TIDMQQ.
RNS Number : 9167Z
QinetiQ Group plc
23 May 2019
23 May 2019
Our strategy is delivering - third year of growth
Results for the year ended 31 March 2019
Statutory results Underlying* results
2019 2018 2019 2018
Revenue GBP911.1m GBP833.0m GBP911.1m GBP833.0m
Operating profit GBP113.8m GBP141.0m GBP123.9m GBP122.5m
Profit after tax GBP113.9m GBP138.1m GBP111.5m GBP109.0m
Earnings per share 20.1p 24.4p 19.7p 19.3p
Full year dividend per share 6.6p 6.3p 6.6p 6.3p
Total funded order backlog(1) GBP3,133.6m GBP2,005.4m
Total orders in the period(2) GBP776.4m GBP587.2m
Net cash inflow from operations GBP125.6m GBP132.4m GBP126.3m GBP126.5m
Net cash GBP188.5m GBP266.8m
* Definitions of the Group's 'Alternative Performance Measures' can
be found in the glossary.
(1) 2019 includes LTPA amendment signed 5 April 2019
(2) Includes share of Joint Ventures, excludes LTPA contract amendments
Delivered third year of organic growth
- Orders up 32%, record GBP3.1bn high-quality backlog(1)
- Revenue up 9%, 8% on an organic basis
- Underlying operating profit up 1% including GBP7m non-recurring
trading items (2018: GBP9m), excluding them up 3% on an organic
basis, offsetting UK single source profit headwind
- 102% underlying cash conversion pre-capex
- Underlying EPS up 2%; 5% increase in full year dividend
Driving growth through disciplined execution of strategy
- Secured GBP1.3bn amendment to Long Term Partnering Agreement (LTPA)
with UK MOD
- Won five competitive long-term programmes: UK, US & Canada
- Completed one acquisition and one strategic investment to grow
training offering
- Grown international revenue from 21% to 30% in three years
- Engaged employees in driving and sharing benefits of growth
Priorities for FY20
- Operational performance; 74% revenue under contract (2018: 69%)
- Deliver first year of amended LTPA contract and develop growth
opportunities
- Win further competitions and accelerate growth by pursuing campaigns
globally
- Drive sustainable profitable growth through continued investment
- Maintaining expectations for Group performance in FY20
Steve Wadey, Group Chief Executive Officer said:
"This has been an excellent year with strong operational
performance. By improving our customer focus and competitiveness,
we have delivered a third successive year of revenue growth,
increased our international revenue share from 21% to 30% over the
last three years, offset the UK single source profit headwind and
delivered organic profit growth.
"Securing the LTPA amendment and winning five major competitive,
long-term programmes demonstrates that our strategy is working,
providing a platform for sustainable profitable growth."
Preliminary results presentation:
There will be a presentation of the preliminary results at 0900
hours UK time on 23 May 2019 at the London Stock Exchange, 10
Paternoster Square, EC4M 7LS. A webcast of the presentation is
available at: www.QinetiQ.com/investors and through which
participants will be able to ask questions. An audiocast of the
event will also be available by dialling +44 20 3936 2999
Participant Access Code: 681325
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.
For further information please contact:
David Bishop, Group Director Investor Relations
and Communications: +44 (0) 7920 108675
Ian Brown, Group Head of Investor Relations: +44 (0) 7908 251123
Jon Hay-Campbell, Group Head of Communications: +44 (0) 7500 856953
Basis of preparation:
Throughout this document, certain measures are used to describe
the Group's financial performance which are not recognised under
IFRS or other generally accepted accounting principles (GAAP). The
Group's Directors and management assess financial performance based
on underlying measures of performance, which are adjusted to
exclude certain 'specific adjusting items'. In the judgment of the
Directors, the use of alternative performance measures (APMs) such
as underlying operating profit and underlying earnings per share
are more representative of ongoing trading, facilitate meaningful
year-to-year comparison and, therefore, allow the reader to obtain
a fuller understanding of the financial information. The adjusted
measures used by QinetiQ may differ from adjusted measures used by
other companies. Details of QinetiQ's APMs are set out in the
glossary to the document.
Year references (FY20, FY19, FY18, 2020, 2019, 2018) refer to
the year ended 31 March.
Disclaimer
This document contains certain forward-looking statements
relating to the business, strategy, 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', 'potential', 'likely' and similar
expressions, although these words are not the exclusive means of
doing so. 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. Forward-looking statements contained in this
announcement regarding past trends or activities should not be
taken as a representation that such trends or activities will
continue in the future. 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 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 and these are set out in the principal risks and
uncertainties section of this document.
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.
Chief Executive Officer's Review
We are pleased to report another year of organic revenue growth
and record order backlog. Three years since launching our
vision-based strategy we have reversed five years of revenue
decline and delivered three years of growth. In addition, we drove
performance across the Group to successfully offset a GBP5-6m
profit headwind from UK single source regulations in FY19 and
delivered organic growth in operating profit. For FY20, we are
maintaining expectations for Group performance, excluding
non-recurring trading items, with revenue growth at stable margins
resulting in continued operating profit progression.
This year marked a number of significant strategic achievements
that will underpin sustainable profitable growth of QinetiQ in the
years ahead.
Shortly after the period end we agreed a significant amendment
to the Long Term Partnering Agreement (LTPA) for test, evaluation
and training services, our largest single contract and the
foundation for many of the capabilities we offer. This secures our
market leading position in this critical UK capability, facilitates
investment to enhance this capability at appropriate returns for
our shareholders, and provides a platform for UK and international
growth.
During the year we won five long-term, competitive programmes
that mark a step change in our ability to understand our customer
requirements, draw on resources across the whole of QinetiQ and
identify key industry partners. In every case, these wins provide
us with opportunities to enhance our expertise and the value we can
derive from these capabilities in the future.
In the UK, we were selected with our partners to become the
Engineering Delivery Partner (EDP) to the UK Ministry Of Defence
(MOD) procurement agency Defence Equipment & Support
(DE&S), establishing the default contracting route for all
engineering services. We also won the Battlefield Tactical
Communication and Information Systems (BATCIS) contract, our
largest competitive UK win, awarded by an area of the UK MOD we had
not worked with regularly before. Winning these types of contract
moves us up the value chain and deepens our relationship with key
customers creating further opportunities.
We are applying the same approach in markets outside of the UK
to deliver our ambition of 50% of revenues from international
customers.
In the US, we won two robotic programs of record: the Common
Robotic System-Individual (CRS-I) program for small robots worth up
to $164m over 7 years, and a $12m order as part of the Route
Clearance and Interrogation System (RCIS) program for route
clearance vehicles which is worth up to $44m. This positions us
well for future growth in an attractive and dynamic market. Our
focus on strategic business winning will deliver greater stability
in the performance of our Global Products division, through
expansion of the product portfolio and larger, longer-term
programmes.
In Canada, we were awarded a C$51m contract to provide Unmanned
Aerial System (UAS) services to the Royal Canadian Navy and
Canadian Special Operations Forces Command. We won this
competition, our largest ever export order, by combining the strong
relationship with the Canadian customer, expertise in unmanned
systems and manufacturing facilities acquired through QinetiQ
Target Systems, with broader defence capabilities from across the
QinetiQ Group.
We completed one further acquisition and one strategic
investment during the year that complement our capabilities and
allow us to access attractive adjacent markets in UK and
international training. With a strong balance sheet, we have the
ability to continue to acquire attractive businesses that
complement our strategy, enhance our capabilities and increase our
international reach.
QinetiQ is a company built on the expertise of its people who
are critical to our success. Our focus is on creating the right
culture and ensuring everyone feels engaged in our strategy and
driving growth. This year we launched a new all-employee incentive
scheme, the first time QinetiQ has provided a company-wide bonus.
The scheme aligns our employees and shareholders by incentivising
and rewarding growth and I am delighted that in its first year of
introduction it will pay out GBP1,000 to every employee in the
company.
It has been an excellent year for QinetiQ, with strong
operational performance and further evidence of our strategy
delivering results. I would like to take this opportunity to thank
the hard work of all our people who have been instrumental in
delivering such significant change, and who will be critical to
sustaining our strategy and delivering continued profitable growth
in the years ahead.
Strategy
Our strategy was developed in anticipation of the market
conditions we see today and launched three years ago to deliver our
vision of becoming the chosen partner around the world for
mission-critical solutions, innovating for our customers'
advantage.
We have been consistent in the application of our strategy over
the past three years, and the improvements we are delivering in our
financial performance, our ability to win new business and our
increasing international footprint are the direct result of its
implementation.
In 2016 we also launched a transformation programme to put in
place the key changes that we needed to deliver growth. The
programme has improved our customer focus and competitiveness by
delivering key changes in leadership and organisation, operational
excellence, and business winning, and ensuring a disciplined
approach to investment in our future. To enable our ambition of
generating 50% of revenue from outside the UK, the focus of the
programme is now on the transformational change that is required
for QinetiQ to become a high-performing, global, and
digitally-enabled company.
UK defence test and evaluation
QinetiQ has a unique role in UK defence. Defining and supporting
this set of capabilities is the Long Term Partnering Agreement
(LTPA), our largest contract, underpinning UK defence test and
evaluation (T&E) capability.
Our strategy is to invest in and modernise this unique
capability, enabling us to meet our customers' growing demand for
more complex and integrated testing and training. This approach
provides us with a strong foundation, securing UK customers and
growing international users. Being a leader in UK T&E is also
critical to supporting our international ambitions. Our ability to
win work internationally is in part built upon our credibility
within the UK. Our work within UK T&E enables us to grow into
near adjacent markets such as cost-effective training.
In April 2019, we hosted a seminar explaining more about this
element of our strategy, a replay of which is available at
https://www.qinetiq.com/investors/investor-seminars
Highlights included:
-- Agreeing, shortly after year end, a second amendment to the LTPA
which secures GBP1.3bn of revenue until 2028 and allows us to invest
GBP190m in modernising its capabilities. This transforms QinetiQ's
ability to enable the delivery of the MOD's future programmes,
such as the Queen Elizabeth Class aircraft carrier, Dreadnought
submarine and future combat aircraft. Securing this amendment delivers
significant benefits:
For our customers, it future-proofs our ability to help create
and assure the next generation of defence capabilities, more
efficiently and cost effectively;
For our people, it provides exciting career opportunities by
introducing new ways of working and ensuring we continue to
work on some of the most challenging issues our customers face;
and
For our shareholders, it secures nine years of revenue and
delivers appropriate returns which we can enhance further by
delivering efficiencies, growing our UK market share, increasing
the work we do with large defence prime contractors and attracting
more international customers.
-- Successfully delivering our new fleet of aircraft and syllabus
for test aircrew training. The enhanced facilities, which were
part of our investment under the December 2016 LTPA amendment,
are attracting international customers from Australia, the Netherlands,
Switzerland and Singapore as well as the first students for the
civil course.
The modern fleet of aircraft is significantly more cost effective
to run and is civil-, rather than military-certified, broadening
their customer scope. With their modern "glass cockpits" that
are representative of aircraft in customers' fleets, they provide
highly relevant training to students.
-- Investment in our air ranges is driving growth by supporting more
complex and realistic exercises with increasing levels of threats.
The US Navy has committed to running its large NATO ballistic missile
training exercise, known as Formidable Shield, on a bi-annual basis
at the Hebrides range we operate for the MOD. These exercises also
demonstrate QinetiQ's expertise to the other nations participating,
and have led to subsequent work with the Canadian and Polish navies.
Focus for FY20:
-- Our primary focus will be to implement the first year of the amended
LTPA contract. This includes embedding new ways of working, investing
in facilities and securing new opportunities for growth.
International
We have made significant progress to becoming a truly
international company, increasing our international share of
revenue from 21% to 30% over the last three years.
Our home countries are the UK, US and Australia and are defined
by our significant in-country presence. We complement these home
markets with export sales into selective international markets.
In September 2018, we hosted a seminar explaining more about
this element of our strategy, a replay of which is available at
https://www.qinetiq.com/investors/investor-seminars
Highlights during the year included:
-- We won our largest ever export sales order, a C$51m (cGBP30m) contract
to deliver unmanned aircraft systems (UAS) that will drive better
situational awareness for the Canadian Armed Forces. This contract
is an example of how QinetiQ can utilise its UK capabilities and
acquisitions to grow internationally. The vertical take-off and
landing unmanned air systems that we will provide under this contract
will deliver enhanced Intelligence, Surveillance, Target Acquisition
and Reconnaissance (ISTAR) services to Canadian military units
at sea and on land, for both domestic and international operations.
-- QinetiQ Target Systems continues to perform well. During the year
we received our first order for Rattler, a supersonic target developed
with investment and technical support from across the QinetiQ Group.
-- We completed the acquisition of E.I.S Aircraft Operations, now
known as QinetiQ Germany, a business specialising in aerial training
services. The acquisition delivers a number of strategic benefits
to QinetiQ, providing us with a permanent presence in Germany and
strengthening our capability integration, threat representation
and operational readiness offering to our German customer.
-- QinetiQ North America delivered a strong performance in FY19 and
won two programs of record with the US Department of Defence:
We were awarded a $12m order as part of the Route Clearance
and Interrogation Systems (RCIS) Type 1 robotics program worth
up to $44m.
We were also successful in the competition for the US Army's
Common Robotic System-Individual (CRS(I)) program. This seven-year
Indefinite Delivery Indefinite Quantity (IDIQ) contract, worth
up to $164m, includes a Low Rate Initial Production phase worth
approximately $20m over the next one-to-two years.
-- Our Australian business delivered record breaking orders of over
A$100m during FY19, further expanding its consulting and customer
advice side business.
