2. Failure of Ricardo 5-Year Strategy (2022-2027)

The reality is that 3 years into the 5-year strategic plan, Ricardo is in a far worse financial position today than when the 2022 plan was initiated. The table below compares the results reported in FY21/22 with the house broker forecast for FY24/25. While revenue from continuing operations is broadly flat, every other key financial metric has deteriorated significantly. The Ricardo Board’s claim in the Circular that the company “is executing well” is clearly not supported by the facts.

To summarise, 3 years into the much-acclaimed corporate transformation strategy, the reality is :

• UOP margins have declined, contrary to the “mid-teens” target set in 2022;
• A significant reduction in Underlying Operating Profit and Underlying PBT, rather than the “doubling of UOP” target set in 2022;
• The £16m Reported EBIT (continuing operations) in FY21/22 is now forecast to be a £5m loss in FY24/25 and the £12m Reported PBT (continuing operations) is forecast a £13m loss; and
• Cash generated from operations in FY24/25 is forecast at a paltry £1m.

Reality : Ricardo has failed against virtually all of its key 2022 strategic financial targets

2.1         Balance Sheet and Net Debt

Ricardo’s net debt is forecast by the house broker to increase significantly during FY24/25 and FY25/26, to reach £84 million in June 2026. This forecast includes c.£16m acquisition-related deferred payments in FY25/26 (E3A + 2023 acquisitions) but the outflows (and hence the net debt) could actually be higher. The Ricardo acquisition financing structure, with cash outflows extending to FY27/28, flatters short term financial reporting whilst creating a significant future liability.

The weak balance sheet and precarious financial position of Ricardo was completely avoidable if the Ricardo Board had retained the cash proceeds from the Defense disposal to stabilise the business, rather than immediately deploying the capital in a reckless and irresponsible manner at a time when the continuing operations were all experiencing market headwinds. As a result, a bank covenant has had to be amended and the Ricardo BSU reported that there is little covenant headroom at 30 June 2025. It is also notable that the Ricardo Board has not provided an update recently on the status of the Group’s revolving credit facility which is due to expire in August 2026 - the renegotiation/extension of these facilities would likely need to be in place prior to the release of the results for FY24/25.

However, while ‘Net Cash/Debt’ is usually a reliable fact, it would appear that Ricardo is breaking new ground of obfuscation as the Ricardo BSU and the Ricardo Circular declare that the “net debt is expected to be towards the lower end of analyst guidance………….before any exceptional restructuring costs…”. This attempt to further mislead Ricardo shareholders is extraordinary - a definition of ‘Net Debt excluding debt related to restructuring charges’ must surely set a new and very poor precedent for accounting ‘adjustments’.

Reality : The deployment of the cash proceeds from the Defense disposal was a reckless and irresponsible action when the core businesses were under-performing and markets deteriorating

2.2         Strategy what Strategy ?

On 28 March 2025, the Ricardo Chair declared that the Business & Strategy Update would set out “a clear path to significant value creation”. Far from providing the promised clarity and confidence in the future, the April 2025 BSU confirmed the concerns that Science Group had been highlighting in its statements (17 and 31 March 2025). 

The strategy section of the BSU merely recycled the list of transactions undertaken and declared that the Board was “evaluating a range of options”, an underwhelming statement of the raison d’etre of any corporate board and definitely not the reassuring “clear path to significant value creation” that shareholders were promised. As a result, the BSU merely reinforced that Ricardo lacks leadership and, having destroyed shareholder value and the company’s balance sheet, the Ricardo Board has no clear strategy to remedy the dire situation they have created.

Reality : The Ricardo BSU did not provide the promised

“clear path to significant value creation”, nor any substantive strategy for value recovery

3. Destruction of Shareholder Value

The Ricardo poor operating performance (absolute and relative to peer group), inadequate cost control and weak cash flow have been compounded by ineffective governance. Rather than ensuring the company had solid foundations and retaining the proceeds of the sale of the Defense business to strengthen the balance sheet, the Ricardo Board authorised the reckless allocation of capital on the most expensive acquisition in Ricardo’s history (located in Australia), at a time when Ricardo continuing businesses were reportedly experiencing challenging market conditions.

Shareholder value is tangible and reported in real-time every day at the London Stock Exchange. Dividend returns can make a minor difference and while market fluctuations occur due to external factors, comparison against a relevant index normalises such anomalies. In summary, over a 1, 2, 3, 5, 10 or 15 year measurement period (Reference date : 30 April 2025), the performance of Ricardo has been very poor in comparison to the FTSE Small Cap Index. For reference, Science Group performance is also provided in the table below.

