14 September 2017

Ricardo plc

Preliminary results for the full year ended 30 June 2017

Ricardo plc is a global engineering, technical, environmental and strategic consultancy business, which also provides the manufacture and assembly of niche, high-quality and high-performance products.

HIGHLIGHTS

·      Record order book at £248m, strong order intake at £366m and revenue up 6% to £352m;

·      Resilient performance across the business with underlying profit before tax at £38.3m in line with expectations, despite disrupted flow of orders in Automotive;

·      Good performance from Energy & Environment, Rail and Performance Products;

·      Good order flow in Automotive engines and hybrid/EV - with the latter 17% of Group order intake;

·      Underlying⁽¹⁾ basic earnings per share at 55.7p;

·      Net debt of £37.9m after £4.4m of net acquisition-related payments;

·      Full year dividend up 7% to 19.3p per share;

·      Acquisition of Exnovo completed in the year, with Control Point completed post year-end; and

·      Outlook remains positive, good platform for growth.

(1) Excludes specific adjusting items, which comprise amortisation of acquired intangible assets of £4.0m (2016: £3.4m), net acquisition-related expenditure of £1.7m (2016: £2.8m) and reorganisation costs of £0.4m (2016: £Nil). In the prior year, non-recurring income of £1.5m for claims under the Research & Development Expenditure Credit ('RDEC') scheme was also included.

Commenting on the results, Dave Shemmans, Chief Executive Officer said:

 "I am pleased to report another solid year of progress for Ricardo. Based on the foundation of a diversified strategy and an increasingly balanced business, we have navigated an uncertain and volatile year, providing a satisfactory result overall.

"Our Rail and Environmental consultancies delivered strong results at both revenue and operating profit levels, as did our Performance Products business. Within Performance Products we were pleased to deliver our 10,000^th engine to McLaren and to be selected to design and produce an advanced hypercar transmission for Aston Martin.

"Our Automotive business in Europe experienced a disrupted year of order flows which led to a less efficient business operation, but the year ended with strong order intake in both the engines and electrification businesses and we are pleased to see a return to more normal order intake patterns. With the US business underperforming, a changing customer dynamic and the increased emphasis on electrification, we are repositioning the US business to enhance our electrified and autonomous vehicle service offering, led from California where many new entrants are based.

"We enter the new financial year with a well balanced business and welcome the in-year acquisition of Exnovo and the recent Control Point Corporation acquisition post year-end. We continue to address and adjust to the changes in our individual markets to ensure we both mitigate risk and capitalise on the significant global opportunities which lie ahead. These opportunities, together with our progress, our people and our technology, in addition to our record order book, provide a good platform for further growth in the years to come."

FINANCIAL REVIEW

Group results

The Group has delivered an underlying operating result which is in line with expectations for the year ended 30 June 2017. Total Group revenues increased to £352.1m, representing a 6% increase on the prior year (2016: £332.4m). Underlying profit before tax, which excludes specific adjusting items as set out in more detail in Note 3, increased by 2% to £38.3m (2016: £37.7m), with the margin reducing slightly to 10.9% from 11.3% in the prior year. Using exchange rates consistent with the prior year, revenue and underlying profit before tax would have been £336.9m and £38.2m, respectively, both of which represent growth of 1% on the prior year. This growth in underlying profit before tax includes an additional £0.1m from the performance of acquisitions on a like-for-like basis with the prior year.

The financial year ended with another record closing order book of £248m (2016: £231m), which is a 7% increase on the prior year. Our order book comprises the value of all unworked purchase orders received. The closing order book, together with a very good pipeline of further opportunities, continues to represent a diversified spread of orders across market sectors, customers and geographies.

Reported profit before tax for the year decreased by 2% to £32.2m (2016: £33.0m). The decrease is primarily as a result of a £0.6m increase in the amortisation charge on acquired intangible assets, reorganisation costs of £0.4m and a £0.7m increase in net interest payable on borrowings, together with a net reduction in income from claims under the Research & Development Expenditure Credit ('RDEC') scheme of £0.3m. This movement is partially offset by a £1.1m decrease in net acquisition-related expenditure and an increase of £0.1m in the profit generated from acquisitions on a like-for-like basis with the prior year.

