QinetiQ Group plc · LSE:QQ.
QinetiQ — H1 FY2011 Earnings Presentation
34 slides from QinetiQ's earnings presentation, Nov 18, 2010
Slide 1: Restoring QinetiQ to Strength: Solid progress
Restoring QinetiQ to Strength: Solid progress QinetiQ Interim Results 2010 Thursday 18th November 2010
Slide 2: Leo Quinn, Chief Executive Officer
Leo Quinn Chief Executive Officer
Slide 3: Agenda
Agenda 1. Headlines 2. Financial overview 3. Operational update 4. Q&A
Slide 4: Headlines
Headlines • Significant progress in building strong foundation • Sales growth in difficult markets achieved through Q-NETs • Cash conversion very strong • Balance sheet target achieved 18 months early 4
Slide 5: Financial Overview
Financial Overview David Mellors Chief Financial Officer
Slide 6: Summary financial headlines
Summary financial headlines Organic change at HI FY11 H1 FY10 constant £m £m Change currency Revenue 864.9 806.3 7% 6% Operating profit* 64.9 62.5 4% Operating margin* 7.5% 7.8% Profit before tax* 51.6 45.1 14% Earnings per share* (pence) 6.5p 5.7p 14% Net cash from operations* (post capex) 149.9 92
Slide 7: Group revenue bridge
Group revenue bridge £m 806.3 19.2 (13.2) 812.3 52.6 864.9 H1 FY10 FX Acquisition/ H1 FY10 Organic H1 FY11 disposal Pro-forma growth adjustments 6% 7
Slide 8: Organic revenue bridge
Organic revenue bridge £m 812.3 (19.8) (21.7) 94.1 864.9 (6)%* (7)%* 61%* H1 FY10 US Services UK Services Global H1 FY11 Pro-forma Products * Organic change at constant currency 8
Slide 9: Segmental analysis of profit
Segmental analysis of profit Operating profit* Operating profit margin* H1 FY11 H1 FY10^ H1 FY11 H1 FY10^ £m £m % % US Services 25.0 28.1 7.8 8.8 UK Services 21.9 30.5 7.3 9.1 Global Products 18.0 3.9 7.3 2.6 Group 64.9 62.5 7.5 7.8 * Underlying performance as defined on slide 28 ^ Restated to refle
Slide 10: Underlying EPS – pension finance credit impact
Underlying EPS – pension finance credit impact Pence 5.7 0.3 0.5 - 6.5 H1 FY10 Operating Net finance Taxation H1 FY11 Profit expense Rate 10
Slide 11: Non recurring items
Non recurring items* H1 FY11 H1 FY10 £m £m Non cash items: Provisions for DTR programme bid cost (37.1) - Impairment of property, plant and equipment (4.8) - Amortisation of acquisition intangibles (13.9) (12.9) Items with cash impact: UK reorganisation (33.4) (40.0) Gain on business divestments and
Slide 12: Strong cash conversion
Strong cash conversion £m 64.8 23.1 76.6 (6.3) (8.1) (0.2) 149.9 Operating profit Non-cash Working capital DB Pension Capex Other Net cash flow items from operations post capex 12
Slide 13: Movements in net debt
Movements in net debt H1 FY11 H1 FY10 £m £m Net cash flow from operations post capex 149.9 92.4 Net interest paid (17.2) (20.7) Tax (13.4) 4.5 Cash impact of the sale of property - (0.2) Free cash flow 119.3 76.0 Reorganisation costs (5.8) (13.7) Other (Acquisitions, Investments, Divestments & Divid
Slide 14: Borrowings and debt facilities
Borrowings and debt facilities H1 FY11 FY10 H1 FY10 £m £m £m £m 900 Net debt (£m) 327.0 457.4 452.3 Committed facilities* 800 854.4 868.4 850.0 (£m) 700 Net debt: EBITDA** 1.9 2.5 2.2 600 Covenant limit** 3.5 3.5 3.5 * US$ denominated facilities translated at rate of $1.58:£1 on 30 September 2010, 5
Slide 15: Defined benefit pension scheme
Defined benefit pension scheme IAS19 balance sheet position 30 Sept 2010 31 March 2010 30 Sept 2009 £m £m £m Market value of assets 923.7 915.9 795.8 Present value of scheme liabilities (1,108.4) (1,063.2) (952.9) Net pension liability before deferred tax (184.7) (147.3) (157.1) Deferred tax 49.9 41
Slide 16: Operational Update
Operational Update Leo Quinn Chief Executive Officer
Slide 17: QinetiQ priorities – 24 month plan
QinetiQ priorities – 24 month plan • Focus • Extract full value from portfolio • Transform culture • Upgrade leadership • Raise performance, transparency, competitiveness … sustainably • Strengthen balance sheet • Enable longer term options • Nurture • Strong customer relationships in two world-lead
Slide 18: Focus
Focus • Simplify and align structure with business models • Clarify direction • Regular portfolio reviews – eliminate loss-making and / or non-core activities US Services UK Services Global Products • Aerospace Engineering • Test and Evaluation • Unmanned systems • Aviation Logistics • Air Engineeri
