OUR VISION:
TO CREATE A SAFE AND
SUSTAINABLE WORLD
RICARDO PLC
ANNUAL REPORT & ACCOUNTS 2021/22
01. STR ATEGIC REPORT
IN THIS YEAR’S REPORT
01. STRATEGIC REPORT
02. CORPORATE GOVERNANCE
Our business at a glance
Key financial highlights
Chair’s statement
Chief Executive’s review
Executive committee
Our business model
Our strategy
Key performance indicators
Innovation
Our people
Sustainability and ESG
Risk management and internal control
Principal risk and uncertainties
Viability statement
Financial review
Operating segment review
Energy and Environment (EE)
Rail
Automotive and Industrial (A&I)
Defense
Performance Products
4
6
7
9
12
14
16
20
22
27
36
56
58
62
66
73
76
80
84
87
Board of Directors
Corporate governance statement
Our stakeholders
Board activity
Nomination committee report
Audit committee report
Directors’ remuneration report
Directors’ report
Statement of Directors’ responsibility
03. FINANCIAL STATEMENTS
Independent auditor’s report
Group financial statements
Company financial statements
04. OTHER INFORMATION
Corporate information
Glossary
91
94
101
104
105
106
110
140
143
146
155
218
226
227
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021 /22
2
01. STR ATEGIC REPORT
Every day at Ricardo our global team of consultants,
environmental specialists, engineers and scientists
enable our customers to solve the most complex
and dynamic challenges to help achieve a safe and
sustainable world.
We do this by offering exceptional levels of expertise
in delivering innovative, cross-sector and sustainable
outcomes that support energy transition in a context of
scarce resources; that support our customers in meeting
their environmental responsibilities; and that enable safe
and smart mobility.
Across everything we do and in every assignment we
undertake, we are purpose-led in our approach and
remain committed to the ethos of our founder Sir Harry
Ricardo, who was one of the most innovative engineers
of his time. Back in 1915 he set out on a mission to
‘maximise efficiency and eliminate waste’. We continue
that mission today.
It’s what makes us Ricardo.
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021 /22
3
OUR BUSINESS AT A GLANCE
WHO WE ARE
We are a global strategic, environmental and engineering consultancy with in-
house production capability.
Ricardo plc is a global strategic, environmental and
engineering consulting company at the intersection
of the mobility, energy and environmental agendas,
solving the most complex issues to help achieve a
safe and sustainable world. We have a diversified
portfolio that addresses the common challenges of
clean and decarbonised transport, energy needs and
environmental impact. We are renowned for our best-
in-class expertise.
With more than 100 years of experience, Ricardo
is relied upon by our customers worldwide to deliver
engineering, scientific and consulting capabilities
supported by niche manufacturing. We now operate
in 27 countries across the world and employ around
3,000 colleagues.
Our work extends across a range of market sectors
– including governments and NGOs, energy and
resources, automotive, rail and mass transit, general
industry, maritime, aerospace and defence. We are
proud to possess a customer list that includes leading
transport operators, manufacturers, energy companies,
financial institutions, government agencies and non-
governmental organisations.
HOW WE OPER ATE
We operate through our five operating segments.
ENERGY AND
ENVIRONMENT
RAIL
Partner of
choice for
solving complex
environmental
challenges
through industry-
leading analysis,
advice and data
Experts in
supporting
complex rail
systems through
the delivery of
independent
assurance and
consultancy
services
AUTOMOTIVE
AND
INDUSTRIAL
Trusted specialists
in clean, efficient,
integrated
propulsion and
energy solutions
DEFENSE
PERFORMANCE
PRODUCTS
Trusted experts
in delivering
wide-ranging
engineering
programmes to
drive efficiencies
while optimising
safety
Engineering
specialists in
transmission
design and
niche-volume
manufacturing
18%
20%
31%
12%
19%
REVENUE FROM
CONTINUING
OPER ATIONS
REVENUE FROM
CONTINUING
OPER ATIONS
REVENUE FROM
CONTINUING
OPER ATIONS
REVENUE FROM
CONTINUING
OPER ATIONS
REVENUE FROM
CONTINUING
OPER ATIONS
4
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
OUR BUSINESS AT A GL ANCE
SERVING KE Y MARKETS
We create value through a clear market focus and our long-term customer
relationships.
We shape the markets in which we operate through the delivery of solutions that are built on sustainable
technological innovation. Our capabilities span the value chain – from policy, strategy and the initial concept phase
right up to the delivery of customer programmes.
GOVERNMENTS
AND NGOs
Built on our heritage of 60 years, we work closely with international
donors and governments, offering a range of cross disciplinary
environmental services to public sector organisations to develop and
implement environmental policy, processes and strategies.
ENERGY AND RESOURCES
Ricardo supports customers in decarbonising their use of energy. The
transition from using fossil fuels to generate electricity, the provision of
low-carbon heat and the decarbonisation of transport affect all areas of
our energy systems.
AUTOMOTIVE
Customers put their trust in our consulting, design, engineering and
niche-manufacturing capability in key segments including: passenger, light
and heavy-duty commercial and off-highway vehicles; motorcycles and
motorsports.
RAIL AND MASS TRANSIT
We are experts in key technical railway disciplines with the proven skills
required to deliver sustainable rail and mass-transit projects. With our
various locations across the world, we are able to serve the global rail and
mass-transit market.
GENERAL INDUSTRY
With significant focus placed on the transition to decarbonised economies
to meet climate change targets, we support organisations in addressing
bottlenecks and optimising productivity - advancing organisational
maturity and competency in delivering programmes and projects that
increase the efficiency and effectiveness of stakeholder engagement.
MARITIME, AEROSPACE
AND DEFENCE
Working in partnership with our customers, we support their efforts to
decarbonise and innovate through our wide-ranging consulting, design
and engineering programmes across the civil and commercial marine,
aerospace and defence industries.
OUR R ANKINGS AND AWARDS
We are proud to be globally
recognised for the great work we
achieve every day.
External accolades and recognition provide the
testimonials that demonstrate the transformative
value we deliver to our customers. We are incredibly
proud to be recognised for our work by such notable
organisations across the world.
• Forbes America’s Best Management
Consulting 2021 and 2022
• Bronze award for the Financial Times
Sustainability Consultancy of the Year 2022
• European Women in Construction and
Engineering Awards 2022 – Best Woman
Electrical & Mechanical Engineer
• Toyota Motor North America 2022 Annual
Supplier Business Meeting - Excellent
Supplier Performance Award
5
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 KEY FINANCIAL HIGHLIGHTS
Total including the results of the discontinued operation(3)
Order book(1)(3)
Order intake(1)(3)
+17%
FY
2021/22
2020/21
2019/20
2018/19
2017/18
£m
343.6
293.5
314.0
314.0
294.6
+23%
FY
2021/22
2020/21
2019/20
2018/19
2017/18
£m
432.2
352.1
368.7
386.0
413.4
2021/22
2020/21
2019/20
2018/19
2017/18
Revenue(3)
Including discontinued operation
+10%
FY
£m
387.3
351.8
352.0
384.4
378.5
Underlying(1) profit before
tax(3)
Including discontinued operation
+46%
FY
£m
Underlying(1) basic earnings
per share(3)
Dividend per share
(paid and proposed)
+39%
FY
pence
+52%
FY
pence
26.3
2021/22
31.2
2021/22
10.4
2021/22
2020/21
18.0
2020/21
22.4
2019/20
15.6
2019/20
21.3
2020/21
6.86
2019/20
6.24
2018/19
2017/18
37.0
37.5
2018/19
2017/18
53.7
55.1
2018/19
2017/18
21.28
20.46
Statutory profit /(loss)
before tax(3)
Including discontinued operation
+238%
FY
2021/22
13.2
pence
2020/21
3.9
Statutory basic earnings/(loss)
per share
Net debt(1)
+376%
FY
2021/22
2020/21
13.8
2.9
pence
-25%
FY
2021/22
2020/21
2019/20
(5.3)
2019/20
(12.2)
2019/20
(73.4)
2018/19
2017/18
26.5
27.0
2018/19
2017/18
37.1
33.0
2018/19
2017/18
£m
(35.4)
(46.9)
(47.4)
(26.1)
Underlying(1) cash
conversion(1)(3)
+25.1%
FY
2021/22
2020/21
2019/20
2018/19
2017/18
%
112.1
87.0
102.1
75.3
95.3
Cash conversion(1)(3)
Headcount(1)(3)
+24.7%
FY
2021/22
2020/21
2019/20
2018/19
2017/18
%
118.5
93.8
112.9
74.4
95.1
+4%
FY
2021/22
2020/21
2019/20
2018/19
2017/18
Number
3,017
2,901
3,003
2,981
3,061
(1) Please see the glossary on page 227 for a definition of the above terms. These alternative performance measures are described further, and where
appropriate reconciled to GAAP measures in Note 2 to the Group financial statements.
(2) Comparative Alternative Performance Measures (APMs) prior to FY 2019/20 have not been updated to reflect the adoption of IFRS 16.
(3) Including the results of Ricardo Software, which was classified as a discontinued operation at 30 June 2022.
6
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 CHAIR’S STATEMENT
“During the year, Ricardo has demonstrated continuing business momentum and
improvement. 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
will allow us to look forward to the exciting opportunities ahead.”
Results
The Board is pleased that Ricardo
has achieved a solid financial
performance in line with its
expectations.
For the year ended 30 June
2022, including the results of
Ricardo Software, which was sold
on 1 August 2022 and classified
as a discontinued operation at 30
June 2022, the Group delivered
revenue of £387.3m, together
with underlying profit before tax
of £26.3m and underlying basic
earnings per share of 31.2 pence.
On a reported basis, the Group
delivered a profit before tax of
£13.2m and the basic earnings per
share was 13.8 pence.
As ever, we remain committed
to paying a dividend to our
shareholders. The Board has
recommended a final dividend
of 7.49 pence per share. This,
together with the interim dividend
of 2.91 pence per share, which was
paid on 8 April 2022, results in a
total dividend of 10.40 pence per
share for the year.
Strategy
During the year, we have
sharpened Ricardo’s strategy
to focus on becoming a leading
environmental and energy
transition consultancy over the
next five years. Alongside this, we
have redefined our vision, purpose
and values. Our vision is ‘To create
a safe and sustainable world’.
Our vision and our renewed
values - ‘Create together’, ‘Be
innovative’, ‘Aim high’ and ‘Be
mindful’ - reflect how we work
together and with our customers.
Further details of our
SIR TERRY MORGAN CBE
CHAIR
sharpened strategy can be found
on pages 16 to 17.
On 21 March 2022, the Group
acquired Australian consultancy
Inside Infrastructure Pty Ltd (Inside
Infrastructure), which specialises
in water and sustainable resource
management, further expanding
the Group’s international
environmental consulting
capabilities.
In line with the strategy, on 1
August 2022, following the year
end, the Group sold its software
business.
Our people, culture and
diversity
Our talented teams spanning
the globe continue to be the
backbone to our business. I would
particularly like to welcome
the employees from Inside
Infrastructure to Ricardo and thank
them for their contribution to our
business. Prominent achievements
during the year have included
Ricardo’s inventory team winning
an award for the delivery of the
Greenhouse Gas Conversion
Factors for Company Reporting by
the Office for Statistics Regulation
and the Royal Statistical Society. In
its fifth annual rating, the Financial
Times has again identified Ricardo
Energy and Environment as a
leader in its listing of the UK’s
Leading Management Consultants
2022. In the 2021 Adur &
Worthing Business Awards the
Ricardo team was recognised
for its COVID-19 response. In
February 2022 Ricardo won two
UK Government-backed innovation
competitions to support the
UK’s transition to zero emission
vehicles by developing a dedicated
electric motor for battery electric
light commercial vehicles. Finally
Ricardo received an Excellent
Supplier Performance Award from
Toyota Motor North America.
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
engagement and a good corporate
culture. We regularly monitor
the company culture and seek
opportunities throughout the
year to engage with colleagues
across the Group. Malin Persson,
our workforce engagement
sponsor, continues to engage
with representative subsets
of our employees to seek their
feedback and reviews outcomes
of our employee surveys to ensure
improvement actions progress.
To encourage more diversity
across the Group, the Board
7
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 CHAIR’S STATEMENT
continues to focus on improving
gender balance within senior
management. We have established
an active Diversity, Equity and
Inclusion (DEI) forum that meets
regularly and is committed to
building engagement and inclusion
across the business.
Sustainability and
Environmental, Social
and Governance (ESG)
Ricardo continues to make
progress on its sustainability
commitments to achieving net zero
by 2030.
In December 2021, we were
delighted to receive the approval
of our Science Based Targets
(SBTi) confirming our commitment
and know-how to support
customers to deliver their net zero
strategies.
During the year, Malin Persson
was appointed as non-executive
director for oversight of Ricardo’s
Sustainability strategy. More
details of our Sustainability and
ESG strategy can be found at
pages 36 to 55.
Group Chief Executive
Officer
On 30 September 2021, Dave
Shemmans stepped down from his
role as Ricardo’s Chief Executive
Officer. I would like to thank Dave
for his contributions over the years
and wish him every success in the
future.
Graham Ritchie joined the
Group on 1 October 2021.
Graham has a proven track
record in leading large divisions
within listed companies and I am
excited by Graham’s vision for the
Group. Since joining, Graham has
undertaken an extensive review
of the business and implemented
cultural and operational changes.
NEEDLESS TO SAY, OUR
EXCEPTIONAL PEOPLE ARE
CRUCIAL IN ENSURING THE
TIMELY EXECUTION OF THE
STRATEGY
The Board
The Board led the refresh of
Ricardo’s strategy, as set out in the
Capital Markets Day event in May
2022. In February 2022, I signalled
my intention to step down from the
Board. After almost nine years as
a non-executive director, including
the last eight years as Chair, I will
be retiring from the Board at the
end of the Annual General Meeting
in November 2022. Mark Clare will
join the Board of Ricardo plc as a
non-executive director and Deputy
Chair on 1 November 2022 and it
is intended that he will succeed me
as Chair with effect from the close
of the Annual General Meeting in
November. Mark has many years of
Board-level experience at the top
of UK industry and is currently the
non-executive Chair of Grainger
plc.
Looking ahead
With over 100 years of science
and technology-based innovation,
our operating segments share the
same DNA characteristics of being
purpose-led - being motivated to
continuously improve and solve the
most complex challenges. With
the implementation of Ricardo’s
sharpened strategy, this purpose-
led approach will enable the
business realise its ambition.
Needless to say, our
exceptional people are crucial
in ensuring the timely execution
of the strategy. On behalf of the
Board, I would like to say a huge
thank you to our teams across
the globe for their unfailing
commitment to the business.
I would also like to take this
opportunity to express my thanks
to my fellow directors, executive
colleagues and to all at Ricardo for
what has been a very rewarding
nine years with the Group. I am
delighted to be handing over
to such a well-respected and
experienced successor as Mark
Clare. He brings a wealth of plc
boardroom experience to Ricardo
and having worked across a
number of different industry
sectors is ideally positioned to help
Ricardo on the next stage of its
journey.
Sir Terry Morgan CBE
Chair
8
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 CHIEF EXECUTIVE’S REVIEW
“We continue to see strong business momentum in our priority markets, underpinned
by environmental and energy transition trends.”
“Ricardo has an exciting future with real opportunity to create even more value for all
our stakeholders.”
Since joining the company as CEO
in October 2021, I have completed
detailed reviews of each of our
operating segments. Through this
process, I have been enormously
impressed with the Group’s
foundation, which is deeply
rooted in science and innovation
and motivated by purpose. We
have good customer and sector
diversification and are experts in
our chosen fields, solving the most
complex problems each and every
day.
Against this background, in
May, I was delighted to announce
our sharpened strategy, which
outlined the cultural and
operational changes that are
required to enable Ricardo to be a
leading environmental and energy
transition consultancy.
By leveraging our shared
DNA, establishing a clear focus
on prioritising high-growth and
high-margin solutions and by
being rigorous and disciplined in
our execution, we can shape our
future business over the coming
years and deliver sustainable
and profitable growth, creating
value for our shareholders, our
colleagues and our customers.
Gaining good momentum
We operate in 27 countries and
employ around 3,000 colleagues
around the world, providing
strategic, environmental and
engineering consultancy solutions
with in-house niche-volume
production capability.
Ricardo is uniquely positioned
at the intersection of the mobility,
energy and environmental
agendas. Where our expertise
comes together, we have our
greatest differentiator from our
competitors as we harness our
expertise to adapt and mitigate
the impact of climate change.
With good progress being
made across each of our five
operating segments, FY 2021/22
has been one of continuing
business momentum and constant
improvement for the Group.
Furthermore, this has been
achieved despite the uncertainties
and challenging economic
environments that the world is
now experiencing.
Our teams across the group
have performed tirelessly
throughout FY 2021/22 and
I would like to express my
gratitude to all our
colleagues for
their continued
dedication and
hard work.
GR AHAM RITCHIE
CHIEF EXECUTIVE OFFICER
A robust performance
across all operating
segments
During FY 2021/22, we have been
focused on building stronger
positions in our chosen markets. By
doing so, we have delivered a solid
financial performance that is in line
with trading expectations. Overall,
we closed the year with good order
intake in our priority markets and
delivered growth in order intake
across all our operating segments.
A key driver for growth in
our Energy and Environment
(EE) operating segment has
been its sustainability solutions,
covering ESG-related services,
net zero and decarbonisation,
and its environmental and
transport policy work for the
European Commission and the UK
Government. Over the course of
the year, we have consistently
secured major contracts with
leading businesses in the private
sector which are setting out their
sustainability strategies. This,
combined with further expansion
in our government programmes,
air-quality consulting and
water advisory services,
has supported us in
delivering a strong
performance,
with revenue and
underlying operating
profit continuing to
grow in FY 2021/22.
During the year
EE strengthened
its international
footprint with the
acquisition of Inside
Infrastructure, which
further enhances the
Group’s environmental
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
9
01. STRATEGIC REPORT CHIEF EXECUTIVE’S REVIEW
capabilities and strengthens the
overall position within Australia.
The Automotive and
Industrial (A&I) operating
segment is gaining momentum,
with a strong rebound in order
intake, revenue and profitability
in FY 2021/22. A rapid shift to
decarbonised and sustainable
transport technology along with
demand for bridge solutions –
which fill the technology gap
between internal combustion
engines and battery electric
vehicles – are supporting increased
requirements in our engineering
and consulting services. During
the year, we have consolidated
our regions into one global unit
and structured our product
portfolio around emerging
technologies (focused on software
and electrification systems) and
established mobility solutions
(focused on internal combustion
engines and hybrid systems). The
mix shift to emerging technologies
is expected to bring the most
value in terms of high growth, high
margin and high returns.
Defense’s strong customer
partnership with the US Army has
supported its robust performance,
with revenue growth year-on-year.
This was driven by orders of USD
34m (£27)m for Antilock Brake
System/Electronic Stability Control
(ABS/ESC) retrofit kits, to improve
the operational safety of the US
Army’s High-Mobility Multipurpose
Wheeled Vehicle (HMMWV), as
well as increased engineering
services.
Performance Products (PP)
delivered a solid performance with
increased order intake, revenue
and operating profit compared
to the previous year, reflecting
the timing of engine orders from
McLaren and the recent contract
win for the multi-year Porsche 992
Cup transmission programme.
Rail has made significant
progress in its market expansion
into North American territories. In
December, its Certification team
became the first organisation
to be accredited as a railway
independent safety assessor by
the Standards Council of Canada,
which soon led to securing our first
major Canadian rail contract. For
FY 2021/22, Rail’s order intake
increased but due to challenging
market conditions, with lower
ridership levels, together with
several long-term projects nearing
completion, its overall revenues
declined.
Creating value through
our sharpened strategy
We have already started to put our
sharpened strategy into action and
outlined our clear ambition.
Global megatrends across clean
energy and utility infrastructure,
environmental services and safe
and sustainable mobility connect
our current capabilities to our
potential. These megatrends
underpin our strategy. To achieve
our ambition, our efforts are
centred on three key areas.
First, we are focused on
leveraging our proud heritage
and shared DNA across the
organisation to ensure that we are
united in our vision and purpose.
In this way we can deliver value
that is greater than the sum of the
parts.
We have looked ahead, to
redefine our vision, purpose and
values for the next generation
within Ricardo. We believe in
our vision: ‘To create a safe and
sustainable world’. We do this by
enabling our customers to solve
the most complex and dynamic
challenges. Our values – ‘Create
together’, ‘Be innovative’, ‘Aim
high’ and ‘Be mindful’ – are equally
true to our rich heritage and shared
DNA and reflect how we work with
each other and with our customers.
Second, we have a clear focus
on prioritising high growth, high
margin solutions and low capital
intensity solutions, thereby
delivering sustainable long-term
profitable growth for the Group.
Within this framework, our offer
will be prioritised around our
environmental and energy
transition portfolio, composing
our, Rail and A&I emerging
technology businesses, and our
established mobility solutions,
composing our Defense, PP
and A&I established mobility
businesses. We expect that
emerging mobility solutions will
accelerate to deliver more than
75% of our profit, as we transform
to achieve our ambition over the
next five years.
10
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 CHIEF EXECUTIVE’S REVIEW
We are looking to deepen
our customer relationships by
creating repeatable and integrated
solutions that demonstrate our
capabilities across the value chain
– from policy and strategy to the
delivery and implementation of
customer programmes. What is
more, we want to enhance our
customers’ experience through
increased digitalisation and by
developing digital offerings
that are at the forefront of
technological development, thus
creating even more value for our
customers. A great example of this
is our RapidAir® product, a high-
resolution air quality modelling
tool that allows transport planners
and policymakers to understand
the contribution of pollution
sources to air quality and quickly
evaluate the impact of different
mitigating scenarios. It is the
fastest high-resolution, urban air
quality modelling system on the
market.
Furthermore, our organic
growth strategy is complemented
by disciplined mergers and
acquisitions, in which we
are increasingly focusing our
investments in highly attractive
environmentally and digitally
led areas. Inside Infrastructure
is a great example of this and
a welcome addition to Ricardo,
allowing the Group to accelerate
its portfolio transformation by
adding new services in our clean
energy and resources sector. The
Inside Infrastructure acquisition
has also allowed us to enter a
new market – mining and heavy
industry – where we are seeing
increased activity in supporting the
sector’s environmental agendas.
Third, greater attention is
being placed on being rigorous
and disciplined in our execution.
This will be delivered through a
shared operating model, which will
be the basis of gaining business
efficiencies and which will provide
central governance, common
services and shared best practice
across the business units.
Investing in our people
Ricardo’s success lies with its
people. As a business, we have
around 3,000 colleagues working
across the globe, delivering
complex solutions that are creating
a safe and sustainable world. Our
people plan is developed around
enabling meaningful and fulfilling
work for all our colleagues. By
doing this, we are able to attract,
retain, develop and inspire the very
best people around the world. As
we accelerate our transformation,
our people will remain vital to
our success and it is precisely for
this reason that they remain our
top priority. Over the course of
FY 2022/23, we are focused on
creating an improved total reward
framework as well as building a
learning organisation, in which we
share knowledge and collaborate
and engage across the business.
Sustainability is firmly
built into our DNA
At Ricardo, we deliver commercial
solutions that support our
customers in achieving their
sustainable strategies. We are
also firmly committed to lead
by example on our own ESG
commitments and in each aspect
– of environmental, social and
governance – we are making
progress.
To start with our environmental
plans, our key focus is on reducing
greenhouse gas emissions and
delivering Group activities that will
support us in our energy transition.
In this respect, I was pleased
to announce last December the
approval of our Science Based
Targets under the Science Based
Target Initiative (SBTi) – a firm
endorsement to our customers of
our commitment and know-how
in applying those same insights to
support them in delivering their
net zero strategies.
Our social agenda is focused on
our people and the social value we
contribute within our communities,
customers and the wider supply
chain. We now have an active DEI
forum that meets monthly and is
committed to building engagement
and inclusion across the Group.
Sustainability excellence
will be achieved through our
improved governance, where we
have established Board oversight
through regular review processes
and improved sustainable practices
in all our operations – ensuring
that all aspects of our business
contribute to our net zero journey.
Outlook
We continue to see strong
momentum in our priority markets,
underpinned by environmental
and energy transition trends. The
macroeconomic outlook around the
world is challenging. Nevertheless,
as we enter FY 2022/23 with a
strong order book, a number of
high-value contracts and actions
already taken to improve our
global operating model and cost
base in A&I, I am confident that
we are well prepared to deliver
our expectations despite the
uncertainty in the short-term. In
addition, we are well positioned to
deliver sustainable growth through
the shift in our service portfolio,
aligned to the megatrends, in the
longer term.
Graham Ritchie
Chief Executive Officer
11
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 EXECUTIVE COMMITTEE
HOW WE WORK
The Group Executive Committee reports to the CEO and consists of the heads of
our key operating segments and group support functions. The Group Executive
Committee is responsible for delivering our vision and our strategy and ensuring that
we execute consistently across the different parts of the business.
Graham Ritchie
Chief Executive Officer
Graham Ritchie joined Ricardo as Chief Executive Officer
in October 2021. He was previously Executive Vice
President at Intertek, responsible for its operations in
Europe, including Russia and Central Asia. Prior to that,
he held various senior financial and operational roles in
large global corporates. Graham qualified as a Chartered
Accountant with PricewaterhouseCoopers.
Ian Gibson
Chief Financial Officer
Ian joined Ricardo on 13 May 2013 and
was appointed Chief Financial Officer
with effect from 1 July 2013. Ian is
a chartered accountant, previously
with Deloitte, and is a member of the
Institute of Chartered Accountants in
England and Wales.
Mike Bell
Chief Strategy & Digital
Officer
Mike joined Ricardo in 2019 and was
appointed Chief Strategy and Digital
Officer in April 2022. Mike brings over
25 years’ consulting, product, corporate
strategy and transformation experience
to the Group Executive Committee.
Iain Carmichael
Managing Director Rail
Iain joined Ricardo in 2002 and was
appointed Managing Director for the
Rail operating segment in May 2022.
Iain is a qualified engineer and has
over 25 years’ experience in rail and
safety assurance. Prior to joining
Ricardo, Iain was responsible for leading
Lloyds Register’s Asia Rail business,
headquartered in Hong Kong.
12
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 EXECUTIVE COMMIT TEE
Tim Curtis
Managing Director Energy
& Environment
Tim joined Ricardo as Director of Energy
Consultancy then became Operations
Director prior to his appointment as
Managing Director for the Energy and
Environment operating segment. Tim has
led Ricardo’s Energy and Environment
business through a period of rapid
growth and has integrated a number of
operations into its global operation.
Chet Gryczan
Managing Director Defense
Chris Hopper
Managing Director Software
Chet joined Ricardo in 2011 and was
appointed President, Ricardo Defense
in 2016. Chet is a highly experienced
management professional with over 25
years of experience in the defence and
automotive sectors at both private and
publicly listed companies.
Chris joined Ricardo in 2010 and was
appointed Managing Director for
Software in 2021. Chris leaves the
Group following the disposal of Ricardo
Software on 1 August 2022.
Marques McCammon
Managing Director Global
Automotive and Industrial
Mary Moore
Group People, Team and
Organisation Director
Natasha Perfect
Group Marketing &
Communications Director
Marques joined Ricardo in 2019 and was
appointed as Global Managing Director
for Automotive and Industrial in 2021.
Marques brings 27 years of experience
in product development, R&D, sales and
marketing, and executive management
in the mobility sector with OEMs and
high-tech companies.
Mary was appointed in 2021 to lead the
people-experience strategy to create
a purpose-led organisation capable of
delivering our strategy and vision. Mary
is an experienced HR practitioner, with
a background in FMCG and consumer-
facing businesses with global remits.
Natasha was appointed as Group
Director of Communications and
Marketing in 2021. Before joining
Ricardo, Natasha spent over 15 years
working for large corporates, acting as
a trusted strategic adviser in corporate,
investor and marketing communications.
Patricia Ryan
Group General Counsel and
Company Secretary
Martin Starkey
Managing Director
Performance Products
Clive Wotton
Group Director, Sustainability,
Quality and Risk
Patricia joined Ricardo in 2002 and was
appointed Group General Counsel in
2005 and Company Secretary in 2008.
Patricia is responsible for legal support
worldwide and provides company
secretary support to the plc Board.
Patricia holds an honours degree in law
from the University of Westminster.
Martin joined Ricardo in 2015 and
was appointed Managing Director for
Performance Products in 2019. Martin
is a materials engineer by education and
has over 25 years’ experience delivering
complex, engineering-led manufacturing
projects in the automotive, aerospace,
defence and motorsports markets.
Clive joined Ricardo in 1985 and
was appointed as Group Director,
Sustainability, Quality and Risk in April
2022. Clive has held numerous roles
within the business with a wealth of
experience in engineering, product
delivery, systems implementation and
programme management.
13
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 OUR BUSINESS MODEL
ALIGNED APPROACH
We create value for our all our stakeholders by being focused on delivering
profitable and sustainable growth, being disciplined in our execution and
driving a performance culture.
We do this by actively prioritising high growth, high
margin, low capital intensity solutions to ensure
that we deliver sustainable and profitable growth.
We are disciplined in our execution through our
shared operating model, ensuring that we apply
best practice and deliver improved efficiencies and
consistent performance across the Group. Digital
is increasingly central to how we deliver across our
businesses and we maximise our digital technologies
to improve customer experience, operational
excellence and deliver new digital offerings that
create long-term value for our customers.
Everything we do is underpinned by our deep
heritage and strong DNA that, combined with our
vision and values, actively guide our behaviours and
are reflected in how we work together internally and
how we treat our customers. These are more than
just words to us. Putting our values into action is
what binds us together and makes Ricardo not only
a great place to work but a company with which our
customers want to do business.
OUR VALUES
Ricardo’s shared values actively guide our behaviours and reflect how we
work together.
CREATE TOGETHER
BE INNOVATIVE
AIM HIGH
BE MINDFUL
We achieve success
We achieve success
for our business and
for our business and
for our customers
for our customers
by collaborating,
by collaborating,
connecting and always
connecting and always
learning.
learning.
• • Be collaborative
Be collaborative
Embrace diverse
• • Embrace diverse
teams
teams
Share knowledge
• • Share knowledge
We seek to foster
debate, embrace
possibilities and nurture
the new ideas that will
enable our customers
to solve complex
challenges.
• Be customer focused
• Act on evidence
• Push boundaries
We are rigorous and
tenacious in our passion
to find outcomes that
best meet the long-term
needs of our customers.
• Plan for success
• Be pioneers of
change
• Act with agility
We pride ourselves
on our integrity
and commitment to
care – for each other,
our customers, our
communities and the
environment.
• Be respectful
• Show that we care
• Take ownership
14
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
RICARDO’S BUSINESS MODEL
OUR CAPABILITIES
We deliver engineering consulting services and solutions from the policy,
strategy and initial concept phase right up to the delivery of customer
programmes.
Our diversified business model solves common challenges of clean decarbonised mobility, intersecting with energy
needs and environmental impact, through each step of the value chain.
ACQUIRING
THE EVIDENCE
DEVELOPING
POLICIES &
STRATEGIES
IMPLEMENTATION
1
Qualifying and evaluating
the most pressing energy
and environmental
challenges
2
Addressing the challenges
and supporting the
potential options for action
3
Supporting implementation
of technological and
operational solutions
across the value chain
OUR OPER ATING MODEL
Our shared operating model supports us in applying standard ways of work
across the business.
We drive operational efficiencies and consistent performance through our eight workstreams to create continuous
improvement and value in the way we execute our activities.
GROUP WORKSTREAMS
Transforming our operating model to drive efficiency
DEVELOP
PEOPLE
CLEAR
COMMUNICATIONS
DELIVERY
EXCELLENCE
DIGITAL
CAPABILIT Y
PROACTIVE
SALES
MARGIN
MANAGEMENT
CAPITAL
ALLOCATION
CASH
OPTIMISATION
BUSINESS UNIT IMPLEMENTATION
Enhancing business performance
15
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 OUR STRATEGY
ALIGNED TO KE Y LONG-TERM MEGATRENDS
Our strategy is driven by our purpose and underpinned by the global megatrends
that help inform how we maximise impact.
Ricardo is uniquely positioned at the intersection of the mobility, energy and environmental agendas. This is our
greatest differentiator from our competitors, as we harness our expertise to adapt and mitigate the impact of
climate change.
Monitoring the megatrends that are affecting our stakeholders underpins our growth strategy. Our operating
segments are all aligned to key long-term megatrends, which form the basis of our five-year strategic direction.
ENVIRONMENTAL
ENERGY TRANSITION
SUSTAINABLE AND
SERVICES
SERVICES
SAFE MOBILIT Y
The climate crisis continues to
drive additional opportunities
in the areas of evidence, policy
and sustainability. Ricardo is
well positioned to create value
through its strong presence in
all aspects of the environmental
consultancy market, but we
are seeing the fastest growth
in our environmental, social
and governance (ESG) and
sustainability solutions.
Sustainability is firmly built into
our DNA and our customers
choose us because we are leading
by example, from the solutions we
deliver to the actions we take in
our own ESG commitments.
Energy transition requires high-
calibre skills to decarbonise
energy systems and assets while
increasing resilience. Ricardo
is uniquely placed to support
our customers in developing a
pathway from fossil-based energy
generation to a low-carbon future.
We also serve the water sector, in
which we are globally recognised
for our expertise in planning and
overseeing complex and sensitive
water and environmental projects
to solve water scarcity – a growing
challenge globally, exacerbated by
climate change and urbanisation.
Zero-emission propulsion is
driving transformational change
in all forms of transport. We are
well positioned to support the
rail sector in delivering safe and
sustainable solutions through our
focus on systems engineering,
operations, maintenance and
assurance. Our differentiation in
independent assurance comes
from our breadth of expertise and
international coverage, together
with our digital compliance
platforms that allow assessors
to collaborate. Across the
transportation and mobility
sectors, we offer technological
expertise in engineering services
around electrification and software
– one of our key differentiators is
we can help original equipment
manufacturers (OEMs) bridge the
transition from internal combustion
engines to technologies with zero
tailpipe emissions.
16
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 OUR STR ATEGY
CREATING VALUE THROUGH FOCUSED PRIORITIES
Our strategy is focused on three key priorities: creating value through portfolio
prioritisation, market expansion, and M&A acceleration.
Portfolio prioritisation
We are prioritising our portfolio to
support closely the megatrends
relating to sustainable and safe
mobility, energy transition, rapid
urbanisation and corporate
decarbonisation. We are shifting
from services to solutions,
optimising our service mix by
creating repeatable solutions with
increased digitalisation.
Market expansion
We drive competitive advantage
by expanding our global scale
and reach in our chosen market
positions while leveraging our
customer relationships and
creating a deeper customer
intimacy to offer solutions that
truly meet their needs.
Mergers & Acquisitions
(M&A) acceleration
We create value through
complementary M&A, in which
we are increasingly focusing our
investments in highly attractive
environmentally and digitally led
areas. This approach allows us
to reposition ourselves for long-
term growth, where we can build
leading positions in the markets in
which we operate.
FOCUSED OBJECTIVES TO DELIVER GROW TH
We deliver our strategy through clear objectives aligned across the operating
segments to deliver profitable and sustainable growth.
1
2
3
4
5
Enabling meaningful and fulfilling work
By being purpose-led and enabling meaningful and fulfilling work, Ricardo is able to attract
and retain the very best talent.
Being a trusted partner to our customers
Exploring opportunities to ensure that we are closer to our customers’ needs, driving
customer engagement and creating value through our expertise and capabilities.
Achieving high growth in our chosen markets
Increasing the market-share growth of our operating segments in our chosen markets through
effective portfolio prioritisation, innovation and increased digitalisation that is focused on
improving customer experience and developing new digital offerings.
Delivering operational excellence and efficiency
We continue to deliver operational rigour – improving our operational processes and
efficiencies to ensure that our customers’ expectations are consistently met.
Optimising cash to invest for growth
We actively optimise cash conversion and return on capital employed that enables
progressive dividends and further investment for future profitable growth.
17
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 01. STR ATEGIC REPORT
CASE STUDY
CASE STUDY
CORPORATE DECARBONISATION
A TRUSTED PARTNER
TO OUR CUSTOMERS
THROUGHOUT THEIR
SUSTAINABILIT Y
JOURNEY
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021 /22
18
01. STR ATEGIC REPORT
CASE STUDY
Ricardo is working with the Institute of the Motor Industry (IMI) as a
strategic sustainability partner. This includes helping the organisation
understand how climate change may impact its operations and markets
and how to lessen its impact on the environment by reducing energy
demand, water use, pollution and waste across its manufacturing sites
globally.
Through Ricardo’s support around relevant environmental, social
and governance (ESG) and sustainability issues and reporting, IMI now
has a clear roadmap to net zero with targets for emissions from its own
operations (Scope 1 and 2). A more detailed assessment of emissions
along its upstream and downstream supply chain is taking place to
inform the setting of Scope 3 targets.
Ricardo is also continuing analysis of climate risks and
opportunities. Using the Task Force on Climate-Related Financial
Disclosures (TCFD) framework. Ricardo is assessing IMI’s product
portfolios to evaluate sustainability at different stages of the product
lifecycle (materials and design, production and consumer use), helping
the organisation to reduce emissions along the supply chain through
use of its products.
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021 /22
19
KEY PERFORMANCE INDICATORS
We use a range of performance metrics to provide a consistent measure of our
underlying performance. These are regularly monitored by the Board to ensure that
our performance indicators are aligned with our strategic priorities.
1. ENABLING MEANINGFUL AND FULFILLING WORK
Key performance indicators
Comments
Employee and
knowledge retention
Voluntary employee turnover
% per annum
%
2021/22
2020/21
2019/20
16
11
11
The level of voluntary attrition has increased as the labour
market recovers and colleagues consider post-COVID-19
career choices. 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 27 to 33.
Principal risk
People
COVID-19
2. BEING A TRUSTED PARTNER TO OUR CUSTOMERS
Key performance indicators
Comments
Diversified end markets
Number of segments
exceeding 10% of revenue
All five of our operating segments exceeded 10% of
revenue, demonstrating that the Group is well diversified
across all segments. Performance by segment is discussed
on pages 73 to 89.
2021/22
2020/21
2019/20
5
5
4
Principal risk
Customers and markets
Climate change
Technology
Supply chain
Customer dependency
Number of customers exceeding
5% of revenue
Only two customers accounted for more than 5% of the
Group’s revenue in F Y 2021/22. Revenue for the largest
customer was 11% and the other customer was 6%.
2021/22
2020/21
2
3
2019/20
1
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
3. ACHIEVING HIGH GROWTH IN OUR CHOSEN MARKETS
Key performance indicators
Comments
Order book
£m
£m
2021/22
2020/21
2019/20
343.6
293.5
314.0
We closed the year with a total order book of £343.6m,
17% above the prior year. The order book from continuing
operations was £340.0m. The Group’s order intake including
the discontinued operation, increased by 23% to £432.2m in
the year (order intake from continuing operations increased by
24% to £425.3m). Order intake increased across all continuing
operating segments. Further details of the performance of each
of the segments are provided on pages 73 to 89.
Principal risk
Customers and markets
COVID-19
Climate change
20
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
KEY PERFORMANCE INDICATORS
Revenue
Including discontinued operation
£m£m
2021/22
2020/21
2019/20
387.3
351.8
352.0
Total revenue, including the discontinued operation, increased
by 10% year-on-year. Revenue from continuing operations
was £380.2m, an 11% increase on the prior year. A&I, EE,
Defense and PP delivered increased revenues compared
to the prior year. Rail revenue reduced. Further details are
provided in the Financial Review on pages 66 to 72 and in the
Operating Segments Review on pages 73 to 89.
Contrac ts
Customers and markets
COVID-19
4. DELIVERING OPERATIONAL EXCELLENCE AND EFFICIENCY
Key performance indicators
Comments
Underlying operating
profit margin
Including discontinued operation
%%
2021/22
2020/21
2019/20
7.8
6.5
5.7
The Group’s underlying operating profit margin was
7.8% in F Y 2021/22, or 7.4% excluding the results of the
discontinued operation. The increase compared to F Y
2020/21 reflects improved profitability in A&I. Margins in PP
and Rail have been stable year-on-year. Margins in Defense
and EE reduced due to higher supplier costs and additional
operating expenses to deliver revenue growth, respectively.
Further details are described in the Financial Review
described on pages 66 to 72.
Principal risk
Contrac ts
Customers and markets
Supply chain
COVID-19
Environment
tCO2e per employee for Scope 1(1)
and Scope 2(1) emissions
2.2
2.1
2021/22
2020/21
2019/20
Scope 1 emissions vary year on year because of the mix of
project work. Our Scope 2 emissions are reducing overall as
a result of the sale of the Detroit test business at the end of
F Y 2019/20 and also due to lower office occupancy resulting
from COVID-19 enforced home-based working which
continued at a reduced level in F Y 2021/22.
Climate change
Laws and regulations
3.1
Further details of our carbon footprint and progress towards
net zero are described in our ESG section on pages 36 to 55.
5. INVESTING FOR GROWTH
Key performance indicators
Comments
R&D spend was higher in the current year as the Group
undertook a number of grant funded R&D programmes
focused on the development of new tools and technologies
in the emerging technologies space. Further details of our
R&D projects are given on pages 22 to 26.
Principal risk
Technology
Customers and markets
Climate change
Research and
development spend
£m
£m
2021/22
2020/21
2019/20
13.3
10.2
12.5
Net debt
£m£m
2021/22
2020/21
2019/20
(73.4)
(35.4)
(46.9)
The Group reduced its net debt by £11.5m, driven by
increased profitability and a strong working capital
performance. Excluding acquisition-related and
reorganisation costs, the Group generated over £25m of
cash in the year.
Contributions of £3.0m were paid into the defined benefit
pension scheme.
Contrac ts
Financing
Defined benefit pension
scheme
21
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 INNOVATION
“Our innovation and research and development activities are aligned to the megatrends
of climate change, energy transition and sustainable and safe mobility. We continue to
bring innovation to our customers with a focus on: zero tailpipe emissions and safety in
mobility; transport energy systems; and digital solutions leveraging data science. We are
increasingly bringing together teams across Ricardo to collaborate and solve complex
challenges to create a safe and sustainable world.”
type makes it unique within the
transport sector.
Energy transition: airport
power consumption
planning
As aircraft make the transition to
zero-emission fuels, it is crucial
for airport infrastructure to keep
pace with the changing demands
of hydrogen-powered and battery
electric aircraft. Airports have a
unique and complex electrical
architecture comprising a
multitude of complex subsystems,
making it difficult to know how
to plan upgrades for charging
infrastructure.
Ricardo has been developing
tools to help manage this
transition by providing a
better understanding of
the relationship between
flights and electricity
use in airports. We have
installed specialist
electrical monitoring
equipment throughout a
sample of UK airports in
route and operational data. The
results, which can be repeated
and reconfigured for different
scenarios, can help bus companies
to identify the best technology
for their operations, suited to
existing infrastructure and vehicle
type(s). In parallel, the model
also allows decision makers to
test the expected carbon dioxide
reductions for every investment
option, balancing environmental
and financial considerations.
Regardless of the technology
specified, BusChaRM can identify
the lowest cost option for optimal
operation. For instance, it can
indicate the ideal combination of
battery size (relevant to bus type)
and chargepoint locations
that will result in the
lowest total operational
cost for the network.
The capability of
BusChaRM to
determine the
optimal cost-
effective solution
according to route
topography and
vehicle
MIKE BELL
CHIEF STR ATEGY & DIGITAL OFFICER
Our investment in research and
development (R&D) coupled with
our innovation projects allow us to
differentiate from our competition
and deliver unique value
propositions for our customers. We
are increasingly leveraging digital
technologies to develop solutions.
Data science, including machine
learning, is a key enabler for many
of our innovations. A number of
our R&D projects are supported
by UK Government funding (UK
Research Innovate, UK Department
of Transport).
The transition to zero-emissions
mobility means we need to
consider the infrastructure and
power requirements to meet the
demand as we migrate from fossil
fuels.
Energy transition:
intelligent decision
support for
electrification fleet
charging
Ricardo’s BusChaRM tool is a
unique, charger route model
that allows bus operators,
technology suppliers and transport
planners simultaneously to
assess zero-emissions vehicle
and infrastructure requirements
across all technologies, reliably
evaluating cost-effective
deployment of opportunity
charging across a bus network. It
provides an intelligent decision
support tool to assess the
infrastructure needs for any
zero-emission bus technology,
through analysis of relevant bus
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021 /22
22
01. STRATEGIC REPORT
01. STR ATEGIC REPORT
INNOVATION
The transition to a zero-emission mobility future is continuing at pace. We have R&D projects
focusing on both electrification as well as hydrogen within both a fuel cell and an engine.
order to capture electrical usage
data, which was then analysed by
our sustainability and data science
teams. The changing electrical
demands were related to data on
flight arrivals/departures to show
how power consumption varies
in different parts of the airport
throughout the day. This will help
decision makers plan for changes
in airport design as we transition
towards zero-emission air travel.
Along with mobility, heating
is one the largest sources of
greenhouse gas emissions. We
have worked on a unique design
for a combined heat and power
system.
Energy transition:
community-scale
combined heat and
power
Ricardo and Bluebox Energy
developed a successful concept
design for a community-scale
greenhouse gas removal system,
BIOCCUS (BIOchar cogeneration
with Carbon Capture, Utilisation
and Storage), funded by the UK
Department for Business, Energy &
Industrial Strategy.
The technology works by taking
sustainably sourced waste wood
from domestic timber production
and then processing it in three
ways: producing biochar (a product
similar to charcoal); generating
heat and power; and capturing,
using and storing carbon dioxide
from the exhaust. The technology
captures up to 90% of the carbon
dioxide in the wood. It also
produces commercially marketable
carbon products: the biochar can
be used by farmers to enrich soil
and add to animal feed to reduce
ruminant emissions; and the
industrial-grade carbon dioxide
can either be used in low-carbon
concrete or in the food and drinks
industry to replace carbon dioxide
derived from fertiliser production
which relies on natural gas. A full-
size system will remove 16,000
tonnes of carbon dioxide per year
from the atmosphere.
We believe this technology
can help with energy security
and support rural industries as
they transition from fossil fuels to
clean energy solutions. The next
phase will be to design, install and
operate an innovative negative
carbon combined heat and power
demonstrator plant in the UK.
Safe mobility: ultrasonic
sensing of cracks in rail
tracks
Safety is a key part of our vision
and, for the rail sector, a critical
foundation. As we develop greater
capability in the operations and
maintenance sector, this innovation
is a key differentiator.
Cracks in rail tracks are a
critical challenge for railway
operations. As the running surface
hardens from the repeated passage
of traffic, cracks will always begin
to form. It is imperative that they
are quickly detected and repaired
before they cause the track to
become unsafe and result in
significant disruption and costly
repair work.
Current detection methods
WE BELIEVE THIS TECHNOLOGY CAN
HELP WITH ENERGY SECURITY AND
SUPPORT RURAL INDUSTRIES
23
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 01. STR ATEGIC REPORT
INNOVATION
CASE STUDY
RAPIDAIR® – AIR-
QUALIT Y MODELLING
The United Nations has identified air pollution as the most
important environmental health risk responsible for one in nine
deaths globally.
RapidAir® is a high-resolution air quality modelling tool that
allows transport planners and policy makers to understand the
contribution of pollution sources on air quality. It is the fastest,
high resolution, urban air quality modelling system on the
market.
Our customers – who include air quality specialists, policy
makers and transport planners – can quickly evaluate the
impact of different mitigation scenarios, generating reliable
outputs in which they can have confidence. This allows them
to make informed and trusted policy decisions that will reduce
traffic emissions, improving the air we breathe and, as a result,
improving public health.
RapidAir® was integral to our support for the City of Bradford
Metropolitan District Council in the development of a package of
mitigation measures that secured £43 million in UK Government
funding and then delivering them as part of its Clean Air Zone
commitment.
The service is scalable to cover any geography or location
and can therefore become a key differentiator in our solutions for
rapid urbanisation.
typically require dedicated
inspection wagons that use
ultrasonic bulk-wave sensing, an
approach that is infrequent and
has limited ability to measure the
depth of the crack. Train-based
Rapid Ultrasonic Scanning of
Track (TRUST) was developed
in conjunction with Sonemat, a
spin-out from the University of
Warwick. The system requires
no direct physical contact with
the railhead, which means it can
be carried by regular in-service
traffic. Working with development
partners and Innovate UK, the
technology was successfully
trialled on the Severn Valley
Railway.
Though the technology is
globally applicable, it could prove
particularly beneficial for networks
with sparsely populated regions
that are expensive to monitor via
measurements trains, such as the
USA, Canada and Australia.
Zero-emission mobility:
high voltage electric
drive unit for heavy duty
applications
The High Voltage for E-Powertrain
for Heavy Duty freight (HiVe4HD)
project, an InnovateUK-funded
collaboration between Ricardo and
the University of Bath, showed the
potential benefits of increasing
powertrain voltage to 1.5 kilovolts
(kV) for on-highway heavy duty
applications. The digital project
developed cloud-based simulation
and analysis tools to generate and
assess optimised electric drive
unit configurations, based on an
internal database of nearly 1,000
800 volt (V) and 1.5 kV electric
motor designs to evaluate the
potential commercial benefits. A
10% component cost reduction
was shown to be possible by
increasing the voltage from 800
V to 1.5 kV, and wider efficiency
benefits were identified through
the analysis of vehicle-level design
characteristics.
24
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 01. STR ATEGIC REPORT
INNOVATION
Zero-emission mobility:
UK niche battery
feasibility study
Ricardo worked in collaboration
with the UK Government’s
Automotive Transformation Fund
to deliver a clear assessment
of the UK’s readiness to deliver
niche volume traction batteries to
its domestic original equipment
manufacturers. Utilising
Performance Products’ unique
knowledge of both low-volume
supply chains and niche volume
assembly for high-performance
applications, we undertook a six
month study to review market
demand, product design, supply
chain readiness, assembly
processes and facility layouts. The
outputs from the study highlighted
the rapidly growing demand the
Ricardo assessed the commercial viability of a facility to assemble battery packs for
manufacturers which produce fewer than 10,000 electrified vehicles per year.
UK is projecting, challenges in
the short to medium term around
domestic cell supply and the overall
viable business case for niche
manufacturing in this sector.
Zero-emission mobility:
hydrogen fuel cell bus
repower
In collaboration with Stagecoach,
a leading UK public transport
company, and with part-funding
from the UK’s Tees Valley Hydrogen
Transport Hub Competition, Ricardo
has repowered a diesel bus with
a bespoke hydrogen fuel cell
propulsion system. Developed in
only nine months, Ricardo’s modular
design enables transferability
between different bus models.
Ricardo’s digital tools were used
to determine the best balance of
battery and fuel cell requirements,
achieving the optimum relationship
between performance and total
cost of ownership. Ricardo’s Vehicle
Integrated Controls and Simulation
software provides vehicle and
propulsion system control,
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RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 INNOVATION
Ricardo, in partnership with Stagecoach North East, repowered a diesel, double decker bus with a hydrogen fuel cell propulsion system,
to deliver zero tailpipe emissions. We are now seeking to secure customers to invest in the production of a fleet of passenger vehicles.
including the complex thermal
solution with five separate
cooling loops to maximise
efficiency.
At around half the price of a
new fuel cell bus, repowering
offers a novel approach to
deliver zero tailpipe emissions
while extending the asset life of
existing buses more affordably.
Supporting the circular economy,
repowering avoids unnecessary
landfill waste plus an additional
45 tonnes of carbon dioxide
incurred through manufacture of
a new bus. By nearly halving the
upfront investment, repowering
can increase the penetration of
hydrogen fuel cell bus fleets;
boost hydrogen demand; justify
infrastructure investment and
drive down hydrogen costs and,
of course, improve air quality
across our cities.
Zero-emission mobility:
hydrogen-fuelled engines
There has been a surge in industry
interest and investment in zero
tailpipe emission hydrogen-fuelled
engines for ‘hard to decarbonise’
applications where battery
electrification and fuel cells do not
meet product attributes. These are
typically high energy consumers,
operating in challenging
environments such as off-highway,
marine and rail, as well as in heavy
long-haul transport and power
generation.
We are testing a Ricardo-designed
direct injection hydrogen engine
for trucks, off-highway and marine
with the University of Brighton.
We are researching deep into the
detail of hydrogen combustion and
its emissions (non-CO2), efficiency
and performance potential. We
have developed a full multi-
cylinder hydrogen engine based
on an existing 13 litre natural
gas engine as part of HIMET -
Hydrogen Integration in a Maritime
Energy Transition, a Department
for Transport grant-supported
Clean Maritime Demonstration
Competition project. This engine
is installed on the hydrogen
engine test facility at Shoreham-
by-Sea, generating full-system
data for new simulation tools
for further engine development.
Validation of Ricardo Software
simulation tools against this data
is ongoing, including fundamental
combustion modelling in VECTIS,
thermodynamic analysis in WAVE
and other critical analyses such as
thermal-structural.
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01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 OUR PEOPLE
Board members(1)
Senior leadership(2)
All employees(3)(4)
25%
2
27%
3
26%
718
8
11
2,758
6
75%
8
73%
2040
74%
Male
Female
(1) Excludes Company Secretary.
(2) Executive committee, including company
secretary and excluding board members.
(3) Excludes contractors
(4) <1% Prefer not to say
Enabling meaningful and
fulfilling work
Our differentiation is powered
by our people who have a
strong sense of purpose and
pride in doing good work for our
customers. We are small enough
to give breadth of experience
and the ability to be involved in
the whole task but big enough
to give global experiences. We
actively value diversity to promote
innovation and build connections
with customers, suppliers and
community.
Our people use their expertise
in science and engineering to
create practical, difference-making
solutions. We work with leading
experts in our fields of business,
learn from them and with them
and, above all, are able to perform
meaningful and fulfilling work.
Our purpose has an obvious
OUR PEOPLE
CHENAI MADZORERA
POWER PLANNING & SOLUTIONS
CONSULTANT, RICARDO SOUTH
AFRICA
I’m originally from Zimbabwe and moved to South
Africa to study electrical engineering at the
University of Pretoria, focusing on energy
efficiency and demand side management.
In my postgraduate year I undertook
research into the renewable energy
management of smart buildings
then began my career as an energy
auditing and efficiency engineer.
I’ve since gained more practical
and theoretical experience in power
systems and joined Ricardo as a
consultant in June 2022.
My skills are in power system
engineering studies and design,
and developing sustainable
energy initiatives including
strategic energy sector plans for
local municipalities. I like the fact that my work
blends the theoretical and practical. I’m bringing
ideas to life that will ultimately make a better
world for us all to live in, particularly in terms of
solutions that address the climate crisis. I hope
to develop my advisory skills to complement my
technical background – in this way I can make an
impact and effect change more quickly.
