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Investing.com -- Shares of Ricardo PLC (LSE:RCDO) fell sharply by 20% following the company’s announcement that it expects to be below consensus for fiscal year 2025.
The engineering and environmental consultancy firm cited order delays in its Defense division, which led to lower volumes of anti-lock brake retrofit kits, ultimately impacting revenue and operating profit. The company’s half-year financial report indicated that despite growth in field services and technical consulting within the Defense sector, additional delays are anticipated to reduce performance in the second half of the year.
Ricardo PLC’s order intake showed an increase of 10% (11% in constant currency) for the first half of fiscal 2025, and it has made progress in securing new contracts. The order book was up by 2% (3% in constant currency). Year-to-date revenue saw a modest increase of 1% (2% in constant currency).
However, net debt as of December 31, 2024, stood at £18.5 million, a significant reduction from £59.6 million on June 30, 2024, partly due to the receipt of £64.3 million from the disposal of the Defense division. This figure does not account for the payment for the acquisition of E3 Advisory.
Challenges such as delayed tax credit receipts, increased working capital in Defense, and extended invoicing profiles on large projects have led to a decrease in cash conversion, which is expected to improve in the second half of the fiscal year, especially with the Defense division having been sold.
Analysts at RBC commented on the situation, stating, "Short-term delays are causing headwinds in some of RCDO’s end-markets, though order intake continues to grow and new strategic contracts have been won.
While we expect some revisions to consensus forecasts for F2025 following this announcement, we believe the medium-term outlook remains intact and RCDO is making good progress against its strategic plan in transitioning to an E&ET consultancy with the sale of Defense and acquisition of E3 Advisory."
Despite the immediate negative reaction to the guidance update, Ricardo PLC’s strategic moves, such as the sale of its Defense division and the acquisition of E3 Advisory, are seen as aligning with the company’s long-term plan to transition to an energy and environmental technology consultancy.
The company expects H2 F25 to show good profits growth in its Energy and Environment (EE) division, although order delays are likely to result in flat performance year-over-year (YoY). The Automotive & Industrial (A&I) division is projected to experience a decline in H2 profitability YoY.
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