Qinetiq Group Plc · LSE:QQ.
Qinetiq — FY2019 Earnings Presentation
48 slides from Qinetiq's earnings presentation, May 23, 2019
Slide 1: Our strategy is delivering – third year of growth
Our strategy is delivering – third year of growth QinetiQ Group plc Preliminary results for year ended 31 March 2019 23 May 2019
Slide 2: Agenda
Agenda 1 Headlines 2 Financial overview 3 Strategic update 4 Q&A 2 Preliminary results for the full year ended 31 March 2019 | 23 May 2019 | ©
Slide 3: Our strategy is delivering – third year of growth
Our strategy is delivering – third year of growth • Delivered third year of organic growth FY19 FY18 –Orders up 32%, £3.1bn record high quality backlog Revenue1 £911.1m £833.0m –Revenue up 9%, 8% on an organic basis Operating profit2 £123.9m £122.5m EPS2 19.7p 19.3p –Operating profit up 1%, 3% on an
Slide 4: FY19 Financial overview
QINETIQ IN CONFIDENCE FY19 Financial overview David Smith Chief Financial Officer QINETIQ IN CONFIDENCE
Slide 5: Strong financial performance
Strong financial performance* 2019 2018 £m £m Revenue 911.1 833.0 Underlying operating profit 123.9 122.5 Underlying operating margin 13.6% 14.7% Earnings per share (pence) 19.7 19.3 Dividend per share (pence) 6.6 6.3 Total funded order backlog 3,133.6 2,005.4 Total orders 2,031.7 687.4 Orders in th
Slide 6: Organic revenue growth, complemented by acquisitions
Organic revenue growth, complemented by acquisitions Revenue* 833.0 24.2 40.2 (1.4) 896.0 15.1 911.1 9% reported growth 8% organic growth £ million 2018 EMEA Services Global Products Foreign 2019 (excl. EIS & Inzpire 2019 organic organic exchange Acquisitions) * Excludes contribution from JVs of £1.
Slide 7: Strong order growth; 74% FY20 revenue under contract
Strong order growth; 74% FY20 revenue under contract Orders 587.2 115.1 42.0 20.8 (10.8) (1.2) 753.1 23.3 776.4 £157.1m £10.0m 28% organic growth £ million 2018 EMEA EMEA Global Global Foreign 2019 (excl. EIS & 2019 Services Services Products Products exchange Acquisitions) Inzpire <£5m >£5m <£5m >£
Slide 8: Organic profit growth, offsetting UK single source headwind
Organic profit growth, offsetting UK single source headwind 1% reported growth Underlying Operating Profit* 122.5 (8.7) 113.8 (5.2) 6.6 1.9 (1.5) 115.6 7.0 122.6 1.3 123.9 3% organic growth £ million 2018 2018 non- 2018 excl SSRO EMEA Global Foreign 2019 excl 2019 non- 2019 (excl. EIS & Inzpire 2019
Slide 9: EMEA Services – strong order growth
EMEA Services – strong order growth 2019 2018 FY revenue (£m) £m £m 800 Total orders 1,789.9 456.1 700 Orders excl. LTPA amendments 534.6 355.9 Revenue 687.7 651.4 600 Underlying operating profit* 96.3 94.3 500 Underlying operating profit margin* 14.0% 14.5% 400 Book to bill ratio* 1.2x 0.8x Total f
Slide 10: Global Products – strong revenue performance
Global Products – strong revenue performance 2019 2018 FY revenue (£m) £m £m 250 Orders 241.8 231.3 Revenue 223.4 181.6 200 Underlying operating profit* 27.6 28.2 Underlying operating profit margin* 12.4% 15.5% 150 Book to bill ratio 1.1x 1.3x Funded order backlog 216.8 200.5 100 Full year revenue u
Slide 11: Strong cash generation, covering investment for growth
Strong cash generation, covering investment for growth 123.9 35.3 159.2 (27.5) (3.6) (1.8) 126.3 (69.5) (18.1) 6.9 45.6 102% Cash Conversion £80.7m net cash outflow on capex £ million Underlying Depreciation and EBITDA* Working Other non- Pensions Net cash inflow Capex Capex Proceeds from Net cash i
Slide 12: Balance sheet strength supports our growth strategy
Balance sheet strength supports our growth strategy 266.8 45.6 (10.7) 0.6 (61.2) (20.0) (35.7) 5.3 (2.2) 188.5 £35.5m free cash flow £81.2m acquisition related cash outflow £ million Net cash Net cash Taxation Net Acquisitions Repayment of Dividends Property Other Net cash 31 March inflow from inter