The Group results include the acquisition completed during the year of Motorcycle Engineering Italia s.r.l., which was formed from the operating assets and employees of Exnovo s.r.l., a vehicle design house which creates class-leading aesthetics for global motorcycle and scooter brands. This business was subsequently renamed Ricardo Motorcycle Italia s.r.l. The performance of the acquired entity has been reported in the Technical Consulting segment (see Note 6).

Technical Consulting results

Technical Consulting had revenues and underlying operating profits of £280.5m (2016: £267.9m) and £32.8m (2016: £32.5m), respectively, with marginal growth in profit on the prior year.

Our businesses in the Automotive and Commercial Vehicles sectors in Europe experienced a disrupted flow of orders in the year as customers evaluated their product plans in light of the unsettled political climate and change within the industry. This was particularly evident in the first half of the year. In the second half, we saw order flow return to normal patterns with orders at the end of the financial year being slightly ahead of the prior year. This led to a less efficient business operation during the year, impacting margins during the period of disrupted order flow. With a good order book at the end of the year the business is in a good position to grow.

Elsewhere in the Automotive and Commercial Vehicles sectors, the business in Asia has become a more profitable operation than it was in the prior year and continues to make good progress. However, the market in Detroit remains challenging and our US business ended the year with a loss. Order intake has been below historical levels in recent years and we are taking steps to reposition the business and enhance our electrification and autonomous service offering.

The Rail business is now completely integrated with the rest of the Group and has performed well, with strong order intake in the year from a wide geographical spread of customers. Rail's revenue and operating profit reported in the year also benefited from favourable foreign exchange translation.

The Energy & Environment business also had a good year, with good levels of growth in revenue and profitability across its practice areas. The business has extended its order book heading into the new financial year by winning a number of multi-year orders for UK Government programmes, whilst also continuing to broaden its customer base in the private sector.

Performance Products results

Performance Products had a strong year, as revenues increased on the prior year by 11% to £71.6m (2016: £64.5m) and underlying operating profits increased on the prior year by 13% to £8.0m (2016: £7.1m). The current year performance was driven principally by increased volumes of engines in respect of the contract for McLaren, together with increased transmissions for both Bugatti and Porsche. This has been partially offset by lower application engineering work than the prior year within the Software business.

Technical Consulting

Performance

Ricardo's Technical Consulting activity accounts for around 80% of Group revenue and underlying operating profit primarily in the Automotive, Rail and Environmental consulting markets. We provide innovation-focused services in engineering, technical and strategic consulting, together with independent safety assurance services to private and public sector customers in the rail industry.

As set out in Note 2, revenue has grown by 5% to £280.5m (2016: £267.9m) and underlying operating profit increased by 1% to £32.8m (2016: £32.5m), impacted by the underperformance of our US and European Automotive businesses. The underlying operating profit margin decreased to 11.7% (2016: 12.1%) due to a disrupted flow of orders which led to operational inefficiency. Order intake in the year stood at £288m (2016: £258m) and there has been a good balance of order intake within Technical Consulting across all core regions and with good levels of diversification across different market sectors.

Growth in our Technical Consulting business continues to be underpinned by the following global trends:

·    The reduction of carbon dioxide emissions, supported by agreements reached at COP21 and COP22, and the elimination of the release of noxious pollutants and particulates;

·     Improvements in the efficient use of energy and increasing diversification of the global energy mix;

·    The rise of global connectivity, the increase of connected devices in the commercial and industrial sectors and their safety case;

·     Electrification and automation of vehicles and transport systems; and

·     Increasing levels of urbanisation and resource scarcity.

This year the Automotive business has had mixed performances.

The Automotive EMEA Division (formerly the European Technical Consulting ('EUTC')), which includes Ricardo's Automotive businesses across Europe and certain regions of Asia, including India, Japan and South Korea, remains the largest business in terms of profit generation.

The division secured a range of large, multi-year programmes in the Automotive and Commercial Vehicles sectors and across many regions during the year. We are particularly pleased that over 15% of the order intake in the year within Technical Consulting was in connection with vehicle electrification programmes (17% for the total Group). Although activity has remained at a good level across all engineering disciplines, with increasing demand for powertrain application, calibration, electrical and electronics skills, many of our customers did delay or put programmes on hold because of the uncertainty following the UK referendum vote to leave the European Union, together with the US election.

