REG - QinetiQ Group plc - QinetiQ Interim Results
14/11/2024 07:00
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RNS Number : 1489M QinetiQ Group plc 14 November 2024
Interim Results
14 November 2024
Good Group performance and increased returns
Results for six months to 30 September 2024 ('H1 FY25')
Steve Wadey, Group Chief Executive Officer, said: "We have delivered a good
operational and financial performance across the Group, set against a backdrop
of political change and an evolving threat environment. Our talented people do
critical work, highly relevant to our customers' mission and this is driving
increasing demand for our capabilities.
"As a result of our continued focus on disciplined capital allocation, we have
extended our £100m share buyback programme by £50m to deliver increased
shareholder returns. Guidance for FY25 is unchanged and we remain on track to
deliver our FY27 outlook of c.£2.4 billion organic revenue at c.12% margin.
We are well positioned for long-term sustainable growth with compelling value
creation for shareholders."
Financial highlights
Underlying 1 results Statutory results
H1 FY25 H1 FY24 H1 FY25 H1 FY24
Revenue £946.8m £883.1m £946.8m £883.1m
Operating profit 2 £106.6m £100.1m £94.3m £91.3m
Profit after tax £80.9m £77.3m £63.0m £63.7m
Earnings per share 14.2p 13.4p 11.1p 11.0p
Interim dividend per share 2.8p 2.6p 2.8p 2.6p
Orders £1,034.8m £952.7m
Order backlog £2,936.1m £3,132.0m
Net cash flow from operations £130.9m £71.7m £118.1m £62.2m
Net debt £190.9m £273.8m
Good overall Group financial performance
- Revenue up 7% through consistent operational performance, up 8% on an
organic( 3 ) basis
- Underlying operating profit up 7% with stable margin at 11.3%, up 7% on an
organic basis
- Good cash conversion at 84%, with leverage at 0.6x( 4 )
- Orders up 9% at £1.03bn, with a book-to-bill of 1.3x( 5 ) and order backlog
of £2.9bn
- Continued earnings growth with underlying EPS up 6% to 14.2p
- Progressive dividend growth of 7%, with interim dividend one third of prior
year total at 2.8p
- Share buyback programme extended by £50m
High relevance to our customers' mission driving increasing demand
- Strong programme execution across EMEA Services
- Global Solutions, including Avantus, performing in line with our expectations
- Significant progress on a number of strategic programmes with future growth
potential
- Rapidly changing character of warfare increasing demand for our capabilities
- Healthy backlog and pipeline gives significant long-term visibility
FY25 guidance unchanged and on-track to deliver FY27 outlook
- FY25 performance set to deliver high single digit organic revenue growth at
stable margin
- On-track for organic revenue growth to c.£2.4bn at c.12% margin by FY27
Interim results presentation:
We will be hosting an in-person results presentation at 09:30 GMT at the
London Stock Exchange, 10 Paternoster Square, London, EC4M 7LS. Registration
to join in-person or via the live webcast will be available via our website at
https://www.qinetiq.com/en/ (https://www.qinetiq.com/en/) or at
https://brrmedia.news/QQ_Q2_24 (https://brrmedia.news/QQ_Q2_24)
About QinetiQ:
QinetiQ is an integrated global defence and security company focused on
mission-led innovation. QinetiQ employs c.8,500 highly-skilled people,
committed to creating new ways of protecting what matters most; testing
technologies, systems, and processes to make sure they meet operational needs;
and enabling customers to deploy new and enhanced capabilities with the
assurance they will deliver the performance required.
For further information please contact:
Stephen Lamacraft, Interim Group Investor Relations Director:
+44 (0) 7471 885817
Lindsay Walls, Group Communications Director (Media
enquiries) +44 (0) 7793 427582
Basis of preparation:
Throughout this document, 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
judgment of the Directors, the use of alternative 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 the document.
Year references (FY25, FY24, 2025, 2024) refer to the year ended 31 March.
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 applicable 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. All subsequent written and
oral forward-looking statements attributable to either QinetiQ Group plc or to
persons acting on its behalf are expressly qualified in their entirety by the
cautionary statements referred to in this disclaimer and contained elsewhere
in this document.
QinetiQ Group plc and its directors accept no liability to third parties in
respect of this document save as would arise under English law. Accordingly,
any liability to a person who has demonstrated reliance on any untrue or
misleading statement or omission shall be determined in accordance with
Schedule 10A of the Financial Services and Markets Act 2000. It should be
noted that Schedule 10A and Section 463 of the Companies Act 2006 contain
limits on the liability of the directors of QinetiQ Group plc so that their
liability is solely to QinetiQ Group plc.
Chief Executive Officer's Review
Overview
In the first half we delivered good, consistent operational and financial
performance across the Group. We secured a record first half order intake of
£1,035m, with a book-to-bill ratio of 1.3x, demonstrating our high relevance
to our customers' mission. We achieved 8% organic revenue growth 6 , with
stable underlying operating profit margin stable at 11.3%. Cash conversion in
the first half was 84%, and full year cash conversion is expected to be
in-line with guidance of 90%+. Leverage remains comfortably within our target
range at 0.6x. Completion of the sale and leaseback of Cody Technology Park in
the second half, further strengthens our balance sheet and provides increased
optionality for value accretive capital deployment.
We are increasing shareholder returns with the extension of our £100m share
buyback programme by a further £50m and sustaining our dividend growth at 7%.
EMEA Services continues to maintain the order and revenue momentum from FY24,
delivering 10% organic revenue growth, and strong margins of 11.5%. Orders
increased by 16% delivering a robust book-to-bill of 1.2x.
Global Solutions performance is in line with our expectations, with good order
intake of £304m, revenue stable at £229m and a margin of 10.3%. There is
good visibility with a total funded order backlog of £376m and a book-to-bill
of 1.3x, supporting our confidence for growth in the coming years.
Operational highlights
We have continued to make good progress over the first half in implementing
our strategy. Major strategic achievements delivered in the first half
include:
- Next Generation German Aerial Training Services (NGGATS) contract, Germany - A
€284m, 10 year programme with the German Armed Forces (Bundeswehr), Air
Force, Army, Navy, and Special Forces; the largest and longest award for our
Global Threat Representation
(https://www.qinetiq.com/what-we-do/threat-representation) business that
provides long-term visibility and further growth potential for our German
operations.
- DragonFire Minimum Deployable Capability contract, UK - We have initiated the
next phase of work towards deploying the DragonFire laser on Royal Navy
warships in 2027 - a vital next generation capability to defeat evolving
threats, such as airborne drones.
- NATO Support & Procurement Agency (NSPA) contract, NATO - A framework
contract for NATO member nations to more easily access Test & Evaluation
services in the UK under the Long Term Partnering Agreement (LTPA) and
recently used by the Spanish and German Air Forces.
- Major Service Provider (MSP) contract growth, Australia - Significant orders
of AU$148m for engineering services, enabling key programmes including the
introduction of Abrams Battle Tank M1 A2, Spike LR2 and Naval Strike Missile.
- TacSys Resource Partner (TRP) contract with Defence Digital, UK - Succeeding
our prior BPSS 7 contract, a three year contract, won in competition and
worth up to £150m, to provide Defence Digital with programme and engineering
expertise to help deliver the next generation of tactical military
communications.
- Significant on-contract growth, US - In the US we achieved more than 10%
on-contract growth, across our major five year programmes that provide
engineering services and mission support for the Space Development Agency
(SDA), the Strategic Capabilities Office (SCO) and the Tethered Aerostat Radar
System (TARS) for Homeland Security.
- Aerial Target Systems (ATS-3) contract, US - We secured a place on the
multiple-award, indefinite-delivery/indefinite-quantity (IDIQ) Aerial Target
Systems contract. Through the contract, with an estimated ceiling of $95m, we
become a prime contractor to the US Army by leveraging our world-leading
expertise in airborne target and training services from across UK, US,
Australian, German and Canadian operations.
High relevance to our customers' mission driving increased demand
We operate in a rapidly changing and highly uncertain geopolitical
environment, with ongoing conflicts in Ukraine, the Middle East and growing
tensions in the Indo-Pacific. This is accelerating the pace and expanding the
breadth of the threat, further stretching allied capability across the globe.
We are also experiencing political change with new governments taking office
in the UK and US and an election in Australia next year. The importance of
international cooperation, through alliances such as NATO and AUKUS will
continue as governments look to respond to the increasing threat whilst
balancing fiscal pressures and budget prioritisation.
Our strategy and unique value proposition are well matched to respond to these
market dynamics as the need for strong national defence and security endures,
focused on greater resilience and rapid modernisation. This is driving our
customers' capability and investment priorities to enable them to maintain
technological superiority, acceleration of capabilities and operational
advantage. In turn, this is increasing demand for our differentiated
capabilities in Research & Development, Engineering Services, Test &
Training and Cyber & Intelligence. These remain highly relevant and
critical to national defence and security priorities underpinning our
sustainable growth and is why we have delivered organic revenue at broadly
double the growth rate of national defence budgets over the last five years.
Clear purpose driven strategy delivering for our customers
Our purpose of protecting lives and serving the national security interests of
our customers has never been more relevant. It guides our strategy which has
three inter-related components:
1. Delivering six distinctive and mutually supportive offerings: We co-create
high-value differentiated solutions for our customers in experimentation,
test, training, information, engineering and autonomous systems;
2. Applying disruptive and innovative technology and business models: We invest
in and apply disruptive business models, digitisation and advanced
technologies to enable our customers' operational mission at pace; and,
3. Leveraging those capabilities across our global operations: We are developing
an integrated global defence and security company that leverages our
capability in the UK, the US, Australia, Canada and Germany.
By focusing on our customers' needs, partnering with industry and investing in
our capabilities, we have won larger longer-term programmes enabling us to
deliver consistent organic growth and attractive returns. We have a healthy
order backlog of £3.5bn and a pipeline aligned to major programme
opportunities that is worth more than £11bn over the next five years. This
gives us significant revenue visibility and underpins our long-term
sustainable growth for many years.
We continue to invest in our people, technology and capabilities to drive
organic growth. The delivery of our strategy and focused execution of our
order book is dependent on the highly-skilled people we employ. We continue to
make progress creating an environment where they can all thrive and have
achieved our highest ever level of employee engagement. We invest c.£20m per
year in R&D aligned to our customers' priorities and to create more value
for our customers and support future growth opportunities. We're also
investing in our digital platform to improve the exchange of technology and
information as well as collaborative working. Investing in our business and
organic growth is core to our strategy to build a differentiated company so
that we can continue to deliver long-term value for our customers and
shareholders.