I’ve received constant support and
encouragement since joining Ricardo
– the work I’m doing is different
to my most recent experience
but people interact very
positively and take time to
help. I also enjoy working in
a company with women in
leadership positions. I find
this very motivating and a
big plus for the future of our
industry. One female leader
I particularly admire is also
technically strong. This is
the combination of skills
that inspires me as my
own career develops.
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01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
OUR PEOPLE
line of sight to sustainability and
the connection to a higher social
purpose. This is increasingly
appealing to talent who may be
considering a move to build their
experience by working with us.
The last year has seen us cope
with adjusting to work and life
with a COVID-19 backdrop. We
have had to shift our management
style and philosophy to an
outcomes-based performance
approach; we have adapted to this
well and continue to learn from
our experiences. We have set a
principle that it’s the work that
determines how and from where
we operate. This means that some
of our people can continue with
on-site working; for some, it’s at
customer sites; and for others, it
can be in a hybrid fashion.
We are still learning what
creates the conditions for our
people to be at their best. What
we know makes the biggest
difference to our people are the
following:
• Having a purpose to our
everyday
• Working on interesting
programmes that grow
personal currency inside
Ricardo and employability
outside the business
• Relationships, friendships and
connections at work that help
people feel they belong
• Real empowerment and
accountability so that our
people are clear about what
their team colleagues rely on
them for.
Our people and organisation
strategy is about creating a future-
fit, purpose-led organisation
capable of delivering our strategy
and vision, with meaningful
and career enhancing individual
experiences. This year we
have refreshed our three-year
people strategy with four anchor
components:
• Alignment – unified to our
business plan
• Engagement – our people are
connected and actively co-
designing our future
Our London team members are renowned for the strength of their friendships and connections at work which are developed through
regular social events throughout the year.
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01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 OUR PEOPLE
• Capable – we have the skills
transition solutions.
and experience we need today
and to deliver for tomorrow
• Effective – our operating model
helps us in the achievement of
our business strategy
Creating one Ricardo
DNA – our visions and
values
Since the arrival of our new
CEO, Graham Ritchie, our people
agenda has been focused on
achieving greater alignment in the
organisation; having a clear and
unified vision and mission; and
bringing our plans for the future
alive to become a leading strategy
and engineering consultancy
for environmental and energy
We have made a few
refinements to our operating
model, to bring more focus and
strength to how we work.
First, we have made some
investments in our executive
leadership team: the Group
Marketing and Communications
Director is now a direct report
to the CEO and the Strategy
Director has an expanded remit to
include digital solutions. We have
brought all of our organisation in
Automotive and Industrial together
as one from the previous three
geographical units and are now
aligning it to support the emerging
and established mobility markets.
We have appointed
Clive Wotton as Director of
Sustainability, Quality and Risk
to lead sustainability across the
Group. Clive has more than 25
years of operational experience
at Ricardo and is therefore well
placed to embed sustainability
in our operations. To bring
further strength to our own
sustainability activity, we have
appointed Caroline Haycock
as a dedicated Group Head of
Sustainability. We are pleased
to report that in addition to
Malin Persson being our non-
executive sponsor of workforce
engagement, she is also Board
sponsor for our Sustainability Plan.
These appointments enforce our
commitment to our sustainability
OUR PEOPLE
ADRIAN SCHAFFER
PRESIDENT, EMERGING MOBILIT Y,
AUTOMOTIVE AND INDUSTRIAL
BUSINESS UNIT
I joined Ricardo in summer 2021 after 30 years of
marketing and business development experience
within the automotive sector, originally in north
America and now worldwide. My career spans
conventional powertrain and manufacturing to
connectivity and electrification. As President,
Emerging Mobility, within the Automotive
and Industrial operating segment my role is
to translate Ricardo’s global expertise into
the execution and sales of clean mobility
solutions.
for our own business and for our customers.
Having earned a BA in Economics while on
a basketball scholarship, I later completed my
Executive MBA at Michigan State University when
working for Motorola. Mine was not a typical
collegiate career, but one where I amassed a broad
range of experience and knowledge – from the
intricacies of automotive software and electronics
to real-world application of new technologies
and the financial impact on a business and the
industry. This sector demands on-schedule, expert
execution where the timing and delivery of
one programme can have a critical impact
on the success of another.
I spend a lot of time understanding
how products are designed, built and
integrated so I can most effectively
communicate their value. I also listen
to the engineers themselves
Joining Ricardo felt like the
culmination of everything I have
done throughout my career.
My background and context
fit right in with what we’re
doing today and where the
industry needs to go. Great
technology and insights,
which Ricardo have in
abundance, should sell
themselves. Having
strong relationships across
the industry will enhance the
solutions we bring to the table
because their understanding
of the market and emerging
technologies adds
enormously rich context
and detail.
Having such all-star
expertise behind me is
one of the reasons why
coming to Ricardo made so
much sense. I’m thrilled to be
leading our teams in an area
that’s important not only for our
company but for the world we
all live in.
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01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 OUR PEOPLE
OUR PEOPLE
K YNAN SERNÉ
MANUFACTURING APPRENTICE,
RICARDO PERFORMANCE
PRODUCTS
I came to the Shoreham Technical Centre for work
experience when I was 14, organised through my
school. Before this, my perspective on engineering
was vague. However, by the end of the
week I was sure this was the direction
I wanted to take. I was inspired to
return over a school holiday and
then express my interest in an
apprenticeship.
My dad has always been into
cars and as a child I spent lots of
time in the garage with him, learning
the skills passed down from
generations before me. At
the time I didn’t know
what engineering
was – it seemed
daunting as
school taught
me it was
about design and development. Now I know it’s
about solving problems and influencing the real
world. The purely academic route didn’t interest
me as I wanted hands-on experience in a working
environment, so an apprenticeship has been the
perfect balance.
I work for four days at Ricardo and spend one
at college. Ultimately this will lead to a Higher
National Diploma in Advanced Mechanical
Engineering/Production Engineering and then, in
three years’ time, to a degree. At college I was
given a year to develop a project to showcase
my mechanical engineering skills. I decided
to convert a Honda GX200 engine from a
carburettor to electronic fuel injection. Going
through three prototypes and two iterations of
the finished design made me realise how much
back-and-forth is involved in any project to
reach a solution that satisfies all criteria.
I was thrilled to be named Apprentice of
The Year by the Ricardo Performance Products
Board of Directors, based on positive feedback
from one of our major clients. I’m trusted
to represent the company well in
external meetings and proud
to do so because I know how
much Ricardo continues to
invest in me.
strategy and ESG performance
with further focus on our future,
internally and externally with all
our stakeholders.
Second, we have established a
community of senior leaders across
the organisation to encourage
greater collaboration between the
Ricardo operating segments. This
group comes together monthly
to update on business delivery,
learning and sharing best practice.
Third, we have set up eight
teams aligned to our strategic
objectives with the specific
purpose of accelerating the design,
development and execution of
work packages in support of our
strategy. The teams will seek
to achieve more consistency,
efficiency and collaboration
across our operating segments
where there is added value to be
gained. The teams are adopting
agile working methods to identify
quick wins and make tangible
improvements in how we operate
in short periods of time.
We are integrating our
communication activity and now
have a monthly newsletter as well
as a personalised message from
our CEO to all our people once a
month.
Over the last 18 months or so,
our organisation shape has been
changing. Our overall headcount
has increased by 4% year-on-
year. We have seen a reduction
in headcount in our Automotive
and Industrial operating segment
balanced with investments in our
Energy and Environment and Rail
operating segments. Earlier this
year we welcomed 25 colleagues
from Inside Infrastructure into
Ricardo. We have started bringing
together our ways of working and
operating models to align Inside
Infrastructure’s expertise with
the complementary capabilities
already in the Energy and
Environment operating segment.
Through the divestment of
our Software business, 86 of our
colleagues have left the Group
since the year end. We are pleased
to report that they are now
successfully integrated into the
FOG, a division of Constellation
Inc. It is important, as a purpose-
led organisation, that we can
report a smooth people experience
was created in partnership with
Constellation.
Celebrating difference
and bringing people
together at Ricardo
This year we are refining our
approach to diversity, equity and
inclusion (DEI), unifying all the
various initiatives that have been in
place in our different businesses.
Our goal is to be a diverse,
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01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 OUR PEOPLE
equitable and inclusive employer.
As an organisation, we know that
reflecting different perspectives
makes us all better by enabling
us to be customer focused,
collaborative, pioneers for change
and mindful about the impact that
our work and our enterprise can
have on society.
We are proud of the diversity
that exists within our organisation
and recognise that we want to
go further. Our corporate vision
offers the potential to bring
people together and we want our
culture to do the same: to enrich
the communities in which we
operate by drawing on a variety of
ethnicities, genders, orientations,
backgrounds, skills and views.
We are committed to having
the best talent. We encourage
people from a diverse range of
backgrounds, invest in education
and training and empower
everyone to reach their full
potential, enabling us to solve
our customers’ most complex and
dynamic challenges.
Our Board membership of
8 Directors includes 2 women
Number of employees
so we are currently tracking at
25% female representation. Of
our Executive Team of 11, there
are 3 women, equating to circa
30% female representation. Our
Senior Leadership Team, which is
the next level down, comprises
53 colleagues of whom 36% are
female. In Ricardo overall 26% of
our people are women
Around 42% of our people work
outside the UK, the vast majority of
whom are locally employed in the
27 countries in which we operate.
We have more than 62 different
nationalities working for us
globally so cross-cultural working
is second nature to us.
Netherlands
159
Denmark
9
Sweden
1
Canada
2
USA
346
France
1
Germany
15
Spain
22
Poland
1
Czech Republic
177
Greece
2
Italy
30
India
13
China
152
Japan
9
Korea
31
UAE
Saudi Arabia
7
6
Qatar
11
Thailand
1
Taiwan
22
Hong Kong
10
Singapore
5
Malaysia
7
South Africa
4
Australia
163
United Kingdom
1621
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01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 OUR PEOPLE
We have an active DEI forum
that meets monthly, chaired by
one of our operating segments’
managing directors (Marques
McCammon), with a clear set
of commitments across each of
the business units. Our ethnic
forum is another monthly group
engagement programme to discuss
topics as a global, multi-national
company.
Among our annual initiatives
is a week-long programme of
events to recognise and celebrate
diversity and raise awareness
of inclusion and diversity topics.
This year we have already
celebrated International Women’s
Day, International Women in
Engineering Day and Pride and we
are supporting the celebration of
key religious festivals.
Wellness also features on our
calendar. As part of the Group’s
Wellbeing Plan, and taking
inspiration from the national
Mental Health Awareness Week,
we ran Ricardo’s Mental Wellness
Week. This was open to all our
people and included virtual
events covering mental wellness,
resilience, online yoga, exercise,
healthy eating and the experience
of being one of our mental first
aiders. Some sessions received
more than 300 participants.
We are looking to continue this
programme of themed weeks to
raise awareness over the next 12
months and also carry forward
the themes which brought most
feedback to create an ongoing
offer for our people.
We continue to take the
health and safety, including the
mental health, of our people very
seriously. We have re-named our
global approach to whistleblowing
to ‘Speak Up’ to encourage easier
access.
This sits in addition to, and
on top of, local employment
frameworks, some of which
have a legal right to a grievance
process. In jurisdictions that do
not have this mechanism in place,
this process is managed via an
independent reporting service,
Expolink, with global multi-lingual
availability.
Every voice is heard at
Ricardo
We have taken the same employee
engagement approach as last
year to give a continuous read out
and trend line. We are pleased
to report that our engagement
remains stable. Following a
similar approach to the Gallup
12 methodology, our results this
year are again 3.9 out of 5. Given
that so much of our attraction as
an employer is about providing
interesting and stimulating work,
it is pleasing to see that our
people rated us five percentage
points higher than last year for
the statement: ‘This last year, I
have had opportunities to learn
and grow’. Our people recognise
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021 /22
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01. STRATEGIC REPORT OUR PEOPLE
OUR PEOPLE
CLAIRE RUGGIERO
UK CONSULTING BUSINESS
MANAGER & HEAD OF STRATEGY
AND SERVICE DEVELOPMENT,
RICARDO RAIL
Ricardo’s commitment to diversity, equity and
inclusion (DEI) was one of the reasons I joined
in 2020. It’s important to me that the company
I work for wants to create pathways for those
from different backgrounds or with non-
traditional life and career experiences.
I gained a Masters then a PhD in Chemical
Engineering and my first jobs were in risk and
safety within high-hazard industries
such as oil, gas and petrochemicals.
I transferred these skills into the
defence and nuclear sectors then
moved into the rail industry.
I am the UK Consulting
Business Manager of
teams that do work for rail
industry customers, such
as Government, standards
bodies, original equipment
manufacturers, operators and
infrastructure owners. We support
new-build projects, such as
stations, trains and infrastructure,
from beginning to end with safety and systems
engineering.
We also work with customers to improve
ongoing operations and maintenance from a safety
and cost perspective. Increasingly we are working
with rail customers on how they address the net-
zero challenge and introduce clean propulsion.
Ricardo is helping to drive change in a number
of ways. We launched a DEI Council to bring
together colleagues representing all
facets of diversity from every part of the
business. I joined the Council because
having a genuinely open environment,
where people at all levels can challenge
each other and find a safe space for
difficult conversations, is vital to recruit
and retain great people and create a
collaborative working environment.
We also have a newly
established women’s affinity
group who offer a support
network and take challenges or
improvement ideas to the DEI
Council or senior management.
Some of the important topics
we’ve discussed are the shape
of workplaces following the
pandemic; the impact of work
on women’s mental and physical
health and the work-life balance;
and the challenges faced by
women returning to work after
a long period of absence.
that through delivering innovation
and value-adding solutions for our
customers, they can build their
own learning experiences and
thereby their employability.
This year we were able to
segment our results so we could
see gender, length of service
and senior leadership group
differences. Our Senior Leadership
Team across the organisation
(around 70 people) has the
highest level of engagement and
reported at 4.1. We also learned
that women working in Ricardo
are more engaged than men and
that new hires (of whom we have
gained 500 in the last two years)
are the most engaged - this is
particularly pleasing considering
they joined us during COVID-19
lockdown experiences and virtual/
hybrid working.
In addition to the all-employee
annual engagement survey, Malin
Persson conducted a series of
26 cross-sectional focus groups
across every part of Ricardo.
More than 160 people took part
in these sessions representing
all levels of the organisation,
geographies and roles. They
also included participants from
our representative and listening
forums and inclusion affinity
groups. The sessions were very
well received and added to the
invaluable insight we gained from
our other engagement approaches.
This year, Malin is supporting
us in employee listening in our
creation of one Ricardo DNA.
We are creating a purpose-led,
high-performance organisation,
capable of delivering our ambition
of becoming a leader in strategy
and engineering consultancy
for environmental and energy
transition. This year has been
about alignment and refining our
Ricardo DNA – adopting a holistic
and integrated approach to how
we are investing in our people, our
culture, our work methods and our
operating model. All of this is in
line with our strategy so that the
whole is greater than the sum of
the parts.
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01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 01. STR ATEGIC REPORT
CASE STUDY
CASE STUDY
RAPID URBANISATION
BREATHING
CLEAN AIR
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021 /22
34
CASE STUDY
The World Health Organization estimates that
seven million people die every year as a result of air
pollution. In Britain, Ricardo air quality specialists
have supported Britain’s first zero-emissions zone
in Oxford, have helped London in the assessment
of its Ultra Low Emissions Zone and have been
working with local authorities in Bradford,
Southampton and Cardiff to complete feasibility
studies on clean air zones.
In Ontario, Canada, as part of a drive to
encourage more journeys to switch from private
car to the rail network, a $C21 billion upgrade
programme, ‘GO Expansion’, was launched
to deliver a faster and more frequent service
featuring modern electric-powered rolling stock.
Ricardo Certification has been appointed as the
Independent Safety Assessor for this forthcoming
transformation of rail transit across the Greater
Toronto and Hamilton area, which is expected to
see a significant increase in services from 3,500
trains per week in 2019 to more than 10,000, with
services operating at least every 15 minutes.
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021 /22
35
01. STRATEGIC REPORT SUSTAINABILIT Y AND
ENVIRONMENTAL, SOCIAL AND
GOVERNANCE (ESG)
ESG at the core of our growth strategy
SUSTAINABILIT Y IS FIRMLY BUILT INTO OUR
DNA AND WE ARE LEADING BY EX AMPLE
From the solutions we deliver to the actions we take in our
own ESG commitments
ENVIRONMENTAL
Our key focus is on
reducing the GHG
emissions and group
activities that will
support us on our
energy transition
SOCIAL
We focus on our
people, the social
value we contribute
to our communities,
customers and wider
supply chain
GOVERNANCE
More aligned levels of
governance to ensure
that all aspects of the
business contribute to
our net zero journey
Across everything we do, in every
assignment we undertake, we
remain committed to the ethos
of our founder. In 1915 Sir Harry
Ricardo, one of the most innovative
engineers of his time, set out on a
mission to ‘maximise efficiency and
eliminate waste’. This remains as
relevant today and with our vision
‘to create a safe and sustainable
world’, sustainability is at the heart
of our DNA, and what we want to
stand for as a company.
We are firmly committed to
lead by example on ESG for our
own impacts, as we believe that
if we can demonstrate leadership
internally, we will be the most
credible to provide support to
our customers, to solve their ESG
complex challenges.
Our commitments and
approach to a sustainable future
have therefore increased this year
across all aspects of ESG and are
covered in more detail below.
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.
Ricardo already measures and
discloses elements of its impact
on the environment, by GHG
emissions inventory reporting, and
OUR JOURNEY
TO NET ZERO
We contribute to 8 of the UN
Sustainable Development
Goals and we operationalise
the principles of the UN
Global Compact. We have
stated our commitment to
achieving net zero by 2030
and have approved SBTi
targets.
GHG emissions Science
Based Targets Initiative
(SBTi)
• Reduce Scope 1 & 2 emissions
46.2% by F Y 2030/31. Target
aligned to 1.5 oC average global
temperature rise.
• Increase annual sourcing of
renewable elec tricit y from 74%
in F Y20 to 90% by F Y 2025/26.
• Reduce absolute Scope 3
emissions 27.5% by F Y 2030/31.
Target aligned to well below 2 oC
temperature rise.
Sustainable procurement
• Environmental standards, supply
chain labour, carbon reduc tion
plans and waste reduc tion
Resources
• Reduc tion of water consumption
by 10%
• Of fice footprint reduc tions
Materials
• Packaging weight reduc tion
• Use of recycled packaging
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01. STRATEGIC REPORT
SUSTAINABILIT Y AND ENVIRONMENTAL , SOCIAL AND GOVERNANCE (ESG)
we have gone further this year to
include Scope 3 for FY 2021/22
(see page 47).
Ricardo and the
Environment
In addition to climate change
and the management of GHG,
we are also focused on the wider
environmental impacts that cover
use of natural and other resources,
waste discharge, and the overall
impact business operations have
on the environment.
Opportunities to enable
a safe and sustainable
world
In developing our growth
strategy and establishing key
target markets we reviewed
the key environmental and
energy transition megatrends
as highlighted on page 16. This
identifies opportunities focusing
on the power and energy sectors,
leveraging our understanding of
global regulatory frameworks,
and providing solutions to support
the shift to sustainable and safe
mobility. In addition to the markets
we serve, as identified in our
strategy on page 5, we are also
looking at developing disciplined
operational execution that can
accelerate the impact of our
activities. These include:
• Digitalisation of products
and services: our strategy
includes a strong digitalisation
focus. Not only will this drive
technical innovation, but 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 greenhouse gas emissions
is a critical feature of Ricardo’s
strategy.
• Cross-business unit 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.
Ricardo delivers many positive
environmental outcomes because
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.
In addition to new products and
services, Ricardo is focused on
faster, more efficient and less
carbon intensive product design
and development. A major part
of this has been a reduction
or elimination of prototype
procurement and testing and
moving partially or entirely to
digital and virtual engineering.
• Lower carbon usage through
the delivery of engineering
projects that lead to more
efficient consumer products
being manufactured by
our customers including
electrification of energy storage
and propulsion systems.
• Environmental consultancy,
largely undertaken by Ricardo
Energy and 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 the 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.
Delivering safe and
sustainable customer
solutions today
Ricardo is in a unique position
of offering solutions to carbon
reduction and technical expertise,
as well as being at the crossroads
of science, technology, regulation
and implementation. Through
our extensive product and
project work, we have helped
many clients across industry and
Government, and earned accolades
in the process. The following
environmental activities are
examples of work achievements
through the year that underpin the
Group’s Sustainable Development
Goals (SDGs) and alignment to our
growth strategy.
Environmental services
• Ricardo has worked with the
Department for Business,
Energy & Industrial Strategy
(BEIS) on projects for the Social
Housing Decarbonisation
Fund. An example in Alva,
Clackmannanshire, involved
15 properties across a single
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01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 SUSTAINABILIT Y AND ENVIRONMENTAL , SOCIAL AND GOVERNANCE (ESG)
site with energy performance
certificate improvement targets,
including solar photovoltaic
arrays, Tesla battery storage
systems, external and internal
wall insulation, new doors
and double-glazed windows
and underfloor insulation
system. This work extended
the structural lifespan of the
buildings by 25 years. An
expected 50 per cent reduction
in gas and electricity bills
will be verified by ongoing
monitoring.
• Our Australian business
Inside Infrastructure is
working on a large-scale
project, ‘New Water, New
Opportunities’ for South
Australia. The South Australian
Government, in partnership
with OZ Minerals, BHP and
SA Water is considering an
infrastructure investment
to create a new sustainable
water supply for the far north
and the Upper Spencer Gulf
of South Australia, unlocking
opportunities for economic
growth and delivering
benefits to the environment
and regional communities
for future generations. Inside
Infrastructure is the lead
agency in this project, and
partners have commenced the
environmental and economic
studies needed to make that
decision. The River Murray
and the Great Artesian Basin
is a new and additional water
supply which allows using
water from the River Murray
as efficiently as possible. This
project will support ecological
outcomes for the Murray
Darling system and Great
Artesian Basin for the benefit of
future generations.
Sustainable and safe mobility
• A holistic hydrogen approach
to heavy duty transport will
examine the energy used by
trains in Scotland, where the
rail sector aims to remove
magnetic levitation technology.
• The Rail team has won an
International Safety Award
from the British Safety Council.
This was in recognition of
Ricardo’s commitment to keep
its workers and workplaces
healthy and safe during the
2021 calendar year.
• Ricardo has become the
sustainability partner for an
innovative addition to the
global cycling calendar – the
E-Bike Grand Prix. The series is
designed to showcase emerging
e-bike technology, raise
awareness of climate change
challenges, mobilise citizens
around environmental issues
and promote cleaner, greener,
healthier cities. The evidence
for widespread adoption of
e-bikes is clear - if used to
replace car travel, e-bikes could
cut carbon dioxide emissions in
England alone by up to 50%,
equating to 30 million tonnes
less CO2 per year.
Corporate decarbonisation
• A study conducted by Ricardo
on behalf of Kellogg’s found
that a reduction in net
emissions of up to 60% is
possible by focusing on a farm’s
most productive areas, with
no impact on yield or financial
performance.
diesel-fuelled trains by 2035.
• Ricardo has also been tasked
with developing a new action
plan to support UK rail industry
decarbonisation efforts.
• We unveiled a design for an
autonomous vehicle using
advanced steel materials to
demonstrate strength, light
weight and safety for future
sustainable urban mobility.
Details of the programme for
Steel E-motive can be found
here: https://steelemotive.
world/about/.
• Funding has been awarded
by the Driving the Electric
Revolution Challenge at UK
Research and Innovation to the
UK-ALUMOTOR consortium
which Ricardo leads.
WICE awards
• One of our chief engineers,
Dragica Kostic-Perovic, was
Awarded the Best Woman
Electrical & Mechanical
Engineer at the European
Women in Construction and
Engineering Awards (WICE).
The WICE awards recognise
the most exemplary women
working across construction
and engineering and drive
diversity across the industry.
Women represent only 9% of
UK engineering professionals.
Clean energy and resources
• Ricardo is leading a consortium
that is designing a community-
scale greenhouse gas removal
system that produces biochar
as one of its outputs.
Urbanisation
• Ricardo is helping set out a
• Our Rail team in the US,
together with colleagues from
Netherlands and Korea, will
be providing an independent
safety assessment for skyTran:
the next evolution of urban
transportation propelled by
net zero pathway for London’s
community healthcare
organisation. Central London
Community Healthcare NHS
Trust has taken early action
to mitigate the impact it is
having on the environment by
developing a roadmap to reduce
its emissions in support of the
NHS’s net zero 2040 deadline.
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01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 SUSTAINABILIT Y AND ENVIRONMENTAL , SOCIAL AND GOVERNANCE (ESG)
Climate change and
environmental revenue
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:
• Revenue generated which
is specifically intended to
address climate change, such
as net zero and greenhouse
gas inventory work in EE and
A&I projects driven by the
decarbonisation of transport.
• Revenue generated which
is driven by a significant
environmental issue, such as
improving the efficiency of
existing power trains in A&I,
natural resource management
planning in EE.
• Revenue generated which has
environmental benefit as one
of its drivers, such as asset
optimisation and efficiency
work in Rail, and manufacture
of efficient transmissions and
engines in PP.
• Revenue generated which
relates to safety in terms of
both assurance and mobility
improvements, such as the
Antilock Braking System work
in Defense and certification
work in Rail.
• None of the above.
This analysis shows:
• 28% of our revenue including
the discontinued operation,
is strongly driven by climate
change or the environment.
• 27% of our revenue is driven
by climate change or the
environment, to some degree.
• 17% of our revenue relates to
the societal benefits associated
with safety.
• With 72% of our revenues
related to climate change and
the social benefits of safety,
our business activities are well
aligned to our vision: to create a
safe and sustainable world.
Our strategy is to focus on
high revenue, high margin and
low capital intensity services
underpinned by the environmental
and energy transition megatrends
as shown on page 16. Part of
this strategy is also to ensure
disciplined execution across the
group, and we have established
eight workstreams to support this
delivery, one of which is capital
allocation. Within this capital
allocation work stream we are
prioritising investment in R&D and
capital expenditure to support
further growth in services with
a strong connection to climate
change. In 2022, 52% of our
R&D spend, net of government
grants, was on areas with a strong
connection to climate change or
the environment. The innovation
section of the report on pages 22
to 26 shows examples of these
projects.
In addition, we have a clear
focus to use M&A as an accelerator
to support our portfolio transition
to environmental and energy
transition solutions. A first
example of this is the acquisition
of Inside Infrastructure that
establishes greater environmental
capability in Australia.
As a result of the clear strategy
to prioritise capital allocation and
M&A to environmental and energy
transition solutions, we expect the
revenue strongly driven by climate
change to increase over the coming
few years.
Climate change and environmental revenue
37
29
29
27
15
13
13
11
17
10
Driven by
environmental
change
Driven by an
environmental
issue
Has
environmental
benefits
Relates to
safety
None of the
above
FY 2021/22 (%)
FY 2020/21 (%)
Including discontinued operation.
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01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 SUSTAINABILIT Y AND ENVIRONMENTAL , SOCIAL AND GOVERNANCE (ESG)
Commitment to global
best practice
Ricardo is committed to leading
by example in all aspects of ESG.
This includes compliance with
global best practise of disclosure,
internal policy and, most
importantly, delivery of tangible
actions to achieve its ambitious
ESG goals.
United Nations
Sustainable
Development Goals
(SDGs)
We recognise and support
the UN SDGs. Of the 17 goals
we maintain the 8 originally
identified, which align to our
core activities, our internal
operations, stakeholders, and
the communities within which
we operate. Stakeholders we
engage with include international
governments, corporate
businesses, local communities,
industry sectors, our employees,
clients and academics.
Reporting Standards
– SBTi & GRI – Global
Reporting Initiative
As reporting demands increase
and evolve, it is important to apply
stringent, appropriate standards
which are globally recognised and
provide, a consistent approach
that can be aligned with other
standards. Our sustainability
framework is set against the
Global Reporting Initiative and
Sustainable Accounting Standards
Board where we have aligned our
ESG disclosures and identified
areas for improvement and
or opportunity. We recognise
the collaborative work and
development of International
Sustainability Standards Board
and European Financial Reporting
Advisory Group.
Ricardo intends to meet the GRI
disclosure requirements and
reporting standards. While we
comply to the majority of the
management indicators, we
are enhancing and embedding
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
• Drought and
flooding mitigation
solutions
• Clients,
water sector,
governments, local
communities and
employees
• Net zero and
carbon-neutral
solutions
• Decarbonised and
clean transport
solutions
• Decarbonised and
clean transport
solutions
• Net zero and
carbon-neutral
solutions
• Urban rail
solutions
• Net zero and
carbon-neutral
solutions
• Decarbonised and
clean transport
solutions
• Decarbonised
transport
• Access to clean air
• Net zero and
carbon-neutral
solutions
• Reducing energy
consumption
and maximising
renewable energy
sourcing
• Clients,
governments and
local communities
• Working in
• Clients,
partnerships with
local communities
around our larger
sites to reduce
collective energy
use
governments and
local communities,
employees and
their families
• Net zero plan and
targets which will
reduce energy and
resource use
• Clients,
businesses,
governments and
local communities
• Clients,
governments and
local communities
• Climate change
risk management
• Net zero plan and
targets
• Greenhouse gas
reporting and
reducing carbon
footprint
• Access to clean air
• Active
• Clients,
and water
management of
waste streams on
our sites
businesses,
governments and
local communities
• Access to clean air
• Active
• Clients,
and water
management of
waste streams on
our sites
businesses,
governments and
local communities
• Encouraging low-
carbon travel to
work
United Nations Sustainable Development Goals web site: https://www.un.org/sustainabledevelopment/
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01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
SUSTAINABILIT Y AND ENVIRONMENTAL , SOCIAL AND GOVERNANCE (ESG)
data collection and validation,
moving positively forward on
a journey to make this process
business-as-usual. This is part
of the oversight and in-flight
monitoring that will come from
operation of the Sustainability
Committee. Data collection and
enhancement is underway and we
intend to provide a section on GRI
compliance disclosures in the 2023
Annual Report.
We proactively engage with
investor rating agencies such
as, but not limited to: ISS, CDP,
Sustainalytics, and FTSE Russell.
For our Rail operating segment in
the Netherlands they received a
platinum award for ‘Ecovadis’ and
A&I (UK) also received a silver
award in 2022.
In October 2021 we formally
committed to the Science Based
Targets Initiative (SBTi). Our
commitment is to reduce absolute
Scope 1 and 2 GHG emissions
46.2% by FY2030/31 from a
FY2019/20 base year. We have
already delivered a 44% reduction
in Scope 1 and 2 emissions and
are therefore well advanced in this
ambition. Ricardo also commits
to increase annual sourcing of
renewable electricity from 74% in
FY2019/20 to 90% by FY2025/26.
In FY 2021/22 we achieved 89%
sourcing of renewable electricity.
Finally, Ricardo commits to
reduce absolute Scope 3 GHG
emissions 27.5% by FY 2030/31
from a FY 2019/20 base year.
Scope 3 emissions have been
measured and verified for the first
time in FY 2021/22.
UN Global Compact
We are proud to have committed
to the United Nations Global
Compact, the world’s largest
corporate responsibility initiative,
for companies committed
to integrating 10 corporate
responsibility principles in their
business operations and strategies.
Taskforce on Climate-
related Financial
Disclosures
The Task Force on Climate-Related
Financial Disclosures (TCFD) was
initiated by the Financial Stability
Board, to enable publicly listed
companies to understand and
disclose the impacts of climate
change on their businesses. It
recommends that businesses
consider both the opportunities
and the risks associated with
climate change, with the aim to
improve disclosure of information
to all regulators, and all other
stakeholders to have broader
transparency to assess the risks
and opportunities resulting from
climate change. This aligns with
our vision and purpose, and
our on-going work to remain a
prominent leader in best practice,
in the sectors we operate in.
We comply with TCFD
by providing the following
information, which are our ‘TCFD
recommended disclosure themes’
(see page 43).
The TCFD activities identified
our material climate-related risks,
which included 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 reduced investor
support and reputational
damage.
• Changes in client requirements
driven by climate change:
climate change could result in
changing demand for certain
products and services. Our
strategy includes a strong
decarbonisation focus with
major focus on energy and
environment as our CEO
presented at the Capital
Markets Day.
• 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
action and mitigate these risks
via our existing enterprise risk
management processes. The
changes in client requirements
and regulations have been
combined to become a principal
risk, but also a series of
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01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 SUSTAINABILIT Y AND ENVIRONMENTAL , SOCIAL AND GOVERNANCE (ESG)
opportunities for the business.
Further information on our risk
management and principal
risks to the business is shown
on pages 56 to 61. We also
recognise the requirement
for additional training for our
Board, senior management, and
relevant colleagues, with on-
going management to ensure
we remain on course to achieve
our reduction targets and our
SBTi commitments.
Our TCFD progress to date and
overall aims of our programme are:
• To become a leader in strategy
and engineering consulting
for environmental and energy
transition solutions
• To continue to explore fully our
climate-related opportunities
• To ensure we are fully aware
and mitigate risks associated
with climate change
• To develop class-leading
capabilities, enabling us to
support our clients’ own TCFD
and energy transition journeys.
These complex undertakings are
achieved using our Group’s diverse
skill sets – climate specialists,
scenario-planning experts, and
management consultants. Using
external climate scenarios and
impact assessments as inputs,
we have developed four bespoke
scenario narratives, describing
a different hypothetical world
around Ricardo in 2035:
• 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 up to 2100,
with commensurate acute
and chronic physical risks.
This scenario assumes
some international policy
intervention, progress in energy
CREATIVE SCAVENGERS
DIGITOPOLIS
TECHNOPOLIS
ECOPOLIS
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01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 SUSTAINABILIT Y AND ENVIRONMENTAL , SOCIAL AND GOVERNANCE (ESG)
efficiency and a reduction
in travel enabled by digital
technologies.
• Technopolis: per the trajectory
of Digitopolis, 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 up to 2100.
Chronic physical risks are
being addressed, although
extreme weather events remain
inevitable. This scenario again
assumes cohesive international
policy interventions and
significant deployment of
a broad suite of effective
renewable energy solutions.
TCFD recommended disclosure
themes are described below.
Our work has resulted in a clear
set of recommendations which we
have aligned to the four official
TCFD recommended disclosure
themes.
TCFD Theme
Progress to date
Governance
• 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.
• Management role: The Board and the Executive Committee review
climate change every quarter as part of a wide review of ESG
matters.
• Sustainability Committee formed in 2022 with Board oversight by
Malin Persson.
• Document and disclose: our process is disclosed above and includes
scenarios, linkage to strategy, additional KPIs and disclosures.
Strategy
• Strategy impact: Our ESG agenda is aligned to our vision and
purpose.
• Strategy identification: Our strategy includes specific themes relating
to climate change and its mitigation, environmental solutions, clean
energy and resources, and sustainable and safe mobility.
• Strategy resilience: Our strategy has been assessed against the
four scenarios described above. These scenarios include a 4⁰C
temperature rise and a 1.5⁰C below -2⁰C scenario.
Risk
management
• Process for identification: our activities have enabled us to assess and
further integrate 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 59.
• Organisation: our risks are owned by Executive Directors, business
unit Managing Directors or Heads of Group functions.
Metrics and
targets
• 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. In FY 2021/22,
we added a metric on the connection between Research and
Development (R&D) spend and climate change. The results of this
analysis are shown on page 39.
• Performance metrics in relation to climate related issues are not
currently incorporated within remuneration policies. This will be
considered in the future as part of the next formal review of the
Executive Directors’ remuneration policies overall (see page 130).
• 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 and overall status in the following table.
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01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 SUSTAINABILIT Y AND ENVIRONMENTAL , SOCIAL AND GOVERNANCE (ESG)
Net zero commitment by 2030
The specific progress and achievements towards our Carbon Reduction Plan are set out below and embedded in
our business planning processes:
Net zero objective
Achievements in FY 2021/22
Overall status
Maximising use of renewable
energy sourcing
Reducing the size of
our properties as more
flexible office working is
implemented
Across the Group we are at 89%, having improved
from 74% in FY 2019/20 and achieving 91% in FY
2020/21. In FY 2021/22, we saw a slight drop in the
KPI from 91% in FY 2020/21 to 89% in FY 2021/22
due to relatively small changes in activity mix
between sites. There was no planned reduction in
percentage of green energy supplied to sites.
Following restructuring in our operations, we have
reduced our property portfolio. We have downsized
in the following leased locations:
• Derby
• Utrecht
• Germany
We no longer operate from these leased locations,
having moved to home-based working
• Munich
• Gothenburg
• Cambridge
The number of team members with home-based
contracts team members has increased from 162 in
June 2021 to 279 in June 2022 (approximately 10%
of our employees now have home-based contracts)
We have set an interim target of 90% for FY
2025/26 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 and
being an employer of choice, we are piloting flexible
working for some of our office-based team members.
We are also delivering space reduction in Troy and
subletting some space to our former Software
colleagues in Shoreham and Prague. Where possible
office moves are linked to moving to fully renewable
electricity tariffs. At our Shoreham Technical Centre
we are planning to reduce the number of buildings
in active use, focusing on the most energy efficient
offices.
Good overall progress being made.
Maximising ‘digital-first’ to
optimise our travel needs
For the majority of this year, this has been the only
way we could work with clients, suppliers and with
colleagues.
We will see an increase in travel, but not to pre-
COVID-19 levels.
Good progress made.
Using high-speed trains in
place of short-haul air travel
where practical
We have identified routes where this is practical and
have advised those that use them. This approach has
been in active use in China during the year where
internal travel has been possible.
Using the most fuel efficient
aircraft for long-haul travel
We have shared guidance with travellers, so we can
implement as long-haul travel restarts.
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 as
travel resumes.
We continue to expect COVID-19 and energy
pricing to accelerate the decommissioning of the
most inefficient aircraft which will assist with
implementation – the market will drive achievement.
On track to achieve.
Implementing energy
efficiency improvements
focusing on our high energy-
use sites
Projects commenced in FY 2021/22 include reducing
out of hours energy use on the larger sites, in
depth studies and replacement of inefficient air
compressors. Capital expenditure was approved to
reclad a large storage building with better insulation
and safer cladding
We will focus on energy reduction with good
financial return to complement the maximisation
of renewable energy procurement. We expect to
increase pace due to energy cost pressures. The ESG
forum will be the focus for driving and monitoring
change
New projects have been identified for investment
in FY 2022/23. The focus is on our Shoreham and
Midlands Technical Centres. These include more
submetering to enhance understanding of electricity
use and refrigerated test facility controls to deliver
more efficient operations.
Activity has been limited this year.
Making use of verified
offsetting schemes to offset
residual emissions
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 to achieve our
net zero goals.
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01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
SUSTAINABILIT Y AND ENVIRONMENTAL , SOCIAL AND GOVERNANCE (ESG)
Managing our
environmental footprint
We are committed to managing
our environmental 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 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 greenhouse
gas (GHG) emissions (Scope 1 and
2). 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 all our
Scope 3 emissions for the first
time this year. The largest
elements of Scope 3 are:
• Categories 1 and 2 – purchase
of products and services.
Revenue and capital are the
largest contributor, which
include production parts for
Performance Products as the
largest element.
• Category 11 – sold products
where we estimate the lifetime
emissions from the use of
engines which we produce
account for 9% of our Scope
45
CASE STUDY: ENVIRONMENTAL
CELEBRATING
EARTH DAY
The internationally recognised event provided an opportunity
for teams across the Ricardo Group to come together – in person
and virtually – to share their expertise, knowledge, and passion
for sustainability.
Through a series of virtual focus groups hosted throughout
the day, individuals from all the business units and Ricardo
plc discussed best practice, recommendations, and potential
innovations around six key topics: Sustainable Development
Goals, community work, charity, energy, waste and pollution
and biodiversity.
The purpose of the focus groups was to encourage everyone
from all global locations and all business units to meet
colleagues they may not already know and to share the work
that they are doing in their area relating to the six topics. All
this with the goal of pooling collective knowledge to help build
our future sustainability agenda.
As a global company with world-leading sustainability
specialists, we also facilitated opportunities for employees to
tap into the expertise of their renowned colleagues. Each day in
the week leading up to Earth Day, we encouraged sustainability
consultants to share blogs and top tips on five key topics:
energy efficiency and transition, water conservation, waste
reduction, plastics and packaging, and reducing food waste.
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 SUSTAINABILIT Y AND ENVIRONMENTAL , SOCIAL AND GOVERNANCE (ESG)
3 emissions, on a GHG basis
(weight apportioned). When
the ratio is derived on a whole-
vehicle basis (as required by
SBTi) rather than a weight
proportioned basis, the
equivalent tCO2e proportion
is 41%. This growth in tCO2e
reflects Ricardo’s progress in
our ESG reporting with regards
to increased transparency and
rigor of the calculation of CO2
equivalent emissions, using the
GHG protocol methodology,
for the manufacturing and
assembly activities, which have
not been calculated in prior
years.
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 below.
We comply with Streamlined
Energy and Carbon Reporting 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 tests and
engine size.
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 segment 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 and trends in
decarbonisation of transport. We
continue to use tonnes of carbon
dioxide equivalent (tCO2e) per
employee as an intensity measure.
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
38 sites and 98% of our site-
based employees. Our 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
business unit. 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,
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.
Greenhouse gas emissions
In support of our ambition to achieve net zero by 2030, we are increasing the breadth of KPI reporting
as shown below.
Base year FY 2019/20 and FY 2020/21 verified by LRQA
Category 8 is part of Category 1 and 2
Emissions - tCO2e
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
Total – Location-based (Scopes 1 and 2)
Total – Market-based (Scopes 1 and 2)
FY 2021/22
FY 2020/21
FY 2019/20
baseline
697
674
367
964
2,702
3,423
753
6,125
3,455
777
555
381
703
2,416
3,791
774
6,207
3,190
4,343
4,981
2,016
9,324
6,359
46
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 SUSTAINABILIT Y AND ENVIRONMENTAL , SOCIAL AND GOVERNANCE (ESG)
FY 2021/22
FY 2020/21
FY 2019/20
baseline
Scope 3 - Category 1 (including Category 8) – Purchased goods and services
Scope 3 - Category 2 – Capital goods
Scope 3 – Category 4 – Upstream transportation and distribution
Scope 3 – Category 5 - Waste
Scope 3 – Category 6 – Business travel (all modes)
Scope 3 - Category 7 – Employee commuting
Scope 3 - Category 9 – Downstream transportation and distribution
Scope 3 - Category 11 – Use of sold product (weight apportioned basis – GHG protocol))
Scope 3 – Category 11 - Use of sold product – (whole vehicle weight method – SBTi)
Scope 3 – Category 12 - End of life of sold products
Scope 3 – Category 13 – Downstream leased assets, location based
Scope 3 total – GHG basis
Scope 3 total – SBTi basis
Total – Location-based (Scopes 1,2,3) GHG Protocol basis
Total - Market-based (Scopes 1,2,3) GHG Protocol basis
Note - Scope 3 - Air travel baseline
Intensity Measures – GHG basis
(tCO2e per employee)
Total – Location-based (Scopes 1 and 2)
Total – Market-based (Scopes 1 and 2)
Scope 3 GHG Protocol basis
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
SECR (UK Streamlined Energy and Carbon Reporting)
UK Scope 1 tCO2e
UK Scope 2 - Location-based tCO2e
UK Scope 2 - Market-based tCO2e
UK Scope 1 + Scope 2 tCO2e Location-based
UK Scope 1 + Scope 2 tCO2e Market-based
Energy consumption (million kWh)
Intensity measures (tCO2e per UK employee)
Scope 1
Scope 2 Location based
Scope 2 Market based
Scope 1 + Scope 2 Location-based
Scope 1 + Scope 2 Market-based
Scope 1, 2 and Scope 3 - Categories 5, 6 and 13 have been verified to ‘Reasonable Assurance’
Scope 3- Categories 1, 2, 4,7, 8,9,11 and 12 have been verified to ‘Limited Assurance’
76,062
4,405
206
142
2,396
1,917
88
8,431
59,500
282
46
93,975
145,044
100,100
97,430
1,560
2.22
1.25
34.01
36.23
35.26
15,369
13,601
89%
2,526
2,606
26
5,132
2,552
21
1.52
1.57
0.02
3.09
1.54
No data
No data
No data
No data
No data
No data
No data
No data
No data
No data
No data
No data
No data
6,688
3,671
N/A
2.14
1.10
No data
No data
No data
15,742
14,296
91%
2,175
2,971
47
5,146
2,223
21
1.35
1.84
0.03
3.19
1.38
No data
No data
No data
No data
No data
No data
No data
No data
No data
No data
No data
No data
No data
13,291
10,326
6,015
3.05
2.08
No data
No data
No data
17.455
12.973
74%
2,496
3,065
166
5,562
2,662
17
1.50
1.84
0.10
3.34
1.60
47
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 SUSTAINABILIT Y AND ENVIRONMENTAL , SOCIAL AND GOVERNANCE (ESG)
DEFRA factors, Categories 11
and 12 are estimated based on
volumes sold in PP, and ABS/
ESC kits in Defense. End of life
is estimated on material type
and weight using DEFRA for
PP and Quantis for Defense.
Category 11 is based on
published WLTP emissions
for each engine variant, and
estimated vehicle use over 10
years.
• Air and rail travel emissions
are calculated by Susterra
using bespoke factors that take
account of route, class of travel,
airline and aircraft type. The
remaining elements of Category
6 are calculated based on cost
using the Defra and Quantis
factors as above.
• Other Scope 1 emissions
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.
• We have no Scope 3 emissions
in Categories 3 (fuel and
energy related activities), 14
(franchises) or 15 (investments).
Category 8 emissions
(upstream leased assets) are
included within our Scope 1
reporting.
• Our triggers for base year
recalculation would be an
acquisition or disposal which
changed head count by +/-
20% - this did not occur in the
current or previous year. The
sale of Ricardo Software was
below the threshold.
• Scope 1, 2 and Scope 3 -
Categories 5, 6 and 13 have
been verified to ‘Reasonable
Assurance’.
• Scope 3 - Categories 1, 2,
4,7, 8,9,11 and 12 have been
verified to ‘Limited Assurance’.
• The operational control test
is applied to determine if an
emission is within Scope 1 or
Scope 2.
• 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 2021/22 have been
verified by LRQA 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
Scope 1 and Scope 2 data was
verified. The Scope 3 base
year is FY 2021/22. 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 2022. 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 supplied are
0kgCO2e/kWh. Location-based
factors are applied elsewhere.
• For Scope 3 emissions factors
for categories: 1, 2, 4, 5, 8, and
9 are based upon cost using
Defra for UK and EU based
entities, and Quantis for other
entities. Scope 3, Category 7 is
based on an annual employee
commuting survey, which had
an average return rate of 68%
for site-based employees.
Renewable
electricity –
percentage used
per financial year
%
2021/22 89
2020/21 91
2019/20 74
2018/19 71
Electricity used
per employee for
the financial year
kWh
2021/22 4923
2020/21 5,412
2019/20 5,721
2018/19 8,154
Water usage
Water
usage
on large
sites m3
FY
2021/22
FY
2020/21
FY
2019/20
baseline
Volume
39,265
41,276
55,506
Volume/
employee
14.2
14.2
18.2
• We measure water use on our
sites with more than 50 team
members – small sites are
immaterial.
• We have delivered or
commissioned a number of
water efficiency projects
which also reduce wastewater
and hazardous liquid waste
volumes: at our Midlands
Technical Centre, we have
reduced waste by 30% in our
machine tool coolant process
by adding a water softening
process, and will implement
a hazardous liquid waste
reduction of 90% by installing
a recycling process, in our
Detroit Technical Campus
we have changes in our
landscaping arrangements
to reduce watering, which is
the largest site use of water.
Water volumes are reducing
as improvements are made in
machine coolant processes and
in the reduction of water for
humidification during emissions
test processes. Test facilities
use recirculating process
water to minimize consumption
and only top-up amounts to
replenish evaporation quantity
is required.
48
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
SUSTAINABILIT Y AND ENVIRONMENTAL , SOCIAL AND GOVERNANCE (ESG)
Social – supporting
our employees and
communities
This element of ESG reflects the
company’s approach, aptitude and
policies in the way it addresses
human rights, labour standards,
employee wellbeing, diversity and
inclusion, workplace environments
and health and safety. It
incorporates the supply chain,
modern slavery risk management
and due diligence, sustainable
procurement and supplier
engagement.
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
CASE STUDY: SOCIAL
SUPPORTING OUR
COMMUNITIES
Ricardo employees have a history of supporting their local
and global communities, whether through inspiring the next
generation of STEM professionals or supporting those in urgent
need.
In March 2022, soon after the invasion of Ukraine, the team
in our Prague Technical Centre collected urgently needed
medical supplies, equipment and children’s toys. Bandages,
sterile dressings, disposable gloves and infusion kits, toys
and games, nappies/diapers, personal hygiene and cleansing
materials, plus bottles and formula milk for babies were
delivered to the Ukrainian border for distribution to those in
need in Chernihiv, a city about 120 km north of the capital Kyiv.
Ukrainians who had escaped to safety in the Czech Republic
were also alerted to current job vacancies for skilled roles with
Ricardo in Prague.
Ricardo offices support local
community activity, 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).
We also work with our local
communities to provide business
input on economic regeneration.
We actively engage in local
partnerships, particularly in
the area around our Shoreham
Technical Centre, where we
are the largest private sector
employer.
Further achievements in
2022
We are proud to have re-launched
our STEM (Science, Technology,
Engineering and Maths)
programme in May following the
pandemic. There is a national
priority to encourage and engage
with young people, in particular
women, to study STEM subjects.
As an employer with many of
our colleagues with backgrounds
in these subjects, we actively
encourage and support people
getting involved in initiatives
to take up STEM subjects. Our
colleagues can also apply to
become an ambassador through
our national STEM Learning body.
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 £10,469 (FY
2020/21: £4,787). There was no
dominant donation.
The effectiveness of these
policies is informally measured by
community feedback.
49
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 SUSTAINABILIT Y AND ENVIRONMENTAL , SOCIAL AND GOVERNANCE (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 key elements of our ESG
agenda are reviewed on a regular
basis. Wider aspects of corporate
governance, including how we
comply with the provisions of the
UK Corporate Governance Code
2018, are described on pages 94
to 100. Our policies are reviewed
on an annual basis or sooner if
legislation dictates change. The
key policies are in the public
domain via our website and are
referenced in this report. This
gives our stakeholders increased
transparency regarding our
commitments. It reinforces the
accountability and responsibility
we all share, to ensure the highest
standards are maintained across
all Group activities.
In addition, this year we have
introduced additional governance
and oversight from the board
down through the organisation.
We have introduced a Group
Sustainability Committee,
who will meet every quarter.
The committee is made up
of representatives from each
Business Unit and the Executive
Sustainability / ESG oversight
Board
Dedicated board member:
Malin Persson
Strategy,
measurement, KPIs
Executive
Executive with sustainability
responsibility
Execution, reduction
targets
Business Units
Nominated
sustainability leads
Targets, local
initiatives
Sites / Offices
Energy savings
projects
Team. Each managing director
attends with a second nominated
team member. Executive
representatives also join the
meetings and, as we focus on
specific topics, specialist experts
attend. Training for the Board on
specific technical detail is planned,
to ensure full updates are provided
and give assurance we are on track
to meet our strategy commitments.
Planned training topics include,
but are not limited to climate risk,
renewable energy, the evolving
transportation market, fossil
fuel alternatives, environmental
impacts and our progressive
journey to net zero.
Managing ESG related
risks
To underline the importance
of integrity in all relationships
between employees and
stakeholders, we have policies
covering ethics, fraud prevention
and our ‘Speak Up’ programme.
These are communicated to all
Group employees through our code
of conduct, Group values, in annual
employee refresher training and in
induction training for all new staff.
It is also available on the front
page of our Intranet R-Live.
Our Group policies which
support these key ESG topics are:
• Code of conduct
• Health and safety policy
• Human resources policy
• Human rights policy
• DEI (diversity, equity, and
inclusion) policy
• Engaging and supporting local
communities
• Environmental policy
• Supplier code of conduct
• Sustainable procurement policy
We recognise that effective
management and clear objectives
are imperative to address ESG
material issues that are an integral
part of day-to-day business and
form part of our sustainability
strategy, with a link to financial
performance and long-term
business model resilience. Doing
the right thing is in our Ricardo
DNA and what we believe in.
Our ESG actions are also
increasingly built into our core
daily activities to ensure the
ESG agenda is embedded in
our culture and operations. To
support this we have appointed a
Director of Sustainability, Quality
and Risk, Clive Wotton, to lead
sustainability across the group.
50
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 SUSTAINABILIT Y AND ENVIRONMENTAL , SOCIAL AND GOVERNANCE (ESG)
Clive has been with Ricardo for
many years in multiple operational
leadership roles, and therefore is
well placed to build sustainability
into everything we do. We have
also recruited a dedicated head of
sustainability, Caroline Haycock,
to support Clive. Caroline has
over 20 years working in CSR and
sustainability.
With this combined operational
and sustainability leadership
expertise we can truly embed ESG
into everything we do internally
and supporting our customers
externally. Some examples of
these activities are shown below.
Operational
• Due diligence on clients and
suppliers
• Environmental, health, safety
risk management on our sites
• Sustainable management of our
supply chain
• Training and education
• Care in contracting and
continual risk reviews
•
• Care in segregation of duties
and compound authorisations
Internal and external training
regarding conflict of interest,
anti-bribery and other hazards
that can evolve during long-
term contract delivery
Independent internal risk
reviews and support from
external audit partners
•
Client facing
• Policy, strategy and action
planning capabilities to help
governments, local public
sector and corporate clients
improve their air quality, thus
helping their citizens to have
access to clean air
• Environmental planning, asset
management and operational
improvement plans together
with support for strategies
around natural capital to
provide access to clean water
• Policy and strategy support to
governments on decarbonising
the transport sector together
with cross-sector engineering
solutions to accelerate a move
to zero tail-pipe emissions
• Comprehensive expertise
in safety, assurance and
certification
Innovation to support global
net zero and industry agendas
•
We support these core activities
with customer innovation projects
and research and development
to enhance our capabilities,
described on pages 22 to 26. We
rely on the innovation and, the
talent of highly skilled technical
teams, and our investment in their
development for the benefit of all
our stakeholders. As we provide
solutions to our clients in the
fields of air quality, water quality,
carbon inventory accounting and
other services, we are in a unique
position to be able to develop
and test procedures and methods
internally before effectively
supporting externally. Ricardo
is at the unique intersection of
transport technologies, energy
and fossil fuel and carbon-neutral
fuel evolution. This, together with
emissions reduction, management
and product development,
gives us unrivalled insight
into measurement techniques,
software, process development
and technology evolution for
providing net zero journeys for our
clients across the world.
