QinetiQ Group plc · LSE:QQ.
QinetiQ — H1 FY2012 Earnings Presentation
38 slides from QinetiQ's earnings presentation, Nov 23, 2011
Slide 1: Restoring strength, Building value
Restoring strength, Building value QinetiQ Group plc Interim Results for half year ended 30 September 2011 Wednesday 23 November 2011
Slide 2: Introduction
Introduction Leo Quinn Chief Executive Officer
Slide 3: Agenda
Agenda 1. Headlines 2. Financial overview 3. Progress on priorities 4. Q&A
Slide 4: Headlines
Headlines ■ Self-help delivering a stronger QinetiQ: • Group margin* uplift driven by UK Services and Global Products • US Services successfully integrated under new leadership • MOD customer satisfaction ranking increased from 17th to 3rd place over 2 years • NASA performance scores running at over
Slide 5: Financial Overview
Financial Overview David Mellors Chief Financial Officer
Slide 6: Summary financial headlines
Summary financial headlines H1 FY12 H1 FY11 £m £m Change Revenue 739.6 864.9 (14) % Operating profit* 82.6 64.9 27 % Operating margin* 11.2 % 7.5 % Profit before tax* 74.9 51.6 45 % Earnings per share* (pence) 9.2 p 6.5 p 42 % Net cash from operations (post capex)* 157.1 149.9 5 % Cash conversion (p
Slide 7: Group revenue bridge
Group revenue bridge £m 1,000.0 960.0 900.0 864.9 (29.5) (18.9) 816.5 (76.9) 739.6 940.0 800.0 700.0 920.0 600.0 900.0 500.0 880.0 400.0 300.0 860.0 200.0 840.0 100.0 - 820.0 H1 FY11 FX Acquisition/disposal H1 FY11 Organic growth H1 FY12 adjustments Pro-forma 7
Slide 8: Organic revenue bridge
Organic revenue bridge £m 900.0 1,000.0 816.5 (28.8) (22.4) (25.7) 739.6 800.0 900.0 800.0 700.0 700.0 600.0 600.0 500.0 500.0 400.0 400.0 300.0 300.0 200.0 200.0 100.0 100.0 - - H1 FY11 UK Services US Services Global Products H1 FY12 8
Slide 9: Segmental analysis of profit and margin
Segmental analysis of profit and margin Operating profit* H1 FY12 H2 FY111 H1 FY111 £m £m £m UK Services 28.7 26.7 20.7 US Services 16.9 20.3 25.6 20.5 Global Products 37.0 33.5 18.6 Group 82.6 80.5 64.9 15.0 Margin % 11.2 9.6 9.9 H1 FY11 8.5 7.5 8.0 7.8 7.3 H2 FY11 6.5 6.3 H1 FY12 Group UK Services
Slide 10: Underlying EPS
Underlying* EPS Pence 6.5 2.2 (0.2) 0.9 (0.2) 9.2 Finance expense 0.7p H1 FY11 Operating profit Pension credit Other finance Tax rate H1 FY12 expense *Underlying performance is defined in appendix 10
Slide 11: Non recurring items
Non recurring items* H1 FY12 H1 FY11 £m £m Non-cash items: Amortisation of acquired intangibles (recurring) (11.8) (13.9) DTR inventory recovery/(write-off) 4.1 (37.1) Impairment of property, plant and equipment - (4.8) Items with cash impact: Gain on business divestments 4.9 - Gain on disposal of i
Slide 12: Strong cash conversion
Strong cash conversion H1 FY12 H1 FY11 £m £m Underlying operating profit* 82.6 64.9 Share of JVs & associates (0.1) (0.1) Operating profit before JVs & associates* 82.5 64.8 Cash flow from operations* 161.8 158.0 Net capex (4.7) (8.1) Net cash flow from operations post capex 157.1 149.9 Cash convers
Slide 13: Movements in net debt
Movements in net debt H1 FY12 H1 FY11 £m £m Free cash flow 129.2 119.3 UK restructuring costs (7.3)- (5.8)- Divestments 11.2- -- Dividends (10.5)- -- Purchase of own shares (11.0)- (0.3)- Other 11.2 0.4 Change in net debt before FX 122.8 113.6 FX translation impact (7.2) 16.8 Change in net debt 115.