-- We have established three joint ventures in countries in the Middle
East, partnering with government and commercial companies, to accelerate
the delivery of our products and services in the region, and opened
an office in Kuala Lumpur, Malaysia.
Focus for FY20:
-- Further expand our presence in the Canadian market, building on
the work that we are delivering to our customers in Ottawa and
the unmanned aircraft services that we are delivering from Medicine
Hat, Alberta.
-- Grow our recently acquired business in Germany by expanding our
current aerial training and aircraft modification services.
-- Mature our sales pipeline in the Middle East and Asia.
Innovation
We are a company which is founded on innovation. Our people,
using their extensive technical and scientific expertise, innovate
to overcome some of the most challenging problems our customers
face. A core part of our strategy to grow QinetiQ is to build on
this technical expertise with commercial innovation, and to apply
this approach across all our activities and geographies, as a major
source of competitive advantage.
Highlights during the year included:
-- We were appointed with our partners Atkins and BMT, to become the
Engineering Delivery Partner (EDP) for the UK MOD's procurement
agency Defence Equipment & Support (DE&S). EDP will help the MOD
to reduce the cost of engineering services, while ensuring the
UK's Armed Forces receive the best equipment and support, using
an innovative delivery model that QinetiQ first pioneered through
the Strategic Enterprise contract for air engineering services.
During the second half of FY19, we secured GBP69m of orders through
EDP, the total programme value of which could be more than GBP1bn
over the next ten years.
-- We were awarded a three-year contract with options to extend for
a further two years to support the MOD in delivering next generation
Battlefield Tactical Communication and Information Systems (BATCIS).
The initial order was GBP41m under a programme worth up to GBP95
million with an initial term of three years and options to extend
by a further two years. To win the award, we combined our extensive
technical capabilities with an innovative approach to satisfying
customer requirements demonstrating our increasing customer focus
and more strategic approach to business winning.
-- Our ground-breaking Solar Electric Propulsion System, developed
following significant investment and manufactured by an industrial
consortium led by QinetiQ, provided the engine power behind the
BepiColombo mission to Mercury which successfully launched in October
2018.
Focus for FY20
-- Learning from the successes and losses in FY19, we are maturing
our approach to delivering commercial innovation through our business
winning activities in three areas:
Foundation sales, which are shorter-term opportunities that
are normally won and delivered in year.
Strategic captures, which are medium-term opportunities that
are specific and competitive in nature.
Global campaigns, where we are evolving our campaign-based
approach to create and pursue longer-term opportunities globally.
Outlook - FY20
We enter FY20 with confidence having delivered a third
successive year of organic revenue growth and an organic increase
to operating profit.
-- As we build on our record order backlog and benefit from the full
year contribution from our recent acquisition of E.I.S. Aircraft
Operations and strategic investment into Inzpire, we anticipate
delivering mid-single digit revenue growth including further organic
revenue progression.
-- In EMEA Services, we expect divisional margins in FY20 to be consistent
with FY19.
-- In Global Products, we also expect more stability in divisional
margins due to the expansion of our product portfolio combined
with our success in winning longer-term programmes.
-- We will continue to invest to drive future growth, including capex
of GBP80-100m, the majority of which will be invested into the
LTPA at an appropriate return. We expect working capital outflows
of GBP20-30m and continued strong cash conversion pre-capex.
Overall we are maintaining expectations for Group performance in
FY20, excluding non-recurring trading items, with revenue growth at
stable margins resulting in continued operating profit
progression.
Outlook - longer term
We will continue to grow by implementing our strategy and
investing in our people, technology, systems and infrastructure. By
doing so, our objective is to deliver continued organic revenue
growth, further supported by acquisitions, resulting in sustainable
profitable growth at stable margins.
Steve Wadey, Chief Executive Officer, 23 May 2019
Chief Financial Officer's Review
Overview of full year results
We reported a strong performance in FY19, delivering growth
across orders, revenue and profitability and building on the
strategic progress we have made over the past three years. Our
rigorous focus on performance and ensuring we keep costs under
control means we were successfully able to offset the well flagged
headwind to profitability in the UK. We enter FY20 in a strong
position, with a record order backlog and a robust balance sheet.
Strong cash generation from the company is expected to be
sufficient to fund our organic investment, while net cash of
GBP188.5m provides support for bolt-on acquisition
opportunities.
Revenue was up 9% at GBP911.1m (2018: GBP833.0m), including a
GBP15.1m contribution from E.I.S. Aircraft Operations (now known as
QinetiQ Germany) and Inzpire Ltd which completed during the second
half of FY19. Revenue grew by 8% on an organic basis, with a 4%
increase in EMEA Services and a 22% increase in Global Products
driven by strong performance in QinetiQ North America (QNA) and
QinetiQ Target Systems (QTS).
Orders in the year excluding LTPA amendments totalled GBP776.4m
(2018: GBP587.2m) a 28% increase on an organic basis. This was
driven by a strong performance in EMEA Services in both large,
multi-year contracts, such as Engineering Delivery Partner (EDP),
and in smaller value contracts. Key orders won in FY19 included
GBP69m relating to EDP, GBP41m for Battlefield Tactical
Communications and Information Systems (BATCIS) and C$51m for
Canadian Armed Forces Unmanned Air System work.
At the beginning of the new financial year, 74% of the Group's
FY19 revenue was under contract, compared to 69% at the same point
last year. This reflects increased multi-year contracts and
securing the LTPA amendment in April 2019, the work for which is
included in the calculation.
Underlying operating profit was up 1% at GBP123.9m (2018:
GBP122.5m), assisted by GBP7m (2018: GBP9m) non-recurring trading
items including: a GBP6.9m gain on sale of aircraft following
investment in a new fleet of aircraft for test aircrew training; a
GBP5.4m benefit related to project risk re-assessments following
technical successes on a major contract in the EMEA Services
division; and a GBP5.0m charge relating to redundancy costs. During
the year we completed the full acquisition of QinetiQ Germany and a
strategic investment in Inzpire which together contributed GBP1.3m
of operating profit in the five months of our ownership, as we
increased investment to support future growth. Excluding the
non-recurring trading items, the QinetiQ Germany acquisition and
strategic investment into Inzpire, and the effect of foreign
exchange, underlying operating profit for the Group increased by
GBP3m (3%).
EMEA Services operating profit grew 2% (1% organic) offsetting
an approximate GBP5-6m headwind due to the lower baseline profit
rate for single source contracts, which was in line with our
expectations. The level of non-recurring items was similar in both
years and had minimal impact on EMEA Services growth. Global
Products underlying operating profit fell by 2% but was impacted
adversely by GBP2m of non-recurring trading items, and was up 7% on
an organic basis (excluding non-recurring trading items) driven by
increased revenue in QinetiQ North America (QNA) and QinetiQ Target
Systems (QTS).
Total operating profit was GBP113.8m (2018: GBP141.0m),
including GBP3.9m amortisation of acquired intangibles (2018:
GBP2.6m), GBP3.7m impairment of property (2018: GBPnil) and GBP2.0m
acquisition costs (2018: GBPnil). FY18 profit was higher due to
GBP14.6m profit recognised on the disposal of property and a
GBP5.9m gain on the sale of intellectual property.
Underlying profit before tax increased 2% to GBP124.0m (2018:
GBP122.1m) broadly in line with the increase in underlying
operating profit, with underlying net finance income at GBP0.1m
(2018: cost GBP0.4m).
Total profit before tax fell to GBP123.2m (2018: GBP144.8m) due
to higher specific adjusting items in FY18.
Specific adjusting items
Specific adjusting items, shown in the 'middle column', at the
profit after tax level amounted to a total net profit of GBP2.4m
(2018: GBP29.1m). This included GBP3.9m (2018: GBP2.6m)
amortisation of acquired intangible assets, GBP3.7m impairment of
property and GBP2.0m acquisition costs, offset by GBP8.2m (2018:
GBP4.2m) finance income related to the defined benefit pension
asset and GBP3.2m (2018: GBP6.4m) of tax movements (see below).
FY18 contained a significantly higher value of specific adjusting
items due to a profit of GBP14.6m (2019: GBP0.2m) recognised on the
disposal of property and a GBP5.9m gain (2019: GBPnil) on the sale
of intellectual property.
Net finance costs
Net finance income was GBP8.3m (2018: GBP3.8m). The underlying
net finance income was GBP0.1m (2018: cost GBP0.4m) with additional
income of GBP8.2m (2018: GBP4.2m) in respect of the defined benefit
pension asset reported within specific adjusting items.
Tax
The total tax charge was GBP9.3m (2018: GBP6.7m). The underlying
tax charge was GBP12.5m (2018: GBP13.1m) with an underlying
effective tax rate of 10.1% for the year ending 31 March 2019
(2018: 10.7%). The effective tax rate continues to be below the UK
statutory rate, primarily as a result of the benefit of research
and development expenditure credits ('RDEC') in the UK which are
accounted under IAS12 within the tax line. An adjusted effective
tax rate before the impact of RDEC would be 15.0%. The effective
tax rate is expected to remain below the UK statutory rate in the
medium term, subject to any tax legislation changes, the geographic
mix of profits, the recognition of unrecognised tax losses and
while the benefit of net RDEC retained by the Group remains in the
tax line.
A GBP2.8m credit in respect of initial recognition of corporate
tax deductions for certain equity-settled share based payment
schemes has been classified as a specific adjusting item. Together
with a GBP0.4m tax effect of the pre-tax specific adjusting items,
the total specific adjusting items tax credit was GBP3.2m (2018:
GBP6.4m).
At 31 March 2019 the Group had unused tax losses and surplus
interest costs of GBP114.9m which are available for offset against
future taxable profits.
Cash flow, working capital, capex and net cash
Underlying net cash flow from operations was GBP126.3m (2018:
GBP126.5m) with an underlying operating cash conversion of 102%
(2018: 103%). This included a GBP27.5m working capital unwind.
Net cash flow associated with capex increased to GBP80.7m (2018:
GBP54.5m) following the settlement of GBP23.5m FY18 year end capex
creditors in FY19. After paying tax and net interest of GBP10.1m
the Group generated free cash flow of GBP35.5m (2018: GBP56.3m),
before property disposal proceeds of GBP5.3m (2018: GBP23.1m).
Overall capex between FY20-22 is expected to be in the range of
GBP70-100m per annum, of which the majority reflects our investment
into the LTPA. Given the nature of our business model, we expect to
be able to fund our capex requirements from operational cash
flow.
As at 31 March 2019 the Group had GBP188.5m net cash (2018:
GBP266.8m). The reduction in net cash was primarily due to the
GBP81.2m of consideration and associated repayment of acquired debt
for the acquisition of QinetiQ Germany and the strategic investment
into Inzpire, and payment of GBP35.7m of dividends; these were
partially offset by GBP35.5m free cash flow and GBP5.3m of property
disposals.
In September 2018 the Group completed the re-financing of its
revolving credit facilities, putting in place a new GBP275m
facility with an 'accordion' facility to expand this up to a
maximum of GBP400m. The facility has an initial term of five years
with two one-year options to extend the final maturity to 27
September 2025. The larger facility size, longer term and
additional operational flexibility provide the maximum scope to
execute our strategic growth plans. QinetiQ has introduced positive
incentive language into the facility agreement to reinforce our
environmental, social and governance policies, and sustainability
agenda; this has the effect of providing a modest margin adjustment
of +/- 0.02% if we exceed greenhouse gas emission targets over the
life of the facility.
Capital allocation
Priorities for capital allocation are:
1. Organic investment complemented by bolt-on acquisitions where there
is a strong strategic fit;
2. The maintenance of balance sheet strength;
3. A progressive dividend; and
4. The return of excess cash to shareholders.
Earnings per share
Underlying basic earnings per share increased by 2% to 19.7p
(2018: 19.3p) benefiting from the higher underlying profit after
tax. Basic earnings per share for the total Group (including
specific adjusting items) decreased 18% to 20.1p (2018: 24.4p).
The average number of shares in issue during the year, as used
in the basic earnings per share calculations, was 566.0m (2018:
565.2m) and there were 566.3m shares in issue at 31 March 2019 (all
net of Treasury shares).
Dividend
The Board proposes a final FY19 dividend per share of 4.5p
(2018: 4.2p) making the full year dividend 6.6p (2018: 6.3p). The
full year dividend represents an increase of 5% in line with the
Group's progressive dividend policy.
Subject to approval at the Annual General Meeting, the final
FY19 dividend will be paid on 30 August 2019 to shareholders on the
register at 2 August 2019.
Pensions
In the UK the Group operates a defined benefit pension scheme.
The Scheme is closed to future accrual and there is no on-going
service cost. Prior to the year end the Scheme completed its first
bulk annuity insurance buy-in for approximately GBP700m. This
transaction has removed longevity risk, interest rate risk and
inflation risk for approximately one third of the Scheme and is in
line with the Group's strategy of de-risking the pension
liabilities. As a result of the transaction the accounting pension
surplus recorded on the Group's balance sheet reduced by an
estimated GBP120m with no related cash impact.
The Scheme is in a very healthy position with the most recently
completed actuarial valuation (prior to the buy-in) showing a
surplus of GBP139.7m (as at 30 June 2017) and the net asset
position, post the buy-in transaction, was GBP259.1m on an
accounting basis under IAS19 as at 31 March 2019 (2018: GBP316.2m).
As at year end the Scheme was hedged against approximately 93% of
the interest rate risk and 100% of the inflation rate risk, as
measured on the Trustees' gilt-funded basis. Full details are set
out in note 14.
