TIDMQQ.
RNS Number : 3449T
QinetiQ Group plc
14 November 2019
Interim Results
14 November 2019
Customer focus and strategic progress delivers profitable
growth
Results for six months to 30 September 2019
Statutory results Underlying* results
H1 2020 H1 2019^ H1 2020 H1 2019^
Revenue GBP486.5m GBP420.3m GBP486.5m GBP420.3m
Operating profit GBP68.5m GBP47.8m GBP59.7m GBP51.6m
Profit after tax GBP62.2m GBP50.1m GBP52.0m GBP45.8m
Earnings per share 11.0p 8.9p 9.2p 8.1p
Interim dividend per share 2.2p 2.1p 2.2p 2.1p
Total funded order backlog GBP3,083.6m GBP1,882.1m
Total orders in the period(1) GBP410.8m GBP298.1m
Net cash flow from operations GBP77.0m GBP54.9m GBP77.0m GBP54.9m
Net cash GBP173.5m GBP220.8m GBP173.5m GBP220.8m
* Definitions of the Group's 'Alternative Performance Measures'
can be found in the glossary.
^ Restated due to the retrospective adoption of new accounting
standard, IFRS 16, in respect of finance leases. Refer to Note
1.
(1) H1 2020 excludes LTPA contract amendment signed 5 April
2019.
Delivered strong operational and financial performance
- 38% increase in orders, 30% on an organic basis, driven by growth
across the Group
- 16% revenue growth, 10% on an organic basis, driven by good performance
in both divisions
- Underlying operating profit up 16% including GBP1.6m non-recurring
trading items (H1 2019: nil), excluding them up 8% on an organic
basis
- Strong cash performance with 129% underlying cash conversion pre-capex
- Underlying EPS up 14%; 2.2p interim dividend - one third of FY19
full year dividend
Continued focus on strategy implementation
- On-track with delivery of new LTPA contract for UK Ministry of
Defence (MOD)
- Grown international revenue to GBP150.8m (H1 2019: GBP129.7m)
- 31% of total revenue
- Won GBP67m secure navigation programme for UK MOD
- Good acquisition performance, including 50% growth in QinetiQ
Target Systems revenue
- Announced acquisition of MTEQ; US presence to increase to c25%
of Group revenue
Priorities and expectations for the remainder of the year
- Operational performance; 96% of forecast FY20 revenue under contract
(H1 2019: 90%)
- Win further competitions and pursue campaigns globally
- Drive sustainable profitable growth through continued investment
- Maintaining expectations for Group operating profit in FY20
Steve Wadey, Group Chief Executive Officer said:
"Our strategy to drive value for our customers and shareholders
continues to gather momentum. We delivered a strong first half
result, with organic growth in orders, revenue and profit driven by
a good performance across our businesses, both in the UK and
internationally. We are maintaining expectations for full year
operating profit with high single digit revenue growth.
"Our focus for the remainder of the year is to win further
campaigns globally, successfully deliver key programmes, and
complete the acquisition of MTEQ to transform the scale of our US
operations as we build an integrated, global defence and security
company."
Interims results presentation:
Results will be webcast at 0900 hours UK time on 14 November
2019 at: www.qinetiq.com/investors through which analysts and
investors will be able to ask questions.
A listen-only audiocast of the event will also be available by
dialling +44 20 3936 2999, Participant Access Code: 809002
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 Interim Report, 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
judgement of the Directors, the use of adjusted 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 this document.
Year references (FY20, FY19, 2020, 2019) refer to the year ended
31 March. H1 2020 and H1 2019 refer to the six months ended 30
September.
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
As our growth strategy gathers momentum, we have delivered a
strong first half result driven by a good performance in all our
businesses, both in the UK and internationally. On an organic
basis, we have grown orders by 30%, revenue by 10% and operating
profit by 8% excluding non-recurring trading items. We also
delivered a strong cash performance with 129% conversion before
capital expenditure.
Strong organic growth was complemented by revenue and profit
growth in QinetiQ Germany, previously known as EIS Aircraft
Operations which we acquired in October 2018, and Inzpire, in which
we acquired an 85% interest in November 2018. The integration of
QinetiQ Germany is progressing well and we have been able to deploy
the capabilities of both Inzpire and our new business in Germany to
support Group-wide opportunities globally. As we continue to
successfully grow, our focus remains on the effectiveness of our
bidding, programme delivery and acquisition integration.
A significant addressable market and a clear value proposition
to our customers
We have an addressable market of more than GBP8bn per annum
across Research, Development, Test & Evaluation, Training &
Rehearsal and Services & Products. By focusing on our core
offerings and target markets we have plenty of opportunities for
growth.
Our strategic progress and growth has been supported by a clear
definition of our unique value proposition to our customers.
QinetiQ's inherent strengths are the expertise of our people, our
independence from the supply chain and our ability to effectively
partner with academia, SMEs and other industry contractors to
deliver customer solutions.
Using these strengths we help our customers to:
- Create it. We develop cutting-edge technology and turn it into
capability;
- Test it. We test capabilities to ensure they work when they are
critically needed; and,
- Use it. We enable our customers to be trained and operationally
ready.
Good strategic progress
During H1 2020, we have made consistent progress against our
strategy of leading and modernising UK test & evaluation,
growing our business internationally and delivering innovation for
our customers' advantage.
1. UK Test & Evaluation
We are already seeing the benefits of our investment in the Long
Term Partnering Agreement (LTPA) with the UK MOD under the December
2016 contract amendment. In May, we successfully hosted Formidable
Shield 2019 for the US Navy, an example of the complex
international trials we can facilitate for our customers thanks to
the investment and modernisation we are delivering. This event is
now expected to be repeated every two years, increasing in
complexity and scale to more closely reflect the threats our
customers face. The investment into the LTPA secures revenues until
2028 and delivers appropriate and contracted returns - returns we
are able to enhance further by driving greater throughput.
Having secured the second amendment to the LTPA in April 2019,
our attention is on ensuring we successfully transition to the new
ways of working which will enable us to fulfil the potential of the
contract. The contract incorporates a two-year transition period
from the old, input-based ways of working to modern, relevant and
output-based ones. We are making good progress and during H1
successfully met two key customer milestones associated with our
delivery during this transition period.
Building on the modernisation of the LTPA, we were awarded a
further GBP19m contract to reduce the electromagnetic and acoustic
signatures of the UK Royal Navy's submarines and ships, enhancing
their operational effectiveness. Over a dozen services will be made
available through the LTPA using the new output-based approach to
deliver a more cost effective service to the Royal Navy.
2. International
Our International business unit continues to grow. In the first
half of the year we grew orders in our International business unit
by more than 50% on an organic basis, almost doubling them when the
contribution from QinetiQ Germany is included. The strong
performance of QinetiQ Target Systems (QTS), acquired in FY17, also
continued as it doubled its orders and delivered a 50% increase in
revenue. With carefully focused investment, QTS has developed two
new products: Rattler, a low-cost supersonic target that represents
missile threats, and the Next-Generation Banshee, which replicates
fast flying jets and missiles. In Australia, we also grew orders
and revenue as our status as a Major Service Provider (MSP) to the
Australian Government increased the volume of work we won and
delivered.
Shortly after the end of the period we were pleased to announce
the acquisition of MTEQ, a leading US provider of advanced sensing
solutions with a strong reputation for mission-led innovation. The
acquisition has a number of strategic benefits to QinetiQ: MTEQ has
a strong track record and further growth potential in an expanding
sensors market, it accelerates our growth in the US, the world's
largest defence and security market, and it strengthens
implementation of our international growth and innovation strategy
across the Group. For example, we expect to be able to combine
MTEQ's expertise in advanced sensors with our existing capabilities
in robotics and autonomy. The acquisition is subject to regulatory
approval and is expected to close towards the end of FY20, creating
a US operation of c.$300m and c.750 employees.
3. Innovation
We are making good progress on our innovation strategy,
combining our people's expertise with commercially relevant
propositions.
An example of this approach in action was the award in September
of a GBP67 million contract with the UK Government to develop the
next generation of multi-constellation satellite receivers under
the UK Robust Global Navigation System (R-GNS) programme. This
contract was won as a result of our investment in sovereign
cutting-edge technology and our innovative commercial approach,
including developing a strategic partnership with Collins Aerospace
(announced in May 2017). In addition to supporting the UK MOD, this
contract also provides us with a platform to sell the capability to
other international customers.
We have made further progress on the 10-year Engineering
Delivery Partner (EDP) contract adding GBP60m of orders during H1
2020, bringing the total to GBP129m since the contract was signed
in October 2019. EDP is an example of applying an innovative
approach to address key customer challenges. The MOD's procurement
agency DE&S is responsible for the procurement and support of
equipment and services that the UK armed forces need to operate
effectively, and uses EDP as the default route for procuring
engineering services, with QinetiQ as prime contractor. We deliver
the services working in collaboration with our partners, Atkins and
BMT, and a supply chain of over 80 small and medium sized
enterprises. This significantly streamlines the procurement process
for engineering services for DE&S and wider MOD, improving
availability and ensuring quality, particularly for highly
specialised requirements. As a single source contract and given its
minimal capital requirements, the margin we make on EDP, and other
similar contracts, is lower than our average Group margin, but
remains well in line with the defence industry more generally and
delivers appropriate returns. We expect EDP to be a growth driver
of our UK business in the medium to long term.
In July 2018, we were awarded a contract worth up to GBP95
million to deliver Private Sector Support to the Battlefield
Tactical Communication and Information Systems (BATCIS) Delivery
Team within Information Systems and Services which is part of the
UK MOD's Joint Forces Command. The award is strategically important
for QinetiQ as it demonstrates our increasing customer focus and
more strategic approach to business winning. The contract was a key
driver of growth of the Cyber, Information and Training (CIT)
business during H1 2020.
Outlook - FY20
We delivered a strong first half result, with organic growth in
orders, revenue and profit driven by good performance in all our
businesses, both in the UK and internationally. We are maintaining
expectations for full year operating profit with high single digit
revenue growth.
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.
Chief Financial Officer's Review
We delivered a strong performance in the period with orders of
GBP410.8m, compared to GBP298.1m in the same period a year ago.
Excluding foreign exchange and the impact of acquired businesses,
orders grew organically by GBP89.7m (30%). This increase was
primarily driven by the multi-year GBP67m order for the UK Robust
Global Navigation System (R-GNS) programme and GBP60m orders
through the EDP contract.
Revenue visibility remains good and the Group's total funded
order backlog at 30 September 2019 stood at GBP3.1bn, compared with
GBP1.9bn in the comparable period, the step-up primarily due to the
LTPA contract amendment signed on 5 April 2019. At the start of H2
2020, the Group had 96% of FY20 revenue under contract, up from 74%
at the beginning of the financial year. This compares with 90% at
the same time last year.