Slide 14: Reduction in net debt since 2009
Reduction in net debt since 2009 £m / gearing ratio* Net debt £m Gearing ratio* (600) 3 (500) (400) 2 (300) (200) 1 (100) - 0 31/03/2009 30/09/2009 31/03/2010 30/09/2010 31/03/2011 30/09/2011 * Gearing ratio as defined at appendix 14
Slide 15: Defined benefit pension scheme
Defined benefit pension scheme IAS19 balance sheet position 30 September 2011 31 March 2011 30 September 2010 £m £m £m Market value of assets 949.4 981.1 923.7 Present value of scheme liabilities (1,177.5) (1,105.7) (1,108.4) Net pension liability before deferred tax (228.1) (124.6) (184.7) Deferred
Slide 16: Restoring strength, building value
Restoring strength, building value Leo Quinn Chief Executive Officer
Slide 17: Priorities to restore value – May 2010
Priorities to restore value – May 2010 ■ Focus – to extract full value from portfolio • Scalable business models – well advanced ■ Cultural transformation – to build a more competitive culture • An ongoing journey – embedding in the UK, in progress in the US ■ Strengthen balance sheet – to enable lo
Slide 18: Balance sheet
Balance sheet Group-wide processes to Restructured balance sheet; Discussions with Trustees on triennial instil “passion for cash” strategic window to 2016 valuation of UK DB pension scheme Gearing ratio* Gearing ratio* below 2x below 1x Dividend suspended; Dividend restored in Dividend no call for
Slide 19: Cultural transformation
Cultural transformation Fit4Growth & My US Services: upgraded UK employee support Contribution: UK cost base leadership, $20m cost for new T&Cs down 15% reduction 80% leadership Up-skilled upgraded 3,000 employees MOD KSM* position: MOD KSM* position: from 17th to 8th from 8th to 3rd Performance man
Slide 20: Focus
Focus Introduced new structure: Successfully integrated UK/US Services, Global Products US Services Increased transparency Organised around growth opportunities and control (eg simulation, Sensoptics for OptaSense®) Loss-makers triaged Rapid productisation Global cooperation (eg Q-NETs) delivers con
Slide 21: Market environment
Market environment ■ Key UK policy reviews still underway: • “Equipment, Support and Technology” White Paper • “Yellow Book” review and consultation • Commitment control ■ Uncertain US political environment: • Budget Control Act 2011 (“Super Committee”) • Continuing Resolution Visibility is very low
Slide 22: Operational update – UK Services
Operational update – UK Services H1 FY12 H1 FY11 1 £m £m Orders 203.1 221.3 Revenue 290.9 318.1 Underlying Operating Profit* 28.7 20.7 Underlying Operating Profit Margin* 9.9 % 6.5 % Book to Bill Ratio † 1.0 1.0 De-risking A400M STRENGTHS MARKET ENVIRONMENT ■ Delivers customer savings – £180m ■ Cont
Slide 23: Operational update – US Services
Operational update – US Services H1 FY12 H1 FY11 1 £m £m Orders 343.0 323.6 Revenue 268.4 327.6 Underlying Operating Profit* 16.9 25.6 Underlying Operating Profit Margin* 6.3 % 7.8 % Book to Bill Ratio 1.3 1.0 NASA contract ramping up STRENGTHS MARKET ENVIRONMENT ■ Established player – brand, contra
Slide 24: Operational update – Global Products
Operational update – Global Products H1 FY12 H1 FY11 1 £m £m Orders 148.1 379.6 Revenue 180.3 219.2 Underlying Operating Profit* 37.0 18.6 Underlying Operating Profit Margin* 20.5 % 8.5 % Book to Bill Ratio 0.8 1.7 Q-NETs STRENGTHS MARKET ENVIRONMENT ■ Potential in IP portfolio ■ Contract awards con
Slide 25: Outlook
