QinetiQ Group plc (‘QinetiQ’), the international provider of technology-based services and solutions to the defence, security and related markets, today issues its Interim Management Statement which covers the period since 1 April 2009, prior to holding its Annual General Meeting today at 2.00pm in London.Group
Overall Group performance since 1 April 2009 has been in line with the Board’s expectations. Good revenue growth, in constant currency terms, in our North American services businesses has been offset by the predicted temporary slowdown in product orders as the new US Administration completes its appointments and finalises its strategy for Afghanistan. Our EMEA business has shown some growth as it continues its transition from pure research to services and solutions.QinetiQ North America (QNA)
We have continued to see strong growth in our two services businesses, Mission Solutions and Systems Engineering. Mission Solutions received several contract awards from clients, including the Department of State, the Internal Revenue Service and the General Services Administration. As an example we secured the Janus II framework contract to replace or upgrade telecommunications systems for designated US locations worldwide, worth up to $100m over 5 years. Our Systems Engineering group has experienced increased demand on a large number of contracts from customers across the US Army, Navy, Marines and Special Forces.
As announced at our Preliminary Results on 21 May 2009, we have seen a temporary slowdown in the placing of product orders in our Technology Solutions business (TSG), as the new Administration completes its appointments and finalises its strategy for Afghanistan. Order flow has started to resume in this business in Q2 and we expect a stronger second half.
Given the very strong prior year comparator in TSG, we expect QNA’s H1 revenues as a whole to be similar to the prior year on a constant currency basis.
The acquisition of Cyveillance, a company that provides online monitoring technology to identify and track data in cyberspace, completed early in July and will be incorporated into the Mission Solutions business.EMEA
As stated in our Preliminary Results announcement on 21 May 2009, the UK defence market remains challenging and the funding issues of our main customer are causing delays in contract awards generally. As anticipated, the decline in research spend is continuing at a similar rate to that experienced in the prior year. These effects are unlikely to change in advance of the production of the Government Green Paper on defence.
The transformation of the business away from pure research to services and solutions continues, as evidenced by the £26m DSALT (Distributed Synthetic Air Land Training) contract win announced in May and other opportunities for the provision of technology-based services and life extension work.
Decisive restructuring action to protect margins with tight discretionary cost control and a headcount reduction of approximately 400 is proceeding to plan, to generate £14m of annualised savings. The cash cost of this plan of circa £40m will be incurred during this financial year.
The Defence Training Rationalisation (DTR) programme is progressing with the MOD expecting to submit DTR to its “Main Gate 2” approval process later this year and financial close expected in 2010.
The previously announced disposal of the Underwater Systems business for £23.5m is undergoing authority clearance. We expect this transaction to complete in Q2.
Net debt at 30 June 2009 closed at £466m, down significantly from the year end, assisted by the change in exchange rates over Q1 as most of the debt is drawn in US dollars.Outlook
Overall, our strategy of focussing on services and solutions for the defence, security and intelligence markets will continue to provide us with good opportunities for growth and the Board remains confident in the future prospects of the Group. Whilst the temporary slowdown in TSG product orders will cause our H1 revenues at constant currency to be similar to the prior year, we continue to anticipate that this effect will ease in H2. The outlook for the year remains in line with the Board’s expectations.
QinetiQ’s interim results for the six months ended 30 September 2009 will be announced on 25 November 2009.