Revenue was GBP486.5m (H1 2019: GBP420.3m), up 10% on an organic
basis. Overall organic growth was principally due to the increase
of revenue in EMEA Services which was up 9% on an organic basis,
driven by new work delivered under EDP and the Battlefield Tactical
Communications Information Systems (BATCIS) contract. Global
Products revenue was up 14% organically, principally driven by
sales of target systems.
Underlying operating profit was GBP59.7m (H1 2019 restated:
GBP51.6m - see note 1), with the increase assisted by GBP1.6m of
non-recurring trading items in H1 2020 (H1 2019: nil) in respect of
a gain on sale of aircraft and spares. There was also a
contribution of GBP2.1m from QinetiQ Germany and Inzpire Ltd which
were acquired in H2 2019.
Excluding the non-recurring trading items, acquisitions and the
effect of foreign exchange, underlying operating profit was up
GBP4.2m (8%) on an organic basis. Margin pressure as a result of
single source regulations has abated in this period as expected,
although organic operating profit growth in EMEA Services reflects
the higher volume of work under the EDP contract which, given its
minimal capital requirements, delivers a margin more in line with
the prevailing norm in the UK defence industry. Operating profit in
Global Products increased by GBP3.1m (30%) during H1 2020 as the
result of increased sales of higher margin products in QinetiQ
Target Systems.
Statutory operating profit, including the impact of specific
adjusting items, was GBP68.5m (H1 2019 restated: GBP47.8m). Current
period specific adjusting items were an GBP8.8m gain at the
operating profit level (H1 2019: GBP3.8m loss) and included a
GBP13.3m profit on disposal of surplus property. See note 3 for
full details of all specific adjusting items.
Underlying net finance expense was GBP0.4m (H1 2019 restated:
GBP0.3m) and the underlying tax charge was GBP7.3m (H1 2019
restated: GBP5.5m). This resulted in an underlying profit after tax
of GBP52.0m (H1 2019 restated: GBP45.8m).
Underlying earnings per share for the Group were 9.2p (H1 2019
restated: 8.1p), with the increase primarily due to strong trading
and top line revenue growth. Statutory basic earnings per share for
the total Group (including specific adjusting items) were 11.0p (H1
2019: 8.9p) with the current period enhanced by the inclusion of a
GBP13.3m gain on disposal of surplus property.
We delivered strong cash performance during H1 2020, with net
cash flows from operations of GBP77.0m (H1 2019 restated:
GBP54.9m), resulting in cash conversion, before capital
expenditure, of 129%.
Working capital outflow was GBP5.1m in H1 2020 compared with
GBP18.5m in H1 2019. We anticipate a full year working capital
outflow of GBP20-30m.
Net capex for the period was GBP38.8m (H1 2019: GBP48.3m). We
continue to invest in core contracts including the LTPA following
the contract amendment announced in April 2019. Full year total
capex is expected to be in line with previous guidance of
GBP80-100m.
In October we announced the acquisition of Manufacturing
Techniques Inc. (MTEQ) on a cash-free, debt-free basis for $105m to
be paid on completion, and an earn-out of $20m payable in cash and
shares dependent upon performance over three years. The transaction
is subject to US Government approval and is expected to close
towards the end of FY20.
At 30 September 2019 the Group had GBP173.5m net cash, compared
to GBP161.3m at 31 March 2019 (restated from GBP188.5m due to the
retrospective adoption of the new accounting standard, IFRS 16, in
respect of leases).
We maintain a rigorous approach to the deployment of our
capital, scrutinising organic and inorganic opportunities in the
same manner to ensure returns to our shareholders are appropriate
for the risks taken.
Our priorities for capital allocation, following this rigorous
methodology, are:
1. Organic investment complemented by bolt-on acquisitions where there
is a strong strategic fit;
2. The maintenance of necessary balance sheet strength;
3. A progressive dividend; and
4. The return of excess cash to shareholders.
An interim dividend of 2.2p (H1 2019: 2.1p) will be paid on 7
February 2020 to shareholders on the register at 10 January 2020.
The interim dividend represents one third of the prior year total
dividend reflecting our previously communicated methodology. The
full year dividend will be proposed in May.
Trading environment
QinetiQ operates principally in three home countries: the United
Kingdom, the United States and Australia. We define home countries
as ones where we have a significant indigenous industrial presence
of scale. In addition to our home countries, we sell directly from
our home countries into other geographies as well as having smaller
operations in countries such as Canada, Germany, Belgium and
Sweden.
UK
The additional GBP2.2bn of funding allocated to the MOD as part
of the Autumn spending round provides near term support to UK
defence budgets and includes GBP1.2bn in FY21 for key priority
programmes. With the threat environment continually evolving, the
MOD is tasked with enhancing its capability, whilst also delivering
efficiencies elsewhere. Defence policy therefore remains focused on
driving innovation and generating new technologies to support this.
With innovation at the core of our strategy QinetiQ remains well
positioned to help the MOD in achieving its ambitions, as evidenced
by the renegotiated LTPA contract where we are delivering enhanced
Test & Evaluation to the MOD and also saving the customer
GBP85m over the remainder of the contract.
Longer term, the budgetary environment is likely to be governed
by a three-year spending review scheduled for 2020, with the
outcome of this largely dependent on the nature of the UK's
departure from the European Union and the outcome of the General
Election in December 2019.
US
The US continues to be the largest defence market in the world
and the Department of Defense budget request for $718bn in FY20
implies further growth. In addition, a deteriorating geopolitical
environment combined with the need to maintain a superior
technological advantage in such an environment is likely to support
growth beyond FY20. QinetiQ continues to support the US in the
modernisation of its defence capabilities with our expertise in
robotics and unmanned systems well aligned with the DoD's ambitions
to make greater use of this technology. Our acquisition of MTEQ, a
business with a strong reputation for rapidly developing and
fielding operationally relevant advanced sensor solutions, enhances
our offering in the US market and creates further opportunities for
QinetiQ to grow in the world's largest defence market.
Australia
Modernising and enhancing defence capability remains a key
priority for the Australian military with the core focus being the
modernisation of naval platforms. Defence spending has grown over
recent years and core defence spending is likely to hit 2% of GDP
by FY21. The 2018 Defence Industrial Capability Plan outlined ten
areas of focus critical to enhancing Australian sovereign
industrial capability, including conducting Test & Evaluation
and advancing signal processing capability in electronic warfare.
We continue to grow our presence in Australia supporting the
modernisation of their capability through Test and Evaluation and
see further opportunities to build on this offering.
International markets
To achieve our ambition of growing international revenue to 50%
of total Group revenue we will need to grow 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. We have identified Canada and Germany as
priority markets and also operate three joint ventures in the
Middle East. Canada is a significant market outside of our home
countries and the drive to modernise defence platforms in the
region supports defence spending. In Germany, the need to modernise
key defence platforms continues to present opportunities and we
will look to leverage both our existing in-country capability,
established through the acquisition of EIS Aircraft Operations, and
Group-wide expertise to support these opportunities.
Business overview
EMEA Services
H1 2020 H1 2019^
GBPm GBPm
----------------------------- -------- ---------
Orders (incl. JVs)(1) 308.4 196.1
Revenue 369.1 319.9
Underlying operating profit* 46.2 41.2
Underlying operating margin* 12.5% 12.9%
Book to bill ratio(2) 1.2x 0.9x
Funded order backlog excl.
LTPA 823.8 683.7
Total funded order backlog
incl. LTPA 2,872.0 1,674.6
----------------------------- -------- ---------
* Definitions of the Group's 'Alternative Performance Measures' can be found in the glossary.
^ Underlying operating profit and margin have been restated due
to adoption of IFRS 16 'Leases'.
(1) 2020 excludes LTPA contract amendment signed 5 April
2019.
(2) B2B ratio is orders won divided by revenue recognised,
excluding the LTPA contract.
EMEA (Europe, Middle East and Australasia) Services combines
world-leading expertise with unique facilities to provide
capability generation and assurance, underpinned by long-term
contracts that provide good visibility of revenue and cash
flows.
Financial performance
Orders were up 57% to GBP308.4m (H1 2019: GBP196.1m), driven by
a GBP67m contract for the UK Robust Global Navigation System
(R-GNS) programme and GBP60m orders under the Engineering Delivery
Partner (EDP) contract.
Revenue increased 9% on an organic basis as a result of new work
delivered under EDP and the Battlefield Tactical Communications and
Information Systems (BATCIS) contract. At the start of H2 2020,
EMEA Services had 98% of its forecast FY20 revenue under contract,
compared with 91% at the same point last year and up from 79% at
the beginning of FY20.
Underlying operating profit grew to GBP46.2m (H1 2019 restated:
GBP41.2m), including a GBP1.6m benefit from non-recurring trading
items in H1 2020 (H1 2019: nil) in respect of a gain on sale of
aircraft and spares. There was also a contribution of GBP2.1m from
QinetiQ Germany and Inzpire Ltd acquired in H2 2019 which was not
in the comparator period. Excluding non-recurring trading items,
acquisitions and foreign exchange, underlying operating profit was
up 3% (H1 2019: 0%) with margins impacted by the higher volume of
work under the EDP contract.
Including the LTPA, approximately 70% of EMEA Services revenue
is derived from single source contracts (2019: approximately 70%).
By investing in our core contracts and extending their duration we
have increased the proportion of single source 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.
H1 commentary
Air & Space
The Air & Space business de-risks complex aerospace
programmes by evaluating systems and equipment, evaluating the
risks and assuring safety.
- In June 2019, the transformed Empire Test Pilots' School (ETPS)
was formally opened by Air Chief Marshal Sir Stephen Hillier.
Following investment under the December 2016 LTPA amendment,
ETPS is now equipped to provide relevant, affordable and world-class
test aircrew training. Building on this investment we have experienced
strong demand for both short and long ETPS courses, in particular
from international customers.
- Engineering Delivery Partner (EDP), our innovative delivery model
for engineering services to the MOD's procurement agency DE&S,
continued to drive performance in our Air & Space business, with
total orders of GBP60m in H1 and GBP129m since the contract was
signed. Within this we secured an GBP11m contract to provide
independent technical evaluation services on the F35 Lightning
II aircraft, to ensure it meets the requirements of the UK RAF
and Royal Navy.
Maritime, Land & Weapons (MLW)
The MLW business delivers operational advantage to customers by
providing independent research, evaluation and training
services.
- In April 2019, we signed a GBP1.3bn amendment to the LTPA to
cover sites and capabilities not included in the December 2016
amendment. QinetiQ is now in a two year transition period to
deliver the new modern ways of working covered under the contract.
Key milestones during the transition period have been agreed
with the customer, and we were pleased to have successfully met
the first two of these on time. We are focused on the successful
delivery of this transition period, the conclusion of which will
enable us to realise the full benefits of the modernised LTPA.
- We successfully supported the delivery of Formidable Shield 2019,
a live-fire exercise testing integrated air and missile defence
capabilities led by the US Navy, involving over 3,300 personnel
and 12 warships. Increasingly complex trials such as Formidable
Shield 2019 have been facilitated by our investment in UK T&E
and are aligned with growing customer requirements.