Source : LSEG Workspace (rounded to nearest %)

In reality, the Ricardo Board has failed its shareholders. It failed to achieve its own strategic financial targets set in 2022. It failed to ensure that the company had adequate processes to highlight the market deterioration. It failed to take action to mitigate the market deterioration. It failed in basic governance and proceeded with the largest acquisition in Ricardo history at the same time as the core businesses were underperforming and the market was deteriorating. It failed to exercise fundamental prudence in capital management. Yet, when all of the above was highlighted by Science Group, the Ricardo Board still failed to set out “a clear path to significant value creation” as promised by the Ricardo Chair on 28 March 2025.

4. Science Group plc – A Catalyst for Positive Change

The brazen assertion in the Ricardo Circular that the “strategy offers a significant value creation opportunity” and that “Ricardo is executing well against its strategy” is not supported by the evidence as set out above. Over the past two years, the share price has declined from over 600p to 213p, before Science Group initiated share purchases. The blinkered perspective and extraordinary denial of reality, reflect the misaligned priorities of the (highly remunerated) Ricardo Board, oblivious to the destruction in shareholder value for which they are ultimately responsible.

The alignment of a company’s board with shareholder interests is paramount. The Ricardo Board’s false assertion that Science Group “is not aligned with other Ricardo shareholders” is emotive, self-serving rhetoric. The reality is that the Ricardo Board has minimal ‘skin-in-the-game’ with an aggregate shareholding of less than 0.2% and, notably, none of the directors have acquired open-market shares in the company since the January 2025 profit warning. In contrast, Science Group has made a substantial investment and, as the second largest shareholder with a holding of 21.8%, the alignment of Science Group with all Ricardo shareholders is clear and transparent.

Unfortunately, rather than address the serious issues raised, the Ricardo BSU and Circular seek to distract by making ill-informed statements regarding Science Group. As previously stated, Science Group has no concerns regarding the integrity of its acquisition processes and is proud of its track record in turning around underperforming science, technology, regulatory and engineering companies. Furthermore, Ricardo has a concentrated shareholder base with 5 shareholders accounting for approaching 70% of the voting rights, including 4 major, well-respected UK institutional investors. Contrary to the rhetoric, it is abundantly clear that no party could unilaterally “take control”.

Ironically, after failing to deliver the “clear path to significant value creation” promised by the Ricardo Chair on 28 March 2025, the Ricardo Circular incorrectly accuses Science Group of not offering an alternative. On the contrary, and by reference to prior statements in March, April and May 2025, Science Group has set out operational, organisational and strategic actions to recover value for Ricardo shareholders. Fundamentally, while Ricardo and Science Group both incorporate similar consultancy & systems businesses, it is readily apparent that there must be major differences in modus operandi and corporate priorities, as evidenced by the very different operating performance of the two companies and the value delivered (or in the case of Ricardo, sadly destroyed) for their shareholders.

5. Ricardo – The Future Opportunity

Ricardo is a great British company with a 100+ year history. Its engineering heritage is renowned and the Ricardo brand highly regarded. In 2018, the Ricardo share price was over 1,000p and as recently as July 2023, the share price exceeded 600p, before a steady decline to a 15 year low in February 2025 as shareholder confidence in the Ricardo Board eroded and the failure to deliver the Ricardo 5 year strategic plan became increasingly apparent.

Rebuilding Ricardo requires timely, positive action. The best scientists, engineers and managers want to work for a successful company and will be well aware of the deterioration in the corporate financial position for which the Ricardo Board are culpable.

5.1         Strategy and Structure

Following the January profit warning, a review of the Ricardo corporate strategy should have been undertaken, particularly since the acquisition strategy cannot realistically be pursued with the weak balance sheet resulting from the Ricardo Board’s reckless and irresponsible actions. While the Ricardo Chair promised that the BSU would set out a “clear path to significant value creation”, in fact it merely declared a vague and uninspiring intent “to evaluate…a range of options…” presumably hoping that Ricardo shareholders will blindly trust a board that has failed to deliver on its prior strategy.

In contrast, on 1 May 2025, Science Group set out the Ricardo corporate strategic options, together with the required actions for future optionality. In brief, to maximise value for Ricardo shareholders :

• Ricardo needs first to be simplified and structured in 3 divisions : E&E, Rail and A&I(incl PP);
• These divisions need to operate independently within Group-wide policies;
• The high central costs need to be significantly reduced; and
• These optimised, independent divisions require transparency of financial performance with full cost allocation.

Thereafter, once a firm foundation is established, the future strategy for each division can be evaluated and determined. But whether ultimately retained within Ricardo or divested, value to Ricardo shareholders requires each division to be delivering sustainable performance, at least comparable to the peer group, both as individual, independent operating divisions and for the Ricardo Group as a whole.