Leadership changes
We have our strengthened leadership team, through the arrival of Martin Cooper
(Group Chief Financial Officer) and Iain Stevenson (Chief Operating Officer),
both providing increased oversight of our growing and increasingly global
company.
Outlook: FY25 expectations unchanged and on track to deliver FY27 guidance
Our FY25 guidance remains unchanged. We expect to deliver high single-digit
organic 8 (#_ftn8) revenue growth, compared to FY24, at a stable operating
profit margin. We are on-track to achieve c.£2.4bn organic revenue at c.12%
margin by FY27. This will deliver an attractive return on capital employed at
or above the upper end of the 15-20%+ range.
Cash conversion will remain high at 90%+ with capital expenditure within the
£90m to £120m range. Our strengthened balance sheet provides optionality,
through disciplined deployment of capital, for bolt-on acquisitions to
compound growth at 11-12% margin and further shareholder returns.
Following the completion of the sale and leaseback of the Cody Technology Park
year-end Net Debt will be improved by c.£50m reflecting the net position
after the in-year impact of the extended buy-back programme.
Summary
I am pleased with the continued progress we have made in the first half.
Building on our strong track record we have delivered good consistent
operational and financial performance across the Group. We remain on-track to
deliver £2.4bn organic revenue at c.12% margin by FY27 and our visibility to
achieve this goal is increasing. Faced with continued rising global
instability, I'm incredibly proud of the outstanding skills and capabilities
of our people, fulfilling our purpose by serving the national security
interests of our customers. In summary, we are well positioned and have a
clear strategy to deliver long-term sustainable growth and compelling value
creation for shareholders.
Trading environment
Global context
We are operating in an environment of escalating regional conflicts and
geopolitical tension, with outcomes remaining uncertain in the Middle East and
Ukraine as well as the threat posed by China's growing military power coupled
with its push to change global norms and potentially threaten its neighbours.
Strategic response
To meet these increasing challenges, our three home countries of Australia,
the UK, the US as well as their allies continue to review their evolving
defence and security capabilities and are focusing on high-priority areas
aligned with our strategy.
UK
The new Labour government launched a Strategic Defence Review (SDR) in July
2024 and is due to report in the first half of 2025. This will inform the
decisions of a multi-year Spending Review, due to be published in Spring 2025.
Although a timetable has yet to be set, Labour has committed to an increase in
Defence spending to 2.5% GDP from its current 2.32% GDP 9 .
We remain well positioned to enable the UK to remain at the forefront of
current and next-generation capabilities through the application of
mission-led innovation.
US
The 2025 Department of Defense Budget request of $895bn in discretionary
funding for national defense, including approximately $850bn for the
Department of Defense (DOD), continues to deliver on the 2022 National
Security Strategy 10 . A Continuing Resolution is now in place until December
20th 2024 and new agreed funding levels will follow the inauguration of Donald
Trump as the next US president on January 20 2025.
We serve our US customers' mission in the areas of Intelligence, Surveillance
and Reconnaissance (ISR), mission operations, advanced cyber, information
advantage, multi-domain autonomous solutions and systems and engineering and
innovation.
Australia
2024 Integrated Investment Program (IIP) detailing a generational investment
in the Australian Defence Force's posture, capability and structure. The
commensurate increase in annual funding will see the Defence budget grow to
more than AUD$100bn by 2033-34 11 .
We continue to support the Australian forces in modernising sovereign defence
capabilities, leveraging expertise across the global business.
Broader international markets
Global defence spending continues to rise. The 2025 forecast for global
defence spending stands at USD$2.5tn 12 . Total NATO spending increased by 11%
in 2024, compared to 3% in 2023. Growth was even stronger among NATO's
European members, who increased their combined military spending by 19% in
real terms in 2024 13 .
While priority and investment focus will be attached to the prosecution of our
three home country strategies (Australia, UK and US), we continue to conduct
business in the support of allied nations whether through the use of our LTPA
sites in the UK with the Spanish and German Air Forces, or through the Next
Generation Aerial Training Services contract recently signed in Germany.
Chief Financial Officer's Review
Operating performance
We delivered good orders performance in the period with orders of £1,034.8m
(H1 FY24: £952.7m), up 9% on a reported basis. On a consistent currency
basis, orders grew 10% year on year. Orders won include €284m for the
continuation of the threat representation training contract that underpins our
German business on a long term ten year plus basis. In the US the next year of
funding was received for contracts won last year, together with new business
and on contract growth on the Space Development Agency and Strategic
Capabilities Office programmes. Due to the multi-year phasing and funding
approach to contract awards in the US we continue to only book awards in-line
with our prudent order recognition policy.
Revenue visibility remains good and the Group's total funded order backlog at
30 September 2024 stood at £2.9bn in line with year end 2024 when taking into
account our foreign exchange headwind. As we deliver revenue on our large
long-term contracts (with orders booked in prior years, most significantly
with the Long Term Partnering Agreement) backlog will naturally reduce, it is
therefore pleasing to see backlog maintained by a strong book to bill of 1.3x
in the period. At the start of H2 FY25, the Group had approximately £854m of
H2 FY25 revenue under contract. This compares with approximately £840m of H2
FY24 revenue at the same time last year.
Revenue was £946.8m (H1 FY24: 883.1m), up 7% on a reported basis. On a
consistent currency basis, revenue grew 8% compared to the same period last
year. Organic growth was driven by strong performance in our engineering
delivery contracts in the UK and Australia, together with increased volumes in
aerial targets across the world.
Operating profit was £106.6m (H1 FY24: £100.1m), up 7% on a constant
currency basis. The Group's operating margin was 11.3% for H1 FY25, consistent
with H1 FY24 and the FY24 outturn.
Operating profit from segments excludes income from Research and Development
Expenditure Credits (RDEC). RDEC income was £12.6m (H1 F24: £11.9m).
Specific adjusting items
The total impact of specific adjusting items on operating profit (which are
excluded from underlying performance) was an expense of £24.9m (H1 FY24:
£20.7m).
Acquisition and disposal costs of £0.8m (H1 FY24: £0.6m) include costs
relating to the disposal (sale and leaseback) of Cody Technology Park.
Acquisition related remuneration of £0.4m relates to specific
post-acquisition retention arrangements for Avantus employees which were
anticipated at the time of the transaction. Acquisition integration costs of
£1.7m relate to the one-off costs of integrating both Avantus and Air Affairs
with the existing Group operations.
We continue to deliver on our discrete investment project to build our digital
platform to enable our global growth strategy and our AUKUS customers' needs.
The majority of the costs in the first half are reported as specific adjusting
items in the P&L given their one-off nature, with ongoing recurring
operating costs (such as licence costs and overheads) remaining within
underlying operating costs. In H1 FY25 the exceptional cost element of the
digital investment programme within specific adjusting items totals £9.9m
(FY24: £5.1m).
Amortisation of acquisition intangibles was £12.1m (H1 FY24: £12.7m), with
the variance due to foreign exchange.
Also included within specific adjusting items in H1 FY24 were a gain on the
sale of property in the UK of £2.1m and impairment of right of use lease
assets in the US following space relocation of £0.7m.
Net finance costs
Underlying net finance expense on the group's net debt position was £8.2m (H1
FY24: £7.7m). In H1 FY24 interest payable and receivable on the interest rate
swap derivatives were presented gross. For H1 FY25, consistent with the FY24
year end, these items are presented on a net basis in the income statement.
The pension net finance income, which is a specific adjusting item of £0.4m
(H1 FY24: £2.2m) reduced due to a lower opening net pension surplus. Net
finance expense was £7.8m (H1 FY24: £5.5m).
Tax
The total tax charge is £23.5m (H1 FY24: £22.1m). The underlying tax charge
of £30.1m (H1 FY24: £27.0m) is calculated by applying the expected
underlying effective tax rate at a jurisdictional level for the year ending 31
March 2025 to the underlying profit before tax for the six months to 30
September 2024.
The Group's full year expected underlying effective tax rate is 27.2% in line
with the half year underlying effective tax rate of 27.1% (H1 FY24: 25.9%).
The increase on last year is due to the jurisdictional mix of profits.
In future we expect the effective rate to be above the UK statutory rate
subject to the jurisdictional mix of profits and the recognition of deferred
tax in respect of overseas tax losses and excess interest deductions.
Tax on specific adjusting items includes a £3.5m credit for tax on the
amortisation of acquisition intangibles and a £3.1m credit in respect of
other pre-tax specific adjusting items. The total specific adjusting items tax
credit was £6.6m (H1 FY24: £4.9m).
Return on Capital Employed (ROCE)
ROCE is calculated as underlying operating profit less amortisation for the
previous 12 months / (average capital employed less net pension asset), where
average capital employed is defined as shareholders' equity plus net debt (or
minus net cash).
For H1 FY25 Group ROCE was 20.1% (H1 FY24: 25.5%). This reduced due to the
full year impact of capital employed with the acquisitions completed in H2
FY23. ROCE is expected to increase modestly following the completion of the
sale and leaseback of Cody Technology Park at the end of October.
Earnings per share
Underlying basic earnings per share for the Group was 14.2p up 6% on the prior
year first half (H1 FY24: 13.4p), with the increase primarily due to the
increase in profits. Statutory basic earnings per share (including specific
adjusting items) were marginally up at 11.1p (H1 FY24: 11.0p), with the
increase in underlying operating profit offset by specific adjusting items.
Dividend
An interim dividend of 2.8p (H1 FY24: 2.6p) will be paid on 7 February 2025 to
shareholders on the register on 9 January 2025. The interim dividend
represents one third of the prior year total dividend reflecting our
previously communicated methodology. The full year proposed dividend will be
announced with our full year preliminary results in May 2025.
Cash performance
Underlying net cash flows from operations was £130.9m (H1 FY24: £71.7m),
resulting in an improved cash conversion before capital expenditure of 84% (H1
FY24: 50%). H1 FY24 operating cash flow was adversely impacted by the timing
of customer billing milestones and receipts. There are some seasonal impacts
between the first and the second half which impact H1 cash conversion, such as
the timing of receiving RDEC income (with the prior year income received in
cash in H2). We are on- track to deliver full year underlying operating cash
conversion of approximately 90%, in-line with our previous guidance.
