & safety
Suppliers
Sustainable procurement
Highlights
• Compliance with the provisions of UK Corporate Governance Code 2018
• Board oversight of ESG topics
• Implemented our Task Force on Climate-related Financial Disclosures (TCFD) recommendations,
increasing our disclosures and embedding in our business planning processes
• Certification to ISO 14001 for 35 sites (96% of employees)
• Reporting of GHG emissions (externally verified in accordance with ISO14064–3:2006)
• Strategy to achieve net zero for business operations by 2030. To ensure we track and implement this
ambition, we have defined science-based Targets to meet a 1.5°C future
• TCFD activities have identified a number of climate-related risks
• Climate-related risks are subject to a bi-annual board review
• 24% of our revenue is strongly driven by climate change or the environment
• 51% of our revenue is driven by climate change or the environment to some degree
• 33% of our R&D spend is strongly driven by climate change or the environment
• Focus on team member well-being – increased since COVID-19
• Improving employee engagement – survey based on Gallup 12 (score 3.9/5)
• Support for Universal Declaration of Human rights
• Diversity – increase in women in senior leadership positions from 17% to 18%.
• Certification to ISO 45001 for 35 sites (96% of employees)
• Very low reportable accident levels
• Development and deployment of sustainable procurement processes and supplier evaluation to
support our policies
Society
Supporting governments and
other public-sector bodies on
their net zero journeys
• In the calendar year 2020, we supported 71 different governments around the world with their
climate-action planning, including 34 national governments, 15 regional governments, and 22 city
governments
Local communities
• Active in communities working to promote science, technology, engineering and maths (STEM) in
schools and colleges
24 Ricardo plc Annual Report & Accounts 2020/21
Strategic report Strategic report
Sustainability and ESG
Sustainable
Development
Goal
Core activities
The way we operate
Stakeholders
• Decarbonised and clean
transport solutions
• Access to clean air
• Secure, connected mobility
solutions
• Provision of a safe working
environment, well-being
programmes and employee
benefits
• Governments and local
communities, employees and
their families
• Access to clean water
• Monitoring water use on larger
sites
• Clients, water sector,
governments and local
communities
• Net zero and carbon-neutral
solutions
• Decarbonised and clean
transport solutions
• Reducing energy consumption
and maximising renewable
energy sourcing
• Clients, governments and local
communities
• Decarbonised and clean
transport solutions
• Net zero and carbon-neutral
solutions
• Working in partnerships with
local communities around our
larger sites to reduce collective
energy use
• Clients, governments and local
communities, employees and
their families
• Net zero and carbon-neutral
solutions
• Decarbonised and clean
transport solutions
• Net zero plan and targets which
will reduce energy and resource
use
• Clients, businesses,
governments and local
communities
• Decarbonisation of transport
• Access to clean air
• Net zero and carbon-neutral
solutions
• Climate change risk
management
• Net zero plan and targets
• GHG reporting and reducing
carbon footprint
• Clients, governments and local
communities
• Access to clean air and water
• Active management of waste
streams on our sites
• Clients, businesses,
governments and local
communities
• Access to clean air and water
• Active management of waste
streams on our sites
• Encouraging low-carbon travel
to work
• Clients, businesses,
governments and local
communities
United Nations Sustainable Development Goals web site: https://www.un.org/sustainabledevelopment/
Creating a world fit for the future 25
Strategic report
Sustainability and ESG
Governance and management of ESG matters
The Board is committed to ensuring that the highest standards
of governance are maintained throughout the Group. The Board
reviews key elements of ESG on an annual basis. Wider aspects
of corporate governance including how we comply with the
provisions of the UK Corporate Governance Code 2018 are
described on pages 82 to 87. Our policies relating to ESG are all
public, via our website, and are referenced in this report. This
gives our stakeholders increased transparency regarding our
commitments and the responsibility for execution within the
business.
To underline the importance of integrity in all relationships
between employees and stakeholders, we have policies
covering ethics, fraud-prevention and whistleblowing, which
are communicated to all team members. A summary of these
is communicated externally through our Code of Conduct and
Values, which include the policy elements required to meet our
human-rights obligations. We have introduced annual employee
refresher training for the Code of Conduct as well as induction
material for new staff.
Anti-bribery and corruption
Under our ethics policy we do not permit bribery, anti-
competitive or corrupt business practices in any dealings. Under
our fraud-prevention and ethics policies, which cover anti-
corruption matters, we do not allow intentional acts by one or
more individuals within the business to use deception, bribery
or theft to gain unjust or illegal advantage. Our fraud and bribery
risk assessment covers a wide range of fraud, corruption, conflict
of interest, insider dealing, prevention of facilitation payments,
prevention of research misconduct and ethics risks and controls.
This is reviewed annually with the Audit Committee. Under our
whistleblowing policy, we provide a procedure for any team
member to raise any malpractice concerns anonymously in an
appropriate manner, with protection to the whistleblower. We
have integrated a third-party specialist into our processes to
provide due diligence checks on new clients, intermediaries and
material suppliers. This allows us to identify potential risks and
comply with anti-money laundering (‘AML’) and anti-bribery and
corruption (‘ABC’). In the areas we have assessed to date, we have
not encountered any organisation which has rated very high
from a risk perspective. We have not been subject to any fines or
enforcement action on these matters during the year. Ethics and
whistleblowing policies and reports are reviewed annually by
the Audit Committee.
Modern slavery
We continue to adhere to the requirements of the Modern
Slavery Act 2015 and have published an updated statement
for this financial year on our website and the UK government
website. This subject is reviewed annually by the Audit
Committee. Our procurement policy requires our suppliers to be
compliant.
Environmental stewardship and addressing
climate change
Clear scientific consensus exists that the Earth’s climate is
changing, and that greenhouse-gas (‘GHG’) emissions from
human activities are the principal cause. For financial markets,
climate change is accepted as a non-diversifiable, principal risk.
At Ricardo, we understand that the implications of unchecked
emissions and the consequent global warming will be severe.
Climate change is pivotal to our ESG thinking and to the Group’s
strategy.
In common with many organisations, Ricardo already
measures and discloses elements of its impact on the
environment, in particular via GHG emissions inventory reporting
(page 31).
Taskforce on Climate-related Financial Disclosures
The Task Force on Climate-related Financial Disclosures (‘TCFD’)
recommendations are a global framework. The project was
initiated by the Financial Stability Board (‘FSB’), designed to
enable publicly listed companies to better understand and
disclose the impacts of climate change on their businesses.
The TCFD recommends that businesses consider both the
opportunities and the risks associated with climate change.
The TCFD recommendations aim to improve the disclosure of
information to allow investors, regulators and other stakeholders
to better assess and manage the risks and opportunities
resulting from climate change. While the recommendations are
currently voluntary, Ricardo believes they align strongly with
our vision and mission and aims to become a leader in best
practice in the sectors we operate in. We have plans in place to
be fully compliant in 2022 once legislation is in place and the
international accounting rules have been published.
TCFD progress to date
We have an ongoing Group-wide TCFD programme which
commenced in 2019. The overall aims of our programme are:
• To build on the climate-related features of our long-term
Our processes consider countries that we undertake business
strategy;
in and the relative levels of corruption therein. To this end, we
have classified our revenue with reference to Transparency
International’s Corruption Perceptions Index (‘CPI’). Of our total
revenue, 0.79% was generated in countries with a CPI score
of less than 40/100. Of this revenue, the majority is generated
by our Energy & Environment division in their work with
intergovernmental organisations (‘IGOs’) such as the World Bank.
• To fully explore our climate-related opportunities and risks, in
line with the TCFD ethos; and
• To develop class-leading capabilities, enabling us to support
our clients’ own TCFD journeys.
Our programme included an exploration of future climate-
related scenarios, prioritisation of key risks and opportunities,
assessment of potential business impacts and systematic
distillation of recommendations. This complex undertaking was
achieved using the Group’s diverse skill-sets – climate specialists,
26 Ricardo plc Annual Report & Accounts 2020/21
Strategic report
Sustainability and ESG
scenario-planning experts and management consultants. Using
external climate scenarios and impact assessments as inputs,
we developed four bespoke scenario narratives, each describing
a different hypothetical world around Ricardo in 2035. Brief
summaries of these scenarios follow:
• Creative Scavengers. The world is on a 4ºC temperature-rise
trajectory up to 2100, resulting in significant acute and physical
risks. This scenario assumes a lack of cohesive international
policy intervention, and sporadic technological progress.
• Digitopolis. The world is on a 2-3ºC temperature-rise trajectory
through 2100, with commensurate acute and chronic
physical risks. This scenario assumes some international policy
intervention, progress in energy efficiency, and a reduction in
travel enabled by digital technologies.
• Technopolis. Similarly, the world is on a 2-3ºC temperature-
rise trajectory through 2100, with commensurate acute and
chronic physical risks. This scenario assumes little international
co-operation on policy interventions. Instead, major
breakthroughs in renewable energy technologies enable
some climate-change mitigation.
• Ecopolis. The world is on a less than 2ºC temperature-rise
trajectory through 2100. Chronic physical risks are being
addressed, although some extreme weather events remain
inevitable. This scenario assumes cohesive international policy
interventions and significant deployment of a broad suite of
effective renewable-energy solutions.
Our work has resulted in a clear set of recommendations,
which we have aligned to the four official TCFD recommended
disclosure themes.
TCFD Theme
Governance
Progress to date
• Management role: The board and the Executive
Committee review climate change twice a year as
part of a wide review of ESG matters.
• Oversight: Climate opportunities are reviewed at
Board level on an annual basis as part of our strategy
review and budget-setting processes. Climate-
related risks are reviewed at Audit Committee
meetings as part of our bi-annual risk-review
process.
• Document and disclose: our TCFD process is
disclosed above and includes: scenarios, linkage to
strategy, additional KPIs and disclosures.
Strategy
• Strategy impact: Ricardo’s ESG agenda is aligned to
our vision and mission.
• Strategy identification: Ricardo’s strategy includes
specific themes that relate to climate change and
its mitigation: electrification, hydrogen, digitisation,
climate-change strategy and clean transportation.
• Strategy resilience: Ricardo strategy has been tested,
explored and developed across the four scenarios
described above. These scenarios include a 4⁰C and
a below-2⁰C scenario.
• Process for identification: Our TCFD activities have
enabled us to assess and integrate further climate-
related risks into our enterprise-risk register
• Process for management: our climate-change risks
are managed in the same way as other enterprise
risks, see page 35.
• Organisation: our risks are owned by executive
directors, divisional managing directors or heads of
group functions.
Risk
management
TCFD Theme
Metrics and
targets
Progress to date
• Company metrics: we are committed to disclosing
additional climate change metrics with stakeholders.
• We have analysed Ricardo’s own revenue sources
and characterised this revenue according to the
extent to which each component aims to address
an environmental or climate-change issue. This
year we have added a metric on the connection
between R&D spend and climate change. The
results of this analysis are shown below on page 28.
• Greenhouse-gas emissions inventory: our expanded
inventory is externally verified and disclosed below
• Climate-related targets: we have set out our net zero
targets, progress this year and overall status in the
table below. We have applied to have our Science
Based Targets validated
Opportunities to enable a world fit for the future
We conducted TCFD activities in parallel with a long-term
strategic-planning project for the Ricardo Group. Indeed, both
activities used common future scenarios. Our TCFD journey
highlighted six key areas of opportunity for the Group, including
focusing on the power and energy sectors, leveraging our
understanding of global regulatory frameworks and providing
solutions outside the transportation sector. Importantly, the
remaining three opportunity areas show clear overlap with our
strategy (set out on page 14):
• Digitalisation of products and services. Our strategy includes a
strong digitalisation focus. Not only will this drive technical
innovation, it will also enable Ricardo and its stakeholders to
reduce overall emissions.
• Decarbonising transportation. Projects focused on reducing
the environmental impacts of transportation have been
a cornerstone of the Ricardo business for decades. The
development of mobility solutions with reduced life cycle
GHG emissions is a critical feature of Ricardo’s strategy.
• Cross-divisional solutions. Ricardo’s operating segments
operate in market sectors with increasing synergies. Joining
up these capabilities to enable systems thinking, as well as
comprehensive technical delivery across complex client
programmes, is an essential part of our strategy.
Managing ESG-related risks
Ricardo’s TCFD activities resulted in the identification of a
number of climate-related risks, including the following:
• Physical risks to our facilities. The growing severity of climate
change and variability causing physical disruption (for
instance, flooding) to business.
• Climate-liability risks. Risks associated with either increases
in client litigation, a reduction in consulting budgets, or an
increase in litigation against Ricardo itself. Ricardo’s existing risk
register includes an assessment of risks to our business from
litigation.
• Reputational risks. As investors and stakeholders place more
focus on climate change, a perceived lack of action could
result in reputational damage.
• Changes in client requirements driven by climate change. Climate
change could result in changing demand for certain products
Creating a world fit for the future 27
Strategic report
Sustainability and ESG
and services. Our strategy includes a strong decarbonisation
focus.
• Changes in regulations relating to climate change. As
environmental and emissions regulations tighten, the risk
of penalties for non-compliance increases. As a provider of
services relating to changes in global emissions standards
and environmental legislation, we are in a strong position to
anticipate and respond to emerging regulatory risks.
We have actioned the mitigation of these risks via our existing
enterprise risk-management processes. The changes in client
requirements and regulations have been combined to be
become a principal risk, the mitigation of this becomes a series
of opportunities for the business. Further information on our
risk management and principal risks to the business is shown on
pages 34 to 37.
• Revenue generated which is specifically intended to address
climate change, e.g. net zero and GHG inventory work in
Energy and Environment and A&I projects driven by the
decarbonisation of transport.
• Revenue generated which is driven by a significant
environmental issue, e.g. improving the efficiency of existing
power trains in Automotive & Industrial, natural resource
management planning in Energy & Environment.
• Revenue generated which has environmental benefit as one
of its drivers, e.g. asset optimisation and efficiency work in
Rail, manufacture of efficient transmissions and engines in
Performance Products.
• Revenue generated which relates to safety in terms of both
assurance and mobility improvements, e.g. the ABS work in
Defense and Certification work in Rail.
• None of the above.
Climate change and environmental revenue
Ricardo delivers many positive environmental outcomes as a
result of the work we undertake. These include:
• Ricardo-and customer-funded engineering projects to
develop low-emission and high-efficiency technologies for
incorporation into products around the world.
This analysis shows:
• 24% of our revenue is strongly driven by climate change or the
environment.
• 51% of our revenue is driven by climate change or the
environment, to some degree.
• 10% of our revenue relates to the societal benefits associated
• Lower carbon usage through the delivery of engineering
with safety.
• Our business activities are well aligned to our vision: Creating a
world fit for the future.
Climate change and
environmental revenue
contribution
FY
2020/21
%
37
Driven by climate change
Driven by an environmental issue
Has environmental benefits
Relates to safety
None of the above
10
11
13
29
Our R&D has a strong connection to climate change. We
have measured this for the first time this year. A third of our
R&D spend (£3.4m) was spent on areas which are specifically
intended to address climate change. The innovation section of
the report on pages 17 to 19 shows examples of these projects.
projects that lead to more efficient consumer products being
manufactured by our customers.
• Environmental consultancy, largely undertaken by Ricardo
Energy & Environment, which includes: excellence in thought
leadership around economic, societal and environmental
interactions; extensive understanding of the climate change
challenges facing organisations, including scarcity of natural
resources, strategic sustainability and energy management;
deep understanding of policy drivers, environmental
strategy and economics, which provides insight and project
delivery for business and industry; and modelling and data
management to identify and realise value for organisations.
• Improvements in operating efficiency carried out by Ricardo
Rail for rail operators and rolling-stock manufacturers.
These products and services will have an impact on future levels
of emissions, waste, energy usage, water consumption and noise
across many of the markets we serve. The cumulative benefits
of projects we complete each year save many multiples of our
operational carbon footprint over the service life of the products
we engineer and the service we provide to our clients.
Ricardo’s revenue streams have been analysed to assess how
strongly they are driven by climate change and the environment.
In addition to the climate change/environmental impact, we
also categorise the revenue relating to safety as this has societal
benefits. For instance, Ricardo Rail’s expertise and activities in
functional safety have significant societal benefits. For each item
of revenue, we have applied one of the following classifications:
28 Ricardo plc Annual Report & Accounts 2020/21
Strategic report
Sustainability and ESG
The Electrified Propulsion Research Centre, with the
under-construction hydrogen development and testing
facility, will form a global centre of excellence for
sustainable mobility engineering.
Managing our environmental footprint
We are committed to managing our environment footprint and
reducing it to a minimum, as well as ensuring that our services
have a positive impact on society and the communities where
we are based. The Board’s commitment to this is embodied
in our environmental policy (available internally and via our
website) which covers:
• Relevant UN Sustainable Development Goals;
• Delivering services that enable strategic improvements for our
customers and the end-users of their products and services;
• The need for continuous improvement; and
• The desire to be responsible members of the local
communities in which Ricardo operates.
The impact of our operations, particularly testing and
manufacturing, are the largest contributors to our operational
carbon footprint and GHG emissions. Our testing, for customer-
and research-funded programmes, primarily uses fuel and
electrical energy; in addition, there is energy required for
heating some of our sites. Our manufacturing energy use is
predominantly power for machine tools and assembly facilities
and gas used in our heat-treatment plant. Our Scope 2 use is
mainly electricity. We have measured our Scope 3 emissions
from air and rail travel. Our Scope 3 conclusions this year have
had to be compared to first-half data of the previous year due
to the distortion caused by COVID-19 related travel bans which
have lasted most of the current year.
We comply with the Companies Act 2006 (Strategic and
Directors’ Report) Regulations 2013 on GHG emissions and have
stated our comparative history in our Strategic Performance
on page 16. We comply with Streamlined Energy and Carbon
Reporting (‘SECR’) via our disclosures below under the
Greenhouse Gas Protocol and commenting on all elements
of our net zero strategy. As this requires the inclusion of fuels
used in engine and vehicle testing, year-on-year variability can
be expected due to the mix in types of test and engine size. In
the current year, the use of diesel for testing in the US reduced
significantly as a consequence of selling our test operations in
Detroit.
As part of our net zero strategy, we have focused energy
saving on reducing our property portfolio.
Projects to reduce energy consumption and manage waste
responsibly are actively encouraged and have become more
important as unit fuel costs increase. Waste streams have also
become more significant as the manufacturing activities of our
Performance Products division are significant.
We focus our operational carbon-footprint improvements on
underlying energy efficiency prior to the use of fuels for testing,
which varies based on client requirements. We continue to use
tonnes of carbon dioxide equivalent (‘tCO2e’) per employee as an
intensity measure.
Creating a world fit for the future 29
Strategic report
Sustainability and ESG
Greenhouse-gas emissions
Emissions - tCO2e ('000s)
Scope 1 – Gas (methane based) usage
Scope 1 - Diesel usage
Scope 1 – Gasoline usage
Scope 1 – Other emissions
Scope 1 - Total
Scope 2 – Location-based
Scope 2 – Market-based
Scope 3 – Air travel
Scope 3 – Rail Travel
Total – Location-based (Scopes 1 and 2)
Total – Market-based (Scopes 1 and 2)
Total – Location-based (Scopes 1,2,3)
Total - Market-based (Scopes 1,2,3)
Scope 3 - Air travel baseline
Intensity Measures
(tCO2e per employee)
Scope 1(1)
Scope 2 – Location-based
Scope 2 – Market-based
Scope 3 - Air travel
Total – Location-based (Scopes 1 and 2)
Total – Market-based (Scopes 1 and 2)
Total – Location-based (Scopes 1,2,3)
Total - Market-based (Scopes 1,2,3)
Electricity consumption MWh
Electricity consumed (all sources)
Renewable energy consumed
Percentage of renewable electricity used
FY 2020/21
FY 2019/20
baseline
777
555
381
703
2,416
3,791
774
477
3
6,208
3,191
6,688
3,671
N/A
0.83
1.31
0.27
0.17
2.14
1.10
2.30
1.26
4,343
4,981
2,016
3,967
No data
9,324
6,359
13,291
10,326
6,015
1.42
1.63
0.66
1.30
3.05
2.08
4.36
3.38
15,742
14,296
91%
17.455
12.973
74%
• The operational control test is applied to determine if an
emission is within Scope.
• The inventory has been compiled according to the GHG
Protocol and internal procedures with the exception that
individual gases are not reported. Our GHG emissions for FY
2020/21 have been verified by Lloyds Register in accordance
with ISO 14064–3:2006, ‘Specification with guidance for
validation and verification of greenhouse-gas assertions’.
• The base year is FY 2019/20, as this as the first year where data
was verified. Data from previous years has been restated to
improve quality. Some data includes estimates, which may be
updated at a later time when more accurate data are available.
• Emission factors used for fuels and UK location-based
electricity are based on UK BEIS/DEFRA conversion factors
for 2021. Electricity emissions factors used for location-based
calculations are the most recent confirmed IEA factors for the
country. Electricity emissions factors used for market-based
calculations where renewable electricity is not supplied are
the most recent year GWP residual mix factors from
aib-net.org for countries in Europe and UK and location-based
for other countries.
30 Ricardo plc Annual Report & Accounts 2020/21
• Air and rail-travel emissions are calculated by Susterra using
bespoke factors that take account of route, class of travel,
airline and aircraft type.
• Other Scope 1 emissions now include refrigerants used to
top up cooling and air-conditioning plants, fire extinguishants
such as FM200 and sulphur hexafluoride (SF6) associated with
switchgear.
• SECR: Our UK operations are our biggest consumer of
electricity, which is our only UK Scope 2 emission source,
where we directly procure electricity from renewable sources
for our largest sites: 97% of our renewable electricity (13,843
tCO2e) and 10% of our non-renewable electricity (150 tCO2e)
are consumed in UK . The UK contribution to our Scope 1
emissions is 90% of our total Scope 1 emissions (2,417 tCO2e).
Our UK intensities are 1.44 tCO2e per employee for Scope 1
and 8.58 tCO2e per employee.
• We plan to increase our disclosures as we adopt science-
based targets during FY 2021/22 and increase focus on Scope
3 emissions . This will include baseline measurement and
increasing the reporting as we are able to measure more
categories of Scope 3 emissions. We anticipate reporting
Scope 3 categories 1, 2, 4, 5, 7, 9, 10, 11 & 12 starting from FY
2022/23 and have no Scope 3 emissions in Categories 3, 13, 14
or 15. Category 8 emissions are included within our Scope 1
and Scope 2 reporting.
• Our triggers for baseline recalculation would be an acquisition
or disposal which changed head count by +/- 10% - this did
not occur in the current or previous year.
Water usage on large sites m3
Volume
Volume/ team member
FY 2020/21
FY 2019/20
baseline
41,276
14.2
55,506
18.2
• We measure water use on our sites with more than 50 team
members – small sites are immaterial.
• The reduction in water consumption was mainly due to
reduced test activity at the Shoreham Technical Centre and
ceasing test operations in the US.
1234567Maximise renewable energy sourcingReduce our property footprintOptimise travel ”digital-first”High speed trains vs short haul air travelFuel-efficient aircraft for long haul travelEnergy efficiency site improvementsVerified offsetting schemes for residual emissionsNet Zero2030
Strategic report
Sustainability and ESG
Renewable electricity – percentage used per
financial year
%
Electricity user per financial year per
employee
kWh
2020/21
2019/20
2018/19
74
71
91
2020/21
2019/20
2018/19
5,412
5,721
8,154
Net zero strategy and progress on GHG targets
Ricardo intends to achieve net zero GHG emissions from its operations by 2030, our progress and achievements towards our Carbon
Reduction Plan are set out below and embedded in our business planning processes:
1
2
3
4
5
6
7
Net zero objective
Achievements in FY 2020/21
Overall status
Maximising use of
renewable energy
sourcing;
Across the group we are at 91%, having improved from
74%. The largest improvement resulted from the sale of the
Detroit test business in June 2020. Other improvements
come from increased procurement of renewable energy
and resizing some sites.
Reducing the size of
our properties as more
flexible office working is
implemented
We have downsized in the following locations:
• Seoul
• Hong Kong
• Copenhagen
• Guildford
We have set an interim target of 90% for 2025 and
are on track – progress on remaining sites requires
renewable energy to be available in specific countries
where we operate or agreement from specific
property landlords where renewable energy is not
currently used.
As part of our COVID-19 recovery planning, we are
piloting flexible working for some of our office-based
team members.
Good overall progress being made.
We are moving to home- based working for the following
locations from early FY 2021/22:
• Cambridge, UK
• Germany
The number of home-based team members has increased
by 60 to 162 since June 2020.
For the majority of this year, this has been the only way we
could work with clients, suppliers and with colleagues.
We have identified routes where this is practical and have
cascaded to those that use them. This approach has been
in active use in China during the year where internal travel
has been possible.
Maximising ‘digital-first’
to optimise our travel
needs
Using high-speed trains
in place of short-haul air
travel where practical
Using the most fuel-
efficient aircraft for long-
haul travel
We have shared guidance with travellers, so we can
implement when long-haul travel restarts.
Implementing energy
efficiency improvements
focusing on our high-
energy-use sites
Making use of verified
offsetting schemes to
offset residual emissions
Projects have been identified for investment in FY 2021/22.
The focus is on our Shoreham and Midlands Technical
Centres.
Activity has been limited this year. We planned to pilot
offsetting for some flights in Energy & Environment.
We will see an increase in travel, but not to pre-
COVID-19 levels.
Good progress made.
We expect increased use as more high-speed rail
systems are introduced and governments introduce
policy on this subject, France being an early example.
Improvement opportunities have been identified for
travel resumption.
We expect COVID-19 to accelerate the
decommissioning of the most inefficient aircraft
which will assist with implementation – the market
will drive achievement.
On track to achieve.
We will focus on energy reduction with good financial
return to complement the maximisation of renewable
energy procurement.
On track to achieve.
Our initial focus, at least until 2025, is on underlying
emission reduction and use of renewables to reduce
the amount we might need to offset.
Creating a world fit for the future 31
Strategic report
Sustainability and ESG
Human rights
The Group firmly believes in the principles behind the Universal
Declaration of Human Rights. We support this by having a strong
commitment to compliance with laws and regulations in the
regions in which we operate, and by expecting the same from
our suppliers. In January 2020 we published our Human Rights
Policy, enhancing and clearly stating our commitments in the
public domain. We specifically include statements on children’s
rights and child labour. We have no known incidents of human-
rights policy breaches during the year.
In our Human Resources Policy, we protect freedom
of expression, freedom of association and freedom from
harassment, bullying and discrimination. We promote diversity
and clear lines of responsibility, and we are a Living Wage
Employer. We focus on our people taking ownership of their
work-life balance to provide a flexible working environment. In
South Africa, we have very few team members and do not need
to comply with B-BBEE legislation. We have no known incidents
of labour-standards breaches during the year.
Our rolling stock teams performed several weeks of overnight system
integration tests during the upgrade of Utrecht’s SUNIJ-lijn tram route.
Environmental management
As a responsible employer, we seek to protect and care for our
people by providing a safe and healthy work environment and
by minimising the environmental impact of our operations.
Many of Ricardo’s customers require certification for their key
suppliers in respect of the environmental management system
standard, ISO 14001. Our certification directly covers 35 sites
and 96% of our people. The remaining colleagues and sites
are managed via the ISO 14001 processes. The achievement of
the standard is defined by appropriate policies, processes and
procedures as part of the management system in each division.
Many of these are closely linked to both quality and health and
safety procedures.
Other environmental impacts arise from waste streams, which
are monitored to identify potential improvement opportunities
and to ensure legislative compliance. Higher-risk areas of our
facilities, such as fuel storage and distribution systems, have
containment and inspection regimes that meet local legislative
requirements. We target zero pollution incidents and have had
none this year.
The suite of ISO certifications and the supporting internal
and external audit programmes are used to check policy
effectiveness, to share best practice, identify improvement
opportunities and ensure compliance. Staff training in health and
safety and environmental matters is a priority and is reviewed
annually as part of normal appraisal processes. We have not had
any enforcement action, fines or penalties this year.
32 Ricardo plc Annual Report & Accounts 2020/21
Health and safety
Ricardo is committed to compliance with local health and safety
legislation, to a safe working environment and to a minimal level
of reportable accidents. We support training in health and safety
internal audits and inspections, and we are now certified to ISO
45001 in our technical centres and larger offices in the US, the
UK, the Netherlands, Italy, the Czech Republic and China. Our
certification directly covers 35 sites and 96% of our people. The
remaining colleagues and sites are managed along ISO 45001
processes. Our health and safety policy is available through our
intranet and to the public through our website. Risk assessment
is an integral part of our processes, both on a project basis for
specific hazard management and more generally in the way we
manage risk on our sites and in travel.
Our health and safety, HR and site management teams
and occupational health providers have played a key part in
our COVID-19 response . They have been actively supporting
colleagues with concerns, delivering safe work environments
and ensuring the business can operate with rapidly changing
regulations across our sites around the world.
We recognise the level of reportable accidents as a measure
of performance in health and safety. The overall level is still
low and shows the continued success of our health and safety
policies. We continue to target reducing accidents to zero
and learning from near-misses as part of our commitment to
continuous improvement and loss prevention. All accidents and
non-injury incidents are investigated and reported to divisional
management and employee consultation forums.
Reportable accidents*
2020/21
2019/20
2018/19
1
1
3
(* ) Based on current definitions of the Reporting of Injuries, Diseases and Dangerous
Occurrences Regulations (‘RIDDOR’)
The only reportable accident was not serious, and we had no
fatalities.
Strategic report
Sustainability and ESG
Sustainable procurement
We published our Procurement Policy in January 2020 as part of
a range of commitments to our stakeholders.
Relations with our suppliers are essential in achieving client
and shareholder satisfaction. Our policy is that key suppliers
should be certified to ISO 9001, ISO 14001 and ISO 45001
standards, and all suppliers are encouraged to obtain these
certifications. Suppliers are expected to follow Ricardo policies
on human rights. There are no significant supply contracts
which are essential to the business of the whole Group, and we
are not reliant upon any suppliers that would jeopardise the
independence of the business.
Initiatives are managed by our Head of Global Procurement
and savings are delivered by consolidating the supply base and
reducing the total cost of doing business.
Investing in our communities
It is our policy and objective to make a positive contribution
to all regions and communities in which we operate. Many of
the larger Ricardo offices support local community activity
and give charitable donations, especially where colleagues
participate in community or charitable fundraising activities. The
focus is on creating sustainable links to the community, and on
improving the image and understanding of the business, and
the engineering and scientific professions.
Our policy is published here: Engaging and supporting
local communities (www.ricardo.com/policies/engaging-and-
supporting-local-communities).
Community engagement in promoting Science, Technology,
Engineering and Maths (‘STEM’) subjects and diversity has been
a key part of our employee involvement. We responded to the
COVID-19 crisis by focusing on ‘digital-first’ for our engagement
and look forward to resuming normal activities as social-
distancing rules are relaxed later in 2021.
We also work with our local communities to provide business
input on economic regeneration, and we actively engage in
local partnerships, particularly in the area where our Shoreham
Technical Centre is located, where we are the largest private-
sector employer.
Donations
We often match staff donations to charitable activities,
particularly where there is active staff participation in events.
Financial contributions to charities in the financial year were
£4,787 (FY 2019/20: £17,484).
The effectiveness of these policies is informally measured by
community feedback.
Creating a world fit for the future 33
Risk management and internal control
The Board has overall accountability for ensuring that risk is
effectively managed across the Group. We consider that effective
risk management is critical to the achievement of Ricardo’s
strategic objectives and the long-term sustainable growth of
our business. Such systems are designed to manage, rather
than eliminate, the risk of failure to achieve Ricardo’s objectives
and can only provide reasonable assurance against material
misstatement or loss.
Risks are reviewed by all business areas on a half-yearly
basis and measured against a defined set of likelihood and
impact criteria. Risks are measured both before and after the
mitigating effect of the application of compensating controls.
This is captured and reported consistently, enabling the risk
information to be consolidated and ranked. The key risks are
then summarised in the Group’s risk profile and submitted to the
Board for review and approval.
As part of the bi-annual risk management process, Directors
and senior managers are required to certify that they have
established effective controls to manage risk and to comply with
legislation, as well as with the Group’s policies and procedures.
Ricardo’s internal control and monitoring procedures include:
• Clear and understood responsibilities by both line and
financial management for the maintenance of good
financial controls and the production of accurate and timely
management information.
• Requirement for divisional finance directors or financial
controllers to confirm on a monthly basis that appropriate
controls are in place and to identify any exceptions, with the
outcome being reviewed by the Group Financial Controller
and Group Risk Manager & Head of Internal Audit.
• Divisional finance directors have line-management
responsibility to their managing directors, but with an
independent reporting line to the Chief Financial Officer.
• Control of key financial risks through clearly set authorisation
levels and appropriate segregation of accounting duties;
• Control of key project risks through project delivery and
review systems.
Progress on managing the impacts of COVID-19 has been
reported to the Board on a regular basis during the year. Our
principal risks and the approach to their mitigation are discussed
on pages 35 to 37.
The Group has risk-management processes in place for
projects and other business risks. Contract risks are managed
through a project-management process which is closely linked
to measurement of financial performance. The majority of active
projects are reviewed on a monthly basis within divisions. In
addition, projects in the highest risk category are independently
reviewed by the Group either on a quarterly basis or once
significant milestones are deemed to have been achieved. Non-
contract risks are owned by the Group functions and divisional
Managing Directors. These non-contract risks are analysed,
regularly reviewed and recorded in the Group’s risk register in
liaison with the Group Risk Manager & Head of Internal Audit,
who has an independent reporting line to the Chair of the Audit
Committee. The Group’s approach to risk management is to
identify key risks early and to remove, control or minimise the
impact of them before they occur.
Risk transfer is managed through insurances by the Group
Risk Manager & Head of Internal Audit under the direction of the
Chief Financial Officer. The insurance programme is reviewed
annually by the Board to ensure that it continues to meet
business needs as the risk profile changes.
Risk appetite is managed through a number of internal
controls, authority limits and insurance excesses. The Group’s
risk appetite was reviewed during the year as part of the Board’s
review of risks and is stated as an internal policy document.
The Group’s internal audit function provides assurances on
divisional systems of internal control, risk management and
compliance with applicable legislation and regulations. This is
complemented by internal audits required as part of maintaining
certifications to international standards for management
systems. The effectiveness of these risk-management and
internal audit processes is reviewed annually by the Audit
Committee and is set out on pages 92 to 95.
• Control of other key business risks through a number of
Financial risks faced by the Group comprise capital risk,
processes and activities recorded in the Group’s risk register.
• Detailed monthly forecasting and reporting of trading results,
financial position and cash flow, with regular review by
management of variances from budget and forecast.
• Review and reporting by the internal audit function of
liquidity risk, credit risk and market risk (comprising interest rate
risk and foreign exchange risk). The Group’s objectives, policies
and strategies in respect of these risks are set out in Note 27 to
the Group financial statements.
The Company complies with the 2018 UK Corporate
divisional compliance with internal procedures and financial
controls.
Governance Code by ensuring that:
• Risks are either classified as strategic or operational and as
• Review and implementation of recommendations in reports
either internally or externally driven.
on internal control by external auditors.
To ensure our risk process drives continuous improvement across
the business, we monitor the ongoing status and progress of key
action plans against each risk on a half-yearly basis. Risk is a key
consideration in all strategic decisions made at Board level. In the
June 2021 risk-review cycle, we considered risks associated with
our customers, suppliers, employees, finances, Brexit, COVID-19
and climate change. We now report the latter as an additional
principal risk, but it is also an opportunity.
34 Ricardo plc Annual Report & Accounts 2020/21
• Risks are evaluated on a gross and net risk basis.
• The Chief Executive Officer reviews the higher-rated risks on
the Group’s risk register with the Audit Committee twice each
year, in the presence of the other executive directors and the
Chair.
We also ensure that emergent risks are considered as part of
the Board’s existing half-yearly reviews of risk and annual review
of strategy.
Strategic report Principal risks and uncertainties
In common with all businesses, the Group faces risks
and uncertainties on an ongoing basis. It is the effective
management of these risks that places us in a strong position
to be able to achieve our strategic objectives and to embrace
opportunities as they arise.
The following table details the Group’s principal risks, the
mitigating activities in place to address them, and the additional
actions implemented to further reduce the net risk to the Group.
The mitigation of the principal risks is within the Group’s risk
appetite, which is reviewed annually by the Audit Committee.
It is also recognised that the Group is exposed to a number of
emergent risks that are currently deemed to be less material,
together with additional risks and uncertainties beyond those
listed that are at present not known to management and which
may also have an adverse effect on the business.
Movement in risk
Reduced risk
No change
Increased risk
Principal risk
Impact
Mitigation
Customers and markets
The Group operates in a dynamic,
diverse and politically volatile
marketplace, which is exposed to
many legislative and economic
pressures. These include pressures
to improve air quality, reduce
greenhouse-gas emissions,
improve public transport and to
navigate the impact of COVID-19
and climate change.
Changes in the market could cause
changes or uncertainty in the product
plans of major customers, infrastructure
investment by governments or
government policy, leading to delays in
the placement of new orders or insourcing
of activity, the redirection, deferral or
curtailment of existing contracts, slippage
in payments or variations in demand
for resources and availability of project
funding. Unpredictability in the timing of
the receipt of orders and the utilisation
of our resources to generate revenue and
profit may give some volatility in our ability
to forecast future performance. COVID-19
is one of many factors.
These risks are mitigated by the strategy of diversifying the Group to
reduce exposure to any one specific customer, territory or segment.
Challenges currently being faced by our automotive-related
businesses across the globe can be mitigated by other segments. The
success of this strategy is measured by the key performance indicators
for customer dependency and segment diversity shown on page 15
and by the geographic spread of revenue, as disclosed in Note 5 to
the Group financial statements.
In the event of a sudden downturn in a segment or the wider
economy, contingency plans are quickly deployed to minimise
the impact on short-term performance and to preserve cash
while protecting the long-term needs of the Group’s stakeholders.
The impact of insolvency risk is mitigated by robust working-
capital management and the use of credit insurance where this is
economically available.
COVID-19 (Pandemic disease)
The Group operates in many
countries and is subject to their
public-health controls including
the control of diseases that can
be classified as pandemics. The
consequences of this can be
significant disruption to our
people and their health, to our
operations, ability to travel and
those of clients and suppliers. This
situation has existed in various
levels and locations through the
whole of the financial year.
COVID-19 has been the first global
pandemic to impact the business. The
effects have included: lockdowns for many
weeks in most territories where clients,
suppliers and Ricardo operate; working
from home or limited staff activity;
delays in supplies; significant limitations
on commuting and business travel;
new and rapidly changing government
requirements and so forth. All these
slowed revenue generation and, in some
cases, orders.
Climate change
Climate change is both a series
of risks and opportunities
to the business, which we
describe in pages 26 to 28 of our
Sustainability and ESG section.
Our clients’ needs will change
to meet the demand of society
and we have to do our part in
reducing the environmental
impact of our operations.
If we do not have the right services,
capability and products to meet those
client needs, we will be unable to meet
our strategic objectives. We may have
assets which are impaired due to the rate
of climate change in certain markets.
We may not deliver our net zero
objectives.
Our Shoreham and Prague sites are
exposed for flood risk as sea levels rise.
This risk was mitigated by a series of actions managed via our Crisis
Management plan which was activated in early February 2020,
integrating mitigations from our pandemic-disease planning and
specific customer and market risks. This command-structure was
supported by a team of senior Group staff reporting to the CEO,
was in place during the whole financial year. We have operated our
manufacturing and testing activities as near to normal as possible with
additional health and safety controls to protect our staff. These controls
and responses are reviewed regularly as guidance from governments
changes. For our office-based staff, we responded to a variety of
lockdown requirements around the world and continued to maximise
the IT remote-working capabilities deployed in spring 2020. We made
limited use of appropriate government schemes to support businesses.
Our operating model became less dependent on fixed office
locations. We have become more agile in the way our office-based
staff work and we will need less space in some locations over time,
executing an employee-focused “Healthy People, Healthy Business”
approach. We are still very much an office and site-based business
and are deploying a return-to-office strategy for Summer 2021 as
regulations allow. This is very much based on getting teams to meet
face-to-face, renew relationships, support our new team members
and enable the softer “coffee machine” conversations. Each division is
engaging with its colleagues and supporting those who are anxious
with respect to a return to work. Our client and supplier-facing teams
have successfully adopted ‘digital-first’ as we sell and deliver. We
have started reducing our office capacity to make the business more
resilient and efficient.
We were early adopters of TCFD and are well versed in exploring both
the risks and opportunities climate change brings. A core element of
our revenue (11%) is generated by projects which specifically address
climate change. We have a net zero strategy described on pages 29 to
31 underpinned by science-based targets.
Our Shoreham site has a flood-defence wall which is resilient to 1:200
events allowing for a 1.5% temperature rise. Our Prague Technical
Centre is in an area which is protected by the City’s flood defences.
We review the values of our assets for climate change-related
impairment on an annual basis. This is an element of wider
impairment reviews described in notes 1(k)-1(m) to the Group
financial statements.
Creating a world fit for the future 35
Strategic report Strategic report
Principal risks and uncertainties
Principal risk
Impact
Mitigation
Contracts
Group’s revenue arises principally
from fixed-price contracts
for engineering, technical,
environmental and strategic
consultancy services, product
supply (niche manufacturing
of parts and components),
together with accreditation and
independent assurance services,
with an increasingly broad
range of projects, technologies,
customers and geographies.
There is a risk that the obligation
to complete the agreed scope of
these contracts may be carried
out over a longer timescale or in
a less cost-efficient manner than
initially estimated, reducing profit
margins.
In product-supply contracts, there
is a risk of product liability, recall or
warranty claims and dependency
on specialist suppliers.
Contracts denominated in foreign
currencies can be subject to
exchange rate risk.
People
Ricardo is a diverse business
that is knowledge-driven and
people-led, with a focus on
attracting and retaining the best
talent. Recruiting, developing and
retaining knowledge and diverse
talent in the right locations is
essential.
Technology
The business is enabled through
the development of new
technology to meet the needs of
market sectors, customers, and
regulators on varying time scales.
Failure to perform on contracts within
estimated cost and delivery timescales
could impact profitability. Faulty products,
or the infringement of the rights of
others, could potentially subject the
business to increased costs, a claim from
a customer, reputational damage or
reduced opportunity for repeat business.
Failure of production processes or product
validation could lead to warranty or
recall claims. Failure or poor performance
of a supplier could disrupt delivery to
customers and increase operating costs.
Unhedged adverse foreign-exchange-rate
movements on contracts could also affect
profitability.
Project leadership and management are the Group’s core
competencies. Led by the Group Engineering and Programmes
Director, the Group remains focused on the continuous improvement
of these functions.
Risks are proactively managed by clearly defined lead qualification,
bidding, contracting and project-management processes, whereby
projects are initially categorised according to their risk level and their
performance is continually assessed throughout the life of the project,
which in turn dictates the level of approval or review required. Internal
procedures are in place to ensure that the technical content of our
output is of high quality and meets customer requirements without
infringing the rights of others, and within time and cost estimates.
Procurement processes are in place to assess most suppliers and
selections are often made with the involvement of the customer.
In product-supply contracts, there are rigorous quality-assurance
processes in place to reduce the risk of product liability, warranty and
recall claims.
Significant contracts in foreign currencies are hedged to protect
against volatility in exchange rates.
The failure to recruit, develop or retain the
very best talent would restrict growth and
the execution of our strategy, and would
have an impact on delivery and customer
relationships.
The Group is focused on a model of ‘bringing in and bringing on’ the
best talent. We aim to ensure that we actively develop and manage
staff to encourage their optimum contribution; we foster professional
development, and we provide appropriate remuneration and
flexibility in working conditions. Our IT infrastructure enables us to
share work and mitigates mobility issues. Our people as stakeholders
are discussed further on pages 20 to 23.
If the Group invests in technologies that
later prove to be unsuitable, it could lose
marketplace advantage and revenue
could reduce. If there are disruptions in
the implementation of new regulations,
which in turn accelerate or delay
customer programmes dependent on
new technology, the time taken to deliver
returns from our R&D programmes may
also increase.
Our R&D programmes are developed through a mixture of customer
consultation, long-range forecasting, thought leadership and deep
technology roadmap development. Many of our programmes are
collaboratively developed and delivered with customers, partners,
governments and suppliers, which creates strong links to the market
and ensures the output is relevant and credible.
The programmes are approved and delivered within the divisions.
Staff and facilities are shared across multiple geographies to deliver
innovative solutions and services to the market and capitalise on our
internally developed intellectual property and know-how. Further
details of a selection of our current R&D programmes are given on
pages 17 to 19.
The choice of our production suppliers is often undertaken with
the OEM client so that risk assessments are shared. Final selection
is normally a client decision. Supplier quality-assurance needs are
agreed with clients and operate within our processes and ISO 9001
certifications. We have increased our production supply-chain
monitoring and expediting capability and capacity.
The segment-wide risks are managed as any other customers and
markets risks described above.
Supply chain
The Group is dependent on
suppliers for its production
activities in its Performance
Products and Defense Segments
as well as other suppliers to
enable other operations.
Our clients which depend on
production supply chains to
generate their revenue and ability
to give project work to Ricardo
can be subject to sector-related
supply-chain capacity constraints
and logistics limitations.
Our production segments could be
subject to interruptions or reduced
output if our suppliers cannot deliver to
time or quality or the client has supply-
chain issues and reduces demand on
Ricardo. In addition, as we do not deliver
a complete product, other suppliers to
our customers may cause supply-chain
interruptions which causes our customers
to halt production. The latter could impact
Ricardo.
Sector-wide supply-chain disruption
will reduce the market size of funding
availability for product-development work,
particularly in Automotive and Industrial.
36 Ricardo plc Annual Report & Accounts 2020/21
Strategic report
Principal risks and uncertainties
Principal risk
Impact
Mitigation
Laws and regulations
The Group’s operations are
subject to an increasingly wide
range of evolving domestic and
international laws and regulations,
including restrictions, standards
and tax legislation.
Failure to comply with, or failure to adapt
to changes in, laws and regulations
including restrictions, standards and
tax legislation could expose the Group
to increased compliance costs, fines,
penalties or reputational damage, or result
in trading restrictions which could have a
materially adverse impact on the business
or impede the Group’s ability to recover
certain available tax-related credits.
Defined benefit pension
scheme
The Group has a UK defined
benefit pension scheme (the
‘RGPF’) which currently has a
funding deficit (the scheme is in
surplus on an IAS 19 accounting
basis). The economic uncertainty
caused by COVID-19 has increased
the volatility in the assets and
liabilities of the scheme.
Financing
The Group is in a net debt
position, having drawn on
available facilities primarily to
fund acquisitions and for general
corporate purposes
Any decline in the value of the pension
fund assets, increase in life expectancy,
long periods of high inflation or decreases
in interest rates would increase the
funding deficit and require additional
funding contributions in excess of those
currently expected.
There is a risk of the Group being unable
to secure sufficient financing at reasonable
cost in order to carry out its strategic
objectives.
Information security
Ricardo has valuable intellectual
assets comprised of propriety,
customer, and supplier data.
The theft or loss of intellectual assets
could result in reputational damage,
loss of competitive advantage, business
disruption and financial penalties.
To mitigate these risks, the Group has a number of defined policies
and operating procedures in place and takes professional advice,
where considered necessary, to ensure that the Group acts upon
current and anticipated changes in legislation. Our Code of Conduct,
which is published on www.ricardo.com, ensures that employees and
others act with the highest ethical standards and within local legal
and regulatory requirements.
The Group’s internal audit programme includes within its remit the
review of compliance with applicable legislation and regulations, and
awareness of key Group policies and procedures. These are updated
as regulations change and as a result of our continuous drive to adopt
best practice. We aim to anticipate the impact of working in new
countries and new sectors, particularly within our Rail business, which
operates in a growing list of territories and cultures, each with its own
regulations, standards and laws with which we need to comply.
Unsettled tax credits claimed within a financial year are recognised
to an appropriate level at which management is highly confident of
full recovery, and in a manner that is consistent with both current
legislation and professional advice.
The Group closed the pension fund to future accrual in February 2010.
The last approved triennial valuation of the RGPF was completed with
an effective date of 5 April 2017. Based on the recovery plan agreed,
annual contributions to the RGPF will be £4.6m through to 30 June
2022.
The latest triennial valuation with an effective date of 5 April 2020
is currently being discussed by the Company and the Trustees. The
results of the 2020 triennial valuation will determine whether the
Group’s current contribution commitment remains appropriate.
Further details of the Group’s defined benefit pension scheme can be
found in Note 33 to the Group financial statements.
This risk is mitigated by robust cash and working-capital
management, regular process improvement initiatives, monitoring
actual cash flows to budgets and forecasts, maintaining good
relationships with the Group’s bankers and ensuring that sufficient
borrowing facilities are in place at all times to support the Group’s
funding requirements to deliver on its growth strategy, with
additional headroom available to meet possible downside scenarios.
As of 30 June 2021, the Group has sufficient headroom in its facilities
and covenants. During September 2020 the covenants for the
December 2020 and June 2021 tests were amended, providing further
headroom. The Group increased its borrowing facilities in May 2020,
raising the committed facility, to protect against downside scenarios
and support the Group’s growth strategy to 2023. The Group also
raised £28.2m of funds via an equity placing in November 2020 to
strengthen the balance sheet and reset leverage.
Further details of the Group’s borrowing facilities and other financial
risks can be found in Note 24 and Note 27 to the Group financial
statements, respectively.
Ricardo has implemented a global Information Security Management
System (‘ISMS’) and achieved certification to ISO 27001 “Information
Security Management” at our main facilities.
The Group IT Director is accountable for managing information
security resilience, which includes cyber risk. Dedicated information-
security resources monitor and manage our threat profile. Penetration
tests are conducted to augment our control regime.
Information-security risks are reviewed by the Group IT Director each
quarter and integrated with the Group’s enterprise risk-management
process. Bi-annual briefings on information security are made to the
Audit Committee.
Creating a world fit for the future 37
Viability statement
The Directors have assessed the prospects of the Group
in accordance with provision 31 of the 2018 UK Corporate
Governance Code.
The context supporting the assessment
The Group’s prospects are underpinned by its business model
and strategy, which can be found on pages 12 to 13. The Group
continues to follow a balanced approach to its strategy, which is
subject to ongoing monitoring and development as described
herein. Following a decline in revenue and profitability in FY
2019/20, when the Group’s revenue and underlying operating
profit reduced by £32.4m (8%) and £19.6m (49%) respectively, the
Group’s results have improved in the current year as it continues
its recovery from the impact of COVID-19. Revenue in the
current year was £351.8m, in line with prior year, and underlying
operating profit was £22.7m, an improvement of £2.7m (14%) on
the prior year. The Group’s reported operating profit was £8.6m,
an improvement of £9.5m compared to the loss of £0.9m in the
prior year. Revenues and profits were weighted towards the
second half of the financial year as the business emerged from
the impact of COVID-19. All segments delivered higher revenue
and underlying operating profit than the prior year, apart from
Automotive & Industrial. Within this segment, revenue and
underlying operating profit improved in the US and China, but
revenue and underlying operating profit declined in EMEA.
The Group enters the new financial year with an order book of
£293.5m, of which over 70% is expected to be workable within
the next twelve months. The year-end order book comprises the
value of all unworked purchase orders and contracts received
from customers.
On 11 November 2020, the Group raised £28.2m of proceeds,
net of fees, by way of an equity placing. The placing was carried
out to reduce leverage, strengthen the balance sheet and
provide adequate working capital for the Group. Further details
on the placing are provided in Note 28 to the Group financial
statements.
The strategy of the Group is to develop and deliver
innovative, cross-sector sustainable, efficient and secure energy,
environmental and mobility solutions and products. The Group’s
businesses focus on the development of longer-term, multi-
year contracts and relationships, underpinned by global macro
trends. The Board has considered the risk appetite and profile of
the Group in this context and has determined that this remains
appropriate for the Group as a whole.
Assessing the prospects of the Group
The Group’s prospects are assessed primarily through its annual
strategy review and business-planning processes, which cover
a five-year period and a three-year period, respectively, and are
both led by the Chief Executive Officer.
The strategy review is a forward-looking process and is
undertaken by the Group’s constituent divisions, with full
participation by members of the Board, which results in a
five-year strategic plan. Part of the Board’s role is to review
the performance of the Group in the last financial year and
to consider whether the strategic plan remains appropriate.
This includes an assessment of changes in the market and
competitive environment, together with macroeconomic,
political, societal and technological changes. Actions are
implemented as necessary to continue to support the strategic
plan.
Detailed business plans are also prepared during the last
quarter of each financial year by all the Group’s constituent
divisions, with the involvement of relevant functions including
Finance and Treasury; these plans are then reviewed and
approved by the Board. The first year of the business plan
forms the Group’s annual operating budget. This is subject to
a reforecast on a monthly basis. The second and third years
are based on the overall content of the year-one business plan
together with the strategic plan, having been flexed for known
or anticipated events.
38 Ricardo plc Annual Report & Accounts 2020/21
Strategic report Strategic report
Viability statement
Viability statement
The Directors have assessed the prospects of the Group over
the three-year period to 30 June 2024 and confirm that their
assessment of the principal risks and uncertainties facing the
Group was robust. A three-year period was selected for the
following reasons:
• This period reflects the detailed business-planning cycle.
• Lead times on customer contracts and typical engineering
programmes are no longer than three years.
• Although the strategic plan covers a five-year period, the
Group’s order book and pipeline of opportunities does not
extend significantly beyond three years.
Whilst the Directors have no reason to believe the Group will
not be viable beyond the three-year period of this assessment,
a three-year period is deemed most appropriate given the
inherent uncertainty involved and the stress- testing scenarios
considered as part of the three-year business plan, together with
the reasons outlined herein.
Based on their assessment of prospects and viability, the
Directors confirm that they have a reasonable expectation that
the Group will be able to continue in operation and meet its
liabilities as they fall due over the three-year period ending 30
June 2024.
Going concern
Given the viability statement provided above, the Directors
therefore considered it appropriate to prepare the financial
statements on a going concern basis, as explained in Note 1(a) to
the Group financial statements.
Assessment of viability
The three-year business plan reflects the best estimate of
the prospects of the Group. This has been stress-tested to
consider the impact of the challenging market environment in
the Automotive sector, on the Group’s results, operations and
financial position in a severe but plausible downside scenario.
The scenario includes:
• A 15% reduction in Automotive & Industrial revenue in FY
2021/22, with a larger reduction in EMEA (in line with the
decline seen in FY 2020/21) partially offset by lower than
budgeted growth in the US and China. Automotive &
Industrial revenue is modelled to increase by 5% in FY 2022/23
(with no growth in EMEA). In addition, external Software
revenue (within the Performance Products segment) has been
reduced by 10% in FY 2021/22;
• Delays in the ramp up of production volumes in Performance
Products and Defense on key programmes;
• Half the budgeted revenue growth in Rail and Energy and
Environment; and
• No improvement in the Group’s working capital days.
The scenario incorporates appropriate mitigating actions and
cost-saving measures which are within the Group’s control. The
scenario results in a reduction of 25% in the Group’s EBITDA
(excluding the impact of IFRS 16, consistent with the definition of
the Group’s banking covenants) in FY 2021/22, with 15% growth
in FY 2022/23 on the sensitised FY 2021/22 EBITDA.
The impact of this scenario on the Group’s business plan
has been quantified and presented to the Board as part of the
approval process. The scenario, which is based on aspects of the
Group’s principal risks and uncertainties, including customers
and markets, COVID-19, contracts, and financing, as set out on
pages 35 to 37, represents severe but plausible circumstances
that the Group could experience.
The results of our stress-testing showed that the Group would
be able to withstand the impact of the scenario occurring over
the period of the plan, by making adjustments to its operating
activities within the normal course of business. The severe but
plausible downside scenario does not present a significant threat
to the Group’s liquidity. Although headroom under the Group’s
banking covenants is reduced under the scenario, no banking
covenants are breached.
The Group also performed reverse stress-testing on its
financial plan using these scenarios to identify the point at which
its banking covenants would be breached. In the event of such
scenarios materialising, more severe cost actions would be taken
to ensure covenant compliance.
Creating a world fit for the future 39
Ian Gibson
Chief Financial Officer
Financial review
“The Group’s results show real positive momentum as it continues to recover from the
impact of COVID-19. Underlying profit before tax has improved by 15% to £18.0m and the
Group has returned to profit on a reported basis, delivering a reported profit before tax
of £3.9m, compared to the prior year loss of £5.3m. With the exception of Automotive &
Industrial, all segments have delivered increased revenues and profits, with particularly strong
performances from Energy & Environment and Rail. Automotive & Industrial continues to
face challenging market conditions in EMEA and we have taken further action in the year to
address this. Profitability in the US and China has improved.
“Net debt has reduced significantly. During the year we raised £28.2m via an equity placing
which has allowed us to re-set the capital structure of the Group and reduce leverage. Our
underlying cash performance has been good due to effective working capital management
during the year.”
Group results
This year, the Group delivered revenue of £351.8m, in line with
the prior year, and underlying profit before tax of £18.0m, an
increase of 15% on the prior year. On a reported basis, the Group
has returned to profit, delivering profit before tax of £3.9m
in the year, compared to a loss of £5.3m in the prior year. The
results reflect a positive trajectory for the Group as it continues
to recover from the impact of the COVID-19 pandemic, which
significantly impacted the Group’s results in the second half of
FY 2019/20 and the first half of this financial year.
Revenue was stable year-on-year as revenue growth in Energy
& Environment (‘EE’), Defense, Rail and Performance Products
was offset by a decline in the Group’s Automotive & Industrial
(‘A&I’) segment, which continues to be impacted by challenging
market conditions, particularly in EMEA.
Profit generation was weighted towards the second half of the
year, with the Group delivering an underlying profit before tax of
£13.0m in the second half of FY 2020/21, compared to £5.0m in
the first half. This reflects a combination of good profit growth
in Defense, EE, and Rail, combined with a return to profit in A&I,
which benefitted from restructuring actions taken in EMEA in
the first half of the year, together with improved profitability in
China.
EE performed strongly throughout the year due to increased
Evidence and Policy work with the European Commission,
Chemical Risk services and water-resource management
work. Rail performed in line with our expectations, driven
by good growth in Australia and Asia. The market in the UK
and Netherlands remained challenging. Defense successfully
delivered its first ABS/ESC fleet retrofit kits in the final quarter
of the year. Together with ongoing ambulance retrofit and
new vehicle kits, Defense delivered 2,950 ABS/ESC kits in total,
an increase of 486 kits on FY 2019/20. Performance Products
also delivered year-on-year growth, as transmissions volumes
increased and the business benefitted from the mix and pricing
of engines sold. The performance of EE and Rail are particularly
pleasing as these segments underpin the Group’s growth and
diversification strategy.
40 Ricardo plc Annual Report & Accounts 2020/21
Strategic report Strategic report
Financial review
Headline trading performance
FY 2020/21 (£m)
FY 2019/20 (£m)
Growth (%)
Constant currency growth(2) (%)
Underlying(1)
Reported
Revenue
Operating
profit
Profit before
tax
Operating
profit/(loss)
Profit/(loss)
before tax
351.8
352.0
-
1
22.7
20.0
14
14
18.0
15.6
15
15
8.6
(0.9)
1,056
1,056
3.9
(5.3)
174
174
(1) Underlying measures exclude the impact on statutory measures of specific adjusting items as set out in Notes 2 and Note 6 to the Group financial statements. Underlying measures are considered to
provide a more useful indication of underlying performance and trends over time.
(2) The Group generates revenues and profits in various territories and currencies because of its international footprint. Those results are translated on consolidation at the foreign exchange rates
prevailing at the time. Constant currency growth/decline is calculated by translating the result for the current year using foreign currency exchange rates applicable to the prior year. This provides an
indication of the growth/decline of the business, excluding the impact of foreign exchange (see Note 2 to the Group financial statements).
Net debt was £46.9m at 30 June 2021, compared to £73.4m at
30 June 2020. This improvement reflects £28.2m of proceeds, net
of fees, from a successful share placing in November 2020, and
a strong working capital performance. Excluding the placing,
restructuring costs and acquisition-related payments, the Group
generated £7.4m of cash in the year.
The segmental results are discussed in more detail on pages
45 to 55.
Order intake down 5% on FY 2019/20 with closing
order book of £293.5m
Order intake of £352.1m represents a 5% reduction on the
prior year. Order intake increased by 13% in EE, with significant
contributions from the Policy, Water and Sustainability business
units. Defense order intake increased by 70% year-on-year, due
to securing the first USD 10m order for ABS/ESC retrofit units,
combined with significant programme wins in Engineering
Services, including the multi-year Infantry Squad Vehicle (‘ISV’)
programme. Order intake reduced by 7% in Rail, due to lower
orders in the UK and Netherlands. Australia and the Middle East
performed strongly. Performance Products order intake reduced
by 18% year-on-year, in line with our expectations, with two
large transmission orders received in the prior year. As expected,
order intake increased steadily throughout the financial year.
Overall order intake in A&I declined by 20% year-on-year. It
increased in both the US and China and reduced in EMEA.
Revenue in line with FY 2019/20
FY 2020/21 revenue was £351.8m, in line with the prior year.
EE grew by 12% as the business continued to successfully win
and deliver work throughout the COVID-19 pandemic. Defense
revenue grew by 16% year-on-year, driven by the increase in
ABS/ESC volumes and growth in Engineering Services, as noted
above. Rail and Performance Products revenue increased by
3% and 1% respectively. Similar to the trend in order intake, A&I
revenue reduced by 13%, which reflected a decline in EMEA,
partially offset by growth in the US and a stable performance in
China year-on-year. On a constant currency basis, the Group’s
revenue would have been £356.1m in FY 2020/21, a 1% increase
on FY 2019/20 revenue of £352.0m.
Underlying operating profit up 14% on FY 2019/20,
with reported operating profit of £8.6m (FY 2019/20:
loss of £0.9m)
Underlying operating profit, which excludes specific adjusting
items, increased by 14% to £22.7m (FY 2019/20: £20.0m).
Underlying operating profit margin increased to 6.5% from 5.7%.
Profitability improved throughout the course of the year, with
underlying operating profit margin increasing from 4.5% in H1
FY 2020/21 to 8.2% in H2 FY 2020/21, driven by a combination
of revenue growth across the Group and the benefit of cost
reductions in A&I in the first half of the year.
Reported operating profit increased by £9.5m, from a loss
of £0.9m in FY 2019/20 to a profit of £8.6m in FY 2020/21. The
Group recognised costs of £14.1m in respect of specific adjusting
items relating to the amortisation of acquired intangible assets,
earn out costs for acquisitions made in prior years, restructuring
actions in A&I, and the outgoing CEO. Specific adjusting items
in the prior year were £20.9m. Specific adjusting items are
discussed in more detail below.
Underlying profit before tax up 15% on FY 2019/20,
with a reported profit before tax of £3.9m (FY
2019/20: loss of £5.3m)
Underlying profit before tax increased by 15% to £18.0m (FY
2019/20: £15.6m), driven by the improvement in underlying
operating profit. There is no change to FY 2020/21 underlying or
reported profit on a constant currency basis.
As noted above, the FY 2020/21 reported profit before tax
includes £14.1m of costs relating to specific adjusting items (FY
2019/20: £20.9m), discussed in more detail below.
Net debt down 36% to £46.9m (FY 2019/20: £73.4m)
Closing net debt was £46.9m (FY 2019/20: £73.4m). The Group
had a net cash inflow for the period of £26.5m. During the year,
the Group completed a share placing which raised £28.2m,
net of fees, in order to reset the capital structure of the Group,
reduce leverage and repay borrowings to achieve an appropriate
level of balance sheet efficiency and resilience. The Group
paid acquisition-related earn out and retention costs of £5.2m,
external project and legal fees of £0.7m, and reorganisation
costs of £3.4m. In addition, £0.2m of contingent consideration
Creating a world fit for the future 41
Strategic report
Financial review
Ricardo Performance Products is
supplying transmissions for the
inaugural Indy Autonomous Challenge.
was received in relation to the sale of the DTC test business
in June 2020. Excluding these specific adjusting items, the
Group generated £7.4m of cash, which was achieved through a
continuing strong focus on cost control and efficient working
capital management. The composition of net debt is defined in
Note 24 to the Group financial statements.
Basis of preparation
These consolidated financial statements of the Ricardo plc
Group (‘Group’) have been prepared in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006. The Group’s
principal accounting policies are detailed in Note 1 to the Group
financial statements. Those accounting policies that have been
identified as being particularly sensitive to complex or subjective
judgements or estimates are disclosed in Note 1(c) to the Group
financial statements.
Specific adjusting items
As set out in more detail in Note 2 and 6 to the Group financial
statements, the Group’s underlying profit before tax for the
half-year excludes £14.1m of costs incurred during the period
that have been charged to the income statement as specific
adjusting items (FY 2019/20: £20.9m).
projects in the year. In the prior year, £2.8m of earn out costs for
RRA and REEP were incurred, together with £0.4m of integration
costs for these businesses, and £0.9m of deal fees on a number
of aborted transaction processes, partially offset by a £1.1m gain
on a foreign exchange option contract.
Purchases and disposals: The South office building of the
Detroit Technology Campus (‘DTC’), which was held-for-sale at
30 June 2020 and 31 December 2020, was impaired by £1.5m in
the year to reflect its current fair value, as the impact of COVID-19
on the local property market reduced demand for office space
and reduced prices. The building was purchased in August 2019
and impaired by £3.6m, net of the release of a lease liability
under IFRS 16, in the prior year, as it was acquired for a price
which reflected Ricardo as a long-term tenant. Management has
decided to continue to use the building as offers received during
the year were lower than expected. The building continues to be
marketed for sale, but management no longer considers a sale
within the next twelve months to be highly probable and it is
therefore no longer presented as held-for-sale.
A charge of £0.5m was incurred in FY 2020/21 as a result of a
reduction in the fair value of contingent consideration arising
on the sale of the DTC test business. The business was sold in
June 2020 and a loss on disposal of £2.1m was recognised within
specific adjusting items in FY 2019/20.
Amortisation of acquired intangibles was £5.0m in the
Other reorganisation costs: £2.5m of redundancy costs
year, compared to £6.0m in FY 2019/20, with the reduction
reflecting the end of the amortisation of intangible assets
acquired as part of the purchase of AEA Ltd in 2012.
Acquisition-related costs of £2.1m were incurred in the
year. These included £1.6m in relation to earn-out and deferred
compensation payments for Transport Engineering Pty Ltd
(renamed Ricardo Rail Australia, or ‘RRA’) and PLC Consulting
Pty Ltd (renamed Ricardo Energy, Environment and Planning, or
‘REEP’), acquired in May 2019 and July 2019 respectively. £0.5m
of external fees were incurred in relation to certain strategic
were incurred in the A&I business in EMEA. Headcount
reductions were made in H1 FY 2020/21 as the challenging
trading environment and ongoing impact of COVID-19
continued to depress the level of short-term workable orders in
the business. A further round of restructuring was announced
in the final quarter of the year as further national lockdowns in
Spring 2021 led to customer project delays, which continued to
depress order intake levels. As part of the restructuring actions,
management decided to fully exit the Cambridge Technical
Centre (‘CaTC’), resulting in an impairment of the right-of-use
42 Ricardo plc Annual Report & Accounts 2020/21
asset and associated exit costs of £0.7m. In addition, £0.1m has
been incurred in the current year in respect of the impairment
of the right-of-use asset in Schwäbisch Gmünd Technical Centre
(‘SGTC’), as management was in discussions with the landlord to
surrender the lease at this site at the end of the financial year (see
Note 38), together with the write off of equipment relating to the
Santa Clara Technical Centre (‘SCTC’), which was exited in June
2020 (£0.1m).
£6.2m of reorganisation costs were recognised in the prior
year, comprising £3.3m of costs in our A&I business in EMEA,
including headcount reductions (£2.0m), impairment costs in
relation to CaTC (£0.6m), and £0.7m of incremental contractor
costs and professional fees, incurred as a result of these actions.
In addition, costs of £0.9m were incurred in A&I US in relation
to the SCTC exit (£0.4m) and redundancies (£0.5m, inclusive
of incremental contractor costs). £1.4m of redundancy costs
were incurred in Rail, plus £0.6m of redundancy costs in other
segments.
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 have
been accrued within specific adjusting items, reflecting the
terms of his settlement agreement, associated legal fees and the
costs of a search process to appoint his successor.
In addition, 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/(loss) before tax
£m
Underlying profit before tax
Amortisation of acquired intangibles
Acquisition-related expenditure
Reorganisation costs:
• A&I US - DTC purchase and
FY 2020/21
18.0
(5.0)
(2.1)
FY 2019/20
15.6
(6.0)
(3.0)
impairment
(1.5)
(3.6)
• A&I US – Test business change in fair
value of contingent consideration
and loss on disposal
Asset purchases and disposals
• A&I EMEA - reorganisation costs
• A&I US – exit of SCTC and redundancy
• Other reorganisation costs
Total other reorganisation costs
CEO exit costs
GMP equalisation
Reported profit/(loss) before tax
(2.1)
(3.3)
(0.9)
(2.0)
(0.5)
(3.3)
(0.1)
-
(2.0)
(3.4)
(1.5)
(0.1)
3.9
(5.7)
(6.2)
-
-
(5.3)
Research and Development (‘R&D’) and capital
investment
The Group continues to invest in R&D and spent £10.2m (FY
2019/20: £12.5m) before government grant income of £1.2 m (FY
2019/20: £1.1m). Development costs capitalised in this period
were £8.5m (FY 2019/20: £8.0m), reflecting continued investment
Strategic report
Financial review
in software products in the Performance Products segment,
together with technology, tools and processes in the A&I and EE
segments. Developments in the A&I segment have focused on
the electric vehicle and alternative fuel spaces.