Slide 13: Financial strategy: capital allocation framework in practice
Financial strategy: demonstrating our capital allocation framework in practice 1 Balance Sheet Strong position to execute strategy – Flexible position today 2 – Ability to deploy capital over medium term FCF Cash generation from business deployed to: 3 – Increase levels of organic investment 1 C
Slide 14: Financial strategy: a rigorous appraisal process
Financial strategy: a rigorous appraisal process Opportunity Project Assessment Evaluation Monitoring Plan evaluation Key metrics Organic • Market and pricing evaluated NPV opportunities • Cost plan assessed and risk-adjusted for execution risks IRR Overall assessment of Inorganic opportunities • In
Slide 15: Financial strategy: growing sustainably and profitably
Financial strategy: growing sustainably and profitably to drive shareholder value 1. Revenue Growth 2. Stable margins 3. Appropriate Returns • Selectively winning business in our key • Abatement of SSRO profit headwind in • Clear framework for evaluating focus areas including International EMEA Serv
Slide 16: FY20 Outlook – technical factors
FY20 Outlook – technical factors FY19 FY20 Net finance income* £0.1m Expected to be flat subject to timing of capex spend and acquisitions Effective tax rate* 10.1% Expected to increase with greater proportion of international revenue Tax cash outflow £10.7m Cash tax is expected to be higher Net wor
Slide 17: Outlook Statement
Outlook Statement Outlook – FY20 • We enter FY20 with confidence having delivered a third successive year of organic revenue growth and an organic increase to operating profit. –As we build on our record order backlog and benefit from the full year contribution from our recent acquisition of E.I.S.
Slide 18: Strategic update
QINETIQ IN CONFIDENCE Strategic update Steve Wadey QINETIQ IN CONFIDENCE
Slide 19: Delivering our vision and strategy
Delivering our vision and strategy Vision The chosen partner around the world for mission-critical solutions, innovating for our customers’ advantage Strategy UK International Innovation Lead and modernise the UK Defence Build an international company that Invest in and apply our Test & Evaluation e
Slide 20: Three years building capability to drive sustainable growth
Three years building capability to drive sustainable growth • Vision-based strategy to drive growth, launched May 2016 SERVICES & PRODUCTS (defence, security and critical infrastructure) –Reversed five years of decline, delivered 21% revenue growth and returned to organic profit growth, with £3.1bn
Slide 21: Delivering modern UK Defence Test & Evaluation (1/2)
Delivering modern UK Defence Test & Evaluation (1/2) • Long Term Partnering Agreement (LTPA) contract, c.£320m pa –c.£220m pa core capabilities e.g. sites + c.£100m pa project tasks e.g. trials –16 maritime, land, air and weapons T&E ranges and facilities across the UK –Critical skills & facilities
Slide 22: Delivering modern UK Defence Test & Evaluation (2/2)
Delivering modern UK Defence Test & Evaluation (2/2) • Strategy to drive growth opportunities into >£8bn addressable market –LTPA now positions QinetiQ as a world-leader in the generation & assurance of defence & security capability i.e. Create it, Test it & Use it • Focus on UK Defence to increase
Slide 23: Building an international company (1/2)
Building an international company (1/2) • United States business continues to perform and grow –Won $44m Route Clearance & Interrogation System (RCIS) program of record –Won $164m Common Robotics System Individual (CRS-I) program of record –New orders for survivability products and TALON robot suppo
Slide 24: Building an international company (2/2)