Trading in the Automotive US business was challenging, where solid levels of activity in the Commercial Vehicles business, driven by new legislation requiring in-use compliance testing, did not compensate for the reduced levels of work we saw primarily in the Detroit region. This was due to the Detroit automakers consolidating to fewer powertrain platforms whilst at the same time increasing in-house test facilities and resources. We believe that longer term growth opportunities exist in the Commercial Vehicles business, especially around platooning technologies, and in autonomous vehicle and connected car technologies and their safety cases. Our expertise in these areas provides a solid foundation for the future success of Ricardo's US business and we continue to develop our presence in Silicon Valley to service the new automotive clients in California.

China remains a key market for the Technical Consulting business and this year we secured a number of contracts in the Automotive sector, some of which are being delivered locally through our technical centres in Shanghai and Beijing. These contracts have included a mixture of work for hybrid vehicles, engines and transmissions.

In the motorcycle and urban mobility business, through two recent acquisitions, Ricardo Motorcycle has created a unique complete motorcycle engineering offering. Our projects in this area encompass styling and concept development, through to detailed design, engineering, prototype testing and industrialisation.

We have completed the integration of the Rail business into Ricardo and Ricardo Rail has closed the financial year with its highest ever order book. The business is well positioned to take advantage of positive trends within the global rail market, where we continue to see solid growth.

Ricardo Energy & Environment has continued to grow its base of international and private sector clients. Our air quality team has delivered innovative projects, such as the implementation of new technology to monitor driving emissions at the roadside, both in the UK and internationally, and we have expanded the offer of our services to a number of infrastructure businesses outside the water and energy practice areas.

In the Defence sector, Ricardo Defense Systems has won a number of new contracts primarily in land defence, including further contracts to develop safety of the US Army's iconic High Mobility Multipurpose Wheeled Vehicle ('HMMWV').

Ricardo's Strategic Consulting business continues to operate well across all geographies. Our teams' multi-industry knowledge, deep technical expertise and management consulting skills offer a unique proposition to customers in the sectors that we serve.

Market sector highlights

Automotive

The Automotive sector remains the most significant for Ricardo.

CO₂ reduction is a top global priority for this sector and is being driven strongly by consumers. Additionally, the increased focus on air quality and, in particular, NO₂ emissions, is resulting in demand for all aspects of vehicle electrification, from mild hybrids to full battery electric vehicles ('EVs'). Projections suggest that 30% of all new passenger cars will have electric powertrains (including hybrids and EVs) by 2025.

We have secured a range of programmes in vehicle systems, hybrid and electric systems, advanced driveline, and in the core powertrain areas of our business, focused on both new and existing product upgrades.

We have developed R-Intelect ('Integrated Electrification'); an integrated approach to electrified vehicle development which combines a focus upon functional systems engineering, together with the application of an integrated model-based development toolset. We continue to invest in advanced combustion and transmission solutions and other key technologies in areas related to improvements in overall vehicle efficiency such as lightweighting, intelligent driveline and vehicle electrification.

The future of mobility solutions, including connected and autonomous vehicle technology in particular, is attracting significant interest in North America, along with the associated challenges of the regulatory environment, safety, assurance and cyber security of autonomous vehicles. Interest in hybrid and electric vehicle architectures, battery pack and battery management system design and vehicle attribute development also feature strongly as OEMs increasingly look to accelerate the launch of Plug-in Hybrid Electric Vehicles ('PHEVs') and Battery Electric Vehicles ('BEVs') based on existing vehicle platforms and also, increasingly, dedicated hybrid powertrains.

With the Ricardo Motorcycle business, we now have the capability to deliver for our customers the full development of motorcycles, scooters and urban mobility vehicles, including their powertrains.

We see growth in this market driven by tightening emissions legislation, along with consumer demand for higher capacity motorcycles in developing markets.

