Qinetiq Group Plc · LSE:QQ.
Qinetiq — FY2014 Earnings Presentation
42 slides from Qinetiq's earnings presentation, May 22, 2014
Slide 1: Preliminary Results for year ended 31 March 2014
Draft Preliminary Results for year ended 31 March 2014 QinetiQ Group plc 22 May 2014 1
Slide 2: Agenda
Draft Agenda 1. Headlines 2. Financial overview 3. Business overview 4. Q&A 2
Slide 3: Headlines
Headlines • EMEA Services – orders and revenue growth achieved • US Services – agreed sale, creating a stronger, more focused Group • US Global Products – new Proxy Board and Chairman appointed • Balance street strengthened • 21% uplift in progressive dividend • Initiating £150m share buyback on com
Slide 4: Financial overview
Draft Financial overview David Mellors Chief Financial Officer 4
Slide 5: Summary financial headlines
Summary financial headlines FY14 FY13 £m £m Revenue 1,191.4 1,327.8 Operating profit* 132.7 168.7 Operating margin* 11.1% 12.7% Earnings per share* (pence) 16.0 18.9 Statutory earnings per share (pence) (1.9) (20.5) Net cash from operations (post capex)* 136.5 175.9 Cash conversion (post capex)* 103
Slide 6: Revenue bridge
Revenue bridge 1,327.8 15.3 (54.6) (93.4) (3.7) 1,191.4 £ million FY13 EMEA Services US Global Products FX FY14 Services 6
Slide 7: Segmental analysis of profit and margin
Segmental analysis of profit and margin Operating profit* FY14 FY13^ £m £m EMEA Services 86.7 84.8 US Services 19.0 23.7 Global Products 27.0 60.2 Group 132.7 168.7 Margin % FY14 FY13^ 14.3% EMEA Services 14.3% 4.6% US Services 5.1% 15.4% Global Products 22.3% * Underlying performance as defined at
Slide 8: Specific adjusting items
Specific adjusting items* FY14 FY13 £m £m Items with cash impact Reduction in pension liabilities on closure to future accrual 31.1 - Pension mitigation closure costs (4.0) - US Services transaction costs (6.0) - Gain on disposal of business - UK Calibration 1.1 - Restructuring costs (0.3) (16.3) Ga
Slide 9: US Services disposal – earnings impact
US Services disposal – earnings impact Pro forma Assumes May 2014 completion FY15 (Full year) Operating profit - US Services results ("discontinued") Not included n/a - Global Products back office setup c.$5m H1 n/a Interest - PP savings 9 months $18m Profit after tax - discontinued business results
Slide 10: Movements in net cash
Movements in net cash 74.0 157.3 (20.8) (9.2) (10.3) (26.8) 6.3 170.5 103% cash conversion £ million Net cash Cash flow from Net capex Net interest & Net Dividends Other* Net cash 31 Mar 13 operations tax restructuring 31 Mar 14 *Other includes costs associated with closure of pension scheme to futu
Slide 11: 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 £m £m £m £m £m £m Working capital 154.0 107.2 (30.7) (62.7) (148.3) (155.3) Retirement benefit obligation (pre-tax) (105.2) (147.3) (124.6) (31.5) (54.1) (22.2) Net (debt
Slide 12: Outlook
Outlook • Notwithstanding the strong performance in EMEA Services last year, the MOD transformation programme is likely to create some short- term uncertainty in the UK defence market, and the division’s performance as a whole is expected to remain steady this year. • At the same time there is a wid
Slide 13: Business overview
Draft Business overview Leo Quinn Chief Executive Officer 13
Slide 14: Market environment
Market environment • US and UK military drawdown from Afghanistan • UK Government driving value through defence transformation − GOCO cancelled but DE&S now at arm’s length from MOD − New “Yellow Book” single source pricing terms − Responsibility shifted to Front Line Commands • New markets − Intern
Slide 15: Our journey
Our journey Organic-Plus Maximise the ‘Core’ Grow 24 month Scale the ‘Explore’ Sustain the rigour in ‘Test for Value’ self-help plan Focus Cultural transformation Win Strengthen the balance sheet Fix 2010 Beyond 2012 2015 Positioning the portfolio for growth 15