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, ethics risks and
controls. This is reviewed annually
with the Audit Committee. Under
our Speak Up policy (previously
called Whistleblowing) we provide
a procedure for any global team
member to raise malpractice
concerns anonymously in an
appropriate manner, with full
protection and safeguarding.
51
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 SUSTAINABILIT Y AND ENVIRONMENTAL , SOCIAL AND GOVERNANCE (ESG)
Our processes consider
countries that we undertake
business 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 and Environment
business unit in their work with
intergovernmental organisations
such as the World Bank.
We have integrated a third-
party specialist tool into our
sustainable procurement processes
to provide due diligence checks
on new clients, new and existing
suppliers and material suppliers.
This allows us to identify potential
risks and comply with anti-money
laundering and anti-bribery and
corruption. We have not been
subject to any fines or enforcement
action on these matters during
the year. Ethics and Speak Up
policies and reports continue to
be reviewed annually by the Audit
Committee.
The following table details a
number of our key ESG topics and
highlights our activities in the area.
ESG Topic
Highlights
Our people
Healthy people,
healthy business
Human rights
Diversity
• Focus on well-being and on-going COVID-19 precautions
• Employee engagement – survey 2022 based on Gallup12 was 3.9 out of 5)
• Employee commuter survey (part of Scope 3)
• Employee forums to discuss mental health and menopause and lunchtime yoga
• New signatory to the United Nations Global Compact
• Additional training on modern slavery
• Training in sustainable procurement and supplier management
• Updated Human Rights policy
• Increase in women senior leadership positions from 17% to 18%
• DEI Forum coordinates across Group business units
• Training and awareness sessions for LGBT+ and celebrating Pride through online
workshops
Health and safety
• Certification to ISO 45001 for 38 sites (98% of employees)
• Zero fatalities, 1 reportable accident
Our customers’
Climate change
and environmental
projects
• 24% of revenue is strongly driven by climate change or the environment
• 51% of our revenue is driven by climate change or the environment
• 52% of our R&D spend net of government grants was on areas which are intended to
provide services that strongly address climate change
Our suppliers
Sustainable
Procurement
• Launched an updated supplier procurement programme
• Requirement for suppliers to disclose their carbon reduction targets and other related
Company
Governance and
management of ESG
matters
Environmental
stewardship and
addressing climate
change
Managing our
environmental
footprint
topics, such as modern slavery risk mapping and due diligence
• Introduced a new Supplier Code of Conduct
• Compliance with the provisions of UK Corporate Governance Code 2018
• Board oversight of ESG topics
• Director of Sustainability appointed
• New Sustainability Committee formed – Malin Persson nominated Board member
• Membership to ISS online ESG analytics tool
• TCFD - further opportunities identified
• Certification to ISO 45001 for 38 sites (98% of employees)
• Externally verified greenhouse gas emissions in accordance with ISO 4064-3:2006
• Strategy to be net zero by 2030. Ensure we track and implement per our 2021
commitment to SBTi to meet a 1.5°C future
Managing ESG related
risks
• TCFD activities identified a number of risks, and opportunities
• Climate related risks are subject to bi-annual Board review
Society
Supporting
governments and
public sector bodies
on climate change and
net zero journeys
• In FY 2021/22 our Energy and Environment Business Unit have supported 52
governments around the world, including 39 national governments and 13 city
governments
Local communities
• Actively promoting science, technology, engineering, and maths (STEM) in schools,
colleges, and universities
52
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 SUSTAINABILIT Y AND ENVIRONMENTAL , SOCIAL AND GOVERNANCE (ESG)
Health and safety
Ricardo is committed to
compliance with local 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
38 sites and 98% of our site-
based employees. Our remaining
colleagues and sites are managed
via the ISO 45001 processes. Our
health and safety policies are
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, human
resources 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. Towards the
end of the financial year this
included supporting our Chinese
colleagues with food parcels
during lockdowns in April and May
2022.
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 business unit
management and employee
consultation forums.
Reportable accidents
Year
2021/22
2020/21
2019/20
Number
1
1
1
(*) Based on current definitions of the
Reporting of Injuries, Diseases and Dangerous
Occurrences Regulations (RIDDOR)
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. We recognise that this is
a global issue and that we must
ensure that all our colleagues
and suppliers, in all countries, are
trained and updated on an annual
basis.
Our procurement policy
requires our suppliers to adhere to
national laws and provide us with
their due diligence best practice, as
part of our partnership to monitor
and mitigate the risks of any form
of modern slavery. This extends to
our supplier’s global supply chains
as we extend our due diligence
process to all locations where
we operate and have an impact,
directly or indirectly.
We are also responsible
for reporting under Australian
legislation due to the purchase of
Inside Infrastructure, a consultancy
based in Adelaide.
We have had no known
incidents of exploitation during
the year. We welcome and support
new legislation as countries
introduce further regulations and
guidelines for the prevention of all
forms of modern slavery. These
include, but are not limited to:
• UK Modern Slavery Act 2015
Modern slavery - GOV.UK
(www.gov.uk)
• Australia Commonwealth
Modern Slavery Act 2018 -
Guidance for reporting entities
(homeaffairs.gov.au)
• Human Trafficking Legislation
(americanbar.org)
• The California Transparency in
Supply Chains Act, January 1,
2012.
Ricardo has three manufacturing
sites, two in the UK in Shoreham
and Leamington Spa, and one in
Sterling Heights in the USA, all
of which meet our Code, national
health and safety legislation, and
labour law. We acknowledge
there are multiple risks including
cleaning, catering and security
services, in particular when labour
agencies/contractors might be
used as an external source of
supply both within the UK and
overseas. This relates to the offices
we own and/or lease and also
those of our suppliers. We keep
informed through updates from
non-governmental organisations
such as Anti-Slavery, Unseen
and Slave Free Alliance and
reference to the Global Slavery
Index. Training for all Ricardo
colleagues and suppliers, including
new employees who join the
business, is essential, along with
the ongoing process of continual
monitoring.
Human rights
In January 2020 we published our
human rights policy, clearly stating
our commitments towards human
rights, which was further updated
in April and August 2022. We
respect the United Nations (UN)
Guiding Principles on Business
and Human Rights, UN Guiding
Principles Reporting Framework
(ungpreporting.org) and UN
Universal Declaration of Human
Rights.
We committed to compliance
with laws and regulations in the
regions in which we operate, and
we expect all our stakeholders
and suppliers to act with respect
and dignity in all aspects of human
rights. Suppliers are asked to
disclose their knowledge of and
53
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
SUSTAINABILIT Y AND ENVIRONMENTAL , SOCIAL AND GOVERNANCE (ESG)
do not manufacture products,
but provide a service. While the
new supplier code of conduct
focuses on the labour work-force
in a manufacturing environment,
it also applies to all businesses
we work with who employ people
across the globe. All individuals
must always be treated with
dignity and respect – this is a
requirement to work with Ricardo.
Any non-adherence is a breach
of our terms of business. As part
of the procurement process, we
will be increasing our monitoring
as part of the KPI measurements,
but also importantly to ensure any
corrective actions are remediated
within reasonable, agreed
timescales.
Our updated supplier
evaluation process requires in-
depth due diligence and formal
sign-off before business can
commence. Part of this process
requires the supplier to complete
an evaluation questionnaire. We
ask for details related to all core
sustainable activities and evidence
must be provided. The topics
include, but are not limited to,
waste and pollution, climate risks,
carbon reduction targets, energy
saving and renewables, working
conditions, transparency of their
supply chains, modern slavery due
diligence, the auditing of sites and
accreditation to relevant standards.
As part of the supplier
procurement launch, the business
unit procurement teams have been
trained in the new procedures,
including additional training
relating to modern slavery. Further
training has also been conducted
for other team members and will
be on-going. These sessions have
been led by our Group Head of
Procurement and Group Head of
Sustainability.
Qualification rates are scored
and KPI’s measured, which will
continue with reporting in the
next financial year. This process is
also applied to existing suppliers,
based on potential risk and
commercial impacts.
54
adherence to related legislation
as part of the supplier approval
process.
Our human resources policy
states that we respect and
protect freedom of expression,
freedom of association and
prohibit 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 a small
team with no known incidents of
labour standards breaches during
the year. Ricardo South Africa
(Pty) Ltd now has Level 4 B-BBEE
status.
Sustainable procurement
We believe in long-lasting
partnerships with our suppliers,
which are built on trust, honesty,
full transparency and being equally
accountable and responsible
for all activities in our global
operations. In particular, the
treatment of all individuals where
we have a presence, directly or
indirectly. Maintaining our working
relationships with our suppliers
is essential in supporting us
to achieve our objectives and
deliver quality performance
and services. We published our
procurement policy in January
2020 as part of our commitments
to our sustainable future. In April
2022 we updated our policies and
procurement processes which
launched a new supplier approval
and due diligence process for both
new and existing suppliers.
Our public policies are:
• Sustainable Procurement Policy
(ricardo.com)
• Human Rights (ricardo.com)
• Supplier code of conduct
(ricardo.com)
Our internal policies and processes
are:
• Sustainable procurement
process
• Supplier evaluation
questionnaire
• Modern slavery risk review
procedure
• Sustainable procurement KPI’s
As part of our drive to improve
open dialogue and transparency
we have published a new
Supplier Code of Conduct. This
is part of our supplier onboarding
approval process, together
with due diligence evaluation
questionnaires, which are
applicable to all existing suppliers,
who will also be re-evaluated
within agreed timescales.
The majority of our suppliers
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 SUSTAINABILIT Y AND ENVIRONMENTAL , SOCIAL AND GOVERNANCE (ESG)
Supplier engagement and key evaluation topics:
Sustainable Procurement
Supplier business ownership,
management structure
Human Rights and Labour
Standards
Review of modern slavery due
diligence, risk assessment review
with supplier
Environment
Business Ethics and Governance
Climate risks, reduction targets
Code of Conduct
Supplier engagement and
dialogue
Health and safety, working
conditions
Greenhouse has emissions and
targets
Supplier code of conduct
Transparency of supply chains
No child labour
Waste and pollutants
Anti-bribery and corruption
Validating supplier evidence to
compliance
Remediation for issues required
improvements
Performance measurement and
KPI’s
No forced or bonded labour
Raw material sources and chain
of custody
Policies
No forced overtime
Use of chemicals and safe
disposal
Terms and conditions of
conducting business
No discrimination or harassment Adherence to environmental
Training:
legislation
Supplier procurement
Risk assessments
Modern slavery
Fair wage and working hours
Consolidation of suppliers shared
across the Group business units is
essential to ensure we work with the
best quality suppliers. Any supplier
who does not positively engage
or improve may be disengaged
from the business if they do not
provide the remediation evidence to
support non-compliant issues. We
support suppliers who are open and
transparent and will work with us on
our sustainability journey to achieve
the required standards.
Our policy states that key
suppliers should be certified to
ISO 9001, ISO 14001 and ISO
45001 standards, therefore they
are encouraged to obtain these
accreditations and are required
to comply with Ricardo policies,
including human rights. There are
no significant supply contracts that
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.
Sylwia Soria has a master of engineering degree in quality control, having graduated in management and production engineering.
She is currently working as an import export controller for Ricardo Performance Products.
55
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 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
• Detailed monthly forecasting
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 and financial
reporting information.
• Requirement for operating
segment 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.
• Operating segment 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.
• Control of other key business
risks through a number of
processes and activities
recorded in the Group’s risk
register.
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
operating segment compliance
with internal procedures and
financial controls.
• Review and implementation of
recommendations in reports
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 2022 risk review cycle,
we considered risks associated
with our customers, markets,
geopolitical risks, suppliers,
employees, finances, Brexit,
COVID-19 and climate change. We
now report the last of these as an
additional principal risk, but it is
also an opportunity.
Progress on managing the
impacts of COVID-19 was
reported to the Board on a regular
basis during the early part of the
year. Our principal risks and the
approach to their mitigation are
discussed on pages 58 to 61.
56
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
The Company complies
with the 2018 UK Corporate
Governance Code by ensuring that:
• Risks are either classified as
strategic or operational and as
either internally or externally
driven
• 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.
RISK MANAGEMENT AND INTERNAL CONTROL
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 operating
segments. 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 operating
segment 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
operating segment 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
106 to 109.
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
Group’s objectives, policies and
strategies in respect of these risks
are set out in Note 28 to the Group
financial statements.
57
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 PRINCIPAL RISK 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.
PRINCIPAL RISK
IMPACT
MITIGATION
CUSTOMERS AND MARKETS
INCRE ASED RISK
The Group operates in
a dynamic, diverse, and
politically and economically
volatile marketplace, which
is exposed to legislative,
geopolitical and macro-
economic pressures,
including increasing interest
rates and inflation in input
costs and wages, leading
to increasing concern
over economic growth.
Against this, there is
pressure to decarbonise our
infrastructure and transport
systems, improve air quality,
reduce greenhouse gas
emissions and improve public
transport to address 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, types of work
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. Geopolitical
risk is one of many factors.
COVID-19 (PANDEMIC DISEASE)
DECRE ASED RISK
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 and ability
to travel and to those of
customers and suppliers.
This situation has existed in
various levels and locations
through the early parts of
the financial year and more
recently it continued in some
Asian locations.
COVID-19 was the first
pandemic to impact the
business. The effects
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; and
new and rapidly changing
government requirements.
These have had a reduced
impact on order intake and
revenue compared to FY
2020/21.
These risks are mitigated by the diversification of the Group, so as 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. Our strategy
focuses on both our environmental and energy transition portfolio, which
includes emerging automotive technologies, and established mobility
solutions, which enables us to be agile as markets change and new
demands are met. Management has a rigorous and vigilant performance
review process which is led by the executive to monitor current and
forecast performance . In the event of a sudden downturn or change in
geopolitical risk in a segment or the wider economy, contingency plans
are quickly deployed to minimise the impact on short-term performance
and to preserve cash and maintain margins 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.
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 and was in place until
April 2022 when it became a reactive central activity. We 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 were reviewed regularly as guidance from governments
changed. 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.
Our operating model has become 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. Our customer 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 have increased monitoring of
long-term impacts in our supply chain to anticipate potential issues early.
58
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
PRINCIPAL RISK AND UNCERTAINTIES
PRINCIPAL RISK
IMPACT
MITIGATION
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 (55%) is generated by projects which are driven by
environmental issues or have environmental benefits. We have a net zero
strategy described on page 44 underpinned by Science Based Targets
which we have now adopted.
Our Shoreham site has a flood defence wall which is resilient to 1:200
events allowing for a 1.5°C temperature rise. Our Prague Technical
Centre is in an area which is protected by the city’s flood defences. As
a result of the agility learned from the COVID-19 experiences, we have
improved resilience via the ability of most office-based staff to work
remotely.
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(m)-1(o) to the Group financial statements.
Project leadership and management are the Group’s core competencies.
Led by the Group Director, Sustainability, Quality, and Risk, 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 is delivered within time and cost estimates.
Sustainable 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.
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
• May have assets which
are impaired due to the
rate of climate change in
certain markets
• May not deliver our net
zero objectives
Our Shoreham and Prague
sites are exposed to flood
risk as sea levels rise. Other
offices can be exposed to
extreme weather events
which could reduce
operating efficiency and
workforce availability.
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.
CLIMATE CHANGE
INCRE ASED RISK
Climate change is both
a series of risks and
opportunities to the business,
which we describe in pages
36 to 55 of our Sustainability
and ESG section.
Our clients’ needs will
change to meet the demand
of society and we have to
play our part in reducing the
environmental impact of
our operations and react to
extreme weather events.
CONTRACTS
NO CHANGE TO RISK
The Group’s revenue arises
from a broad risk of contract
types 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.
59
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
PRINCIPAL RISK AND UNCERTAINTIES
PRINCIPAL RISK
IMPACT
MITIGATION
PEOPLE
INCRE ASED RISK
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 becoming
increasingly challenging,
given competition of talent
in key growth areas of the
business and the increasing
cost of living, which is placing
upward pressure on wages.
TECHNOLOGY
NO CHANGE TO RISK
The business is enabled
through the development
of new technology to meet
the needs of market sectors,
customers and regulators on
varying timescales.
The failure to recruit, develop
or retain the very best
talent would restrict growth
and the execution of our
strategy in response to the
megatrends, and would have
an impact on delivery and
customer relationships.
The Group is focused on enabling meaningful and fulfilling work as
part of Ricardo being a purpose-led business. We aim to ensure that
we actively develop and manage staff to encourage the Ricardo DNA
in an environment where everybody belongs; we foster professional
development and we provide appropriate remuneration and flexibility
in working conditions. We are sharing best practice in talent acquisition
across business units so we can maximise recruitment and retention
efficiency.
Our IT infrastructure enables us to share work and mitigates mobility
issues. Our people as stakeholders are discussed further on pages 27 to
33.
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 research
and development (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. We are increasingly
leveraging digital and data science technologies as enablers for our
innovations.
The programmes are approved and delivered within the operating
segments. 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.
Capitalised development costs are subject to regular review to assess
project progress, returns and any risk of impairment.
Further details of a selection of our current R&D programmes are given on
pages 22 to 26.
The choice of our production suppliers is often undertaken with the
original equipment manufacturer 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. We have implemented a sustainable
procurement process to increase supply chain transparency and a
Supplier Code of Conduct to state clearly our supplier expectations. This
has been communicated to all active suppliers.
SUPPLY CHAIN
INCRE ASED RISK
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 who depend on
production supply chains to
generate their revenue and
ability to give work to Ricardo
can be subject to sector-
related supply chain capacity
constraints, raw material
shortages, and increasing
input prices (driven by various
geopolitical factors).
Suppliers who do not
meet the requirements of
our new Supplier Code of
Conduct could be a risk to the
business.
Our production operating
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 lead 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.
Ricardo’s margins would be
impacted if increasing supply
chain costs are not managed
appropriately.
60
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 PRINCIPAL RISK AND UNCERTAINTIES
PRINCIPAL RISK
IMPACT
MITIGATION
LAWS AND REGULATIONS
INCRE ASED RISK
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
and a dynamic sanctions
landscape.
Failure to comply with, or
failure to adapt to changes
in, laws and regulations
including restrictions,
standards, export controls
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.
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.
DEFINED BENEFIT PENSION SCHEME
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 reduce the surplus.
If the scheme were to
move into deficit this could
require additional funding
contributions in excess of
those currently expected.
The Group closed the pension fund to future accrual in February 2010.
The last approved triennial valuation of the RGPF, with an effective date
of 5 April 2020, was signed on 30 November 2021. Based on the funding
plan agreed, monthly contributions to the RGPF reduced from £385,000
(£4.6 million per annum equivalent) to £150,000 (£1.8 million per annum
equivalent) in November 2021, continuing at this level until 31 October
2023.
Further details of the Group’s defined benefit pension scheme can be
found in Note 34 to the Group financial statements.
DECRE ASED RISK
The Group has a UK defined
benefit pension scheme (‘the
RGPF’) which is currently
in a funding surplus (the
scheme is in surplus on an
IAS 19 accounting basis).
The scheme’s assets and
liabilities continue to be
subject to volatility due to
various geopolitical factors,
supply chain shortages and
global inflationary pressures.
FINANCING
DECRE ASED RISK
The Group is in a net debt
position, having drawn on
available facilities primarily
to fund acquisitions and for
general corporate purposes.
There is a risk of the Group
being unable to secure
sufficient financing at
reasonable cost in order
to carry out its strategic
objectives.
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 at 30 June 2022, the Group had committed bank facilities of £200
million which provides more than sufficient headroom in its funding
needs and covenants. The Group completed a refinancing of its facilities
on 2 August 2022. Having assessed the Group’s funding needs, and to
continue to protect against downside scenarios while supporting the
Group’s growth strategy, we have reduced the committed bank facilities
to £150 million.
Further details of the Group’s borrowing facilities and other financial risks
can be found in Note 25 and Note 28 to the Group financial statements,
respectively.
Ricardo has implemented an Information Security Management System
(ISMS) which is certified to ISO 27001 Information Security Management.
We have adopted a layered defence in depth approach, with dedicated
information security resources who continuously monitor controls and
adapt them in response to emerging threats.
Penetration tests are conducted regularly by both internal and external
resources to augment our control regime.
Information security risks are reviewed each quarter by the Group IT
Director.
The performance, progress and continued maturing of our information
security controls are monitored bi-annually by the Audit Committee.
61
INFORMATION SECURITY
INCRE ASED RISK
Ricardo has valuable
information assets
comprising systems,
hardware and data.
The loss, theft, or inability
to access information assets
could result in reputational
damage, loss of competitive
advantage, business
disruption and financial
penalties.
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 VIABILIT Y 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 14 to 17. The Group
continues to follow a balanced
approach to its strategy, which
is subject to ongoing monitoring
and development as described
herein. In FY 2021/22, the Group
delivered revenue of £387.3m
and underlying operating profit of
£30.1m, excluding the results of
Ricardo Software, classified as a
discontinued operation, growth of
10% and 33% on the prior year,
respectively. On a continuing basis,
the Group delivered revenue of
£380.2m and underlying operating
profit of £28.0m, growth of
11% and 37% on the prior year.
FY 2021/22 Adjusted EBITDA,
defined as earnings before interest,
tax, depreciation, impairment and
amortisation, excluding the impact
of IFRS 16 Leases, adjusted for any
one-off, non-recurring, exceptional
costs and acquisitions or disposals,
was £44.0m, or £38.8m from
continuing operations.
The Group enters the new
financial year with an order book
from continuing operations of
£340.0m, growth of 17% on
the prior year, of which c.70% is
expected to be workable within
the next 12 months. The year-end
order book comprises the value of
all unworked purchase orders and
contracts received from customers.
At 30 June 2022, the Group
held total banking facilities of
£216.8m, comprising the £200m
Revolving Credit Facility (RCF) and
overdrafts of £16.8m. After the
year-end, the Group completed a
refinancing of its facilities, entering
into a new £150m RCF, which
provides the Group with committed
funding through to July 2026. The
facility offers a £50m accordion
together with an option to extend
to June 2027. Net debt at 30 June
2022 was £35.4m, comprising
cash and cash equivalents of
£50.5m and borrowings, including
hire purchase liabilities, but
excluding IFRS 16 lease liabilities,
of £85.9m. Adjusted Leverage,
defined as net debt over Adjusted
EBITDA, was 0.8x, providing
significant headroom of 2.2x
against the covenant limit of 3.0x.
Interest cover, defined as Adjusted
EBITDA over net finance costs,
excluding pension and IFRS 16
interest, was 13.7x, compared to
the covenant limit of 4.0x. There
are no changes to debt covenants
under the new facility.
The strategy of the Group is to
deliver long-term and sustainable
growth in environmental and
energy transition services. The
Group’s businesses focus is on
the development of longer-
term, multi-year contracts and
relationships, underpinned by
global long-term megatrends.
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 five-
year business planning process,
introduced in FY 2021/22 (formally
the detailed business planning
process covered a three-year
period), led by the Chief Executive
Officer.
The five-year planning process
is a forward-looking process
which is undertaken by Group
management and the Group’s
constituent operating segments
in the second half of the financial
year. The planning process
includes an assessment of changes
in the market and competitive
environment, together with
macroeconomic, political, societal
and technological changes. The
detailed operating segment
business plans are consolidated
to form a Group-wide budget and
five-year plan.
The Group-wide and individual
operating segment plans are
reviewed and approved by the
Board. Part of the Board’s role is
to review the performance of the
Group in the last financial year
and to consider whether the plan
presented is appropriate. The first
year of the business plan forms the
Group’s annual operating budget.
This is subject to a re-forecast on a
monthly basis.
62
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
VIABILIT Y STATEMENT
Assessment of viability
The five-year business plan
reflects the best estimate of
the prospects of the Group. The
plan has been stress-tested, to
consider the impact of known risks,
including the pace of technological
change in the automotive sector,
driven by climate change, which
continues to shift rapidly away
from the traditional internal
combustion engine towards more
renewable propulsion methods,
on the Group’s results, operations
and financial position in a severe
but plausible downside scenario.
The scenario includes lower gross
margins and higher costs across
the operating segments to account
for global inflationary pressures
and the removal of new or ‘blue
sky’ revenue streams, together
with:
• A 10% reduction in Automotive
& Industrial revenue from
established mobility solutions
each year, together with a
lower growth rate in emerging
solution revenues
• Reduced revenue growth rates
in Energy & Environment
• A decline in Rail revenue and
EBITDA in FY 2022/23
• Delays in the ramp-up
of production volumes in
Performance Products and
Defense on key programmes
with no revenue from new
revenue streams in later years
• An increase of 10 working
capital days for each operating
segment in FY 2022/23 and FY
2023/24 and further increases
in later years.
The scenario was separately
adjusted to exclude the results of
Ricardo Software and to build in
the proceeds from the disposal
of the business, which was
completed on 1 August 2022.
The scenario incorporates
the appropriate reversal of
discretionary bonus payments
and setting appropriate levels
of dividends based on the
sensitised results of the operating
segments. The scenario results in
a reduction of c.10% in the Group’s
Adjusted EBITDA from continuing
operations in FY 2022/23, with
a further c.15% reduction in FY
2023/24 on the sensitised FY
2022/23 Adjusted 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,
contracts, and financing, as set out
on pages 58 to 61, and takes into
consideration the risks identified
as part of our TCFD work, as set
out on pages 41 to 43, represents
severe but plausible circumstances
that the Group could experience.
The results showed that the
Group would be able to continue
operating well within its debt
covenants and liquidity headroom
under the downside scenario. If
full bonus costs were included,
headroom under the Group’s
banking covenants and liquidity
is reduced, but no 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. Based on this reverse
stress testing, a further c.45%
reduction in sensitised Adjusted
EBITDA compared to the downside
scenario would be required in FY
2022/23 (c.40% in later years)
before covenants are breached.
In the event of such scenarios
materialising, more severe cost
actions would be taken to ensure
covenant compliance.
The Directors have assessed
the prospects of the Group over
the five-year plan period to 30 June
2027, consistent with the five-year
planning process, and confirm that
their assessment of the principal
risks and uncertainties facing the
Group was robust.
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 five-year
period ending 30 June 2027.
Going concern
Given the viability statement
provided above, the Directors
consider it appropriate to prepare
the financial statements on a
going concern basis, as explained
in Note 1(a) to the Group financial
statements.
63
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 CASE STUDY
CASE STUDY
ENERGY TRANSITION
ENABLING A CARBON-
NEGATIVE FUTURE
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021 /22
64
01. STRATEGIC REPORT CASE STUDY
In partnership with Bluebox Energy and Woodtek
Engineering, Ricardo has received £3 million from
the UK Government to design, install and operate a
combined heat and power demonstrator plant with
a negative carbon footprint. This will showcase
climate-repairing technology.
The project uses Ricardo’s 20-year experience
in bioenergy and carbon dioxide capture and
utilisation technologies, combining skillsets from
the Energy and Environment (EE) and Automotive
and Industrial (A&I) operating segments.
Using sustainably sourced forestry waste,
the plant will demonstrate the effectiveness of
community-scale greenhouse gas removal and
provide up to 300 local homes and businesses
with renewable heat and electricity. It will also
demonstrate a realistic carbon negative technology
than can offset hard-to-decarbonise sectors and
deliver national energy security.
Commercially marketable by-products from the
system include industrial-quality carbon dioxide
and biochar (similar to charcoal), which can be used
by anaerobic digester operators, in wastewater
treatment sites, by farmers to improve soil fertility
and as a supplement to animal feed to suppress
methane emissions by livestock.
The demonstrator plant is planned to be
operational by mid-2023 and, if successful, can
generate significant profitable revenue growth in
clean energy and resources.
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021 /22
65
01. STRATEGIC REPORT FINANCIAL REVIEW
“The Group has delivered a set of results in line with the Board’s expectations, with
good growth in revenue and profitability, driven by a rebound in our Automotive
and Industrial segment and continuing growth in Energy and Environment. Our cash
performance has been strong, with working capital and net debt both reducing year-
on-year.
“The successful acquisition of Inside Infrastructure, which expands the Group’s
environmental services activities in Australia, has added £0.9m to the Group’s
revenue and £0.1m to operating profit in the year.
“In line with our strategy, we completed the sale of Ricardo Software after the
year-end, further reducing net debt and providing funds for future investment.”
changing market, and Energy
and Environment (EE), which
continues to see high demand for
its decarbonisation services.
On 21 March 2022, we
successfully acquired Inside
Infrastructure Pty Ltd (Inside
Infrastructure), which specialises
in water and sustainable resource
management within Australia.
Inside Infrastructure added £0.9m
of revenue and £0.1m of
operating profit and
profit before tax
to the Group’s
results in FY
2021/22 (see
Note 14 to the
Group financial
statements).
Net debt was
£35.4m at 30 June
2022, compared
to £46.9m at 30 June 2021. This
improvement reflects a strong
working capital performance.
Excluding restructuring costs and
acquisition-related payments,
working capital reduced by £8.2m
and the Group generated more
than £25m of cash in the year (see
net debt below).
Order intake from
continuing operations up
24% (constant currency:
23%) on FY 2020/21
with closing order
book of £340.0m
Order intake from
continuing operations of
£425.3m represents a 24%
increase on the prior year
order intake of £344.1m
(constant currency: 23%),
with growth across all
IAN GIBSON
CHIEF FINANCIAL OFFICER
Group results
This year, the Group delivered
total revenue of £387.3m and
underlying profit before tax of
£26.3m, an increase of 10% and
46% on the prior year, respectively.
Revenue and underlying profit
before tax from continuing
operations, which excludes the
results of Ricardo Software, held
for sale as at 30 June 2022 (see
Note 3 to the Group financial
statements), were £380.2m and
£24.2m, increases of 11% and
54% on the prior year. Reported
profit before tax from continuing
operations, after deducting specific
adjusting items, was £12.4m (FY
2020/21: £2.0m).
On a constant currency
basis, revenue from continuing
operations increased by £36.7m
(11%) compared to FY 2020/21.
Similarly, on a constant currency
basis, underlying operating
profit and profit before tax from
continuing operations increased
by £7.6m (37%) and £8.5m (54%),
respectively.
The results were in line with
the Board’s expectations and
reflect good year-on-year growth
across a number of our segments,
particularly Automotive and
Industrial (A&I), which has
continued its positive trajectory
as it repositions itself as a
global business in a rapidly
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021 /22
66
01. STRATEGIC REPORT
FINANCIAL REVIEW
Headline trading performance
2022
Total
Less: discontinued operation
Continuing operations
Less: performance of acquisitions
Continuing operations - organic
2021
Total
Less: discontinued operation
Continuing operations
Continuing operations at current period exchange rates
Growth – total (%)
Growth – continuing operations(2) (%)
Growth – continuing organic(3) (%)
Constant currency growth(4) - continuing operations (%)
Underlying(1)
Reported
Revenue
£m
Operating
profit
Profit before
tax
Operating
profit/(loss)
Profit/(loss)
before tax
£m
£m
£m
£m
387.3
(7.1)
380.2
(0.9)
379.3
351.8
(8.1)
343.7
343.5
10
11
10
11
30.1
(2.1)
28.0
(0.1)
27.9
22.7
(2.3)
20.4
20.4
33
37
37
37
26.3
(2.1)
24.2
(0.1)
24.1
18.0
(2.3)
15.7
15.7
46
54
54
54
17.0
(0.8)
16.2
(0.1)
16.1
8.6
(1.9)
6.7
6.8
98
142
140
138
13.2
(0.8)
12.4
(0.1)
12.3
3.9
(1.9)
2.0
2.1
238
520
515
490
(1) Underlying measures exclude the impact on statutory measures of specific adjusting items as set out in Note 2 and Note 7 to the Group financial
statements. Underlying measures are considered to provide a more useful indication of underlying performance and trends over time.
(2) Growth from continuing operations excludes the results of Ricardo Software, which was sold on 1 August 2022.
(3) Organic growth excludes the performance of current year acquisitions (Inside Infrastructure, see Note 14 to the Group financial statements) from the
results of FY 2021/22.
(4) 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).
segments. Order intake includes
£1.6m from Inside Infrastructure.
There were significant increases
in year-on-year order intake in A&I
(38%, constant currency: 37%),
driven by increasing demand for
electrification, power electronics
and software services, together
with clean sheet engine design
for marine applications, and
Performance Products (PP) (31%,
excluding Ricardo Software,
constant currency: 31%), which
was successful in securing a
multi-year order to continue to
supply transmissions for a single
make racing series. EE order intake
continued its consistent year-on-
year growth trajectory, with a 16%
increase (constant currency: 16%),
with the key driver of growth
being the Sustainability practice.
Defense order intake increased
by 12% (constant currency: 10%),
which secured USD 34m (£27m)
of orders for the Anti-lock braking
system/electronic stability control
(ABS/ESC) retrofit programme
and Rail order intake grew by 14%
(constant currency: 16%), driven by
a number of project extensions and
new wins in North America, which
is a key growth market for Ricardo.
Revenue from continuing
operations up 11%
(constant currency: 11%)
on FY 2020/21
FY 2021/22 revenue from
continuing operations was
£380.2m, compared to £343.7m
in the prior year (£343.5m on a
constant currency basis). Revenue
includes £0.9m from Inside
Infrastructure. Revenue increased
across all operating segments with
the exception of Rail.
EE revenue grew by 18%
(constant currency: 18%), with
strong demand from international
governments to support climate
commitments and from private
sector clients for sustainability
and net zero support. A&I revenue
grew by 19% (constant currency:
18%) as a result of the growth
in order intake. Defense revenue
increased by 19% (constant
currency: 18%), driven by
increased ABS/ESC volumes and
engineering services work. PP
revenue increased by 5% (constant
currency: 5%) due to growth in
transmission volumes. Rail revenue
declined by 4% (constant currency:
3%) due to the wind down of a
number of projects and delays in
starting new work.
67
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 FINANCIAL REVIEW
Operating segment summary
2022
2021
2021 at constant currency
Underlying
operating
profit
Underlying
operating
profit margin
%
Underlying
operating
profit
Underlying
operating
profit margin
%
Underlying
operating
profit
Underlying
operating
profit margin
%
9.1
7.7
3.7
5.9
7.2
33.6
(5.6)
28.0
2.1
30.1
13.5
10.4
3.1
13.1
9.8
8.8
-
7.4
29.6
7.8
8.5
8.0
(3.6)
5.4
6.7
25.0
(4.6)
20.4
2.3
22.7
14.9
10.3
(3.6)
14.2
9.6
7.3
-
5.9
28.4
6.5
8.5
7.9
(3.6)
5.5
6.7
25.0
(4.6)
20.4
2.3
22.7
14.9
10.3
(3.5)
14.4
9.6
7.3
-
5.9
28.0
6.5
EE
Rail
A&I
Defense
PP
Operating segments – continuing
operations
Plc costs
Total - continuing operations
Discontinued operation
Total
The segmental results are discussed in more detail on pages 73 to 89.
Underlying operating profit
from continuing operations
of £28.0m, up 37%
(constant currency: 37%)
with reported operating
profit from continuing
operations of £16.2m (FY
2020/21: £6.7m)
Underlying operating profit from
continuing operations, which
excludes specific adjusting items,
increased by 37% (constant
currency: 37%) to £28.0m (FY
2020/21: £20.4m, £20.4m on
a constant currency basis). FY
2021/22 underlying operating
profit includes £0.1m from
Inside Infrastructure. Underlying
operating profit margin from
continuing operations increased
to 7.4% from 5.9% (constant
currency: 5.9%) in the prior year.
The combination of revenue
growth and the implementation
of the global operating model
resulted in A&I significantly
improving its underlying operating
profit from a loss of £3.6m in FY
2020/21 (constant currency: loss
of £3.6m) to a profit of £3.7m in
FY 2021/22. A&I’s underlying
operating profit margin improved
from negative 3.6% (constant
currency: 3.5%) to positive 3.1%.
On a reported basis, including
costs from reorganisation
activities, A&I’s operating loss
decreased from £9.2m in FY
2020/21 to £1.5m in FY 2021/22.
Underlying operating profit
improved in EE and Defense, but
margins were lower than the prior
year due to increased operating
costs in EE, to support the growth
of the business, and the mix of
work in Defense, with higher ABS/
ESC material costs. PP underlying
operating profit grew year-on-year
and margins were in line with prior
year. Rail underlying operating
profit reduced as a result of the
reduction in revenue.
Reported operating profit
from continuing operations was
£16.2m, growth of 142% (constant
currency: 138%) on FY 2020/21.
Within continuing operations,
the Group recognised costs of
£11.8m in respect of specific
adjusting items relating to the
amortisation of acquired intangible
assets, external project costs,
restructuring actions in A&I and
Rail, the recognition of costs in
relation to the implementation of
a new cloud-based ERP system in
PP, and a gain on the settlement
of a quasi-equity investment in
one of the Group’s subsidiaries.
A further £1.3m of external
costs in relation to the disposal
of Ricardo Software, held for
sale at 30 June 2022, have been
recognised as specific adjusting
items within the discontinued
operation. Specific adjusting
items relating to earn outs for
previously completed acquisitions
and restructuring actions in A&I
were also recognised in the prior
year. Specific adjusting items are
discussed in more detail below.
Underlying profit before
tax from continuing
operations of £24.2m, up
54% (constant currency:
54%) on FY 2020/21, with
a reported profit before tax
from continuing operations
of £12.4m (FY 2020/21:
profit of £2.0m)
The increase in underlying profit
before tax from continuing
operations, from £15.7m (constant
currency: £15.7m) to £24.2m,
was primarily driven by the
improvement in the underlying
operating profit.
As noted above, the FY
2021/22 reported profit before
tax from continuing operations
includes £11.8m of costs relating
to specific adjusting items (FY
2020/21: £13.7m), discussed in
more detail below.
68
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 FINANCIAL REVIEW
Net debt down 25% to
£35.4m (FY 2020/21:
£46.9m)
Closing net debt was £35.4m (FY
2020/21: £46.9m). The Group had
a net cash inflow for the period
of £11.5m. During the year, the
Group acquired the share capital of
Inside Infrastructure for an initial
up-front consideration of AUD
10.4m (£5.6m), including AUD
0.9m (£0.5m) for net cash and
normal working capital. AUD 1.0m
(£0.6m) of cash was acquired. The
Group also paid acquisition-related
earn out and retention costs of
£4.9m, other acquisition and
disposal-related fees of £1.2m,
costs for the exit of the former
CEO (£0.8m), and reorganisation
costs of £2.4m. Excluding these
specific adjusting items, the Group
generated more than £25m of
cash, which was achieved through
a combination of the improved
profitability and a continuing
strong focus on working capital
management. The composition of
net debt is defined in Note 25 to
the Group financial statements.
Sale of Ricardo Software
In line with our strategy, on
1 August 2022 the Group
completed the sale of Ricardo
Software, which was previously
reported within the PP reportable
operating segment. The maximum
cash consideration receivable
is USD 20.5 million (£16.7m),
of which USD 17.5m (£14.3m)
was received on completion and
up to a further USD 3.0 million
(£2.4m) is receivable based on
Ricardo Software achieving certain
revenue targets in the twelve-
month period post-completion.
The sale further reduces our net
debt and provides funds for future
investment. In FY 2021/22, Ricardo
Software generated revenue of
£9.4m, of which £2.3m was from
sales to the rest of the Ricardo
Group, and contributed £2.1m to
the Group’s underlying operating
profit (FY 2020/21: revenue of
£10.3m, of which £2.2m was
from sales to Ricardo Group, and
underlying operating profit of
£2.3m). FY 2021/22 underlying
operating profit excludes £0.3m
of amortisation which was not
charged as Ricardo Software was
held for sale in June 2022.
Basis of preparation
These consolidated financial
statements of the Ricardo plc
Group (Group) have been prepared
in accordance with have been
prepared in accordance with UK-
adopted international accounting
standards. 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(d) to the Group financial
statements.
Reported results represent the
Group’s overall performance in
accordance with IFRS. The Group
also uses a number of alternative
performance measures (APMs) in
addition to those reported under
IFRS. Ricardo provides guidance to
the investor community based on
underlying results.
The underlying results and
other APMs may be considered in
addition to, but not as a substitute
for or superior to, information
presented in accordance with
IFRS. Explanations of how they
are calculated and how they are
reconciled to an IFRS statutory
measure are provided in Note 2 to
the financial statements.
Underlying results include
the benefits of the results
of acquisitions and major
restructuring programmes but
exclude significant costs (such
as the amortisation of acquired
intangibles, acquisition-related
expenditure, reorganisation costs
and other specific adjusting
items). Ricardo believes that
the underlying results, when
considered together with the
reported results, provide investors,
analysts and other stakeholders
with helpful complementary
information to better understand
the financial performance and
position of the Group.
Specific adjusting items
As set out in more detail in Note
2 and 7 to the Group financial
statements, the Group’s underlying
profit before tax from continuing
operations for the year excludes
£11.8m of costs incurred during
the period that have been
charged to the income statement
as specific adjusting items (FY
2020/21: £13.7m). Including the
discontinued operation, total
specific adjusting items recognised
in the year were £13.1m before tax
(FY 2020/21: £14.1m).
Amortisation of acquired
intangible assets was £4.5m in
the year, compared to £5.0m in
FY 2020/21, with the reduction
reflecting the end of the
amortisation of intangible assets
acquired as part of the purchase
of AEA Ltd in 2012. A charge of
£0.1m has been incurred in FY
2021/22 in respect of intangibles
acquired following the acquisition
of Inside Infrastructure.
Acquisition-related costs of
£0.8m were incurred in the year
(FY 2020/21: £1.7m). These
related to external fees paid in
respect of the Inside Infrastructure
acquisition, associated integration
costs, a retention bonus for the
former shareholders of Ricardo
Energy Environment and Planning
(REEP), acquired in FY 2019/20,
and external fees on other
strategic projects. The prior period
included £1.6m in relation to earn-
out and deferred compensation
payments for REEP and Ricardo
Rail Australia (RRA), acquired in
FY 2018/19, together with £0.1m
of external fees in relation to a
strategic project.
69
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 FINANCIAL REVIEW
Purchases and disposals:
A charge of £0.3m (USD 0.4m) was
incurred in FY 2021/22 in respect
of the reduction in the fair value of
contingent consideration from the
sale of the Group’s test operations
in Detroit in June 2020. This was a
result of a reduction in the volume
of traditional engine test work than
expected at the time of the sale.
A similar charge of £0.5m was
recognised in FY 2020/21. The
prior year also include a charge of
£1.5m in respect of the reduction
in the fair value of the Detroit
Technology Campus (DTC) as the
impact of COVID-19 on the local
property market reduced demand
for office space and reduced prices.
£1.3m of costs were recognised
in the year in respect of external
fees incurred in the disposal of
Ricardo Software (FY 2020/21:
£0.4m). These costs have been
recognised within the discontinued
operation and have been classified
as specific adjusting items as they
are incremental costs which are
directly attributable to the sale of
the business.
Other reorganisation costs:
During the second half of the year,
the Group commenced a major
restructuring programme to combine
the three regional A&I businesses
in EMEA, US, and China, into one
globally operated business, re-
aligned around two key pillars:
emerging technologies, focused
on electrified propulsion, vehicle
integration and software and
digital services; and established
mobility, focusing on high efficiency
internal combustion engines (ICE)
and emissions compliance. This
programme has resulted in £5.3m of
reorganisation costs in FY 2021/22,
relating to:
• headcount reductions (£2.3m),
predominantly in senior
management and administrative
positions;
• property downsizings and exits
•
(£0.9m), in respect of a reduction
in the footprint in Europe;
the impairment of intangible
assets (£2.0m) in relation to
technologies and services that
the business will not focus on
going forwards; and
Reconciliation of underlying profit before tax to
reported profit before tax
£m
FY 2021/22
FY 2020/21
Underlying profit before tax from continuing operations
Amortisation of acquired intangibles
Acquisition-related expenditure
Reorganisation costs:
• A&I US – Test business change in fair value of
contingent consideration
• A&I US - DTC purchase and impairment
Asset purchases and disposals
• A&I - reorganisation costs
• Rail - reorganisation costs
Other reorganisation costs
ERP implementation costs
FX revaluation
CEO exit costs
GMP equalisation
24.2
(4.5)
(0.8)
(0.3)
-
(0.3)
(4.9)
(1.0)
(5.9)
(0.6)
0.3
-
-
15.7
(5.0)
(1.7)
(0.5)
(1.5)
(2.0)
(3.4)
-
(3.4)
-
-
(1.5)
(0.1)
Total specific adjusting items from continuing
operations
Reported profit before tax from continuing operations
SAI recorded in discontinued operation
Ricardo Software external fees
(11.8)
12.4
(13.7)
2.0
(1.3)
(0.4)
• external advisory and legal
fees (£0.1m) to support the
programme.
The cash cost of the actions in the
year was £0.5m. This programme
will continue into the next financial
year, where the Group expects
to incur a similar level of income
statement expense. The total cash
cost of the programme is estimated
to be in the region of £4.5m.
FY 2021/22 reorganisation
costs include a credit of £0.4m in
respect of unutilised provisions
from the prior year. In FY 2020/21,
£3.4m of reorganisation costs
were incurred in the A&I business
in EMEA, as a result of the
challenging trading conditions
and COVID-19, which combined
to depress short-term workable
orders and delay projects. This led
to in headcount reductions (£2.5m,
of which £2.1m was utilised in FY
2021/22) and the exit from sites in
Cambridge (£0.7m) and Germany
(£0.1m), as well as the write off of
some equipment in the Santa Clara
Technical Centre, which was exited
in June 2020 (£0.1m). The cash
cost of the FY 2020/21 actions in
FY 2021/22 was £1.6m.
£1.0m of reorganisation costs
were incurred in Rail in FY 2021/22
as a result of a significant review of
its operational structure, aimed at
creating a more flexible and agile
business. Costs incurred related
to the exit of a number of senior
positions in the organisation.
The review will continue into FY
2022/23. The cash cost of these
actions in FY 2021/22 was £0.3m.
ERP system implementation
costs: Due to the result of
guidance being issued following
a recent IFRS Interpretations
Committee (IFRIC) decision,
£0.5m of external costs incurred
and capitalised in FY 2020/21 (in
line with prevailing practice at
the time), together with £0.1m
incurred in FY 2021/22, in relation
to the implementation of a new
cloud-based ERP system within
70
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 FINANCIAL REVIEW
the PP operating segment have
been expensed in the year. They
have been classified as a specific
adjusting item as they are not
reflective of the underlying
performance of the business in the
period.
Revaluation gain:
An intercompany loan from Ricardo
plc to Ricardo Investments Ltd,
representing a quasi-equity
investment in one of the Group’s
subsidiaries, was repaid. The
loan was previously classed as
not repayable in the foreseeable
future under IAS 21 with any
revaluation of the foreign currency
loan recognised in the statement
of Other Comprehensive Income.
Following the repayment of
the loan, a gain of £0.3m was
reclassified from equity to the
income statement, as required
under IAS 21, and was reported as
a specific adjusting item.
CEO exit costs: In January 2021,
the Board, together with Dave
Shemmans, agreed that Dave
would leave his role as Group
Chief Executive after leading the
business for sixteen years. Costs
of £1.5m were accrued within
specific adjusting items in the prior
year, reflecting the terms of his
settlement agreement, associated
legal fees and the costs of a search
process to appoint his successor.
GMP equalisation: In order
to equalise male and female
members’ benefits for the effect
of Guaranteed Minimum Pensions
(GMP) for historical transfers out
of the pension scheme, a charge of
£0.1m in FY 2020/21 was incurred.
were £7.3m (FY 2020/21: £8.5m),
reflecting targeted investment in
hydrogen, clean ICE and power
electronics technology, together
with technology, tools and
processes in EE.
Capital expenditure on
property, plant and equipment,
excluding right-of-use assets,
was £4.7m (net of government
grants), reflecting investment
in our business operations,
including hydrogen and electrical
test capability at the Shoreham
Technical Centre (STC). £4.3m of
capital expenditure on property,
plant and equipment was incurred
in FY 2020/21.
Research and
Development (R&D) and
capital investment
The Group continues to invest
in R&D and spent £13.3m
(FY 2020/21: £10.2m) before
government grant income of £2.5m
(FY 2020/21: £1.2m). Development
costs capitalised in this period
Net finance costs
Finance income was £0.6m (FY
2020/21: £0.8m) and finance
costs were £4.4m (FY 2020/21:
£5.5m) for the year, giving net
finance costs of £3.8m (FY
2020/21: £4.7m). The reduction
in costs reflects a reduction in the
bank loan balance, as well as a
reduction in the applicable interest
rates as a result of improved
leverage.
Taxation
The total tax charge for the
year, including the results of
the discontinued operation, was
£4.6m (FY 2020/21: £2.2m) and
the total effective tax rate was
34.8% (FY 2020/21: 56.1%). The
underlying effective tax rate for
the year was 26.2% (FY 2020/21:
26.9%). The total tax charge from
continuing operations was £4.2m
(FY 2020/21: £1.8m), with a total
effective tax rate of 33.9% (FY
2020/21: 90%). The underlying
effective tax rate for continuing
operations was 26.9% (FY
2020/21: 28.0%).
Deferred tax assets of £9.0m
(FY 2020/21: £8.3m) include
£4.3m (USD 5.7m) (FY 2020/21:
£4.9m, USD 6.5m) of R&D tax
credits and £0.2m of tax losses
(FY 2020/21: £1.4m), both in the
US. The Group also has deferred
71
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 FINANCIAL REVIEW
tax assets of £1.7m in relation
to tax losses in other territories.
The Directors have considered the
recoverability of these assets and
are satisfied that it is probable
that sufficient taxable profits will
be generated in the foreseeable
future, against which the
recognised assets can be utilised.
Deferred tax liabilities of
£12.7m (FY 2020/21: £8.2m)
include £3.8m in respect of the
defined benefit pension scheme,
has been in surplus throughout the
year.
Earnings per share
Basic earnings per share was
13.8p (FY 2020/21: 2.9p). The
Directors consider that underlying
earnings per share provides a more
useful indication of underlying
performance and trends over time
than reported earnings per share.
Underlying basic earnings per
share for the year was 31.2p (FY
2020/21: 22.4p). The calculation
of basic earnings per share, with
a reconciliation to an underlying
basic earnings per share, which
excludes the impact (net of tax)
of specific adjusting items, is
disclosed in Note 8 to the Group
financial statements.
Dividend
The Group paid its interim dividend
of 2.91p per share (£1.8m) on 8
April 2022 (HY 2020/21: 1.75p,
£1.1m). The Board has declared a
final dividend of 7.49p per share
(£4.7m) (FY 2020/21: 5.11p,
£3.2m), which will be paid on 25
November 2022 to holders of
ordinary shares on the Company’s
register of members on 4
November 2022.
This reflects the Board’s
desire to increase the return
to shareholders as the Group
continues to recover from the
impact of COVID-19, whilst
retaining sufficient funds in the
business for investment.
Goodwill
At 30 June 2022, the Group had
total goodwill of £90.6m (FY
2020/21: £84.7m). The acquisition
of Inside Infrastructure added
goodwill of £3.8m to the Ricardo
Energy and Environment cash
generating unit (CGU) as synergies
from the acquisition are expected
to benefit EE operating segment.
The carrying value of goodwill
is fully supported by the value-
in-use calculations for all other
operating segments. There are no
concerns over the recoverability of
the Group’s goodwill balances.
Net debt and banking
facilities
Net debt at 30 June 2022
comprised cash and cash
equivalents of £50.5m (of which
£1.1m was included in the disposal
group held for sale), borrowing and
overdrafts, including hire purchase
liabilities and net of capitalised
debt issuance costs of £85.9m.
Total facilities before borrowings
are £216.8m. This provided total
cash and liquidity of £181.4m as at
30 June 2022.
After the year-end, on
2 August 2022, the Group
completed a refinance of its
banking facilities, entering into
a new £150m Revolving Credit
Facility (RCF) which provides the
Group with committed funding
for the next four years through
to July 2026 and is available for
general corporate purposes as
well as acquisitions and strategic
investments. The RCF has an
option for a £50m accordion and
to extend the commitment for a
further year through to July 2027.
This multi-currency facility has a
variable interest rate which ranges
from 1.65% to 2.45% above
SONIA which is dependent upon
the Group’s adjusted leverage.
The Group’s Adjusted Leverage
ratio (defined as net debt divided
by EBITDA for the twelve months
to 30 June 2022, excluding the
impact of specific adjusting items
and IFRS 16, and adjusted for
the impact of acquisitions and
disposals in the year), was 0.8x.
The Adjusted Leverage covenant
was 3.0x as at 30 June 2022.
The Interest Cover ratio
(defined as EBITDA for the last
twelve months to 30 June 2022,
as defined above, divided by net
finance costs, excluding pension
and IFRS 16 interest), was 13.7x.
The Interest Cover covenant is
4.0x.
There is significant headroom
against both covenants. Further
details are provided in Note 25 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.
Movements in the year-on-year
average exchange rates have had
a minimal impact on the Group’s
revenue, operating profit or profit
before tax.
Pensions
The Group’s defined benefit
pension scheme operates within
the UK. The fair value of the
scheme’s assets at the end of the
year was £127.1m (FY 2020/21:
£156.1m). Although asset values
reduced in the year, liabilities also
reduced as a result of changes in
actuarial assumptions. The scheme
pre-tax surplus, measured in
accordance with IAS 19, increased
from £6.8m at 30 June 2021 to
£15.2m at 30 June 2022. Ricardo
paid £3.0m of cash contributions
into the scheme during the year (FY
2020/21: £4.6m). From November
2021, following completion of
the 2020 triennial valuation
negotiations with the scheme
Trustees, the level of deficit
funding contributions reduced from
£4.6m per annum to £1.8m per
annum through to November 2023.
72
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 OPERATING SEGMENT REVIEW
ENERGY AND ENVIRONMENT (EE)
Partner of choice for solving complex environmental challenges through industry-
leading analysis, advice and data.
FINANCIAL AND OPER ATIONAL HIGHLIGHTS
FINANCIAL AND OPER ATIONAL HIGHLIGHTS
Order intake
Order book
Revenue
+16%
FY
2021/22
2020/21(CC)
2020/21
+19%
FY
£m
+18%
FY
£m
£m
74.1
2021/22
57.0
2021/22
67.2
64.1
64.1
2020/21(CC)
2020/21
47.9
47.9
2020/21(CC)
2020/21
57.0
57.1
Underlying operating
profit
+7%
Underlying operating
profit margin
-1.4pp
Headcount
+16%
FY
2021/22
2020/21(CC)
2020/21
£m
FY
%
FY
Number
9.1
2021/22
13.5
8.5
8.5
2020/21(CC)
2020/21
14.9
14.9
2021/22
2020/21
803
690
Energy and Environment (EE) works with customers across a wide variety of sectors and geographies
to help address their major environmental challenges, which are ever closer related to their strategic
imperatives. We have a broad range of environmental skills, covering everything from air quality and
climate through to waste, water and chemicals, plus a strong energy and carbon capability to support
the energy transition. Added to these skills, we have excellent data, digital and economics capabilities to
assist our customers in evaluating data, turning complex information into meaningful policy advice and
then support implementation of projects.