Rail

Ricardo Rail delivered a strong performance throughout the year and reported a record year-end order book. The business is also well positioned to take advantage of positive trends within the global rail market, namely high levels of new-build activity and the opening up of a once notoriously parochial sector, both of which are leading to the development of an increasingly globalised supply chain. This is particularly notable in our relationships with major international rolling stock manufacturers such as Hitachi Rail and CRRC, where our established presence in their domestic markets has led to our involvement supporting the introduction of their vehicles into the European, North American and Australasian markets.

This year we set up a rail product development team to exploit opportunities for new technologies within the sector, particularly in the area of asset optimisation. For example, Ricardo Rail's pantograph condition monitoring system, which has recently been approved for use across the UK main line. The Belgian state railway operator, InfraBel, is also currently trialling the system, with a view to an eventual certification for its own network.

Ricardo Certification

Since achieving accreditation and to the date of this report, Ricardo Certification has issued:

·    Over 30 Safety Assessment Reports as an Assessment Body under the EU Common Safety Method Risk Assessment and Evaluation Regulations, principally from the UK, Netherlands, Denmark and Spain;

·   Over 80 certificates as a Notified Body or Designated Body under national regulations that satisfy the requirements of the EU Interoperability Directive, principally from the UK, Netherlands, Denmark and Spain;

·     Over 50 Accredited Independent Safety Assessment ('ISA') reports, principally from Spain and China; and

·     Over 50 Railway Product Certifications, all from China.

Furthermore, an extension to the scope of accreditation has been granted for the delivery of Assessment Body services for On-track Plant and Engineering Change of Rail Vehicles according to RIS1710 and RIS2700, respectively.

Energy & Environment

Ricardo Energy & Environment has continued to deliver leading work in global climate change, supporting governments across the world, including Rwanda, India, Nigeria and Thailand, with the development and implementation of their climate commitments. For example, in Nigeria, Ricardo Energy & Environment has advised the Federal Ministry of Environment on how to take forward its Nationally Determined Contribution ('NDC') climate action plan under the Paris Agreement, and the team of national and international experts has supported the development of sectoral action for the power, transport, agricultural and oil and gas industries.

We have also seen high demand for our services in the area of air quality, in which Ricardo Energy & Environment has demonstrated its innovation capabilities. This is highlighted in the unique approach established for the collection of marine emission data on a national scale and the implementation of new technology in monitoring real-world driving emissions at the roadside.

The extensive breadth and depth of expertise within our energy and water practices has contributed to increased private sector sales, helping to bring these into balance with the traditional public sector portfolio. Demand has also increased for cross-discipline environmental services from infrastructure-focused customers beyond water and energy, such as airports. We believe this trend will continue, driven by requirements for compliance with global regulations and more sustainable business growth.

In the renewable energy business our strategic consulting team is delivering another substantial programme to improve manufacturing output, efficiency and quality for a world-leading wind turbine manufacturer.

Off-Highway & Commercial Vehicles

We have seen growth and secured a number of large engine and transmission projects across the medium- and heavy-duty sectors. We continue to see interest across Asia, in particular, for Ricardo's capabilities in the Commercial Vehicles business. The order pipeline is based around a broad mix of largely engine and transmission opportunities. In the US, greenhouse gas and low NOx standards are driving interest in powertrain and trailer efficiency, emissions control and the use of alternative fuels. Commercial vehicle platooning is also a fast-growing area of opportunity.

Strong engagement in this sector has driven increased engine test activity - especially in North America, where new regulations requiring in-use compliance are now creating significant demand for powertrain testing and analysis. We have also seen growing interest in our fuel cell capabilities at our technical facility in California. We have focused on developing our product offering in the areas of ultra-low emissions, fuel economy improvement, system optimisation, platooning and hybridisation: we see all these as areas of significant future growth.

In the Off-Highway business, activity remains at a relatively low level in Europe following the recent implementation of Stage IV emissions standards, while in Asia the industry is showing renewed growth, especially in the transmission and driveline area; Ricardo is securing an increasing number of projects, including large multi-year programmes. Our focus in the coming years will be on assisting clients to meet EU, US and Asian emissions regulations and 2020 emissions targets, together with the introduction of new technologies for efficiency improvements.