Slide 16: A stronger, more focused Group
A stronger, more focused Group Is it real, can we win, is it worth it? Core Explore Test for Value c85% of revenue c10% of revenue c5% of revenue • Weapons Standalone businesses: • International procurement • Training advice • Air EMEA Services • Cyber Security (includes • Smart metering assurance •
Slide 17: Driven by cultural transformation
Driven by 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 Employee Survey 2009 2010 2011 2012 2013 Culture’s impact on performance Investing in a generation
Slide 18: EMEA Services – performance in period
EMEA Services – performance in period FY14 FY13^ • Encouraging increase in sales and order book £m £m • International opportunities but slow to convert Orders† 447.8 402.2 • Margins maintained Revenue 607.0 594.6 • Productivity improvements Underlying Operating Profit* 86.7 84.8 • Better project exe
Slide 19: EMEA Services – core businesses
EMEA Services – core businesses Air Weapons Maritime C4ISR • Tests military aircraft • Independent research, • Independent research, • Leading supplier Overview and equipment evaluation and training design, integration, test of research and • Evaluates risks and services for integrated and evaluatio
Slide 20: EMEA Services – 'Explore' businesses
EMEA Services – ‘Explore’ businesses Procurement Cyber Security Cyveillance® Advice Training • Cyber monitoring for • Predictive threat • Government • COTS technology to Overview CNI and high value intelligence procurement advice reduce the cost of businesses including tender training assessment, co
Slide 21: Global Products – performance in period
Global Products – performance in period FY14 FY13^ £m £m £m 400 Orders 149.1 223.9 Revenue 175.6 269.4 300 Underlying Operating Profit* 27.0 60.2 Underlying Operating Profit Margin* 15.4% 22.3% Book to Bill Ratio 0.8x 0.8x 200 Funded Backlog 74.3 125.3 100 • Lumpy revenue profile • Continued require
Slide 22: Global Products – a portfolio in transition
Global Products – a portfolio in transition Core PADS® TALON® Q-Net® LAST® Armor SWATSTM Global Products Power Lines Robotic Sensors applique kits Test for Explore Value Integrated Warrior OptaSense® SystemTM MEWSTM Small satellites Greater focus on non-defence markets driven by Organic-Plus 22
Slide 23: 'Explore' business – OptaSense
‘Explore’ business – OptaSense® CENTRAL TECHNOLOGY DEVELOPMENT OF DISTRIBUTED ACOUSTIC SENSING (DAS) NOC/IOC Incorporating Sensoptics and new Redfern Integrated Optics (RIO) acquisitions (vertical integration of the supply chain) Vertical market Oil Pipeline Border Rail Road Subsea and Gas Security
Slide 24: Delivering shareholder value
Delivering shareholder value 2009 – 2014 Drivers of future value creation £150m committed share buyback c.£250m pension • Maintain strong cash generation liability and efficient balance sheet reduction* c.£100m • Build on momentum in EMEA In excess of progressive Services £1bn of dividend • Drive ‘E
Slide 25: Questions
Draft Questions Download the QinetiQ Investor Relations app from the App Store or scan the QR code 25
Slide 26: Appendices
Draft Appendices 26
Slide 27: 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; − Impair
Slide 28: 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 28
Slide 29: Transforming QinetiQ
Transforming QinetiQ New portfolio LTPA re-priced UK DB pension structure and EEG replaces – closure to standard reporting unions to raise future accrual pack employee Cultural engagement Growth phase transformation begun launched – Balance sheet with modernisation of Organic-Plus turns net cash UK
Slide 30: Income statement of full Group