5.2         Operating Performance

In 2022, Ricardo set a strategic financial target of “mid-teens” UOP by FY26/27 but poor execution and ineffective governance resulted in the Ricardo Board decision in March 2025 substantially diluting this objective to a very weak “trend towards 10% margin”, an action inconsistent with the claim that the profit downgrades were due to “short term headwinds”. 

In contrast, there are two key metrics/benchmarks that Science Group has repeatedly highlighted :

1. The independent peer group analysis indicates that a 10-12% adjusted EBIT target for the Ricardo Group would provide an appropriate near-term objective; and
2. Profitability is a function of productivity and the 10-12% adjusted EBIT target would require a revenue per head in the order of £150k, which is c.15% higher than Ricardo reported in FY23/24 (excluding Defense) but still c.20% lower than Science Group delivered in FY24.

It is not unreasonable to expect the Ricardo Board ambition (with realignment of executive remuneration) to at least target median peer group performance. Aspiration for the longer term of “mid-teens” UOP should also have been retained and Science Group has consistently achieved higher operating margins from similar business operations.

5.3         Implementation

The Ricardo Board priorities need to be realigned with shareholder interests. On 1 May 2025, Science Group set out clearly that the constitution of the Ricardo Board should be determined through consultation of the major shareholders (which is feasible due to the shareholder concentration).

Furthermore, effective governance at small cap companies requires far greater hands-on engagement than is typical in larger organisations and monthly board meetings are appropriate, rather than just the 7 scheduled board meetings per annum reported by Ricardo. Executive remuneration also needs to be realigned and the strategy, structure and systems need to be defined for each of the independent operating divisions, recognising the different characteristics of each of the businesses.

Science Group has a track record of delivering robust operating performance from consultancy & systems organisations, and translating that performance into value for shareholders. This expertise could support a programme of change at Ricardo. As the second largest shareholder, Science Group has strong and transparent alignment with all Ricardo shareholders.

6. Ricardo General Meeting

The Directors, and particularly the Chair, of any company are ultimately accountable to a company’s shareholders. The responsibility of the Board is to promote and act in the best interests of the company’s members and other stakeholders. In the case of Ricardo plc, the Board has failed through a combination of poor operational execution and ineffective governance, resulting in a substantial destruction in shareholder value, a weak balance sheet and a precarious financial position.

The Ricardo Circular sets out Mr Clare’s background as a large company director - this is one of the fundamental problems. Mr Clare’s experience at Barratt Developments, Grainger, Wickes and Ladbrokes Coral, all very different businesses to Ricardo, does not necessarily translate to the challenges of a small-cap science & engineering consultancy/systems business. Ricardo has a market capitalisation of around £180 million (but at its low in February 2025 was around £130 million) and it is the disconnect between the Ricardo Board’s large company modus operandi and the small cap reality that is one of the key issues. Managing a small-cap company requires far greater hands-on engagement to ensure effective governance, as Ricardo has unfortunately demonstrated.

Science Group tried to engage in private dialogue with the Ricardo Board to effect changes. Unfortunately, Ricardo elected not to respect confidentiality and refused to engage in discussions related to the Ricardo Board structure. A further attempt to engage with the Senior Independent Director produced a public rejection from Ricardo on 28 March 2025 without any substantive direct feedback. Unfortunately, the Ricardo Board attitude towards Science Group as a shareholder reflects the disregard shown to the value destruction over which the board has presided.

Ultimately, in view of (1) the deteriorating financial position and weak balance sheet; (2) the failure of the Ricardo BSU to set out the promised recovery strategy; (3) the significant value destruction; and (4) the Ricardo Board’s refusal to accept responsibility,  Science Group was left with no alternative but to enable shareholders to determine whether or not to continue with a Ricardo Board that has clearly failed this British engineering company, its customers and employees. The mechanism to effect such change is through a general meeting of shareholders (“General Meeting”). By requisitioning a single resolution, the focus is entirely on shareholders confidence, or not, in the leadership of the Ricardo Board.

The single resolution at the General Meeting on 18 June 2025 is to

remove Mr Mark Clare as Director and Chair.

 Ricardo shareholders are encouraged  to

Vote FOR the Resolution

If the resolution is passed at the General Meeting, it is proposed that the major Ricardo shareholders are engaged in determining the constitution of the Ricardo Board, with a mandate to deliver value to all Ricardo shareholders and a dynamic future for Ricardo employees and customers.

Science Group recommends that all Ricardo shareholders

Vote FOR Positive,

Shareholder-Aligned Change.

Sincerely

The Board of Science Group plc