Qinetiq Group Plc · LSE:QQ.
Qinetiq — FY2012 Earnings Presentation
45 slides from Qinetiq's earnings presentation, May 24, 2012
Slide 1: Delivering Value – Annual Results 2012
Delivering Value QinetiQ Group plc – Annual Results 2012 24 May 2012 1
Slide 2: Agenda
Agenda 1. Headlines 2. Financial overview 3. Launching the next phase: Organic-Plus 4. Q&A 2
Slide 3: Headlines
Headlines • Self-help programme exceeded expectations − Resilient despite challenging markets • Strong foundation built over 24 months − De-risked portfolio − Upgraded leadership − Balance sheet restored to strength − Performance – margin improved from 7.4% to 11.0% − Full year dividend 2.9p / £18.8
Slide 4: Financial overview
Financial overview David Mellors Chief Financial Officer 4
Slide 5: Summary financial headlines
Summary financial headlines FY12 FY11 £m £m Change Revenue 1,469.6 1,702.6 (14) % Operating profit* 161.3 145.4 11 % Operating margin* 11.0 % 8.5 % Profit before tax* 118.3 114.6 3 % Earnings per share* (pence) 14.6 p 14.2 p 3 % Net cash from operations (post capex)* 235.4 265.8 (11) % Cash conversi
Slide 6: UK Services
UK Services (1) Restated to reflect the transfer 1 of QinetiQ’s Force Protection FY12 FY11 business from Global Products £m £m at the start of FY12 (2) Book to Bill ratio is orders won Orders 450.3 420.4 divided by revenue recognised Revenue 610.1 652.7 excluding the LTPA contract Backlog also exclu
Slide 7: US Services
US Services (1) Restated to reflect the FY12 FY111 transfer of M&T Services from Global Products at £m £m the start of FY12 Orders 530.3 580.9 * Underlying performance as defined at appendix Revenue 534.5 607.3 Underlying Operating Profit* 32.1 45.9 Underlying Operating Profit Margin* 6.0 % 7.6 % Bo
Slide 8: Global Products
Global Products (1) Restated to reflect the transfer FY12 FY111 of QinetiQ’s Force Protection businesses from Global £m £m Products at the start of FY12 Orders 245.7 558.4 * Underlying performance as defined at appendix Revenue 325.0 442.6 Underlying Operating Profit* 66.2 52.1 Underlying Operating
Slide 9: Underlying EPS (pence)
Underlying* EPS (pence) 14.2 2.0 (0.3) 1.6 (3.4) 0.7 (0.2) 14.6 (1.4) FY11 Operating profit Pension credit 2011 PP net PP payment Other finance Tax rate FY12 impact accelerated expense interest Net finance costs included an accelerated interest payment of £27.4m (2011: £8.8m) associated with the ear
Slide 10: Earnings impact of pension and private placement deal
Earnings impact of pension and private placement deal FY12 FY13(approx) £m £m Net interest expense (19.7) (15) Accelerated interest payments (27.4) - Other finance costs (2.3) (2) Pension finance credit 6.4 9 Net finance expense (43.0) (8) 10
Slide 11: Non-recurring items
Non-recurring items* FY12 FY11 £m £m Non-cash items: Amortisation of acquired intangibles (recurring) (20.3) (26.3) DTR inventory recovery/(write-off) 4.1 (23.8) Impairment of property (1.9) (5.9) Pension past service credit 141.4 - Other - 0.6 Items with cash impact: Net reorganisation credits/(cha
Slide 12: Strengthening the balance sheet
Strengthening the balance sheet FY09 FY10 FY11 FY12 200 100 - (100) (200) (300) (400) (500) (600) FY09 FY10 FY11 FY12 £m £m £m £m Working capital 154.0 107.2 (30.7) (62.7) Retirement benefit obligation (pre-tax) (105.2) (147.3) (124.6) (31.5) Net debt (537.9) (457.4) (260.9) (122.2) 12
Slide 13: Cash conversion
Cash conversion FY12 FY11 £m £m Underlying operating profit* 161.3 145.4 Share of JVs & associates (0.1) (0.2) Operating profit before JVs & associates* 161.2 145.2 Cash flow from operations* 250.8 287.6 Net capex (15.4) (21.8) Net cash flow from operations post capex 235.4 265.8 Cash conversion %*
Slide 14: Movements in net debt
Movements in net debt FY12 FY11 £m £m Free cash flow 173.6 194.3 UK restructuring costs (8.9) (31.8) Acquisitions and investments (0.9) (15.8) Divestments 11.2 38.2 Dividends (16.4) - Purchase of own shares (12.0) (0.6) Other (6.2) (11.4) Change in net debt before FX 140.4 172.9 FX translation impac
Slide 15: Defined benefit pension scheme – IAS 19 balance sheet position
Defined benefit pension scheme – IAS 19 balance sheet position FY12 FY11 £m £m Market value of assets 1,107.9 981.1 Present value of scheme liabilities (1,139.4) (1,105.7) Net pension liability before deferred tax (31.5) (124.6) Deferred tax asset 13.3 32.4 Net pension liability (18.2) (92.2) FY12 F
Slide 16: Market