Income statement of full Group FY14 FY13 £m £m Revenue 1,191.4 1,327.8 Underlying operating profit* 132.7 168.7 Net finance expense (13.3) (16.6) Underlying profit before tax* - 119.4 152.1 Amortisation and impairment of acquisition-related intangibles (11.0) (14.0) Pension net finance expense (1.7)
Slide 31: Balance sheet of full Group
Balance sheet of full Group 31 March 2014 31 March 2013 £m £m Goodwill 141.3 290.4 Intangible assets 44.2 57.8 Property, plant and equipment 233.8 241.4 Working capital (155.3) (148.3) Retirement benefit obligation (net of tax) (20.9) (40.4) Other assets and liabilities (35.5) (36.4) Net cash 170.5
Slide 32: Income statement of disposal group – US Services
Income statement of disposal group – US Services FY14 FY13 £m £m Revenue 408.8 463.8 Underlying operating profit* 19.0 23.7 Net finance expense (0.8) - Underlying profit before tax* - 18.2 23.7 Significant adjusting items (92.1) (264.4) Statutory loss before tax (73.9) (240.7) Taxation (3.0) 17.6 St
Slide 33: Balance sheet of disposal group – US Services
Balance sheet of disposal group – US Services 31 March 2014 31 March 2013 £m £m Goodwill 41.4 137.7 Intangible assets 33.6 45.1 Property, plant and equipment 6.1 9.1 Working capital 24.0 34.9 Other assets and liabilities (0.8) 3.1 Net cash - 11.3 Net assets 104.3 241.2 33
Slide 34: Earnings Per Share
Earnings Per Share* (pence) 18.9 (4.5) 0.5 (0.1) 1.2 16.0 pence FY13 Operating Finance Number of shares Effective FY14 profit expense tax rate * Underlying performance as defined at appendix 34
Slide 35: Revenue by sector and customer
Revenue by sector and customer Revenue by sector (%) Revenue by customer (%) MOD 15% 21% DoD EMEA Services 41% DHS FY14 5% FY14 51% US Services NASA £1,191.4m £1,191.4m Global Products 34% Commercial Defence 14% Civil/Other 1% 18% Government agencies MOD 20% 21% DoD 35% EMEA Services DHS FY13 45% FY
Slide 36: Taxation
Taxation FY14 FY13 £m £m Underlying tax charge* (15.4) (29.2) Tax on non-recurring items (1.4) 33.0 Headline tax charge (16.8) 3.8 Underlying tax rate* 12.9% 19.2% * Underlying performance as defined at appendix 36
Slide 37: Cash conversion
Cash conversion FY14 FY13 £m £m Underlying operating profit* 132.7 168.7 Share of JVs & associates (0.1) (0.1) Operating profit before JVs & associates* 132.6 168.6 Cash flow from operations* 157.3 194.4 Net capex (20.8) (18.5) Net cash flow from operations post capex 136.5 175.9 Cash conversion %*
Slide 38: Movements in net cash
Movements in net cash FY14 FY13 £m £m Free cash flow 127.3 139.3 Net restructuring (outflow)/inflow (10.3) 63.1 Pensions scheme closure costs (4.0) - Sale of investment - 3.8 Dividends (26.8) (20.1) Purchase of own shares (0.5) (0.4) Other (0.1) 18.6 Change in net cash/debt before FX 85.6 204.3 FX t
Slide 39: Defined benefit pension scheme – IAS 19 balance sheet position
Defined benefit pension scheme – IAS 19 balance sheet position FY14 FY13 £m £m Market value of assets 1,304.6 1,256.5 Present value of scheme liabilities (1,326.8) (1,310.6) Net pension liability before deferred tax (22.2) (54.1) Deferred tax asset 1.3 13.7 Net pension liability (20.9) (40.4) FY14 F
Slide 40: Credit and debt facilities
Credit and debt facilities Value Value Maturity date Denomination in denomination £m Revolving Credit Facility February 2016 £m 118.0 118.0 Revolving Credit Facility February 2016 $m 250.0 149.9 Private Placement* February 2016 $m 43.0 25.8 Private Placement* December 2016 $m 48.0 28.8 Private Place
Slide 41: Employee numbers at year end
Employee numbers at year end 31 March 2014 31 March 2013 EMEA Services 5,399 5,352 Global Products 834 927 Continuing Operations 6,233 6,279 US Services 2,704 3,219 Total 8,937 9,498 41
Slide 42: 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