Capex for the period was £48.6m (H1 FY24: £46.9m). 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 £90-120m.
At 30 September 2024 the Group had £190.9m net debt, compared to £151.2m at
31 March 2024. The increase is due to £47.2m free cash flow being more than
offset with shareholder distributions comprising dividend payment of £32.2m
and £46.2m of share repurchases due to the ongoing share buyback programme.
The reported H2 FY24 and H1 FY25 EBITDA and 30 September 2024 net debt
position result in a leverage ratio of 0.6x (31 March 2024: 0.5x).
The net debt balance as at 30 September 2024 includes £3.1m of net financial
derivative assets, predominantly the interest rate swaps which have been taken
out to hedge future interest rate exposure on the term loan, £2.9m of
capitalised bank fees and £53.8m of lease liabilities.
We maintain a rigorous approach to the deployment of our capital, scrutinising
organic and inorganic opportunities to ensure returns to our shareholders are
appropriate. Our capital allocation policy as follows:
1. Invest in our organic growth;
2. Complement with value accretive acquisitions;
3. Provide a progressive dividend to shareholders; and
4. Return of excess cash to shareholders.
Committed facilities
The Group has a £333m Term Loan split into two Tranches: GBP Term Loan £273m
(Tranche A); and, USD Term Loan £60m (Tranche B), and has a 3-year term with
two 1-year extension options. Participating banks have lent on a 2-tier
basis, 3-banks at £67m and 4-banks at £35m. In-line with Group policy,
£270m (c.80%) of the floating rate debt has been fixed using SONIA interest
rate swaps split over a 3-year and 5-year tenure at a weighted average rate of
3.29%. Including all fees and charges, the weighted average cost of debt is
5.21%.
The Group has a £290m bank revolving credit facility with an additional
'accordion' facility to increase the limit up to £400m. The facility which
will mature on 22 April 2027 was undrawn at 30 September 2024 and provides the
Group with significant scope to execute its strategic growth plans.
We adopt a strict policy on managing counterparty risk through a combination
of diversification of investments and regular reviews of counterparty limits
using credit rating assessments. We are proud that our debt sits with our key
relationship banks who have strong credit ratings and diverse portfolios
demonstrating their resilience to the bank turmoil. The banks have been
selected for their capabilities in our home countries to support our
business.
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 to hedge all material transaction
exposure at the point of commitment to the underlying transaction. Uncommitted
future transactions are not routinely hedged. The Group does not hedge its
exposure to translation of the income statement. The principal exchange rates
affecting the Group were the Sterling to US Dollar and Sterling to Australian
Dollar exchange rates.
H1 FY25 H1 FY24
£/US$ - average 1.29 1.25
£/US$ - closing 1.34 1.22
£/US$ - opening 1.26 1.24
£/AU$ - average 1.93 1.91
£/AU$ - closing 1.93 1.89
£/AU$ - opening 1.94 1.85
Foreign exchange translation has provided a modest headwind to revenue and
operating profit compared to the previous half year. Most significantly, the
US Dollar has strengthened with the average exchange rate to Sterling
increasing from 1.25 to 1.29. In H1 FY25, c.20% of our total Group revenue was
generated in the US. As a result of the strengthening US Dollar and other FX
movements in year, revenue decreased by £4.7m and operating profit decreased
by £0.3m. Every 5c movement in the USD rate would impact Group revenue by
c.£15m.
Pensions
The net pension asset under IAS 19, before adjusting for deferred tax, was
£31.1m (31 March 2024: £18.4m). The key driver for the increase in the net
pension asset since the March 2024 year end was the net actuarial gain on
scheme net assets.
The key assumptions used in the IAS 19 valuation of the scheme are set out in
note 13.
Post balance sheet events
On 30 September 2024 the Group announced an agreement for the sale and
leaseback of our site at Cody Technology Park, Farnborough, UK, to Tristan
Capital Partners. The assets, comprising the land, buildings, plant and
machinery relating to the site have been reclassified from Property, Plant and
Equipment to Assets held for sale.
On 31 October 2024, subsequent to the period end, the transaction was
completed. A cash receipt of £112m was received and a new 15 year lease was
entered into. The sale and leaseback accounting under IFRS16, which will be
completed in H2 FY25, is expected to result in a one-off, non-cash, accounting
loss of approximately £30m, which will be calculated based on the varying
values of assets being sold and those being leased back
Operating review
EMEA Services
H1 FY25 H1 FY24
£m £m
Orders 730.4 631.1
Revenue 717.8 654.8
Underlying operating profit* 82.9 77.4
Underlying operating margin* 11.5% 11.8%
Book-to-bill ratio((1)) 1.2x 1.2x
Order backlog £2,559.8 2,732.8
* Definitions of the Group's 'Alternative Performance Measures' can be found in
the glossary
(1) B2B ratio is orders won divided by revenue recognised, excluding the LTPA
contract
Overview
EMEA (Europe, Middle East and Australasia) Services combines world-leading
expertise with unique facilities to generate and assure capability. We do this
through capability integration, threat representation and operational
readiness, underpinned by long-term contracts that provide good revenue
visibility and cash generation.
Financial performance
Orders were up 16% to £730.4m (H1 FY24: £631.1m), underpinned by a €284m
order for the continuation of threat representation and training services for
the German Armed Forces, delivering a strong book to bill ratio of 1.2x. The
funded order backlog was £2.6bn, in line with 31 March 2024, increasing by 5%
excluding LTPA.
Revenue increased 10% on an organic basis on the back of strong orders won
last year and strong programme execution on that backlog.
Underlying operating profit increased by 7% on an organic basis to £82.9m (H1
FY24: £77.4m). This has been achieved at a margin of 11.5% in line with
expectations (H1 FY24: 11.8%).
Including the LTPA, approximately 66% of EMEA Services revenue is derived from
single source contracts (H1 FY24: approximately 67%) demonstrating our
critical and unique capabilities for our customers.
Sector commentary
UK Defence (59% of EMEA Services revenue)
The UK Defence sector delivers mission critical solutions, innovating for our
Air, Maritime and Land customers' advantage. The sector maximises growth
through our framework contracts, building new core offerings through our
global campaigns and exploring new growth opportunities; it improves coherence
of our distinctive offerings across our customer base, with the embedding of
enabling functions bringing greater cohesion to operational strategy execution
for business performance excellence. The sector manages a number of large
long-term contracts, including the LTPA for test, trials, training and
evaluation and the Engineering Delivery Partner (EDP).
- Through the LTPA, during the first half we have both tested new military
capabilities and developed facilities to support future operational
requirements. To defeat the drone threat in a more cost effective way, we have
enabled the successful Martlet missile test firing from a Wildcat against a
representative target - demonstrating a new way to neutralise airborne
threats. In addition, to better protect against attempts to disrupt the UK's
military capabilities, we received a £15m order to deliver a large scale
anechoic chamber capable of testing large platforms, such as F-35 - enabling
us to help secure platforms and systems in the most challenging of
electromagnetic threat environments.
- Through the EDP framework, we continue to win and deliver services for a range
of vitally important UK MOD programmes. The orders won include the £12m 'New
Style of IT' project to deliver a secure, technologically advanced
communications and information service for the UK MOD. In delivery, we played
a crucial role in achieving the Military Permit to Fly for the new E-7
Wedgetail Airborne Early Warning and Control capability enabling the first
flight in September. To demonstrate the leverage of extant capability in
conjunction with new technology, we successfully trialled the UK's first
Crewed-Uncrewed-Teaming demonstration between a crewed aircraft and autonomous
jet drones.
- To promote and maximise the use of our facilities and skills internationally,
we signed a framework contract with NATO Support & Procurement Agency
(NSPA), enabling NATO member nations easier access to our LTPA Test &
Evaluation services in the UK. This is an important development for the UK
within NATO with the new arrangements used in the first half by both the
Spanish and German Air Forces to test their military capabilities.
- We continue to demonstrate our central role in global defence and security,
through one of the world's largest tests of naval and missile defences,
Formidable Shield. The exercise harnesses advanced technologies to enable a
joint NATO force to operate seamlessly together and creating better
understanding of how to defeat complex evolving threats. We secured additional
orders of £11.5m in support of the next exercise taking place in May '25.
- We secured a £14m order for the next phase of the DragonFire programme that
advances the technology towards a Minimum Deployable Capability for the UK
MOD. This phase further develops the DragonFire system, In partnership with
MBDA and Leonardo, with the ultimate aim being to have a directed laser energy
weapon on Royal Navy warships in 2027. This technology is a key capability
needed to defeat evolving threats such as aerial drones.
UK Intelligence (29% of EMEA Services revenue)
The UK Intelligence sector utilises its unique domain knowledge across C5ISTAR
(Command, Control, Communications, Computers, Cyber,
Intelligence, Surveillance and Reconnaissance), allied to its research,
innovation and applied engineering pedigree, to support UK Government in the
development, assurance, integration and deployment of mission critical
capabilities at pace. We are a key industry partner to the MOD, and continue
to be well placed to deliver critical digital change programmes over the
coming years to Defence Digital, Defence Intelligence and Defence Science and
Technology Laboratory (Dstl). During the first half, highlights include:
- We won the three-year TacSys Resource Partner (TRP) programme worth up to
£150m. This is the competed, successor contract to the BATCIS Private Sector
Support 14 (BPSS) programme and provides Defence Digital with programme and
engineering expertise to support delivery of the next generation of tactical
military communications. The contract is part of the broader Land Environment
Tactical Communications and Information Systems (LETacCIS) programme, which
enables the British Army to make better-informed and more timely decisions
when operating on the front line.
- SOCIETAS, a competed opportunity won in H2 FY23, is successfully delivering
and achieving positive feedback from the MOD Joint Electronic Warfare
Operational Support Centre (JEWOSC) customer. Through the programme we sustain
and enhance delivery of Electronic Warfare (EW) mission data and related
intelligence outputs to the UK joint force on an assured and enduring basis -
supporting all UK military platforms, such as Typhoon and the E-7 Wedgetail.
- Following the successful win in H2 FY23 of the follow-on Accelerated
Capability Environment (ACE) contract by our Vivace consortium, our
partnership with the Home Office continues on a positive trajectory. We had
good first half orders at £27m, with commissions from across Government,
including the NHS and Ministry for Justice. Across the last six years, our
Vivace team has delivered more than 300 commissions, totalling £200m, across
40 government departments, through utilising a community of 350 organisations
ranging from tech giants through to Small-to-Medium sized Enterprises (SMEs)
and academia. Successful mission challenges have been undertaken that include
assisting in counter-terror operations, tackling serious organised crime,
protecting from online harms, increasing aviation security, and enhancing
COVID vaccine security.
