Qinetiq Group Plc · LSE:QQ.
Qinetiq — FY2011 Earnings Presentation
37 slides from Qinetiq's earnings presentation, May 26, 2011
Slide 1: Restoring strength, Building value
Restoring strength, Building value QinetiQ Group plc Annual Results 2011 Thursday 26 May 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 ■ Sales up 5% and operating profit* up 21% • Strong demand for survivability products • Delays and curtailments in services • Group-wide drive to lower cost base, release cash ■ Significant transformation • 12 months into 24 month self-help programme • Leaner, more agile and competitive •
Slide 5: Financial Overview
Financial Overview David Mellors Chief Financial Officer
Slide 6: Summary financial headlines
Summary financial headlines FY11 FY10 £m £m Change Revenue 1,702.6 1,625.4 5 % Operating profit* 145.4 120.3 21 % Operating margin* 8.5 % 7.4 % Profit before tax* 114.6 85.7 34 % Earnings per share* (pence) 14.2 p 11.1 p 28 % Net cash from operations* (post capex) 265.8 174.3 52 % Cash conversion* (
Slide 7: Group revenue bridge
Group revenue bridge £m 1,625.4 19.7 (29.8) 1,615.3 87.3 1,702.6 FY10 FX Acquisition/disposal FY10 Organic growth FY11 adjustments Pro-forma 7
Slide 8: Organic revenue bridge
Organic revenue bridge £m 1,615.3 (42.4) (67.7) 197.4 1,702.6 FY10 Pro-forma US Services UK Services Global Products FY11 8
Slide 9: Segmental analysis of profit
Segmental analysis of profit £m Operating profit* Operating profit margin* FY11 FY10^ FY11 FY10^ £m £m % % US Services 44.3 52.6 7.5% 8.4% UK Services 48.7 59.1 8.0% 8.5% Global Products 52.4 8.6 10.4% 2.8% Group 145.4 120.3 8.5% 7.4% * Underlying performance as defined at appendix ^ Restated to ref
Slide 10: Underlying EPS
Underlying* EPS Pence 11.1 3.3 1.5 (1.0) (0.7) 14.2 Finance expense +0.5p FY10 Operating profit Pension credit Other finance Tax rate FY11 expense *Underlying performance is defined in appendix 10
Slide 11: Non recurring items
Non recurring items* FY11 FY10 £m £m Items with cash impact: UK restructuring costs (33.5) (44.1) Pension curtailment gain 4.9 2.0 Contingent payments on acquisition treated as remuneration (6.1) - Gain on business divestments 2.1 5.1 Non-cash items: DTR inventory write-off (23.8) - Impairment of pr
Slide 12: Strong cash conversion
Strong cash conversion FY11 FY10 £m £m Underlying operating profit* 145.4 120.3 Share of JVs & associates (0.2) (0.2) Operating profit before JVs & associates* 145.2 120.1 Cash flow from operations* 287.6 204.6 Purchase of PPE and intangible assets (21.8) (30.3) Net cash flow from operations post ca
Slide 13: Movements in net debt
Movements in net debt FY11 FY10 £m £m Free cash flow 194.3 139.4 UK restructuring costs (31.8) (35.4) Acquisitions and investments (15.8) (46.7) Divestments 38.2 21.1 Dividends - (31.6) Other (12.0) 7.5 Change in net debt before FX 172.9 54.3 FX translation impact 23.6 26.2 Change in net debt 196.5
Slide 14: Borrowings and debt facilities
Borrowings and debt facilities Committed facilities by maturity FY11 FY10 £m £m <2 years † Net debt (£m) 261 457 14% Committed facilities* (£m) 625 868 >4 years 31 Mar 2011 Net debt: EBITDA** 1.4 2.5 86% £625m Covenant limit** 3.5 3.5 * US$ denominated facilities translated at rate of $1.60:£1 on 31
Slide 15: Defined benefit pension scheme
Defined benefit pension scheme IAS19 balance sheet position 31 March 2011 31 March 2010 £m £m Market value of assets 981.1 915.9 Present value of scheme liabilities (1,105.7) (1,063.2) Net pension liability before deferred tax (124.6) (147.3) Deferred tax asset 32.4 41.2 Net pension liability (92.2)
Slide 16: Progress on priorities
Progress on priorities Leo Quinn Chief Executive Officer
Slide 17: Priorities to restore value – May 2010
Priorities to restore value – May 2010 ■ Focus – extract full value from portfolio • Where money is made and lost • What businesses are truly scalable • Sources of competitive advantage ■ Cultural transformation – building a more competitive culture • In UK, businesses engaged and “re-tooled” • In U
Slide 18: Focus – continuing to refine and align
Focus – continuing to refine and align Understand core competencies – exit non-core Stop value-leakers Ongoing portfolio work – align to customer needs Invest for scale and growth US Services UK Services Global Products • Aerospace operations • Air Engineering • Test and Evaluation • Survivability •
Slide 19: Cultural transformation
Cultural transformation ■ Upgrade leadership F4G My My • Senior executive team – 80% changed Business review contribution contribution Detailed portfolio review review • Senior management – ½ UK, ⅓ US changed analysis X4 pa Talent Innovation ■ Drive performance review review Dec Jan • My Contributio
Slide 20: Balance sheet strengthened