We see increasing demand for high-speed diesel generator sets and main propulsion systems for marine vessels, and for the conversion of engines for gas or dual fuel operation. The majority of our activities in this industry have been based around failure analysis, investigations, specialist design and development.

Defence

In the US, the Ricardo Defense Systems business has won a number of new contracts, mainly in the land domain, and is focused on growth into new areas of the US defence market.

In the UK, we have grown our marine defence business, both surface and sub-surface. In Europe and Asia, we have secured contracts to deliver new engine and transmission designs for land vehicles and are pursuing other large opportunities.

Performance Products

Performance

The Performance Products business accounts for around 20% of Group revenue, with a large proportion of that revenue generated through the supply of products and services to a single customer.

As set out in Note 2, revenue increased by 11% to £71.6m (2016: £64.5m) and underlying operating profit increased by 13% to £8.0m (2016: £7.1m). Operating profit margins were also up slightly to 11.2% (2016: 11.0%). Profit performance was higher than the prior year, primarily due to increased volumes in respect of the engine supply contract for McLaren and the start of production of transmissions for the Bugatti Chiron. Order intake in the year stood at £78m (2016: £103m), which was lower than last year when we secured a multi-year transmission supply contract.

The Performance Products business continues to focus on the development of long-term strategic relationships with customers, and the consistent achievement of high product quality and on-time delivery to win new and large contracts.

Market sector highlights

High-Performance Vehicles & Motorsport

The new expanded engine assembly facility is now fully operational, doubling capacity and generating the capability to deal with an increased number of engine variants. Production of engines for the McLaren 540C, 570S, 570GT, 675LT and the McLaren P1™ GTR hypercar continued during the year in line with expectations, and full production of engines for the new 720S has been added. We also secured the transmission supply contract for the Aston Martin Red Bull Valkyrie hypercar, whilst continuing to support Bugatti with supply of the complete driveline system for the Chiron.

Ricardo remains a key supplier to the motorsport sector. Ricardo is now supporting a key manufacturer within the Formula E Championship with a collaboratively designed and tested product. We continue to manufacture for Formula One, and we supply products such as the Ricardo-designed transmissions for BMW and Multimatic (for Ford) GT3 programmes, the M-Sport World Rally Championship Ford Fiesta, the Hyundai R5 Rally programme, the Japanese Super Formula Championship, Indy Lights and the World Series Formula V8 3.5.

Defence

Ricardo continues to supply spare parts to the UK Ministry of Defence ('MOD') to support the Cougar and Weapons Mount Installation Kit ('WMIK') vehicle fleets. Ricardo Defense Systems and Lightweight Innovations For Tomorrow ('LIFT'), a Manufacturing USA institute, are working together to identify and deploy a new, robust and reliable solution to documented braking and stability problems in the current High Mobility Multipurpose Wheeled Vehicle ('HMMWV') configuration.

OTHER FINANCIAL MATTERS

Acquisitions and acquisition-related intangible assets

As set out in more detail in Note 6, the Group acquired the entire issued share capital of Motorcycle Engineering Italia s.r.l. on 29 July 2016, a business that was formed from the operating assets and employees of Exnovo s.r.l., for consideration of £1.9m (€2.2m).

This investment added goodwill of £3.2m to the Ricardo Motorcycle cash-generating unit which has subsequently been reallocated as a result of the integration of the Motorcycle business into Automotive EMEA (formerly Europe Technical Consulting). Acquisition-related intangible assets have also been identified, with a net book value at year-end of £0.2m.

An exercise to assess the fair value of the identifiable net assets as a result of this acquisition has been completed during the year. In addition, the preliminary assessment made in the prior year of the provisional fair value of identifiable net assets in respect of the Chinese joint venture operation acquired from the Lloyd's Register Group on 1 March 2016 has been finalised during the year, which added £0.2m of goodwill to the Ricardo Rail cash-generating unit. Total goodwill at 30 June 2017 is £62.0m (2016: £57.0m), which includes retranslation of goodwill denominated in foreign currencies of £1.6m.