Australia (12% of EMEA Services revenue)
Our Australia sector comprises our specialist advisory and engineering
business in Australia and also includes our threat representation business
operating in Australia, the UK, Germany and Canada.
- In Germany, we won the Next Generation German Aerial Training Services
(NGGATS) contract, worth €284m over 10 years. Through the programme, we
provide training services including Joint Terminal Attack Controller (JTAC);
Red Air and close air support; maritime air operations; ground control
intercept training; air traffic control training; and, target towing for
ground based air defence.
- There continues to be demand for our advisory and engineering services
expertise in Australia. Our Major Service Provider (MSP) contract has
delivered significant orders of AU$148m in the period as we support a number
of vital defence programmes. These include the introduction of the US supplied
Abrams Battle Tank M1 A2 where our project management support is helping
deliver 75 new platforms into service; accelerating the acquisition and
introduction of the Naval Strike Missile; and, delivering the new long range
Spike LR2 missile ahead of schedule for the Australian Army.
- Since 2021, the QinetiQ-run Army MakerSpace programme, delivered in
collaboration with the Australian Army, has equipped soldiers with the
technical and creative skills to anticipate and solve the challenges that
future warfare scenarios may require. The MakerSpace contract was renewed for
its fourth year with a contract value of AU$4.8m and has been extended to
deliver across nine Australian Army sites.
- In September, we launched 'Team TECSA', a collaborative initiative bringing
together Australian industry and academia in response to the government's
National Defence Strategy and Defence Industry Development Strategy
identifying Test and Evaluation, Certification and Systems Assurance (TECSA)
as one of the Sovereign Defence Industrial Priorities. The collaboration,
through our leadership, is focused on building a partnership to develop the
workforce, infrastructure, and creating the innovation needed to meet
Australia's growing defence needs.
Global Solutions
H1 FY25 H1 FY24
£m £m
Orders 304.4 321.6
Revenue 229.0 228.3
Underlying operating profit* 23.7 22.7
Underlying operating margin* 10.3% 9.9%
Book to bill ratio 1.3x 1.4x
Order backlog 376.3 399.2
* Definitions of the Group's 'Alternative Performance Measures' can be found
in the glossary
Global Solutions combines our world-leading technology-based products and
services. Our strategy is to expand the portfolio of solutions to win larger,
longer-term programmes providing good visibility of revenue and cash flows.
Financial performance
Orders decreased by 3% on an organic (constant currency) basis to £304.4m (H1
FY24: £321.6m), following a strong prior year performance in the US. Book to
bill was 1.3x as we saw good order flow from US funding on 2024 contract
awards and on contract growth, together with high demand for aerial targets.
Funded order backlog is up 17% from the full year at £0.4bn and together with
strong US unfunded orders of £0.6bn there is good visibility, our confidence
for growth in the coming years.
Revenue was flat at £229.0m (H1 FY24: £228.3m) in line with expectations. US
revenue decreased due to the completion of the CRSi robot programme, partially
offset by growth in the legacy Avantus business driven by the SDA, SCO and
TARS contracts. We also benefited from higher levels of revenue from our
targets and other product lines.
Underlying operating profit increased to £23.7m (H1 FY24: £22.7m), with an
underlying operating profit margin of 10.3% (H1 FY24: 9.9%) reflecting the
high level of product sales.
Sector commentary
United States (74% of Global Solutions revenue)
Our US sector provides design, development, rapid prototyping, systems
engineering, and integration and manufacture of speciality defence mission
products and solutions related to robotics, autonomy, maritime and sensors. We
provide a complementary suite of services related to mission support,
modernisation, enablement and operations, technical advisory, cyber,
information advantage for US Defense, Federal, Homeland and National Security
customers.
- We competed and were awarded a place on the Aerial Target Systems (ATS)
multiple-award, indefinite-delivery/indefinite-quantity (IDIQ) contract.
Through the contract, with an estimated ceiling of $95m, we become a prime
contractor to the US Army and are leveraging our world-leading expertise in
airborne training and target services from across UK, US, Australian, German
and Canadian operations. To deliver the contract, we are now conducting final
assembly and test of aerial targets at our Massachusetts facilities in the US.
- Building on our surveillance growth strategy and our $170m, 5-year TARS win
announced in November 2023, we have increased support to Homeland Security's
mission through adding electro-optical/infrared and long-range ground
surveillance services. In addition, we continue to perform on our mission
services programmes to the SDA and SCO. We have achieved more than 10%
on-contract growth across these programmes.
- In our continuing provision of engineering services for the US Army C5ISR 15
Center, we won two multi-year contracts totalling $74m in support of
integrated sensor architecture development and intelligent sensor processing
and optics advanced research.
- We achieved successful delivery of two Robotic Combat Vehicle (RCV) platform
prototypes to the US Army in August. These developmental systems are being
used for performance test and soldier integration assessments as part of the
competitive downselect on the RCV programme scheduled to take place in 2025.
Other Products and Solutions (26% of Global Solutions revenue)
The portfolio of our Global Solutions products provide research services and
bespoke technological solutions derived from EMEA Services, and includes
QinetiQ Target Systems (QTS). As a key component of our Threat Representation
offering, QTS provides products and product related services to global defence
customers in support of their training, test and evaluation requirements.
Our portfolio includes multi-role fixed-wing aerial targets and maritime
surface vessels which are remotely-operated and deliver comprehensive threat
simulation scenarios, as well as customised uncrewed special mission vehicles,
command and control systems, and teams, scoring systems, and launchers.
- We continue to see high levels of demand for uncrewed aerial and maritime
surface targets used in complex operational test and training environments and
are on track to achieve the significant production milestone of 10,000 Banshee
and 750 Hammerhead targets during FY25.
- Our UK Intelligence sector continues to see demand for its product portfolio.
Through achieving the Release 1 milestone with the UK MOD for the Robust
Global Navigation System (RGNS) programme, we now have a qualified, market
ready 'Q40' positioning, navigation and timing (PNT) chip. This mission
critical product, suitable for military, critical national infrastructure,
industrial and demanding commercial applications will be available to the UK
and key allies, and we achieved the first sale of Q40 to Abaco Systems in the
US. In addition, in the period we delivered more than 1,500 of the
High-Dynamics Q20s for indoor and outdoor positioning and timing, to key
customers in the US and Europe.
- In September, we entered into a strategic partnership agreement with RENK
Group AG, a leading supplier of military and civilian propulsion solutions.
The partnership focuses on hybrid drive solutions for military land platforms,
including Uncrewed Ground Vehicles (UGVs). By leveraging our technology,
alongside RENK's global expertise, we have established a powerful combination
to address our customers' future military requirements for ground vehicles.
Principal risks and uncertainties
There are a number of risks and uncertainties which management continue to
identify, assess and mitigate to minimise their potential impact on
performance. An explanation of risks and their mitigations, together with
details of our risk management framework can be found in the 2024 Annual
Report and Accounts (on pages 56 to 61) which is available for download at:
https://www.qinetiq.com/investors (https://www.qinetiq.com/investors) .
Having considered recent geopolitical and macroeconomic events, the Group
believes the principal risks and uncertainties for the remainder of FY25 are
included in, and are therefore unchanged from, those reported in the 2024
Annual Report and Accounts. The Group's principal risks and uncertainties at
31 March 2024 related to the following areas: competitive landscape,
disruptive technologies, acquisition integration, climate change,
organisational culture, cyber security, management of change, health, safety
& wellbeing, information security, IT infrastructure, licence to operate,
P3M capability and strategic capability planning.
Condensed consolidated income statement
H1 FY25 H1 FY24
(unaudited) (unaudited)
All figures in £ million unless stated otherwise Note Underlying* Specific adjusting items* Total Underlying* Specific adjusting items* Total
Revenue 1,2 946.8 - 946.8 883.1 - 883.1
Operating costs excluding depreciation, impairment and amortisation (808.8) (12.8) (821.6) (757.8) (9.4) (767.2)
Other income 1 18.1 - 18.1 18.2 2.1 20.3
EBITDA* (earnings before interest, tax, depreciation and amortisation) 156.1 (12.8) 143.3 143.5 (7.3) 136.2
Depreciation and impairment of property, plant and equipment (31.5) - (31.5) (28.1) (0.7) (28.8)
Amortisation of intangible assets (5.4) (12.1) (17.5) (3.4) (12.7) (16.1)
Operating profit/(loss) 2 119.2 (24.9) 94.3 112.0 (20.7) 91.3
Finance income 5 3.4 0.4 3.8 8.9 2.2 11.1
Finance expense 5 (11.6) - (11.6) (16.6) - (16.6)
Profit/(loss) before tax 111.0 (24.5) 86.5 104.3 (18.5) 85.8
Taxation (expense)/income 6 (30.1) 6.6 (23.5) (27.0) 4.9 (22.1)
Profit/(loss) for the period, attributable to the owners of the parent company 80.9 (17.9) 63.0 77.3 (13.6) 63.7
Earnings per share for profit attributable to the owners of the Company
7 14.2 11.1 13.4 11.0
Basic (pence)
Diluted (pence) 7 14.0 10.9 13.2 10.9
* 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.