Capital expenditure on property, plant and equipment,
excluding right-of-use assets, was £4.5m, reflecting targeted
investment in our business operations, including the completion
of a new hybrid power train test rig at the Shoreham Technical
Centre (‘STC’). £22.0m of capital expenditure on property, plant
and equipment was incurred in FY 2019/20, which included
£14.2m to purchase the DTC facility.
The total Research and Development Expenditure Credit
(‘RDEC’) recognised in the year was £5.5m (FY 2019/20: £7.7m),
with the reduction reflecting the impact of restructuring in A&I
on the cost base in the UK.
Net finance costs
Finance income was £0.8m (FY 2019/20: £0.4m) and finance costs
were £5.5m (FY 2019/20: £4.8m) for the year, giving net finance
costs of £4.7m (FY 2019/20: £4.4m). The increased income and
costs reflect the Group’s decision to draw down on its Revolving
Credit Facility (‘RCF’) to increase liquidity during the pandemic.
Taxation
The total tax charge for the year was £2.2m (FY 2019/20: £1.1m)
and the total effective tax rate was 56.1% (FY 2019/20: negative
at (20.8)%). The underlying effective tax rate for the year was
26.9% (FY 2019/20: 26.3%). The increase in the reported and rate
reflects the impact on deferred tax of the increase in the UK tax
rate from 19% to 25% from 1 April 2023 (impact: £1.1m). This has
been partially offset by a £0.9m reduction in the Group’s IFRIC 23
provision for uncertain tax treatments, as a result of a number of
positive outcomes for the Group on international tax matters.
Deferred tax assets of £8.3m (FY 2019/20: £9.4m) include £4.9m
(USD 6.5m) (FY 2019/20: £5.1m (USD 6.3m)) of R&D tax credits in
the US, £0.9m (FY2019/20: nil) of UK tax losses, and £1.4m of US
tax losses (FY2019/20: £2.1m). 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 £8.2m (FY 2019/20: £5.6m) include
£1.3m in respect of the defined benefit pension scheme, with
moved from a deficit (on which a deferred tax asset of £1.2m was
recorded in the prior year) to a surplus (on which a deferred tax
liability of £1.3m has been recorded).
Earnings per share
Basic earnings per share was 2.9p (FY 2019/20: loss per share of
12.2p). 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 for
the year was 22.4p (FY 2019/20: 21.3p). 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 7 to the Group
financial statements.
Creating a world fit for the future 43
Facility (“RCF”) to accommodate the forthcoming cessation of
LIBOR. The Group has adopted SONIA as the risk-free rate to
replace LIBOR and no other amendments to the facilities were
made. The RCF continues to provide the Group with committed
funding available for the remaining term through to July 2023.
The Group’s Adjusted Leverage ratio (defined as net debt
over EBITDA for the last twelve months, excluding the impact of
specific adjusting items and IFRS 16) was 1.3x as at 30 June 2021.
The Adjusted Leverage covenant was 3.75x at 30 June 2021 and
will reduce to 3.0x from the next test date of 31 December 2021
onwards.
The Interest Cover ratio (defined as EBITDA for the last twelve
months, excluding the impact of specific adjusting items and
IFRS 16, over net finance costs), was 9.6x at 30 June 2021. The
Interest Cover covenant is 4.0x.
Further details are provided in Note 24 to the Group financial
statements.
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. Compared
to the prior year, the average value of the Pound Sterling
strengthened by 7% against the US Dollar and weakened by
4% against the Australian Dollar. Sterling strengthened by 1%
against the Renminbi and weakened by 1% against the Euro. On
a constant currency basis, the Group’s revenue would have been
£356.1m in FY 2020/21, a 1% increase on FY 2019/20 revenue
of £352.0m. There would have been no impact on FY 2020/21
underlying and reported 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 £156.1m (FY 2019/20: £150.4m). Due to a combination
of an increase in scheme assets and a reduction in liabilities
due to changes in actuarial assumptions, the scheme moved
into a pre-tax surplus, measured in accordance with IAS 19, of
£6.8m (FY 2019/20: deficit of £6.7m). Ricardo paid £4.6m of cash
contributions into the scheme during the year.
Strategic report
Financial review
Dividend
The Group paid its interim dividend of 1.75p per share (£1.1m) on
9 April 2021 (HY 2019/20: 6.24p, £3.3m). The Board has declared
a final dividend of 5.11p per share (£3.2m) (FY 2019/20: nil), which
will be paid on 25 November 2021 to holders of ordinary shares
on the Company’s register of members on 5 November 2021.
This reflects the Board’s desire to return to paying dividends
to shareholders, balanced with the speed and shape of the
economic recovery as we emerge from the impact of COVID-19.
Share issue
On 11 November 2020, Ricardo plc issued 8,812,030 new ordinary
shares, representing 16.5% of existing issued ordinary share
capital, at a price of 333 pence per share, raising gross proceeds
of £29.3m (£28.2m net of £1.1m of transaction costs).
The issue took place in the three parts; “Placing shares”, to
certain existing shareholders and other institutional investors, via
a ‘cashbox’ mechanism (14.95%); “Subscription shares” subscribed
by certain directors of the Company for cash consideration
(0.05%); and “Retail shares” offered by the Company for cash
consideration (1.5%). The cashbox placing resulted in the creation
of a £23.5m distributable merger reserve. Directly attributable
fees were recorded against this merger reserve.
Goodwill
At 30 June 2021, the Group had total goodwill of £84.7m. The
three-year plan and discounted cash flow calculations thereon
provide a value-in-use (‘VIU’) which supports the carrying value
of goodwill allocated to each cash generating unit (‘CGU’), or
group of CGUs, at 30 June 2021, resulting in no impairment for
the year (FY 2019/20: nil). The A&I EMEA group of CGUs, which
forms part of the A&I operating segment, had goodwill of
£19.6m. A&I EMEA has faced challenging trading conditions,
which have reduced its profitability. As a result, the excess of its
VIU over its carrying value is limited. The VIU calculations include
relevant cash flows from the RDEC tax credit. Sensitivity analysis
indicated that a reduction of 38% in the projected operating
profit levels used in the VIU calculation each year would result
in the value in use being materially equal to the carrying value.
Such a reduction is deemed reasonably possible due to the
current and projected levels of profit in the three-year plan. If
RDEC cash flows were excluded from the VIU calculation, the
goodwill balance would be fully impaired. There are no concerns
over the recoverability of the Group’s other goodwill balances.
Net debt and banking facilities
Net debt at 30 June 2021 comprised cash and cash equivalents
of £42.0m, borrowing and overdrafts, including hire purchase
liabilities and net of capitalised debt issuance costs of £88.9m.
Total facilities before borrowings are £215.5m. This provided total
cash and liquidity of £168.6m as at 30 June 2021.
The Group’s facilities are denominated in Pounds Sterling
and have variable rates of interest dependent upon the Group’s
adjusted leverage, which range from 1.4% to 2.2% (FY 2019/20:
1.4% to 2.2%) above LIBOR. On 29 June 2021 the Group made
amendments to the £200.0m committed Revolving Credit
44 Ricardo plc Annual Report & Accounts 2020/21
Operating segments review
Overview
From FY 2020/21, due to restructuring within the Group, Strategic
Consulting & Software (‘other’) is no longer being separately
reported as an operating segment.
The Strategic Consulting element of this segment is now
reported within Automotive & Industrial (‘A&I’). This business has
a number of common customers, operates in similar markets
to A&I, and is now run as a business unit within the overall A&I
business. Since the start of FY 2020/21, the A&I EMEA Managing
Director has overall responsibility for the Strategic Consulting
service offering.
The Software element of this segment has been aggregated
into the Performance Products operating segment for the
purposes of segemental reporting. Whilst the Software
business continues to be run as a separate business with its
own leadership team, it has a number of similar characteristics
to the Performance Products manufacturing business, in that
it is involved in the development of niche products, requiring
a high level of capital/development spend, primarily selling to
automotive manufacturers.
As a result of this change, the Group is now reporting the five
segments set out below. The FY 2019/20 segmental analysis
has been reported on a consistent basis to aid comparability.
Consistent with the prior period, Plc costs includes the costs of
running the public limited company, including foreign exchange
exposure on intercompany loans.
For the year ended 30 June
Energy & Environment ('EE')
Rail
Automotive & Industrial ('A&I')
Defense
Performance Products ('PP')
Operating segments total
Plc costs
Total
Revenue
Underlying(1)
operating profit
Underlying(1) operating
profit margin
2021
£m
57.1
77.7
102.5
37.9
76.6
351.8
-
351.8
2020(2)
£m
50.8
75.3
117.2
32.8
75.9
352.0
-
352.0
2021
£m
8.5
8.0
(1.6)
5.4
6.8
27.1
(4.4)
22.7
2020(2)
£m
6.3
5.8
0.5
5.1
5.1
22.8
(2.8)
20.0
2021
%
14.9
10.3
(1.6)
14.2
8.9
7.7
-
6.5
2020(2)
%
12.4
7.7
0.4
15.5
6.7
6.5
-
5.7
(1) Defined in the glossary of term on page 197.
(2) Prior year comparatives have been restated to present the results of Ricardo Strategic Consulting and Ricardo Software within Automotive & Industrial and Performance Products, respectively, in line
with the current year.
Energy & Environment (‘EE’)
See page 46
Rail
See page 48
Automotive & Industrial (‘A&I’)
See page 50
Defense
See page 52
Performance Products (‘PP’)
See page 54
Creating a world fit for the future 45
Strategic report
Strategic report
Operating segments review
Energy & Environment (‘EE’)
Partner of choice for solving complex environmental challenges, through industry-leading
analysis, advice and data.
+13%
FY
2020/21
2019/20
Revenue
+12%
FY
2019/20
2019/20
Financial and operational highlights
Order intake
Order book
+15%
£m
64.1
56.5
FY
2020/21
2019/20
£m
47.9
41.7
we have focused especially on Spain, Australia and the Middle
East – areas where we have growing teams.
Growth drivers
• Government COVID-recovery and green infrastructure
investment policies and funding.
• Demand for decarbonisation and net zero solutions across
sectors.
• Fast-changing and disruptive technology landscape for
electrification, smart-grid solutions, hydrogen, etc.
• Resource risks and challenges across the supply chain.
Underlying operating
profit
+35%
£m
57.1
50.8
FY
2020/21
2019/20
Competitive strengths
• High calibre and dedicated team of scientists, economists,
engineers and data specialists.
• Deep UK heritage as a trusted supplier to the UK government,
£m
8.5
6.3
supporting global growth.
Underlying operating
profit margin
+2.5pp
Headcount
+19%
FY
2020/21
2019/20
%
14.9
12.4
FY
2020/21
2019/20
Number
690
578(*)
(*) Headcount has been restated to reflect
the inclusion of head office staff
Our Energy and Environment (‘EE’) operating segment
works across the value chain: gathering and evaluating
evidence, setting policy measures, and working with
our customers, partners and stakeholders to support
the implementation of a wide range of solutions. We
have more than 40 years of experience in addressing
sustainability issues and customers value our deep
understanding of energy and environmental drivers, policy
development and technical excellence, along with our
ability to turn challenges into business opportunities.
Customers
Governments, public agencies and businesses around the world
trust Ricardo’s deep expertise in solving some of the most
complex environmental challenges. The client base is diversified
across the public and private sectors (respectively representing
about 60% and 40% of revenues), with over a third of revenues
from non-UK customers.
Principal operating regions
Ricardo has long been a core supplier to UK central, devolved
and local governments. However, we have been diversifying our
business internationally for several years and, over the last year,
46 Ricardo plc Annual Report & Accounts 2020/21
• Growing international presence, utilising multi-location skilled
teams to support local markets.
• Mainstreaming of digital and data-science capabilities across
consultancy projects.
Performance
We delivered a strong performance in FY 2020/21. Order intake
for the year was £64.1m (FY 2019/20: £56.5m), growth of 13% on
the prior year. Revenue and underlying operating profit grew
by 12% and 35%, respectively, and we delivered an underlying
operating profit margin of 14.9%, 2.5pp higher than the prior
year, reflecting strong demand for our services and good
utilisation across the business.
Significant contributions were made by both the Policy
business, due to increased services to the European Commission,
and the Water business, which benefitted from an upsurge in
water resource-management services to the UK water sector.
There was also increased demand for chemical risk-management
services, driven by an increased demand for resources, due to
the impact of Brexit and the associated regulatory deadlines.
Within Sustainability, revenues remained strong for all aspects
of net zero, from strategy development to establishing targets
and producing implementation plans. At the same time, there
are growing opportunities to support technology solutions,
particularly in connection with electricity network engineering,
innovation, and the evolution of ‘e-fuels’ such as green
hydrogen.
Contract wins during the year included major UK wins for
the National UK air quality and GHG emissions inventory, the
combined heat and power (‘CHP’) quality-assurance programme,
and project work for the Gibraltar air-quality programme.
Our international footprint has also continued to grow, on
account of strategic expansion across multiple locations to
support increased project-based work. In Europe, we secured a
significant contract to deliver consultancy support services for
Strategic report
Operating segments review
the operation of the European Road Safety charter. Furthermore,
we also won a major project to develop an electric vehicle (‘EV’)
financing tool and business model to enable the scaling up of
EVs in Bangladesh, and consultancy work to support capacity
building for an energy transition programme in South Africa.
Generally, throughout COVID-19, we have been able to
function at close to normal business operations, due to the early
adoption of a digital-first approach and effective homeworking.
Although there has been minimal disruption, COVID-19 has
impacted international projects, where travel has been severely
restricted. While this has resulted in a decline in consultancy
revenues outside of Europe, we have worked closely with our
customers to adopt creative solutions for the remote delivery of
projects.
Outlook
Our business performance generally follows trends within
macro-economic growth drivers focused on global green
agendas. Most relevant environmental trends include
infrastructure stimulus funding (including green-technology
solutions across the developed world), clean-energy solutions
for transportation, the development of innovative electricity
network solutions to accommodate distributed green
generation, and the rise in EVs, as well as the demand for
lifecycle assessment studies. Digital transformation – specifically,
the digitisation of processes and solutions – is driving the
development of innovative machine-learning solutions to
prepare and manipulate complex data sets.
Based on these growing global trends, the positive impact
on our markets, and our effective mitigation approach towards
COVID-19, we remain optimistic for the year ahead. Furthermore,
as climate considerations rise higher up the agenda, we are
seeing a greater urgency in actions to combat the impact of
climate change. COP26 provides a focal point for actions, both
directly from governments and from corporations, as they seek
support in committing to the delivery of their own journeys to
achieve net zero.
The focus in FY 2021/22 will be prioritised toward net-zero
consultancy work across a range of sectors and customers,
incorporating strategic and scientifically skilled advisory
services, from setting policy to project implementation. We
plan to broaden our European work, building on support
for the EU Green Deal, with more activity at the individual
member-state level and with large businesses and trade bodies.
We will continue to develop our project work in supporting
governments around the world in evolving air-quality changes
– notably, particulates and ozone – as well as to expand into
additional areas of environmental support for the water sector.
Plans are also in progress to adapt our model for international
working so that it meets our customers’ requirements in full,
while travelling less and thereby also ensuring the reduction of
Ricardo’s own travel-related climate impact.
Did you know?
In the calendar year 2020, we supported 71 different
governments around the world with their climate-
action planning, including 34 national governments, 15
regional governments and 22 city governments.
Our EE segment was also responsible for creating the
first UK greenhouse gases (‘GHG’) emissions inventory
back in 1973.
Creating a world fit for the future 47
Strategic report
Operating segments review
Rail
Experts in critical and complex railway systems, we provide support in navigating the
industry’s operational and regulatory demands
Financial and operational highlights
Order intake
Order book
-(7)%
FY
2020/21
2019/20
Revenue
+3%
FY
2019/20
2019/20
-(14)%
£m
FY
74.7
80.7
2020/21
2019/20
£m
95.3
110.7
Underlying operating
profit
+38%
£m
77.7
75.3
FY
2020/21
2019/20
£m
8.0
5.8
Underlying operating
profit margin
+2.6pp
FY
2020/21
2019/20
%
10.3
7.7
Headcount
-(6)%
FY
2020/21
2019/20
Number
596
632(*)
(*) Headcount has been restated to reflect
the inclusion of head office staff
Our Rail operating segment serves the global rail market,
delivering technical and engineering consultancy
services, with capabilities in all areas – from rolling stock,
signalling and telecommunications to energy efficiency,
safety management and operational planning – we
support a client portfolio that ranges from some of the
world’s largest rail administrations to niche component
suppliers. Along with our consultancy unit, we also operate
a separate independent entity – Ricardo Certification
– which performs accredited assurance services. Both
divisions draw upon an international pool of around 600
rail engineers, technicians, auditors and support teams.
Customers
We work with passenger and freight operators, infrastructure
managers and equipment manufacturers, as well as government
bodies and regulatory authorities.
Principal operating regions
We operate predominantly in Europe, Asia, Australasia and the
Middle East, and have offices in countries across these regions.
48 Ricardo plc Annual Report & Accounts 2020/21
Growth drivers
• Expansion of rail transportation in major urban areas and as an
alternative to short-haul air travel.
• Acceleration to cleaner energy sources and more sustainable
operational practices.
• Pent-up demand for medium-term solutions to help achieve
decarbonisation targets.
• Need for operational improvements through digitisation to
maximise network capacity.
• Increasing demand for sophisticated digital systems to
improve safety and security.
Competitive strengths
• Recognised as an established global rail consultancy with
specialist technical expertise.
• Reputation for quality and safety.
• Locally responsive and agile in our approach to programmes
and project-based work.
• Broader access to Ricardo’s capabilities underpins our offering.
Performance
We delivered a strong performance throughout FY 2020/21.
Despite COVID-19, revenue increased by £2.4m (3%), underlying
operating profit increased by £2.2m (38%) and underlying
operating profit margin increased by 2.6pp to 10.3%. Order
intake and order book were down on the prior year by 7% and
14% respectively, reflecting the timing of large programme wins
each year. The overall Rail business delivered a successful year
of revenue and profit growth, but there has been a contrast
in performance at a regional level, demonstrating the varying
challenges experienced in specific countries.
Australia has been a flourishing market for our Rail segment, in
which we have secured several major consultancy and assurance
service contracts with customers in New South Wales and
Queensland. Most notably, we successfully secured a contract to
act as the “Shadow Operator” for the Sydney Metro, where we
provide advisory services on the specific requirements for rail
operations to the constructors of the new driverless extension.
This represents a new service line which has the potential to
open up similar opportunities across the world.
In contrast, the European market has been impacted by
interruptions, delays and cancellations to continuing and new
project work as the industry is forced to revise its priorities in
view of lower passenger levels and government intervention.
Nevertheless, this was counterbalanced in part by the large
portfolio of infrastructure assurance projects, which in several
cases has leveraged the reduced levels of traffic to advance
major schemes – such as the Danish re-signalling programme
and the London Elizabeth Line. This, along with a robust order
book for Asia and the Middle East, where we are adding to our
project-based work on major construction schemes in Riyadh
and Doha, has ensured that Ricardo Certification delivered a
good overall performance.
Strategic report
Operating segments review
The impact of the pandemic on public transport was
unprecedented. Global passenger numbers fell by 40% on
calendar year 2019 levels, with some commuter services seeing
passenger levels fall by close to 80%. Even freight traffic, which
was less affected, saw a 20% drop in 2020. Operators responded
by taking measures to maintain minimum levels of service
to reduce overall costs. Even so, many of the major capital
programmes were unaffected and rolling-stock orders to replace
ageing fleets suffered only minor delays as manufacturers
realigned to social-distancing measures, while infrastructure
projects took advantage of reduced traffic to complete work.
Outlook
Despite the pandemic’s deep impact, the long-term forecasts
for global rail-supply markets remain positive, with annual
growth rates of 2.3%(1) anticipated throughout 2020-2025. We are
unlikely to see significant growth in the European market in the
short to medium term, but other markets continue to expand,
notably China, Taiwan and Japan which are continuing with
major investment programmes. So too is the South-East Asia
region, where priorities are to continue large-scale activities for
both metro and light-rail projects, and the Middle East, where
world-class rail networks have only started to emerge over the
past decade.
As ‘Shadow Operator’, Ricardo is
advising the construction of two
extensions of Sydney’s metro system
about the operational needs of a
fully automated railway.
Australia is likely to continue to offer further opportunity
as it is in the early stages of a boom in rail construction and
is responding to accelerated growth within its major urban
centres. Furthermore, the US is expanding its rail footprint and
the federal government has announced plans for significant rail
investment, much of which is connected to its decarbonisation
priorities. Many of the country’s commuter routes require
rejuvenation and its stockpile of diesel-powered rail vehicles will
need to be replaced or refurbished. Furthermore, high-speed
railways are finally under construction, potentially opening a vast
new market for what is now very mature technology.
The overall focus for us in the coming year will be prioritised
around organic growth, including benefitting from the growing
opportunities in Australia and South-East Asia’s burgeoning
market, as well as building our reputation and capabilities in the
North American market.
(1) Source: https://www.unife.org/wp-content/uploads/2021/04/Forecast-2020-to-2025.pdf
Did you know?
94% of our clients choose to work with us again within
two years.
Creating a world fit for the future 49
Strategic report
Operating segments review
Automotive & Industrial (‘A&I’)
Trusted global engineering-services partner for clean, efficient, integrated propulsion and
energy systems
Financial and operational highlights
Order intake
Order book
and engineering centres in four countries, and consulting offices
across the UK, Europe, North America and Asia (primarily in
China).
-(20)%
FY
2020/21
2019/20
Revenue
-(13)%
FY
2019/20
2019/20
-(10)%
£m
FY
99.8
124.6
2020/21
2019/20
£m
71.4
79.2
Underlying operating
(loss)/profit
-(420)%
£m
FY
102.5
2020/21
(1.6)
117.2
2019/20
Underlying operating
profit margin
-(2.0)pp
Headcount
-(17)%
FY
2020/21
(1.6)
2019/20
%
FY
2020/21
2019/20
0.4
Number
996
1,195(*)
(*) Headcount has been restated to reflect
the inclusion of head office staff
For over 100 years, our Automotive and Industrial (‘A&I’)
operating segment has been using engineering and
research-and-development expertise to help global vehicle
manufacturers innovate and improve the efficiency and
performance of their products.
With digital engineering, efficiency and effectiveness at
our core, we are able to solve the most complex mobility
challenges, offering a true end-to-end service to create
clean, efficient, integrated energy and propulsion systems
for the future. We are recognised as a thought leader in
clean propulsion, electrification and renewable fuels and
we apply our experience, processes and insights to drive
innovation, from the initial concept design right through to
product execution.
Customers
We serve customers across the globe in key automotive and
industrial segments, including all transport sectors: passenger
and light vehicles, commercial vehicles, off-highway vehicles,
motorcycles, marine and aerospace.
Principal operating regions
We deliver services to more than 50 countries. We have technical
50 Ricardo plc Annual Report & Accounts 2020/21
Growth drivers
• A rapid shift to decarbonised, sustainable transport
technology.
• Bridge solutions to fill the technology gap between internal
combustion engines and battery electric vehicles.
• Global acceleration to reduce time and cost of new-product
development.
• Digital transformation through industry 4.0, connected
intelligence and software development capabilities.
£m
0.5
Competitive strengths
• A digital-engineering leader in clean propulsion and energy.
• Preferred partner for design and delivery of innovative and
technically differentiated solutions.
• Global reach with an extensive local market footprint to
provide support and flexibility in the field.
• Customer intimacy with a deep legacy in solution integration
and customisation.
• Proven sustainable IP in electric-vehicle technologies.
Performance
During the year, we have undertaken significant strategic and
structural changes to focus our portfolio on higher-growth
services and markets, such as electrification, software, control and
calibration and hydrogen. The changes reflect the global shift
within the automotive industry which has been heavily impacted
by COVID-19, seeing a temporary halt to passenger car purchases
and deliveries across the world, as well as ongoing US-China
tensions and border tariffs.
Order intake was down by 20% year-on-year, due to customers
delaying critical programme decisions. The lower demand
significantly affected revenue and operational efficiency. Revenue
decreased by 13% compared to the prior year. The underlying
operating loss was £1.6m (FY 2019/20: profit of £0.5m). The
underlying operating margin decreased from 0.4% to negative
1.6%.
The impact of the above was felt more strongly by the EMEA
business. In the first half of the year, we took the difficult decision
to reduce headcount in the period to align the cost base to
forecast demand, an extension of the process enacted in the
second half of FY 2019/20. The actions taken helped to return our
EMEA business to profitability in the second half of the year, but
as the challenging market conditions continued, exacerbated
by further national COVID-19 related lockdowns in Spring 2021, it
became apparent that the order intake levels would not return
to forecast levels as quickly as anticipated. This resulted in the
announcement of further headcount reductions, to be enacted
in the first half of FY 2021/22. We also fully exited our site in
Strategic report
Operating segments review
Cambridge in June 2021, with staff moving to other UK locations.
The total cash cost of these actions was £2.3m (FY 2019/20:
£2.9m).
Order intake and revenue both increased year-on-year in
our US business. This, together with the positive impact from
the restructuring actions at the end of FY 2019/20, including
the closure of facilities and the sale of the Detroit test business,
resulted in a significant reduction in losses.
In China order intake and profitability both improved year-on-
year, indicating that the China market is starting to recover from
the impact of the pandemic.
Despite the notable impacts suffered across the automotive
industry, we are continuing to secure contract wins in all our key
markets. Within EMEA, major contract wins from automotive
original equipment manufacturers (‘OEMs’) included a wide
range of electrification programmes including battery-pack
design, systems integration and e-motor and power-electronics
projects. We secured a multi-year engineering programme
with WorldAutoSteel to deliver its Steel E-Motive future vehicle
concepts, which are exploring the use of steel innovation for
sustainable mobility vehicles. We have won contracts with new
customers across defence, marine and aerospace, including
development of hydrogen fuel cells for aviation with Cranfield
Aerospace Solutions and electrified propulsion units with the
Blue Bears consortium. In China, cost and time to market have
been a key focus for OEMs, resulting in us successfully securing
numerous virtual-calibration contracts using our own software
and toolchain to deliver these programmes. We have also
secured a contract with a key OEM to develop an Automated
Manual Transition (‘AMT’) for commercial vehicles. In the US,
several strategic contract wins have been secured, including
design, development and integration services to support a
major motorcycle company with its new portfolio of electrified
vehicles. Our US business has also been working with the world’s
second-largest carmaker to lead the adaptation and integration
of its zero-carbon emissions hydrogen fuel-cell technology into
medium range heavy-duty trucks.
Outlook
The COVID-19 pandemic has severely impacted our business
and our customers across the world, but it has also accelerated
changes across the automotive and transportation industry.
Many of our customers have been forced to rationalise product
plans and accelerate a number of cost savings. While markets
A full-service technical partner for
full-product development, Ricardo
continues to support customers to
plan, design and deliver world-class
motorcycles and scooters.
remain depressed in many modes of transport, we now have
greater clarity of legislative direction from the world’s leading
transport markets, which will shape A&I’s future in supporting
the proliferation of clean, intelligent vehicle technologies.
Our global focus within A&I will be to deliver innovative,
sustainable mobility solutions to customers across the world
and build resilience through continued expansion across all
transport sectors. Through geographic diversification, we
will ensure customer intimacy and volume supported and
delivered by our network of global technical centres. Priority
is to be given to four key areas for our customers across all
mobility sectors: electrification, software and control, digital
and advanced analytics, and hydrogen and de-fossiled fuels.
This will be supported by our technology roadmap, world-
leading research and development and sustainable, high-
value intellectual property. Nevertheless, in the short term,
we will continue to support our customers in their journey to
develop environmentally sustainable products and maintain
commercially sustainable businesses. We will drive innovation in
the development of cleaner, more efficient conventional engines
and electric-based propulsion systems, expanding the use of
virtual tools and the integration of systems with digital services
and software. The transport industry is changing more rapidly,
and in more dimensions, than ever before. Our longstanding and
intimate understanding of the segment, coupled with its clear
focus on the future, mean we are ideally positioned to capitalise
on this near-term volatility and drive growth in the segment.
Did you know?
The most significant breakthrough in propulsion
systems for civilian and military aircraft was the
invention of the jet engine and Sir Harry Ricardo
assisted Sir Frank Whittle with the design of combustion
chambers and fuel-control systems. Today, as
governments, manufacturers and consumers across
the world seek to achieve net zero emissions in air
transportation, Ricardo’s expertise in hydrogen fuel-cell
technology means that it is once again at the forefront
of technological advance by delivering the greatest
innovation to the civilian and military aviation sectors
since the jet engine.
Creating a world fit for the future 51
Strategic report
Operating segments review
Defense
Trusted expertise in delivering wide-ranging engineering programmes to drive efficiencies
while optimising safety and performance.
Financial and operational highlights
Financial and operational highlights
Order intake
Order book
+70%
FY
2020/21
2019/20
Revenue
+16%
FY
2019/20
2019/20
+65%
£m
49.4
FY
2020/21
2019/20
29.0
£m
25.7
15.6
Underlying operating
profit
+6%
£m
37.9
32.8
FY
2020/21
2019/20
£m
5.4
5.1
Underlying operating
profit margin
-(1.3)pp
Headcount
+11%
FY
2020/21
2019/20
%
FY
14.2
15.5
2020/21
2019/20
Number
185
166(*)
(*) Headcount has been restated to reflect
the inclusion of head office staff
Our Defense operating segment has gained significant
insights into the needs of armed forces and provides
solutions to meet the challenges facing our customers in
the integration of logistics and field support for complex
and diverse systems. Our wide range of engineering
and software solutions provides system-integration
engineering for the US Army’s ground inventory and we
are the data-replication agent for everything in the air, on
the sea and under the surface for the US Navy. Connected
to this, we also specialise in niche manufacturing, adapting
commercial industry products to deliver innovative sector
applications that protect people and infrastructure.
Customers
We work with the US armed forces and allied nations to put
the safest and most capable systems into the hands of military
personnel. Our key customers include the US Department of
Defense (‘DoD’), NASA, and the UK Ministry of Defence (‘MoD’).
Principal operating regions
Our operations are located in North America. We have several
offices, the largest being in Michigan and California. We also
work alongside our customers at their sites.
52 Ricardo plc Annual Report & Accounts 2020/21
Growth drivers
• Decarbonisation and net zero planning focus within the US
defense sector.
• Demand for greater connectivity, communications and
mobility within the field.
• Software-driven solutions to provide functionality and
systems integration.
• Continued focus on cybersecurity to protect against potential
and ever-evolving threats.
Competitive strengths
• Leading capability in the design and management of
procurement processes for US DoD.
• Industry expertise across the entire defence-system lifecycle
support and product sustainment.
• Experts in defence acquisition strategy, policy and procedure.
• Complex-system specialists, linking all aspects of a complete
system of systems.
Performance
Our Defense segment delivered a good performance in the year,
with order intake of £49.4m (up 70% on the prior year), revenue
of £37.9m (up 16% on the prior year), and underlying operating
profit of £5.4m (up 6% on the prior year). Underlying operating
profit margin decreased from 15.5% to 14.2%.
The growth in order intake reflected the receipt of the first
USD 10m order from the USD 89m award of the three-year
Anti-lock braking system/electronic stability control (‘ABS/
ESC’) retrofit contract to provide critical safety upgrades for
the US Army’s fleet of High-Mobility Multipurpose Wheeled
Vehicles (‘HMMWV’). In addition, we won a significant multi-year
production contract from General Motors to produce and field
the US Army’s new Infantry Squad Vehicle (‘ISV’), together with
increased work on the US Navy Systems Engineering Support
contract.
The ABS operations teams celebrate the assembly and
kitting of the 1,000th Retrofit kit in July 2021.
Strategic report
Operating segments review
.
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Revenue growth was driven by increased ABS/ESC volumes
and continuing growth in Engineering Services. Including both
retrofit and kits for new production vehicles, we delivered a
total of 2,950 ABS/ESC kits in FY 2020/21, compared to 2,464 in
the prior year. Our Engineering Services business continued to
grow in the year, driven by the new wins above and complex
system engineering and design work on various US military
contracts. ABS/ESC volumes were weighted towards the second
half of the financial year. This led to lower levels of profitability
in the first half of the year which resulted in an overall reduction
in underlying operating margins between FY 2019/20 and FY
2020/21.
In Defense, we have a deep legacy of partnering with the US
military in the transition of innovative technologies from science
to application. Key development projects in FY 2020/21 included
the design and build of a wireless intercom integration system
for secure onboard vehicle communications and advancing the
development of a fielded electronic backbone to be used for
present systems diagnostics, expanding into future autonomy
requirements for the US Army. As global niche specialists in
designing vehicle engineering solutions that improve safety and
significantly reduce fuel usage and carbon emissions, we have
been working closely with the US military on the application of
a breakthrough, ultra-compact auxiliary power unit to greatly
reduce vehicle main-engine use and to reduce fuel consumption
as a common solution across US Army platforms. What is more,
we are leveraging the application of the ABS/ESC system to
significantly reduce brake drag and improve fuel efficiency for
thousands of US Government fleet vehicles, which is resulting
in a reduction of up to 20% in fuel consumption. Additionally,
we have collaborated with the University of Michigan and Epic
Games on DARPA research to provide innovations in simulation
technologies that can either significantly reduce the cost of
off-road autonomy development or help bridge the gap from
simulation to the real world. In conjunction with this, we have
also supported the US Army’s robotic vehicle science and
research by integrating innovative subsystems into surrogate
vehicles in advance of final vehicle development.
As a critical supplier to the US Government, we have
continued to provide services throughout the pandemic.
Outlook
With a growing emphasis on the environment, the US
administration’s focus is to prioritise progress on climate change,
environmental and energy policies. As a result, the US DoD is
shifting its priorities and funding within all its activities and risk
assessments towards climate-change considerations. Growth in
digital applications will also be a focus to ensure the continued
security and safety of its networks, systems and infrastructure as
well as offering improved efficiencies throughout its operations.
Ricardo is well positioned to continue to support the
challenges facing our customers through our services and
solutions and we remain positive towards FY 2021/22.
Did you know?
Approximately 30% of Ricardo Defense staff are
veterans
Creating a world fit for the future 53
Strategic report
Operating segments review
Performance Products (‘PP’)
Engineering specialists in niche-volume manufacturing and software development to
analyse and optimise complex physical systems
Financial and operational highlights
Order intake
-(18)%
FY
2020/21
2019/20
Revenue
+1%
FY
2019/20
2019/20
Order book
-(20)%
£m
FY
64.0
78.0
2020/21
2019/20
53.3
£m
66.7
Underlying operating
profit
+33%
£m
76.6
75.9
FY
2020/21
2019/20
Underlying operating
profit margin
+2.2pp
FY
2020/21
2019/20
%
8.9
6.7
Headcount
-%
FY
2020/21
2019/20
Principal operating regions
We serve customers in over 11 countries with manufacturing
and operations based in the UK. Our Software business is based
across the UK, Europe, the US, India and China.
Growth drivers
• Recovering premium automotive market
• Accelerated adoption of electrified powertrains
• High demand for industrial engineering services
• Decarbonisation of transportation, with increased focus on
electrification and hydrogen
• Continued diversification across the broader transportation
industry
£m
6.8
Competitive strengths
• Recognised global expertise in niche-volume industrial
5.1
engineering
• Developing manufacturing knowledge in high-performance
battery technology
• In-depth knowledge of hybrid and electrified powertrains
developed from top-flight motorsport
• Market-leading products in ICE engines, such as PISDYN,
RINGPAK and WAVE-RT.
Number
421
420(*)
• Highly extendable product portfolio already meeting demand
for electrification and fuel cells, with multiple customer-use
cases
(*) Headcount has been restated to reflect
the inclusion of head office staff
Our Performance Products segment includes both
the Performance Products Manufacturing (‘PP’) and
Software business units. Our PP segment is responsible
for the manufacture and assembly of niche high-quality
components, prototypes and complex products,
including engines, transmission and other precision and
performance-critical products. Moreover, we provide
industrial engineering services to enable products to move
from concept to production for customers around the
globe. Our Software business delivers advanced virtual-
engineering tools and leading-edge simulation software,
and delivers solutions that help our customers reduce
costs, resources and time to market, while efficiently
managing complexity and safety.
Customers
Our blue-chip customers operate in markets such as motorsport,
automotive, aerospace, defence and rail. The majority of
Software’s revenue is influenced by customers in key segments
within the automotive industry, including passenger car, two-
and three-wheelers, commercial vehicles, off-highway and
marine. We also provide and deliver bespoke software solutions
within defence and the energy and environment sectors.
54 Ricardo plc Annual Report & Accounts 2020/21
Performance
Revenue and operating profit both grew in FY 2020/21, by
1% and 33%, respectively. Underlying operating profit margin
increased from 6.7% to 8.9%.
FY 2020/21 order intake was £64.0m, a reduction of £14.0m
on the prior year. This reflects the timing of engine orders from
McLaren and the recognition of the multi-year Porsche 992 Cup
transmission order in FY 2019/20.
In line with expectations, McLaren engine volumes increased
steadily during the course of FY 2020/21. Overall engine volumes
were lower than FY 2019/20, driven by higher volumes in the
pre-COVID first half of the prior year.
Transmission volumes increased year-on-year. Volumes sold
to Bugatti (Chiron hyper-car), Porsche (992 Cup programme)
and the UK Ministry of Defence (CVR(T) gearbox refurbishment)
were in line with expectations. In June, PP delivered its first
transmission units to Aston Martin for the Valkyrie hyper-car.
Software perpetual license sales increased in the year, driven
by some large new wins in India, China and Japan. Software
renewal rates remain high.
Operating profit margin improved year-on-year due to the mix
and pricing of products sold.
As one of the leading specialists in designing and delivering
solutions for the motorsport sector, Ricardo secured several key
contracts over the year, including being selected to support
Strategic report
Operating segments review
Hyundai Motorsport in the development of the all-new hybrid
four-wheel drive (‘4WD’) transmission for its new generation
World Rally Championship (‘WRC’) car to be used in the
competition from the 2022 season, while also renewing the
existing agreement under which Ricardo supplies drivelines
for the current generation i20 WRC car. Our new product-
introduction programmes for hydrogen fuel cell, traction battery,
and E-machine solutions are supporting increased growth
in sales across our entire customer base and the demand for
perpetual software licences is leading to greater returns across
Asia. We secured a significant contract win in India for a large-
scale engine programme and were also awarded various virtual-
calibration programmes for customers in China.
From the onset of COVID-19, our PP division has executed a
comprehensive response plan which has minimised disruption
of our supply chain to maintain business continuity and to serve
our customers. Nevertheless, there were still several delays
to projects, programmes, and anticipated order awards in H1
which then improved significantly with uptake in H2 FY 2020/21.
Brexit was also a contributing factor, affecting the supply chain
because of administration difficulties as countries struggled
with new processes and systems. This has settled down slightly
with noticeable improvements to delivery schedules and transit
periods coming into and out of the EU.
Ricardo is the four-wheel drive
transmission technical partner for
Hyundai Motorsport as it fights for
the World Rally Championship title.
Outlook
The forthcoming year will see a considerable increase in output
at our main UK manufacturing sites – the Shoreham Technical
Centre and the Midlands Technical Centre – as demand for high-
performance vehicles and from the motorsport sectors continue
to recover. The priority for FY 2021/22 is to ensure the successful
ramp-up of operations to deliver previously contracted
work following delays in orders and programmes during the
pandemic.
The core automotive markets for our software solutions
will remain challenging in the next financial year because of
continuing delays to new business orders as a result of COVID-19.
The focus will be on sector diversification and moving to cloud-
based solutions and consumption-based licencing models
to complement the traditional on-premises annual lease and
perpetual-licence business.
Did you know?
In 2018 less than 1% of the hardware produced by
our Performance Products segment was used in
“electrified” vehicles, but by 2022 over a third of all
products produced will be used in hybrid and fully
electric vehicles.
Our 2020/21 Strategic Report, from page
1 to page 55, has been reviewed and
approved by the Board of Directors on
14 September 2021
Dave Shemmans,
Chief Executive Officer
Creating a world fit for the future 55
56 Ricardo plc Annual Report & Accounts 2020/21
Case
studies
At Ricardo, we support
our clients in designing,
developing, integrating and
deploying technologically
advanced solutions, across
LAND, SEA and AIR, for a
greener future.
LAND
58 Addressing the UK’s
EV battery shortage
62 Riding sunbeams
66 Greener together
SEA
70 Steering shipping to
sustainability
AIR
74 Flying to net zero
Creating a world fit for the future 57
Case studies
Addressing
the UK’s
EV battery
shortage
Ricardo is looking to address a critical shortage
in the UK’s supply chain for niche electric
vehicle (EV) batteries. It is doing so by assessing
the commercial viability of a facility to
assemble battery packs for UK manufacturers
which produce fewer than 10,000 electrified
vehicles per year.
58 Ricardo plc Annual Report & Accounts 2020/21
Case studies
Addressing the UK’s EV battery shortage
Creating a world fit for the future 59
Case studies
Addressing the UK’s EV battery shortage
By leveraging its expertise in niche-volume
manufacturing, battery research and development
(R&D), second life and recycling, complex supply
chain management and strategic consultancy,
Ricardo’s aim is to ‘level up’ the supply chain in these
critical components for the UK market.
Ever since the UK Government announced the ban on the
future sale of new petrol and diesel vehicles from 2030, the clock
has been ticking in terms of introducing technology, delivering
electrification infrastructure at scale and accelerating the
adoption of EVs by consumers.
Nissan’s major expansion of EV production at its car plant
in Sunderland, and construction of a new electric battery
‘gigafactory’ by its partner Envision AESC, is great news for
mass-market car production in the UK. But what about prestige
UK-based manufacturers that need to produce high-value, low-
volume EVs every year?
60 Ricardo plc Annual Report & Accounts 2020/21
Meeting the needs of prestige brands
The UK has a diverse mix of sector-leading manufacturers
from automotive and off-highway through to defence and
commercial vehicles plus everything in between. These vehicle
manufacturers include some of the world’s best-known prestige
brands which create their luxury saloon cars, armoured military
vehicles, mid-engine sports cars and rugged yellow goods for
a customer base in the low thousands. This compares to the
hundreds of thousands or millions of vehicles produced for the
mass passenger-car market around the globe.
The volume requirements, pace of innovation and flexible
product specifications of niche-volume manufacturers are
not aligned with the high-volume outputs from emerging
gigafactories. A niche-volume battery manufacturing facility
will help to establish a robust supply chain for these critical
electrification components while ensuring the UK remains at the
forefront of these prestigious markets.
Ricardo’s mission is to support the decarbonisation of
the global transport and energy sectors. The company is
Case studies
Addressing the UK’s EV battery shortage
currently using its broad-ranging expertise in niche-volume
manufacturing, battery R&D, second life and recycling, complex
supply chain management and strategic consultancy to
undertake commercial studies into how to meet the particular
battery-hardware needs of these diverse niche manufacturers
across a wide range of business sectors, by ensuring a UK
supply chain in EV components. This study is supported by the
Advanced Propulsion Centre’s Automotive Transformation Fund
(ATF) which is itself supported by the Department for Business,
Energy and Industrial Strategy.
Ricardo is assessing how a proposed facility, and its associated
sub-supply chain, could help minimise the risk of scaling up the
innovation of new battery concepts to niche volumes.
Reducing the impact of battery-pack
manufacture
The company is also harnessing its world-renowned expertise
in batteries to explore opportunities to minimise the
environmental impact of battery-pack manufacture through
‘second life processing’ and recycling of core elements from
construction. This should help to ‘level up’ the UK supply chain
in critical electric-vehicle components to support manufacturers
producing fewer than 10,000 electrified vehicles per year.
In doing so, Ricardo’s ambition is to deliver national
competitive advantage for the UK. Such an achievement
will support the adoption of electrification in all sectors and
contribute to the ‘green bounce back’ through sustainable
practices. Ricardo’s future manufacturing strategy is very much
aligned to this emerging need for world-leading electrified
vehicle components.
Leveraging its proven track record in industrialising
technology, Ricardo is delighted to have received the ATF
funding which will enable the company to pursue this strategy
and help the UK reach its ambitious targets in pursuit of its net
zero goals.
Creating a world fit for the future 61
Case studies
Riding Sunbeams
A cleaner fuel source feeding directly into rail operations.
62 Ricardo plc Annual Report & Accounts 2020/21
Riding Sunbeams
Case studies
Riding Sunbeams
Creating a world fit for the future 63
Overcoming technical challenges for AC
connections
Using solar energy to power railways faces a number of technical
challenges. Two-thirds of the UK’s existing electrified routes
– and all plans for new rail electrification – use AC overhead
lines to power trains. Most of the electrified train lines around
the world also use this technology. The technology needed to
provide low-cost power conversion from renewables to AC rail-
traction systems has not previously existed.
Ricardo is part of the Riding Sunbeams-led collaboration,
working with Turbo Power Systems, Network Rail and the
Birmingham Centre for Railway Research and Education to
demonstrate the capability to create a direct connection
between renewables and AC rail networks.
Case studies
Riding Sunbeams
Ricardo is part of a consortium aiming to build and
connect solar electricity generation directly to the
railway network to provide zero-carbon power
cheaper than from the grid and deliver as much as
10% of the UK Southern Region’s rail power needs.
Founded by climate charities ‘Possible’ and ‘Community
Energy South’, Riding Sunbeams has a vision to power railways
with unsubsidised, direct-wire renewable generation while
delivering positive social impact to line-side communities. Direct
supply of solar power to rail traction systems has significant
potential for metros, trams and railways in the UK and around
the world.
Railways use different types of systems to power trains. In the
UK and many other countries these are:
• Third rail: a third rail parallel to the track carrying direct current
(DC) power; and
• Overhead line: cables suspended from gantries carrying
alternating current (AC) or DC power.
Ricardo has been a partner working closely with Riding
Sunbeams since 2019 on solutions for systems at each stage of
the development of the proposition.
64 Ricardo plc Annual Report & Accounts 2020/21
Case studies
Riding Sunbeams
With Ricardo’s support, the Riding Sunbeams consortium will
be able to apply it’s low-cost, low-carbon traction supply model
to the majority of electrified routes in the UK and around the
world. This will also support low-cost electrification of some of
the most challenging remaining diesel-powered lines.
Proof of capability will bolster Riding Sunbeams’ attempts to
enter the traction power supply market as a small and medium-
sized enterprise with an innovative value proposition that can be
applied in the UK and many other countries.
Making a world-first connection to DC third rail
railways
In 2019, the team successfully demonstrated a direct connection
between solar panels and the DC third rail traction system.
That summer, a test unit of approximately 100 solar panels was
installed next to the track near Aldershot, Hampshire. Named
‘First Light’, it was the first time in the world that renewable zero-
carbon electricity had been directly supplied to an adjacent rail
line.
A 30 kilowatts peak (kWp) solar test unit was connected to an
ancillary transformer on the traction system of Network Rail’s
Wessex route, with the energy captured from the panel array
used to power signalling and lights.
Ricardo provided expertise in power-generation research and
experience of connecting renewable energy technologies to
existing DC third rail infrastructure.
The Riding Sunbeams consortium has since been working on
piloting the scheme in locations around the UK. In autumn 2020,
this took two major steps forward.
First, Riding Sunbeams secured its first commercial funding
from Thrive Renewables and the Friends Provident Foundation
to develop a pipeline of new renewable energy projects in
south-east England and south Wales.
Second, Riding Sunbeams was awarded £2.5 million from
the UK Government’s Getting Building Fund to build a 4 MW
photovoltaic (PV) solar farm in East Sussex which will directly
power the mainline railway between London and Eastbourne.
This follows help from Ricardo’s economic and renewable
energy experts to develop the business case.
After energisation, Riding Sunbeams will launch an investment
offer so that the project can be owned by local community
members and rail commuters who use the network.
This will enable Riding Sunbeams to provide a commercial
route to market for community energy groups looking for new
projects to develop and connect them to regional or national rail
network operators like Network Rail which will pay a fair price for
their power.
The rail network operators can benefit from competitively
priced green electricity while supporting local communities, as
well as assisting the UK’s efforts to achieve a net zero economy.
Ricardo contributed feasibility insights, including financial
models for delivery of the 4MW solar farm, and options for the
electrical connection between the solar farm and the railway.
Helping to decarbonise the railways will cut running costs
and benefit local communities at the same time as tackling
the climate crisis. Riding Sunbeams is demonstrating that
plugging solar directly into the UK railways can be done safely
and without disruption to train services. The project opens up
opportunities to utilise renewable-energy technologies in ways
not previously possible.
Creating a world fit for the future 65
Case studies
Greener
together
A collaboration with Bluebox Energy
to deliver innovative technology-
based solutions that can drastically
reduce carbon emissions.
66 Ricardo plc Annual Report & Accounts 2020/21
Case studies
Greener together
Creating a world fit for the future 67
efficient thermal energy management. It also draws on Ricardo’s
100-year track record in automotive engineering, as well as its
expertise in renewable and sustainable energy management for
key infrastructure.
Capitalising on hot-air turbine technology
Since 2014, Hampshire-based Bluebox Energy has developed
ultra-low carbon CHP solutions for business parks, communities
and industrial and farming processes, including a new method
to convert heat to electricity using hot-air turbine technology.
A hot-air turbine takes in filtered air and compresses it in a
turbo-compressor. This air is heated using energy from a hot gas
stream, such as flue gas from the combustion process. The hot
Case studies
Greener together
Ricardo’s carbon-capture experts are collaborating
with Bluebox Energy to deliver innovative new
technology solutions that support the transition
to a low-carbon future. The consortium has won a
national competition to design a commercial, community-
scale greenhouse-gas removal system fed by waste from
the forestry sector. The system will significantly reduce
noxious emissions and enable waste heat and sequestered
carbon products to generate revenue streams for industry
and local communities and achieve negative emissions.
National government targets are helping drive both public
and private sectors to develop strategies and invest in processes
and technologies that will enable organisations to deliver a
low-carbon future. An
example of these targets is
the UK’s goal of achieving
net zero carbon emissions
by 2050. Innovation in heat
and energy technologies is
critical to the achievement
of these objectives.
It has become widely
accepted in recent years
that negative-emission
technologies such as
biochar and biomass
carbon capture and storage
(BECCS) are essential for
achieving net zero globally.
Currently negative-emission
technologies such as BECCS
are only considered for
large-scale emission sources
such as power and industrial
plants.
Ricardo’s aim is to
become a world leader
in integrating carbon
capture with pyrolysis-
based combined heat and
power (‘CHP’) systems for
commercial, community-
scale applications.
Pyrolysis is the thermal
decomposition of materials
at elevated temperatures in
an inert atmosphere.
The partnership with
Bluebox Energy leverages
Ricardo’s expertise in carbon
capture technologies and
world-leading experience
in combined heat and
power and thermal and
thermodynamic analysis,
plus system engineering for
68 Ricardo plc Annual Report & Accounts 2020/21
Case studies
Greener together
Ricardo is leading the design
of the CO2 capture system,
together with concept and
market definition, and
economic modelling
pressurised air passes through the turbo-compressor and power
turbine to produce electricity.
The electrical output from the turbine generator is converted
to grid power in a dedicated inverter. The air emerging from the
power turbine is still at a temperature of around 400ºC so can be
used for heating, steam production or direct drying.
In 2019, Ricardo and Bluebox Energy began to explore the
potential of biomass pyrolysis as an ultra-low-carbon solution.
Bluebox Energy’s concept of capturing 50% of CO2 in biochar
(pyrolysis combined with a hot-air turbine CHP system) with
the other 50% released into the atmosphere was enhanced by
Ricardo’s proposition that most of the 50% emitted could also be
captured using chemical absorption.
Achieving this would capture 90% of the remaining emissions
and thus increase overall CO2 capture to 95% of total emissions.
Designing a commercial greenhouse-gas
removal system
In April 2021, as part of the UK’s Department for Business, Energy
and Industrial Strategy’s Greenhouse Gas Removal Innovation
Programme, the Ricardo and Bluebox Energy consortium was
selected to develop the BIOCCUS technology.
Ricardo is leading the design of the CO2 capture system,
together with concept and market definition, and economic
modelling.
Fed by undried, unprocessed waste wood from domestic
timber production, the system will produce four key
commercially marketable by-products: biochar, which can
potentially be used for soil enrichment or as cattle feed in
agriculture and improving anaerobic digester performance;
commercial grade CO2 for utilisation in the construction sector
as means of permanent storage, such as low-carbon concrete,
electricity and heat. As well as capturing up to 95% of CO2,
the system will deliver positive power and heat generation by
supplying homes and businesses with renewable heat and
electricity.
This first phase of the project lasts until December 2021
and could potentially lead to the consortium’s being selected
for Phase 2 to develop a prototype and demonstrate the
technology between 2022 and 2024.
This carbon-capture research and innovation project with
Bluebox Energy is a further boost to Ricardo’s credentials in
supporting delivery mechanisms to tackle climate change and
meet national net zero targets. The proposed biochar, CO2
capture system is ultra-low carbon with significant negative
emissions: removing CO2 from the atmosphere as biomass is
carbon neutral, on top of which is the capture and permanent
storage of resulting CO2. Successful deployment following
the project would mean that an organisation could use
decarbonised or net-negative CHP technology to improve its
environmental impacts.
Creating a world fit for the future 69
Case studies
Steering
shipping to
sustainability
Achieving a zero-carbon future for marine
through the development of green ammonia as
a sustainable fuel supply
70 Ricardo plc Annual Report & Accounts 2020/21
Case studies
Steering shipping to sustainability
Creating a world fit for the future 71
Case studies
Steering shipping to sustainability
Ricardo’s alternative fuels and renewable energy
experts worked with Ocean Conservancy to
analyse the potential for the shipping industry to
move to zero emissions using renewably generated
hydrogen. Transitioning the shipping industry to carbon-
free fuels and renewable energy will eliminate emissions
approximately equivalent to those of Japan or Germany,
while empowering local communities and economies.
Furthermore, the decarbonisation of shipping is an
opportunity to develop sustainable infrastructure in South
and Central America.
Ocean Conservancy is a non-governmental organisation
(NGO) striving to protect the ocean from its greatest global
challenges. The organisation’s shipping emissions campaign
focuses on targeted policy changes and science-based solutions
with the goal of reducing carbon emissions and bolstering
protection for the marine environment, its living marine
resources and the communities that are part of and dependent
on ocean ecosystems.
In 2018, the International Maritime Organisation (IMO) set
a target for the international shipping sector to reduce its
greenhouse-gas emissions by at least 50% by 2050, compared
to 2008 levels. Improvements in fuel efficiency will go some way
towards achieving this target; however, further reductions will be
required through the widespread use of fuels that emit zero CO2
over their lifecycles. A typical vessel has a working life of 20 to 30
years, which means that the first zero-carbon ships need to be
commercialised by 2030.
Zero-Carbon for
Shipping
Propelling investment in South and Central America
with hydrogen-based shipping fuels
renewable electricity is
used for the electrolysis,
electrofuels are defined as
being ‘green’.
Building on proven
technology
The technology required to
produce green electrofuels
is well proven. Ship builders
have already started
designing vessels to use
these fuels, with the aim
of having the first vessels
in the water in the mid-2020s. Planning for the development of
green electrofuel plants needs to begin immediately, so that
production capacity will be ready when demand increases in the
second half of the decade. First-mover countries stand to benefit
from this greater demand for the fuels.
Studies have shown that ‘electrofuels’ made using renewable
The Global Maritime Forum has estimated that the total
electricity – particularly hydrogen and ammonia – have an
important role to play in decarbonising shipping. Electrofuels
are synthetic fuels (that is, they are manufactured) involving
electrolysis of water to produce hydrogen, which is either used
as a fuel itself or combined to make other fuels. When only
decarbonisation of the shipping industry will cost up to USD 1.9
trillion by 2050, with more than three-quarters of this amount
required to develop the onshore supply chain. This represents a
substantial investment opportunity for countries with significant
renewable-energy potential.
72 Ricardo plc Annual Report & Accounts 2020/21
Case studies
Steering shipping to sustainability
Ricardo was commissioned to conduct research into the
role that electrofuels can play in transitioning the international
shipping industry from being one of the largest emitters of
greenhouse-gas emissions to a zero-carbon future.
The resulting report, ‘Zero-Carbon for Shipping’, presented
South and Central American case studies which demonstrated
how electrofuels and renewable energy can do much of the
work required to effect this transition. South and Central America
have a substantial shipping industry with total imports to and
exports from the region of around USD 1 trillion. Combined with
increasing wind and other renewable energy sources, South and
Central America are primed to lead the shipping industry away
from fossil-fuel dependency.
Identifying investment potential
A further finding of the study was that electrofuels could
support decarbonisation elsewhere. Renewable energy and
green electrofuels both have an important role to play in
decarbonising sectors reliant on fossil fuels, such as transport,
electricity and industry. Establishing an electrofuels supply
chain for shipping will bring down the cost of decarbonisation
through economies of scale, development of skills and the
eventual maturation of supply chains.
The report highlights an example of implementation, where
the adoption of electrofuels in Porto do Pecém, Brazil, would
not only decarbonise the local shipping industry but could also
provide a carbon-free source of fuel for local chemical and steel
manufacturing. Steel-making is carbon-intensive because coal
coke is usually used to produce iron from its ore, which is further
processed to make steel. Due to hydrogen’s high combustion
temperature, it can be used instead of coal coke, thereby
eliminating CO2 emissions from the process.
In another example, Peru already generates more than
half of its electricity from renewable sources (62.5% in 2018),
mostly provided by large-scale hydro plants. Peru’s Nationally
Determined Contributions under the Paris Agreement include
nine mitigation measures for transport, one of which is a target
to reduce greenhouse-gas emissions from the sector by 30% by
2030. Electrofuels represent a significant opportunity for Peru to
deliver on this ambition.
The countries within the South and Central America region
are well coordinated on IMO policy issues, giving them a
consistent voice with significant influence in the shipping sector
internationally. As the investment potential of decarbonising the
sector becomes increasingly apparent, governments within the
region may be encouraged to use their influence to push for
acceleration of the IMO’s climate-related goals.
In addition, ports throughout South and Central America with
renewable potential nearby are already great candidates to build
electrofuel plants for their own use and, ultimately, to provide
zero-carbon refuelling along busy shipping lanes.
Ocean Conservancy is using the scientifically robust pathways
and case studies contained in Ricardo’s ‘Zero-Carbon for
Shipping’ report to demonstrate the feasibility of carbon
reduction within the industry. The case studies further depict
the investment possibilities that could be unlocked in South and
Central America through adoption of electrofuels for shipping.
They also indicate that, across the region, there is potential to
attract considerable investment in sustainable infrastructure.
This will bring benefits beyond the ports themselves, including
increased energy security, creation of green jobs and support for
wider decarbonisation.
Creating a world fit for the future 73
Case studies
Flying to
net zero
A partnership to deliver
the world’s first truly green
passenger carrying airline
services using hydrogen fuel
cell technology
74 Ricardo plc Annual Report & Accounts 2020/21
Case studies
Flying to net zero
Creating a world fit for the future 75
Case studies
Flying to net zero
Ricardo has joined the Cranfield Aerospace
Solutions-led Project Fresson consortium to
deliver the world’s first truly green passenger-
carrying airline services using hydrogen fuel-cell
technology. To support the global commercial aviation
sector in bouncing back greener from the COVID-19
pandemic - the worst crisis in its history - technology
solutions are needed to deliver zero-carbon emissions
which, crucially, are also commercially viable.
The Project Fresson consortium is seeking to exploit recent
advances in hydrogen fuel-cell technology by developing a
commercially viable, retrofit powertrain solution for the Britten-
Norman Islander aircraft. By demonstrating that sustainable
propulsion technology has a clear route to market, the project
will accelerate the growth of the UK aerospace supply chain for
new technologies critical to zero-emissions aircraft. Cranfield
Aerospace Solutions (CAeS) is an aerospace market leader in
rapid prototyping of new aerospace concepts, modifications
to existing aerospace platforms and the integration of cutting-
edge technologies to meet the most challenging issues facing
the industry today. CAeS is the wholly owned commercial arm of
Cranfield University.
Project Fresson is named after Captain Ernest Edmund ‘Ted’
Fresson OBE, a British engineer and aviation pioneer who died in
1963.
Identifying the right technology
CAeS and Britten-Norman both look upon Project Fresson as an
aircraft challenge as well as an operator challenge: to find the
right technology to demonstrate successfully that sustainable
propulsion technology has a clear route to market.
Hydrogen is not a new technology for transport. It was
developed as rocket fuel for the US space programme in the
1950s and is currently used in heavy-duty commercial vehicles,
such as long-haul trucks and buses. This is because it offers not
76 Ricardo plc Annual Report & Accounts 2020/21
only zero-carbon emissions but also cost-effective solutions
in terms of total cost of ownership. Yet, despite this pedigree,
hydrogen has not been considered for commercial aviation until
now.
Having completed a comprehensive evaluation of
technologies and configurations for sustainable aircraft
propulsion, the Fresson team concluded that hydrogen fuel-cell
technology is the optimum solution to meet environmental,
regulatory and operational requirements for this size of aircraft,
enabling zero-carbon emissions and reducing operating
costs. This was further justified by the improved availability
of fuel cells with the right level of output and an acceleration
in infrastructure to support the availability of hydrogen as a
fuel. Following a rigorous assessment of hydrogen technology
innovators, Ricardo and Innovatus Technologies Ltd were
welcomed into the Fresson consortium.
Ricardo was selected because of its industry-leading
experience in systems engineering and model-based
development approaches, as well as its expertise in fuel-cell and
thermodynamic or thermal systems development. The company
is providing the fuel-cell system including its controller, which is
the primary source of electricity on the aircraft.
Delivering performance benefits
In addition, Ricardo has developed a process to improve the
balance of plant components for multiple-stack layouts for
aerospace, as well as large applications requiring multiple stacks
such as commercial vehicles, rail and marine. The company’s
hydrogen fuel-cell system development approach, with multiple
stacks balance of plant, leads to an efficiency improvement
of between 5% and 15% depending on duty cycle against
the conventional approach of balance of plant and control
development – so performance benefits are tangible.
Innovatus Technologies Ltd leads the field in next-generation,
ultra-lightweight hydrogen-tank design, exploiting patented
Case studies
Flying to net zero
passenger seats. In addition, a maintenance cost saving is
predicted as the elements of these technologies have fewer
moving parts: this could be reduced by around 15% for the
whole aircraft and up to 50% just for the propulsion system.
Project Fresson will deliver an emissions-free (zero CO2),
hydrogen fuel cell-powered flying demonstrator by September
2022. Subject to successful certification by the Civil Aviation
authorities, the first flight with paying customers, which could
take place with operators in the UK, will be the world’s first truly
green passenger-carrying airline service using hydrogen fuel-cell
technology.
cellular-core composite techniques. Project Fresson will use its
innovative Scottish Hydrogen Fuel Tank (SHyFT) technology.
Latest-generation carbon-composite manufacturing techniques
create multi-chamber hydrogen storage tanks which are
super-lightweight, very high-pressure capable and completely
formable to the application required. Aerodynamics are key,
weight is paramount and hydrogen storage volume is a principal
descriptor of the range of the system.
Innovatus brings this technology into the programme to carry
enough hydrogen efficiently in the form factor to release the
performance of the platform. This is critical to the successful
integration and exploitation of hydrogen fuel-cell power systems
in applications across aerospace, automotive, industrial and
marine sectors.
Achieving significant savings
The commercial viability of the technology is a key objective
of the project. Hydrogen produces significant cost savings
compared with avgas or avtur fuel alternatives. The carriage
requirements of hydrogen make it less storage-dense, but the
energy density is high, so the amount of hydrogen needed is
relatively small.
Operators can make a significant saving, especially for an
aircraft such as the Britten-Norman Islander which has nine
...the first flight with paying customers, which could take place with
operators in the UK, will be the world’s first truly green passenger
-carrying airline service using hydrogen fuel-cell technology
Creating a world fit for the future 77
78 Ricardo plc Annual Report & Accounts 2020/21
Corporate
governance
80 Board of Directors
82 Corporate governance statement
88 Our stakeholders
90 Board activity
91 Nomination Committee report
92 Audit Committee report
96 Directors’ remuneration report
122 Directors’ report
125 Statement of Directors’ responsibility
Creating a world fit for the future 79
Board of Directors
as at 30 June 2021
Dave Shemmans
BEng
Chief Executive Officer
Dave Shemmans joined Ricardo in 1999 and
resigned on 30 September 2021.
Sir Terry Morgan
CBE, FREng
Non-Executive Director and Chair of
the Board
Sir Terry Morgan was appointed Non-Executive
Director on 2 January 2014 and Chair on 29
October 2014.
He was previously non-executive Chair of
Crossrail Limited, High Speed Two (HS2) Limited,
The Manufacturing Technology Centre Limited
and NSARE Limited (the National Skills Academy
for Railway Engineering). Sir Terry was also
previously a non-executive director of Boxwood
Limited and the Department of Energy &
Climate Change.
Ian Gibson
BSc, ACA
Chief Financial Officer
Ian Gibson was appointed Chief Financial Officer
on 1 July 2013.
A member of the Institute of Chartered
Accountants in England and Wales, Ian is a
finance professional with more
than 30 years of commercial experience. He
was previously Chief Financial Officer of Cable
& Wireless Worldwide plc, where he spent a
total of 17 years in a number of senior financial
management positions. Prior to this, Ian spent 12
years at Deloitte where he worked in both the
London and Toronto offices.
Mark Garrett
CEng, FIMechE, FREng
Chief Strategy Officer
Graham Ritchie
BA (Econ), ACA
Chief Executive Officer (incoming)
Mark Garrett joined Ricardo in 1998 and
resigned on 31 July 2020.
Graham Ritchie will join Ricardo as Chief
Executive Officer on 1 October 2021.
Since 2016, Graham was a member of the
Executive Committee of Intertek Group plc,
responsible for its operations in Europe,
including Russia, and Central Asia. Prior to that
role, Graham was Intertek’s Group Financial
Controller. Previously, Graham held senior
financial positions at BT Group plc and other
technology services organisations, having
started his career with PwC.
Graham is a qualified Chartered Accountant and
holds a BA in Economics.
80 Ricardo plc Annual Report & Accounts 2020/21
Patricia Ryan
LLB (Hons)
Group General Counsel and
Company Secretary
Patricia Ryan is a qualified solicitor. She joined
Ricardo’s legal department in 2002 and was
appointed Group General Counsel in 2005 and
Company Secretary in November 2008.
Patricia holds an honours degree in law from
the University of Westminster. She achieved the
Certificate of Investor Relations from the Investor
Relations Society in February 2017.
Corporate governance
Board of Directors
Jack Boyer OBE
OBE, BA (Hons), MSc, MBA
Non-Executive Director
Jack Boyer OBE was appointed Non-Executive
Director on 5 September 2019.
Jack Boyer OBE was appointed Non-Executive
Director on 5 September 2019. Jack is a non-
executive director and Senior Independent
Director of TT Electronics plc where he is a
member of the Audit, Remuneration and
Nominations committees. Jack is a non-
executive director, Senior Independent Director
and Chair of Remuneration Committee of
Elcogen Group plc. He chairs the Board of
Trustees of the University of Bristol and is a non-
executive director of the Henry Royce Institute
for Advanced Materials. He recently chaired AIM
listed companies; Seeing Machines and Ilika plc
and was previously a non-executive director at
FTSE 250 companies Mitie plc and Laird plc after
a background in engineering and biosciences.
He was until recently a board member of the
Engineering and Physical Sciences Research
Council and co-chaired the Advanced Materials
Leadership Council at the department for
Business, Energy and Industrial Strategy. Jack
was awarded an OBE in 2015 for services to
Science and Engineering.
Creating a world fit for the future 81
Russell King
Non-Executive Director, Chair of the
Remuneration Committee
Russell King was appointed Non-Executive
Director on 5 September 2019.
Russell is Chair of Hummingbird Resources plc,
and an independent non-executive of BDO LLP.
Russell served as Chief Strategy Officer at Anglo
American plc where he had global responsibility
for strategy, business development, government
relations, safety and sustainable development. He
was also a member of its executive committee
for eight years. Additionally, Russell was Senior
Independent Director and remuneration
committee Chair of Spectris plc from 2010 to 2020
and Senior Independent Non-Executive Director
and Remuneration Committee Chair of Aggreko
plc, from 2007 to 2017.
Malin Persson
MSc
Non-Executive Director, Senior
Independent Director
Malin Persson was appointed Non-Executive
Director on 4 January 2016 and Senior
Independent Director on 14 November 2019.
Malin held a number of senior executive roles
during her employment by the Volvo Group
between 1995 and 2012. She is an elected
member of the Royal Swedish Academy
of Engineering Sciences and has an MSc in
Industrial Engineering and Management from
the Chalmers University of Technology in
Gothenburg. Malin is also currently a non-
executive director of Peab AB, Getinge AB,
Hexpol AB and OX2 AB.
Laurie Bowen
BSc, MBA
Non-Executive Director, Chair of
Nomination Committee
Laurie Bowen was appointed Non-Executive
Director on 1 July 2015.
She has over 30 years of international leadership
experience at IBM, British Telecom, Tata Group,
Telecom Italia Sparkle and Cable & Wireless
Communications. She was appointed non-
executive director of Chemring Group plc on
1 August 2019. Laurie has an MBA, a BSc in
Electrical Engineering and a BSc in Computer
Science from Washington University in St. Louis,
Missouri.
Bill Spencer
BSc, FCMA, MCT
Non-Executive Director and Chair of
the Audit Committee
Bill Spencer was appointed Non-Executive
Director on 24 April 2017 and Chair of the Audit
Committee on 8 November 2017.