Building an international company (2/2) • Grown international revenue from 21% to 30% over 3 years –Strong organic growth in US, Australia and Middle East –Strong export performance, driven by QinetiQ Target Systems • Growing training capabilities through strategic acquisitions –Inzpire delivering m
Slide 25: Innovating for our customers’ advantage (1/2)
Innovating for our customers’ advantage (1/2) • Major competitive campaign wins driving organic revenue growth –Based on major government funded programmes and strategic partnering Programme1 Customer Budget FY Duration Engineering Delivery Partner (EDP) framework UK £1bn+ 19 10 years Defence Core S
Slide 26: Innovating for our customers’ advantage (2/2)
Innovating for our customers’ advantage (2/2) • Won $164m Common Robotic System Individual program for US DOD –Back-packable with advanced sensors & mission modules for dismounted forces –$20m low rate initial production phase over next 1-2 years; $4m initial order • Engineering Delivery Partner (ED
Slide 27: Strengthening our strategy for profitable growth into >£8bn addressable market
Strengthening our strategy for profitable growth into >£8bn addressable market • Pursue long-term opportunities to drive organic revenue SERVICES & PRODUCTS (defence, security and critical infrastructure) growth in our home countries & selected priority countries Size £££bn pa –Evolve campaign-based
Slide 28: Our strategy is delivering – third year of growth
Our strategy is delivering – third year of growth • Delivered 9% revenue growth, 3% organic profit growth 1,600 3,000 and good visibility with order backlog of £3.1bn 1,400 –Securing LTPA provides platform for growth -1% 0% +3% 2,500 1,200 Order backlog (£m) • Building momentum towards an integrated
Slide 29: Questions?
Questions?
Slide 30: Appendices
QINETIQ IN CONFIDENCE Appendices QINETIQ IN CONFIDENCE
Slide 31: Our mission, vision, strategy and performance culture
Our mission, vision, strategy and performance culture Mission QinetiQ is dedicated to defending sovereign capability, protecting lives and securing the vital interests of our customers Vision The chosen partner around the world for mission-critical solutions, innovating for our customers’ advantage
Slide 32: Strengths: how we create value
How we create value Generation After Next Next Generation Current Generation Example Capability Generation & Assurance - integrated Typhoon released to service Research & Experimentation | Test & Evaluation | Training & Rehearsal Capability integration Threat representation Operational readiness e.g
Slide 33: Expanding into our addressable market
Expanding into our addressable market Revenue growth over three years: QinetiQ overall +21% • Focus on core offerings SERVICES & PRODUCTS +35% (defence, security and critical infrastructure) –RDT&E1 + Training: integrated capability generation & assurance Size £££bn pa –Services & Products: distinct
Slide 34: Revenue by customer and country
Revenue by customer and country Revenue by customer (%) Revenue by destination country (%) 2019 2018 2019 2018 £911.1m £833.0m £911.1m £833.0m % % % % MOD 57% MOD 62% UK 70% UK 73% DoD 9% DoD 8% US 12% US 10% Government agencies 17% Government agencies 16% Australia 7% Australia 6% Commercial Defenc
Slide 35: A clear capital allocation policy
A clear capital allocation policy Priority 1 Priority 2 Priority 3 Priority 4 Invest in our organic capabilities, complemented by Maintain the necessary Provide a progressive Return excess cash bolt-on acquisitions balance sheet strength dividend to shareholders to shareholders where there is a stro
Slide 36: Stabilising operating profit margins
Stabilising operating profit margins • FY19 EMEA Services margins impacted by ~£5-6m UK single SSRO baseline profit rate source profit headwind; expected to abate in FY20 and beyond 12.0% driven by: 11.0% –Increasing proportion of revenue won competitively 10.0% –Increasing proportion of SSRO-derive