Customers
Historically we have been an adviser and service
provider to governments. While this is still the case,
we have significantly extended our work to support
private and public corporates, which now account for
over 45% of our current projects. Furthermore, we are
continuing to diversify internationally, with 40% of our
project work now outside the UK.
Principal operating regions
We have continued to diversify our customer base over
the last year both organically and through acquisition.
With the acquisition of Inside Infrastructure in
Australia, we have broadened our skills in the water
market, and also for both the extractives and utilities
sectors. Organically we have grown significantly
in Spain, where we have a developing centre of
consultancy excellent in Madrid, and in the Middle
East, where our work is expanding exponentially,
specifically for water and air-quality consulting
services.
Growth drivers
•
Increasing focus on sustainability in the corporate
sector driven by the ESG agenda
• Amplified interest in climate and carbon following
•
COP26
Innovation in electricity and heat as well as in key
technology areas such as hydrogen
73
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
OPER ATING SEGMENT REVIEW
DID YOU KNOW?
We now have people based in 13 countries,
in addition to the UK.
Every year, several our colleagues are
seconded to our customers to provide in-
depth support for key projects. For example,
our climate consultant Maya Rubin was
seconded to the UK government to provide
support on the UK’s review of the IPCC Sixth
Assessment Report (the latest update in
the global assessment of climate-change
mitigation progress and pledges).
Competitive strengths
• Expert team of scientists, engineers, economists,
and data specialists
• Longstanding UK heritage as a trusted supplier
to UK government, which resonates with global
customers
• Growing consultancy centres outside the UK,
bringing specific dedicated skills for individual
markets local markets
• Mainstreaming of digital and data-science
capabilities across consultancy projects
Performance
EE delivered a strong performance in FY 2021/22,
underpinned by the strength of our sustainability
portfolio and the geographic expansion into key
territories. Order intake for the year was £74.1m,
growth of 16% on the prior year on a constant currency
basis. Revenue and underlying operating profit grew
by 18% and 7%, respectively, on a constant currency
basis, as a result of strong demand across multiple
services, segments and geographies. Underlying
operating profit margin was 13.5%, a reduction of
1.4 percentage points on the previous year on a
constant currency basis, as a result of a combination
of the mix of work performed in the year and
additional operating expenses to deliver the growth
in the revenue and profit.
We have seen a strong drive from the public
and private corporate sector to set sustainability
strategies and undertake net-zero pathway
investigations, leading to demand in such services
as Lifecycle Assessment (LCA) and ESG-related
reporting support in areas such as the Taskforce
for Finance-related Climate Disclosures (TCFD).
EE’s success in securing several new and significant
contracts for sustainability services is supported by
a more defined sector-orientated approach. From
our initial customer engagement right through to
the customer delivery, we are creating value for our
customers at each step of the process.
Alongside our clear strength in sustainability
services, EE has also significantly expanded our work
on government programmes in the UK, particularly
in providing roll-out projects of technology incubator
programmes.
Developments in air quality have been driven by
increased market demand as Governments around
the world tackle challenges of air pollution. EE can
bring its decades of experience to support these
projects.
We have also seen an increase in water
consultancy services, supporting a number of
programmes and studies that seek to mitigate the
risk of climate-driven water deficits. An example
of the type of work that we are carrying out in this
sector includes a collaborative project with United
Utilities, Severn Trent Water and Thames Water to
consider the feasibility of a River Severn to River
Thames Transfer (STT) scheme which, if progressed,
would create cross-regional water supply
connectivity by designing a resilient, sustainable
water resource for future generations.
Growth in our Environmental Policy team
is primarily the result of the high demand for
policy analysis from governments, as well as key
corporate players across the chemicals industry
in helping them navigate their way through the
business impacts of the European Commission’s
new Chemicals Strategy for Sustainability, a key
element of the EU Green Deal. Other elements of
the EU Green Deal relating to air quality, industrial
emissions and the circular economy have also led to
increased demand from the European Commission
and its agencies for our Environmental Policy team’s
services in policy development and analysis.
74
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 OPER ATING SEGMENT REVIEW
CASE STUDY
RICARDO APPOINTED BY EUROPEAN
COMMISSION TO DEVELOP RENEWABLE
ENERGY PROGRAMMES FOR RURAL
COMMUNITIES
Ricardo experts are leading a two-year
programme, on behalf of the European
Commission, to enable the development and
sharing of best practices for rural energy
communities across Europe. Focusing on people
and citizen-driven initiatives is seen as a key
priority of the European energy policy, as it
will support the transition to cleaner and more
efficient energy system. Through the work of
our experts, Ricardo will support the European
objective of ensuring a just and fair energy
transition in Europe, where no one is left behind.
Outlook
Our business is closely aligned with major regulatory/
environmental trends and where major investments
and asset developments are evident.
Sustainability will remain a core focus for growth,
with demand forecast across a broad range of sectors,
specifically for private and public corporate listed
companies in sectors of high energy use that have
complex supply chains (such as chemical, automotive,
component, food and drink production).
We also expect consistent growth and returns
within our highest performing key segments, namely
water and environmental policy. Carbon trading is
gaining prominence and Ricardo is well placed to
support its future expansion – we recently secured a
major project to review carbon trading in Indonesia and
anticipate similar projects in multiple locations.
Furthermore, we anticipate further opportunities
resulting from urbanisation (and the links between
climate and air quality and the need for clean and
green infrastructure) the energy transition (driving new
fuels, technologies, and innovation solutions) and the
requirement for smarter and cleaner mobility solutions.
75
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 OPER ATING SEGMENT REVIEW
RAIL
Experts in supporting complex rail systems through the delivery of independent
assurance and consultancy services.
FINANCIAL AND OPER ATIONAL HIGHLIGHTS
Order intake
Order book
Revenue
+16%
FY
2021/22
2020/21(CC)
2020/21
£m
85.0
73.4
74.7
+9%
FY
2021/22
2020/21(CC)
2020/21
£m
109.0
100.3
95.3
-3%
FY
2021/22
2020/21(CC)
2020/21
Underlying operating
profit
-3%
Underlying operating
profit margin
+0.1pp
Headcount
-4%
FY
2021/22
2020/21(CC)
2020/21
£m
FY
%
FY
7.7
7.9
8.0
2021/22
2020/21(CC)
2020/21
10.4
10.3
10.3
2021/22
2020/21
£m
74.3
76.5
77.7
Number
571
596
Rail provides expert independent assurance and engineering consultancy services to help our customers
navigate the industry’s operational, commercial and regulatory demands. We apply our expertise to
deliver innovative solutions that address sustainability and safety in rail transportation. With capabilities
in all technical disciplines – from rolling stock, signalling and telecommunications to energy efficiency,
safety and operational planning – we support customer portfolios that range from the world’s largest rail
administrations to niche component suppliers. Alongside our consultancy segment, we operate a separate
independent entity – Ricardo Certification – which performs accredited assurance services. Both businesses
draw upon a near 600-strong team of dedicated rail engineers, technicians, auditors and support teams,
with experience across the globe.
Customers
We work with passenger and freight operators,
infrastructure managers and equipment manufacturers,
as well as with government bodies and regulatory
authorities across the world to ensure that railways
deliver the highest possible value to their customers
and wider communities.
Principal operating regions
The Rail operating segment is highly distributed
operating across 15 countries, spanning Asia,
Australasia, Europe, the Middle East and North
America. Organically, we have been successful in
further developing our North American footprint,
specifically in Canada with significant contract wins to
support the country’s future transit programmes.
Growth drivers
• Expansion of mass transit systems to reduce urban
CO2 emissions, improve air quality, stimulate
economic growth, and promote social inclusion
• Greater appetite from governments and industry
stakeholders for the rail sector to exploit cleaner
energy sources and adopt more sustainable
practices
Increasing demand for digital technologies to
maximise capacity and deliver efficiencies
•
• Complex and evolving regulatory landscape that
underpins quality and safety
Competitive strengths
• Recognised capabilities in systems engineering and
independent assurance
76
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 OPER ATING SEGMENT REVIEW
• Renowned expertise of industry standards and
regulations
• Local project teams ensure strong command of
domestic practices and processes.
• Diverse service portfolio applicable across all
regional markets
Performance
Order intake increased by 16% year-on-year, on a
constant currency basis, driven by a number of new
wins and extensions to existing projects, despite
challenging market conditions.
On a constant currency basis, revenue and
underlying operating profit both declined by 3%. This
was the result of several long-term projects nearing
completion along with a delay in the starting up of
new contracts, resulting in lower-than-anticipated
utilisation. Operating profit margin was broadly stable
on a constant currency basis at 10.4%. Mitigating
actions are already under way to provide more
resilience within Rail’s operating model – this will lead
to an improvement in its short-term profitability while
at the same time also ensuring that we are well placed
to secure the future mix of business opportunity that
is flexible towards our customers’ changing demands.
These actions will continue into FY 2022/23.
During the year the team made significant strides
into a North American rail market that had previously
proven difficult to enter. In December 2021, our
Certification team became the first organisation to be
accredited as a railway Independent Safety Assessor by
the Standards Council of Canada. This was a significant
77
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 OPER ATING SEGMENT REVIEW
Claire Ruggiero, Linda Lundberg
and Carolyn Salmon and are
the three most senior women
working for Ricardo Rail in the
UK . Claire is UK consulting
business manager, Linda is Head
of Safety Security, and Carolyn
is the Ricardo Certification
Signatory – most recently
working on Crossrail (Elizabeth
Line): one of the largest and
most complex assessments ever
undertaken by our company.
CASE STUDY
LONDON’S ELIZABETH LINE: RICARDO
SUCCESSFULLY COMPLETES UK
RAIL’S LARGEST AND MOST COMPLEX
ASSESSMENT ROLE
With more than 6,000 evidence submissions and
3,000 technical observations, Crossrail has been
one of the largest and most complex assessments
ever undertaken by Ricardo Certification.
As the appointed Approved Body (ApBo) for the
construction of the central tunnelled section,
our experts’ assessments gave confidence to
stakeholders that all legal requirements were
being met as construction progressed. We were
also the central section’s appointed Designated
Body (DeBo) to assess compliance with the UK’s
National Technical Rules and the Assessment
Body (AsBo) for both Crossrail and Rail for
London Infrastructure, with responsibility for
determining whether procedures for managing
hazards and evaluating risk achieved the
necessary regulatory compliance – a mandatory
requirement for major rail projects.
Our joint roles also supported a transition
towards a ‘progressive assurance’ approach. With
a single competent body in place so early in the
programme, certification could be managed as
works progressed rather than waiting until the
later stages when rectification work could prove
more costly.
78
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 01. STR ATEGIC REPORT
OPER ATING SEGMENT REVIEW
Colleagues from our Rail
team inspecting a train at
a customer’s rolling stock
maintenance facility.
achievement for Ricardo and was soon followed by
our first major Canadian rail contract, with the team
appointed to support the design stages of the Greater
Toronto and Hamilton network upgrade.
Meanwhile, a contract to provide safety assessment
services for skyTran, a Californian-based maglev
technology developer, was not only the first major
win by our US rail team, but also representative of the
technologies now taking hold in this expansive and
rapidly growing market.
Elsewhere, we continued to win a diverse range
of projects across our more established territorial
markets. In Asia, for example, we were assigned
a major assurance role for the construction of a
driverless metro route in Taipei. In Europe, we were
chosen to support the transformation of Copenhagen’s
S-Bane railway into a fully automated system.
Meanwhile, our Middle East team secured a four-year
extension of our role in the development of Riyadh’s
mass transit system.
The past year cannot pass without mention of the
opening of London’s Elizabeth Line in May. We joined
the project in 2012 and it has been one of the largest
independent assessments ever undertaken by Ricardo
Certification. Despite the wider programme’s much
publicised difficulties and delays, the result is a truly
world-class railway that, amongst its many legacies,
has transformed how approvals will be managed on
major railway projects in future.
Outlook
Although some markets are recovering faster than
others, passenger and freight revenues around the
world are yet to return to pre-pandemic levels.
Railways are a high-cost business, and the past two
years have seen many networks become increasingly
DID YOU KNOW?
During the construction of London’s
Elizabeth Line, our experts assessed
more than 6,000 evidence submissions –
design drawings, safety cases and hazard
records – against 1,400 defined technical
requirements.
reliant on public funding. Many systems are being
tasked with concentrating on efficiency gains, such
as increased use of digital technologies to improve
operations and maintenance, and practices for
extending the service life of existing assets.
Other networks are looking to increase revenues
by attracting new patronage. This is the mindset in
markets such as Australia and North America, where
transit systems that serve major cities are planning
major extensions or upgrades to deliver more reliable
services in more modern environments.
The industry’s scope to offer cleaner, sustainable
transportation, whether for cross-border travel or
local trips, is opening up opportunities with potential
customers looking to promote energy efficiency
practices or explore low-emission technologies.
We are well placed to support all aspects of the
industry’s re-emergence from the pandemic. The
diversity of our service portfolio – from independent
assurance to systems engineering, decarbonisation and
cyber security – means we are fully aligned with the
market’s priorities.
79
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 OPER ATING SEGMENT REVIEW
AUTOMOTIVE AND INDUSTRIAL (A&I)
Trusted specialists in clean, efficient, integrated propulsion and energy solutions.
FINANCIAL AND OPER ATIONAL HIGHLIGHTS
Order intake
Order book
Revenue
+37%
FY
2021/22
2020/21(CC)
2020/21
+10%
FY
£m
+18%
FY
£m
£m
136.0
2021/22
82.2
2021/22
120.0
99.4
98.4
2020/21(CC)
2020/21
74.6
71.4
2020/21(CC)
2020/21
101.7(1)
101.0(1)
Underlying operating
profit
+203%
FY
£m
Underlying operating
profit margin
+6.6pp
FY
2021/22
3.7
2021/22
2020/21(CC)
(3.6)(1)
2020/21
(3.6)(1)
2020/21(CC)
(3.5)(1)
2020/21
(3.6)(1)
Headcount
%
3.1
+1%
FY
2021/22
2020/21
Number
1,006
996
(1) Prior year comparatives have been restated to adjust for the impact of discontinued operation on A&I, see Note 5 to the Group financial statements.
Automotive and Industrial (A&I) is a trusted global engineering services partner for clean and efficient
integrated propulsion and energy systems. With a customer-centric focus, A&I leverages digital
engineering, systems thinking and its learning culture to offer a true end-to-end service from the
initial concept phase right through to product execution. Our experience and history over more than
100 years at the forefront of mobility innovation enable us to deliver solutions to the most complex
challenges, allowing our customers across all global transport sectors to achieve a sustainable zero-
carbon future.
Customers
A&I has a diverse customer base. Traditionally, the
passenger car market has been its focus, but today it
serves 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, as well as stationary power generation
and infrastructure. We are continuing to increase
our customer base, aligning with original equipment
manufacturers, tiered suppliers, research agencies
and venture start-ups, supporting a global transport
industry that is undergoing an unprecedented
transformation.
Principal operating regions
Geographically, our business is anchored across the
three key transport regions: North America, Asia-
Pacific and EMEA, and within this footprint we deliver
services to more than 50 countries. We have technical
and engineering centres of excellence in four countries:
USA, UK, China and Czech Republic, and consulting
offices across the UK, Europe, Asia, and North America.
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 to unlock new revenue streams
80
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 OPER ATING SEGMENT REVIEW
CASE STUDY
RICARDO SUPPORTS TOTALENERGIES
WITH WORLD-FIRST BATTERY
TECHNOLOGY FOR ELECTRIC VEHICLES
TotalEnergies appointed Ricardo to support the
development of a new immersion-cooled battery
technology for electric vehicles. The project
represents a world-first mass production vehicle
with this technology.
Dielectric immersion cooling reduces charge-
time from two hours to less than 30 minutes: four
times faster than a conventional liquid solution.
This technology will also improve battery
thermal management, enhance efficiency, safety
and performance while increasing battery life
and reducing cost and risk for vehicle original
equipment manufacturers. The technological
advance will help to accelerate the adoption of
electrified transport with consumers.
Ricardo’s strong thermal management
experience together with expertise in simulation
and analysis, design and testing delivered
the required thermal benefits. The project fits
perfectly with TotalEnergies’ environmental
challenge, using research and innovation to
provide a solution with greater durability and
better vehicle performance.
81
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 OPER ATING SEGMENT REVIEW
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 and process capability across
the transport sector
Performance
A&I delivered good growth in order intake, revenue
and underlying operating profit in FY 2021/22. Order
intake grew by 37% year-on-year, on a constant
currency basis. The higher demand translated into a
18% increase in revenue versus the prior year, on a
constant currency basis. Underlying operating profit
was £3.7m (FY 2020/21: loss of £3.6m on a constant
currency basis). The underlying operating margin
increased from negative 3.5% to positive 3.1%, on a
constant currency basis. On a reported basis, including
costs from reorganisation activities, A&I’s operating
loss decreased from £9.2m in FY 2020/21 to £1.5m in
FY 2021/22.
During FY 2021/22, we secured several
multimillion-pound contracts that included fuel
cell, power electronics and battery applications for
commercial trucking and electric utility vehicles;
electrified motorcycle design and testing; and
clean sheet engine design for defence and marine
applications. Our order intake was geographically
diverse with c.30% coming from North America, c.60%
from EMEA and c.10% from Asia. Order intake was
strong in North America and EMEA compared to the
prior year while China continued to be impacted by
COVID-19 related travel and working restrictions.
Approximately 60% of our order intake in FY 2021/22
came from emerging technologies, focused on
electrified propulsion, vehicle integration and software
and digital services. Approximately 40% came from
established mobility solutions, focusing on high-
efficiency internal combustion engines (ICE) and
emissions compliance.
We have increased revenue through higher rates
of staff utilisation and improved the scale of the
business relative to its cost base. This, together with
an improvement in the economic environment as
North America and Europe emerged from the impact
of COVID-19, resulted in an improvement in project
margins.
During the year, we have undertaken significant
strategic and structural changes to consolidate our
regions into one globally managed A&I business,
which has been organised around the two key pillars
of emerging technologies and established mobility
solutions. This organisation structure better reflects
the changing landscape of our market – which has been
Electronics Hardware Design Engineers Veranika Karpuk and Marta Krepelkova, who are based in our Prague Technical Centre, work
in a diverse international engineering team headed up by a female Chief Engineer and including senior female engineers – all of whom
are working to make vehicles cleaner, greener and more efficient, to help decarbonise the transport sector.
82
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 01. STR ATEGIC REPORT
OPER ATING SEGMENT REVIEW
Steel E-Motive, an initiative of WorldAutoSteel, the automotive group of the World Steel Association and its engineering partner
Ricardo, have unveiled the exterior styling vision for their fully autonomous ride-hailing, ride-sharing vehicle designed to showcase
the benefits of using steel for global mobility-as-a-service.
heavily impacted by COVID-19, causing a temporary
reduction in global passenger-car purchases together
with increasing concerns over climate change – and the
ever-evolving business models of our customers.
Through the global consolidation of the A&I
operating segment, we have completed a number of
actions to gain increased efficiencies that will support
operational effectiveness across the business. These
included a reduction in headcount primarily across
senior management and administrative positions, the
downsizing of and exit from underutilised properties,
the impairment of intangible assets relating to
technologies that are no longer part of our focused
strategy, and external advisory and legal fees. The
total restructuring charge recognised in the year in
respect of these actions was £5.3m and the cash
cost of these actions was £0.5m. This reorganisation
process will continue into FY 2022/23, with a similar
level of income statement expense expected and a
total estimated cash cost of £4.5m. This will ensure
continuous improvement to deliver increased value for
our customers.
Furthermore, we have also gained further
operational efficiencies by advancing our processes
in identifying and acquiring talent and onboarding. By
doing this, we can ensure that we are continuously
attracting, retaining and inspiring the very best talent.
Outlook
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.
We will prioritise four key areas across all mobility
and industrial sectors: deployment of electrified
systems, enablement of next-generation software
and controls, digital development and modelling as a
path to increasing product value, and the deployment
of hydrogen and de-fossilised fuels as a bridge to
zero-carbon transportation. This is supported by our
technology roadmap, global leadership research and
development, and sustainable, high-value intellectual
property.
As the transition to zero-carbon will take time,
we will continue to support our customers with their
current and transition bridge business models while
accelerating the journey to develop environmentally
sustainable products. We will drive innovation in the
development of cleaner, more efficient conventional
engines and electric-based propulsion systems, using
software and digital tools to fundamentally reimage
the product development lifecycle and accelerate our
clients’ paths to profit.
DID YOU KNOW?
Ricardo has always used innovation to
shape future designs and technologies.
In 1959, Ricardo engineers Hempson
and Scott used a series of mirrors and a
Fastex camera, running at 16,000 frames
per second, to the give the world its first
glimpse of the combustion process and the
formation of pollutants within the cylinder
of an engine. This innovation acted as a
precursor to the way digital modelling
and CFD (computational fluid dynamics)
has transformed how engineers simulate
and predict the performance of propulsion
systems with a high degree of accuracy,
without the need to build expensive
hardware.
83
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 OPER ATING SEGMENT REVIEW
DEFENSE
Trusted experts in delivering wide-ranging engineering programmes to drive
efficiencies while optimising safety.
FINANCIAL AND OPER ATIONAL HIGHLIGHTS
Order intake
Order book
Revenue
+10%
FY
2021/22
2020/21(CC)
2020/21
+39%
FY
£m
+18%
FY
£m
55.1
2021/22
40.5
2021/22
50.0
49.4
2020/21(CC)
2020/21
29.2
25.7
2020/21(CC)
2020/21
Underlying operating
profit
+7%
Underlying operating
profit margin
-1.3pp
Headcount
+5%
FY
2021/22
2020/21(CC)
2020/21
£m
FY
%
FY
5.9
2021/22
5.5
5.4
2020/21(CC)
2020/21
13.1
14.4
14.2
2021/22
2020/21
£m
45.0
38.3
37.9
Number
195
185
Defense has gained significant insights into the needs of armed forces and provides solutions to meet
the challenges our customers face 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. We also specialise in niche manufacturing,
adapting commercial industry products to deliver innovative sector applications that protect people
and infrastructure.
Customers
We have a deep legacy in partnering the US armed
forces in the transition of innovative technologies
from science to application, with a proven track record
of successfully fielding, integrating and managing
systems across the acquisition lifecycle. Our customers
include the US Department of Defense (DoD), NASA,
the US Airforce, the US Navy and the UK Ministry of
Defence (MoD).
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
Principal operating regions
Our operations are located in the USA. We have
several offices across the country, with the largest
being in Michigan and California. We also work
alongside our customers at their sites.
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
• Specialist in complex systems, linking all aspects of
a complete system of systems
84
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 OPER ATING SEGMENT REVIEW
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CASE STUDY
DEPLOYABLE METERING AND
MONITORING SYSTEM HELPS TO
IMPROVE ENERGY SUPPLY MANAGEMENT
AND SECURE ENERGY RESOURCES
Forward manoeuvring forces using mobile
distributed energy resources for critical
operational assets need near-real-time visual
and data analytical tools as part of energy
management systems. This is to analyse changing
electrical demand and fuel logistical constraints
so that operators might make better informed
command and control decisions on fuel and
energy resilience in the battlespace.
Ricardo Defense is working with the US
Marine Corps to develop and demonstrate
capabilities that are in alignment with the
Department of Navy climate strategy to improve
management of energy supplies, better secure
energy resources and reduce their overall carbon
footprint.
Performance
Defense’s order intake grew by £5.1m (10%) on a
constant currency basis in FY 2021/22. In the year,
we received USD 34m (£27m) of orders from the
United States Army to retrofit Antilock Brake System/
Electronic Stability Control (ABS/ESC) retrofit kits to
improve the safety of operation of the US Army’ High
Mobility Multi-purpose Wheeled Vehicle (HMMWV).
We have also developed the framework for guiding
new technologies into government applications and
expanded the deployment of our data-management
systems to include more fleet assets for the US Navy.
Revenue increased by 18% year-on-year on a
constant currency basis. Revenue growth was driven
by increased ABS/ESC volumes - in total, we delivered
3,602 ABS/ESC kits in FY 2021/22, compared to 2,950
the previous year, which included both retrofit kits and
kits for new-production vehicles – and a rise in orders
for our engineering services.
Underlying operating profit of £5.9m was an
increase of 7% compared to FY 2020/21 on a constant
currency basis. Underlying operating profit margin
reduced from 14.4% to 13.1% on a constant currency
basis due to a combination of the changing mix of work
between ABS/ESC and engineering services, delays in
the US Government’s approval of the US Department
85
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
OPER ATING SEGMENT REVIEW
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of Defense budget (which impacted the utilisation of
our engineering services team in the first half of the
financial year) and higher supply chain costs in ABS/
ESC.
With the expansion of our field-support solutions
business, which supports the installation and
maintenance of vehicles in the field, we are able to
provide a complete offering to our clients, covering the
entire procurement lifecycle for their vehicle platforms,
from concept design and development through to
production and sustainment in the field.
Additionally, with the focus on net-zero planning,
we have been working with the US Marine Corps to
develop and demonstrate capabilities to improve the
management of energy supplies and better secure
energy resources to reduce its overall carbon footprint.
Utilising a deployable metering and monitoring
system, the US Marine Corps is now able to analyse
changing electrical demand and logistical fuel
constraints so that operators can make better-informed
command and control decisions on fuel and energy
resiliency.
Outlook
The US DoD continues to move away from its
traditional OEM-centred acquisition approach, with
a strong focus on accelerating the transition of
innovations to its fleet of vehicles in the field.
Our market position as a proven system integrator
and technical solution provider disrupts the traditional
defence market, as we can react with speed and
flexibility. Our broad portfolio of engineering services,
products such as ABS/ESC, and field-support
solutions, is expected to fulfil the needs of future force
design and spans the entire military-vehicle lifecycle.
Our digital solutions enable highly networked
cross-domain operations between advanced platforms
in the air, on land, and at sea. Our predictive-
maintenance data-management software is enabling
efficient naval fleet management and we expect to see
that expand to US Army ground fleets in the coming
year.
We also anticipate continued growth in field-
support services with the production fielding of
programs we support including ABS/ESC, Infantry
Squad Vehicle (ISV), and other next-generation
advanced platforms.
DID YOU KNOW?
Software developed by Ricardo Defense is
being used to evaluate the existing energy
grid in Ethiopia to plan and prepare for
renewable energy deployment in Addis
Ababa.
86
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
”
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OPER ATING SEGMENT REVIEW
PERFORMANCE PRODUCTS (PP)
Engineering specialists in transmission design and niche-volume manufacturing.
FINANCIAL AND OPER ATIONAL HIGHLIGHTS
Order intake(1)
Order book(1)
Revenue(1)
+31%
FY
2021/22
2020/21(CC)
2020/21
+3%
FY
£m
75.1
2021/22
57.5
57.5
2020/21(CC)
2020/21
£m
51.3
49.9
49.9
+5%
FY
2021/22
2020/21(CC)
2020/21
Underlying operating
profit(1)
+7%
FY
£m
Underlying operating
profit margin(1)
+0.2%
FY
2021/22
2020/21(CC)
2020/21
7.2
2021/22
6.7
6.7
2020/21(CC)
2020/21
Headcount (1)
+5%
FY
2021/22
2020/21
%
9.8
9.6
9.6
£m
73.7
70.0
70.0
Number
340
325
(1) All metrics presented represent continuing operations and exclude the results of the discontinued operation in both the current and prior years. See
Note 5 to the Group financial statements.
Performance Products (PP) is responsible for the manufacture and assembly of niche high-quality
products, including engines, transmissions, electric drive units and other performance-critical driveline
and powertrain products. We also provide industrial engineering services to enable designs to
successfully move from concept to series production for customers around the globe. With decades of
experience, our technical experts support customers in bringing their cutting-edge innovations to market.
Customers
We have been a trusted engineering partner for world
championship-winning and world record-breaking
motorsport teams for over 40 years, including Formula
1, GT and prototype, single seater, WRC and electric
race series including Formula E. Additionally, we
deliver niche manufacturing services to blue-chip
customers that operate in the high-performance
vehicles, aerospace, defence and rail sectors.
Principal operating regions
We serve a global customer base from our
manufacturing and operations based in the UK.
Growth drivers
• Continuing demand from the premium automotive
market
• Accelerated adoption of electrified powertrains
• High demand for industrial engineering services
• Decarbonisation of transportation, with increased
focus on electrification and hydrogen
Competitive strengths
• Recognised global expertise in niche-volume
industrial engineering
• Continued development of manufacturing
knowledge in zero-emissions propulsion technology
including battery systems, e-machines and
hydrogen fuelled systems
In-depth knowledge of hybrid and electrified
powertrains developed from top-flight motorsport
•
Performance
FY 2021/22 order intake from continuing operations
was £75.1m, an increase of £17.6m (31%) on the prior
year. This reflects the timing of engine orders from
McLaren and securing the next multi-year Porsche 992
Cup transmission programme.
Revenue and operating profit from continuing
87
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
OPER ATING SEGMENT REVIEW
Ricardo Performance Products
extended its successful multiple
championship-winning relationship
with DS Performance, designing
and supplying transmissions for the
team’s car competing in Formula E -
the world’s premier all-electric street
racing championship - season 8 and
extending into seasons 9 and 10 with
the third generation vehicle.
CASE STUDY
RICARDO PRODUCES
HIGH PERFORMANCE
TRANSMISSION FOR THE
HYBRID ASTON MARTIN
VALK YRIE
Ricardo Performance Products
moved to full-rate production
of the highly complex, F1
inspired, transmission system
to support one of the world’s
most exhilarating cars: the
hybrid powered Aston Martin
Valkyrie.
This builds on a pedigree
of supplying the world’s most
exotic hypercars including the
Jaguar XJ220, McLaren F1,
Bugatti Veyron and Chiron.
Transmission production
for the two-seater coupé
is conducted at Ricardo’s
transmission centre of
excellence at Leamington Spa,
UK.
During this year,
Performance Products
was also appointed as
transmission supplier for the
forthcoming spider version of
the vehicle.
operations both grew in FY 2021/22, by 5% and 7%,
respectively. Underlying operating profit margin was
broadly stable with FY 2020/21 at 9.8%.
McLaren engine volumes increased modestly
year-on-year, with an uptick in the last quarter of the
financial year in support of the launch of the new V6-
powered Artura.
Transmission programme revenue significantly
increased year-on-year with the start of production of
the Aston Martin Valkyrie, which added to the already
well-established Porsche Cup and Bugatti Chiron
programmes. Motorsport, aerospace and defence
component and transmission projects performed in
line with our expectations over the year.
We continued to develop our portfolio of existing
powertrain (engine) and drivetrain (transmission)
products during the year as well as new projects in
the zero-emission propulsion space, including electric
drive units, industrial engineering services in EV
production and concept work around battery systems
and electric machines.
Our world class motorsport engineering and
manufacturing capabilities continued to operate at
the highest tiers in motorsport, with a particular focus
on next-generation technology. During the year, we
worked with Hyundai (on its hybrid-powered Rally
1 car), DS (on its the all-electric Formula E race car),
Porsche (in GT racing), and with our long-standing
customer in Formula 1.
We continued to provide the UK Ministry of
Defence with key spares components and precision
machined components to the aerospace industry
under our AS9100 certification. The strong outlook
across all our key business areas of high-performance
88
01. STRATEGIC REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 01. STR ATEGIC REPORT
OPER ATING SEGMENT REVIEW
DID YOU KNOW?
Did you know that for 50 years, Ricardo has been at the
forefront of global motorsport transmission development?
For over half a century, we have been partnering with top-
tier motorsport customers to deliver championship-winning
products and supporting the transition from traditional ICE
powered racing towards hybridisation and full electrification in
Formula One, World Rally Championship and Formula E.
automotive, motorsport, defence and aerospace were
reflected in the strong order intake for the year.
COVID-19 and subsequently the conflict in Ukraine
continued to cause some disruption in the supply chain.
However, our rigorous process management and tools
ensured that client deliveries were not affected.
Outlook
The forthcoming year will see continued growth in
both our powertrain and driveline businesses. This is
driven by growth in sales of high-performance vehicles
and increasing demand for manufacturing engineering
and supply chain consultancy, as many new customers
(particularly in new technologies) take ideas and
designs into production.
The key focus for FY 2022/23 will be to ensure
our supply chain is able to meet the demand and to
capitalise on the significant number of new products
coming to market driven by emerging and green
technologies.
Our 2021/22 Strategic Report, from page 1 to page
89, has been reviewed and approved by the Board of
Directors on
13 September 2022
Graham Ritchie,
Chief Executive Of ficer
89
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 02. CORPORATE
GOVERNANCE
Board of Directors
Corporate governance statement
Our stakeholders
Board activity
Nomination committee report
Audit committee report
Directors’ remuneration report
Directors’ report
Statement of Directors’ responsibility
91
94
101
104
105
106
110
140
143
90
02. CORPORATE GOVERNANCE RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 BOARD OF DIRECTORS
AS AT 30 JUNE 2022
Graham Ritchie
BA (Econ), ACA
Chief Executive Officer
Graham Ritchie was appointed 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.
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.
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.
Sir Terry will retire from the Group and the Board on 17 November 2022.
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RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/2202. CORPORATE GOVERNANCE BOARD OF DIRECTORS
Russell King
BA (Hons)
Non-Executive Director, Chair of the Remuneration Committee
Russell King was appointed Non-Executive Director on 5 September 2019.
Russell is 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 is also the nominated non-executive director for workforce engagement
and ESG. 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.
Jack Boyer OBE
OBE, BA (Hons), MSc, MBA
Non-Executive Director
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. Jack is a non-executive board
member at the Department for Education. 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.
92
02. CORPORATE GOVERNANCE RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 BOARD OF DIRECTORS
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.
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.
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RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/2202. CORPORATE GOVERNANCE 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.
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 102 to
103 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.
The Board spends time listening
Sir Terry Morgan CBE
SIR TERRY MORGAN CBE
CHAIR
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 2022.
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
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-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
sharpened its strategy to focus on becoming a leading
environmental and energy transition consultancy over
the next five years and business plans have been
developed and reviewed with this focus.
The role of the Board is to provide entrepreneurial
and effective leadership and we recognise that we are
Alongside the sharpened strategy, we have
redefined our vision, purpose and values. Our vision
94
02. CORPORATE GOVERNANCE RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 CORPOR ATE GOVERNANCE STATEMENT
The Board in FY 2021/22
Number of scheduled meetings in the year
Number attended by each member:
Graham Ritchie(1)
Dave Shemmans(2)
Ian Gibson
Sir Terry Morgan CBE
Jack Boyer OBE
Bill Spencer
Laurie Bowen
Malin Persson
Russell King
(1) Graham Ritchie was appointed to the Board 1 October 2021
(2) Dave Shemmans resigned from the Board and the Company on 30 September 2021
Board
meetings
Committee meetings
Audit Remuneration
Nomination
7
5
2
7
7
7
7
7
7
7
4
-
-
-
4
4
4
4
4
4
4
-
-
-
4
4
4
4
4
4
1
1
-
-
1
1
1
1
1
1
is “To create a safe and sustainable world” which
together with our renewed values of: Create together,
Be innovative, Aim high, and Be mindful reflects how
we work together and with our customers.
Throughout the year, the Board receives regular
updates on these areas to ensure the delivery of
strategy in line with our purpose.
During the year, the Board reviewed and approved
the refinance of its banking facilities, and following
the year end the Group entered into a new £150m
Revolving Credit Facility (RCF) which provides the
Group with committed funding for the next four years
through to July 2026 and is available for general
corporate purposes as well as acquisitions and
strategic investments. The RCF has an option for a
£50m accordion and to extend the commitment for a
further year through to July 2027.
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)
• 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, re-named ‘Speak
Up’, 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.
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 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.
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RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/2202. CORPORATE GOVERNANCE CORPOR ATE GOVERNANCE STATEMENT
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 2021/22
Significant matters under review
July 2021
• FY 2021/22 budget approval
• Workforce engagement
• Board evaluation
September 2021
• Preliminary results and Annual
Report
• Dividend options
• KPIs
• Annual General Meeting (AGM)
• Strategy review
• ESG update
• Global Automotive and Industrial
update
• Strategy review approval
• COP26 and Energy and
Environment
• Workforce Engagement 2021
feedback and 2022 plan
• Health, safety and environment
• Interim results and interim report
• Interim dividend
• KPIs
• Funding/refinancing strategy
• Funding and treasury update
• ESG – sustainability update
November 2021
January
2022
February 2022
April 2022
June 2022
• FY 2022/23 operating segment
budget presentations
• Treasury – RCF update
• 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.
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 Officer, 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.
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
Graham Ritchie 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. Graham 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.
Graham 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. Malin
Persson 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.
Malin meets with the Non-Executive Directors
at least annually when leading the Non-Executive
Directors appraisal of the performance of the Chair.
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
96
02. CORPORATE GOVERNANCE RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 CORPOR ATE GOVERNANCE STATEMENT
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. Malin met small groups with a
representative subset of team members including:
• Senior management
•
• 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
Junior and new team 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,
Malin has conducted sessions focused on diversity
and inclusion and has had meetings with members
of the Executive Committee to discuss the outcomes
of the employee survey and proposed actions for
improvement. In addition, a series of interactive
discussions will continue to 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.
Directors are expected to attend all Board and
relevant Committee meetings. The table on page 95
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 110 to 139. 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,
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RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/2202. CORPORATE GOVERNANCE CORPOR ATE GOVERNANCE STATEMENT
may obtain independent professional advice at the
Company’s expense. No such requests were made
in FY 2021/22. 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, equity and inclusion (DEI)
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 which have
included the establishment of a DEI Forum that meets
monthly with a clear set of commitments across each
of the Operating segments together with an Ethnic
forum, a monthly group engagement programme,
to discuss various topics as a global, multi-national
company.
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 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 in our already diverse organisation. Over
62 different nationalities work for us globally and
the business ensures that females are included
on the interview panels at all levels with positive
discrimination during candidate screening. LGBT+
training is conducted on a regular basis together with
compliance training focused on topics such as the Code
of Conduct, Human Rights policy and DEI. Further
details of our DEI initiatives can be found at pages 36
to 55.
Details of female representation elsewhere within
the Group are set out on page 27.
As set out in their biographies on pages 91 to
93 and in the notice of AGM, 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
their 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 2022.
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 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
98
02. CORPORATE GOVERNANCE RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 CORPOR ATE GOVERNANCE STATEMENT
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.
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 internal review facilitated by the
Company Secretary was commissioned during the year
under consideration and the evaluation was reported
back to the Board towards the latter part of the year.
The review 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 review, the Board set itself improvement
actions and objectives, including, among other things:
developing skills matrix for the board and succession
planning, continued focus on diversity and greater
stakeholder engagement.
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 106 to 109.
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 56 to 61.
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 143.
The Group’s business model is set out within the
Strategic Report on pages 14 to 15.
The Directors’ statement relating to going concern
and the Viability Statement are set out on pages 142
and 62 to 63, respectively.
5. Remuneration
Please refer to the Directors’ Remuneration Report
on pages 110 to 139 for further information, and in
particular:
Level and components of remuneration
Please refer to pages 113 to 116.
Procedure
Please refer to pages 130 to 139.
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 2021/22 Annual Report, as set out in the
following table.
Further details on how the Company and Board
engage with stakeholders are found on pages 101 to
103. Details of key decisions taken by the Board and
how stakeholders were considered are provided on
page 104.
9999
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/2202. CORPORATE GOVERNANCE CORPOR ATE GOVERNANCE STATEMENT
s172 duties
Key examples
Page
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
Chair’s statement > Strategy
Chief executive’s review > creating
value through our sharpened strategy,
outlook
Our business model > aligned
approach
Our strategy > aligned to long term
megatrends, creating value through
focused priorities, focused objectives to
deliver growth
Principal risks and uncertainties
Viability statement
Board activity FY 2021/22
Our people
Chair’s statement > Our people, culture
and diversity
Chief executive’s review > Investing in
our people
Our business model > our values
Focused objectives to deliver growth >
meaningful and fulfilling work
Our business at a glance > Serving key
markets
Ricardo’s business model > Aligned
approach
Focused objectives to deliver growth
> trusted partner to our customers,
achieving high growth in chosen
markets
Our vision
Our business at a glance > who we are
Chair’s statement > ESG
Chief executive’s review >
Sustainability is firmly built into our
DNA
Innovation
Sustainability and ESG
Our business model > aligned
approach, our values, our capabilities,
our operating model
Our business model > aligned
approach, our values
Chair’s statement > Our people, culture
and diversity
Chief executive’s review > Investing in
our people
Focused objectives to deliver growth >
enabling meaningful and fulfilling work
Our people
7
9
14
16
58
62
104
27
7
11
14
17
5
14
17
1
4
11
22
36
14
14
7
11
17
27
Ricardo’s Annual General Meeting
Ricardo plc will be holding its Annual General Meeting
(AGM) at Liberum Capital Limited, 12th Floor, 25
Ropemaker Place, London, EC2Y 9LY at 10.00am on
Thursday 17 November 2022. Full details of the AGM
and the resolutions 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/AGM2022.
The Notice of Meeting sets out the resolutions being
proposed at the AGM on 17 November 2022 at 10:00am
and shareholders can vote separately on each proposal.
Last year, all resolutions were passed with votes
ranging from 64.56% to 99.98%.
At the 2021 AGM shareholders were asked to
approve the Directors’ Remuneration Report which
passed with 64.56% support.
The primary concerns raised related to the exit
arrangements for the Company’s former CEO. A secondary
concern was the increase in the award levels under the
Long-Term Incentive Plan without a consequential increase
in the stretch to the performance targets.
The Remuneration Committee and Board appreciates
the time that shareholders give to Ricardo on executive
remuneration matters and will continue to engage with
them and take their views into account at all times.
In addition, at the 2021 AGM shareholders were
asked to give authority to allot relevant securities and
approve the disapplication of pre-emption rights. Both
resolutions were passed with 77.77% and 77.83%
support respectively.
The use of the cash box structure for the share issue
in November 2020 was not used so as to circumvent
the disapplication authorities previously approved by
shareholders but was used in accordance with the
principles and guidelines issued by the Pre-Emption Group
in April 2020 and endorsed by the FCA which clearly
enabled share issues of up to 20% of a company’s issued
share capital on a non pre-emptive basis.
The Company consulted with its major shareholders
before launching the share issue and obtained their
support for it.
The Board appreciates and understands the views
of those shareholders who were not able to support
the resolutions and will continue to engage and take
account of all shareholders’ views in the event of any
future share issues.
At the AGM in November 2021, we were able to
provide a facility for shareholders to follow the AGM
remotely by an audiocast. 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 13 September 2022 and
signed on its behalf by:
Sir Terry Morgan CBE
Chair
100
02. CORPORATE GOVERNANCE RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
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 - Create together, Be innovative, Aim high, and Be mindful
– 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. We understand the
importance of our stakeholders and 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.
KEY AREAS OF
INTEREST
HOW WE ENGAGE
COMPANY-WIDE
HOW WE ENGAGE AT
BOARD LEVEL
HOW WE
RESPOND
• Delivery of innovative
• Dedicated marketing
solutions.
• Lasting customer
relationships.
• Technical expertise.
• Maintain consistent and
high service levels.
• Sustainable services to
meet evolving customer
requirements around
global green agendas.
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.
• We ensure that all
investment in R&D is
focused on areas that
prioritise net zero and
decarbonisation.
101101
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/2202. CORPORATE GOVERNANCE OUR STAKEHOLDERS
STAKEHOLDER
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
• Malin Persson
appointed as Workforce
engagement NED
involved directly in the
organisation to gain
assurance of progress
against key areas of
interest.
• Sharing of ‘Speak Up’,
engagement survey
results and action
plans.
• Review the insights and
findings of Workforce.
• Engagement NED
activities.
• Annual refresh of
Ricardo people strategy
endorsed by the Board.
• Board reporting of
People based KPIs.
• Safety systems of work
to ensure the health
and safety (including
mental health and
wellbeing).
• Systems to enable
speaking up and solving
problems.
• Business has future
capabilities in its people
that it needs to grow.
• Employee value
proposition is appealing
and attracts talent.
• Talent acquisition is
effective in bringing
talent into Ricardo.
• Culture and ways of
working encourage high
levels of engagement
and commitment.
• DEI practices to
encourage further
diversity in recruitment
and inclusion within the
organisation.
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.
• Sustainability
• The board regularly
reviews ESG-related
matters and supports
all related initiatives
to realise our net zero
2030 ambitions.
• Periodic reports
committee. Active in
supporting academic
institutions in
promoting events
related to engineering
and sustainability
programmes.
providing updates on
key community and
sustainability matters
are also prepared by
the Chief Executive
Officer and submitted to
the Board for review.
• Agree action plans from
Workforce engagement
NED activities &
agree a forward
annual calendar of
engagement activities
to pulse-check.
• Continue to engage
with senior leadership.
• Available outside of
Board meetings for
informal staff listening
sessions.
• Invite participation in
Board meetings from
senior leadership teams
to gain additional
insight.
• We have enhanced our
ESG reporting within
our annual report and
accounts.
• We have appointed
Malin Persson with
responsibility for
sustainability.
• We continuously work
with organisations
such as the IET
(Institute of Engineering
and Technology) to
promote education in
engineering within local
communities.
• We have refreshed our
approach to STEM and
have re-commenced
on-site events and
school visits following
the lifting of COVID-19
restrictions.
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02. CORPORATE GOVERNANCE RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 OUR STAKEHOLDERS
STAKEHOLDER
GROUP
KEY AREAS OF
INTEREST
HOW WE ENGAGE
COMPANY-WIDE
HOW WE ENGAGE AT
BOARD LEVEL
HOW WE
RESPOND
• Financial health and
operating performance.
• Strategic direction.
• Long-term viability.
• Growth drivers.
• M&A.
• ESG objectives and
ongoing commitments.
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.
• We maintain regular
contact with our
shareholders,
principally through
investor roadshows,
investor events and the
AGM.
• The board receives
regular updates on
the investor-relations
programme, including
investor feedback and
surveys following the
results presentations.
• The Chief Financial
• The Chair, the
Officer meets lenders
on a regular basis
to ensure a good
understanding of
favourable rates
and active financial
planning.
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.
SUPPLIERS
Ricardo has a 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 Chief Executive
Officer reports to the
to board periodically
on significant supplier
contracts and
arrangements.
• In May 2022 the Chief
Executive Officer and
senior management
hosted a Capital
Markets Day to launch
the sharpened strategy.
• 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.
• During the year,
the Chair, the
Senior Independent
Director, the Chair
of Remuneration
Committee, CEO and
CFO have engaged
directly with 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 conduct
modern slavery risk
assessments on
suppliers.
• We launched a
new supplier code
and updated our
procurement policy
to cover sustainable
procurement.
• We encourage our
landlords and suppliers
to maximise the use of
renewable energy.
• Supply-chain
management is closely
managed to ensure
minimal disruptions.
103103
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/2202. CORPORATE GOVERNANCE BOARD ACTIVIT Y
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: The health and wellbeing of our
people at the centre of our decision-making processes.
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 business units perspective and the
Board approved a number of follow-up actions which will be monitored for
progress.
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 2020/21 results and FY 2021/22 interim results;
• Approval of the FY 2021/22 business plans; and
• Update on the Group’s Treasury strategy from the Chief Financial Officer
and Head of Treasury and approval to refinance the Company’s banking
facilities for a new £150m Revolving Credit Facility.
Regular CEO reports: concerning management of customers, suppliers
and operations.
Refresh of Strategy: Including the development of a sharpened strategy
to become a leading environmental and energy transition consultancy over
the next five years.
The board has established a five-year business planning process to
improve returns and create further value for all our stakeholders.
Oversight of M&A activity: Including updates on acquisition and
divestiture activities at each scheduled Board meeting.
The Board continues 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.
In March 2022, Ricardo acquired Inside Infrastructure, a business based in
Adelaide, Australia to expand Ricardo’s environmental capabilities across
Australia. Inside Infrastructure provides environmental and technical
advisory services supporting water, utility, mining, resources, healthcare,
infrastructure and government sectors.
CEO succession: 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. Dave resigned 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 joined 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.
Chair succession: Sir Terry Morgan CBE gave notice to Ricardo in February
2022 of his intention to stand down as Chair of the Board. The Nomination
Committee, under the leadership of Malin Persson, immediately
commenced the process to select his successor. Russell Reynolds was
appointed to assist the Committee with the selection process. Mark Clare is
to be appointed Deputy Chair with effect from 1 November 2022 and it is
intended that he will succeed as Chair of the Board at the close of the 2022
AGM on 17 November 2022.
Stakeholders
considered
COLLEAGUES
COMMUNITIES
SHAREHOLDERS
COLLEAGUES
CUSTOMERS
SUPPLIERS
COMMUNITIES
SHAREHOLDERS
COLLEAGUES
CUSTOMERS
SUPPLIERS
COMMUNITIES
SHAREHOLDERS
COLLEAGUES
CUSTOMERS
SUPPLIERS
COMMUNITIES
104
02. CORPORATE GOVERNANCE RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 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 areas being CEO and Chair
succession planning. In the forthcoming year we will be
updating talent management and succession planning for
Board and senior management positions.
Laurie Bowen
Composition
In accordance with the UK Corporate Governance
Code, the Nomination Committee comprises a majority
of independent non executive directors. During
the year under review the 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 of
Chief Executive Officer and after careful consideration
and, as announced on 26 August 2021, the Nomination
Committee recommended the appointment of Graham
Ritchie as Chief Executive Officer.
L AURIE BOWEN
CHAIR OF THE NOMINATION COMMIT TEE
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. Graham undertook an
extensive induction programme to ensure a rounded
understanding of the business and our ambitions.
Heidrich & Struggles has no other connection with the
Company.
In February 2022, Sir Terry Morgan CBE announced
his intention to retire from the Board. Under the
leadership of Malin Persson, as Senior Independent
Director, the Nomination Committee commenced the
selection process for his successor.
The Nomination Committee was delighted with
the quality of the candidates considered for the role
of Chair and after careful consideration, as previously
announced, the Nomination Committee recommended
the appointment of Mark Clare.
The search for the new Chair during the year
was managed with the assistance of recruitment
consultants, Russell Reynolds, who have signed
up to the voluntary Code of Conduct for executive
105105
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/2202. CORPORATE GOVERNANCE
NOMINATION COMMIT TEE REPORT
search firms. The new Chair will undertake an
extensive induction programme to ensure a rounded
understanding of the business and our ambitions.
Russell Reynolds 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
Succession Planning
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.
Name
Dave Shemmans
Ian Gibson
Sir Terry Morgan CBE
Laurie Bowen
Malin Persson
Bill Spencer
Jack Boyer OBE
Russell King
Graham Ritchie
Date of Appointment
Resigned on 30 September 2021
July 2013
January 2014
July 2015
January 2016
April 2017
September 2019
September 2019
October 2021
Tenure (years)
16
9
8
7
6.5
5
3
3
-
The Committee also discussed talent management and succession planning for the top-performing senior managers
within the business.
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 2022.
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’s internal control environment, ensuring the effective implementation
of recommendations from the internal audit process, and the consideration of
significant accounting and reporting matters.
Throughout the year, management has carefully considered the risks
impacting the Group and maintained close contact with our Business
Units. 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 hope that you will find this report useful and I would welcome any
comments.
Bill Spencer
BILL SPENCER
CHAIR OF THE AUDIT COMMITEE
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
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02. CORPORATE GOVERNANCE RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
AUDIT COMMIT TEE REPORT
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 109, 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 95. The Chair,
Executive Directors, the Group’s Head of Internal
Audit, PwC – the Group’s internal audit co-source
partners – and the Company’s external auditors all
have standing invitations to attend all Committee
meetings. These meetings were held via a mixture of
video conference and in-person.
Responsibilities and key areas of focus
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:
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 five 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; and
• 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
• 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 principle 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, speaking up (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; and
• Reviewed the approach to ESG assurance.
Internal controls
• 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.
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.
Significant financial reporting matters
The Committee considered the following significant
financial reporting matters, judgements and estimates
in approving the Group financial statements for the
year ended 30 June 2022. Following discussions with
senior management and the external auditors, the
Committee approved the disclosure as set out in Note
1(d) to the Group financial statements.
Carrying value of intangible assets
The issue: Intangible Assets receive careful attention
from the Board and Committee who need to be
satisfied that their carrying value is appropriate.
Goodwill impairment testing is normally undertaken in
the final quarter of each financial year, with additional
assessments sometimes also undertaken at the half
year if there are indicators of possible impairment.
During the year, the Group continued with its
reorganisation of its Automotive & Industrial operating
segments in EMEA, North America and China into one
Global Automotive & Industrial operating segment.
As part of this reorganisation, particular focus has
been given to re-aligning the global Automotive &
Industrial business between its established mobility
offerings, centred on internal combustion engines
and its emerging technologies offerings, centred on
electrification and alternative fuels, together with
strategic consulting. The reorganisation resulted in
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RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/2202. CORPORATE GOVERNANCE AUDIT COMMIT TEE REPORT
a change to the classification of the cash generating
unit (CGU) groups within Automotive & Industrial
and a review of the implications of the change on the
carrying value of the goodwill therein.
The role of the Committee: The Board and the
Committee considered the appropriateness of the cash
CGUs for goodwill testing. In addition, it reviewed and
challenged the assumptions made by management
which underpinned the impairment testing, including
the FY 2021/22 forecast, FY 2022/23 budget and five-
year plan.
Comments and conclusions: Following the review
in the final quarter, the Board and the Committee
concluded that no impairment charges were necessary.
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 to 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(d) 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.
Specific adjusting items
The issue: The Group presents specific adjusting
items in the income statement which include the
amortisation of acquired intangibles, costs relating to
major restructuring programmes, acquisition-related
expenditure and other items which are deemed to be
significant or non-recurring in nature. The treatment
and disclosure of such items is critical to allow
stakeholders to fully understand the performance of
the Group.
The role of the Committee: The committee reviewed
the papers presented to the Board detailing the nature
and composition of the specific adjusting items. The
Committee challenged the nature and the amount
of the items and evaluated the disclosures made in
respect of the items.
Comments and conclusions: The Committee
is satisfied that the items have been presented
consistently and are in accordance with the Group’s
policy. The Committee is comfortable that the
enhancements made to the disclosure of such items
presents the Group’s results in a transparent manner.
After reviewing the Annual Report and Accounts,
the Committee is satisfied that the reported and
underlying results are given equal prominence
throughout the document.
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. Economic uncertainty
has continued to drive volatility in markets and 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 34 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 value of the RGPF’s
liabilities reflects the best estimate at the reporting
date.
Internal audit
The internal audit function is accountable to the
Committee and is considered to be a key function for
effective risk management.
During the year, we have continued to develop
our co-source internal audit arrangement with PwC.