For 15 years until 2010 he was the CFO of Intertek
Group plc. Since then he has developed a varied
non-executive career. His former NED roles
where he also chaired the Audit Committee
include UK Mail plc Exova Group plc and
Northgate plc. Currently Bill is a Non-Executive
Director and the Audit Committee Chair at The
Royal Mint. He is a Chartered Management
Accountant and Corporate Treasurer and
has a BSc in Management Sciences from the
University of Manchester.
Sir Terry Morgan
Chair
Corporate governance statement
Chair’s overview
The Board is committed to ensuring that the highest standards of governance are maintained throughout the Group.
This report sets out the ways in which we comply with good corporate governance principles. It describes how the Board and its
Committees work, and also outlines our approach to risk management and internal control.
The Board recognises the importance of considering the Company’s responsibilities and duties to both its shareholders and its broader
stakeholder group, and this has been at the heart of our culture and decision-making process for many years.
The Board spends time listening to and understanding the views of its key stakeholders. When discussing matters at Board meetings
these views form an integral part of its decision-making. In support of the requirements of section 172 of the Companies Act 2006, we
set out on pages 88 to 89 how the Board has considered the material issues of the Group’s stakeholders and how we have engaged with
these stakeholders on these issues. As required by the Code, the Board considers that its non-executive directors, including the Senior
Independent Director, have a good level of understanding of the issues and concerns of major shareholders.
Sir Terry Morgan CBE
UK Corporate Governance Code
The Board confirms that the Company has complied with the
provisions of the UK Corporate Governance Code 2018 (“the
Code”) throughout the year ended 30 June 2021.
This report described how the Company has applied the
principles and provisions set out in the Code during the year
and sets out our activities relating to the main sections of the
Code:
1. Board Leadership and Company Purpose
2. Division of Responsibilities
3. Composition, Succession and Evaluation
4. Audit, Risk and Internal Control
5. Remuneration
The Code and associated guidance are publicly available on the
Corporate Governance and Stewardship page of the Financial
Reporting Council’s website, https://www.frc.org.uk/directors/
corporate-governance-and-stewardship.
1.Board Leadership and Company Purpose
The role of the Board is to provide entrepreneurial leadership
and we recognise that we are collectively responsible for the
long-term success of the Group.
Our values and leadership behaviours are a vital part of our
culture to ensure that through our conduct and decision-
82 Ricardo plc Annual Report & Accounts 2020/21
making we do the right thing for the business and our
stakeholders.
The Board recognises that it is accountable to stakeholders for
ensuring that the Group is appropriately managed and achieves
its objectives in a way that is supported by the right culture and
behaviours.
Our values underpin our purpose and are recognised across
the Group as the basis of our culture. The Board sets the
strategy for the Group to align with our purpose. It oversees
the implementation of that strategy to ensure that the Group is
suitably resourced to deliver on its strategic objectives.
The Board holds an annual strategic-planning session to
support the long-term direction of the Group. During the year
under review, the Board commissioned McKinsey & Company to
undertake an external strategy review. Following the review, the
Board accepted a number of the recommendations including a
renewed focus on disposals and acquisitions for the Group.
Throughout the year, the Board receives regular updates on
these areas to ensure the delivery of strategy in line with our
purpose.
We have a formal schedule of matters reserved for our
approval which are not delegated to the executive team. These
include:
• Strategy
• Acquisitions and disposals of businesses (above a certain size).
Corporate governance • Annual budgets.
• Capital expenditure (above a certain amount).
• Financial results.
• Overseeing systems of internal control, governance and risk
management.
• Dividends.
• Appointment and removal of Directors and the Company
Secretary.
Our Board has Nomination, Audit and Remuneration
Committees and we delegate certain responsibilities to them.
These Committees comprise our independent Non-Executive
Directors (save for the Nomination Committee, which includes
our Chief Executive Officer) and all play a key role in supporting
the Board. The full schedule of matters reserved for the
Board, together with the written terms of reference for each
Committee, are available on our website, www.ricardo.com or
on request from the Company Secretary.
Our Code of Conduct, which defines the standards and
behaviours expected of colleagues, is a fundamental part of our
culture and supports our values. The Code of Conduct is supported
by Group policies and mandatory training, which includes anti-
bribery and corruption, whistleblowing and data protection.
In addition, an independent and confidential whistleblowing
telephone hotline allows colleagues to raise concerns regarding
misconduct and any breaches of the Code of Conduct. The
Audit Committee routinely receives reports of any matters
raised through the whistleblowing hotline. Updates on any
investigations undertaken and any corrective actions are
provided to the Board.
The Board in FY 2020/21
Board
meetings
Committee meetings
Audit Remuneration Nomination
Number of
scheduled
meetings in the
year
Number attended
by each member:
Dave Shemmans
Ian Gibson
Mark Garrett*
Sir Terry Morgan
CBE
Jack Boyer OBE
Bill Spencer
Laurie Bowen
Malin Persson
Russell King
7
7
7
0
7
7
7
7
7
7
4
0
0
0
4
4
4
4
4
4
4
0
0
0
4
4
4
4
4
4
1
1
0
0
1
1
1
1
1
1
*Mark Garrett resigned from the Board and the Company on 31 July 2020.
There are seven scheduled Board meetings per year, and
otherwise as required. Details of attendance by Board and
Committee members at scheduled meetings are shown in the
table above.
If any Director is unable to attend a meeting, they discuss their
views and comments with the relevant Chair in advance, so that
Corporate governance
Corporate governance statement
their position can be represented at the meeting.
Board meetings focus on driving Ricardo’s strategy,
developing strong leadership, succession planning, reviewing
financial business performance, monitoring risks and protecting
the strength of our relationships with clients, employees and
other stakeholders. The Board has a detailed programme that
ensures operational and financial performance, risk, governance,
strategy, culture and stakeholder engagement are discussed at
the appropriate time.
Our forward planner gives Board members visibility of what is
on future agendas for their consideration. A number of the key
matters considered by the Board during the year under review
are set out in the table below:
Meeting in FY 2020/21 Significant matters under review
July 2020
• FY 2020/21 budget approval
• Dividend policy
• Strategy development
• Board Evaluation
• Preliminary results and Annual Report
• Dividend options
• ESG update
• Annual General Meeting (‘AGM’)
• Strategy
• Treasury liquidity
• Acquisition performance
• Interim results and Interim Report
• Interim dividend
• Key performance indicators
• Health, safety and environment (‘HSE’)
• Treasury and Financing Facilities
• Communications strategy
• FY 2021/22 divisional budget
September 2020
November 2020
January 2021
February 2021
April 2021
June 2021
presentations
• Employee survey
• Insurance
In each meeting, the Board receives reports from the Chief
Executive Officer and the Chief Financial Officer together with
reports and updates on health and safety as well as potential
acquisition and disposal activities. The Board challenges
management to ensure that the flow and quality of information
to the Board is of a high standard.
In addition, the Board reviewed the Group’s financial facilities
and in November 2020 approved the issue of 8,812,030 new
ordinary shares of 25 pence, representing 16.5% of the existing
issued ordinary share capital of the Company. They were issued
at a price of 333 pence per share, being a discount of 9.76%
to the closing mid-price on 10 November 2020, raising gross
proceeds of £29.3m. The issue was carried out in order to reduce
leverage, strengthen the balance sheet and provide adequate
working capital for the business.
The issue took place in the three parts; “Subscription shares”
subscribed by certain directors of the company for cash
consideration; “Placing shares” placed via Liberum Capital
Limited and Investec Bank plc, to certain existing shareholders
Creating a world fit for the future 83
Corporate governance
Corporate governance statement
and other institutional investors, in exchange for preference
shares in Project Star Funding Limited; and “Retail shares” offered
by the Company for cash consideration.
The Placing shares were issued via a ‘cashbox’ structure,
whereby Ricardo plc shares were issued in exchange for
preference shares in Project Star Funding Limited, a special
purpose vehicle. Section 565 of the Companies Act 2006 allows
new shares to be issued for non-cash consideration under
exception from the pre-emption requirements of section 561 of
the Companies Act 2006.
Project Star Funding Limited (‘PSFL’) was incorporated in Jersey
on 4 September 2020. Prior to the placing, Ricardo plc held 89%
of the ordinary share capital of PSFL, with the other 11% held by
Liberum Capital Limited.
On 11 November 2020, PSFL issued preference share capital of
£26.6m (with no par value) to Liberum Capital Limited. Liberum
Capital Limited and Investec Bank plc placed shares to certain
existing shareholders and other institutional investors, the
proceeds of which were used to settle the consideration for the
preference share capital. Ricardo plc allotted new ordinary shares
in consideration for the transfer of all of Liberum Capital Limited’s
preference and ordinary shares in PFSL. The issue created an
additional £2.0m of share capital. The premium on issuance of
these shares was £23.5m, net of directly attributable costs of
£1.0m. Since the premium arose from an issuance the purpose
of which was to acquire more than 90% of the equity of PSFL,
under s612 of the Companies Act 2006 the associated premium
is therefore accounted for as a merger reserve.
Sir Terry ensures all directors receive accurate, timely and clear
information to assist them to make their decisions and ensures
appropriately tailored induction programmes are delivered for
new Directors.
Chief Executive Officer
The Chief Executive Officer has direct responsibility for the
Group on a day-to-day basis and is accountable to the Board
for the financial and operational performance of the Group.
He plays a key role in devising and reviewing Group strategies
for discussion and approval by the Board. The Chief Executive
Officer is tasked with providing regular operational updates to
the Board on all matters of significance relating to the Group’s
business or reputation and for ensuring effective communication
with shareholders and other key stakeholders.
The Chief Executive Officer chairs the Executive Committee,
which meets regularly throughout the year. The Executive
Committee is primarily responsible for developing and
implementing our corporate strategy and policies.
Senior Independent Director
The responsibilities of the Senior Independent Director are also
documented and include the provision of an additional channel
of communication between our Chair and the Non-Executive
Directors. The Senior Independent Director also provides an
additional point of contact for our shareholders should they
have concerns that communication through normal channels
has failed to resolve, or where such contacts are inappropriate.
On the 18 November, PSFL redeemed its preference shares,
and PSFL was dissolved on 24 November 2020. See also Note 28
to the Group financial statements.
The Senior Independent Director meets with the Non-
Executive Directors at least annually when leading the Non-
Executive Directors appraisal of the performance of the Chair.
2.Division of Responsibilities
The Board is collectively responsible for the long-term success
of the Group, ensuring that it operates within a framework of
effective controls.
The operations of the Board are underpinned by the collective
experience of the Directors and the diverse skills and experience
which they possess. This experience ensures that leadership and
decision-making are focused and balanced, and approached
with independent thought and judgement. Accordingly,
decisions are taken for the benefit of the Company as a whole,
with due consideration for all stakeholders that may be affected.
There is a clear division of responsibilities between the Chair
and the Chief Executive Officer, which is documented, clearly
understood and approved by the Board.
The Chair
Sir Terry Morgan is primarily responsible for leading the Board
and ensuring its effectiveness. Sir Terry sets the Board agenda
in consultation with the Chief Executive, other Board members
and the Company Secretary. Sir Terry promotes effective
communication between the Executive and Non-Executive
Directors and ensures all Directors effectively contribute to
discussions and feel comfortable in engaging in healthy debate
and constructive challenge.
84 Ricardo plc Annual Report & Accounts 2020/21
Malin Persson was appointed Senior Independent Director at
the close of the AGM on 14 November 2019.
Non-Executive Directors
Russell King has been the Chair of the Remuneration Committee
throughout the year under review. Bill Spencer has been the
Chair of the Audit Committee throughout the year under review.
Laurie Bowen has been the Chair of the Nomination Committee
throughout the year under review. Malin Persson has been the
Senior Independent Director throughout the year under review.
On a number of occasions during the year, the Chair met the
other Non-Executive Directors without the attendance of the
Executive Directors. There were several other occasions during
the year when discussions between various Directors took place
on an informal basis. In addition to formal Board meetings,
the Chair maintains regular contact with the other Directors to
discuss specific issues.
The Non-Executive Directors bring insight and experience to
the Board. They have responsibility for constructively challenging
the strategies proposed by the Executive Directors, scrutinising
the performance of management in achieving agreed goals and
objectives and play leading roles in the functioning of the Board
Committees, bringing an independent view to the discussion.
They meet with the Senior Independent Director to review the
Chair’s performance and other matters.
Workforce Engagement Director
Malin Persson is the designated as the Non-Executive Director
responsible for overseeing Workforce Engagement. Ricardo has
a structured engagement plan with its people, including Pulse
presentations, Town Halls, Works Councils and biennial Group
employee surveys together with divisional surveys on a more
regular basis. Before COVID-19, Ricardo had designated a number
of senior executives who travel extensively and regularly,
consulting with teams while in overseas territories and providing
feedback. Due to the restrictions imposed by the pandemic,
Malin has been provided with direct access to colleagues
through the use of video-conferencing facilities and other
means of technology. Although the 2020 schedule for workforce
engagement was limited by not being able to conduct site visits,
the Board is reassured by the level of interaction that took place
remotely. Malin met small groups with a representative subset of
team members including:
• Senior management.
• Junior and new team members.
• Senior and long-term team members.
• Team members in different direct/indirect roles.
• Team members from different sites and countries.
• Workers Council/Interest Group members.
Through these meetings, Malin has been able to provide
the Board with further context to support the view that the
Company was undertaking the appropriate workforce-related
activities, and to also provide feedback to the Board as a whole
on the feedback from the workforce. During FY 2021/22, it is
proposed to hold broader and more in-depth meetings across
the organisation and - if safe to do so, the intention is to conduct
site visits. In addition, a series of interactive discussions will be set
up between the non-executive directors and the workforce at
regular intervals. It is hoped that this will broaden the channels
of communication between the Board and the workforce
and provide further understanding for the Board of employee
interests and better inform its decision-making process.
Company Secretary
Patricia Ryan is secretary to the Board. Her responsibilities include
ensuring the Board has the information, time and resources it
needs in order to discharge its duties and function effectively
and efficiently.
The Company Secretary advises the Board on all governance
matters and facilitates induction programmes for new directors
and provides briefings and guidance on governance, legal
and regulatory matters. The appointment and removal of the
Company Secretary is a matter reserved for the Board as a whole.
Time commitment
Regular Board and Committee meetings are scheduled
throughout the year, ensuring that directors allocate sufficient
time to discharge their duties effectively. During the year, the
Board held seven scheduled meetings and additional strategy
days, which included presentations by senior management on
each of the business areas.
Corporate governance
Corporate governance statement
In addition to scheduled meetings, the Board held additional
meetings to consider the impact of the COVID-19 pandemic
on its global operations. Directors are expected to attend all
Board and relevant Committee meetings. The table on page
83 shows the record of attendance at the scheduled Board and
Committee meetings.
The nature of the Non-Executive Director role makes
it impossible to be specific about the maximum time
commitment. However, it is anticipated that at least 20 days per
annum after the induction phase are required, plus additional
time to devote to preparation ahead of each meeting.
It is recognised that at certain times it may be necessary to
convene additional Board, Committee or shareholder meetings.
Prior to appointment, the Nomination Committee assesses
the commitments of a proposed candidate, including other
directorships, to ensure they have sufficient time to devote to
the role.
Conflicts of interest
Directors are required to report actual or potential conflicts
of interest to the Board for consideration and, if appropriate,
authorisation. If such conflicts exist, directors excuse themselves
from consideration of the relevant matter. The Company
maintains a register of authorised conflicts of interest, which is
reviewed annually.
Details of the Directors’ service contracts and terms of
appointment, together with their interests in the Company’s
shares, are shown in the Directors’ remuneration report on
pages 96 to 121. If Directors have concerns about the Company
or a proposed action which cannot be resolved, it is recorded in
the Board minutes.
All Directors have access to the advice of the Company
Secretary and, in appropriate circumstances, may obtain
independent professional advice at the Company’s expense.
No such requests were made in FY 2019/20. A Directors’ and
Officers’ Liability Insurance policy is maintained for all Directors
and each Director has the benefit of a Deed of Indemnity.
3. Composition, Succession and Evaluation
Diversity and inclusion
Our Board sets the tone for inclusion and diversity across the
Group and believes it is important to have an appropriate
balance of skills, knowledge, experience and diversity on the
Board and at senior management level to ensure good decision-
making. The Board recognises the need to create conditions that
foster talent and encourage all colleagues to achieve their full
potential. The Board and Nomination Committee receive regular
updates on the progress of diversity initiatives across the Group.
Our Board and Committees are committed to promoting
equality of opportunity for all colleagues and job applicants, free
from all forms of discrimination. Ricardo is an inclusive employer
and values diversity of skills, knowledge, background, industry,
international experience and gender in its people and aims to
recruit the best person for the role in all positions across the Group.
Our Nomination Committee appreciates that a diverse range
of backgrounds is an important part of succession planning
Creating a world fit for the future 85
Corporate governance
Corporate governance statement
at all levels in the Group. Our Committee continually monitors
tenure profile and is very conscious of the need to continue to
promote diversity at Board level and throughout the Group.
Upon engagement of external search consultants, our Board
requires that full account of all aspects of diversity are considered
in preparing candidate lists.
The composition of the Board includes 25% female
representation.
The Board remains committed to promotion of diversity at all
levels within the Group and will report on this further in future years.
Details of female representation elsewhere within the Group
are set out on page 20.
As set out in their biographies on pages 80 to 81, each
member of the Board offers a range of core skills and experience
that is relevant to the successful operation of the Group,
providing a strong independent element to the Board and a
solid foundation for good corporate governance, as well as
fulfilling the vital role of corporate accountability. The oversight
each of the Directors provides is balanced with individuals
contributing a broad range of skills, diverse experience and
knowledge, demonstrating independence and constructive
challenge.
Non-Executive Directors’ independence.
The Nomination Committee considers whether each of the
Non-Executive Directors is continuing to maintain his or her
independence of character and judgement in line with the
definition set out in the Code. The Non-Executive Directors met
with the Chair without the Executive Directors being present
on a number of occasions and, at least annually, Directors meet
with the Senior Independent Director to review the Chair’s
performance and other matters.
Appointment, induction and development
Non-Executive Directors are initially appointed for a three-year
term, with an expectation that they will continue for at least a
further three years. Directors are nominated by the Nomination
Committee and are subsequently approved by the Board
for election or re-election annually by shareholders at the
Company’s AGM. After three years’ service the performance of a
Non-Executive Director is rigorously assessed by the Nomination
Committee. Any development needs identified are discussed by
the Chair with the Non-Executive Director.
All Directors will submit themselves for re-election at the
forthcoming AGM in November 2021. Upon appointment, all
new Directors receive a comprehensive induction programme
over a number of months, which is designed to facilitate their
understanding of the business and is tailored to their individual
needs. The Chair and the Company Secretary are responsible
for delivering the programme covering the Company’s core
purpose and values, strategy, key areas of the business and
corporate governance. The new director induction programme
is delivered through meetings with senior managers across
the Group as well as via a number of advisors, attendance
at Committee meetings, site visits and access to a library of
reference materials. In support of the ongoing development
86 Ricardo plc Annual Report & Accounts 2020/21
of Directors, technical updates are provided at Board and
Committee meetings to ensure that Directors remain up to date
with key developments in the business environment.
Directors are encouraged to attend training sessions to ensure
their knowledge is up to date on relevant legal, regulatory
and financial developments or changes. The Board receives
presentations on each of the business areas to understand the
market conditions and challenges in the different countries the
Group operates in. Directors have spent time individually and
collectively exploring specific operational activities in detail
through presentations, meetings and site visits, giving them
the opportunity to meet with local senior management to
gain an insight of the business operations. The Board visits our
overseas business functions on a regular basis to gain a greater
understanding of the market conditions that the business
operates in and to understand the challenges they face. This
provides in-depth knowledge for the Directors, enabling them
to share their own experiences and challenge the business.
Unfortunately, due to COVID-19, no overseas trips were
undertaken during the year under review.
Board evaluation
The Board undertakes a formal review of its own performance
and that of its committees each year. Following the
recommendation of the Nomination Committee, an externally
facilitated review was commissioned during the year under
consideration and the evaluation was reported back to the
Board towards the latter part of the year. Condign Consulting
undertook the review and concluded that the Board was strong
and effective, with each Director actively contributing to the
effectiveness of the Board and the Committees of which he
or she was a member during the year. Following the external
review, the Board set itself improvement actions and objectives,
including, among other things: gaining a deeper insight into
shareholder views and seeking additional engagement; review
of the board schedule and agenda planning; further review of
diversity goals and workforce engagement; review of strategic
priorities and succession planning.
4. Audit, Risk and Internal Control
This Report provides shareholders with a clear assessment of the
Group’s position and prospects, supplemented, as required, by
other periodic financial and trading statements.
Audit Committee and auditors
The Board has delegated oversight of the relationship with
the Group’s and the Company’s external auditors to the Audit
Committee. Their work is outlined in the Audit Committee
report on pages 92 to 95.
Risk management and internal control
Each year, the Board undertakes a comprehensive review of the
principal risks and uncertainties facing the Group and how those
risks may impact the Group’s prospects.
Overall responsibility for systems of internal control rests with
the Board. The Board’s arrangements for the application of risk
management and internal control principles are detailed on
page 34.
Financial and business reporting
The Statement of Directors’ Responsibilities for preparing the
Annual Report, the Directors’ Remuneration Report and the
financial statements in accordance with applicable law and
regulations are set out on page 125.
The Group’s business model is set out within the Strategic
Report on pages 12 to 13.
The Directors’ statement relating to going concern and
the Viability Statement are set out on pages 141 and 38 to 39,
respectively.
5. Remuneration
Please refer to the Directors’ Remuneration Report on pages 96
to 121 for further information, and in particular:
Level and components of remuneration
Please refer to pages 98 to 111.
Procedure
Please refer to pages 112 to 121.
The Non-Executive Directors have never been employees of
the Company, nor have they participated in any of the Company’s
share schemes, pension schemes or bonus arrangements.
The Non-Executive Directors receive no remuneration from
the Company other than the Directors’ fees disclosed, and travel
expenses. Their fees are determined by the Board as a whole on
the recommendation of the Chief Executive Officer.
No Director is involved in deciding their own fees.
Directors’ duty under section 172 of Companies
Act 2006
The Board, in line with its duties under section 172 of the
Companies Act 2006, must act in a way that gives due regard,
among other matters, to: the likely consequences of any
decisions in the long term; the interests of the company’s
employees; the need to foster the company’s business
relationships with suppliers, customers and others; the impact of
the company’s operations on the community and environment;
the desirability of the company maintaining a reputation for
high standards of business conduct; and the need to act fairly
between members of the company. Further information about
how these duties have been applied can be found throughout
the FY 2020/21 Annual Report, as set out in the following table.
Further details on how the Company and Board engage
with stakeholders are found on pages 88 to 89. Details of key
decisions taken by the Board and how stakeholders were
considered are provided on page 90.
Corporate governance
Corporate governance statement
s172 duties
Consequences of
decisions in the long
term
Interests of
the company’s
employees
Company’s business
relationships with
suppliers, customers
and others
Impact of the
company’s
operations on the
community and
environment
Maintaining a
reputation for
high standards of
business conduct
Act fairly between
members of the
company
Key examples
Chief executive’s review > strategy update
Our strategy > sustainable business
growth, risk mitigation
Principal risks and uncertainties
Going concern and viability statement
Board activity FY 2020/21
Our people
Our strategy > world-class talent
Our end-markets
Our business model > what we do, the
value that we create
Our strategy > customer value
Our business model > what we do, the
value that we create
Our strategy > operational excellence
Innovation
Sustainability and ESG
Our business model > what we do, the
value that we create
Our shared values
Our business model > what we do, the
value that we create
Engaging with stakeholders
Page
8
14
35-37
38-39
90
20-23
14
4
12-13
14
12-13
14
17-19
24-33
12-13
5
12-13
88-89
Ricardo’s Annual General Meeting
Ricardo plc will be holding its Annual General Meeting (‘AGM’) at
10.00am on Thursday 11 November 2021. In view of the continuing
risk posed by COVID-19, we are pleased to be able to provide a
facility for shareholders to follow the AGM remotely. This can be
done by accessing the AGM section of our website
www.ricardo.com/AGM2021 and following the link to the audiocast.
Full details of the AGM (including how to participate in this year’s
AGM) and the resolution that will be put to shareholders are set
out in the Notice of Annual General Meeting (Notice) which can be
viewed on our webpage at www.ricardo.com/AGM2021.
The Notice of Meeting sets out the resolutions being proposed
at the AGM on 11 November 2021 at 10:00am and shareholders
can vote separately on each proposal.
Last year, all resolutions were passed with votes ranging from
94.79% to 99.99%.
The AGM in November 2020 was a closed meeting attended
by the Chief Executive Officer and the Company Secretary,
both shareholders of the Company. As a matter of policy the
level of proxy votes (for, against and vote withheld) lodged on
each resolution is declared at the meeting and displayed on the
Company’s website. Ricardo’s website, www.ricardo.com, contains
a wealth of information, including:
• Latest Ricardo news, stock exchange announcements and press
releases; and
• Annual report, interim reports and investor presentations.
The Corporate Governance Statement was approved by the Board
of Directors on 14 September 2021 and signed on its behalf by:
Sir Terry Morgan CBE
Chair
Creating a world fit for the future 87
Corporate governance
Our stakeholders
Engaging and building trust with our diverse range of stakeholders with whom we interact
regularly is key to our long-term success. Effective engagement starts with our shared
values – respect, integrity, innovation and passion – which guide our way of work and are
reflected in how we collaborate with our colleagues and how we treat and interact with our
customers. In a year dominated by the pandemic, we have not lost sight of the importance
of our stakeholders or of how critical active engagement is at every level. We have worked
harder than ever to ensure that we understand and consider our stakeholders’ views,
allowing us to make more informed decisions that ensure the very best outcomes for the
business and its stakeholders.
In support of the requirements of section 172 of the Companies Act 2006, the information below sets out how we engage Group-wide
and at board level on the key issues that matter the most to our stakeholders and our response to those issues. As required by the UK
Corporate Governance Code 2018, the board considers that its non-executive directors have a good understanding of the key areas of
interest and concern to our major shareholders.
Stakeholder
group
CUSTOMERS
At Ricardo, our customers
are the cornerstone of
everything that we do. We
are committed to delivering
service excellence and
building lasting customer
relationships that provide
not only enhanced service
levels but also ensure the
future sustainability of the
Ricardo Group.
COLLEAGUES
The experience and
expertise of our colleagues
is essential for the delivery
of our strategy. We ensure
that, as a business, we
promote an open culture
that is diverse and inclusive,
and which fosters good
engagement that allows
us to deliver value to our
customers.
Key areas of
interest
How we engage
company-wide
How we engage at
board level
How we
respond
• Delivery of innovative
solutions.
• Lasting customer
relationships.
• Technical expertise.
• Maintain consistent and
high service levels.
• Sustainable services to
meet evolving customer
requirements around
global green agendas.
• Dedicated marketing
and sales teams across
disciplines. market
sectors, and territories
• Product management
responsible for
sustainable solution
design.
• Sector specialist
knowledge to build
tailored solutions in
response to customer
needs.
• Regular feedback from
the Voice of Customer
reviews, reported
monthly.
• Strategic-review process
provides information on
the customer landscape
across all the markets in
which we operate.
• Remuneration.
• Development
and progression
opportunities.
• Being a part of a diverse
and inclusive culture
• Feeling understood and
valued.
• Workplace wellbeing and
flexibility.
• Health and safety.
• Continuous learning
and development
opportunities.
• Colleague networks
within the divisions help
to drive our diversity and
inclusion programme.
• Good policy and
procedures in place,
including an ethics
helpline.
• Annual performance
review and development
process.
• Group-wide employment
engagement survey.
• Diversity updates are
provided to the board on
various initiatives under
the Diversity, Equality,
and Inclusion work
programmes.
• The Group-wide annual
employee engagement
survey provides valuable
insight to the board on
workforce-related issues.
• The board provides active
support to senior leaders
through a mentoring
programme.
• The board plans an active
role in monitoring senior
leader successor plans.
• We ensure that all
investment in R&D is
focused on areas that
prioritise net zero and
decarbonisation.
• We responded to
COVID as a Group by
focusing on our “Digital
First” strategy to ensure
continuous service to
our customers across the
globe.
• We have prioritised
the health, safety,
and wellbeing of our
colleagues throughout
the pandemic.
• We increased dialogue
with colleagues through
the use of Teams with
live calls with our MDs
and we set up interactive
forums.
• We have been agile in
our approach to flexible
working practices across
the divisions.
• Actively building a
Ricardo culture through
the promotion of our
values and the launch of
our very own choir.
88 Ricardo plc Annual Report & Accounts 2020/21
Corporate governance
Our stakeholders
Key areas of
interest
How we engage
company-wide
How we engage at
board level
How we
respond
Stakeholder
group
COMMUNITIES
As a global company
with operations in over
20 countries, we play an
active role in helping our
local communities thrive by
contributing both socially
and economically. We are
duty bound to operate in a
responsible and sustainable
way and we do so by always
aligning our decisions
and actions according to
our values and our ESG
commitments.
• Protecting society.
• Environmental impacts
through indirect and
direct actions.
• Clear ESG policies that
commit to making our
operations more energy
efficient.
• Support local initiatives
and charitable causes.
• Encourage local
engagement to promote
positive change through
participation in charitable
and social events.
• Actively support
academic institutions
in promoting events
related to engineering
and sustainability
programmes.
• The board regularly
reviews ESG-related
matters and supports
all related initiatives to
realise our net zero 2030
ambitions.
• Periodic reports
providing updates on
key community and
sustainability matters
are also prepared by the
Chief Executive Officer
and submitted to the
board for review.
SHAREHOLDERS
We are committed
to delivering value to
our shareholders. Our
shareholders provide us with
the financial liquidity that we
need to continue to operate,
and it is our responsibility
to build a transparent and
open engagement to ensure
they are well informed and
understand the decision-
making processes that guide
our business to a profitable
and sustainable future.
• Financial health and
operating performance.
• Strategic direction.
• Long-term viability
• Growth drivers.
• M&A.
• ESG objectives and
ongoing commitments.
• We maintain regular
contact with our
shareholders, principally
through investor
roadshows, investor
events and the AGM.
• The Chief Financial
Officer meets lenders on
a regular basis to ensure
a good understanding
of favourable rates and
active financial planning.
SUPPLIERS
Ricardo has an extensive
global network of suppliers
that provide us with services
and products that are
needed for us to deliver
according to customer
requirements. For this
reason, we actively engage
with our suppliers to build
trusted relationships to
ensure our operational
success across our operating
segments.
• Sustainable procurement.
• Uphold ethical standards.
• Competitiveness.
• Potential disruption of
the supply chain.
• Single-sourcing
decisions made with our
customers.
• We ask our suppliers to
operate according to
our codes of conduct
and other policies and
to behave responsibly
at all times. This is firmly
embedded in our terms
and conditions.
• We conduct initial and
periodic due diligence
and expect our suppliers
to operate according to
professional standards
to assure good
performance.
• The board receives
regular updates on
the investor-relations
programme, including
investor feedback and
surveys following the
results presentations.
• The chair, the senior
independent director, the
chair of the remuneration
committee and the chair
of the audit committee
are available for
discussion with major
shareholders if required.
• The Chief Executive
Officer reports to the
to board periodically
on significant supplier
contracts and
arrangements.
• We have enhanced our
ESG reporting within
our annual report and
accounts.
• We have supported our
operating segments
with the production
and supply of personal
protective equipment
during the pandemic
which has been
distributed within our
local communities.
• We continuously work
with organisations such
as the IET (Institute
of Engineering and
Technology) to promote
education in engineering
within local communities.
• Since the pandemic, all
results presentations
and meetings have been
successfully conducted
virtually, with a view
to incorporate virtual
conferences into our
ongoing investor-
relations programme.
• Regular updates through
our website, which acts
as the main gateway
for results statements,
trading updates and
press release distribution.
• Regular reviews are
conducted to gain a
better understanding of
the views of our major
shareholders.
• We review our major-
suppliers list consistently
to ensure our suppliers
are conducting
themselves in an ethical
and responsible manner
at all times.
• We encourage our
landlords and suppliers
to maximise the use of
renewable energy.
• Supply-chain
management is closely
managed to ensure
minimal disruptions as a
result of Brexit.
Creating a world fit for the future 89
Corporate governance
Board activity
Some of the ways in which the Board considered stakeholders in principal decisions it made
during the year under review are set out below.
Key
matters
People and culture
Financial performance
Strategy review
Succession planning
Matters considered
and outcome
Regular updates on workforce matters throughout the COVID-19
pandemic: The actions taken by management and the Board in relation to
the pandemic placed the health and wellbeing of our people at the centre of
our decision-making processes. Difficult decisions were made that impacted
our stakeholders, such as implementing the furlough scheme for some of our
colleagues and not recommending a final dividend in respect of FY 2019/20
– this decision was made with full consideration of our shareholders in order
to mitigate the economic impact of the pandemic on the Group, which if
damaged, would have adversely affected stakeholders and the long-term
health of the business. At our half year results, as a result of the strength of our
balance sheet (see below), the Board was delighted to be able to recommend
an interim dividend. This was only considered after the Board decided to repay
the UK government for any furlough payments received since November 2020
and bring people back to work where possible.
Employee engagement through the employee survey: The Group People,
Team & Organisation Director presented a thorough review of the survey
results both from a Group and divisional perspective and the Board approved a
number of follow-up actions which will be monitored for progress.
Regular CEO reports: concerning management of customers, suppliers and
operations.
Regular updates to the Board on the Group’s financial performance:
Including its cash management and conversion, profits and costs, plus:
• Approval of the FY 2019/20 Results and FY 2020/21 Interim Results;
• Approval of the FY 2020/21 Business Plans; and
• Update on the Group’s Treasury strategy from the Chief Financial Officer
and Head of Treasury.
In November 2020, the Board approved a share placing, raising £28.2m, to
reduce leverage and reset the capital structure of the business. The Board
determination for the share placing included an issue in three parts for certain
directors of the Company, certain existing shareholders and other institutional
shareholders and a retail offering. The Board considered that this placing was in
the interests of all of our stakeholders and the long-term health of the business.
Oversight of M&A activity: Including updates on acquisition and divestiture
activities at each scheduled Board meeting.
Following a review of the Group’s strategy by external consultants, the Board
decided to prioritise investment on decarbonisation and the net zero agenda
with a focus on electrification and hydrogen, whilst continuing to support
the transition away from fossil fuel-based internal combustion engines. The
Board plans to achieve this through a combination of organic growth and a
programme of focused acquisitions. The Board considers that this renewed
focus on strategy will positively impact all of our stakeholders and the long-
term health of the business.
CEO exit: In January 2021 the Company announced that the Board and Dave
Shemmans had jointly agreed that he would be leaving his role as Ricardo’s
Chief Executive Officer, after 16 years in the role. Dave will resign on 30
September 2021. After a thorough and rigorous search process, the Nomination
Committee recommended to the Board the appointment of Graham Ritchie
as Ricardo’s Chief Executive Officer. The Board unanimously approved the
appointment and Graham will join Ricardo on 1 October 2021. Graham has
significant business experience and the drive to help take Ricardo to the next
level of growth and development. The Board considers that the appointment
of Graham will positively impact all of our stakeholders and the long-term
health of the business.
Stakeholders
considered
SHAREHOLDERS
COLLEAGUES
CUSTOMERS
SUPPLIERS
COMMUNITIES
SHAREHOLDERS
COLLEAGUES
CUSTOMERS
SUPPLIERS
COMMUNITIES
SHAREHOLDERS
COLLEAGUES
CUSTOMERS
SUPPLIERS
COMMUNITIES
SHAREHOLDERS
COLLEAGUES
CUSTOMERS
SUPPLIERS
COMMUNITIES
90 Ricardo plc Annual Report & Accounts 2020/21
Laurie Bowen
Chair of the Nomination Committee
Nomination Committee report
Chair’s Overview
The primary objectives of the Committee are to support the Board in fulfilling its responsibilities to ensure that, firstly, there are formal,
rigorous and transparent processes in place for the appointment of new Directors, both to the Board and to senior management positions
and, secondly, that there are effective, deliverable and well thought-through succession and contingency planning processes in place
across the Group for all key positions.
This year has been particularly busy for the Nomination Committee. The key focus area being CEO succession planning. In the
forthcoming year we will be updating talent management and succession planning for Board and senior management positions.
Laurie Bowen
Composition
On 14 November 2019 I was appointed Chair of the Nomination
Committee, and during the year under review the Nomination
Committee comprised the independent Non-Executive
Directors Sir Terry Morgan, Russell King, Malin Persson, Bill
Spencer and Jack Boyer, together with the Chief Executive
Officer. The Committee has one scheduled meeting per year,
which is supplemented by ad hoc meetings as necessary, and
informal meetings between the Committee members.
Responsibilities
The Committee: evaluates the balance of skills, knowledge and
experience of the Board; monitors the leadership needs and
succession planning of the Company; considers the training
needs of the executive and non- executive members; regularly
reviews the structure, size and composition of the Board; and
makes recommendations to the Board for executive and non-
executive appointments.
Before such recommendations are made, descriptions of the
roles and skills required to fulfil each role are prepared for each
appointment. To attract suitable candidates, appropriate external
advice is taken and interviews conducted by at least two members
of the Nomination Committee to ensure a balanced view.
The Nomination Committee was delighted with the quality
of the candidates considered for the role and after careful
consideration and, as announced on 26 August 2021, the
Nomination Committee recommended the appointment of
Graham Ritchie as Chief Executive Officer.
Graham has a proven track record in leading large divisions
within listed companies and is well placed to ensure the strong
execution of Ricardo’s strategy. Since 2016, Graham was a member
of the Executive Committee of Intertek Group plc, responsible for
its operations in Europe, including Russia, and Central Asia. Prior
to that role, Graham was Intertek’s Group Financial Controller.
Previously, Graham held senior financial positions at BT Group plc
and other technology services organisations, having started his
career with PwC. Graham is a qualified Chartered Accountant and
holds a BA in Economics.
The search for the new Chief Executive Officer during the year was
managed with the assistance of recruitment consultants, Heidrich
& Struggles, who have signed up to the voluntary Code of Conduct
for executive search firms. The new Chief Executive Officer will
undertake an extensive induction programme to ensure a rounded
understanding of the business and our ambitions. Heidrich & Struggles
has no other connection with the Company.
When an appointment of a Non-Executive Director is made,
a formal letter is sent clearly setting out the expected time
commitments for the board, committee membership and
involvement outside of board meetings. Chosen candidates are
required to disclose to the Board any other significant commitments
before appointments can be ratified.
Non-Executive Directors, including the Chair, are subject to
rigorous review when they continue to serve on the Board for any
term beyond six years.
Succession Planning
Name
Dave Shemmans
Ian Gibson
Mark Garrett
Sir Terry Morgan CBE
Laurie Bowen
Malin Persson
Bill Spencer
Jack Boyer OBE
Russell King
Graham Ritchie
Date of Appointment
To resign on 30
September 2021
July 2013
Resigned July 2020
January 2014
July 2015
January 2016
April 2017
September 2019
September 2019
October 2021
Tenure (years)
16
8
12
7
6
6
5
2
2
-
The Committee also discussed talent management and succession
planning for the top-performing senior managers within the
business.
Creating a world fit for the future 91
Corporate governance
Bill Spencer
Chair of the Audit Committee
Audit Committee report
Chair’s overview
As Chair of the Audit Committee, I am pleased to present to you my report for the year ended 30 June 2021.
On behalf of the Board, the Audit Committee has been actively engaged in risk management to provide appropriate challenge and
guidance throughout the year. Particular attention has been given to ensuring the continued integrity of the Group internal control
environment, financial reporting and viability as it emerges from the impact of the COVID-19 pandemic, as well as the development of our
co-source internal audit relationship with PwC.
Throughout the year, management has carefully considered the risks impacting the Group and maintained close contact with the
operating divisions. The Board has received regular updates on key issues and I have remained in regular contact with management,
together with the internal and external audit teams. I am pleased with the way that management and both audit teams have adapted and
been able to conduct effective audits while working remotely.
I hope that you will find this report useful and I would welcome any comments.
Bill Spencer
Composition
I chair the Audit Committee. In line with the requirements of the
UK Corporate Governance Code, during the year the Committee
also comprised the independent Non-Executive Directors,
Laurie Bowen, Malin Persson, Jack Boyer and Russell King. There
was no change in membership during the year.
As the Committee’s Chair and as is considered desirable
by the Financial Reporting Council’s Guidance on Audit
Committees, I have recent and relevant financial experience and
a professional accountancy qualification.
As set out on page 95, the performance of the Audit
Committee has been evaluated and is considered to be
effective.
The Committee convenes four scheduled meetings each year
and other ad hoc meetings, as required. Details of attendance
at meetings held during the financial year are set out on page
83. The Chair, Executive Directors, the Group’s Head of Internal
Audit, PwC (our internal audit co-source partners) and the
Company’s external auditors all have standing invitations to
attend all Committee meetings. Due to the restrictions put
in place by the COVID-19 pandemic, these meetings were
held via video conference. I am pleased with the way that the
Committee has continued to operate effectively under these
circumstances.
92 Ricardo plc Annual Report & Accounts 2020/21
Key areas of focus
The UK Corporate Governance Code requires the committee
to report on the significant matters considered during the year.
During the year, I consider that the most important matters were:
• Evaluating the effectiveness of the internal control
environment to ensure the integrity of the Group’s financial
reporting.
• Developing our co-source internal audit relationship with
PwC, which in addition to engaging them to perform specific
divisional internal audit reviews, included Group-wide reviews
of key topics.
• Ensuring robust assessments of trading performance and the
Group’s continuing viability as it emerges from the impact of
the COVID-19 pandemic.
Responsibilities
The Committee is established by, and is responsible to, the
Board. As authorised by the Board, the Committee has obtained
all necessary documentation and information it required from
officers or employees of the Company, as well as external
professional advice. In order to carry out its responsibilities
during the year, the Committee undertook the following
activities:
Corporate governance Accounting, tax and financial reporting
• Considered separate reports prepared by the Chief Financial
Officer and external auditors on financial reporting and
internal control matters as part of the interim review and
annual audit processes.
• Assessed the results, on behalf of the Board, of the application
of agreed assumptions to re-confirm the continued
operational and financial viability of the Group for a period of
three years from the date of this report.
• Reviewed the significant financial reporting matters,
judgements and estimates, and changes in accounting
policies applicable in the preparation of both the Group’s
interim and year-end consolidated financial statements, prior
to submission to the Board for approval.
• Evaluated the content of the Annual Report & Accounts as
a whole and assessed the processes in place to assure its
integrity, to advise the Board on whether the information
presented is fair, balanced and understandable, and whether it
contains the information necessary for shareholders to assess
the Group’s position and performance, business model and
strategy.
Risk management and internal controls
• Monitored the Group’s risk management processes and
internal control systems as part of its role on behalf of the
Board to oversee the Group’s approach to risk management
and with due consideration to the principal risks and
uncertainties facing the Group;
• Assessed the Group’s risk profile, as well as its appetite for risk
on behalf of the Board, and evaluated the effectiveness of
the Group’s risk management and internal control systems,
together with the policies and procedures in relation to ethics,
whistleblowing, fraud and bribery prevention;
• Monitored the key risks to the Group in respect of data and
cyber security and evaluated the effectiveness of its control
environment;
• Considered significant matters arising from internal audits
performed during the year, evaluated the effectiveness of the
internal audit function, and reviewed the scope and available
resource for the internal audit plan in the following year to
ensure that it is appropriate; and
• Reviewed management’s initial consideration of the
implications of the potential Brydon reforms on the Group and
the timing of their implementation.
External audit
• Reviewed the scope and planning of the external audit, and
evaluated the external auditors’ remuneration, effectiveness,
independence and objectivity, including consideration of the
provision of non-audit services; and
• Assisted with the transition of Jeremy Hall as the Group’s
external audit engagement partner, following the rotation of
Michael Harper.
Corporate governance
Audit Committee report
Significant financial reporting matters
The Committee received and considered reports from the Chief
Financial Officer in relation to the critical accounting judgements
and key sources of estimation uncertainty. Following discussions
with senior management and the external auditors, the
Committee approved the disclosure as set out in Note 1(c) to the
Group financial statements.
The Committee considered the following significant financial
reporting matters, judgements and estimates in approving the
Group financial statements for the year ended 30 June 2021:
Revenue recognition on fixed-price contracts
The issue: The Group recognises a significant proportion of its
consulting revenue from the supply of services under fixed-
price contracts, which may span a number of reporting periods.
Changes in these estimates may impact revenue recognition
and the actual outcome may differ from the estimate made at
the reporting date. The identification and separate accounting of
distinct performance obligations within the context of a contract
is a critical judgement in recognising revenue, as set out in more
detail in Note 1(c) to the Group financial statements.
The role of the Committee: A summary of the judgements and
estimates taken by management to assess the extent to which
these contract assets are recoverable was reviewed by the
Committee at the February and September meetings.
Comments and conclusions: The Committee is satisfied that the
Group’s policies and procedures have been followed to reflect
management’s best estimate of revenue recognised at the
reporting date and that no individual judgement or estimate is
expected to have a materially different outcome.
Defined benefit pension obligation
The issue: The Company operates the defined benefit Ricardo
Group Pension Fund (‘RGPF’). The accounting basis of the RGPF
is exposed to changes in the value of its assets and liabilities. The
economic uncertainty caused by the COVID-19 pandemic has
resulted in a period of significant short-term volatility in markets
and therefore in the value of the scheme’s assets and liabilities.
The liabilities of the RGPF are also sensitive to changes in
actuarial assumptions, on which management takes professional
advice. Further detail is set out in the financial statements in
Note 33 to the Group financial statements.
The role of the Committee: The Committee reviewed the
papers presented to the Board at the February and September
meetings and considered the impact of the changes in
assumptions on the pension obligation.
Comments and conclusions: The Committee is satisfied that the
assumptions were reviewed by senior management and that the
values of the RGPF’s assets and liabilities reflect the best estimate
at the reporting date.
Creating a world fit for the future 93
The role of the Committee: The Committee reviewed the
impact of COVID-19 on the internal controls and internal audit
programme and noted that the core internal control elements
of all planned internal audits were undertaken, and that the
timing of lockdown did not impact these elements of the test
methods of the larger audits. The Committee also reviewed
and challenged the assumptions underpinning the Viability
Statement.
Comments and conclusions: The committee noted that
management had maintained all elements of its internal
control environment during the lockdown and restart periods.
The Committee is satisfied that appropriate considerations of
the perceived ongoing risks associated with COVID-19 have
been made in the Viability Statement modelling, together
with reasonable actions taken to mitigate those risks, where
appropriate.
Change in operating segments
The issue: Following a restructuring of its Automotive &
Industrial operations in Europe, the Group announced its
intention to stop reporting its ‘all other segments’ segment,
which comprised the results of Ricardo Strategic Consulting
and Software. The Strategic Consulting element of this segment
is now reported within Automotive & Industrial, as it is now
run as a business unit within the overall A&I business. The
software element of this segment has been aggregated into
the Performance Products operating segment for reporting.
Whilst the software business continues to be run as a separate
business with its own leadership team, it has a number of similar
characteristics to the Performance Products manufacturing
business, in that it is involved in the development of niche
products, requiring a high level of capital/development spend,
primarily selling to automotive manufacturers. As a result of this
change, the Group is now reporting the five segments.
The role of the Committee: The Committee reviewed the
segmental structure presented in the interim and year-end
Group financial statements, together with the narrative provided
and considered these in light of the results presented on a
monthly basis to the Board.
Comments and conclusions: The committee considered the
presentation of the segmental information and the revised
segmental reporting structure and concluded that these
appropriately reflect the management and decision-making
structure adopted by the Group from 1 July 2020.
Corporate governance
Audit Committee report
Carrying value of goodwill
The issue: As at 30 June 2021, the Group had goodwill of £84.7m
on its consolidated balance sheet, of which £19.6m related to the
Group’s Automotive & Industrial (‘A&I’) business in EMEA. Given
the performance of this business, which under-performed its
budget due to the combination of the impact of COVID-19 and
market pressures, the carrying value of A&I EMEA goodwill was
subject to detailed review at both the half year and full year to
ensure the carrying value was appropriate. In addition, due to
reorganisation within the Group, from the start of FY 2020/21
the results of the former Ricardo Strategic Consulting (‘RSC’)
business were included within the A&I EMEA group of cash
generating units (‘CGUs’) for impairment testing. This reflects the
synergies between the two business which have resulted from
the integration of RSC into A&I EMEA as a service line under the
ultimate leadership of the A&I EMEA Managing Director. The
impairment testing did not result in any impairment of goodwill
based on the Board-approved FY 2021/22 budget and three-year
plan, adjusted for known risks, but the excess of the value in use
over the carrying value was limited.
The role of the committee: The Committee reviewed
and challenged the assumptions made by management
which underpinned its impairment testing, considering the
appropriateness of the CGUs, along with the assumptions and
estimates used in the modelling, including the Board-approved
FY 2021/22 budget and three-year plan. The Committee
also considered the opinion of the external auditor on the
assumptions underpinning management’s estimates and
conclusions.
Comments and conclusions: The Committee was satisfied that
the assumptions and estimates used in the impairment testing
were appropriate and reflected a reasonable degree of risk in the
A&I EMEA projections. The Committee was also satisfied with
the inclusion of the results of RSC within the A&I EMEA Group of
CGUs. The Committee noted that headroom against the carrying
value was limited and discussed and agreed with management
the appropriate level of disclosure to highlight the impact of
reasonable sensitivities to the projections on the carrying value
of goodwill in the Annual Report and Accounts.
Considerations of the risk and impact of COVID-19
The issue: Management’s perception of the risks associated
with COVID-19 has been considered as part of the Committee’s
bi-annual risk-profile review. The risks, their potential impacts
and the mitigating actions taken are set out in the Group’s
Principal Risks and Uncertainties on pages 35 to 37. Throughout
the course of the financial year, the Group’s profitability has
improved as restrictions have started to lift across the world.
With the exception of Automotive & Industrial, all operating
segments have delivered an increase in underlying operating
profit year on year. The potential ongoing risks of COVID-19 on
the business are still uncertain but are considered much less
severe than the prior year. Consideration has been given to
risks and possible outcomes within the severe but plausible
downside scenarios modelled in the assessment of the Group’s
continued viability.
94 Ricardo plc Annual Report & Accounts 2020/21
Internal audit
The internal audit function is accountable to the Committee and
is considered to be a key function for effective risk management.
Historically, internal audit has been led and resourced by
suitably skilled and experienced staff of the Group’s head office
or parts of the Group independent from the business or function
being audited. During the year, we have continued to develop
our co-source internal audit arrangement with PwC, which
started in the year ended 30 June 2020. During this financial year,
in addition to a number of divisional audits, PwC was engaged
to carry out Group-wide audits of key topics. The co-source
arrangement with PwC has given the Group access to specialist
internal audit staff for deployment on higher risk, more complex
audits and independent subject matter expertise. Responsibility
for the internal audit process and setting the internal audit plan
has remained with the Group’s Head of Internal Audit, who has
independently reviewed and scrutinised the work performed
by PwC. The approach ensures independence in the internal
audit process and the identification of relevant findings and
recommendations, and combines external experience with the
sharing of best practice around the Group.
All internal audit reports submitted during the year were
reviewed by the Committee, and the status of each remedial
action is tracked to completion to ensure appropriate resolution.
Meetings are held with the Group’s Head of Internal Audit
without the presence of management.
The Committee also monitored the effectiveness of the
Group’s internal audit function including the approval of the
scope and resources required to carry out work to be performed,
and received an external perspective on internal audit
development from PwC.
External audit
KPMG LLP were reappointed for the audit of the Group’s results
to 30 June 2021 at the Group’s AGM on 12 November 2020.
During the year, Mike Harper rotated from his role as Group
audit partner. He was replaced by Jeremy Hall for the audit of the
year end 30 June 2021. We thank Mike for his contribution and
insight during his time as Group audit partner.
Corporate governance
Audit Committee report
Non-audit services
The Board’s policy is that the provision of permissible non-
audit services may only be undertaken by KPMG in limited
circumstances and is subject to a cumulative cap. In order
to remove the possibility of a perceived conflict of auditor
objectivity and independence, KPMG has agreed with the
Committee that no permissible non-audit services will be
provided to Ricardo other than those closely related to the audit
of the Group, such as the interim review.
Fees for non-audit services paid to the external auditors
during the year were 11% of KPMG’s audit fee (FY 2019/20: 5%).
The ratio of audit and non-audit fees and the nature of non-audit
fees are disclosed in Note 10 to the Group financial statements.
Given the nature and scale of the services provided by KPMG,
the Committee concluded that these services did not cause any
concerns regarding KPMG’s objectivity or independence.
There are limited instances where Ricardo enters into business
relationships or joint arrangements with KPMG to pursue
commercial opportunities, either as a prime contractor, sub-
contractor or as part of a consortium, with either party or a third
party being the project manager. These business relationships
are considered acceptable to the extent that they remain
immaterial to both organisations and do not compromise the
auditors’ independence
Independence and effectiveness
Both the Board and KPMG have safeguards in place to ensure
the auditors’ objectivity and independence cannot be
compromised. The Committee supports KPMG in having the
necessary professional scepticism in its role. KPMG also provides
the Committee with information about policies and processes
for maintaining its independence.
The Committee confirms that during the year it has
maintained formal and transparent arrangements for
considering corporate reporting, risk management and internal
control and for maintaining an appropriate relationship with
KPMG.
During the year, the Committee carried out its annual
effectiveness review of the external auditor, which primarily
focused on the 2021 audit. This assessment was completed at
the end of the 2021 audit and was based upon KPMG’s audit
findings and responses to questions from the Committee,
together with input from senior management and finance
personnel. The Committee also met with the audit partner
without management being present. There were no significant
findings following the review and it was concluded that the
audit process was effective. The Committee recommended
to the Board that their re-appointment be proposed to
shareholders at the 2021 AGM.
Creating a world fit for the future 95
Corporate governance
Russell King
Chair of the Remuneration Committee
Directors’ remuneration report
PART 1 – REMUNERATION COMMITTEE CHAIR’S
OVERVIEW AND ANNUAL STATEMENT
Dear Shareholder,
This is Ricardo’s second year of managing the business in the
context of the continuing challenges of the pandemic and its
effects in all our markets across the world. The health and welfare
of our employees and of our clients has remained paramount.
The Chair and the Chief Executive Officer have both praised the
contribution of Ricardo’s employees throughout the year. Thanks
to everyone in Ricardo, our performance for the year has been
creditable. With the exception of Automotive & Industrial, all
segments have delivered increased revenues and profits, with
particularly strong performances from Energy & Environment
and Rail. Order intake has been steady, albeit down on last year,
and we have had some significant successes, including Ricardo
Defense which took receipt of the first USD 10m from the USD
89m award of the three-year contract to deliver vehicle critical
safety improvements to the US military. The placing of new shares
during the year raised £28.2 million to reset the capital structure of
the Group, with five Directors, including Dave Shemmans and Ian
Gibson, subscribing for new shares. Adjusted PBT is 15% up on last
year, our cash flow performance has been excellent and, although
Group PBT was below the target we set for the annual bonus plan,
we shall be recommending the payment of a final dividend of
5.11 pence.
In the first part of the year, Ricardo participated in the
Coronavirus Job Retention Scheme and furloughed some of
our employees. We were able to repay the funding we received
from the UK Government from November and hence were not in
receipt of UK Government funding in the second half of the year.
The Remuneration Committee (the ‘Committee’) was grateful
to receive such strong support last year for both the Directors’
Remuneration Policy and the Directors’ Remuneration Report
(95% and 98% respectively). Our sincere thanks also go to both
Dave Shemmans and Ian Gibson, Ricardo’s Chief Executive
Officer and Chief Financial Officer, who have once again made an
enormous contribution to Ricardo over the year.
96 Ricardo plc Annual Report & Accounts 2020/21
The management of succession for the Chief
Executive Officer and his departure terms
We announced in January that the Board and Dave Shemmans,
our Chief Executive Officer, had jointly agreed that Dave, after
16 years in the role, would step down from the Board at the end
of September. Ricardo is a professional services business and it
was particularly important to us to do everything we could to
ensure the stability of the business following the decision that
Dave would be leaving and at an already very challenging time.
As soon as we reached agreement that Dave would step down,
we announced his departure, as required by the Listing Rules. This
was before the succession process had been initiated. In our view,
it was in the interests of our shareholders and our employees
to do everything we could to ensure that Dave remained fully
motivated and engaged until he left the Group. We agreed with
him, therefore, that he would remain in employment and not
under notice as Chief Executive Officer until 30 September 2021
or when his successor commenced employment, if this were
to be before the end of September. Because we asked Dave
to be flexible on the date of his leaving, and to ensure that he
remained fully dedicated to leading Ricardo, we agreed that his
notice period of twelve months would commence from the date
that he would leave the business. In the light of his considerable
contribution to Ricardo over many years, he will be treated as a
good leaver for the purposes of his share awards. Clawback and
malus provisions remain in force for two years after the end of
the applicable performance period or, in the case of his existing
deferred awards, three years following the date of grant. He will
also remain bound by his restrictive covenants for a period of six
months following the cessation of his employment.
As he remained in service for the full financial year, Dave
Shemmans’ annual bonus for FY 2020/21 will be paid in October
2021 and one third of the annual bonus will be deferred into
shares. The Committee set clear and measurable individual
goals for Dave Shemmans in July 2020 and added a requirement
relating to continuing sound leadership of the business after the
change in leadership was announced.
The appointment and remuneration of the new
Chief Executive Officer
Following the announcement of his appointment on 26 August
2021, Graham Ritchie joins Ricardo as its new CEO on 1 October
2021. His annual base salary will be £470,000.
Graham’s maximum annual bonus opportunity is 125% of salary
and this will be prorated for the period of FY 2021/22 that he
serves. One-third of his annual bonus will be deferred into Ricardo
shares for a period of three years. He has a maximum opportunity
under the LTIP of 150% of salary, and an award at this level will be
made under the 2021/22 LTIP cycle.
Long Term Incentive Plan (‘LTIP’) awards in 2020
As we disclosed in the 2020 Directors’ Remuneration Report,
we postponed setting the target range for Earnings Per Share
(‘EPS’) which determines the vesting of two thirds of the shares
under award. The target range, which was disclosed when we
announced the interim results, is as follows:
• No part of the EPS portion will vest if the Company’s underlying
EPS for the final year in the performance period is lower than
28.5p;
• 15% of this portion will vest where the final year underlying EPS
is 28.5p;
His other terms and conditions are also in accordance with the
• 100% of this portion will vest where the final year underlying
Directors’ Remuneration Policy.
Pay outcomes and performance for FY 2020/21
and downward discretion
Salaries
Base salaries for the Executive Directors were not increased from 1
January 2021 in line with employees across the Group.
Annual bonus
Underlying Group PBT was £18.0m for the year and, although up
15% on the previous year, was below the threshold set at the start
of the year for the purposes of the bonus plan. Adjusted cash
conversion was 98% which resulted, under the bonus formula, in a
bonus pay out at maximum for this element.
The Committee’s assessment of performance against the
strategic objectives set at the start of the financial year for the
Executive Directors – see pages 104 and 105 – resulted in an
overall score of 90% for the both the Chief Executive Officer
and the Chief Financial Officer. The overall outcome would have
resulted in bonus payments of 38% of maximum.
On a rounded assessment of the financial year and reflecting
that the profit target was not met, and also taking into account
the macro-economic environment and the shareholder
experience, the Committee exercised its discretion and reduced
the bonuses of the Executive Directors. The final bonus payments
amounted to 22.6% and 13.7% of maximum for the CEO and CFO
respectively. One third of the bonuses paid will be deferred into
shares in the usual way.
Long-term incentives
In October 2020, awards under the LTIP granted in November
2017 lapsed on the basis of underlying EPS and TSR performance
over the relevant performance periods.
Operation of remuneration policy
The Committee is satisfied that the current remuneration policy
has operated as intended during FY 2020/21 and, in light of the
LTIP performance condition assessment and the bonus payout
adjustments described above, incentive outcomes are in line with
Company performance.
EPS is greater than or equal to 40.7p; and
• Vesting will take place on a straight-line basis between 28.5p
and 40.7p.
Remuneration for FY 2021/22
We expect to make awards under the LTIP in October 2021 on the
same basis as 2020. The targets are described on page 111.
Ricardo’s employees and engagement on pay
During the year, a new Group People, Teams & Organisation
Director was appointed and her observations and insights on how
the Board can engage with Ricardo’s employees globally have
been valuable. This year, despite the constraints placed on us by
COVID-19 we have benefited from the work of Ricardo’s Workforce
Engagement Director who is a member of the Committee. Malin
Persson has shared with the Committee what she has heard
from the focus groups which have taken place during the year
– see page 85. Their own remuneration and development and
progression are two areas which – see page 23 – employees have
wanted to talk to her about. The Directors’ Remuneration Report
is central to our engagement with both shareholders and our
employees to show how the Committee ensures that executive
pay is aligned to the remuneration of employees across the
Group. We shall continue in the coming months to develop ways
to engage effectively on executive pay and to balance this with
making sure we focus on the areas employees want to talk about.
Conclusion
This year the Committee has been concerned to facilitate a robust
succession process focused on the continued sound performance
of the business for the good of our shareholders and employees.
The continued recovery of the business, employee engagement
and the constructive relationship between the Board and the
executive leadership suggests that, on balance, we got some
difficult decisions right.
I hope all our stakeholders are supportive of the approach we
have taken on remuneration this year. If you have any questions
or comments on the Directors’ Remuneration Report please do
contact me through Patricia Ryan, Ricardo’s Group Legal Counsel
and Company Secretary, at patricia.ryan@ricardo.com.
Russell King
Chair of the Remuneration Committee
Creating a world fit for the future 97
Corporate governance Directors’ remuneration report SUMMARY OF THE KEY ELEMENTS OF EXECUTIVE DIRECTORS’ PAY IN FY 2020/21
Base salary
(unchanged from
01/01/2020)
Other benefits
Dave Shemmans
CEO
£530,484
• Company car allowance: £17,500;
• Private fuel;
• Private medical insurance; and
• Life assurance.
Pension(1)
21.2% of salary
Annual bonus with
deferral of one-third of any
bonus earned
(over Lower Earnings Limit)
• Maximum opportunity of 125% of salary.
• Based on PBT (60%),
cash conversion (20%) and
personal targets (20%).
Ian Gibson
CFO
£344,816
• Company car allowance: £12,000;
• Private fuel;
• Private medical insurance; and
• Life assurance.
20% of salary
(over Lower Earnings Limit)
• Maximum opportunity of 100% of salary.
• Based on PBT (60%),
cash conversion (20%) and
personal targets (20%).
Long-term Incentive Plan
shares(2)
Share ownership and
retention policy
• One-third of any bonus to be deferred into shares for
• One-third of any bonus to be deferred into shares for
three years.
three years.
150% of salary
130% of salary
• In-post: a minimum of 200% of base salary;
• Post-cessation: a minimum of 200% of salary (or actual
holding if lower) for first 12 months and half of this for
second 12-month period;(3)
• In-post: a minimum of 200% of base salary;
• Post-cessation: a minimum of 200% of salary (or actual
holding if lower) for first 12 months and half of this for
second 12-month period;(3)
• Net value of 50% of vested shares under LTIP/DBP to be
• Net value of 50% of vested shares under LTIP/DBP to be
retained until holding met; and
retained until holding met; and
• Year-end holding is 94% of base salary.(4)
• Year-end holding is 77% of base salary.(4)
(1) As set out on page 114, pension contributions for Executive Directors will be aligned with wider workforce levels on 1 January 2022. Arrangements for any new Executive Directors are shown on page
119.
(2) Face value of award of long-term incentive plan shares granted in October 2020 was 150% and 130% of salary for the CEO and CFO respectively:
a. Subject to three-year performance conditions: two-thirds underlying EPS growth, one-third TSR vs. FTSE Small Cap Index (excluding financial services companies and investment trusts);
b. Once vested, the awards will be subject to a holding period of two years; and
c. 50% of vested shares (net of tax) to be retained until share ownership requirement met.
(3) Only share plan awards made following the shareholder approval of the revised Directors’ Remuneration Policy in 2020 will be subject to these post-cessation restrictions.
(4) Calculated by reference to the number of beneficially owned shares, a share price of 410.0p per share (2020: 419.0p) and salaries as at 30 June 2021, including unvested shares not subject to
performance conditions and any vested shares subject to a holding period, on a net-of-tax basis.
As disclosed in the 2020 Directors' remuneration report, Mark Garrett ceased to be employed by the Group on 31 July 2020 and therefore
has been excluded from the table above.
98 Ricardo plc Annual Report & Accounts 2020/21
Corporate governance Directors’ remuneration report
PART 2 – ANNUAL REPORT ON REMUNERATION
This section of the report explains how Ricardo's Directors'
Remuneration Policy, which was approved in November 2020,
has been implemented during the financial year ended 30 June
2021. The paragraphs that have been audited in this Annual
Report on Remuneration are indicated.
The Remuneration Committee
During the year under review, the Committee was chaired by
Russell King. The Committee also comprised Sir Terry Morgan,
Laurie Bowen, Malin Persson, Bill Spencer and Jack Boyer.
The Non-Executive Directors serving on the Committee have
no personal financial interest (other than as shareholders) in
matters to be decided, no potential conflicts of interest arising
from cross-directorships and no day-to-day involvement in
running the business. Biographical details of the members of the
Committee are shown on pages 80 and 81; details of attendance
at the meetings of the Committee during the year ended 30
June 2021 are shown on page 83.
Advisors to the Remuneration Committee
During the year, FIT Remuneration Consultants and Shepherd
and Wedderburn (who have been jointly appointed by the
Committee following a competitive tender process) provided
independent advice on matters under consideration by the
Committee and updates on legislative requirements and market
practice.
FIT Remuneration Consultants' fees for this work amounted
to £40,010 (calculated based on a mixture of fixed fees and
time spent). Shepherd and Wedderburn's fees for advising the
Committee amounted to £57,024 (also calculated based on a
mixture of fixed fees and time spent). Shepherd and Wedderburn
also advises Ricardo on the design, implementation and operation
of its various share incentive plans.
FIT Remuneration Consultants are members of the
Remuneration Consultants Group and their work is governed by
its Code of Conduct. Shepherd and Wedderburn is a law firm and
is regulated accordingly. Having carefully considered all relevant
factors and using its judgement, the Committee is satisfied that
the advice provided on executive remuneration is objective and
independent and that no conflict of interest arises.
The Committee also seeks internal support from Group
Human Resources and the Group General Counsel & Company
Secretary, as appropriate. The Chief Executive Officer attends the
Committee's meetings by invitation and is consulted in respect of
certain proposals. The Chief Financial Officer may also be invited
to attend meetings to address specific matters. Neither the Chief
Executive Officer nor the Chief Financial Officer is consulted or
involved in any discussions in respect of their own remuneration.
Voting outcome at AGM
The AGM for the financial year ended 30 June 2020 was held on
12 November 2020. The remuneration policy in operation during
the year was also approved by shareholders at the 2020 AGM. The
results of the votes on the remuneration report and remuneration
policy are set out below.
Votes(1)
For, including discretion
Against
Total votes cast
Withheld(1)
Annual report on remuneration
approved at 2020 AGM
Directors' Remuneration Policy
approved at 2020 AGM
%
97.63
2.37
100.00
Number
38,289,524
927,939
39,217,463
5,007
%
94.79
5.21
100.0
Number
37,176,754
2,043,567
39,220,321
2,148
(1) Excludes withheld votes. A vote withheld is not a vote in law and so is not counted for the purposes of the calculation of the proportion of votes ‘for’ and ‘against’ a resolution.
Performance at a glance in FY 2020/21 compared with FY 2019/20
Bonus performance outcomes
Long-term incentive performance outcomes in respect of awards vesting in 2020
Underlying PBT
(adjusted)
Cash conversion
(adjusted) (1)
£18.0m
(FY 2020/21)
£15.3m
(FY 2019/20)
98%
(FY 2020/21)
Previously a
net debt target
Underlying EPS (adjusted)(2)
22.4p
for year to 30 June 2020
(below threshold vesting level)
Overall (12.4)% to 30 June 2019 based on 3-year
underlying EPS growth in excess of RPI
(below threshold vesting level)
3-year TSR growth
(51.4)%
(below median to October 2020)
(31.2)%
(below median to October 2019)
(1) As disclosed in last year’s Directors’ Remuneration Report, the Committee introduced a cash conversion measure as it was, and continues to be, a key and more effective indicator of ongoing
operational cash efficiency. Please see page 103 for further information.
(2) As explained in the 2017 Directors’ Remuneration Report, for awards granted in FY 2017/18 and subsequent years, the Committee decided to move away from expressing targets as growth
percentages in excess of RPI. The reason for this change was to simplify and enhance the ‘line of sight’ for participants and to recognise the international scope of Ricardo.
The closing mid-market price of the Company’s shares on 30 June 2021 was 410.0p per share (2020: 419.0p). The highest closing price
during the year was 489.0p per share and the lowest closing price during the year was 310.0p per share.
Creating a world fit for the future 99
Corporate governance Directors’ remuneration report Pay at a glance in FY 2020/21
e
v
a
D
O
E
C
s
n
a
m
m
e
h
S
n
a
I
O
F
C
n
o
s
b
G
i
k
r
a
M
O
S
C
)
1
(
t
t
e
r
r
a
G
2020/21
2019/20
2020/21
2019/20
2020/21
34
34
663
656
150
813
656
428
424
47
475
424
2019/20
361
361
0
100
200
300
400
500
600
700
800
900
Single total figure (£'000)
Fixed remuneration (salary, benefits and pension)
Bonus
Face value at grant of vested long-term incentives
Share price growth above face value of vested long-term incentives
(1) Mark Garrett resigned as Director on 31 July 2020.