Slide 37: Definitions
Definitions • Underlying performance is stated before: –Amortisation of intangibles arising from acquisitions –Pension net finance income –Gains/losses on investments, property and intellectual property –Transaction and integration costs in respect of business acquisitions –Impairment of property –T
Slide 38: Income statement including specific adjusting items
Income statement including specific adjusting items* 2019 2018 £m £m Revenue 911.1 833.0 Underlying operating profit* 123.9 122.5 Underlying net finance income/(expense)* 0.1 (0.4) Underlying profit before tax* 124.0 122.1 Gain on sale of property 0.2 14.6 Gain on sale of investment 1.1 0.6 Gain on
Slide 39: Taxation
Taxation 2019 2018 £m £m Underlying tax charge* (12.5) (13.1) Tax on specific adjusting items 3.2 6.4 Total tax charge (9.3) (6.7) Underlying tax rate* 10.1% 10.7% * Underlying performance, before specific adjusting items, as defined in appendix 39 Preliminary results for the year ended 31 March 201
Slide 40: Underlying earnings per share (pence)
Underlying earnings per share* (pence) 19.3 (0.3) 0.2 0.4 0.1 19.7 Pence 2018 Non-recurring Acquisitions, Underlying Other (incl. FX) 2019 Underlying items, post tax post tax operating profit* Underlying EPS* (excluding EPS* acquisitions) * Underlying performance, before specific adjusting items, as
Slide 41: Cash conversion
Cash conversion 2019 2018 £m £m Underlying operating profit* 123.9 122.5 Depreciation and amortisation 35.3 29.3 Changes in working capital (27.5) (14.2) Loss on disposal of PPE (5.5) 2.9 Share-based payments charge 6.1 2.4 Share of post-tax profit of equity accounted entities (3.6) (0.6) (0.3) Net
Slide 42: Movements in net cash
Movements in net cash 2019 2018 £m £m Free cash flow 35.5 56.3 Dividends (35.7) (34.5) Acquisition of business (deferred consideration) (61.2) (1.6) Repayment of external bank loan (recognised on acquisition of EIS) (20.0) Disposal of property 5.3 23.1 Disposal of IP - 5.9 Disposal of Investments (1
Slide 43: Balance sheet
Balance sheet 31 March 2019 31 March 2018 £m £m Goodwill 148.6 101.5 Intangible assets 88.5 41.1 Property, plant and equipment 298.0 269.0 Working capital (98.0) (146.5) Retirement benefit surplus (net of tax) 210.5 257.6 Other assets and liabilities (55.1) (45.2) Net cash 188.5 266.8 Net assets 781
Slide 44: Confirmed pension surplus
Confirmed pension surplus 31 March 2019 31 March 2018 £m £m Market value of assets 1,963.6 1,990.5 Present value of scheme liabilities (1,704.5) (1,674.3) Net pension asset before deferred tax 259.1 316.2 Deferred tax liability (48.6) (58.6) Net pension asset 210.5 257.6 Accounting net pension ass
Slide 45: Defined benefit pension scheme – balance sheet position
Defined benefit pension scheme – balance sheet position 31 March 2019 31 March 2018 £m £m Equities 178.8 174.7 LDI investment 690.8 1,050.9 Liquidity fund 96.0 311.3 Bonds 304.4 232.9 Property 145.6 138.7 Cash and cash equivalents 75.1 80.2 Derivatives 2.5 1.8 Insurance buy-in 470.4 - Market value o
Slide 46: Defined benefit pension scheme – key assumptions
Defined benefit pension scheme – key assumptions 31 March 2019 31 March 2018 Assumptions % % Discount rate 2.45% 2.60% Inflation (CPI) 2.35% 2.25% Future male pensioners (currently aged 60) 87 88 Future female pensioners (currently aged 60) 89 90 Future male pensioners (currently aged 40) 89 90 Futu
Slide 47: Credit facilities
Credit facilities Value Value Maturity date Denomination in denomination £m Revolving credit facility September 2023 GBP 275.0 275.0 Total committed facilities 275.0 275.0 47 Preliminary results for the year ended 31 March 2019 | 23 May 2019
Slide 48: QINETIQ
QINETIQ