In addition to a number of operating segment 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 combines external experience with
the sharing of best practice around the Group.
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02. CORPORATE GOVERNANCE RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 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 2022 audit. This
assessment was completed at the end of the 2022
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
2022 AGM.
AUDIT COMMIT TEE REPORT
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. The Audit Committee meets
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 2022 at the Group’s AGM on
11 November 2021.
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 5% of KPMG’s audit fee
(FY 2020/21: 12%). The ratio of audit and non-audit
fees and the nature of non-audit fees are disclosed in
Note 11 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.
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RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/2202. CORPORATE GOVERNANCE DIRECTORS’
REMUNERATION
REPORT
RUSSELL KING
CHAIR OF THE REMUNER ATION COMMIT TEE
PART 1 – REMUNERATION COMMITTEE CHAIR’S OVERVIEW
AND ANNUAL STATEMENT
Dear Shareholder,
Ricardo’s new leadership and strategy
It has been a year of transition and change for Ricardo.
Graham Ritchie took up his appointment as Chief
Executive Officer on 1 October 2021 after Dave
Shemmans stepped down from the Board, following
16 years as Chief Executive Officer, on 30 September
2021. Dave Shemmans contributed very well for
the three months of the year in which he served and
Graham in his turn has made a very strong and pleasing
start. In addition to carrying out an extensive strategic
review, developing a new five-year plan, and upgrading
the talent management process, he has also led the
Group’s delivery of a robust set of financial results
despite the challenging market conditions.
Energy transition and decarbonisation are at
the heart of the business and we now have a clear
growth plan with a particular focus on environmental
services, clean energy and utilities infrastructure, and
sustainable and safe mobility – see page 16.
The three key aspects of the new five-year plan are to:
1. Leverage Ricardo’s expertise in science and
innovation.
2. Achieve high growth and margins in Ricardo’s
chosen markets.
3. Ensure disciplined execution through operational
excellence and efficiency.
Ricardo’s people and below Board level
incentives
In order to execute the strategy successfully we have
to ensure that we are able to retain and recruit the best
talent available. Ricardo is particularly proud to have
been identified as having the Best Woman Mechanical
& Electrical Engineer at the European Women in
Construction and Engineering Awards.
Our Group People, Teams & Organisation Director
has worked with the new CEO since his appointment to
review the design and operation of Ricardo’s incentive
schemes – both cash and share-based – below the
Board. A new bonus plan for executives below the
Board has been designed which places emphasis on
financial performance as measured by profit, cash
and revenue (assessed net of ‘pass through’ costs).
In addition, share awards were made during the
year to executives with key skills and the CEO also
has the discretion, within parameters agreed by the
Remuneration Committee, to nominate key colleagues
for share awards on a non-hierarchical basis. The
number of participants in the Ricardo Long-Term
Incentive Plan (LTIP) and Ricardo’s other share-based
pay arrangements will be increased to seventy and
this is expected to grow further. Every aspect of our
incentives – short and long-term – is aligned to the
delivery of our five year plan.
Malin Persson is the designated Non-Executive
Director responsible for overseeing Workforce
Engagement and has during the year shared with the
Remuneration Committee what she has heard from
colleagues - see page 97.
We regard the Directors’ Remuneration Report
as a key element of our communication both with
shareholders and our people as we explain how the
Remuneration Committee ensures that executive pay
is aligned to the strategy and performance of the
Company and with the remuneration of colleagues
across the Group.
Our performance during the year
Ricardo’s results for FY 2021/22 are in line with the
Board’s expectations and are underpinned by strong
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02. CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 growth in order intake and increased profitability. This
is the direct consequence not only of the leadership
of Graham Ritchie, Dave Shemmans (the former Chief
Executive Officer) and the senior team, but also the
skills and hard work of every single one of Ricardo’s
3,017 people around the world. Underlying PBT for
the year, including the results of Ricardo Software,
was £26.3 million, an increase of 46% over the prior
year. Order intake was £432.2 million, up 23% on the
previous year. Net debt was £35.4 million.
The Group underlying cash conversion was 112%
and, when adjusted by £3.0m to remove pension deficit
payments, in line with the Group’s bonus principles,
the resulting adjusted underlying cash conversion was
118%. This is well ahead of the maximum hurdle set for
the year and is very pleasing.
Our Energy and Environment business, which
accounted for 17% of the Group’s total revenue in
FY 2021/22, continued to deliver good revenue and
underlying profit growth in the year. The revenue and
order intake of our largest business, Automotive and
Industrial, rebounded during the year and the business
returned to profitability. Order intake, revenue and
underlying operating profit all increased in Performance
Products and Defense, with volumes increasing on key
customer programmes. Whilst order intake increased,
revenue and underlying operating profit reduced in Rail
due to the wind down of a number of large projects.
Although the effects of COVID-19 are still being
felt throughout the Group particularly in China, no
colleagues have been furloughed during the year and
Ricardo has not been in receipt of state aid or relief.
Our engagement with shareholders
since last year’s AGM
At the Annual General Meeting in 2021, the Directors’
Remuneration Report was passed by a clear majority
(64.57%) but several shareholders made it clear to us
that they were unhappy principally about some of the
details of the leaver arrangements for Dave Shemmans,
our outgoing CEO. Some were also concerned about
the increase in the level of the share awards under the
LTIP. I contacted all the investors who were identified
as voting against the Directors’ Remuneration Report
to see if there was anything further we could learn.
The Remuneration Committee’s decision in respect
of the departure terms hinged on the need to ensure
stability at a very delicate time for Ricardo in the throes
of the pandemic. We also asked Dave Shemmans to be
flexible on his leaving date. I hope those investors who
could not support the Directors’ Remuneration Report
are reassured by the continuing clawback and malus
provisions in relation to share based incentive awards
which remain in force for two years after the end of
the performance period or, in the case of deferred
bonus awards, three years following the date of grant.
Dave was also bound by his restrictive covenants for
a period of six months following the cessation of his
employment. He has been treated as a good leaver
for the purposes of his deferred bonus awards and his
performance awards, the latter of which have been
time pro-rated. In addition, the vesting history of shares
awarded under the LTIP strongly indicates that the
performance targets the Committee has set have been
stretching – see page 117.
Pay outcomes and performance for FY
2021/22
Salaries
No increases were made to the salaries of either Dave
Shemmans or Graham Ritchie during the financial year.
Graham was appointed on a salary of £470,000 which
is lower than that of his predecessor. The salary of
the Chief Financial Officer was increased in line with
colleagues across the Group by 3 per cent with effect
from 1 January 2022.
Annual bonus
Underlying Group PBT, including the results of
Ricardo Software, was £26.3m for the year. This
includes £0.3m of profit from recognising the Software
business as held for sale at the year-end, as a result
of amortisation not being charged for the month of
June 2022. This benefit has been excluded from the
underlying PBT used for bonus purposes. The target
for underlying Group PBT was therefore met and
the consequential bonus payments are 50% of the
maximum for this element. Adjusted cash conversion
was 118% which was well above the maximum hurdle
set and this resulted in a bonus pay-out of 100% 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 121 to 122 – resulted in an overall score of
100% for Dave Shemmans and of 95% and 85% for
the Chief Executive Officer and the Chief Financial
Officer respectively. The overall outcome resulted
in bonus payments of 87.5%, 86.25% and 67% for
the outgoing Chief Executive Officer, the new Chief
Executive Officer and the Chief Financial Officer as a
percentage of maximum. The annual bonus for the new
Chief Executive Officer was pro-rated to reflect that
he joined part-way through the year and is 64.7% of
salary as a result. The annual bonus for the outgoing
Chief Executive Officer was fully pro-rated on the basis
of his contribution for three months of the financial
year and one third of this will be deferred into shares
to be retained for three years thereby ensuring that
he retains an interest in shares following cessation of
employment. The outgoing Chief Executive Officer’s
bonus payment was 21.9% of his salary on leaving.
The Remuneration Committee took the view
that these outcomes were in line with overall Group
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RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/2202. CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORT Overview of exercise of other
discretions
Save for those described in this statement, the
Remuneration Committee did not exercise any other
discretions afforded to it under Ricardo’s share plans
and/or its Directors’ Remuneration Policy.
Remuneration for FY 2022/23
The current Directors’ Remuneration Policy allows the
Remuneration Committee sufficient scope to ensure
that the pay of the Executive Directors supports the
implementation of the new five-year plan. The personal
and strategic objectives in respect of the annual bonus
plan for FY 2022/23 have been set with this in mind
and, as described on page 129, now include a Value
Added Turnover bonus measure.
We expect to make awards under the LTIP in
October 2022 on the same basis as FY 2021/22. EPS
and relative TSR continue to be the measures and the
targets are described on page 129.
We shall also embark on the review of executive
remuneration in preparation for the new Directors’
Remuneration Policy which will be submitted for
approval at the Annual General Meeting in 2023. The
review will also look at how we can enhance the link
between our ESG strategy, the climate-related targets
we set and remuneration. I shall be consulting with our
largest shareholders on this during the course of 2023.
Conclusion
I hope our stakeholders will support the decisions and
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
performance. The performance of the share price has
been fully reflected in the lapsing of the shares under
the LTIP – see below. Shareholders will be asked to
approve a final dividend of 7.49 pence per share, which
in addition to the interim dividend paid in April 2022 of
2.91 pence, brings the total dividends in respect of the
financial year to 10.40 pence.
Pension
The pension allowance of both the new Chief Executive
Officer and the Chief Financial Officer is 7% of salary
in line with the level for other colleagues. The CFO
agreed to the reduction to 7% of salary with effect
from 1 January 2022.
Long-term incentives
In October 2021, awards under the LTIP and bonus-
linked share awards under the Deferred Bonus
Plan granted in October 2018 lapsed on the basis
of underlying Earnings Per Share (EPS) and Total
Shareholder Return (TSR) performance over the
relevant performance periods. This is the third
successive year that no performance awards have
vested.
Operation of the Directors’ Remuneration Policy
The Remuneration Committee is satisfied that the
current Directors’ Remuneration Policy has operated
as intended during FY 2021/22 and, in light of the
performance outcomes described above and on page
111, decided that incentive outcomes are in line with
corporate performance.
Long Term Incentive Plan awards in 2021
Awards were granted under the LTIP in October 2021.
The target range for EPS, which determines the vesting
of two thirds of the shares under award, was disclosed
in the 2021 Directors’ Remuneration Report 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 below 29.7p;
• 15% of this portion (reduced from the usual 25%)
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 remaining one third of the shares under awards
were subject to a relative TSR measure which is
consistent with the prior year’s grants.
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02. CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 SUMMARY OF THE KEY ELEMENTS OF EXECUTIVE DIRECTORS’ PAY IN FY 2021/22
The following table provides a summary of the key elements of Graham Ritchie’s (CEO) and Ian Gibson’s
(CFO) pay in FY 2021/22.
Base salary
Other benefits
• CEO: £470,000 (from 1 October 2021)
• CFO: £355,160 (from 1 January 2022)
• Company car allowance: £12,000
• Private fuel;
• Private medical insurance; and
• Life assurance.
Pension
• 7% of salary (over Lower Earnings Limit)(1)
Annual bonus with deferral
of one-third of any bonus
earned
• Maximum opportunity of 125% of salary (CEO) and 100% of salary (CFO).
• Based on PBT (60%),
cash conversion (20%) and
personal targets (20%).
• One-third of any bonus to be deferred into shares for three years.
Long-term Incentive Plan
shares(2)
• CEO: 150% of salary
• CFO: 130% of salary
Share ownership and
retention policy
• In-post: a minimum of 200% of base salary;
• Post-cessation of employment: a minimum of 200% of salary (or 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 retained until holding requirement met;
• Year-end holding for the CEO is 11% of base salary;(4) and
• Year-end holding for the CFO is 68% of base salary.(4)
(1) From 1 January 2022 in the case of Ian Gibson, 20% before this date.
(2) Face value of award of long-term incentive plan shares granted in October 2021 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 361.5p per share (2021: 410.0p) and salaries as at 30 June 2022,
including unvested shares not subject to performance conditions and any vested shares subject to a holding period, both on a net-of-tax basis.
As disclosed in the 2021 Directors’ Remuneration Report, Dave Shemmans ceased to be employed by the
Group on 30 September 2021 and therefore has been excluded from the table above.
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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 2022. The paragraphs
that have been audited in this Annual Report on
Remuneration are indicated.
The Remuneration Committee
During the year under review, the Remuneration
Committee (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 91 to 93; details of
attendance at the meetings of the Committee during
the year ended 30 June 2022 are shown on page 95.
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 £42,190 (calculated based on
a mixture of fixed fees and time spent). Shepherd
and Wedderburn’s fees for advising the Committee
amounted to £39,080 (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 2021
was held on 11 November 2021. The Directors’
Remuneration Policy in operation during the year
was approved by shareholders at the 2020 AGM. The
results of the votes on the remuneration report and
remuneration policy are set out below.
Annual Report on Remuneration
approved at 2021 AGM
Directors' Remuneration Policy
approved at 2020 AGM
Votes(1)
For, including discretion
Against
Total votes cast
Withheld(1)
%
64.57
35.43
100.00
Number
28,346,550
15,550,653
43,897,203
7,257
%
94.79
5.21
100.00
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.
114
02. CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 The Chair of the Committee wrote to shareholders
prior to the 2021 AGM to explain the decisions made
during the year on executive remuneration and in
particular the arrangements for Dave Shemmans
on his leaving Ricardo. Following the AGM, the
Chair of the Committee engaged once more with
the largest investors who voted against the 2021
Directors’ Remuneration Report to further understand
their views. As explained in the 6-month update
statement that we released on our website in May
2022, the primary concerns raised related to the
exit arrangements for the Company’s former Chief
Executive Officer. A secondary concern was the
increase in the award levels under the Long Term
Incentive Plan without any consequential increase in
the stretch to the performance targets. The Committee
understands the concerns of shareholders and
sensitivities surrounding the remuneration decisions
taken in 2021. At the same time, the Committee
remains of the view that the decisions it made were
appropriate and in the best interests of shareholders
taking into account all the circumstances. The
Committee appreciates the time that shareholders have
given to Ricardo on executive remuneration matters
and will continue to engage with them and take their
views into account at all times.
Performance at a glance in FY 2021/22 compared with FY 2020/21
Bonus performance outcomes
Long-term incentive performance outcomes in respect of awards vesting in FY 2021/22
Underlying PBT
(adjusted)
Cash conversion
(adjusted)
£26.0m(1)
(FY 2021/22)
118%
(FY 2021/22)
£18.0m
(FY 2020/21)
98%
(FY 2020/21)
Underlying EPS (adjusted)
3-year TSR growth
22.4p
for year to 30 June 2021
(below threshold vesting level)
21.5p
for year to 30 June 2020
(below threshold vesting level)
(45.5)%
(below median to October 2021)
(51.4)%
(below median to October 2020)
(1) Adjusted for £0.3m of amortisation on Ricardo Software which was not charged during the held for sale period.
The closing mid-market price of the Company’s shares on 30 June 2022 was 361.5p per share (2021: 410.0p). The
highest closing price during the year was 490.0p per share and the lowest closing price during the year was 331.5p
per share.
Pay at a glance in FY 2021/22
2021/22
2020/21
2021/22
2020/21
388
304
692
412
428
238
650
47
475
2021/22
234
116
350
2020/21
663
150
813
m
a
h
a
r
G
O
E
C
O
E
C
r
e
m
r
o
F
i
)
1
(
e
h
c
t
i
R
n
o
s
b
G
n
a
i
I
O
F
C
)
2
(
s
n
a
m
m
e
h
S
e
v
a
D
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) Graham Ritchie commenced employment with the Group on 1 October 2021.
(2) Dave Shemmans ceased employment with the Group on 30 September 2021.
(3) The long-term incentive awards granted in October 2018 lapsed in full in FY 2021/22. As a result, the face value at grant of these awards and any
share price appreciation has not been shown in the above table.
115115
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/2202. CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORT
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.
Long-term variable
remuneration:
Fixed remuneration
Short-term variable
remuneration
3-year performance
periods
Totals
Base
salary
and fees Benefits(1) Pension
Bonus
(cash
element)(2)
Bonus
(deferred
element) Total
Bonus-
linked
shares(3) LTIP(4) Total Total
Total Fixed
Remuneration
Total Variable
Remuneration
£'000
£'000 £'000
£'000
£'000 £'000
£'000 £'000 £'000
£'000
£'000
£'000
Financial
year
EXECUTIVE DIRECTORS
Graham
Ritchie(5)
Ian
Gibson
Dave
Shemmans(6)
2021/22
353
2020/21
2021/22
2020/21
2021/22
2020/21
-
350
345
133
530
NON-EXECUTIVE DIRECTORS
Sir Terry
Morgan CBE
Russell
King
Laurie
Bowen (7)
Malin
Persson(8)
Bill
Spencer
Jack
Boyer
2021/22
2020/21
2021/22
2020/21
2021/22
2020/21
2021/22
2020/21
2021/22
2020/21
2021/22
2020/21
162
159
60
60
51
51
59
59
60
60
51
51
11
-
16
15
73
22
-
-
-
-
37
-
6
2
-
-
-
-
24
-
46
68
28
111
203
-
159
31
77
100
101 304
-
-
79 238
16
39
50
47
116
150
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2021/22 1,279
Total
2020/21(9) 1,315
143
39
98
179
439
131
219 658
66
197
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
692
-
650
475
350
813
162
159
60
60
88
51
65
61
60
60
51
51
388
-
412
428
234
663
162
159
60
60
88
51
65
61
60
60
51
51
304
-
238
47
116
150
-
-
-
-
-
-
-
-
-
-
-
-
- 2,178
- 1,730
1,520
1,533
658
197
(1) Further information on benefits for the Executive Directors can be found on page 120. The benefits for Non-Executive Directors represent
reimbursement of expenses incurred (including any associated personal tax charges) while travelling for business and Committee meetings.
(2) Further details of the annual bonus can be found from page 120.
(3) Further details of the lapse in FY 2021/22 of the bonus-linked shares historically granted under the Deferred Bonus Plan can be found on pages 123
and 124. 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 2021/22 can be found on pages 123 and 124. As no LTIP shares vested in the year, share price
appreciation had no impact on the relevant figure included in the above table.
(5) Graham Ritchie commenced employment with the Group on 1 October 2021.
(6) Dave Shemmans ceased to be a Director on 30 September 2021. Payments made to Dave Shemmans in respect of loss of office are described on
page 124 and are not included in the above table.
(7) Laurie Bowen’s benefits consisted of travel expenditure. Laurie did not receive any taxable benefits in FY 2020/21 as she was unable to travel due to
COVID-19.
(8) Malin Persson’s benefits consisted of travel expenditure and accountancy fees.
(9) Mark Garrett has been excluded from the table as he was not a Director of the Company in FY 2021/22 therefore the total figure for FY2020/21 will
differ to the total figure disclosed in last year’s Director’s Remuneration Report.
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.
116
02. CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
Pay for performance – TSR performance graph and CEO pay history
£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
l
o
h
e
r
a
h
S
l
a
t
o
T
£0
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Jun-20
Jun-21
Jun-22
At 30 June each year
RICARDO TSR
FTSE SMALL CAP (EX INV.TRUSTS) TSR
FTSE ALL SHARE SUPPORT SERVICES TSR
Source: Datastream (a Refinitiv product )
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 for the same period is shown in the table below.
Single figure of CEO's
total remuneration
Annual variable element
award rates against
maximum opportunity
Long-term incentive
vesting rates against
maximum opportunity
Financial year
Group CEO
2021/22
2021/22
2020/21
2019/20
2018/19
2017/18
2016/17
2015/16
2014/15
2013/14
2012/13
Graham Ritchie(1)
Dave Shemmans(2)
Dave Shemmans
Dave Shemmans
Dave Shemmans
Dave Shemmans
Dave Shemmans
Dave Shemmans
Dave Shemmans
Dave Shemmans
Dave Shemmans
£'000
692
350
813
656
998
1,411
1,612
2,291
1,367
760
1,546
%
52
18
23
-
25
43
-
63
59
38
75
%
N/A
-
-
-
40
74
100
100
67
N/A(3)
77
(1) Graham Ritchie commenced employment with the Group on 1 October 2021 and as a result did not hold any long-term incentive awards that vested
during the year.
(2) Dave Shemmans ceased to be a Director on 30 September 2021. Payments made to Dave Shemmans in respect of loss of office are described on
page 124 and are not included in the above table.
(3) 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.
117117
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/2202. 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 2019 and 30 June 2020;
the year ended 30 June 2020 and 30 June 2021; and
the year ended 30 June 2021 and 30 June 2022,
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.
Between FY 2020/21
and FY 2021/22
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
% change
in annual
bonus(1)
% change
in base
salary and
fees
% change
in taxable
benefits(2)
% change
in annual
bonus
All Employees
3
-
EXECUTIVE DIRECTORS
Graham Ritchie (CEO)(3)
Ian Gibson (CFO)(4)
Dave Shemmans(5)
(former CEO)
N/A
1
(75)
NON-EXECUTIVE DIRECTORS
Sir Terry Morgan CBE
Russell King
Laurie Bowen
Malin Persson(7)
Bill Spencer
Jack Boyer
1
-
-
-
-
-
N/A
3
236
-
-
See note
(6) below
232
-
-
556
N/A
403
(23)
N/A
N/A
N/A
N/A
N/A
N/A
-
-
N/A
1
1
1
28
1
7
1
21
N/A
(9)
(4)
(100)
(100)
(100)
(57)
(100)
(100)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
% change
in base
salary and
fees
% change
in taxable
benefits(2)
% change
in annual
bonus
3
-
(100)
N/A
N/A
3
3
3
N/A
3
14
3
N/A
-
-
-
N/A
(39)
(52)
-
N/A
N/A
(100)
(100)
N/A
N/A
N/A
N/A
N/A
N/A
(1) The Non-Executive Directors are not eligible to participate in the bonus scheme. The large % change in annual bonus reflects the business recovering
from the COVID-19 pandemic and returning to normal levels of bonus payments
(2) The reduction in taxable benefits for the Non-Executive Directors reflects a lower level of travel and associated costs compared to the prior year.
(3) Graham Ritchie commenced employment with the Group on 1 October 2021.
(4) The large % change in annual bonus for Ian Gibson reflects that a bonus of only 13.7% of annual salary was paid in respect of FY 2020/21. While
not included in the table above, as explained on page 112, Ian Gibson’s cash in lieu of pension contributions reduced with effect from 1 January 2022
from 20% of salary (above the lower earnings limit) to 7% of salary (above the lower earnings limit).
(5) The % change in base salary and fees figure for Dave Shemmans reflects that he stepped down as CEO on 30 September 2021. The % change in
taxable benefits figure for Dave Shemmans is based on the actual figure due to mix of benefits received. The increase in taxable benefits is due to the
payment of accrued but untaken holidays on cessation of employment.
(6) The year-on-year change in Laurie Bowen’s taxable benefits cannot be shown as no taxable benefits were received in respect of the 2020/21 financial
year.
(7) The increase in taxable benefits for Malin Persson largely reflects an increase in travel and associated costs since the prior financial year.
Pay ratio information in relation to Chief Executive Officer's remuneration
Year
2022
2021
2020
Method of
calculation adopted
25th percentile pay ratio
Median pay ratio
75th percentile pay ratio
(CEO : UK employees)
(CEO : UK employees)
(CEO : UK employees)
Option A
Option A
Option A
32 : 1
25 : 1
19 : 1
24 : 1
18 : 1
14 : 1
16 : 1
12 : 1
10 : 1
In calculating the pay data for the Chief Executive Officer, the Company has aggregated the amount shown in the
single total figure of remuneration table (on page 116) of £349,563 for Dave Shemmans in respect of his services
from 1 July 2021 to 30 September 2021 and the amount of £691,878 shown in the single total figure table for
Graham Ritchie in respect of his services from 1 October 2021 to 30 June 2022.
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 2022 (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.
118
02. CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 The median pay ratio for 2022 should be treated with particular caution this year as the data is based on the
combined totals of remuneration for the outgoing and the new Chief Executive Officer. The multiple of the Chief
Executive Officer’s pay when compared to that of the median total pay for Ricardo’s UK employees has increased
year on year. This is partly the result of Ricardo’s improved performance. Even though there has been no vesting of
shares under the LTIP in either of the FYs 2020/21 or 2021/22, Ricardo’s performance over the year has been much
stronger for FY 2021/22 compared to performance in FYs 2020/21 and FY 2019/20 and this is reflected in the level
of bonus payments – see page 123. Because incentive pay makes up a significant portion of the Chief Executive
Officer’s total remuneration there is by definition much more variability in the resulting levels of total pay from
year to year than there is for UK employees as a whole where fixed pay accounts for a much bigger proportion of
total pay. The ratios shown for all the quartiles have been calculated on the same basis. We take the view that the
median pay ratio which results from Ricardo’s desire to pay for performance, to pay competitively and to pay fairly
is consistent with the pay, reward and progression policies for the Company’s UK employees taken as a whole. The
ratio will prove volatile from year to year and will widen further as our share price increases and Graham Ritchie’s
awards under the LTIP start to vest. The Committee reviews the pay of all Ricardo’s employees to ensure the
alignment of the Executive Directors’ pay with pay across the Group.
Pay details (on a full-time equivalent annualised basis where appropriate) for the individuals whose FY 2021/22
remuneration is at the median, 25th percentile and 75th percentile amongst UK based employees are as follows:
2022
Salary
Total pay and benefits
25th percentile
£30,500
£32,513
Median
£37,375
£44,102
75th percentile
£56,074
£66,886
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 2020/21 and FY 2021/22.
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 2021/22
FY 2020/21
% change
195.4
182.0
7%
3.5
13.3
3.3
10.2
6%
30%
6.5
4.3
51%
(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 209. 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 21 and
71. 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
2021/22
Base salary
As described in the policy section on page 132, 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 colleagues across the Group. The
current salary levels for the Executive Directors, and
the date on which those salaries become effective are
shown in the table below. Ian Gibson’s salary reflects
a 3% increase from the previous year. The Group-wide
average increase approved in FY 2021/22 was 3%.
Executive Director
Salary
Effective Date
Graham Ritchie (CEO)
£470,000
1 October 2021
Ian Gibson (CFO)
£355,160
1 January 2022
Dave Shemmans (former CEO)
£530,484
1 January 2020
119119
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/2202. CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORT 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 are set at £12,000 p.a. for both
Graham Ritchie and Ian Gibson, and was previously
set at £17,500 p.a. for Dave Shemmans. The benefits
total for Dave Shemmans in the single total figure of
remuneration table on page 116 also includes £67,331
in respect of accrued but untaken holidays up to 30
September 2021 as disclosed in last year’s Directors’
Remuneration Report and set out in a statement
on Ricardo’s website in accordance with section
430(2B) of the Companies Act 2006. Further details
of the benefits Dave Shemmans received following
his cessation of employment are included on page
124. 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 2022, the transfer value in respect of Dave
Shemmans, the former Chief Executive Officer, has
increased. The transfer value at 30 June 2022 was
£730,590, an increase of £19,569 from the prior
year.
The former 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, each of the Directors received cash in lieu
of such contributions as set out below:
Graham Ritchie (CEO)
Ian Gibson (CFO)(1)
Dave Shemmans (Former CEO)(2)
Cash in lieu
£'000
24
46
28
(1) This reflects a reduction in Ian Gibson’s cash in lieu of pension
contributions with effect from 1 January 2022 from 20% of salary
(above the lower earnings limit) to 7% of salary (above the lower
earnings limit).
(2) Dave Shemmans ceased employment with the Group on 30
September 2021. The table shows the cash payment in lieu of
pension in relation to his employment to that date. For payments
made to Dave Shemmans after that date, please see page 124.
Annual performance-related bonus
(audited)
Introduction
For the year ended 30 June 2022, the maximum annual
performance-related bonus opportunity was 125%
of salary for the current and former 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 the FY 2019/20 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 than a cash
balance / net debt figure.
Cash conversion is defined as underlying cash
generated from operations (excluding defined
benefit pension scheme payments) divided by
underlying EBITDA. The definition of “underlying”
EBITDA excludes specific adjusting items comprising
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.
Details of financial targets
The financial targets for FY 2021/22 (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. Underlying profit
before tax performance was achieved at ‘on target’ and
the cash conversion performance was well ahead of
the maximum of the performance range set.
120
02. CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 Weighting
(% of maximum opportunity)
Performance
required
Actual
performance
outturn
Pay-out (as %
of maximum
opportunity)
CEO
CFO
Threshold
On-target
Maximum
60
20
60
20
£24m
£26.0m
£28m
£26.0m
78%
82%
89%
118%
30
20
Measure
Underlying
profit before tax
Cash
conversion
A sliding scale of targets for each financial measure of
the Group was also set at the start of FY 2021/22:
Performance achieved
Element payable
Threshold
On-target
Maximum
-
50%
100%
Between any two performance
levels
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 the Chief Executive
Officer, and supported by the Chief Executive Officer
in the case of Chief Financial Officer and members of
the leadership team, set 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 four to 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 goals set by the Committee include a number
of desired outcomes not all of which can be disclosed
in detail as they remain highly commercially sensitive.
Graham
Ritchie
(CEO)
Personal objectives
FY 2021/22
Examples of performance outcomes
against personal objectives
Overall
achievement
(%)
Pay-out (%
of maximum
opportunity)
• Develop a clear ‘People Plan’ to support
• Monthly communications during the year
95
19
the strategic delivery of the business plan.
Deliver quick win initiatives in Q2 and H1
in line with the Board approved ‘People
Plan’ timetable.
• Create clear strategy, vision, mission and
values for internal and external cascade in
H2. Create and execute communications
plan of new strategy for external investors,
customers and internal teams in H2.
• Establish clear strategy and execution plan
to develop A&I growth and profitability.
Plan to include 3-year growth, portfolio
transition and restructuring plan by service
and geography.
• Deliver clear portfolio transition and M&A
target sequencing with approval from the
Board in H1. Deliver portfolio transitions
and M&A transactions in line with agreed
timeline in H2.
to align objectives and priorities across the
Group. Several work streams established
with actions and priorities aligned to
delivering strategic objectives. ESG
governance improvements implemented
through relevant appointments, enhanced
reporting and external benchmarking to
improve index scores.
• Refreshed vision, purpose and strategic
objectives with clear focus on becoming
a leader in Environmental and Energy
transition. Successful communication of
this to investors having developed a clear
financial plan for the next 5 years. Internal
alignment on growth focus and resourcing
requirements.
• 5-year financial plan created by service
and geography. Strong order growth in
A&I, with developments toward improved
visibility and forecast accuracy moving
forward.
• H1 and H2 portfolio transitions and M&A
transactions delivered in line with agreed
timelines, or immediately following UK
Government approvals.
121121
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/2202. CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORT Personal objectives
FY 2021/22
Examples of performance outcomes
against personal objectives
Overall
achievement
(%)
Pay-out (%
of maximum
opportunity)
Ian Gibson
• Ensure talent retention, acquisition
• Strong team capability and motivation
85
17
(CFO)
Dave
Shemmans
(Former CEO)
and appropriate diversity across Group
Finance. Work toward a reduction in costs
underpinning the delivery of budgeted
operating profit, including the development
of a reporting framework and data
collection from Business Units that will
facilitate performance reviews.
• Introduce the CEO to key investors,
analysts and brokers. Support the CEO
in the development of clear messaging in
respect of performance, expectations and
strategy.
• Support M&A prioritisation and successful
completion of portfolio transitions.
• Reduction in indirect and overhead costs
to underpin the delivery of the FY 2021/22
budgeted operating profit, cash and cost
exit run rate.
• Develop reporting framework/template
including dashboard; collect data from
business units on a monthly basis and
prepare reporting pack to facilitate
performance review.
• Work and support Business Units to
accelerate the completion and review of
their five-year plan.
• Continue to deliver the Group strategy
programme in terms of planning and
executing the portfolio transitions to
reposition the business to focus around the
ESG agenda with environmental consulting
at the heart. Build the acquisition pipeline
to execute as appropriate within the
agreed sectors and geographies of interest.
Ensure the integration of global automotive
programme proceeds and maintains
performance.
• Ensure that the business is ready and
well prepared for the new CEO and that
the onboarding plan is comprehensive
and effective, covering all stakeholders.
Maintain the performance and continuity
of the senior and broader team ensuring
that they are motivated, focused, tight and
onboard to receive the incoming CEO.
with significant delivery of extra strategic
tasks, more detailed 5-year planning and
additional monthly insight.
• Good relationship management with key
stakeholders and investors.
• Developed good insight on cost efficiency
across all Business Units, including
effective use of central analysis for
heightened precision in performance
review.
• Maintained strong focus throughout the
year by establishing good visibility of
targets and reporting.
100
20
• Continued to lead and deliver the Group
strategy programme as agreed with clear
progress made in Q1 in driving results,
planning and executing the M&A agenda.
• Contributed to the creation of a readiness
plan toward the integration of global
automotive programme.
• Planned a comprehensive onboarding
for the new CEO, ensuring continuity of
business performance and facilitating
smooth transition.
• Received the incoming CEO into the
organisation with visible support internally
and the inclusion of all stakeholders.
122
02. CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 Committee's assessment of achievement levels and determination of bonuses payable
The performance of the Group over the year included a 46% increase in underlying profit before tax to £26.3m
(2020: £18.0m). This includes £0.3m of profit from recognising the software business as held for sale at the year-
end, as a result of amortisation not being charged for the month of June 2022. This benefit has been excluded from
the underlying PBT used for bonus purposes, resulting in underlying PBT for FY 2021/22 of £26.0m. This is in line
with on-target underlying PBT set and therefore the resulting bonus outturn is 50% of the maximum payable for
this element of bonus or 30% of the overall bonus maximum opportunity.
The Group underlying cash conversion for the year was 112%. The Group cash from operations was adjusted
by £3.0m to remove pension deficit payments, in line with the Group’s bonus principles, resulting in an adjusted
underlying cash conversion of 118%. This was well above the maximum of the target range set and hence the
bonus outturn for Group cash conversion was achieved in full.
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 95%, 85% and 100% for Graham Ritchie, Ian Gibson and
Dave Shemmans, respectively. The bonuses for Graham Ritchie and Dave Shemmans shall each be reduced on a
strict pro-rated basis to reflect the period they each served. Graham Ritchie served from 1 October 2021 to 30
June 2022 and Dave Shemmans served from 1 July 2021 to 30 September 2021.
The following table summarises the bonus outcomes for FY 2021/22.
Measure
Pay-out
Graham Ritchie
Ian Gibson
Dave Shemmans
Underlying profit before tax (payout as % of maximum bonus opportunity)
Cash conversion (payout as % of maximum bonus opportunity)
Personal objectives (payout as % of maximum bonus opportunity)
Total pay-out (as a % of maximum) = (a)
Maximum % of base salary) = (b)
Total pay-out (% of base salary) = (a) x (b)
% of FY in employment
Pay-out following time pro-rating reduction (% of salary)
30
20
19
69
125
86.25
75
64.7
30
20
17
67
100
67
N/A
N/A
30
20
20
70
125
87.5
25
21.9
One third (approximately 33%) of any bonus paid to an Executive Director, including former Executive Directors, 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 October 2018 lapsed in October 2021 on
the basis of underlying EPS and TSR performance measured over specified periods, the last of which ended in October
2021. 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 (excl. financial services
companies and investment trusts)
Below median
Median
Upper quartile (or
above)
Between median
and upper quartile
Underlying EPS (50%)
Vesting level (%)
Underlying EPS (adjusted)
Vesting level (%)
-
Less than 60p
25
60p
100
Equal to or greater than 69p
-
25
100
Sliding scale between the above
percentages
Between 60p and 69p
Sliding scale between the
above percentages
123123
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/2202. CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORT
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 (45.5)% against a
median of 13.8%. 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 October 2021 in respect of awards granted to each of the Executive
Directors in October 2018 are set out on pages 126 and 127 of this report.
The Chair of the Board's and the Non-Executive Directors' fees
The Chair's fees as of 1 January 2022 and Non-Executive Directors' 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
Payments to past directors and in respect
of loss of office (audited)
As disclosed in last year’s Directors’ Remuneration
Report and set out in a statement on Ricardo’s website,
the Board and Dave Shemmans jointly agreed that
he would leave his role as Ricardo’s Chief Executive
Officer on 30 September 2021. In accordance with
Dave’s Service Agreement, Ricardo exercised its right
to make a payment in lieu of the 12 months’ notice
(the PILON) that Dave was entitled to receive and, as a
result, Dave ceased to be a Director of, and employed
by, the Group on the same date. The aggregate amount
of the PILON was £682,476, comprised of:
• £530,484 in respect of salary;
• £111,140 in respect of cash in lieu of pension over
the notice period; and
• £17,500 in respect of car allowance and £23,352
in respect of other benefits that he would have
received had he continued in employment during
the notice period.
Dave Shemmans received an immediate PILON
payment of £341,238 on his departure, which was
equal to half of the PILON amount. The remaining half
was to be paid in 6 equal instalments, from April to
September 2022 (inclusive) of which an aggregate
of £170,619 was paid during FY 2021/22. Under his
settlement agreement, Dave Shemmans is obliged
to use his best endeavours to obtain alternative
employment. The remuneration received by him from
any such alternative employment would be set-off
against, and reduce, any outstanding instalments of
the PILON.
Finally, Ricardo paid £21,500 in respect of
Dave’s legal fees in connection with his cessation of
employment.
£'000
164
51
9
8
Dave Shemmans was also entitled to receive a
bonus for the financial year ending 30 June 2022,
pro-rated to reflect the part of the year that Dave was
in-post. Details of the amounts involved are included
in the single total figure of remuneration table on page
116. One third of this bonus will be deferred into an
award of shares under the DBP with the balance being
paid in cash on the normal payment date.
Dave was treated as a good leaver in respect of
the awards granted under the DBP and LTIP. The
relevant awards (including the award granted in
respect of the FY 2021/22 bonus) will vest (subject
to the satisfaction of the applicable performance
conditions in the case of the performance awards), and
the relevant shares will be released, on or around their
third anniversary of grant, except in the case of awards
made under the Ricardo plc 2020 Long Term Incentive
Plan where the relevant shares will be released at the
expiry of the post-vesting holding period. No time pro-
rata reduction will apply to DBP awards as the awards
relate to annual bonus already earned. A strict time
pro-rata reduction will, however, apply in respect of
the 2019 and 2020 performance share awards granted
under the Company’s share plans taking into account
the elapsed time from the date of grant to the date of
cessation of employment agreed with Dave Shemmans
for this purpose (30 September 2022). Ricardo’s
standard malus and clawback provisions will apply
to the above awards as described in the Directors’
Remuneration Policy.
All payments referred to in this section are
subject to deductions for tax and national insurance
contributions.
124
02. CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
Long-term incentive awards granted during the financial year (audited)
LTIP awards were granted on 27 October 2021 under the rules of the Ricardo plc 2020 Long Term Incentive Plan to
the Executive Directors on the basis set out below.
Basis of award
Type of award
(% of salary)
Number of
shares
Face value of
award (£)(1)
Threshold level
of vesting (%)
End of performance period
150
167,857
£704,999
Performance
shares(2)
130
106,728
£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 2023/24
(expected to be October 2024)
Graham
Ritchie
(CEO)
Ian
Gibson
(CFO)
(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 October 2021 (420p).
(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 October 2024
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 2021 - 2024 and any other considerations that the Committee
deems relevant.
The Committee chose the 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.
Relative TSR portion (one-third)
Relative TSR performance against
the FTSE Small Cap (excl. financial
services companies and investment
trusts)
Below median
Median
Adjusted EPS portion (two-thirds)
Vesting level (%)
Adjusted underlying EPS for the
final year in the performance period
(FY 2023/24)
Vesting level (%)
-
Less than 29.7p
25
29.7p
Upper quartile (or above)
100
Equal to or greater than 50.2p
-
15
100
Between median and upper quartile
Sliding scale between
the above percentages
Between 29.7p and 50.2p
Sliding scale between
the above percentages
Performance target setting and those applying to awards outstanding during FY 2021/22
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).
125125
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/2202. CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORT
The EPS performance targets applicable to LTIP
and the bonus-linked share awards under the DBP
outstanding during the year are as follows:
FY 2018/19 FY 2019/20 FY 2020/21
Threshold vesting(1)
Maximum vesting
60p
69p
60.1p
69.1p
28.5p
40.7p
(1) 25% for FY 2018/19 & FY 2019/20 and 15% for FY 2020/21
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 125 for
awards granted in the year ended 30 June 2022. The
number and value of shares which were awarded to
each of the Executive Directors in the year ended 30
June 2022 are set out in the table on page 125. The
performance conditions applicable to these 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 2021/22:
Targets set for three-year period and grant of
awards.
Performance conditions assessed and
number of shares to vest determined.
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 pages 127 and 128.
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 2022, the Directors' interests in shares provisionally awarded under the LTIP were as follows:
Number of provisional shares
Share price
at award
date in
pence
Award
date(1)
At 1 July
2021 Awarded(2)
Lapsed
Vested
At 30 June
2022(3)
Vesting
date
Holding
period ends
Graham
Ritchie
(CEO)
Ian
Gibson
(CFO)
Dave
Shemmans
(former CEO)(4)
Oct 21
Oct 18
Oct 19
420.00
756.00
623.60
-
167,857
23,418
29,526
-
-
Nov 20
354.80
126,341
-
106,728
Oct 21
Oct 18
Oct 19
420.00
756.00
623.60
66,141
82,590
Nov 20
354.80
224,274
-
-
-
-
23,418
-
-
66,141
-
-
-
-
-
-
-
-
-
167,857 27/10/2024 27/10/2026
- 25/10/2021
29,526 24/10/2022
-
-
126,341 27/11/2023 27/11/2025
106,728 27/10/2024 27/10/2026
- 25/10/2021
82,590 24/10/2022
-
-
224,274 27/11/2023 27/11/2025
(1) Awards granted in 2018 and 2019 were made under the rules of the Ricardo plc 2014 Long Term Incentive Plan. The awards granted in November
2020 and thereafter 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 125 and 126.
(2) The face value at the date of grant of the awards made in October 2021 was £704,999 for Graham Ritchie; and £448,258 for Ian Gibson.
(3) The mid-market closing price of the Company's shares on 30 June 2022 was 361.5p per share (2021: 410.0p).
(4) These awards will be time pro-rated at the point of vesting.
The October 2018 awards that were due to vest in October 2021 lapsed in full because the performance
conditions as set out on page 123 were not satisfied.
126
02. CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 Directors' interests in shares provisionally awarded under the DBP (audited)
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 pages 127 and 128.
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 2022, the Directors' interests in shares provisionally awarded under the DBP were as follows:
Type of Award(1)
Award
date
Deferral /
performance
period
Share
price at
award
date in
pence
Number of provisional shares
At 1 July
2021 Awarded(2)
Dividend
shares(3) Lapsed
Ian
Gibson
(CFO)
Dave
Shemmans
(former
CEO)
Deferred Oct 18
3 years
756.00
10,416
Bonus-linked
shares(5) Oct 18
3 years
756.00
Deferred Oct 19
3 years
623.60
9,686
7,147
Bonus-linked
shares(5) Oct 19
3 years
623.60
6,844
-
-
-
-
Deferred Nov 21
3 years
426.80
-
3,695
Deferred Oct 18
3 years
756.00
18,893
Bonus-linked
shares(5) Oct 18
3 years
756.00
17,568
Deferred Oct 19
3 years
623.60
13,544
Bonus-linked
shares(5)(6) Oct 19
3 years
623.60
12,969
-
-
-
-
Deferred Nov 21
3 years
426.80
-
11,715
-
-
136
-
69
-
-
9,686
-
-
-
-
- 17,568
258
-
224
-
-
-
At 30
June
2022(4)
-
-
7,283
6,844
3,764
-
-
13,802
12,969
11,939
Vested
10,416
-
-
-
-
18,893
-
-
-
-
(1) Awards granted in 2018 and 2019 were made under the rules of the Ricardo plc 2011 Deferred Bonus Plan. The awards granted in November 2021 were
made under the rules of the Ricardo plc 2021 Deferred Bonus Plan.
(2) The face value at the date of grant of the awards made in October 2021 was £15,770 for Ian Gibson and £50,000 for Dave Shemmans.
(3) Amounts allocated include shares equivalent to dividends on provisional deferred award shares.
(4) The mid-market closing price of the Company's shares on 30 June 2022 was 361.5p (2021: 410.0p).
(5) Bonus-linked shares awarded under the rules of the Ricardo plc 2011 Deferred Bonus Plan: performance conditions as outlined on pages 125 and 126.
(6) This award will be subject to time pro-rating at the point of vesting.
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
127127
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/2202. CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORT deferred awards) will count towards this shareholding
requirement on a net-of-tax basis.
Post-cessation of employment
The retention requirement described on the preceeding
page 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 2022, including any
shares provisionally awarded under the LTIP and DBP,
are presented in the table below. At 13 September
2022, the interests in shares of the Directors who were
still in office were unchanged from those at 30 June
2022.
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
Graham Ritchie (CEO)
Ian Gibson (CFO)
Dave Shemmans
(Former CEO)(5)
NON-EXECUTIVE DIRECTORS
Sir Terry Morgan CBE
Russell King
Laurie Bowen
Malin Persson
Bill Spencer
Jack Boyer
14,880
60,854
-
11,047
104,088
25,741
26,111
5,105
6,000
1,500
10,402
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
14,880
66,570
117,408
-
-
-
-
-
-
11
68
80
-
-
-
-
-
-
167,857
269,439
319,833
-
-
-
-
-
-
(1) Deferred awards granted pursuant to the rules of the Ricardo plc 2011 Deferred Bonus Plan and the Ricardo plc 2021 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. 51.75% 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 361.5p per share (2021: 410.0p) and salaries as at 30 June 2022.
(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 30 September 2021, being the date Dave Shemmans 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 respect of all Ricardo share plans; and
(included within the above limit) 5% of the issued
ordinary share capital of the Company for Ricardo’s
discretionary share plans.
At the end of the year under review, the Company’s
overall share plan dilution was 4.43%, of which 4.43%
related to discretionary 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.
Executive Directors and their Board
positions with other companies during
FY 2021/22
Executive Directors may, with the prior consent of the
Board, hold a non-executive directorship with another
company.
On 1 September 2014, the Company's former Chief
Executive Officer 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 2021 to 30 September 2021
(inclusive), amounted to £9,186.
On 24 August 2021, the Company’s former Chief
Executive Officer was appointed as a non-executive
director of Electra Meccanica. He is permitted to
retain the associated fees which, for the period from
24 August 2021 to 30 September 2021 (inclusive),
amounted to US$10,607.
128
02. CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 Implementation of Directors'
Remuneration Policy in FY 2022/23
It is anticipated that the implementation of the 2020
Directors Remuneration Policy (2020 Policy) in FY
2022/23 will be similar to that of FY 2021/22.
The Committee will:
• Review base salary levels for the Executive
Directors with effect from 1 January 2023;
• Set and review the performance targets for the FY
2022/23 annual bonus and the LTIP awards to be
made in 2022 to ensure continued alignment to
strategy;
• Make awards under the Ricardo plc 2020 Long
Term Incentive Plan (2020 LTIP); and
• Make awards under the Ricardo plc 2021 Deferred
Bonus Plan (2021 DBP).
To determine the amount of bonus payable for FY
2022/23, the Committee will assess the level of
achievement against the financial measures and
targets set in respect of:
• Group underlying profit before tax (40%);
• Value Added Turnover (20%) (a measure that
focuses on profitable revenue growth);
• 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 2022/23.
2022 LTIP Awards
The Committee has so far considered the performance
measures to apply to the LTIP awards to be granted
in October 2022. In accordance with the Directors’
Remuneration Policy, the measures and targets and
the different weightings ascribed to them are 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 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 peer group 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 with 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 2025, 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 36.8p;
• 20% of this portion will vest where the final year
underlying EPS is 36.8p;
• 100% of this portion will vest where the final year
underlying EPS is greater than or equal to 51p; and
• Vesting will take place on a straight-line basis
between 36.8p and 51p.
Where the underlying EPS performance period ends
before 30 June 2025 (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
Directors’ Remuneration 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.
New Board Chair
As part of the arrangement for the appointment of a
new Board Chair to replace Sir Terry Morgan on his
retirement from the Board at the end of the 2022 AGM,
the Committee has considered the fee of his successor
and determined that this should be £170,000.
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.
129129
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/2202. 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 (2020 AGM) until the AGM to be held in 2023 (2020 Policy). The previous policy
that was approved by shareholders at the AGM held on 8 November 2017 (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 137, 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) (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 Chair 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 share plans;
• Agreeing the remuneration of the Chair 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 have been aligned to the pension provision
levels of the UK workforce from 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 pages 132 to 136;
• 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.
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02. CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 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 has been
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. This also involved
the Committee undertaking a consultation exercise with our
major shareholders and the then 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 114 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 chart on page 137.
• The Committee has a range of discretions in relation to variable
pay awards, new joiners and leavers, which are identified and
explained in the Remuneration Policy section.
Proportionality
• As shown in the scenario chart on page 137, 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.
131131
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/2202. CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORT THE STRUCTURE OF OUR DIRECTORS' REMUNERATION PACKAGE –
THE 2020 POLICY TABLE
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.
Maximum
Operation
Framework for assessing
performance
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.
Salary levels are normally reviewed annually in January
each year.
None
Pay is set by considering:
• Market levels of total pay for comparable roles in
companies of 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.
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.
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.
None
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.
132
02. CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 Framework for assessing
performance
None
Pay element
and link to
strategy
Pension
To offer
market-
competitive
retirement
benefits.
Maximum
Operation
Until 31
December 2021
the maximum
pension
contribution was
20% of salary
over the Lower
Earnings Limit.
From 1 January
2022 this was
reduced to match
the pension
provision levels 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
former Chief
Executive Officer
was entitled to an
additional 1.2%
of salary pension
contribution.
The Company operates a defined contribution scheme
(the 'Pension Scheme'). Until 31 December 2021, the
policy for Executive Directors (save for the former
Chief Executive Officer's legacy pension arrangements
described opposite) was a pension contribution of 20%
of base salary over the Lower Earnings Limit. From 1
January 2022 (again save for the former Chief Executive
Officer’s additional 1.2% legacy entitlement), the pension
arrangements were 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.
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RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/2202. CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORT Pay element
and link to
strategy
Pay for
performance:
Annual bonus
To reward the
annual delivery
of financial and
operational
targets.
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 pages 121 to 122 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.
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.
134
02. CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 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 and
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 since 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 2022/23 are set out
on page 129.
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.
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RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/2202. CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORT Framework for assessing
performance
None
Pay element
and link to
strategy
Chair and
other Non-
Executive
Directors
Helps recruit
and retain
high-quality
experienced
individuals.
Reflects time
commitment
and role.
Maximum
Operation
Company's
Articles of
Association
place a limit on
the aggregate
annual level of
Non-Executive
Directors' and
Chair’s fees
(currently
£500,000).
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 Chair 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
Chair 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.
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 132 to 136 during the financial
year to 30 June 2023 is provided on page 129.
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 132 to
136) where the terms of the payment were agreed:
I. before 29 October 2014 (the date the Company's first shareholder-approved Directors' Remuneration Policy came into effect);
II. 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
III. 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 132 to 136 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.
136
02. CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 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.
2,500
2,000
)
0
0
0
£
(
'
n
o
i
t
a
r
e
n
u
m
e
r
l
a
t
o
T
1,500
1,000
500
0
2,162
49%
1,810
39%
32%
27%
987
18%
30%
517
1,443
48%
1,212
38%
29%
25%
688
17%
26%
395
100%
52%
29%
24%
100%
57%
33%
27%
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 2021/22 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 £470,000, pension (cash in lieu) of 7% of base salary above the
Lower Earnings Limit and benefits equal to those received in FY 2021/22 (annualised);
• 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.
137137
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/2202. 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 132. 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.
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 Chair 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.
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.
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.
138
02. CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORTRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 Executive Directors' service contracts
The service contracts of Executive Directors in post during the financial year contain the key terms shown in the table
below:
Provision
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;
• Up to 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.
• Indefinite subject to termination by either party in certain circumstances including serving notice as set out
below.
• 6 months' notice by the Director and 12 months' notice by the Company.(1)
• See separate general disclosure on page 124. The service contract entered into with Dave Shemmans
permitted any payment in lieu of notice to also include an amount in respect of benefits that he would have
been entitled to receive during the notice period. It also permitted 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.
Remuneration
Duration
Notice period
Termination payment
Restrictive covenants
• During employment and for 12 months after leaving.(2)(3)
(1) Except for Graham Ritchie, who must give 12 months’ notice.
(2) Except for Dave Shemmans, who is restricted for 6 months after leaving.
(3) Save that, in the case of Graham Ritchie, if the termination falls before the first anniversary of his commencement date with the Company, he shall only be
restricted for a period for 6 months thereafter.
The Executive Directors' service contracts are available for inspection, on request, at the Company's registered office.
Non-Executive Directors – fees and letters of appointment
The Committee determines the Chair's fees. The Chair and the Executive Directors determine the fees to other Non-
Executive Directors. No Director is present for any discussion or decision about their 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 2022, are:
Non-Executive Director
Sir Terry Morgan CBE
Russell King
Laurie Bowen
Malin Persson
Bill Spencer
Jack Boyer
Unexpired terms of appointment
(months)
6
2
24
30
16
2
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
13 September 2022 and signed on its behalf by:
Russell King
Chair of the Remuneration Committee
139139
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/2202. CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORT DIRECTORS’ REPORT
The Directors present their report and the audited consolidated financial
statements of Ricardo plc for the year ended 30 June 2022.
Dividends
On 8 April 2022 an interim dividend of 2.91p (HY
2020/21: 1.75p) was paid to shareholders. The
Directors recommend the payment of a final dividend
of 7.49 pence per ordinary share on 25 November 2022
to shareholders who are on the register of members
at the close of business on 4 November 2022, which
together with the interim dividend paid on 8 April
2022 makes a total of 10.40 pence (FY 2020/21: 6.86
pence) per ordinary share for the year.
Acquisitions and disposals
On 7 March 2022 the Company acquired Inside
Infrastructure, an environmental consultancy based in
Adelaide, Australia.
Events after the reporting date
On 1 August 2022 Ricardo completed the sale of its
Software business, comprising of shares in the UK, US
and Czechia companies of Ricardo Software together
with related assets (“Ricardo Software”) to FOG
Software Group, a division of Constellation Software
Inc (CSI).
Research & Development
The Group continues to devote effort and resources to
the research and development of new technologies.
Costs of £13.3m have been incurred, of which £7.3m
has been capitalised and £3.5m has been charged to
the income statement, excluding amortisation of any
capitalised costs and net of £2.5m of government
grant income, during the year.