(2) The long-term incentive awards granted in November 2017 lapsed in full in FY 2020/21. As a result, the face value at grant of these awards and any share price appreciation has not been shown in the above table.
Single total figure of remuneration table (audited)
The table below sets out the remuneration received by the Executive Directors and Non-Executive Directors during the year.
Fixed remuneration
Base
salary
and fees Benefits(1) Pension
£'000
£’000
£’000
Short-term variable
remuneration
Long-term variable
remuneration:
3-year performance periods
Totals
Bonus
(cash
element)(2)
£’000
Bonus
(deferred
element)
£’000
Bonus-
linked
shares(3)
£’000
Total
£’000
LTIP(4)
£’000
Total Total
£’000
£’000
Total Fixed
Remuneration
Total Variable
Remuneration
£’000
£’000
Dave
Shemmans
Financial
year
EXECUTIVE DIRECTORS
2020/21
2019/20
2020/21
2019/20
2020/21
2019/20
Ian
Gibson
Mark
Garrett(5)
NON-EXECUTIVE DIRECTORS
530
523
345
340
25
292
Sir Terry
Morgan CBE
Russell
King(6)
Laurie
Bowen(7)
Malin
Persson(8)
Bill
Spencer
Jack
Boyer(9)
Total
2020/21
2019/20
2020/21
2019/20
2020/21
2019/20
2020/21
2019/20
2020/21
2019/20
2020/21
2019/20
2020/21
2019/20
159
157
60
46
51
50
59
55
60
59
51
42
1,340
1,589
22
23
15
17
4
12
-
1
-
1
-
35
2
4
-
1
-
1
43
96
111
110
68
67
5
57
-
-
-
-
-
-
-
-
-
-
-
-
184
234
100
-
31
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
131
-
50
-
16
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
66
-
150
-
47
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
197
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
813
656
475
424
34
361
-
159
-
158
-
60
-
47
-
51
-
85
-
61
-
59
-
60
-
60
-
51
43
-
- 1,764
1,919
-
663
656
428
424
34
361
159
158
60
47
51
85
61
59
60
60
51
43
1,567
1,919
150
-
47
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
197
-
(1) Further information on benefits for the Executive Directors can be found on page 103. The
(5) Mark Garrett resigned as Director on 31 July 2020. He was permitted to retain the use of his
benefits for Non-Executive Directors represent reimbursement of expenses incurred (including
any associated personal tax charges) while travelling for business and Committee meetings.
company car for a further 18 days following his cessation of employment, which is reflected in
the benefits column above.
(2) Further details of the annual bonus can be found from page 103.
(3) Further details of the lapse of the bonus-linked shares in FY 2020/21 can be found on page 105.
As no bonus-linked shares vested in the year, share price appreciation had no impact on the
relevant figure included in the above table.
(4) Further details of the lapse of the LTIP awards in FY 2020/21 can be found on page 105. As no LTIP
shares vested in the year, share price appreciation had no impact on the relevant figure included
in the above table.
(6) Russell King was appointed as a Director on 5 September 2019 and Chair of the Remuneration
Committee on 14 November 2019.
(7) Laurie Bowen’s benefits for 2019/20 largely consisted of travel expenditure to and from the
United States.
(8) Malin Persson’s benefits consisted of travel expenditure.
(9) Jack Boyer was appointed as a Director on 5 September 2019.
Following the year-end, the Committee considered whether there were any circumstances that could or should result in the recovery or
withholding of any sums pursuant to the Company’s clawback arrangements. The conclusion reached by the Committee was that it was
not aware of any such circumstances.
100 Ricardo plc Annual Report & Accounts 2020/21
Corporate governance Directors’ remuneration report
Pay for performance – TSR performance graph and CEO pay history
TSR for the ten years to 30 June 2021
£400
£300
£200
£100
)
0
0
1
£
o
t
d
e
s
a
b
e
r
(
n
r
u
t
e
R
r
e
d
o
h
e
r
a
h
S
l
l
a
t
o
T
£0
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Jun-20
Jun-21
RICARDO TSR
FTSE SMALL CAP (EX INV.TRUSTS) TSR
FTSE ALL SHARE SUPPORT SVS TSR
At 30 June each year
Source: Datastream
The chart above shows Ricardo’s TSR performance for the past ten years against the FTSE Small Cap index (excluding investment trusts).
In the Committee’s opinion, the FTSE Small Cap index (excluding investment trusts) represents an appropriate index against which
the Company should be compared when considering the Company’s size. The FTSE All Share Support Services index is also shown for
information. The remuneration of the Chief Executive Officer, Dave Shemmans, for the same period is shown in the table below.
Financial year
2020/21
2019/20
2018/19
2017/18
2016/17
2015/16
2014/15
2013/14
2012/13
2011/12
Single figure of CEO's
total remuneration
£’000
Annual variable element award rates
against maximum opportunity
%
Long-term incentive vesting rates
against maximum opportunity
%
813
656
998
1,411
1,612
2,291
1,367
760
1,546
979
23
-
25
43
-
63
59
38
75
58
-
-
40
74
100
100
67
N/A(1)
77
35
(1) The performance period for awards made in November 2011 ended in October 2014 and so their vesting rate is included in the 2014/15 row of the table above. The vesting rate is ‘N/A’ for the 2013/14
row because the performance period for awards made in October 2010 ended in June 2013 and so the applicable vesting rate for those grants is included in the 2012/13 row of the table above.
Creating a world fit for the future 101
Corporate governance Directors’ remuneration report
Directors’ remuneration compared to employees
The table below shows the percentage change in each Directors’ salary / fees, taxable benefits and annual bonus between:
• the year ended 30 June 2020 and 30 June 2021; and
• the year ended 30 June 2019 and 30 June 2020,
and the percentage change in the same remuneration elements over the same periods in respect of all employees of the Group on a
full time equivalent basis.
All Employees(3)
EXECUTIVE DIRECTORS
Dave Shemmans (CEO)
Ian Gibson (CFO)
Mark Garrett (CSO)(4)
NON-EXECUTIVE DIRECTORS
Sir Terry Morgan CBE
Russell King(6)
Laurie Bowen
Malin Persson(7)
Bill Spencer
Jack Boyer(8)
Between FY 2019/20 and FY 2020/21
Between FY 2018/19 and FY 2019/20
% change in
base salary and
fees
-
% change
in taxable
benefits(1)
-
% change in
annual bonus(2)
N/A(5)
% change in
base salary and
fees
3
% change in
taxable benefits
-
% change in
annual bonus(2)
(100)
1
1
(92)
1
28
1
7
1
21
(4)
(9)
(67)
(100)
(100)
(100)
(57)
(100)
(100)
N/A(5)
N/A(5)
N/A(5)
N/A
N/A
N/A
N/A
N/A
N/A
3
3
3
3
N/A
3
14
3
N/A
-
-
-
-
N/A
(39)
(52)
-
N/A
(100)
(100)
(100)
N/A
N/A
N/A
N/A
N/A
N/A
(1) The reduction in taxable benefits for the Non-Executive Directors reflects a lower level of travel
(6) Russell King was appointed as a Director and Chair of the Remuneration Committee on 14
and associated costs compared to the prior year.
November 2019.
(2) The Non-Executive Directors are not eligible to participate in the bonus scheme.
(3) This reflects that no generic salary increases were applied across the Group in FY 2020/21.
(4) Mark Garrett resigned as Director on 31 July 2020.
(5) The year-on-year change in bonus for all employees and the Executive Directors cannot be
shown as no annual bonus was paid out in respect of FY 2019/20.
(7) The higher percentage change in Malin Persson’s fees between FY 2018/19 and FY 2019/20
reflects her appointment as Senior Independent Director on 14 November 2019. This is also
reflected in the higher percentage change in Malin’s fees between FY 2019/20 and FY 2020/21
since her fees for part of the prior year included a period before her appointment as Senior
Independent Director.
(8) Jack Boyer was appointed as a Director on 5 September 2019.
Pay ratio information in relation to Chief Executive Officer’s remuneration
Year
2021
2020
Method of calculation
adopted
Option A
Option A
25th percentile pay ratio
(CEO : UK employees)
25 : 1
19 : 1
Median pay ratio
(CEO : UK employees)
18 : 1
14 : 1
75th percentile pay ratio
(CEO : UK employees)
12 : 1
10 : 1
Pay data for the Chief Executive Officer is taken from the single total figure of remuneration table on page 100. The median, 25th
percentile and 75th percentile figures used to determine the above ratios were calculated by reference to the full-time equivalent
annualised remuneration (comprising salary, benefits, pension, annual bonus and long term incentives) of all UK based employees of
the Group as at 30 June 2021 (i.e. “Option A” under the applicable regulations). The Committee selected this calculation methodology
as it was felt to produce the most statistically accurate result available to it.
The Committee considers that the median pay ratio for 2021 is consistent with the pay, reward and progression policies for the
Company’s UK employees taken as a whole. Ricardo’s approach to paying the CEO is consistent with the views of our shareholders
and market practice and the Executive Directors have a much greater proportion of their overall pay subject to performance and
in particular the performance of Ricardo’s share price than is the case for Ricardo’s employees generally. Accordingly, the ratio may
prove volatile from year to year. The Committee considers the pay of all Ricardo’s employees to ensure the alignment of the Executive
Directors’ pay with pay across the Group. The ratio of the CEO’s total remuneration to Ricardo’s median total remuneration is higher
than last year’s ratio because the performance of the Group this year merited certain annual bonus payments and as noted above
variable remuneration represents a greater proportion of the CEO’s overall pay. This was not the case for the previous financial year. In
other words, the CEO’s total realised pay is higher than last year’s although lower this year than for each of the preceding five years.
Pay details (on a full-time equivalent annualised basis where appropriate) for the individuals whose FY 2020/21 remuneration is at the
median, 25th percentile and 75th percentile amongst UK based employees are as follows:
2021
Salary
Total pay and benefits
25th percentile
£28,315
£33,083
Median
£40,993
£44,359
75th percentile
£55,682
£66,567
102 Ricardo plc Annual Report & Accounts 2020/21
Corporate governance Directors’ remuneration report Relative importance of pay spend
The following table sets out the total amounts spent on
remuneration for all employees, the dividends declared and
other significant distributions to shareholders in FY 2019/20 and
FY 2020/21.
Total remuneration
spend (£m)
Key management
remuneration as a
percentage of total
remuneration spend(1)
(%)
R&D expenditure(2) (£m)
Distributions to
shareholders(3) (£m)
FY 2020/21
FY 2019/20
% change
182.0
188.5
(3)
3.3
10.2
4.3
2.7
12.5
3.3
22
(18)
30
(1) The key management personnel are the Board of Directors, together with the Managing
Directors who have the authority and responsibility for planning, directing and controlling
the Group’s activities and resources within the market sectors in which the Group operates.
Further details on key management remuneration can be found on page 181. This measure
was chosen in order to give greater context for the scale of key management remuneration
within Ricardo.
(2) Further details on R&D expenditure can be found on pages 16 and 43. This measure was
chosen because of the importance to Ricardo’s business of developing its R&D portfolio.
(3) The only distributions made by the Company over these years were in the form of dividends.
Detailed breakdown of pay in FY 2020/21
Base salary
As described in the policy section on page 114, a number of
factors are taken into account when salaries are reviewed,
principally: market levels of total pay for comparable roles
in companies of a similar size, complexity and sector;
the individual’s experience, scope of responsibilities and
performance; and the salary increases for employees across
the Group. The current salary levels for the Executive Directors
are shown in the table below. In line with the wider Group
workforce, there were no salary increases from 1 January 2021.
Executive Director
Dave Shemmans (CEO)
Ian Gibson (CFO)
Salary
(unchanged from 1 January 2020)
£530,484
£344,816
Other benefits (audited)
The Company provides other cash benefits and benefits in kind
to its Executive Directors. These include a company car or cash
alternative, private fuel, private medical insurance, life assurance
and permanent health or disability insurance. The car allowance
levels remain unchanged from the previous year and are set at
£17,500 p.a. for Dave Shemmans and at £12,000 p.a. for Ian Gibson.
Non-Executive Directors can recover travel and
accommodation expenses for carrying out their duties and
do not receive any other benefits. If tax is payable by a Non-
Executive Director on expenses received, these may be paid
gross of tax.
Pension (audited)
(a) The defined benefit scheme is closed and there are no active
members. During the year ended 30 June 2021, the transfer
value in respect of the Chief Executive Officer decreased.
The transfer value at 30 June 2021 was £711,021 a decrease of
£10,574 from the prior year.
The Chief Executive Officer’s Normal Retirement Date
(‘NRD’) is 16 June 2031, at which point he will receive his
pension at the date of leaving the fund, increased for the
period in deferment until his NRD. If he decides to retire
early, he will receive an immediate pension calculated as for
retirement at NRD but reduced for early payment.
(b) With respect to defined contribution pension schemes:
Employer
contributions
payable in the year
£'000
-
-
-
Cash
in lieu
£'000
111
68
5
Dave Shemmans (CEO)
Ian Gibson (CFO)
Mark Garrett (CSO)(1)
(1) Mark Garrett ceased employment with the Group on 31 July 2020, therefore the table reflects
employer contributions and cash in lieu in relation to his employment to that date.
Annual performance-related bonus (audited)
Introduction
For the year ended 30 June 2021, the maximum annual
performance-related bonus opportunity was 125% of salary
for the Chief Executive Officer and 100% of salary for any other
Executive Director. To determine the amount of bonus payable
for the year, the Committee assessed the level of achievement
against the financial measures and targets set in respect of:
• Group underlying profit before tax (60%);
• Cash conversion (20%); and
• The achievement of specified individual objectives (20%).
The choice of these measures, and their respective weightings
for each individual, reflected the Committee’s belief that any
incentive compensation should be tied both to the overall
performance of the Group and to those areas of the business
that the relevant individual can directly influence.
As disclosed in last year’s Directors’ Remuneration Report, the
Committee introduced a cash conversion measure as it was and
continues to be regarded as a key and more effective indicator
of ongoing operational cash efficiency.
Cash conversion is defined as underlying cash generated
from operations (excluding defined benefit pension scheme
payments) divided by underlying EBITDA. “Underlying” excludes
specific adjusting items, which comprise amortisation of
acquired intangible assets, acquisition-related expenditure and
reorganisation costs.
On-target performance (50% pay-out) is set at the budgeted
cash conversion, i.e. budgeted underlying cash from operations
÷ budgeted underlying EBITDA. Threshold and maximum cash
conversion targets are calculated based on performance below
and above budget respectively.
Creating a world fit for the future 103
Corporate governance Directors’ remuneration report
Detailed breakdown of pay in FY 2020/21 (continued)
Annual performance-related bonus (audited) (continued)
Details of financial targets
The financial targets for FY 2020/21 (details of which are provided
in the following table along with confirmation of their respective
weightings) were set by the Committee after taking into account
several factors such as the business plan, management’s
expectations and brokers’ forecasts.
Weighting
(% of
maximum
opportunity)
Performance required
On-
Actual
performance
outturn
CEO CFO Threshold
target Maximum
60
60
£22.5m £24.5m
£26.5m
£18m
20
20
65%
73%
77%
98%
Measure
Underlying
profit
before tax
Adjusted
underlying
cash
conversion
A sliding scale of targets for each financial measure of the Group
was also set at the start of FY 2020/21:
Performance achieved
Threshold
On-target
Maximum
Between any two performance levels
Element payable
-
50%
100%
Sliding scale between
the above percentages
Details of personal objectives
The personal objectives of the Executive Directors were different
for each individual and were ascribed different weightings. The
Committee, supported by the Chair of the Board in the case
of Dave Shemmans, and supported by Dave Shemmans in the
case of Ian Gibson and members of the leadership team, sets
the personal objectives at the start of the year. The Committee
usually identifies ‘strategic areas’ which each Executive Director
is asked to focus on and seeks to ensure that all personal
objectives are specific, measurable and are indirect drivers of
financial performance and value creation. They usually set five
objectives and weight them in accordance with their relative
importance. At the end of the year, based on a formal and
qualitative assessment of performance against each objective
(at half year and full year), the Committee decides how well each
individual has performed overall.
The targets set by the Committee take into account a
number of issues shown in the table below but also include an
assessment against other strategic and business critical issues
which are planned, or occur during the year, but are not declared
as they are business sensitive. Mark Garrett has been excluded
from the table below on the basis that, as he resigned as an
Executive Director with effect from 31 July 2020, he was not
eligible to receive any bonus for FY 2020/21.
Overall
achievement
(%)
90%
Dave
Shemmans
(CEO)
Personal objectives
FY 2020/21
• Build the Executive Committee into a collegiate, collaborative, high
performing and tight leadership team which will develop a pool
of succession talent. Work with the team to further develop and
execute the Group strategy with a focus on ESG ensuring high levels
of interaction and involvement from the members. Maintain strong
customer relationships that the departing CSO had developed.
• Embed the changes following the departure of the Chief Strategy
Officer and complete the recruitment of the Group Marketing lead, as
well as looking at recruiting for the position as head of ESG in order to
ensure that agenda is pushed internally and externally.
• Return the focus to delivering the acquisition strategy with a view of
building sustainable revenue. Aiming to maintain a balance of the
business increasing geographic coverage of certain divisions with
developing the competency for a digital world across all divisions.
• Promote and communicate the high value added parts of the business
and ESG agenda with the object of increasing the rating of the business.
Continue to focus on employee engagement activities around “creating
a world fit for the future” mission. Drive the Diversity and Inclusion
agenda and lead the promotion of the Ricardo value of ‘Respect’, which
ensures that no discrimination occurs in any business, processes or
practices.
• Complete US turn around programme. Develop the office / footprint
strategy and execute where possible to reduce footprint / costs across
the Group, in support of a model where “work from home” will play a
part. Develop the strategy for a “shared services” model to support other
divisions beyond EMEA.
• Manage the COVID-19, BREXIT and economic backdrop as it transitions
to the next phase, including return to site, keeping performance up, cash
tight, team healthy and secure business – all in balance. Continue to
ensure transparent and frequent communication with all stakeholders.
Examples of performance outcomes against
personal objectives
• Executive Committee has become a collegiate
and tight group which together has navigated an
extremely busy, diverse and volatile year.
• Customer relations have been maintained following
the exit of the CSO and all aspects of the CSO’s work
have been absorbed and continued.
• Gender diversity in the Executive Committee
improved during the year. The ESG and net zero
agenda is embedded in Ricardo’s marketing
and strategy with a major bias on the green and
electrified aspects of the business.
• The digitalisation agenda has continued across
the Company with a number of important
developments during the year.
• Successful focus on health and safety including
mental health impacts of isolated working.
Volume and frequency of communications has
been radically stepped up. A big focus on the
‘Respect’ agenda has been undertaken. Employee
engagement scores have increased. Planning to
return to site was completed.
• Improvement in the US with all key metrics better
than prior year.
• Significant progress in reducing office footprint
globally to enable a lower cost base, increased office
sharing and an element of home working in the
future employment model.
• The business has continued to perform and adapt
through this period with most divisions growing.
BREXIT was managed despite the challenges.
104 Ricardo plc Annual Report & Accounts 2020/21
Corporate governance Directors’ remuneration report
Detailed breakdown of pay in FY 2020/21 (continued)
Annual performance-related bonus (audited) (continued)
Ian
Gibson
(CFO)
• Maintain focus on cash and ensure financial liquidity of the business.
• Support Finance Directors in managing the impact of the COVID-19
economic challenges on their divisions, including delivery of a robust
external audit and look to improve the focus and efficiency of the
internal audit.
• Maintain tight control of central costs and develop the plan for cost-
efficient back office shared services strategy of the Group.
• Maintain analyst / shareholder relationships and dialogue during the
COVID-19 period ensuring all relevant parties are informed of progress.
• Progress the finance team development, ensuring career progression,
retention and diversity, and succession planning.
90%
• Supported the Managing Directors and Finance
Directors in the 3-year plan process, providing
coaching and guidance. Successful fundraise and
good cash management.
• A focus on audit both internally and externally has
supported decision-making, reliance and robustness
in managing a second COVID-19 impacted trading
year.
• Maintained tight spend of central functions
including IT.
• Good achievement and relationship management
giving confidence to Ricardo’s key stakeholders and
investors.
• Existing senior team has been stretched through in-
role learning experiences. Overall finance functional
capability across Group and Divisions matches
organisation requirements.
Committee’s assessment of achievement levels and determination of bonuses payable
The performance of the Group over the year included a 15% increase in underlying profit before tax to £18.0m (2020: £15.6m). The
Group profit performance at £18.0m is below the lower threshold of £22.5m and therefore no bonus is payable in respect of Group
underlying profit before tax. The Group underlying cash conversion was 87%. The Group cash from operations was adjusted by £4.6m
to remove pension deficit payments, in line with the Group’s bonus principles, to give an adjusted underlying cash conversion of 98%.
The Group cash conversion measure was achieved at 100%.
The Committee carried out a detailed and rigorous review of the achievement of personal objectives and determined that these had
been achieved at a level of 90% for both the Chief Executive Officer and the Chief Financial Officer.
Despite the outstanding performance against the cash conversion targets and the personal objectives, the Committee decided
that bonus payments amounting to 38% of maximum should not be paid. They reduced the bonus payments on a discretionary basis
taking into account the accomplishments during the year, the macro-economic environment and how shareholders and employees
have fared. They decided that, having taken a rounded view of performance, bonuses should be paid but they should be considerably
reduced to 22.6% and 13.7% of maximum respectively for the CEO and CFO (28.3% and 13.7% of salary). The bonus for the CEO reflects
his significant leadership contribution to the Group throughout the last year.
One third of any bonus paid to an Executive Director is subject to a policy of compulsory deferral into ordinary shares, via the
deferred share bonus plan (‘DBP’).
Long-term incentive awards vesting during the financial year (audited)
Awards under the LTIP and bonus-linked awards under the DBP made in November 2017 lapsed in November 2020 on the basis of
underlying EPS and TSR performance measured over specified periods, the last of which ended in October 2020. For the avoidance of
doubt, the Committee did not exercise any discretion in relation to these awards.
The performance conditions applicable to these awards are summarised below:
Relative TSR portion (50%)
Relative TSR performance against the FTSE
Small Cap (exc. financial services companies and
investment trusts)
Below median
Median
Upper quartile (or above)
Between median and upper quartile
Vesting level (%)
-
25
100
Sliding scale between
the above percentages
Underlying EPS (50%)
Underlying EPS (adjusted)
Less than 65p
65p
Equal to or greater than 75p
Between 65p and 75p
Vesting level (%)
-
25
100
Sliding scale between
the above percentages
Over the three-year performance period, Ricardo was ranked below the median of the TSR comparator group, giving a zero vesting
level for this portion of the award. Ricardo’s TSR over the period was (51.4)% against a median of (19.5)%. The adjusted EPS for the year
was 22.4p with the result that the adjusted EPS target was not achieved. Therefore, the overall vesting level for this award was zero and
the shares under the awards lapsed in full.
The number of shares which lapsed in November 2020 in respect of awards granted to each of the Executive Directors in November
2017 are set out on pages 107 and 108 of this report.
Creating a world fit for the future 105
Corporate governance Directors’ remuneration report
Detailed breakdown of pay in FY 2020/21 (continued)
The Chair of the Board’s and Non-Executive Directors’ fees
In line with the Executive Directors and wider Group workforce, there were no fee increases for the Chair of the Board and Non-
Executive Directors from 1 January 2021. The Chair’s and Non-Executive Directors’ fees, unchanged from 1 January 2020, are as follows.
Chair’s fee
Non-Executive Directors’ fees:
Basic fee
Additional fee for Audit and Remuneration Committee Chairs
Additional fee for the Senior Independent Director
£’000
159
51
9
8
Payments to past directors and in respect of loss of office (audited)
No payments have been made to past directors of the Company or in respect of loss of office in the financial year.
Long-term incentive awards granted during the financial year (audited)
LTIP awards were granted on 27 November 2020 under the rules of the new Ricardo plc 2020 Long Term Incentive Plan to the Executive
Directors on the basis set out below.
Dave
Shemmans
(CEO)
Ian
Gibson
(CFO)
Type of award
Basis of award
(% of salary)
Number of shares
Face value of award
(£)(1)
Threshold level of
vesting (%)
End of performance
period
Performance
shares(2)
150
130
224,274
795,724
126,341
448,258
15% for EPS portion
of awards and 25%
for TSR portion of
awards
35 days after release
of preliminary results
announcement for
FY 2022/23
(expected to be
October 2023)
(1) The face value of the award is based on the average of the share prices over the five days up to and including 26 November 2020 (354.8p).
(2) As the LTIP awards are granted in the form of performance share awards, no 'exercise price' is payable in order to receive any vested shares. This position has not changed since the awards were granted.
The vesting of these awards will be based on Ricardo’s underlying EPS growth (two-thirds) and three-year relative TSR (one-third)
performance summarised in the table below. The relative TSR measure was chosen by the Committee to link the remuneration of
Executive Directors to the performance experienced by shareholders and to further align their interests. The underlying EPS measure
was chosen to reward sustained profit growth and align with one of our key performance indicators.
In addition, no part of an award will vest unless the Committee is satisfied that the achievement against the TSR and underlying
EPS performance conditions is a genuine reflection of the underlying performance of the Group over the performance period. The
Committee will consider all relevant factors when the awards vest in November 2023 and may reduce vesting levels to ensure that
recipients do not benefit from windfall gains. These factors will include the timing and extent of the recovery of the share price of
the Company, the indices on which it is listed, the overall performance of the Company during the period 2020 - 2023 and any other
considerations that the Committee deems relevant.
As previously disclosed, the Committee decided to tilt the balance away from an equal weighting between TSR and underlying EPS
growth to signal the importance of increasing Ricardo’s profitability as measured by underlying EPS and to give the management team
a stronger incentive to drive profitable performance which should in turn lead to increased shareholder value.
As disclosed in last year’s Directors’ Remuneration Report, the Committee delayed setting the specific targets for the EPS portion of the
FY 2020/21 awards until such time as there was greater clarity around the long-term impact of the pandemic on the Company’s business
and the various markets in which it operates. The targets were set by the Committee in February of this year and full details of the selected
measures (which are also set out below) were set out in the RNS announcement released to the market on 25 February 2021.
Relative TSR portion (one-third)
Relative TSR performance against the FTSE
Small Cap (excl. financial services companies
and investment trusts)
Below median
Median
Upper quartile (or above)
Between median and upper quartile
Vesting level (%)
-
25
100
Sliding scale between
the above percentages
Adjusted EPS portion (two-thirds)
Adjusted underlying EPS for the final year in
the performance period (FY 2021/22)
Less than 28.5p
28.5p
Equal to or greater than 40.7p
Between 28.5p and 40.7p
Vesting level (%)
-
15
100
Sliding scale between
the above percentages
106 Ricardo plc Annual Report & Accounts 2020/21
Corporate governance Directors’ remuneration report
Detailed breakdown of pay in FY 2020/21 (continued)
Performance target setting and those applying to
awards outstanding during FY 2020/21
As shown in previous Directors’ Remuneration Reports, the
Committee has a track record of setting stretching underlying
EPS targets which are carefully calibrated to deliver maximum
pay-outs only where Ricardo has outperformed the business
plan and market expectations. Full vesting of the shares linked
to relative TSR performance only occurs where Ricardo’s
performance is in the upper quartile of the FTSE Small Cap Index
(excluding financial services companies and investment trusts).
The EPS performance targets applicable to LTIP and, if
applicable, the bonus-linked share awards outstanding during
the year are as follows:
Threshold vesting (25%)
Maximum vesting
FY 2017/18
65p
75p
FY 2018/19
60p
69p
FY 2019/20
60.1p
69.1p
The performance condition applicable to the TSR portion of
awards has remained constant through this period and is the
same as set out on page 106 for awards granted in the year
ended 30 June 2021. The number and value of shares which
were awarded to each of the Executive Directors in the year
ended 30 June 2021 are set out in the table on page 106. The
performance conditions applicable to the above awards have
not been adjusted to take into account the impact of COVID-19.
Directors' interests in shares provisionally awarded under the LTIP (audited)
The following chart sets out in graphical form how the Company's LTIP was operated in FY 2020/21:
Targets set for three-year
period and grant of awards
Grant of share awards
Shares are released.
Performance period
Holding period
After tax, 50% of shares continue to be held
pursuant to the share retention policy until
minimum shareholding is achieved
Year 1
Year 2
Year 3
Year 4
Year 5
Following holding period
For details of the share retention policy, see page 109.
Awards granted prior to November 2020 under the rules of the previous Ricardo plc 2014 Long Term Incentive Plan are not subject to
the two-year holding period.
As at 30 June 2021, the Directors' interests in shares provisionally awarded under the LTIP were as follows:
Number of provisional shares
Share price
at award
date in
pence
830.00
756.00
623.60
354.80
830.00
756.00
623.60
354.80
Award
date(1)
Nov 17
Oct 18
Oct 19
Nov 20
Nov 17
Oct 18
Oct 19
Nov 20
Dave
Shemmans
(CEO)
Ian
Gibson
(CFO)
At 1 July
2020
57,927
66,141
82,590
-
20,510
23,418
29,526
-
Awarded(2)
-
-
-
224,274
-
-
-
126,341
Lapsed
(57,927)
-
-
-
(20,510)
-
-
-
Vested
-
-
-
-
-
-
-
-
At 30 June
2021(3) Vesting date
08/11/2020
25/10/2021
24/10/2022
27/11/2023
08/11/2020
25/10/2021
24/10/2022
27/11/2023
-
66,141
82,590
224,274
-
23,418
29,526
126,341
Holding
period ends
-
-
-
27/11/2025
-
-
-
27/11/2025
(1) Awards granted between 2017 and 2019 were made under the rules of the Ricardo plc 2014 Long Term Incentive Plan. The awards granted in November 2020 were made under the rules of the
Ricardo plc 2020 Long Term Incentive Plan. Performance conditions applicable to all awards are as outlined on pages 106 and 107.
(2) The face value at the date of grant of the awards made in November 2020 was £795,724 for Dave Shemmans; and £448,258 for Ian Gibson.
(3) The mid-market closing price of the Company’s shares on 30 June 2021 was 410.0p per share (2020: 419.0p).
As disclosed in last year's Directors' Remuneration Report, Mark Garrett ceased employment with the Group on 31 July 2020 and all LTIP
awards held by him immediately lapsed in full and therefore are not shown in the table above.
The November 2017 awards that were due to vest in November 2020 lapsed in full because the performance conditions as set out on
page 105 were not satisfied.
Creating a world fit for the future 107
Corporate governance Directors’ remuneration report Directors' interests in shares provisionally awarded under the DBP (audited)
As previously disclosed, no performance bonus was payable in respect of FY 2019/20. As a result, no deferred awards were granted
under the DBP during FY 2020/21.
The following chart sets out in graphical form how the DBP was operated in earlier years and continues to operate in respect of
currently outstanding DBP awards (set out in the table below):
Targets set for 3-year performance period applicable to bonus-linked shares
Bonus targets set
for year
Bonus paid 50% cash and 50% in deferred shares and bonus-linked shares granted
Deferred shares released and bonus-linked shares
released subject to performance criteria
Performance period in respect of bonus-linked shares
Annual bonus
performance year
Deferred shares held
After tax, 50% of shares continue
to be held pursuant to the share
retention policy at least until
minimum shareholding is achieved
Year 1
Year 2
Year 3
Year 4
Year 5 and ongoing
For details of the share retention policy, see page 109.
Following the adoption of the new Directors’ Remuneration Policy in November 2020, Executive Directors will no longer be entitled to
future bonus-linked share awards and a third (rather than half) of any bonus payable will be deferred in shares.
As at 30 June 2021, the Directors’ interests in shares provisionally awarded under the DBP were as follows:
Dave
Shemmans
(CEO)
Ian
Gibson
(CFO)
Type of Award
Deferred
Bonus-linked shares(4)
Deferred
Bonus-linked shares(4)
Deferred
Bonus-linked shares(4)
Deferred
Bonus-linked shares(4)
Award
date
Oct 18
Oct 18
Oct 19
Oct 19
Oct 18
Oct 18
Oct 19
Oct 19
Deferral /
performance
period
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
Share
price at
award
date in
pence
756.00
756.00
623.60
623.60
756.00
756.00
623.60
623.60
Number of provisional shares
At 1 July
2020 Awarded(1)
-
18,821
-
17,568
-
13,492
-
12,969
-
10,377
-
9,686
-
7,120
-
6,844
Dividend
shares(2)
72
-
52
-
39
-
27
-
Lapsed
-
-
-
-
-
-
-
-
Vested
-
-
-
-
-
-
-
-
At 30 June
2021(3)
18,893
17,568
13,544
12,969
10,416
9,686
7,147
6,844
(1) As no bonus was payable in respect of FY 2019/20, no deferred bonus awards were awarded in FY 2020/21.
(2) Amounts allocated include shares equivalent to dividends on provisional deferred award shares.
(3) The mid-market closing price of the Company’s shares on 30 June 2021 was 410.0p (2020: 419.0p).
(4) Bonus-linked shares awarded under the rules of the Ricardo plc 2011 Deferred Bonus Plan: performance conditions as outlined on pages 106 and 107.
As disclosed in last year's Directors' Remuneration Report, Mark Garrett ceased employment with the Group on 31 July 2020 and all DBP
awards held by him immediately lapsed in full and therefore he has been excluded from the above table.
108 Ricardo plc Annual Report & Accounts 2020/21
Corporate governance Directors’ remuneration report Share retention policy
In-post
In order to foster greater alignment between our Executive
Directors and our shareholders, the Board currently operates a
share retention policy with the intention that each Executive
Director will own shares in the Company with a value equal to
at least two times annual base salary with the requirement that
50% of any vested LTIP / DBP shares (net of tax) are held until
this is met. In line with the Investment Association’s Principles
of Remuneration, vested shares subject to a holding period
(i.e. vested LTIP awards under the new 2020 LTIP) and unvested
shares that are not subject to performance conditions (i.e.
DBP deferred awards) will count towards this shareholding
requirement on a net-of-tax basis.
Post-cessation
The retention requirement described opposite will continue
post-cessation of employment with shares worth two times
annual base salary (or, if lower, the shareholding as at the date of
cessation) to be held for the initial 12 month period and half of
this amount required to be held for the second 12 month period.
This will apply to share plan awards granted after the 2020
Directors' Remuneration Policy was approved by shareholders.
In order to facilitate the post-cessation retention requirements,
vested shares that are released will be held in a nominee structure.
Directors' shareholdings (audited)
The interests of Directors and their connected persons in
ordinary shares as at 30 June 2021, including any shares
provisionally awarded under the LTIP and DBP, are presented in
the table below. At 14 September 2021, the interests in shares
of the Directors who were still in office were unchanged from
those at 30 June 2021.
No. of shares
held
Share awards
not subject to
performance
conditions(1)
Share awards
subject to a
holding period
Shareholding
for purposes of
share retention
policy(2)
Shareholding
(% of base
salary)(3)
Share awards
subject to
performance
conditions(4)
EXECUTIVE DIRECTORS
Dave Shemmans (CEO)
Ian Gibson (CFO)
Mark Garrett (CSO)(5)
NON-EXECUTIVE DIRECTORS
Sir Terry Morgan CBE
Russell King
Laurie Bowen
Malin Persson
Bill Spencer
Jack Boyer
104,088
55,334
59,723
26,111
5,105
6,000
1,500
10,402
-
32,437
17,563
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
121,279
64,642
-
-
-
-
-
-
-
94
77
-
-
-
-
-
-
-
403,542
195,815
-
-
-
-
-
-
-
(1) Deferred awards granted pursuant to the rules of the Ricardo plc 2011 Deferred Bonus Plan.
(2) This includes the number of beneficially owned shares, unvested shares not subject to performance conditions and any vested shares subject to a holding period, on a net-of-tax basis (i.e. 53% of the
shares shown in the adjacent “share awards not subject to performance conditions” and “share awards subject to a holding period” columns).
(3) For Executive Directors only (i.e. those who are subject to the share retention policy). Calculated by reference to the number of shares shown in the adjacent “shareholding for purposes of share
retention policy” column, a share price of 410.0p per share (2020: 419.0p) and salaries as at 30 June 2021.
(4) Bonus-linked awards granted pursuant to the rules of the Ricardo plc 2011 Deferred Bonus Plan and LTIP awards granted pursuant to the rules of the Ricardo plc 2014 Long Term Incentive Plan and the
Ricardo plc 2020 Long Term Incentive Plan.
(5) Shareholding as at 31 July 2020, being the date Mark Garrett ceased employment with the Group. None of the shares that he held on cessation were subject to any post-cessation share retention
policy. This policy was only adopted by Ricardo in November 2020.
Dilution limits
The number of shares that may be issued in any ten-year rolling
period will be restricted to:
• 10% of the issued ordinary share capital of the Company in
Executive Directors and their Board positions
with other companies during FY 2020/21
Executive Directors may, with the prior consent of the Board,
hold a non-executive directorship with another company.
respect of all Ricardo employee share plans; and
On 1 September 2014, the Company’s Chief Executive Officer
• (included within the above limit) 5% of the issued ordinary
share capital of the Company for Ricardo’s discretionary
employee share plans.
At the end of the year under review, the Company’s overall share
plan dilution was 4.33%, of which 3.95% related to discretionary
employee share plans. The Company operates an employee benefit
trust which has principally been used to facilitate the operation of
the LTIP and DBP arrangements. Any new shares issued to the trust
are, however, included in the dilution limits noted above.
was appointed as a non-executive director of Sutton and East
Surrey Water plc. He is permitted to retain the associated fees
which, for the year from 1 July 2020 to 30 June 2021 (inclusive),
amounted to £36,206.
On 25 November 2016, the Company’s former Chief Strategy
Officer, Mark Garrett, was appointed as the non-executive Chair
of Secured By Design Limited (now SBD Automotive Ltd). He
was permitted to retain the associated fees which, for the period
from 1 July 2020 to his cessation of employment on 31 July 2020
(inclusive), amounted to £1,750.
Creating a world fit for the future 109
Corporate governance Directors’ remuneration report Implementation of Directors' Remuneration
Policy in FY 2021/22
As anticipated that the implementation of the 2020 Directors
Remuneration Policy (the ‘2020 Policy’) in FY 2021/22 will be
similar to that of FY 2020/21.
The Committee will:
• Review base salary levels for the Executive Directors with
effect from 1 January 2022;
• Set and review the performance targets for the FY 2021/22
annual bonus and the LTIP awards to be made in 2021 to
ensure continued alignment to strategy;
• Make awards under the Ricardo plc 2020 Long Term Incentive
Plan (the ‘2020 LTIP’); and
• Make awards under the new Ricardo plc 2021 Deferred Bonus
Plan (the ‘2021 DBP’), subject to shareholders’ approval at the
2021 AGM, where necessary.
To determine the amount of bonus payable for FY 2021/22,
the Committee will assess the level of achievement against the
financial measures and targets set in respect of:
• Group underlying profit before tax (60%);
• Cash conversion (20%); and
• The achievement of specified individual objectives (20%).
Owing to concerns about commercial sensitivity, we do not
believe it is in shareholders’ interests to disclose any further
details of these targets on a prospective basis. However, the
Company is committed to adhering to principles of transparency
and will, provided disclosure of targets is not then deemed to
be commercially sensitive, make appropriate and relevant levels
of disclosure of bonus targets and performance against these
targets for the FY 2021/22.
Departure of Mark Garrett
As the Company announced on 12 May 2020 and as disclosed in
Directors’ Remuneration Report in respect of FY 2019/20, Mark
Garrett resigned as an Executive Director of Ricardo and ceased
employment with the Group on 31 July 2020. The Committee
considered the treatment of Mark’s remuneration as a result of
his departure, in accordance with the Directors’ Remuneration
Policy, his service contract, the relevant incentive plan rules and
good practice.
The Committee determined that no bonus was payable in
respect of FY 2019/20 and, in accordance with the LTIP and DBP
rules, all outstanding awards held by Mark Garrett lapsed in
full immediately on the cessation of his employment with the
Group.
No payments for loss of office have been or will be made to
Mark Garrett and, save for any applicable pension benefits, no
further payments will be made to Mark Garrett in any future
financial year.
Departure of Dave Shemmans
Dave steps down from the Board on 30 September 2021. In line
with his service agreement, he will receive a payment in lieu of
notice equal to 12 months’ basic salary, pension entitlement and
contractual benefits, half paid shortly after the date employment
ceases and the balance in monthly instalments commencing
6 months following his departure. His restrictive covenants will
continue to apply for six months following the date employment
ceases. He will also receive a payment in respect of accrued
but untaken holiday entitlement. Dave was treated as a good
leaver for the purposes of his awards under the DBP and the
LTIP on the basis of his committed service to Ricardo as its
Chief Executive Officer for the last sixteen years and taking into
account his willingness to be flexible on his leaving date. His
outstanding deferred awards will continue and will vest on the
normal timescales. His outstanding LTIP and bonus-linked shares
will be pro-rated for time and will vest on the normal timescales,
subject to the achievement of the relevant performance
conditions. One third of any pro-rated bonus payable for
FY 2021/22 will be deferred into shares. Malus and clawback
provisions will continue to apply for two years following the
end of the applicable performance period or, in the case of his
existing or future deferred share awards, three years following
the date of grant.
110 Ricardo plc Annual Report & Accounts 2020/21
Corporate governance Directors’ remuneration report Other points
The Committee considered, and will continue to consider,
the impact on the Company’s incentive arrangements of the
introduction of IFRS 15 Revenue from Contracts with Customers
on 1 July 2018 and IFRS 16 Leases on 1 July 2019. It will make
any adjustments when assessing the performance outcomes
to outstanding long-term incentive awards to ensure that
performance measurements are carried out on a like for like basis
and are fair to both shareholders and plan participants.
2021 LTIP Awards
The Committee has so far considered the performance measures
to apply to the LTIP awards to be granted in October 2021. The
Committee believes that TSR and underlying EPS continue to be
appropriate measures for the Company’s long-term incentive
arrangements as they are strongly aligned to shareholder value
creation.
The targets applicable to the TSR portion of these awards will
be the same as those which applied to awards granted last year.
Threshold performance (i.e. median ranking in the comparator
group, for which 25% of this portion will vest) is generally
intended to align to the anticipated performance of the relevant
market and our competitors. If the maximum performance is
achieved (i.e. upper quartile ranking in the comparator group),
we would expect to have significantly outperformed the
relevant market and our competitors.
In order to ensure that the target range for the EPS portion of
the awards remains challenging in light of market expectations
of the Company’s underlying EPS performance to the year
ending 30 June 2024, the Committee has determined that:
• No part of the underlying EPS portion of these awards will
vest if the Company’s underlying EPS for the final year in the
performance period is lower than 29.7p;
• 15% of this portion will vest where the final year underlying
EPS is 29.7p;
• 100% of this portion will vest where the final year underlying
EPS is greater than or equal to 50.2p; and
• Vesting will take place on a straight-line basis between 29.7p
and 50.2p.
The proposed range is based on a similar rationale for the LTIP
awards granted in 2020 and continues to include a wider EPS
range than previously used due to the continued uncertainty
around the timing and shape of COVID-19 recovery.
Where the underlying EPS performance period ends before
30 June 2024 (the final year of the performance period), the
Committee retains the discretion to amend these targets and
the corresponding vesting levels accordingly.
It should also be noted that, in terms of the 2020 Policy, the
Committee will have the ability to adjust the formulaic outcomes
from performance conditions where appropriate and the
Committee will ensure that outcomes reflect Company and
executive performance as well as the experience of shareholders
and other stakeholders. The Committee will also use its
discretion to reduce vesting outcomes where it determines that
windfall gains have been received.
Creating a world fit for the future 111
Corporate governance Directors’ remuneration report PART 3 – DIRECTORS’ REMUNERATION POLICY
Introduction
This part of the Directors’ Remuneration Report provides an
overview of the Company’s policy on Directors’ pay that is
designed to align with and support Ricardo’s strategic plan
and will operate over the three years from the AGM held on 12
November 2020 (the ‘2020 AGM’) until the AGM to be held in
2023 (the ‘2020 Policy’). The previous policy that was approved
by shareholders at the AGM held on 8 November 2017 (the
‘2017 Policy’) continued to operate until the 2020 AGM and
indeed the 2020 Policy permits the execution of remuneration
arrangements that were agreed when the 2017 Policy was in
effect. The 2017 Policy was most recently reproduced in the
Annual Report and Accounts 2019 with the originally approved
text being included in the Annual Report and Accounts 2017,
both of which are available on our website at: www.ricardo.
com. There have been no changes of substance to the text of
the 2020 Policy that was approved at the 2020 AGM. We have,
however, updated the ‘remuneration outcomes’ chart on page
118, some of the wording (particularly relating to time) and page
references for ease of use. A copy of the originally approved text
is in the Annual Report & Accounts 2020, which is also available at
www.ricardo.com.
In accordance with the requirements of the Large and
Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008 (as amended) (the ‘Regulations’), the 2020
Policy was subject to a binding vote at the 2020 AGM and
took effect immediately upon receipt of such approval from
shareholders.
The Remuneration Committee – what we do
The Committee’s primary purpose is to make recommendations to the Board on the Group’s framework or broad policy for executive remuneration. The
Board has also delegated responsibility to the Committee for determining the remuneration, benefits and contractual arrangements of the Chairman
and the Executive Directors. No individual is involved in deciding his or her remuneration.
The Committee has written terms of reference, which are available at www.ricardo.com, and its responsibilities include:
• Determining and agreeing with the Board the policy for executive remuneration and monitoring and considering the policy for, and structure
of, senior management remuneration taking into account that the ultimate decision-making responsibility for the remuneration of the senior
management team (other than the Executive Directors) lies with the Chief Executive Officer;
• Agreeing the terms and conditions of employment for Executive Directors, including their individual annual remuneration and pension
arrangements, and reviewing such provisions for senior management;
• Agreeing the measures and targets for any performance-related bonus and employee share plans;
• Agreeing the remuneration of the Chairman of the Board;
• Ensuring that, on termination, contractual terms and payments made are fair, both to the Company and the individual, so that failure is not rewarded
and the duty to mitigate loss is recognised wherever possible; and
• Agreeing the terms of reference of any remuneration advisors it appoints.
Taking shareholders’ views into account
When considering Ricardo’s remuneration policy and its implementation, the Committee is
always keen to ensure that it takes into account the views and opinions of all the relevant
stakeholders in the business. In particular, when preparing its policy for approval at the
2020 AGM, the Committee undertook a programme of engagement with the Company’s
largest institutional investors and their representative bodies in order to better understand
their perspective on our previous pay practices and the then proposed policy for 2020-
2023. Shareholders were given an early opportunity to provide feedback and in finalising
the proposals this was taken into account. As a result of the feedback received through this
consultation programme:
• Incumbent Executive Directors will be aligned to the pension provision levels of the UK
workforce by 1 January 2022 (in addition to any new appointees being capped at this level
from the date of joining) – further details are included in the 2020 Policy table on page 114;
• One-third of any bonus paid will be deferred into shares for three years; and
• Extension of share ownership guideline to two years’ post-cessation of employment
(reducing from two times salary in the first year to one times salary in the second year).
In the spirit of continuous improvement and in order to ensure that our remuneration policy
continues fully to support achievement of business objectives and delivery of value to
shareholders, the Committee will continue to review our policy periodically in the context
of the changing business environment. Any material future changes to the policy will be
discussed with shareholders in advance.
Consideration of employment
conditions elsewhere in the
Company
While Ricardo does not consult directly with
employees on the subject of Directors’ remuneration,
the remuneration packages for each Executive
Director and their fixed and variable elements are
reviewed annually. This process (and the setting of
the revised remuneration policy as a whole) takes into
account a number of factors, including the following:
• Individual and business performance;
• Pay arrangements for similar roles in other
companies and consultancy organisations of
Ricardo’s size, complexity and international reach;
• Risk management; and
• Pay and employment conditions of employees of
the Group.
The Committee also looks at the differential between
the Chief Executive Officer’s pay and Ricardo average
employee earnings over time.
112 Ricardo plc Annual Report & Accounts 2020/21
Corporate governance Directors’ remuneration report Overview of Ricardo's remuneration policy for 2020 – 2023
The objective of Ricardo's executive remuneration policy is to support the business strategy and timescales of an international
consultancy business by not only rewarding the standard of performance and the outcomes that our shareholders require, but also
encouraging share ownership and fostering alignment of interest between the Executive Directors and shareholders. We do this by
setting base levels of salaries that are competitive, compared with companies of similar size and complexity to Ricardo, and providing
other remuneration package elements, namely the short-term annual bonus plan and long-term incentive arrangement, that only
pay for performance. Taken together, our two variable pay platforms focus on growing the profitability of the business, its resilience,
the achievement of discrete non-financial targets and linking executive outcomes with the shareholder experience both by delivering
rewards in the form of Ricardo shares and also by using a relative total shareholder return performance measure over the longer term.
Changes to the 2017 Directors’ Remuneration Policy
The changes to the 2017 Policy were as follows:
• Pension provision for new joiners and incumbents alike will be aligned with the UK
workforce;
• One third of any bonus will be deferred into shares and ordinarily delivered at the
expiry of a three year period from grant;
• To simplify our long-term incentive arrangements, the ability to receive bonus-
linked shares was removed and the limits under the LTIP were increased in order to
compensate;
• A two-year post vesting holding period under the LTIP was introduced for future
grants to Executive Directors; and
• A 200% share ownership requirement for all Executive Directors was introduced
with a requirement that 50% of any gains from any share awards (vesting of LTIP or
deferred bonus) be retained until the increased level is met. This will continue post-
cessation of employment for two years (with the holding requirement reducing by
50% for the second year).
Overview of the decision making process
that was followed for the determination
of the new policy
As explained in the Chair’s introduction on page 102 of the
Annual Report & Accounts 2020, the new 2020 Policy which
shareholders approved at the 2020 AGM was developed by
the Remuneration Committee following a thorough review of
the pre-existing executive remuneration arrangements; it also
involved the Committee undertaking a consultation exercise
with our major shareholders and the Chief Executive Officer
and Chief Financial Officer.
In its deliberations, the Committee received support and
advice from FIT Remuneration Consultants and Shepherd and
Wedderburn, its independent external advisors (see page 99
for details).
Although the Executive Directors provided the Committee
with a level of input in relation to the formulation of the new
policy, the final decisions around its structure were taken by
the Committee alone in order to avoid any conflicts of interest
arising.
Corporate Governance
When determining the 2020 Policy, the Committee was mindful of its obligations under Provision 40 of the Corporate Governance Code to ensure
that the policy and other remuneration practices were clear, simple, predictable, proportionate, safeguarded the reputation of the Company and were
aligned to Company culture and strategy. Set out below are examples of how the Committee addressed these factors:
Clarity
• Remuneration policy and arrangements are clearly disclosed each year in the Annual Report.
• The Company invited its principal shareholders and shareholder representative groups to consult on the updated remuneration policy and received
good feedback. Changes were made to the proposals following input from this process.
• The Committee is regularly updated on workforce pay and benefits across the Group during the course of its activity.
Simplicity
• Our remuneration structure is comprised of fixed and variable remuneration, with the performance conditions for variable elements clearly
communicated to, and understood by, participants in order to ensure they are effective.
• The proposed 2020 Policy has received positive feedback from stakeholders in relation to its simplicity. The bonus-linked shares have been removed to
result in a simpler structure.
Risk
• The rules of the 2020 LTIP provide discretion to the Committee to reduce award levels and awards are subject to malus and clawback provisions.
• The total pay of the Executive Directors is considered by the Committee as well as pay ratios with the wider workforce and shareholder returns.
Predictability
• The range of possible rewards for the Executive Directors is considered in the scenario charts on page 118.
• The Committee has a range of discretions in relation to variable pay awards, new joiner and leavers which are identified and explained in the
Remuneration Policy section.
Proportionality
• As shown in the scenario charts on page 118, variable performance-related elements represent a significant proportion of the total remuneration
opportunity for our Executive Directors.
• The Committee considers the appropriate financial and personal performance measures each year to ensure that there is a clear link to strategy. For
example, for FY 2020/21 the cash conversion measure was introduced under the annual bonus.
• Discretions are available to the Committee to reduce awards if necessary to ensure that outcomes do not reward poor performance.
Alignment to culture
• The Committee remains confident that the incentive schemes operated under the Remuneration Policy are aligned with the Company’s purpose,
values and strategy.
• The use of metrics in both the annual bonus and LTIP measure how we perform against our financial and non-financial KPIs.
Creating a world fit for the future 113
Corporate governance Directors’ remuneration report THE STRUCTURE OF OUR DIRECTORS’ REMUNERATION PACKAGE – THE POLICY TABLE
Maximum
Operation
Framework for assessing performance
Pay element and
link to strategy
Base salary
To provide a core
level of remuneration
to enable the
Company to
attract and retain
skilled, high-calibre
executives to deliver
its strategy.
Base salary increases
will not ordinarily
be more than 10%
p.a. with exceptional
increases over the
normal maximum
limit capped at 25%
p.a.
However, generally
speaking, increases
will be in line with
salary increases for
employees across the
Group.
Other benefits
To provide market-
competitive benefits.
The total value of
benefits will not
exceed 10% of base
salary p.a., save in the
case of relocation.
Salary levels are normally reviewed annually in January each year.
Pay is set by considering:
• Market levels of total pay for comparable roles in companies of
None
similar size, complexity and sector;
• Each individual Director's experience, scope of responsibilities
and performance; and
• The salary increases for employees across the Group.
Ricardo places a strong emphasis on internal succession planning.
This emphasis may mean that talented individuals are promoted
rapidly. In such circumstances, the Committee's policy is to set a
relatively low base salary initially and then increase this to a market
competitive level for the role over time. This may mean relatively
high annual salary increases as the individual gains experience in
the new role. We will notify shareholders where this is the case.
The Company provides other cash benefits and benefits in kind
to Executive Directors in line with market practice. These include
a company car or cash alternative, private fuel, private medical
insurance, life assurance and permanent health and disability
insurance. The benefits arrangements are reviewed on an annual
basis.
The Committee reserves the right to provide further benefits
where this is appropriate in the individual's particular
circumstances (for example, costs associated with relocation as a
result of the Director's role with the Company).
Certain other employees are eligible for the same or similar
benefits described above depending on their role, seniority and
geographical location.
None
None
Pension
To offer market-
competitive
retirement benefits.
Until 31 December
2021 the maximum
pension contribution
is 20% of salary over
the Lower Earnings
Limit. From 1 January
2022 this reduces to
match the pension
provision level of
the UK workforce
from time to time
(currently 7%).
In addition, in line
with payments given
to all employees
who were previous
members of the
old defined benefit
scheme operated
by the Company,
the current Chief
Executive Officer
is entitled to an
additional 1.2%
of salary pension
contribution. This will
continue throughout
the 2020 Policy
period.
The Company operates a defined contribution scheme (the
'Pension Scheme'). The policy for Executive Directors (save for the
Chief Executive Officer's legacy pension arrangements described
opposite) continues to be a pension contribution of 20% of base
salary over the Lower Earnings Limit. From 1 January 2022 (again,
save for the Chief Executive Officer's additional 1.2% legacy
entitlement), this will be aligned with the pension provision levels
of the UK workforce from time to time (currently 7%). To the
extent that any contributions have used up the adjusted annual
allowance limit, any additional payment will be cash in lieu of
pension.
Executive Directors may only choose to opt out of the Pension
Scheme where they are close to or have exceeded the pension
lifetime allowance and have applied for fixed protection from
HMRC. Under such circumstances, Executive Directors will receive
a cash payment in lieu of pension.
On death in service, all Executive Directors, subject to the medical
requirements of the insurance company, are entitled to a lump
sum of four times annual salary at date of death.
Early retirement is available with the consent of the Company and
the pension scheme trustees if the individual is over 55 or retiring
due to ill health.
All UK employees are entitled to receive Company pension
contributions. While levels vary, the majority of UK employees
receive a 7% of salary employer pension contribution into the
Pension Scheme.
For new Executive Director appointments regardless of
appointment date, pension contribution will be aligned with the
contribution available to the wider workforce.
114 Ricardo plc Annual Report & Accounts 2020/21
Corporate governance Directors’ remuneration report THE STRUCTURE OF OUR DIRECTORS’ REMUNERATION PACKAGE – THE POLICY TABLE (continued)
Pay element and
link to strategy
Pay for
performance:
Annual bonus
To reward the
annual delivery
of financial and
operational targets.
Maximum
Operation
Maximum
opportunity of 125%
of base salary for
the Chief Executive
Officer and 100% of
base salary for other
Executive Directors.
Bonuses are awarded by reference to performance against
specific targets measured over a single financial year.
Two thirds of any bonus paid to an Executive Director will be
paid out in cash shortly after the assessment of the performance
targets has been completed. The remaining one third of the
bonus will be compulsorily deferred into ordinary shares, the
vesting of which is normally subject to continued employment
for a three-year period from the award date. The cash element
of the bonus is not payable unless the individual remains in
employment at the payment date.
The principal purpose of this bonus deferral mechanism is to:
• Provide for further alignment of executives' and shareholders'
interests;
• Provide an additional retention element; and
• Encourage Executive Directors to build up a shareholding in
accordance with our share retention policy.
Dividends and dividend equivalents for each deferral period may
also be paid in respect of shares under award to the extent that
shares have vested in the relevant participants.
Bonus arrangements exist for certain other employees
throughout the Group on terms that are applicable to their
role, seniority and geographical location, although typically at
lower levels of maximum opportunity to reflect that a greater
proportion of Executive Directors' remuneration is performance-
based.
Malus and clawback: Annual bonuses (including any element
deferred into shares) may be subject to malus and clawback
provisions if certain events occur in the period of three years from
the end of the financial year to which they relate. These events
include the Committee becoming aware of:
• A material misstatement of the Company's financial results;
• An error in the calculation of performance conditions; or
• An act committed by the relevant participant that could have
resulted in summary dismissal by reason of gross misconduct
or which has caused significant reputational damage to the
Group.
The mechanism through which malus and clawback can be
implemented enables the Committee to take various actions
including:
• Reducing outstanding incentive awards; and
• Requiring a cash payment to be made by participants.
Framework for assessing performance
The measures and targets applicable
to the annual bonus scheme (and the
different weightings ascribed to them) are
set annually by the Committee in order
to ensure they are relevant to participants
and take account of the most up-to-date
business plan and strategy.
A significant majority (at least 50%) of
the bonus opportunity will normally be
determined by reference to performance
against Group KPIs such as:
• Underlying Profit Before Tax; and
• Cash conversion.
Any remaining part of an Executive
Director's bonus will normally be based on
the achievement of personal objectives
which relate to delivery of the business
strategy. See page 104 and 105 for
examples.
A payment scale for different levels of
achievement against each performance
target is specified by the Committee at
the outset of each year – this ranges from
zero for below-threshold performance up
to 100% for full satisfaction of the relevant
target.
Bonus payments will also be subject to
the Committee considering whether the
proposed awards, calculated by reference
to performance against the targets,
appropriately reflect the Company's
overall performance and shareholders'
experience. If the Committee does not
believe this to be the case, it retains the
discretion to adjust the bonus outturn
accordingly.
Creating a world fit for the future 115
Corporate governance Directors’ remuneration report THE STRUCTURE OF OUR DIRECTORS’ REMUNERATION PACKAGE – THE POLICY TABLE (continued)
Pay element and
link to strategy
Pay for
performance:
Long-term
incentives
Performance shares
under the Long-
Term Incentive
Plan ('LTIP')
To focus motivation
on the long-term
performance of the
Group and reward
shareholder value
creation.
To encourage share
ownership and
alignment with
shareholders.
Maximum
Operation
Maximum
opportunity of 150%
of base salary for
the Chief Executive
Officer, 130% for
other Executive
Directors.
LTIP – performance measured over a three-year period:
Performance share awards under the LTIP are made on an annual
basis to the Executive Directors and a small group of other senior
managers.
From time to time a number of employees below board level
are granted non-performance based share awards to reflect
exceptional performance.
Holding Period
Vesting of awards will generally take place on the third anniversary
of grant or, if later, the date on which the performance conditions
are assessed by the Committee.
Executive Directors' awards that vest will normally be subject to
a holding period in terms of which the relevant shares will only
be released after a further period of at least two years has expired
from the vesting date.
Dividends and equivalents
Dividends and dividend equivalents for each performance /
holding period may also be paid in respect of shares under award
to the extent that shares have vested in the relevant participants.
Malus and clawback: Long-term incentive awards may be
subject to malus and/or clawback provisions if certain events
occur after their grant but before the expiry of the period of two
years from the end of the relevant performance period. These
events include the Committee becoming aware of:
• A material misstatement of the Company's financial results;
• An error in the calculation of performance conditions; or
• An act committed by the relevant participant that has (or
could have) resulted in summary dismissal by reason of gross
misconduct or which has caused significant reputational
damage to the Group.
The mechanism through which malus and clawback can be
implemented enables the Committee to take various actions
including:
• Reducing outstanding incentive awards; and
• Requiring a cash payment to be made by participants.
Framework for assessing performance
The vesting of long-term incentive awards
is subject to both continued employment
and the extent to which performance
conditions measured over a specified
three-year period are met.
The measures and targets applicable to
the long-term incentive awards will consist
of challenging shareholder return, financial
and strategic measures.
The particular measures and targets
to apply (and the different weightings
ascribed to them) will be set annually by
the Committee in order to ensure they
are relevant to participants, challenging to
achieve and take account of the most up-
to-date business plan and strategy.
The initial weightings between the two
long-term incentive measures that were
granted after the 2020 AGM were 67% EPS
performance and 33% TSR performance;
however, our policy is simply for financial
and shareholder return targets to make up
at least 50% of awards.
A maximum of 25% of each element
of an award will vest for achieving the
threshold performance target with 100%
of the awards being earned for maximum
performance (with straight-line vesting
between these points).
Further details of the performance
conditions applicable to awards to be
made in FY 2021/22 are set out on page
111.
Formulaic outcome of all LTIP
performance measures will also be
subject to the Committee considering
whether the proposed vesting levels,
calculated by reference to performance
against the targets, appropriately reflect
the Company's overall performance
and shareholders' experience. If the
Committee does not believe this to be the
case, it retains the discretion to adjust the
LTIP outturn accordingly.
Company's Articles
of Association
place a limit on the
aggregate annual
level of Non-
Executive Directors'
and Chairman's fees
(currently £500,000).
Chairman and
other Non-
Executive
Directors
Helps recruit and
retain high-quality
experienced
individuals.
Reflects time
commitment and
role.
None
The fees for Non-Executive Directors are set in line with prevailing
market conditions and at a level that will attract individuals
with the necessary experience and ability to make a significant
contribution to the Group's affairs.
Non-Executive Directors receive an annual basic fee plus
an additional fee for acting as the Chairman of the Audit or
Remuneration Committee or the Senior Independent Director.
An additional fee may be paid for membership of the Technical
Exploitation Board ('TEB'). No Non-Executive Director is currently a
member of the TEB. The Chairman of the Board receives an annual
fee payable monthly with no additional fees for chairing Board
committees. They also receive reimbursement for travel and
incidental costs (including any associated personal tax charges)
incurred in furtherance of Company business.
116 Ricardo plc Annual Report & Accounts 2020/21
Corporate governance Directors’ remuneration report Notes to the 2020 Policy table:
1. Where maximum amounts for elements of remuneration have been
set within the 2020 Policy, these will operate simply as caps and are
not indicative of any aspiration.
2. A description of how the Company intends to implement the 2020
Policy set out in the tables on pages 114 to 116 during the financial
year to 30 June 2022 is provided on pages 110 and 111.
3. A general overview of how each remuneration element applies to
other employees of the Group is included under the relevant section
of the policy table.
4. The Committee reserves the right to make any remuneration
payments and payments for loss of office (including exercising
any discretions available to it in connection with such payments)
notwithstanding that they are not in line with the 2020 Policy (as set
out on pages 114 and 116) where the terms of the payment were
agreed:
a. before 29 October 2014 (the date the Company’s first shareholder-
approved Directors’ Remuneration Policy came into effect);
b. before the 2020 Policy came into effect, provided that the terms of the
payment were consistent with the shareholder-approved Directors’
Remuneration Policy in force at the time they were agreed; or
c. at a time when the relevant individual was not a Director of the
Company and, in the opinion of the Committee, the payment was
not in consideration for the individual becoming a Director of the
Company.
For these purposes payments include the Committee satisfying
awards of variable remuneration and, in relation to an award over
shares, the terms of the payment are ‘agreed’ at the time the award is
granted.
5. The ‘framework for assessing performance’ column of the tables on
pages 114 to 116 provide information on choosing the particular
performance measures and target setting in relation to them.
6. Ricardo’s variable pay may have any performance conditions
applicable to the relevant element amended or substituted by
the Committee if an event occurs which causes the Committee to
determine that an amended or substituted performance condition
would be more appropriate and not materially less difficult to satisfy.
The Committee may make adjustments, where these are fair and
reasonable, to measures or targets to take account of, for example, the
implications of acquisitions and disposals.
7. Long-term incentive awards can be granted in a variety of forms
such as performance shares, nil-cost options or forfeitable shares
and the Committee reserves the right to grant long-term incentive
awards with the same economic effect but in any of these different
contractual forms (including in cash). Long-term incentive awards can
also be adjusted in the event of any variation of the Company’s share
capital or any demerger, delisting, special dividend or other event that
may affect the Company’s share price.
8. Under the terms of long-term incentive award performance
conditions, where any company becomes unsuitable as a member of
the comparator group as a result of, for example, a change of control
or delisting, the Committee has the discretion to treat that company
in such manner as it deems appropriate (including replacing it with
another organisation).
9.
In the event of a change of control, long-term incentive awards will
normally vest at that time, taking into account, amongst other things,
the extent to which any performance criteria have been met (over the
shortened performance periods) and the time elapsed since grant.
All-employee share plans
For its UK employees the Company operates from time to time tax-advantaged share plans. These are a Share Incentive Plan (‘SIP’) and a Save As You
Earn share option plan and they are intended to encourage share ownership and wider interest in the performance of the Company’s shares. Executive
Directors are eligible to participate in these arrangements up to the applicable statutory limits. The SIP provides for partnership, matching, free and
dividend shares. Equivalent arrangements operate from time to time for non-UK employees.
Creating a world fit for the future 117
Corporate governance Directors’ remuneration report
Illustrative remuneration outcomes at different performance levels
Ricardo's pay policy seeks to ensure the long-term interests of Executive Directors are aligned with those of shareholders. The
remuneration packages for each Executive Director and their fixed and variable elements are reviewed annually. The scenario chart
below presents remuneration outcomes for the 2020 Policy under minimum, on-target, maximum and maximum with share price
appreciation scenarios.
3,000
2,500
2,000
1,500
1,000
'
)
0
0
0
£
(
n
o
i
t
a
r
e
n
u
m
e
r
l
a
t
o
T
500
0
2,520
48%
2,122
38%
31%
26%
1,194
17%
28%
663
100%
56%
31%
26%
1,445
47%
1,221
37%
28%
24%
35%
30%
712
16%
24%
60%
428
100%
Minimum
On-target
Maximum
Maximum with
share price
appreciation
Minimum
On-target
Maximum
Maximum with
share price
appreciation
Chief Executive Officer
Chief Financial Officer
Fixed elements
Short-term variable element
Long-term variable element
The target scenario broadly illustrates the remuneration level
when budgeted performance is achieved. A further column
has also been included which illustrates the impact on the
figures contained in the maximum scenario of an assumed share
price appreciation for the LTIP award of 50% over the relevant
performance period. The disclosures in the chart above reflect
FY 2020/21 data on the basis of the assumptions set out below.
• Fixed elements comprise current base salary, pension and
other benefits. For example, for the Chief Executive Officer,
fixed elements comprise base salary of £530,484, pension
(cash in lieu) of 21.2% of base salary above the Lower Earnings
Limit and benefits equal to those received in FY 2020/21;
• For minimum performance, Executive Directors receive only
the fixed elements of pay;
• For target performance, an assumption of 50% of bonus
pay-out and threshold vesting (25%) in respect of long-term
incentives has been applied;
• For maximum performance, an assumption of maximum
bonus pay-out and maximum vesting in respect of long-term
incentives has been applied;
• Save for the "maximum with share price appreciation column",
no share price increase has been assumed for the above and
this means that the single total figure in any year may be
higher than the maximum shown above; and
• For maximum with share price growth performance, share
price appreciation of 50% over the relevant performance
period has been assumed for the LTIP awards.
118 Ricardo plc Annual Report & Accounts 2020/21
Corporate governance Directors’ remuneration report
Recruitment remuneration policy
New Executive Directors will be appointed on remuneration packages
with the same structure and elements as described in the policy table
starting on page 114. Annual bonus and long-term incentive awards
will be within the limits described in the policy table for the particular
role. The limits for any new Executive Director roles will be set by the
Committee taking into account the particular responsibilities of the role,
but will not exceed those that apply to the current Chief Executive Officer.
Pension contribution levels will be aligned to those applicable to the
wider workforce.
Termination remuneration policy
The contractual termination provision is payment in lieu of notice equal
to one year’s base salary or, if termination is part way through the notice
period, the amount of base salary relating to any unexpired notice to
the date of termination.(1) There is an obligation on Directors to mitigate
any loss which they may suffer if the Company terminates their service
contract. The Committee will take such mitigation obligation into
account when determining the amount and timing of any compensation
payable to any departing Director. No compensation is paid for summary
dismissal, save for any statutory entitlements.
For external appointments, although we have no plans to offer additional
benefits on recruitment (and indeed did not do so for our last Executive
Director appointment), the Committee reserves the right to offer such
benefits when it considers this to be in the best interests of the Company
and shareholders and in order to protect a new Director against additional
costs. The Committee may agree that the Company will meet certain
relocation expenses as appropriate.
The Company may make an award to compensate a new recruit for
the value of any remuneration relinquished when leaving a former
employer. Any such award would reflect the nature, timescales and
performance requirements attaching to that relinquished remuneration.
