2 August 2011
QinetiQ Group plc ('QinetiQ') today issues its Interim Management Statement which covers the period since 26 May 2011, prior to holding its Annual General Meeting today at 1.00pm in London.
Trading environment and markets
Conditions in US and UK defence markets remain challenging. Ongoing budget pressures from government programmes to reduce fiscal deficits continue to generate uncertainty and delays in orders.
Defence spending visibility remains limited and competition for available spend remains keen. Against this backdrop, QinetiQ is building a leaner, more competitive Group, with the 24 month self-help programme announced in May 2010, concentrating on its three priorities of focusing on core capabilities; transforming the culture and strengthening the balance sheet.
Following the delayed passing of the US defence budget, the US services business has had a slightly slower start to the year, excluding the impacts of currency and the disposal of S&IS in the prior year. Whilst the government insourcing trend appears to have abated, the year on year impact of this and the loss of revenues on completed programmes (including the Iraqi Flight Training School) have offset the ramping up of new revenue streams such as the NASA ESC contract. The programme to integrate the business, reduce duplicate overheads and deliver greater competitiveness is underway and expected to complete in the first half of the year.
Having predicted the market decline last year and taken early action to address its cost base, the UK Services business is responding well to revenue pressures. Further progress is being made on embedding QinetiQ’s new culture, processes and commercial skills, strengthening both the business and its engagement with customers as they reshape their strategic plans. During the first quarter UK Services won a £22m multi-year support contract to provide test and evaluation services for the A400M aircraft.
The Global Products business in the US has received contract awards for its Q-NET vehicle survivability product and Talon robots in support of current operations. The Group continues to expect Q-NET revenues this year of approximately one third those in FY11. The UK business continues to be impacted by contract delays and cancellations from the MOD, although completion of the cost reduction programme in the prior period will mitigate the impact of these trading conditions on the profit line.
As part of its focus on core capabilities, in July 2011, the Group agreed the disposal of Spectro – a supplier of oil and fuel analysis instrumentation – which generated net proceeds of approximately $17m after tax and costs. On 1 August the Group announced the sale of its UK fuel and lubricants business for a total cash consideration of £0.5m.
A relentless drive for strong cash generation, backed by rigorous Group-wide processes and continuing low levels of contract capital expenditure, together with the Spectro disposal, has delivered a further reduction in net debt to below £200m.
As announced in May 2011, QinetiQ has repaid out of surplus cash a $135m tranche of 2013 private placement debt, so that it now has no scheduled debt maturity before 2016 and improves the efficiency of the balance sheet position.
The triennial actuarial valuation date of the QinetiQ defined benefit pension scheme is 30 June 2011. Discussions are commencing with the pension trustees to set the valuation assumptions and plan the subsequent funding requirements of the scheme.
Despite the continuing uncertainty and challenging conditions in its markets, the Board believes that QinetiQ’s greater agility and competitiveness will enable the Group to perform in line with its previous expectations for the current financial year.
QinetiQ will report its financial results for the six months to 30 September 2011 on 23 November 2011.
For further information please contact:
QinetiQ press office +44 (0) 1252 393500
Liz Morley, Maitland +44 (0) 7798 683108
Brian Hudspith, Maitland +44 (0) 7771 825606
Nicola Marsden +44 (0) 1252 394569
Notes for Editors:
A FTSE250 company, QinetiQ uses its domain knowledge to provide technical support and know-how to customers in the global aerospace, defence and security markets. QinetiQ's unique position enables it to be a trusted partner to government organisations, predominantly in the UK and the US, including defence departments, intelligence services and security agencies.
For further information, please contact
QinetiQ Press Office on Tel: +44 (0) 1252 39 3500