- We were awarded a GBP19m contract to provide electromagnetic
and acoustic mapping services to the Royal Navy through the LTPA
contract. The Operational Assessment of Signatures Informing
Susceptibility (OASIS) contract will help reduce the detectability
of the Royal Navy's ships and submarines, improving their operational
advantage.
Cyber, Information & Training (CIT)
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.
- The CIT business secured a GBP67m contract with the UK MOD to
develop secured satellite navigation receivers. Under the UK
Robust Global Navigation System (R-GNS) programme, QinetiQ, along
with our partner Collins Aerospace, will deliver an accurate
and resilient positioning, navigation and timing capability to
the UK MOD. This is a significant strategic milestone for our
CIT business supported by our expertise in secure communications
systems.
- Building on our expertise in secure communication systems we
booked GBP16m orders under a new GBP20m contract to provide assurance
and testing services on a new air-to-ground communications system
for all police and air ambulance aircraft.
- The on-going delivery of BATCIS, where QinetiQ is supporting
the development of next generation Tactical Communication and
Information Systems is progressing well and made a notable contribution
to a good performance in the first half.
- In November 2018 we completed a strategic investment in Inzpire,
the highly regarded provider of training services principally
to the Royal Air Force and British Army. Inzpire has performed
well and is delivering growth since we made this strategic investment.
International
Our International business leverages our expertise and the
skills we have developed in the UK and applies them to
opportunities in attractive markets globally.
- We have delivered a very positive performance across our International
business in H1 2020, with strong growth in orders, revenue and
operating profit.
- Performance in Australia, the largest component of our International
business, has been strong during H1 2020, underpinned by its
status as a Major Service Provider to the Australian Government
working in partnership with Nova Systems.
- The integration of QinetiQ Germany following the completion of
the acquisition in October 2018 is proceeding well and we have
been able to leverage its capabilities in other key markets.
As part of the LTPA air range modernisation programme agreed
in December 2016, QinetiQ Germany has secured a EUR10m contract
to provide range clearance services in the UK over the next nine
years. These services will utilise QinetiQ Germany's fleet of
PC-12 aircraft configured as maritime patrol aircraft.
Global Products
H1 2020 H1 2019^
GBPm GBPm
----------------------------- -------- ---------
Orders 102.4 102.0
Revenue 117.4 100.4
Underlying operating profit* 13.5 10.4
Underlying operating margin* 11.5% 10.4%
Book to bill ratio 0.9x 1.0x
Funded order backlog 211.6 207.5
----------------------------- -------- ---------
* Definitions of the Group's 'Alternative Performance Measures'
can be found in the glossary.
^ Underlying operating profit and margin have been restated due
to adoption of IFRS 16 'Leases'.
Global Products delivers innovative solutions to meet customer
requirements. The division is technology-based and has shorter
order cycles than EMEA Services.
Financial performance
Orders were stable at GBP102.4m (H1 2019: GBP102.0m).
Reported revenue was up 17% to GBP117.4m (H1 2019: GBP100.4m),
principally driven by QinetiQ Target Systems. Revenue was up 14%
(GBP14.0m) on an organic basis, excluding foreign exchange.
At the beginning of H2, the division had 89% of its forecast
FY20 revenue under contract compared to 86% at the same point last
year and up from 60% at the beginning of the financial year.
Underlying operating profit increased to GBP13.5m (H1 2019
restated: GBP10.4m), with an underlying operating profit margin of
11.5% (H1 2019: 10.4%). This was driven by increased sales of
higher margin products in QinetiQ Target Systems.
H1 commentary
QinetiQ North America
QinetiQ North America (QNA) develops and produces innovative
military protection products, specialising in unmanned systems,
survivability and maritime systems, along with products in related
commercial markets.
- QNA continues to provide innovative solutions in the Land and
Maritime domains for our customers, with strong performance in
the period primarily driven by robotics orders.
- In March 2019, we were awarded the US Army's Common Robotic System-Individual
(CRS(I)) program of record. QNA has successfully completed the
first set of deliveries under the CRS(I) production contact.
- In larger unmanned ground vehicles, QNA has partnered with Pratt
& Miller Defense to submit a bid based on a variant of the Expeditionary
Modular Autonomous Vehicle into the competition for the Robotic
Combat Vehicle program of record. This submission will leverage
QNA's modular open architecture unmanned ground vehicle control
systems integrated with Pratt & Miller's advanced mobility platform.
- In the maritime domain, QNA was awarded a contract by General
Dynamics Electric Boat to design, test and qualify a next generation
Electronic Grounding Unit for Virginia Class submarines.
OptaSense
OptaSense provides innovative fibre sensing solutions to deliver
decision ready data in multiple vertical markets.
- OptaSense performance during the period was positive with growth
in revenues and profits.
- Orders declined slightly, following a tougher comparator in the
prior period and slippage of confirmed orders into H2.
- While the oil and gas end market remains challenging, we have
seen encouraging progress in the uptake of OptaSense in key international
basins.
- Demand for linear assets protection, pipelines, perimeters and
transport, also continued to improve with significant uptake
in North and South America.
Space Products
QinetiQ's Space Products business develops satellites, payload
instruments, sub-systems and ground station services.
- Our new higher grade clean room facility in Kruibeke, Belgium,
was officially opened in the period by Frank De Winne, the first
European commander of the International Space Station. This new
facility enables us to produce up to four major products at any
one time and will support growth in satellites and docking systems
production.
- Leveraging these new clean room facilities, we were awarded a
EUR9m three year contract to build equipment that will support
experiments in the International Space Station.
EMEA Products
EMEA Products provides research services and bespoke
technological solutions developed from intellectual property spun
out from EMEA Services. We also report QinetiQ Target Systems under
this heading.
- QinetiQ Target Systems (QTS), acquired in FY17, delivered strong
performance in H1 2020 as it doubled its orders and delivered
a 50% increase in revenue.
- QTS developed two new products in the period. The first, our Next
Generation Banshee target replicates fast flying jets, and enables
customers to conduct Test & Evaluation and live-fire training
exercises against faster, higher flying, more manoeuvrable and
less detectable targets. Launched at the DSEI trade show in September
2019 we have already seen strong customer interest for the Next
Generation Banshee target.
- We also released the Air-Launched 'Rattler' target, a low-cost
supersonic target used to accurately replicate anti-radiation
missiles and supersonic/high-diving threats, and have received
our first orders from the UK Royal Navy.
- These product developments underline our ambition to continue
delivering cutting edge test & evaluation and training & rehearsal
for customers around the world supported by our target product
portfolio.
- Beyond QTS, we were awarded a GBP3m contract to conduct research
into the latest vehicle technologies to boost the performance
of UK Future Ground Combat Vehicles. The project, led by QinetiQ
will focus on innovative solutions for ground vehicle mobility
exploiting the potential provided by electric drive systems.
- We are seeing encouraging demand for our broader product portfolio,
including Obsidian, our counter drone technology specifically
designed to detect, identify and track small drones and Bracer,
our secure commercial satellite communication system.
Financial items
Net finance costs
Net finance income was GBP2.8m (H1 2019 restated: GBP3.8m)
primarily reflecting the defined benefit pension net finance income
of GBP3.2m (H1 2019: GBP4.1m). The year-on-year decrease reflects
the reduced pension surplus following the buy-in in H2 of 2019. The
prior year comparative for total net finance income has been
restated following the retrospective adoption of the new accounting
standard (IFRS 16) in respect of leases. See below and Note 1 to
the financial statements for more details.
The underlying net finance expense was GBP0.4m (H1 2019
restated: GBP0.3m).
Tax
The total tax charge was GBP9.1m (H1 2019: GBP2.6m). The
underlying tax charge was GBP7.3m (H1 2019: GBP5.5m) with an
underlying effective tax rate of 12.3% (H1 2019: 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. The effective tax rate is
expected to remain below the UK statutory rate in the medium term,
subject to any tax legislation changes, variations in the
geographic mix of profits, the future recognition of unrecognised
tax losses and while the benefit of net RDEC retained by the Group
remains part of the tax line.
Following adoption of the new accounting standard, IFRIC 23
'Uncertainty over income tax treatment', the Group's tax provisions
have been re-assessed and recalculated. QinetiQ has chosen to apply
the transition approach and has not restated comparative
information in the financial statements. Rather, IFRIC 23 has been
applied as an adjustment (to the value of GBP2.1m) to retained
earnings at the beginning of the current financial year. Refer to
note 1 for more details.
The total tax expense on specific adjusting items of GBP1.8m (H1
2019: GBP2.9m income) arises mainly on a capital gain on the sale
of property while the H1 2019 credit arises mainly in respect of
initial recognition of corporate tax deductions for certain
equity-settled share based payment schemes.
Earnings per share
Underlying earnings per share for the Group were 9.2p (H1 2019
restated: 8.1p), with the increase primarily due to strong trading
and top line revenue growth. Statutory basic earnings per share for
the total Group (including specific adjusting items) were 11.0p (H1
2019 restated: 8.9p) with the current year enhanced by the
inclusion of a GBP13.3m gain on disposal of surplus property.
Dividend
An interim dividend of 2.2p (H1 2019: 2.1p) will be paid on 7
February 2020 to shareholders on the register at 10 January 2020.
The interim dividend represents one third of the prior year total
dividend reflecting our previously communicated methodology. The
full year dividend will be set in May.
Pensions
The net pension asset under IAS 19, before adjusting for
deferred tax, was GBP295.5m (31 March 2019: GBP259.1m). The key
driver for the increase in the net pension asset since the March
2019 year end was net re-measurement gains on scheme assets in
excess of net actuarial losses on scheme liabilities (with
decreasing discount rates which increase the present value of
scheme liabilities).
The key assumptions used in the IAS 19 valuation of the scheme
are set out in note 11.
Committed facilities
The Group has available a GBP275m bank financing facility with
an additional 'accordion' facility to expand this up to a maximum
of GBP400m. The facility has an initial term of five years but with
two one-year options to extend the final maturity to 27 September
2025. The facility has yet to be drawn down on. Such a facility
provides significant scope to execute the Group's strategic growth
plans.
Foreign exchange
The Group's income and expenditure is largely settled in the
functional currency of the relevant Group entity, mainly Sterling,
US Dollar or Australian Dollar. The Group has a policy in place to
hedge all material transaction exposure at the point of commitment
to the underlying transaction. Uncommitted future transactions are
not routinely hedged. The Group continues its practice of not
hedging income statement translation exposure. The principal
exchange rates affecting the Group were the Sterling to US Dollar
and Sterling to Australian Dollar exchange rates.
6 months to 6 months to
30 September 2019 30 September 2018
------------------- ------------------- -------------------
GBP/US$ - average 1.25 1.32
GBP/US$ - closing 1.23 1.30
GBP/US$ - opening 1.30 1.40
GBP/A$ - average 1.82 1.80
GBP/A$ - closing 1.82 1.80
GBP/A$ - opening 1.80 1.83
------------------- ------------------- -------------------
IFRS 16 implementation
The new leases standard became 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.