The Listing Rules exemption 9.4.2 may be used for the purpose of such
an award. Shareholders will be informed of any such payments as soon as
practicable following the appointment.
For an internal appointment, any variable pay element awarded in
respect of the prior role may be allowed to pay out according to its
terms, adjusted as relevant to take into account the appointment. In
addition, any other ongoing remuneration obligations existing prior to
appointment may continue, and will be disclosed to shareholders at the
earliest opportunity.
On the appointment of a new Chairman or Non-Executive Director,
fees will be set taking into account the experience and calibre of the
individual. Where specific cash or share arrangements are delivered to
Non-Executive Directors, these will not include share options or other
performance-related elements.
The Board’s policy on setting notice periods for Directors is that these
should not exceed one year. It recognises, however, that it may be
necessary in the case of new executive appointments to offer an initial
longer notice period, which would subsequently reduce to one year after
the expiry of that period. All future appointments to the Board will comply
with this requirement.
The cash element of the bonus is not payable unless the individual
remains in employment at the payment date.
Unvested share-based awards will lapse unless the individual concerned
leaves for one of a number of specified ‘good leaver’ reasons which
are: death; injury, illness or disability; redundancy; or retirement. The
Committee retains the discretion to prevent such awards from lapsing
depending on the circumstances of the departure and the best interests
of the Company.
Awards which do not lapse on cessation of employment will vest on
their originally anticipated vesting date with the new holding period
also continuing to apply (although the Committee retains the discretion
to allow vesting and/or release from the holding period at cessation,
depending on the circumstances under the applicable rules). These
awards will also usually be subject to a time pro-rating reduction to reflect
the unexpired portion of the performance or deferral period concerned,
although the Committee will retain the discretion to disapply this pro-
rating. Awards that are subject to performance conditions will usually only
vest to the extent that these conditions are satisfied.
Executive Directors will also be entitled to a payment in respect of any
accrued but untaken holiday and statutory entitlements on termination.
In the event that any payment is made in relation to termination for an
Executive Director, this will be fully disclosed.
(1) For Ian Gibson the contractual termination provision is payment in lieu of notice equal to one
year’s base salary, car allowance and pension allowance, to the extent that these benefits are
paid in cash.
Creating a world fit for the future 119
Corporate governance Directors’ remuneration report Executive Directors' service contracts
The current Executive Directors' service contracts contain the key terms shown in the table below:
Provision
Remuneration
Detailed terms
• Salary, pension and benefits;
• Company car or cash allowance;
• Private health insurance for Director and dependants;
• Life assurance and death in-service benefits;
• Permanent health and disability insurance;
• Director's liability insurance;
• 30 days' paid annual leave;
• Participation in annual bonus plan, subject to plan rules and at the discretion of the Committee; and
• Eligible to participate in share plans, subject to plan rules and at the discretion of the Committee.
Duration
• Indefinite subject to termination by either party in certain circumstances including serving notice as set out below.
Notice period
Termination payment
• 6 months' notice by the Director and 12 months' notice by the Company.
• See separate general disclosure on page 110. The service contract entered into with Dave Shemmans permits any payment
in lieu of notice to also include an amount in respect of benefits which he would have been entitled to receive during the
notice period. It also permits Dave Shemmans to receive a sum in respect of any accrued bonus to the date of termination
notwithstanding that he may not be in employment on the payment date of the bonus.
Restrictive covenants
• During employment and for 6 months after leaving.(1)
(1) Except for Ian Gibson who is restricted for 12 months after leaving
The Executive Directors' service contracts are available for inspection, on request, at the Company's registered office.
120 Ricardo plc Annual Report & Accounts 2020/21
Corporate governance Directors’ remuneration report Non-Executive Directors – fees and letters of appointment
The Committee determines the Chairman's fees. The Chairman and the Executive Directors determine the fees to other Non-Executive
Directors. No Director is present for any discussion or decision about his or her own remuneration. The fees are reviewed each January.
The Non-Executive Directors do not participate in any of the Company's employee share plans, pension schemes or bonus
arrangements, nor do they have service agreements.
The Non-Executive Directors are appointed for a period of three years by letter of appointment and are entitled to one month's
notice of early termination for which no compensation is payable. The unexpired terms of the Non-Executive Directors' appointments,
as at 30 June 2021, are:
Non-Executive Director
Sir Terry Morgan CBE
Russell King
Laurie Bowen
Malin Persson
Bill Spencer
Jack Boyer
Unexpired terms of appointment (months)
18
14
4
16
21
14
The Directors’ remuneration report, comprising the Chair’s Overview and Annual Statement in Part 1, the Annual Report on
Remuneration in Part 2 and the Directors’ Remuneration Policy in Part 3 was approved by the Board on 14 September 2021 and signed
on its behalf by:
Russell King
Chair of the Remuneration Committee
Creating a world fit for the future 121
Corporate governance Directors’ remuneration report Patricia Ryan
Group General Counsel and
Company Secretary
Directors’ report
The Directors present their report and the audited consolidated
financial statements of Ricardo plc for the year ended 30 June
2021.
Dividends
On 9 April 2021 an interim dividend of 1.75p (HY 2019/20:
6.24p) was paid to shareholders. The Directors recommend the
payment of a final ordinary share dividend of 5.11 pence per
ordinary share on 25 November 2021 to shareholders who are on
the register of members at the close of business on 5 November
2021, which together with the interim dividend paid on 9 April
2021 makes a total of 6.86 pence (FY 2019/20: 6.24 pence) per
ordinary share for the year.
Board of Directors
The current Directors of the Company at the date of this report
appear on pages 80 and 81. Mark Garrett resigned from the
Board on 31 July 2020. On 25 January 2021 the Company
announced that the Board and Dave Shemmans had jointly
agreed that he would leave his role as Chief Executive Officer.
Dave Shemmans resigned from the Board on 30 September
2021. Graham Ritchie has been appointed as Chief Executive
Officer with effect from 1 October.
Directors’ interests in shares
Directors’ interests in shares and share options are detailed on
pages 107 to 108 of the Directors’ Remuneration Report
Acquisitions and disposals
No acquisitions or disposals were undertaken during the year
under review.
Events after the reporting date
On 31 July 2021, the Group terminated its lease for the Schwäbish
Gmünd Technical Centre, incurring a termination fee of £0.3m
(€0.4m). At this date, the related right of use asset of £1.1m was
derecognised, £0.1m of leasehold improvements were impaired,
the £1.5m lease liability balance was released. The net impact to
the income statement was nil.
Research & Development
The Group continues to devote effort and resources to the
research and development of new technologies. Costs of £10.2m
have been incurred, of which £8.5m has been capitalised and
£0.5m has been charged to the income statement, net of £1.2m
of government grant income, during the year.
Directors’ indemnities
The Company has entered into deeds of indemnity in favour
of each of its Directors, under which the Company agrees to
indemnify each Director against liabilities incurred by that
Director in respect of acts or omissions arising in the course of
their office or otherwise by virtue of their office.
Where such deeds are for the benefit of Directors, they
are qualifying third-party indemnity provisions as defined by
section 309B of the Companies Act 1985 or section 234 of the
Companies Act 2006, as applicable. At the date of this report,
these indemnities are therefore in force for the benefit of all the
current Directors of the Company.
On 30 June 2014, Ricardo UK Limited and Ricardo-AEA
Limited, subsidiaries of the Group, entered into qualifying third-
party indemnity provisions as defined by section 234 of the
Companies Act 2006 in favour of their Directors, under which
each Director is indemnified against liabilities incurred by that
Director in respect of acts or omissions arising in the course
of their office or otherwise by virtue of their office and such
provisions remain in force as at the date of this report.
122 Ricardo plc Annual Report & Accounts 2020/21
Corporate governance Employee information
The Company provides colleagues with various opportunities
to obtain information on matters of concern to them and to
improve awareness of the financial and economic factors that
affect the performance of the Company. These include bi-annual
presentations to all members of staff, department and team
briefings and meetings with employee representatives that take
place throughout the year.
All companies within the Group strive to operate fairly at all
times and this includes not permitting discrimination against
any employee or applicant for employment on the basis of
race, religion or belief, colour, gender, disability, national origin,
age, military service, veteran status, sexual orientation or marital
status. This includes giving full and fair consideration to suitable
applications for employment from disabled persons and making
appropriate accommodations so that if existing team members
become disabled they can continue to be employed, wherever
practicable, in the same job or, if this is not practicable, making
every effort to find suitable alternative employment and to
provide relevant training.
Change of control provisions
There are a number of agreements that take effect, alter or
terminate upon a change of control of the Company following
a takeover bid, such as commercial contracts, bank facility
agreements, property lease arrangements and employees’ share
plans. None of these are considered to be significant in terms of
their likely impact on the business of the Group as a whole.
Management report
The management report required by the provisions of the
Disclosure and Transparency Rules is included within the
Strategic Report and has been prepared in consultation with
management.
Share capital
As at 19 August 2021, the Company’s share capital is divided
solely into 62,218,280 ordinary shares of 25 pence each, all of
which are fully paid. The ordinary shares are listed on the London
Stock Exchange.
All ordinary shares rank equally for all dividends and
distributions that may be declared on such shares. At general
meetings of the Company, each member who is present (in
person, by proxy or by representative) is entitled to one vote on
a show of hands and, on a poll, to one vote per share.
With respect to shares held on behalf of participants in the
all-employee Share Incentive Plan, the trustees are required to
vote as the participants direct them to do so in respect of their
plan shares. There are no restrictions on voting rights and no
securities carry special voting rights with regard to the control of
the Company.
Awards granted under the Company’s share plans are satisfied
either by shares held in the employee benefit trust or by the
issue of new shares when awards vest. The Remuneration
Committee monitors the number of awards made under the
various share plans and their potential impact on the relevant
Corporate governance
Directors’ report
Based on the Company’s issued share capital as at 30 June
2021, the overall dilution was 4.33% (i.e. below the 10% limit for
all plans in any rolling 10-year period) and 3.95% for discretionary
employee share plans (i.e. below the 5% limit for discretionary
employee share plans in any rolling 10-year period).
The Company was given authority to purchase up to 15% of
its existing ordinary share capital at the 2020 AGM. That authority
will expire at the conclusion of the 2021 AGM unless renewed.
Accordingly, a special resolution to renew the authority will be
proposed at the forthcoming AGM.
The existing authority for Directors to allot ordinary shares
will expire at the conclusion of the 2021 AGM unless renewed.
Accordingly, an ordinary resolution to renew this authority will
be proposed at the forthcoming AGM. In addition, it will be
proposed to give the Directors further authority for a period
of one year to allot ordinary shares in connection with a rights
issue in favour of ordinary shareholders. This is in accordance
with guidance issued by the Association of British Insurers. If the
Directors were to use further authority in the year following the
2021 AGM, all Directors wishing to remain in office would stand
for re-election at the 2022 AGM.
Details of these resolutions are included with the Notice of
AGM.
Resolutions at the Annual General Meeting
The Company’s AGM will be held on 11 November 2021. The
Notice of AGM sets out the resolutions to be considered and
approved at the meeting, together with some explanatory
notes. The resolutions cover such routine matters as the renewal
of authority to allot shares, to disapply pre-emption rights and to
purchase own shares.
Substantial shareholdings
As at 19 August 2020, the Company has been notified of the
following material interests in the voting rights of the Company
under the provisions of the Disclosure and Transparency Rules.
Rank
1
2
3
4
5
6
7
8
9
10
Shareholder
Aviva Investors
JO Hambro Capital Mgt
Tellworth Investments
Royal London Asset Mgt
Invesco
Canaccord Genuity Wealth Mgt
Gresham House
Schroder Investment Mgt
Janus Henderson Investors
Montanaro Asset Mgt
Shares % IC
6.62
4,117,659
6.41
3,987,291
5.52
3,431,811
4.92
3,060,457
4.52
2,809,391
4.5
2,800,000
4.07
2,533,231
3.98
2,475,475
3.6
2,239,138
3.07
1,911,965
Donations
During the year the Group made various charitable donations,
which are summarised in the Environmental, Social and
Governance Report on page 33. The Group made no political
donations nor incurred any political expenditure during the year
to 30 June 2021.
Creating a world fit for the future 123
Corporate governance
Directors’ report
Independent auditors
Following shareholder approval at the 2020 AGM, KPMG LLP
were re-appointed as independent auditors of the Group and
Company for the year ended 30 June 2021.
In accordance with Section 489 of the Companies Act 2006, a
resolution to re-appoint KPMG LLP as independent auditors of
the Group and Company will be proposed at the 2021 AGM.
Going concern
Having assessed the principal risks and the other matters
discussed in connection with the Viability Statement on pages
38 and 39, the Directors considered it appropriate to adopt the
going concern basis of accounting in preparing the financial
statements.
Branches outside the UK
The Company has no overseas branches outside the UK. A
number of the Group’s subsidiaries have overseas branches
outside the UK, which are disclosed in their local statutory
financial statements, where required.
Additional information
Certain information that is required to be included in the
Directors’ Report can be found elsewhere in this document
as referred to below, each of which is incorporated into the
Directors’ Report by cross-reference:
An indication of the likely future developments in the Group’s
business can found in the Strategic Report, on pages 7, 11, 47, 49,
51, 53 and 55.
Information on greenhouse-gas emissions, in the Sustainability
and ESG report on page 30.
Information on engagement with suppliers, customers and
others in a business relationship with the company in Our
stakeholders on pages 88 and 89.
Disclosure of information to auditor in the Statement of
Directors’ responsibility on page 125.
The Group’s statement on corporate governance in the
Corporate Governance Statement on pages 82 to 87.
The Group’s financial risk management objectives and policies
in relation to its use of financial instruments and its exposure to
capital, liquidity, credit and market risk, to the extent they are
material, in Note 27 to the Group financial statements.
The Directors’ Report was approved by order of the Board on 14
September 2021 and signed on its behalf by:
Patricia Ryan
Group General Counsel & Company Secretary
Registered office
Ricardo plc
Shoreham Technical Centre
Shoreham-by-Sea
West Sussex
BN43 5FG
124 Ricardo plc Annual Report & Accounts 2020/21
Statement of Directors’
responsibility
in respect of the Annual Report and the financial statements
The directors are responsible for preparing the Annual Report
and the Group and parent Company financial statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare Group and
parent Company financial statements for each financial year.
Under that law they are required to prepare the Group
financial statements In preparing these financial statements,
the Company applies the recognition, measurement and
disclosure requirements of international accounting standards in
conformity with the requirements of the Companies Act 2006,
but makes amendments where necessary in order to comply
with Companies Act 2006 and have elected to prepare the
parent Company financial statements in accordance with UK
accounting standards, including FRS 101 Reduced Disclosure
Framework.
Under company law the directors must not approve the
financial statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Group and parent
Company and of their profit or loss for that period. In preparing
each of the Group and parent Company financial statements,
the directors are required to:
• Select suitable accounting policies and then apply them
consistently.
• Make judgements and estimates that are reasonable, relevant,
reliable and prudent.
• For the Group financial statements, state whether they have
been prepared in accordance with IFRSs as adopted by the EU;
• For the parent Company financial statements, state whether
applicable UK accounting standards have been followed,
subject to any material departures disclosed and explained in
the parent company financial statements.
• Assess the Group and parent Company’s ability to continue as
a going concern, disclosing, as applicable, matters related to
going concern.
• Use the going concern basis of accounting unless they either
intend to liquidate the Group or the parent Company or to
cease operations, or have no realistic alternative but to do so.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent
Company’s transactions and disclose with reasonable accuracy
at any time the financial position of the parent Company and
enable them to ensure that its financial statements comply with
the Companies Act 2006. They are responsible for such internal
control as they determine is necessary to enable the preparation
of financial statements that are free from material misstatement,
whether due to fraud or error, and have general responsibility for
taking such steps as are reasonably open to them to safeguard
the assets of the Group and to prevent and detect fraud and
other irregularities.
Under applicable law and regulations, the directors are also
responsible for preparing a Strategic Report, Directors’ Report,
Directors’ Remuneration Report and Corporate Governance
Statement that complies with that law and those regulations.
The directors are responsible for the maintenance and
integrity of the corporate and financial information included
on the company’s website. Legislation in the UK governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Responsibility statement of the directors in respect of the
annual financial report
We confirm that to the best of our knowledge:
The financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss of the
company and the undertakings included in the consolidation
taken as a whole;
The strategic report includes a fair review of the development
and performance of the business and the position of the issuer
and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face; and
As at the date of this report there is no relevant audit
information of which the Company’s auditor is unaware. Each
Director has taken all the steps he or she should have taken as a
Director in order to make himself or herself aware of any relevant
audit information and to establish that the Company’s auditor
are aware of that information
We consider the annual report and accounts, taken as a
whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the group’s
position and performance, business model and strategy.
Dave Shemmans
Chief Executive Officer
Ian Gibson
Chief Financial Officer
14 September 2021
Creating a world fit for the future 125
Corporate governance 126 Ricardo plc Annual Report & Accounts 2020/21
Financial
statements
128 Independent auditor’s report
137 Group primary statements
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated cash flow statement
141 Notes to the Group financial statements
1. Principal accounting policies
2. Alternative Performance Measures
170 Working capital
21. Inventories
22. Trade, contract and other receivables
23. Trade, contract and other payables
172 Net debt and financial risk management
24. Net debt and borrowings
25. Reconciliation of movements of liabilities to cash flows
arising from financing activities
26. Fair value of financial assets and liabilities
27. Financial risk management
151 Financial performance
3. Operating profit
4. Financial performance by segment
5. Revenue
6. Specific adjusting items
7.
Earnings per share
8. Dividends
9. Net finance costs
10. Auditor’s remuneration
11. Tax expense
159 Capital base
12. Non-current assets by geographical location (excluding
deferred tax assets)
13. Acquisitions
14. Goodwill
15. Other intangible assets
16. Property, plant and equipment
17. Right-of-use assets, lease liabilities and lease receivables
18. Non-current assets held for sale
19. Provisions for liabilities and charges
20. Deferred tax
179 Equity
28. Share capital and share premium
29. Other reserves
30. Retained earnings
31. Non-controlling interests
181 Employees
32. Employee number and costs
33. Retirement benefits
34. Share-based payments
185 Unrecognised items and uncertain events
35. Contingent liabilities
186 Other
36. Related undertakings of the Group
37. Related parties’ transactions
38. Events after the reporting date
189 Company financial statements
Creating a world fit for the future 127
Independent
auditor’s report
to the members of Ricardo plc
We were first appointed as auditor by the shareholders
on 15 Novem ber 2018. The period of total
uninterrupted engagem ent is for the three financial
years ended 30 June 2021. We have fulfilled our
ethical responsibilities under, and we rem ain
independent of the Group in accordance with, UK
ethical requirem ents including the FRC Ethical Standard
as applied to listed public interest entities. No non-
audit services prohibited by that standard were
provided.
Overview
Materiality:
group financial
statem ents as a
whole
Coverage
£1.2m (2020:£1.3m )
5.3% (2020: 5.0%) of norm alised
profits and losses that m ake up
Group profit before tax
88% (2020:83%) of norm alised
profits and losses that m ake up
Group profit before tax
Key audit matters vs 2020
Recurring risks
Valuation of defined
benefit pension
obligation
Revenue recognition
of fixed price contracts
Financial
p erformance
New: Goodwill
Im pairm ent A&I EMEA
Division
◄►
▼
▲
1. Our opinion is unmodified
We have audited the financial statem ents of
Ricardo plc (“the Com pany”) for the year ended 30
June 2021 which com prise the consolidated
incom e statem ent, consolidated statem ent of
com prehensive incom e, consolidated statem ent of
financial position, consolidated statem ent of
changes in equity, consolidated cash flow
statem ent, com pany statem ent of financial
position, com pany statem ent of changes in equity,
and the related notes, including the accounting
policies in note 1.
In our opinion:
— the financial statem ents give a true and fair
view of the state of the Group’s and of the
parent Com pany’s affairs as at 30 June 2021
and of the Group’s profit for the year then
ended;
— the Group financial statem ents have been
properly prepared in accordance with
international accounting standards in conform ity
with the requirem ents of the Com panies Act
2006;
— the parent Com pany financial statem ents have
been properly prepared in accordance with
international accounting standards in conform ity
with the requirem ents of, and as applied in
accordance with the provisions of, the
Com panies Act 2006; and
— the financial statem ents have been prepared in
accordance with the requirem ents of the
Com panies Act 2006 and, as regards the Group
financial statem ents, Article 4 of the IAS
Regulation to the extent applicable.
Basis for opinion
We conducted our audit in accordance with
International Standards on Auditing (UK) (“ISAs
(UK)”) and applicable law. Our responsibilities are
described below. We believe that the audit
evidence we have obtained is a sufficient and
appropriate basis for our opinion. Our audit opinion
is consistent with our report to the audit
com m ittee.
128
2. Key audit matters: our assessment of risks of material misstatement
Key audit m atters are those m atters that, in our professional judgem ent, were of m ost significance in the audit of the financ ial
statem ents and include the m ost significant assessed risks of m aterial m isstatem ent (whether or not due to fraud) identified by
us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; a nd
directing the efforts of the engagem ent team . We sum m arise below the key audit m atters, in decreasing order of audit
significance, in arriving at our audit opinion above, together with our key audit procedures to address those m atters and, as
required for public interest entities, our results from those procedures. These m atters were addressed, and our results are
based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statem ents as a
whole, and in form ing our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate
opinion on these m atters.
The risk
Our resp onse
Group and p arent Comp any:
Valuation of defined b enefit
p ension ob ligation
(£149.3m ; 2020: £157.1m )
Refer to page 93 (Audit
Com m ittee Report), page 147
(accounting policy) and page 182
(financial disclosures).
Sub jective estimate:
A significant level of estim ation is
required in order to determ ine the
valuation of the gross liability of the
Defined Benefit Obligation. Sm all
changes in the key assum ptions (in
particular, discount rates, inflation &
m ortality rates) can have a m aterial
im pact on the gross liability.
A triennial valuation for the pensions
schem e’s year ended 5 April 2020 is
currently ongoing. This require a new
set of m em bership data be provided to
the actuary which is also used by the
Group in calculating the total defined
benefit obligation, with roll forward
assum ptions applied to 30 June 2021 in
line with accepted valuation techniques.
Due to the volum e of m em bers both
joining and m oving categories (i.e
between active, deferred and
pensioner), errors in the m em bership
records could result in a m aterial
m isstatem ent if not com pletely and
accurately included in the calculation of
the gross liability.
The effect of these m atters is that, as
part of our risk assessm ent, we
determ ined that the valuation of the
defined benefit obligation has a high
degree of estim ation uncertainty, with a
potential range of reasonable outcom es
greater than our m ateriality for the
financial statem ents as a whole, and
possibly m any tim es that am ount. The
financial statem ents (Note 33) disclose
the sensitivity estim ated by the Group
and Parent Com pany.
We perform ed the detailed tests below rather
than seeking to rely on any of the com pany's
controls because the nature of the ba lance is
to obtain audit
such that we would expect
detailed
through
prim arily
evidence
procedures described.
the
Our procedures included:
— Benchmarking assump tions: We
challenged key assum ptions applied
(discount rate, inflation rate, and m ortality
rate) with the support of our own actuarial
specialists, including a com parison of key
assum ptions against external m arket data;
— Assessing b ase data: We have confirm ed
the data used in the current year valuation is
consistent with that prepared at the triennial
valuation as at 31 March 2020. We used our
actuarial specialists to challenge the
m ethodology used to roll forward the results
of the triennial valuation as at 5 April 2020 to
30 June 2021.
— Assessing transp arency: We considered
the adequacy of the Group and Com pany’s
disclosures in respect of the sensitivity of
the deficit to changes in key assum ptions.
Our results
— We found the valuation of the defined
benefit pension obligation to be acceptable.
(2020: acceptable)
129
2.Key audit matters: our assessment of risks of material misstatementKey audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financialstatements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarisebelow the key audit matters, in decreasing order of audit significance, in arriving at our audit opinion above, together with our key audit procedures to address those matters and, asrequired for public interest entities, our results from those procedures. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.The riskOur responseGroup and parent Company: Valuation of defined benefit pension obligation(£149.3m; 2020: £157.1m)Refer to page 93 (Audit Committee Report), page 147 (accounting policy) and page 182 (financial disclosures).Subjective estimate:A significant level of estimation is required in order to determine the valuation of the gross liability of the Defined Benefit Obligation. Small changes in the key assumptions (in particular, discount rates, inflation & mortality rates) can have a material impact on the gross liability. A triennial valuation for the pensions scheme’s year ended 5 April 2020 is currently ongoing. This require a new set of membership data be provided to the actuary which is also used by the Group in calculating the total defined benefit obligation, with roll forward assumptions applied to 30 June 2021 in line with accepted valuation techniques. Due to the volume of members both joining and moving categories (i.ebetween active, deferred and pensioner), errors in the membership records could result in a material misstatement if not completely and accurately included in the calculation of the gross liability. The effect of these matters is that, as part of our risk assessment, we determined that the valuation of the defined benefit obligation has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole, and possibly many times that amount. The financial statements (Note 33) disclose the sensitivity estimated by the Group and Parent Company.Weperformedthedetailedtestsbelowratherthanseekingtorelyonanyofthecompany'scontrolsbecausethenatureofthebalanceissuchthatwewouldexpecttoobtainauditevidenceprimarilythroughthedetailedproceduresdescribed.Ourproceduresincluded:—Benchmarking assumptions: We challenged key assumptions applied (discount rate, inflation rate, and mortality rate) with the support of our own actuarial specialists, including a comparison of key assumptions against external market data; —Assessing base data: We have confirmed the data used in the current year valuation is consistent with that prepared at the triennial valuation as at 31 March 2020. We used our actuarial specialists to challenge the methodology used to roll forward the results of the triennial valuation as at 5 April 2020 to 30 June 2021. —Assessing transparency: We considered the adequacy of the Group and Company’s disclosures in respect of the sensitivity of the deficit to changes in key assumptions.Our results —We found the valuation of the defined benefit pension obligation to be acceptable. (2020: acceptable) 2. Key audit matters: our assessment of risks of material misstatement (continued)
The risk
Our resp onse
Goodwill Impairment A&I EMEA
Division
(£19.6m ; 2020: £20.6m )
Refer to page 94 (Audit
Com m ittee Report), page 145
(accounting policy) and page 160
(financial disclosures).
Forecast-b ased assessment:
Goodwill is significant and at risk of
irrecoverability due to reduced dem and
and trading losses. The estim ated
recoverable am ount is subjective due to
the inherent uncertainty involved in
forecasting and discounting future cash
flows.
The effect of these m atters is that, as
part of our risk assessm ent, we
determ ined that the value in use of
goodwill has a high degree of estim ation
uncertainty, with a potential range of
reasonable outcom es greater than our
m ateriality for the financial statem ents
as a whole, and possibly m any tim es
that am ount. The financial statem ents
(note 14) disclose the sensitivity
estim ated by the Group.
We perform ed the detailed tests below rather
than seeking to rely on any of the com pany's
controls because the nature of the balance is
such that we would expect to obtain audit
evidence prim arily through the detailed
procedures described.
Our procedures included:
— Our sector exp erience: Evaluating
assum ptions used, in particular those relating
to forecast revenue growth and
m anagem ents expectations of cashflows
expected to arise from internal com bustion
engine related revenues and non-internal
com bustion related revenues;
— Benchmarking assump tions: Com paring the
group’s assum ptions to externally derived
data in relation to key inputs such as
projected econom ic growth and discount
rates;
— Sensitivity analysis: Perform ing breakeven
analysis on the assum ptions noted above and
considered reasonably possible changes in
key inputs that had the greatest judgm ent and
their im pact on the valuation;
— Assessing transp arency: Assessing whether
the group’s disclosures about the sensitivity
of the outcom e of the im pairm ent
assessm ent to changes in key assum ptions
reflect the risks inherent in the valuation of
goodwill.
Our results
— We found the group’s conclusion that there is
no im pairm ent of goodwill to be acceptable.
130
2.Key audit matters: our assessment of risks of material misstatementKey audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financialstatements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarisebelow the key audit matters, in decreasing order of audit significance, in arriving at our audit opinion above, together with our key audit procedures to address those matters and, asrequired for public interest entities, our results from those procedures. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.The riskOur responseGroup and parent Company: Valuation of defined benefit pension obligation(£149.3m; 2020: £157.1m)Refer to page 93 (Audit Committee Report), page 147 (accounting policy) and page 182 (financial disclosures).Subjective estimate:A significant level of estimation is required in order to determine the valuation of the gross liability of the Defined Benefit Obligation. Small changes in the key assumptions (in particular, discount rates, inflation & mortality rates) can have a material impact on the gross liability. A triennial valuation for the pensions scheme’s year ended 5 April 2020 is currently ongoing. This require a new set of membership data be provided to the actuary which is also used by the Group in calculating the total defined benefit obligation, with roll forward assumptions applied to 30 June 2021 in line with accepted valuation techniques. Due to the volume of members both joining and moving categories (i.ebetween active, deferred and pensioner), errors in the membership records could result in a material misstatement if not completely and accurately included in the calculation of the gross liability. The effect of these matters is that, as part of our risk assessment, we determined that the valuation of the defined benefit obligation has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole, and possibly many times that amount. The financial statements (Note 33) disclose the sensitivity estimated by the Group and Parent Company.Weperformedthedetailedtestsbelowratherthanseekingtorelyonanyofthecompany'scontrolsbecausethenatureofthebalanceissuchthatwewouldexpecttoobtainauditevidenceprimarilythroughthedetailedproceduresdescribed.Ourproceduresincluded:—Benchmarking assumptions: We challenged key assumptions applied (discount rate, inflation rate, and mortality rate) with the support of our own actuarial specialists, including a comparison of key assumptions against external market data; —Assessing base data: We have confirmed the data used in the current year valuation is consistent with that prepared at the triennial valuation as at 31 March 2020. We used our actuarial specialists to challenge the methodology used to roll forward the results of the triennial valuation as at 5 April 2020 to 30 June 2021. —Assessing transparency: We considered the adequacy of the Group and Company’s disclosures in respect of the sensitivity of the deficit to changes in key assumptions.Our results —We found the valuation of the defined benefit pension obligation to be acceptable. (2020: acceptable) 2. Key audit matters: our assessment of risks of material misstatement (continued)
Revenue recognition on fixed
p rice contracts
(£210.8m ; 2020: £189.5m )
Refer to page 93 (Audit
Com m ittee Report), page 143
(accounting policy) and page 153
(financial disclosures).
The risk
Our resp onse
Accounting ap p lication:
Our procedures included:
For fixed price contracts the Group
recognises the m ajority of revenue and
profit on the stage of com pletion based
on the proportion of contract costs
incurred for the work perform ed to the
balance sheet date, relative to the
estim ated total forecast costs of the
contract at com pletion.
Fixed price contracts is an area which
we have the m ost allocation of
resources in the audit and directing the
efforts of the engagem ent team due to
the volum e of contracts and the am ount
of the fixed price contracts revenue.
A large part portfolio com prises
contracts that individually have low
estim ation uncertainty. The highest
value, highest risk, m ost technically
com plex and financially challenging
contracts to deliver are categorised as
‘Red CAT 4’ contracts, which are
subject to m ore frequent and senior
levels of m anagem ent review. The
financial statem ents (note 1c) disclose
the range of possible financial outcom es
estim ated by the Group on ‘Red CAT 4’
contracts.
The judgm ents im pacting the
recognition of revenue include:
-
The identification of distinct
perform ance obligations.
- Assessm ent of stage of com pletion
and costs to com plete
-
The recognition of variations
We have considered this risk is lower
than the prior year based on our
experience of the audit.
— Control ob servation: We attended the
‘Red CAT 4’ review m eetings in January and
July 2021 at which perform ance of these
contracts was discussed with the Chief
Financial Officer and divisional Managing
and Finance Director;
— Test of detail: We selected a sam ple of
costs incurred in the year and agreed to
supporting docum entation which included,
for exam ple; invoices and tim esheets;
— We inspected a sam ple of correspondence
with custom ers and instances where
contractual variations had arisen to inform
our assessm ent of the revenue and costs
recorded up to the balance sheet date. We
also agreed the variations to relevant
invoicing schedules and paym ent plans and
the subsequent cash receipts, where
possible;
— Historical comp arisons: We assessed the
reasonableness of the Group’s forecasts by
com paring with the com parative year
forecasts and the financial perform ance;
— Indep endent rep erformance: We
recalculated the stage of com pletion on the
basis of actual costs and the Group’s latest
forecast to inform our assessm ent of the
appropriate am ount of revenue and profit to
recognise and com pared this to the
am ounts recorded by the Group;
— Assessing transp arency: We considered
the adequacy of the Group’s disclosures
about the degree of estim ates involved in
estim ating the stage of com pletion for
determ ining the revenue am ounts for fixed
price contracts;
Our results
— We found revenue recognition on fixed price
contracts to be acceptable. (2020:
acceptable)
We continue to perform procedures over Going Concern. However, following the im proved perform ance of the Group and issue of
new ordinary shares during the year, we have not assessed this as one of the m ost significant risks in our current year audit and,
therefore, it is not separately identified in our report this year.
131
2.Key audit matters: our assessment of risks of material misstatementKey audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financialstatements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarisebelow the key audit matters, in decreasing order of audit significance, in arriving at our audit opinion above, together with our key audit procedures to address those matters and, asrequired for public interest entities, our results from those procedures. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.The riskOur responseGroup and parent Company: Valuation of defined benefit pension obligation(£149.3m; 2020: £157.1m)Refer to page 93 (Audit Committee Report), page 147 (accounting policy) and page 182 (financial disclosures).Subjective estimate:A significant level of estimation is required in order to determine the valuation of the gross liability of the Defined Benefit Obligation. Small changes in the key assumptions (in particular, discount rates, inflation & mortality rates) can have a material impact on the gross liability. A triennial valuation for the pensions scheme’s year ended 5 April 2020 is currently ongoing. This require a new set of membership data be provided to the actuary which is also used by the Group in calculating the total defined benefit obligation, with roll forward assumptions applied to 30 June 2021 in line with accepted valuation techniques. Due to the volume of members both joining and moving categories (i.ebetween active, deferred and pensioner), errors in the membership records could result in a material misstatement if not completely and accurately included in the calculation of the gross liability. The effect of these matters is that, as part of our risk assessment, we determined that the valuation of the defined benefit obligation has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole, and possibly many times that amount. The financial statements (Note 33) disclose the sensitivity estimated by the Group and Parent Company.Weperformedthedetailedtestsbelowratherthanseekingtorelyonanyofthecompany'scontrolsbecausethenatureofthebalanceissuchthatwewouldexpecttoobtainauditevidenceprimarilythroughthedetailedproceduresdescribed.Ourproceduresincluded:—Benchmarking assumptions: We challenged key assumptions applied (discount rate, inflation rate, and mortality rate) with the support of our own actuarial specialists, including a comparison of key assumptions against external market data; —Assessing base data: We have confirmed the data used in the current year valuation is consistent with that prepared at the triennial valuation as at 31 March 2020. We used our actuarial specialists to challenge the methodology used to roll forward the results of the triennial valuation as at 5 April 2020 to 30 June 2021. —Assessing transparency: We considered the adequacy of the Group and Company’s disclosures in respect of the sensitivity of the deficit to changes in key assumptions.Our results —We found the valuation of the defined benefit pension obligation to be acceptable. (2020: acceptable) 3. Our application of materiality and an
overview of the scope of our audit
Normalised group p rofit b efore
tax
£22.0m (2020: £26.6m)
Materiality for the group financial statem ents as a
whole was set at £1.2m (2020: £1.3m ), determ ined
with reference to a benchm ark of group profit before
tax, norm alised to exclude exceptional acquisition
related expenditure, asset purchases and disposals
and other reorganisation costs as disclosed in note 6
and by averaging over the last four (2020: three)
years due to the im pact of the COVID-19 pandem ic
on the results of the Group, of which it represents
5.3% (2020: 5:0%).
Materiality for the parent com pany financial
statem ents as a whole was set at £0.3m (2020:
£0.5m ), determ ined with reference to a benchm ark
of com pany total assets, of which it represents
0.1% (2020: 0.2%).
In line with our audit m ethodology, our procedures
on individual account balances and disclosures
were perform ed to a lower threshold, perform ance
m ateriality, so as to reduce to an acceptable level
the risk that individually im m aterial m isstatem ents
in individual account balances add up to a m aterial
am ount across the financial statem ents as a whole.
Perform ance m ateriality was set at 75% (2020:
75%) of m ateriality for the financial statem ents as a
whole, which equates to £0.9m (2020: £1.0) for the
group and £0.2m (2020: £0.4m ) for the parent
com pany. We applied this percentage in our
determ ination of perform ance m ateriality because
we did not identify any factors indicating an
elevated level of risk.
We agreed to report to the Audit Com m ittee any
corrected or uncorrected identified m isstatem ents
exceeding £0.06m (2020: £0.07m ), in addition to
other identified m isstatem ents that warranted
reporting on qualitative grounds.
Of the group’s 57 (2020: 59) reporting com ponents,
we subjected 16 (2020: 10) to full scope audits for
group purposes and 6 (2020: 9) to specified risk-
focused audit procedures including; revenue,
inventory, capitalised developm ent and cash
journals. The latter were not individually financially
significant enough to require a full scope audit for
group purposes, but did present specific individual
risks that needed to be addressed.
The com ponents within the scope of our work
accounted for the percentages illustrated opposite.
The rem aining 9% (2020: 10%) of total group
revenue, 12% (2020: 17%) of group profit before
tax and 9% (2020: 10%) of total group assets is
represented by 35 (2020: 40) reporting
com ponents, none of which individually
represented m ore than 2.4% (2020: 6.5%) of any of
total group revenue, group profit before tax or total
group assets. For the residual com ponents, we
perform ed analysis at an aggregated group level to
re-exam ine our assessm ent that there were no
significant risks of m aterial m isstatem ent within
these.
Key:
132
Group materiality
£1.2m (2020: £1.3m)
£1.2m
Whole financial
statements materiality (2020:
£1.3 m)
£0.9m
Whole financial
statements performance
materiality (2020: £1.0m)
£0.9m
Range of materiality at 18
components (£0.1m to £0.9m)
(2020: £0.2m to £1.0m)
£0.06m
Misstatements reported to the
audit committee (2020:
£0.07m)
Normalised PBT
Group materiality
Group revenue
Group p rofit b efore tax
18
2 1
91%
(2 02 0 90%)
69
73
13
88%
(2 02 0 83%)
27
56
75
Group total assets
13
10
91%
(2 02 0 90%)
80
78
Full scope for group audit purposes 2021
Specified risk-focused audit procedures 2021
Full scope for group audit purposes 2020
Specified risk-focused audit procedures 2020
Residual components
2.Key audit matters: our assessment of risks of material misstatementKey audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financialstatements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarisebelow the key audit matters, in decreasing order of audit significance, in arriving at our audit opinion above, together with our key audit procedures to address those matters and, asrequired for public interest entities, our results from those procedures. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.The riskOur responseGroup and parent Company: Valuation of defined benefit pension obligation(£149.3m; 2020: £157.1m)Refer to page 93 (Audit Committee Report), page 147 (accounting policy) and page 182 (financial disclosures).Subjective estimate:A significant level of estimation is required in order to determine the valuation of the gross liability of the Defined Benefit Obligation. Small changes in the key assumptions (in particular, discount rates, inflation & mortality rates) can have a material impact on the gross liability. A triennial valuation for the pensions scheme’s year ended 5 April 2020 is currently ongoing. This require a new set of membership data be provided to the actuary which is also used by the Group in calculating the total defined benefit obligation, with roll forward assumptions applied to 30 June 2021 in line with accepted valuation techniques. Due to the volume of members both joining and moving categories (i.ebetween active, deferred and pensioner), errors in the membership records could result in a material misstatement if not completely and accurately included in the calculation of the gross liability. The effect of these matters is that, as part of our risk assessment, we determined that the valuation of the defined benefit obligation has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole, and possibly many times that amount. The financial statements (Note 33) disclose the sensitivity estimated by the Group and Parent Company.Weperformedthedetailedtestsbelowratherthanseekingtorelyonanyofthecompany'scontrolsbecausethenatureofthebalanceissuchthatwewouldexpecttoobtainauditevidenceprimarilythroughthedetailedproceduresdescribed.Ourproceduresincluded:—Benchmarking assumptions: We challenged key assumptions applied (discount rate, inflation rate, and mortality rate) with the support of our own actuarial specialists, including a comparison of key assumptions against external market data; —Assessing base data: We have confirmed the data used in the current year valuation is consistent with that prepared at the triennial valuation as at 31 March 2020. We used our actuarial specialists to challenge the methodology used to roll forward the results of the triennial valuation as at 5 April 2020 to 30 June 2021. —Assessing transparency: We considered the adequacy of the Group and Company’s disclosures in respect of the sensitivity of the deficit to changes in key assumptions.Our results —We found the valuation of the defined benefit pension obligation to be acceptable. (2020: acceptable) 3. Our application of materiality and an overview of the
Our procedures also included:
scope of our audit (cont.)
The Group team instructed com ponent auditors as to the
significant areas to be covered, including the relevant risks
detailed above and the inform ation to be reported back.
The Group team approved the com ponent m aterialities,
which ranged from £0.1m to £0.9m (2020: £0.2m to
£1.0m ), having regard to the m ix of size and risk profile of
the Group across the com ponents. The work on 8 of the 22
com ponents (2020: 6 of the 19 com ponents) was
perform ed by com ponent auditors and the rest, including
the audit of the parent com pany, was perform ed by the
Group team . The group team perform ed procedures on the
item s excluded from norm alised group profit before tax.
The Group team visited 0 (2020: 0) com ponent locations in
to assess the audit risk and strategy. No sites were visited
by the Group team in the current year due to travel
restrictions caused by the COVID-19 pandem ic and instead
video and telephone conference calls were held with all
com ponent auditors. At these m eetings, the findings
reported to the Group team were discussed in m ore detail,
and any further work required by the Group team was then
perform ed by the com ponent auditor.
4. Going concern
The Directors have prepared the financial statem ents on the
going concern basis as they do not intend to liquidate the
Group or the Com pany or to cease their operations, and as
they have concluded that the Group’s and the Com pany’s
financial position m eans that this is realistic. They have also
concluded that there are no m aterial uncertainties that
could have cast significant doubt over their ability to
continue as a going concern for at least a year from the
date of approval of the financial statem ents (“the going
concern period”).
We used our knowledge of the Group, its industry, and the
general econom ic environm ent to identify the inherent risks
to its business m odel and analysed how those risks m ight
affect the Group’s and Com pany’s financial resources or
ability to continue operations over the going concern period.
The risks that we considered m ost likely to adversely affect
the Group’s and Com pany’s available financial resources
and m etrics relevant to debt covenants over this period
were:
-
challenges im pacting the autom otive industry and a
further decline in trading results for this segm ent;
- Autom otive project delays resulting in reduced revenue
for the period
We considered whether these risks could plausibly affect
the liquidity or covenant com pliance in the going concern
period by assessing the Directors’ sensitivities over the
level of available financial resources and covenant
thresholds indicated by the Group’s financial forecasts
taking account of severe, but plausible adverse effects that
could arise from these risks individually and collectively.
- Critically assessing assum ptions in base case and
downside scenarios relevant to liquidity and covenant
m etrics, in particular in relation to the Autom otive and
Industrial division by com paring to the recent downward
trend during the pandem ic and overlaying knowledge of
the entity' plans based on approved budgets and our
knowledge of the entity and the sector in which it
operates.
- We also com pared past budgets to actual results to
assess the directors' track record of budgeting
accurately.
- We inspected the confirm ation from the lender of the
level of com m itted financing, and the associated
covenant requirem ents.
Our conclusions based on this work:
— we consider that the directors’ use of the going concern
basis of accounting in the preparation of the financial
statem ents is appropriate;
— we have not identified, and concur with the directors’
assessm ent that there is not, a m aterial uncertainty
related to events or conditions that, individually or
collectively, m ay cast significant doubt on the Group’s or
Com pany's ability to continue as a going concern for the
going concern period;
— we have nothing m aterial to add or draw attention to in
relation to the directors’ statem ent in note 1 to the
financial statem ents on the use of the going concern
basis of accounting with no m aterial uncertainties that
m ay cast significant doubt over the Group and
Com pany’s use of that basis for the going concern
period, and we found the going concern disclosure in
note 1 to be acceptable; and
— the related statem ent under the Listing Rules set out on
page 125 is m aterially consistent with the financial
statem ents and our audit knowledge.
However, as we cannot predict all future events or
conditions and as subsequent events m ay result in
outcom es that are inconsistent with judgem ents that were
reasonable at the tim e they were m ade, the above
conclusions are not a guarantee that the Group or the
Com pany will continue in operation.
133
2.Key audit matters: our assessment of risks of material misstatementKey audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financialstatements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarisebelow the key audit matters, in decreasing order of audit significance, in arriving at our audit opinion above, together with our key audit procedures to address those matters and, asrequired for public interest entities, our results from those procedures. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.The riskOur responseGroup and parent Company: Valuation of defined benefit pension obligation(£149.3m; 2020: £157.1m)Refer to page 93 (Audit Committee Report), page 147 (accounting policy) and page 182 (financial disclosures).Subjective estimate:A significant level of estimation is required in order to determine the valuation of the gross liability of the Defined Benefit Obligation. Small changes in the key assumptions (in particular, discount rates, inflation & mortality rates) can have a material impact on the gross liability. A triennial valuation for the pensions scheme’s year ended 5 April 2020 is currently ongoing. This require a new set of membership data be provided to the actuary which is also used by the Group in calculating the total defined benefit obligation, with roll forward assumptions applied to 30 June 2021 in line with accepted valuation techniques. Due to the volume of members both joining and moving categories (i.ebetween active, deferred and pensioner), errors in the membership records could result in a material misstatement if not completely and accurately included in the calculation of the gross liability. The effect of these matters is that, as part of our risk assessment, we determined that the valuation of the defined benefit obligation has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole, and possibly many times that amount. The financial statements (Note 33) disclose the sensitivity estimated by the Group and Parent Company.Weperformedthedetailedtestsbelowratherthanseekingtorelyonanyofthecompany'scontrolsbecausethenatureofthebalanceissuchthatwewouldexpecttoobtainauditevidenceprimarilythroughthedetailedproceduresdescribed.Ourproceduresincluded:—Benchmarking assumptions: We challenged key assumptions applied (discount rate, inflation rate, and mortality rate) with the support of our own actuarial specialists, including a comparison of key assumptions against external market data; —Assessing base data: We have confirmed the data used in the current year valuation is consistent with that prepared at the triennial valuation as at 31 March 2020. We used our actuarial specialists to challenge the methodology used to roll forward the results of the triennial valuation as at 5 April 2020 to 30 June 2021. —Assessing transparency: We considered the adequacy of the Group and Company’s disclosures in respect of the sensitivity of the deficit to changes in key assumptions.Our results —We found the valuation of the defined benefit pension obligation to be acceptable. (2020: acceptable) 5. Fraud and breaches of laws and regulations – ability
to detect
Iden tifying an d responding to risks of m aterial
m isstatement due to fraud
To identify risks of m aterial m isstatem ent due to fraud
(“fraud risks”) we assessed events or conditions that could
indicate an incentive or pressure to com m it fraud or provide
an opportunity to com m it fraud. Our risk assessm ent
procedures included:
-
Enquiring of directors, the audit com m ittee, internal
audit and inspection of policy docum entation as to the
Group’s high-level policies and procedures to prevent
and detect fraud, including the internal audit function,
and the Group’s channel for “whistleblowing”, as well
as whether they have knowledge of any actual,
suspected or alleged fraud.
- Reading Board and audit com m ittee m inutes.
We com m unicated identified fraud risks throughout the
audit team and rem ained alert to any indications of fraud
throughout the audit. This included com m unication from the
group to full scope com ponent audit team s of relevant fraud
risks identified at the Group level and request to full scope
com ponent audit team s to report to the Group audit team
any instances of fraud that could give rise to a m aterial
m isstatem ent at group.
As required by auditing standards, and taking into account
possible pressures to m eet profit targets and our overall
knowledge of the control environm ent, we perform
procedures to address the risk of m anagem ent override of
controls, in particular the risk that Group and com ponent
m anagem ent m ay be in a position to m ake inappropriate
accounting entries. On this audit we do not believe there is
a fraud risk related to revenue recognition because of the
relatively low estim ation risk across the contract portfolio,
the historical accuracy of forecasting and the strength of
the control environm ent in place.
We also identified a fraud risk related to inappropriate
capitalisation of developm ent costs in response to possible
pressures to m eet profit targets.
We perform ed procedures including:
-
-
Identifying journal entries to test for all full scope
com ponents based on risk criteria and com paring the
identified entries to supporting docum entation. These
included those posted to cash and capitalised
developm ent costs where applicable to check for
unexpected journal pairings.
the vouching a sam ple of tim esheet entries recorded
directly with em ployees to confirm the accuracy.
Iden tifying an d responding to risks of m aterial
m isstatement due to n on-compliance with laws an d
regulations
We identified areas of laws and regulations that could
reasonably be expected to have a m aterial effect on the
financial statem ents from our general com m ercial and
sector experience, through discussion with the directors
and other m anagem ent (as required by auditing standards),
and discussed with the directors and other m anagem ent
the policies and procedures regarding com pliance with laws
and regulations.
134
As the Group is regulated, our assessm ent of risks involved
gaining an understanding of the control environm ent
including the entity’s procedures for com plying with
regulatory requirem ents.
We com m unicated identified laws and regulations
throughout our team and rem ained alert to any indications
of non-com pliance throughout the audit. This included
com m unication from the group to full scope com ponent
audit team s of relevant laws and regulations identified at
the Group level, and a request for full scope com ponent
auditors to report to the group team any instances of non-
com pliance with laws and regulations that could give rise to
a m aterial m isstatem ent at group.
The potential effect of these laws and regulations on the
financial statem ents varies considerably.
Firstly, the Group is subject to laws and regulations that
directly affect the financial statem ents including financial
reporting legislation (including related com panies
legislation), distributable profits legislation, taxation
legislation and pensions legislation and we assessed the
extent of com pliance with these laws and regulations as
part of our procedures on the related financial statem ent
item s.
Secondly, the Group is subject to m any other laws and
regulations where the consequences of non-com pliance
could have a m aterial effect on am ounts or disclosures in
the financial statem ents, for instance through the
im position of fines or litigation. We identified the following
areas as those m ost likely to have such an effect: health
and safety, anti-bribery, em ploym ent law, road and m otor
vehicle regulations, com petition laws, regulatory capital and
liquidity and certain aspects of com pany legislation
recognising the regulated nature of the Group’s activities
and its legal form . Auditing standards lim it the required
audit procedures to identify non-com pliance with these
laws and regulations to enquiry of the directors and other
m anagem ent and inspection of regulatory and legal
correspondence, if any. Therefore if a breach of operational
regulations is not disclosed to us or evident from relevant
correspondence, an audit will not detect that breach.
Con text of th e ability of th e audit to detect fraud or
breach es of law or regulation
Owing to the inherent lim itations of an audit, there is an
unavoidable risk that we m ay not have detected som e
m aterial m isstatem ents in the financial statem ents, even
though we have properly planned and perform ed our audit
in accordance with auditing standards. For exam ple, the
further rem oved non-com pliance with laws and regulations
is from the events and transactions reflected in the financial
statem ents, the less likely the inherently lim ited procedures
required by auditing standards would identify it.
In addition, as with any audit, there rem ained a higher risk
of non-detection of fraud, as these m ay involve collusion,
forgery, intentional om issions, m isrepresentations, or the
override of internal controls. Our audit procedures are
designed to detect m aterial m isstatem ent. We are not
responsible for preventing non-com pliance or fraud and
cannot be expected to detect non-com pliance with all laws
and regulations.
2.Key audit matters: our assessment of risks of material misstatementKey audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financialstatements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarisebelow the key audit matters, in decreasing order of audit significance, in arriving at our audit opinion above, together with our key audit procedures to address those matters and, asrequired for public interest entities, our results from those procedures. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.The riskOur responseGroup and parent Company: Valuation of defined benefit pension obligation(£149.3m; 2020: £157.1m)Refer to page 93 (Audit Committee Report), page 147 (accounting policy) and page 182 (financial disclosures).Subjective estimate:A significant level of estimation is required in order to determine the valuation of the gross liability of the Defined Benefit Obligation. Small changes in the key assumptions (in particular, discount rates, inflation & mortality rates) can have a material impact on the gross liability. A triennial valuation for the pensions scheme’s year ended 5 April 2020 is currently ongoing. This require a new set of membership data be provided to the actuary which is also used by the Group in calculating the total defined benefit obligation, with roll forward assumptions applied to 30 June 2021 in line with accepted valuation techniques. Due to the volume of members both joining and moving categories (i.ebetween active, deferred and pensioner), errors in the membership records could result in a material misstatement if not completely and accurately included in the calculation of the gross liability. The effect of these matters is that, as part of our risk assessment, we determined that the valuation of the defined benefit obligation has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole, and possibly many times that amount. The financial statements (Note 33) disclose the sensitivity estimated by the Group and Parent Company.Weperformedthedetailedtestsbelowratherthanseekingtorelyonanyofthecompany'scontrolsbecausethenatureofthebalanceissuchthatwewouldexpecttoobtainauditevidenceprimarilythroughthedetailedproceduresdescribed.Ourproceduresincluded:—Benchmarking assumptions: We challenged key assumptions applied (discount rate, inflation rate, and mortality rate) with the support of our own actuarial specialists, including a comparison of key assumptions against external market data; —Assessing base data: We have confirmed the data used in the current year valuation is consistent with that prepared at the triennial valuation as at 31 March 2020. We used our actuarial specialists to challenge the methodology used to roll forward the results of the triennial valuation as at 5 April 2020 to 30 June 2021. —Assessing transparency: We considered the adequacy of the Group and Company’s disclosures in respect of the sensitivity of the deficit to changes in key assumptions.Our results —We found the valuation of the defined benefit pension obligation to be acceptable. (2020: acceptable) 6. We have nothing to report on the other information
in the Annual Report
The directors are responsible for the other inform ation
presented in the Annual Report together with the financial
statem ents. Our opinion on the financial statem ents does
not cover the other inform ation and, accordingly, we do not
express an audit opinion or, except as explicitly stated
below, any form of assurance conclusion thereon.
Our responsibility is to read the other inform ation and, in
doing so, consider whether, based on our financial
statem ents audit work, the inform ation therein is m aterially
m isstated or inconsistent with the financial statem ents or
our audit knowledge. Based solely on that work we have
not identified m aterial m isstatem ents in the other
inform ation.
Strategic report an d directors’ report
Based solely on our work on the other inform ation:
— we have not identified m aterial m isstatem ents in the
strategic report and the directors’ report;
— in our opinion the inform ation given in those reports for
the financial year is consistent with the financial
statem ents; and
— in our opinion those reports have been prepared in
accordance with the Com panies Act 2006.
Directors’ rem uneration report
In our opinion the part of the Directors’ Rem uneration
Report to be audited has been properly prepared in
accordance with the Com panies Act 2006.
Disclosures of em erging and prin cipal risks an d longer-
term viability
We are required to perform procedures to identify whether
there is a m aterial inconsistency between the directors’
disclosures in respect of em erging and principal risks and
the viability statem ent, and the financial statem ents and
our audit knowledge.
Based on those procedures, we have nothing m aterial to
add or draw attention to in relation to:
— the directors’ confirm ation within the viability statem ent
on page 38 that they have carried out a robust
assessm ent of the em erging and principal risks facing
the Group, including those that would threaten its
business m odel, future perform ance, solvency and
liquidity;
— the Principal risks and uncertainties disclosures
describing these risks and how em erging risks are
identified, and explaining how they are being m anaged
and m itigated; and
— the directors’ explanation in the viability statem ent of
how they have assessed the prospects of the Group,
over what period they have done so and why they
considered that period to be appropriate, and their
statem ent as to whether they have a reasonable
expectation that the Group will be able to continue in
operation and m eet its liabilities as they fall due over the
period of their assessm ent, including any related
disclosures drawing attention to any necessary
qualifications or assum ptions.
We are also required to review the viability statem ent, set
out on page 38 under the Listing Rules. Based on the
above procedures, we have concluded that the above
disclosures are m aterially consistent with the financial
statem ents and our audit knowledge.
Our work is lim ited to assessing these m atters in the
context of only the knowledge acquired during our financial
statem ents audit. As we cannot predict all future events or
conditions and as subsequent events m ay result in
outcom es that are inconsistent with judgem ents that were
reasonable at the tim e they were m ade, the absence of
anything to report on these statem ents is not a guarantee
as to the Group’s and Com pany’s longer-term viability.
Corporate govern ance disclosures
We are required to perform procedures to identify whether
there is a m aterial inconsistency between the directors’
corporate governance disclosures and the financial
statem ents and our audit knowledge.
Based on those procedures, we have concluded that each
of the following is m aterially consistent with the financial
statem ents and our audit knowledge:
— the directors’ statem ent that they consider that the
annual report and financial statem ents taken as a whole
is fair, balanced and understandable, and provides the
inform ation necessary for shareholders to assess the
Group’s position and perform ance, business m odel and
strategy;
— the section of the annual report describing the work of
the Audit Com m ittee, including the significant issues
that the audit com m ittee considered in relation to the
financial statem ents, and how these issues were
addressed; and
— the section of the annual report that describes the
review of the effectiveness of the Group’s risk
m anagem ent and internal control system s.
We are required to review the part of the Corporate
Governance Statem ent relating to the Group’s com pliance
with the provisions of the UK Corporate Governance Code
specified by the Listing Rules for our review. We have
nothing to report in this respect.
135
2.Key audit matters: our assessment of risks of material misstatementKey audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financialstatements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarisebelow the key audit matters, in decreasing order of audit significance, in arriving at our audit opinion above, together with our key audit procedures to address those matters and, asrequired for public interest entities, our results from those procedures. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.The riskOur responseGroup and parent Company: Valuation of defined benefit pension obligation(£149.3m; 2020: £157.1m)Refer to page 93 (Audit Committee Report), page 147 (accounting policy) and page 182 (financial disclosures).Subjective estimate:A significant level of estimation is required in order to determine the valuation of the gross liability of the Defined Benefit Obligation. Small changes in the key assumptions (in particular, discount rates, inflation & mortality rates) can have a material impact on the gross liability. A triennial valuation for the pensions scheme’s year ended 5 April 2020 is currently ongoing. This require a new set of membership data be provided to the actuary which is also used by the Group in calculating the total defined benefit obligation, with roll forward assumptions applied to 30 June 2021 in line with accepted valuation techniques. Due to the volume of members both joining and moving categories (i.ebetween active, deferred and pensioner), errors in the membership records could result in a material misstatement if not completely and accurately included in the calculation of the gross liability. The effect of these matters is that, as part of our risk assessment, we determined that the valuation of the defined benefit obligation has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole, and possibly many times that amount. The financial statements (Note 33) disclose the sensitivity estimated by the Group and Parent Company.Weperformedthedetailedtestsbelowratherthanseekingtorelyonanyofthecompany'scontrolsbecausethenatureofthebalanceissuchthatwewouldexpecttoobtainauditevidenceprimarilythroughthedetailedproceduresdescribed.Ourproceduresincluded:—Benchmarking assumptions: We challenged key assumptions applied (discount rate, inflation rate, and mortality rate) with the support of our own actuarial specialists, including a comparison of key assumptions against external market data; —Assessing base data: We have confirmed the data used in the current year valuation is consistent with that prepared at the triennial valuation as at 31 March 2020. We used our actuarial specialists to challenge the methodology used to roll forward the results of the triennial valuation as at 5 April 2020 to 30 June 2021. —Assessing transparency: We considered the adequacy of the Group and Company’s disclosures in respect of the sensitivity of the deficit to changes in key assumptions.Our results —We found the valuation of the defined benefit pension obligation to be acceptable. (2020: acceptable) 9. The purpose of our audit work and to whom we owe
our responsibilities
This report is m ade solely to the Com pany’s m em bers, as a
body, in accordance with Chapter 3 of Part 16 of the
Com panies Act 2006. Our audit work has been undertaken
so that we m ight state to the Com pany’s m em bers those
m atters we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent
perm itted by law, we do not accept or assum e
responsibility to anyone other than the Com pany and the
Com pany’s m em bers, as a body, for our audit work, for this
report, or for the opinions we have form ed.
Jeremy Hall (Senior Statutory Auditor)
for and on b ehalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
14 Septem ber 2021
7. We have nothing to report on the other matters on
which we are required to report by exception
Under the Com panies Act 2006, we are required to report
to you if, in our opinion:
— adequate accounting records have not been kept by the
parent Com pany, or returns adequate for our audit have
not been received from branches not visited by us; or
— the parent Com pany financial statem ents and the part
of the Directors’ Rem uneration Report to be audited
are not in agreem ent with the accounting records and
returns; or
— certain disclosures of directors’ rem uneration specified
by law are not m ade; or
— we have not received all the inform ation and
explanations we require for our audit.
We have nothing to report in these respects.
8. Respective responsibilities
Directors’ respon sibilities
As explained m ore fully in their statem ent set out on page
125, the directors are responsible for: the preparation of the
financial statem ents including being satisfied that they give
a true and fair view; such internal control as they determ ine
is necessary to enable the preparation of financial
statem ents that are free from m aterial m isstatem ent,
whether due to fraud or error; assessing the Group and
parent Com pany’s ability to continue as a going concern,
disclosing, as applicable, m atters related to going concern;
and using the going concern basis of accounting unless
they either intend to liquidate the Group or the parent
Com pany or to cease operations, or have no realistic
alternative but to do so.
Auditor’s respon sibilities
Our objectives are to obtain reasonable assurance about
whether the financial statem ents as a whole are free from
m aterial m isstatem ent, whether due to fraud or error, and
to issue our opinion in an auditor’s report. Reasonable
assurance is a high level of assurance, but does not
guarantee that an audit conducted in accordance with ISAs
(UK) will always detect a m aterial m isstatem ent when it
exists. Misstatem ents can arise from fraud or error and are
considered m aterial if, individually or in aggregate, they
could reasonably be expected to influence the econom ic
decisions of users taken on the basis of the financial
statem ents.
A fuller description of our responsibilities is provided on the
FRC’s website at www.frc.org.uk/auditorsresponsibilities.
136
2.Key audit matters: our assessment of risks of material misstatementKey audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financialstatements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarisebelow the key audit matters, in decreasing order of audit significance, in arriving at our audit opinion above, together with our key audit procedures to address those matters and, asrequired for public interest entities, our results from those procedures. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.The riskOur responseGroup and parent Company: Valuation of defined benefit pension obligation(£149.3m; 2020: £157.1m)Refer to page 93 (Audit Committee Report), page 147 (accounting policy) and page 182 (financial disclosures).Subjective estimate:A significant level of estimation is required in order to determine the valuation of the gross liability of the Defined Benefit Obligation. Small changes in the key assumptions (in particular, discount rates, inflation & mortality rates) can have a material impact on the gross liability. A triennial valuation for the pensions scheme’s year ended 5 April 2020 is currently ongoing. This require a new set of membership data be provided to the actuary which is also used by the Group in calculating the total defined benefit obligation, with roll forward assumptions applied to 30 June 2021 in line with accepted valuation techniques. Due to the volume of members both joining and moving categories (i.ebetween active, deferred and pensioner), errors in the membership records could result in a material misstatement if not completely and accurately included in the calculation of the gross liability. The effect of these matters is that, as part of our risk assessment, we determined that the valuation of the defined benefit obligation has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole, and possibly many times that amount. The financial statements (Note 33) disclose the sensitivity estimated by the Group and Parent Company.Weperformedthedetailedtestsbelowratherthanseekingtorelyonanyofthecompany'scontrolsbecausethenatureofthebalanceissuchthatwewouldexpecttoobtainauditevidenceprimarilythroughthedetailedproceduresdescribed.Ourproceduresincluded:—Benchmarking assumptions: We challenged key assumptions applied (discount rate, inflation rate, and mortality rate) with the support of our own actuarial specialists, including a comparison of key assumptions against external market data; —Assessing base data: We have confirmed the data used in the current year valuation is consistent with that prepared at the triennial valuation as at 31 March 2020. We used our actuarial specialists to challenge the methodology used to roll forward the results of the triennial valuation as at 5 April 2020 to 30 June 2021. —Assessing transparency: We considered the adequacy of the Group and Company’s disclosures in respect of the sensitivity of the deficit to changes in key assumptions.Our results —We found the valuation of the defined benefit pension obligation to be acceptable. (2020: acceptable) 7. We have nothing to report on the other matters on
which we are required to report by exception
our responsibilities
9. The purpose of our audit work and to whom we owe
Under the Com panies Act 2006, we are required to report
to you if, in our opinion:
— adequate accounting records have not been kept by the
parent Com pany, or returns adequate for our audit have
not been received from branches not visited by us; or
This report is m ade solely to the Com pany’s m em bers, as a
body, in accordance with Chapter 3 of Part 16 of the
Com panies Act 2006. Our audit work has been undertaken
so that we m ight state to the Com pany’s m em bers those
m atters we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent
— the parent Com pany financial statem ents and the part
perm itted by law, we do not accept or assum e
of the Directors’ Rem uneration Report to be audited
responsibility to anyone other than the Com pany and the
are not in agreem ent with the accounting records and
Com pany’s m em bers, as a body, for our audit work, for this
returns; or
report, or for the opinions we have form ed.
Jeremy Hall (Senior Statutory Auditor)
for and on b ehalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
14 Septem ber 2021
— certain disclosures of directors’ rem uneration specified
by law are not m ade; or
— we have not received all the inform ation and
explanations we require for our audit.
We have nothing to report in these respects.
8. Respective responsibilities
Directors’ respon sibilities
As explained m ore fully in their statem ent set out on page
125, the directors are responsible for: the preparation of the
financial statem ents including being satisfied that they give
a true and fair view; such internal control as they determ ine
is necessary to enable the preparation of financial
statem ents that are free from m aterial m isstatem ent,
whether due to fraud or error; assessing the Group and
parent Com pany’s ability to continue as a going concern,
disclosing, as applicable, m atters related to going concern;
and using the going concern basis of accounting unless
they either intend to liquidate the Group or the parent
Com pany or to cease operations, or have no realistic
alternative but to do so.
Auditor’s respon sibilities
Our objectives are to obtain reasonable assurance about
whether the financial statem ents as a whole are free from
m aterial m isstatem ent, whether due to fraud or error, and
to issue our opinion in an auditor’s report. Reasonable
assurance is a high level of assurance, but does not
guarantee that an audit conducted in accordance with ISAs
(UK) will always detect a m aterial m isstatem ent when it
exists. Misstatem ents can arise from fraud or error and are
considered m aterial if, individually or in aggregate, they
could reasonably be expected to influence the econom ic
decisions of users taken on the basis of the financial
statem ents.
A fuller description of our responsibilities is provided on the
FRC’s website at www.frc.org.uk/auditorsresponsibilities.
Financial statements
Group primary statements
Consolidated income statement
for the year ended 30 June
Note
4 & 5
3 & 4
9
9
9
11
Revenue
Cost of sales
Gross profit
Administrative expenses
Other income
Operating profit/(loss)
Finance income
Finance costs
Net finance costs
Profit/(loss) before taxation
Income tax (expense)/credit
Profit/(loss) for the year
Profit/(loss) attributable to:
- Owners of the parent
- Non-controlling interests
2021
Specific
adjusting
items(*)
£m
-
-
-
(14.1)
-
(14.1)
-
-
-
(14.1)
2.6
(11.5)
Underlying
£m
351.8
(234.1)
117.7
(96.2)
1.2
22.7
0.8
(5.5)
(4.7)
18.0
(4.8)
13.2
13.2
-
13.2
(11.5)
-
(11.5)
Total
£m
351.8
(234.1)
117.7
(110.3)
1.2
8.6
0.8
(5.5)
(4.7)
3.9
(2.2)
1.7
1.7
-
1.7
Loss per ordinary share attributable to owners of the parent during the year
7
Basic
7
Diluted
2.9p
2.9p
2020
Specific
adjusting
items(*)
£m
-
-
-
(20.9)
-
(20.9)
-
-
-
(20.9)
3.0
(17.9)
Underlying
£m
352.0
(236.9)
115.1
(96.4)
1.3
20.0
0.4
(4.8)
(4.4)
15.6
(4.1)
11.5
11.4
0.1
11.5
(17.9)
-
(17.9)
(12.2)p
(12.2)p
Total
£m
352.0
(236.9)
115.1
(117.3)
1.3
(0.9)
0.4
(4.8)
(4.4)
(5.3)
(1.1)
(6.4)
(6.5)
0.1
(6.4)
* Specific adjusting items are disclosed separately in the financial statements where it is necessary to do so to provide further understanding of the financial
performance. Further details are given in Note 2 and Note 6.
Consolidated statement of comprehensive income
for the year ended 30 June
Profit/(loss) for the year
Other comprehensive Income/(expense)
Items that will not be reclassified to profit or loss:
Remeasurements of the defined benefit pension scheme
Deferred tax on remeasurements of the defined benefit pension scheme
Total items that will not be reclassified to profit or loss
Items that may be subsequently reclassified to profit or loss:
Currency translation on foreign currency net investments
Fair value losses on foreign currency cash flow hedges
Total items that may be subsequently reclassified to profit or loss
Total other comprehensive Income/(expense) for the period (net of tax)
Total comprehensive income/(expense) for the year
Income/(expense) attributable to:
- Owners of the parent
- Non-controlling interests
Note
33
20
29
26
31
2021
£m
1.7
9.1
(2.0)
7.1
(2.9)
-
(2.9)
4.2
5.9
5.9
-
5.9
2020
£m
(6.4)
(2.7)
1.1
(1.6)
0.5
(0.1)
0.4
(1.2)
(7.6)
(7.7)
0.1
(7.6)
The notes on pages 141 to 188 form an integral part of these consolidated financial statements.