Amortisation of acquisition-related intangible assets has increased to £4.0m (2016: £3.4m), charged primarily on the intangible assets from the Rail acquisition, which are predominantly denominated in Euros. The Group also incurred net acquisition-related expenditure of £1.7m (2016: £2.8m) during the year, £0.8m of which was in respect of the acquisition completed in the year. The acquisition-related expenditure and amortisation of acquisition-related intangible assets have been charged to the Consolidated Income Statement as specific adjusting items. Further detail is disclosed in Note 3.

After the reporting date, the Group also acquired the entire issued share capital of Control Point Corporation on 8 September 2017, for initial consideration of £5.3m ($7.0m), rising to £7.8m ($10.2m) subject to post-acquisition performance and retention of specific individuals. The provisional assessment of identifiable net assets acquired is £3.3m ($4.3m), together with provisional goodwill and other acquisition-related intangible assets of £2.0m ($2.7m). Given the proximity of the acquisition to the date of approval of the financial statements, a preliminary fair value exercise has yet to be performed. This is disclosed in Note 9.

Research and Development

The Group continues to invest in Research and Development ('R&D'), and spent £9.5m (2016: £9.4m) before government grant income of £2.4m (2016: £1.3m). This includes costs capitalised in accordance with IFRS of £3.1m (2016: £3.2m) in respect of continued development expenditure on a range of product developments around the Group and reflects our continued focus on development activity within Europe and the US.

The total Research and Development Expenditure Credit ('RDEC') recognised in the current year is £6.6m (2016: £6.9m). This is comprised of an estimated RDEC credit in respect of the current year of £5.2m (2016: £5.4m), together with £1.4m arising from the routine amendment of open applications as a result of further analysis of the qualifying expenditure incurred. In the prior year, an additional non-recurring credit of £1.5m was recognised within specific adjusting items for claims made on transition to the new regime in respect of the open periods between the substantive enactment of the RDEC scheme by the UK Government and its subsequent adoption by the Group.

Net finance costs

Finance income was £0.2m (2016: £0.3m), which is similar to the prior year, and finance costs were £2.7m (2016: £2.2m), giving net finance costs of £2.5m (2016: £1.9m). Finance costs were higher as a result of interest payments on the Group's loan facilities drawn throughout the year, partially offset by a slightly favourable shift in respect of the interest charge on the defined benefit pension scheme.

Taxation

The total tax charge for the year was £7.4m (2016: £7.4m), with the total effective rate of tax being 23.0% (2016: 22.4%).

Regarding the Group's deferred tax assets of £14.3m (2016: £13.0m), the Directors have considered the recoverability of the net deferred tax assets of £2.4m (2016: £3.6m) and £5.9m (2016: £4.9m) which primarily relate to the expected utilisation of historic losses in Germany and R&D tax credits in the US, respectively.

In Germany, £1.5m of the deferred tax asset relating to historic losses has been derecognised to ensure that the expected period of utilisation remains reasonable. Consistent with the prior year, a deferred tax asset has not been recognised for the current year tax losses within the consolidated tax group controlled by Ricardo GmbH, within which Ricardo Deutschland GmbH is the primary trading entity.

The Directors remain satisfied that it is probable that sufficient taxable profits will be generated in the foreseeable future, against which the recognised assets can be utilised.

Earnings per share

Basic earnings per share decreased by 4% to 46.8p (2016: 48.6p). The Directors consider that an underlying earnings per share provides a more useful indication of underlying performance and trends over time. Underlying basic earnings per share for the year increased by 1% to 55.7p (2016: 55.2p).

Basic earnings per share, with a reconciliation to an underlying basic earnings per share, which excludes the net-of-tax impact of specific adjusting items, is disclosed in Note 4.

Dividend

The total (paid and proposed) dividend for the year has increased by 7% to 19.3p per ordinary share (2016: 18.1p) and amounts to £10.3m (2016: £9.5m). The proposed final dividend of 13.88p (2016: 13.03p) will be paid on 17 November 2017 to shareholders who are on the register of members at the close of business on 27 October 2017, subject to approval at the Annual General Meeting on 8 November 2017.

Capital investment

Cash expenditure on property, plant and equipment was £6.3m (2016: £8.5m) as we continue to invest in our business operations. This expenditure included new and upgraded test cell equipment and IT hardware, together with continued spend to finalise the construction of the Centenary Innovation Centre at our Shoreham Technical Centre in the UK.