QinetiQ has adopted the new standard on the required effective
date, 1 April 2019, using the full retrospective approach.
Under the new standard, companies will recognise new assets and
liabilities, bringing added transparency to the balance sheet. IFRS
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 leases and operating leases.
The impact on the income statement for QinetiQ is negligible at
a 'profit before tax' level with no impact on EPS, but EBITDA is
increased, offset by an increase in depreciation and an increase in
finance expense. See note 1 for details.
The impact on the balance sheet is the recognition of a new
'right of use' asset within Property Plant & Equipment and the
recognition of a new lease liability. The latter is incorporated
within the Group's definition (see glossary) of net cash, hence the
most significant impact on the Group's financial KPIs is this
change to net cash (reducing previously reported net cash at 31
March 2019 by GBP27.2m). There is no impact on 'free cash flow' as
a result of implementing IFRS 16.
Prior year comparatives have been restated (to the extent
impacted by IFRS 16) and more details are set out in Note 1 to the
financial statements.
Principal risks and uncertainties
The Group continues to be exposed to a number of risks and
uncertainties which management continue to assess, manage and
mitigate to minimise their potential impact on the reported
performance of the Group. An explanation of these risks, together
with details of risk management and mitigation, can be found in the
annual report which is available for download at:
https://www.qinetiq.com/investors.
A summary of the significant risks and uncertainties is set out
below:
Strategic risks
-- UK defence test and evaluation strategy - UK Government budget
constraints lead to reduced spending in the core markets in which
the Group operates. This and the ever increasing pace of technology
is modernising the ways of evaluating capability resulting in
a risk that our approaches/offerings may not remain relevant.
EU exit causes a loss of market confidence and reduction in collaborative
EU funding;
-- International strategy - Plans to grow our international business
may be impacted by external influences outside of our control,
such as geopolitical risks, or specific risks arising from working
in new markets;
-- Innovation strategy - Failure to create a culture of innovation
or to invest adequately in, or create value from, our innovation
investment. As well as the risks arising from the introduction
of disruptive technologies/alternative business models;
-- A material element of the Group's revenue is dependent on a number
of UK Government contracts - Government budget constraints could
impact QinetiQ's ability to grow;
-- Single Source Contract Regulations - Group performance is adversely
affected by application of the regulations from the SSRO.
Operational risks
-- Recruitment and retention - The Group operates in many specialised
engineering, technical and scientific domains where key capabilities
and competencies may be lost through failure to recruit and
retain employees or a lack of domain specific graduates leads
to a future skills shortage;
-- Significant breach of relevant laws and regulations - The Group
operates in highly regulated environments and recognises that
non-compliance has the potential to compromise our ability to
conduct business in certain jurisdictions and would potentially
have an impact on a variety of stakeholders;
-- Security and IT systems - A breach of physical or data security,
cyber-attacks or IT systems failure could have an adverse impact
on our customers' operations.
Condensed consolidated income statement
6 months ended 30 September 6 months ended 30 September
2019 2018
(unaudited) (unaudited/restated)^
-------------------------------- --------------------------------
Specific Specific
All figures in GBP million adjusting adjusting
unless stated otherwise Note Underlying* items* Total Underlying* items* Total
----------------------------- ---- ----------- ---------- ------- ----------- ---------- -------
Revenue 2 486.5 - 486.5 420.3 - 420.3
Operating costs excluding
depreciation, impairment
and amortisation (409.0) (1.4) (410.4) (355.3) (0.2) (355.5)
Other income 4.0 13.3 17.3 4.9 0.1 5.0
----------------------------- ---- ----------- ---------- ------- ----------- ---------- -------
EBITDA (earnings before
interest, tax, depreciation
and amortisation) 81.5 11.9 93.4 69.9 (0.1) 69.8
Depreciation and impairment
of property, plant and
equipment (20.0) - (20.0) (16.8) (2.6) (19.4)
Amortisation of intangible
assets (1.8) (3.1) (4.9) (1.5) (1.1) (2.6)
----------------------------- ---- ----------- ---------- ------- ----------- ---------- -------
Operating profit/(loss) 59.7 8.8 68.5 51.6 (3.8) 47.8
Gain on sale of investment - - - - 1.1 1.1
Finance income 4 0.7 3.2 3.9 0.7 4.1 4.8
Finance expense 4 (1.1) - (1.1) (1.0) - (1.0)
----------------------------- ---- ----------- ---------- ------- ----------- ---------- -------
Profit before tax 59.3 12.0 71.3 51.3 1.4 52.7
Taxation (expense)/income 5 (7.3) (1.8) (9.1) (5.5) 2.9 (2.6)
----------------------------- ---- ----------- ---------- ------- ----------- ---------- -------
Profit for the period
attributable to equity
shareholders 52.0 10.2 62.2 45.8 4.3 50.1
Attributable to:
Owners of the parent 51.9 10.2 62.1 45.8 4.3 50.1
Non-controlling interests 0.1 - 0.1 - - -
----------------------------- ---- ----------- ---------- ------- ----------- ---------- -------
Profit for the period
attributable to equity
shareholders 52.0 10.2 62.2 45.8 4.3 50.1
----------------------------- ---- ----------- ---------- ------- ----------- ---------- -------
Earnings per share
----------------------------- ---- ----------- ---------- ------- ----------- ---------- -------
Basic 6 9.2p 11.0p 8.1p 8.9p
Diluted 6 9.1p 10.9p 8.1p 8.8p
----------------------------- ---- ----------- ---------- ------- ----------- ---------- -------
* 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.
^ Further details of the restatement of the prior year due to
the implementation of IFRS 16 'Leases' can be found in Note 1.
Condensed consolidated statement of comprehensive income
6 months ended
30 September
6 months ended 2018
30 September
2019 (unaudited/
All figures in GBP million (unaudited) restated)
------------------------------------------------------------- -------------- --------------
Profit for the period 62.2 50.1
Items that will not be reclassified to profit and loss:
Actuarial gain recognised in defined benefit pension schemes 31.2 31.2
Tax on items that will not be reclassified to the income
statement (5.3) (5.4)
------------------------------------------------------------- -------------- --------------
Total items that will not be reclassified to the income
statement 25.9 25.8
Movement in deferred tax on foreign currency translation (0.4) (0.4)
Foreign currency translation gains for foreign operations 7.5 6.7
Increase in fair value of hedging derivatives 0.9 2.6
Movement on deferred tax on hedging derivatives (0.2) (0.2)
Recycling of gains to the income statement on disposal
of investments - (1.1)
Fair value gains on available for sale investments - 0.7
Total items that may be reclassified to the income statement 7.8 8.3
------------------------------------------------------------- -------------- --------------
Other comprehensive income for the period, net of tax 33.7 34.1
------------------------------------------------------------- -------------- --------------
Total comprehensive income for the period, net of tax 95.9 84.2
------------------------------------------------------------- -------------- --------------
Condensed consolidated statement of changes in equity
Issued Capital
All figures in GBP share redemption Share Hedge Translation Retained Non-controlling Total
million capital reserve premium reserve reserve earnings Total interest equity
----------------------- ------- ---------- ------- ------- ----------- -------- ------ --------------- ------
At 31 March 2019
(as originally stated) 5.7 40.8 147.6 (0.2) 3.8 581.1 778.8 2.2 781.0
Change in accounting
policy - adoption
of IFRS 16 - - - - - (2.0) (2.0) - (2.0)
At 31 March 2019
(unaudited, restated) 5.7 40.8 147.6 (0.2) 3.8 579.1 776.8 2.2 779.0
Change in accounting
policy - adoption
of IFRIC 23 - - - - - 2.1 2.1 - 2.1
Profit for the period - - - - - 62.1 62.1 0.1 62.2
Other comprehensive
income for the period,
net of tax - - - 0.7 7.1 25.9 33.7 - 33.7
Purchase of own shares - - - - - (0.4) (0.4) - (0.4)
Share-based payments
charge - - - - - 3.0 3.0 - 3.0
Deferred tax on share
options - - - - - (1.0) (1.0) - (1.0)
Dividends paid - - - - - (25.5) (25.5) - (25.5)
----------------------- ------- ---------- ------- ------- ----------- -------- ------ --------------- ------
At 30 September 2019
(unaudited) 5.7 40.8 147.6 0.5 10.9 645.3 850.8 2.3 853.1
----------------------- ------- ---------- ------- ------- ----------- -------- ------ --------------- ------
At 31 March 2018
(as originally stated) 5.7 40.8 147.6 (1.8) (0.4) 552.2 744.1 0.2 744.3
Change in accounting
policy - adoption
of IFRS 16 - - - - - (2.3) (2.3) - (2.3)
At 31 March 2018
(unaudited, restated) 5.7 40.8 147.6 (1.8) (0.4) 549.9 741.8 0.2 742.0
Profit for the period - - - - - 50.1 50.1 - 50.1
Other comprehensive
income for the period,
net of tax - - - 2.4 6.3 25.4 34.1 - 34.1
Purchase of own shares - - - - - (0.3) (0.3) - (0.3)
Share-based payments
charge - - - - - 2.2 2.2 - 2.2
Deferred tax on share
options - - - - - 1.1 1.1 - 1.1
Dividends paid - - - - - (23.8) (23.8) - (23.8)
----------------------- ------- ---------- ------- ------- ----------- -------- ------ --------------- ------
At 30 September 2018
(unaudited - restated) 5.7 40.8 147.6 0.6 5.9 604.6 805.2 0.2 805.4
----------------------- ------- ---------- ------- ------- ----------- -------- ------ --------------- ------
Condensed consolidated balance sheet
30 September
2018 31 March
30 September
2019 (unaudited/ 2019 (unaudited/
All figures in GBP million Note (unaudited) restated) restated)
----------------------------------- ----- ------------- ------------- ------------------
Non-current assets
Goodwill 152.3 105.0 148.6
Intangible assets 90.0 41.3 88.5
Property, plant and equipment 333.4 304.5 322.4
Other financial assets 1.1 - 0.9
Equity accounted investments 3.3 1.8 4.5
Retirement benefit surplus 11 295.5 353.8 259.1
Deferred tax asset 8.9 7.3 7.8
----------------------------------- ----- ------------- ------------- ------------------
884.5 813.7 831.8
----------------------------------- ----- ------------- ------------- ------------------
Current assets
Inventories 49.2 40.0 40.1
Other financial assets 0.5 - 0.5
