Release Date: September 11, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ricardo PLC (LSE:RCDO, Financial) reported a 96% improvement in cash from operations year-on-year, driven by rigorous working capital management.
- The company achieved a 9% increase in revenue to GBP475 million and a 13% rise in profit before tax to GBP30.5 million.
- Operating margins improved by 60 basis points to 8.2%, reflecting better cost management and operational efficiency.
- The company proposed a year-end dividend of 8.9p, resulting in a total dividend for the year of 12.7p, up 6% from the previous year.
- Ricardo PLC (LSE:RCDO) entered FY25 with a record 12-month order book, providing confidence in future profit growth.
Negative Points
- Order intake decreased by 3% compared to the previous year's record, indicating some variability in market demand.
- The environmental and energy transition portfolio experienced delayed orders in the A&I business, impacting overall performance.
- The water advisory business faced project disruptions in the Middle East, leading to lower utilization and reduced margins.
- Interest costs increased to GBP2.2 million due to higher interest rates and increased net debt from acquisitions.
- The defense business is expected to see a 20% reduction in volumes on the ABS program in FY25, potentially impacting revenue and profit.
Q & A Highlights
Q: Can you provide more details on your M&A ambitions for the year ahead?
A: We are focused on high-growth, high-margin, low-capital intensity opportunities, particularly in industry and geographic expansion. We have several potential partners in various regions, but specifics cannot be disclosed at this time. (Graham Ritchie, CEO)
Q: How do you plan to improve operational efficiency, and what financial benefits do you expect?
A: We centralized enabling functions in FY24, which will yield cost reductions in FY25. Standardizing processes and ways of working will drive organic growth and efficiency. (Judith Cottrell, CFO)
Q: How is the new operating model structured, and how does it handle flexible talent for specific project demands?
A: We have centralized back-office functions and are developing a hub-and-spoke delivery mechanism for our service capabilities. This allows us to manage resources efficiently and respond to project demands effectively. (Graham Ritchie, CEO)
Q: What are the current M&A multiples, and how have pricing expectations evolved?
A: Multiples in the energy and environment space remain strong. We typically build long-term relationships with potential targets, which helps keep multiples around 9 to 10 times EBITDA. (Judith Cottrell, CFO)
Q: What is the outlook for the ABS retrofit program in the defense division, and do you have other programs to replace it post-FY27?
A: ABS retrofit volumes will decline by 25% next year and stabilize thereafter. We have several new campaigns in development, such as wireless applications for inventory dismounting and digital maintenance logs, which will scale to replace ABS revenue. (Graham Ritchie, CEO)
Q: Can you provide more details on the PP framework agreement?
A: It is a 10-year agreement starting in 2028, expected to be larger than the McLaren contract. The CapEx will be repaid before production starts, and the project is outside the automotive sector. (Graham Ritchie, CEO)
Q: What is your comfort level for leverage in the short term if you find the right M&A deals?
A: We are comfortable with leverage up to around 2 times EBITDA at the time of acquisition, especially since the businesses we acquire are typically cash generative. (Judith Cottrell, CFO)
Q: Has the changing government in the UK affected your outlook for the water advisory market?
A: The UK market presents opportunities regardless of government changes. The main challenge is the level of investment required, but we see significant growth potential in the UK, Australia, and the Middle East. (Graham Ritchie, CEO)
Q: What is your preference between fixed-price projects and time-and-materials contracts?
A: We offer flexibility depending on the business unit, project size, and customer requirements. While time-and-materials contracts are preferred for their focus on change requests, we also manage fixed-price contracts with clear scope and change elements. (Graham Ritchie, CEO)
Q: What are your target levels for R&D investment relative to sales?
A: We focus on leveraging third-party funding for R&D projects. Our internal R&D spend remains consistent, and we expect similar tax claims for R&D in FY24 as in FY23. (Judith Cottrell, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