Balance sheet strengthened ■ Excellent cash generation • Group-wide processes • Employee engagement at all levels • Driving 183% operating cash conversion* ■ Closing net debt: £261m (31 March 2010: £457m) • Gearing Ratio* down from 2.5x to 1.4x • New 5 year, £275m revolving credit facility signed Fe
Slide 21: Building value by self-help…
Building value by self-help… 2012 Focus – “exploit” / “explore”; dispose non-core Competitiveness – US Services integration, UK productivity Effectiveness – agility meeting changing customer needs G IN Sustain and embed – new culture and processes O NG Strengthen – continue to improve balance sheet
Slide 22: Funding future growth – “explore”
Funding future growth – “explore” ® ■ Balance sheet strength Case Study: OptaSense ■ Fibre-optic audio CCTV: • Enables funding of future growth • Delivers real-time monitoring • Utilises existing infrastructure ■ Rigorous criteria ■ Platform technology: • Down-hole oil & gas • Significant, scalable,
Slide 23: Operational update – US Services
Operational update – US Services FY11 FY10 £m £m Orders 561.1 577.6 Revenue 588.2 628.0 Underlying Operating Profit* 44.3 52.6 Underlying Operating Profit Margin* 7.5% 8.4% Book to Bill Ratio 1.0 0.9 Globalising Cyveillance STRENGTHS MARKET ENVIRONMENT ■ Established player ■ Contracts delayed ● bran
Slide 24: Operational update – UK Services
Operational update – UK Services FY11 FY10 £m £m Orders† 371.6 493.8 Revenue 611.6 693.9 Underlying Operating Profit* 48.7 59.1 Underlying Operating Profit Margin* 8.0% 8.5% Book to Bill Ratio 0.9 1.0 Tornado GR4 simulation STRENGTHS MARKET ENVIRONMENT ■ Trusted independent expertise ■ Reduced budge
Slide 25: Operational update – Global Products
Operational update – Global Products FY11 FY10 £m £m Orders 627.0 329.6 Revenue 502.8 303.5 Underlying Operating Profit* 52.4 8.6 Underlying Operating Profit Margin* 10.4% 2.8% Book to Bill Ratio 1.2 1.1 Q-NETs RPG protection STRENGTHS MARKET ENVIRONMENT ■ Potential in IP portfolio ■ Contract awards
Slide 26: Outlook
Outlook ■ QinetiQ’s key sectors remain vital areas for its customers • Attractive sectors: test and evaluation, acquisition and programme support, training and simulation, cyber security, C4ISR, software & engineering services • Delivers value through trusted, independent expertise – key competitive
Slide 27: Summary
Summary ■ Significant and rapid progress achieved ■ Markets remain challenging – but we have already taken action to: • Refocus and align portfolio • Ensure leaner, more competitive Group ■ Balance sheet able to fund future growth and restore dividend ■ Priority 2012: deliver full value from self-he
Slide 28: Q&A
QinetiQ Q&A
Slide 29: Appendix
Appendix
Slide 30: Definitions
Definitions ■ Underlying performance is stated before: • Major reorganisation costs • Inventory provision in respect of capitalised DTR programme bid costs • Contingent payments on acquisition treated as remuneration • Business divestments and unrealised impairment of investments • Amortisation of a
Slide 31: Detailed income statement
Detailed income statement FY11 FY10 £m £m Revenue 1,702.6- 1,625.4- Underlying operating profit* 145.4- 120.3- Net finance expense (30.8) - (34.6) - Underlying profit before tax* 114.6 85.7 Contingent acquisition payments, treated as remuneration (6.1) - -- Impairment of plant, property and equipmen
Slide 32: Revenue by sector and customer
Revenue by sector and customer 22 30% 30 35% FY11 FY11 £1,702.6m 8 £1,702.6m 5 35% 35 19% 23 36 39% FY10 FY10 5 £1,625.4m £1,625.4m 8 42% 28 Revenue by sector (%) Revenue by customer (%) Global Products US Services Civil/Other Government Agencies MOD UK Services Commercial Defence DHS DoD 32
Slide 33: Taxation
Taxation FY11 FY10 £m £m Underlying tax charge* (21.8) (12.9) Tax on non-recurring items 0.2 15.7 Headline tax (charge) / credit (21.6) 2.8 Underlying tax rate* 19.0% 15.0% * Underlying performance as defined at appendix 33
Slide 34: Balance sheet
Balance sheet FY11 FY10 £m £m Goodwill 521.1 577.8 Intangible assets 103.2 141.7 Property, plant and equipment 260.9 285.5 Working capital (30.7) 107.2 Retirement benefit obligation (net of tax) (92.2) (106.1) Other assets and liabilities (43.9) (75.0) Net debt (260.9) (457.4) Net assets 457.5 473.7
Slide 35: Assets
Assets FY11 FY10 £m £m Capital investment Cash expenditure on tangible assets 19.7 24.1- Investment in intangible assets* Development costs 0.3 0.6 Purchased software and other intangibles 2.1 5.6 Total 22.1 30.3 Depreciation and amortisation* Tangible assets 33.6 35.1 Intangible assets Development
Slide 36: Employee numbers
Employee numbers 31 March 31 March 2011 2010 Change US Services 4,500 5,369 (869) UK Services 5,045 5,707 (662) Global Products 1,663 2,002 (339) Total 11,208 13,078 (1,870) 36
Slide 37: 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