Outlook 1. THIS YEAR ■ The Board believes that, absent any material change in customer requirements, the Group will exceed its original expectations for the current year by approximately 20%. 2. NEXT YEAR ■ As market uncertainties mean visibility remains lower than normal, outlook beyond the current
Slide 26: Today – a stronger QinetiQ
Today – a stronger QinetiQ ■ Rapid self-help delivering results: ■ Margin uplift ■ High customer satisfaction ■ Record low net debt ■ Strong foundation for earnings growth Significant value still to be realised 26
Slide 27: Q&A
Q&A
Slide 28: Appendix
Appendix
Slide 29: Definitions
Definitions ■ Underlying performance is stated before: • Major reorganisation costs • Recovery/write-offs of previously capitalised DTR programme costs • Business divestments and disposal of investments • Amortisation of acquisition related intangible assets • Impairment of intangible assets and pro
Slide 30: Detailed income statement
Detailed income statement H1 FY12 H1 FY11 £m £m Revenue 739.6 864.9 Underlying operating profit* 82.6 64.9 Net finance expense (7.7) (13.3) Underlying profit before tax* 74.9 51.6 Amortisation of acquired intangibles (recurring) (11.8) (13.9) DTR inventory recovery/(write-off) 4.1 (37.1) Impairment
Slide 31: Revenue by sector and customer
Revenue by sector and customer 6 3 25 28 38 21 H1 FY11 H1 FY11 £864.9m £864.9m 6 37 36 7 24 7 30 36 H1 FY12 18 H1 FY12 £739.6m £739.6m 5 39 33 Revenue by sector (%) Revenue by customer (%) Global Products US Services Civil/Other Government Agencies MOD DoD UK Services Commercial Defence DHS NASA 31
Slide 32: Taxation
Taxation H1 FY12 H1 FY11 £m £m Underlying tax charge* (14.8) (8.8) Tax on non-recurring items 0.9 4.3 Headline tax charge (13.9) (4.5) Underlying tax rate* 19.7% 17.1% * Underlying performance as defined at appendix 32
Slide 33: Balance sheet
Balance sheet 30 September 2011 31 March 2011 £m £m Goodwill 530.8 521.1 Intangible assets 86.9 103.2 Property, plant and equipment 249.9 260.9 Working capital (79.8) (30.7) Retirement benefit obligation (net of tax) (171.1) (92.2) Other assets and liabilities (43.2) (43.9) Net debt (145.3) (260.9)
Slide 34: Banking Facilities
Banking Facilities Maturity date Denomination Value Value £m Private Placement 01 February 2016 $m 62.0 39.7 Revolving Credit Facility 01 February 2016 £m 275.0 275.0 Private Placement 01 December 2016 $m 125.0 80.1 Private Placement 01 February 2019 $m 238.0 152.6 Total Committed Facilities 547.4 3
Slide 35: Assets
Assets 30 September 2011 30 September 2010 £m £m Capital investment Expenditure on tangible assets 8.3 7.6- Investment in intangible assets* Development costs 0.1 - Purchased software and other intangibles 0.3 0.5 Total 8.7 8.1 Depreciation and amortisation* Tangible assets 16.1 15.8 Intangible asse
Slide 36: Employee numbers
Employee numbers 30 September 2011 31 March 2011 (1) UK Services 5,035 5,337 US Services 4,321 4,686 Global Products 1,079 1,185 Total 10,435 11,208 (1) Restated to reflect the transfer of businesses from Global Products at the start of FY12 36
Slide 37: Business realignment
Business realignment Revenue Operating profit Margin H1 FY11 FY11 H1 FY11 FY11 H1 FY11 FY11 UK Services £m £m £m £m % % As reported 299.1 611.6 21.9 48.7 7.3 % 8.0 % Transfer in: Force Protection 19.0 41.1 (1.2) (1.3) (6.3) % (3.2) % Adjusted 318.1 652.7 20.7 47.4 6.5 % 7.3 % US Services As reported
Slide 38: Disclaimer
Disclaimer Cautionary statement regarding forward-looking statements This document contains certain forward-looking statements relating to the business, financial performance and results of the Company and/or the industry in which it operates. Actual results, levels of activity, performance, achieve