Delivering Excellence Through Innovation & Technology Ricardo plc Annual Report & Accounts 2018 II Ricardo plc Annual Report & Accounts 2018 Group overview 1 Introduction Who we are 4 Order intake at a glance 5 Financial highlights Ricardo is a global engineering, technical, Strategic report 8 Chairman’s statement environmental and strategic consultancy 10 Chief Executive’s statement business. We also manufacture and assemble 13 Our strategy and strategic objectives low-volume, high-quality and high-performance 14 Market overview 16 Strategic performance products. Our ambition is to be the world’s 18 Technical Consulting pre-eminent organisation focused on the 24 Performance Products development and application of solutions to 26 Research and Development 28 Financial review meet the challenges within the markets of 32 Our people Transport & Security, Energy and Scarce Natural 34 Corporate responsibility and sustainability Resources & Waste. 40 Risk management and internal control 41 Principal risks and uncertainties Drawing on over 100 years of commitment to 43 Viability statement research and development, Ricardo’s team of Case studies over 3,000 engineers, consultants, scientists and 46 Creating sustainable airports 50 Software innovation for a resilient and secure support staff, delivers innovative and class-leading water supply products and services for the benefit of a broad 54 Towards zero-emissions freight in California 58 Safety, assurance and interoperability client base. 62 An advanced transmission for the ultimate super sports car Our clients include the world’s major transportation original equipment manufacturers Corporate governance 68 Board of Directors and operators, energy companies, financial 70 Corporate governance statement institutions, and government agencies. 76 Nomination committee report 77 Audit committee report The delivery of our products and services is 82 Directors’ remuneration report made possible by our people, who are at the 104 Directors’ report 107 Statement of Directors’ responsibilities heart of our business and who are the bedrock of our success. Ricardo cultivates the talent and Financial statements 110 Independent auditors’ report the engineering and scientific excellence of its 116 Consolidated income statement professionals and invests in their development for 116 Consolidated statement of comprehensive income the benefit of the individual, for our organisation, 117 Consolidated and parent company statements and for our stakeholders. At Ricardo, our of financial position 118 Consolidated and parent company statements community is bound together by a simple desire of changes in equity for developing solutions to complex problems, 119 Consolidated and parent company statements of cash flow and is driven by our corporate values of Respect, 120 Notes to the financial statements Integrity, Innovation, and Passion. Additional information 162 Corporate information 163 Global emissions legislation Delivering Excellence Through Emissions Innovation & Technology Ricardo’s vehicle emissions team deploys the latest remote sensing technology to measure the emissions Winter Olympics 5% from over 300,000 vehicles. 3% Ricardo Rail plays a key 5 1% 4 role in readying South 3 Korea's latest high-speed railway in time to serve the venues of the 2018 Winter Olympic Games. £380.0m 28% 2 Automotive Revenue battery systems 1. Cost of sales: £241.1m Ricardo delivers its first 2. Administrative expenses net of This year battery manufacturing other income: £108.2m Scarce natural concept programme for 3. Net finance costs: £2.2m a prestigious electric 4. Taxation: £9.6m resources sports car. 5. Profit for the year: £18.9m Notable wins have been secured under the Circular 1 Waste Economy Business Support 63% We are working on a high- Framework, which assists profile waste policy review SMEs to realise the benefits Celsius for the Environmental of adopting circular economy The Celsius project, which Services Association ('ESA') – JAC HyBoost 48V approaches to their processes, investigates factors the trade body representing products affecting the temperature the UK’s resource and waste Hybrid M4 MPV and services. of transformers and cables management industry. Ricardo completes in electricity sub-stations, Defence multi-year development has collected 130 million Acquisition and integration programme to deliver measurements. of Control Point Corporation JAC’s first 48V enabled – now known as Ricardo vehicle. Cyber security Defense, Inc. – into the Our Centenary Innovation Group’s existing Ricardo Centre hosts the 2017 Defense business in the US. HackTrain event, with teams of software developers and designers taking on various coding challenges set by the UK rail industry. Active Response Our new