During the reporting period the High Court ruled on a case
involving Lloyds Banking Group in respect of equalising (between
men and woman) Guaranteed Minimum Pensions ('GMPs'). QinetiQ's
pension scheme has not been significantly impacted by this court
ruling but an increase in liabilities of GBP0.7m has been
recognised in the period, through a past service charge to
operating profit. This is reported as a 'significant adjusting
item' in the income statement in accordance with historical Group
policy.
Implementation of IFRS 15 'Revenue from contracts with
customers'
The adoption of accounting standard IFRS 15 for the Group's FY19
financial year has not had a significant impact on QinetiQ's
reported financial performance. This was as expected given the
nature of our contracts and QinetiQ's historic method of accounting
(using 'percentage of completion' accounting for service contracts
as opposed to milestone accounting). Additional disclosures (eg in
respect of backlog and contract assets and liabilities) are
required, and these will be provided in the FY19 Annual Report.
Implementation of IFRS 9 'Financial instruments'
The adoption of accounting standard IFRS 9 for the Group's FY19
financial year has not had a significant impact on QinetiQ's
reported financial performance. The Group assessed that certain
financial assets would be reclassified from being measured at fair
value through other comprehensive income to fair value through
profit and loss. The changes to impairment and hedge accounting
have not has a material impact on the results of the Group and
these accounting policies have also been updated.
'Recent accounting developments adopted by the Group' within
note 1 provides further insight into the implementation of both
IFRS 15 and IFRS 9.
Implementation of IFRS 16 'Leases'
The new accounting standard IFRS 16 'Leases' will be adopted for
the FY20 financial year. IFRS 16 eliminates the current dual
accounting model for lessees, which distinguishes between
on-balance sheet finance leases and off-balance sheet operating
leases. Instead, there is a single, on-balance sheet accounting
model that is similar to current finance lease accounting. Lessor
accounting remains similar to current practice i.e. lessors
continue to classify leases as finance and operating leases.
The standard will be effective for periods beginning on or after
1 January 2019, i.e. FY20 for QinetiQ, using either the full
retrospective approach or the modified retrospective approach.
Early adoption is permitted but QinetiQ plans to adopt the new
standard on the required effective date, 1 April 2019, using the
full retrospective approach. The main impact on QinetiQ's financial
statements in FY20 will be the introduction of a right-of-use asset
on day one of approximately GBP23.8m, largely offset by an
incremental lease liability of approximately GBP26.6m i.e. a
reduction in net assets of GBP2.8m. There will also be an
immaterial impact on the income statement with <GBP1m of finance
cost being reclassified from operating costs. Detailed analysis is
included in note 1 to the financial statements in the Annual
Report.
Foreign exchange
The principal exchange rate affecting the Group was the Sterling
to US Dollar exchange rate and the Sterling to Australian Dollar
rate.
12 months to 12 months to
31 March 2019 31 March 2018
------------------- --------------- ---------------
GBP/US$ - opening 1.40 1.25
GBP/US$ - average 1.31 1.33
GBP/US$ - closing 1.30 1.40
GBP/A$ - opening 1.83 1.64
GBP/A$ - average 1.80 1.71
GBP/A$ - closing 1.83 1.83
------------------- --------------- ---------------
Trading Environment
The UK, US and Australia are our home countries where we have
our own indigenous industrial capabilities.
UK
The UK's total defence spending of GBP42bn in 2019 makes it the
largest among European nations. The Modernising Defence Programme
(MDP) reported in December 2018 and recognised the need for driving
innovation and generating new technologies. It placed an emphasis
on the value of cutting edge technology in areas such as artificial
intelligence, cyberspace and space; all areas in which QinetiQ
holds significant expertise.
The MOD is focused on driving efficiencies to generate savings
while also maintaining and enhancing its capability. As a result,
QinetiQ remains a proactive strategic partner to the MOD providing
capability generation and assurance. The UK is expected to spend
approximately GBP1.5bn on research & development and test &
evaluation in 2019 and therefore remains a key market for QinetiQ
where we can continue to support the MOD. The signing of the LTPA
amendment will help to deliver efficiencies while also enhancing
this critical capability.
While the UK's exit from the European Union could create
short-term fiscal pressure for the Government, it is likely that
the current geopolitical environment and the UK's commitment to
NATO will offer support to overall defence spending.
US
With a military budget of $725bn in 2019, the US defence budget
continues to dwarf that of other nations and is more than the next
ten largest military budgets combined. In addition, continued trade
tension between the US and China, a more assertive Russia and a
deteriorating environment in the Middle East, supported by a strong
US economy could drive further growth in US defence spending.
The 2019 budget was the first prepared since the publication of
the National Defence Strategy (NDS) which cited the need for
investment and modernisation of US defence capability. The NDS also
highlighted the need to shift the focus from the global war on
terror to state-on-state conflict and recognised the value of
collaboration with the private sector.
QinetiQ remains at the forefront in supporting the US Department
of Defence (DoD) in modernising its defence capability, evidenced
by the award of two 'programs of record' for robotics. Our
expertise in robotics and autonomous systems is well aligned with
the DoD's ambition to make greater use of this technology.
Australia
Modernising and enhancing defence capability remains a key
priority for the Australian military. As a result, defence
spending, which is expected to be US$31.6bn in 2019, is forecast to
grow at 5% per annum to 2024. The core focus for Australian forces
continues to be the Navy as the trend of the 'pivot to the Pacific'
continues following ongoing tension in the South China Sea.
The 2018 Defence Industrial Capability Plan outlines ten areas
of focus key to enhancing Australian sovereign industrial
capability. These include advancing signal processing capability in
electronic warfare, cyber and information security, and conducting
test, evaluation, certification and systems assurance. Australian
research, development, test and evaluation spending is expected to
exceed $1bn in 2019. We work closely with the Australian military
providing test and evaluation and we see opportunities to continue
developing our offering and expertise.
Broader international markets
Supported by our strategy, our aim is to grow international
revenue to 50% of Group revenue. To achieve this we will need to
grow revenue not just in our home countries, but also in broader
international markets. We aim to leverage the skills and expertise
developed in our home countries to support allies in high growth
markets in developing their own indigenous capability.
In the Middle East widespread unrest, including conflicts in
Iraq, Syria and Yemen, as well as growing concern over a resurgent
Iran, has driven defence spending higher. The nations driving this
spending have predominantly focused procurement on new equipment
and, as their sophistication grows, are more aware of the benefits
of integrating and assuring this equipment to create military
capabilities. Being independent from the supply chain, and
leveraging our experience in the UK, we are well placed to help
these countries assure their defence capabilities.
We continue to see good opportunities in Canada to support the
modernisation of their domestic capability. Canadian defence
spending is expected to be US$16.4bn in 2019, with the drive to
modernise their capability likely to result in continued growth in
expenditure over the medium term.
Europe accounts for roughly 20% of global defence spending with
many European forces currently in the process of renewing their
ageing capability. The work we have done in the UK through the
modernisation of the LTPA is an example of the value we can create
for other countries in how to update their own test and evaluation
capabilities. Germany is an attractive market for QinetiQ with
defence spending expected to increase by 10% in 2019 and further
increases expected in 2020 and 2021. Our acquisition of E.I.S.
Aircraft Operations, now known as QinetiQ Germany, supports our
future growth in training in Germany and other attractive
international markets.
Operating review
EMEA Services
2019 2018
GBPm GBPm
------------------------------------ ------- -------
Orders excluding LTPA amendments(1) 534.6 355.9
Revenue 687.7 651.4
Underlying operating profit 96.3 94.3
Underlying operating margin 14.0% 14.5%
Book to bill ratio(2) 1.2x 0.8x
Total funded order backlog(3) 2,916.8 1,804.9
------------------------------------ ------- -------
(1) Includes share of orders from Joint Ventures
(2) B2B ratio is orders won divided by revenue recognised,
excluding the LTPA contract and share of JV orders
(3) 2019 includes LTPA amendment signed 5 April 2019
Overview
EMEA (Europe, Middle East and Australasia) Services combines
world-leading expertise with unique facilities to provide
integrated capability generation and assurance. Our core value
proposition is built upon our expertise in capability integration,
threat representation and operational readiness underpinned by
long-term contracts that provide good visibility of revenues and
cash flows. The division is also a market leader in research and
advice in specialist areas such as C4ISR, weapons and energetics,
cyber security and procurement advisory services.
Financial performance
Orders for the year were GBP534.6m (2018: GBP355.9m), including
GBP23.3m from the two companies acquired in the year, growing
GBP157.1m (44%) on an organic basis excluding acquisitions and
foreign exchange. The increase was driven by key orders won
including GBP69m relating to Engineering Delivery Partner (EDP) and
GBP41m for Battlefield Tactical Communications and Information
Systems (BATCIS). Performance was particularly strong on smaller
value contracts which accounted for GBP115m of the GBP157m
growth.
Revenue increased by 6% to GBP687.7m (2018: GBP651.4m),
including GBP15.1m from acquisitions, and increased by 4% on an
organic constant currency basis, principally driven by our Cyber,
Information & Training business.
At the beginning of the new financial year, 79% of EMEA
Services' FY20 revenue was under contract, compared with 75% at the
beginning of the prior year. The growth is a reflection of the
increase in key multi-year contracts and securing of the LTPA
amendment in April 2019 which is included in this figure.
Underlying operating profit was GBP96.3m (2018: GBP94.3m)
assisted by GBP9m (2018: GBP8m) non-recurring trading items.
Excluding these non-recurring trading items, the QinetiQ Germany
acquisition and strategic investment into Inzpire and the effect of
foreign exchange, underlying operating profit for EMEA Services
increased by 2%. This is despite an approximate GBP5-6m headwind
during FY19 (GBP10m cumulatively over three years) due to the lower
baseline profit rate for single source contracts, which was in line
with our expectations.
Including the LTPA, approximately 70% of EMEA Services revenue
is now derived from single source contracts (2018: approximately
75%), reflecting a greater proportion of revenue derived from
competitive contracts. By investing in our core contracts and
extending their duration we have increased the proportion of
revenue contracted on a long-term basis providing visibility and
reducing our exposure to future changes in the baseline profit rate
set annually by the Single Source Regulations Office.
Overall, we expect FY19 to have represented the peak in SSRO
headwind at GBP5-6m. Based on changes to the profit rate for single
source contracts and the actions we have taken, we expect the
headwind from the SSRO to abate in FY20 and beyond.
FY19 review
Air & Space (26% of EMEA Services revenue)
The Air & Space business de-risks complex aerospace
programmes by testing systems and equipment, evaluating the risks
and assuring safety.
-- We continued to build on the investment made under the December
2016 LTPA amendment to modernise our test aircrew training. Read
more in the CEO Review section.
-- BepiColombo, a joint mission between the European Space Agency
and Japanese Space Agency to explore Mercury, that showcases QinetiQ's
significant investment in developing ion engine technology, successfully
launched in October 2018. Read more in the CEO Review section.
-- Our 'Aurora' partnership was successful in being appointed as the
Engineering Delivery Partner for Defence Equipment & Support (DE&S).
Read more in the CEO Review section.
-- Whilst we were disappointed that the MOD has cancelled the competitive
process for ASDOT, we believe our synthetic and live-virtual-constructive
technologies are increasingly relevant to the UK's operational
training needs.
Maritime, Land & Weapons (45% of EMEA Services revenue)
The Maritime, Land & Weapons business delivers operational
advantage to customers by providing independent research, test,
evaluation and training services.
-- In April 2019 we signed an amendment to the LTPA securing GBP1.3bn
of revenue and saving taxpayers GBP85m. Read more in the CEO Review
section.
-- Several high value trials were delivered including 'Information
Warrior', a three-week exercise with the Royal Navy exploring the
adoption of emerging technologies to secure information advantage
at sea.
-- We experienced strong demand from international customers. For
example, in Australia we deployed our autonomous systems command,
control and communication capabilities in support of a significant
military exercise.
-- We continue to work closely with the Royal Navy to develop their
approach to Carrier Task Group operations. Supporting the Royal
Navy in developing this strategic capability should deepen our
relationship with a key customer and lead to further potential
opportunities.
Cyber, Information & Training (CIT) (18% of EMEA Services
revenue)
The CIT business helps government and commercial customers
respond to fast-evolving threats based on its expertise in
training, secure communication networks and devices, intelligence
gathering and surveillance sensors, and cyber security.
-- We are repositioning our CIT business to be a 'Mission Assurance
Partner' to key strategic clients in the defence and security markets.
This should result in a change in the revenue profile of the business
unit from short-term contracts to multi-year service and product
revenue streams, increasing visibility and supporting growth.
-- In line with this approach, in July 2018 we won a contract to support
the UK Ministry of Defence in delivering next generation battlefield
tactical communications and information systems (BATCIS) worth
up to GBP95m, highlighting our progress in moving to multi-year
service contracts. This win reflects our extensive technical capabilities
and approach to delivering real innovation for customers.
-- We were awarded a GBP10m contract to provide support to key combat
aircraft mission data systems in one of our target markets in the
Middle East.
-- We completed our strategic investment into Inzpire, a leading provider
of operational training, in November 2018. Inzpire is pursuing
multiple opportunities in areas such as mission data and aircrew
training.
-- We opened a new office in Lincoln to act as a hub for our CIT business
in support of the work we do with the UK's Royal Air Force in mission
data and training. The hub will support our further growth in this
critical area and our strategic investment into Inzpire.
International (11% of EMEA Services revenue)
Our International business leverages our expertise and skills
developed in the UK and applies them to opportunities in attractive
markets globally. Revenue derived from outside of the UK is
reported in many of our businesses, and are not exclusive to our
International business.
-- We completed the acquisition of E.I.S. Aircraft Operations in October
2018. Read more in the CEO Review section.
-- We expanded our consulting and customer advice side business in
Australia:
A significant proportion of this work was awarded through integrated
work packages made possible by our new status as a Major Support
Provider, which was awarded to QinetiQ as part of Team Nova
at the end of FY18.