Trade and other receivables 178.3 142.4 208.5
Assets held for sale 1.2 1.2 1.9
Current tax receivable 1.9 - 1.5
Cash and cash equivalents 201.2 251.0 190.8
----------------------------------- ----- ------------- ------------- ------------------
432.3 434.6 443.3
----------------------------------- ----- ------------- ------------- ------------------
Total assets 1,316.8 1,248.3 1,275.1
----------------------------------- ----- ------------- ------------- ------------------
Current liabilities
Trade and other payables (311.7) (291.3) (346.6)
Current tax payable - (0.2) (8.5)
Provisions (6.2) (9.0) (6.2)
Other financial liabilities (9.3) (8.6) (10.8)
----------------------------------- ----- ------------- ------------- ------------------
(327.2) (309.1) (372.1)
----------------------------------- ----- ------------- ------------- ------------------
Non-current liabilities
Deferred tax liability (87.6) (77.9) (72.7)
Provisions (10.2) (13.7) (10.7)
Other financial liabilities (20.0) (21.6) (20.1)
Other payables (18.7) (20.6) (20.5)
----------------------------------- ----- ------------- ------------- ------------------
(136.5) (133.8) (124.0)
----------------------------------- ----- ------------- ------------- ------------------
Total liabilities (463.7) (442.9) (496.1)
----------------------------------- ----- ------------- ------------- ------------------
Net assets 853.1 805.4 779.0
----------------------------------- ----- ------------- ------------- ------------------
Capital and reserves
Ordinary shares 5.7 5.7 5.7
Capital redemption reserve 40.8 40.8 40.8
Share premium account 147.6 147.6 147.6
Hedging reserve 0.5 0.6 (0.2)
Translation reserve 10.9 5.9 3.8
Retained earnings 645.3 604.6 579.1
----------------------------------- ----- ------------- ------------- ------------------
Capital and reserves attributable
to shareholders of the parent
company 850.8 805.2 776.8
Non-controlling interest 2.3 0.2 2.2
----------------------------------- ----- ------------- ------------- ------------------
Total shareholders' funds 853.1 805.4 779.0
----------------------------------- ----- ------------- ------------- ------------------
Condensed consolidated cash flow
6 months
ended Year
6 months 30 September
ended 2018 ended
30 September 31 March
2019 (unaudited/ 2019 (unaudited/
All figures in GBP million Note (unaudited) restated) restated)
---------------------------------------------- ----- -------------- -------------- -------------------
Underlying net cash inflow from operations 77.0 54.9 135.0
Less specific adjusting items - - (0.7)
Net cash inflow from operations 8 77.0 54.9 134.3
Tax paid (8.9) (4.8) (10.7)
Interest received 0.7 0.7 1.3
Interest paid (0.9) (0.9) (1.7)
---------------------------------------------- ----- -------------- -------------- -------------------
Net cash inflow from operating activities 67.9 49.9 123.2
---------------------------------------------- ----- -------------- -------------- -------------------
Purchases of intangible assets (7.1) (4.6) (10.6)
Purchases of property, plant and equipment (33.3) (43.7) (77.0)
Proceeds from sale of property, plant
and equipment 14.1 4.4 12.2
Proceeds from sale of investment - 1.5 1.5
Acquisition of business and investment
in joint venture (0.1) (0.2) (62.8)
Proceeds from disposal of available-for-sale
investments - 15.7 15.7
Net cash outflow from investing activities (26.4) (26.9) (121.0)
---------------------------------------------- ----- -------------- -------------- -------------------
Purchase of own shares (0.4) (0.3) (0.7)
Dividends paid to shareholders (25.5) (23.8) (35.7)
Repayment of external bank loan - - (20.0)
Payment of bank facility arrangement
fee (0.2) - (1.5)
Capital element of finance lease payments (5.0) (3.5) (8.1)
Net cash outflow from financing activities (31.1) (27.6) (66.0)
---------------------------------------------- ----- -------------- -------------- -------------------
Increase/(decrease) in cash and cash
equivalents 10.4 (4.6) (63.8)
Effect of foreign exchange changes
on cash and cash equivalents - 1.5 0.5
Cash and cash equivalents at beginning
of period 190.8 254.1 254.1
Cash and cash equivalents at end of
period 201.2 251.0 190.8
---------------------------------------------- ----- -------------- -------------- -------------------
Reconciliation of movement in net cash
6 months
ended Year
6 months 30 September
ended 2018 ended
30 September 31 March
2019 (unaudited/ 2019 (unaudited/
All figures in GBP million Note (unaudited) restated) restated)
-------------------------------------------- ----- -------------- -------------- -------------------
Increase/(decrease) in cash and cash
equivalents 10.4 (4.6) (63.8)
Add back net cash flows not impacting
net cash 5.2 (12.2) 13.9
-------------------------------------------- ----- -------------- -------------- -------------------
Change in net cash resulting from cash
flows 15.6 (16.8) (49.9)
Finance leases and debt recognised
on acquisition - - (22.7)
Increase in lease obligation (3.1) (2.7) (5.8)
Other movements including foreign exchange (0.3) 2.6 2.0
-------------------------------------------- ----- -------------- -------------- -------------------
Increase/(decrease) in net cash as
defined by the Group 12.2 (16.9) (76.4)
Net cash as defined by the Group at
beginning of period 161.3 237.7 237.7
-------------------------------------------- ----- -------------- -------------- -------------------
Net cash as defined by the Group at
end of period 7 173.5 220.8 161.3
Exclude: non-cash items (other financial
asset and liabilities) 7 27.7 30.2 29.5
-------------------------------------------- ----- -------------- -------------- -------------------
Total cash and cash equivalents 7 201.2 251.0 190.8
-------------------------------------------- ----- -------------- -------------- -------------------
Notes to the condensed interim 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
England.
The condensed consolidated interim financial statements of the
Group for the six months ended 30 September 2019 comprise
statements for the Company and its subsidiaries (together referred
to as the 'Group') and were approved by the Board of Directors on
14 November 2019.
These condensed Group interim financial statements have been
prepared in accordance with IAS 34 Interim Financial Reporting as
adopted by the EU and the requirements of the Disclosure Guidance
and Transparency Rules of the Financial Conduct Authority. They do
not comprise statutory accounts within the meaning of Section 434
of the Companies Act 2006. They do not include all of the
information required for full annual financial statements and
should be read in conjunction with the Group's financial statements
for the year ended 31 March 2019 which have been prepared in
accordance with IFRS as adopted by the European Union.
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 business divestments P P P
and disposal of property, 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 period are detailed in note 3.
The accounting policies adopted in the preparation of these
condensed consolidated financial statements are consistent with the
policies applied by the Group in its consolidated financial
statements for the year ended 31 March 2019 (with the exception of
the implementation of IFRS 16 and IFRIC 23).
Recent accounting developments adopted by the Group
IFRS 16 'Leases'
Under the new standard, the Group has recognised new assets and
liabilities, bringing added transparency to the balance sheet. IFRS
16 has eliminated the current dual accounting model for lessees,
which distinguished between on-balance sheet finance leases and
off-balance sheet operating leases. Instead, IFRS 16 has brought
about a single, on-balance sheet accounting model that is similar
to current finance lease accounting, Lessor accounting remains
similar to previous practice i.e. lessors have continued to
classify leases as finance and operating leases.
The standard became effective for periods beginning on or after
1 January 2019, i.e. FY20 for QinetiQ. The Group has adopted the
new standard on the required effective date, 1 April 2019, using
the full retrospective approach. Under the full retrospective
approach, QinetiQ has applied IFRS 16 to all periods presented as
if it had always been applied by restating comparative periods.
Under IFRS 16, a liability is recognised at lease inception
equal to the discounted lease payments under the lease. The lease
payments also include extension options, where reasonably certain
to be exercised by the Group. The lease liability is subsequently
measured using the effective interest method, with the liability
increasing to reflect the accretion of interest and reduced by
lease payments made, with interest charged to finance costs. In
addition, the carrying amount of lease liabilities is re-measured
if there is a modification, for example a change in the lease term
or non-fixed lease payments.
The initial cost of right-of-use assets includes the amount of
lease liabilities recognised, initial direct cost incurred,
expected asset restoration costs and lease payments made at or
before the commencement date, less any lease incentives received.
The right-of-use asset is depreciated on a straight-line basis over
the shorter of the lease term and the economic life of the asset.
The right-of-use asset is tested for impairment where
appropriate.
When applying the full retrospective approach, QinetiQ elected
to use the short-term lease and low-value asset exemptions for
leases less than 12 months and lease assets under GBP5,000. QinetiQ
also elected to reassess all leases using new IFRS 16 lease
definitions and have not elected to use the practical expedient
which exempts entities from doing so.
The comparative information presented in these financial
statements has been restated as disclosed in the tables below. The
main restatement impacts to the balance sheet related to the
recognition of right-to-use assets and additional lease
obligations. Trade and other receivables and trade and other
payables have been restated to remove balances related to leases
such as lease incentives, advance payments and accrued
liabilities.
'Net cash' (as defined by the Group, see Glossary) decreases
through implementation of IFRS 16. As well as the recognition of
right-of-use assets on the balance sheet (increasing property,
plant and equipment) IFRS 16 also creates a finance lease
liability, which impacts the Group's 'net cash' measure. Net cash
as defined by the Group combines cash and cash equivalents with
other financial assets and liabilities, primarily available for
sale investments, derivative financial instruments and finance
lease assets/liabilities. There is no impact on 'free cash flow' as
a result of implementing IFRS 16.