Creating a world fit for the future 137
Financial statements
Group primary statements
Consolidated statement of financial position
As at 30 June
Assets
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Right-of-use assets
Retirement benefit surplus
Other receivables
Deferred tax assets
Current assets
Inventories
Trade, contract and other receivables
Derivative financial assets
Current tax assets
Cash and cash equivalents
Non-current assets held for sale
Total assets
Liabilities
Current liabilities
Borrowings
Lease liabilities
Trade, contract and other payables
Current tax liabilities
Derivative financial liabilities
Provisions
Net current assets
Non-current liabilities
Borrowings
Lease liabilities
Trade, contract and other payables
Retirement benefit obligations
Deferred tax liabilities
Provisions
Total liabilities
Net assets
Equity
Share capital
Share premium
Other reserves
Retained earnings
Equity attributable to owners of the parent
Non-controlling interests
Total equity
The notes on pages 141 to 188 form an integral part of these consolidated financial statements.
Approved by the Board of Ricardo plc on 14 September 2021 and signed on its behalf by:
Dave Shemmans
Chief Executive Officer
Ian Gibson
Chief Financial Officer
138 Ricardo plc Annual Report & Accounts 2020/21
Note
14
15
16
17
33
22
20
21
22
26
24
18
24
17
23
26
19
24
17
23
33
20
19
28
28
29
30
31
2021
£m
84.7
33.9
46.9
19.5
6.8
2.3
8.3
202.4
16.9
126.9
0.9
1.5
42.0
188.2
-
188.2
390.6
12.8
5.5
76.6
1.4
1.0
4.0
101.3
86.9
76.1
18.8
-
-
8.2
3.4
106.5
207.8
182.8
15.6
16.8
38.0
112.2
182.6
0.2
182.8
2020
£m
87.8
39.9
45.4
23.9
-
3.2
9.4
209.6
20.1
115.6
3.9
5.7
66.3
211.6
5.3
216.9
426.5
10.6
6.7
72.0
7.5
6.5
3.2
106.5
110.4
129.1
22.6
3.6
6.7
5.6
3.3
170.9
277.4
149.1
13.4
14.3
17.4
103.5
148.6
0.5
149.1
Non-current assets
Assets
Goodwill
Other intangible assets
Property, plant and equipment
Right-of-use assets
Retirement benefit surplus
Other receivables
Deferred tax assets
Current assets
Inventories
Trade, contract and other receivables
Derivative financial assets
Current tax assets
Cash and cash equivalents
Non-current assets held for sale
Total assets
Liabilities
Current liabilities
Borrowings
Lease liabilities
Trade, contract and other payables
Current tax liabilities
Derivative financial liabilities
Provisions
Net current assets
Non-current liabilities
Borrowings
Lease liabilities
Trade, contract and other payables
Retirement benefit obligations
Deferred tax liabilities
Provisions
Total liabilities
Net assets
Equity
Share capital
Share premium
Other reserves
Retained earnings
Equity attributable to owners of the parent
Non-controlling interests
Total equity
Note
14
15
16
17
33
22
20
21
22
26
24
18
24
17
23
26
19
24
17
23
33
20
19
28
28
29
30
31
2021
£m
84.7
33.9
46.9
19.5
6.8
2.3
8.3
202.4
16.9
126.9
0.9
1.5
42.0
188.2
-
188.2
390.6
12.8
5.5
76.6
1.4
1.0
4.0
101.3
86.9
76.1
18.8
-
-
8.2
3.4
106.5
207.8
182.8
15.6
16.8
38.0
112.2
182.6
0.2
182.8
2020
£m
87.8
39.9
45.4
23.9
-
3.2
9.4
209.6
20.1
115.6
3.9
5.7
66.3
211.6
5.3
216.9
426.5
10.6
6.7
72.0
7.5
6.5
3.2
106.5
110.4
129.1
22.6
3.6
6.7
5.6
3.3
170.9
277.4
149.1
13.4
14.3
17.4
103.5
148.6
0.5
149.1
Financial statements
Group primary statements
Consolidated statement of changes in equity
for the year ended 30 June
Note
34
At 1 July 2019
Loss for the year
Other comprehensive income/(expense) for the year
Total comprehensive income/(expense) for the year
Equity-settled transactions
Purchases of own shares to settle awards
Ordinary share dividends
At 30 June 2020
At 1 July 2020
Profit for the year
Other comprehensive (expense)/income for the year
Total comprehensive (expense)/income for the year
28
Issue of ordinary share capital
Reduction in share capital 8
34
Equity-settled transactions
Ordinary share dividends
8
At 30 June 2021
8
Attributable to owners of the parent
Share
capital
£m
13.4
-
-
-
-
-
-
13.4
13.4
-
-
-
2.2
-
-
-
15.6
Share
premium
£m
14.3
-
-
-
-
-
-
14.3
14.3
-
-
-
2.5
-
-
-
16.8
Other
reserves
£m
16.9
-
0.5
0.5
-
-
-
17.4
17.4
-
(2.9)
(2.9)
23.5
-
-
-
38.0
Retained
earnings
£m
123.1
(6.5)
(1.7)
(8.2)
0.6
(0.5)
(11.5)
103.5
103.5
1.7
7.1
8.8
-
-
1.0
(1.1)
112.2
Non-
controlling
interests
£m
0.5
0.1
-
0.1
-
-
(0.1)
0.5
0.5
-
-
-
-
(0.2)
-
(0.1)
0.2
Total
£m
167.7
(6.5)
(1.2)
(7.7)
0.6
(0.5)
(11.5)
148.6
148.6
1.7
4.2
5.9
28.2
-
1.0
(1.1)
182.6
Total
equity
£m
168.2
(6.4)
(1.2)
(7.6)
0.6
(0.5)
(11.6)
149.1
149.1
1.7
4.2
5.9
28.2
(0.2)
1.0
(1.2)
182.8
The notes on pages 141 to 188 form an integral part of these consolidated financial statements.
Creating a world fit for the future 139
Financial statements
Group primary statements
Consolidated cash flow statement
for the year ended 30 June
Cash flows from operating activities
Profit/(loss) before taxation
Adjustments for:
- Share-based payments
- Fair value losses on derivative financial instruments
- Profit on disposal of property, plant and equipment
- Net finance costs
- Depreciation, amortisation and impairment
Operating cash flows before movements in working capital
Changes in:
- Inventories
- Trade, contract and other receivables
- Trade, contract and other payables
- Provisions
Defined benefit pension scheme payments in excess of past service costs
Cash generated from operations
Net interest paid
Income tax paid
Net cash from operating activities
Cash flows from investing activities
Acquisitions of subsidiaries, net of cash acquired
Purchases of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Purchases of intangible assets and capitalised development costs
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issuance of ordinary shares
Purchases of own shares to settle awards
Principal element of lease payments
Principal element of lease receivables
Proceeds from borrowings
Repayment of borrowings
Dividends paid to shareholders
Net cash (used in)/from financing activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease)/increase in cash and cash equivalents
Net cash and cash equivalents at 1 July
Net cash and cash equivalents at 30 June
At 1 July
Cash and cash equivalents
Bank overdrafts
Net cash and cash equivalents at 1 July
At 30 June
Cash and cash equivalents
Bank overdrafts
Net cash and cash equivalents at 30 June
The notes on pages 141 to 188 form an integral part of these consolidated financial statements.
140 Ricardo plc Annual Report & Accounts 2020/21
Note
34
26
3
9
15, 16, 17 & 18
21
22
23
33
6 & 13
16
16
15
28
17
17
24
24
8
24
24
24
2021
£m
3.9
1.4
0.7
(0.3)
4.7
26.6
37.0
2.9
(7.5)
4.1
1.1
(4.6)
33.0
(4.2)
(2.9)
25.9
(5.2)
(4.5)
0.3
(8.9)
(18.3)
28.2
-
(6.5)
0.2
5.0
(57.9)
(1.4)
(32.4)
(1.7)
(26.5)
55.8
29.3
66.3
(10.5)
55.8
42.0
(12.7)
29.3
2020
£m
(5.3)
0.6
0.3
(1.0)
4.4
30.3
29.3
(5.6)
25.4
(12.3)
1.0
(4.6)
33.2
(4.2)
(5.3)
23.7
(4.3)
(22.0)
2.8
(9.2)
(32.7)
-
(0.6)
(5.6)
0.2
140.3
(90.7)
(11.6)
32.0
0.4
23.4
32.4
55.8
36.3
(3.9)
32.4
66.3
(10.5)
55.8
Notes to the consolidated
financial statements
Financial statements
1. Principal accounting policies
This section describes the critical accounting judgements and estimates that management has identified
as having a potentially material impact on the Group’s consolidated financial statements and sets out our
significant accounting policies. Where an accounting policy is generally applicable to a specific note to
the financial statements, the policy is cross referenced. We have also detailed below the new accounting
pronouncements that we will adopt in future years and our current view of the impact they will have on our
financial reporting.
Ricardo plc, a public company limited by shares, is listed on the London
Stock Exchange and incorporated and domiciled in the United Kingdom.
The address of its registered office is Shoreham Technical Centre,
Shoreham-by-Sea, West Sussex, BN43 5FG, England, United Kingdom, and
its registered number is 222915.
a) Basis of preparation
These consolidated financial statements of the Ricardo plc Group
(‘Group’) have been prepared in accordance with international accounting
standards in conformity with the requirements of the Companies Act
2006. The financial statements have been prepared on a going concern
basis under the historical cost convention, as modified by financial assets
and financial liabilities which are measured at fair value through profit
or loss. Derivative instruments are measured at fair value through other
comprehensive income for the effective element of the hedge, with the
ineffective element being charged to the profit or loss.
The principal accounting policies applied in the preparation of these
financial statements have been consistently applied to the years ended 30
June 2020 and 30 June 2021.
Going concern
In the context of the challenging economic environment in the
Automotive sector, exacerbated by the economic uncertainty caused by
the ongoing COVID-19 pandemic, the Board of Ricardo plc has undertaken
an assessment of the ability of the Group and Company to continue in
operation and meet its liabilities as they fall due over the period of its
assessment. In doing so, the Board considered events throughout the
period of their assessment, including the availability and maturity profile of
the Group’s financing facilities and covenant compliance. These financial
statements have been prepared on the going concern basis which the
Directors consider appropriate for the reasons set out below.
The Group funds its operations through cash generated by the Group
and has access to a £200m Revolving Credit Facility (“RCF”) which is linked
to two covenants: Adjusted Leverage (defined as net debt divided by
underlying EBITDA, excluding the impact of IFRS 16, for the last twelve
months); and Interest Cover (defined as underlying EBITDA, excluding the
impact of IFRS 16, for the last twelve months divided by net finance costs).
These covenants are tested at 30 June and 31 December each year until
the debt matures in July 2023.
On 5 May 2020 the Group exercised £50m of the accordion option of
its banking facilities, thereby increasing the Revolving Credit Facility
to £200m. At the same time, the Directors successfully negotiated a
relaxation of the Adjusted Leverage covenant, increasing the threshold
from 3.0x to 3.75x for the next test date of 31 December 2020. On 9
September 2020, this covenant was further relaxed as the calculation was
amended to be based on two times the six-month underlying EBITDA to
December 2020. It was also agreed that the June 2021 covenant would be
relaxed to 3.75x based on underlying EBITDA for the last twelve months.
The covenant will return to 3.0x at the next test date of 31 December 2021.
The Interest Cover covenant has remained at 4.0x for each test date.
On 11 November 2020 the Group raised £28.2m of proceeds, net of
fees, by way of an equity placing. The placing was carried out to reduce
leverage, strengthen the balance sheet and provide adequate working
capital for the Group. Further details on the placing are provided in Note
28.
As at 30 June 2021, Adjusted Leverage was 1.3x and Interest Cover was 9.6x.
As at the date of approval of these financial statements, the amount of RCF
undrawn and available to the Group was c.£123m with total borrowing,
including overdrafts, of c.£88m and cash and cash equivalents of c.£41m.
The Directors have prepared a cash flow forecast which covers the period
from the date of approval of these financial statements for a period of at
least 12 months from the date of approval of the financial statements. In
this forecast, the Directors have considered the impact of a decline in
Automotive & Industrial revenues and lower than budgeted growth in
non-Automotive segments on the Group’s results, operations and financial
position in a severe but plausible Downside Scenario, which results in a
25% decline in the Group’s underlying EBITDA (excluding IFRS 16) in FY
2021/22, including the following key assumptions:
• A 15% reduction in Automotive & Industrial revenue in FY 2021/22, with
a larger reduction in EMEA (in line with the decline seen in FY 2020/21)
partially offset by lower than budgeted growth in the US and China.
Revenue is modelled to increase by 5% in FY 2022/23 (with no growth
in Europe). In addition, external Software revenue has been reduced by
10% in FY 2021/22.
• Delays in the ramp up of production volumes in Performance Products
and Defense on key programmes.
• Half the budgeted revenue growth in Rail and Energy & Environment.
• No improvement in the Group’s working capital days.
The modelled scenario incorporates mitigating actions which are within
the control of the Group, such as the non-payment of discretionary
bonuses, a reduction in non-essential capital expenditure, and setting
appropriate levels of dividends.
Although headroom under the Group’s banking covenants is reduced
under this downside scenario, the Group and Company is expected to
operate within its committed facilities and covenant requirements during
the forecast period.
Following this assessment, the Directors are confident that the Group
and Company will have sufficient funds to continue to meet its liabilities
as they fall due for at least 12 months from the date of approval of the
financial statements and therefore have prepared the financial statements
on a going concern basis. Further information on the going concern of the
Group can be found on page 38 in the Viability Statement.
b) Basis of consolidation
The financial statements of the Group consolidate the results of the
Company and its subsidiary entities, and include its share of its joint
ventures’ results accounted for under the equity method. Subsidiaries are
all entities (including structured entities) over which the Group has control.
The Group controls an entity when the Group is exposed to, or has rights
to, variable returns from its involvement with the entity and has the ability
to affect those returns through its power over the entity. Subsidiaries
are fully consolidated from the date on which control is transferred to
the Group and are deconsolidated from the date that control ceases.
Intercompany transactions and balances are eliminated on consolidation.
The Group applies the acquisition method of accounting for business
combinations. The consideration transferred for an acquisition is the fair
value of the assets acquired and the liabilities assumed. The consideration
transferred includes the fair value of any asset or liability resulting
from a contingent consideration arrangement. Changes in fair value of
contingent consideration are included within specific adjusting items.
Contingent consideration dependent upon the employment or retention
of specific individuals is expensed over the specified period and included
within specific adjusting items. Identifiable assets acquired, together with
Creating a world fit for the future 141
Financial statements
Notes to the Group financial statements
1. Principal accounting policies (continued)
b) Basis of consolidation (continued)
liabilities and contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition date. Acquisition-
related expenditure is expensed as incurred and recognised within specific
adjusting items.
c) Management judgements and key accounting
estimates
The preparation of financial statements under IFRS requires the Group’s
management to make judgements and estimates that affect the
application of accounting policies and the reported amounts of assets,
liabilities, revenues and costs. These judgements and estimates are
continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be
reasonable under the circumstances.
Critical judgements in applying the Group’s accounting policies
The following are the critical judgements, apart from those involving
estimations (which are dealt with separately below), that the Directors
have made in the process of applying the Group’s accounting policies and
that have the most significant effect on the amounts recognised in the
financial statements:
Specific adjusting items: Reorganisation costs – Note 2 and Note 6
Reorganisation costs relate to non-recurring expenditure incurred as
part of fundamental restructuring activities; significant impairments
of property, plant and equipment and leased assets; significant losses
on disposal of assets; and other items deemed to be one-off in nature.
These costs are presented within specific adjusting items in the income
statement. The classification and presentation of these items require
significant judgement to determine the nature and intention of the
transaction. Details of the Group’s alternative performance measures and
specific adjusting items are included in Note 2 and Note 6.
Carrying value of Goodwill: CGUs – Note 14
Significant judgement is applied in order to allocate goodwill to cash-
generating units (‘CGU’s), or a group of CGUs, as a change in the allocation
of goodwill would impact the result of the impairment review. As set out
in Note 1(k), for the purpose of impairment testing, goodwill acquired in a
business combination is allocated to each of the CGUs, or groups of CGUs,
that is expected to benefit from that business combination, at the lowest
level at which goodwill is monitored for internal management purposes.
The Rail segment comprises several CGUs which have been grouped for
impairment testing purposes as they are expected to benefit from the
synergies of the relevant combinations.
Carrying value of Goodwill: Inclusion of Research and Development
Expenditure Credits – Note 14
Certain UK-based CGUs benefit from Research and Development
Expenditure Credits (‘RDEC’), which are an enhanced tax relief on
qualifying research and development expenditure. These cashflows are
material to the A&I EMEA group of CGUs and have been included in the
value-in-use calculations on the basis that there is no indication that the
UK government will change this benefit. Note 14 sets out the impact of
the inclusion of RDEC in the value-in-use calculation.
Recoverability of capitalised development costs – Note 15
Judgement is required as to when development costs meet the criteria
to be recognised as intangible assets. The majority of capitalised
development costs relate to the development of software, products and
other technology, tools and processes. These costs are recognised as
an asset once it has been determined that the attributable expenditure
can be measured reliably, that there is an intention and the necessary
142 Ricardo plc Annual Report & Accounts 2020/21
resources to complete development and that it is considered probable
that the resulting asset will generate future economic benefits for the
Group. Determining whether it is probable that the resulting asset will
generate sufficient economic benefits in the future requires management
judgement.
Impairment of financial assets – Note 22
Management has applied judgement to rebut the presumption of IFRS 9
Financial Instruments that default does not occur later than a financial asset
is 90 days past due. This is based upon the Group’s assessment of these
specific debts The default rate used for each overdue period is reassessed
annually and is based upon the Group’s historic ageing profile, adjusted for
forward looking information.
Key sources of estimation uncertainty
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the period in
which the estimate is revised if the revision affects only that period, or in
the period of the revision and future periods if the revision affects both
current and future periods. The areas involving significant risk of a material
adjustment to the carrying amounts of assets and liabilities within the next
financial year are as follows:
Revenue recognition on fixed price contracts - Note 5
The majority of the Group’s revenue in is earned from contracts for the
provision of consultancy services that are typically awarded on a fixed
price basis. A small number of similar contracts are also entered into by
Performance Products to design and set up production lines and supply
chains. Services provided under a fixed price contract generally have
a single distinct performance obligation, or a single distinct series of
performance obligations, which is satisfied over time. For each distinct
performance obligation recognised over time, revenue is recognised using
an input method, based on total costs incurred to date as a percentage of
total estimated costs to satisfy each performance obligation.
The identification of and separate accounting for distinct performance
obligations within the context of a contract is considered to be a critical
judgement. Fixed price contracts often have multiple performance
obligations that are indistinct from one another within the context of
the contract. This is due to a homogeneous pattern of transfer of control
to the customer who is unable to benefit from the performance of less
than all of the promises set out in the contract. This is particularly the case
where any intellectual property created is stipulated as not being owned
by the customer until the full transaction price has been paid.
The percentage of completion basis of revenue recognition is determined
as actual costs incurred as a proportion of total forecast contract costs to
complete. This method places importance on the accuracy of uncertain
estimates, including total costs to complete, the outcome of contract
and technical risks, as well as the extent to which variation requests
are recognised for proposed changes to the agreed schedule, price or
scope of a contract under negotiation with a customer at the reporting
date. Changes in these estimates may impact revenue recognised at
the reporting date with the revenue recognition in the reporting period
appropriately adjusted as required.
The actual outcome of wholly or partially unsatisfied performance
obligations may differ to the estimate made at a reporting date and it is
reasonably possible that outcomes on these contracts within the next
reporting period could differ, adversely or favourably, in aggregate to
those estimated. It is not possible to fully quantify the expected impact
of this, but the estimated costs to complete reflect management’s best
estimate at that point in time and no individual estimate is expected to
have a materially different outcome.
As set out further on pages 36 and 93, management undertakes a process
to assess the risks on inception of all fixed price contracts, then monitors
and reviews the risks and performance of contracts as they progress to
completion. The highest value, highest risk, most technically complex and
financially challenging contracts to deliver, as measured against a number
of quantitative and qualitative factors, are categorised as ‘Red Category
1. Principal accounting policies (continued)
c) Management judgements and key accounting
estimates (continued)
4’ contracts, which are subject to more frequent and senior levels of
management review.
As at 30 June 2021, the number of live consulting contracts within the
portfolio was in excess of 2,500 (2020: 2,400), with a total value in excess
of £750m (2020: £750m). Of this portfolio of contracts, 9 contracts (2020: 6)
were categorised as Red Category 4. At 30 June 2021, £3.6m (2020: £7.8m)
of revenue had been recognised in respect of work performed on these
plus two other contracts where outcomes were subject to negotiation
with customers. Management has made a specific judgement over
the ability to recover each of the amounts under negotiation and has
recognised provisions of £1.7m (2020: £2.9m) against this revenue, resulting
in a net exposure of £1.9m (2020: £4.9m). The possible financial outcomes
from these negotiations range from an upside of £2.2m, if management
recovers the full £3.6m of revenue and potential negotiation upside, to a
downside of £1.9m, if management is unsuccessful in recovering any of the
£3.6m.
Carrying value of Goodwill – Note 14
In performing the impairment assessment of the carrying amount of
goodwill, the recoverable amounts of the CGUs, or groups of CGUs, to
which goodwill has been allocated are determined using value-in-use
(‘VIU’) calculations (see Note 1(k)).
The recoverable amount of each CGU, or group of CGUs, is calculated by
assessing its value-in-use, which is determined by performing discounted
future pre-tax cash flow calculations for a three-year period and projected
into perpetuity. Significant judgements are used to estimate the operating
cash flows, growth rates and pre-tax discount rates applied in computing
the recoverable amounts of different CGUs, or groups of CGUs. The
sensitivity of estimates used to calculate the value in use of each CGU, or
group of CGUs, are discussed in Note 14.
Defined benefit obligation – Note 33
The Group operates a defined benefit pension scheme that provides
benefits to a number of current and former employees. This scheme
is closed to new entrants and the accrual of future benefits for active
members ceased at the end of February 2010. The value of the deficit is
particularly sensitive to the market value of the discount rates and actuarial
assumptions related to mortality. The sensitivity of the defined benefit
obligation to changes in the principal assumptions is set out in Note 33.
d) Research and development expenditure – Note 3
Research and development expenditure is recognised as an administrative
expense in the income statement in the year in which it is incurred. Where
the activity is performed for customers the cost is recognised as a cost of
sale. Directly attributable development expenditure that meets the criteria
for recognition as an intangible asset is described in Note 15.
e) Government grants – Note 3
The Group receives income-related grants from various national and
supranational government agencies, principally for credits in respect of
qualifying research and development expenditure, together with funding
of research and development and capital projects. The Group also receives
employment-related grants, and other grants intended to mitigate the
financial impact of COVID-19 on the business. A grant is recognised in the
income statement when there is reasonable assurance that the Group
will comply with its conditions and that the grant will be received. Grants
are presented in the income statement as a deduction from the related
expenses.
Grants contributing to the cost of an asset are deducted from the cost of
the asset and reflected in depreciation throughout its useful life.
Grants are not normally received until after qualification conditions have
been met and the related expenditure has been incurred. Where this is
not the case, they are recorded within trade, contract and other payables
either as payments received in advance on contracts or as deferred
revenue.
f) Revenue – Note 5
Principle approach
The Group principally earns revenue through the provision of consultancy
services and bespoke products and recognises revenue based on the
satisfaction of performance obligations in contracts with its customers.
The core principle is that revenue is recognised in a manner that depicts
the transfer of promised goods and services to customers in an amount
that reflects the consideration to which the Group expects to be entitled
in exchange for those goods and services.
A contract with a customer is considered to exist when the Group is in
possession of documentation to provide an agreed scope of goods or
services on mutually understood terms and conditions that are acceptable
to the Group which, subject to the successful execution of the contract,
is expected to be invoiced against and paid for by the customer. Each
contract with a customer is assessed to identify the promises to transfer
distinct goods or services, or a series of distinct goods or services, that
are substantially the same and have the same pattern of transfer to the
customer. Goods and services are distinct and accounted for as separate
performance obligations if they are separately identifiable in the contract
and if the customer can benefit from them, either on their own or
together with other readily available resources.
The total transaction price for a contract is estimated as the amount of
consideration to which the Group expects to be entitled in exchange for
transferring the promised goods or services to the customer, excluding
sales taxes. Where multiple distinct performance obligations are identified
within a contract with a customer, the total transaction price is allocated
to each of the distinct performance obligations in proportion to their
relative stand-alone selling prices. Given the bespoke nature of many of
the Group’s products and services, which are designed or manufactured
under contract to the customer’s individual scope and specifications, there
are typically no observable stand-alone selling prices. Instead, stand-
alone selling prices are typically estimated based on expected costs plus
contract margin.
Costs of fulfilling performance obligations on existing contracts with
customers are expensed as incurred. Costs incurred in advance of
obtaining a new contract or an anticipated contract that directly relate to
the fulfilment of specific performance obligations are initially recognised
as an asset and subsequently expensed once the new contract is obtained
or obtaining the contract is no longer anticipated. Incremental costs
incurred to obtain new contracts with customers are recognised as an
asset and amortised consistently with the recognition of revenue over
the contract term, providing: the contract term is greater than one year;
the costs are only incurred as a direct result of the new contract being
obtained; and the costs do not directly relate to the fulfilment of specific
performance obligations. Costs incurred to obtain new contracts with
customers are expensed when those costs are incurred irrespective of
whether a contract is obtained from a customer.
Revenue is recognised as distinct performance obligations are satisfied,
and as control of the goods or services is transferred to the customer.
For each distinct performance obligation within a contract, the Group
determines whether they are satisfied over time or at a point in time.
Performance obligations are considered to be satisfied over time if the
goods or services provided have no alternative use to the Group and there
is an enforceable right to payment for performance completed to date, or
the customer simultaneously receives and consumes the goods or services
as the Group provides them.
Services provided under fixed price contracts
The majority of the Group’s revenue is earned from contracts for the
provision of consultancy services that are typically awarded on a fixed
price basis. A small number of similar contracts are also awarded to
Performance Products to design and set up production lines and supply
chains. Services provided under a fixed price contract generally have
a single distinct performance obligation, or a single distinct series of
Creating a world fit for the future 143
Financial statementsNotes to the Group financial statements 1. Principal accounting policies (continued)
f) Revenue – Note 5 (continued)
Services provided under fixed price contracts (continued)
performance obligations, which is satisfied over time. For each distinct
performance obligation recognised over time, revenue is recognised using
an input method, based on total costs incurred to date as a percentage of
total estimated costs to satisfy each performance obligation.
Revenue and attributable margin are calculated by reference to reliable
estimates of transaction price and total expected costs, after making
suitable allowances for technical and other risks. Revenue and associated
margin are therefore recognised progressively as costs are incurred, and
estimated costs to complete are updated regularly as anticipated risks are
mitigated or unanticipated risks materialise. The Group has determined
that this method faithfully depicts the Group’s performance in transferring
control of the services to the customer.
The transaction price generally does not include consideration resulting
from contract modifications of distinct performance obligations, such
as variation orders, until they have been approved by the customer.
Variable consideration, such as for the achievement of performance
targets or variation requests under negotiation with the customer at the
reporting date, can be included in the transaction price together with the
estimated costs to perform the associated obligations. These estimates
of the expected value or most likely amount are recognised to the extent
that it is highly probable that there will not be a significant reversal in the
amount of cumulative revenue recognised in a future reporting period.
Changes in transaction price from contract modifications that do not
create separate distinct performance obligations are added to the
transaction price of pre-existing performance obligations to which the
modification relates. Contract modifications for goods or services that
do create separate distinct performance obligations are accounted for
separately from pre-existing performance obligations, together with the
expected costs to satisfy those separate distinct performance obligations.
Contract assets arising from the recognition of revenue as and when
performance obligations are satisfied are initially recognised as accrued
revenue or amounts recoverable on contracts (‘AROC’) within trade,
contract and other receivables, and transferred to trade receivables when
invoiced. Contract liabilities arising from amounts received from customers
for services not yet performed are initially recognised as deferred revenue
or payments received in advance on contracts (‘POA’) within trade,
contract and other payables, and transferred to revenue as and when
performance obligations are satisfied.
A loss on a distinct performance obligation is recognised immediately
when it becomes probable that the total estimated directly attributable
costs to satisfy the distinct performance obligation will exceed the
transaction price allocated to that distinct performance obligation.
Monthly reviews of contracts by local management, in conjunction with
reviews by senior management of contracts deemed to be of higher risk,
ensure that the Group identifies and immediately recognises expected
losses on fixed price performance obligations within a contract.
Services provided under time and materials contracts
Certain contracts for the provision of consultancy services may be
awarded on a time and materials basis. Services provided under a time
and materials basis typically have a single distinct performance obligation
to provide a variable amount of labour to the customer at an agreed set
of time-based labour rates, which represents the sales value. Revenue is
therefore recognised over time based upon the agreed sales value of the
time worked and costs incurred to date, as the customer simultaneously
receives and consumes these services as the Group provides them.
Services provided under subscription and software support
contracts
Other contracts primarily relate to annual subscriptions by customers to
emergency response and support services for chemical incidents and crisis
management. Subscription services are considered to be a single distinct
performance obligation for which revenue is recognised at the agreed
transaction price on a straight-line basis over the period of subscription.
144 Ricardo plc Annual Report & Accounts 2020/21
Software maintenance and support services revenue is recognised
separately from the supply of software products on a straight-line basis
over the period of maintenance and support. Revenue derived from
the supply of ad hoc software-related services, such as training and
application engineering, is recognised at the agreed transaction price
on a straight-line basis over a typically short period during which the
obligation is performed.
Supply of manufactured or assembled products
The majority of the Group’s revenue in Performance Products and
Defense is earned from the supply of manufactured or assembled high-
performance products, some of which are supplied with assurance-type
warranties. Revenue for the supply of these products is measured at the
agreed transaction price per unit that is expected to flow to the Group,
and is recognised at the point in time that the Group has transferred
control of the products to the customer, which is typically on delivery
or collection. The point in time at which revenue is recognised can vary
based on the specific incoterms present in a contract with a customer.
Revenue recognised from bill-and-hold arrangements occurs when all
performance obligations have been satisfied and there is a substantive
reason for the arrangement, which is typically that the customer has
requested the products to be held by the Group until such times as
delivery or collection is required by the customer. Revenue is recognised
and billed under usual payment terms when the customer formally agrees
to accept control of the bespoke products which cannot be sold to
another customer and provided that the products have been separately
identified and made available for delivery or collection.
Supply of software products
The Group’s software products are standard version-controlled computer
aided design, engineering and analysis tools, available for general sale and
are primarily sold through Performance Products. The majority of revenue
is derived from new and renewed licences of these software products,
for which the customer has the right to access the product during the
licence period, including rolling releases of the latest functionality. A new
or renewed licence is considered to be a single distinct performance
obligation for which revenue is recognised at the agreed transaction price
on a straight-line basis over the licence period.
Perpetual licence sales provide the customer with an indefinite right to
use the product, excluding rolling releases of the latest functionality.
Rolling releases are provided through the separate provision of
maintenance and support services. The transaction price of these two
distinct performance obligations are separately identifiable within a
contract. Revenue is recognised for perpetual licence sales when the
performance obligation is satisfied, being the point of delivery of the
licence key to the customer.
g) Specific adjusting items – Note 6
Specific adjusting items are disclosed separately in the financial
statements where it is necessary to do so to provide further
understanding of the financial performance of the Group. These items
comprise the amortisation of acquired intangible assets, acquisition-
related expenditure, reorganisation costs and other non-recurring items
that are included due to the significance of their nature or amount.
Acquisition-related expenditure includes the costs of acquisitions,
deferred and contingent consideration fair value adjustments (including
the unwinding of discount factors), transaction-related fees and expenses,
and post-deal integration costs. Reorganisation costs include costs arising
from major restructuring activities, profits or losses on the disposal of
businesses, and significant impairments of property, plant and equipment.
h) Dividends – Note 8
Dividends are recognised as a liability in the year in which they are fully
authorised. Interim dividends are recognised when paid.
Financial statementsNotes to the Group financial statements 1. Principal accounting policies (continued)
i) Net finance costs – Note 9
Finance income and finance costs are recognised in the income statement
in the period in which they are incurred using the effective interest
method.
j) Income tax expense – Note 11
The tax expense for the year comprises current and deferred tax. Tax is
recognised in the income statement, except to the extent that it relates to
items recognised in other comprehensive income or directly in equity. The
current tax charge is the expected tax payable on taxable income for the
year, calculated using the average rate applicable for the year on the basis
of the tax laws enacted or substantively enacted at the reporting date
in the countries where the Group operates. The current tax charge also
includes any adjustment to tax payable in respect of previous years.
Management periodically evaluates uncertain positions taken in tax
returns with respect to situations in which applicable tax regulation is
subject to interpretation and establishes provisions where appropriate on
the basis of amounts expected to be paid to the relevant tax authorities.
The Group submits annual claims in respect of the UK Government’s
Research and Development Expenditure Credit (‘RDEC’) scheme. RDEC is
taxable income and is a form of government grant that effectively gives
corporation tax relief on qualifying research and development (‘R&D’)
expenditure. In accordance with IAS 20 Accounting for Government Grants
and Disclosure of Government Assistance, credits receivable under the RDEC
scheme are offset against the associated qualifying R&D expenditure
incurred, both of which are included within operating profit.
The Group have provided for uncertain positions taken in the tax returns
with respect to situations in which applicable tax regulation is subject to
interpretation and establishes provisions where appropriate on the basis of
amounts expected to be paid to the relevant tax authorities.
Uncertain tax positions relate primarily to risks around transfer pricing
and on-going tax audits. The Group’s provision is based on experience of
dealing with Tax Authorities in certain jurisdictions in which it operates
and an estimate of the most likely outcomes in each territory.
k) Goodwill – Note 14
Goodwill arises on the acquisition of subsidiaries and represents the
excess of the consideration transferred and the fair value of contingent
consideration, over the fair value of the identifiable assets acquired and
liabilities assumed. Goodwill arising on acquisitions denominated in
foreign currencies is retranslated using exchange rates prevailing at each
reporting date.
Goodwill is recognised as an asset and is carried at cost less accumulated
impairment losses. It is not subject to amortisation, but is reviewed
for impairment annually, or more frequently if events or changes in
circumstances indicate a potential impairment. For the purpose of
impairment testing, goodwill acquired in a business combination is
allocated to each of the CGUs, or group of CGUs, that is expected to
benefit from that business combination. Each CGU, or group of CGUs, to
which goodwill is allocated represents the lowest level at which goodwill
is monitored for internal management purposes and is not larger than an
operating segment before aggregation.
The Group’s impairment review compares the carrying value of the
goodwill to the recoverable amount of the CGU, or group of CGUs, to
which the goodwill has been allocated. The recoverable amount is the
higher of the value in use or the fair value less costs of disposal. Estimating
the value in use requires the Directors to perform an assessment of the
discounted future cash flows that the CGU, or group of CGUs, is able to
generate. See Note 1(c) for discussion of the critical estimates involved in
this assessment.
An impairment is deemed to have occurred where the recoverable
amount of a CGU, or group of CGUs, is less than the carrying value of the
allocated goodwill. Any impairment is recognised immediately in the
income statement within specific adjusting items and is not subsequently
reversed. On disposal of an operation, the attributable amount of goodwill
is included in the determination of the gain or loss on disposal.
l) Other intangible assets – see Note 15
Acquired intangible assets
Acquired intangible assets that are either separable or arising from
contractual rights are recognised at fair value at the date of acquisition,
and subsequently at amortised cost. Such intangible assets include
customer contracts and relationships, together with acquired software
and technology. The fair value of acquired intangible assets is determined
by use of appropriate valuation techniques.
Software
Purchased software is capitalised on the basis of the purchase price of
the software product plus any external and internal costs subsequently
incurred that are directly attributable to bring the software product to
the condition necessary for it to be capable of operating in the manner
intended.
Development costs
Directly attributable costs which are incurred in the development of
certain assets are capitalised and amortised over their finite useful lives
once the Group has determined that it has the intention and the necessary
resources to complete the relevant project, that it is probable the resulting
asset will generate economic benefits for the Group and the attributable
expenditure can be reliably measured.
Amortisation
Amortisation is typically calculated using the straight-line method to
allocate the cost of intangible assets over their estimated useful lives, as
follows:
• Acquisition-related intangible assets:
- Customer contracts and relationships Between 3 and 9 years
- Software and technology
Between 5 and 7 years
• Software
• Development costs
Between 2 and 10 years
Between 3 and 5 years
For certain assets classified as development costs in the Group’s Defense
operating segment, amortisation is charged on a units of production basis,
as this is considered to more accurately reflect the expected pattern of
consumption of the future economic benefits embodied in the assets.
Assets under construction are carried at cost less any impairment in value,
and are included in the relevant asset category. Amortisation of these
assets commences when they are available for their intended use or sale.
m) Property, plant and equipment – see Note 16
Property, plant and equipment is stated at historical cost less depreciation.
The gross cost of an item of property, plant and equipment is the purchase
price and any costs directly attributable to bring the asset to the location
and condition necessary for it to be capable of operating in the manner
intended. Grants contributing to the cost of an asset are deducted from
the cost of the asset and reflected in depreciation throughout its useful
life.
Depreciation is typically calculated using the straight-line method to
allocate the cost of items of property, plant and equipment less any
residual value, over their estimated useful lives, as follows:
• Freehold land
• Freehold buildings including
Not depreciated
improvements
• Leasehold property improvements
• Plant and machinery
• Fixtures, fittings and equipment
Between 25 and 50 years
Over the term of the lease
Between 4 and 25 years
Between 2 and 10 years
The residual values and useful lives of assets are reviewed, and adjusted
if appropriate, at the end of each reporting period. For certain assets
classified as plant and machinery in the Group’s Defense operating
Creating a world fit for the future 145
Financial statementsNotes to the Group financial statements
1. Principal accounting policies (continued)
m) Property, plant and equipment (continued)
segment, depreciation is charged on a units of production basis, as
this is considered to more accurately reflect the expected pattern of
consumption of the future economic benefits embodied in the assets.
Assets under construction are carried at cost less any impairment in value
and are included in the relevant asset category. Depreciation of these
assets commences when they are available for their intended use or sale.
Government Grants
Grants contributing to the cost of an asset are deducted from the cost of
the asset and reflected in its depreciation throughout its useful life.
n) Leases – see Note 17
The Group’s policy for leases is as follows:
Definition of a lease
Under IFRS 16, a contract is, or contains, a lease if the contract conveys
a right to control the use of an identified asset for a period of time in
exchange for consideration.
Lessee accounting
At the lease commencement date, a right-of-use asset is recognised for
the leased item with a corresponding lease liability for any payments due.
The right-of-use asset is initially measured at cost, being the present value
of the lease payments paid or payable (net of any incentives received from
the lessor), plus any initial direct costs and/or restoration costs.
Right-of-use assets are depreciated on a straight-line basis from the
commencement date of the lease to the earlier of the end of the asset’s
useful life or the end of the lease term. The lease term is the non-
cancellable period of the lease plus any periods for which the Group is
‘reasonably certain’ to exercise any extension options. If right-of-use assets
are considered to be impaired, the carrying value is reduced accordingly.
For assets where the lessor transfers ownership of the underlying asset
to the Group by the end of the lease term, or where the lease contains
a purchase option at a nominal/notional value, then these assets will be
initially classified as property, plant and equipment, and subsequently
follow the depreciation rules set out in Note 1(m).
The lease liability is initially measured at the value of future lease
payments, discounted using the interest rate implicit in the lease. Where
this rate is not determinable, the Group’s incremental borrowing rate is
used, which is then adjusted to reflect an estimate of the interest rate the
Group would have to pay to borrow the amount necessary to obtain an
asset of similar value, in a similar economic environment, and with similar
terms and conditions.
After initial recognition, the lease liability is recorded at amortised cost
using the effective interest method. It is remeasured when there is a
change in future lease payments arising from a change in an index or rate
(e.g. an inflation related increase) or if the Group’s assessment of the lease
term changes. Any change in the lease liability as a result of these changes
also results in a corresponding change in the recorded right-of-use asset.
Payments in respect of short-term and/or low-value leases are charged to
the income statement on a straight-line basis over the lease term.
Lessor accounting
The Group determines at inception of the lease whether the lease is a
finance or an operating lease. When a lease transfers substantially all the
risks and rewards of ownership of the underlying asset to the lessee then
the lease is classified as a finance lease; otherwise, the lease is classified as
an operating lease. Where the Group is an intermediate lessor, the interest
in the head lease and the sub-lease is accounted for separately and the
lease classification of a sub-lease (finance or operating) is determined by
reference to the right-of-use asset arising from the head lease, not with
reference to the underlying asset.
146 Ricardo plc Annual Report & Accounts 2020/21
Other sub-leased assets are all classified as operating leases, where
payments received (net of any incentives granted by the Group) are
recognised in the income statement on a straight-line basis over the lease
term.
o) Non-current assets classified as held for sale – see
Note 18
Non-current assets are classified as held for sale when their carrying
amount is expected to be recovered principally through a sale transaction,
rather than through continuing use, and a sale is considered highly
probable within twelve months of their classification as held for sale. They
are stated at the lower of their carrying amount and fair value less costs
to sell. An impairment loss is recognised in the income statement for any
initial or subsequent write-down of the assets to fair value less costs to sell.
A gain is recognised in the income statement for any subsequent increases
in fair value less costs to sell an asset, but not in excess of any cumulative
impairment losses previously recognised. If these criteria are no longer
met, the asset ceases to be classified as held for sale and is measured at the
lower of: its carrying value prior to classification as held-for-sale, adjusted
for any depreciation, amortisation or revaluations that would have been
recognised had the asset not been classified as held for sale; and its
recoverable amount at the date at which the criteria were no longer met.
A gain or loss not previously recognised by the date of the sale of the
non-current assets is recognised in the income statement at the date of
derecognition. Non-current assets are not depreciated or amortised while
they are classified as held for sale and are presented separately from other
non-current assets.
p) Provisions for liabilities and charges – see Note 19
Provisions are required for restructuring costs and employment-related
benefits when the Group has a present legal or constructive obligation
at the reporting date as a result of a past event and it is probable that
settlement will be required of an amount that can be reliably estimated.
Provisions for warranty costs are recognised at the date of sale of the
relevant products, at the Directors’ best estimate of the expenditure
required to settle the Group’s probable liability.
Other provisions reflect the Directors’ best estimate of future obligations
relating to legal claims and litigation, together with dilapidation costs for
the maintenance of leasehold properties arising from past events such
as lease renewals or terminations. These estimates are reviewed at the
reporting date and updated as necessary.
q) Deferred tax – Note 20
Deferred tax is recognised on temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and
the amounts used for taxation purposes. Deferred tax liabilities are not
recognised if they arise from the initial recognition of goodwill. Deferred
tax is not accounted for if it arises from the initial recognition of an asset
or liability in a transaction other than a business combination that at the
time of the transaction affects neither accounting nor taxable profit and
differences relating to investments in subsidiaries to the extent that it is
not probable that they will reverse in the foreseeable future. The amount
of deferred tax provided is based on the expected manner of realisation or
settlement of the carrying amount of assets and liabilities, using tax rates
enacted or substantively enacted at the reporting date.
Deferred tax assets are recognised only to the extent that it is probable
that taxable profits will be available in the foreseeable future against which
the asset can be utilised. Deferred tax assets are reduced to the extent that
it is no longer probable that the related tax benefit will be realised within
the foreseeable future.
r) Inventories – Note 21
Inventories are stated at the lower of cost, including attributable
overheads allocated on the basis of normal operating capacity, and net
realisable value. Cost is calculated using the ‘weighted average’ method
across the Group apart from Performance Products and Defense which are
on a ‘first-in, first-out’ method.
Financial statementsNotes to the Group financial statements 1. Principal accounting policies (continued)
s) Trade, contract and other receivables – Note 22
Trade receivables are stated net of impairment and for the purposes
of impairment testing includes the non-financial contract assets of
amounts recoverable on contracts (‘AROC’) and accrued revenue. These
assets are assessed for impairment using the ‘simplified approach’ to the
‘expected credit loss’ (‘ECL’) model, which applies a ‘default rate’ at the
point of origination that increases as the unpaid asset ages. The ‘simplified
approach’ of IFRS 9 applies a ‘default rate’ to trade receivables and contract
assets, which considers both past experience and future expectations of
credit losses. Although past experience of significant credit losses on these
assets has been negligible, the impairment assessment considers both
past experience and future expectations of credit losses. As a result of
this assessment, the Group considers the risk of expected credit losses on
contract assets to be immaterial.
For the requiring an assessment of the ECL over the lifetime of the asset
using a historical provision matrix to create a group wide ‘default rate’
which together with past events is also adjusted for current conditions
and forecasts of future economic conditions. To calculate the Group
default rates a weighted average default rate for each division was taken.
It is the Group’s judgement that it is appropriate for Ricardo to use one
set of default rates across the Group as our international credit rating and
geographical profile is sufficiently similar across the globe. The customer
base across the Group is sufficiently homogenous as each division’s
customers are primarily comprised of large corporations and historical
provision matrixes are sufficiently homogenous.
Trade receivables and contract assets are provided in full and subsequently
written off when there is no reasonable expectation of recovery. Indicators
that there may be no reasonable expectation of recovery could include,
amongst others, evidence that the customer has entered administration
or liquidation proceedings, or the persistent failure of a customer to enter
into or adhere to a repayment plan. The ‘general approach’ is applied to
the impairment of other financial assets, the amount of which is based on
whether there has been a significant deterioration in the credit risk of a
financial asset.
t) Trade, contract and other payables – Note 23
Trade payables are not interest-bearing and are stated at their nominal
value.
u) Net debt and borrowings – Note 24
Cash and cash equivalents in the Consolidated cash flow statement
comprise cash balances and bank overdrafts repayable on demand. Bank
overdrafts are shown within borrowings in current liabilities and bank
loans and finance leases are shown within borrowings in either current
liabilities or noncurrent liabilities depending on the maturity date.
Financial liabilities are classified as either amortised cost or fair value
through profit and loss. Borrowings are recognised initially at fair value
net of direct issue costs and subsequently at amortised cost. Differences
between initial value and redemption value are recorded in the income
statement over the period of the loan. The fair value of borrowings due for
repayment after more than one year approximates to the carrying value as
they are primarily floating rate loans where payments are reset to market
rates at regular short-term intervals
v) Fair value of financial assets and liabilities – Note 26
The Group uses derivative financial instruments, including foreign
exchange contracts, to mitigate currency exposures on trading
transactions. Fair values of derivative financial instruments are based on
the market values of similar instruments at the reporting date.
The Group uses the fair value of foreign currency swap contracts on
intercompany loans as hedging instruments. The initial fair value is
determined with reference to the relevant spot market exchange rate.
The differential between the contracted strike rate and the discounted
spot market exchange rate is defined as the movement in fair value.
The movement of the hedge’s fair value gains and losses on the
remeasurement of cash flow derivatives are recognised in retained
earnings through the income statement.
The Group hedges the entire carrying value of all intercompany loans
denominated in foreign currencies, on which credit risk is considered to
be immaterial. Changes in fair value of foreign currency swap, forward and
option contracts that relate to hedged items are recognised in retained
earnings through the income statement, together with the change in the
fair value of the related hedge at the reporting date.
Where intercompany loans denominated in a foreign currency are
neither planned nor likely to be settled in the foreseeable future, they
are considered to form part of the net investment in the borrowing
entity, and foreign exchange differences are recognised through other
comprehensive income.
Short-term borrowings and deposits
The fair value of short-term deposits, loans and overdrafts approximates to
the carrying amount because of the short maturity of these instruments.
Long-term borrowings
The fair value of borrowings approximates to the carrying amount as they
are primarily floating rate loans where payments are reset to market rates
at regular intervals.
Derivatives
Derivative financial instruments are initially recognised and measured
at fair value on the date a derivative contract is entered into and
subsequently measured at fair value on the reporting date. Fair value
is estimated by discounting expected future contractual cash flows
using prevailing interest rate curves. Amounts denominated in foreign
currencies are valued at the exchange rate prevailing at the reporting date
(Level 2 of the fair value hierarchy within IFRS 13 Fair Value Measurement).
Measurement of all derivative financial instruments was taken to the
income statement.
w) Retirement benefits – Note 33
The Group operates one defined benefit and several defined contribution
pension schemes, the assets of which are held in separately administered
funds. The defined benefit pension scheme is closed to new entrants
and the accrual of future benefit for active members ceased at the end
of February 2010. Payments to defined contribution pension schemes are
charged as an expense as they fall due. Differences between contributions
payable in the year and contributions actually paid are included in either
accruals or prepayments. Payments to state-managed pension schemes
are dealt with as payments to defined contribution pension schemes as
the Group’s obligations under the schemes are similar in nature.
For the defined benefit pension scheme, the cost of providing benefit
is determined using the projected unit credit method, with actuarial
valuations being carried out at each reporting date. Remeasurements are
recognised in other comprehensive income except where they result from
settlements or curtailments, in which case they are reported in the income
statement.
Where necessary, past service costs are recognised immediately in
the income statement at the earlier of when the plan amendment
or curtailment occurs and when the related restructuring costs or
termination benefit are recognised. The defined benefit obligation
recognised represents the present value of the pension scheme
liabilities net of the fair value of scheme assets. Any asset resulting from
this calculation is limited to past service cost, plus the present value of
available refunds and reductions in future contributions to the plan.
The interest cost on the net defined benefit obligation for the year is
determined by applying the discount rate used to measure the defined
benefit obligation at the beginning of the year to the net defined benefit
obligation at the end of the year and is included in finance costs.
Creating a world fit for the future 147
Financial statementsNotes to the Group financial statements 1. Principal accounting policies (continued)
x) Share-based payments – Note 34
Equity-settled share-based payments are measured at fair value at the
date of grant. The fair value determined at the grant date is expensed
on a straight-line basis over the vesting period. The amount expensed
is adjusted over the vesting period for changes in the estimate of the
number of shares that will eventually vest, save for changes resulting from
any market-related performance conditions.
Cash-settled share-based payments are measured at fair value at the date
of grant and expensed over the vesting period until the vesting date with
the recognition of a corresponding liability. The liability is remeasured to
fair value at each reporting date up to and including the settlement date,
with changes in fair value recognised in the income statement for the year.
The amount expensed is adjusted over the vesting period for changes in
the estimate of the number of shares that will eventually vest. Fair value
is measured by using the Monte Carlo and Black Scholes models. The
expected life used in the models are adjusted for the effects of exercise
restrictions and behavioural considerations.
y) Foreign currency
Transactions
The functional currency of the Company and the presentation currency of
the Group is Pounds Sterling. The functional currency of each subsidiary
is the currency of the primary economic environment in which the entity
operates. Transactions in currencies other than the functional currency are
recorded at prevailing exchange rates. At each reporting date, monetary
assets and liabilities denominated in foreign currencies are retranslated
at the rates prevailing on the reporting date. Non-monetary assets and
liabilities denominated in foreign currencies are translated at the rates
prevailing at the date when the transaction occurred. Gains and losses
arising on retranslation and settlements are included in the income
statement for the year.
Consolidation
On consolidation the assets and liabilities of foreign operations, including
goodwill and fair value adjustments, are translated into the presentation
currency at exchange rates prevailing on the reporting date. Revenues
and costs are translated at the average exchange rates of the year unless
exchange rates fluctuate significantly. All resulting exchange differences
are recognised in other comprehensive income and the translation
reserve within equity. On disposal of an operation the related cumulative
translation differences are recognised in the income statement as a
component of the gain or loss arising on disposal.
z) Recent accounting developments
Adopted by the Group
The following other standards, interpretations and amendments to
existing standards became effective for periods commencing on or after
1 January 2020 and were adopted by the Group from 1 July 2020 and have
not had a material impact on the Group:
Amendments and Interpretations to IFRS
- IFRS 16 Leases: COVID-19 Related
Rent concessions
- IFRS 3 Business Combinations:
Definition of a business
- IFRS 9 Financial Instruments, IAS 39
Financial Instruments: Recognition and
Measurement and IFRS 17 Insurance
Contracts: Interest Rate Benchmark
Reform.
- IAS 1 Presentation of Financial
Statements and IAS 8 Accounting
Policies, Changes in Accounting
Estimates and Errors: Definition of
Material
- Amendments to References to
the Conceptual Framework in IFRS
Standards
Effective date
(period
commencing)
Endorsed
by EU
1 Jun 2020
1 Jan 2020
Yes
Yes
1 Jan 2020
Yes
1 Jan 2020
1 Jan 2020
Yes
Yes
Issued standards, amendments and interpretations not yet effective
The following other standards, interpretations and amendments to
existing standards have been issued but were not yet mandatory for the
Group for the accounting period commencing on 1 July 2020 and are not
expected to have a material impact on the Group:
Issued IFRS
- IFRS 17 Insurance Contracts
Amendments and Interpretations
to IFRS
- IFRS 9 Financial Instruments, IAS
39 Financial Instruments, IAS 7
Statement of Cash Flows, IFRS 4
Insurance Contracts, IFRS 16 Property,
Plant and Equipment: Interest Rate
Benchmark Reform phase 2
- IFRS 4 Insurance Contracts: Deferral
if IFRS 9
- IFRS 3 Business Combinations; IAS
16 Property, Plant and Equipment; IAS
37 Provisions, Contingent Liabilities
and Contingent Assets: Annual
Improvements 2018-2020
- IAS 1 Presentation of Financial
Statements: Classification of
Liabilities as Current or Non-Current
- IAS 1 Presentation of Financial
Statements: IFRS Practice Statement
2, Disclosure of Accounting
Estimates
- IAS 8 Accounting policies: Changes
in Accounting Estimates and Errors,
Definition of Accounting Estimates
- IAS 12 Income Taxes: Deferred Tax
related to Assets and Liabilities
arising from a Single Transaction
Effective date
(period
commencing)
Endorsed
by EU
1 Jan 2023
No
1 Jan 2021
1 Jan 2021
1 Jan 2021
1 Jan 2023
1 Jan 2023
1 Jan 2023
1 Jan 2023
Yes
Yes
Yes
No
No
No
No
148 Ricardo plc Annual Report & Accounts 2020/21
Financial statementsNotes to the Group financial statements 2. Alternative Performance Measures
Throughout this document the Group presents various alternative performance measures (‘APMs’) in addition to those reported under IFRS. The measures
presented are those adopted by the Chief Operating Decision Maker ('CODM', deemed to be the Chief Executive Officer), together with the main Board,
and analysts who follow us in assessing the performance of the business. Explanations of how they are calculated and how they are reconciled to an IFRS
statutory measure are set out below.
a) Group profit and earnings measures
Underlying profit before tax (‘PBT’) and underlying operating profit: These measures are used by the Board to monitor and measure the trading
performance of the Group. They exclude certain items which the Board believes distort the trading performance of the Group. These include the
amortisation of acquired intangibles, acquisition-related expenditure, reorganisation costs, and other specific adjusting items.
The Group’s strategy includes geographic and sector diversification, including targeted acquisitions and disposals. By excluding acquisition-related
expenditure from underlying PBT and underlying operating profit, the Board has a clearer view of the performance of the Group and is able to make better
operational decisions to support its strategy.
Acquisition-related expenditure includes the costs of acquisitions, deferred and contingent consideration fair value adjustments (including the unwinding
of discount factors), transaction-related fees and expenses, and post-deal integration costs.
Reorganisation costs arising from major restructuring activities, profits or losses on the disposal of businesses, and significant impairments of property, plant
and equipment, are excluded from underlying PBT and underlying operating profit as they are not reflective of the Group's trading performance in the year,
as are any other specific adjusting items deemed to be one-off in nature.
The related tax effects on the above and other tax items which do not form part of the underlying tax rate are also taken into account. Items are treated
consistently year-on-year, and these adjustments are also consistent with the way that performance is measured under the Group’s incentive plans and its
banking covenants. A reconciliation is shown below. Further details of the nature of the specific adjusting items are given in Note 6.
Reconciliation of underlying profit before
tax to reported profit/(loss) before tax
Revenue
Cost of sales
Gross profit
Administrative expenses and other income
Amortisation of acquired intangibles
Acquisition-related expenditure
Reorganisation costs
CEO exit costs
GMP equalisation
Operating profit/(loss)
Net finance expense
Profit/(loss) before taxation
Income tax (expense)/credit
Profit/(loss) for the year
Underlying
£m
351.8
(234.1)
117.7
(95.0)
-
-
-
-
-
22.7
(4.7)
18.0
(4.8)
13.2
2021
Specific
adjusting
items
£m
-
-
-
-
(5.0)
(2.1)
(5.4)
(1.5)
(0.1)
(14.1)
-
(14.1)
2.6
(11.5)
Total
£m
351.8
(234.1)
117.7
(95.0)
(5.0)
(2.1)
(5.4)
(1.5)
(0.1)
8.6
(4.7)
3.9
(2.2)
1.7
Underlying
£m
352.0
(236.9)
115.1
(95.1)
-
-
-
-
-
20.0
(4.4)
15.6
(4.1)
11.5
2020
Specific
adjusting
items
£m
-
-
-
-
(6.0)
(3.0)
(11.9)
-
-
(20.9)
-
(20.9)
3.0
(17.9)
Total
£m
352.0
(236.9)
115.1
(95.1)
(6.0)
(3.0)
(11.9)
-
-
(0.9)
(4.4)
(5.3)
(1.1)
(6.4)
Underlying earnings attributable to the owners of the parent: The Group uses underlying earnings attributable to the owners of the parent as the
input to its adjusted EPS measure. This profit measure excludes the amortisation of acquired intangibles, acquisition-related expenditure, reorganisation
costs and other specific adjusting items, but is an after-tax measure. The Board considers underlying EPS to be more reflective of the Group's trading
performance in the year. A reconciliation between earnings attributable to the owners of the parent and underlying earnings attributable to the owners of
the parent is shown in Note 7.
Organic growth/decline: Organic growth/decline is calculated as the growth/decline in the result for the current year compared to the prior year, after
adjusting for the impact of acquisitions or disposals, to include the results of those acquisitions or disposals for an equivalent period in each financial year. As
set out in Note 13, the Group acquired the entire issued share capital of PLC Consulting Pty Ltd (‘PLC Consulting’) on 31 July 2019. Had PLC Consulting been
acquired and consolidated from 1 July 2019, the impact on the Group would not have been material.
Constant currency growth/decline: The Group generates revenues and profits in various territories and currencies because of its international footprint.
Those results are translated on consolidation at the foreign exchange rates prevailing at the time. Constant currency growth/decline is calculated by
translating the result for the current year using foreign currency exchange rates applicable to the prior year. This provides an indication of the growth/
decline of the business, excluding the impact of foreign exchange.
Creating a world fit for the future 149
Financial statementsNotes to the Group financial statements 2. Alternative Performance Measures (continued)
Headline trading performance
2021 (£m)
2020 (£m)
Growth (%)
Constant currency growth (%)
Underlying
Operating
profit
22.7
20.0
14
14
Profit before
tax
18.0
15.6
15
15
Reported
Operating
profit/(loss)
8.6
(0.9)
1,056
1,056
Profit/(loss)
before tax
3.9
(5.3)
174
174
Revenue
351.8
352.0
-
1
Segmental underlying operating profit: This is presented in the Group’s segmental disclosures and reflects the underlying trading of each segment,
as assessed by the main Board. This excludes segment-specific amortisation of acquired intangibles, acquisition-related expenditure and other specific
adjusting items, such as reorganisation costs. It also excludes unallocated Plc costs, which represent the costs of running the public limited company and
specific adjusting items which are outside of the control of segment management. A reconciliation between segment underlying operating profit, the
Group’s underlying operating profit and operating profit is presented in Note 4.
b) Cash flow measures
Cash conversion: A key measure of the Group’s cash generation is the conversion of profit into cash. This is the reported cash generated from operations
(defined as operating cash flow, less movements in net working capital and defined benefit pension deficit contributions) divided by earnings before
interest, tax, depreciation, impairment and amortisation (‘EBITDA’), expressed as a percentage.
Underlying cash conversion: This is underlying cash generated from operations (defined as reported cash generated from operations, adjusted for the
cash impact of specific adjusting items) divided by underlying EBITDA (defined as reported EBITDA, adjusted for the impact of specific adjusting items). A
reconciliation between the two is shown below.
Cash conversion
Operating profit/(loss)
Depreciation, amortisation and impairment
Amortisation of acquired intangibles
EBITDA
Movement in working capital
Pension deficit payments
Profit on disposal of assets
Share based payments
Fair value losses on derivative financial
instruments
Cash generated from/(used in) operations
Cash conversion
2021
Specific
adjusting
items
£m
(14.1)
1.9
5.0
(7.2)
2.9
-
-
0.4
-
(3.9)
Underlying
£m
22.7
19.7
-
42.4
(2.3)
(4.6)
(0.3)
1.0
0.7
36.9
87.0%
2020
Specific
adjusting
items
£m
(20.9)
6.7
6.0
(8.2)
4.0
-
(1.0)
-
-
(5.2)
Total
£m
8.6
21.6
5.0
35.2
0.6
(4.6)
(0.3)
1.4
0.7
33.0
93.8%
Underlying
£m
20.0
17.6
-
37.6
4.5
(4.6)
-
0.6
0.3
38.4
102.1%
Total
£m
(0.9)
24.3
6.0
29.4
8.5
(4.6)
(1.0)
0.6
0.3
33.2
112.9%
Net debt: is defined as current and non-current borrowings less cash and cash equivalents, including hire purchase agreements, but excluding any impact
of other IFRS 16 lease liabilities. Management believes this definition is the most appropriate for monitoring the indebtedness of the Group and is consistent
with the treatment in the Group’s banking agreements.
c) Tax measures
Underlying effective tax rate (‘ETR’): The Group reports one adjusted tax measure, which is the tax rate on underlying profit before tax. This is the tax
charge applicable to underlying profit before tax expressed as a percentage of underlying profit before tax.
150 Ricardo plc Annual Report & Accounts 2020/21
Financial statementsNotes to the Group financial statements
Financial performance
The following disclosures provide further information about the drivers of the Group’s financial performance
in the year. This includes analysis of the respective contribution of the Group’s reportable segments along with
information about its operating cost base, net finance costs and tax. In addition, disclosure on earnings per share
and the dividend is provided.
3. Operating profit
Research and development expenditure accounting policy – Note 1(d)
Government grants accounting policy – Note 1(e)
The following items have been charged/(credited) to operating profit
Depreciation of property, plant and equipment
Impairment of property, plant and equipment
Depreciation of right-of-use assets
Impairment of right-of-use assets
Amortisation of other intangible assets
Impairment on held for sale assets
Repairs and maintenance on property, plant and equipment
Net impairment expense on trade receivables
Profit on disposal of property, plant and equipment
Research and Development Expenditure Credits ('RDEC')
Research and development expenditure
Government grant income in respect of research and development expenditure
Government grant income in respect of COVID-19
Note
16
16
17
17
15
18
22
2021
£m
5.7
0.3
5.7
0.2
13.2
1.5
12.1
0.3
(0.3)
(5.5)
1.7
(1.2)
(1.3)
2020
£m
5.7
5.6
5.4
0.5
12.0
1.1
12.9
1.3
(1.0)
(7.7)
4.6
(1.1)
(1.8)
Government grant income in respect of COVID-19 above includes £0.4m (2020: £1.2m) in respect of the UK Government Coronavirus Job Retention Scheme,
which is intended to support continuing employment for businesses affected by COVID-19. It also includes £0.6m (2020: £0.4m) of grant income in respect of
the Netherlands NOW scheme.
4. Financial performance by segment
The segmental analysis helps explain the business in the way that it is monitored by management.
The Group’s operating segments are being reported based on the financial information provided to the Chief Operating Decision Maker who
is the Chief Executive Officer. The information reported includes financial performance but does not include the financial position of assets
and liabilities. The operating segments were identified by evaluating the Group’s products and services, processes, types of customers and
delivery methods.
From FY 2020/21, due to restructuring within the Group, Strategic
Consulting & Software (‘other’) is no longer being separately reported as
an operating segment.
The Strategic Consulting element of this segment is now reported within
Automotive & Industrial (‘A&I’). This business has a number of common
customers, operates in similar markets to A&I, and is now run as a business
unit within the overall A&I business. Since the start of FY 2020/21, the
A&I EMEA Managing Director has overall responsibility for the Strategic
Consulting service offering.
The Software element of this segment has been aggregated into the
Performance Products operating segment for the purposes of segmental
reporting. Whilst the Software business continues to be run as a separate
business with its own leadership team, it has a number of similar
characteristics to the Performance Products manufacturing business,
in that it is involved in the development of niche products, requiring a
high level of capital/development spend, primarily selling to automotive
manufacturers.
As a result of this change, the Group is now reporting the five segments
set out below. Prior year comparatives have been restated to present
the results of Ricardo Strategic Consulting and Ricardo Software within
Automotive & Industrial and Performance Products, respectively, in line
with the current year. Consistent with the prior period, Plc costs includes
the costs of running the public limited company, including foreign
exchange exposure on intercompany loans.
The following summarises the operations in each of the Group’s
reportable segments:
• Energy & Environment (‘EE’) – EE generates revenue from the provision
of environmental consultancy services to customers across the
world. Customers include governments, public agencies and private
businesses;
• Rail – Rail generates revenue from through two separate operations:
a consultancy unit that provides technical advice and engineering
services; and a separate, independent entity, Ricardo Certification, that
performs accredited assurance services;
• Automotive & Industrial (‘A&I’) – A&I generates revenue through the
provision of engineering, strategic consulting, and design, development
and testing services, focused on hybrid and electric systems,
electrification, engines, driveline and transmissions, testing, and
vehicle engineering. Customers include businesses in the automotive,
aerospace, defence, energy, off-highway and commercial, marine,
motorcycle and light-personal transport, and rail markets;
• Defense – Defense provides engineering services, software and
products to customers in the US defence market, aimed and protecting
life and improving the operation, maintenance and support of complex
systems; and
• Performance Products (‘PP’) manufactures, assembles and develops
niche high-quality components, prototypes and complex products,
including engines, transmissions and other precision and performance-
critical products and software. Its customers manufacture low-volume,
high-performance products in markets such as motorsport, automotive,
aerospace, defence and rail.
Creating a world fit for the future 151
Financial statementsNotes to the Group financial statements
4. Financial performance by segment (continued)
The operations of the Group have been categorised into these segments
due to the nature of their services, market sectors, client bases and
distribution channels and operating across markets requiring adherence to
regulatory frameworks that are similar in nature.
Measurement of performance
Management monitors the financial results of its operating segments
separately for the purpose of making decisions about allocating resources
and assessing performance. Segmental performance is measured based
on underlying operating profit, as this measure provides management
with an overall view of how the different operating segments are
managing their total cost base against the revenue generated from their
portfolio of contracts.
There are varying levels of integration between the segments. The
segments use EE for their specialist environmental knowledge. A&I and PP
have various shared projects. There are also shared service costs between
the segments. Inter-segment transactions are eliminated on consolidation.
Inter-segment pricing is determined on an arm’s length basis in a manner
similar to transactions with third parties.
Included within Plc costs in the following tables are costs arising from a
central Group function, including the costs of running the public limited
company, which are not recharged to the other operating segments.
Comparative figures for the year ended 30 June 2020 have been restated,
reflecting the impact of the changes the Group made to its operating
segments during the year ended 30 June 2021. The operating segment
section of this Annual Report provides further detail on the segments’
performance (see page 45 to 55).
For the year ended 30 June 2021
Total segment revenue
Inter-segment revenue
Revenue from external customers
Segment underlying operating profit
Plc costs
Underlying operating profit/(loss)
Specific adjusting items (*)
Operating profit/(loss)
Net finance costs
Profit before taxation
Depreciation and amortisation
Capital expenditure:
- Other intangible assets
- Property, plant and equipment
- Right-of-use assets
For the year ended 30 June 2020
Total segment revenue
Inter-segment revenue
Revenue from external customers
Segment underlying operating profit
Plc costs
Underlying operating profit/(loss)
Specific adjusting items (*)
Operating profit/(loss)
Net finance costs
Loss before taxation
Depreciation and amortisation
Capital expenditure:
- Other intangible assets
- Property, plant and equipment
- Right-of-use assets
* - See Note 6
EE
£m
57.9
(0.8)
57.1
8.5
-
8.5
(0.9)
7.6
3.3
1.4
0.4
0.2
EE
£m
51.7
(0.9)
50.8
6.3
-
6.3
(1.7)
4.6
3.7
0.9
0.3
-
Rail
£m
77.7
-
77.7
8.0
-
8.0
(3.6)
4.4
6.1
-
0.2
0.8
Rail
£m
75.4
(0.1)
75.3
5.8
-
5.8
(5.5)
0.3
6.5
0.1
0.2
0.1
A&I
£m
105.7
(3.2)
102.5
(1.6)
-
(1.6)
(5.6)
(7.2)
Defense
£m
37.9
-
37.9
5.4
-
5.4
(0.4)
5.0
10.2
3.6
2.3
0.6
A&I
£m
119.8
(2.6)
117.2
0.5
-
0.5
(10.4)
(9.9)
14.1
3.6
19.8
4.5
1.8
0.5
0.6
0.8
Defense
£m
32.8
-
32.8
5.1
-
5.1
(0.5)
4.6
1.4
0.5
0.3
0.4
PP
£m
78.5
(1.9)
76.6
6.8
-
6.8
-
6.8
3.9
3.1
0.8
-
PP
£m
78.3
(2.4)
75.9
5.1
-
5.1
(0.3)
4.8
3.3
3.4
1.0
0.1
Plc
£m
-
-
-
-
(4.4)
(4.4)
(3.6)
(8.0)
1.3
0.3
-
-
Plc
£m
-
-
-
-
(2.8)
(2.8)
(2.5)
(5.3)
1.3
0.7
0.4
-
Total
£m
357.7
(5.9)
351.8
27.1
(4.4)
22.7
(14.1)
8.6
(4.7)
3.9
26.6
8.9
4.3
2.4
Total
£m
358.0
(6.0)
352.0
22.8
(2.8)
20.0
(20.9)
(0.9)
(4.4)
(5.3)
30.3
9.2
22.0
5.1
Revenue from one customer represents approximately 12% (2020: 13%) of the Group’s external revenue, which is primarily reported in the PP segment.