As a result of these wins our Australian business achieved
record order intake, breaking through the A$100m mark for the
first time.
-- Recognising opportunities in South East Asia, we opened an office
in Kuala Lumpur, Malaysia. We achieved two contract wins in the
region: one to provide maritime design and hydrodynamic modelling
services and the other to provide key engineering and test services
for an indigenous product development programme. We will look to
leverage our capabilities in Australia to support development in
South East Asia.
-- In the Middle East we now operate three joint ventures, and are
seeing encouraging opportunities in the region. We anticipate that
in FY20 the investments in these joint ventures will start to deliver
increased contract wins, development of indigenous capability and
product sales, but recognise that geopolitical issues remain a
risk.
Global Products
2019 2018
GBPm GBPm
--------------------- ----- -----
Orders 241.8 231.3
Revenue 223.4 181.6
Underlying operating
profit 27.6 28.2
Underlying operating
margin 12.4% 15.5%
Book to bill ratio 1.1x 1.3x
Funded backlog 216.8 200.5
--------------------- ----- -----
Overview
Global Products delivers innovative solutions to meet customer
requirements and undertakes contract-funded research and
development, developing intellectual property in partnership with
key customers and through internal funding with potential for new
revenue streams. The division is technology-based and has shorter
order cycles than EMEA Services so can have a more lumpy revenue
profile. Our strategy is to expand the product portfolio and win
larger, longer-term programmes to improve the consistency of the
financial performance of this division.
Financial performance
Orders increased to GBP241.8m (2018: GBP231.3m) including a
contract to deliver unmanned air system services to the Canadian
armed forces and underpinned by growth on smaller contracts
particularly in QinetiQ North America (QNA) and QinetiQ Target
Systems (QTS).
The Global Products division had 60% of its FY20 revenue already
under contract at the beginning of the new financial year compared
with 51% at the same time last year, reflecting key multi-year
contracts secured over the last two years.
Revenue was up 23% on a reported basis at GBP223.4m (2018:
GBP181.6m). On an organic constant currency basis, revenue
increased by 22% driven by new research work delivered by QNA for
Common Robotics System Individual (CRS(I)) and Route Clearance
Interrogation System (RCIS) and new QTS Banshee sales to the Indian
Airforce and Army.
Underlying operating profit was GBP27.6m (2018: GBP28.2m)
impacted by GBP1.7m of one-off charges in FY19 compared with
GBP1.0m of one-off gains in FY18. Adjusting for these non-recurring
trading items and the impact of foreign exchange, underlying
operating profit increased by 7% at constant currency. This was
driven by increased volume of product shipments in QTS and QNA,
partially offset by an unfavourable change in product mix, with a
lower volume of high-margin licence income in FY19.
FY19 review
QinetiQ North America (39% of Global Products revenue)
QinetiQ North America (QNA) develops and produces innovative
defence products specialising in unmanned systems, survivability
and maritime systems along with products in related commercial
markets.
-- QNA delivered a strong performance in FY19 winning two programs
of record with the US Department of Defence (DoD) with initial
values of up to $44m and $164m. Read more in the CEO Review section.
-- The business was also awarded a $90m Indefinite Delivery/ Indefinite
Quantity (IDIQ) contract to support the sustainment of the TALON
family of robotic systems providing on-going maintenance, upgrades
and servicing of the US Army's existing, fielded fleet of TALON
robots. The contract wins within the robotics market reflect our
leading capability and create opportunities to work with the DoD
to deliver further innovative solutions.
-- We were unsuccessful in winning the Man-Transportable Robotic System
(MTRS) Program of Record for the US Army. We undertook an extensive
exercise to identify why we were unsuccessful and applied what
we learnt to our subsequent successful bids.
OptaSense (11% of Global Products revenue)
OptaSense provides innovative fibre sensing solutions to deliver
decision-ready data in multiple vertical markets.
-- Our OptaSense business delivered strong order growth during the
year in key areas of infrastructure and oil field services, including
our first orders in the North Sea; the business enters FY20 with
its largest backlog to date.
-- Overall revenues remained stable during the period with a greater
contribution from repeat customers as they increasingly recognise
the value OptaSense creates.
-- OptaSense has developed a new innovative service-based model that
has received positive traction in initial testing. If successful,
this should deliver larger value contracts over longer durations
increasing overall revenue visibility in the division.
-- We continue to make good progress on the delivery of the 1,841km
Trans Anatolian Natural Gas Pipeline (TANAP), our largest system
award to date.
Space Products (11% of Global Products revenue)
QinetiQ's Space Products business provides satellites, payload
instruments, sub-systems and ground station services.
-- We delivered a contract for the preliminary design activities of
the Altius Satellite. This European Space Agency (ESA) satellite
will study the distribution of ozone in the earth's stratosphere
and chart climate change. In FY20, we have the potential to convert
this design contract into a further order for the Altius satellite.
-- We invested in a new, higher grade clean room in facilities in
Belgium allowing us to produce up to four major products at any
one time. The Altius satellite and the International Berthing and
Docking Mechanism are likely to be the first products to benefit
from this investment.
EMEA Products (39% of Global Products revenue)
EMEA Products provides research services and bespoke
technological solutions developed from intellectual property spun
out from EMEA Services. It also includes various product-based
acquired businesses including QinetiQ Target Systems (QTS).
-- QTS continues to perform well. During the year we received our
first contract for the sale of Rattler, our supersonic ground and
air launched target that represents high dive, sea skimming missile
threats. This first contract with the Royal Navy will see Rattler
integrated and certified for use on UK ranges. This is the first
new product released by QTS since the acquisition of the business
at the end of 2016 and was developed with the technical support
of the broader QinetiQ Group.
-- Leveraging QTS expertise, we won our largest contract to date in
Canada with a C$51m contract to deliver unmanned aircraft systems
(UAS) to the Canadian armed forces. Read more in the CEO Review
section.
-- With our partner, we secured a contract for the provision of aerial
target services to the UAE armed forces for weapons acceptance
and training activities. We will be building our Banshee aerial
targets in-country and opening a new product assembly and service
facility in Dubai.
-- We successfully launched our Obsidian counter drone system and
won our first order from the Canadian Government. In addition,
we expect the UK Government to go live with the system in the second
half of FY20.
Principal risks and uncertainties
The Group continues to be exposed to a number of risks and
uncertainties which management continue to identify, assess and
mitigate to minimise their potential impact on the reported
performance of the Group. An explanation of risks and their
mitigations, together with details of our risk management framework
can be found in the annual report which will be available for
download at: https://www.qinetiq.com/investors.
A summary of the significant risks and uncertainties is set out
below:
-- Reduced spending in the core markets in which the Group operates;
-- Failure to execute the international strategy or adequately to
mitigate specific risks arising from international business;
-- Failure to create a culture of innovation or to invest adequately
in, or create value from, our innovation investment;
-- A material element of the Group's revenue is dependent on a number
of UK Government contracts.
-- Group performance is adversely affected by application of the Single
Source Contract Regulations;
-- A future skills shortage;
-- The Group operates in highly regulated environments and recognises
that its operations have the potential to have an impact on a variety
of stakeholders; and
-- A breach of physical data security, cyber-attacks or IT systems
failure could have an adverse impact on our customers' operations.
Consolidated income statement
for the year ended 31 March
2019 2018
-------------------------------- --------------------------------
Specific Specific
adjusting adjusting
All figures in GBP million Note Underlying* items* Total Underlying* items* Total
------------------------------- ---- ----------- ---------- ------- ----------- ---------- -------
Revenue(1) 911.1 - 911.1 833.0 - 833.0
Operating costs excluding
depreciation and amortisation (762.5) (2.7) (765.2) (690.9) - (690.9)
Other income 10.6 0.2 10.8 9.7 21.1 30.8
------------------------------- ---- ----------- ---------- ------- ----------- ---------- -------
EBITDA (earnings before
interest, tax, depreciation
and amortisation) 159.2 (2.5) 156.7 151.8 21.1 172.9
Depreciation and impairment
of property, plant and
equipment (32.1) (3.7) (35.8) (25.6) - (25.6)
Amortisation of intangible
assets (3.2) (3.9) (7.1) (3.7) (2.6) (6.3)
------------------------------- ---- ----------- ---------- ------- ----------- ---------- -------
Operating profit/(loss) 123.9 (10.1) 113.8 122.5 18.5 141.0
Gain on sale of investments - 1.1 1.1 - - -
Finance income 6 1.2 8.2 9.4 0.7 4.2 4.9
Finance expense 6 (1.1) - (1.1) (1.1) - (1.1)
------------------------------- ---- ----------- ---------- ------- ----------- ---------- -------
Profit/(loss) before
tax 124.0 (0.8) 123.2 122.1 22.7 144.8
Taxation (expense)/income 7 (12.5) 3.2 (9.3) (13.1) 6.4 (6.7)
------------------------------- ---- ----------- ---------- ------- ----------- ---------- -------
Profit for the year
attributable to equity
shareholders 111.5 2.4 113.9 109.0 29.1 138.1
------------------------------- ---- ----------- ---------- ------- ----------- ---------- -------
Earnings per share
Basic 8 19.7p 20.1p 19.3p 24.4p
Diluted 8 19.6p 20.0p 19.2p 24.3p
------------------------------- ---- ----------- ---------- ------- ----------- ---------- -------
(1) Revenue excludes the share of revenue of joint ventures (FY19: GBP1.9m, FY18: nil).
* Alternative performance measures are used to supplement the
statutory figures. These are additional financial indicators used
by management internally to assess the underlying performance of
the Group. Definitions can be found in the glossary.