Impact on the condensed consolidated balance sheet at 30
September 2019
Pre IFRS IFRS 16
All figures in GBP million 16 adjustments As reported
------------------------------------ ------------- --------- ------------- ------------
Assets
Property, plant and equipment 309.4 24.0 333.4
Deferred tax asset 8.9 - 8.9
Trade and other receivables 178.3 - 178.3
Other assets 796.2 - 796.2
1,292.8 24.0 1,316.8
-------------------------------------------------- --------- ------------- ------------
Liabilities
Trade and other payables (311.7) - (311.7)
Other financial liabilities (2.7) (26.6) (29.3)
Deferred tax liability (87.2) (0.4) (87.6)
Other liabilities (35.1) - (35.1)
(436.7) (27.0) (463.7)
-------------------------------------------------- --------- ------------- ------------
Net assets 856.1 (3.0) 853.1
--------------------------------------------------- --------- ------------- ------------
Capital and reserves
Retained earnings 648.3 (3.0) 645.3
Other 205.5 - 205.5
--------------------------------------------------- --------- ------------- ------------
Capital and reserves attributable
to shareholders of the parent
company 853.8 (3.0) 850.8
Non-controlling interest 2.3 - 2.3
--------------------------------------------------- --------- ------------- ------------
Total shareholders' funds 856.1 (3.0) 853.1
--------------------------------------------------- --------- ------------- ------------
Impact on net cash at 30 September
2019
------------------------------------ ------------- --------- ------------- ------------
Net cash (as defined by the Group - see
glossary) 200.1 (26.6) 173.5
--------------------------------------------------- --------- ------------- ------------
Impact on the condensed consolidated balance sheet at 31 March
2019
IFRS 16
All figures in GBP million As reported adjustments Restated
----------------------------------- ------------- ------------ ------------- ---------
Assets
Property, plant and equipment 298.0 24.4 322.4
Deferred tax asset 7.8 - 7.8
Trade and other receivables 208.5 - 208.5
Other assets 736.4 - 736.4
1,250.7 24.4 1,275.1
------------------------------------------------- ------------ ------------- ---------
Liabilities
Trade and other payables (346.6) - (346.6)
Other financial liabilities (3.7) (27.2) (30.9)
Deferred tax liability (73.1) 0.4 (72.7)
Other liabilities (46.3) 0.4 (45.9)
(469.7) (26.4) (496.1)
------------------------------------------------- ------------ ------------- ---------
Net assets 781.0 (2.0) 779.0
-------------------------------------------------- ------------ ------------- ---------
Capital and reserves
Retained earnings 581.1 (2.0) 579.1
Other 197.7 - 197.7
-------------------------------------------------- ------------ ------------- ---------
Capital and reserves attributable
to shareholders of the parent
company 778.8 (2.0) 776.8
Non-controlling interest 2.2 - 2.2
-------------------------------------------------- ------------ ------------- ---------
Total shareholders' funds 781.0 (2.0) 779.0
-------------------------------------------------- ------------ ------------- ---------
Impact on net cash at 31 March
2019
----------------------------------- ------------- ------------ ------------- ---------
Net cash (as defined by the Group - see
glossary) 188.5 (27.2) 161.3
-------------------------------------------------- ------------ ------------- ---------
Impact on the condensed consolidated balance sheet at 30
September 2018
IFRS 16
All figures in GBP million As reported adjustments Restated
-------------------------------------- ------------- ------------ ------------- -----------
Assets
Property, plant and equipment 278.9 25.6 304.5
Deferred tax asset 7.3 - 7.3
Trade and other receivables 142.4 - 142.4
Other assets 794.1 - 794.1
1,222.7 25.6 1,248.3
---------------------------------------------------- ------------ ------------- -----------
Liabilities
Trade and other payables (291.3) - (291.3)
Other financial liabilities (1.9) (28.3) (30.2)
Deferred tax liability (78.3) 0.4 (77.9)
Other liabilities (43.5) - (43.5)
(415.0) (27.9) (442.9)
---------------------------------------------------- ------------ ------------- -----------
Net assets 807.7 (2.3) 805.4
----------------------------------------------------- ------------ ------------- -----------
Capital and reserves
Retained earnings 606.9 (2.3) 604.6
Other 200.6 - 200.6
----------------------------------------------------- ------------ ------------- -----------
Capital and reserves attributable
to shareholders of the parent
company 807.5 (2.3) 805.2
Non-controlling interest 0.2 - 0.2
----------------------------------------------------- ------------ ------------- -----------
Total shareholders' funds 807.7 (2.3) 805.4
----------------------------------------------------- ------------ ------------- -----------
Impact on net cash at 30 September
2018
Net cash (as defined by the Group - see
glossary) 249.1 (28.3) 220.8
----------------------------------------------------- ------------ ------------- -----------
Impact on the condensed consolidated income statement
The impact to the Income Statement as a result of adopting IFRS
16 was insignificant. Operating profit increased, reflecting the
removal of the operating lease expenses previously charged to
profit, partially offset by the inclusion of depreciation of the
right-of-use assets.
6 months ended 30 September 6 months ended 30 September
2019 2018
(unaudited) (unaudited)
------------------------------- ------------------------------------
All figures in GBP million Pre-IFRS IFRS 16 As originally IFRS 16
unless stated otherwise 16 adjustment Reported stated adjustment Restated
----------------------------- -------- ----------- -------- ------------- ----------- --------
EBITDA (earnings before
interest, tax, depreciation
and amortisation) 88.3 5.1 93.4 65.8 4.0 69.8
Depreciation and impairment
of property, plant and
equipment (15.4) (4.6) (20.0) (15.9) (3.5) (19.4)
Amortisation of intangible
assets (4.9) - (4.9) (2.6) - (2.6)
--------------------------------- -------- ----------- -------- ------------- ----------- --------
Operating profit 68.0 0.5 68.5 47.3 0.5 47.8
Gain on sale of investment - - - 1.1 - 1.1
Finance income 3.9 - 3.9 4.8 - 4.8
Finance expense (0.6) (0.5) (1.1) (0.5) (0.5) (1.0)
--------------------------------- -------- ----------- -------- ------------- ----------- --------
Profit before tax 71.3 - 71.3 52.7 - 52.7
Taxation expense (9.1) - (9.1) (2.6) - (2.6)
--------------------------------- -------- ----------- -------- ------------- ----------- --------
Profit for the period
attributable to equity
shareholders 62.2 - 62.2 50.1 - 50.1
--------------------------------- -------- ----------- -------- ------------- ----------- --------
Attributable to:
----------------------------- -------- ----------- -------- ------------- ----------- --------
Owners of the parent 62.1 - 62.1 50.1 - 50.1
Non-controlling interests 0.1 - 0.1 - - -
Profit for the period
attributable to equity
shareholders 62.2 - 62.2 50.1 - 50.1
--------------------------------- -------- ----------- -------- ------------- ----------- --------
Earnings per share
----------------------------- -------- ----------- -------- ------------- ----------- --------
Basic 11.0p 11.0p 8.9p 8.9p
Diluted 10.9p 10.9p 8.8p 8.8p
--------------------------------- -------- ----------- -------- ------------- ----------- --------
Underlying measures:
6 months ended 30 September 6 months ended 30 September
2019 2018
(unaudited) (unaudited)
------------------------------- ------------------------------------
All figures in GBP million Pre-IFRS IFRS 16 As originally IFRS 16
unless stated otherwise 16 adjustment Reported stated adjustment Restated
----------------------------- -------- ----------- -------- ------------- ----------- --------
Operating profit 59.2 0.5 59.7 51.1 0.5 51.6
Profit after tax 52.0 - 52.0 45.8 - 45.8
Earnings per share (Basic) 9.2p 9.2p 8.1p 8.1p
Earnings per share (Diluted) 9.1p 9.1p 8.1p 8.1p
--------------------------------- -------- ----------- -------- ------------- ----------- --------
FRIC 23 'Uncertainty over income tax treatment'
This interpretation was published in June 2017 and is required
to be applied in the determination of taxable profits / losses and
tax attributes, when there is uncertainty over their treatment
under IAS 12. The primary impact on QinetiQ's financial statements
arises in relation to the provision for potential overseas tax
liabilities in territories where the Group does not have a
registered taxable presence (i.e. territories to which the Group
exports goods or provides short-term services).
The Group previously recorded provisions under IAS 12 reflecting
the potential risk of QinetiQ's many activities across many
jurisdictions. These provisions have been reassessed and
recalculated to meet the more prescriptive threshold for
recognition under IFRIC 23, which explicitly requires consideration
of each tax jurisdiction individually. Combined with an assessment
of other tax reserves, the impact of the adoption of IFRIC 23 in
FY20 is a reduction in tax provisions (within current tax payable)
of GBP2.1m.
QinetiQ has chosen to apply the transition approach for adopting
IFRIC 23 and not restate comparative information in the first year
of adoption. An adjustment, to the value of GBP2.1m, has been made
to retained earnings at the beginning of the first period of
adoption i.e. in the six months to 30 September 2019.
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 interim 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.
Comparative data
The comparative figures for the year ended 31 March 2019 do not
contain all of the information required for full annual financial
statements. The Group's full annual financial statements for the
year ended 31 March 2019 have been delivered to the registrar of
companies. The report of the auditors (i) was 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. The Group's financial statements for the
year ended 31 March 2019 are available upon request from the
Company's registered office at Cody Technology Park, Ively Road,
Farnborough, Hampshire, GU14 0LX.
2. Disaggregation of revenue and segmental analysis
Revenue by category and reconciliation to revenue on an organic,
constant currency basis
For the six months ended 30 September
H1 2020
H1 2019
All figures in GBP million (unaudited) (unaudited)
---------------------------------------------- ------------ ------------
Service contracts with customers 426.9 369.7
Sale of goods contracts with customers 55.0 44.3
Royalties and licences 4.6 6.3
-------------------------------------------------- ------------ ------------
Revenue 486.5 420.3
Less: inorganic revenue of acquired
businesses* (20.7) -
Adjust to constant prior year exchange
rates (2.6) -
-------------------------------------------------- ------------ ------------
Total revenue on an organic, constant currency
basis 463.2 420.3
-------------------------------------------------- ------------ ------------
Organic revenue growth at constant currency 10% 8%
-------------------------------------------------- ------------ ------------
*For the period during which there was no contribution in the
equivalent period in the prior year which was pre-ownership by the
Group.
Other income
H1 2020
H1 2019
All figures in GBP million (unaudited) (unaudited)
----------------------------------------- ------------ ------------
Share of joint ventures' and associates'
loss after tax (1.0) (0.2)
Other income 5.0 5.1
------------------------------------------------- ------------ ------------
Other income - underlying 4.0 4.9
Gain on sale of assets 13.3 0.1
------------------------------------------------- ------------ ------------
Total other income 17.3 5.0
------------------------------------------------- ------------ ------------
Revenue by customer geographical location
For the six months ended 30 September
H1 2020
H1 2019
All figures in GBP million (unaudited) (unaudited)
----------------------------------------------- ------------ ------------
52.5 48.2
32.6 27.3
37.5 25.5
8.9 8.5
US 19.3 20.2
Australia
Europe
Middle East
Rest of World
150.8 129.7
International (31% and 31% of total revenue for 335.7 290.6
2020 and 2019 respectively)
------------ ------------
United Kingdom
----------------------------------------------- ------------ ------------
Total revenue 486.5 420.3
--------------------------------------------------- ------------ ------------
Revenue by major customer type
For the six months ended 30 September
H1 2020
H1 2019
All figures in GBP million (unaudited) (unaudited)
------------------------------- ------------------- ------------- ------------
306.6 258.9
43.4 39.5
UK Government 136.5 121.9
US Government
Other
Total revenue 486.5 420.3
----------------------------------------------------- ------------ ------------
'Other' does not contain any customers with revenue in excess of
10% of total Group revenue.
Operating segments
For the six months ended 30 September
H1 2020 H1 2019
All figures in GBP million (unaudited) (unaudited, restated^)
----------------------------- ------------------------ -------------------------
Revenue from Underlying Revenue from Underlying
external operating external operating
customers profit(*) customers profit(*)
----------------------------- ------------ ---------- ------------- ----------
EMEA Services 369.1 46.2 319.9 41.2
Global Products 117.4 13.5 100.4 10.4
--------------------------------- ------------ ---------- ------------- ----------
Total operating segments 486.5 59.7 420.3 51.6
--------------------------------- ------------ ---------- ------------- ----------
Underlying operating margin* 12.3% 12.3%
--------------------------------- ------------ ---------- ------------- ----------
* Definitions of the Group's 'Alternative Performance Measures'
can be found in the glossary.
^See Note 1 for details of the restatement following adoption of
IFRS 16.
