QinetiQ Group plc · LSE:QQ.
QinetiQ — H1 FY15 Earnings Presentation
38 slides from QinetiQ's earnings presentation, Nov 20, 2014
Slide 1: QinetiQ Group plc Interim Results for half year ended 30 September 2014
Draft QinetiQ Group plc Interim Results for half year ended 30 September 2014 20 November 2014 1
Slide 2: Agenda
Draft Agenda 1. Headlines 2. Financial overview 3. Business overview 4. Q&A 2
Slide 3: Headlines
Headlines A performance reflecting QinetiQ’s strategic progress • Double digit uplift in Group orders; 13% in EMEA Services • Landmark ‘Explore’ contracts – Training, UAS Services, OptaSense® • High cash conversion • £150m share buyback – 40% complete • 29% increase in interim dividend reflects Boar
Slide 4: Financial overview
Draft Financial overview David Mellors Chief Financial Officer 4
Slide 5: Summary financial headlines
Summary financial headlines FY15 H1 FY14 H1^ £m £m Revenue 365.6 377.4 Operating profit* 49.3 49.5 Operating margin* 13.5% 13.1% Earnings per share* (pence) - continuing operations 6.3 5.9 Net cash from continuing operations (post capex)* 57.0 58.0 Cash conversion from continuing operations (post ca
Slide 6: Revenue bridge
Revenue bridge 377.4 (5.2) 5.7 (12.3) 365.6 +2% Organic (15)% Organic Revenue Global Products EMEA Services £ million FY14 H1 continuing FX EMEA Services Global Products FY15 H1 Group^ ^ 2014 data has been restated for the reclassification of US Services (excluding Cyveillance®) as a discontinued op
Slide 7: Segmental analysis of profit and margin
Segmental analysis of profit and margin Operating profit* FY15 H1 FY14 H1^ £m £m Margin % EMEA Services 42.6 40.4 FY15 H1 Global Products 6.7 9.1 Continuing Group 49.3 49.5 FY14 H1 14.3% EMEA Services 13.8% 9.8% Global Products 10.8% * Underlying performance as defined at appendix ^ 2014 segmental d
Slide 8: Specific adjusting items
Specific adjusting items* FY15 H1 FY14 H1 £m £m Items with cash impact Reduction in pension liabilities on closure to future accrual - 31.1 Pension scheme closure mitigation costs - (4.0) Non-cash items Amortisation of acquired intangibles (1.3) (1.8) Pension net finance expense (0.3) (1.2) Total sp
Slide 9: Movements in net cash
Movements in net cash 170.5 67.7 (10.7) (7.6) (28.8) 79.6 (40.4) (20.6) (4.0) 205.7 £61m shareholder returns 116% cash conversion £49.4m free cash flow* £ million Net cash Cash flow Net capex Tax & PP US Services Share Dividends Other Net cash 31 Mar 14 from underlying accelerated disposal buyback 3
Slide 10: Balance sheet strength enhanced
Balance sheet strength enhanced FY09 FY10 FY11 FY12 FY13 FY14 400 200 £ million - (200) (400) (600) FY09 FY10 FY11 FY12 FY13 FY14 FY15 H1 £m £m £m £m £m £m £m Working capital 154.0 107.2 (30.7) (62.7) (148.3) (155.3) (167.3) Retirement benefit obligation (pre-tax) (105.2) (147.3) (124.6) (31.5) (54.