Consolidated comprehensive income statement
for the year ended 31 March
All figures in GBP million 2019 2018
---------------------------------------------------- ------ ------
Profit for the year 113.9 138.1
Items that will not be reclassified to profit
and loss:
Actuarial (loss)/gain recognised in defined benefit
pension schemes (66.4) 143.6
Tax on items that will not be reclassified to
profit and loss 11.3 (24.4)
---------------------------------------------------- ------ ------
Total items that will not be reclassified to
profit and loss (55.1) 119.2
Items that may be reclassified subsequently to
profit and loss:
Foreign currency translation gains/(losses) on
foreign operations 4.6 (9.7)
Movement in deferred tax on foreign currency
translation (0.4) (1.0)
Increase/(decrease) in fair value of hedging
derivatives 1.8 (2.2)
Movement in deferred tax on hedging derivatives (0.2) 0.4
Recycling of gain on disposal of investments (1.1) -
Fair value gains/(losses) on available for sale
investments 0.7 (0.6)
Total items that may be reclassified to profit
and loss 5.4 (13.1)
---------------------------------------------------- ------ ------
Other comprehensive (expense)/income for the
year, net of tax (49.7) 106.1
---------------------------------------------------- ------ ------
Total comprehensive income for the year 64.2 244.2
---------------------------------------------------- ------ ------
Consolidated statement of changes in equity
for the year ended 31 March
All figures in Issued Capital
GBP share redemption Share Hedge Translation Retained Non-controlling Total
million capital reserve premium reserve reserve earnings Total interest equity
----------------- -------- ----------- -------- -------- ----------- --------- ------ --------------- -------
At 1 April 2018 5.7 40.8 147.6 (1.8) (0.4) 552.2 744.1 0.2 744.3
Profit for the
year - - - - - 113.9 113.9 - 113.9
Acquisition of
partially
owned subsidiary - - - - - - - 2.0 2.0
Other
comprehensive
income/(expense)
for the year,
net
of tax - - - 1.6 4.2 (55.5) (49.7) - (49.7)
Purchase of own
shares - - - - - (0.7) (0.7) - (0.7)
Share-based
payments
charge - - - - - 5.9 5.9 - 5.9
Deferred tax on
share
options - - - - - 1.0 1.0 - 1.0
Dividends - - - - - (35.7) (35.7) - (35.7)
----------------- -------- ----------- -------- -------- ----------- --------- ------ --------------- -------
At 31 March 2019 5.7 40.8 147.6 (0.2) 3.8 581.1 778.8 2.2 781.0
----------------- -------- ----------- -------- -------- ----------- --------- ------ --------------- -------
At 1 April 2017 5.7 40.8 147.6 - 10.3 328.0 532.4 0.2 532.6
Profit for the
year - - - - - 138.1 138.1 - 138.1
Other
comprehensive
income/(expense)
for the year,
net
of tax - - - (1.8) (10.7) 118.6 106.1 - 106.1
Purchase of own
shares - - - - - (0.7) (0.7) - (0.7)
Share-based
payments
charge - - - - - 2.7 2.7 - 2.7
Dividends - - - - - (34.5) (34.5) - (34.5)
----------------- -------- ----------- -------- -------- ----------- --------- ------ --------------- -------
At 31 March 2018 5.7 40.8 147.6 (1.8) (0.4) 552.2 744.1 0.2 744.3
----------------- -------- ----------- -------- -------- ----------- --------- ------ --------------- -------
Consolidated balance sheet as at 31 March
All figures in GBP million Note 2019 2018
----------------------------------- ----- -------- --------
Non-current assets
Goodwill 13 148.6 101.5
Intangible assets 88.5 41.1
Property, plant and equipment 298.0 269.0
Other financial assets 0.9 0.3
Equity accounted investments 4.5 2.2
Retirement benefit surplus 14 259.1 316.2
Deferred tax asset 7.8 6.4
----------------------------------- ----- -------- --------
807.4 736.7
----------------------------------- ----- -------- --------
Current assets
Inventories 40.1 38.1
Other financial assets 0.5 16.9
Trade and other receivables 208.5 150.3
Investment - 0.7
Current tax receivable 1.5 -
Assets held for sale 1.9 1.2
Cash and cash equivalents 190.8 254.1
----------------------------------- ----- -------- --------
443.3 461.3
----------------------------------- ----- -------- --------
Total assets 1,250.7 1,198.0
----------------------------------- ----- -------- --------
Current liabilities
Trade and other payables (346.6) (334.9)
Current tax payable (8.5) (8.9)
Provisions (6.2) (6.0)
Other financial liabilities (1.8) (2.6)
----------------------------------- ----- -------- --------
(363.1) (352.4)
----------------------------------- ----- -------- --------
Non-current liabilities
Deferred tax liability (73.1) (66.4)
Provisions (10.7) (14.3)
Other financial liabilities (1.9) (1.9)
Other payables (20.9) (18.7)
----------------------------------- ----- -------- --------
(106.6) (101.3)
----------------------------------- ----- -------- --------
Total liabilities (469.7) (453.7)
----------------------------------- ----- -------- --------
Net assets 781.0 744.3
----------------------------------- ----- -------- --------
Capital and reserves
Ordinary shares 5.7 5.7
Capital redemption reserve 40.8 40.8
Share premium account 147.6 147.6
Hedging reserve (0.2) (1.8)
Translation reserve 3.8 (0.4)
Retained earnings 581.1 552.2
----------------------------------- ----- -------- --------
Capital and reserves attributable
to shareholders of the parent
company 778.8 744.1
Non-controlling interest 2.2 0.2
----------------------------------- ----- -------- --------
Total shareholders' funds 781.0 744.3
----------------------------------- ----- -------- --------
Consolidated cash flow statement for year ended 31 March
All figures in GBP million Note 2019 2018
----------------------------------------------- ----- -------- -------
Underlying net cash inflow from operations 9 126.3 126.5
(Less)/add back specific adjusting items 9 (0.7) 5.9
Net cash inflow from operations 9 125.6 132.4
Tax paid (10.7) (15.7)
Interest received 1.3 0.7
Interest paid (0.7) (0.7)
------------------------------------------------ ----- -------- -------
Net cash inflow from operating activities 115.5 116.7
------------------------------------------------ ----- -------- -------
Purchases of intangible assets (10.6) (8.5)
Purchases of property, plant and equipment (77.0) (46.0)
Proceeds from disposals of plant and 6.9 -
equipment
Proceeds from sale of property 5.3 23.1
Proceeds from sale of investments 1.5 -
Acquisition of businesses (61.2) (1.1)
Investment in joint venture (1.6) (0.5)
Proceeds from disposal of available-for-sale 15.7 -
investments
Investments in available-for-sale investments - (5.0)
Net cash outflow from investing activities (121.0) (38.0)
------------------------------------------------ ----- -------- -------
Purchase of own shares (0.7) (0.7)
Dividends paid to shareholders (35.7) (34.5)
Repayment of external bank loan (20.0) -
Payment of bank facility arrangement (1.5) -
fees
Capital element of finance lease payments (0.4) -
Net cash outflow from financing activities (58.3) (35.2)
------------------------------------------------ ----- -------- -------
(Decrease)/increase in cash and cash
equivalents (63.8) 43.5
Effect of foreign exchange changes
on cash and cash equivalents 0.5 (1.2)
Cash and cash equivalents at beginning
of year 254.1 211.8
------------------------------------------------ ----- -------- -------
Cash and cash equivalents at end of
year 190.8 254.1
------------------------------------------------ ----- -------- -------
Reconciliation of movement in net cash for the year ended 31
March
All figures in GBP million Note 2019 2018
--------------------------------------------- ----- ------- ---------
(Decrease)/increase in cash and cash
equivalents in the year (63.8) 43.5
Add back net outflows not impacting
net cash 6.2 5.0
---------------------------------------------- ----- ------- ---------
Change in net cash resulting from cash
flows (57.6) 48.5
Finance lease and debt recognised on (22.7) -
acquisition
Other movements including foreign exchange 2.0 (3.6)
---------------------------------------------- ----- ------- ---------
(Decrease)/increase in net cash as
defined by the Group (78.3) 44.9
Net cash as defined by the Group at
beginning of the year 266.8 221.9
---------------------------------------------- ----- ------- ---------
Net cash as defined by the Group at
end of the year 10 188.5 266.8
Less: other financial asset and liabilities 10 2.3 (12.7)
---------------------------------------------- ----- ------- ---------
Total cash and cash equivalents 10 190.8 254.1
---------------------------------------------- ----- ------- ---------
Notes to the financial statements
1. Significant accounting policies
Basis of preparation
QinetiQ Group plc is a public limited company, which is listed
on the London Stock Exchange and is incorporated and domiciled in
the United Kingdom.
The financial information included within the preliminary
announcement has been prepared using accounting policies consistent
with International Financial Reporting Standards (IFRSs) as
endorsed by the European Union. The accounting policies followed
are the same, subject to the changes noted below, as those
published by the Group within its Annual Report for the year ended
31 March 2018 which is available on the Group's website,
www.QinetiQ.com.
The preliminary announcement was approved by the Board of
Directors on 23 May 2019. The financial information in this
preliminary announcement does not constitute the statutory accounts
of QinetiQ Group plc ('the Company') within the meaning of section
435 of the Act.
The statutory accounts for 2019 were approved by the Board of
Directors on 23 May 2019 and will be delivered to the Registrar of
Companies following the Company's Annual General Meeting on 24 July
2019. The financial information for 2018 is derived from the
statutory accounts for 2018 which have been delivered to the
Registrar of Companies. The auditors have reported on the 2019 and
2018 accounts. The reports were (i) unqualified; (ii) did not
include a reference to any matters to which the auditors drew
attention by way of emphasis without qualifying their report; and
(iii) did not contain a statement under section 498 (2) or (3) of
the Companies Act 2006.
In the income statement, the Group presents specific adjusting
items separately. In the judgement of the Directors, for the reader
to obtain a proper understanding of the financial information,
specific adjusting items need to be disclosed separately because of
their size and nature. Underlying measures of performance exclude
specific adjusting items. Specific adjusting items include:
Does not reflect
Distorting Distorting in-year
due to due to fluctuating operational
irregular nature performance
nature (size and of continuing
Item year on year sign) business
-------------------------------------- ------------- ------------------- ----------------
Amortisation of intangible assets
arising from acquisitions P
-------------------------------------- ------------- ------------------- ----------------
Pension net finance income and
pension past service cost P P
-------------------------------------- ------------- ------------------- ----------------
Gains/losses on disposal of property, P P P
investments and intellectual property
-------------------------------------- ------------- ------------------- ----------------
Transaction & integration costs
in respect of business acquisitions P P
-------------------------------------- ------------- ------------------- ----------------
Impairment of property P
-------------------------------------- ------------- ------------------- ----------------
The tax impact of the above P P P
-------------------------------------- ------------- ------------------- ----------------
Other significant non-recurring
tax movements P P P
-------------------------------------- ------------- ------------------- ----------------
All items treated as a specific adjusting item in the current
and prior year are detailed in note 3.
Recent accounting developments adopted by the Group
The following IFRS and EU-endorsed standards and amendments have
become applicable and have been adopted for the first time in the
current reporting period by the Group. The Group updated its
accounting policies where applicable.
IFRS 15 Revenue from Contracts with Customers
The Group adopted IFRS 15 using the cumulative effect
transitional method without using the practical expedients for
modified contracts in IFRS 15.C5(c). This method would require an
adjustment to the opening balance of equity in the period of
adoption without having to restate comparative amounts. However,
following the conclusion that the impact is not material, no
adjustment has been required for the Group on implementation of
IFRS 15 during the current reporting period.
We have not identified any contracts in total, or part contracts
(in the form of performance obligations), where we would need to
move from recognising revenue over time to recognising revenue at a
point in time. The majority of QinetiQ's contracts are largely
either long-term service contracts where the customer benefits from
QinetiQ's performance throughout the contract, or they are
long-term design, build and delivery contracts which are highly
bespoke and have no alternative use to QinetiQ (and QinetiQ have a
right to payment for work performed to date). Therefore, it remains
appropriate to recognise revenue over time using an input-based
methodology (cost-to-cost). Where IFRS 15 has required the
disaggregation of contracts into distinct performance obligations,
this does not materially alter the revenue recognised compared to
the long-term percentage completion methodology previously
applied.
IFRS 15 requires the recognition of an asset in respect of
incremental costs of obtaining a contract with a customer where it
is expected these costs will be recovered. We have determined that
this has minimal impact to the Group, as even though many of our
contracts are single-sourced, we do not typically incur qualifying
incremental costs (including third party expenses) in securing
those contracts that would be considered recoverable.
Following the adoption of IFRS 15 the Group has updated its
accounting policies and note disclosures to reflect new terminology
and components of the standard. The Group has disclosed the
disaggregation of revenue from contracts with customers in note 2.
All other accounting policy changes will be included in the Annual
Report for the year ending 31 March 2019. The Group continues to
view revenue and profit recognition as one of its critical
accounting policies due to the skill, knowledge and experience
required from a variety of sources within the business to assess
the status of a contract. Judgement is required when considering
the likelihood of meeting the contractual requirements,
particularly around technologically challenging contracts, and the
resulting costs.
IFRS 9 Financial Instruments
IFRS 9 addresses the classification, measurement and recognition
of financial assets and financial liabilities, and introduces a new
impairment model for financial assets, as well as new rules for
hedge accounting. The new standard replaces IAS 39 in its entirety
and is effective for annual periods beginning on or after 1 January
2018. The Group adopted IFRS 9 in the current reporting period
without restating comparative period figures. All components of the
standard, including new rules for hedge accounting and impairment,
are applied prospectively.
Following the adoption of IFRS 9 the Group has updated its
accounting policies to reflect new financial asset classification,
measurement and recognition criteria. The Group assessed that
certain financial assets will be reclassified from being measured
at fair value through other comprehensive income to fair value
through profit and loss and presented within finance income or
expense. The changes to impairment and hedge accounting have not
had a material impact on the results of the Group and these
accounting policies have also been updated.
The adoption of IFRS 9 from 1 April 2018 for the Group resulted
in changes in certain accounting policies, however no adjustments
to comparative periods were required.
The Group has various classes of financial assets and
liabilities which must be appropriately classified into the IFRS 9
classification categories from 1 April 2018. Available for sale
investments previously classified as fair value through other
comprehensive income under IAS 39 no longer meet the criteria to be
classified as such and have been classified as fair value through
profit and loss under IFRS 9. Previously recognised gains in other
comprehensive income have been reclassified to retained earnings on
initial application being 1 April 2018.
Derivative financial instruments designated as cash flow hedges
under IAS 39 in the prior period shall continue to be classified as
such and continue to qualify for hedge accounting under IFRS 9.
Trade and other receivables previously classified as 'loans and
receivables' and measured at amortised cost under IAS 39 are now
classified as 'financial assets at fair value through profit and
loss' and measured at amortised costs under IFRS 9. Loans and
receivables no longer exist as a classification category under IFRS
9.
Trade and other payables previously classified and measured at
amortised cost under IAS 39 shall continue to be classified and
measured at amortised costs under IFRS 9.
The Group's trade receivables are subject to the new expected
credit loss model under IFRS 9. In determining the recoverability
of trade receivables, the Group considers any change in the credit
quality of each trade receivable from the date credit was granted
to the reporting date using forward looking information. The Group
assessed credit risk to be limited as a result of the high
percentage of revenue derived from UK and US government agencies.
For non-government customers the Group considers the expected
credit loss to be immaterial to the financial statements.
The new hedge accounting rules under IFRS 9 have not had a
material impact on the Group's financial statements.
Developments expected in future periods of which the impact is
being assessed
IFRS 16 Leases
IFRS 16 is effective 1 January 2019, replacing IAS 17 in its
entirety. The Group will not early adopt the standard in the
current reporting period. Under IFRS 16 the Group will recognise a
right-of-use asset and a lease liability for future lease payments,
bringing added transparency to the balance sheet. IFRS 16
eliminates the current dual accounting model for lessees, which
distinguishes between on-balance sheet finance leases and
off-balance sheet operating leases. Within the income statement,
depreciation on the right-of-use asset and interest expense on the
lease liability will replace lease expense. The Group expects to
recognise a right-of-use asset of GBP23.8m (1 April 2019) and
GBP16.7m (31 March 2020) and lease liabilities of GBP26.6m (1 April
2019) and GBP19.3m (31 March 2020) based on the current lease
portfolio.
Going concern basis
The Group meets its day-to-day working capital requirements
through its available cash funds and its bank facilities. The
market conditions in which the Group operates have been, and are
expected to continue to be, challenging as spending from the
Group's key customers in its primary markets in the UK and US
remains under pressure. Despite these challenges, the Directors
believe that the Group is well positioned to manage its overall
business risks successfully. After making enquiries, the Directors
have a reasonable expectation that the Group has adequate resources
to continue in operational existence for the foreseeable future.
The Group therefore continues to adopt the going-concern basis in
preparing its financial statements.
The Group is exposed to various risks and uncertainties, the
principal ones being summarised in the 'Principal risks and
uncertainties' section. Crystallisation of such risks, to the
extent not fully mitigated, would lead to a negative impact on the
Group's financial results but none are deemed sufficiently material
to prevent the Group from continuing as a going concern for at
least the next 12 months.
