Interim management statement

03 Feb 2011
QinetiQ Group plc ('QinetiQ') today issues its Interim Management Statement which covers the period since 18 November 2010.

Markets
QinetiQ's principal markets have remained challenging with defence budgets on both sides of the Atlantic under pressure in light of government programmes to reduce fiscal deficits. With detailed policy reviews still underway, visibility on future defence spending remains limited.

Financial Update
Net debt at 31 December 2010 was £294m [30 September 2010: £327m] as a result of the completion of the S&IS disposal for $60m and deferred contract capital expenditure. A tax payment of approximately $20m associated with the S&IS disposal is due before the year end.

Business Update
The Group’s 24 month self-help programme announced in May 2010 continues to refocus the businesses, build a more commercial, performance-oriented culture and strengthen the balance sheet. The restructuring of the UK business is on track and within budget.

US Services revenues continue to run below last year due to delays in the letting of new contracts, the termination of some procurements and the impact of in-sourcing by the US Government in 2010. In November 2010, the business won a cost-plus-fee award to provide engineering services at the NASA Kennedy Space Centre in Florida. This service begins on 1 March 2011 for a base period of five years with three one-year options. Margins on this contract are expected to reflect its relatively stable long-term revenue and good cash profile.

Delays and shorter duration awards are also being experienced across UK Services, as the customer base works through the conclusions of the Strategic Defence and Security Review. The business is continuing to make progress on managing its costs to enhance competitiveness.

Global Products continues to perform strongly as a result of deliveries of the Q-NET vehicle survivability product, as well as orders for TALON™ robots and SWATS individual gunfire detection systems to support operations in Afghanistan. As the business expects to operate the Q-NET production facility at full capacity for the remainder of the financial year in delivering current order demand, production efficiencies will increase in the second half of the year following ramp-up in the first six months. In the UK, despite the award of a contract to provide armour solutions for the Light Protected Patrol Vehicle programme, product revenues continue to be impacted by contract delays, curtailments and cancellations from the Ministry of Defence.

Outlook
As yet the effect of new Government policy, in both the US and UK, has not worked through to detailed implementation. Absent any material change in customer requirements or levels of production output, overall the Board believes that the Group will exceed its previous expectations for the current year, as the Global Products backlog is delivered. The Board’s view of future periods is unchanged as the Group’s principal markets remain subject to considerable uncertainty.

QinetiQ will announce its preliminary results for the year ended 31 March 2011 on 26 May 2011.

For further information please contact:
Media relations:
QinetiQ press office +44 (0) 1252 393500
Liz Morley, Maitland +44 (0) 7798 683108
Brian Hudspith, Maitland +44 (0) 7771 825606

Investor relations:
David Bishop, QinetiQ +44 (0) 7920 108675
QinetiQ People Who Know How
Interim management statement