David Shemmans, chief executive, Ricardo

In some ways, the automotive engineering consultancy Ricardo could be seen as emblematic of the UK automotive sector, or even of UK engineering as a whole. It’s widely known and respected in the industry at home and abroad, is active in a large variety of areas, particularly at the higher-value end of the product range, but it’s little known by the general public, perhaps because its customers are industrial rather than consumer facing and its name doesn’t appear on any particular products.

David Shemmans, Ricardo’s long-serving chief executive, has had a ringside seat for the UK automotive sector’s changing fortunes for over a decade; one of the most eventful periods in
the sector’s long and chequered history, which has seen it rise from the doldrums, mainly with the help of overseas investment. The last year has been a good one for the company, he told The Engineer; it’s also been busy, marked by several acquisitions, which underline some of the new factors affecting industry.

Towards the end of the financial year, in late spring, Ricardo made two relatively small acquisitions: V-Pro, a consultancy specialising in motorbike engineering; and PPA, an electricity consulting business. These were followed swiftly after year-end by two larger purchases: Lloyds Register Rail and a water consultancy called Cascade. In business terms these add to both Ricardo’s headcount and its bottom line, Shemmans said: “The story for next year is about 40 more people, and about £0.4m of operating profit and £3m in revenue from V-Pro and PPA. Lloyds is 440 people; it’s a £350m turnover business and a £4m profit. Cascade is about 30 people and £400,000 profit. So, in all you can add £4.8m in extra profit for 2016.”

”Ford introduced an electric bicycle this year; who would have thought you’d see a major car producer do that?

V-Pro has chassis engineering expertise that Ricardo did not previously possess, enabling it
to deliver a capability to design, engineer and build complete two-wheeled vehicles. This is
a response to the world trend for people to move to cities, Shemmans explained; motorbikes, scooters and even electric bicycles are options that he believes will become increasingly important
to move people around these new or larger urban areas. “Ford introduced an electric bicycle this year; who would have thought you’d see a major car producer do that?” he asked. “They’re not the only ones, and we’re supporting several clients in their efforts in this direction, including tier ones working on the enabling technologies and systems.”

Ricardo divides most of its activities into two broad areas: consultancy and performance products. “The first is when we engineer for other people; performance products is when we actually make things, such as the McLaren engines or Bugatti transmission.” Both areas have seen good performance in the last year, in particular, in the second half and then in the opening months of the next financial year, when order books grew markedly after being slightly down for the financial year as a whole. “We’ve had a great eight months, and all the deficit was caught up over the summer,” Shemmans said. “Our order book is at over £200m; that’s including the rail business; at the end of June it was £140m. So our business is now substantially bigger.”

The Lloyds Register Rail business will also help Ricardo address issues arising from urbanisation. “We’re seeing more activity in public transport, and we’re talking about getting involved with monorails and maglevs. We’re involved with a monorail scheme at Orlando Airport; and we’re also looking at a maglev project in Beijing. The idea of how you ship people around cities is getting important, and one big advantage of monorails and maglevs is that they’re elevated; it’s like a bridge, it takes up less real estate and you can still have roads. Plus it’s safer; there’s no problem with people having to cross tracks and complications like that. They’re going to be very interesting in the future.”

PPA and Cascade fit into Ricardo’s consultancy side. “Air quality and climate change are big areas for us in our environmental business, we work with governments worldwide to help set their legislation,” Shemmans added. ”While our engineering business helps clients develop and build products to meet that legislation.”

One factor that Shemmans said was becoming increasingly important to Ricardo’s environmental consultancy is resource scarcity, with water now coming under much more scrutiny. “This is particularly because of the drought in California,” he said. “The developed world has money
to invest in technologies to help resolve that problem. We’re seeing the world waking up to how scarce a resource water is.”

An intergovernmental environmental summit in Paris in December could be enormously significant for Ricardo. “It’s anticipated that China and the US will sign up to emissions targets for the first time. Those two nations signing up will increase the focus on CO2 reduction technologies, which will have
a huge effect on transport, energy and industrial policies around the world.”

China is becoming more important to Ricardo. “It’s one of our important stories,” Shemmans said. “It’s been very busy, going from £14m to £20m in turnover and over £25m in order intake. China is trying to get modern technology to address its emissions problems in connection with climate change and air quality. Our work with Chinese clients continues to grow.”

”I don’t think it helps to be seen as a country that doesn’t want to be part of Europe, which is the impression I get from questions I’m asked

This does add concerns to the business though. “People are very concerned about China’s economy, but as a lot of the work we do is legislation development and engineering development on products that are scheduled to come out in the next two years or so, we’re a bit more sheltered. If we were selling products into China, maybe we’d be feeling the heat a bit more; if I were GKN, Jaguar Land Rover or Borg-Warner, say, I’d be more worried.”

Other trends Ricardo is responding to include the development of electric vehicles and autonomous cars. “With autonomous vehicles we do a lot of work on control systems and safety analysis,” Shemmans said. ”You have to check all the failure modes and make sure it’s always in a safe mode; for example, if someone walks out in front, someone pulls out, or if the some of the sensors are not delivering the right information. We delivered a complete drive-by-wire vehicle for Volvo a number of years ago, so we can do whole vehicles; this one was a road train so it was locked onto the vehicle in front.”

The upcoming year will be an important transitional period for Ricardo, because of a change in the work it does for one of its most important clients, McLaren Automotive, for whose sports cars it makes engines. McLaren will next year launch a new model, the 570 series, lower priced than its MP4-12C supercar and the hybrid P3 hypercar, and aimed to compete with cars in the Porsche 911 price bracket. This new contract will see Ricardo double the number of engines it builds to 49,000 per year, and has entailed the expansion of its production facilities. “Our new facility has been commissioned in the last couple of months and we should be seeing test units on it in the next month or so,” he said. “The back wall [of the factory] was always intended to be knocked down, and the production space now goes back twice as far as it did before. The production line itself is the same and we’re just going to double-shift it, but we have to build another end-of-line test dynamometer, plus in the extension there’s lots of storage space, because we’ll have twice as much stuff coming in as well as going out.”

This is significant in more ways than just in terms of concrete output. “Our McLaren work has shown that we can provide good quality control and good product even at low volumes,” Shemmans said. “That’s very useful. A lot of electric vehicles are niche products, and the big car companies might not be set up to do runs of thousands or tens of thousands per year; they’re set up for hundreds of thousands or millions. That means there’s a role for us on the production side.” The electric vehicles business is likely to benefit from this success, he thinks: “It’s quite possible that we’ll supply components such as electric motors or even whole electric scooters. We might well be looking for suppliers  who can help us with niche volumes, which could be a few thousand units to start with.”

With the UK economy, there are mixed indications. “We’ve obviously had good results, McLaren has plans to launch this new vehicle, so from that you’d say there’s evidence that the UK economy continues to improve,” he said. But the situation concerning Europe worries him. “About 30 per cent of our business comes from Germany but that tends to be long-term relationships with Porsche, Bugatti and BMW Motorcycles. Our competitors are based in Germany, which makes it difficult to win new work there. I don’t think it helps to be seen as a country that doesn’t want to be part of Europe, which is the impression I get from questions I’m asked; that we’re happy to take the work but don’t want to be part of Europe.”