2. Disaggregation of revenue and segmental analysis
Revenue by category and other income
for the year ended 31 March
All figures in GBP million 2019 2018
--------------------------------------- ------ -----
Service contracts with customers 790.9 733.4
Sale of goods contracts with customers 105.6 85.8
Royalties and licences 14.6 13.8
---------------------------------------- ------ -----
Total revenue 911.1 833.0
Less: acquired businesses^ (15.1) -
Adjust to constant prior year exchange
rates 1.4 -
---------------------------------------- ------ -----
Total revenue on an organic, constant
currency basis 897.4 833.0
---------------------------------------- ------ -----
Organic revenue growth at constant
currency 8% 3%
---------------------------------------- ------ -----
^ For the period of which there was no contribution in the
equivalent period in the prior year which was pre-ownership by the
Group
Other income 2019 2018
----------------------------------------- ---- ----
Share of joint ventures' and associates'
profit after tax 0.6 0.3
Other income 10.0 9.4
------------------------------------------ ---- ----
Other income - underlying 10.6 9.7
Specific adjusting item: gain on
sale of assets 0.2 21.1
------------------------------------------ ---- ----
Total other income 10.8 30.8
------------------------------------------ ---- ----
Revenue by customer geographical location
for the year ended 31 March
All figures in GBP million 2019 2018
--------------------------- --- ------ ------
105.3 81.6
55.2 54.8
60.8 43.2
11.0 13.9
US 41.4 32.5
Australia
Europe
Middle East
Rest of World
273.7 226.0
International 637.4 607.0
------ ------
United Kingdom
--------------------------- --- ------ ------
Total revenue 911.1 833.0
-------------------------------- ------ ------
Reconciliation of international revenue to organic international
revenue including share of joint ventures
for the year ended 31 March
All figures in GBP million 2019 2018
---------------------------------------------- ----- -----
International revenue 273.7 226.0
Less: international revenue from businesses
acquired in current financial year (9.8) -
Add: incremental share of revenue from joint
ventures 1.9 -
----------------------------------------------- ----- -----
Organic international revenue including share
of joint ventures 265.8 226.0
----------------------------------------------- ----- -----
The year on year organic growth in international revenue
including share of joint ventures was GBP39.8m. This metric is used
for management remuneration purposes under the Deferred Share Plan
remuneration scheme.
Revenue by major customer type
for the year ended 31 March
All figures in GBP million 2019 2018
--------------------------- --- ------- ------
562.7 544.2
83.1 65.5
UK Government 265.3 223.3
US Government
Other
Total revenue 911.1 833.0
--------------------------------- ------ ------
'Other' does not contain any customers with revenue in excess of
10% of total Group revenue.
Operating segments
for the year ended 31 March
All figures in GBP million 2019 2018
----------------------------- -------------------------- --------------------------
Revenue Underlying Revenue Underlying
from external operating from external operating
customers profit(*) customers profit(*)
----------------------------- -------------- ---------- -------------- ----------
EMEA Services 687.7 96.3 651.4 94.3
Global Products 223.4 27.6 181.6 28.2
------------------------------ -------------- ---------- -------------- ----------
Total operating segments 911.1 123.9 833.0 122.5
------------------------------ -------------- ---------- -------------- ----------
Underlying operating margin* 13.6% 14.7%
------------------------------ -------------- ---------- -------------- ----------
* Definitions of the Group's 'Alternative Performance Measures'
can be found in the glossary.
Reconciliation of segmental results to total profit
for the year ended 31 March
All figures in GBP million Note 2019 2018
--------------------------------------- ------ ------ -----
Underlying operating profit 123.9 122.5
Specific adjusting items (loss)/profit 3 (10.1) 18.5
--------------------------------------- ------ ------ -----
Operating profit 113.8 141.0
Gain on sale of investment 1.1 -
Net finance income 8.3 3.8
--------------------------------------- ------ ------ -----
Profit before tax 123.2 144.8
Taxation expense (9.3) (6.7)
--------------------------------------- ------ ------ -----
Profit for the year attributable
to equity shareholders 113.9 138.1
--------------------------------------- ------ ------ -----
3. Specific adjusting items
In the income statement, the Group presents specific adjusting
items separately. In the judgement of the Directors, for the reader
to obtain a proper understanding of the financial information,
specific adjusting items need to be disclosed separately because of
their size and nature. Underlying measures of performance exclude
specific adjusting items. The following specific adjusting items
have been (charged)/credited in the consolidated income
statement:
All figures in GBP million Note 2019 2018
------------------------------------------------- ---- ------ -----
Gain on sale of property 0.2 14.6
Gain on sale of investment - 0.6
Gain on sale of intellectual property - 5.9
Pension past service costs in respect of GMP
equalisation (0.7) -
Acquisition transaction costs (1.3) -
Acquisition integration costs (0.7) -
Specific adjusting items before interest, tax,
depreciation and amortisation (2.5) 21.1
Impairment of property (3.7) -
Amortisation of intangible assets arising from
acquisitions (3.9) (2.6)
------------------------------------------------- ---- ------ -----
Specific adjusting items operating (loss)/profit (10.1) 18.5
Gain on sale of investment 1.1 -
Defined benefit pension scheme net finance
income 8.2 4.2
------------------------------------------------- ---- ------ -----
Specific adjusting items (loss)/profit before
tax (0.8) 22.7
Specific adjusting items - tax 7 3.2 6.4
------------------------------------------------- ---- ------ -----
Total specific adjusting items profit after
tax 2.4 29.1
------------------------------------------------- ---- ------ -----
Reconciliation of underlying profit for the
year to total profit for the year
all figures in GBP million 2019 2018
------------------------------------------------- ----- -----
Underlying profit after tax - total Group 111.5 109.0
Total specific adjusting items profit after
tax 2.4 29.1
-------------------------------------------------- ----- -----
Total profit for the year attributable to equity
shareholders 113.9 138.1
-------------------------------------------------- ----- -----
4. Profit before tax
The following items have been charged in arriving at profit
before tax for continuing operations:
All figures in GBP million 2019 2018
------------------------------------------------------- ----- -----
Cost of inventories expensed 28.5 25.4
Owned assets: depreciation 29.0 25.6
Leases assets: depreciation 0.4 -
Foreign exchange loss 0.5 -
Research and development expenditure - customer funded
contracts 272.9 284.3
Research and development expenditure - Group funded 26.0 25.8
------------------------------------------------------- ----- -----
5. Business combinations
Acquisitions in the year to 31 March 2019
all figures
in GBP million Contribution post-acquisition
-------------------------------
Fair value
of net
Date Cash assets Operating
Company acquired acquired consideration Goodwill acquired Revenue profit
---------------------- ---------------- -------------- ---------- ---------- ------------- ----------------
E.I.S Aircraft 16 October
Operations 2018 46.8 (33.3) 13.5 9.8 1.1
19 November
Inzpire Group Limited 2018 22.9 (11.7) 13.2 5.3 0.2
---------------------- ---------------- -------------- ---------- ---------- ------------- ----------------
Total current year
acquisitions 69.7 (45.0) 26.7 15.1 1.3
---------------------- ---------------- -------------- ---------- ---------- ------------- ----------------
Deferred consideration in respect
of prior year acquisitions(1) 0.1
Less: cash acquired (9.9)
Plus: transaction
costs(2) 1.3
---------------------- ---------------- --------------
Net cash outflow
in the year 61.2
---------------------- ---------------- --------------
(1) Deferred consideration has been paid in respect of the prior
year acquisition of Rubikon Group Pty Limited.
(2) Transaction costs have been included in 'Operating costs
excluding depreciation and amortisation' as a specific adjusting
item.
E.I.S Aircraft Operations (EIS), now QinetiQ Germany
QinetiQ acquired 100% of the share capital of E.I.S. Holding
GmbH in October 2018 for EUR52.6m (GBP46.8m). EIS had EUR22.5m
(GBP20.0m) of bank funding as at acquisition and this loan was paid
off by the Group post acquisition. EIS is a leading provider of
airborne training services based in Germany, delivering
threat-representation and operational readiness for military
customer. EIS has natural synergies with QinetiQ's existing air
engineering, test aircrew training and unmanned target service
capabilities which we will exploit to strengthen our position in
defence operational training. EIS will continue to be led by its
existing management team and will form part of QinetiQ's
International business unit and will be reported within QinetiQ's
EMEA Services division. If the acquisition had occurred on the
first day of the financial year, Group revenue for the year would
have been GBP925.2m and the Group profit before tax would have been
GBP125.9m.
Identifiable assets acquired and liabilities assumed
The following table summarises the recognised amounts of assets
acquired and liabilities assumed at the date of acquisition and the
adjustments required to the book values of the assets and
liabilities in order to present the net assets of these businesses
at fair value and in accordance with Group accounting policies. The
fair values remain provisional, but will be finalised within 12
months of acquisition.
Book Fair value Fair value
all figures in GBP million value adjustment at acquisition
------------------------------ ------- ----------- ---------------
Intangible assets - 37.3 37.3
Property, plant and equipment 4.8 - 4.8
Inventory 0.4 - 0.4
Trade and other receivables 9.2 - 9.2
Cash and cash equivalents 6.4 - 6.4
Trade and other payables (6.7) - (6.7)
Finance lease liabilities (2.7) - (2.7)
Corporation tax (2.5) - (2.5)
Bank loan (20.0) - (20.0)
Deferred tax liability (0.8) (11.9) (12.7)
------------------------------- ------- ----------- ---------------
Net assets acquired (11.9) 25.4 13.5
Goodwill 33.3
------------------------------- ------- ----------- ---------------
Consideration 46.8
------------------------------- ------- ----------- ---------------
The consideration of GBP46.8m was satisfied entirely in cash in
the financial year, with no deferred consideration.
The fair value adjustments include GBP37.3m in relation to the
recognition of acquired intangible assets of which GBP31.8m relates
to customer relationships and GBP5.5m relates to existing
technology. The goodwill is attributable mainly to the skills and
technical talent of the EIS work force and the synergies expected
to be achieved from integrating the company into the Group's
existing business.
Inzpire Group Limited (Inzpire)
In November 2018 QinetiQ acquired 85% of the shares of Inzpire
Group Limited for GBP22.9m with an arrangement to acquire the
remaining 15% after two years. Inzpire is a highly regarded
provider of training services to the Royal Air Force and British
Army and this strategic investment further enhances our capability
in defence operational training. With a leading position within the
UK, the investment allows us to further leverage the capability in
attractive markets internationally, complementing our acquisitions
of QTS and EIS and supporting our strategic objectives. If the
acquisition had occurred on the first day of the financial year,
Group revenue for the period would have been GBP921.4m and the
Group profit before tax would have been GBP124.8m.
Following completion, Inzpire will continue to be led by its
existing management team. It is aligned to QinetiQ's CIT business
unit and is reported within QinetiQ's EMEA Services division.
Identifiable assets acquired and liabilities assumed
The following table summarises the recognised amounts of assets
acquired and liabilities assumed at the date of acquisition and the
adjustments required to the book values of the assets and
liabilities in order to present the net assets of the business at
fair value and in accordance with Group accounting policies. The
fair values remain provisional, but will be finalised within 12
months of acquisition.
Book Fair value Fair value
all figures in GBP million value adjustment at acquisition
------------------------------ ------ ----------- ---------------
Intangible assets - 9.6 9.6
Property, plant and equipment 0.4 - 0.4
Inventory 0.1 - 0.1
Trade and other receivables 3.3 - 3.3
Cash and cash equivalents 3.5 - 3.5
Trade and other payables (2.0) - (2.0)
Deferred tax liability - (1.7) (1.7)
------------------------------- ------ ----------- ---------------
Net assets acquired 5.3 7.9 13.2
Non-controlling interest (2.0)
Goodwill 11.7
------------------------------- ------ ----------- ---------------
Consideration 22.9
------------------------------- ------ ----------- ---------------
The consideration of GBP22.9m was satisfied entirely in cash in
the financial year, with no deferred consideration.
The fair value adjustments include GBP9.6m in relation to the
recognition of acquired intangible assets (GBP4.6m customer
relationships and GBP5.0m other intangibles) less the recognition
of deferred tax liability of GBP1.7m in relation to these
intangible assets. The goodwill is attributable mainly to the
skills and technical talent of Inzpire's work force and the
synergies expected to be achieved from integrating the company into
the Group's existing business.
6. Finance income and expense
All figures in GBP million 2019 2018
-------------------------------------------------- ----- -----
Receivable on bank deposits 1.2 0.7
Finance income before specific adjusting items 1.2 0.7
-------------------------------------------------- ----- -----
Amortisation of deferred financing costs (0.3) (0.3)
Payable on commitment fees (0.6) (0.7)
Finance lease expense (0.1) -
Unwinding of discount on financial liabilities (0.1) (0.1)
-------------------------------------------------- ----- -----
Finance expense before specific adjusting items (1.1) (1.1)
-------------------------------------------------- ----- -----
Specific adjusting items:
Defined benefit pension scheme net finance income 8.2 4.2
-------------------------------------------------- ----- -----
Net finance income 8.3 3.8
-------------------------------------------------- ----- -----
7. Taxation
All figures in GBP million 2019 2018
--------------------------- ----------------------------- -----------------------------
Specific Specific
adjusting adjusting
Underlying items Total Underlying items Total
--------------------------- ---------- ---------- ----- ---------- ---------- -----
Profit/(loss) before
tax 124.0 (0.8) 123.2 122.1 22.7 144.8
Taxation (expense)/income (12.5) 3.2 (9.3) (13.1) 6.4 (6.7)
---------------------------- ---------- ---------- ----- ---------- ---------- -----
Profit for the year
attributable to equity
shareholders 111.5 2.4 113.9 109.0 29.1 138.1
---------------------------- ---------- ---------- ----- ---------- ---------- -----
Effective tax rate 10.1% 10.7%
---------------------------- ---------- ---------- ----- ---------- ---------- -----
The total tax charge was GBP9.3m (2018: GBP6.7m). The underlying
tax charge was GBP12.5m (2018: GBP13.1m) with an underlying
effective tax rate of 10.1% for the year ending 31 March 2019
(2018: 10.7%). The effective tax rate continues to be below the UK
statutory rate, primarily as a result of the benefit of research
and development expenditure credits ('RDEC') in the UK which are
accounted under IAS12 within the tax line. The adjusted effective
tax rate before the impact of RDEC would be 15.0%. The effective
tax rate is expected to remain below the UK statutory rate in the
medium term, subject to any tax legislation changes, the geographic
mix of profits, the recognition of unrecognised tax losses and
while the benefit of net RDEC retained by the Group remains in the
tax line.