Slide 19: Cultural transformation
Cultural transformation • Upgrade leadership • c.2/3 executive team, 50% UK senior management, 15% US senior management • Increase transparency and accountability • Standard financial dashboard • Drive performance • Programmes to streamline processes and improve productivity • Address competitivenes
Slide 20: Balance sheet strengthened – 12 month progress
Balance sheet strengthened – 12 month progress £m 122.5 50.5 66.7 51.3 (26.0) (11.8) (25.1) (3.7) 231.8 12 month improvement in working capital of £92.0m H1 FY11 H2 FY10 Operating Non-cash Trade Trade Inventories DB Capex Other Net cash flow profit items & other & other Pension from operations recei
Slide 21: Operational update – US Services
Operational update – US Services H1 FY11 H1 FY10 £m £m Orders 317.3 294.1 Revenue 318.6 320.1 Underlying Operating Profit* 25.0 28.1 Underlying Operating Profit Margin* 7.8% 8.8% Making spaceflight safer Book to Bill Ratio 1.0:1 0.9:1 Strengths Market trends National model with licence to In-sourcin
Slide 22: Operational update – UK Services
Operational update – UK Services H1 FY11 H1 FY10 £m £m Orders 194.2 222.9 Revenue 299.1 336.7 Underlying Operating Profit* 21.9 30.5 Underlying Operating Profit Margin* 7.3% 9.1% Supporting aircrew training Book to Bill Ratio 0.9:1 0.9:1 Strengths Market trends Delivers value and capability to Post
Slide 23: Operational update – Global Products
Operational update – Global Products H1 FY11 H1 FY10 £m £m Orders 413.0 158.5 Revenue 247.2 149.5 Underlying Operating Profit* 18.0 3.9 Underlying Operating Profit Margin* 7.3% 2.6% Q-NETs lightweight RPG protection Book to Bill Ratio 1.7:1 1.1:1 Strengths Market trends Potential within IP portfolio
Slide 24: Summary
Summary • Significant progress in first six months of 24 month self-help programme • Change - driven by new leadership and culture • Cost base reductions - essential to remain competitive • Balance sheet strengthened - rapid impact driven by very strong cash conversion • Markets - likely to remain u
Slide 25: Outlook
Outlook • Self-help plan underway: • Refocus the businesses • Build more commercial performance-oriented culture • Strengthen balance sheet • Work continues on: • Reshaping structure and processes • Building leadership team • Embedding changes • Effect of new UK/US Government policy not yet clear: •
Slide 26: Q&A
Q&A QinetiQ
Slide 27: Appendix
Appendix QinetiQ
Slide 28: Definitions
Definitions Underlying performance is stated before: • Major reorganisation costs • Inventory provision in respect of capitalised DTR programme bid costs • Business divestments and unrealised impairment of investments • Amortisation of acquisition related intangible assets • Impairment of intangible
Slide 29: Detailed income statement
Detailed income statement H1 FY11 H1 FY10 £m £m Revenue 864.9 806.3 Underlying operating profit* 64.9 62.5 Net finance expense (13.3) (17.4) Underlying profit before tax 51.6 45.1 Asset impairments & business disposals (4.8) 6.5 Amortisation of acquisition related intangibles (13.9) (12.9) Inventory
Slide 30: Revenue by sector and customer
Revenue by sector and customer H1 FY11 H1 FY11 £864.9m £864.9m H1 FY10 H1 FY10 £806.3m £806.3m Revenue by sector (%) Revenue by customer (%) UK Services US Services Civil/Other Government Agencies MOD Global Products DoD DHS Commercial Defence 30
Slide 31: Taxation
Taxation H1 FY11 H1 FY10 £m £m Underlying tax charge* (8.8) (8.2) Tax on non-recurring items 4.3 10.3 Headline tax (charge) / credit* (4.5) 2.1 Underlying tax rate* % 17.1% 18.2% * Underlying performance as defined on slide 28 31
Slide 32: Balance sheet
Balance sheet H1 FY11 H1 FY10 £m £m Goodwill 531.2 593.9 Intangible assets 118.5 159.9 Property, plant and equipment 271.7 318.8 Working capital (22.5) 117.9 Retirement benefit obligation (net of tax) (134.8) (113.1) Other assets and liabilities (47.4) (104.0) Net debt (327.0) (452.3) Net assets 389
Slide 33: Capital investment
Capital investment H1 FY11 H1 FY10 £m £m Expenditure on tangible assets 7.6 12.2 Investment in intangible assets* • Development costs - 0.3 • Purchased software and other intangibles 0.5 0.8 0.5 1.1 Depreciation and amortisation* • Tangible 15.8 16.5 • Intangible assets – Development costs 1.0 1.4 –
Slide 34: 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