Science Group intensifies pressure on Ricardo as shareholder discontent grows

Ricardo plc, a London-listed engineering and environmental consultancy, is under increasing pressure from its second-largest shareholder, Science Group plc, following a series of financial setbacks and governance concerns. Science Group, which holds 15.87% of Ricardo’s voting rights, has publicly challenged the company’s leadership over what it sees as mismanagement and a failure to meet strategic financial targets.

The conflict escalated after Ricardo’s January 2025 profit warning, which led to significant analyst downgrades and further declines in its share price. In response, Science Group has called for substantial changes, including a leadership shake-up, board restructuring, and a revision of executive compensation policies. The standoff now places Ricardo at a pivotal moment, as shareholders weigh the company’s long-term prospects against an activist investor seeking to exert influence.

What Led to the Shareholder Dispute Between Ricardo and Science Group?

Science Group, a consultancy and technology-driven engineering firm, began accumulating shares in Ricardo earlier this year, eventually becoming its second-largest investor. The investment was not merely financial; Science Group has long viewed Ricardo’s operations as complementary to its own, identifying potential synergies in engineering and consultancy services.

However, Science Group’s growing stake in Ricardo has been met with resistance from the company’s board. A key flashpoint in the dispute was Ricardo’s decision to publicly disclose confidential communications between the two firms. Science Group described this as a breach of trust, framing it as an attempt by Ricardo’s leadership to divert attention from more pressing financial and governance issues.

The central argument from Science Group is that Ricardo’s financial performance has been consistently weak, with a declining share price, deteriorating cash flow, and missed strategic targets. The firm contends that Ricardo’s leadership has failed to take decisive action to address these issues, leading to significant Ricardo shareholder value erosion.

How Has Ricardo’s Financial Performance Deteriorated?

Ricardo’s financial struggles have become increasingly apparent over the past two years, culminating in the profit warning issued in January 2025. The company’s long-term financial targets, established during its May 2022 Capital Markets Day, have largely failed to materialize. Its goal of doubling underlying operating profit to £56 million by FY26/27 has now been revised downward to approximately £30 million. Similarly, the commitment to achieving UOP margins in the mid-teens remains stagnant at around 6-7%, with no signs of improvement.

Ricardo had also aimed for an underlying cash conversion rate exceeding 90%, yet recent reports showed a decline to just 13% in H1 FY25, signaling significant operational inefficiencies. A dividend cover target of 2.5-3x underlying earnings per share has also fallen short, leading to a 55% dividend reduction. The company’s balance sheet has come under increasing strain, prompting the renegotiation of banking covenants, a move Science Group argues was made worse by Ricardo’s decision to allocate funds toward an acquisition rather than stabilizing its finances.

How Have Ricardo’s Shares Performed Compared to Science Group?

The stock market reaction to Ricardo’s governance and financial uncertainty has been overwhelmingly negative. Ricardo’s share price has suffered a 39.05% decline year-to-date as of 20 March 2025, significantly underperforming market benchmarks. Although the stock has seen a 0.79% increase over the past five days, the broader trend remains concerning.

Analysts are divided on Ricardo’s prospects. Peel Hunt recently downgraded the stock to ‘Hold,’ citing a lack of clear strategic direction. Shore Capital issued a ‘Sell’ rating, reflecting broader skepticism about Ricardo’s ability to execute a turnaround. However, some analysts have maintained a more optimistic stance, with an average target price of 381.89 pence, suggesting a potential recovery if governance and financial discipline improve.

By contrast, Science Group’s stock has demonstrated relative stability. Despite a 9.05% year-to-date decline, it remains fundamentally strong, with analysts maintaining a ‘Buy’ consensus and a 62.89% upside projection. Science Group’s ability to consistently generate value for its shareholders highlights the stark contrast between the two companies.

What Governance Changes Is Science Group Proposing for Ricardo?

Science Group has outlined a series of governance reforms it believes are necessary to restore Ricardo shareholder value. Among its key proposals is the replacement of Ricardo’s Chair, with Science Group holding the position accountable for failing to deliver on strategic objectives. The company has also called for a reevaluation of board composition, particularly in light of concerns regarding the Chair of the Audit Committee, who holds a full-time CFO position in Madrid. Science Group argues that this could present a conflict of interest, given Ricardo’s current financial instability.

Another proposed change is the reduction of the board’s size, which Science Group insists was first suggested by Ricardo’s CFO rather than a demand imposed by Science Group itself. The consultancy firm has also called for a revision of Ricardo’s executive remuneration, advocating for more performance-aligned compensation that better reflects the company’s financial position. Despite these proposed changes, Science Group has stated that it is not seeking to replace Ricardo’s CEO or CFO, instead focusing on governance improvements that would create a more disciplined financial and strategic framework.

Why Are Institutional Investors Losing Confidence in Ricardo?

One of the most significant developments in Ricardo’s recent history has been the exodus of institutional investors, signaling a broader loss of confidence in the company’s leadership. Science Group, now one of Ricardo’s most substantial shareholders, has emerged as one of the few buyers actively acquiring shares in recent weeks.

This shift raises questions about the Ricardo Board’s credibility in the investment community. Science Group has highlighted that Ricardo’s own directors collectively own just 0.2% of the company’s shares, contrasting sharply with Science Group’s Board, where members collectively hold over 21% of their company’s equity. This discrepancy underscores concerns over alignment between Ricardo Board governance and shareholder interests.

Will Ricardo’s Leadership Change Course?

Ricardo’s leadership remains adamant that the company’s long-term strategy will yield results, despite abandoning key financial targets and facing mounting investor pressure. However, the lack of decisive action following the profit warning in January and the renegotiation of banking covenants raises concerns about the company’s ability to execute a meaningful turnaround.

Science Group’s involvement presents a potential catalyst for change, offering Ricardo an opportunity to leverage the expertise of a firm with a strong track record in engineering consultancy and financial discipline. Whether Ricardo’s Board will engage constructively with its second-largest shareholder or continue resisting external influence remains a critical question for investors.

As Ricardo’s next shareholder meeting approaches, the outcome of this power struggle could shape the company’s future trajectory. For investors, the debate now centers on whether Ricardo’s leadership is capable of rebuilding trust and delivering value—or if a more aggressive governance overhaul is required to reverse the company’s downward trend.