Condensed consolidated statement of comprehensive income
All figures in £ million H1 FY25 H1 FY24
(unaudited) (unaudited)
Profit for the period 63.0 63.7
Items that will not be reclassified to the income statement:
Actuarial gain/(loss) recognised in defined benefit pension schemes 13.0 (26.5)
Tax on items that will not be reclassified to the income statement (3.3) 6.6
Total items that will not be reclassified to the income statement 9.7 (19.9)
Items that may be reclassified to the income statement:
Foreign currency translation (loss)/gain for foreign operations (31.1) 6.7
Movement in deferred tax on foreign currency translation 0.6 (0.1)
(Decrease)/increase in fair value of hedging derivatives (4.3) 5.3
Movement on deferred tax on hedging derivatives 1.1 (1.3)
Total items that may be reclassified to the income statement (33.7) 10.6
Other comprehensive expense for the period, net of tax (24.0) (9.3)
Total comprehensive income for the period, net of tax 39.0 54.4
Condensed consolidated statement of changes in equity
All figures in £ million Issued share capital Capital redemption reserve Share premium Hedging reserve Translation reserve Retained earnings Total
equity
At 1 April 2024 5.7 40.8 147.6 6.4 (16.7) 742.3 926.1
Profit for the period - - - - - 63.0 63.0
Other comprehensive (expense)/income, net of tax - - - (3.2) (30.5) 9.7 (24.0)
Purchase of own shares (0.1) 0.1 - - - (12.3) (12.3)
Share-based payments charge - - - - - 6.3 6.3
Tax on share-based payments - - - - - 1.1 1.1
Dividends - - - - - (32.2) (32.2)
At 30 September 2024 (unaudited) 5.6 40.9 147.6 3.2 (47.2) 777.9 928.0
At 1 April 2023 5.8 40.8 147.6 6.3 (4.2) 772.0 968.3
Profit for the period - - - - - 63.7 63.7
Other comprehensive income/(expense), net of tax - - - 4.0 6.6 (19.9) (9.3)
Purchase of own shares - - - - - (0.4) (0.4)
Share-based payments charge - - - - - 4.2 4.2
Tax on share-based payments - - - - - (0.2) (0.2)
Dividends - - - - - (30.6) (30.6)
At 30 September 2023 (unaudited) 5.8 40.8 147.6 10.3 2.4 788.8 995.7
Condensed consolidated balance sheet
All figures in £ million Note 30 September 2024 30 September 2023 31 March
(unaudited) (unaudited) 2024
(audited)
Non-current assets
Goodwill 12 382.2 413.2 401.4
Intangible assets 301.2 333.4 321.8
Property, plant and equipment 454.2 518.0 531.8
Other financial assets 3.2 8.9 4.9
Equity accounted investments 2.5 1.6 2.2
Net pension asset 13 31.1 95.0 18.4
Deferred tax asset 35.7 33.4 36.7
1,210.1 1,403.5 1,317.2
Current assets
Inventories 92.9 75.9 89.2
Other financial assets 5.7 7.3 6.2
Trade and other receivables 420.4 448.7 456.8
Assets classified as held for sale 18 98.4 - -
Current tax asset 4.9 5.7 5.8
Cash and cash equivalents 189.6 104.0 231.0
811.9 641.6 789.0
Total assets 2,022.0 2,045.1 2,106.2
Current liabilities
Trade and other payables (574.0) (485.5) (654.7)
Current tax payable - (4.7) (6.6)
Provisions (15.6) (20.1) (15.3)
Other financial liabilities (11.3) (7.9) (9.2)
(600.9) (518.2) (685.8)
Non-current liabilities
Deferred tax liability (97.3) (112.3) (94.4)
Provisions (4.2) (3.6) (4.2)
Borrowings and other financial liabilities (378.1) (386.1) (384.1)
Other payables (13.5) (29.2) (11.6)
(493.1) (531.2) (494.3)
Total liabilities (1,094.0) (1,049.4) (1,180.1)
Net assets 928.0 995.7 926.1
Equity
Issued share capital 5.6 5.8 5.7
Capital redemption reserve 40.9 40.8 40.8
Share premium 147.6 147.6 147.6
Hedging reserve 3.2 10.3 6.4
Translation reserve (47.2) 2.4 (16.7)
Retained earnings 777.9 788.8 742.3
Total equity 928.0 995.7 926.1
Condensed consolidated cash flow statement
All figures in £ million Note H1 FY25 H1 FY24 FY24 (audited)
(unaudited) (unaudited)
Underlying net cash inflow from operations 9 130.9 71.7 320.2
Less: specific adjusting items 9 (12.8) (9.5) (26.1)
Net cash inflow from operations 9 118.1 62.2 294.1
Tax paid (27.8) (18.9) (36.9)
Interest received 3.4 8.9 5.3
Interest paid (10.7) (15.7) (19.4)
Net cash inflow from operating activities 83.0 36.5 243.1
Purchases of intangible assets (7.0) (4.0) (10.9)
Purchases of property, plant and equipment (41.6) (42.9) (85.4)
Proceeds from sale of property - 2.1 2.1
Proceeds from sale of plant and equipment - - 0.2
Acquisition of businesses (0.2) (4.9) (5.1)
Net cash outflow from investing activities (48.8) (49.7) (99.1)
Purchase of own shares (46.2) (0.4) (17.1)
Dividends paid to shareholders (32.2) (30.6) (45.6)
Payment of debt financing arrangement fees (1.6) (0.5) (0.5)
Capital element of finance lease payments (4.0) (3.2) (6.8)
Cash flow relating to intercompany loan hedges 10.3 1.3 6.8
Net cash outflow from financing activities (73.7) (33.4) (63.2)
(Decrease)/increase in cash and cash equivalents (39.5) (46.6) 80.8
Effect of foreign exchange changes on cash and cash equivalents (1.9) (0.6) (1.0)
Cash and cash equivalents at beginning of period 231.0 151.2 151.2
Cash and cash equivalents at end of period 189.6 104.0 231.0
Reconciliation of movement in net debt
All figures in £ million Note H1 FY25 H1 FY24 FY24
(unaudited) (unaudited) (audited)
Decrease in cash and cash equivalents (39.5) (46.6) 80.8
Add back net cash flows not impacting net debt 5.6 3.7 7.3
Change in net debt resulting from cash flows (33.9) (42.9) 88.1
Net increase in lease obligations (3.3) (26.4) (31.2)
Net movement in derivative financial instruments (4.4) 4.3 (0.5)
Other movements including foreign exchange 1.9 (1.9) (0.7)
Movement in net debt as defined by the Group (39.7) (66.9) 55.7
Opening net debt as defined by the Group (151.2) (206.9) (206.9)
Closing net debt as defined by the Group 8 (190.9) (273.8) (151.2)
Less: non-cash net financial liabilities 8 380.5 377.8 382.2
Total cash and cash equivalents 8 189.6 104.0 231.0
Notes to the condensed interim financial statements
1. Revenue from contracts with customers and other income
Revenue by category and reconciliation to revenue on an organic, constant
currency basis
All figures in £ million H1 FY25 H1 FY24 (unaudited)
(unaudited)
Service contracts with customers 888.0 843.6
Sale of goods contracts with customers 50.5 37.9
Royalties and licences 8.3 1.6
Total revenue 946.8 883.1
Adjust to constant prior year exchange rates 4.7 -
Total revenue on an organic, constant currency basis 951.5 883.1
Organic revenue growth at constant currency 8% 19%
Other income
All figures in £ million H1 FY25 H1 FY24 (unaudited)
(unaudited)
Share of joint ventures' and associates' profit after tax 0.3 0.2
Research and development expenditure credits (RDEC) 12.6 11.9
Other income: property related 5.2 6.1
Other income: underlying 18.1 18.2
Specific adjusting item: gain on sale of property - 2.1
Other income: total 18.1 20.3
Revenue by customer geographical location
All figures in £ million H1 FY25 H1 FY24 (unaudited)
(unaudited)
United Kingdom (UK) 628.0 581.4
United States of America (US) 174.6 196.3
Australia 83.3 63.8
Home countries (94% and 95% of total revenue for H1 FY25 and H1 FY24 885.9 841.5
respectively)
Europe 34.8 22.5
Rest of World 26.1 19.1
Total revenue 946.8 883.1
Revenue by major customer type
For the six months ended 30 September
All figures in £ million H1 FY25 H1 FY24 (unaudited)
(unaudited)
UK Government 582.4 543.8
US Government 161.1 186.0
Other 203.3 153.3
Total revenue 946.8 883.1
2. Segmental analysis
Operating segments
H1 FY25 H1 FY24
All figures in £ million (unaudited) (unaudited)
Revenue from external customers Underlying* operating profit(*) Revenue from external customers Underlying* operating profit
EMEA Services 717.8 82.9 654.8 77.4
Global Solutions 229.0 23.7 228.3 22.7
Total operating segments 946.8 106.6 883.1 100.1
Operating profit margin from segments* 11.3% 11.3%
Total operating segments 946.8 106.6 883.1 100.1
Research and development expenditure credits (RDEC) 12.6 11.9
Underlying operating profit 119.2 112.0
( )
Reconciliation of segmental results to total profit
All figures in £ million H1 FY25 H1 FY24 (unaudited)
Note (unaudited)
Operating profit from segments* 106.6 100.1
Research and development expenditure credits (RDEC) 12.6 11.9
Underlying operating profit* 119.2 112.0
Specific adjusting items operating loss 3 (24.9) (20.7)
Operating profit 94.3 91.3
Net finance expense (7.8) (5.5)
Profit before tax 86.5 85.8
Taxation expense (23.5) (22.1)
Profit for the period attributable to equity shareholders 63.0 63.7
* Definitions of the Group's 'Alternative Performance Measures' can be found
in the glossary
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:
All figures in £ million Note H1 FY25 H1 FY24 (unaudited)
(unaudited)
Acquisition and disposal costs (0.8) (0.6)
Acquisition integration costs (1.7) (2.6)
Acquisition related remuneration (0.4) (1.1)
Digital investment (9.9) (5.1)
Gain on sale of property - 2.1
Specific adjusting items before depreciation, amortisation and impairment (12.8) (7.3)
Impairment of property - (0.7)
Amortisation of intangible assets arising from acquisition (12.1) (12.7)
Specific adjusting items operating loss (24.9) (20.7)
Defined benefit pension scheme net finance income 13 0.4 2.2
Specific adjusting items loss before tax (24.5) (18.5)
Specific adjusting items - tax expense 6 6.6 4.9
Total specific adjusting items loss after tax (17.9) (13.6)
Reconciliation of underlying profit for the period to total profit for the
period
All figures in £ million H1 FY25 H1 FY24 (unaudited)
(unaudited)
Underlying profit after tax 80.9 77.3
Total specific adjusting items loss after tax (see above) (17.9) (13.6)
Total profit for the period attributable to equity shareholders 63.0 63.7
The total impact of specific adjusting items on operating profit (which are
excluded from underlying performance) was an expense of £24.9m (H1 FY24:
£20.7m).
Acquisition and disposal costs of £0.8m (H1 FY24: £0.6m) include costs
relating to the disposal (sale and leaseback) of Cody Technology Park.
Acquisition related remuneration of £0.4m relates to specific
post-acquisition retention arrangements for Avantus employees which were
anticipated at the time of the transaction. Acquisition integration costs of
£1.7m relate to the one-off costs of integrating both Avantus and Air Affairs
with the existing Group operations.