During the year we commenced a process to market the test cell facilities and related equipment situated at the Group's Chicago Technical Centre for sale. We continue to review the management and usage of our other test facilities outside the UK, in light of changes in the market and our desire to increase operational effectiveness.

In addition, having been approached by the landlord of leased premises at our Midlands Technical Centre, an agreement was reached to sell and lease back a property which had been built on the site, together with an extension in the term of the overall lease. The profit on disposal arising from this transaction was £0.7m.

Net debt

Closing net debt was £37.9m (2016: £34.4m). The Group had a net cash outflow of £3.5m (2016: £48.7m), after £1.9m (2016: £45.4m) of consideration paid in respect of acquisitions net of cash acquired, and £4.4m (2016: £3.4m) of acquisition-related payments. The composition of net debt is defined in Note 8.

The Group continues to focus on its management of working capital, which increased during the year primarily within our Automotive EMEA and Energy & Environment businesses. This was as a result of a number of factors, including revenue growth, an increasing mix of customers in the Middle East and Asia where payment terms have been longer, together with the phasing of revenue towards the fourth quarter as a result of a disrupted flow of orders. We also continued to invest in our major long-term assembly programme.

Banking facilities

At the end of the financial year, the Group held total facilities of £91.1m (2016: £90.9m), which included committed facilities of £75.0m (2016: £75.0m). Of the committed facilities, a £35.0m facility is available until September 2019 and £40.0m is available until April 2020. In addition, the Group has uncommitted facilities including overdrafts of £16.1m (2016: £15.9m), which mature throughout the next financial year and are renewable annually.

Committed facilities of £59.7m (2016: £54.5m) net of direct issue costs were drawn primarily to fund acquisitions. These are denominated in Pounds Sterling and have variable rates of interest dependent upon the Group's adjusted leverage, which range from 1.6% to 2.35% above LIBOR and are repayable in the year ending 30 June 2020.

Foreign exchange

On consolidation, income and expense items are translated at the average exchange rates for the period. 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 and Chinese Renminbi. The average value of Pound Sterling was significantly lower against the Euro (13.1%), US Dollar (14.5%) and Chinese Renminbi (9.5%) during the year compared to the previous financial year. This was as a result of the UK referendum vote to leave the EU on 23 June 2016, which had a favourable impact on revenue during the year, but a marginal impact on profit.

Had the current year results been stated at constant exchange rates, revenue would have been £15.2m lower and reported profit before tax would have been £0.3m higher. The impact on reported profit before tax is due to the effect of foreign exchange on the amortisation of acquired intangible assets denominated in foreign currencies. Significant resulting exposures are hedged through foreign currency contracts.

Pensions

The Group's defined benefit pension scheme operates within the UK. The accounting deficit measured in accordance with IAS 19 'Employee Benefits' was £22.2m before tax, or £18.0m after tax (2016: £21.5m and £17.4m, respectively).

The £0.7m increase in the pre-tax pension deficit was primarily due to both a reduction in the discount rate assumption to 2.6% (2016: 2.95%) and an increase in inflation to 3.2% (2016: 2.8%), offset by the use of an updated set of demographic assumptions and return on plan assets of £6.9m, together with £4.3m of cash contributions paid to the scheme during the financial year.

Ricardo remains committed to paying £4.3m each year until January 2021 to fund the pension deficit. The next triennial actuarial valuation, which will assess the level of Ricardo's future annual contributions, is currently in progress.

OUTLOOK

We enter the new financial year with a well balanced business and welcome the in-year acquisition of Exnovo and the recent Control Point Corporation acquisition post year-end. We continue to address and adjust to the changes in our individual markets to ensure we both mitigate risk and capitalise on the significant global opportunities which lie ahead. These opportunities, together with our progress, our people and our technology, in addition to our record order book, provide a good platform for further growth in the years to come.

Dave Shemmans                                                                  Ian Gibson

Chief Executive Officer                                                         Chief Financial Officer

13 September 2017

Note: Certain statements in this press release are forward-looking. Although these forward-looking statements are made in good faith based on the information available to the Directors at the time of their approval of the press release, we can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. We undertake no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

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