Reconciliation of segmental results to total profit
For the six months ended 30 September
H1 2020
Note H1 2019
(unaudited,
All figures in GBP million (unaudited) restated^)
------------------------------------------------- ----- ------------ ------------
Underlying operating profit 59.7 51.6
Specific adjusting items operating profit/(loss) 3 8.8 (3.8)
---------------------------------------------------- ----- ------------ ------------
Operating profit 68.5 47.8
Gain on sale of investment - 1.1
Net finance income 2.8 3.8
---------------------------------------------------- ----- ------------ ------------
Profit before tax 71.3 52.7
Taxation expense (9.1) (2.6)
---------------------------------------------------- ----- ------------ ------------
Profit for the period attributable to
equity shareholders 62.2 50.1
---------------------------------------------------- ----- ------------ ------------
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:
H1 2020
H1 2019
All figures in GBP million Note (unaudited) (unaudited)
------------------------------------------------- ---- ------------ ------------
Gain on sale of property 13.3 0.1
Acquisition costs (1.4) (0.2)
Specific adjusting items before amortisation,
depreciation and impairment 11.9 (0.1)
Impairment of property - (2.6)
Amortisation of intangible assets arising from
acquisition (3.1) (1.1)
------------------------------------------------- ---- ------------ ------------
Specific adjusting items operating profit/(loss) 8.8 (3.8)
Defined benefit pension scheme net finance
income 3.2 4.1
Gain on sale of investment - 1.1
------------------------------------------------- ---- ------------ ------------
Specific adjusting items profit before tax 12.0 1.4
Specific adjusting items - tax 5 (1.8) 2.9
------------------------------------------------- ---- ------------ ------------
Total specific adjusting items profit after
tax 10.2 4.3
------------------------------------------------- ---- ------------ ------------
Reconciliation of underlying profit for the period to total
profit for the period
H1 2020
H1 2019
(unaudited,
All figures in GBP million (unaudited) restated^)
-------------------------------------------- ------------ ------------
Underlying profit after tax 52.0 45.8
Total specific adjusting items profit after
tax (see above) 10.2 4.3
------------------------------------------------ ------------ ------------
Total profit for the period attributable to
equity shareholders 62.2 50.1
------------------------------------------------ ------------ ------------
4. Finance income and expense
H1 2020 H1 2019
(unaudited,
All figures in GBP million (unaudited) restated^)
-------------------------------------------------- ------------ ------------
Receivable on bank deposits 0.7 0.7
Underlying finance income 0.7 0.7
-------------------------------------------------- ------------ ------------
Amortisation of recapitalisation fee (0.2) (0.1)
Interest on bank loans and overdrafts (0.4) (0.4)
Finance lease expense (0.5) (0.5)
Underlying finance expense (1.1) (1.0)
-------------------------------------------------- ------------ ------------
Underlying net finance expense (0.4) (0.3)
Specific adjusting items:
Defined benefit pension scheme net finance income 3.2 4.1
-------------------------------------------------- ------------ ------------
Net finance income 2.8 3.8
-------------------------------------------------- ------------ ------------
^See Note 1 for details of the restatement following adoption of
IFRS 16.
5. Taxation
H1 2020 H1 2019
(unaudited) (unaudited, restated)
----------------------------- -----------------------------
Specific Specific
All figures in GBP million adjusting adjusting
unless stated otherwise Underlying items Total Underlying items Total
--------------------------- ---------- ---------- ----- ---------- ---------- -----
Profit before tax 59.3 12.0 71.3 51.3 1.4 52.7
Taxation (expense)/income (7.3) (1.8) (9.1) (5.5) 2.9 (2.6)
------------------------------- ---------- ---------- ----- ---------- ---------- -----
Profit for the period
attributable to equity
shareholders 52.0 10.2 62.2 45.8 4.3 50.1
------------------------------- ---------- ---------- ----- ---------- ---------- -----
Effective tax rate 12.3% 10.7%
------------------------------- ---------- ---------- ----- ---------- ---------- -----
The total tax charge is GBP9.1m (H1 2019: GBP2.6m). The
underlying tax charge of GBP7.3m (H1 2019: GBP5.5m) is calculated
by applying the expected effective tax rate of 12.3% for the year
ending 31 March 2020 to the Group's underlying profit before tax
for the six months to 30 September 2019 (H1 2019: 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 for
under IAS12 within the tax line. The adjusted effective tax rate
before the impact of RDEC would be 18.6%. The effective tax rate is
expected to remain below the UK statutory rate in the medium term,
subject to any tax legislation changes, variations in the
geographic mix of profits, the future 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
At 30 September 2019 the Group had unused tax losses and surplus
interest costs of GBP119.5m which are available for offset against
future profits. A deferred tax asset of GBP5.0m (31 March 2019:
GBP4.9m) is recognised in respect of GBP23.2m (31 March 2019:
GBP21.1m) of US net operating losses. No deferred tax asset is
recognised in respect of the remaining GBP96.3m of losses/interest
costs due to uncertainty over the timing and extent of their
utilisation. The Group has GBP61.8m of time-limited losses of which
US capital losses of GBP29.9m will expire in 2020 and US net
operating losses of GBP20.8m will expire in 2035, GBP9.6m in 2036
and GBP1.5m in 2038. Deferred tax has been calculated using the
enacted future statutory tax rates.
The total specific adjusting items tax charge of GBP1.8m (H1
2019: credit GBP2.9m) arises mainly on a capital gain on the sale
of property while the H1 2019 credit arises mainly in respect of
initial recognition of corporate tax deductions for certain
equity-settled share based payment schemes.
Adoption of IFRIC 23 'Uncertainty over income tax treatment'
Following adoption of the new accounting standard, IFRIC 23
'Uncertainty over income tax treatment', the Group's tax provisions
have been re-assessed and recalculated. QinetiQ has chosen to apply
the transition approach and has not restated comparative
information in the financial statements. Rather, IFRIC 23 has been
applied as an adjustment (to the value of GBP2.1m) to retained
earnings at the beginning of the current financial year. Refer to
note 1 for more details.
Current tax liability
The current tax recoverable is GBP1.9m as at 30 September 2019
(31 March 2019: liability GBP7.0m).
6. 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 period. 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.
H1 2020 H1 2019
(unaudited) (unaudited)
---------------------------------- -------- ------------- -------------
Weighted average number of shares Million 566.7 565.7
Effect of dilutive securities Million 4.0 2.7
---------------------------------- -------- ------------- -------------
Diluted number of shares Million 570.7 568.4
---------------------------------- -------- ------------- -------------
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.
H1 2020 H1 2019
Underlying EPS (unaudited) (unaudited)
------------------------------------------- ------------ ------------- -------------
Profit attributable to equity shareholders GBP million 62.2 50.1
Remove profit after tax in respect of
specific adjusting items GBP million (10.2) (4.3)
------------------------------------------- ------------ ------------- -------------
Underlying profit after taxation GBP million 52.0 45.8
------------------------------------------- ------------ ------------- -------------
Weighted average number of shares Million 566.7 565.7
------------------------------------------- ------------ ------------- -------------
Underlying basic EPS Pence 9.2 8.1
------------------------------------------- ------------ ------------- -------------
Diluted number of shares Million 570.7 568.4
------------------------------------------- ------------ ------------- -------------
Underlying diluted EPS Pence 9.1 8.1
------------------------------------------- ------------ ------------- -------------
H1 2020 H1 2019
Basic and diluted EPS (unaudited) (unaudited)
---------------------------------------------- -------------- ------------- -------------
Profit attributable to equity shareholders GBP million 62.2 50.1
Weighted average number of shares Million 566.7 565.7
---------------------------------------------- -------------- ------------- -------------
Basic EPS - total Group Pence 11.0 8.9
---------------------------------------------- -------------- ------------- -------------
Diluted number of shares Million 570.7 568.4
Diluted EPS - total Group Pence 10.9 8.8
------------------------------------------ ------------------ ------------- -------------
7. Net cash
All figures in GBP million 30 September 30 September 31 March
2019 2018
(unaudited) (unaudited, 2019
restated)
(unaudited,
restated)
--------------------------------------------- -------------- -------------- -------------
Current financial assets/(liabilities)
Deferred financing costs 0.4 - 0.4
Finance leases (8.6) (7.0) (9.7)
Derivative financial assets 0.1 - 0.1
Derivative financial liabilities (0.7) (1.6) (1.1)
--------------------------------------------- -------------- -------------- -------------
Total current net financial liabilities (8.8) (8.6) (10.3)
Non-current financial assets/(liabilities)
Deferred financing costs 1.0 - 0.9
Finance leases (19.8) (21.3) (19.8)
Derivative financial assets 0.1 - -
Derivative financial liabilities (0.2) (0.3) (0.3)
--------------------------------------------- -------------- -------------- -------------
Total non-current net financial liabilities (18.9) (21.6) (19.2)
--------------------------------------------- -------------- -------------- -------------
Total net financial liabilities (27.7) (30.2) (29.5)
Cash and cash equivalents 201.2 251.0 190.8
--------------------------------------------- -------------- -------------- -------------
Total net cash as defined by the Group 173.5 220.8 161.3
--------------------------------------------- -------------- -------------- -------------
8. Cash flows from operations
H1 2020
Year ended
31 March
H1 2019 (unaudited/ 2019 (unaudited/
All figures in GBP million (unaudited) restated) restated)
------------------------------------------------- ------------ ------------------- -----------------
Profit after tax for the period 62.2 50.1 113.9
Adjustments for:
Taxation expense 9.1 2.6 9.3
Net finance income (2.8) (3.8) (7.3)
Gain on sale of investment - (1.1) (1.1)
Gain on sale of property (13.3) (0.1) (0.2)
Impairment of property - 2.6 6.4
Pension past service cost - - 0.7
Transaction costs in respect of acquisition
of business 1.4 0.2 1.3
Amortisation of purchased or internally
developed intangible assets 1.8 1.5 3.2
Amortisation of intangible assets arising
from acquisitions 3.1 1.1 3.9
Depreciation of property, plant and equipment 20.0 16.8 37.5
(Profit)/loss on disposal of plant and equipment (1.6) 0.9 (5.5)
Share of post-tax loss/(profit) of equity
accounted entities 1.0 0.2 (0.6)
Share-based payments charge 3.6 2.4 6.1
Retirement benefit contributions in excess
of income statement expense (2.0) (2.3) (1.8)
Net movement in provisions (0.4) 2.3 (3.6)
Increase in inventories (7.6) (0.3) (0.5)
Decrease/(increase) in receivables 32.5 5.4 (48.7)
(Decrease)/increase in payables (30.0) (23.6) 21.3
------------------------------------------------- ------------ ------------------- -----------------
Changes in working capital (5.1) (18.5) (27.9)
Net cash flow from operations 77.0 54.9 134.3
------------------------------------------------- ------------ ------------------- -----------------
Reconciliation of net cash flow from operations to underlying
net cash flow from operations to free cash flow
Year ended
31 March
H1 2019 (unaudited/ 2019 (unaudited/
All figures in GBP million H1 2020 (unaudited) restated) restated)
---------------------------------------------- ------------------- ------------------- -----------------
Net cash flow from operations 77.0 54.9 134.3
Add back specific adjusting item: acquisition
integration costs - - 0.7
----------------------------------------------- ------------------- ------------------- -----------------
Underlying net cash flow from operations 77.0 54.9 135.0
Add: proceeds from disposal of plant and
equipment 1.6 - 6.9
Less: tax and net interest payments (9.1) (5.0) (11.1)
Less: purchases of intangible assets and
property, plant & equipment (40.4) (48.3) (87.6)
----------------------------------------------- ------------------- ------------------- -----------------
Free cash flow 29.1 1.6 43.2
----------------------------------------------- ------------------- ------------------- -----------------
Underlying cash conversion ratio
Year ended
31 March
H1 2019 (unaudited/ 2019 (unaudited/
H1 2020 (unaudited) restated) restated)
------------------------------------------ ------------------- ------------------- -----------------
Underlying operating profit - GBP million 59.7 51.6 124.9
Underlying net cash flow from operations
- GBP million 77.0 54.9 135.0
------------------------------------------- ------------------- ------------------- -----------------
Underlying cash conversion ratio - % 129% 106% 108%
------------------------------------------- ------------------- ------------------- -----------------
9. Financial risk management
The interim financial statements do not include all financial
risk management information and disclosures required in annual
financial statements; they should be read in conjunction with the
Group's annual financial statements as at 31 March 2019. There have
been no changes in any risk management policies since the year end.