Our digital investment programme continues to deliver improvements to the
infrastructure, digital tools and operating systems of the company - the
majority of the costs in the first half are reported as specific adjusting
items in the P&L given their one-off nature, with ongoing recurring
operating costs (such as licence costs and overheads) remaining within
underlying operating costs. In H1 FY25 the exceptional cost element of the
digital investment programme within specific adjusting items totals £9.9m
(FY24: £5.1m).
Amortisation of acquisition intangibles was £12.1m (H1 FY24: £12.7m), with
the variance due to foreign exchange.
Also included within specific adjusting items in H1 FY24 were a gain on the
sale of property in the UK of £2.1m and impairment of right of use lease
assets in the US following space relocation of £0.7m.
4. Business combinations
There were no acquisitions in H1 FY25 or H1 FY24. The cash flow statement for
H1 FY24 included £3.8m of deferred consideration which was settled in respect
of the Air Affairs acquisition. A further £1.1m of deferred consideration was
settled in H1 FY24 in respect of legacy acquisitions made by the Avantus
business before its acquisition by QinetiQ.
5. Finance income and expense
All figures in £ million H1 FY25 H1 FY24
(unaudited) (unaudited)
Receivable on bank deposits 3.4 8.9
Underlying finance income 3.4 8.9
Amortisation of recapitalisation fee (0.8) (0.6)
Interest on bank loans and overdrafts (9.3) (14.6)
Lease expense (1.5) (1.3)
Other interest expense - (0.1)
Underlying finance expense (11.6) (16.6)
Underlying net finance expense (8.2) (7.7)
Specific adjusting items:
Defined benefit pension scheme net finance income 0.4 2.2
Net finance expense (7.8) (5.5)
6. Taxation
H1 FY25 H1 FY24
(unaudited) (unaudited)
All figures in £ million unless stated otherwise Underlying Specific Total Underlying Specific Total
adjusting
adjusting items
items
Profit/(loss) before tax 111.0 (24.5) 86.5 104.3 (18.5) 85.8
Taxation (expense)/income (30.1) 6.6 (23.5) (27.0) 4.9 (22.1)
Profit/(loss) for the period attributable to equity shareholders 80.9 (17.9) 63.0 77.3 (13.6) 63.7
Effective tax rate 27.1% 25.9%
The total tax charge is £23.5m (H1 FY24: £22.1m). The underlying tax charge
of £30.1m (H1 FY24: £27.0m) is calculated by applying the expected
underlying effective tax rate at a jurisdictional level for the year ending 31
March 2025 to the underlying profit before tax for the six months to 30
September 2024.
The Group's full year expected underlying effective tax rate is 27.2% which is
higher than the half year underlying effective tax rate of 27.1% (H1 FY24:
25.9%) due to the jurisdictional mix of profits in H1 FY25.
In future we expect the effective rate to be above the UK statutory rate
subject to the jurisdictional mix of profits and the recognition of deferred
tax in respect of overseas tax losses and excess interest deductions.
Tax losses and specific adjusting items
At 30 September 2024 the Group had unused tax losses and surplus interest
costs of £221.2m (31 March 2024: £212.3m) which are available for offset
against future profits.
Within deferred tax assets recognised on the balance sheet is £24.7m in
respect of £117.8m of US net operating losses, £4.1m in respect of £17.6m
of Canadian net operating losses and £3.3m in respect of £10.2m of German
trade losses and excess interest.
No deferred tax asset is recognised in respect of the £75.5m of US interest
deductions due to uncertainty over the timing and extent of their utilisation.
Full recognition of the US interest deductions would increase the deferred tax
asset by £20.4m. The Group has recognised £29.9m of time-limited US net
operating losses of which £21.1m will expire in 2035 and £8.8m in 2036.
Deferred tax has been calculated using the enacted future statutory tax rates.
Tax on specific adjusting items includes a £3.5m credit for tax on the
amortisation of acquisition intangibles and a £3.1m credit in respect of
other pre-tax specific adjusting items. The total specific adjusting items tax
credit was £6.6m (H1 FY24: charge of £4.9m).
7. Earnings per share
Basic earnings per share is calculated by dividing the profit attributable to
owners of the Company 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 potentially dilutive ordinary shares arising from unvested
share-based awards including share options.
H1 FY25 H1 FY24
(unaudited)
(unaudited)
Weighted average number of shares Million 569.1 577.3
Effect of dilutive securities Million 8.3 7.1
Diluted number of shares Million 577.4 584.4
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.
Underlying basic and diluted EPS H1 FY25 H1 FY24
(unaudited)
(unaudited)
Profit attributable to the owners of the Company £ million 63.0 63.7
Remove loss after tax in respect of specific adjusting items £ million 17.9 13.6
Underlying profit after taxation £ million 80.9 77.3
Weighted average number of shares Million 569.1 577.3
Underlying basic EPS Pence 14.2 13.4
Diluted number of shares Million 577.4 584.4
Underlying diluted EPS Pence 14.0 13.2
Basic and diluted EPS H1 FY25 H1 FY24
(unaudited)
(unaudited)
Profit attributable to the owners of the Company £ million 63.0 63.7
Weighted average number of shares Million 569.1 577.3
Basic EPS - total Group Pence 11.1 11.0
Diluted number of shares Million 577.4 584.4
Diluted EPS - total Group Pence 10.9 10.9
8. Net debt
All figures in £ million 30 September 2024 30 September 2023 31 March
(unaudited)
(unaudited)
2024
(audited)
Current financial (liabilities)/assets
Deferred financing costs 1.2 1.2 1.0
Derivative financial assets 4.5 6.1 5.2
Lease liabilities (9.0) (7.0) (8.1)
Derivative financial liabilities (2.3) (0.9) (1.1)
Total current net financial liabilities (5.6) (0.6) (3.0)
Non-current financial (liabilities)/assets
Deferred financing costs 1.7 1.5 1.1
Derivative financial assets 1.5 7.4 3.8
Lease liabilities (44.8) (47.3) (47.4)
Borrowings - Term loan (332.7) (338.5) (336.3)
Derivative financial liabilities (0.6) (0.3) (0.4)
Total non-current net financial liabilities (374.9) (377.2) (379.2)
Total net financial liabilities (380.5) (377.8) (382.2)
Cash and cash equivalents 189.6 104.0 231.0
Total net debt as defined by the Group (190.9) (273.8) (151.2)
9. Cash flows from operations
All figures in £ million H1 FY25 H1 FY24 (unaudited) FY24 (audited)
(unaudited)
Profit after tax for the period 63.0 63.7 139.6
Adjustments for:
Taxation expense 23.5 22.1 43.1
Net finance expense 7.8 5.5 9.8
(Gain)/loss on disposal of PPE and intangibles (0.3) - 0.9
Gain on sale of property - (2.1) (2.1)
Impairment of property, plant and equipment - 0.7 0.7
Amortisation of purchased or internally developed intangible assets 5.4 3.4 7.4
Amortisation of intangible assets arising from acquisitions 12.1 12.7 25.2
Depreciation of property, plant and equipment 31.5 28.1 58.1
Share of post-tax gain of equity accounted entities (0.3) (0.2) (0.8)
Share-based payments charge 6.8 4.6 9.4
Retirement benefit contributions lower/(higher) than income statement expense 0.7 0.5 (1.9)
Net movement in provisions 0.3 (2.6) (5.1)
150.5 136.4 284.3
Increase in inventories (6.9) (6.8) (21.4)
Decrease/(Increase) in receivables 21.6 4.1 (10.0)
(Decrease)/Increase in payables (47.1) (71.5) 41.2
Changes in working capital (32.4) (74.2) 9.8
Net cash inflow from operations 118.1 62.2 294.1
Reconciliation of net cash flow from operations to underlying net cash inflow
from operations to free cash flow
All figures in £ million H1 FY25 (unaudited) H1 FY24 (unaudited) FY24 (audited)
Net cash inflow from operations 118.1 62.2 294.1
Add back cash impact of specific adjusting item: acquisition and disposal 2.9 4.4 9.2
costs (including integration and acquisition related remuneration costs)
Add back cash impact of specific adjusting item: digital investment 9.9 5.1 16.9
Underlying net cash inflow from operations 130.9 71.7 320.2
Less: tax and net interest payments (35.1) (25.7) (51.0)
Less: purchases of intangible assets and property, plant & equipment (48.6) (46.9) (96.1)
Free cash flow 47.2 (0.9) 173.1
Underlying cash conversion ratio
H1 FY25 (unaudited) H1 FY24 (unaudited) FY24 (audited)
Underlying EBITDA - £ million 156.1 143.5 307.9
Underlying net cash flow from operations - £ million 130.9 71.7 320.2
Underlying cash conversion ratio - % 84% 50% 104%
10. 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 2024. 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 2024, are as follows:
All figures in £ million Level 1 Level 2 Level 3 Total
Assets:
Current derivative financial instruments - 4.5 - 4.5
Non-current derivative financial instruments - 1.5 - 1.5
Liabilities:
Current derivative financial instruments - (2.3) - (2.3)
Non-current derivative financial instruments - (0.6) - (0.6)
Total - 3.1 - 3.1
The following table presents the Group's assets and liabilities that are
measured at fair value as at 31 March 2024:
All figures in £ million Level 1 Level 2 Level 3 Total
Assets:
Current derivative financial instruments - 5.2 - 5.2
Non-current derivative financial instruments - 3.8 - 3.8
Liabilities:
Current derivative financial instruments - (1.1) - (1.1)
Non-current derivative financial instruments - (0.4) - (0.4)
Total - 7.5 - 7.5
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.
11. Dividends
An analysis of the dividends paid and proposed in respect of the period ended
30 September 2024 and comparative periods is provided below:
Pence per ordinary share £m Date paid/payable
Interim FY25 2.80 15.6 Feb 2025
Interim FY24 2.60 15.0 Feb 2024
Final FY24 5.65 32.2 Aug 2024
Total for the year ended 31 March 2024 8.25 47.2
The interim dividend is 2.8p (Interim FY24: 2.6p). The dividend will be paid
on 7 February 2025. The ex-dividend date is 9 January 2025 and the record date
is 10 January 2025.