Board of Directors
The current Directors of the Company at the date
of this report appear on pages 91 and 93 and their
biographical details are contained in the Notice of
AGM. 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 was appointed as
Chief Executive Officer with effect from 1 October.
On 24 February 2022 the Company announced
that Sir Terry Morgan CBE gave notice of his intention
to retire from the Board. Sir Terry will resign from the
Board on 17 November 2022 following the close of the
AGM. Mark Clare will be appointed as non-executive
director and Deputy Chair on 1 November 2022 and
it is intended that he will be appointed as Chair at the
close of the AGM on 17 November 2022.
Directors’ interests in shares
Directors’ interests in shares and share options
are detailed on pages 126 to 127 of the Directors’
Remuneration Report
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.
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
140
02. CORPORATE GOVERNANCE RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 DIRECTORS’ REPORT
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 2022, 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
dilution limits recommended by the Investment
Association.
Based on the Company’s issued share capital as
at 30 June 2022, the overall dilution was 4.43% (i.e.
below the 10% limit for all plans in any rolling 10-
year period) and 4.43% 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
2021 AGM. That authority will expire at the conclusion
of the 2022 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
2022 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 2022 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 17 November
2022. 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 2022, 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 Shareholder
Shares
% IC
1
2
3
4
5
6
7
8
9
Gresham House
JO Hambro Capital Mgt
Aberforth Partners
Aviva Investors
Tellworth Investors
Invesco
Royal London Asset Mgt
5,101,215
4,648,104
4,288,906
3,372,299
3,171,601
2,862,370
2,849,111
Canaccord Genuity Wealth Mgt
2,800,000
Schroder Investment Mgt
10
11
Russell Investments
Montanaro Asset Mgt
2,477,225
1,918,712
1,911,965
8.20
7.47
6.89
5.42
5.10
4.60
4.58
4.50
3.98
3.08
3.07
Donations
During the year the Group made various charitable
donations, which are summarised in the Environmental,
Social and Governance Report on page 49. The Group
141141
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/2202. CORPORATE GOVERNANCE
DIRECTORS’ REPORT
made no political donations nor incurred any political
expenditure during the year to 30 June 2022.
Independent auditors
Following shareholder approval at the 2021 AGM,
KPMG LLP were re-appointed as independent auditors
of the Group and Company for the year ended 30 June
2022.
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 2022 AGM.
The Directors who held office at the date of
approval of the Directors’ Report confirm that:
• So far as they are each aware, there is no relevant
audit information, which would be needed by the
Company’s auditor in connection with preparing
its audit report, of which the Company’s auditor is
unaware; and
• Each Director has taken all steps that they ought
to have taken as a Director in order to make
themselves aware of any relevant audit information
and to establish that the Company’s auditor is
aware of that information.
Going concern
Having assessed the principal risks and the other
matters discussed in connection with the Viability
Statement on pages 62 and 63, 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 8, 11, 75, 79, 83, 86 and 89
Information on greenhouse-gas emissions, in the
Sustainability and ESG report on page 46.
Information on engagement with suppliers,
customers and others in a business relationship
with the Group in Our Stakeholders on pages 101
and 103.
•
•
• The Group’s statement on corporate governance in
the Corporate Governance Statement on pages 94
to 100.
• 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 28 to the Group financial
statements.
The Directors’ Report was approved by order of the
Board on 13 September 2022 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
142
02. CORPORATE GOVERNANCE RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 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 accordance
with UK-adopted international accounting standards
and applicable law and have elected to prepare the
parent Company financial statements in accordance
with UK accounting standards and applicable law,
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 the Group’s
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 UK-
adopted international accounting standards;
• 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; and
• 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.
In accordance with Disclosure Guidance and
Transparency Rule 4.1.14R, the financial statements will
form part of the annual financial report prepared using
the single electronic reporting format under the TD
ESEF Regulation. The auditor’s report on these financial
statements provides no assurance over the ESEF format.
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; and
• 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.
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.
Graham Ritchie
Chief Executive Officer
Ian Gibson
Chief Financial Officer
13 September 2022
143143
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/2202. CORPORATE GOVERNANCE
03. FINANCIAL STATEMENTS
03. FINANCIAL
STATEMENTS
144
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 INDEPENDENT AUDITOR’S REPORT 146
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
155
160
174
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
1. Principal accounting policies
2. Alternative Performance Measures
FINANCIAL PERFORMANCE
3. Discontinued operation
4. Operating profit
5. Financial performance by segment
6. Revenue
7. Specific adjusting items
8. Earnings per share
9. Dividends
10. Net finance costs
11. Auditor’s remuneration
12. Tax expense
CAPITAL BASE
13. Non-current assets by geographical
location (excluding deferred tax assets)
14. Acquisitions
15. Goodwill
16. Other intangible assets
17. Property, plant and equipment
18. Right-of-use assets, lease liabilities and
lease receivables
19. Disposal group held for sale and non-current
assets held for sale
20. Provisions for liabilities and charges
21. Deferred tax
WORKING CAPITAL
22. Inventories
23. Trade, contract and other receivables
24. Trade, contract and other payables
NET DEBT AND FINANCIAL
RISK MANAGEMENT
25. Net debt and borrowings
26. Reconciliation of movements of
liabilities to cash flows arising from
financing activities
27. Fair value of financial assets and liabilities
28. Financial risk management
EQUITY
29. Share capital and share premium
30. Other reserves
31. Retained earnings
32. Non-controlling interests
EMPLOYEES
33. Employee numbers and costs
34. Retirement benefits
35. Share-based payments
197
199
207
209
214
214
184
UNRECOGNISED ITEMS AND
UNCERTAIN EVENTS
36. Contingent liabilities
OTHER
37. Related undertakings of the Group
38. Related parties’ transactions
39. Events after the reporting date
COMPANY FINANCIAL
STATEMENTS
218
145
03. FINANCIAL STATEMENTS RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 Independent
auditor’s report
to the members of Ricardo plc
1. Our opinion is unmodified
We have audited the financial statements of Ricardo plc
(“the Company”) for the year ended 30 June 2022 which
comprise the consolidated income statement,
consolidated statement of comprehensive income,
consolidated statement of financial position,
consolidated statement of changes in equity,
consolidated cash flow statement, company statement
of financial position, company statement of changes in
equity, and the related notes, including the accounting
policies in note 1.
In our opinion:
— the financial statements give a true and fair view of
the state of the Group’s and of the parent
Company’s affairs as at 30 June 2022 and of the
Group’s profit for the year then ended;
prepared in accordance with UK-adopted
international accounting standards;
— the parent Company financial statements have been
properly prepared in accordance with UK-adopted
accounting standards, and as applied in accordance
with the provisions of the Companies Act 2006; and
— the financial statements have been prepared in
accordance with the requirements of the Companies
Act 2006.
Ba sis 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 committee.
— the Group financial statements have been properly
Coverage
We were first appointed as auditor by the shareholders on 15
November 2018. The period of total uninterrupted
engagement is for the four financial years ended 30 June 2022.
We have fulfilled our ethical responsibilities under, and we
remain independent of the Group in accordance with, UK
ethical requirements 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
statements as a
whole
£1.075m (2021: £1.16m)
5% (2021: 5.3%) of normalised profits
and losses that make up Group profit
before tax
76% (2021: 88%) of normalised
profits and losses that make up
Group profit before tax
Key audit matters
vs 2021
Recurring risks
Valuation of defined
benefit pension
obligation
Revenue recognition of
fixed price contracts
Goodwill Impairment
A&I Established CGU
Event Driven
New: CGU Assessment:
Change in A&I CGU(s) &
A&I Goodwill allocation
◄►
▼
▼
▲
146
Independent
auditor’s report
to the members of Ricardo plc
1. Our opinion is unmodified
We have audited the financial statements of Ricardo plc
(“the Company”) for the year ended 30 June 2022 which
comprise the consolidated income statement,
consolidated statement of comprehensive income,
consolidated statement of financial position,
consolidated statement of changes in equity,
consolidated cash flow statement, company statement
of financial position, company statement of changes in
equity, and the related notes, including the accounting
policies in note 1.
In our opinion:
— the financial statements give a true and fair view of
the state of the Group’s and of the parent
Company’s affairs as at 30 June 2022 and of the
Group’s profit for the year then ended;
prepared in accordance with UK-adopted
international accounting standards;
— the parent Company financial statements have been
properly prepared in accordance with UK-adopted
accounting standards, and as applied in accordance
with the provisions of the Companies Act 2006; and
— the financial statements have been prepared in
accordance with the requirements of the Companies
Act 2006.
Ba sis 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 committee.
We were first appointed as auditor by the shareholders on 15
November 2018. The period of total uninterrupted
engagement is for the four financial years ended 30 June 2022.
We have fulfilled our ethical responsibilities under, and we
remain independent of the Group in accordance with, UK
ethical requirements 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
statements as a
whole
£1.075m (2021: £1.16m)
5% (2021: 5.3%) of normalised profits
and losses that make up Group profit
before tax
76% (2021: 88%) of normalised
profits and losses that make up
Group profit before tax
Key audit matters
vs 2021
Recurring risks
Valuation of defined
◄►
benefit pension
obligation
Revenue recognition of
fixed price contracts
Goodwill Impairment
A&I Established CGU
▼
▼
▲
Event Driven
New: CGU Assessment:
Change in A&I CGU(s) &
A&I Goodwill allocation
— the Group financial statements have been properly
Coverage
2. Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements
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 summarise below 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, as required 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.
Group and parent Company:
Valuation of defined benefit pension
obligation
(£111.9m; 2021: £149.3m)
Refer to page 108 (Audit Committee
Report), page 169 (accounting
policy) and page 209 (financial
disclosures).
The risk
Subjective estimate:
Our response
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.
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 34) disclose the
sensitivity estimated by the Group and
Parent Company.
We performed the detailed tests below rather than
seeking to rely on any of the company's controls
because the nature of the balance is such that we
would expect to obtain audit evidence primarily
through the detailed procedures described.
Our procedures included:
— 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 2022.
— 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. (2021:
acceptable)
We performed the detailed tests below rather than
seeking to rely on any of the company's controls
because the nature of the balance is such that we
would expect to obtain audit evidence primarily
through the detailed procedures described.
Our procedures included:
— Accounting Analysis: Assessing the judgements
made in identifying the new CGUs, including by
reviewing the latest five year plan;
— Assessing methodology: Assessing the
Director’s method of allocation of goodwill to
new CGUs that was based on relative values in
use by performing procedures outlined in the
Goodwill Impairment A&I Established KAM;
— Assessing transparency: Assessing whether the
group’s disclosures about the change in CGU are
sufficient.
Our results
— We found that the revised CGUs and approach
to reallocating goodwill is acceptable
147
CGU Assessment: Change in A&I
CGU(s) & A&I Goodwill allocation
FY22: A&I Established (£5.2m) & A&I
Emerging (£14.4m)
FY21: A&I EMEA (19.6m); A&I (Nil)
Shanghai and A&I US (Nil).
Refer to page 107 (Audit Committee
Report), page 166 (accounting
policy) and page 186 (financial
disclosures).
Accounting Judgement:
The group initiated a significant
restructuring of the A&I business in the
period. As a result this triggered a
reassessment of the underlying CGUs and
subsequently the allocation of goodwill
within the new A&I CGUs. Both of these
decisions require significant judgement,
with the risk being an unrecognised
impairment of the goodwill.
2. Key audit matters: our assessment of risks of material misstatement (continued)
2. Key audit matters: our assessment of risks of material misstatement (continued)
The risk
Our response
The risk
Our response
Goodwill Impairment A&I
Established CGU
(£5.2m; 2020: N/A)
Refer to page 107 (Audit Committee
Report), page 166 (accounting
policy) and page 186 (financial
disclosures).
Forecast-based assessment:
Goodwill associated with the Established
A&I CGU is significant and at risk of
irrecoverability due to reduced demand and
recent trading losses. The estimated
recoverable amount is subjective due to the
inherent uncertainty involved in forecasting
and discounting future cash flows.
Due to the change in the identified CGUs,
the risk has reduced because the goodwill
associated with the new A&I Established
CGU is smaller than that which was
associated with the previous A&I EMEA
CGU.
We performed the detailed tests below rather than
seeking to rely on any of the company's controls
because the nature of the balance is such that we
would expect to obtain audit evidence primarily
through the detailed procedures described.
Our procedures included:
— Our sector experience: Evaluating cashflow
assumptions used, in particular those relating to
forecast revenue growth and profit margin.
— Benchmarking assumptions: Comparing the
group’s assumptions to externally derived data in
relation to key inputs such as projected economic
growth and discount rates;
contracts
(£217.9m; 2021: £210.8m)
Refer to page 108 (Audit Committee
Report), page 163-165 ( accounting
policy) and page 177(financial
disclosures).
Revenue recognition on fixed price
Accounting application:
Our procedures included:
The effect of these matters is that, as part of
our risk assessment, we determined that the
value in use of A&I Established goodwill 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 15) disclose the
sensitivity estimated by the Group.
— Sensitivity analysis: Performing breakeven
analysis on the assumptions noted above and
considered reasonably possible changes in key
inputs that had the greatest judgment and their
impact on the valuation;
— Assessing transparency: Assessing whether the
group’s disclosures about the sensitivity of the
outcome of the impairment assessment to
changes in key assumptions reflect the risks
inherent in the recoverable amount of the CGU.
Our results
— We found the group’s conclusion that there is no
impairment of goodwill to be acceptable.
Fixed price contracts is an area which
requires the largest allocation of senior
— Control observation: We attended the ‘Red CAT
4’ review meetings in January and July 2022 at
team members in the audit, and which has a
which performance of these contracts was
major impact on directing the efforts of the
discussed with the Chief Financial Officer, Group
engagement team, due to the volume of
Financial Controller, Group Quality & Risk
contracts and the amount of the fixed price
Director, and divisional Managing and Finance
contracts revenue.
Directors;
For fixed price contracts the Group
— Test of detail: We selected a sample of costs
recognises the majority of revenue and
incurred in the year and agreed to supporting
profit on the stage of completion based on
documentation which included, for example
the proportion of contract costs incurred for
invoices and timesheets;
the work performed to the balance sheet
date, relative to the estimated total forecast
costs of the contract at completion.
— We inspected a sample of correspondence with
customers and instances where contractual
variations had arisen to inform our assessment
The judgments and estimates impacting the
of the revenue and costs recorded up to the
-
-
-
recognition of revenue include:
The identification of distinct
performance obligations.
Assessment of stage of completion and
costs to complete
The recognition of variations
A large part of the portfolio comprises
contracts that individually have low
estimation uncertainty. The highest value,
highest risk, most technically complex and
financially challenging contracts to deliver
are categorised as ‘Red CAT 4’ contracts,
which are subject to more frequent and
senior levels of management review. The
financial statements (note 1d) disclose the
range of possible financial outcomes
estimated by the Group on ‘Red CAT 4’
contracts.
balance sheet date. We also agreed the
variations to relevant invoicing schedules and
payment plans and the subsequent cash
receipts, where possible;
— Historical comparisons: We assessed the
reasonableness of the Group’s forecasts by
comparing with the comparative year forecasts
and the financial performance;
— Independent reperformance: We recalculated
the stage of completion on the basis of actual
costs and the Group’s latest forecast to inform
our assessment of the appropriate amount of
revenue and profit to recognise and compared
this to the amounts recorded by the Group;
— Assessing transparency: We considered the
adequacy of the Group’s disclosures about the
degree of estimates involved in estimating the
stage of completion for determining the
revenue amounts for fixed price contracts;
Our results
— We found revenue recognised on fixed price
contracts to be acceptable (2021: acceptable).
148
2. Key audit matters: our assessment of risks of material misstatement (continued)
2. Key audit matters: our assessment of risks of material misstatement (continued)
The risk
Our response
Goodwill Impairment A&I
Forecast-based assessment:
Established CGU
(£5.2m; 2020: N/A)
Goodwill associated with the Established
We performed the detailed tests below rather than
A&I CGU is significant and at risk of
seeking to rely on any of the company's controls
irrecoverability due to reduced demand and
because the nature of the balance is such that we
Refer to page 107 (Audit Committee
recent trading losses. The estimated
would expect to obtain audit evidence primarily
Report), page 166 (accounting
policy) and page 186 (financial
disclosures).
recoverable amount is subjective due to the
through the detailed procedures described.
inherent uncertainty involved in forecasting
and discounting future cash flows.
Our procedures included:
Revenue recognition on fixed price
contracts
(£217.9m; 2021: £210.8m)
Refer to page 108 (Audit Committee
Report), page 163-165 ( accounting
policy) and page 177(financial
disclosures).
The risk
Our response
Accounting application:
Our procedures included:
Fixed price contracts is an area which
requires the largest allocation of senior
team members in the audit, and which has a
major impact on directing the efforts of the
engagement team, due to the volume of
contracts and the amount of the fixed price
contracts revenue.
— Control observation: We attended the ‘Red CAT
4’ review meetings in January and July 2022 at
which performance of these contracts was
discussed with the Chief Financial Officer, Group
Financial Controller, Group Quality & Risk
Director, and divisional Managing and Finance
Directors;
Due to the change in the identified CGUs,
the risk has reduced because the goodwill
associated with the new A&I Established
CGU is smaller than that which was
associated with the previous A&I EMEA
CGU.
— Our sector experience: Evaluating cashflow
assumptions used, in particular those relating to
forecast revenue growth and profit margin.
— Benchmarking assumptions: Comparing the
group’s assumptions to externally derived data in
relation to key inputs such as projected economic
growth and discount rates;
The effect of these matters is that, as part of
our risk assessment, we determined that the
value in use of A&I Established goodwill 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 15) disclose the
sensitivity estimated by the Group.
— Sensitivity analysis: Performing breakeven
analysis on the assumptions noted above and
considered reasonably possible changes in key
inputs that had the greatest judgment and their
impact on the valuation;
— Assessing transparency: Assessing whether the
group’s disclosures about the sensitivity of the
outcome of the impairment assessment to
changes in key assumptions reflect the risks
inherent in the recoverable amount of the CGU.
Our results
— We found the group’s conclusion that there is no
impairment of goodwill to be acceptable.
For fixed price contracts the Group
recognises the majority of revenue and
profit on the stage of completion based on
the proportion of contract costs incurred for
the work performed to the balance sheet
date, relative to the estimated total forecast
costs of the contract at completion.
The judgments and estimates impacting the
recognition of revenue include:
-
-
-
The identification of distinct
performance obligations.
Assessment of stage of completion and
costs to complete
The recognition of variations
A large part of the portfolio comprises
contracts that individually have low
estimation uncertainty. The highest value,
highest risk, most technically complex and
financially challenging contracts to deliver
are categorised as ‘Red CAT 4’ contracts,
which are subject to more frequent and
senior levels of management review. The
financial statements (note 1d) disclose the
range of possible financial outcomes
estimated by the Group on ‘Red CAT 4’
contracts.
— Test of detail: We selected a sample of costs
incurred in the year and agreed to supporting
documentation which included, for example
invoices and timesheets;
— We inspected a sample of correspondence with
customers and instances where contractual
variations had arisen to inform our assessment
of the revenue and costs recorded up to the
balance sheet date. We also agreed the
variations to relevant invoicing schedules and
payment plans and the subsequent cash
receipts, where possible;
— Historical comparisons: We assessed the
reasonableness of the Group’s forecasts by
comparing with the comparative year forecasts
and the financial performance;
— Independent reperformance: We recalculated
the stage of completion on the basis of actual
costs and the Group’s latest forecast to inform
our assessment of the appropriate amount of
revenue and profit to recognise and compared
this to the amounts recorded by the Group;
— Assessing transparency: We considered the
adequacy of the Group’s disclosures about the
degree of estimates involved in estimating the
stage of completion for determining the
revenue amounts for fixed price contracts;
Our results
— We found revenue recognised on fixed price
contracts to be acceptable (2021: acceptable).
149
3. Our application of materiality and an overview of
the scope of our audit
Materiality for the group financial statements as a whole
was set at £1.1m (2021: £1.2m), determined with
reference to a benchmark of normalised group profit
before tax, of which it represents 5% (2021: 5.3%).
We normalised PBT by adding back adjustments that do
not represent the normal, continuing operations of the
Group, and additionally in 2021 by averaging over 4 years.
The items we adjusted for were exceptional acquisition
related expenditure, asset purchases and disposals and
other reorganisation costs as disclosed in note 7.
Materiality for the parent company financial statements
as a whole was set at £0.4m (2021: £0.3m), which is the
component materiality for the parent company
determined by the group audit engagement team. This
is lower than the materiality we would otherwise have
determined with reference to company total assets, of
which it represents 0.2% (2021: 0.1%).
In line with our audit methodology, our procedures on
individual account balances and disclosures were
performed to a lower threshold, performance
materiality, so as to reduce to an acceptable level the
risk that individually immaterial misstatements in
individual account balances add up to a material amount
across the financial statements as a whole.
Performance materiality was set at 75% (2021: 75%) of
materiality for the financial statements as a whole,
which equates to £0.8m (2021: £0.9) for the group and
£0.3m (2021: £0.2m) for the parent company. We
applied this percentage in our determination of
performance materiality because we did not identify any
factors indicating an elevated level of risk.
We agreed to report to the Audit Committee any
corrected or uncorrected identified misstatements
exceeding £0.05m (2021: £0.06m), in addition to other
identified misstatements that warranted reporting on
qualitative grounds.
Of the group’s 68 (2021: 57) reporting components, we
subjected 11 (2021: 16) to full scope audits for group
purposes and 3 (2021: 6) to specified risk-focused audit
procedures including; revenue, inventory, 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 a ddressed.
The components within the scope of our work
accounted for the percentages illustrated opposite.
The remaining 15% (2021: 9%) of total group revenue,
24% (2021: 12%) of group profit before tax and 22%
(2021: 9%) of total group assets is represented by 54
(2021: 35) reporting components, none of which
individually represented more than 5.5% (2021: 2.4%) of
any of total group revenue, group profit before tax or
total group assets. For the residual components, we
performed analysis at an aggregated group level to re-
examine our assessment that there were no significant
risks of material misstatement within these.
Key:
Normalised group profit before tax
£21.0m (2021: £22m, averaged
over four years)
Normalised PBT
Group materiality
Group materiality
£1.1m (2021: £1.2m)
£1.1m
Whole financial
statements materiality (2021:
£1.1m)
£0.8m
Whole financial
statements performance
materiality (2021: £0.9m)
£0.6m
Range of materiality at 14
components (£0.3m to £0.6m)
(2021: £0.1m to £0.9m)
£0.05m
Misstatements reported to the
audit committee (2021: £0.06m)
Group revenue
Group profit before tax
18
15
85%
(2021 91%)
13
76%
(2021 88%)
59
75
73
70
17
Group total assets
13
78%
(2021 91%)
11
78
67
Full scope for group audit purposes 2022
Specified risk-focused audit procedures 2022
Full scope for group audit purposes 2021
Specified risk-focused audit procedures 2021
Residual components
150
3. Our application of materiality and an overview of
the scope of our audit
Normalised group profit before tax
£21.0m (2021: £22m, averaged
Group materiality
£1.1m (2021: £1.2m)
over four years)
Materiality for the group financial statements as a whole
was set at £1.1m (2021: £1.2m), determined with
reference to a benchmark of normalised group profit
before tax, of which it represents 5% (2021: 5.3%).
We normalised PBT by adding back adjustments that do
not represent the normal, continuing operations of the
Group, and additionally in 2021 by averaging over 4 years.
The items we adjusted for were exceptional acquisition
related expenditure, asset purchases and disposals and
other reorganisation costs as disclosed in note 7.
Materiality for the parent company financial statements
as a whole was set at £0.4m (2021: £0.3m), which is the
component materiality for the parent company
determined by the group audit engagement team. This
is lower than the materiality we would otherwise have
determined with reference to company total assets, of
which it represents 0.2% (2021: 0.1%).
In line with our audit methodology, our procedures on
individual account balances and disclosures were
performed to a lower threshold, performance
materiality, so as to reduce to an acceptable level the
risk that individually immaterial misstatements in
individual account balances add up to a material amount
across the financial statements as a whole.
Performance materiality was set at 75% (2021: 75%) of
materiality for the financial statements as a whole,
which equates to £0.8m (2021: £0.9) for the group and
£0.3m (2021: £0.2m) for the parent company. We
applied this percentage in our determination of
performance materiality because we did not identify any
factors indicating an elevated level of risk.
We agreed to report to the Audit Committee any
corrected or uncorrected identified misstatements
exceeding £0.05m (2021: £0.06m), in addition to other
identified misstatements that warranted reporting on
qualitative grounds.
Of the group’s 68 (2021: 57) reporting components, we
subjected 11 (2021: 16) to full scope audits for group
purposes and 3 (2021: 6) to specified risk-focused audit
procedures including; revenue, inventory, 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 a ddressed.
The components within the scope of our work
accounted for the percentages illustrated opposite.
The remaining 15% (2021: 9%) of total group revenue,
24% (2021: 12%) of group profit before tax and 22%
(2021: 9%) of total group assets is represented by 54
(2021: 35) reporting components, none of which
individually represented more than 5.5% (2021: 2.4%) of
any of total group revenue, group profit before tax or
total group assets. For the residual components, we
performed analysis at an aggregated group level to re-
examine our assessment that there were no significant
Key:
risks of material misstatement within these.
£1.1m
Whole financial
statements materiality (2021:
£1.1m)
£0.8m
Whole financial
statements performance
materiality (2021: £0.9m)
£0.6m
Range of materiality at 14
components (£0.3m to £0.6m)
(2021: £0.1m to £0.9m)
£0.05m
Misstatements reported to the
audit committee (2021: £0.06m)
Normalised PBT
Group materiality
Group revenue
Group profit before tax
18
15
85%
(2021 91%)
13
76%
(2021 88%)
59
75
73
70
17
Group total assets
13
78%
(2021 91%)
11
78
67
Full scope for group audit purposes 2022
Specified risk-focused audit procedures 2022
Full scope for group audit purposes 2021
Specified risk-focused audit procedures 2021
Residual components
151
Our procedures also included:-Critically assessing assumptions in base case and downside scenarios relevant to liquidity and covenant metrics, in particular in relation to the A&I Established CGU by comparing to the recent downward trend during thepandemic and overlaying knowledge of the entity' plans based on approved budgets and our knowledge of the entityand the sector in which it operates. -We also compared past budgets to actual results to assess thedirectors' track record of budgeting accurately.-We inspected the confirmation from the lender of the level of committed financing, and the associated covenant requirements.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 statements is appropriate;—we have not identified, and concur with the directors’ assessment that there is not, a material uncertainty related to events or conditions that, individually or collectively, may cast significant doubt on the Group’s or Company's ability to continue as a going concern for the going concern period;—we have nothing material to add or draw attention to in relation to the directors’ statementin note 1 to the financial statements on the use of the going concern basis of accounting with no material uncertainties that may cast significant doubt over the Group and Company’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 statementunder the Listing Rules set out on page 143 is materially consistent with the financial statements and our audit knowledge.However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the above conclusions are not a guarantee that the Group or the Company will continue in operation. 3.Our application of materiality and an overview of the scopeof our audit (cont.)The Group team instructed component auditors as to the significant areas to be covered, including the relevant risks detailed above and the information to be reported back. The Group team approved the component materialities, which ranged from £0.3m to £0.6m (2021: £0.1m to £0.9m), having regard to the mix of size and risk profile of the Group across the components. The work on 10 of the 14 components (2021: 10 of the 22 components) was performed by component auditors and the rest, including the audit of the parent company, was performed by the Group team. The group team performed procedures on the items excluded from normalised group profit before tax.The Group team visited 1 (2021: 0) component locations in order to assess the audit risk and strategy. In addition the Key audit partner for the UK components was a member of the group engagement team, involved in group risk and strategy discussions. No sites overseas were visited by the Group team, instead video and telephone conference calls were held with all component auditors. At these meetings, the findings reported to the Group team were discussed in more detail, and any further work required by the Group team was then performed by the component auditor.4.Going concernThe Directors have prepared the financial statements on thegoing concern basis as they do not intend to liquidate the Group or the Company or to cease their operations, and as they haveconcluded that the Group’s and the Company’s financial position means that this is realistic. They have also concluded that thereare no material uncertainties that could have cast significant doubt over their ability to continue as a going concern for at leasta year from the date of approval of the financial statements (“thegoing concern period”). We used our knowledge of the Group, its industry, and the general economic environment to identify the inherent risks to its business model and analysed how those risks might affect the Group’s and Company’s financial resources or ability to continue operations over the going concern period. The risks that we considered most likely to adversely affect the Group’s and Company’s available financial resources and metrics relevant to debt covenants over this period were: -challenges impacting the automotive industry with apotential decline in trading results for the A&I Established CGU and limited growth for A&I Emerging CGU;-Lower than expected production volumes in DefenseorPerformance Products segments.We considered whether these risks could plausibly affect the liquidity or covenant compliance 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. 5. Fraud and breaches of laws and regulations – ability to
detect
Identifying and responding to risks of material misstatement
due to fraud
To identify risks of material misstatement due to fraud (“fraud
risks”) we assessed events or conditions that could indicate an
incentive or pressure to commit fraud or provide an opportunity
to commit fraud. Our risk assessment procedures included:
-
Enquiring of directors, the audit committee, internal audit
and inspection of policy documentation 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 Committee minutes.
We communicated identified fraud risks throughout the audit
team and remained alert to any indications of fraud throughout
the audit. This included communication from the group to full
scope component audit teams of relevant fraud risks identified at
the Group level and request to full scope component audit teams
to report to the Group audit team any instances of fraud that
could give rise to a material misstatement at group.
As required by auditing standards, and taking into account
possible pressures to meet profit targets and our overall
knowledge of the control environment, we perform procedures
to address the risk of management override of controls, in
particular the risk that Group and component management may
be in a position to make inappropriate accounting entries. On
this audit we do not believe there is a fraud risk related to
revenue recognition because of the relatively low estimation risk
across the contract portfolio, the historical accuracy of
forecasting and the strength of the control environment in place.
We identified a fraud risk related to inappropriate capitalisation
of development costs in response to possible pressures to meet
profit targets.
We performed procedures including:
-
-
Identifying journal entries to test for all full scope
components based on risk criteria and comparing the
identified entries to supporting documentation. These
included those posted to cash and capitalised development
costs where applicable to check for unexpected journal
pairings.
agreeing of a sample of timesheet entries recorded directly
with employees to confirm the accuracy.
Identifying and responding to risks of material misstatement
due to non-compliance with laws and regulations
We identified areas of laws and regulations that could reasonably
be expected to have a material effect on the financial statements
from our general commercial and sector experience, through
discussion with the directors and other management (as required
by auditing standards), and discussed with the directors and
other management the policies and procedures regarding
compliance with laws and regulations.
As the Group is regulated, our assessment of risks involved
gaining an understanding of the control environment including
the entity’s procedures for complying with regulatory
requirements.
We communicated identified laws and regulations throughout
our team and remained alert to any indications of non-
compliance throughout the audit. This included communication
from the group to full scope component audit teams of relevant
laws and regulations identified at the Group level, and a request
for full scope component auditors to report to the group team
any instances of non-compliance with laws and regulations that
could give rise to a material misstatement at the Group level.
The potential effect of these laws and regulations on the financial
statements varies considerably.
Firstly, the Group is subject to laws and regulations that directly
affect the financial statements including financial reporting
legislation (including related companies legislation), distributable
profits legislation, taxation legislation and pensions legislation
and we assessed the extent of compliance with these laws and
regulations as part of our procedures on the related financial
statement items.
Secondly, the Group is subject to many other laws and
regulations where the consequences of non-compliance could
have a material effect on amounts or disclosures in the financial
statements, for instance through the imposition of fines or
litigation. We identified the following areas as those most likely
to have such an effect: health and safety, anti-bribery,
employment law, road and motor vehicle regulations,
competition laws, regulatory capital and liquidity and certain
aspects of company legislation recognising the regulated nature
of the Group’s activities and its legal form. Auditing standards
limit the required audit procedures to identify non-compliance
with these laws and regulations to enquiry of the directors and
other management 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.
Context of the ability of the audit to detect fraud or breaches
of law or regulation
Owing to the inherent limitations of an audit, there is an
unavoidable risk that we may not have detected some material
misstatements in the financial statements, even though we have
properly planned and performed our audit in accordance with
auditing standards. For example, the further removed non-
compliance with laws and regulations is from the events and
transactions reflected in the financial statements, the less likely
the inherently limited procedures required by auditing standards
would identify it.
In addition, as with any audit, there remained a higher risk of
non-detection of fraud, as these may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of
internal controls. Our audit procedures are designed to detect
material misstatement. We are not responsible for preventing
non-compliance or fraud and cannot be expected to detect non-
compliance with all laws and regulations.
152
5. Fraud and breaches of laws and regulations – ability to
detect
due to fraud
Identifying and responding to risks of material misstatement
requirements.
To identify risks of material misstatement due to fraud (“fraud
risks”) we assessed events or conditions that could indicate an
incentive or pressure to commit fraud or provide an opportunity
to commit fraud. Our risk assessment procedures included:
-
Enquiring of directors, the audit committee, internal audit
and inspection of policy documentation 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 Committee minutes.
We communicated identified fraud risks throughout the audit
team and remained alert to any indications of fraud throughout
the audit. This included communication from the group to full
scope component audit teams of relevant fraud risks identified at
As the Group is regulated, our assessment of risks involved
gaining an understanding of the control environment including
the entity’s procedures for complying with regulatory
We communicated identified laws and regulations throughout
our team and remained alert to any indications of non-
compliance throughout the audit. This included communication
from the group to full scope component audit teams of relevant
laws and regulations identified at the Group level, and a request
for full scope component auditors to report to the group team
any instances of non-compliance with laws and regulations that
could give rise to a material misstatement at the Group level.
The potential effect of these laws and regulations on the financial
statements varies considerably.
Firstly, the Group is subject to laws and regulations that directly
affect the financial statements including financial reporting
legislation (including related companies legislation), distributable
profits legislation, taxation legislation and pensions legislation
and we assessed the extent of compliance with these laws and
regulations as part of our procedures on the related financial
the Group level and request to full scope component audit teams
statement items.
to report to the Group audit team any instances of fraud that
could give rise to a material misstatement at group.
As required by auditing standards, and taking into account
possible pressures to meet profit targets and our overall
knowledge of the control environment, we perform procedures
to address the risk of management override of controls, in
particular the risk that Group and component management may
Secondly, the Group is subject to many other laws and
regulations where the consequences of non-compliance could
have a material effect on amounts or disclosures in the financial
statements, for instance through the imposition of fines or
litigation. We identified the following areas as those most likely
to have such an effect: health and safety, anti-bribery,
employment law, road and motor vehicle regulations,
be in a position to make inappropriate accounting entries. On
competition laws, regulatory capital and liquidity and certain
this audit we do not believe there is a fraud risk related to
aspects of company legislation recognising the regulated nature
revenue recognition because of the relatively low estimation risk
of the Group’s activities and its legal form. Auditing standards
across the contract portfolio, the historical accuracy of
limit the required audit procedures to identify non-compliance
forecasting and the strength of the control environment in place.
with these laws and regulations to enquiry of the directors and
We identified a fraud risk related to inappropriate capitalisation
of development costs in response to possible pressures to meet
profit targets.
We performed procedures including:
-
Identifying journal entries to test for all full scope
components based on risk criteria and comparing the
identified entries to supporting documentation. These
included those posted to cash and capitalised development
costs where applicable to check for unexpected journal
pairings.
-
agreeing of a sample of timesheet entries recorded directly
with employees to confirm the accuracy.
Identifying and responding to risks of material misstatement
due to non-compliance with laws and regulations
We identified areas of laws and regulations that could reasonably
be expected to have a material effect on the financial statements
from our general commercial and sector experience, through
discussion with the directors and other management (as required
by auditing standards), and discussed with the directors and
other management the policies and procedures regarding
compliance with laws and regulations.
other management 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.
Context of the ability of the audit to detect fraud or breaches
of law or regulation
Owing to the inherent limitations of an audit, there is an
unavoidable risk that we may not have detected some material
misstatements in the financial statements, even though we have
properly planned and performed our audit in accordance with
auditing standards. For example, the further removed non-
compliance with laws and regulations is from the events and
transactions reflected in the financial statements, the less likely
the inherently limited procedures required by auditing standards
would identify it.
In addition, as with any audit, there remained a higher risk of
non-detection of fraud, as these may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of
internal controls. Our audit procedures are designed to detect
material misstatement. We are not responsible for preventing
non-compliance or fraud and cannot be expected to detect non-
compliance with all laws and regulations.
6. We have nothing to report on the other information in the
Annual Report
The directors are responsible for the other information
presented in the Annual Report together with the financial
statements. Our opinion on the financial statements does not
cover the other information 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 information and, in doing
so, consider whether, based on our financial statements audit
work, the information therein is materially misstated or
inconsistent with the financial statements or our audit
knowledge. Based solely on that work we have not identified
material misstatements in the other information.
Strategic report and directors’ report
Based solely on our work on the other information:
— we have not identified material misstatements in the
strategic report and the directors’ report;
— in our opinion the information given in those reports for the
financial year is consistent with the financial statements; and
— in our opinion those reports have been prepared in
accordance with the Companies Act 2006.
Directors’ remuneration report
In our opinion the part of the Directors’ Remuneration Report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
Disclosures of emerging and principal risks and longer-term
viability
We are required to perform procedures to identify whether
there is a material inconsistency between the directors’
disclosures in respect of emerging and principal risks and the
viability statement, and the financial statements and our audit
knowledge.
Based on those procedures, we have nothing material to add or
draw attention to in relation to:
— the directors’ confirmation within the viability statement on
page 62 that they have carried out a robust assessment of
the emerging and principal risks facing the Group, including
those that would threaten its business model, future
performance, solvency and liquidity;
— the Principal risks and uncertainties disclosures describing
these risks and how emerging risks are identified, and
explaining how they are being managed and mitigated; and
— the directors’ explanation in the viability statement 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 statement as to whether
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 period of their assessment, including any
related disclosures drawing attention to any necessary
qualifications or assumptions.
We are also required to review the viability statement, set out on
page 62 under the Listing Rules. Based on the above
procedures, we have concluded that the above disclosures are
materially consistent with the financial statements and our audit
knowledge.
Our work is limited to assessing these matters in the context of
only the knowledge acquired during our financial statements
audit. As we cannot predict all future events or conditions and as
subsequent events may result in outcomes that are inconsistent
with judgements that were reasonable at the time they were
made, the absence of anything to report on these statements is
not a guarantee as to the Group’s and Company’s longer-term
viability.
Corporate governance disclosures
We are required to perform procedures to identify whether
there is a material inconsistency between the directors’
corporate governance disclosures and the financial statements
and our audit knowledge.
Based on those procedures, we have concluded that each of the
following is materially consistent with the financial statements
and our audit knowledge:
— the directors’ statement that they consider that the annual
report and financial statements 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;
— the section of the annual report describing the work of the
Audit Committee, including the significant issues that the
audit committee considered in relation to the financial
statements, 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 management and
internal control systems.
We are required to review the part of the Corporate Governance
Statement relating to the Group’s compliance 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.
153
7. We have nothing to report on the other matters on which
we are required to report by exception
9. The purpose of our audit work and to whom we owe our
responsibilities
This report is made solely to the Company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might
state to the Company’s members those matters we are required
to state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company and the
Company’s members, as a body, for our audit work, for this
report, or for the opinions we have formed.
Jeremy Hall (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
13 September 2022
Under the Companies Act 2006, we are required to report to you
if, in our opinion:
— adequate accounting records have not been kept by the
parent Company, or returns adequate for our audit have not
been received from branches not visited by us; or
— the parent Company financial statements and the part of the
Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
— certain disclosures of directors’ remuneration specified by
law are not made; or
— we have not received all the information and explanations
we require for our audit.
We have nothing to report in these respects.
8. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 143,
the directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair
view; 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; assessing
the Group and parent Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going
concern; and using 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.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, 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
material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or
in aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of the financial
statements.
A fuller description of our responsibilities is provided on the
FRC’s website at www.frc.org.uk/auditorsresponsibilities.
The Company is required to include these financial statements in
an annual financial report prepared using the single electronic
reporting format specified in the TD ESEF Regulation. This
auditor’s report provides no assurance over whether the annual
financial report has been prepared in accordance with that
format.
154
Jeremy Hall (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
13 September 2022
— certain disclosures of directors’ remuneration specified by
law are not made; or
— we have not received all the information and explanations
we require for our audit.
We have nothing to report in these respects.
8. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 143,
the directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair
view; 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; assessing
the Group and parent Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going
concern; and using 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.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, 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
material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or
in aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of the financial
statements.
A fuller description of our responsibilities is provided on the
FRC’s website at www.frc.org.uk/auditorsresponsibilities.
The Company is required to include these financial statements in
an annual financial report prepared using the single electronic
reporting format specified in the TD ESEF Regulation. This
auditor’s report provides no assurance over whether the annual
financial report has been prepared in accordance with that
format.
7. We have nothing to report on the other matters on which
9. The purpose of our audit work and to whom we owe our
we are required to report by exception
responsibilities
Under the Companies Act 2006, we are required to report to you
if, in our opinion:
— adequate accounting records have not been kept by the
parent Company, or returns adequate for our audit have not
been received from branches not visited by us; or
This report is made solely to the Company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might
state to the Company’s members those matters we are required
to state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or
— the parent Company financial statements and the part of the
assume responsibility to anyone other than the Company and the
Directors’ Remuneration Report to be audited are not in
Company’s members, as a body, for our audit work, for this
agreement with the accounting records and returns; or
report, or for the opinions we have formed.
GROUP PRIMARY STATEMENTS
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 30 JUNE
2022
Specific
adjusting
items(**)
2021 - Restated*
Total Underlying
Specific
adjusting
items(**)
Underlying
Note
£m
£m
£m
£m
£m
Continuing operations
Revenue
Cost of sales
Gross profit
Administrative expenses
Other income
Operating profit
Finance income
Finance costs
Net finance costs
Profit before taxation
Income tax (expense)/credit
Profit from continuing operations
Discontinued operation
6
4
10
12
Profit from discontinued operation, net of tax
3
Profit for the year
Profit/(loss) attributable to:
Continuing operations
- Owners of the parent
Discontinued operation
- Owners of the parent
Total
- Owners of the parent
- Non-controlling interests
32
380.2
(250.7)
129.5
(102.0)
0.5
28.0
0.6
(4.4)
(3.8)
24.2
(6.5)
17.7
1.7
19.4
-
-
-
(11.8)
-
(11.8)
-
-
-
(11.8)
2.3
(9.5)
(1.3)
(10.8)
380.2
(250.7)
129.5
(113.8)
343.7
(230.7)
113.0
(93.8)
0.5
16.2
0.6
(4.4)
(3.8)
12.4
(4.2)
8.2
0.4
8.6
1.2
20.4
0.8
(5.5)
(4.7)
15.7
(4.4)
11.3
1.9
13.2
-
-
-
(13.7)
-
(13.7)
-
-
-
(13.7)
2.6
(11.1)
(0.4)
(11.5)
17.7
(9.5)
8.2
11.3
(11.1)
1.7
(1.3)
19.4
-
19.4
(10.8)
-
(10.8)
1.9
(0.4)
13.2
-
13.2
(11.5)
-
(11.5)
0.4
8.6
-
8.6
13.8
13.8
Total
£m
343.7
(230.7)
113.0
(107.5)
1.2
6.7
0.8
(5.5)
(4.7)
2.0
(1.8)
0.2
1.5
1.7
0.2
1.5
1.7
-
1.7
2.9
2.9
Earnings per ordinary share attributable to owners of the parent during the year
Basic
Diluted
8
8
* Comparative information has been re-presented due to a discontinued operation. See Note 3.
** 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. See Notes 2 and 7.
The notes on pages 160 to 217 form an integral part of these consolidated financial statements.
155
03. FINANCIAL STATEMENTS RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
GROUP PRIMARY STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE
Profit for the year
Other comprehensive income
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 are, or may be, subsequently reclassified to profit or loss:
Currency translation on foreign currency net investments
Total items that may be subsequently reclassified to profit or loss
Total other comprehensive income for the year (net of tax)
Total comprehensive income for the year
Comprehensive income attributable to:
- Owners of the parent
- Non-controlling interests
Note
34
21
32
2022
£m
8.6
2021
£m
1.7
5.2
(1.6)
3.6
6.5
6.5
10.1
18.7
18.7
-
18.7
9.1
(2.0)
7.1
(2.9)
(2.9)
4.2
5.9
5.9
-
5.9
The notes on pages 160 to 217 form an integral part of these consolidated financial statements.
156
03. FINANCIAL STATEMENTS RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
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
Assets held for sale
Total assets
Liabilities
Current liabilities
Borrowings
Lease liabilities
Trade, contract and other payables
Current tax liabilities
Derivative financial liabilities
Provisions
Liabilities directly associated with the assets held for sale
Net current assets
Non-current liabilities
Borrowings
Lease liabilities
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
15
16
17
18
34
23
21
22
23
27
25
19
25
18
24
27
20
19
25
18
21
20
29
29
30
31
32
The notes on pages 160 to 217 form an integral part of these consolidated financial statements.
Approved by the Board of Ricardo plc on 13 September 2022 and signed on its behalf by:
Graham Ritchie
Chief Executive Officer
Ian Gibson
Chief Financial Officer
2022
£m
90.6
23.1
47.0
18.3
15.2
2.5
9.0
2021
£m
84.7
33.9
46.9
19.5
6.8
2.3
8.3
205.7
202.4
21.0
128.7
0.8
3.6
49.4
9.6
213.1
418.8
11.2
5.0
78.2
4.2
5.1
5.1
3.4
112.2
100.9
74.7
18.3
12.7
3.3
109.0
221.2
197.6
15.6
16.8
44.5
120.5
197.4
0.2
197.6
16.9
126.9
0.9
1.5
42.0
-
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
157
03. FINANCIAL STATEMENTS RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
GROUP PRIMARY STATEMENTS
CONSOLIDATED STATEMENT OF CHANGES IN EQUIT Y
FOR THE YEAR ENDED 30 JUNE
Attributable to owners of the parent
Share
capital
Share
premium
Other
reserves
Retained
earnings
Non-
controlling
interests
Note
£m
13.4
£m
14.3
Total
£m
£m
103.5
148.6
1.7
7.1
8.8
-
-
1.0
(1.1)
1.7
4.2
5.9
28.2
-
1.0
(1.1)
112.2
182.6
112.2
182.6
8.6
3.6
12.2
1.6
(0.3)
(0.2)
(5.0)
8.6
10.1
18.7
1.6
(0.3)
(0.2)
(5.0)
£m
17.4
-
(2.9)
(2.9)
23.5
-
-
-
38.0
38.0
-
6.5
6.5
-
-
-
-
Total
equity
£m
149.1
1.7
4.2
5.9
28.2
(0.2)
1.0
(1.2)
182.8
182.8
8.6
10.1
18.7
1.6
(0.3)
(0.2)
(5.0)
£m
0.5
-
-
-
-
(0.2)
-
(0.1)
0.2
0.2
-
-
-
-
-
-
-
-
-
-
-
-
-
2.2
2.5
-
-
-
-
-
-
15.6
15.6
16.8
16.8
-
-
-
-
-
-
-
-
-
-
-
-
-
-
15.6
16.8
44.5
120.5
197.4
0.2
197.6
At 1 July 2020
Profit for the year
Other comprehensive (expense)/income for the year
Total comprehensive income for the year
Issue of ordinary share capital
Reduction in share capital
Equity-settled transactions
Ordinary share dividends
At 30 June 2021
At 1 July 2021
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
Equity-settled transactions
Tax credit relating to share option schemes
Purchases of own shares to settle awards
Ordinary share dividends
At 30 June 2022
29
9
35
9
35
9
The notes on pages 160 to 217 form an integral part of these consolidated financial statements.
158
03. FINANCIAL STATEMENTS RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
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
- Unrealised foreign exchange (gains)/losses
- Losses/(gains) on disposal of property, plant and equipment
- Net finance costs
- Depreciation, amortisation and impairment
Defined benefit pension scheme payments in excess of past service costs
Operating cash flows before movements in working capital
Changes in:
- Inventories
- Trade, contract and other receivables
- Trade, contract and other payables
- Provisions
Cash generated from operations
Net interest paid
Income tax paid
Net cash generated 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 financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase/(decrease) 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
Cash included in disposal group held for sale
Bank overdrafts
Net cash and cash equivalents at 30 June
35
27
4
10
4
34
22
23
24
20
14
17
17
16
29
18
18
25
25
9
25
25
25
25
The notes on pages 160 to 217 form an integral part of these consolidated financial statements.
Note
2022
£m
2021
£m
13.2
3.9
1.3
(1.0)
0.1
3.8
25.1
(3.0)
39.5
(3.6)
4.6
8.5
0.9
49.9
(3.5)
(2.8)
43.6
(9.9)
(6.1)
0.1
(8.0)
1.4
0.7
(0.3)
4.7
26.6
(4.6)
32.4
2.9
(7.5)
4.1
1.1
33.0
(4.2)
(2.9)
25.9
(5.2)
(4.5)
0.3
(8.9)
(23.9)
(18.3)
-
(0.2)
(4.5)
-
13.0
(15.0)
(5.0)
(11.7)
1.9
10.1
29.3
39.4
42.0
(12.7)
29.3
49.4
1.1
(11.1)
39.4
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
159
03. FINANCIAL STATEMENTS RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
NOTES TO THE CONSOLIDATED
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 (the Group) have been prepared in accordance with
UK-adopted international accounting standards. 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 that are hedge accounted
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 2021 and 30 June 2022.
Going concern
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, adjusted
for the impact of acquisitions and disposals, excluding the
impact of IFRS 16, for the last twelve months); and Interest
Cover (defined as underlying EBITDA, adjusted for the impact of
acquisitions and disposals, excluding the impact of IFRS 16, for
the last twelve months, divided by net finance costs excluding
pension and IFRS 16 interest). Covenant limits are a maximum
of 3.0x for Adjusted Leverage and a minimum of 4.0x for
Interest Cover. These covenants are tested at 30 June and 31
December each year until the debt matures in July 2023.
On 2 August 2022, the Group completed a refinancing of its
facilities, entering into a new £150m RCF, which provides the
Group with committed funding through to August 2026. The
facility offers a £50m accordion together with an option to
extend to June 2027. There are no changes to debt covenants
under the new facility.
Net debt at 30 June 2022 was £35.4m, comprising cash and
cash equivalents of £50.5m and borrowings, including hire
purchase liabilities, but excluding IFRS 16 lease liabilities, of
£85.9m. Adjusted Leverage was 0.8x and Interest Cover was
13.7x. As at the date of approval of these financial statements,
the amount of RCF undrawn and available to the Group was
£85.0m with total borrowing, including overdrafts, of £77.4m
and cash and cash equivalents of £40.5m.
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 known risks, including
the pace of technological change in the Automotive sector,
driven by climate change, which continues to rapidly shift
away from the traditional internal combustion engine towards
more renewable propulsion methods, on the Group’s results,
operations and financial position in a severe but plausible
downside scenario. The scenario includes lower gross margins
and higher costs across the Business Units to account for global
inflationary pressures and the removal of new or ‘blue sky’
revenue streams, together with:
• A 10% reduction in Automotive and Industrial revenue from
established mobility solutions each year, together with a
lower growth rate in emerging technologies revenues;
• Reduced revenue growth rates in Energy and Environment;
• A decline in Rail EBITDA in FY 2022/23;
• Delays in the ramp up of production volumes in Performance
Products and Defense on key programmes with no revenue
from new revenue streams in later years; and
• An increase of 10 working capital days for each business unit
in FY 2022/23 and FY 2023/24.
The scenario was separately adjusted to exclude the results of
160
03. FINANCIAL STATEMENTS RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Principal accounting policies (continued)
a) Basis of preparation (continued)
Ricardo Software and to build in the proceeds from the disposal
of the business, which was completed on 1 August 2022.
The scenario incorporates the appropriate reversal of
discretionary bonuses and setting appropriate levels of
dividends based on the sensitised results of the operating
segments. The scenario results in a reduction of c.10% in the
Group’s Adjusted EBITDA from continuing operations in FY
2022/23, with a further c.15% reduction in FY 2023/24 on the
sensitised FY 2022/23 Adjusted EBITDA. The results showed
that the Group would be able to continue operating well within
its debt covenants and liquidity headroom under the downside
scenario. If full bonus costs were included, headroom under
the Group’s banking covenants and liquidity is reduced, but no
covenants are breached.
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 62 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 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) Discontinued operations and assets held for
sale
Non-current assets, or disposal groups comprising assets and
liabilities, are classified as held-for-sale if it is highly probable
that they will be recovered primarily through sale rather than
through continuing use.
Such assets, or disposal groups, are measured at the lower
of their carrying amount and fair value less costs to sell.
Any impairment loss on a disposal group is allocated first to
goodwill, and then to the remaining assets and liabilities on a
pro rata basis, except that no loss is allocated to inventories,
financial assets, deferred tax assets, employee benefit assets,
investment property or biological assets, which continue to
be measured in accordance with the Group’s other accounting
policies. Impairment losses on initial classification as held-for-
sale or held-for-distribution and subsequent gains and losses
on remeasurement are recognised in profit or loss.
Once classified as held-for-sale, intangible assets and property,
plant and equipment are no longer amortised or depreciated,
and any equity-accounted investee is no longer equity
accounted.
A discontinued operation is a component of the Group’s
business, the operations and cash flows of which can be clearly
distinguished from the rest of the Group and which:
• represents a separate major line of business or geographic
area of operations;
• is part of a single co-ordinated plan to dispose of a separate
major line of business or geographic area of operations; or
• is a subsidiary acquired exclusively with a view to resale.
Classification as a discontinued operation occurs at the earlier
of disposal or when the operation meets the criteria to be
classified as held-for-sale.
When an operation is classified as a discontinued operation,
the comparative income statement of profit or loss statement of
comprehensive income is re-presented as if the operation had
been discontinued from the start of the comparative year.
d) 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 7
Reorganisation costs include 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 7.
Discontinued Operation and Disposal Group Held for Sale –
Note 3 and Note 19
Significant judgment was required in order to assess whether
161
03. FINANCIAL STATEMENTS RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 1. Principal accounting policies (continued)
d) Management judgements and key accounting
estimates (continued)
the facts and circumstances at 30 June 2022 indicated that
the sale of the Software business was highly probable within
one year, and therefore met the definition of a disposal group
held for sale. If the asset had not been considered held for sale
at that date, the assets and liabilities listed in Note 14 would
have been included in the respective balances in the statement
of financial position and related notes. In addition, the
classification of the disposal group as a discontinued operation
requires that the operation represents a major separate line
of business. Management is satisfied that this is the case as
the Software business meets the definition of an operating
segment prior to aggregation. If the software business were
not presented as a discontinued operation, the related amounts
would be included in continuing operations in the Income
Statement.