Market US: • Limited visibility throughout US Presidential election year; overhang of possible sequestration unlikely to be resolved before end of 2012 • Continued delays in the award of DoD and federal civil business • Drawdown of the Overseas Expeditionary Force 2012/13 • Competition is keen • Lar
Slide 17: Outlook
Outlook • Given the continuing uncertainty and lower than normal visibility in our markets, the Board’s expectations for trading performance in the current year remain unchanged • However, underlying earnings per share will benefit from early repayment of private placement debt and the reduction in
Slide 18: Launching the next phase: Organic-Plus
Launching the next phase: Organic-Plus Leo Quinn Chief Executive Officer 18
Slide 19: From self-help to Organic-Plus
From self-help to Organic-Plus Lifecycle Software & Systems US Solutions Engineering Services Aerospace Ops Mission & Information QinetiQ & Systems Solutions Cyveillance Information Force & Base Maritime Australia UK & Intelligence Protection Services Training & Acquisition Cyber Weapons Air Simulat
Slide 20: Pre 2010 – forced growth
Pre 2010 – forced growth • Loss of clear direction • Lack of transparency • Utilisation at the expense of profit Start of the self-help • Acquisitions not integrated programme • Innovation not managed • Technology-push not market-pull • Over-stretched balance sheet Lessons learnt for the future 20
Slide 21: Phase one – a sustainable foundation
Phase one – a sustainable foundation • Strengthening the balance sheet – capacity for investment − Gearing reduced to 0.5x (from 2.5x); net debt reduced to £122m (from £538m) − Refinanced and restructured – earliest maturity 2016 − Pension scheme deficit reduced by £141m due to change to CPI as infl
Slide 22: Focus – an emerging cadre of leaders
Focus – an emerging cadre of leaders Lifecycle Software & Systems US Solutions Engineering Services Aerospace Ops Mission & Information QinetiQ & Systems Solutions Cyveillance Information Force & Base Maritime Australia UK & Intelligence Protection Services Training & Acquisition Cyber Weapons Air S
Slide 23: Focus – a strong core complemented by a value pipeline
Focus – a strong core complemented by a “value pipeline” Core Explore Test for Value Maximise Scale Maintain the rigour c90% of revenue c8% of revenue c2% of revenue Cyveillance ALARM MEWS International Ranges Energy from waste Space OptaSense® E-X-Drive® GAJTTM Training & Simulation UAS sensors Cue
Slide 24: Maximise the Core – UK Services
Maximise the Core – UK Services • Proven sustainable businesses • Plays to future customer outsourcing − Unique competitive advantage: − Delivers customer savings (LTPA: £180m) domain expertise and impartial advice − Scalable − Long-term contracts − International sales C4ISR Force & base Test & Air
Slide 25: Maximise the Core – US Services
Maximise the Core – US Services • Established player • Large US federal services market − Strong, respected brand − Scope to grow share − Contract vehicles − Relatively resilient – not big defence − Security cleared people − Close customer relationships C4ISR Mission Cloud IT and software Logistics
Slide 26: Maximise the Core – Global Products
Maximise the Core – Global Products • Single product successes • Lumpy revenue − Strong R&D capability − Partner / acquire to broaden portfolio − Customer-led not technology-driven − Pull through Explore opportunities − Established brand in US and UK − UK / US collaboration Talon® DR-20TM Q-Nets® PA
Slide 27: Scaling an Explore opportunity – OptaSense
Scaling an Explore opportunity – OptaSense® “The earth’s nervous system”™ Distributed Fibre Sensing to protect and secure the world's critical assets QinetiQ offering • Oilfield Services − £27m Shell R&D contract − New commercial services framework agreement − Hydraulic fracture monitoring services
Slide 28: Scaling an Explore opportunity – Training and Simulation
Scaling an Explore opportunity – Training and Simulation “Transforming the way the world delivers complex training” QinetiQ offering • Deployment of COTS and gaming technology to reduce the cost of complex training • Platform independent, technology agnostic approach • Approved supplier for $2bn US
Slide 29: Test for Value – examples
Test for Value – examples Partner to minimise risk and accelerate time to market GAJTTM MEWS E-X-Drive® Energy from waste Instant GPS anti-jam Modular Electronic Hybrid electric drive Localised waste protection Warfare System transmission for tracked management; turns rubbish vehicles into power Fle