12. Goodwill
Goodwill is allocated across six Cash Generating Units (CGUs) within the EMEA
Services segment and four CGUs within the Global Solutions segment. The full
list of CGUs that have goodwill allocated to them is as follows:
All figures in £ million Primary reporting segment 30 September 2024 30 September 2023 31 March
2024
(unaudited) (unaudited)
(audited)
US Technology Solutions Global Solutions 40.7 44.6 43.1
US C5ISR Global Solutions 33.9 37.3 36.0
US Avantus Global Solutions 238.2 261.2 252.5
Target Systems Global Solutions 24.1 24.5 24.4
Germany EMEA Services 2.6 2.7 2.7
Inzpire EMEA Services 11.7 11.7 14.8
QinetiQ Training and Simulation EMEA Services 7.8 7.8 11.7
Naimuri EMEA Services 14.8 14.8 7.8
Australia EMEA Services 5.6 5.7 5.6
Air Affairs EMEA Services 2.8 2.9 2.8
Net book value 382.2 413.2 401.4
Goodwill is attributable to the excess of consideration over the fair value of
net assets acquired and includes expected synergies, future growth prospects
and employee knowledge, expertise and security clearances. The Group tests
each CGU for impairment annually, or more frequently if there are indications
that goodwill might be impaired. No indicators of potential impairment have
been identified at the current time. Impairment testing is dependent on
management's estimates and judgments, particularly as they relate to the
forecasting of future cash flows, the discount rates selected and expected
long-term growth rates.
13. Post-retirement benefits
In the UK the Group operates the QinetiQ Pension Scheme (the Scheme) for
approximately one quarter of its UK employees. The Scheme closed to future
accrual on 31 October 2013 and there is no on-going service cost. The Scheme
is in a net asset position with the market value of assets in excess of the
present value of Scheme liabilities. These have the values set out below as at
each period end.
All figures in £ million 30 September 2024 30 September 2023 31 March
2024
(unaudited) (unaudited)
(audited)
Fair value of plan assets 1,269.8 1,236.2 1,316.2
Present value of Scheme liabilities (1,238.7) (1,141.2) (1,297.8)
Net pension asset before deferred tax 31.1 95.0 18.4
Deferred tax liability (12.8) (29.4) (9.6)
Net pension asset after deferred tax 18.3 65.6 8.8
The balance sheet net pension asset is a snapshot view which can be
significantly influenced by short-term market factors. The calculation of the
net asset depends on factors which are beyond the control of the Group -
principally the value at the balance sheet date of the various categories of
assets in which the Scheme has invested and long-term interest rates and
inflation rates used to value the Scheme's liabilities. This is particularly
pertinent in the current economic climate whilst markets are extremely
volatile. Sensitivities and risks are described below.
Per the Scheme rules the Company has an unconditional right to a refund of any
surplus, assuming gradual settlement of all liabilities over time. Such
surplus 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.
The fair value of the QinetiQ Pension Scheme assets, which are not intended to
be realised in the short term and may be subject to significant changes before
they are realised, were:
All figures in £ million 30 September 2024 30 September 2023^ 31 March
2024
(unaudited) (unaudited)
(audited)
Equities 16.2 24.6 21.8
Liability driven investment 415.4 302.9 414.9
Asset backed security investments 72.8 4.5 35.5
Alternative bonds(1) 241.0 263.1 253.8
Corporate bonds(2) 109.2 111.2 151.7
Cash and cash equivalents 49.1 31.4 36.5
Equity derivative financial instruments(3) (3.1) 9.8 15.8
Corporate credit derivative financial instruments(4) 2.0 2.3 2.2
Other derivatives (forward FX contracts)(5) 6.8 (6.3) 1.6
Insurance buy-in policies 485.4 492.7 507.4
Borrowings (125.0) - (125.0)
Total market value of Scheme assets 1,269.8 1,236.2 1,316.2
^ Restated to reclassify equity and corporate credit derivatives based on fair
values
(1) Primarily private market debt investments.
(2) Includes unlisted corporate bonds with commercial property held as
security.
(3) The fair value of equity derivative financial instruments is negative
£3.1m. This reflects the marked to market valuation of all equity derivatives
held by the Scheme. The exposure to equities is significantly greater than the
fair value, with a notional value of the equity derivative financial
instruments of £180.0m as at 30 September 2024, and a total economic exposure
value of £176.9m.
(4) The fair value of corporate credit derivative financial instruments is
£2.0m. This is in respect of various credit default swap financial
instruments held by the Scheme. These provide significantly greater exposure
to corporate bonds. The notional value of these financial instruments was
£95.8m as at 30 September 2024, with a total economic exposure value of
£97.8m.
(5) The fair value of other derivative financial instruments is £6.8m. This
is in respect of various foreign exchange contracts held by the Scheme. The
exposure to foreign exchange risk is significantly greater than the £6.8m
marked to market value of the forward contracts. The notional value of these
financial instruments was £164.9m as at 30 September 2024, with a total
economic exposure value of £171.7m.
The Scheme's assets do not include any of the Group's own transferable
financial instruments, property occupied by, or other assets used by the
Group.
The movement in the net pension asset (before deferred tax) is set out below:
All figures in £ million 30 September 2024 30 September 2023 31 March
2024
(unaudited) (unaudited)
(audited)
Opening net pension asset before deferred tax 18.4 119.8 119.8
Net finance income 0.4 2.2 5.6
Net actuarial gain/(loss) 13.0 (26.5) (108.9)
Administration expenses (0.7) (0.5) (1.5)
Contributions by the employer - - 3.4
Closing net pension asset before deferred tax 31.1 95.0 18.4
Assumptions
The major assumptions used in the IAS 19 valuations of the Scheme were:
30 September 2024 (unaudited) 30 September 2023 (unaudited) 31 March 2024
(audited)
Un-insured members Insured members Un-insured members Insured members Un-insured members Insured members
Discount rate applied to Scheme liabilities 5.05% 5.00% 5.40% 5.50% 4.80% 4.80%
CPI inflation assumption 2.55% 2.50% 2.70% 2.65% 2.60% 2.55%
Net rate (discount rate less inflation) 2.50% 2.50% 2.70% 2.85% 2.20% 2.25%
Assumed life expectancies(at age 60) in years:
For males currently aged 40 27.7 n/a 27.9 n/a 28.3 n/a
For females currently aged 40 30.2 n/a 30.3 n/a 30.7 n/a
For males currently aged 60^ 26.4 22.0 26.2 21.5 26.7 22.3
For females currently aged 60^ 28.9 24.6 28.2 23.3 29.1 24.8
^For pensioners (insured members) at age 65 currently aged 65
Risks
The Group is exposed to a number of risks in respect to the valuation of the Scheme, the most significant of which are detailed below:
Volatility in market conditions
Results under IAS 19 can change dramatically depending on market conditions.
The present value of Scheme liabilities is linked to yields on AA-rated
corporate bonds, while many of the assets of the Scheme are invested in
various forms of assets subject to fluctuating valuations. Changing markets in
conjunction with discount rate volatility will lead to volatility in the net
pension asset on the Group's balance sheet and in other comprehensive income.
To a lesser extent this will also lead to volatility in the IAS 19 pension net
finance income in the Group's income statement.
Choice of accounting assumptions
The calculation of the present value of Scheme liabilities involves projecting
future cash flows from the Scheme many years into the future. This means that
the assumptions used can have a material impact on the balance sheet position
and profit and loss charge. In practice future experience within the Scheme
may not be in-line with the assumptions adopted. For example, members could
live longer than foreseen or inflation could be higher or lower than allowed
for in the calculation of the liabilities. Sensitivities to the main
assumptions are set out below.
Key assumptions Indicative impact on Scheme assets Indicative impact on Scheme liabilities Indicative impact on net pension asset
Decrease discount rate by 0.25% Increase by £11.9m Increase by £39.3m Decrease by £27.3m
Increase rate of inflation by 0.25% Increase by £11.5m Increase by £38.6m Decrease by £27.0m
Increase life expectancy by one year Increase by £12.9m Increase by £32.2m Decrease by £19.3m
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 2024 this hedges
against approximately 100% of the interest rate risk and also approximately
100% of the inflation rate risk, as measured on the actuarial funding
valuation 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.
In addition to the sensitivity of the liability side of the net pension asset
(which will impact the value of the net pension asset) the net pension asset
is also exposed to significant variation due to changes in the fair value of
Scheme assets. A specific sensitivity on assets has not been included in the
above table but any change in valuation of assets flows straight through to
the value of the net pension asset e.g. if equities fall by £10m then the net
pension asset falls by £10m. The values of unquoted assets assume that an
available buyer is willing to purchase those assets at that value. For the
Group's portfolio of assets, the unquoted alternative bonds, unquoted
corporate bonds and unquoted equities of £241.0m, £109.2m and £16.2m
respectively are the assets with most uncertainty as to valuation as at 30
September 2024.
The accounting assumptions noted are used to calculate the year end net
pension asset 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 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.
The most recent completed full actuarial valuation of the Scheme was
undertaken as at 30 June 2023 and resulted in an actuarially assessed surplus
of £11.4m (relative to the technical provisions i.e. the level of assets
agreed by the Trustee and the Company as being appropriate to meet member
benefits, assuming the Scheme continues as a going concern). The next
triennial valuation will be performed as at 30 June 2026. Under the new
schedule of contributions agreed at the conclusion of the recent triennial
valuation, and reflecting the Scheme being in surplus, there are no employer
contributions required. Separately to the schedule of contributions the
Company does have a cash commitment to the Scheme in respect of an
asset-backed funding arrangement established in 2012. The annual distribution
in the year to 31 March 2025 will be £3.5m, which will increase thereafter,
indexed by reference to CPI, until 2032.
In June 2023, in Virgin Media Limited v NTL Pension Trustees II Limited, the
UK High Court ruled that specific historical amendments to contracted-out
defined benefit schemes in the period from 6 April 1997 to 5 April 2016 were
invalid as they lacked a confirmation under section 37 of the Pension Schemes
Act 1993 from the scheme's actuary. A comprehensive review of the relevant
deeds relating to the QinetiQ Pension Scheme has commenced and is ongoing.
Given the ongoing nature of this review, it is not currently possible to
assess or quantify with any certainty the potential financial impact.
14. 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 2024 are 2,706,072 shares
(31 March 2024: 2,767,125 shares).
In H1 FY25 the Group granted 5.7 million new share-based awards to employees
(H1 FY24: 7.4 million).
15. Related party transactions with equity accounted investments
During H1 FY25 there were sales to associates and joint ventures of £2.1m (H1
FY24: £1.4m). At the period end there were outstanding receivables from
associates and joint ventures of £1.3m (31 March 2024: £2.8m).
