Third Quarter Interim Management Statement

07 Feb 2014

QinetiQ Group plc today issues an Interim Management Statement covering the period from 30 September 2013 to date and reaffirms its previous guidance for Group performance in the full year to 31 March 2014 despite the continuing challenging markets.

EMEA Services

EMEA Services delivered a robust performance in an environment where the UK Government remains focused on financial stability and defence transformation. The C4ISR* business performed particularly strongly enhanced by the contribution of certain international projects, and the other ‘Core’ Air, Weapons, and Maritime businesses all produced good results. EMEA Services has an established track record of delivering ‘more for less’ and unique strengths that are transferable to other geographies. During the third quarter the EMEA Services division was awarded a position on a framework contract under which the Canadian Government procures technical and acquisition support. In addition, the Air business was awarded a £16m contract for the test and evaluation of the Merlin helicopter and the C4ISR business won the next stage of the contract under which it leads research into secure information infrastructure for the MOD. Training and Simulation Services, an ‘Explore’ business, also won the re-compete of a £4m underpinning contract with the UK’s Defence Science and Technology Laboratory (Dstl) for demonstrating the applicability of commercial off-the-shelf technologies, such as gaming technologies, to defence and security applications.

US Services

US Services performed in line with expectations during the third quarter. A deal on the US defence budget was signed into law on 26 December 2013, providing a more gradual path to lower defence spending than was previously mandated. The US federal services market remains challenging due to uncertainties in the federal government budget and a slower contracting environment. Despite these headwinds, US Services is stabilising following the actions implemented last year to reduce costs and during the quarter the division won a $12m oceanography contract with the US Naval Research Laboratory. The Group’s strategic review of this division is on-going to determine the path to maximum value. This review excludes the Cyveillance business which is focused on the provision of cyber intelligence to commercial customers.

Global Products

Global Products, which has shorter order cycles than the services divisions, continues to be impacted by the drawdown of military forces which had an increased negative effect on demand for conflict-related products. Foreign Military Sales are partially offsetting reduced US Government spending but visibility of further significant orders and their timing remains limited both in the US and overseas. The division continues to work on broadening its portfolio especially beyond defence and the most mature of the ‘Explore’ opportunities in the Global Products portfolio is the OptaSense bespoke fibre sensing business. During the quarter OptaSense was awarded an 18 month contract with Deutsche Bahn to develop applications and validate their ability to replace current rail sensors. The business also won the oil and gas industry’s first multi-year 4D distributed acoustic sensing contract for the vertical seismic profiling of up to twelve oil wells simultaneously. In addition, QinetiQ’s Space Products business is a member of a Belgian consortium which won a contract to design and build an agriculture monitoring satellite for the Vietnam Academy of Science and Technology.

Balance Sheet

Cash generation during the third quarter was good, further improving the Group’s net cash position.

Outlook

The outlook for the full year to 31 March 2014 is unchanged from that set out in the half year results announced on 21 November 2013.

Although the short-term range of possible outcomes remains wider than usual, particularly in Global Products, the Board is maintaining its expectations for overall Group performance in the current year absent any material changes in customer requirements. Over the medium term, the Board is confident that QinetiQ’s ‘Core’ businesses and newer growth opportunities will drive an increase in sustainable earnings.

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.
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* C4ISR is Command, control, communications, computers, intelligence, surveillance and reconnaissance.
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Third Quarter Interim Management Statement