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RNS Number : 0066P
QinetiQ Group plc
14 October 2021
News release
QinetiQ Group plc
Trading Update
14 October 2021 - QinetiQ Group plc ("QinetiQ" or "the Group")
today issues a trading update covering its second quarter to 30
September 2021, ahead of publishing its interim results on 11
November 2021.
Strong underlying operating performance - continued strategic
momentum
Group half year performance is in line with market consensus
expectations, subject to audit. We have delivered strong underlying
operating performance at Group level with excellent order intake at
GBP700m, 25% higher than the first half of FY21. For the full year,
we expect to deliver mid-single digit organic revenue growth at
c.5% and underlying operating profit margin at the lower end of our
11-12% expected range (prior to any one-off write down, see below).
This expectation includes short-term effects of the customer's
mission shifting from Afghanistan and COVID related delivery and
supply chain challenges in the US. Operating cash flow has been
good and we retain a strong balance sheet with net cash at 30
September 2021 of approximately GBP140m.
We are experiencing technical and supply chain issues on a large
complex programme, which, if unmitigated, could result in the need
for a one-off write down to our short-term guidance. We are working
closely with our customer and are making progress, jointly with our
supply chain, towards recovery of the programme and mitigating this
risk to less than GBP15m.
We are maintaining our medium to long-term guidance: we continue
to target mid-single digit percentage compound annual organic
revenue growth over the next 5 years, with strategic acquisitions
further enhancing this growth. Similarly, we continue to target
operating profit margin of 12-13%, although in the short-term we
continue to anticipate margins being c.100bps lower, driven by
increased investment on our digital transformation programme and by
the evolution of our business mix. Capital expenditure remains in
the region of GBP90m to GBP120m per annum for the next two
years.
EMEA Services
EMEA Services has continued to perform particularly strongly
during the first half, with good orders, revenue, profit and cash
flow delivering excellent growth in Australia and the UK. Across
the division, we are well placed to continue this strong
growth.
Global Products
Strong EMEA Services performance has offset short-term weaker
performance in the US, which reduced first half revenue, profit and
cash flow in Global Products. US revenue reduced by 15% compared to
the second half of FY21 as a result of entering the year with lower
orders due to short-term effects of COVID, transition to the new US
administration and the customer's priorities shifting from
counter-insurgency missions in Afghanistan to emerging near-peer
threats in the Indo-Pacific. This also included COVID related
delivery and supply chain challenges in our legacy QNA business
e.g. initial production ramp-up of Common Robotic System-Individual
(CRS-I) robots.
Positively, we achieved excellent order intake in the US at
$184m compared to $83m in the second half of FY21. This provides a
solid foundation to deliver a stronger second half, enhanced by
changes to leadership and organisation focus made under our new
Special Security Agreement (SSA) Board following dissolution of the
Proxy Agreement.
Strategic progress
Our strategy to build an integrated global defence and security
company delivering for our customers' advantage continues at pace.
We remain focused on our six home and priority countries and our
six distinctive offerings, using our balance sheet to support
growth into our >GBP20bn addressable market through both strong
organic growth and strategically aligned acquisitions. With
c.GBP450m orders won in the second quarter, we achieved a number of
successes that demonstrate our strategic momentum:
-- $64m CRS-I Full-Rate Production (FRP) contract - we have secured
a $64m FRP contract in the US for over 1,200 CRS-I units with a
multi-year delivery schedule for the US Army. CRS-I enables a heightened
capability for organic tactical reconnaissance, surveillance and
target acquisition to enhance manoeuvres and protection for dismounted
forces. The small advanced robotic platform is lightweight and
highly mobile offering unprecedented capability in multi-domain
environments including special payloads, advanced sensors and mission
modules.
-- AU$27m Major Service Provider (MSP) contract - alongside our MSP
partners, we have secured an AU$27m order to assist the Australian
Department of Defence in delivering its largest and most complex
Land projects. This contract positions us for future growth as
a trusted partner able to provide sovereign Australian industry
capability, while leveraging our global capabilities.
-- GBP68m Weapons Sector Research Framework (WSRF) orders - we have
won orders totalling GBP68m on the WSRF contract for development
and deployment of directed energy weapons for UK MOD, an important
capability as identified in the Integrated Review earlier in the
year. We were appointed to lead the WSRF in June 2020 by DSTL,
alongside industry partners MBDA and Thales. The framework, which
we expect to be worth GBP300m over five years, brings together
more than 100 industry and academic partners to research and develop
technologies for the benefit of UK MOD.
-- Building a disruptive mid-tier company in the US - our ambition
is to more than double the size of the US business over the next
5 years through both organic growth and strategy-led acquisitions.
Having supported the first phase of growth, Mary Williams has chosen
to step back from day-to-day operations and remains as a strategic
advisor to the company. We have taken this opportunity to make
a number of changes to leadership and organisation focus to create
the capability to drive operational performance and accelerate
our growth ambition. We are actively recruiting a new US CEO and
have appointed two senior leaders for our newly named C5ISR Solutions
and Technology Solutions business units, formerly known as MTEQ
and QNA respectively. In addition, we appointed Lawrence (Larry)
Prior III to the QinetiQ Plc Board in July bringing a wealth of
US experience from aerospace, defence and government services,
making him ideal to support our global ambition.
On 2 July 2021, we announced that David Smith, Chief Financial
Officer, intended to retire. David's successor, Carol Borg, has now
joined the company and will take over from 1 December 2021.
Steve Wadey, Group Chief Executive Officer said:
"Overall the Group has delivered strong operational performance
in the first half of the year. We continue to deliver for our
customers around the world, with EMEA Services delivering very
strong performance to offset short-term weaker US performance in
Global Products, due to the changing customer mission and COVID. We
remain focused on delivering our strategy to build an integrated
global defence and security company, through both organic growth
and acquisitions. I am pleased with our continued strategic
momentum, demonstrated by excellent order intake including a range
of significant contract wins."
Investor and analyst call:
Management will host a call for investors and analysts at 08.00
BST on 14 October 2021. Please join using the following details:
+44 (0) 33 0551 0200, Password: QinetiQ
Interim results
QinetiQ will announce its interim results on 11 November 2021.
We will be hosting a virtual results presentation, details of which
will be available on our website shortly at:
www.QinetiQ.com/investors .
About QinetiQ
QinetiQ (QQ.L) is a leading science and engineering company
operating primarily in the defence, security and critical
infrastructure markets. We work in partnership with our customers
to solve real world problems through innovative solutions
delivering operational and competitive advantage. Visit our website
www.QinetiQ.com . Follow us on LinkedIn and Twitter @QinetiQ. Visit
our blog www.QinetiQ-blogs.com .
Inside information
This announcement contains inside information and the person
responsible for making this announcement is Jon Messent, Company
Secretary.
For further information please contact :
John Haworth, Group Head of Investor Relations: +44 (0) 7920 545841
Chris Barrie, Citigate Dewe Rogerson (Media enquiries): +44 (0) 7968 727289
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END
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October 14, 2021 02:00 ET (06:00 GMT)
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