Slide 30: Next phase – Organic-Plus
Next phase – Organic-Plus Manage the portfolio actively by investing in organic growth, supplemented where appropriate by partnerships, alliances and selective acquisitions to deliver the strategy and diversify risk • MAXIMISE the Core − Invest to win share – develop offerings in step with changing
Slide 31: Creating value
Creating value • Phase one (self-help) – foundation − Focused portfolio capable of building value − Upgraded leadership; leaner company − Stronger balance sheet − Dividend restored • Phase two (Organic-Plus) – managed growth − Dividend increased − Maintain disciplines of phase one − Drive the “value
Slide 32: Questions
Questions Diary date: Investor Day, Farnborough UK Wednesday 26 September 2012 See www.QinetiQ.com/investors for further information 32
Slide 33: Appendices
QinetiQ Appendices
Slide 34: Definitions
Definitions • Underlying performance is stated before − Net restructuring recoveries/charges − Pension curtailment gains & pension past service gains − Recovery/write-offs of previously capitalised DTR programme costs − Gains/losses on business combinations & divestments and disposal of investments
Slide 35: Focus
Focus Introduced new Organised around Increase in structure: growth opportunities investment UK/US Services, (eg simulation, Sensoptics (selective) Global Products for OptaSense®) Increased transparency Integration of and control US Services Loss-makers Rapid triaged productisation Global cooperatio
Slide 36: Cultural Transformation
Cultural Transformation UK employee Fit4Growth & My US Services: support for Contribution: UK cost base upgraded leadership, new T&Cs down 15% $25m cost reduction 80% leadership Up-skilled upgraded 3,000+ employees MOD KSM* position: MOD KSM* position: Special share from 17th to 8th from 8th to 3rd
Slide 37: Balance Sheet
Balance Sheet Group-wide Refinanced balance UK DB pension processes to instil sheet; strategic scheme stabilised “passion for cash” window to 2016 Rationalisation costs deal with MOD (£65m) Gearing ratio* Gearing ratio* Further debt below 2x below 1x reduction Dividend restored in Dividend suspended
Slide 38: Detailed income statement
Detailed income statement FY12 FY11 £m £m Revenue 1,469.6 1,702.6 Underlying operating profit* 161.3 145.4 Net finance expense (43.0) (30.8) Underlying profit before tax* 118.3 114.6 Amortisation of acquired intangibles (recurring) (20.3) (26.3) DTR inventory recovery/(write-off) 4.1 (23.8) Impairme
Slide 39: Revenue by sector and customer
Revenue by sector and customer 7 22 9 31 36 FY12 FY12 £1,469.6m 19 £1,469.6m 5 42 29 8 4 26 30 36 18 FY11 FY11 £1,702.6m £1,702.6m 5 38 35 Revenue by sector (%) Revenue by customer (%) Global Products US Services Civil/Other Government Agencies MOD UK Services NASA DHS DoD Commercial Defence 39
Slide 40: Taxation
Taxation FY12 FY11 £m £m Underlying tax charge* (23.5) (21.8) Tax on non-recurring items (50.2) 0.2 Headline tax charge (73.7) (21.6) Underlying tax rate* 19.9% 19.0% *Underlying performance as defined at appendix 40
Slide 41: Balance sheet
Balance sheet FY12 FY11 £m £m Goodwill 519.3 521.1 Intangible assets 71.8 103.2 Property, plant and equipment 246.6 260.9 Working capital (62.7) (30.7) Retirement benefit obligation (net of tax) (18.2) (92.2) Other assets and liabilities (35.2) (43.9) Net debt (122.2) (260.9) Net assets 599.4 457.5
Slide 42: Business realignment
Business realignment Operating Revenue profit Margin FY11 FY11 UK Services £m £m FY11 As reported 611.6 48.7 8.0 % Restructuring 41.1 (1.3) (3.2) % Adjusted 652.7 47.4 7.3 % US Services As reported 588.2 44.3 7.5 % Restructuring 19.1 1.6 8.4 % Adjusted 607.3 45.9 7.6 % Global Products As reported 50
Slide 43: Credit and debt facilities
Credit and debt facilities Value Maturity date Denomination Value £m Private Placement February 2016 $m 43.0 26.9 Revolving Credit Facility February 2016 £m 118.0 118.0 Revolving Credit Facility February 2016 $m 250.0 156.3 Private Placement December 2016 $m 48.0 30.0 Private Placement February 2019
Slide 44: Employee numbers
Employee numbers* FY12 FY11(1) UK Services 5,157 5,337 US Services 3,940 4,686 Global Products 1,083 1,185 Total 10,180 11,208 * As at financial year end (1) Restated to reflect the transfer of businesses from Global Products at the start of FY12 44
Slide 45: 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