Tax losses and specific adjusting items
A GBP2.8m credit in respect of initial recognition of corporate
tax deductions for certain equity-settled share based payment
schemes has been classified as a specific adjusting item. Together
with a GBP0.4m tax effect of the pre-tax specific adjusting items,
the total specific adjusting items tax credit was GBP3.2m (2018:
GBP6.4m).
At 31 March 2019 the Group had unused tax losses and surplus
interest costs of GBP114.9m which are available for offset against
future taxable profits. A deferred tax asset of GBP4.9m is
recognised in respect of GBP21.1m of US net operating losses. No
deferred tax asset is recognised in respect of the remaining
GBP93.8m of losses/interest costs due to uncertainty over the
timing and extent of their utilisation. The Group has GBP60.0m of
time-limited losses of which US capital losses of GBP28.2m will
expire in 2020 and US net operating losses of GBP21.2m will expire
in 2035, GBP9.1m in 2036 and GBP1.5m in 2038. Deferred tax has been
calculated using the enacted future statutory tax rates.
Factors affecting future tax charges
The effective tax rate is expected to remain below the UK
statutory rate in the medium term, subject to the impact of any tax
legislation changes, the geographic mix of profits and the
assumption that the benefits of net R&D expenditure credits
retained by the Group remain in the tax line. Future recognition of
unrecognised tax losses will also affect future tax charges.
8. Earnings per share
Basic earnings per share is calculated by dividing the profit
attributable to equity shareholders by the weighted average number
of ordinary shares in issue during the year. The weighted average
number of shares used excludes those shares bought by the Group and
held as own shares. For diluted earnings per share the weighted
average number of shares in issue is adjusted to assume conversion
of all potentially dilutive ordinary shares arising from unvested
share-based awards including share options.
for the year ended 31 March 2019 2018
---------------------------------- -------- ----- -----
Weighted average number of shares Million 566.0 565.2
Effect of dilutive securities Million 4.0 2.0
---------------------------------- -------- ----- -----
Diluted number of shares Million 570.0 567.2
---------------------------------- -------- ----- -----
Underlying basic earnings per share figures are presented below,
in addition to the basic and diluted earnings per share, because
the Directors consider this gives a more relevant indication of
underlying business performance and reflects the adjustments to
basic earnings per share for the impact of specific adjusting items
(see note 3) and tax thereon.
Underlying EPS
for the year ended 31 March 2019 2018
------------------------------------------- ------------ ----- ------
Profit attributable to equity shareholders GBP million 113.9 138.1
Remove profit after tax in respect of
specific adjusting items GBP million (2.4) (29.1)
------------------------------------------- ------------ ----- ------
Underlying profit after taxation GBP million 111.5 109.0
------------------------------------------- ------------ ----- ------
Weighted average number of shares Million 566.0 565.2
------------------------------------------- ------------ ----- ------
Underlying basic EPS Pence 19.7 19.3
------------------------------------------- ------------ ----- ------
Diluted number of shares Million 570.0 567.2
------------------------------------------- ------------ ----- ------
Underlying diluted EPS Pence 19.6 19.2
------------------------------------------- ------------ ----- ------
Basic and diluted EPS
for the year ended 31 March 2019 2018
-------------------------------------------- ------------ ----- -----
Profit attributable to equity shareholders GBP million 113.9 138.1
Weighted average number of shares Million 566.0 565.2
-------------------------------------------- ------------ ----- -----
Basic EPS - total Group Pence 20.1 24.4
-------------------------------------------- ------------ ----- -----
Diluted number of shares Million 570.0 567.2
Diluted EPS - total Group Pence 20.0 24.3
------------------------------------------- ------------- ----- -----
9. Cash flows from operations
All figures in GBP million 2019 2018
------------------------------------------------- ------ ------
Profit after tax for the year 113.9 138.1
Adjustments for:
Taxation expense 9.3 6.7
Net finance income (8.3) (3.8)
Gain on sale of investment (1.1) (0.6)
Gain on sale of property (0.2) (14.6)
Impairment of property, plant and equipment 6.4 -
Acquisition transaction costs 1.3 -
Pension past service cost 0.7 -
Amortisation of purchased or internally
developed intangible assets 3.2 3.7
Amortisation of intangible assets arising
from acquisitions 3.9 2.6
Depreciation of property, plant and equipment 29.4 25.6
(Profit)/loss on disposal of plant and equipment (5.5) 2.9
Share of post-tax profit of equity accounted
entities (0.6) (0.3)
Share-based payments charge 6.1 2.4
Retirement benefit contributions in excess
of income statement expense (1.8) (12.4)
Net movement in provisions (3.6) (3.7)
Increase in inventories (0.5) (10.8)
(Increase)/decrease in receivables (48.7) 19.0
Increase/(decrease) in payables 21.7 (22.4)
-------------------------------------------------- ------ ------
Changes in working capital (27.5) (14.2)
Net cash flow from operations 125.6 132.4
-------------------------------------------------- ------ ------
Reconciliation of net cash flow from operations to underlying
net cash flow from operations and to free cash flow
All figures in GBP million 2019 2018
---------------------------------------------- ------ ------
Net cash flow from operations 125.6 132.4
Add back specific adjusting item: acquisition
integration costs 0.7 -
Add back specific adjusting item: proceeds
from sale of intellectual property - (5.9)
----------------------------------------------- ------ ------
Underlying net cash flow from operations 126.3 126.5
Add: proceeds from disposal of plant and
equipment 6.9 -
Less: tax and net interest payments (10.1) (15.7)
Less: purchases of intangible assets and
property, plant & equipment (87.6) (54.5)
----------------------------------------------- ------ ------
Free cash flow 35.5 56.3
----------------------------------------------- ------ ------
Underlying cash conversion ratio
2019 2018
------------------------------------------ ----- -----
Underlying operating profit - GBP million 123.9 122.5
Underlying net cash flow from operations
- GBP million 126.3 126.5
------------------------------------------- ----- -----
Underlying cash conversion ratio - % 102% 103%
------------------------------------------- ----- -----
10. Net cash
All figures in GBP million 2019 2018
------------------------------------------------- ----- -----
Current financial assets/(liabilities)
Available-for-sale investment - 15.7
Deferred financing costs 0.4 0.1
Derivative financial assets 0.1 1.1
Finance leases (0.7) -
Derivative financial liabilities (1.1) (2.6)
-------------------------------------------------- ----- -----
Total current net financial (liabilities)/assets (1.3) 14.3
Non-current financial assets/(liabilities)
Deferred financing costs 0.9 -
Derivative financial assets - 0.3
Finance leases (1.6) -
Derivative financial liabilities (0.3) (1.9)
-------------------------------------------------- ----- -----
Total non-current net financial liabilities (1.0) (1.6)
-------------------------------------------------- ----- -----
Total net financial (liabilities)/assets (2.3) 12.7
Cash and cash equivalents 190.8 254.1
-------------------------------------------------- ----- -----
Total net cash as defined by the Group 188.5 266.8
-------------------------------------------------- ----- -----
11. Financial risk management
The table below analyses financial instruments carried at fair
value, by valuation method. The different levels have been defined
as follows:
Level 1 - measured using quoted prices (unadjusted) in active
markets for identical assets or liabilities;
Level 2 - measured using inputs other than quoted prices
included within Level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e.
derived from prices). Level 2 derivatives comprise forward foreign
exchange contracts which have been fair valued using forward
exchange rates that are quoted in an active market; and
Level 3 - measured using inputs for the assets or liability that
are not based on observable market data (i.e. unobservable
inputs).
The Group's assets and liabilities that are measured at fair
value, as at 31 March 2019, are as follows:
All figures in GBP million Level 1 Level 2 Level 3 Total
----------------------------------------- ------- ------- ------- -----
Assets:
Current derivative financial instruments - 0.1 - 0.1
Non-current derivative financial
instruments - - - -
Liabilities:
Current derivative financial instruments - (1.1) - (1.1)
Non-current derivative financial
instruments - (0.3) - (0.3)
Total - (1.3) - (1.3)
----------------------------------------- ------- ------- ------- -----
The following table presents the Group's assets and liabilities
that are measured at fair value at 31 March 2018:
Level
All figures in GBP million Level 1 Level 2 3 Total
--------------------------------------------- ------- ------- ----- -----
Assets:
Available-for-sale investments 15.7 - - 15.7
Current other investments 0.7 - - 0.7
Non-current other investments - 1.1 - 1.1
Non-current derivative financial instruments - 0.3 - 0.3
Liabilities:
Current derivative financial instruments - (2.6) - (2.6)
Non-current derivative financial instruments - (1.9) - (1.9)
Total 16.4 (3.1) - 13.3
--------------------------------------------- ------- ------- ----- -----
For cash and cash equivalents, trade and other receivables and
bank and current borrowings, the fair value of the financial
instruments approximate to their carrying value as a result of the
short maturity periods of these financial instruments. For trade
and other receivables, allowances are made within the carrying
value for credit risk. For other financial instruments, the fair
value is based on market value, where available. Where market
values are not available, the fair values have been calculated by
discounting cash flows to net present value using prevailing
market-based interest rates translated at the year-end rates,
except for unlisted fixed asset investments where fair value equals
carrying value. There have been no transfers between levels.
12. Dividends
An analysis of the dividends paid and proposed in respect of the
years ended 31 March 2019 and 31 March 2018 is provided below:
Pence per
ordinary
share GBPm Date paid/payable
--------------------------------------- --------- ---- -----------------
Interim 2019 2.1 11.9 Feb 2019
Final 2019 (proposed) 4.5 25.5 Aug 2019
--------------------------------------- --------- ---- -----------------
Total for the year ended 31 March 2019 6.6 37.4
--------------------------------------- --------- ---- -----------------
Interim 2018 2.1 11.9 Feb 2018
Final 2018 4.2 23.8 Aug 2018
--------------------------------------- --------- ---- -----------------
Total for the year ended 31 March 2018 6.3 35.7
--------------------------------------- --------- ---- -----------------
The Directors propose a final dividend of 4.5p (2018: 4.2p). The
dividend, subject to shareholder approval, will be paid on 30
August 2019. The ex-dividend date is 1 August 2019 and the record
date is 2 August 2019.
13. Goodwill
All figures in GBP million 2019 2018
---------------------------- ------- -------
Cost
At 1 April 203.0 220.4
Acquisitions 45.0 -
Foreign exchange 9.4 (17.4)
---------------------------- ------- -------
At 31 March 257.4 203.0
---------------------------- ------- -------
Impairment
At 1 April (101.5) (112.6)
Foreign exchange (7.3) 11.1
---------------------------- ------- -------
At 31 March (108.8) (101.5)
---------------------------- ------- -------
Net book value at 31 March 148.6 101.5
---------------------------- ------- -------
The goodwill acquired of GBP45.0m arises from the acquisitions
of E.I.S Aircraft Operations (now QinetiQ GmbH) and Inzpire Group
Limited in the year, generating goodwill of GBP33.3m and GBP11.7m
respectively. Foreign exchange movements in respect of the E.I.S
goodwill post acquisition result in the E.I.S closing goodwill as
at 31 March 2019 decreasing to GBP32.2m (as per the following
table).
Cash-generating units (CGU)
Goodwill is allocated across four cash generating units ('CGUs')
within the EMEA Services segment and five CGUs within the Global
Products segment. The full list of CGUs that have goodwill
allocated to them is as follows:
All figures in GBP million Primary reporting segment 2019
--------------------------------------- -------------------------- -----
QinetiQ North America ('QNA') Global Products 41.9
Target Systems Global Products 24.3
Boldon James Global Products 10.7
Commerce Decisions Global Products 6.4
Space Products Global Products 5.7
QinetiQ Germany (acquired in year, see
note 5) EMEA services 32.2
Inzpire (acquired in year, see note 5) EMEA services 11.7
Advisory Services EMEA services 9.8
Australia EMEA Services 5.9
Net book value at 31 March 148.6
------------------------------------------------------------------- -----
Goodwill is attributable to the excess of consideration over the
fair value of net assets acquired and includes expected synergies,
future growth prospects and employee knowledge, expertise and
security clearances. The Group tests each CGU for impairment
annually, or more frequently if there are indications that goodwill
might be impaired. Impairment testing is dependent on management's
estimates and judgments, particularly as they relate to the
forecasting of future cash flows, the discount rates selected and
expected long-term growth rates. Significant headroom exists in all
CGUs and management considers that there are no likely variations
in the key assumptions which would lead to an impairment being
recognised.
Key assumptions
Cash flows
The value in use calculations generally use discounted future
cash flows based on financial plans approved by the Board covering
a three-year period. Cash flows for periods beyond these periods
are extrapolated based on the last year of the plans, with a
terminal growth-rate assumption applied.
Terminal growth rates
The specific plans for each of the CGUs have been extrapolated
using a terminal growth rate of 1.0%-2.4% (2018: 1.0%-2.5%). The US
terminal growth rate was 1.9% (2018: 1.7%). Growth rates are based
on management's estimates which take into consideration the
long-term nature of the industry in which the CGUs operate and
external forecasts as to the likely growth of the industry in the
longer term.