152 Ricardo plc Annual Report & Accounts 2020/21
Financial statementsNotes to the Group financial statements
5. Revenue
This note explains how the Group derives its revenue.
Revenue accounting policy – Note 1(f)
Key sources of estimation uncertainty: Revenue on fixed price contracts – Note 1(c)
Disaggregation of revenue
a) Revenue stream
Service provided under:
- fixed price contracts
- time and materials contracts
- subscription and software support contracts
Goods supplied:
- manufactured and assembled products
- software products
Intellectual property
Total
b) Customer location
United Kingdom
Europe
North America
China
Rest of Asia
Australia
Rest of the World
Total
c) Timing of recognition
Over time
At a point in time
Total
2021
£m
210.8
65.9
6.6
61.8
6.7
-
351.8
118.9
76.2
69.5
24.1
25.7
27.3
10.1
351.8
289.6
62.2
351.8
2020
£m
189.5
73.3
6.7
74.3
7.2
1.0
352.0
124.6
80.4
59.9
22.6
31.4
21.4
11.7
352.0
276.4
75.6
352.0
See Note 22 for disclosure of impairment losses recognised on receivables and contract assets arising from the Group’s contracts with customers. Note 22
also provides details of the opening and closing balances of receivables and contract assets, together with the Group’s order book which comprises the
value of all unworked purchase orders and contracts received from customers at the reporting date and provides an indication of revenue that has been
secured and will be recognised in future accounting periods.
See Note 23 for the opening and closing balances of contract liabilities from contracts with customers.
Creating a world fit for the future 153
Financial statementsNotes to the Group financial statements
6. Specific adjusting items
Specific adjusting items are disclosed separately in the financial statements where it is necessary to do so to
provide further understanding of the financial performance of the Group. These items comprise the amortisation
of acquired intangible assets, acquisition-related expenditure, reorganisation costs and other non-recurring
items that are included due to the significance of their nature or amount. Acquisition-related expenditure is
incurred by the Group to effect a business combination, including the costs associated with the integration of
acquired businesses. Reorganisation costs relate to non-recurring expenditure incurred as part of fundamental
restructuring activities, significant impairments of property, plant and equipment, and other items deemed to be
one-off in nature.
Specific adjusting items accounting policy - Note 1(g)
Critical judgement on specific adjusting items: Reorganisation costs – Note 1(c)
Amortisation of acquired intangibles
Acquisition-related expenditure
Reorganisation costs
- Purchases and disposals
- Other reorganisation costs
CEO exit costs
Guaranteed Minimum Pensions ('GMP') equalisation
Total before tax
Tax credit on specific adjusting items
Tax charge on prior year specific adjusting item
Total after tax
Amortisation of acquired intangible assets
On acquisition of a business, the purchase price is allocated to assets
such as customer contracts and relationships. Amortisation occurs on a
straight-line basis over its useful economic life, which is between 3 and
9 years. During the year, certain “customer contracts and relationships”
intangible assets reached the end of their economic life, resulting in a
decrease in amortisation charges compared to the prior period.
Acquisition-related expenditure
The current year acquisition-related expenditure comprises £1.6m (2020:
£2.8m) of earn-out and employee retention costs, accrued in relation to
Transport Engineering Pty Ltd (now Ricardo Rail Australia - ‘RRA’), acquired
in May 2019, and PLC Consulting Pty Ltd (now Ricardo Energy Environment
and Planning - ‘REEP’), acquired in July 2019. Further details are provided
in Note 13. The current year charge also includes £0.5m of external fees
incurred in relation to two strategic projects in the year.
The prior period charge included £0.4m of costs incurred in relation to
the post-deal integration of RRA and REEP, and £0.9m costs incurred
on acquisition processes (including REEP and other aborted processes),
comprising external fees and the costs of running an internal acquisitions
department to effect the acquisition processes. Offsetting these, £1.1m of
income was recognised in relation to a gain on a foreign exchange option
contract, which was taken out to hedge an aborted overseas transaction.
The above items have been classified as specific adjusting items as they
meet the Group’s definition of acquisition-related expenditure. The prior
year gain on the option contract was classified as a specific adjusting item
due to its non-recurring nature and the significance of the amount.
154 Ricardo plc Annual Report & Accounts 2020/21
2021
£m
5.0
2.1
2.0
3.4
1.5
0.1
14.1
(2.6)
-
11.5
2020
£m
6.0
3.0
5.7
6.2
-
-
20.9
(3.3)
0.3
17.9
Reorganisation costs
Purchases and disposals
The current year charge includes a £1.5m impairment charge as a result
of a decrease in the fair value of the Detroit Technology Campus (‘DTC’)
South building, reflecting its market value at the balance sheet date. The
property has been held-for-sale since its purchase in August 2019. It was
purchased to remove the business from a long-term lease commitment
which ran to October 2037 and comprised a North building, which housed
testing operations, and a South office building. The campus was originally
purchased for £14.2m (USD 17.3m), and immediately written down,
resulting in an impairment charge of £2.5m (net of the extinguishment
of an associated IFRS 16 lease liability) in the prior year as the purchase
price was predicated on its tenancy. The North building and its associated
test assets were sold in the second half of FY 2019/20 (see below) and
the South building was impaired by a further £1.1m (USD 1.3m). The
current year impairment charge reflects the impact of COVID-19 on the
property market, with a significantly lower demand for office space
depressing prices in the DTC area. These costs have been classified as
specific adjusting items as they are significant in value and would distort
the underlying trading performance of the Group if included. On 18
January 2021, as offers received were lower than expected, management
decided to retain the use of the property. The property is continuing to be
marketed for sale, but management no longer considers a sale within the
next twelve months to be highly probable – see Note 18.
The DTC North building and its associated test assets were sold on 3
June 2020 for up-front consideration of £2.8m (USD 3.5m), with up to an
additional £1.5m (USD 2.0m) contingent on volume of testing work placed
into the facility by Ricardo over the next two years. A loss of £2.1m (USD
2.7m), after taking into account the fair value of contingent consideration,
was recognised on the disposal in the prior year. A charge of £0.5m (USD
0.8m) has been recognised in the current year, representing a reduction in
the fair value of contingent consideration based on management’s latest
assessment of the testing volumes to be placed into the facility over the
next twelve months. Ricardo received £0.2m (USD 0.3m) of contingent
consideration in FY 2020/21.
Financial statementsNotes to the Group financial statements
6. Specific adjusting items (continued)
6. Specific adjusting items (continued)
Other reorganisation costs
CEO exit costs
In January 2021, the Board announced that CEO Dave Shemmans will
be leaving the Group, after sixteen years in the role. Costs of £1.5m have
been accrued, covering his settlement, external legal fees, and external
recruitment fees to find a successor. The costs have been recognised as
specific adjusting items due to their non-recurring nature and quantum.
Guaranteed Minimum Pensions ('GMP') equalisation
In October 2018, the High Court issued a judgement confirming that
pension schemes are required to equalise male and female members'
benefits for the effect of Guaranteed Minimum Pensions ('GMP'), which
resulted in a £1.3m charge in FY 2018/19. A further ruling in November
2020 confirmed that historical transfers out of the scheme, between May
1990 and October 2018 would also need to be equalised for GMP. This has
resulted in an additional £0.1m charge in the current year, which has been
classified as a specific adjusting items due to it being non-recurring in
nature. The treatment is consistent with the treatment of the original GMP
equalisation charge.
Tax charge on prior year specific adjusting items
During FY 2019/20, a tax charge of £0.3m was recognised in relation to
adjustments to the prior year tax charge arising on the sale of the Germany
test business in June 2018.
Redundancy costs: The current period charge reflects a total of £2.5m of
redundancy costs from headcount reductions in the Group’s A&I business
in EMEA. This was caused by a continuation of the challenging trading
conditions seen throughout the year and the impact of COVID-19 on
order intake levels as clients reduced levels of outsourcing and delayed
major programmes. The A&I EMEA business previously incurred £2.0m
of costs from headcount reductions in the second half of FY 2019/20,
driven by impact of the outbreak of COVID-19 on trading conditions.
Due to the continuing depressed economic conditions and various
national lockdowns in Autumn 2020, further heads were removed from
the business in the first half of this year at a cost of £1.3m. Order intake
showed signs of improvement in the third quarter of the financial year,
but further national lockdowns in Spring 2021 led to more project delays,
which contributed to a decline in order intake in the fourth quarter. In
June 2021, management announced a plan to take additional heads out
of the business, recognising a £1.2m redundancy provision. These actions
are deemed necessary to right-size the business based on current order
intake levels and realign capabilities with changing customer demands.
These costs have been included within specific adjusting items as they are
significant in quantum and would otherwise distort the underlying trading
performance of the Group.
In the prior year, in addition to the £2.0m of redundancy costs for A&I in
EMEA, £1.4m of redundancy costs were incurred in Rail (the completion
of a process which commenced in FY 2018/19), together with £1.0m
of redundancy costs across A&I US, Performance Products, Software
and Strategic Consulting (now part of A&I EMEA). £0.8m of incremental
professional fees and external, non-revenue generating contractor costs
were incurred, directly linked to the restructuring actions taken.
Property exit costs: As part of the restructuring actions, A&I in EMEA
announced its decision to fully exit the Cambridge Technical Centre
(‘CaTC’) at the end of June 2021, recognising a charge of £0.7m in respect
of impairment of the lease right-of-use asset and leasehold improvements,
dilapidations costs, and service fees through to the break date of June
2022. The treatment of these costs as specific adjusting items is consistent
with the prior year, when an element of the building was vacated due
to a reduction in headcount, resulting in a charge of £0.6m. In addition,
£0.1m has been incurred in the current year in respect of the impairment
of the right-of-use asset in Schwäbish Gmünd Technical Centre (‘SGTC’), as
management was in discussions with the landlord to surrender the lease at
this site (on which Ricardo has a very limited presence) at the year-end (see
Note 38), together with £0.1m for the write off of equipment relating to
the Santa Clara Technical Centre (‘SCTC’), which was exited in June 2020. A
charge of £0.4m was recognised in the prior year in respect of right-of-use
and other asset impairments at SCTC and incremental contractor costs.
Creating a world fit for the future 155
Financial statementsNotes to the Group financial statements 7. Earnings per share
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the
weighted average number of shares outstanding during the year, excluding those held by an employee benefit
trust for the Long-Term Incentive Plan (‘LTIP’) and by the Share Incentive Plan (‘SIP’) for the free share scheme
which are treated as cancelled for the purposes of the calculation.
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary
shares. These include potential awards of LTIP shares and options granted to employees. The assumed proceeds from these is regarded as having been
received at the average market price of ordinary shares during the year.
Reconciliations of the earnings and the weighted average number of shares used in the calculations are set out below. Underlying earnings per share is also
shown because the Directors consider that this provides a more useful indication of underlying performance and trends over time.
Earnings/(loss) attributable to owners of the parent
Add back the net-of-tax impact of:
- Amortisation of acquired intangibles
- Acquisition-related expenditure
- Asset purchases and disposals
- Other reorganisation costs
- CEO exit costs
- Guaranteed Minimum Pensions ('GMP') equalisation
- Tax charge on prior year specific adjusting item
Underlying earnings attributable to owners of the parent
Basic weighted average number of shares in issue
Effect of dilutive potential shares
Diluted weighted average number of shares in issue
Earnings/(loss) per share
Basic
Diluted
Underlying earnings per share
Basic
Diluted
8. Dividends
Dividends are one type of shareholder return, historically paid to our shareholders in April and November.
Dividend accounting policy – Note 1(h)
Final dividend for prior period: 0.00p per share (2020: 15.28p) per share
Interim dividend for current period: 1.75p per share (2020: 6.24p) per share
Equity dividends paid
2021
£m
-
1.1
1.1
A dividend of £0.1m (2020: £0.1m) was issued during the year by a subsidiary of the Group to a non-controlling party of that subsidiary. A return of capital of
£0.2m (2020: Nil) was made during the year by a subsidiary of the Group to a non-controlling party of that subsidiary.
156 Ricardo plc Annual Report & Accounts 2020/21
2021
£m
1.7
3.9
2.0
1.5
2.7
1.3
0.1
-
13.2
2020
£m
(6.5)
4.5
2.9
4.8
5.4
-
-
0.3
11.4
2021
Number of
shares millions
58.9
-
58.9
2020
Number of
shares millions
53.4
-
53.4
2021
pence
2.9
2.9
2021
pence
22.4
22.4
2020
pence
(12.2)
(12.2)
2020
pence
21.3
21.3
2020
£m
8.2
3.3
11.5
Financial statementsNotes to the Group financial statements
9. Net finance costs
Net finance costs accounting policy – Note 1(i)
Finance income:
Bank interest receivable
Other interest receivable
Interest income on finance lease receivables
Total finance income
Finance costs:
Bank interest payable on borrowings
Interest expense on lease liabilities
Defined benefit pension financing costs
Total finance costs
Net finance costs
Note
17
17
33
2021
£m
0.4
0.2
0.2
0.8
(4.4)
(1.0)
(0.1)
(5.5)
(4.7)
2020
£m
0.3
-
0.1
0.4
(3.5)
(1.2)
(0.1)
(4.8)
(4.4)
10. Auditor’s remuneration
This note includes all amounts paid to the Group’s auditors, KPMG, whether in relation to their audit of the
Group or otherwise. During the year the Group (including its subsidiaries) obtained the following services from
the Group auditors and its associates:
Fees payable for services provided by the Company’s auditors and its associates
Statutory audit of the Company and its consolidated financial statements
Statutory audit of the Company’s subsidiaries and their financial statements
Total audit fees
Audit-related assurance services provided to the Company
Audit-related assurance services provided to the Company’s subsidiaries
Total non-audit fees
2021
£’000
322
380
702
42
43
85
2020
£’000
353
373
726
42
-
42
Fees payable during the year to the Company’s auditors and its associates for audit-related assurance services related to independent reviews, agreed-upon
procedures and other services closely related to the audit of the Company and its subsidiaries.
Total non-audit fees payable to the external auditors for audit-related assurance services and other non-audit services for the financial year were 12.1% (2020:
5.8%) of total audit fees. These non-audit services comprised the Group’s interim review and other audit-related assurance services.
Creating a world fit for the future 157
Financial statementsNotes to the Group financial statements
11. Tax expense
This note explains how our Group’s current tax charge arises.
Tax expense accounting policy – Note 1(j)
Current income tax
UK corporation tax
Adjustments in respect of prior years
Total UK tax
Foreign corporation tax
Adjustments in respect of prior years
Total foreign tax
Total current tax
Deferred tax
Charge/(credit) for the year
Adjustments in respect of prior years
Impact of change in UK tax rate
Total deferred tax
Total taxation
Tax on items recognised in other comprehensive income
2021
£m
2020
£m
-
0.1
0.1
0.9
0.1
1.0
1.1
0.1
(0.1)
1.1
1.1
2.2
2.0
0.4
(0.3)
0.1
2.8
0.6
3.4
3.5
(2.3)
(0.1)
-
(2.4)
1.1
(1.1)
Tax on items recognised in other comprehensive income relate to the tax impact of remeasurements of the defined benefit pension scheme and changes
in tax rate. Tax on items recognised directly in equity relate to equity-settled share-based payment transactions.
The main rate of UK corporation tax for the year ending 30 June 2021 is 19%. The Finance Act 2020 reversed the decision to reduce the main rate from 19%
to 17% from 1 April 2020. The Finance Act 2021, which was substantially enacted on 10 June 2021, announced that the main UK corporation tax rate will
increase to 25% with effect from 1 April 2023. Deferred taxes in the UK have been measured at the corporation tax rate expected to apply to the reversal
of the timing difference, resulting in a charge to the income statement of £1.1m. Overseas deferred taxes at the reporting date have been measured and
reflected in these financial statements by using the enacted rate within each jurisdiction. The tax charge for the year is higher (2020: higher) than the
standard rate of corporation tax in the UK. The differences are set out below:
Profit/(loss) before taxation
Multiplied by the standard rate of corporation tax in the UK of 19% (2020: 19%)
Effects of:
Expenses not deductible for tax purposes
Government tax incentives(1)
Other overseas taxes(2)
Adjustment to the IFRIC 23 provision
Adjustments in respect of prior years
Deferred tax - change in UK rate
Changes in corporation tax rates
Total taxation
(1) Primarily relates to R&D tax credits.
(2) Primarily relates to withholding taxes.
2021
£m
3.9
0.7
0.4
(0.3)
0.6
(0.9)
0.2
1.1
0.4
2.2
2020
£m
(5.3)
(1.0)
1.2
(0.3)
0.5
-
0.3
-
0.4
1.1
The Group operates in a number of countries, and is subject to taxation in numerous jurisdictions. Legislation related to taxation is complex and management
are required to make judgements based on appropriate professional advice, and amounts provided are accrued based on management’s interpretation
of country-specific tax laws. In particular, management applies judgement in respect of ongoing tax audits around the Group, which can take a significant
amount of time to be agreed with Tax Authorities. The Group estimates and accrues taxes that will ultimately be payable when reviews or audits by Tax
Authorities of tax returns are completed. These estimates include judgements about the position expected to be taken by each Tax Authority.
Management judgement has also been required to ensure that appropriate transfer pricing is applied on all intra-group transactions, and in determining
the amounts that would be undertaken on an arm’s length basis. As a result, actual liabilities could differ from the amounts provided which could have a
consequent impact on the results and net position of the Group.
None of the amounts are individually material and therefore there is not a significant risk of material differences in future periods.
158 Ricardo plc Annual Report & Accounts 2020/21
Financial statementsNotes to the Group financial statements
Capital base
12. Non-current assets by geographical location (excluding deferred tax assets)
Asset location
United Kingdom
Netherlands
North America
Australia
Rest of the World
Total
Goodwill
Other intangible assets
Property, plant and equipment
Right-of-use assets
Retirement benefit surplus
Other receivables
Total
Note
14
15
16
17
33
22
2021
£m
100.9
17.6
22.4
26.6
26.6
194.1
84.7
33.9
46.9
19.5
6.8
2.3
2020
£m
115.0
20.1
20.1
29.6
14.5
199.3
87.8
39.9
45.4
23.9
-
2.3
194.1
199.3
13. Acquisitions
(a) Acquisitions in the prior period - PLC Consulting
On 31 July 2019, the Group acquired the entire issued share capital of PLC Consulting Pty Ltd (‘PLC Consulting’) for initial cash consideration of £4.2m (AUD
7.4m), which includes an adjustment for cash and normalised net working capital of £0.3m (AUD 0.4m), paid in November 2019.
PLC Consulting is an Australian firm with a strong technical advisory capability across the project life cycle in infrastructure, environment and planning,
including supporting the environmental requirements of master-planning, business cases, procurement, design, construction and operation. PLC
Consulting was renamed Ricardo Energy Environment and Planning (‘REEP’) on 5 August 2019. The following tables set out the fair value of cash
consideration payable to acquire PLC Consulting, together with the fair value of net assets acquired.
Fair value of cash consideration
Initial cash consideration
Total fair value of cash consideration
Fair value of identifiable net assets acquired
Customer contracts and relationships
Trade contract and other receivables
Cash and cash equivalents
Trade, contract and other payables
Deferred tax liabilities
Fair value of identifiable net assets acquired
Goodwill
Total fair value of cash consideration
Note
15
20
14
£m
4.2
4.2
1.3
0.5
0.4
(0.2)
(0.4)
1.6
2.6
4.2
Creating a world fit for the future 159
Financial statementsNotes to the Group financial statements
13. Acquisitions (continued)
On acquisition the maximum contingent cash payable was £1.4m (AUD
2.5m). The amounts payable are based on the achievement of a range
of annual performance targets measured against the earnings before
interest, tax, depreciation and amortisation of PLC Consulting across
a two-year earn-out period. These payments are dependent upon
the continuing employment of the sellers in the business and are not
considered to be consideration. As year one performance targets were
achieved, £0.7m (AUD 1.3m) was paid in October 2020 in respect of the
year one earn out. An accrual of £0.5m (AUD 0.9m), representing the fair
value of the expected year two payment, has been included within the
current year results. Whilst performance targets have been achieved in the
year to 30 June 2021, the maximum contingent cash is not payable as one
of the sellers left the business during the year. In both years, the costs have
been included within specific adjusting items (see Note 6).
Adjustments were made for the recognition of customer-related
intangible assets separable from goodwill amounting to £1.3m (AUD 2.4m).
£0.4m of amortisation on these acquired intangibles has been charged to
the income statement for the year ended 30 June 2021 (FY 2019/20: £0.4m).
This is included within specific adjusting items in Note 6.
The fair value of the contingent cash consideration and identifiable net
assets acquired were identified in accordance with the requirements of
IFRS 3 Business Combinations and the sale and purchase agreement.
The goodwill arising on acquisition can be ascribed to the existence of
a skilled, active workforce, developed expertise and processes and the
opportunities to obtain new contracts and develop the business. None of
these meet the criteria for recognition as intangible assets separable from
goodwill. None of the goodwill recognised on consolidation is expected
to be deductible for tax purposes.
The net assets acquired of £1.6m (AUD 3.0m) included trade receivables of
£0.5m (AUD 0.9m), all of which were collected.
Acquisition-related expenditure of £0.2m representing costs incurred
to integrate the business post-acquisition, was charged to the income
statement for the year ended 30 June 2020 and was included within
specific adjusting items in Note 6.
(b) Acquisition made in the year to 30 June 2019
On 31 May 2019, the Group acquired the entire issued share capital
of Transport Engineering Pty Ltd (‘Transport Engineering’) for initial
cash consideration payable of £21.7m (AUD 39.5m) which included
an adjustment for cash and normalised net working capital of £0.5m
(AUD 0.9m) paid in August 2019, together with the accrued fair value of
contingent cash consideration payable of £5.1m (AUD 9.4m). Transport
Engineering is a leading rail technical services consultancy based in
Australia. It expands the Group’s existing capabilities within the growing
Asia-Pacific rail market and provides a footprint for other Ricardo
businesses in Australia. Transport Engineering was renamed Ricardo Rail
Australia (‘RRA’) on 11 June 2019. The Group also acquired all of Transport
Engineering’s shareholding in its associate, Wamarragu Transport Services
Pty Ltd, the financial results of which are immaterial to the Group.
The maximum contingent cash consideration payable is £8.1m (AUD
15.0m). The fair value of the contingent cash consideration is considered
to be Level 3 of the fair value hierarchy within IFRS 13 Fair Value
Measurement. The fair value is valued based on a financial forecast using
the Group’s own data, with a probability applied for the likely outcome.
Significant unobservable inputs are order intake, pipeline of opportunities
and historical performance. The stronger these inputs, the higher the
estimated fair value. The amounts payable are based on the achievement
of annual performance targets measured against the profit before tax of
Transport Engineering across a two-year earn-out period. Each earn-out is
only payable in full if the performance target is achieved.
As year one performance targets were achieved, £4.3m (AUD 7.8m) was
paid in October 2020 in respect of the year one earn out. As year two
performance targets have also been achieved, an accrual of £4.0m (AUD
7.2m), representing the fair value of the expected year two payment, has
been included in the current year results within current liabilities. The
increase in the fair value of the contingent consideration between 30 June
2020 and 30 June 2021 of £1.1m (AUD 1.9m), including the unwind in the
discount rate, has been charged to the income statement within specific
adjusting items in Note 6. A charge of £1.9m (AUD 3.5m) was recognised
within specific adjusting items in the prior year for the change in fair value
during the year ended 30 June 2020.
Adjustments were made to identifiable net assets acquired to reflect their
fair value. These included the recognition of customer-related intangible
assets separable from goodwill amounting to £9.7m (AUD 17.8m). £1.9m
of amortisation on these acquired intangibles has been charged to the
income statement for the year ended 30 June 2021 (FY 2019/20: £1.9m).
This is included within specific adjusting items in Note 6.
The fair value of the contingent cash consideration and identifi able net
assets acquired were identi fied in accordance with the requirements of
IFRS 3 Business Combinations and the sale and purchase agreement.
14. Goodwill
Goodwill, which arises when we acquire a business and pay a higher amount than the fair value of its net
assets primarily due to the synergies we expect to create, is not amortised but is subject to annual impairment
reviews.
Goodwill accounting policy – Note 1(k)
Critical judgement on carrying value of Goodwill: CGUs – Note 1(c)
Key sources of estimation uncertainty on carrying value of Goodwill – Note 1(c)
Movement in goodwill
At 1 July
Acquisition of business
Exchange adjustments
At 30 June
Note
13
2021
£m
87.8
-
(3.1)
84.7
2020
£m
84.2
2.6
1.0
87.8
160 Ricardo plc Annual Report & Accounts 2020/21
Financial statementsNotes to the Group financial statements
14. Goodwill (continued)
The carrying value of goodwill and key assumptions used in determining the recoverable amount of each CGU, or group of CGUs, are as follows:
Rail
Automotive and Industrial (‘A&I’) - EMEA(1)
Energy and Environment (‘EE’)(2)
Defense
Performance Products ('PP')
At 30 June
Carrying value
2021
£m
44.9
19.6
15.9
3.2
1.1
84.7
2020
£m
46.6
20.6
15.9
3.6
1.1
87.8
Pre-tax discount rate
2021
2020
Long-term growth rate
2020
2021
%
10.8%
13.2%
12.5%
14.3%
12.9%
%
13.0%
12.0%
13.0%
13.0%
12.0%
%
3.6%
*
4.7%
3.4%
0.4%
%
4.0%
3.0%
2.0%
4.0%
2.0%
(1) As described in Note 4, the Strategic Consulting unit of what was previously the Strategic Consulting and Software segment is now run as a service line within the A&I EMEA business, with the A&I
EMEA Managing Director having overall responsibility for the Strategic Consulting service offering. As such the strategic consulting business is considered to form part of the group of CGUs to which
A&I EMEA goodwill is allocated.
(2) As set out in further detail in Note 13(a), the Group acquired PLC Consulting Pty Ltd on 31 July 2019, adding goodwill of £2.6m to the EE CGU. PLC Consulting is an Australian firm with a strong technical
advisory capability across the project life cycle in infrastructure, environment and planning, including supporting the environmental requirements of master-planning, business cases, procurement,
design, construction and operation.
* See key assumptions below
Key assumptions
The three-year plan and discounted cash flow calculations thereon
provide a value in use which supports the carrying value of the goodwill
allocated to each CGU, or group of CGUs, at 30 June 2021, resulting in no
impairment for the year (2020: Nil). The three-year cashflow forecasts are
based on the budget for the following year (year one) and the business
plans for years two and three (the three-year plan). The three-year plan is
prepared by management, and is reviewed and approved by the Board.
The three-year plan reflects past experience, management’s assessment
of the current contract portfolio, contract wins, contract retention,
price increases, gross margin, as well as future expected market trends
(including the impact of COVID-19), adjusted to meet the requirements of
IAS 36 Impairment of Assets.
Cash flows beyond year three are projected into perpetuity using a long-
term growth rate, which is determined as being the lower of the planned
compound annual growth rate in each CGU, or group of CGU,’s three-year
plan and external third party forecasts of the prevailing inflation and
economic growth rates for each of the territories in which each CGU, or
group of CGUs, primarily operates. A&I EMEA (part of the A&I operating
segment) cashflows were analysed into cashflows expected to arise
directly from internal combustion engine (‘ICE’) related revenues and those
related to non-ICE technologies. Due to regulatory and other changes
in the market relating to ICE, a long-term decrease of 15% p.a. has been
applied to ICE-related cashflows, and a long-term growth rate of 4.3% p.a.,
based on prevailing inflation and economic growth by territory, has been
applied to the remaining non-ICE cashflows.
The cash flows are discounted at a pre-tax discount rate, which is derived
from externally sourced data and reflects the current market assessment of
the Group’s time value of money and risks specific to each CGU.
Research and Development Expenditure Credits (‘RDEC’) cashflows are
included in the value-in-use calculations for A&I EMEA, PP and EE. They are
material to the A&I EMEA group of CGUs and have been included on the
basis that there is no indication that the UK government will change this
benefit.
Sensitivities
The value-in-use calculations were assessed for sensitivity to reasonably
possible changes to these estimates. With the exception of A&I EMEA,
the sensitivities assessed include a 10% reduction in operating pro¬fit, a
10% increase in working capital movement, a 1% increase in the pre-tax
discount rate and a 1% decrease in the long-term growth rate, together
with a further scenario whereby all sensitivities were combined together.
The above changes in key estimates do not cause the recoverable amount
for any CGU or group of CGUs to be materially lower than the carrying
amount.
The A&I EMEA group of CGUs has faced challenging trading conditions
in the current and prior financial years, which have significantly reduced
its profitability. The A&I EMEA three-year plan projects growth in revenue
and operating profit, which is to be delivered through a combination
of diversification into new innovative green technologies and markets,
together with improving efficiency as a result of restructuring actions,
including those which started to be implemented at the end of FY
2020/21. Therefore, it was considered appropriate to carry out further
sensitivity analysis. For goodwill allocated to the A&I EMEA group of CGUs,
at 30 June 2021, the recoverable amount exceeds the carrying value of the
CGU by £35.8m. Sensitivities determined were as follows:
• A reduction of 38% in the operating profit levels would result in the
recoverable amount being materially equal to the carrying value. A
reduction in operating profit of this magnitude is considered reasonably
possible, given the current and projected levels of profitability in the
plan.
• If RDEC cash flows were excluded from the value-in-use calculation,
then the goodwill balance would be fully impaired
• Individually, a 2% increase in the pre-tax discount rate, a 2% decrease in
the long-term growth rate, a 10% increase in planned working capital
movements do not cause the recoverable amount for the group of
CGUs to be materially lower than the carrying amount.
• A scenario with a combination of a 1% increase in the pre-tax discount
rate, a 1% decrease in the long-term growth rate, a 10% decrease in
operating profit and a 10% increase in working capital movement
does not cause the recoverable amount for the group of CGUs to be
materially lower than the carrying amount.
• A scenario with a combination a 2% increase in the pre-tax discount
rate, a 2% decrease in the long-term growth rate, a 10% decrease in
operating profit and a 10% increase in working capital movement
would result in an impairment of £10.0m.
.
Creating a world fit for the future 161
Financial statementsNotes to the Group financial statements
15. Other intangible assets
Other intangible assets accounting policy – Note 1(l)
Critical judgement on recoverability of capitalised development costs – Note 1(c)
Cost
At 1 July 2019
Acquisition of business
Additions
Disposals
Reclassifications
Exchange rate adjustments
At 30 June 2020
At 1 July 2020
Additions
Disposals
Reclassifications
Exchange rate adjustments
At 30 June 2021
Accumulated amortisation
At 1 July 2019
Charge for the period
Disposals
Reclassifications
Exchange rate adjustments
At 30 June 2020
At 1 July 2020
Charge for the period
Disposals
Reclassifications
Exchange rate adjustments
At 30 June 2021
Net book value
At 1 July 2019
At 30 June 2020
At 30 June 2021
Note
13
Acquired intangible assets
Customer
contracts and
relationships
£m
Software and
technology
£m
Software
£m
Development
costs
£m
37.6
1.3
-
-
-
0.3
39.2
39.2
-
-
-
(1.2)
38.0
17.7
5.5
-
-
0.3
23.5
23.5
5.0
-
-
(0.7)
27.8
19.9
15.7
10.2
2.2
-
-
-
-
-
2.2
2.2
-
-
-
(0.1)
2.1
1.7
0.4
-
-
-
2.1
2.1
0.1
-
-
(0.2)
2.0
0.5
0.1
0.1
25.9
-
1.2
(2.8)
(0.6)
0.2
23.9
23.9
0.4
(0.8)
0.3
(0.2)
23.6
20.0
1.9
(2.8)
(0.5)
-
18.6
18.6
1.6
(0.8)
0.3
(0.2)
19.5
5.9
5.3
4.1
28.1
-
8.0
(0.1)
0.6
0.6
37.2
37.2
8.5
(0.2)
(0.2)
(2.1)
43.2
13.4
4.2
-
0.5
0.3
18.4
18.4
6.5
(0.2)
0.1
(1.1)
23.7
14.7
18.8
19.5
Total
£m
93.8
1.3
9.2
(2.9)
-
1.1
102.5
102.5
8.9
(1.0)
0.1
(3.6)
106.9
52.8
12.0
(2.8)
-
0.6
62.6
62.6
13.2
(1.0)
0.4
(2.2)
73.0
41.0
39.9
33.9
Customer contracts and relationships were primarily identifi ed as part
of the previous acquisitions LR Rail and Transport Engineering (see Note
13(b)). The assets specifi c to these acquisitions have carrying values
of £3.8m (2020: £5.6m) and £5.7m (2020: £7.8m) and have remaining
amortisation periods of two and three years, respectively. Customer
contracts and relationships were also identi fied as part of the acquisition in
the prior year of PLC Consulting (see Note 13(a)) which has a carrying value
of £0.5m and a remaining amortisation period of one year.
Software which is not acquired through business combinations primarily
comprises costs that have been capitalised in respect of an internally
developed ERP system. The ERP system has a carrying value of £1.0m
(2020: £1.4m) and has a remaining amortisation period of three years.
Software includes £0.7m (2020: £1.6m) in respect of assets under
construction which are not being amortised until the assets are made
available for use.
costs also include a patented system that combines anti-lock braking and
electronic stability control ('ABS brake kits') to mitigate rollover fatalities
commonly associated with the High Mobility Multipurpose Wheeled
Vehicle ('HMMWV' or ‘Humvee’). The asset has a carrying value of £2.3m
(2020: £2.6m). £0.3m of additional development expenditure was added to
the asset during the year for the development of variance of the ABS brake
kit to be fitted on other versions of the HMMWV. Development costs also
include £0.9m (2020: £1.3m) for a plug-in hybrid demonstration vehicle
which highlights the latest technology to vehicle manufactures.
In addition, development costs include £2.6m (2020: £3.9m) in respect
of assets under construction which are not being amortised until the
assets are made available for use. Development costs under construction
include assets such as engineering software updates under development,
together with new technology, tools and processes in the A&I and EE
segments.
Development costs are incurred to develop and regularly update a suite
of simulation and analysis software tools used in the Automotive sector,
but also with applications in other sectors. The suite of assets have a
carrying value of £5.9m (2020: £6.2m) and an amortisation period of three
years is applied to each annual update when released. Development
The amortisation charge of £13.0m (2020: £12.0m) is comprised of £4.3m
(2020: £3.3m) included within cost of sales and £8.7m (2020: £8.7m)
included within administrative expenses in the income statement, of
which £5.0m (2020: £6.0m) relates to acquired intangible assets and is
presented within specific adjusting items, as set out in Note 6.
162 Ricardo plc Annual Report & Accounts 2020/21
Financial statementsNotes to the Group financial statements
16. Property, plant and equipment
Property, plant and equipment accounting policy – Note 1(m)
Freehold land
and buildings
£m
Leasehold
properties
£m
Plant and
machinery
£m
Note
Fixtures,
fittings and
equipment
£m
Cost
At 1 July 2019
Additions
Disposals
Assets held for sale
Reclassifications
Exchange rate adjustments
At 30 June 2020
At 1 July 2020
Additions
Disposals
Assets classified from held for sale
Reclassifications
Exchange rate adjustments
At 30 June 2021
Accumulated depreciation and impairment
At 1 July 2019
Charge for the period
Impairment loss
Disposals
Assets classified as held for sale
Reclassifications
Exchange rate adjustments
At 30 June 2020
At 1 July 2020
Charge for the period
Impairment loss
Disposals
Assets classified from held for sale
Reclassifications
Exchange rate adjustments
At 30 June 2021
Net book value
At 1 July 2019
At 30 June 2020
At 30 June 2021
18
18
18
18
20.4
14.6
-
(14.2)
0.3
-
21.1
21.1
-
-
10.7
0.3
(0.1)
32.0
4.6
0.5
5.6
-
(5.6)
(0.2)
-
4.9
4.9
0.4
-
-
7.4
0.9
(0.1)
13.5
15.8
16.2
18.5
5.7
0.1
(1.6)
-
0.2
-
4.4
4.4
0.3
(0.8)
-
0.5
(0.1)
4.3
3.1
0.3
-
(1.4)
-
0.1
0.1
2.2
2.2
0.4
0.3
(0.8)
-
0.3
-
2.4
2.6
2.2
1.9
80.7
5.4
(1.7)
(1.1)
(1.2)
0.2
82.3
82.3
2.8
(1.0)
-
(1.6)
(0.3)
82.2
59.7
2.9
-
(1.8)
-
-
0.2
61.0
61.0
3.0
-
(1.0)
-
(1.1)
(0.1)
61.8
21.0
21.3
20.4
23.4
1.9
(1.7)
-
0.7
0.1
24.4
24.4
1.2
(1.7)
-
0.7
(0.5)
24.1
18.2
2.0
-
(1.7)
-
0.1
0.1
18.7
18.7
1.9
-
(1.7)
-
(0.5)
(0.4)
18.0
5.2
5.7
6.1
Total
£m
130.2
22.0
(5.0)
(15.3)
-
0.3
132.2
132.2
4.3
(3.5)
10.7
(0.1)
(1.0)
142.6
85.6
5.7
5.6
(4.9)
(5.6)
-
0.4
86.8
86.8
5.7
0.3
(3.5)
7.4
(0.4)
(0.6)
95.7
44.6
45.4
46.9
The carrying value of assets under construction included in property, plant and equipment amounts to £6.4m (2020: £8.4m). Property, plant and equipment
under construction includes a hybrid powertrain rig with a carrying value of £5.1m (2020: £4.4m). Depreciation is expected to commence in the next
financial year.
At 30 June 2021, the Group had plant and machinery financed through a hire-purchase agreement and secured on the asset (see Note 24) with a carrying
value of £0.6m (2020: £0.6m). As disclosed in Note 35, a guarantee was provided to the Ricardo Group Pension Fund ('RGPF') of £2.8m in respect of certain
contingent liabilities that may arise, which have been secured on freehold land and buildings with a carrying value of £0.6m (2020: £0.6m).
At 30 June 2021, contracts had been placed for future capital expenditure, which have not been provided for in the financial statements, amounting to
£2.4m (2020: £1.2m).
In the prior year, on 21 August 2019 the Group purchased the freehold property of DTC, comprising the north building, which housed test cell assets, and
the south office building, for £14.2m (USD 17.3m), which is included in freehold land and buildings above. Subsequently, the Group commenced a process
to market the newly acquired freehold property, together with the DTC test cell assets. The freehold property was immediately written down to £8.6m
(USD 10.5m) as part of being classified as held for sale (see Note 18), as the purchase price was predicated on Ricardo’s long-term tenancy, crystallising
an impairment charge of £5.6m as disclosed in the table above. The net book value of £8.6m was transferred to non-current assets held for sale. The
impairment charge was partially offset by the write-off of a £3.1m (USD 4.0m) net lease liability under IFRS 16. In June 2020, whilst being treated as held
for sale, the north building, together with the test assets, were sold and a further £1.1m (USD 1.3m) impairment was recognised, as disclosed in Note 18.
Creating a world fit for the future 163
Financial statementsNotes to the Group financial statements
16. Property, plant and equipment (continued)
Due to the nature and significance of the amount the impairment charges (together with the balance of the lease liability) were recognised in the income
statement within specific adjusting items. They were included within the A&I segment and within administrative expenses in the reported result.
On 18 January 2021, the south building was reclassified to property, plant and equipment. It is no longer being classified as held for sale. Management
decided to retain the use of the DTC south building as offers received for the property were lower than expected. As at 30 June 2021, the property
continues to be marketed for sale, but management no longer considers a sale within the next twelve months to be highly probable.
At the point at which the property was reclassified, its recoverable amount was assessed. Its recoverable amount was deemed to be £3.3m, being the
property’s fair value, less costs to dispose, which was higher than its value in use.. This recoverable amount was lower than the carrying amount at the
point which the property was designated as held for sale, after adjustments for subsequent depreciation, and resulted in an impairment charge of £1.5m
being recognised in the income statement for the year ended 30 June 2021, recognised within specific adjusting items, as disclosed in Note 18. Since its
reclassification to property, plant and equipment, £0.1m of depreciation has been charged on the building in the underlying result in the current year.
17. Right-of-use assets, lease liabilities and lease receivables
Leases accounting policy – Note 1(c)
(a) Leasing activities as lessee
The Group leases various office premises and technical centres, vehicles and other equipment.
Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any
covenants. Leased assets may not be used as security for borrowing purposes.
Property lease terms range from thirteen months to 21 years, with an average of seven years, and may have extension or termination options. The impact
of exercising these options, where not currently considered reasonably certain, is quantified below. There are several property subleases within the Group -
see Note 17(b) below. Other lease terms range from one to five years, with an average of three years. Where leases are short-term and/or leases of low-value
items, the Group has elected not to recognise right-of-use assets and lease liabilities for these leases.
Information about leases for which the Group is a lessee is presented below.
(i) Right-of-use assets
Cost
At 1 July 2019
Additions
Disposals
Remeasurements
Exchange rate adjustments
At 30 June 2020
At 1 July 2020
Additions
Disposals
Remeasurements
Exchange rate adjustments
At 30 June 2021
Accumulated depreciation and impairment
At 1 July 2019
Charge for the period
Impairment loss
Disposals
Exchange rate adjustments
At 30 June 2020
At 1 July 2020
Charge for the period
Impairment loss
Disposals
Exchange rate adjustments
At 30 June 2021
Net book value
At 1 July 2019
At 30 June 2020
At 30 June 2021
164 Ricardo plc Annual Report & Accounts 2020/21
Property
£m
Plant and
machinery
£m
Fixtures,
fittings and
equipment
£m
52.4
5.3
(10.3)
(13.3)
0.5
34.6
34.6
2.0
(1.5)
(0.4)
(0.8)
33.9
16.3
4.9
0.5
(10.3)
0.2
11.6
11.6
5.2
0.2
(1.5)
(0.4)
15.1
36.1
23.0
18.8
0.6
0.4
-
-
-
1.0
1.0
0.2
(0.2)
(0.1)
-
0.9
-
0.4
-
-
-
0.4
0.4
0.4
-
(0.2)
-
0.6
0.6
0.6
0.3
0.4
-
-
-
-
0.4
0.4
0.2
-
-
-
0.6
-
0.1
-
-
-
0.1
0.1
0.1
-
-
-
0.2
0.4
0.3
0.4
Total
£m
53.4
5.7
(10.3)
(13.3)
0.5
36.0
36.0
2.4
(1.7)
(0.5)
(0.8)
35.4
16.3
5.4
0.5
(10.3)
0.2
12.1
12.1
5.7
0.2
(1.7)
(0.4)
15.9
37.1
23.9
19.5
Financial statementsNotes to the Group financial statements
17. Right-of-use assets, lease liabilities and lease receivables (continued)
An impairment charge of £0.1m was recognised in respect of the decision to exit the Cambridge Technical Centre, and £0.1m was recognised in relation to
the planned surrender of the Schwäbisch Gmünd site (Note 38). In the prior period an impairment charge of £0.3m was recognised in respect of the vacant
portion of the Cambridge Technical Centre, and £0.2m was recognised in relation to the exit of the Santa Clara Technical Centre (Note 6). These costs are
recognised within administrative expenses and included in “Reorganisation costs: Other reorganisation costs” within specific adjusting items (Note 6).
In the prior year, the purchase of the freehold of the Detroit Technology Campus, previously leased by the Group, resulted in a disposal and remeasurement
which reduced the lease liability and the right-of-use asset by £14.2m and £11.1m respectively. The £3.1m excess of the lease liability over the carrying value
of the right-of-use assets was recognised as income within administrative expenses, and included in “Reorganisation costs: Purchases and disposals” within
specific adjusting items (Note 6).
Other reassessments of lease terms resulted in a remeasurements which decreased both right-of-use assets and lease liabilities by £0.5m (2020: £2.4m).
The net book value of Property above is shown net of £0.9m (2020: £1.0m) in respect of consideration received as part of a historical sale and leaseback
transaction, deemed to be an incentive for extending the lease term.
The lessee's incremental borrowing rate applied to lease liabilities recognised in the statement of financial position at the date of initial application vary due
to length and geographical location and are as follows:
• Property – 1.8% to 4.8%
• Plant and machinery – 2.0% to 4.2%
• Fixtures, fittings and equipment – 2.0% to 4.0%
The following amounts are included in the income statement relating to short-term and low value leases:
Short-term leases
Low-value leases (not including short-term leases above)
Total
2021
£m
0.5
0.1
0.6
As at 30 June 2021, potential future cash outflows of £9.6m (undiscounted) (2020: £9.8m) have not been included in the lease liability because it is not
reasonably certain that the leases will be extended, or not terminated.
(ii) Lease liabilities
Movement in lease liability
At 1 July
New leases
Interest
Payments
Disposals
Remeasurements
Exchange rate adjustments
At 30 June
Maturity of lease liability
Current liabilities - maturing within one year
Non-current liabilities - maturing after one year
At 30 June
The maturity analysis of this liability is shown Note 27(c).
Note
9
2021
£m
29.3
2.6
1.0
(7.3)
-
(0.5)
(0.8)
24.3
2021
£m
5.5
18.8
24.3
2020
£m
1.2
0.1
1.3
2020
£m
45.6
5.7
1.2
(6.8)
(13.6)
(3.0)
0.2
29.3
2020
£m
6.7
22.6
29.3
Creating a world fit for the future 165
Financial statementsNotes to the Group financial statements
17. Right-of-use assets, lease liabilities and lease receivables (continued)
(b) Leasing activities as lessor
The Group subleases out several parts of its leased property. All subleases are classified as operating leases from a lessor perspective with the exception of
one sublease, which the Group has classified as a finance sublease.
Information about leases for which the Group is a lessor is presented below.
(i) Finance Lease
During the year, the Group recognised finance income of £0.2m (2020: £0.1m) relating to its lease receivable.
The following table sets out the movements in the lease receivable balance during the year.
At 1 July
Interest
Receipts
Exchange rate adjustments
At 30 June
Note
9
2021
£m
2.3
0.2
(0.2)
(0.3)
2.0
The following table sets out a maturity analysis of lease receivable, showing the undiscounted lease payments to be received after the reporting date:
Maturity of lease receivable
Less than one year
One to two years
Two to three years
Three to four years
Four to five years
More than five years
Total undiscounted lease receivable
Unearned finance income
Net investment in the lease
2021
£m
0.2
0.2
0.2
0.2
0.2
1.7
2.7
(0.7)
2.0
This is a back-to-back lease with a right-of-use asset. As a finance lease this is included in other receivables. See Note 22.
(ii) Operating lease
During the year, the Group recognised rental income of £1.1m (2020: £1.1m) relating to operating leases.
The following table sets out a maturity analysis of lease payments, showing the undiscounted lease payments to be received after the reporting date.
Operating lease
Less than one year
One to two years
Two to three years
Three to four years
Four to five years
More than five years
Total
2021
£m
0.6
0.3
0.3
0.3
0.1
1.6
3.2
2020
£m
2.3
0.1
(0.2)
0.1
2.3
2020
£m
0.2
0.2
0.2
0.2
0.2
2.2
3.2
(0.9)
2.3
2020
£m
1.7
1.2
0.7
0.7
0.6
0.3
5.2
166 Ricardo plc Annual Report & Accounts 2020/21
Financial statementsNotes to the Group financial statements
18. Non-current assets held for sale
Non-current assets held for sale accounting policy – Note 1(o)
Movement in held for sale
At 1 July 2019
Transferred from property, plant and equipment
Disposals
Impairment loss
Exchange rate adjustments
At 30 June 2020
At 1 July 2020
Impairment loss
Transferred to property, plant and equipment
Exchange rate adjustments
At 30 June 2021
Note
16
16
Freehold land
and buildings
£m
-
8.6
(2.1)
(1.1)
(0.1)
5.3
5.3
(1.5)
(3.3)
(0.5)
-
Plant and
machinery
£m
2.9
1.1
(4.0)
-
-
-
-
-
-
-
-
Total
£m
2.9
9.7
(6.1)
(1.1)
(0.1)
5.3
5.3
(1.5)
(3.3)
(0.5)
-
Freehold land and buildings held for sale above consist of the DTC freehold property.
The DTC north building was sold on 3 June 2020, as discussed below. As at 30 June 2020, the DTC south building was still being marketed and remained
held for sale. On 18 January 2021, it was reclassified to property, plant and equipment. Consistent with the treatment in the prior year, the impairment charge
of £1.5m was recognised within specific adjusting items. It was included within the A&I segment and within administrative expenses in the reported result.
See Note 16 for further details.
Plant and machinery: In January 2019, the Directors made a decision to commence a process to market actively its test cell assets at DTC for sale, which
had a net book value of £2.9m (USD 3.7m) at 1 July 2019. During the prior year, the Group continued to invest in these assets to improve their desirability,
increasing the held for sale net book value to £4.0m (USD 4.9m). These assets were sold on 3 June 2020, as discussed below.
Detroit test cell business and north building of Detroit Technology Campus
Fair value of cash consideration
Initial cash consideration
Provisional fair value of contingent cash consideration:
- Less than one year
- More than one year
Total fair value of cash consideration
Carrying value of property, plant and equipment disposed
Leasehold property
Plant and machinery
Total carrying value of property, plant and equipment disposed
Loss on disposal before tax
£m
2.8
0.5
0.7
4.0
(2.1)
(4.0)
(6.1)
(2.1)
In June 2020, the Group sold the test cell assets and the DTC north building to a non-competitive strategic partner for an initial cash consideration of £2.8m
(USD 3.5m), which could increase to a maximum of £4.3m (USD 5.5m), depending on the volume of testing work placed into the facility by Ricardo over
the next two years. The total fair value of cash consideration was £4.0m (USD 4.9m), which included the accrued provisional fair value of contingent cash
consideration payable of £1.2m (USD 1.5m). A loss of £2.1m (USD 2.6m) was recognised on the sale. Due to the nature and significance of the amount, the
loss on disposal was recognised in the income statement within specific adjusting items.
Testing volumes were lower than anticipated in FY 2020/21, with £0.2m (USD 0.3m) of contingent consideration received in the year. Based on testing work
placed into the facility in the year, management’s order book and the latest probability-weighted pipeline, a charge of £0.5m (USD 0.7m), representing a
reduction in the fair value of contingent consideration, was recognised in the income statement in the year. In line with the Group’s policy, this charge has
been recognised within specific adjusting items.
Creating a world fit for the future 167
Financial statementsNotes to the Group financial statements
19. Provisions for liabilities and charges
Provisions for liabilities and charges accounting policy – Note 1(p)
Cost
At 1 July 2019
Charged to the income statement
Utilised in the period
Released in the period
At 30 June 2020
At 1 July 2020
Charged to the income statement
Utilised in the period
Released in the period
Exchange rate adjustments
At 30 June 2021
Current
Non-current
At 30 June
Warranty
£m
Restructuring
costs
£m
Employment-
related
benefits
£m
2.9
1.3
(1.0)
(0.4)
2.8
2.8
1.2
(0.4)
(0.2)
-
3.4
0.7
1.5
(0.5)
-
1.7
1.7
3.2
(2.9)
(0.1)
(0.2)
1.7
1.4
0.4
(0.1)
(0.1)
1.6
1.6
0.4
(0.1)
-
(0.1)
1.8
Other
£m
0.4
-
-
-
0.4
0.4
0.2
(0.1)
-
-
0.5
2021
£m
4.0
3.4
7.4
Total
£m
5.4
3.2
(1.6)
(0.5)
6.5
6.5
5.0
(3.5)
(0.3)
(0.3)
7.4
2020
£m
3.2
3.3
6.5
The warranty provision reflects management’s best estimate of the cost required to fulfi l the Group's assurance-type warranty obligations within a
number of contracts. Subsequent to their initial recognition, warranty provisions are utilised or released over the periods of the various warranty obligations,
which are expected to be less than five years.
The provision for restructuring costs included amounts payable to former employees who have been made redundant, primarily as part of the
reorganisation of our A&I segments, as set out in further detail in Note 6. The element of the provision relating to redundancy costs was partially utilised
during the year with the remaining balance expected to be utilised in less than one year. Provisions for service charge costs of the remaining lease period
on onerous lease contracts is also included above.
Employment-related benefi ts are statutory provisions which include long-service awards and termination indemnity schemes. The timing of the cash
outflows is dependent upon the retirement or attrition of employees, but is predominantly expected to be more than fi ve years.
Other provisions comprise expected costs of legal claims and litigation, together with dilapidation and restoration costs for leasehold property. The
associated cash outflows for legal claims and litigation are predominantly expected to be less than one year. Dilapidation and restoration costs reflect
management’s best estimate of future obligations relating to the maintenance and restoration of leasehold properties arising from past contractual
commitments to new, extended or terminated lease agreements. Restoration costs expected at the commencement of the lease are included within the
right-of-use asset value (see Note 17(a)). The timing of the cash outflows is dependent upon the remaining term of the associated leases and are subject to
negotiation.
168 Ricardo plc Annual Report & Accounts 2020/21
Financial statementsNotes to the Group financial statements
20. Deferred tax
This note explains how our Group deferred tax charge arises and also provides information on our expected
future tax charges and sets out the tax assets held across the Group together with our view on whether or not
we expect to be able to make use of these in the future.
Deferred tax accounting policy – Note 1(q)
Non-current
Assets
Liabilities
At 30 June
Net (liabilities)/assets
Cost
At 1 July 2019
Arising on acquisition
Credited to the income statement
Credited to other comprehensive income
Exchange rate adjustments
At 30 June 2020
At 1 July 2020
Reclassification
Credited to the income statement
Charged to other comprehensive income
Impact of change in tax rate
Exchange rate adjustments
At 30 June 2021
2021
£m
8.3
(8.2)
0.1
2020
£m
9.4
(5.6)
3.8
Accelerated
capital
allowances
£m
Defined
benefit
obligation
£m
Tax losses
and credits
£m
Unrealised
capital gains
£m
Other
£m
Total
£m
(4.8)
-
0.2
-
-
(4.6)
(4.6)
-
0.6
-
(1.5)
-
(5.5)
1.4
-
(1.2)
1.0
-
1.2
1.2
-
(0.9)
(2.0)
0.4
-
(1.3)
5.6
-
2.0
-
-
7.6
7.6
-
0.1
-
-
-
7.7
(0.4)
-
-
-
-
(0.4)
(0.4)
-
(0.3)
-
-
-
(0.7)
(1.3)
(0.4)
1.4
0.1
0.2
-
-
(1.9)
2.4
-
-
(0.6)
(0.1)
0.5
(0.4)
2.4
1.1
0.2
3.8
3.8
(1.9)
1.9
(2.0)
(1.1)
(0.6)
0.1
At 30 June 2021, a deferred tax liability of £0.5m is recognised on temporary differences associated with the undistributed earnings of subsidiaries. The
Group controls the timing of payment of these undistributed earnings and would suffer a withholding tax charge on these, when remitted to the United
Kingdom.
The Finance Act 2020 reversed the decision to reduce the main rate from 19% to 17% from 1 April 2020. The Finance Act 2021, which was substantially
enacted on 10 June 2021, announced that the main UK corporation tax rate will increase to 25% with effect from 1 April 2023. Deferred taxes in the UK have
been measured at the corporation tax rate expected to apply to the reversal of the timing difference, resulting in a charge to the income statement of £1.1m
(see also Note 11).
A deferred tax asset continues to be recognised in the United States as at 30 June 2021 in respect of historic research and development claims (‘R&D credits’)
that can be utilised against future taxable profits. These R&D credits carry a 20-year statute of limitation and must be utilised within that period. The carrying
value of the R&D credits recognised at 30 June 2021 is £4.9m (USD 6.5m) (2020: £4.8m (USD 6.3m)). A deferred tax asset is also recognised in the United States
on net trading losses of £1.4m (USD 1.9m) (2020: £2.2m (USD 2.7m)) at the US tax rate. These losses can be carried back against the previous five years of
taxable profit or carried forward against future taxable profits.
The Directors have performed an assessment and consider that it is probable that future taxable profits will be available in the United States against which
the carrying value of the recognised deferred tax asset (for both R&D credits and trading losses) can be utilised in the foreseeable future. This assessment
was based on a review of the projected annual profit before tax of the consolidated tax group in the United States, based upon the latest Board-approved
budgets and business plans for the next three years, together with long-term growth assumptions based on prevailing inflation and economic growth
rates. Based on the ‘base case’ assumptions, the entire deferred tax asset is forecast to be predominantly utilised by 30 June 2022. The assessment was
subject to reverse-stress testing, the results of which did not change management’s view of the recoverability of the asset.
In addition, a deferred tax asset is recognised in the United Kingdom of £0.9m (2020: Nil) on trading losses incurred in the year ending 30 June 2021. The
Directors have made a decision to carry these losses forward to offset against future taxable profits in the UK. Based on an assessment carried out by the
Directors it probable that future taxable profits will be available in the United Kingdom against which the carrying value of the recognised deferred tax
asset can be utilised in the foreseeable future. This assessment has been based on projected annual profit before tax of the consolidated tax group in the
United Kingdom based upon the latest Board-approved budgets and business plans for the next three years, together with long-term growth assumptions
based on prevailing inflation and economic growth rates. The trading losses have no expiry date.
The deferred tax asset not recognised in respect of losses incurred in Germany as at 30 June 2021 amounts to £12.0m (EUR 11.9m) (2020: £10.7m (EUR 11.9m)).
Due to the restructuring in Germany and the reduction in activity in Germany in recent years, the Directors consider it unlikely that sufficient future taxable
profits will be available in Germany in the foreseeable future against which the carrying value of the brought forward deferred tax asset can be utilised. In
July 2021, the Group reached an agreement on a tax audit in Germany which is likely to result in an adjustment to the unrecognised losses. It is estimated
that this adjustment will result in a £0.9m (EUR 1.1m) decrease to the unrecognised deferred tax value for tax losses.
Creating a world fit for the future 169
Financial statementsNotes to the Group financial statements
Working capital
21. Inventories
Inventories accounting policy – Note 1(r)
Raw materials and consumables
Work in progress
Finished goods
At 30 June
2021
£m
10.8
4.4
1.7
16.9
2020
£m
13.6
4.6
1.9
20.1
Inventories of £50.6m (2020: £51.5m) were recognised as an expense during the year and included in cost of sales. During the year £0.4m (2020: £0.3m) of
inventory was written down and also included in cost of sales.
22. Trade, contract and other receivables
Trade, contract and other receivables mainly consist of amounts owed to us by customers and amounts that
we pay to our suppliers in advance. The note also includes contract assets, which represent an asset for accrued
revenue in respect of goods or services delivered to customers for which a trade receivable does not yet exist.
Trade, contract and other receivables accounting policy – Note 1(s)
Critical judgements - Impairment of financial assets – Note 1(c)
Trade receivables
Less: provision for impairment of trade receivables
Trade receivables - net
Contract assets:
- Amounts recoverable on contracts ('AROC')
- Accrued revenue
Prepayments
Lease receivable
Other receivables
At 30 June
Current
Non-current
At 30 June
Note
17
2021
£m
62.6
(3.3)
59.3
49.2
0.5
8.2
2.0
10.0
129.2
126.9
2.3
129.2
2020
£m
43.8
(3.8)
40.0
53.3
0.7
10.7
2.3
11.8
118.8
115.6
3.2
118.8
Contract assets arise from the recognition of revenue as and when performance obligations are satisfied, initially recognised as accrued revenue or amounts
recoverable on contracts (‘AROC’). The carrying amount of AROC at year-end has reduced from £53.3m to £49.2m due to a change in the mix of projects of
different sizes and at different stages of completion. AROC is presented net of a provision for impairment of contract assets of £1.7m (2020: £4.0m). Amounts
are transferred to trade receivables when the right to consideration becomes unconditional. Typically this is once specified billing milestones are approved
by the customer. Payment terms typically range from immediate payment to 90 days after the invoice date, and standard payment terms are 30 days after
the invoice date. AROC has decreased The net revenue recognised in the year from wholly or partially satisfied distinct performance obligations in previous
years is £17.8m (2020: £21.9m). This is primarily due to the net impact of variation orders and cancellations for changes in scope and transaction price on
contracts. Information about the Group’s exposure of its trade receivables to credit and market risk is included in Notes 27(d) and 27 (e).
Included within prepayments are £1.5m (2020: £2.0m) of assets recognised from the costs to obtain or fulfil an expected contract with a customer. No
revenue has been recognised on these costs. An asset has been recognised because the costs directly related to an anticipated contract, they will be used
in satisfying performance obligations in the future and the cost are expected to be recoverable.
The £2.3m (2020: £3.2m) non-current asset relates to other receivables. £1.9m (2020: £2.3m) of this relates to the IFRS 16 lease receivable as disclosed in Note
17. Nil (2020: £0.7m) is included within prepayments and is the non-current element of the contingent consideration on the disposal of the DTC test asset
business as disclosed in Note 18. £0.4m (2020: £0.2m) relates to other receivables.
170 Ricardo plc Annual Report & Accounts 2020/21
Financial statementsNotes to the Group financial statements
22. Trade, contract and other receivables (continued)
Provision for impairment of trade receivables
At 1 July
Net impairment/(reversals) to the income statement
Amounts utilised
Exchange rate adjustments
At 30 June
Order book
Note
3
2021
£m
3.8
0.3
(0.7)
(0.1)
3.3
2020
£m
2.8
1.3
(0.3)
-
3.8
Order book comprises the value of all unworked purchase orders and contracts received from customers at the reporting date and provides an indication of
the amount of revenue that has been secured and will be recognised in future accounting periods. Order book represents the transaction price allocated to
wholly and partially unsatisfi ed distinct performance obligations, as defi ned by IFRS 15 Revenue from Contracts with Customers. The periods from 30 June
in which the distinct performance obligations are expected to be satisfi ed are as follows:
Less than 6 months
6 to 12 months
Over 12 months
At 30 June
2021
£m
142.8
71.5
79.2
293.5
2020
£m
125.8
76.9
111.3
314.0
23. Trade, contract and other payables
Trade, contract and other payables mainly consist of amounts owed to suppliers that have been invoiced or are
accrued and contract liabilities relating to consideration received from customers in advance. They also include
taxes and social security amounts due in relation to the Group’s role as an employer.
Trade, contract and other payables accounting policy – Note 1(t)
Trade payables
Contract liabilities:
- Payments received in advance on contracts ('POA')
- Deferred revenue
Tax and social security payable
Accruals
Other payables
At 30 June
Current
Non-current
At 30 June
2021
£m
16.1
15.3
6.6
8.3
26.4
3.9
76.6
76.6
-
76.6
2020
£m
9.6
22.0
6.8
9.5
27.3
0.4
75.6
72.0
3.6
75.6
Revenue recognised in the year from contract liabilities at the beginning of the year was £19.7m (2020: £22.5m). Contract liabilities primarily relate to the
Group’s obligation to perform services, which are paid by customers in advance of those services being provided. Contract liabilities have decreased due to
changes in the mix of contracts containing upfront payment terms. Non-current amounts include accruals for the provisional fair value of contingent cash
consideration payable for Transport Engineering of Nil (AUD Nil) (2020: £2.1m (AUD 3.8m)), as set out in Note 13(b), which is conditional on performance for
the year to 30 June 2021.
Creating a world fit for the future 171
Financial statementsNotes to the Group financial statements
Net debt and financial risk management
24. Net debt and borrowings
The objectives when managing capital are to safeguard the ability to continue as a going concern in order to
provide returns for shareholders, benefits for other stakeholders and to maintain an optimal capital structure to
reduce the cost of capital. Capital is monitored on the basis of the gearing ratio, which is calculated as net debt
divided by total capital.
The majority of the Group’s cash is held in bank deposits. The Group’s sources of borrowing for funding and
liquidity purposes come from the Group’s £200.0m multi-currency revolving credit facility and through short-
term overdraft facilities.
Accounting policy – Note 1(u)
The disclosures in this note include certain Alternative Performance Measures (‘APMs’). For more information on the APMs used by the Group, including
definitions, please refer to Note 2.
(a) Gearing ratio
Net debt
Total equity
Total capital
At 30 June
(b) Net debt
Analysis of net debt
Current assets - cash and cash equivalents
- Cash and cash equivalents
Total cash and cash equivalents
Current liabilities - borrowings
- Bank overdrafts repayable on demand
- Hire purchase liabilities maturing within one year
Total current borrowings
Non-current liabilities - borrowings
- Hire purchase liabilities maturing after one year
- Bank loans maturing after one year
Total non-current borrowings
At 30 June
Total cash and cash equivalents at 30 June
Total borrowings at 30 June
At 30 June
Movement in net debt
At 1 July
Net (decrease)/increase in cash and cash equivalents and bank overdrafts
Repayments of hire purchase
Proceeds from bank loans
Repayments of bank loans
At 30 June
172 Ricardo plc Annual Report & Accounts 2020/21
2021
£m
46.9
182.8
229.7
20.4%
2021
£m
42.0
42.0
(12.7)
(0.1)
(12.8)
(0.3)
(75.8)
(76.1)
(46.9)
42.0
(88.9)
(46.9)
2021
£m
(73.4)
(26.5)
0.1
(5.0)
57.9
(46.9)
2020
£m
73.4
149.1
222.5
33.0%
2020
£m
66.3
66.3
(10.5)
(0.1)
(10.6)
(0.4)
(128.7)
(129.1)
(73.4)
66.3
(139.7)
(73.4)
2020
£m
(47.4)
23.4
0.2
(140.3)
90.7
(73.4)
Financial statementsNotes to the Group financial statements
24. Net debt and borrowings (continued)
At the year-end, the Group had current hire-purchase liabilities of £0.1m and non-current hire-purchase liabilities of £0.3m. This hire-purchase agreement
has an implicit rate of interest of 2.4%. The future undiscounted minimum lease payments due within one year is £0.1m and due after one year is £0.3m.
At the year-end, the Group held total banking facilities of £215.5m (2020: £216.6m), which included committed facilities of £200.0m (2020: £200.0m). The
committed facility consists of a £200.0m multi-currency Revolving Credit Facility (‘RCF’) which provides the Group with committed funding through to July
2023. In addition, the Group has uncommitted facilities including overdrafts of £15.5m (2020: £16.6m), which mature throughout this and the next fi nancial
year and are renewable annually.
Non-current bank loans comprise committed facilities of £75.8m (2020: £128.7m), net of direct issue costs, which were drawn primarily to fund acquisitions
and general corporate purposes. These are denominated in Pounds Sterling and have variable rates of interest dependent upon the Group’s adjusted
leverage, which range from 1.4% to 2.2% (2020: 1.4% to 2.2%) above LIBOR. On 29 June 2021 the Group made amendments to the £200.0m committed
Revolving Credit Facility (“RCF”) to accommodate the forthcoming cessation of LIBOR. The Group has adopted SONIA as the risk-free rate to replace LIBOR.
No other amendments to the facilities were made.
Adjusted leverage is defined in the Group’s banking documents as being the ratio of total net debt to adjusted EBITDA. Adjusted EBITDA is further defined
as being operating profit before interest, tax, depreciation, impairment and amortisation, excluding the impact of IFRS 16, adjusted for any one-off, non-
recurring, exceptional costs and acquisitions or disposals during the relevant period. At the reporting date, the Group has an adjusted leverage of 1.3x
which attracts a rate of interest of LIBOR plus 1.8% (2020: LIBOR plus 1.4%). The Group has banking facilities for its UK companies which together have a net
overdraft limit, but the balances are presented on a gross basis in the financial statements.
