REG - QinetiQ Group plc - Trading Update

QinetiqAnnouncement

17/03/2025 07:15

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RNS Number : 9007A  QinetiQ Group plc  17 March 2025

News release

This announcement contains inside information

QinetiQ Group plc

Trading Update

17 March 2025 - QinetiQ Group plc ("QinetiQ" or the "Group") today issues a
trading update covering the fourth quarter, updated year end expectations and
an extension to our share buyback programme of up to £200m over the next two
years.

The underlying strength of the Group and relevance of our mission critical
capabilities positions us well for long-term growth. However, tough near-term
trading conditions that we referred to in our third quarter trading update
have persisted. This has affected short cycle work in our UK Intelligence and
US Sectors resulting in further delays to a number of contract awards. In
addition, recent geopolitical uncertainty has impacted our usual fourth
quarter weighting to higher margin product sales from the US.

As a result, today we are announcing that we expect:

-     Organic revenue growth for FY25 to be c.2% at an underlying margin
of c.10%, including c.£25-30m of one-off in year charges;

-     Cash conversion to be good and net debt to be in line with last
year;

-     Order intake for the year to be a book-to-bill ratio of more than
1;

-     FY26 revenue growth to be c.3-5% at margins of 11-12%;

-     A goodwill impairment charge of c.£140m at year end due to the
market backdrop and operational performance in the US; and

-     A number of one-off exceptional, largely non-cash charges of
c.£35-40m predominantly in our legacy US operations, identified in our
year-end balance sheet review process.

We are also announcing an extension to our share buyback programme of up to
£200m over the next two years, consistent with our strong cash generation and
capital allocation policy.

Segmental trading

 

Within EMEA Services our UK Defence Sector, which represents c.50% of Group
revenue and has greater exposure to longer duration contracts, has continued
to deliver strong performance. However, since the third quarter trading update
in January our UK Intelligence Sector, which represents c.25% of Group
revenue, has experienced further delays to short cycle contract awards. As a
result, we have resized some of our capabilities in this Sector whilst
maintaining market share.

 

Within Global Solutions, which represents c.25% of Group revenue and is
predominantly our US Sector, established positions on US mission essential
long-term programmes have delivered good on-contract growth. However, we have
continued to experience further delays to short cycle contract awards,
particularly in higher margin product sales.

 

US business review and non-cash impairment charge

 

Within the context of the market environment and following the appointment of
Tom Vecchiolla in January to lead our US Sector, we reviewed our US operations
and are embarking on a restructuring to support future growth, building on our
core capabilities in the US and leveraging incumbent positions across the
Group. As a result of these actions and the assumption of a higher discount
rate we expect to take a goodwill impairment charge on the US business of
c.£140m at year end.

 

In addition, against the backdrop of challenging US market conditions and as
part of our year-end balance sheet review process, we have identified a number
of one-off, largely non-cash charges and provisions primarily relating to
inventory and cost recovery in our legacy US operations. Around £25-30m is
included in the updated underlying profit guidance for the year end and
c.£35-40m we expect to be reported through exceptional items. The
finalisation of all charges will be completed during the year-end audit and
accounts process.

Alignment to market backdrop for long term growth

Longer term, the underlying strength of the Group coupled with the relevance
of our mission critical capabilities to the national security needs of our
customers in the UK, US and Australia as well as NATO allies, positions us
well for long term future growth.  Within the evolving threat environment our
customers' spending priorities, which are well matched to our capabilities,
have been boosted by commitments to increased spending in the UK and Europe.

Aligned to these customers' priorities we will continue to be increasingly
relevant and well matched by driving greater agility, pace and cost
efficiencies across the Group.

Balance sheet and capital allocation

We are a highly cash generative business and both short and medium-term cash
conversion remains strong. In the near-term, we expect net debt to EBITDA to
be c.0.5x at the end of FY25. Within our capital allocation policy, we are
focused on driving consistent organic profitable growth, good cashflow
generation, investment in the business and value accretive shareholder
returns.

Consistent with this policy we are today announcing an extension to our
current share buyback programme of up to £200m, which we expect to be
executed over the following two years once the current £50m tranche of our
on-going programme has been completed at the end of May. This will maintain
leverage at around the current level over the next two years.

 

There will be an analyst and investor call at 7:45am today hosted by Steve
Wadey (Group CEO) and Martin Cooper (Group CFO).

To join the call please dial +44 (0) 33 0551 0200 and quote `QinetiQ call" if
prompted.

 

For further information please contact:

Stephen Lamacraft, Group Interim Director Investor Relations:       +44
(0) 7471 885817

Lindsay Walls, Group Director Communications (Media enquiries): +44 (0) 7793
427582

 

The information contained within this announcement is deemed by QinetiQ to
constitute inside information as stipulated under the Market Abuse Regulation
(EU) No. 596/2014 (as it forms part of UK domestic law by virtue of the
European Union (Withdrawal) Act 2018) ("MAR"). On the publication of this
announcement via a Regulatory Information Service, such information is now
considered to be in the public domain.

For the purposes of MAR, the person responsible for arranging for the release
of this announcement on behalf of QinetiQ is James Field, Group Director Legal
& Company Secretary.

About QinetiQ

QinetiQ is an integrated global defence and security company focused on
mission-led innovation. QinetiQ employs circa 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.

 

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