16. Capital commitments
The Group has the following capital commitments for which no provision has
been made:
All figures in £ million 30 September 2024 (unaudited) 31 March 2024
(audited)
Contracted 47.3 57.8
Capital commitments at 30 September 2024 include £42.2m (31 March 2024:
£49.7m) in relation to property, plant and equipment that will be wholly
funded by a third party customer under a long-term contract arrangement. These
primarily relate to investments under the LTPA contract.
17. Contingent liabilities
The Company has on occasion been required to take legal action to protect its
intellectual property rights, to enforce commercial contracts or otherwise and
similarly to defend itself against proceedings brought by other parties,
including in respect of environmental, health & safety and regulatory
issues. Provisions are made for the expected costs associated with such
matters, based on past experience of similar items and other known factors,
taking into account professional advice received, and represent management's
best estimate of the likely outcome. The timing of utilisation of these
provisions is uncertain pending the outcome of various court proceedings,
ongoing investigations and negotiations. However, no provision is made for
proceedings which have been or might be brought by other parties unless
management, taking into account professional advice received, assesses that it
is more likely than not that such proceedings may be successful. Contingent
liabilities associated with such proceedings have been identified but the
Directors are of the opinion that any associated claims that might be brought
can be resisted successfully and therefore the possibility of any outflow in
settlement is assessed as remote.
18. Post balance sheet events
On 30 September 2024 the Group announced an agreement for the sale and
leaseback of our site at Cody Technology Park, Farnborough, UK, to Tristan
Capital Partners. The assets, comprising the land, buildings, plant and
machinery relating to the site have been reclassified from Property, Plant and
Equipment to Assets held for sale.
On 31 October 2024, subsequent to the period end, the transaction was
completed. A cash receipt of £112m was received and a new 15 year lease was
entered into. The sale and leaseback accounting under IFRS16, which will be
completed in H2 FY25, is expected to result in a one-off, non-cash, accounting
loss, which will be calculated based on the varying values of assets being
sold and those being leased back
19. Material 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 2024 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 2024.
The financial statements have been reviewed, not audited.
This condensed consolidated interim financial report for the half-year
reporting period ended 30 September 2024 has been prepared in accordance with
the UK-adopted International Accounting Standard 34, 'Interim Financial
Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority.
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. Specific
adjusting items include:
Item Distorting due to irregular nature year on year Distorting due to fluctuating nature (size and/or sign) Does not reflect in-year operational performance
of continuing business
Amortisation of intangible assets arising from acquisitions P
Pension net finance income P P
Gains/(losses) on business divestments and disposal of property and P P P
investments
Transaction, integration and acquisition related remuneration costs in respect P P P
of business acquisitions and disposals
Digital investment P P P
Costs of group-wide restructuring programmes P P
Impairment of goodwill and property P P P
The tax impact of the above P P P
Other significant non-recurring tax and RDEC movements P P P
All items treated as a specific adjusting item in the current and prior period
are detailed in note 3 and are excluded from the 'underlying' measures of
performance. These Alternative Performance Measures (APMs), definitions of
which can be found in the glossary at the end of this document, are used to
monitor performance and also used for management remuneration purposes.
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
2024.
Going-concern basis
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. 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.
Comparative data
These condensed interim financial statements do not comprise statutory
accounts within the meaning of section 434 of the Companies Act 2006. The
comparative figures for the year ended 31 March 2024 (and half year ended 30
September 2023) 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 2024 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 2024 are available upon
request from the Company's registered office at Cody Technology Park, Ively
Road, Farnborough, Hampshire, GU14 0LX, or at the Company's website
(www.QinetiQ.com).
Responsibility statements of the Directors in respect of the interim financial
report
The Directors confirm that these condensed interim financial statements have
been prepared in accordance with UK adopted International Accounting Standard
34, 'Interim Financial Reporting' and Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom's Financial Conduct Authority and that
the interim management report includes a fair review of the information
required by DTR 4.2.7 and DTR 4.2.8, namely:
• an indication of important events that have occurred during the first six
months 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 financial year; and
• material related-party transactions in the first six months and any material
changes in the related-party transactions described in the last annual report.
The Directors of QinetiQ Group plc are listed in the QinetiQ Group plc Annual
Report for 31 March 2024. A list of current directors is maintained on the
QinetiQ Group plc website: www.qinetiq.com (http://www.QinetiQ.com) .
By order of the Board
Steve Wadey Martin Cooper
Chief Executive Officer Chief Financial Officer
14 November 2024 14 November 2024
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 2024 (the
"period").
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 UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
The interim financial statements comprise:
· the Condensed consolidated balance sheet as at 30 September 2024;
· 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 of QinetiQ
Group plc have been prepared in accordance with UK adopted International
Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' issued by the Financial Reporting
Council for use in the United Kingdom ("ISRE (UK) 2410"). 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.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on the review
procedures performed in accordance with ISRE (UK) 2410. However, future events
or conditions may cause the group to cease to continue as a going concern.
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. In preparing the Interim Results, including the
interim financial statements, the directors are responsible for assessing the
group's ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the group or to
cease operations, or have no realistic alternative but to do so.
Our responsibility is to express a conclusion on the interim financial
statements in the Interim Results based on our review. Our conclusion,
including our Conclusions relating to going concern, is based on procedures
that are less extensive than audit procedures, as described in the Basis for
conclusion paragraph of this report. 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.
PricewaterhouseCoopers LLP
Chartered Accountants
Southampton
14 November 2024
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
MOD UK Ministry of Defence
RDEC Research and Development Expenditure Credits
SSRO Single Source Regulations Office
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 year-on-year growth, expressed as a percentage, calculated at Note 1
constant prior year foreign exchange rates, adjusting for business
acquisitions and disposals to reflect equivalent composition of the Group
Operating profit from segments Total operating profit from segments which excludes 'specific adjusting items' Note 2
and research and development expenditure credits ('RDEC')
Operating profit margin from segments Operating profit from segments expressed as a percentage of revenue Note 2
Underlying operating profit Operating profit as adjusted to exclude 'specific adjusting items' Note 2
Underlying operating margin Underlying operating profit expressed as a percentage of revenue Operating Review
Underlying net finance income/(expense) Net finance income/(expense) as adjusted to exclude 'specific adjusting items' Note 5
Underlying profit before/after tax Profit before/after tax as adjusted to exclude 'specific adjusting items' Note 6
Underlying effective tax rate The tax charge for the year excluding the tax impact of 'specific adjusting Note 6
items' expressed as a percentage of underlying profit before tax
Underlying basic and diluted EPS Basic and diluted earnings per share as adjusted to exclude 'specific Note 7
adjusting items'
Orders The level of new orders (and amendments to existing orders) booked in the year N/A
Backlog, funded backlog or order book The expected future value of revenue from contractually committed and funded N/A
customer orders
Book to bill ratio Ratio of funded orders received in the year to revenue for the year, adjusted N/A
to exclude revenue from the 25-year LTPA contract due to significant size and
timing differences of LTPA order and revenue recognition which distort the
ratio calculation
Underlying net cash flow from operations Net cash flow from operations before cash flows of specific adjusting items Note 9
Underlying operating cash conversion or cash conversion ratio The ratio of underlying net cash from operations to underlying EBITDA. Note 9
Free cash flow Underlying net cash flow from operations less net tax and interest payments Note 9
less purchases of intangible assets and property, plant and equipment plus
proceeds from disposals of plant and equipment
Net debt Net debt as defined by the Group combines cash and cash equivalents with Note 8
borrowings and other financial assets and liabilities, primarily available for
sale investments, derivative financial instruments and lease liabilities. Net
debt does not include liabilities relating to irrevocable share buyback
obligations
Return on capital employed Calculated as: Underlying EBITA / (average capital employed less net pension CFO Review
asset), where average capital employed is defined as shareholders equity plus
net debt (or minus net cash)
Specific adjusting items Amortisation of intangible assets arising from acquisitions; impairment of Note 3
property and goodwill; gains/losses on disposal of property, investments and
businesses; net pension finance income; transaction, integration and
acquisition-related remuneration costs in respect of business acquisitions and
disposals; digital investment; tax impact of the preceding items and
significant non-recurring tax and RDEC movements
FY The financial year ended 31 March n/a
1 Definitions of the Group's 'Alternative Performance Measures' can be found
in the glossary.
2 Underlying operating profit refers to operating profit from segments. See
note 2 for details to the interim financial statements.
3 Organic denotes results on an organic and constant currency basis.
4 Excluding benefit of £112m sale and leaseback of Cody Technology Park.
5 B2B ratio is orders won divided by revenue recognised, excluding the LTPA
contract revenue of £131m (H1 FY24: £129m).
6 Organic revenue on a constant currency basis.
7 BATCIS Private Sector Support (BPSS) BATCIS was the Battlefield and
Tactical Communication Information Systems programme of opportunities to
deliver the next generation tactical communications and information systems.
8 Organic denotes results on an organic and constant currency basis. The
average USD rate for H1 FY25 was 1.29. A 5c movement in the USD rate would
impact Group revenue by c.£15m.
9
https://www.rusi.org/explore-our-research/publications/commentary/uk-defence-spending-decisions-cant-wait-strategic-defence-review
(https://www.rusi.org/explore-our-research/publications/commentary/uk-defence-spending-decisions-cant-wait-strategic-defence-review)
10
https://comptroller.defense.gov/Portals/45/Documents/defbudget/FY2025/FY2025_Budget_Request_Overview_Book.pdf
(https://comptroller.defense.gov/Portals/45/Documents/defbudget/FY2025/FY2025_Budget_Request_Overview_Book.pdf)
11
https://www.minister.defence.gov.au/media-releases/2024-04-17/2024-national-defence-strategy
(https://www.minister.defence.gov.au/media-releases/2024-04-17/2024-national-defence-strategy)
12 Janes Defence Budget Spreadsheet, figure in real USD$, database accessed
27th October 2024
13
https://www.iiss.org/online-analysis/military-balance/2024/07/nato-defence-spending-a-bumper-year/
(https://www.iiss.org/online-analysis/military-balance/2024/07/nato-defence-spending-a-bumper-year/)
14 BATCIS Private Sector Support (BPSS) BATCIS is the Battlefield and
Tactical Communication Information Systems programme of opportunities to
deliver the next generation tactical communications and information systems.
15 Command, Control, Communications, Computers, Cyber,
Intelligence, Surveillance and Reconnaissance.
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