Slide 11: Outlook
Outlook • EMEA Services Notwithstanding the continuing strong performance in EMEA Services, the changes to the budgetary environment resulting from the upcoming General Election as well as the MOD transformation programme are likely to create some short-term uncertainty in the UK defence market. Nev
Slide 12: Business overview
Draft Business overview Leo Quinn Chief Executive Officer 12
Slide 13: Market environment
Market environment • Fundamental shift in defence policy and budgets in core UK/US markets • UK Government (and others) looking to drive value through defence transformation − DE&S transformation − New “Yellow Book” from 1 April 2015 − Election and ongoing budget deficit • New markets − Internationa
Slide 14: Our Organic-Plus Strategy
Our Organic-Plus Strategy Is it real, can we win, is it worth it? Core Explore Test for Value c85% of revenue c10% of revenue c5% of revenue • Air Standalone businesses: • International procurement • Training advice • Weapons EMEA Services • Cyber Security (includes • Smart metering assurance • Mari
Slide 15: EMEA Services
EMEA Services FY15 H1 FY14 H1^ • Strong performance in Group’s largest division £m £m • 13% growth in orders • High utilisation, productivity improvements, Orders† 249.5 220.0 strong project management Revenue 297.1 293.5 • Opportunity for future value – LTPA investment Underlying Operating Profit*
Slide 16: EMEA Services – core businesses
EMEA Services – core businesses Air Weapons • De-risks complex aviation programmes • Research, T&E and training • Unique combination of people and assets • Weapons Science and Technology Centre • Core T&E contract extended • T&E infrastructure investment • International opportunities • MOD munitions
Slide 17: Global Products – Organic-Plus investment
Global Products – Organic-Plus investment PADS® TALON® LAST® Armor CORE Q-Net® SWATSTM Global Products HD Generator LinewatchTM TEST OptaSense® Space products FOR EXPLORE VALUE SPOTM IWSTM MEWSTM / ASXTM Robotic kits A pipeline to take the portfolio beyond defence 17
Slide 18: Global Products
Global Products FY15 H1 FY14 H1^ £m £m £m 200 Orders 71.0 69.6 Revenue 68.5 83.9 Underlying Operating Profit* 6.7 9.1 150 Underlying Operating Profit Margin* 9.8% 10.8% Book to Bill Ratio 1.0x 0.8x 100 Funded Backlog 99.6 98.5 • Sale of US Services opens market to UK capability as well as US Product
Slide 19: 'Explore' businesses – EMEA Services
‘Explore’ businesses – EMEA Services Cyber Security Training 1. UK cyber security business (including cypher): • Connects people and assets for mission • Existing supplier base is fragmented rehearsal and tactics development • Opportunities in CNI, defence, security • COTS technology; more-for-less
Slide 20: 'Explore' businesses – Global Products
‘Explore’ businesses – Global Products • H1 orders slowed by instability in Middle East and OptaSense® Russia Subsea Road • Market activity accelerating – order size Border Oil and increasing, moving from trial to implementation, Security Gas competitors, large opportunities (eg Turkey and Middle Ea
Slide 21: Input – Disciplined Investment
Input – Disciplined Investment Barriers to entry • SQEP – Fellows, Apprentice Academy • Intellectual Property, internal R&D • LTPA capex (increase value delivered) Performance and execution • Relentless leadership upgrade • Commercial & sales training (3,000+) • Project management certification • BP
Slide 22: Output – Cultural Transformation
Output – Cultural Transformation Customer Satisfaction Employee engagement 2014 593.5 3rd 3rd 2012 575.0 8th 2011 569.3 77% of MOD customers 17th rank us as a top 3 supplier Best Companies 2010 554.1 2012 2013 Employee Survey 2009 2010 2011 Financial discipline Investing in future capability Apprent
Slide 23: Delivering shareholder value
Delivering shareholder value 2009 – 2015 H1 c.£90m outstanding share buyback Liability reduction from change in T&Cs Drivers of future value creation c.£250m pension • Continue strong cash generation liability reduction* • Maintain efficient balance sheet c.£180m dividend & share buyback to-date • B
Slide 24: Questions