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 30 September 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 - 0.1 - 0.1
Liabilities:
Current derivative financial instruments - (0.7) - (0.7)
Non-current derivative financial
instruments - (0.2) - (0.2)
Total - (0.7) - (0.7)
----------------------------------------- ------- ------- ------- -----
The following table presents the Group's assets and liabilities
that are measured at fair value as at 31 March 2019:
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)
----------------------------------------- ------- ------- ------- -----
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.
10. Dividends
An analysis of the dividends paid and proposed in respect of the
period ended 30 September 2019 and comparative periods is provided
below:
Pence per
ordinary
share GBPm Date paid/payable
--------------------------------------- --------- ---- -----------------
Interim 2020 2.2 12.5 Feb 2020
--------------------------------------- --------- ---- -----------------
Interim 2019 2.1 11.9 Feb 2019
Final 2019 4.5 25.5 Aug 2019
--------------------------------------- --------- ---- -----------------
Total for the year ended 31 March 2019 6.6 37.4
--------------------------------------- --------- ---- -----------------
The interim dividend is 2.2p (interim 2019: 2.1p). The dividend
will be paid on 7 February 2020. The ex-dividend date is 9 January
2020 and the record date is 10 January 2020.
11. Post-retirement benefits
Set out below is a summary of the financial position of the
Group's defined benefit pension scheme ('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:
30 September 30 September 31 March
2019 2018
(unaudited) (unaudited) 2019
all figures in GBP million (audited)
--------------------------------------------- ----------------- ------------ ----------
Equities - quoted 139.7 127.7 127.0
Equities - unquoted 53.1 60.5 51.8
Liability driven investment 415.3 969.7 690.8
Corporate bonds - 308.9 96.0
Asset backed security investments 452.0 - -
Alternative bonds - quoted 328.3 201.8 304.4
Alternative bonds - unquoted - 78.4 -
Property funds 145.2 144.9 145.6
Cash and other equivalents 41.0 75.9 75.1
Derivatives 1.4 (0.9) 2.5
Insurance buy-in policy 608.2 - 566.4
Outstanding payment due in respect of buy-in - - (96.0)
Total market value of Scheme assets 2,184.2 1,966.9 1,963.6
Present value of Scheme liabilities (1,888.7) (1,613.1) (1,704.5)
--------------------------------------------- ----------------- ------------ ----------
Net pension asset before deferred tax 295.5 353.8 259.1
Deferred tax liability (54.6) (64.9) (48.6)
--------------------------------------------- ----------------- ------------ ----------
Net pension asset after deferred tax 240.9 288.9 210.5
--------------------------------------------- ----------------- ------------ ----------
Changes to the net pension asset
31 March
30 September
2018 2019
30 September
all figures in GBP million 2019 (unaudited) (unaudited) (audited)
--------------------------------------------- ----------------- ------------ ----------
Opening net pension asset before deferred
tax 259.1 316.2 316.2
Net finance income 3.2 4.1 8.2
Net actuarial gain/(loss) 31.2 31.2 (66.4)
Contributions by the employer 2.7 2.7 2.7
Administration expenses (0.7) (0.4) (0.9)
Past service cost - - (0.7)
Closing net pension asset before deferred
tax 295.5 353.8 259.1
--------------------------------------------- ----------------- ------------ ----------
Assumptions
The major assumptions used in the IAS 19 valuations of the
Scheme were:
30 September 30 September 31 March
2019 (unaudited) 2018 (unaudited)
2019
(audited)
--------------------------------------------- ----------------- ----------------- ----------
Discount rate applied to Scheme liabilities 1.85% 2.90% 2.45%
CPI inflation assumption 2.30% 2.35% 2.35%
--------------------------------------------- ----------------- ----------------- ----------
Assumed life expectancies in years:
Future male pensioners (currently aged 60) 87 88 87
Future female pensioners (currently aged 60) 89 90 89
Future male pensioners (currently aged 40) 89 90 89
Future female pensioners (currently aged 40) 91 92 91
--------------------------------------------- ----------------- ----------------- ----------
The sensitivity of the gross Scheme liabilities to each of the
key assumptions is shown in the following table:
Indicative impact
Indicative impact on net pension
Key assumptions Change in assumption on Scheme liabilities asset
-------------------- ----------------------
Discount rate Increase by 0.1% Decrease by GBP38m Decrease by GBP14m
Rate of inflation Increase by 0.1% Increase by GBP38m Increase by GBP14m
Increase by one
Life expectancy year Increase by GBP65m Decrease by GBP44m
----------------- -------------------- ---------------------- ------------------
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 30 September 2019 this hedges against
approximately 86% of the interest rate and 92% 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 present value of Scheme liabilities 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 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.
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.
12. 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
30 September 2019 are 6,174,168 shares (31 March 2019: 6,946,678
shares).
In the six months to 30 September 2019 the Group granted 0.5
million new share-based awards to employees (30 September 2018: 0.1
million).
13. Related party transactions with equity accounted investments
During the period there were sales to associates and joint
ventures of GBP2.4m (30 September 2018: GBP6.3m). At the period end
there were outstanding receivables from associates and joint
ventures of GBP1.5m (30 September 2018: GBP5.3m).
14. Capital commitments
The Group has the following capital commitments for which no
provision has been made:
31 March 2019
30 September
all figures in GBP million 2019 (unaudited) (audited)
--------------------------- ----------------- -------------
Contracted 35.7 40.6
------------------------------- ----------------- -------------
Capital commitments at 30 September 2019 include GBP22.1m (31
March 2019: GBP20.6m) 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.
Responsibility statements of the Directors in respect of the
interim financial report
The Directors confirm to the best of our knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting
as adopted by the EU
-- the interim management report includes a fair review
of the information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency
Rules, being an indication of important events that
have occurred during the first six months of the
financial year and their impact on the condensed
set of financial statements; and a description of
the principal risks and uncertainties for the remaining
six months of the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency
Rules, being related party transactions that have
taken place in the first six months of the current
financial year and that have materially affected
the financial position or performance of the entity
during that period; and any changes in the related
party transactions described in the last annual report
that could do so.
The Directors of QinetiQ Group plc are listed in the QinetiQ
Group plc Annual Report for 31 March 2019.
By order of the Board
Neil Johnson Steve Wadey David Smith
Chairman Chief Executive Officer Chief Financial
Officer
14 November 2019 14 November 2019 14 November 2019
Independent review report to QinetiQ Group plc
Report on the Condensed consolidated interim financial
statements
Our conclusion
We have reviewed QinetiQ Group plc's Condensed consolidated
interim financial statements (the 'interim financial statements')
in the interim results of QinetiQ Group plc for the 6 month period
ended 30 September 2019. Based on our review, nothing has come to
our attention that causes us to believe that the interim financial
statements are not prepared, in all material respects, in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union and the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the Condensed consolidated balance sheet as at 30 September
2019;
-- the Condensed consolidated income statement and Condensed consolidated
statement of comprehensive income for the period then ended;
-- the Condensed consolidated cash flow statement for the period
then ended;
-- the Condensed consolidated statement of changes in equity for
the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the interim results
have been prepared in accordance with International Accounting
Standard 34, 'Interim Financial Reporting', as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The interim results, including the interim financial statements,
is the responsibility of, and has been approved by, the directors.
The directors are responsible for preparing the interim results in
accordance with the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the interim results based on our review.
This report, including the conclusion, has been prepared for and
only for the company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the interim
results and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
Southampton
14 November 2019
Glossary
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: A 25-year contract (re-priced
every five years) established in 2003 to manage the MOD's
test and evaluation ranges.
MOD UK Ministry of Defence
SSRO Single Source Regulations Office
T&E Test and evaluation
Alternative performance measures ('APMs')
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 period-on-period 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 4
income/expense to exclude 'specific adjusting items'
---------------------------------------------- -------------------
Underlying profit Profit before/after tax as adjusted Note 5
before/after tax to exclude 'specific adjusting items'
---------------------------------------------- -------------------
Underlying effective The tax charge for the period excluding Note 5
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 6
and diluted EPS as adjusted to exclude 'specific
adjusting items'
---------------------------------------------- -------------------
Amortisation of intangible assets Note 3
Specific adjusting arising from acquisitions; impairment
items 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
tax movements
---------------------------------------------- -------------------
Orders The level of new orders (and amendments N/A
to existing orders) booked in the
period. 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 period to revenue for the period,
adjusted to exclude revenue from
the 25-year LTPA contract due to
the significant size and timing differences
of LTPA order and revenue recognition
which may distort the ratio calculation.
---------------------------------------------- -------------------
Net cash Net cash as defined by the Group Note 7
combines cash and cash equivalents
with other financial assets and liabilities,
primarily available for sale investments,
derivative financial instruments
and finance lease assets/liabilities.
---------------------------------------------- -------------------
Underlying net cash Net cash flow from operations before Note 8
flow from operations cash flows of specific adjusting
items
---------------------------------------------- -------------------
Underlying operating The ratio of underlying net cash Note 8
cash conversion flow from operations to underlying
operating profit
---------------------------------------------- -------------------
Free cash flow Underlying net cash flow from operations Note 8
less net tax and interest payments
less purchases of intangible assets
and property, plant and equipment
plus proceeds from disposal of plant
and equipment.
---------------------------------------------- -------------------
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
IR CKNDDCBDDQDD
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November 14, 2019 02:00 ET (07:00 GMT)
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