Ricardo (RCDO) Trading Update summary

Trading update and financial outlook

• Q3 trading and FY24/25 performance are in line with analyst expectations, supported by high secured net revenue and a strong pipeline across all business units.

• Orders are up 2% year-to-date at constant currency, with recent contract wins in Air Quality, Energy, Water, and international markets.

• Cash conversion in H2 FY24/25 is projected to materially exceed the 90% target, with two-year cash conversion expected above 85%.

• Net debt at year-end is anticipated at the low end of analyst forecasts, with compliance to leverage and interest cover covenants expected.

• 91% of consultancy net revenue for FY24/25 is already secured, up from 87% the prior year.

Margin, cost savings, and efficiency initiatives

• Focus on controlling indirect costs and improving resource utilization to enhance margins, with divisional utilization rates rising.

• At least £10m in annual cost savings targeted for FY25/26, in addition to £5m in indirect savings for FY24/25.

• £3m of cost savings delivered in H1 FY24/25, with an additional £2m targeted in H2 from property consolidation and reduced discretionary spend.

• Indirect costs as a percentage of revenue have declined from 27% in FY21/22 to 23%, with a clear path to a 20% medium-term target.

• Gross margin improved by 200 bps in H1 FY24/25 due to better utilisation across business units.

Cash management and capital allocation

• Significant improvement in operating cash flow expected in H2'25, aided by R&D tax credit receipts and working capital management.

• Capex profile on marine framework being refined to align with project cash flows; group-wide capex targeted at 3-4% of revenue.

• Group expected to remain within leverage and interest cover covenants for FY24/25.

• Strong cash performance and capital expenditure management support financial stability.