Discount rates
The Group's weighted average cost of capital was used as a basis
in determining the discount rate to be applied, adjusted for risks
specific to the market characteristics of CGUs, as appropriate on a
pre-tax basis. This is considered an appropriate estimate of a
market participant discount rate. The pre-tax discount rates
applied to the cash flows of the QNA CGU and to the Target Systems
CGU were 14.6% and 11.3% respectively. Discount rates ranging from
11.2% to 12.0% were applied to the cash flows of the other, less
significant, CGUs.
Sensitivity analysis shows that the value of the terminal year
cash flow, the discount rate and the terminal growth rates have a
significant impact on the value of the discounted cash flow.
Significant CGUs
QinetiQ North America ('QNA')
The carrying value of the goodwill for QNA CGU, was GBP41.9m as
at 31 March 2019 (2018: GBP38.8m). The recoverable amount of this
CGU as at 31 March 2019, based on value in use and calculated using
the assumptions noted above, is higher than the carrying value of
net operating assets (of GBP52.4m). The key sensitivity impacting
on the value in use calculations is the terminal year cash flows.
These cash flows include certain assumptions about revenue and
profit in respect of new product lines still to be launched and the
success of winning certain government contracts. An increase in the
discount rate by 1%, a decrease in the terminal growth rate by 1%
or a decrease in the terminal year cash flows of GBP2.0m would not
cause the net operating assets to exceed their recoverable
amount.
Target Systems
The recoverable amount of this CGU as at 31 March 2019, based on
value in use and calculated using the assumptions noted above, is
higher than the carrying value of net operating assets (of
GBP29.4m). The key sensitivity impacting on the value in use
calculations is the terminal year cash flows. An increase in the
discount rate by 1%, a decrease in the terminal growth rate by 1%
or a decrease in the terminal year cash flows of GBP2.0m would not
cause the net operating assets to exceed their recoverable
amount.
14. Post-retirement benefits
In the UK the Group operates a defined benefit pension scheme
('the Scheme'). The Scheme is closed to future accrual and there is
no on-going service cost. Prior to the year end the Scheme
completed its first bulk annuity insurance buy-in for approximately
GBP700m. This transaction has removed longevity risk, interest rate
risk and inflation risk for approximately one third of the Scheme
and is in line with the Group's strategy of de-risking the pension
liabilities. As a result of the transaction, the accounting pension
surplus recorded on the Group's balance sheet reduced by an
estimated GBP120m with no related cash impact.
Set out below is a summary of the financial position of the
Scheme. The fair value of the Scheme's assets, which are not
intended to be realised in the short term and may be subject to
significant change before they are realised, and the present value
of the Scheme's liabilities, which are derived from cash flow
projections over long periods, and thus inherently uncertain, are
as follows:
All figures in GBP million 2019 2018
--------------------------------------------- --------- ---------
Equities - quoted 127.0 115.8
Equities - unquoted 51.8 58.9
Liability Driven Investment 690.8 1,050.9
Corporate bonds 96.0 311.3
Alternative bonds 304.4 232.9
Property fund 145.6 138.7
Cash and cash equivalents 75.1 80.2
Insurance buy-in policy 566.4 -
Outstanding payment due in respect of buy-in (96.0) -
Derivatives 2.5 1.8
Total market value of scheme assets 1,963.6 1,990.5
Present value of scheme liabilities (1,704.5) (1,674.3)
---------------------------------------------- --------- ---------
Net pension asset before deferred tax 259.1 316.2
Deferred tax liability (48.6) (58.6)
---------------------------------------------- --------- ---------
Net pension asset after deferred tax 210.5 257.6
---------------------------------------------- --------- ---------
Per the Scheme rules, the Company has an unconditional right to
a refund of any surplus that may arise on cessation of the Scheme
in the context of IFRIC 14 paragraphs 11(b) and 12 and therefore
the full net pension asset can be recognised on the Group's balance
sheet and the Group's minimum funding commitments to the Scheme do
not give rise to an additional balance sheet liability.
Changes to the net pension asset
All figures in GBP million 2019 2018
----------------------------------- ------ -----
Opening net pension asset 316.2 156.0
Net finance income 8.2 4.2
Net actuarial (loss)/gain (66.4) 143.6
Administration expenses (0.9) (1.0)
Past service cost (0.7) -
Contributions by the employer 2.7 13.4
Closing net pension asset 259.1 316.2
------------------------------------ ------ -----
Assumptions
The major assumptions used in the IAS 19 valuation of the
Scheme
2019 2018
-------------------------------------------- ----- -----
Discount rate applied to Scheme liabilities 2.45% 2.60%
CPI inflation assumption 2.35% 2.25%
--------------------------------------------- ----- -----
Assumed life expectancies in years:
Future male pensioners (currently aged 60) 87 88
Future female pensioners (currently aged
60) 89 90
Future male pensioners (currently aged 40) 89 90
Future female pensioners (currently aged
40) 91 92
--------------------------------------------- ----- -----
The sensitivity of the gross Scheme liabilities to each of the
key assumptions is shown in the following table:
Indicative impact
Indicative impact on
on gross Scheme liabilities net pension
Key assumptions Change in assumption before deferred tax asset
-------------------- ----------------------------
Decrease by
Discount rate Increase by 0.1% Decrease by GBP31m GBP15m
Increase by
Rate of inflation Increase by 0.1% Increase by GBP30m GBP13m
Increase by one Decrease by
Life expectancy year Increase by GBP59m GBP39m
----------------- -------------------- ---------------------------- -----------------
The impact of movements in Scheme liabilities will, to an
extent, be offset by movements in the value of Scheme assets as the
Scheme has assets invested in a Liability Driven Investment
portfolio. As at 31 March 2019 this hedges against approximately
93% of the interest rate and 100% of the inflation rate risk, as
measured on the Trustees' gilt-funded basis.
The above sensitivity analyses are based on a change in an
assumption while holding all other assumptions constant. In
practice, this is unlikely to occur, and changes in some of the
assumptions may be correlated. When calculating the sensitivity of
the defined benefit obligation to significant actuarial assumptions
the same method (projected unit credit method) has been applied as
when calculating the pension liability recognised within the
statement of financial position. The methods and types of
assumption did not change.
The accounting assumptions noted above are used to calculate the
period end net pension asset in accordance with the relevant
accounting standard, IAS 19 (revised) 'Employee benefits'. Changes
in these assumptions have no impact on the Group's cash payments
into the scheme. The payments into the scheme are reassessed after
every triennial valuation. The latest triennial valuation of the
Scheme was a net surplus of GBP139.7m as at 30 June 2017. The next
triennial valuation will be performed as at 30 June 2020. The
currently agreed recovery plan requires GBP2.7m per annum
distributions to the Scheme until 25 March 2032, indexed by
reference to CPI. Such distributions are from the Group's Pension
Funding Partnership.
The triennial valuations are calculated on a 'funding basis' and
use a different set of assumptions, as agreed with the pension
Trustees. The key assumption that varies between the two methods of
valuation is the discount rate. The funding basis valuation uses
the risk-free rate from UK gilts as the base for calculating the
discount rate, whilst the IAS 19 accounting basis valuation uses
corporate bond yields as the base.
During the reporting period the High Court ruled on a case
involving Lloyds Banking Group in respect of equalising (between
men and woman) Guaranteed Minimum Pensions ('GMPs'). QinetiQ's
pension scheme has not been significantly impacted by this court
ruling but an increase in liabilities of GBP0.7m has been
recognised in the period, through a past service charge to
operating profit. This is reported as a 'significant adjusting
item' in the income statement in accordance with historical Group
policy.
15. Own shares and share-based awards
Own shares represent shares in the Company that are held by
independent trusts and include treasury shares and shares held by
the employee share ownership plan. Included in retained earnings at
31 March 2019 are 6,946,678 shares (2018: 7,934,634 shares). In the
year ended 31 March 2019 the Group granted/awarded 4.0m new
share-based awards to employees (2018: 3.7m).
16. Contingent liabilities and assets
Subsidiary undertakings within the Group have given unsecured
guarantees of GBP29.9m at 31 March 2019 (2018: GBP30.1m) in the
ordinary course of business.
The Company has on occasion been required to take legal action
to protect its intellectual property rights, to enforce commercial
contracts or otherwise and similarly to defend itself against
proceedings brought by other parties, including in respect of
environmental and regulatory issues. Provisions are made for the
expected costs associated with such matters, based on past
experience of similar items and other known factors, taking into
account professional advice received, and represent management's
best estimate of the likely outcome. The timing of utilisation of
these provisions is uncertain pending the outcome of various court
proceedings, ongoing investigations and negotiations. However, no
provision is made for proceedings which have been or might be
brought by other parties unless management, taking into account
professional advice received, assesses that it is more likely than
not that such proceedings may be successful. Contingent liabilities
associated with such proceedings have been identified but the
Directors are of the opinion that any associated claims that might
be brought can be resisted successfully and therefore the
possibility of any outflow in settlement is assessed as remote.
17. Related party transactions with equity accounted
investments
During the year there were sales to associates and joint
ventures of GBP10.1m (2018: GBP10.4m). At the year end there were
outstanding receivables from associates and joint ventures of
GBP1.4m (2018: GBP4.5m).
18. Capital commitments
The Group had the following capital commitments for which no
provision has been made:
All figures in GBP million 2019 2018
--------------------------- ---- ----
Contracted 40.6 76.2
---------------------------- ---- ----
Capital commitments at 31 March 2019 include GBP20.6m (2018:
GBP74.3m) in relation to property, plant and equipment that will be
wholly funded by a third party customer under a long-term contract
arrangements. These primarily relate to investments under the LTPA
contract.
Glossary
C4ISR Command, control, communications, computers, intelligence,
surveillance and reconnaissance
CPI Consumer Price Index
EBITDA Earnings before interest, tax, depreciation and amortisation
EPS Earnings per share
IAS International Accounting Standards
IFRS International Financial Reporting Standards
LTPA Long Term Partnering Agreement: 25-year contract established
in 2003 to manage the MOD's test and evaluation ranges
MOD UK Ministry of Defence
SSRO Single Source Regulations Office
Alternative performance measures ('APM's)
The Group uses various non-statutory measures of performance, or
APMs. Such APMs are used by management internally to monitor and
manage the Group's performance and also allow the reader to obtain
a proper understanding of performance (in conjunction with
statutory financial measures of performance). The APMs used by
QinetiQ are set out below:
Measure Explanation Note reference
to calculation
or reconciliation
to statutory
measure
Organic growth The level of year-on-year growth, Note 2
expressed as a percentage, calculated
at constant prior year foreign exchange
rates, adjusting for business acquisitions
and disposals to reflect equivalent
composition of the Group
---------------------------------------------- -------------------
Underlying operating Operating profit as adjusted to exclude Note 2
profit 'specific adjusting items'
---------------------------------------------- -------------------
Underlying operating Underlying operating profit expressed Note 2
margin as a percentage of revenue
---------------------------------------------- -------------------
Underlying net finance Net finance income/expense as adjusted Note 6
income/expense to exclude 'specific adjusting items'
---------------------------------------------- -------------------
Underlying profit Profit before/after tax as adjusted Note 7
before/after tax to exclude 'specific adjusting items'
---------------------------------------------- -------------------
Underlying effective The tax charge for the year excluding Note 7
tax rate the tax impact of 'specific adjusting
items' expressed as a percentage
of underlying profit before tax
---------------------------------------------- -------------------
Underlying basic Basic and diluted earnings per share Note 8
and diluted EPS as adjusted to exclude 'specific
adjusting items'
---------------------------------------------- -------------------
Orders The level of new orders (and amendments N/A
to existing orders) booked in the
year. Includes share of orders won
by joint ventures
---------------------------------------------- -------------------
Backlog, funded backlog The expected future value of revenue N/A
or order book from contractually committed and
funded customer orders
---------------------------------------------- -------------------
Book to bill ratio Ratio of funded orders received in N/A
the year to revenue for the year,
adjusted to exclude revenue from
the 25-year LTPA contract due to
significant size and timing differences
of LTPA order and revenue recognition
which may distort the ratio calculation.
---------------------------------------------- -------------------
Underlying net cash Net cash flow from operations before Note 9
flow from operations cash flows of specific adjusting
items
---------------------------------------------- -------------------
Underlying operating The ratio of underlying net cash Note 9
cash conversion or flow from operations to underlying
cash conversion ratio operating profit
---------------------------------------------- -------------------
Free cash flow Underlying net cash flow from operations Note 9
less net tax and interest payments
less purchases of intangible assets
and property, plant and equipment
plus proceeds from disposals of plant
and equipment
---------------------------------------------- -------------------
Net cash Net cash as defined by the Group Note 10
combines cash and cash equivalents
with other financial assets and liabilities,
primarily available for sale investments
and derivative financial instruments.
---------------------------------------------- -------------------
Specific adjusting Amortisation of intangible assets Note 3
items arising from acquisitions; impairment
of property; gains/losses on disposal
of property, investments and intellectual
property; net pension finance income;
pension past service costs; acquisition
costs; tax impact of the preceding
items and significant non-recurring
deferred tax movements
---------------------------------------------- -------------------
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR BCGDULDDBGCD
(END) Dow Jones Newswires
May 23, 2019 02:00 ET (06:00 GMT)
Grafico Azioni Qinetiq (LSE:QQ.)
Storico
Da Mar 2024 a Apr 2024
Grafico Azioni Qinetiq (LSE:QQ.)
Storico
Da Apr 2023 a Apr 2024