Draft Questions Download the QinetiQ Investor Relations app from the App Store or scan the QR code 24
Slide 25: Appendices
Draft Appendices 25
Slide 26: Definitions
Definitions • Underlying performance is stated before − Amortisation of intangibles arising from acquisitions − Reduction in liability arising on pension scheme closure − Pension scheme closure costs − Pension net finance expense − Gains/losses on disposal of investments and businesses − Impairment
Slide 27: How we organise the Group
How we organise the Group Air Maritime Training C4ISR Cyveillance® EMEA Services Procurement Cyber Weapons Australia Security Advisory Services Unmanned Space OptaSense® Systems Global Products IP & New Survivability Technologies 27
Slide 28: Income statement of continuing Group
Income statement of continuing Group FY15 H1 FY14 H1^ £m £m Revenue 365.6 377.4 Underlying operating profit* 49.3 49.5 Net finance expense (3.3) (6.6) Underlying profit before tax* - 46.0 42.9 Amortisation and impairment of acquisition-related intangibles (1.3) (1.8) Pension net finance expense (0.3
Slide 29: Earnings Per Share (pence)
Earnings Per Share* (pence) 9.5 (3.2) 0.7 (1.2) 5.9 0.4 6.3 pence FY14 H1 reported Pension Other middle US Services FY14 H1 restated FY15 H1 FY15 H1 statutory EPS - curtailment gain column † earnings underlying EPS* - underlying underlying EPS* - Total Group Continuing performance Continuing Group^
Slide 30: Balance sheet of Total Group
Balance sheet of Total Group 30 September 2014 31 March 2014 £m £m Goodwill 101.4 141.3 Intangible assets 14.7 44.2 Property, plant and equipment 224.0 233.8 Working capital (167.3) (155.3) Retirement benefit obligation (net of tax) (22.7) (20.9) Other assets and liabilities (47.9) (35.5) Net cash 2
Slide 31: Revenue by sector and customer – continuing Group
Revenue by sector and customer – continuing Group Revenue by sector (%) Revenue by customer (%) 19% 19% MOD DoD FY15 H1 EMEA Services 6% FY15 H1 £365.6m Global Products £365.6m Commercial Defence 8% 67% Civil/Other 81% Government agencies MOD 22% 22% DoD FY14 H1^ EMEA Services FY14 H1^ 7% £377.4m Gl
Slide 32: Taxation – continuing Group
Taxation – continuing Group FY15 H1 FY14 H1^ £m £m Underlying tax charge* (5.5) (4.8) Tax on non-recurring items (0.7) (5.3) Headline tax charge (6.2) (10.1) Underlying tax rate* 12.0% 11.2% * Underlying performance as defined at appendix ^ 2014 data has been restated for the reclassification of US
Slide 33: Cash conversion – continuing Group
Cash conversion – continuing Group FY15 H1 FY14 H1^ £m £m Underlying operating profit* 49.3 49.5 Cash flow from operations* 67.7 66.1 Net capex (10.7) (8.1) Net cash flow from continuing operations post capex 57.0 58.0 Cash conversion %* 116% 117% Net interest paid (6.8) (6.2) Taxation (0.8) 1.2 Fre
Slide 34: Movements in net cash
Movements in net cash FY15 H1 FY14 H1 £m £m Free cash flow from continuing Group 49.4 53.0 PP accelerated interest (28.8) - Reorganisation costs - (7.7) Disposal related pension contribution (6.0) - US Services disposal 79.6 - Share buyback (40.4) (0.2) Dividends (20.6) (17.6) Cash generated from di
Slide 35: Defined benefit pension scheme – IAS 19 balance sheet position
Defined benefit pension scheme – IAS 19 balance sheet position FY15 H1 FY14 £m £m Market value of assets 1,373.4 1,304.6 Present value of scheme liabilities (1,396.2) (1,326.8) Net pension liability before deferred tax (22.8) (22.2) Deferred tax asset 0.1 1.3 Net pension liability (22.7) (20.9) FY15
Slide 36: Credit and debt facilities
Credit and debt facilities Value Value Maturity date Denomination in denomination £m Revolving Credit Facility August 2019 £m 166.0 166.0 Revolving Credit Facility August 2019 $m 100.0 61.7 Total Committed Facilities 227.7 36
Slide 37: Employee numbers
Employee numbers 30 September 2014 31 March 2014 EMEA Services 5,579 5,437 Global Products 706 796 Continuing operations 6,285 6,233 US Services - 2,704 Total 6,285 8,937 37
Slide 38: Disclaimer
Disclaimer 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, achievements and events are most likely to vary materially from t