Significant judgement is also required to present intercompany
transactions in such a way as to allow users of the financial
statements to evaluate the financial effects of the discontinued
operation. Management has elected to present these
transactions in a way that reflects the continuance of these
operations, as shown in Note 3. If all intercompany transactions
were eliminated, profit before tax from the discontinued
operation would be reduced by £1.9m in the prior year and
£2.0m in the current year.
Revenue recognition on fixed price contracts - Note 6
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. These judgments determine the timing of revenue
recognition and recognition of contract assets. If performance
obligations were identified on a different basis, revenue and
amounts recoverable on contracts may be materially reduced or
increased.
Goodwill: allocation to CGUs – Note 15
Significant judgement is applied in order to allocate goodwill
to cash-generating units (CGUs), 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(l), 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. Goodwill is allocated at the
operating segment level, and if goodwill were allocated at a
lower level, the results of impairment testing may be different.
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.
At the beginning of the current financial year, the Group
reorganised its business units. The Automotive and Industrial
segment (A&I) now consists of one operating segment, rather
than representing an aggregation of the A&I EMEA, A&I China
and A&I US operating segments. Further, the five-year plan
for the Global A&I segment has been prepared based on a
split of established mobility and emerging technologies, and
this distinction is expected to be reflected in the operating
segments in future years, as information will be reviewed by the
chief operating decision maker at this level.
As per the Group accounting policy (Note 1( j)), when the
Group changes the composition of its CGUs, it reallocates
goodwill using a relative value approach at the date of the
reorganisation, unless the entity can demonstrate that some
other method provides a better allocation of goodwill to the
reorganised units.
Goodwill of £19.6m previously allocated to the A&I EMEA
operating segment was reallocated to the Global A&I
established and Global A&I established groups of CGUs using
a relative value approach. Management concluded that any
other method of allocation would be arbitrary. Other allocation
methods may have resulted in a different outcome to the
impairment review, including recognition of an impairment.
As an impairment review was carried out at 30 June 2021,
immediately prior to the reorganisation, management do not
consider there to be a risk that the reallocation of Goodwill
is shielding an impairment that would otherwise have been
recognised.
Recoverability of capitalised development costs – Note 16
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 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.
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 6
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.
162
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Principal accounting policies (continued)
d) Management judgements and key accounting
The sensitivity of estimates used to calculate the value in use of
each CGU, or group of CGUs, are discussed in Note 15.
estimates (continued)
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 59 and 108, 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 4’ contracts, which are subject to more
frequent and senior levels of management review.
As at 30 June 2022, the number of live consulting contracts
within the portfolio was in excess of 2,500 (2021: 2,500),
with a total value in excess of £850m (2021: £750m). Of this
portfolio of contracts, 9 contracts (2021: 9) were categorised
as Red Category 4. At 30 June 2022, £3.9m (2021: £3.6m) of
revenue had been recognised in respect of work performed
on these 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 £2.9m (2021: £1.7m) against this
revenue, resulting in a net exposure of £1.0m (2021: £1.9m).
The possible financial outcomes from these negotiations
range from an upside of £2.9m, if management recovers
the full £3.9m of revenue and potential negotiation upside,
to a downside of £1.0m, if management is unsuccessful in
recovering any of the £3.9m.
Carrying value of Goodwill – Note 15
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(l)).
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.
Goodwill: Inclusion of Research and Development Expenditure
Credits – Note 15
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 group of
CGUs and have been included in the value-in-use calculations,
taking into account known changes to legislation, on the
basis that there is no indication that the UK government will
withdraw this benefit. Note 15 sets out the impact of the
inclusion of RDEC in the value-in-use calculation.
Defined benefit obligation – Note 34
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 34.
e) Research and development expenditure –
Note 4
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 16.
f) Government grants – Note 4
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.
g) Revenue – Note 6
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
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03. FINANCIAL STATEMENTS RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 1. Principal accounting policies (continued)
g) Revenue – Note 6 (continued)
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 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 contract is recognised immediately when it becomes
probable that the total estimated directly attributable costs to
satisfy the contract will exceed the consideration receivable.
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
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03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 1. Principal accounting policies (continued)
g) Revenue – Note 6 (continued)
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.
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 intercompany terms
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.
h) Specific adjusting items – Note 7
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
items that are included due to their significance, non-recurring
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 and right-of-use assets.
i) Dividends – Note 9
Dividends are recognised as a liability in the year in which they
are fully authorised. Interim dividends are recognised when
paid.
j) Net finance costs – Note 10
Finance income and finance costs are recognised in the income
statement in the period in which they are incurred using the
effective interest method.
k) Income tax expense – Note 12
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
165
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 1. Principal accounting policies (continued)
k) Income tax expense – Note 12 (continued)
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.
l) Goodwill – Note 15
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.
When the Group changes the composition of its CGUs, it
reallocates goodwill using a relative value approach at the date
of the reorganisation, unless the entity can demonstrate that
some other method provides a better allocation of goodwill to
the reorganised units.
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.
m) Other intangible assets – see Note 16
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 2 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.
n) Property, plant and equipment – see Note 17
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
Not depreciated
• Freehold buildings including
improvements
Between 25 and 50 years
• Leasehold property improvements
Over the term of the lease
• Plant and machinery
Between 4 and 25 years
• Fixtures, fittings and equipment
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 segment, depreciation is charged on a units
of production basis, as this is considered to more accurately
166
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 1. Principal accounting policies (continued
n) Property, plant and equipment – see Note 17
(continued)
of lease payments within financing activities and the interest
portion within operating activities within the consolidated cash
flow statement,
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.
o) Leases – see Note 18
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(n).
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. The Group has classified the principal portion
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.
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.
p) Provisions for liabilities and charges – see
Note 20
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 21
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 22
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.
167
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 v) Fair value of financial assets and liabilities –
Note 27
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.
1. Principal accounting policies (continued)
s) Trade, contract and other receivables
– Note 23
Trade receivables are stated net of impairment and for the
purposes of impairment testing include non-financial contract
assets (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. 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.
In order to assess the ECL over the lifetime of the asset, a
historical provision matrix is used to inform a group-wide
‘default rate’ which is adjusted for current and expected future
economic conditions. To calculate the Group default rates a
weighted average default rate for each business unit was taken.
It is considered appropriate for the Group as the customer base
across the Group is sufficiently homogenous. Each business
unit’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 24
Trade payables are not interest-bearing and are stated at their
nominal value.
u) Net debt and borrowings – Note 25
Cash and cash equivalents in the Consolidated cash flow
statement comprise cash balances and bank overdrafts
repayable on demand, including cash and cash equivalents
included in disposal groups held for sale. Bank overdrafts are
shown within borrowings in current liabilities and bank loans
and finance leases are shown within borrowings in either
current liabilities or non-current 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
168
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 1. Principal accounting policies (continued)
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.
w) Retirement benefits – Note 34
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.
x) Share-based payments – Note 35
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.
169
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 1. Principal accounting policies (continued)
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 2021 and were adopted by the Group from
1 July 2021 and have not had a material impact on the Group:
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 2021 and are not expected to have a material impact
on the Group:
Effective
date (period
commencing)
Endorsed
by EU
Effective
date (period
commencing)
Endorsed
by EU
1 Jan 2021
Yes
- IFRS 17 Insurance Contracts;
1 Jan 2023
Yes
Issued IFRS
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
1 Jan 2021
if IFRS 9
1 Jan 2021
- IFRS 3 Business Combinations; IAS
16 Property, Plant and Equipment;
IAS 37 Provisions, Contingent
Liabilities and Contingent Assets:
Annual Improvements 2018-2022
- IFRS 16 Leases: COVID-19 Related
Rent Concessions beyond 30 June
2021.
including amendments to IFRS 17
Amendments and Interpretations to IFRS
- IAS 1 Presentation of Financial
Statements and IFRS Practice
Statement 2, Disclosure of
Accounting policies
- IAS 8 Accounting policies, Changes
in Accounting Estimates and Errors:
Definition of Accounting Estimates
Yes
Yes
1 Jan 2023
Yes
1 Jan 2023
Yes
- IAS 1(2) Presentation of Financial
1 Jan 2023
No
1 Apr 2021
Yes
Statements: Classification of
Liabilities as Current or Non-Current
– Deferral of Effective Date
- IAS 12 Income Taxes: Deferred Tax
related to Assets and Liabilities
arising from a Single Transaction
- IFRS 17 Insurance contracts: Initial
application of IFRS 17 and IFRS 9 –
Comparative Information
1 Jan 2023
1 Jan 2023
No
No
170
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 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. Ricardo
provides guidance to the investor community based on underlying results. Explanations of how they are calculated and how they
are reconciled to an IFRS statutory measure are set out below.
The underlying results and other APMs may be considered in addition to, but not as a substitute for or superior to, information
presented in accordance with IFRS.
(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. Underlying results include the benefits of the results of acquisitions and major
restructuring programmes but exclude significant costs (such as the amortisation of acquired intangibles, acquisition-related
expenditure, reorganisation costs and other specific adjusting items). Ricardo believes that the underlying results, when considered
together with the reported results, provide investors, analysts and other stakeholders with helpful complementary information to
better understand the financial performance and position of the Group.
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 7.
Reconciliation of underlying profit to reported profit
2022
Specific
adjusting
items
£m
-
-
-
-
(4.5)
(0.8)
(6.2)
(0.6)
-
0.3
(11.8)
-
(11.8)
2.3
(9.5)
(1.3)
(10.8)
Underlying
£m
380.2
(250.7)
129.5
(101.5)
-
-
-
-
-
-
28.0
(3.8)
24.2
(6.5)
17.7
1.7
19.4
2021 - Restated*
Specific
adjusting
items
£m
-
-
-
-
(5.0)
(1.7)
(5.4)
-
(1.5)
(0.1)
(13.7)
-
(13.7)
2.6
(11.1)
(0.4)
(11.5)
Total
Underlying
£m
380.2
(250.7)
129.5
(101.5)
(4.5)
(0.8)
(6.2)
(0.6)
-
0.3
16.2
(3.8)
12.4
(4.2)
8.2
0.4
8.6
£m
343.7
(230.7)
113.0
(92.6)
-
-
-
-
-
-
20.4
(4.7)
15.7
(4.4)
11.3
1.9
13.2
Revenue
Cost of sales
Gross profit
Administrative expenses and other income
Amortisation of acquired intangibles
Acquisition-related expenditure
Reorganisation costs
ERP implementation costs
CEO exit costs
Other
Operating profit from continuing
operations
Net finance costs
Profit before taxation from continuing
operations
Income tax (expense)/credit
Profit before taxation from continuing
operations
Profit for the year from discontinued
operation, net of tax
Profit for the year
* Comparative information has been re-presented due to a discontinued operation. See Note 3.
Total
£m
343.7
(230.7)
113.0
(92.6)
(5.0)
(1.7)
(5.4)
-
(1.5)
(0.1)
6.7
(4.7)
2.0
(1.8)
0.2
1.5
1.7
171
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 2. Alternative performance measures (continued)
Underlying earnings attributable to the owners of the parent/earnings per share: 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 8.
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 14, the Group acquired the entire issued share capital of Inside
Infrastructure Pty Ltd (Inside Infrastructure) on 21 March 2022. The current year results include £0.9m of revenue, £0.1m of
operating profit and £0.1m of profit before tax from Inside Infrastructure.
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 prior year using foreign currency exchange rates applicable to
the current year. This provides an indication of the growth/decline of the business, excluding the impact of foreign exchange. In the
prior year, constant currency results were calculated by translating the result for the current year using foreign currency exchange
rates applicable to the prior year. Using current year rates to restate prior year results is considered to provide a more useful
comparison, since current year performance remains stated at actual rates.
Headline trading performance
2022
Total
Less: discontinued operation
Continuing operations
Less: performance of acquisitions
Continuing operations - organic
2021
Total
Less: discontinued operation
Continuing operations
Continuing operations at current year
exchange rates
Growth (%) - Total
Growth (%) - Continuing operations
Growth (%) - Continuing organic
Constant currency growth (%) –
Continuing operations
Underlying
Reported
External
revenue
Operating
profit
Profit before
tax
Operating
profit
Profit before
tax
£m
£m
£m
£m
£m
387.3
(7.1)
380.2
(0.9)
379.3
351.8
(8.1)
343.7
343.5
10%
11%
10%
11%
30.1
(2.1)
28.0
(0.1)
27.9
22.7
(2.3)
20.4
20.4
33%
37%
37%
37%
26.3
(2.1)
24.2
(0.1)
24.1
18.0
(2.3)
15.7
15.7
46%
54%
54%
54%
17.0
(0.8)
16.2
(0.1)
16.1
8.6
(1.9)
6.7
6.8
98%
142%
140%
13.2
(0.8)
12.4
(0.1)
12.3
3.9
(1.9)
2.0
2.1
238%
520%
515%
138%
490%
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 5.
172
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
Total
£m
6.7
1.9
8.6
21.6
5.0
35.2
0.6
(4.6)
(0.3)
1.4
0.7
33.0
93.8%
2. Alternative performance measures (continued)
(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 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
2022
Specific
adjusting
items
Underlying
Total
Underlying
2021
Specific
adjusting
items
Cash conversion
£m
£m
£m
£m
£m
Operating profit from continuing
operations
Operating profit from discontinued
operation
Operating profit
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)/gains on derivative
financial instruments
Cash generated from operations
28.0
(11.8)
16.2
20.4
(13.7)
2.1
30.1
18.6
-
48.7
8.2
(3.0)
0.1
1.3
(0.7)
54.6
(1.3)
(13.1)
2.0
4.5
(6.6)
2.2
-
-
-
(0.3)
(4.7)
0.8
17.0
20.6
4.5
42.1
10.4
(3.0)
0.1
1.3
(1.0)
49.9
2.3
22.7
19.7
-
42.4
(2.3)
(4.6)
(0.3)
1.0
0.7
36.9
87.0%
(0.4)
(14.1)
1.9
5.0
(7.2)
2.9
-
-
0.4
-
(3.9)
Cash conversion
112.1%
118.5%
The movement in working capital in relation to specific adjusting items for the current year includes accruals of £1.6m and
provisions of £2.2m in relation to specific adjusting items recognised as an expense during the current year which had not been paid
at 30 June 2022. This was offset by the payment of £2.4m of amounts related to specific adjusting items included in trade and other
payables and provisions at the prior year end. In addition £0.5m of prepayments relating to an ERP implementation were recognised
in operating profit in the current year, and a receivable of £0.3m a reduction in the fair value of contingent consideration arising from
the disposal of the Group’s test facilities in Detroit was recognised to operating profit (see Note 7).
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. Further details are provided
in Note 25.
(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.
(d) Other measures
Order book: 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 – see Note 23. Management do not
consider there to be a closely equivalent GAAP measure.
Order intake: The value of purchase orders and contracts received from customers during the period. The order intake for the
current year was £432.2m (2021: £352.1m), including results of the discontinued operation. Management do not consider there to
be a closely equivalent GAAP measure.
Headcount: Headcount is calculated as the number of colleagues on the payroll at the reporting date and includes subcontractors
on a full-time equivalent basis. The number of employees disclosed in Note 33 is the average for the year.
173
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
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. Discontinued operation
Discontinued operations and held for sale accounting policy – Note 1(c)
On 23 May 2022, the Group classified its Software segment held for sale following agreement of terms with a potential buyer, as
a result of a strategic decision to focus on core lines of business. The results of the Software business have been presented as a
discontinued operation and the prior year results restated to reflect this presentation. On 1 August 2022, the business was sold to a
third party. See Notes 19 and 39.
Subsequent to the disposal, the Group has continued to purchase software licenses from the discontinued operation and recharge
the business for space in its Prague office. Although intra-group transactions have been fully eliminated in the consolidated
financial results, management has elected to attribute the elimination of transactions between the continuing operations and the
discontinued operation before the disposal in a way that reflects the continuance of these transactions subsequent to the disposal,
because management believes this is useful to the users of the financial statements.
Result from discontinued operation
Revenue
Inter-segment revenue (1)
External Revenue
Expenses
Elimination of inter-segment revenue net of recoverable expenses(1)
Amortisation of intangible assets(2)
External expenses
Underlying profit from operating activities
Specific adjusting items
Profit from operating activities
Income tax
Profit from discontinued operation, net of tax
Cash from discontinued operation
Net cash from operating activities
Net cash from investing activities
2022
£m
9.4
(2.3)
7.1
(4.1)
2.0
(2.9)
(5.0)
2.1
(1.3)
0.8
(0.4)
0.4
2021
£m
10.3
(2.2)
8.1
(4.8)
1.9
(2.9)
(5.8)
2.3
(0.4)
1.9
(0.4)
1.5
2022
2021
£m
4.5
(3.2)
1.3
£m
5.1
(3.1)
2.0
(1) Inter-segment revenue and expenses are presented in the discontinued operation to the extent that they are expected to continue after the disposal
of the operation.
(2) The amortisation of intangible assets was ceased at 23 May when the Software disposal group was classified as held for sale. If amortisation had
been charged for the full financial year an additional £0.3m would have recognised within administrative expenses within the discontinued operation.
The earnings per share related to the discontinued operation is shown in Note 8.
174
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
4. Operating profit
Research and development expenditure accounting policy – Note 1(e)
Government grants accounting policy – Note 1(f)
Operating profit, including the result of the discontinued operation, are stated after charging/(crediting) the following amounts:
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 of other intangible assets
Impairment on held for sale assets
Repairs and maintenance on property, plant and equipment
Net impairment expense on trade receivables
Losses/(gains) 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
17
17
18
18
16
16
23
2022
2021
£m
5.7
-
4.0
0.6
12.6
2.2
-
12.3
1.3
0.1
5.3
6.0
(2.5)
-
£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)
Government grant income in respect of COVID-19 above includes £nil (2021: £0.4m) 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
£nil (2021: £0.6m) of grant income in respect of the Netherlands NOW scheme.
5. 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.
During the current year the Software segment, previously reported within Performance Products, is classified as held-for-sale.
Comparative amounts are restated to reflect this classification. Due to a reorganisation of the business units within the Group, the
Automotive and Industrial segment (A&I) now consists of one operating segment, rather than representing the aggregation of the
A&I EMEA, A&I China and A&I US operating segments. This reflects the revised organisational structure and operating model of the
business unit.
The following summarises the operations in each of the Group’s reportable segments:
• Energy and 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 and 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. Its customers manufacture low-
volume, high-performance products in markets such as motorsport, automotive, aerospace, defence and rail.
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.
175
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
5. Financial performance by segment (continued)
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 2021 have
been restated, reflecting the impact of the changes the Group made to its operating segments during the year ended 30 June 2022. The
operating segment section of this Annual Report provides further detail on the segments’ performance (see page 73 to 89).
Total
Continuing
Operations
Discontinued
Operation
For the year ended 30 June 2022
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
EE
£m
68.2
(1.0)
67.2
9.1
-
9.1
(0.6)
8.5
Rail
£m
A&I Defense
PP
Plc
£m
£m
£m
£m
74.6
123.2
(0.3)
(3.2)
74.3
120.0
7.7
-
7.7
(4.4)
3.3
3.7
-
3.7
(5.2)
(1.5)
45.1
(0.1)
45.0
5.9
-
5.9
(0.4)
5.5
75.0
(1.3)
73.7
7.2
-
-
-
-
-
(5.6)
7.2
(5.6)
(0.6)
(0.6)
6.6
(6.2)
£m
386.1
(5.9)
380.2
33.6
(5.6)
28.0
(11.8)
16.2
(3.8)
12.4
Total
£m
395.5
£m
9.4
(2.3)
(8.2)
7.1
2.1
-
2.1
387.3
35.7
(5.6)
30.1
(1.3)
(13.1)
0.8
-
0.8
17.0
(3.8)
13.2
Depreciation, amortisation and impairment
3.2
4.8
9.8
1.7
0.8
1.9
22.2
2.9
25.1
Capital expenditure:
- Other intangible assets
- Property, plant and equipment
- Right-of-use assets
1.9
0.7
-
-
1.1
4.2
2.5
2.2
0.5
0.4
0.1
-
(0.1)
0.6
-
-
-
-
4.7
4.7
4.7
3.2
-
-
7.9
4.7
4.7
For the year ended 30 June 2021
2021 restated (**)
Total segment revenue
Inter-segment revenue
Revenue from external customers
Segment underlying operating profit/(loss)
Plc costs
Underlying operating profit/(loss)
Specific adjusting items (*)
Operating profit/(loss)
Net finance costs
Profit before taxation
EE
Rail
A&I Defense
PP
Plc
£m
£m
£m
£m
£m
£m
57.9
(0.8)
57.1
8.5
-
8.5
(0.9)
7.6
77.7
104.2
37.9
-
(3.2)
77.7
101.0
8.0
-
8.0
(3.6)
4.4
(3.6)
-
(3.6)
(5.6)
(9.2)
-
37.9
5.4
-
5.4
(0.4)
5.0
70.4
(0.4)
70.0
6.7
-
6.7
-
6.7
-
-
-
-
(4.6)
(4.6)
(3.2)
(7.8)
Total
Continuing
Operations
Discontinued
Operation
Total
£m
348.1
(4.4)
343.7
25.0
(4.6)
20.4
(13.7)
6.7
(4.7)
2.0
£m
£m
10.3
358.4
(2.2)
8.1
2.3
-
2.3
(0.4)
1.9
-
1.9
(6.6)
351.8
27.3
(4.6)
22.7
(14.1)
8.6
(4.7)
3.9
Depreciation and amortisation
3.3
6.1
10.2
1.8
1.0
1.3
23.7
2.9
26.6
Capital expenditure:
- Other intangible assets
- Property, plant and equipment
- Right-of-use assets
* See Note 7
1.4
0.4
0.2
-
0.2
0.8
3.6
2.3
0.6
0.5
0.6
0.8
-
0.8
-
0.3
-
-
5.8
4.3
2.4
3.1
-
-
8.9
4.3
2.4
** Prior year amounts have been restated as follows. References to Software relate to amounts which were previously reported in
the PP aggregated operating segment and are now presented as a discontinued operation.
176
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
5. Financial performance by segment (continued)
• Revenue from external customers of £1.5m transferred from A&I to the discontinued operation, relating to revenue invoiced by
A&I for Software products, not expected to continue to be generated by the Group after the sale of the business. Inter-segment
revenue from Software has been reduced by this amount.
• A&I underlying operating loss increased, and Software profit increased, by £2.0m to reflect costs that will not be charged to the
Software business on an ongoing basis. Software revenue has been grossed up by £2.2m to reflect intragroup recharges to A&I
previously net off against these expenses.
• Plc costs increased by £0.2m and Software operating profit increased by £0.2m to reflect costs which were previously recharged
to the Software business, for which there is no mechanism to recharge after the sale of the business.
Revenue from one customer represents approximately 11% (2021: 12%) of the Group’s external revenue, which is primarily
reported in the PP segment.
6. Revenue
Revenue accounting policy – Note 1(g)
Key sources of estimation uncertainty: Revenue on fixed price contracts – Note 1(d)
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
Customer location
United Kingdom
Europe
North America
Rest of Asia
Australia
China
Rest of the World
Total
Timing of recognition
Over time
At a point in time
Total
Continuing operations
Discontinued operation
Total
2022
£m
2021
£m
2022
£m
2021
£m
2022
£m
2021
£m
217.9
64.5
210.8
65.9
5.2
5.1
90.7
1.2
0.7
61.8
0.1
-
380.2
343.7
134.5
118.7
72.7
88.3
30.7
22.2
20.9
10.9
75.0
67.6
22.2
27.2
22.9
10.1
380.2
343.7
289.0
91.2
380.2
283.2
60.5
343.7
-
-
0.6
-
6.5
-
7.1
0.2
1.3
1.9
2.8
-
0.9
-
7.1
5.5
1.6
7.1
-
-
1.5
-
6.6
-
8.1
0.2
1.2
1.9
3.5
0.1
1.2
-
8.1
6.4
1.7
8.1
217.9
64.5
210.8
65.9
5.8
6.6
90.7
7.7
0.7
61.8
6.7
-
387.3
351.8
134.7
118.9
74.0
90.2
33.5
22.2
21.8
10.9
76.2
69.5
25.7
27.3
24.1
10.1
387.3
351.8
294.5
92.8
387.3
289.6
62.2
351.8
See Note 23 for disclosure of impairment losses recognised on receivables and contract assets arising from the Group’s contracts
with customers. Note 23 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 24 for the opening and closing balances of contract liabilities from contracts with customers.
177
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
7. Specific adjusting items
Specific adjusting items accounting policy - Note 1(h)
Critical judgement on specific adjusting items: Reorganisation costs – Note 1(c)
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 items that are included due to their significance, non-recurring
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.
Continuing operations
Amortisation of acquired intangibles
Acquisition-related expenditure
Reorganisation costs
- Purchases and disposals
- Other reorganisation costs
ERP implementation costs
CEO exit costs
Revaluation gain
Guaranteed Minimum Pensions ('GMP') equalisation
Total specific adjusting items from continuing operations before tax
Tax credit on specific adjusting items
Total specific adjusting items from continuing operations after tax
Specific adjusting items from discontinued operation
Purchases and disposals
Total specific adjusting items after tax
* Comparative information has been re-presented due to a discontinued operation. See Note 3
2022
2021
Restated*
£m
£m
4.5
0.8
0.3
5.9
0.6
-
(0.3)
-
11.8
(2.3)
9.5
1.3
10.8
5.0
1.7
2.0
3.4
-
1.5
-
0.1
13.7
(2.6)
11.1
0.4
11.5
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 2 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. The current
year charge includes £0.1m in respect of the amortisation of
intangibles, predominantly customer relationships, acquired
as part of the purchase of Inside Infrastructure Pty Ltd (Inside
Infrastructure) in March 2022
Acquisition-related expenditure
Current year acquisition-related expenditure comprises £0.4m
of external fees, earn out accruals and post-deal integration
costs in respect of the acquisition of Inside Infrastructure.
In addition, it includes a £0.1m retention amount paid to the
former owners of PLC Consulting Pty Ltd, now Ricardo Energy
Environment and Planning (REEP), which was acquired in July
2019, in accordance with the terms of the purchase agreement,
and £0.3m of external fees in relation to other strategic
projects.
The prior year charge comprises £1.6m 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 REEP. Further details are provided in
Note 14. In addition, £0.1m of fees were incurred on strategic
projects in the year.
The above items have been classified as specific adjusting
items as they meet the Group’s definition of acquisition-related
expenditure.
Reorganisation costs
Purchases and disposals
The current year charge of £0.3m (USD 0.4m) represents a
reduction in the fair value of contingent consideration arising
from the disposal of the Group’s test facilities in Detroit in June
2020, in accordance with the treatment of the original proceeds.
The test facilities were sold for up-front consideration of
£2.8m (USD 3.5m), with up to an additional £1.5m (USD 2.0m)
178
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
7. Specific adjusting items (continued)
contingent on volume of testing work placed into the facility
by Ricardo over a two-year period to 30 June 2022. The charge
reflects a lower level of traditional engine test work than
expected at the time of the sale. A similar charge of £0.5m
(USD 0.8m) was recognised in the prior year. Ricardo received
less than £0.1m (USD 0.1m) of contingent consideration in the
year (2021: £0.2m (USD 0.3m)).
The prior year charge also included 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 impairment charge
reflected the impact of COVID-19 on the property market at
the time, with a significantly lower demand for office space
depressing prices in the DTC area. The impairment was
classified as a specific adjusting item as it was significant
in value and would have distorted the underlying trading
performance of the Group.
£1.3m of costs were recognised in the year in respect of
external fees incurred in the disposal of Ricardo Software
(2021: £0.4m). These costs have been recognised within the
discontinued operation and have been classified as specific
adjusting items as they are incremental costs which are directly
attributable to the sale of the business.
Other reorganisation costs
A&I reorganisation costs £4.9m (2021: £3.4m): The current year
charge reflects the commencement of a major restructuring
programme to combine the three regional A&I businesses in
EMEA, US, and China, into one globally operated business, re-
aligned around two key pillars: emerging technologies, focused
on electrified propulsion, vehicle integration and software and
digital services; and established mobility, focusing on high
efficiency internal combustion engines (ICE) and emissions
compliance. This programme has resulted in £5.3m of
reorganisation costs in FY 2021/22, relating to:
• Headcount reductions (£2.3m): These redundancies have
focused on senior management and administrative positions
in the UK and China, as a result of the implementation of a
more streamlined organisation structure. All redundancy
costs relate to those staff members notified by 30 June 2022.
• Property downsizings and exits (£0.9m): The business has
reduced its footprint in the Prague Technical Centre, with one
floor being vacated, resulting in an impairment of the lease
asset and the recognition of an onerous contract provision in
relation to the ongoing service charges through to the end of
the lease term in February 2027.
• The impairment of intangible assets (£2.0m): Following a
detailed review of the asset base against the future strategy,
assets relating to technologies and areas that the A&I
business will no longer focus on or invest in were identified
and impaired, with no significant further economic benefits
expected to arise from these assets.
• External advisory and legal fees (£0.1m): External costs to
support the programme.
The cash cost of the actions in the year was £0.5m. This
programme will continue into the next financial year, where
the Group expects to incur a similar level of income statement
expense. The total cash cost of the programme is estimated to
be in the region of £4.5m.
Current year reorganisation costs include a credit of £0.4m in
respect of unutilised provisions from the prior year. During the
prior year, £3.4m of reorganisation costs were incurred in the
A&I business in EMEA, as a result of the challenging trading
conditions and COVID-19, which combined to depress short-term
workable orders and delay projects. This led to in headcount
reductions (£2.5m, of which £2.1m was utilised in FY 2021/22),
the exit from sites in Cambridge (£0.7m) and Germany (£0.1m),
and the write off of equipment in the Santa Clara Technical
Centre, which was exited in June 2020 (£0.1m). The cash cost of
these actions in FY 2021/22 was £1.6m.
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.
Rail reorganisation costs £1.0m (2021: nil): The current year
charge reflects the result of a significant review of the operational
structure of the Rail business, aimed at creating a more flexible
and agile business. Costs incurred related to the exit of a number
of senior positions in the organisation, including associated legal
and external fees. The review will continue into FY 2022/23. The
cash cost of these actions in FY 2021/22 was £0.3m.
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.
ERP implementation costs
As a result of an IFRS Interpretations Committee (IFRIC) decision
in March 2021, £0.5m of external costs incurred in the prior
year in relation to the implementation of a new cloud-based
ERP system within the PP segment have been expensed in the
current period, together with £0.1m of expenditure in the current
year. The prior year costs were previously capitalised in line with
prevailing practice at the time the costs were incurred. They
have been classified as a specific adjusting item as they are not
reflective of the underlying performance of the business in the
period. The ERP system is expected to have a useful life of at
least five years.
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 were accrued in the prior year, covering his settlement,
external legal fees, and external recruitment fees to find a
successor. The costs were recognised as specific adjusting items
due to their non-recurring nature and quantum.
Revaluation gain
During the current year, an intercompany loan from Ricardo plc to
Ricardo Investments Ltd, representing a quasi-equity investment
in one of the Group’s subsidiaries, was repaid. The loan was
previously classed as not repayable in the foreseeable future
under IAS 21 with any revaluation of the foreign currency loan
recognised in the statement of Other Comprehensive Income.
Following the repayment of the loan, a gain of £0.3m was
reclassified from equity to the income statement, as required
under IAS 21, and was reported as a specific adjusting item.
Guaranteed Minimum Pensions (GMP) equalisation
In the prior period, a charge of £0.1m was incurred in order to
equalise male and female members' benefits for the effect of for
historical transfers out of the Group’s defined benefit pension
scheme. The treatment of this cost as a specific adjusting item is
consistent with the treatment of similar costs in prior years.
179
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 8. 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 useful indication of underlying performance
and trends over time. There are no potentially dilutive shares (2021: Nil).
Earnings 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
- ERP implementation costs
- Revaluation gain
- CEO exit costs
- Guaranteed Minimum Pensions ('GMP') equalisation
- Discontinued operation
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 per share
Basic
Diluted
Underlying earnings per share
Basic
Diluted
Earnings per share from continuing operations
Basic
Diluted
Earnings per share from discontinued operation
Basic
Diluted
2022
£m
8.6
3.2
0.8
0.3
4.9
0.5
(0.2)
-
-
1.3
19.4
2022
Number
of shares
millions
62.2
-
62.2
2022
pence
13.8
13.8
2022
pence
31.2
31.2
2022
pence
13.2
13.2
2022
pence
0.6
0.6
2021
£m
1.7
3.9
1.6
1.5
2.7
-
-
1.3
0.1
0.4
13.2
2021
Number
of shares
millions
58.9
-
58.9
2021
pence
2.9
2.9
2021
pence
22.4
22.4
2021
pence
0.3
0.3
2021
pence
2.5
2.5
180
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
9. Dividends
Dividend accounting policy – Note 1(i)
Final dividend for prior period: 5.11p per share (2021: 0.00p) per share
Interim dividend for current period: 2.91p per share (2021: 1.75p) per share
Equity dividends paid
2022
2021
£m
3.2
1.8
5.0
£m
-
1.1
1.1
A dividend of £nil (2021: £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 £nil (2021: £0.2m) was made during the year by a subsidiary of the Group to a non-controlling
party of that subsidiary.
10. Net finance costs
Net finance costs accounting policy – Note 1(j)
Finance income
Bank interest receivable
Other interest receivable
Defined benefit pension financing income
Interest income on finance lease receivable
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
2022
£m
2021
£m
0.3
-
0.2
0.1
0.6
(3.5)
(0.9)
-
(4.4)
(3.8)
0.4
0.2
-
0.2
0.8
(4.4)
(1.0)
(0.1)
(5.5)
(4.7)
181
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
11. Auditor’s remuneration
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 auditor and its associates
Audit fees
Statutory audit of the Company and its consolidated financial statements
Statutory audit of the Company’s subsidiaries and their financial statements
Total audit fees
Non-audit fees
Audit-related assurance services provided to the Company
Audit-related assurance services provided to the Company’s subsidiaries
Total non-audit fees
Non-audit fees as a percentage of audit fees
2022
£k
771
539
1,310
65
-
65
2021
£k
322
380
702
42
43
85
5.0%
12.1%
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.
The current year charge includes £73,000 of additional fees in relation to the prior year audit which were agreed during the current
year. Total audit fees have increased by 87% in the current year due to additional regulatory audit requirements.
Non-audit services comprised the Group’s interim review and other audit-related assurance services.
12. Tax expense
Tax expense accounting policy – Note 1(k)
Current income tax
UK corporation tax
Adjustments in respect of prior years
Total UK tax
Foreign corporation tax
Overseas withholding tax suffered
Adjustments in respect of prior years
Total foreign tax
Total current tax
Deferred tax
Charge 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
Tax on items recognised directly in equity
2022
£m
2021
£m
0.3
-
0.3
2.3
0.1
0.1
2.5
2.8
0.6
1.2
-
1.8
4.6
1.6
0.3
-
0.1
0.1
0.9
-
0.1
1.0
1.1
0.1
(0.1)
1.1
1.1
2.2
2.0
-
The tax charge attributed to the discontinued operation is shown in Note 3.
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.
182
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
12. Tax expense (continued)
The main rate of UK corporation tax for the year ending 30 June 2022 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 in the prior year. 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 (2021: higher)
than the standard rate of corporation tax in the UK. The differences are set out below:
Profit before taxation
Multiplied by the standard rate of corporation tax in the UK of 19% (2021: 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 tax rate
Changes in corporation tax rates
Total taxation
(1) Primarily relates to R&D tax credits.
(2) Primarily relates to withholding taxes.
2022
£m
13.2
2.5
0.1
(0.3)
0.4
(0.4)
1.2
0.5
0.6
4.6
2021
£m
3.9
0.7
0.4
(0.3)
0.6
(0.9)
0.2
1.1
0.4
2.2
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.
183
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
CAPITAL BASE
13. Non-current assets by geographical location (excluding deferred tax assets)
Asset location
United Kingdom
Australia
Netherlands
North America
Rest of the World
Total
Goodwill
Other intangible assets
Property, plant and equipment
Right-of-use assets
Retirement benefit surplus
Other receivables
Total
Note
15
16
17
18
34
23
2022
£m
103.1
31.5
20.4
16.7
25.0
2021
£m
100.9
26.6
17.6
22.4
26.6
196.7
194.1
90.6
23.1
47.0
18.3
15.2
2.5
84.7
33.9
46.9
19.5
6.8
2.3
196.7
194.1
14. Acquisitions
(a) Acquisition in the year to 30 June 2022 – Inside Infrastructure
On 21 March 2022, the Group acquired the entire issued share capital of Inside Infrastructure Pty Ltd (Inside Infrastructure) for cash
consideration of £5.6m (AUD 10.4m), which included an adjustment for cash and normalised net working capital of £0.5m (AUD
0.9m), paid during FY 2021/22. £0.6m (AUD 1.0m) of cash was acquired with the business.
Inside Infrastructure is an Australian technical advisory firm which specialises in water and sustainable resource management. The
following tables set out the fair value of cash consideration payable to acquire Inside Infrastructure, together with the fair value of
net assets acquired.
Fair value of cash consideration
Cash consideration
Total fair value of cash consideration
Fair value of identifiable net assets acquired
Customer contracts
Property, plant and equipment - right of use
Trade, contract and other receivables
Cash and cash equivalents
Trade, contract and other payables
Lease liabilities
Deferred tax liabilities
Fair value of identifiable net assets acquired
Goodwill
Total fair value of cash consideration
Note
16
18
18
15
£m
5.6
5.6
2.0
0.4
0.3
0.6
(0.5)
(0.4)
(0.6)
1.8
3.8
5.6
184
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
14. Acquisitions (continued)
The maximum contingent cash payable is £0.6m (AUD 1.0m).
The amounts payable will be based on the achievement of
annual performance targets measured against the earnings
before interest, tax, depreciation and amortisation of Inside
Infrastructure during FY 2022/23. These payments are
dependent upon the continuing employment of the sellers
in the business, and are not considered to form part of the
consideration for the acquisition. £0.1m (AUD 0.2m) has been
recognised within specific adjusting items in order to reflect an
accrual for the fair value of the expected service received during
the current year (see Note 7).
Adjustments have been made for the recognition of customer-
related intangible assets separable from goodwill amounting
to £2.0m (AUD 3.6m). The fair value of the contingent cash
consideration and provisional identifiable net assets acquired
were identified in accordance with the requirements of IFRS 3
Business Combinations and the sale and purchase agreement.
The provisional fair values identifiable net assets acquired
may be adjusted in future in accordance with the requirements
of IFRS 3 Business Combinations. Further work is required
to quantify the value of long-term employee benefits due to
the complex nature these calculations. Adjustments may be
required to trade and other payables or to provisions as a result
of this work. The amount of the adjustment is not expected to
be significant.
The provisional goodwill arising on acquisition can be ascribed
to the existence of a skilled assembled workforce, developed
expertise and processes within the existing 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 £1.8m (AUD 3.3m) included trade
receivables of £0.3m (AUD 0.6m), all of which have been
subsequently collected.
Acquisition-related expenditure of £0.3m representing
transaction costs and costs incurred to integrate the business
into the Group post-acquisition, plus £0.1m of amortisation
on acquired intangibles, have been charged to the income
statement for the year ended 30 June 2022 and are included as
specific adjusting items in Note 7.
£0.9m of revenue and £0.1m profit after tax is included in the
consolidated statement of comprehensive income in the current
year in relation to Inside Infrastructure.
If the acquisition date for all business had occurred at the
beginning of the financial year, a total of £3.1m revenue
and £0.3m profit after tax would have been included in the
consolidated statement of comprehensive income in the current
year in relation to Inside Infrastructure.
(b) Acquisitions in the year to 30 June 2020 - 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), paid in November
2019. Following its acquisition the business was renamed
Ricardo Energy, Environment and Planning (REEP).
The maximum contingent cash payable was £1.2m (AUD 2.2m).
The amounts payable were 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 were dependent upon the continuing employment
of the sellers in the business and are not considered to be
consideration. Year one performance targets were achieved and
£0.7m (AUD 1.3m) was paid in October 2020 in respect of the
year one earn out. Whilst performance targets were achieved
in the year to 30 June 2021, the maximum contingent cash was
not payable as one of the sellers left the business during that
year. An accrual of £0.5m (AUD 0.9m) was recognised as at
30 June 2021, and paid during the current financial year. An
additional retention payment of £0.1m was recognised in the
current year. The related costs were included within specific
adjusting items (see Note 7). No further costs are expected in
future periods.
(c) Acquisitions in the year to 30 June 2019 – Transport
Engineering
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), paid in August 2019, together with the accrued
fair value of contingent cash consideration payable of £5.1m
(AUD 9.4m). Following its acquisition the business was
renamed Ricardo Rail Australia (RRA).
The maximum contingent cash consideration payable was
£8.1m (AUD 15.0m). The fair value of the contingent cash
consideration was considered to be Level 3 of the fair value
hierarchy within IFRS 13 Fair Value Measurement. The fair value
was 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 were 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
was only payable in full if the performance target was achieved.
Year one performance targets were achieved, and £4.3m (AUD
7.8m) was paid in October 2020 in respect of the year one earn
out. A charge of £1.9m (AUD 3.5m) was recognised within
specific adjusting items to reflect the change in fair value during
the year ended 30 June 2020. 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, was charged to the income statement within
specific adjusting items (see Note 7). A final payment of £4.4m
(AUD 7.2m) was made during the current year.
185
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 15. Goodwill
Goodwill accounting policy – Note 1(l)
Critical judgement on carrying value of Goodwill: CGUs – Note 1(d)
Key sources of estimation uncertainty on carrying value of Goodwill – Note 1(d)
Movement in goodwill
At 1 July
Acquisition of business(1)
Exchange adjustments
At 30 June
Note
14
2022
£m
84.7
3.8
2.1
90.6
2021
£m
87.8
-
(3.1)
84.7
The carrying value of goodwill and the key assumptions used in determining the recoverable amount of each CGU, or group of
CGUs, are as follows:
Scheme movements
Rail
Automotive and Industrial - Established(2)
Automotive and Industrial - Emerging(2)
Automotive and Industrial - EMEA(2)
Energy and Environment(1)
Defense
Performance Products
At 30 June
Carrying value
Pre-tax discount rate
Long-term growth rate
2022
£m
46.2
5.0
14.6
-
20.0
3.7
1.1
90.6
2021
£m
44.9
-
-
19.6
15.9
3.2
1.1
84.7
2022
£m
12.3%
13.1%
13.3%
-
13.8%
13.8%
14.0%
2021
£m
10.8%
-
-
13.2%
12.5%
14.3%
12.9%
2022
£m
3.1%
(10.0%)
3.0%
-
2.8%
-
1.7%
2021
£m
3.6%
-
-
*
4.7%
3.4%
0.4%
(1) As set out in further detail in Note 14(a), the Group acquired Inside Infrastructure on 21 March 2022, adding goodwill of £3.8m to the Energy and
Environment CGU.
(2) During the year, the Group reorganised its Automotive and Industrial (A&I) business from a regional to a global structure (see Notes 5 and 7). The
five-year plan for this segment has been prepared based on established mobility and emerging technologies, and this distinction is expected to be
reflected in the operating segments in future years. Goodwill was allocated to these groups of CGUs using a relative value approach, and the review
of goodwill for impairment was carried out at this level (see Note 1(d)).
(*) See key assumptions below.
Key assumptions
The five-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 2022, resulting in no impairment for the year
(2021: Nil). The five-year cashflow forecasts are based on
the budget for the following year (year one) and the business
plans for years two to five. The five-year plan is prepared by
management, and is reviewed and approved by the Board.
The five-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 climate
change, where relevant), adjusted to meet the requirements of
IAS 36 Impairment of Assets.
The risks associated with climate change which have been
incorporated into the five-year planning process include the
known and expected increased regulation in relation the use of
the internal combustion engine (ICE) and the impact that will
have on our customers operating in this market. The five-year
planning process takes into account the requirement to adapt
our product and service portfolios in response to megatrends
influenced by climate change. Some risks, such as the risk of
sea level rise (see discussion of Principal Risks on page 58
of the Annual Report) are expected to arise outside of the
timeline of the five-year plan and are not considered sufficiently
quantifiable to include in the longer-term element of the value-
in-use calculation. No other individually significant key financial
risks or expenditures have been identified and any additional
costs of meeting our net zero objective are not expected to be
significant.
Cash flows beyond year five 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’s, or group of CGU's, five-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.
Global A&I cashflows were analysed into cashflows expected
to arise directly from revenues related to established mobility,
such as fossil fuel internal combustion engines, and those
related to emerging technologies, such as electrification. Due
to regulatory and other changes in the market relating to ICE, a
long-term decrease of 10% p.a. has been applied to established
186
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
Movement in goodwill
At 1 July
Acquisition of business(1)
Exchange adjustments
At 30 June
Note
14
2022
£m
84.7
3.8
2.1
90.6
2021
£m
87.8
-
(3.1)
84.7
15. Goodwill (continued)
mobility cashflows, and a long-term growth rate of 3% p.a.,
based on prevailing inflation and economic growth by territory,
has been applied to the emerging technologies 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 -
Established, A&I - Emerging, Performance Products and Energy
and Environment. They are material to the A&I Established and
A&I Emerging groups of CGUs and have been included, taking
into account known changes to legislation, on the basis that
there is no indication that the UK government will withdraw this
benefit.
Sensitivities
The value-in-use calculations were assessed for sensitivity to
reasonably possible changes to assumptions. The change in
pre-tax discount rate, growth rate, operating profit and working
capital which would cause the unit’s (or group of units’) carrying
amount to exceed its recoverable amount was identified and an
assessment made as to whether that change was considered
reasonably possible. The following changes in assumptions,
resulting in carrying amount exceeding the recoverable amount
of goodwill, were identified:
• A&I Established: A reduction of 19% in operating profit
levels. A reduction in operating profit of this magnitude
is considered reasonably possible, given the current and
projected levels of profitability in the plan.
• Rail: An increase in the pre-tax discount rate of 2.1%. An
increase in discount rates of this magnitude is considered
reasonably possible given the current macroeconomic
uncertainty.
No other reasonably possible changes to individual assumptions
were identified which would cause the carrying amount of a
unit’s (or group of units’) goodwill to exceed its recoverable
amount.
In addition, a scenario was modelled combining each of a 10%
reduction in operating profit, a 10% increase in working capital
movement, a 2% increase in the pre-tax discount rate and a 2%
decrease in the long-term growth rate. The combined scenario
would result in an impairment of £0.7m to A&I Established
goodwill, £1.5m to Performance Products goodwill, and
£21.3m to Rail. No impairment would be recognised against
other goodwill balances.
A scenario was calculated excluding the benefits arising from
RDEC. This scenario did not result in an impairment of any
goodwill balance.
187
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
16. Other intangible assets
Other intangible assets accounting policy – Note 1(m)
Critical judgement on recoverability of capitalised development costs – Note 1(c)
Cost
At 1 July 2020
Additions
Disposals
Reclassifications
Exchange rate adjustments
At 30 June 2021
At 1 July 2021
Acquisition of business
Additions
Disposals
Reclassified to held-for-sale
Reclassifications
Exchange rate adjustments
At 30 June 2022
Accumulated amortisation
At 1 July 2020
Charge for the period
Disposals
Reclassifications
Exchange rate adjustments
At 30 June 2021
At 1 July 2021
Charge for the period
Impairment charge
Disposals
Reclassified to held-for-sale
Exchange rate adjustments
At 30 June 2022
Net book value
At 1 July 2020
At 30 June 2021
At 30 June 2022
Acquired intangible assets
Customer
contracts and
relationships
Software and
technology
Software
Development
costs
£m
39.2
-
-
-
(1.2)
38.0
38.0
2.0
-
-
-
-
1.1
41.1
23.5
5.0
-
-
(0.7)
27.8
27.8
4.5
-
-
-
0.8
33.1
15.7
10.2
8.0
£m
2.2
-
-
-
(0.1)
2.1
2.1
-
-
-
-
-
-
2.1
2.1
0.1
-
-
(0.2)
2.0
2.0
-
-
-
-
0.1
2.1
0.1
0.1
-
£m
£m
23.9
0.4
(0.8)
0.3
(0.2)
23.6
23.6
-
0.6
(1.5)
-
0.2
0.4
23.3
18.6
1.6
(0.8)
0.3
(0.2)
19.5
19.5
1.5
0.2
(1.4)
-
0.3
20.1
5.3
4.1
3.2
37.2
8.5
(0.2)
(0.2)
(2.1)
43.2
43.2
-
7.3
(17.4)
(14.0)
(0.7)
2.1
20.5
18.4
6.5
(0.2)
0.1
(1.1)
23.7
23.7
6.6
2.0
(17.4)
(7.0)
0.7
8.6
18.8
19.5
11.9
Total
£m
102.5
8.9
(1.0)
0.1
(3.6)
106.9
106.9
2.0
7.9
(18.9)
(14.0)
(0.5)
3.6
87.0
62.6
13.2
(1.0)
0.4
(2.2)
73.0
73.0
12.6
2.2
(18.8)
(7.0)
1.9
63.9
39.9
33.9
23.1
188
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
16. Other intangible assets (continued)
Customer contracts and relationships were primarily identifi-
ed as part of the previous acquisitions LR Rail and Transport
Engineering (see Note 14(b)). The assets specifi c to these
acquisitions have carrying values of £2.1m (2021: £3.8m) and
£3.9m (2021: £5.7m) and have remaining amortisation periods
of two years. Customer contracts and relationships were also
identi fied as part of the acquisition in the current year of Inside
Infrastructure (see Note 14(a)) having a carrying value of £2.0m
and a remaining amortisation period of six years.
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 £0.7m (2021: £1.0m) and has a remaining
amortisation period of one year. Software includes £0.1m
(2021: £0.7m) in respect of assets under construction which are
not being amortised until the assets are made available for use.
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. These assets were classified as held-for sale at the
year-end as part of the Software disposal group (see Note 19).
Following a detailed review of the asset base against the future
strategy, assets relating to technologies and areas that the A&I
business will no longer focus on or invest in were identified and
derecognised, as no significant further economic benefits are
expected to arise from these assets, resulting in a charge to the
income statement of £2.0m (see Note 7). Development 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). This
asset has a carrying value of £1.7m (2021: £2.3m). £0.5m of
ABS brake kit tooling costs previously classified to development
costs have been reclassified to plant and machinery to more
accurately reflect the nature of the assets (see also Note 17).
In addition, development costs include £4.6m (2021: £2.6m)
in respect of assets under construction which are not being
amortised until the assets are made available for use.
Development costs under construction include new technology,
tools and processes in the A&I and EE segments.
The amortisation charge of £12.6m (2021: £13.0m) is
comprised of £2.7m (2021: £4.3m) included within cost of
sales and £9.9m (2021: £8.7m) included within administrative
expenses in the income statement, of which £4.5m (2021:
£5.0m) relates to acquired intangible assets and is presented
within specific adjusting items, as set out in Note 7.
189
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 17. Property, plant and equipment
Property, plant and equipment accounting policy – Note 1(n)
Cost
At 1 July 2020
Additions
Disposals
Reclassified from held-for-sale
Reclassifications
Exchange rate adjustments
At 30 June 2021
At 1 July 2021
Additions
Disposals
Reclassified to held-for-sale
Reclassifications
Exchange rate adjustments
At 30 June 2022
Accumulated depreciation and impairment
At 1 July 2020
Charge for the period
Impairment loss
Disposals
Reclassified from held-for-sale
Reclassifications
Exchange rate adjustments
At 30 June 2021
At 1 July 2021
Charge for the period
Disposals
Reclassified to held-for-sale
Reclassifications
Exchange rate adjustments
At 30 June 2022
Net book value
At 1 July 2020
At 30 June 2021
At 30 June 2022
Freehold
land and
buildings
Leasehold
properties
Plant and
machinery
Fixtures,
fittings and
equipment
£m
£m
£m
£m
21.1
-
-
10.7
0.3
(0.1)
32.0
32.0
0.2
(0.1)
-
(0.1)
1.5
33.5
4.9
0.4
-
-
7.4
0.9
(0.1)
13.5
13.5
0.5
(0.1)
-
-
1.1
15.0
16.2
18.5
18.5
4.4
0.3
(0.8)
-
0.5
(0.1)
4.3
4.3
0.5
(0.4)
-
(0.1)
0.1
4.4
2.2
0.4
0.3
(0.8)
-
0.3
-
2.4
2.4
0.3
(0.3)
-
(0.1)
-
2.3
2.2
1.9
2.1
82.3
2.8
(1.0)
-
(1.6)
(0.3)
82.2
82.2
2.1
(4.9)
-
0.7
0.4
80.5
61.0
3.0
-
(1.0)
-
(1.1)
(0.1)
61.8
61.8
3.1
(4.8)
-
-
0.1
60.2
21.3
20.4
20.3
24.4
1.2
(1.7)
-
0.7
(0.5)
24.1
24.1
1.9
(4.4)
(0.3)
(0.1)
0.7
21.9
18.7
1.9
-
(1.7)
-
(0.5)
(0.4)
18.0
18.0
1.8
(4.4)
(0.2)
-
0.6
15.8
5.7
6.1
6.1
Total
£m
132.2
4.3
(3.5)
10.7
(0.1)
(1.0)
142.6
142.6
4.7
(9.8)
(0.3)
0.4
2.7
140.3
86.8
5.7
0.3
(3.5)
7.4
(0.4)
(0.6)
95.7
95.7
5.7
(9.6)
(0.2)
(0.1)
1.8
93.3
45.4
46.9
47.0
Current year plant and machinery additions are presented net of a £1.5m government grant.
The carrying value of assets under construction included in property, plant and equipment amounts to £4.1m (2021: £6.4m). The
current year value of assets under construction includes £2.3m relating to test cells and related equipment. The prior year value of
assets under construction included £5.1m relating to a hybrid powertrain rig, which was placed in use in the current year.
At 30 June 2022, the Group had plant and machinery financed through a hire-purchase agreement and secured on the asset (see
Note 25) with a carrying value of £0.6m (2021: £0.6m). As disclosed in Note 36, 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 £14.8m (2021: £15.2m).
At 30 June 2022, contracts had been placed for future capital expenditure, which have not been provided for in the financial
statements, amounting to £1.1m (2021: £2.4m). £0.5m of ABS brake kit tooling costs previously classified to development costs
have been reclassified to plant and machinery to more accurately reflect the nature of the assets (see also Note 16).
