Restoring QinetiQ to Strength: Solid progress. QinetiQ Interim Results 2010 Thursday 18 th November 2010

Transcription

1 Restoring QinetiQ to Strength: Solid progress QinetiQ Interim Results 2010 Thursday 18 th November 2010

2 Leo Quinn Chief Executive Officer

3 Agenda 1. Headlines 2. Financial overview 3. Operational update 4. Q&A

4 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

5 Financial Overview David Mellors Chief Financial Officer

6 Summary financial headlines HI FY11 H1 FY10 Change Organic change at constant currency Revenue % 6% Operating profit* % Operating margin* 7.5% 7.8% Profit before tax* % Earnings per share* (pence) 6.5p 5.7p 14% Net cash from operations* (post capex) % Cash conversion* (post capex) 231% 148% Net debt (327.0) (452.3) (27.7)% Gearing Ratio* 1.9x 2.2x Dividend (pence) p *Underlying performance and Gearing Ratio as defined on slide 28 6

7 Group revenue bridge (13.2) H1 FY10 FX Acquisition/ disposal adjustments H1 FY10 Pro-forma Organic growth 6% 7

8 Organic revenue bridge (19.8) (21.7) (6)%* (7)%* 61%* * Organic change at constant currency H1 FY10 Pro-forma US Services UK Services Global Products 8

9 Segmental analysis of profit Operating profit* Operating profit margin* H1 FY10^ % H1 FY10^ % US Services UK Services Global Products Group * Underlying performance as defined on slide 28 ^ Restated to reflect new segmental split 9

10 Underlying EPS pension finance credit impact Pence H1 FY10 Operating Profit Net finance expense Taxation Rate 10

11 Non recurring items* H1 FY10 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 impairment of investments Total non recurring items (pre tax) (89.2) (46.4) * Acquisition amortisation and specific non-recurring items. 11

12 Strong cash conversion (6.3) (8.1) (0.2) Operating profit Non-cash items Working capital DB Pension Capex Other Net cash flow from operations post capex 12

13 Movements in net debt H1 FY10 Net cash flow from operations post capex Net interest paid Tax (17.2) (20.7) (13.4) 4.5 Cash impact of the sale of property - (0.2) Free cash flow Reorganisation costs (5.8) (13.7) Other (Acquisitions, Investments, Divestments & Dividends) 0.1 (29.0) Change in net debt before FX FX translation impact Change in net debt Opening net debt (457.4) (537.9) Closing net debt + (327.0) (452.3) + $: rate 1.58 at 30 September 2010 (1.60 at 30 September 2009) 13

14 Borrowings and debt facilities FY10 H1 FY10 Net debt () Committed facilities* () Net debt: EBITDA ** Covenant limit ** * US$ denominated facilities translated at rate of $1.58: 1 on 30 September 2010, $1.52: 1 on 31 March 2010 and $1.60: 1 on 30 September 2009 ** Annualised and calculated in accordance with credit facility ratios Committed facilities include: 500m revolving credit facility maturing Aug 2012 $135m private placement maturing Dec 2013 $62m private placement maturing Feb 2016 $125m private placement maturing Dec 2016 $238m private placement maturing Feb Sept 2010 Sept 2011 Sept 2012 Sept 2013 Unutilised Sept 2014 Sept 2015 Sept 2016 Utilised Sept 2017 Sept 2018 Sept

15 Defined benefit pension scheme IAS19 balance sheet position 30 Sept March Sept 2009 Market value of assets 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 Net pension liability (134.8) (106.1) (113.1) Assumptions: FY10 H1 FY10 % % % Discount rate Inflation Sensitivity of deficit to main assumptions: Discount rate: 0.1% change -/+ 24m Inflation rate: 0.1% change +/- 24m Real salary increase: 0.1% change +/- 7m Life expectancy 1yr +/- 23m 15

16 Operational Update Leo Quinn Chief Executive Officer

17 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-leading defence markets High calibre of QinetiQ s people, expertise and IP Markets expected to remain challenging throughout this period 17

18 Focus Simplify and align structure with business models Clarify direction Regular portfolio reviews eliminate loss-making and / or non-core activities US Services Aerospace Engineering Aviation Logistics IT & Cyber Operations Software Engineering Systems Engineering Training UK Services Test and Evaluation Air Engineering Technical Information Services - Cyber Security & C4ISTAR - Programme & Procurement Support Training Global Products Unmanned systems Survivability Sensor Networks Vehicle Power Management ~75% > Services > Advice > Nationally focused ~25% > Products > Supply > Globally targeted Simplified structure in place including common framework for Global Products 18

19 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 competitiveness UK T&Cs renegotiated, 10% restructuring programme on track US Global Products headcount reduced by 90 in Q1 Driven by relentless leadership processes F4G = Fit 4 Growth to streamline processes and reduce costs My Contribution to enable greater competitiveness 19

20 Balance sheet strengthened 12 month progress (26.0) (11.8) (25.1) (3.7) month improvement in working capital of 92.0m H2 FY10 Operating profit Non-cash items Trade & other receivables Trade & other payables Inventories DB Pension Capex Other Net cash flow from operations post capex Net debt at 30 September 2009 FX Net cash flow from operations post capex Re-org costs Net tax and interest paid Other Net debt at 30 September 2010 (452.3) (9.3) (27.5) (49.3) (20.4) (327.0) Gearing ratio* at 1.9x achieved ahead of plan *Gearing ratio as defined on slide 28 20