25. Reconciliation of movements of liabilities to cash flows arising from financing activities
At 1 July 2019
Charges from financing cash flows (see cash flow statement)
- Proceeds from loans and borrowings
- Repayment of borrowings
- Movement in bank overdraft
- Repayment of lease liabilities
Total changes from financing cash flows
The effect of changes in foreign exchange rates
Other changes
Liability-related
- New leases
- Disposals
- Remeasurements
- Interest expense
- Interest paid
Total other changes
At 30 June 2020
At 1 July 2020
Charges from financing cash flows (see cash flow statement)
- Proceeds from loans and borrowings
- Repayment of bank loan
- Repayment of hire purchase liability
- Movement in bank overdraft
- Repayment of lease liabilities
Total changes from financing cash flows
The effect of changes in foreign exchange rates
Other changes
Liability-related
- New leases
- Remeasurements
- Interest expense
- Interest paid
Total other changes
At 30 June 2021
Borrowings
Note 24
£m
83.7
Lease
liabilities
Note 17(a)(ii)
£m
45.6
Note
140.3
(90.7)
6.6
-
56.2
-
-
-
-
3.2
(3.4)
(0.2)
139.7
139.7
5.0
(0.1)
(57.9)
2.2
-
88.9
-
-
-
4.4
(4.4)
-
88.9
-
-
-
(5.6)
(5.6)
0.2
5.7
(13.6)
(3.0)
1.2
(1.2)
(10.9)
29.3
29.3
-
-
-
-
(6.5)
22.8
(0.8)
2.6
(0.5)
1.0
(0.8)
2.3
24.3
9
Total
£m
129.3
140.3
(90.7)
6.6
(5.6)
50.6
0.2
5.7
(13.6)
(3.0)
4.4
(4.6)
(11.1)
169.0
169.0
5.0
(0.1)
(57.9)
2.2
(6.5)
111.7
(0.8)
2.6
(0.5)
5.4
(5.2)
2.3
113.2
Creating a world fit for the future 173
Financial statementsNotes to the Group financial statements
26. Fair value of financial assets and liabilities
Fair value of financial assets and liabilities accounting policy – Note 1(v)
There are no differences between the fair value of financial assets and liabilities and their carrying value. The Group holds the following fi nancial
instruments:
Financial assets
Amortised cost:
- Trade receivables - net
- Lease receivable
- Other receivables
- Cash and cash equivalents
Fair value through other comprehensive income ('FVOCI')
- Fair value hedging instruments
Fair value through profit or loss ('FVTPL')
- Fair value hedging instruments
Financial liabilities
Amortised cost:
- Borrowings
- Lease payables
- Trade payables
- Other payables
Fair value through other comprehensive income ('FVOCI')
- Fair value hedging instruments
Fair value through profit or loss ('FVTPL')
- Fair value hedging instruments
- Derivative financial liabilities
At 30 June
Note
22
22
22
24
24
17
23
23
2021
£m
59.3
2.0
10.0
42.0
-
0.9
114.2
88.9
24.3
16.1
3.9
-
1.0
-
134.2
Net derivative financial gains of £2.5m (2020: £0.5m) recognised in the period relate to foreign exchange contracts (see also Note 27(g)):
2021
£m
(3.8)
6.8
(1.1)
0.6
2.5
-
-
-
-
-
Measured at FVTPL
Foreign exchange swap contract assets:
- Fair value losses
- Fair value gains
Foreign exchange swap contract liabilities:
- Fair value losses
- Fair value gains
Measured at FVOCI
Foreign exchange swap contract assets:
- Fair value losses
- Fair value gains
Foreign exchange swap contract liabilities:
- Fair value losses
- Fair value gains
174 Ricardo plc Annual Report & Accounts 2020/21
2020
£m
40.0
2.3
11.8
66.3
3.9
-
124.3
139.7
29.3
9.6
0.4
7.1
-
(0.6)
185.5
2020
£m
-
-
0.6
-
0.6
(7.9)
5.7
(0.2)
2.3
(0.1)
Financial statementsNotes to the Group financial statements
27. Financial risk management
The financial risks faced by the Group comprise capital risk, liquidity risk, credit risk and market risk (comprising
interest rate risk and foreign exchange risk). The Board reviews and agrees policies for managing each of these
risks. The Group have no material exposure to commodity price fluctuations and this situation is not expected
to change in the foreseeable future.
The financial instruments of the Group comprise floating rate borrowings, the main purpose of which is to raise
finance for the Group’s operations, and foreign exchange contracts used to manage currency risks.
(a) Objectives, policies and strategies
The objectives when managing capital are to safeguard the ability to continue as a going concern in order to provide returns for shareholders, benefits for
other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
(b) Capital risk
Capital is monitored on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as borrowings less
cash and cash equivalents. Total capital is calculated as equity, plus net debt. Please see Note 24.
(c) Liquidity risk
The Group's policy towards managing its liquidity risks is to maintain a mix of short- and medium-term borrowing facilities. Short-term flexibility is provided
by bank overdraft facilities. In addition, the Group maintains medium-term borrowing facilities in order to provide the appropriate level of fi nance to
support current and future working capital requirements. As the cash pro file on large contracts can vary signifi cantly, the Group seeks committed facilities
that provide sufficient headroom against forecast requirements to mitigate its exposure.
The tables below analyse the Group's external non-derivative financial liabilities into relevant maturity groupings, based on the remaining period at the
reporting date to the contractual maturity date. All amounts disclosed in the tables below are the contractual undiscounted cash flows. These amounts
approximate to their carrying amount as the impact of discounting on trade payables that mature after more than one year is insignifi cant and borrowings
that mature after more than one year are primarily floating rate bank loans where payments are reset to market rates at regular short-term intervals.
Not included within the tables below are the following financial liabilities:
• Derivative fi nancial liabilities as their contractual maturities are not considered to be essential for an understanding of the timing of the cash flows; and
• Other payables as the phasing of these liabilities is not contractually de fined;
Maturity of trade payables
Within one month
After one month and within three months
At 30 June
Maturity of borrowings
Overdrafts repayable on demand
Within 12 months:
- Hire purchase liabilities
After 12 months and within 5 years
- Hire purchase liabilities
- Bank loans
At 30 June
Maturity of undiscounted lease liability
Within one year
Between one and five years
After five years
Finance portion of net liability
At 30 June
2021
£m
9.8
6.3
16.1
2021
£m
12.7
0.1
0.3
75.8
88.9
2021
£m
5.6
14.2
8.4
(3.9)
24.3
2020
£m
7.6
2.0
9.6
2020
£m
10.5
0.1
0.4
128.7
139.7
2020
£m
7.0
16.3
11.1
(5.1)
29.3
Creating a world fit for the future 175
Financial statementsNotes to the Group financial statements
27. Financial risk management (continued)
(d) Credit risk
The Group is exposed to credit risk in respect of its trade receivables, which are stated net of provision for impairment. Exposure to this risk is mitigated by
careful evaluation of the granting of credit and the use of credit insurance where practicable. Concentrations of credit risk with respect to trade receivables
are limited due to the Group's customer base being large and unrelated.
Expected credit loss assessment
At 30 June 2021
Not overdue not impaired
Overdue but not impaired:
Less than 30 days overdue
31-60 days overdue
61-90 days overdue
91-120 days overdue
121-180 days overdue
181-365 days overdue
Over 365 days overdue
At 30 June 2020
Not overdue not impaired
Overdue but not impaired:
Less than 30 days overdue
31-60 days overdue
61-90 days overdue
91-120 days overdue
121-180 days overdue
181-365 days overdue
Over 365 days overdue
Weighted-
average loss
rate
%
0.25%
Gross carrying
amount
£m
47.5
Impairment
loss allowance
£m
(0.1)
2.00%
5.00%
10.00%
20.00%
25.00%
50.00%
75.00%
0.25%
2.00%
5.00%
10.00%
20.00%
25.00%
50.00%
75.00%
7.3
1.6
1.0
0.5
0.8
0.8
3.1
62.6
28.1
4.2
3.7
1.4
0.6
0.9
2.5
2.4
43.8
(0.1)
(0.1)
(0.1)
(0.1)
(0.2)
(0.4)
(2.2)
(3.3)
(0.1)
(0.1)
(0.2)
(0.1)
(0.1)
(0.2)
(1.3)
(1.7)
(3.8)
The Group's customers include the world's major transportation original equipment manufacturers, tier 1 suppliers, energy companies and government
agencies. Revenue by customer location is disclosed within Note 5(b) and trade receivables are derived from these customer groups and locations.
The Group has limited experience of bad debts with any of these customers. Of the total net trade receivables balance as at 30 June 2021, £34.1m was
received in July 2021 (2020: £20.6m). Trade receivables and contract assets are provided in full when there is no reasonable expectation of recovery. There
were no such balances in the current or prior year. An analysis of net trade receivables by currency is as follows:
Pounds Sterling
US Dollars
Chinese Renminbi
Euros
Australian Dollars
Other currencies
At 30 June
2021
£m
25.2
15.9
6.7
5.8
1.4
4.3
59.3
2020
£m
15.9
7.3
5.2
6.8
1.1
3.7
40.0
176 Ricardo plc Annual Report & Accounts 2020/21
Financial statementsNotes to the Group financial statements
27. Financial risk management (continued)
(d) Credit risk (continued)
The Group is exposed to bank credit risk in respect of money held on deposit and certain derivative transactions entered into with banks. Exposure to this
form of risk is mitigated as material transactions are only undertaken with bank counterparties that have high credit ratings assigned by international credit-
rating agencies. The Group further limits risk in this area by setting an overall credit limit for all transactions with each bank counterparty in accordance with
the institution's credit standing.
Maximum exposure to counterparty risk
Cash and cash equivalents
Derivative financial assets
At 30 June
Analysis of cash and cash equivalents by geographic location
United Kingdom
Asia
Mainland Europe
Australia
North America
Rest of the World
At 30 June
(e) Market risk
Interest rate risk
2021
£m
42.0
0.9
42.9
2021
£m
18.5
8.1
5.8
3.7
1.7
4.2
42.0
2020
£m
66.3
3.9
70.2
2020
£m
37.9
8.9
7.2
3.5
4.5
4.3
66.3
The Group’s borrowings and cash balances held at floating interest rates are exposed to cash flow interest rate risk. The exposure to interest rate movements
is not currently hedged as the variable rates of interest are largely dependent upon the adjusted leverage of the Group, which is currently attracting the
lowest possible rate of interest. The effect of any foreseen changes in the LIBOR remain unhedged, although the policy is reviewed on an ongoing basis.
The Group’s lease assets and liabilities are held at fixed interest rates.
Financial assets and liabilities by interest type
Financial assets:
- Fixed rate
- Floating rate
- Interest-free
Financial liabilities:
- Fixed rate
- Floating rate
- Interest-free
At 30 June
Foreign exchange risk
2021
£m
2.0
24.5
87.7
(24.7)
(89.7)
(19.8)
(20.0)
2020
£m
2.3
27.8
94.2
(29.9)
(136.1)
(6.5)
(48.2)
The Group faces currency exposures on trading transactions undertaken by its subsidiaries in foreign currencies and balances arising therefrom, and on the
translation of pro fits earned in, and net assets of, overseas subsidiaries primarily in the US, Europe and China. The carrying amounts of the Group's foreign
currency denominated monetary assets and liabilities are:
Foreign currency denominated assets and liabilities
US Dollar
Euro
Chinese Renminbi
Assets
Liabilities
2021
£m
23.1
12.8
12.4
2020
£m
14.4
13.3
11.0
2021
£m
7.6
15.1
0.5
2020
£m
2.7
5.4
1.2
Creating a world fit for the future 177
Financial statementsNotes to the Group financial statements
27. Financial risk management (continued)
(e) Market risk (continued)
The following foreign exchange differences were (charged)/credited to the income statement for the Group:
Foreign exchange (losses)/gains on financial assets and liabilities
Derivative contracts measured at FVTPL
- Foreign exchange contract assets
- Foreign exchange contract liabilities
Other financial assets
Other financial liabilities
At 30 June
The Group does not undertake any speculative currency transactions.
Note
26
26
2021
£m
3.0
(0.5)
2.5
(5.6)
(0.6)
2020
£m
-
(2.2)
1.1
(0.5)
(1.6)
The Group use derivative financial instruments primarily to manage currency risk on its US Dollar, Euro, Chinese Renminbi, Japanese Yen, Hong Kong
Dollar and Australian Dollar denominated receivables from its subsidiaries, in addition to managing transactional exposures relating to customer contracts
denominated in foreign currencies.
(f) Sensitivity analysis of financial instruments to market risk
Exchange rate sensitivity
The Group has financial assets and liabilities denominated in foreign currencies, principally in US Dollars, Euros and Chinese Renminbi, which are not in the
functional currency of the entity that holds them. A 20% change in the value of the US Dollar, Euro or Chinese Renminbi would have an immaterial impact
on the value of these financial instruments at the year-end.
Interest rate sensitivity
A 1% increase in interest rates would not have a material impact on finance costs, based on the value of the Group's floating rate financial instruments at
the year-end. A 1% sensitivity is deemed to be appropriate as interest charges on the Group’s loans are based on LIBOR at 30 June 2021, and SONIA from 1
July 2021, and are therefore considered unlikely to be subjected to significant fluctuations in interest rates in the foreseeable future.
(g) Cash flow derivatives
The Group employs derivative financial instruments, including foreign exchange contracts, to mitigate currency exposures on trading transactions that
could affect the income statement. Changes in the fair value of effective derivative foreign exchange swap contracts designated as hedge accounted
under IFRS 9 are recognised in other comprehensive income, with any ineffective amount recognised in the income statement. Any other changes in
the fair value of derivative foreign exchange forward and option contracts are recognised in the income statement. No derivative transactions were
designated as hedge accounted in the current year.
Cash flows expected to occur from derivative financial instruments used by the Group for hedging purposes are set out below, which will be largely offset
by cash flows expected to occur from hedged items:
Affecting the income statement
Within three months
After three months and within twelve months
After twelve months
Affecting other comprehensive income
Within three months
After three months and within twelve months
2021
£m
14.9
23.4
21.7
60.0
2021
£m
-
-
-
2020
£m
2.3
-
-
2.3
2020
£m
78.2
13.3
91.5
178 Ricardo plc Annual Report & Accounts 2020/21
Financial statementsNotes to the Group financial statements
Equity
28. Share capital and share premium
Share capital
Allotted, called up and fully paid
At 1 July - 53,406,250 (2020: 53,406,250) ordinary shares of 25p each
Issue of ordinary share capital - 8,812,030 (2020: nil) ordinary shares of 25p each
At 30 June - 62,218,280 (2020: 53,406,250) ordinary shares of 25p each
2021
£m
13.4
2.2
15.6
2020
£m
13.4
-
13.4
No dividends were paid for interim and fi nal dividends in respect of shares held by an Employee Benefi t Trust ('EBT') in relation to the LTIP. There were 18,317
such shares at 30 June 2021 (2020: 41,193 shares).
Share premium
At 1 July
Premium on share issue
At 30 June
2021
£m
14.3
2.5
16.8
2020
£m
14.3
-
14.3
On 11 November 2020, Ricardo plc issued 8,812,030 new ordinary shares of 25 pence, representing 16.5% of the existing issued ordinary share capital
of the Company. They were issued at a price of 333 pence per share, being a discount of 9.76% to the closing mid-price on 10 November 2020, raising
gross proceeds of £29.3m. Associated transaction costs of £1.1m were incurred, including £0.7m brokerage fees and £0.4m of other directly attributable
professional fees. The issue was carried out in order to reduce leverage, strengthen the balance sheet and provide adequate working capital for the
business.
The issue took place in the three parts; “Subscription shares” subscribed for by certain Directors of the Company for cash consideration; “Placing shares”
placed via Liberum Capital Limited and Investec Bank plc, to certain existing shareholders and other institutional investors, in exchange for preference
shares in Project Star Funding Limited; and “Retail shares” offered by the Company for cash consideration.
The number of shares issued in each category, and the associated proceeds, are as follows:
Subscription shares
Placing shares
Retail shares
Total shares issued/proceeds
Directly attributable transaction costs
Net proceeds
Subscription shares
The subscription shares were subscribed by the following directors:
Sir Terry Morgan
Ian Gibson
Russell King
Dave Shemmans
William Spencer
Net proceeds
Number of
shares
29,128
7,981,809
801,093
8,812,030
Percentage of
total shares
0.05%
14.95%
1.50%
16.50%
Number of
shares
11,111
7,507
5,105
3,003
2,402
29,128
£m
0.1
26.6
2.6
29.3
(1.1)
28.2
£k
37
25
17
10
8
97
The proceeds of £0.1m resulted in share capital of Nil and a share premium balance of £0.1m. There were no fees allocated to this element of the issue.
Creating a world fit for the future 179
Financial statementsNotes to the Group financial statements
28. Share capital and share premium (continued)
Placing shares
The placing shares were issued via a ‘cashbox’ structure, whereby Ricardo plc shares were issued in exchange for preference shares in Project Star Funding
Limited, a special purpose vehicle. Section 565 of the Companies Act 2006 allows new shares to be issued for non-cash consideration under exception from
the pre-emption requirements of section 561 of the Companies Act 2006.
Project Star Funding Limited (‘PSFL’) was incorporated in Jersey on 4 September 2020. Prior to the placing, Ricardo plc held 89% of the ordinary share capital
of PSFL, with the other 11% held by Liberum Capital Limited.
On 11 November 2020 PSFL issued preference share capital of £26.6m (with no par value) to Liberum Capital Limited. Liberum Capital Limited and Investec
Bank plc placed shares to certain existing shareholders and other institutional investors, the proceeds of which were used to settle the consideration for the
preference share capital. Ricardo plc allotted new ordinary shares in consideration for the transfer of all of Liberum Capital Limited’s preference and ordinary
shares in PFSL. The issue created an additional £2.0m of share capital. The premium on issuance of these shares was £23.5m, net of directly attributable
costs of £1.0m. Since the premium arose from an issuance the purpose of which was to acquire more than 90% of the equity of PSFL, under s612 of the
Companies Act 2006 the associated premium is therefore accounted for as a merger reserve.
On the 18 November, PSFL redeemed its preference shares, and PSFL was dissolved on 24 November 2020.
Retail shares
In order to provide retail and other interested investors the opportunity to participate in the offer, shares were made available via PrimaryBid.com, a
platform that facilitates discounted equity offerings for publicly listed companies. Due to its size, the issue fell within the exemption set out in section 86(1)
(e) and 86(4) of the Financial Services and Markets Act 2000, as amended, and the Company was not required to publish a prospectus.
The £2.6m proceeds (net of directly attributable fees of £0.1m) resulted in additional share capital of £0.2m and a share premium balance of £2.5m.
Treatment of proceeds
The total net proceeds were accounted for as follows:
Share capital: at 25p per share
Share premium: premium on retail and subscription share issue, net of directly attributable costs
Merger reserve: premium on placing share issue, net of directly attributable costs
Net proceeds
£m
2.2
2.5
23.5
28.2
29. Other reserves
The merger reserve represents the amount by which the fair value of the shares issued as consideration for historic acquisitions exceeded their nominal
value, offset by the goodwill on these acquisitions. The translation reserve comprises cumulative foreign exchange differences arising from the translation of
financial statements of foreign operations on consolidation.
At 1 July 2019
Exchange rate adjustments
At 30 June 2020
At 1 July 2020
Premium on share issue
Exchange rate adjustments
At 30 June 2021
Merger
reserve
£m
1.0
-
1.0
1.0
23.5
-
24.5
Translation
reserve
£m
15.9
0.5
16.4
16.4
-
(2.9)
13.5
Total
£m
16.9
0.5
17.4
17.4
23.5
(2.9)
38.0
180 Ricardo plc Annual Report & Accounts 2020/21
Financial statementsNotes to the Group financial statements
30. Retained earnings
At 1 July
Profit/(loss) for the period
Remeasurements of the defined benefit pension scheme
Deferred tax on remeasurements of the defined benefit pension scheme
Fair value gains on foreign currency cash flow hedges
Ordinary share dividends
Purchases of own shares to settle awards
Equity-settled transactions
At 30 June
Note
33
20
26
8
34
2021
£m
103.5
1.7
9.1
(2.0)
-
(1.1)
-
1.0
112.2
2020
£m
123.1
(6.5)
(2.7)
1.1
(0.1)
(11.5)
(0.5)
0.6
103.5
31. Non-controlling interests
In the opinion of the Directors, the comprehensive income for the year and equity at the reporting date which is attributable to non-controlling interests is
not considered to be material. Non-controlling interests are as follows:
• C2D Joint Venture is 33.3% owned by Ricardo Defense, Inc.; 33.3% owned by DG Technologies; 33.3% owned by Claxton Logistics Services LLC.
• CDQ Joint Venture is 50% owned by Ricardo Defense, Inc.; 50% owned by DG Technologies
• Nanjing Delta Win Transportation Technical Services Limited is 40% owned by Ricardo Beijing Company Limited; 25% owned by Ricardo Hong Kong
Limited; 35% owned by Jiangsu Urban Mass Transit Research & Design Institute Company Limited.
For their registered office and principal activities please see Note 36.
Employees
32. Employee number and costs
Staff costs
Wages and salaries (including redundancy and termination costs)
Social security costs
Pension costs – defined contribution schemes
Share-based payments
Total staff costs
Average monthly number of employees (including Executive Directors)
EE
Rail
A&I
Defense
PP
Plc and Board
Total average number of employees
Key management compensation
Short-term employee benefits
Share-based payments
Post-employment benefits
Termination benefits
Total key management compensation
Note
34
2021
£m
155.3
15.3
10.0
1.4
182.0
2021
£m
621
605
1,047
180
397
55
2,905
2021
£m
3.8
1.2
0.3
0.7
6.0
2020
£m
162.3
15.6
10.0
0.6
188.5
2020
£m
554
629
1,249
147
416
55
3,050
2020
£m
4.0
0.5
0.4
0.1
5.0
Key management personnel are the Board of Directors, together with the Managing Directors who have the authority and responsibility for planning,
directing and controlling the Group’s activities and resources within the market sectors in which the Group operates. The remuneration received by all
Executive and Non-Executive Directors during the year is disclosed in the Directors' Remuneration Report on page 96.
Creating a world fit for the future 181
Financial statementsNotes to the Group financial statements
33. Retirement benefits
Retirement benefits accounting policy – Note 1(w)
Key sources of estimation uncertainty on defined benefit obligations – Note 1(c)
The Group operates a defined benefit pension scheme, the Ricardo Group Pension Fund (‘RGPF’), which closed to future accrual on 28 February 2010.
Responsibility for the governance of the RGPF - including investment decisions and contribution schedules - lies with the Board of Trustees, with the
assets held in the fund governed by local regulations and practice in the United Kingdom. The Board of Trustees must be comprised of representatives
of the Group and RGPF participants in accordance with the RGPF’s regulations. The last approved triennial valuation of the RGPF was completed with an
effective date of 5 April 2017 and was approved on 24 September 2018. At the effective date, the assets of the RGPF had a market value of £134.0m and were
sufficient to cover 86% of the benefit that had accrued to members when assessed on the Trustees’ prudent funding basis. Based on the recovery plan
agreed following the 2017 valuation annual contributions due to the RGPF during the year ending 30 June 2022 will be £4.6m. The latest triennial valuation
with an effective date of 5 April 2020 is currently being discussed by the Company and the Trustees. The results of the 2020 triennial valuation will determine
whether the Group’s current contribution commitment remains appropriate. The IAS 19 Employee Benefits valuation was completed as at 30 June 2021. The
pension costs relating to the RGPF were assessed using the projected unit credit method, in accordance with the advice of Mercer, qualified actuaries.
From June 2016, the Group and Trustees decided to introduce a ‘retirement flexibility’ option to the RGPF, which allows members to transfer out their
benefit at retirement. The Group continues to make no allowance within the defined benefit obligation as at 30 June 2021 for members who may elect to
transfer out their benefits at retirement. This assumption will be reviewed on an ongoing basis and may change in future as experience emerges as to the
level of members who elect to transfer out their benefits at retirement.
The post-retirement mortality assumptions for the current year have been reviewed and use mortality tables known as the SAPS ‘Series 3’ tables, with an
85% (2020: ‘SAPS Series 2’ 83%) multiplier for males and a 84% (2020: ‘SAPS Series 2’ 91%) multiplier for females, both applicable to the ‘standard’ version of
the table. The future improvements component has been updated to be in line with the Continuous Mortality Investigation (‘CMI’) 2020 projection model
with an ‘S-kappa’ smoothing parameter of 7, an initial addition to mortality improvements of 0.5% and an annual weight parameter for 2020 of zero (2020:
CMI 2019 with ‘S-kappa’ smoothing parameter of 7 and no initial addition to mortality improvements). The latest available CMI model will be used at each
year-end to provide the most accurate representation of the defined benefit obligation. The use of a 1.25% long-term trend is consistent with the prior year.
Under these principal mortality assumptions, the expected future life expectancy from age 65 is as follows:
2021
2020
Age
65 now
65 in 20 years
Other principal assumptions
Discount rate
RPI inflation rate
Other assumptions
Rate of increase in pensions in payment accrued p.a.
- Pre 1 July 2002
- Post 1 July 2002
- Post 88 GMP
Rate of increase in deferred pension revaluation p.a.
Percentage of pension to be commuted for a lump sum at retirement
Males
23.6
24.9
Females
25.9
27.3
Males
23.2
24.6
2021
% p.a.
1.85
3.30
2021
%
3.65
3.15
2.15
2.60
15.00
Scheme assets
Equities
Debt
Cash and other
Property fund
Investment funds
At 30 June
Quoted
£m
22.2
103.9
0.6
-
20.7
147.4
2021
Unquoted
£m
-
-
0.4
8.3
-
8.7
Total
£m
22.2
103.9
1.0
8.3
20.7
156.1
Quoted
£m
32.9
80.4
-
-
29.0
142.3
2020
Unquoted
£m
-
-
0.5
7.6
-
8.1
Females
24.4
26.0
2020
% p.a.
1.60
2.90
2020
%
3.50
2.80
1.85
2.20
15.00
Total
£m
32.9
80.4
0.5
7.6
29.0
150.4
182 Ricardo plc Annual Report & Accounts 2020/21
Financial statementsNotes to the Group financial statements
33. Retirement benefits (continued)
The property fund relates to a share of the BlackRock UK Property Fund (“Fund”). Real property is valued either on the basis of the open market value or
under the premise of a forced sale. Property fund investments are valued by reference to the underlying value of assets or the latest available net asset
value.
Movements in the fair value of scheme assets and present value of the de fined benefi t surplus/(obligation) were as follows:
At 1 July
Past service costs
Finance income/(costs)
Total credit/(charge) to the income statement
Return on plan assets excluding finance
income
Effect of change in demographic assumptions
Effect of change in financial assumptions
Effect of experience adjustments
Total remeasurements in other comprehensive
income
Contributions from sponsoring companies
Benefit payments from plan assets
Total cash flows
Total movements
At 30 June
Fair value of
plan assets
£m
150.4
-
2.4
2.4
2021
Present value
of obligation
£m
(157.1)
(0.1)
(2.5)
(2.6)
2020
Fair value of
plan assets
£m
137.5
-
3.1
3.1
Present value of
obligation
£m
(146.0)
-
(3.2)
(3.2)
Net total
£m
(6.7)
(0.1)
(0.1)
(0.2)
6.3
-
-
-
6.3
4.6
(7.6)
(3.0)
5.7
156.1
-
(3.6)
1.2
5.2
2.8
-
7.6
7.6
7.8
(149.3)
6.3
(3.6)
1.2
5.2
9.1
4.6
-
4.6
13.5
6.8
11.2
-
-
-
11.2
4.6
(6.0)
(1.4)
12.9
150.4
-
0.4
(15.3)
1.0
(13.9)
-
6.0
6.0
(11.1)
(157.1)
Net total
£m
(8.5)
-
(0.1)
(0.1)
11.2
0.4
(15.3)
1.0
(2.7)
4.6
-
4.6
1.8
(6.7)
The sensitivity of the defined benefit scheme to changes in principal assumptions:
Discount rate
Inflation rate
Post-retirement mortality assumptions
Change in assumption
- 0.25%
+ 0.25%
- 1 year
Impact on present
value of obligation
Increase by £6.5m
Increase by £3.1m
Increase by £6.2m
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice this is unlikely to occur
and changes in some of the assumptions may be correlated. When calculating the sensitivity of the de fined benefi t obligation to signifi cant actuarial
assumptions, the same method has been applied as when calculating the pension liability recognised within non-current liabilities. The methods and types
of assumptions used in preparing the sensitivity analysis did not change when compared to the previous year. Exposure to signifi cant risks from the RGPF
are as follows:
Risks
Asset volatility
Impact
The RGPF liabilities are calculated using a discount rate set with reference to corporate bond yields. If the RGPF assets
underperform this yield, the de ficit will increase. The RGPF holds a signi ficant proportion of equities and diversifi ed
growth funds, which are expected to outperform corporate bonds in the long-term while providing volatility and
risk in the short-term. The Directors are of the view that due to the long-term nature of the RGPF liabilities and the
strength of the supporting Group, this is an appropriate strategy to manage the RGPF efficiently.
Corporate bond yields
A decrease in corporate bond yields will increase RGPF liabilities, although this will be partially offset by an increase in
the value of the RGPF's bond holdings. Brexit and COVID-19 have caused volatility in the market, which may continue
to adversely affect corporate bond yields, with a corresponding impact on discount rates as described above.
Inflation
Although there are some caps in place to protect the RGPF against extreme inflation, increases in the level of
inflation will lead to higher liabilities.
Post-retirement mortality
assumptions
The RGPF provides benefi ts for the life of the members, therefore improvements in post-retirement mortality
assumptions will result in an increase in the RGPF's liabilities.
Creating a world fit for the future 183
Financial statementsNotes to the Group financial statements
33. Retirement benefits (continued)
The weighted average duration of the defined benefit obligation is 16.0 (2020: 18.0) years.
Expected maturity analysis of undiscounted pension benefits
Less than one year
Between one and two years
Between two and five years
Beyond five years
Amounts charged to the income statement in respect of the defined benefit obligation
Past service costs for:
- GMP equalisation
Net financing costs
Total
Note
6
9
34. Share-based payments
Accounting policy – Note 1(x)
2021
£m
4.6
4.8
15.1
28.2
2021
£m
-
0.1
0.1
0.2
2020
£m
4.5
4.6
14.8
27.8
2020
£m
-
-
0.1
0.1
The Group operates the following share-based payment schemes: an equity-settled Executive Share Option Plan (the '2004 Plan'); an equity-settled and a
cash-settled Long-Term Incentive Plan ('LTIP'); a Deferred Share Bonus Plan ('DBP') and an equity-settled all-employee Share Incentive Plan ('SIP'). The general
terms and conditions, including vesting requirements and performance conditions for the 2004 Plan, the equity-settled LTIP, the DBP and the equity-settled
SIP are described in the Directors' Remuneration Report. The 2004 Plan, LTIP, DBP and SIP require shareholder approval for the issue of shares. There were no
awards outstanding in relation to the SIP at the year-end.
One third (2020: one third) of awards granted under the LTIP and DBP Matching Awards are dependent on a Total Shareholder Return (‘TSR’) performance
condition. As relative TSR is defined as a market condition under IFRS 2 Share-based Payment, this requires the valuation model used to take into account
the anticipated performance outcome. The TSR element of the charge to the income statement has been calculated using the Monte Carlo model and the
earnings per share ('EPS') element has been calculated using the Black Scholes model. The following assumptions are used for the plan cycles commencing in
these years:
Weighted average share price at date of award
Expected volatility
Expected life
Risk-free rate
Dividend yield
Possibility of ceasing employment before vesting
Weighted average fair value per LTIP as a percentage of a share at date of award
2021
£m
472.0p
54.0%
3 yrs
0.0%
0.0%
10.0%
81.4%
2020
£m
640.0p
32.0%
3 yrs
0.4%
3.3%
10.0%
74.4%
Expected volatility was determined by calculating the historical volatility of the Company's share price over the three financial years preceding the date of
award. The share-based payments charge of £1.4m (2020: £0.6m) disclosed in Note 32 was all in respect of equity-settled schemes.
Equity-settled Long-Term Incentive Plan
The current LTIP is described in the Directors' Remuneration Report. Awards are forfeited if the employee leaves the Group before the awards vest, unless
they are considered 'good leavers'.
Outstanding
At 1 July
Awarded
Lapsed
Vested
Transferred to cash-settled
At 30 June
(1) Shares allocated excludes dividend roll-up.
184 Ricardo plc Annual Report & Accounts 2020/21
2021
Shares
allocated(1)
693,796
742,379
(225,913)
-
-
1,210,262
2020
Shares
allocated(1)
565,478
358,135
(130,830)
(94,987)
(4,000)
693,796
Financial statementsNotes to the Group financial statements
34. Share-based payments (continued)
The outstanding LTIP awards had a weighted average contractual life of 1.9 years (2020: 1.6 years). The weighted average exercise price in both 2021 and
2020 was Nil. During the prior year, the Group cash purchased shares in order to settle vested awards. All shares that were vested during the prior year were
exercised for their price of Nil.
Cash-settled Long-Term Incentive Plan
The cash-settled LTIP has the same performance conditions as the equity-settled LTIP but the award is settled in cash rather than by share issue.
Outstanding
At 1 July
Awarded
Forfeited
Vested
Transferred to cash-settled
At 30 June
(1) Shares allocated excludes dividend roll-up.
2021
Shares
allocated(1)
11,699
10,049
-
-
-
21,748
2020
Shares
allocated(1)
8,000
5,199
(1,500)
(4,000)
4,000
11,699
The outstanding LTIP awards had a weighted average contractual life of 1.7 years (2020: 2.0 years). The weighted average exercise price in both 2021 and 2020
was Nil.
The carrying value of the cash settled share-based payments is Nil (2020: Nil). All shares that were vested during the prior year were exercised for their price
of Nil.
Deferred Share Bonus Plan
The Deferred Share Bonus Plan is described in the Directors’ Remuneration Report.
Outstanding
At 1 July
Awarded
Forfeited
Dividend shares awarded in the year
Vested
At 30 June
(1) Shares allocated excludes dividend roll-up.
2021
Shares
allocated(1)
132,274
-
(1,736)
221
(22,876)
107,883
2020
Shares
allocated(1)
169,874
78,765
(22,390)
3,738
(97,713)
132,274
The outstanding DBP awards had a weighted average contractual life of 0.7 years (2020: 1.5 years). The weighted average exercise price in both 2021 and
2020 was Nil. During the year, the Group cash purchased shares in order to settle vested awards. All shares that were vested during the current and prior
year were exercised for their price of Nil.
Unrecognised items and uncertain events
35. Contingent liabilities
In the ordinary course of business, the Group has £13.0m (2020: £9.4m) of possible obligations for bonds, guarantees and counter-indemnities placed with
the Group’s banking and other financial institutions and primarily relating to performance under contracts with customers. These possible obligations
are contingent on the outcome of uncertain future events which are considered unlikely to occur. The Group is also involved in commercial disputes and
litigation with some customers, which is also in the normal course of business. Whilst the result of such disputes cannot be predicted with certainty, the
ultimate resolution of these disputes is not expected to have a material effect on the Group’s financial position or results.
In July 2013, a guarantee was provided to the Ricardo Group Pension Fund ('RGPF') of £2.8m in respect of certain contingent liabilities that may arise, which
have been secured on specific land and buildings (see Note 16). The outcome of this matter is not expected to give rise to any material cost to the Group. In
October 2018, a further guarantee was provided to the RGPF for an amount that shall not exceed the employers' liability were a debt to arise under Section
75 of the Pensions Act 1995. The guarantee will terminate on 5 April 2023. The outcome of this matter is not expected to give rise to any material cost to the
Group on the basis that the Group continues as a going concern.
Creating a world fit for the future 185
Financial statementsNotes to the Group financial statements
Other
36. Related undertakings of the Group
Subsidiary or related undertaking
Ricardo Investments Limited(*)
Ricardo EMEA Limited∞
Power Planning Associates Limited∞
Ricardo US Holdings, Inc.
Ricardo Real Estate LLC
Ricardo UK Limited
Ricardo Asia Limited
Ricardo Japan K.K.
Registered office
Shoreham Technical Centre, Old Shoreham Road, Shoreham-by-Sea,
West Sussex, BN43 5FG, United Kingdom†
Shoreham Technical Centre, Old Shoreham Road, Shoreham-by-Sea,
West Sussex, BN43 5FG, United Kingdom†
Shoreham Technical Centre, Old Shoreham Road, Shoreham-by-Sea,
West Sussex, BN43 5FG, United Kingdom†
Detroit Technical Campus, 40000 Ricardo Drive, Van Buren Township,
Detroit, Michigan, 48111-1641, United States
Detroit Technical Campus, 40000 Ricardo Drive, Van Buren Township,
Detroit, Michigan, 48111-1641, United States
Shoreham Technical Centre, Old Shoreham Road, Shoreham-by-Sea,
West Sussex, BN43 5FG, United Kingdom†
Shoreham Technical Centre, Old Shoreham Road, Shoreham-by-Sea,
West Sussex, BN43 5FG, United Kingdom†
18th Floor, Shin Yokohama Square Building, 2-3-12 Shin Yokohama,
Kohoku-ku, Yokohama-shi, Kanagawa, 222-0033, Japan
Ricardo Shanghai Company Limited(*)
Floor 17, Phoenix Building, No. 1515 Gumei Road, Xuhui District,
Shanghai, 200233, PR China
Ricardo Prague s.r.o.
Palác Karlín, Thámova 11-13, 186 00 Praha 8, Czech Republic
Ricardo GmbH
Güglingstraße 66, 73529, Schwäbisch Gmünd, Germany
Ricardo Motorcycle Italia s.r.l.
Ricardo, Inc.
Ricardo India Private Limited(1)
Ricardo Canada, Inc
Ricardo Strategic Consulting GmbH
Ricardo Defense Systems LLC
Ricardo Defense, Inc.
C2D Joint Venture (33.3%)(2)
Ricardo-AEA Limited
Cascade Consulting
(Environment & Planning) Limited∞
Ricardo South Africa (Pty) Ltd
(formerly PPA Energy (Pty) Ltd)
Ricardo Gulf Technical Consultancy
LLC (49%)(3)
Ricardo Energy Environment and
Planning Pty Ltd
Ricardo Australia Pty Ltd
Via Giovanni Pascoli 47, 47853, Cerasolo, Coriano, Rimini, Italy
Detroit Technical Campus, 40000 Ricardo Drive, Van Buren Township,
Detroit, Michigan, 48111-1641, United States
6th Floor, M6 Plaza, Jasola District Centre, New Delhi 110076, India
Automotive & Industrial Consulting,
Strategic Consulting and Software
Business Development
2600-160 Elgin Street, Ottawa, Ontario, Canada, K0A 3PO
4th Floor, Kreuzstraße 16, 80331, Munich, Germany
Business Development
Strategic Consulting
300 E. Big Beaver RD, Suite 180, Detroit, Michigan, 48083, United States
Performance Products
175 Cremona Drive, Suite 140, Goleta, California, 93117, United States
Defence Consulting
175 Cremona Drive, Suite 140, Goleta, California, 93117, United States
Defence Consulting
Shoreham Technical Centre, Old Shoreham Road, Shoreham-by-Sea,
West Sussex, BN43 5FG, United Kingdom†
Shoreham Technical Centre, Old Shoreham Road, Shoreham-by-Sea,
West Sussex, BN43 5FG, United Kingdom†
111 Pretoria Road, Rynfield, Benoni, Johannesburg, 1501, South Africa
Energy & Environmental Consulting
Energy & Environmental Consulting
Energy & Environmental Consulting
Abu Dhabi Island, Corniche Street, G5, Block 17, Floor 11, Office 1108, Unit
Building / Mesmak Real Estate Company, United Arab Emirates
Grant Thornton Australia Limited, Level 17, 383 Kent Street, Sydney, NSW,
2000, Australia
Level 7, 151 Clarence Street, Sydney, New South Wales, 2000, Australia
Ricardo Consulting SL
Agustín de Foxá 29, 9B, 28036, Madrid, Spain
Ricardo Rail Limited
Ricardo Nederland B.V.
Ricardo Rail Australia Pty Ltd
Ricardo Singapore Pte Limited
Ricardo (Thailand) Ltd (49%)(4)
Ricardo Hong Kong Limited
Shoreham Technical Centre, Old Shoreham Road, Shoreham-by-Sea,
West Sussex, BN43 5FG, United Kingdom†
Catharijnesingel 33, 3511 GC, Utrecht, Netherlands
Suite 2.01, Level 2, Tower B, The Zenith, 821 Pacific Highway, Chatswood,
New South Wales, 2067, Australia
141 Middle Road, 5-6 GSM Building, 188976, Singapore
140/36 ITF Tower 17th Floor, Silom Road, Kwang Surawong, Khet
bangrak, Bangkok, 10500, Thailand
Units No.18, 11/F., Shui On Centre, 6-8 Harbour Road, Hong Kong
Hong Kong
186 Ricardo plc Annual Report & Accounts 2020/21
Principal activities
Holding Company and
Management Services
Holding Company and
Management Services
Holding Company
Holding Company
Property Investment Company
Automotive & Industrial Consulting,
Strategic Consulting, Defence
Consulting and
Performance Products
Automotive & Industrial Consulting,
Rail Consulting and
Business Development
Automotive & Industrial Consulting,
Rail Consulting and Business
Development
Automotive & Industrial Consulting,
Rail Consulting and Business
Development
Automotive & Industrial Consulting
and Software
Automotive & Industrial Consulting
and Business Development
Automotive & Industrial Consulting
Energy & Environmental Consulting
Energy & Environmental Consulting
Energy & Environmental Consulting
and Rail Consulting
Energy & Environmental Consulting
and Rail Consulting
Rail Consulting
Rail Consulting
Rail Consulting
Rail Consulting
Rail Consulting
Rail Consulting
Financial statementsNotes to the Group financial statements 36. Related undertakings of the Group (continued)
Subsidiary or related undertaking
Ricardo Technical Consultancy LLC
(49%)(5)
Chongqing Transportation Railway
Safety
Assessment Center Limited (60%)(6)
Wamarragu Transport Services Pty Ltd
(45%)(7)
Ricardo Rail (Taiwan) Ltd
Ricardo Beijing Company Limited
Ricardo Certification Limited∞
Ricardo Certification B.V.
Ricardo Certification Denmark ApS
Ricardo Certification Iberia SL
Ricardo Software, Inc.
Ricardo Innovations Limited
CDQ Joint Venture (50%)(8)
Ricardo Software Limited
Ricardo Certificación SL
Ricardo Environment Arabia LLC(9)
Ricardo Strategic Consulting Limited
Ricardo Consulting Engineers Limited
Ricardo Technology Limited
Ricardo Transmissions Limited
Ricardo Pension Scheme (Trustees)
Limited
Ricardo-AEA Limited
Saudi Branch
Ricardo Deutschland GmbH
Nanjing Delta Win Transportation
Technical Services Limited (65%)(10)
Registered office
Principal activities
Palm Tower, Block B, 15th Floor, P.O. Box 26600, West Bay, Doha, Qatar
Rail Consulting
No. 2 Yangliu Road, Mid Huangshan Street, New North District,
Chongqing, 401123, PR China
Rail Consulting
Suite 2.01, Level 2, Tower B, The Zenith, 821 Pacific Highway, Chatswood,
New South Wales, 2067, Australia
Rail Consulting
11F-2 (Westside), No.51, Hengyang Rd., Zhongzheng Dist., Taipei City
10045, Taiwan (R.O.C.)
Room 1302, Building 11, No.1 Xiangheyuan Street, Dongcheng District,
Beijing P.R. of China
Shoreham Technical Centre, Old Shoreham Road, Shoreham-by-Sea,
West Sussex, BN43 5FG, United Kingdom†
Catharijnesingel 33, 3511 GC, Utrecht, Netherlands
Høffdingsvej 34, 2500 Valby, Copenhagen, Denmark
Agustín de Foxá 29, 9B, 28036, Madrid, Spain
Rail Consulting
Independent Assurance
Independent Assurance
Independent Assurance
Independent Assurance
Independent Assurance
Detroit Technical Campus, 40000 Ricardo Drive, Van Buren Township,
Detroit, Michigan, 48111-1641, United States
Shoreham Technical Centre, Old Shoreham Road, Shoreham-by-Sea,
West Sussex, BN43 5FG, United Kingdom†
175 Cremona Drive, Suite 140, Goleta, California, 93117, United States
Shoreham Technical Centre, Old Shoreham Road, Shoreham-by-Sea,
West Sussex, BN43 5FG, United Kingdom†
Agustín de Foxá 29, 9B, 28036, Madrid, Spain
Bahrain Tower, Building Number 8953, 2393, King Fahd Road, Olaya,
12214, Kingdom of Saudi Arabia
Shoreham Technical Centre, Old Shoreham Road, Shoreham-by-Sea,
West Sussex, BN43 5FG, United Kingdom†
Shoreham Technical Centre, Old Shoreham Road, Shoreham-by-Sea,
West Sussex, BN43 5FG, United Kingdom†
Shoreham Technical Centre, Old Shoreham Road, Shoreham-by-Sea,
West Sussex, BN43 5FG, United Kingdom†
Shoreham Technical Centre, Old Shoreham Road, Shoreham-by-Sea,
West Sussex, BN43 5FG, United Kingdom†
Shoreham Technical Centre, Old Shoreham Road, Shoreham-by-Sea,
West Sussex, BN43 5FG, United Kingdom†
Bahrain Tower, 2nd Floor, King Fahad Road, PO Box 8953, Riyadh, 12214-
2393 Kingdom of Saudi Arabia
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Güglingstraße 66, 73529, Schwäbisch Gmünd, Germany
Room 1101, No. 301, Zhongmen Street, Gulou District, Nanjing, Jiangsu
Province, PR China
In Liquidation
Liquidation finalised
* Wholly owned direct subsidiary of Ricardo plc
† Registered in England and Wales
∞ These companies have claimed exemption from audit per 479A of the Companies Act 2006.
(1) 99% owned by Ricardo plc; 1% owned by Ricardo UK Limited.
(2) 33.3% owned by Ricardo Defense, Inc.; 33.3% owned by DG Technologies; 33.3% owned by Claxton Logistics Services LLC.
(3) 49% of share capital and 80% of retained earnings owned by Ricardo Rail Limited; 51% of share capital and 20% of retained earnings owned by SSD Commercial Investment
(4) 49% of share capital and 92.5% of retained earnings owned by Ricardo Hong Kong Limited; 51% of share capital and 7.5% of retained earning owned by First Asia Industries Limited.
(5) 49% of share capital and 97% of retained earnings owned by Ricardo Rail Limited; 51% of share capital and 3% of retained earnings owned by Pro-Partnership LLC.
(6) 60% owned by Ricardo Beijing Company Limited; 40% owned by Chongqing Science & Technology Testing Center Limited.
(7) 45% owned by Ricardo Rail Australia Pty Ltd; 55% owned by Justin Brooker Nominees Pty Ltd. This associate undertaking is immaterial to the Group.
(8) 50% owned by Ricardo Defense, Inc.; 50% owned by DG Technologies.
(9) 15% owned by Ricardo plc; 85% owned by Ricardo-AEA Limited.
(10) 40% owned by Ricardo Beijing Company Limited; 25% owned by Ricardo Hong Kong Limited; 35% owned by Jiangsu Urban Mass Transit Research & Design Institute Company Limited.
In the opinion of the Directors, the comprehensive income for the year and equity at the reporting date which is attributable to non-controlling interests is
not considered to be material. Non-controlling interests are set out above in Footnotes (2) to (8), and (10).
Creating a world fit for the future 187
Financial statementsNotes to the Group financial statements 37. Related parties’ transactions
Key management personnel are the Board of Directors, together with the Managing Directors who have the authority and responsibility for planning,
directing and controlling the Group’s activities and resources within the market sectors in which the Group operates. This is set out in Note 32.
The remuneration received by all Executive and Non-Executive Directors during the year is disclosed in the Directors' Remuneration Report on page 96.
The Ricardo Pension Scheme (Trustees) Limited is a related party to the Group. Amounts paid to the Group’s retirement payments is set out in Note 33.
38. Events after the reporting date
On 31 July 2021, the Group terminated its lease for the Schwäbish Gmünd Technical Centre, incurring a termination fee of £0.3m (€0.4m). At this date, the
related right-of-use asset of £1.1m was derecognised, £0.1m of leasehold improvements were impaired, and the £1.5m lease liability balance was released.
The net impact to the income statement was nil.
188 Ricardo plc Annual Report & Accounts 2020/21
Financial statementsNotes to the Group financial statements Company primary statements
Company statement of financial position of Ricardo plc
as at 30 June
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Right-of-use assets
Retirement benefit surplus
Investments
Trade and other receivables
Deferred tax assets
Current assets
Trade and other receivables
Derivative financial assets
Current tax assets
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Borrowings
Lease liabilities
Trade and other payables
Current tax liabilities
Derivative financial liabilities
Provisions
Net current (liabilities)/assets
Non-current liabilities
Borrowings
Lease liabilities
Retirement benefit obligations
Deferred tax liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium
Other reserves
Retained earnings
Total equity
Financial statements
2021
£m
1.1
4.5
5.7
6.8
103.1
40.4
1.2
162.8
93.7
0.9
0.7
5.4
100.7
263.5
5.9
0.8
111.8
-
1.0
-
119.5
(18.8)
-
6.1
-
2.1
8.2
127.7
135.8
15.6
16.8
23.5
79.9
135.8
2020
£m
1.1
4.7
6.1
-
103.1
-
2.1
117.1
127.3
3.9
-
20.3
151.5
268.6
0.7
0.8
97.0
0.9
6.5
0.1
106.0
45.5
47.7
6.6
6.7
0.7
61.7
167.7
100.9
13.4
14.3
-
73.2
100.9
Note
2
3
4
11c
5
7
6
7
11g
8
9
10
11g
11d
8
9
11c
6
11e
11e
11e
The Ricardo plc Company statement of financial position has been prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure
Framework (‘FRS 101’). The notes on pages 190 to 194 form an integral part of these financial statements.
The Company has not presented its own Income Statement and Statement of Comprehensive Income as permitted by Section 408 of the Companies Act
2006. The Company's loss for the year was £0.4m (2020: profit £11.8m). The financial statements of Ricardo plc (registered number 222915) on pages 189 to
194 were approved by the Board of Directors on 14 September 2021 and signed on its behalf by:
Dave Shemmans
Chief Executive Officer
Ian Gibson
Chief Financial Officer
Creating a world fit for the future 189
Financial statements
Notes to the Company financial statements
Company statement of changes in equity of Ricardo plc
for the year ended 30 June
At 1 July 2019
Profit for the year
Other comprehensive expense for the year
Total comprehensive income for the year
Equity-settled transactions
Purchase of own shares to settle awards
Ordinary share dividends
At 30 June 2020
At 1 July 2020
Loss for the year
Other comprehensive income for the year
Total comprehensive income for the year
Issue of ordinary share capital
Equity-settled transactions
Ordinary share dividends
At 30 June 2021
Share
capital
£m
13.4
-
-
-
-
-
-
13.4
13.4
-
-
-
2.2
-
-
15.6
Attributable to owners of the parent
Other
Share
reserves
premium
£m
£m
-
14.3
-
-
-
-
-
-
-
-
-
-
-
-
-
14.3
-
14.3
-
-
-
-
-
-
23.5
2.5
-
-
-
-
23.5
16.8
Retained
earnings
£m
74.6
11.8
(1.7)
10.1
0.6
(0.6)
(11.5)
73.2
73.2
(0.4)
7.2
6.8
-
1.0
(1.1)
79.9
Total
£m
102.3
11.8
(1.7)
10.1
0.6
(0.6)
(11.5)
100.9
100.9
(0.4)
7.2
6.8
28.2
1.0
(1.1)
135.8
Notes to the Company financial statements
of Ricardo plc
1. Principal accounting policies
Basis of preparation
The financial statements of Ricardo plc have been prepared on a going
concern basis, as discussed in the viability statement on page 38 and
in preparing these financial statements, the Company applies the
recognition, measurement and disclosure requirements of international
accounting standards in conformity with the requirements of the
Companies Act 2006 but makes amendments where necessary in order
to comply with Companies Act 2006 and has set out below where
advantage of the FRS 101 disclosure exemptions has been taken. The
accounting policies set out below have been applied consistently to all
years presented in these financial statements. The following exemptions
available under FRS 101 have been applied:
• Paragraphs 45(b) and 46 to 52 of IFRS 2 Share-based Payment (details of
the number and weighted average exercise prices of share options and
how the fair value of goods and services received was determined).
• IFRS 7 Financial Instruments: Disclosures.
• Paragraphs 91 to 99 of IFRS 13 Fair Value Measurement (disclosure of
valuation techniques and inputs used for fair value measurement of
assets and liabilities).
• Paragraph 38 of IAS 1 Presentation of Financial Statements to present
comparative information in respect of:
- paragraph 73(e) of IAS 16 Property, Plant and Equipment; and
- paragraph 118(e) of IAS 38 Intangible Assets.
• The following paragraphs of IAS 1 Presentation of financial statements:
- 10(d) (statement of cash flows);
- 16 (statement of compliance with all IFRS);
- 38(a) (requirement for minimum of two primary statements, including
cash flow statements);
- 38(b)-(d) (additional comparative information);
190 Ricardo plc Annual Report & Accounts 2020/21
- 111 (cash flow statement information); and
- 134-136 (capital management disclosures).
• IAS 7 Statement of Cash Flows (the Company has not published its
individual cash flow statement as its liquidity, solvency and financial
adaptability are dependent on the Group rather than its own cash
flows).
• Paragraphs 30 and 31 of IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors (requirement for the disclosure of information when
an entity has not applied a new IFRS that has been issued and is not yet
effective).
• Paragraph 17 of IAS 24 Related Party Disclosures (key management
compensation) and the requirements of IAS 24 Related Party Disclosures
to disclose related party transactions entered into between two or
more members of the Group, provided that any subsidiary which is
party to the transaction is wholly-owned by such a member.
Significant accounting policies
The significant accounting policies applied in the preparation of these
individual financial statements are set out below. These policies have been
applied consistently to all the years presented, unless otherwise stated.
Investments
Investments in subsidiaries are stated at cost less any impairment in value.
The Company evaluates the carrying value of investments at the end of
each financial year to determine if there has been an impairment in value,
which would result in the inability to recover the carrying amount. When it
is determined that the carrying value exceeds the recoverable amount, the
excess is written-off to comprehensive income.
Amounts owed by subsidiary undertakings
The majority of the Company’s financial assets are amounts owed by
subsidiary undertakings. These are measured initially at fair value, and
subsequently at amortised cost. The general approach is applied to the
impairment of financial assets, recognising a loss allowance for expected credit
losses (‘ECL’). Where the credit risk has not increased significantly since initial
recognition the loss allowance are measured as 12-month ECL. For balances
repayable on demand, or where the credit risk has increased significantly since
initial recognition, a lifetime ECL is measured. ECLs are a probability-weighted
estimate of credit losses. Credit losses are measured as the present value of all
cash shortfalls (i.e. the difference between the cash flows due to the entity in
accordance with the contract and the cash flows that the Company expects to
receive, therefore considering future expectations). ECLs are discounted at the
effective interest rate of the financial asset.
When determining whether the credit risk of a financial asset has increased
significantly since initial recognition and when estimating ECL, the Company
considers the available cash and cash equivalents within the subsidiary, the
net current assets of the undertaking and future cash generation.
Assets are provided in full and subsequently written off when there is
no reasonable expectation of recovery. Indicators that there may be
no reasonable expectation of recovery could include, amongst others,
evidence that the subsidiary has entered liquidation proceedings, or no
reasonable expectation that sufficient future cash generation to repay the
loan will occur in the subsidiary undertaking.
Other significant accounting policies
Other significant accounting policies are consistent with the Group financial
statements.
Judgements in applying accounting policies and key sources of
estimation uncertainties
The preparation of financial statements under FRS 101 requires the
Company’s management to make judgements and estimates that affect
the application of accounting policies and the reported amounts of
assets, liabilities, revenues and costs. These judgements and estimates are
continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be
reasonable under the circumstances. The key area of judgment that has
the most significant effect on the amounts recognised in the financial
statements is the review of financial assets for impairment. Management
has applied judgement to when determining the credit risk of fellow
Group undertakings and their ability to repay loans.
The area involving significant risk of a material adjustment to the carrying
amounts of assets and liabilities due to estimate uncertainty within the
next financial year is the Company’s defined benefit obligation. This
risk is the same as that of the Group and is explained in Note 1(c) to the
Group financial statements. Another area of estimation uncertainty is
management’s assessment of the Company’s investments to determine
whether an indicator of impairment exists. Where applicable, management
then evaluates the carrying value of investments against their value in use
to determine if there has been an impairment in value, which would result
in the inability to recover the carrying amount. The value in use is estimated
using a discounted cash flow methodology. A pre-tax discount rate is used
to discount the cash flows, which are derived from externally sourced data
reflecting the current market assessment of these investments.
The basis for the projected cash flows is the Group’s three-year plan,
which is prepared by management and reviewed and approved by the
Board. The plan reflects past experience and management’s assessment
of the current contract portfolio, contract wins, contract retention, price
increases, and gross margin, as well as future expected market trends.
Cash flows after the three-year plan are projected into perpetuity using
a growth rate based on inflation and an average long-term economic
growth rate for the territory.
Changes in accounting policies
Several other standards, interpretations and amendments to existing standards
became effective on 1 July 2020 as detailed in Note 1(z) to the Group financial
statements; none of these had a material impact on the Company.
Financial statements
Notes to the Company financial statements
2. Intangible assets
Cost
At 1 July 2019
Additions
At 30 June 2020
At 1 July 2020
Additions
At 30 June 2021
Accumulated amortisation
At 1 July 2019
Charge for the period
At 30 June 2020
At 1 July 2020
Charge for the period
At 30 June 2021
Net book value
At 1 July 2019
At 30 June 2020
At 30 June 2021
Software
£m
8.9
0.6
9.5
9.5
0.2
9.7
8.0
0.4
8.4
8.4
0.2
8.6
0.9
1.1
1.1
Software includes £0.7m (2020: £0.7m) in respect of assets under
construction which are not being amortised until the assets are made
available for use.
3. Property, plant and equipment
Land and
property
£m
Fixtures,
fittings and
equipment
£m
Total
£m
Cost
At 1 July 2019
Additions
At 30 June 2020
At 1 July 2020
At 30 June 2021
6.7
-
6.7
6.7
6.7
Accumulated depreciation and impairment
At 1 July 2019
Charge for the period
At 30 June 2020
At 1 July 2020
Charge for the period
At 30 June 2021
2.7
0.1
2.8
2.8
0.1
2.9
Net book value
At 1 July 2019
At 30 June 2020
At 30 June 2021
4.0
3.9
3.8
1.0
0.4
1.4
1.4
1.4
0.5
0.1
0.6
0.6
0.1
0.7
0.5
0.8
0.7
7.7
0.4
8.1
8.1
8.1
3.2
0.2
3.4
3.4
0.2
3.6
4.5
4.7
4.5
A contingent liability of up to £2.8m which is associated with a guarantee
provided to the Ricardo Group Pension Fund in July 2013 is secured
on specific land and buildings. Further detail is given in Note 35 to the
Group financial statements. Fixture, fittings and equipment includes Nil
(2020: £0.6m) in respect of assets under construction which are not being
depreciated until the assets are made available for use.
Creating a world fit for the future 191
5. Investments
At 1 July 2019
At 30 June 2020
At 30 June 2021
Shares in
subsidiaries
£m
103.1
103.1
103.1
The Directors consider that the fair value of investments is not less than
the carrying value. Details of the Company’s subsidiaries and related
undertakings are shown in Note 36 to the Group financial statements.
6. Deferred tax
Recognised deferred tax
(liabilities)/assets
At 1 July
Charged to the income statement
Credited to other comprehensive
income
At 30 June
Deferred tax (liabilities)/assets
comprise
Accelerated capital allowances
Defined benefit obligation
Tax losses and credits
Unrealised capital gains
Other
At 30 June
Non-current
Assets
Liabilities
At 30 June
2021
£m
1.4
(0.3)
(2.0)
(0.9)
2021
£m
(0.3)
(1.3)
-
(0.7)
1.4
(0.9)
2021
£m
1.2
(2.1)
(0.9)
2020
£m
1.7
(1.4)
1.1
1.4
2020
£m
(0.2)
1.3
0.1
(0.5)
0.7
1.4
2020
£m
2.1
(0.7)
1.4
Financial statements
Notes to the Company financial statements
4. Leases
(a) As a lessee
The Company leases one office premises and technical centre, with a
remaining lease term of 12 years. The lease agreement does not impose
any covenants. The leased asset may not be used as security for borrowing
purposes.
Right-of-use assets
Right-of-use assets
Cost
At 1 July 2019
At 30 June 2020
At 1 July 2020
At 30 June 2021
Accumulated amortisation
At 1 July 2019
Charge for the period
At 30 June 2020
At 1 July 2020
Charge for the period
At 30 June 2021
Net book value
At 1 July 2019
At 30 June 2020
At 30 June 2021
Property
£m
7.6
7.6
7.6
7.6
1.0
0.5
1.5
1.5
0.4
1.9
6.6
6.1
5.7
See Note 9 for details of the associated lease liabilities.
(b) As a lessor
The Company subleases part of its right of use property with a remaining
term of 5 years. This lease is classified as an operating lease.
During the year the Company recognised rental income of £0.2m (2020:
£0.2m) on these subleases.
The following table sets out a maturity analysis of lease payments,
showing the undiscounted lease payments to be received after the
reporting date.
Operating lease
Less than one year
One to two years
Two to three years
Total
2021
£m
0.2
0.7
-
0.9
2020
£m
0.4
1.6
0.3
2.3
192 Ricardo plc Annual Report & Accounts 2020/21
Financial statements
Notes to the Company financial statements
7. Trade and other receivables
9. Lease liabilities
Trade receivables
Amounts owed by subsidiaries
Prepayments
Other receivables
Total
Current
Non-current
At 30 June
2021
£m
-
131.0
2.0
1.1
134.1
2021
£m
93.7
40.4
134.1
2020
£m
0.1
124.8
1.2
1.2
127.3
2020
£m
127.3
-
127.3
£11.3m (2020: £11.1m) of the amounts owed by subsidiaries are due for
repayment within the next 12 months and the remaining £119.7m (2020:
£113.9m) have no fixed repayment date. Non-current trade and other
receivables consist of amounts owed by subsidiaries which are neither
planned nor likely to be settled in the foreseeable future. £108.8m (2020:
£102.7m) of the amounts owed by subsidiaries carry interest at rates
between 2.0% and 5.0% (2020: 2.0% and 5.0%) with the remaining £22.2m
(2020: £22.3m) being interest-free. All amounts owed by subsidiaries are
unsecured.
Movement in lease liability
At 1 July
Interest
Payments
At 30 June
Lease liability
Current liabilities - maturing within
one year
Non-current liabilities - maturing
after one year
At 30 June
Maturity of undiscounted lease
liability
Within one year
Between one and five years
After five years
Finance portion of net liability
At 30 June
8. Borrowings
10. Trade and other payables
Current liabilities - borrowings:
Bank overdrafts repayable on
demand
Non-current liabilities - borrowings:
Bank loans maturing after one year
At 30 June
2021
£m
5.9
-
5.9
2020
£m
0.7
47.7
48.4
Trade payables
Tax and social security payable
Amounts owed to subsidiaries
Accruals
Other payables
At 30 June
2021
£m
7.4
0.3
(0.8)
6.9
2021
£m
0.8
6.1
6.9
2021
£m
0.8
3.2
4.8
(1.9)
6.9
2021
£m
0.6
0.4
107.8
3.0
-
111.8
2020
£m
7.9
0.3
(0.8)
7.4
2020
£m
0.8
6.6
7.4
2020
£m
0.8
3.2
5.6
(2.2)
7.4
2020
£m
0.6
0.2
95.2
-
1.0
97.0
The Company has the same banking facilities as the Group. See Note 24 to
the Group financial statements.
All amounts owed to subsidiaries are unsecured. £99.6m (2020: £87.0m) of
the amounts owed to subsidiaries carry interest at rates between 2.0% and
3.0% (2020: 2.0% and 3.1%) and has no fixed repayment date. £8.2m (2020:
£8.2m) of the amounts owed to subsidiaries are interest-free and due for
repayment within the next 12 months.
Creating a world fit for the future 193
Financial statements
Notes to the Company financial statements
11. Other information
(a) Company audit fee
Fees payable to the Company’s auditor for the audit of the Company’s
annual financial statements totalled £0.3m (2020: £0.3m). Fees payable to
KPMG LLP and its associates for non-audit services to the Company are not
required to be disclosed because the Group financial statements disclose
such fees on a consolidated basis (see Note 10 to the Group financial
statements).
(b) Director’s emoluments
The remuneration received by all Executive and Non-Executive Directors
during the year is disclosed in the Directors’ Remuneration Report on page
96. The Directors are remunerated by the Company for their services to
the Group as a whole. No remuneration was paid to them specifically in
respect of their services to Ricardo Plc for either year.
(c) Employees and defined benefit obligation
During the year the Company employed an average of 48 (2020: 51)
employees.
The Company operates a defined benefit pension scheme, the Ricardo
Group Pension Fund (‘RGPF’). This is disclosed in Note 33 to the Group
financial statements together with the accounting policy and key
accounting estimates.
(d) Provisions
The Company has a provision within current liabilities for expected costs
of legal claims and litigation of Nil (2020: £0.1m).
(e) Share capital, share premium and other reserves
See Note 28 to the Group financial statements.
(f) Contingent liabilities
Contingent liabilities exist in the form of guarantees provided in the
ordinary course of business to certain subsidiaries to give assurance of
their contractual and financial commitments. None of these arrangements
are expected to give rise to any material cost to the Company.
In July 2013, a guarantee was provided to the Ricardo Group Pension Fund
(‘RGPF’) of £2.8m in respect of certain contingent liabilities that may arise,
which have been secured on specific land and buildings. The outcome of
this matter is not expected to give rise to any material cost to the Group.
In October 2018, a further guarantee was provided to the RGPF for an
amount that shall not exceed the employers’ liability were a debt to arise
under Section 75 of the Pensions Act 1995. The guarantee will terminate
on 5 April 2023. The outcome of this matter is not expected to give rise to
any material cost to the Group on the basis that the Group continues as a
going concern.
(g) Derivative financial assets and liabilities
The Company has the same derivative financial assets and liabilities as the
Group. These are disclosed in Note 26 to the Group financial statements.
(h) Related party transactions
The Company has taken the exception under FRS 101 not to disclose
related party transactions entered into between two or more members
of the Group, nor to disclose key management compensation. Directors’
emoluments are referenced in Note 11(b).
194 Ricardo plc Annual Report & Accounts 2020/21
Additional
information
Creating a world fit for the future 195
Additional information
Corporate information
Key dates
Annual General Meeting: 11 November 2021
Shareholder services
Link Asset Services provide a share portal service, which allows
shareholders to access a variety of services online, including:
viewing shareholdings; buying and selling shares online;
registering change of address details; and bank mandates
to have dividends paid directly into your bank account. Any
shareholder who wishes to register with Link Asset Services to
take advantage of this service should visit www.linkassetservices.
com/shareholders.
Shareholder enquiries
Tel: 0870 162 3131 (from the UK)
Tel: +44 208 639 3131 (from outside the UK)
Principal bankers
Lloyds Bank plc
3rd Floor
10 Gresham Street
London
EC2V 7AE
HSBC Bank plc
First Point
Buckingham Gate
London Gatwick Airport
West Sussex
RH16 0NT
Financial advisors
NM Rothschild & Sons
New Court
St Swithin’s Lane
London
EC4P 4DU
Group General Counsel and Company Secretary
Patricia Ryan
Registered office
Ricardo plc
Shoreham Technical Centre
Shoreham-by-Sea
West Sussex
BN43 5FG
Registered Company number
222915
Registrars
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Independent auditors
KPMG LLP
15 Canada Square
London
E14 5GL
Stockbrokers
Investec Investment Banking
2 Gresham Street
London
EC2V 7QP
Tel: 0207 597 5000
Liberum Capital Limited
Ropemaker Place
25 Ropemaker Street
London
EC2Y 9LY
Tel: 0203 100 2000
Website: www.ricardo.com
A PDF version of this Annual Report & Accounts can be
downloaded from the Investors page of our website.
196 Ricardo plc Annual Report & Accounts 2020/21
Additional information
Glossary
Term
B-BBEE legislation
South African employment legislation – Broad-based Black Economic Empowerment
Cash conversion
Statutory cash conversion is calculated as cash generated from operations divided by earnings
before interest, tax, depreciation and amortisation (‘EBITDA’)
Constant currency organic
growth/decline
DTC
EBITDA
ESG
FY
GHG
Headcount
ISO 9001
ISO 14001
ISO 27001
ISO 45001
Net debt
Order book
The Group generates revenues and profits in various territories and currencies because of its
international footprint. Those results are translated on consolidation at the foreign exchange rates
prevailing at the time. Constant currency organic growth/decline is calculated by translating the
result for the current year using foreign currency exchange rates applicable to the prior year. This
provides an indication of the growth/decline of the business, excluding the impact of foreign
exchange.
Detroit Technology Campus
Earnings before interest, tax, depreciation, impairment and amortisation
Environmental, Social and Governance
Financial Year
Greenhouse gases
Headcount is calculated as the number of colleagues on the payroll at the reporting date and
includes subcontractors on a full-time equivalent basis.
International standard for Quality Management Systems
International standard for Environmental Management Systems
International standard for Information Security Management Systems
International standard for Occupational Health and Safety Management Systems
Net debt is defined as current and non-current borrowings less cash and cash equivalents,
including hire purchase agreements, but excluding IFRS 16 lease liabilities. Management believes
this definition is the most appropriate for monitoring the indebtedness of the Group and is
consistent with the treatment in the Group’s banking agreements.
The value of all unworked purchase orders and contracts received from customers at the reporting
date, providing an indication of revenue that has been secured and will be recognised in future
accounting periods.
Order intake
The value of purchase orders and contracts received from customers during the period.
Organic growth/decline
Organic result
REEP
RRA
Organic growth/decline is calculated as the decline in the result for the current year compared to
the prior year, after adjusting for the performance of acquisitions or disposals, to include the results
of those acquisitions for an equivalent period in each financial year.
The organic result for the prior year includes the performance of acquisitions for an equivalent
period to FY 2019/20.
Ricardo Energy, Environment and Planning, formerly PLC Consulting Pty Ltd, acquired 31 July 2019
Ricardo Rail Australia, formerly Transport Engineering Pty Ltd, acquired 31 May 2019
Scope 1 Emissions
Direct emissions from owned or controlled sources
Scope 2 Emissions
Indirect emissions from the generation of purchased energy.
Scope 3 Emissions
All indirect emissions (not included in scope 2) that occur in the value chain, including both
upstream and downstream emissions.
TCFD
Underlying
Task Force on Climate-Related Financial Disclosures: An organization of 31 members aiming to
develop guidelines for voluntary climate-centred financial disclosures across industries
Underlying measures exclude the impact on statutory measures of specific adjusting items.
Underlying measures are considered to provide a more useful indication of underlying performance
and trends over time.
Creating a world fit for the future 197
Creating a world fit for the future
www.ricardo.com