190
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
18. Right-of-use assets, lease liabilities and lease receivables
Leases accounting policy – Note 1(o)
(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 one to 21 years, with an average of six 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 18(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 2020
Additions
Disposals
Remeasurements
Exchange rate adjustments
At 30 June 2021
At 1 July 2021
Arising on acquisition
Additions
Disposals
Remeasurements
Exchange rate adjustments
At 30 June 2022
Accumulated depreciation and impairment
At 1 July 2020
Charge for the period
Impairment loss
Disposals
Exchange rate adjustments
At 30 June 2021
At 1 July 2021
Charge for the period
Impairment loss
Disposals
Exchange rate adjustments
At 30 June 2022
Net book value
At 1 July 2020
At 30 June 2021
At 30 June 2022
Property
Plant and
machinery
£m
£m
34.6
2.0
(1.5)
(0.4)
(0.8)
33.9
33.9
0.4
4.1
(6.2)
(2.0)
0.5
30.7
11.6
5.2
0.2
(1.5)
(0.4)
15.1
15.1
3.5
0.6
(6.2)
0.2
13.2
23.0
18.8
17.5
1.0
0.2
(0.2)
(0.1)
-
0.9
0.9
-
0.2
(0.2)
-
-
0.9
0.4
0.4
-
(0.2)
-
0.6
0.6
0.3
-
(0.2)
-
0.7
0.6
0.3
0.2
Fixtures,
fittings and
equipment
£m
0.4
0.2
-
-
-
0.6
0.6
-
0.4
-
-
-
1.0
0.1
0.1
-
-
-
0.2
0.2
0.2
-
-
-
0.4
0.3
0.4
0.6
Total
£m
36.0
2.4
(1.7)
(0.5)
(0.8)
35.4
35.4
0.4
4.7
(6.4)
(2.0)
0.5
32.6
12.1
5.7
0.2
(1.7)
(0.4)
15.9
15.9
4.0
0.6
(6.4)
0.2
14.3
23.9
19.5
18.3
191
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
18. Right-of-use assets, lease liabilities and lease receivables (continued)
During the current period, an impairment charge of £0.6m was recognised in respect of the decision to reduce occupancy of the
Prague office. The charge reflects a reduction in the carrying value for part of the site to value-in-use based on expected sublease
income, which is expected to be higher than the fair value less costs of disposal. In the prior period, 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. These costs are recognised within administrative expenses and included in
“Reorganisation costs: Other reorganisation costs” within specific adjusting items (Note 7).
Other reassessments of lease terms resulted in a remeasurements which decreased both right-of-use assets and lease liabilities
by £2.0m (2021: £0.5m). In the current year, these reassessments included a remeasurement related to the surrender of the
Schwäbisch Gmünd site (£1.5m).
The net book value of Property above is shown net of £0.8m (2021: £0.9m) 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 – 0.9% to 5.0%
• Plant and machinery – 0.6% to 4.2%
• Fixtures, fittings and equipment – 0.9% 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 (excluding short-term leases above)
2022
2021
0.7
-
0.7
0.5
0.1
0.6
As at 30 June 2022, potential future cash outflows of £4.4m (undiscounted) (2021: £9.6m) 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
Arising on acquisition
New leases
Interest
Payments
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 28(c).
Note
10
2022
£m
24.3
0.4
4.7
0.9
(5.4)
(2.0)
0.4
23.3
2022
£m
5.0
18.3
23.3
2021
£m
29.3
-
2.6
1.0
(7.3)
(0.5)
(0.8)
24.3
2021
£m
5.5
18.8
24.3
192
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
18. 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.
For significant subleases, a dilapidations provision is put in place to minimise the risk related to the value of the residual asset.
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 £0.1m (2021: £0.2m) relating to its lease receivable.
The following table sets out the movements in the lease receivable balance during the year.
Movement in lease receivable
At 1 July
Interest
Receipts
Exchange rate adjustments
At 30 June
Note
10
2022
2021
£m
2.0
0.1
(0.2)
0.2
2.1
£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
Undiscounted lease receivable
Unearned finance income
Net investment in the lease
2022
£m
0.2
0.2
0.2
0.2
0.2
1.8
2.8
(0.7)
2.1
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 23.
(ii) Operating lease
During the year, the Group recognised rental income of £0.5m (2021: £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 income
Less than one year
One to two years
Two to three years
Three to four years
Four to five years
*The prior year amount is restated for amounts due in more than five years, which were previously shown as £1.6m.
2022
2021
Restated*
£m
0.4
0.4
0.4
0.3
-
1.5
£m
0.6
0.3
0.3
0.3
0.1
1.6
193
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
19. Disposal group held for sale and non-current assets held for sale
Discontinued operations and held for sale accounting policy – Note 1(c)
The Group’s software business was classified as held for sale at 30 June 2022. An offer had been agreed with a buyer and was
subject to National Security and Investment Act (NSIA) clearance. Clearance was received on 26 July 2022, and the sale completed
on 1 August 2022 - see Note 39.
The fair value less costs to dispose of the disposal group is considered to exceed its carrying value immediately prior to its
classification as held for sale. No impairment loss was therefore recognised on reclassification of the disposal group as held for sale.
The value of assets and liabilities included in the disposal group are as follows:
Other intangible assets
Property, plant and equipment
Trade, contract and other receivables
Cash and cash equivalents
Assets held for sale
Trade, contract and other payables
Liabilities held for sale
Note
16
17
23
25
24
2022
£m
7.0
0.1
1.4
1.1
9.6
3.4
3.4
Other reserves includes £1.0m in other reserves relating to exchange impacts in relation to the disposal group which were
historically recognised via other comprehensive income.
Movements on non-current assets held for sale are as follows:
Movements on non-current assets held for sale
At 1 July 2020
Impairment loss
Transferred from non-current assets
Exchange rate adjustments
At 30 June 2021
At 1 July 2021
Transferred from non-current assets
At 30 June 2022
Other
intangible
assets
Property,
plant and
equipment
£m
-
-
-
-
-
-
7.0
7.0
£m
5.3
(1.5)
(3.3)
(0.5)
-
-
0.1
0.1
2021
£m
-
-
-
-
-
-
-
Total
£m
5.3
(1.5)
(3.3)
(0.5)
-
-
7.1
7.1
At 30 June 2020, the DTC south building was being marketed and remained held for sale. On 18 January 2021, it was no longer
deemed to be highly probable to be sold within one year, and was reclassified back to property, plant and equipment. It remains
unsold at the current period end. An impairment charge of £1.5m was recognised within specific adjusting items in the prior year,
included within the A&I segment and within administrative expenses in the reported result.
194
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
20. Provisions for liabilities and charges
Provisions for liabilities and charges accounting policy – Note 1(p)
At 1 July 2020
Charged to the income statement
Utilised in the period
Released in the period
Exchange rate adjustments
At 30 June 2021
At 1 July 2021
Charged to the income statement
Utilised in the period
Released in the period
Exchange rate adjustments
At 30 June 2022
Current
Non-current
At 30 June
Warranty
Restructuring
costs
Employment-
related
benefits
Other
Total
£m
2.8
1.2
(0.4)
(0.2)
-
3.4
3.4
1.9
(1.5)
(0.4)
-
3.4
£m
1.7
3.2
(2.9)
(0.1)
(0.2)
1.7
1.7
2.2
(1.5)
-
0.1
2.5
£m
1.6
0.4
(0.1)
-
(0.1)
1.8
1.8
0.5
(0.3)
-
-
2.0
£m
0.4
0.2
(0.1)
-
-
0.5
0.5
0.2
-
(0.1)
(0.1)
0.5
£m
6.5
5.0
(3.5)
(0.3)
(0.3)
7.4
7.4
4.8
(3.3)
(0.5)
-
8.4
2022
2021
£m
5.1
3.3
8.4
£m
4.0
3.4
7.4
The warranty provision reflects the Directors' best estimate of the cost required to fulfil 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 and Rail segments, as set out in further detail in Note 7. 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 reflects the Directors' 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 18(a)). The
timing of the cash outflows is dependent upon the remaining term of the associated leases and are subject to negotiation.
195
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
21. 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
2022
£m
9.0
(12.7)
(3.7)
2021
£m
8.3
(8.2)
0.1
At 1 July 2020
Reclassification
Credited to income statement
Charged to other comprehensive income
Impact of change in tax rate
Exchange rate adjustments
At 30 June 2021
At 1 July 2021
Arising on acquisition
Credited to income statement
Charged to other comprehensive income
Credited directly to equity
Exchange rate adjustments
At 30 June 2022
Accelerated
capital
allowances
Defined
benefit
obligation
Tax losses
and credits
Unrealised
capital gains
Other
Total
£m
(4.6)
-
0.6
-
(1.5)
-
(5.5)
(5.5)
-
(1.1)
-
-
-
£m
1.2
-
(0.9)
(2.0)
0.4
-
(1.3)
(1.3)
-
(0.9)
(1.6)
-
-
£m
7.6
-
0.1
-
-
-
7.7
7.7
-
(1.5)
-
-
-
£m
(0.4)
-
(0.3)
-
-
-
(0.7)
(0.7)
-
-
-
-
-
(6.6)
(3.8)
6.2
(0.7)
£m
-
(1.9)
2.4
-
-
(0.6)
(0.1)
(0.1)
(0.6)
1.7
-
(0.3)
0.5
1.2
£m
3.8
(1.9)
1.9
(2.0)
(1.1)
(0.6)
0.1
0.1
(0.6)
(1.8)
(1.6)
(0.3)
0.5
(3.7)
At 30 June 2022, 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 in the prior year (see also Note 12).
A deferred tax asset continues to be recognised in the United
States as at 30 June 2022 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 2022 is £4.3m
(USD 5.7m) (2021: £4.9m (USD 6.5m)).
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 the R&D credits 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 2023. 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 on trading losses of £5.0m (2021: £4.4m) incurred
in the year ending 30 June 2022. 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. A deferred tax asset has not been recognised on capital
losses of £0.3m.
196
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
21. Deferred tax (continued)
The tax losses incurred in Germany as at 30 June 2022, for which
no deferred tax asset has been provided, amounts to £31m
(EUR 36m) (2021: £34m, EUR 39m). 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 the prior year comparatives,
the deferred tax asset and deferred tax liability balances have
been netted off where they relate to the same class of temporary
differences across all of the tax jurisdictions. However, under
IAS 12 the deferred tax balances are netted off when relate
to the same tax jurisdiction and when an entity has a legally
enforceable right to set off current tax assets against current tax
liabilities. The effect of changing the presentation to follow this
approach would have been that deferred tax assets and deferred
tax liabilities both increased by £1.4m. This has been adjusted
for in the current year’s balance sheet. Comparative numbers
have not been changed as management do not consider this to be
material to users of the financial statements.
WORKING CAPITAL
22. Inventories
Inventories accounting policy – Note 1(r)
Raw materials and consumables
Work in progress
Finished goods
At 30 June
2022
£m
15.6
4.2
1.2
21.0
2021
£m
10.8
4.4
1.7
16.9
Inventories of £53.8m (2021: £50.6m) were recognised as an expense during the year and included in cost of sales. During the year
£0.5m (2021: £0.4m) of inventory was written down and also included in cost of sales.
23. 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(d)
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
18
2022
£m
61.8
(3.3)
58.5
52.7
0.3
5.7
2.1
11.9
131.2
128.7
2.5
131.2
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
197
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
23. Trade, contract and other receivables (continued)
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
increased from £49.2m to £52.7m 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 £2.1m (2021: £1.0m). 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. The
revenue recognised in the year from wholly or partially satisfi ed
distinct performance obligations in previous years is £26.2m
(2021: £17.8m). This is primarily due to the 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 28(d) and 28(e).
Included within prepayments are £1.1m (2021: £1.5m) 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 £2.5m (2021: £2.3m) non-current asset relates to other
receivables. £2.0m (2021: £1.9m) of this relates to the IFRS 16
lease receivable as disclosed in Note 18. £0.5m (2021: £0.4m)
relates to other receivables.
The movement on the provision for impairment of trade
receivables is as follows. The impairment charge is shown net
of the release of impairment charge for items subsequently paid.
Provision for impairment of trade receivables
At 1 July
Net impairment to the income statement
Amounts utilised
Exchange rate adjustments
At 30 June
Note
4
2022
2021
£m
3.3
1.3
(1.5)
0.2
3.3
£m
3.8
0.3
(0.7)
(0.1)
3.3
Order book
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, excluding the order book of the discontinued operation, are as follows:
Less than 6 months
6 to 12 months
Over 12 months
At 30 June
2022
£m
161.9
73.9
104.2
340.0
2021
£m
142.8
71.5
79.2
293.5
198
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
24. 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
Accruals
Contract liabilities:
- Payments received in advance on contracts ('POA')
- Deferred revenue
Tax and social security payable
Other payables
At 30 June
Current
Non-current
At 30 June
2022
£m
17.8
27.2
20.5
2.7
8.2
1.8
78.2
78.2
-
78.2
2021
£m
16.1
26.4
15.3
6.6
8.3
3.9
76.6
76.6
-
76.6
Revenue recognised in the year from contract liabilities at the beginning of the year was £17.1m (2021: £19.7m). 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.
NET DEBT AND FINANCIAL RISK MANAGEMENT
25. 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
2022
£m
35.4
197.6
233.0
2021
£m
46.9
182.8
229.7
15.2%
20.4%
199
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
25. Net debt and borrowings (continued)
(b) Net debt
Analysis of net debt
Current assets - cash and cash equivalents
Cash and cash equivalents
Cash included in disposal group held-for-sale
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 increase/(decrease) in cash and cash equivalents and bank overdrafts
Repayments of hire purchase
Proceeds from bank loans
Repayments of bank loans
Amortisation of bank loan fees
At 30 June
2022
£m
49.4
1.1
50.5
(11.1)
(0.1)
(11.2)
(0.2)
(74.5)
(74.7)
(35.4)
50.5
(85.9)
(35.4)
2022
£m
(46.9)
10.1
0.1
(13.0)
15.0
(0.7)
(35.4)
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)
At the year-end, the Group had current hire-purchase liabilities
of £0.1m and non-current hire-purchase liabilities of £0.2m.
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 £0.2m.
At the year-end, the Group held total banking facilities of
£216.8 (2021: £215.5m), which included committed facilities
of £200.0m (2021: £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 £16.8m (2021: £15.5m), which mature
throughout this and the next fi nancial year and are renewable
annually.
Non-current bank loans comprise committed facilities of
£74.5m (2021: £75.8m), 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% above SONIA (2021:
1.4% to 2.2% above LIBOR).
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 earnings 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 0.8x, which attracts a rate of interest
of SONIA plus 1.4% (2021: LIBOR plus 1.8%). 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.
After the reporting date, the Group completed a refinance of its
banking facilities – see Note 39.
200
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
26. Reconciliation of movements of liabilities to cash flows arising from
financing activities
Borrowings
Lease
liabilities
Note 25
Note 18
At 1 July 2020
Changes from financing cash flows (see Cash Flow Statement)
- Proceeds from loans and borrowings
- Repayment of hire purchase liability
- Repayment of bank loan
- Movement in bank overdraft
- Repayment of lease liabilities
Total changes from financing cash flows
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
At 1 July 2021
Changes from financing cash flows (see Cash Flow Statement)
- Proceeds from loans and borrowings
- Repayment of hire purchase liability
- Repayment of bank loan
- Movement in bank overdraft
- Repayment of lease liabilities
Total changes from financing cash flows
Effect of changes in foreign exchange rates
Other changes
Liability related
- Arising on acquisition
- New leases
- Remeasurements
- Interest expense
- Interest paid
Total other changes
At 30 June 2022
£m
139.7
5.0
(0.1)
(57.9)
2.2
-
(50.8)
-
-
-
4.4
(4.4)
-
88.9
88.9
13.0
(0.1)
(15.0)
(1.6)
-
(3.7)
-
-
-
-
3.5
(2.8)
0.7
85.9
£m
29.3
-
-
-
(6.5)
(6.5)
(0.8)
2.6
(0.5)
1.0
(0.8)
2.3
24.3
24.3
-
-
-
-
(4.5)
(4.5)
0.4
0.4
4.7
(2.0)
0.9
(0.9)
3.1
23.3
Total
£m
169.0
5.0
(0.1)
(57.9)
2.2
(6.5)
(57.3)
(0.8)
2.6
(0.5)
5.4
(5.2)
2.3
113.2
113.2
13.0
(0.1)
(15.0)
(1.6)
(4.5)
(8.2)
0.4
-
0.4
4.7
(2.0)
4.4
(3.7)
3.8
109.2
201
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
27. 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 profit or loss (FVTPL)
- Fair value hedging instruments
At 30 June
Financial liabilities
Amortised cost:
- Borrowings
- Lease payables
- Trade payables
- Other payables
Fair value through profit or loss (FVTPL)
- Fair value hedging instruments
At 30 June
Note
23
23
23
25
25
18
24
24
2022
£m
2021
£m
58.5
2.1
11.9
49.4
0.8
122.7
85.9
23.3
17.8
1.8
5.1
133.9
59.3
2.0
10.0
42.0
0.9
114.2
88.9
24.3
16.1
3.9
1.0
134.2
A net derivative financial loss of £4.2m (2021: gain £2.5m) was recognised in the period relate to foreign exchange contracts (see
also Note 28(g):
Foreign exchange swap contract assets:
- Fair value losses
- Fair value gains
Foreign exchange swap contract liabilities:
- Fair value losses
- Fair value gains
2022
£m
(5.4)
0.9
(0.6)
0.9
(4.2)
2021
£m
(3.8)
6.8
(1.1)
0.6
2.5
202
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
28. 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 25.
(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
2022
£m
14.3
3.5
17.8
2022
£m
11.1
2021
£m
9.8
6.3
16.1
2021
£m
12.7
0.1
0.1
0.2
74.5
85.9
2022
£m
5.1
13.0
8.5
(3.3)
23.3
0.3
75.8
88.9
2021
£m
5.6
14.2
8.4
(3.9)
24.3
203
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
28. 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 (see
Note 1(s)). 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 2022
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 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
Weighted-
average loss
rate
Gross
carrying
amount
Impairment
loss
allowance
%
£m
£m
0.25%
47.4
(0.4)
2.00%
5.00%
10.00%
20.00%
25.00%
50.00%
75.00%
7.7
1.3
1.0
0.9
0.5
0.3
2.7
61.8
(0.2)
(0.1)
(0.1)
(0.2)
(0.1)
(0.2)
(2.0)
(3.3)
0.25%
47.5
(0.1)
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
(0.1)
(0.1)
(0.1)
(0.1)
(0.2)
(0.4)
(2.2)
(3.3)
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 6(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
2022, £25.9m was received in July 2022 (2021: £34.1m). 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.
204
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
28. Financial risk management (continued)
An analysis of net trade receivables by currency is as follows:
Analysis of net trade receivables by currency
Pounds Sterling
US Dollars
Chinese Renminbi
Euros
Australian Dollars
Other currencies
At 30 June
2022
£m
25.7
15.5
6.2
5.6
1.5
4.0
2021
£m
25.2
15.9
6.7
5.8
1.4
4.3
58.5
59.3
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 (including held-for-sale disposal group)
Derivative financial assets
At 30 June
Analysis of cash and cash equivalents by geographic location (including held-for-sale disposal group)
United Kingdom
Asia
Europe
Australia
North America
Rest of the World
At 30 June
2022
£m
50.5
0.8
51.3
2022
£m
19.6
8.5
5.6
5.0
4.8
7.0
2021
£m
42.0
0.9
42.9
2021
£m
18.5
8.1
5.8
3.7
1.7
4.2
50.5
42.0
205
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
28. Financial risk management (continued)
(e) Market risk
Interest rate risk
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. The effect of any foreseen changes in the underlying reference interest rate 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
At 30 June
Financial liabilities
- Fixed rate
- Floating rate
- Interest-free
At 30 June
Foreign exchange risk
2022
£m
2.1
28.7
91.9
2021
£m
2.0
24.5
87.7
122.7
114.2
23.6
86.1
24.2
24.7
89.7
19.8
133.9
134.2
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:
Assets
Liabilities
Foreign currency denominated assets and liabilities
US Dollar
Euro
Chinese Renminbi
2022
£m
24.4
12.9
13.5
2021
£m
23.1
12.8
12.4
The following foreign exchange differences were (charged)/credited to the income statement for the Group:
Foreign exchange gains/(losses) on financial assets and liabilities
Derivative contracts measured at FVTPL
- Foreign exchange contract assets
- Foreign exchange contract liabilities
Other financial assets
Other financial liabilities
Note
27
27
2022
£m
10.1
12.8
1.6
2022
£m
(4.5)
0.3
1.8
2.8
0.4
2021
£m
7.6
15.1
0.5
2021
£m
3.0
(0.5)
2.5
(5.6)
(0.6)
The Group does not undertake any speculative currency transactions.
The Group use derivative fi nancial 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 fi nancial 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 fi nancial instruments at the year-end.
206
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
28. Financial risk management (continued)
Interest rate sensitivity
A reasonably possible change of 2 percentage points in interest rates at the reporting date would have decreased profit or loss by
the amounts shown below, based on the value of the Group’s floating rate financial instruments at the year-end.
A 2 percentage points sensitivity is deemed to be appropriate as interest charges on the Group’s loans are based on SONIA, and are
therefore considered reasonably possible to be subjected to fluctuations in interest rates in the foreseeable future.
Impact of interest rate movements
2pp increase in interest rates
Cash flow derivatives
Decrease in profit before tax
Decrease in profit before tax
2022
2021
£m
(1.5)
£m
(1.5)
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
EQUIT Y
29. Share capital and share premium
Share capital - ordinary shares of 25p each
Allotted, called up and fully paid
At 1 July
Issue of ordinary share capital
At 30 June
2022
£m
23.8
9.1
10.5
43.4
2022
£m
15.6
-
15.6
2021
£m
14.9
23.4
21.7
60.0
2021
£m
13.4
2.2
15.6
2022
2021
Number
Number
62,218,280
53,406,250
-
8,812,030
62,218,280
62,218,280
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 8,795 such shares at 30 June 2022 (2021: 18,317 shares).
Share premium
At 1 July
Premium on share issue
At 30 June
2022
£m
16.8
-
16.8
2021
£m
14.3
2.5
16.8
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 per cent 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.
207
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
29. Share capital and share premium (continued)
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
30. Other reserves
£m
2.2
2.5
23.5
28.2
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, and the premium on a placing share issue, net of directly
attributable costs. The translation reserve comprises cumulative foreign exchange differences arising from the translation of
financial statements of foreign operations on consolidation.
At 1 July 2020
Premium on share issue
Exchange rate adjustments
At 30 June 2021
At 1 July 2021
Exchange rate adjustments
At 30 June 2022
31. Retained earnings
At 1 July
Profit for the period
Remeasurements of the defined benefit pension scheme
Deferred tax on remeasurements of the defined benefit pension scheme
Ordinary share dividends
Purchases of own shares to settle awards
Tax credit relating to share option schemes
Equity-settled transactions
At 30 June
32. Non-controlling interests
Merger
reserve
Translation
reserve
£m
1.0
23.5
-
24.5
24.5
-
24.5
Note
34
21
9
35
£m
16.4
-
(2.9)
13.5
13.5
6.5
20.0
2022
£m
112.2
8.6
5.2
(1.6)
(5.0)
(0.2)
(0.3)
1.6
120.5
Total
£m
17.4
23.5
(2.9)
38.0
38.0
6.5
44.5
2021
£m
103.5
1.7
9.1
(2.0)
(1.1)
-
-
1.0
112.2
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
For their registered office and principal activities please see Note 37.
208
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
EMPLOYEES
33. Employee numbers and costs
Employee numbers and costs, including the discontinued operation, are as follows:
Staff costs
Wages and salaries (including redundancy and termination costs)
Social security costs
Pensions costs - defined contribution schemes
Share-based payments
Total staff costs
Average monthly number of employees (including Executive Directors)
Note
35
Energy and Environment
Rail
Automotive and Industrial
Defense
Performance Products
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
2022
£m
166.7
16.6
10.5
1.4
2021
£m
155.3
15.3
10.0
1.4
195.2
182.0
2022
729
566
969
182
411
58
2021
621
605
1,047
180
397
55
2,915
2,905
2022
2021
£m
4.6
1.0
0.2
1.0
6.8
£m
3.8
1.2
0.3
0.7
6.0
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 110.
34. Retirement benefits
Retirement benefits accounting policy – Note 1(w)
Key sources of estimation uncertainty on defined benefit obligations – Note 1(d)
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 2020 and was approved on 30 November 2021.
At the effective date, the assets of the RGPF had a market value
of £135.8m and were sufficient to cover 84% of the benefit
that had accrued to members when assessed on the Trustees'
prudent funding basis. Based on the recovery plan agreed
following the 2020 valuation annual contributions due to the
RGPF during the year ending 30 June 2023 will be £1.8m. The
next triennial valuation with an effective date of 5 April 2023
will be discussed by the Group and the Trustees in FY 2022/23.
The IAS 19 Employee Benefits valuation was completed as at
30 June 2022. 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 2022 for members who may elect to
209
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
34. Retirement benefits (continued)
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 (2021: SAPS 'Series 3'), with an
85% (2021: 85%) multiplier for males and an 84% (2021:
84%) 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) 2021 projection model with an 'S-kappa'
smoothing parameter of 7, an initial addition to mortality
improvements of 0.5% and no weighting on 2021 or 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 (pensioner/deferred for current year)
- Post 1 July 2002 (pensioner/deferred for current year)
- Post 88 GMP (pensioner/deferred for current year)
Rate of increase in deferred pension revaluation p.a.
Percentage of pension to be commuted for lump sum at retirement
data (2021: CMI 2020 with ‘S-kappa’ smoothing parameter
of 7 an initial addition to mortality improvements of 0.5%
and no weight on 2020 data). 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. While
COVID-19 has had an impact on mortality in FY 2021/22,
the impact on future mortality trends is currently unknown
and consequently no adjustment has been made to mortality
assumptions in this regard. We will continue to monitor this
in the future and have disclosed the sensitivity the defined
benefit obligation had to mortality below. Under these principal
mortality assumptions, the expected future life expectancy
from age 65 is as follows:
2022
2021
Males
Females
Males
Females
23.6
25.0
26.0
27.4
23.6
24.9
2022
% p.a.
3.85%
3.25%
2022
%
3.70% / 3.60%
3.15% / 2.80%
2.10% / 2.05%
2.70%
15.00%
2021
Quoted
Unquoted
£m
22.2
103.9
0.6
-
20.7
147.4
£m
-
-
0.4
8.3
-
8.7
25.9
27.3
2021
% p.a.
1.85%
3.30%
2021
%
3.65%
3.15%
2.15%
2.60%
15.00%
Total
£m
22.2
103.9
1.0
8.3
20.7
156.1
Scheme assets
Equities
Debt
Cash and other
Property fund
Investment funds
At 30 June
2022
Quoted
Unquoted
£m
15.1
82.4
9.7
-
9.7
£m
-
-
0.4
9.8
-
Total
£m
15.1
82.4
10.1
9.8
9.7
116.9
10.2
127.1
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 defined benefit surplus/(obligation) were as follows:
210
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
34. Retirement benefits (continued)
2022
2021
Fair value of
plan assets
Present value
of obligation
Net total
Fair value of
plan assets
Present value
of obligation
Net total
Scheme movements
At 1 July
Past service costs
Finance income/(expense)
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
The sensitivity of the defined benefit
scheme to changes in principal
assumptions:
Discount rate
Inflation rate
Post-retirement mortality assumptions
£m
£m
156.1
(149.3)
-
2.9
2.9
-
(2.7)
(2.7)
£m
6.8
-
0.2
0.2
(28.1)
-
(28.1)
-
-
-
(28.1)
3.0
(6.8)
(3.8)
(29.0)
127.1
(0.1)
39.5
(6.1)
33.3
-
6.8
6.8
37.4
(111.9)
(0.1)
39.5
(6.1)
5.2
3.0
-
3.0
8.4
£m
150.4
£m
(157.1)
-
2.4
2.4
6.3
-
-
-
6.3
4.6
(7.6)
(3.0)
5.7
(0.1)
(2.5)
(2.6)
-
(3.6)
1.2
5.2
2.8
-
7.6
7.6
7.8
15.2
156.1
(149.3)
2022
Change in assumption
Impact on present value
of obligation
Impact on present value
of obligation
- 0.25%
+ 0.25%
- 1 year
Increase by £4.0m
Increase by £6.5m
Increase by £2.3m
Increase by £3.1m
Increase by £4.6m
Increase by £6.2m
£m
(6.7)
(0.1)
(0.1)
(0.2)
6.3
(3.6)
1.2
5.2
9.1
4.6
-
4.6
13.5
6.8
2021
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 defined
benefit obligation to significant 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 significant risks from the RGPF are as follows:
Risks
Asset volatility
Corporate bond yields
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.
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.
The weighted average duration of the defined benefit obligation is 13.0 (2021: 16.0) years.
211
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 34. Retirement benefits (continued)
Expected maturity 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
Note
Past service costs for GMP equalisation
Net financing (income)/costs
Total
35. Share-based payments
Accounting policy – Note 1(x)
7
10
2022
£m
4.8
4.9
15.6
29.0
2021
£m
4.6
4.8
15.1
28.2
2022
2021
£m
-
(0.2)
(0.2)
£m
0.1
0.1
0.2
The Group operates the following share-based payment schemes: 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 equity-settled LTIP, the DBP and the equity-
settled SIP are described in the Directors' Remuneration Report. The 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 (2021: 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 share price at grant date. The following assumptions are used for the plan cycles commencing in these years:
Weighted average share price at date of award (pence)
Expected volatility
Expected life (years)
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 award
2022
420p
2021
472p
54.0%
54.0%
3
0.6%
0.0%
10.0%
86.4%
3
0.0%
0.0%
10.0%
81.4%
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 (2021: £1.4m) disclosed in Note 33 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'.
212
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
35. Share-based payments (continued)
Outstanding
At 1 July
Awarded
Lapsed
Vested
At 30 June
(1) Shares allocated excludes dividend roll-up.
2022
2021
Shares
allocated(1)
1,210,262
772,799
Shares
allocated(1)
693,796
742,379
(261,164)
(225,913)
(22,362)
-
1,699,535
1,210,262
The outstanding LTIP awards had a weighted average contractual life of 1.6 years (2021: 1.9 years). The weighted average exercise
price during the current year was 375p (2021:Nil). During the prior year, the Group utilised existing shares held in order to settle
vested awards.
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
Vested
At 30 June
2022
2021
Shares
allocated(1)
Shares
allocated(1)
21,748
41,702
(6,500)
56,950
11,699
10,049
-
21,748
(1) Shares allocated excludes dividend roll-up.
The outstanding LTIP awards had a weighted average contractual life of 2.2 years (2021: 1.7 years). The weighted average
exercise price during the current year was 380p (2021: 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.
2022
2021
Shares
allocated(1)
Shares
allocated(1)
107,883
132,274
15,410
(27,320)
756
(36,316)
60,413
-
(1,736)
221
(22,876)
107,883
The outstanding DBP awards had a weighted average contractual life of 0.9 years (2021: 0.7 years). The weighted average exercise
price during the current year was 427p (2021: Nil). During the year, the Group utilised existing shares held to settle vested awards.
213
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
UNRECOGNISED ITEMS AND UNCERTAIN EVENTS
36. Contingent liabilities
In the ordinary course of business, the Group has £11.4m
(2021: £13.0m) 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 17). 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.
In November 2021 the guarantee was extended for a further
3 years and will now terminate on 5 April 2026. 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.
OTHER
37. Related undertakings of the Group
UK subsidiaries
Subsidiary or related
undertaking
Registered office
Ricardo Investments
Limited(*)
Shoreham Technical Centre, Old Shoreham Road, Shoreham-
by-Sea, West Sussex, BN43 5FG, United Kingdom†
Company
Number
02251330
Ricardo EMEA
Limited ∞
Shoreham Technical Centre, Old Shoreham Road, Shoreham-
by-Sea, West Sussex, BN43 5FG, United Kingdom†
09461485
Ricardo UK Limited
Shoreham Technical Centre, Old Shoreham Road, Shoreham-
by-Sea, West Sussex, BN43 5FG, United Kingdom†
02815682
Ricardo Asia Limited ∞ Shoreham Technical Centre, Old Shoreham Road, Shoreham-
03143661
by-Sea, West Sussex, BN43 5FG, United Kingdom†
Principal activities
Holding Company and
Management Services
Holding Company and
Management Services
Automotive & Industrial Consulting,
Strategic Consulting, Defence
Consulting and
Performance Products
Automotive & Industrial Consulting,
Rail Consulting and
Business Development
Ricardo Consulting
Engineers Limited ∞
Shoreham Technical Centre, Old Shoreham Road, Shoreham-
by-Sea, West Sussex, BN43 5FG, United Kingdom†
05891521
Automotive & Industrial Consulting
Power Planning
Associates Limited ∞
Shoreham Technical Centre, Old Shoreham Road, Shoreham-
by-Sea, West Sussex, BN43 5FG, United Kingdom†
03419816
Holding Company
Ricardo-AEA Limited
Shoreham Technical Centre, Old Shoreham Road, Shoreham-
by-Sea, West Sussex, BN43 5FG, United Kingdom†
08229264
Energy & Environmental Consulting
Cascade Consulting
(Environment &
Planning) Limited ∞
Shoreham Technical Centre, Old Shoreham Road, Shoreham-
by-Sea, West Sussex, BN43 5FG, United Kingdom†
04176068
Energy & Environmental Consulting
Ricardo Innovations
Limited ∞
Shoreham Technical Centre, Old Shoreham Road, Shoreham-
by-Sea, West Sussex, BN43 5FG, United Kingdom†
08977105
Energy & Environmental Consulting
Ricardo Rail Limited
Shoreham Technical Centre, Old Shoreham Road, Shoreham-
by-Sea, West Sussex, BN43 5FG, United Kingdom†
03226319
Rail Consulting
Ricardo Certification
Limited ∞
Shoreham Technical Centre, Old Shoreham Road, Shoreham-
by-Sea, West Sussex, BN43 5FG, United Kingdom†
09481761
Independent Assurance
Ricardo Software
Limited
Shoreham Technical Centre, Old Shoreham Road, Shoreham-
by-Sea, West Sussex, BN43 5FG, United Kingdom†
07527490
Dormant
Ricardo Strategic
Consulting Limited
Shoreham Technical Centre, Old Shoreham Road, Shoreham-
by-Sea, West Sussex, BN43 5FG, United Kingdom†
03696451
Dormant
Ricardo Technology
Limited
Shoreham Technical Centre, Old Shoreham Road, Shoreham-
by-Sea, West Sussex, BN43 5FG, United Kingdom†
02924157
Dormant
Ricardo Transmissions
Limited
Shoreham Technical Centre, Old Shoreham Road, Shoreham-
by-Sea, West Sussex, BN43 5FG, United Kingdom†
01498115
Dormant
Ricardo Pension
Scheme (Trustees)
Limited
Shoreham Technical Centre, Old Shoreham Road, Shoreham-
by-Sea, West Sussex, BN43 5FG, United Kingdom†
02376569
Dormant
214
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 37. Related undertakings of the Group (continued)
Overseas subsidiaries
Subsidiary or related
undertaking
Registered office
Ricardo Energy
Environment and
Planning Pty Ltd
Grant Thornton Australia Limited, Level 17, 383 Kent Street,
Sydney, NSW, 2000, Australia
Country
Principal activities
Australia
Energy & Environmental Consulting
Ricardo Australia Pty
Ltd
Level 7, 151 Clarence Street, Sydney, New South Wales,
2000, Australia
Australia
Energy & Environmental Consulting
and Rail Consulting
Ricardo Rail Australia
Pty Ltd
Suite 2.01, Level 2, Tower B, The Zenith, 821 Pacific Highway,
Chatswood, New South Wales, 2067, Australia
Australia
Rail Consulting
Wamarragu Transport
Services Pty Ltd
(45%)(7)
Suite 2.01, Level 2, Tower B, The Zenith, 821 Pacific Highway,
Chatswood, New South Wales, 2067, Australia
Australia
Rail Consulting
Inside Infrastructure
Level 1, 101 Flinders Street, Adelaide, SA 5000, Australia
Australia
Energy & Environmental Consulting
Ricardo Canada, Inc
2600-160 Elgin Street, Ottawa, Ontario, Canada, K0A 3PO
Canada
Business Development
Ricardo Shanghai
Company Limited(*)
Floor 17, Phoenix Building, No. 1515 Gumei Road, Xuhui
District,Shanghai, 200233, PR China
China
Automotive & Industrial Consulting,
Rail Consulting and Business
Development
No. 2 Yangliu Road, Mid Huangshan Street, New North
District,Chongqing, 401123, PR China
China
In Liquidation
Chongqing
Transportation
Railway Safety
Assessment Center
Limited (60%)(6)
Ricardo Beijing
Company Limited
Room 1302, Building 11, No.1 Xiangheyuan Street,
Dongcheng District, Beijing P.R. of China
China
Independent Assurance
Ricardo Prague s.r.o.
Palác Karlín, Thámova 11-13, 186 00 Praha 8, Czech Republic Czech
Republic
Automotive & Industrial Consulting
and Software
Ricardo Certification
Denmark ApS
Høffdingsvej 34, 2500 Valby, Copenhagen, Denmark
Denmark
Independent Assurance
Ricardo GmbH
Güglingstraße 66, 73529, Schwäbisch Gmünd, Germany
Germany
Automotive & Industrial Consulting
and Business Development
Ricardo Strategic
Consulting GmbH
Ricardo Deutschland
GmbH
Güglingstraße 66, 73529, Schwäbisch Gmünd, Germany
Germany
Strategic Consulting
Güglingstraße 66, 73529, Schwäbisch Gmünd, Germany
Germany
Liquidated
Ricardo Hong Kong
Limited
Units No.18, 11/F., Shui On Centre, 6-8 Harbour Road,
Hong Kong
Hong Kong
Rail Consulting
Ricardo India Private
Limited(1)
6th Floor, M6 Plaza, Jasola District Centre, New Delhi 110076,
India
India
Business Development
Ricardo Motorcycle
Italia s.r.l.
Ricardo Japan K.K.
Ricardo Nederland
B.V.
Ricardo Certification
B.V.
Ricardo Technical
Consultancy LLC
(49%)(5)
Via Giovanni Pascoli 47, 47853, Cerasolo, Coriano, Rimini, Italy Italy
Automotive & Industrial Consulting
and Business Development
18th Floor, Shin Yokohama Square Building, 2-3-12 Shin
Yokohama, Kohoku-ku, Yokohama-shi, Kanagawa, 222-0033,
Japan
Japan
Automotive & Industrial Consulting,
Rail Consulting and Business
Development
Daalsesingel 51, 3511SW Utrecht
Netherlands Rail Consulting
Daalsesingel 51, 3511SW Utrecht
Netherlands
Independent Assurance
Palm Tower, Block B, 15th Floor, P.O. Box 26600, West Bay,
Doha, Qatar
Qatar
Independent Assurance
Ricardo Environment
Arabia LLC(9)
Bahrain Tower, Building Number 8953, 2393, King Fahd Road,
Olaya, 12214, Kingdom of Saudi Arabia
Saudi Arabia Dormant
Ricardo-AEA Limited
Saudi Branch
Bahrain Tower, 2nd Floor, King Fahad Road, PO Box 8953,
Riyadh, 12214-2393 Kingdom of Saudi Arabia
Saudi Arabia Dormant
Ricardo Singapore Pte
Limited
141 Middle Road, 5-6 GSM Building, 188976, Singapore
Singapore
Rail Consulting
215
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 37. Related undertakings of the Group (continued)
Subsidiary or related
undertaking
Ricardo South Africa
(Pty) Ltd
(formerly PPA Energy
(Pty) Ltd)
Registered office
Country
Principal activities
111 Pretoria Road, Rynfield, Benoni, Johannesburg, 1501,
South Africa
South Africa
Energy & Environmental Consulting
Ricardo Consulting SL Agustín de Foxá 29, 9B, 28036, Madrid, Spain
Spain
Energy & Environmental Consulting
and Rail Consulting
Ricardo Certification
Iberia SL
Agustín de Foxá 29, 9B, 28036, Madrid, Spain
Spain
Independent Assurance
Ricardo Rail (Taiwan)
Ltd
11F-2 (Westside), No.51, Hengyang Rd., Zhongzheng Dist.,
Taipei City 10045, Taiwan (R.O.C.)
Taiwan
Independent Assurance
Ricardo (Thailand) Ltd
(49%)(4)
140/36 ITF Tower 17th Floor, Silom Road, Kwang Surawong,
Khet bangrak, Bangkok, 10500, Thailand
Thailand
In Liquidation
Ricardo Gulf Technical
Consultancy LLC
(49%)(3)
Abu Dhabi Island, Corniche Street, G5, Block 17, Floor 11,
Office 1108, Unit Building / Mesmak Real Estate Company,
United Arab Emirates
Ricardo Defense
Systems LLC
35860 Beattie Dr, Sterling heights, Michigan, 48312, United
States
Ricardo Defense, Inc.
175 Cremona Drive, Suite 140, Goleta, California, 93117,
United States
C2D Joint Venture
(33.3%)(2)
175 Cremona Drive, Suite 140, Goleta, California, 93117,
United States
Ricardo, Inc.
Detroit Technical Campus, 40000 Ricardo Drive, Van Buren
Township, Detroit, Michigan, 48111-1641, United States
Ricardo US Holdings,
Inc.
Detroit Technical Campus, 40000 Ricardo Drive, Van Buren
Township, Detroit, Michigan, 48111-1641, United States
Ricardo Real Estate
LLC
Detroit Technical Campus, 40000 Ricardo Drive, Van Buren
Township, Detroit, Michigan, 48111-1641, United States
UAE
Energy & Environmental Consulting
USA
USA
USA
USA
USA
USA
Defence Manufacture
Defence Consulting
Defence Consulting
Automotive & Industrial Consulting,
Strategic Consulting and Software
and Rail Consulting
Holding Company
Property Investment Company
Ricardo Software, Inc. Detroit Technical Campus, 40000 Ricardo Drive, Van Buren
USA
Dormant
Township, Detroit, Michigan, 48111-1641, United States
CDQ Joint Venture
(50%)(8)
175 Cremona Drive, Suite 140, Goleta, California, 93117,
United States
USA
Dormant
* 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-AEA Limited; 51% of share capital and 20% of retained earnings owned by
(4)
SSD Commercial Investment
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.
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).
216
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 38. 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 33.
The remuneration received by all Executive and Non-Executive Directors during the year is disclosed in the Directors' Remuneration
Report on page 110.
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 34.
39. Events after the reporting date
On 2 August 2022, the Group completed a refinance of its banking facilities, entering into a new £150.0m committed multi-
currency Revolving Credit Facility (‘RCF’). The banking facilities were used to repay and cancel the previous committed RCF of
£200m. The RCF is committed for 4 years to August 2026 with an uncommitted option to extend for a further year and with
an additional uncommitted £50m accordion. The interest rate of the facility ranges from 1.65% to 2.45% above SONIA and is
dependent upon the Group’s adjusted leverage. All other terms of the facility remain materially the same. The refinanced banking
facilities will provide the Group with sufficient funding to support future acquisitions, strategic investments and new projects, and
will also be used for general corporate purposes.
On 1 August 2022, the Group completed the sale of its Software business, which was classified as held for sale at the 30
June 2022, and presented as a discontinued operation. Initial consideration was £14.3m (USD 17.5m), and variable deferred
consideration was between £0.8m and £2.4m (USD 1.0m to USD 3.0m), resulting in an estimated gain on disposal of £9m
excluding transaction fees - see Note 19.
217
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 COMPANY PRIMARY STATEMENTS
COMPANY STATEMENT OF FINANCIAL POSITION OF RICARDO PLC
AS AT 30 JUNE
2022
2021
Restated(*)
Note
£m
£m
Assets
Non-current assets
Other intangible assets
Property, plant and equipment
Right-of-use assets
Retirement benefit surplus
Investments
Other receivables
Deferred tax assets
Current assets
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
Net current liabilities
Non-current liabilities
Lease liabilities
Deferred tax liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium
Other reserves
Retained earnings
Total equity
2
3
4
11c
5
7
6
7
11f
8
9
10
11f
9
6
0.7
4.1
5.2
15.2
103.1
115.0
1.5
244.8
22.2
0.8
-
2.1
25.1
269.9
6.7
0.8
98.0
0.3
5.1
110.9
(85.8)
5.7
4.9
10.6
121.5
148.4
15.6
16.8
23.5
92.5
1.1
4.5
5.7
6.8
103.1
95.7
1.2
218.1
38.4
0.9
0.7
5.4
45.4
263.5
5.9
0.8
111.8
-
1.0
119.5
(74.1)
6.1
2.1
8.2
127.7
135.8
15.6
16.8
23.5
79.9
148.4
135.8
(*) The split of prior year other receivables have been restated between current and non-current. See note 7 for further details.
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 219 to 223 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 profit for the year was £13.0m (2021: loss £0.4m). The financial statements of Ricardo
plc (registered number 222915) on pages 218 to 223 were approved by the Board of Directors on 13 September 2022 and signed
on its behalf by:
Graham Ritchie
Chief Executive Officer
Ian Gibson
Chief Financial Officer
218
03. FINANCIAL STATEMENTS RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
COMPANY STATEMENT OF CHANGES IN EQUIT Y OF RICARDO PLC
FOR THE YEAR ENDED 30 JUNE
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
At 1 July 2021
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
Equity-settled transactions
Purchases of own shares to settle awards
Ordinary share dividends
At 30 June 2022
Share capital
£m
13.4
-
-
-
2.2
-
-
15.6
15.6
-
-
-
-
-
-
Share
premium
£m
14.3
-
-
-
2.5
-
-
16.8
16.8
-
-
-
-
-
-
Other
reserves
£m
-
-
-
-
23.5
-
-
23.5
23.5
-
-
-
-
-
-
15.6
16.8
23.5
Retained
earnings
£m
73.2
(0.4)
7.2
6.8
-
1.0
(1.1)
79.9
79.9
13.0
3.1
16.1
1.7
(0.2)
(5.0)
92.5
Total
£m
100.9
(0.4)
7.2
6.8
28.2
1.0
(1.1)
135.8
135.8
13.0
3.1
16.1
1.7
(0.2)
(5.0)
148.4
COMPANY NOTES TO THE
FINANCIAL STATEMENTS OF
RICARDO PLC
1. Principal accounting policies
Basis of preparation
Notwithstanding net current liabilities of £85.8m (2021:
£74.1m) the financial statements of Ricardo plc have been
prepared on a going concern basis, as discussed in the
viability statement on page 62. These financial statements
were prepared in accordance with Financial Reporting
Standard 101 Reduced Disclosure Framework ("FRS 101"). In
preparing these financial statements, the Company applies
the recognition, measurement and disclosure requirements of
UK-adopted 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);
- 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).
219
03. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
COMPANY NOTES TO THE FINANCIAL STATEMENTS OF RICARDO PLC
1. Principal accounting policies
(continued)
• 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(d) 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 five-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 five-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 2021 as detailed
in Note 1(z) to the Group financial statements; none of these
had a material impact on the Company.
220
03. FINANCIAL STATEMENTS RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 COMPANY NOTES TO THE FINANCIAL STATEMENTS OF RICARDO PLC
2. Intangible assets
Software
Cost
At 1 July 2020
Additions
At 30 June 2021
At 1 July 2021
Disposals
At 30 June 2022
Accumulated amortisation
At 1 July 2020
Charge for the period
At 30 June 2021
At 1 July 2021
Charge for the period
Disposals
At 30 June 2022
Net book value
At 1 July 2020
At 30 June 2021
At 30 June 2022
£m
9.5
0.2
9.7
9.7
(0.2)
9.5
8.4
0.2
8.6
8.6
0.4
(0.2)
8.8
1.1
1.1
0.7
Software includes £0.1m (2021: £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
Fixtures,
fittings and
equipment
£m
£m
Total
£m
Cost
At 1 July 2020
At 30 June 2021
At 1 July 2021
At 30 June 2022
6.7
6.7
6.7
6.7
Accumulated depreciation and impairment
At 1 July 2020
Charge for the
period
At 30 June 2021
At 1 July 2021
Charge for the
period
At 30 June 2022
Net book value
At 1 July 2020
At 30 June 2021
At 30 June 2022
2.8
0.1
2.9
2.9
0.2
3.1
3.9
3.8
3.6
1.4
1.4
1.4
1.4
0.6
0.1
0.7
0.7
0.2
0.9
0.8
0.7
0.5
8.1
8.1
8.1
8.1
3.4
0.2
3.6
3.6
0.4
4.0
4.7
4.5
4.1
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 36 to the Group financial statements.
4. Leases
(a) As a lessee
The Company leases one office premises and technical centre,
with a remaining lease term of 10 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
Motor
Vehicles
£m
Total
£m
Cost
At 1 July 2020
At 30 June 2021
At 1 July 2021
Additions
At 30 June 2022
Property
£m
7.6
7.6
7.6
-
7.6
Accumulated depreciation and impairment
At 1 July 2020
Charge for the
period
At 30 June 2021
At 1 July 2021
Charge for the
period
At 30 June 2022
Net book value
At 1 July 2020
At 30 June 2021
At 30 June 2022
1.4
0.5
1.9
1.9
0.6
2.5
6.2
5.7
5.1
-
-
-
0.1
0.1
-
-
-
-
-
-
-
-
0.1
See Note 9 for details of the associated lease liabilities.
7.6
7.6
7.6
0.1
7.7
1.4
0.5
1.9
1.9
0.6
2.5
6.2
5.7
5.2
221
03. FINANCIAL STATEMENTS RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
2022
£m
1.5
(4.9)
(3.4)
2021
£m
1.2
(2.1)
(0.9)
2022
2021
Restated (*)
£m
134.3
1.5
1.4
£m
131.0
2.0
1.1
137.2
134.1
22.2
115.0
137.2
38.4
95.7
134.1
COMPANY NOTES TO THE FINANCIAL STATEMENTS OF RICARDO PLC
4. Leases (continued)
(b) As a lessor
The Company subleases part of its right of use property with
a remaining term of 4 years. This lease is classified as an
operating lease.
During the year the Company recognised rental income of
£0.3m (2021: £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.
Non-current:
Assets
Liabilities
At 30 June
2022
2021
7. Other receivables
£m
0.4
1.0
1.4
£m
0.2
0.7
0.9
Amounts owed by subsidiaries
Prepayments
Other receivables
At 30 June
Shares in
subsidiaries
Current
Non-current
£m
At 30 June
Operating lease
Less than one year
One to five years
Total
5. Investments
Cost and Net Book Value
At 1 July 2020
At 30 June 2021
At 1 July 2021
At 30 June 2022
(*) £59.6m (2021: £55.3m) amounts owed by subsidiaries have been
classified as non-current other receivables, as they are not expected to
be repaid in the 12 months following the year end. The equivalent prior
year balance was previously shown within current other receivables
and has been restated.
103.1
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 37
to the Group financial statements.
6. Deferred tax
Movement in deferred tax
balance
At 1 July
Charged to income statement
Charged to other comprehensive
income
At 30 June
Balance comprised of:
Accelerated capital allowances
Defined benefit obligation
Tax losses and credits
Unrealised capital gains
Other
At 30 June
2022
2021
£m
(0.9)
(0.5)
(2.0)
(3.4)
£m
1.4
(0.3)
(2.0)
(0.9)
2022
2021
£m
(0.3)
(3.9)
0.3
(0.6)
1.1
(3.4)
£m
(0.3)
(1.3)
-
(0.7)
1.4
(0.9)
£9.8m (2021: £24.1m) of the amounts owed by subsidiaries are
due for repayment within the next 12 months and the remaining
£124.5m (2021: £106.9m) 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. £113.8m (2021: £108.8m)
of the amounts owed by subsidiaries carry interest at rates
between 2.0% and 5.0% (2021: 2.0% and 5.0%) with the
remaining £20.5m (2021: £22.2m) being interest-free. All
amounts owed by subsidiaries are unsecured, and expected
credit losses are considered to be immaterial.
8. Borrowings
Current liabilities - borrowings
Bank overdrafts repayable on
demand
At 30 June
2022
£m
6.7
6.7
2021
£m
5.9
5.9
The Company has the same banking facilities as the Group. See
Note 25 to the Group financial statements.
222
03. FINANCIAL STATEMENTS RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
COMPANY NOTES TO THE FINANCIAL STATEMENTS OF RICARDO PLC
9. Lease liabilities
11. Other information
Movement in lease liability
At 1 July
Additions
Interest
Payments
At 30 June
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
2022
2021
£m
6.9
0.1
0.3
(0.8)
6.5
2022
£m
0.8
5.7
6.5
£m
7.4
-
0.3
(0.8)
6.9
2021
£m
0.8
6.1
6.9
2022
2021
£m
0.8
3.2
4.0
(1.5)
6.5
£m
0.8
3.2
4.8
(1.9)
6.9
10. Trade and other payables
Trade payables
Tax and social security payable
Amounts owed to subsidiaries
Accruals
Other payables
At 30 June
2022
2021
£m
0.4
0.6
92.8
4.1
0.1
98.0
£m
0.6
0.4
107.8
3.0
-
111.8
All amounts owed to subsidiaries are unsecured. £86.0m (2021:
£99.6m) of the amounts owed to subsidiaries carry interest at
rates between 2.0% and 3.1% (2021: 2.0% and 3.0%) and has
no fixed repayment date. £6.8m (2021: £8.2m) of the amounts
owed to subsidiaries are interest-free and due for repayment
within the next 12 months.
(a) Company audit fee
Fees payable to the Company’s auditor for the audit of the
Company’s annual financial statements totalled £0.8m (2021:
£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 11 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 110.
(c) Employees and defined benefit obligation
During the year the Company employed an average of 50 (2021:
48) employees.
The Company operates a defined benefit pension scheme,
the Ricardo Group Pension Fund (‘RGPF’). This is disclosed in
Note 34 to the Group financial statements together with the
accounting policy and key accounting estimates.
(d) Share capital, share premium and other reserves
See Notes 29 and 30 to the Group financial statements.
(e) 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. In November 2021
the guarantee was extended for a further 3 years and will now
terminate on 5 April 2026. 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.
(f) Derivative financial assets and liabilities
The Company has the same derivative financial assets and
liabilities as the Group. These are disclosed in Note 27 to the
Group financial statements.
(g) 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).
223
03. FINANCIAL STATEMENTS RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22
04. ADDITIONAL INFORMATION
224
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 04. ADDITIONAL INFORMATION
04. ADDITIONAL
INFORMATION
225
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 04. ADDITIONAL INFORMATION
CORPORATE INFORMATION
Group General Counsel and Company Secretary
Patricia Ryan
Key dates
Annual General Meeting: 17 November 2022
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
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.
226
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22 04. ADDITIONAL INFORMATION
GLOSSARY
Term
Definition
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
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.
DTC
EBITDA
ESG
FY
GHG
Headcount
ISO 9001
ISO 14001
ISO 27001
ISO 45001
Net debt
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.
Order book
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 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.
Organic result
The organic result for the prior year includes the performance of acquisitions for an equivalent period to FY
2019/20.
REEP
RRA
SBTi
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
Science Based Targets initiative.
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.
227
RICARDO PLC ANNUAL REPORT & ACCOUNTS 2021/22