energy innovation project, Active Response, is trialling an electricity network Maglev that automatically reconfigures itself, moving spare capacity Ricardo Rail helps to meet demand. This has the ensure that Beijing's potential to reduce carbon first magnetic levitation emissions by 448,000 tonnes rail system is ready for by 2030 in the UK. operation. Battery development Railway Challenge Ricardo is awarded a multi- High-performance Eurostar million Euro programme winners engine assembly Ricardo Certification helps from a premium German Bugatti Chiron Our UK graduates collect pave the way for Eurostar's automaker for full Ricardo's production first prize in the annual Successful first year of first-ever direct London- service battery test and exceeds 120 engines per IMechE contest to design transmission production Amsterdam service. development. week as advanced end-of- and build a miniature line test capabilities go live. for the groundbreaking 1,500 hp Bugatti Chiron. locomotive. Delivering Excellence Through Innovation & Technology 1 Where we are 3,000+ dedicated and talented people in our global team of experts situated in key locations around the world. Offices Technical Centres Our people 3,000+ people 85 nationalities 48 sites 21 countries Engineers Consultants Scientists 2 Ricardo plc Annual Report & Accounts 2018 What we do Technical Consulting Group overview Automotive Rail Environmental Strategic Independent Strategic report systems consulting consulting consulting assurance We provide engineering, technical, environmental and strategic consultancy services to clients across a range of market sectors. We also provide accreditation and independent assurance services to clients in the rail sector. Case studies Case Performance Products Corporate governance Corporate Niche Computer-aided Simulation manufacturing engineering software software We manufacture and assemble high-quality prototypes and niche volumes of complex engine, transmission and vehicle products. We also develop advanced virtual engineering tools, such as computer-aided engineering and simulation software for conventional and electrified powertrains, as well as complex physical systems such as water networks. statementsFinancial Who we work with Additional information Additional Original Energy Financial Government equipment companies institutions agencies manufacturers Delivering Excellence Through Innovation & Technology 3 Order intake at a glance Order intake for the year ended 30 June 2018 of £413m split by: Our operating segments Our market sectors Our businesses aggregate into two distinct reportable Our strategy of diversification into adjacent market sectors has operatingRicardo segments. plcRicardo External plc ExternalOrder Intake Order Intake continuedRicardo to provide plcRicardo External balance plc to ExternalOrder our order Intake intake. Order by Intake Market by Sector Market Sector Ricardo plcRicardo External plc ExternalOrder Intake Order by Intake Product by GroupProduct Group 3% 22% 12% 6 2 5 Ricardo plcRicardo External plc ExternalOrder Intake Order Intake Ricardo plcRicardo External plc ExternalOrder Intake Order by Intake Market1 35% by Sector Market Sector Ricardo plcRicardo External plc ExternalOrder Intake Order by Intake Product by ProductGroup Group 20% 4 1 2 78% 3 9% 21% 1. Technical Consulting 1. Automotive 2. Performance Products 2. Off-Highway & Commercial Vehicles 3. High-Performance Vehicles & Motorsport 4. Rail Ricardo plcRicardo External plc ExternalOrder Intake Order by Intake Geography by Geography 5. EnergyRicardo & Environment plcRicardo External plc ExternalOrder Intake Order by Intake Customer by Customer 6. Defence Our geographies Our customers The operations of the business in our selected market sectors Our order intake arises from a customer list that includes the world’s Ricardospan plcRicardo many External different plc External Orderregions Intakeof theOrder world. by Intake Geography by Geography majorRicardo transportation plcRicardo External original plc equipment ExternalOrder Intake manufacturers Order by Intake Customer and by operators, Customer energy companies, financial institutions and government agencies. 7% 1% 1% 15 6 7 13% 16% 7% 14 1 5 34% 1 8% 13 2 4% 12% 4 3 4% 4 4% 5 17% 12 4% 3 6 3% 12% 7 8 3% 9 2% 2 10 2% 11 2% 27% 17% 1. UK 1-10. Top 10 2. Mainland Europe 11. UK 3. North America 12. Mainland Europe 4. China 13. North America 5. Japan 14. Asia 6. Rest of Asia 15. Rest of the World 7. Rest of the World 4 Ricardo plc Annual Report & Accounts 2018 Financial highlights Order book Order intake Revenue Group overview £288m £413m £380.0m +16% +13% +8% 2018 288 2018 413 2018 380.0 Strategic report 2017 248 2017 366 2017 352.1 2016 231 2016 361 2016 332.4 2015 140 2015 252 2015