21 Operational update US Services H1 FY10 Orders Revenue Underlying Operating Profit* Underlying Operating Profit Margin* 7.8% 8.8% Book to Bill Ratio 1.0:1 0.9:1 Making spaceflight safer Strengths National model with licence to play brand, security cleared people, contract vehicles all established Stable cash flows low risk Key actions Keep cost base low Focus on higher value add areas Continue to leverage contract vehicles across Government agencies Market trends In-sourcing decreasing Growth opportunity in attractive sectors Margin pressure from customer will drive scale efficiency Goal Drive profitable organic growth Globalise potential of US cyber assets Accelerating maintenance operations Enhancing mission planning *Underlying performance as defined on slide 28 21

22 Operational update UK Services H1 FY10 Orders Revenue Underlying Operating Profit* Underlying Operating Profit Margin* 7.3% 9.1% Book to Bill Ratio 0.9:1 0.9:1 Supporting aircrew training Strengths Delivers value and capability to customer Trusted as independent expert Training and simulation Market trends Post SDSR search for efficiencies Industrial and Technology Policy to be published 2011 Cyber growth IT security in nuclear power plants Key actions Continue to drive productivity while maintaining capability Work alongside MOD as key supplier Goal Aggressively seek to expand key value streams Flex cost base with revenues Applying digital forensics *Underlying performance as defined on slide 28 22

23 Operational update Global Products H1 FY10 Orders Revenue Underlying Operating Profit* Underlying Operating Profit Margin* 7.3% 2.6% Book to Bill Ratio 1.7:1 1.1:1 Q-NETs lightweight RPG protection Strengths Potential within IP portfolio Domain expertise US / UK presence Key actions Triage leakers to stabilise Drive current momentum in UK/US collaboration Focus innovation process to accelerate commercialisation Market trends Global market US market early technology adopter Global S&T spend tightening Goal Broaden product portfolio in market organic & acquired technology Different business models to maximise value Fibre-acoustic sensing for Shell UK & US know-how to armour Ocelot *Underlying performance as defined on slide 28 23

24 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 uncertain for some time 24

25 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: Absent any immediate material change in customer requirements, overall the Group will meet its expectations for the current financial year, as Global Products fulfils current order demand Continue to position our businesses for profitable growth in medium term 25

26 Q&A

27 Appendix

28 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 assets and property plant and equipment Tax effect of the above Organic growth: Is calculated at constant foreign exchange rates, adjusting the comparatives to incorporate the results of acquired entities and excluding the results for any disposals for the same duration of ownership as the current period The gearing ratio (adjusted net debt: EBITDA) is the ratio of net borrowings at the balance sheet date translated at average exchange rates for the period, to EBITDA generated in the 12 month period to balance sheet date, and calculated in accordance with the Group s credit facility ratios. 28

29 Detailed income statement H1 FY10 Revenue Underlying operating profit* Net finance expense (13.3) (17.4) Underlying profit before tax Asset impairments & business disposals (4.8) 6.5 Amortisation of acquisition related intangibles (13.9) (12.9) Inventory provision against capitalised DTR Programme bid costs (37.1) - Restructuring (33.4) (40.0) Statutory loss before tax (37.6) (1.3) Taxation (4.5) 2.1 Statutory (loss)/profit after tax attributable to equity shareholders (42.1) 0.8 *Underlying performance as defined on slide 28 29

30 Revenue by sector and customer 864.9m 864.9m H1 FY m H1 FY m Revenue by sector (%) Revenue by customer (%) UK Services Global Products US Services Civil/Other Government Agencies MOD DoD DHS Commercial Defence 30

31 Taxation H1 FY10 Underlying tax charge* (8.8) (8.2) Tax on non-recurring items Headline tax (charge) / credit* (4.5) 2.1 Underlying tax rate* % 17.1% 18.2% * Underlying performance as defined on slide 28 31

32 Balance sheet H1 FY10 Goodwill Intangible assets Property, plant and equipment Working capital (22.5) 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

33 Capital investment H1 FY10 Expenditure on tangible assets Investment in intangible assets* Development costs Purchased software and other intangibles Depreciation and amortisation* Tangible Intangible assets Development costs Other Total * Excluding amounts arising on acquisition of the business 33

34 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, achievements and events are most likely to vary materially from those implied by the forward-looking statements. The forward-looking statements concern future circumstances and results and other statements that are not historical facts, sometimes identified by the words 'believes',' expects, predicts, intends, projects, plans, estimates, aims, foresees, anticipates, targets, goals, due, could, may,'should, and similar expressions. These forward-looking statements include, without limitation, statements regarding the Company's future financial position, income growth, impairment charges, business strategy, projected levels of growth in the relevant markets, projected costs, estimates of capital expenditures, and plans and objectives for future operations. Nothing in this document should be regarded as a profit forecast. The forward-looking statements, including assumptions, opinions and views of the Company or cited from third party sources, contained in this Results Announcement are solely opinions and forecasts which are uncertain and subject to risks. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to be correct. Actual results may differ materially from those expressed or implied by these forward-looking statements. A number of factors could cause actual events to differ significantly. These factors include, but are not limited to: Defence budgets which are subject to review and change from time to time and the level of available funding open to private contractors in the United Kingdom and United States; The winning of new business or retention of previous business through a competitive bidding process; The continued growth of the Company's US business and the availability of attractive candidates for further acquisitions; The level of pension liability the Company accrues, given market conditions and actuarial factors; Material adverse changes in economic conditions in the markets served by the Company; and Future regulatory actions and conditions in the Company's operating areas, including competition from others. Most of these factors are difficult to predict accurately and are generally beyond the control of the Company. Any forward-looking statements made by or on behalf of the Company speak only as of the date they are made. Save as required by law, the Company will not publicly release the results of any revisions to any forward-looking statements in this document that may occur due to any change in the Directors expectations or to reflect events or circumstances after the date of this document. 34